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Filed Pursuant to Rule 424(b)(3)
Registration No. 033-57627
NORTHEAST FEDERAL CORP.
PROXY STATEMENT
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SHAWMUT NATIONAL CORPORATION
PROSPECTUS
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8,034,055 SHARES OF COMMON STOCK
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to stockholders of Northeast Federal Corp. ("Northeast") in connection
with the solicitation of proxies by the Board of Directors of Northeast for use
at the special meeting of stockholders of Northeast (including any adjournments
or postponements thereof) to be held on March 17, 1995 (the "Special Meeting").
This Proxy Statement/Prospectus relates to the proposed merger of a wholly owned
subsidiary of Shawmut National Corporation ("Shawmut") with and into Northeast
(the "Merger") with Northeast surviving as a wholly owned subsidiary of Shawmut
pursuant to the Agreement and Plan of Merger, dated as of June 11, 1994 (the
"Merger Agreement"), by and between Shawmut and Northeast and certain
transactions contemplated thereby.
This Proxy Statement/Prospectus also constitutes a prospectus of Shawmut
with respect to up to 8,034,055 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 Northeast ("Northeast Common Stock") in the Merger.
Upon consummation of the Merger, each outstanding share of Northeast Common
Stock will, with certain exceptions (including the issuance of cash in lieu of
fractional shares), be converted into and exchangeable for a number of shares
(the "Exchange Ratio") of Shawmut Common Stock, determined as follows:
(i) if the Shawmut Common Stock Average Price (as defined below) is
greater than or equal to $26.235, the Exchange Ratio will be .415;
(ii) if the Shawmut Common Stock Average Price is less than $26.235
but equal to or greater than $21.465, the Exchange Ratio will be (a)
$10.875 divided by (b) the Shawmut Common Stock Average Price; or
(iii) if the Shawmut Common Stock Average Price is less than $21.465,
the Exchange Ratio will be .507; provided, however, that, as described
below, under such circumstances Northeast has the right to, and represents
to its stockholders that it will, terminate the Merger Agreement, subject
to the right of Shawmut to avoid such termination by an increase in the
Exchange Ratio.
IF THE SHAWMUT COMMON STOCK AVERAGE PRICE IS LESS THAN $21.465, NORTHEAST'S
BOARD OF DIRECTORS (THE "NORTHEAST BOARD") HAS THE RIGHT TO, AND REPRESENTS TO
ITS STOCKHOLDERS THAT IT WILL, ELECT TO TERMINATE THE MERGER AGREEMENT UNLESS
SHAWMUT INCREASES THE EXCHANGE RATIO SO THAT THE SHARES OF SHAWMUT COMMON STOCK
ISSUED IN EXCHANGE FOR EACH SHARE OF NORTHEAST COMMON STOCK HAVE A VALUE (VALUED
AT THE SHAWMUT COMMON STOCK AVERAGE PRICE) OF $10.875. "Shawmut Common Stock
Average Price" means the average daily closing price of Shawmut Common Stock as
reported on The New York Stock Exchange ("NYSE") Composite Transaction reporting
system for the 15 consecutive full trading days ending at the close of trading
on the trading day immediately prior to the Determination Date. "Determination
Date" means the date on which the last regulatory approval required to
consummate the Merger has been obtained and all statutory waiting periods in
respect thereof have expired. SHAWMUT'S PRESENT INTENTION IS NOT TO INCREASE THE
EXCHANGE RATIO ABOVE .507; however, no final decision will be made until the
actual establishment of the Shawmut Common Stock Average Price. For a more
complete description of the terms of the Merger Agreement, which is included as
Annex A to this Proxy Statement/Prospectus, see "THE MERGER."
Based on the last reported sales price per share of Shawmut Common Stock on
February 10, 1995 of $21.125 (assuming that this is the Shawmut Common Stock
Average Price as described above), each share of Northeast Common Stock would be
exchangeable for .507 shares of Shawmut Common Stock having a value of $10.71;
and, accordingly, the Northeast Board would terminate the Merger Agreement. Upon
such termination, Shawmut may elect to increase the number of shares of Shawmut
Common Stock to be exchanged for each share of Northeast Common Stock so that
the Shawmut Common Stock Average Price for such shares of Shawmut Common Stock
would equal $10.875. If the Northeast Board, however, terminates the Merger
Agreement, Shawmut's present intention is not to increase the Exchange Ratio
above .507 and as a result, the Merger would not be consummated.
This Proxy Statement/Prospectus and the accompanying form of proxy is first
being mailed to stockholders of Northeast on or about February 13, 1995.
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,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
The date of this Proxy Statement/Prospectus is February 10, 1995
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IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY, THEREFORE, WHETHER
OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, PLEASE VOTE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE
WHICH DOES NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES. THIS WILL NOT
PREVENT YOU FROM VOTING IN PERSON IF YOU ARE PRESENT AT THE MEETING.
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 Northeast. 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 Northeast since the
date of this Proxy Statement/Prospectus or that the information herein or in the
documents or reports incorporated by reference herein is correct as of any time
subsequent to such date. All information set forth herein or incorporated by
reference in this Proxy Statement/Prospectus relating to Shawmut and its
subsidiaries has been supplied by Shawmut and all information set forth herein
or incorporated by reference in this Proxy Statement/Prospectus relating to
Northeast and its subsidiaries has been supplied by Northeast.
------------------------
NORTH CAROLINA
The Commissioner of Insurance of the State of North Carolina has not
approved or disapproved this offering nor has the Commissioner passed upon the
accuracy or adequacy of this Proxy Statement/Prospectus.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION............................ 3
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE...................................... 3
SUMMARY.......................................... 5
RECENT DEVELOPMENTS.............................. 17
THE SPECIAL MEETING.............................. 22
General........................................ 22
Record Date; Voting; Solicitation and
Revocation of Proxies........................ 22
THE MERGER....................................... 24
General........................................ 24
Exchange Ratio................................. 24
Background of the Merger....................... 26
Northeast's Reasons for the Merger............. 30
Recommendation of the Board of Directors of
Northeast.................................... 31
Shawmut's Reasons for the Merger............... 31
Opinion of Northeast's Financial Advisor....... 31
Special Considerations -- Litigation........... 36
Interests of Certain Persons in the Merger..... 37
Employee Matters............................... 40
Effective Time................................. 40
Conversion of Shares: Procedures for Exchange
of Certificates; Fractional Shares........... 41
Conditions to the Merger....................... 42
Bank Reorganization............................ 43
Regulatory Approvals Required for the Merger... 43
Conduct of Business Pending the Merger......... 47
Waiver and Amendment; Termination.............. 49
No Solicitation of Transactions................ 51
Resales of Shawmut Common Stock Received
in the Merger................................ 51
Stock Exchange Listing......................... 51
Anticipated Accounting Treatment............... 52
Certain Federal Income Tax Considerations...... 52
No Appraisal Rights............................ 53
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CERTAIN REGULATORY CONSIDERATIONS................ 53
Supervision and Regulation -- General.......... 53
Holding Company Liability...................... 53
Transactions with Affiliates................... 54
Capital........................................ 54
Regulatory Restrictions on Dividends........... 54
FIRREA......................................... 55
FDICIA......................................... 55
Interstate Banking and Branching Legislation... 57
DESCRIPTION OF SHAWMUT CAPITAL
STOCK.......................................... 57
General........................................ 57
Common Stock................................... 58
Rights Plan.................................... 59
Shawmut Preferred Stock........................ 60
COMPARISON OF STOCKHOLDER RIGHTS................. 61
Voting Rights.................................. 62
Action by Written Consent...................... 62
Special Meetings of Stockholders............... 62
Stockholder Nominations and Proposals for
Business..................................... 63
Business Combinations.......................... 63
Rights Plans................................... 65
Size and Classification of Board of
Directors.................................... 65
Removal of Directors........................... 65
Indemnification................................ 66
UNAUDITED PRO FORMA CONDENSED FINANCIAL
INFORMATION.................................... 67
VALIDITY OF SECURITIES........................... 77
EXPERTS.......................................... 77
ANNEX A: AGREEMENT AND PLAN OF MERGER............ A-1
ANNEX B: OPINION OF LEHMAN BROTHERS INC.......... B-1
</TABLE>
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AVAILABLE INFORMATION
Shawmut and Northeast 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 Northeast 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,
13th Floor, New York, New York 10048 and Citicorp 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, copies
of such material filed by Shawmut and Northeast can be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005.
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 that may 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 Northeast (File No. 1-10571) are incorporated by reference in this
Proxy Statement/Prospectus:
1. Shawmut's Annual Report on Form 10-K for the year ended December
31, 1993 (the "1993 Shawmut Form 10-K").
2. Shawmut's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994, June 30, 1994 and September 30, 1994.
3. Shawmut's Current Reports on Form 8-K, dated February 28, 1994,
March 1, 1994, March 7, 1994, March 28, 1994, April 19, 1994, April 28,
1994, May 5, 1994, June 13, 1994, July 15, 1994, August 2, 1994, August 12,
1994, December 29, 1994, January 6, 1995, January 11, 1995, January 17,
1995, January 26, 1995 and February 7, 1995.
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 8-A dated November 29, 1988
and March 7, 1989.
5. The portions of Shawmut's Proxy Statement for the Annual Meeting of
Shareholders held on April 26, 1994 that have been incorporated by
reference in the 1993 Shawmut Form 10-K.
6. Northeast's Annual Report on Form 10-K for the year ended December
31, 1993 (the "1993 Northeast Form 10-K").
7. Northeast's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994, June 30, 1994 and September 30, 1994 and its Form 10-Q/A
for the quarter ended September 30, 1994.
8. The description of Northeast Common Stock set forth in Northeast's
Registration Statement on Form 8-B dated July 6, 1990, and any amendments
or updates thereto.
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9. Northeast's Current Reports on Form 8-K, dated January 4, 1994, May
20, 1994 and June 11, 1994.
10. The portions of Northeast's Proxy Statement for the Annual Meeting
of Stockholders held on May 20, 1994 that have been incorporated by
reference in the 1993 Northeast Form 10-K.
All documents and reports filed by Shawmut or Northeast 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
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document or report that
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 NORTHEAST, TO NORTHEAST FEDERAL CORP., 50
STATE HOUSE SQUARE, HARTFORD, CONNECTICUT 06103, ATTENTION: SHAREHOLDER
RELATIONS, TELEPHONE NUMBER (203) 280-1187. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY MARCH 6, 1995.
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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 SPECIAL MEETING
The Special Meeting will be held at The Hartford Club, 46 Prospect Street,
Hartford, Connecticut on March 17, 1995, beginning at 10:00 a.m. local time. The
purpose of the Special Meeting is to consider and vote upon a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby. See "THE SPECIAL MEETING."
Only holders of record of Northeast Common Stock at the close of business
on February 10, 1995 (the "Record Date") will be entitled to notice of and to
vote at the Special Meeting. As of the Record Date, there were 14,332,195 shares
of Northeast Common Stock outstanding and entitled to vote. See "THE SPECIAL
MEETING -- Record Date; Voting; Solicitation and Revocation of Proxies."
PARTIES TO THE MERGER
Shawmut. Shawmut is a multibank holding company and a unitary savings and
loan holding company, registered under the Bank Holding Company Act of 1956, as
amended, and the Home Owners' Loan Act of 1933, as amended ("HOLA"). 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 more than 350 branches located throughout Connecticut, Massachusetts, New
Hampshire 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"). Shawmut's
thrift subsidiary is Shawmut Bank, FSB.
At September 30, 1994, Shawmut had assets of $31.4 billion, deposits of
$19.5 billion, loans of $17.7 billion and shareholders' equity of $2.1 billion.
For more information about Shawmut, reference is made to the 1993 Shawmut
Form 10-K, Shawmut's Current Report on Form 8-K dated August 2, 1994 and
Shawmut's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994,
June 30, 1994 and September 30, 1994 which are incorporated herein by reference.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
Northeast. Northeast is a unitary savings and loan holding company
registered under HOLA which provides financial services through its subsidiary,
Northeast Savings, F.A. ("Northeast Savings"). As of September 30, 1994,
Northeast had assets of $3.3 billion, deposits of $2.4 billion and stockholders'
equity of $135.1 million. The principal executive offices of Northeast are
located at 50 State House Square, Hartford, Connecticut 06103 and its telephone
number is (203) 280-1000. Unless the context otherwise requires, references
herein to Northeast include Northeast Savings.
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Northeast Savings currently maintains 33 offices (including its main office
in Hartford, Connecticut) located in Connecticut, Massachusetts and the capital
region of New York and serves depositors and borrowers in those markets. Its
principal business has consisted of attracting deposits from the general public
and primarily using such deposits to make residential mortgage loans, although
it also makes commercial mortgage, residential construction and consumer loans.
The primary sources of funds for Northeast's lending and investment activities
are deposits, payments of interest and principal on loans, borrowings and, to a
lesser extent, maturing investments and earnings on investments.
Northeast Savings is subject to supervision, examination, and regulation by
the Office of Thrift Supervision (the "OTS"), as well as by the Federal Deposit
Insurance Corporation (the "FDIC").
For more information about Northeast, reference is made to the 1993
Northeast Form 10-K, Northeast's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1994, June 30, 1994 and September 30, 1994 and Northeast's Form
10-Q/A for the quarter ended September 30, 1994 which are incorporated herein by
reference, see "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
As of September 30, 1994, the total assets of Shawmut and Northeast would
have represented 90.3% and 9.7%, respectively, of the total assets of Shawmut on
a pro forma basis assuming consummation of the Merger and their total
shareholders' equity would have represented 94.1% and 5.9%, respectively, of the
total shareholders' equity of Shawmut on such a pro forma basis. For the
nine-month period ended September 30, 1994, Shawmut and Northeast's total
interest income would have represented 90.9% and 9.1%, respectively, of the
total interest income of Shawmut on such a pro forma basis, their total
non-interest income would have represented 88.5% and 11.5%, respectively, of the
total non-interest income of Shawmut on such a pro forma basis and their net
income would have represented 94.0% and 6.0%, respectively, of net income of
Shawmut on such a pro forma basis.
REQUIRED STOCKHOLDER APPROVAL
The approval and adoption of the Merger Agreement by Northeast stockholders
will require the affirmative vote of the holders of a majority of the shares of
Northeast Common Stock outstanding as of the Record Date and entitled to vote
thereon. As of the Record Date, directors and executive officers of Northeast
and their affiliates may be deemed to be beneficial owners of 402,996 shares of
Northeast Common Stock or approximately 2.81% of the shares of Northeast Common
Stock outstanding and entitled to vote thereon. In addition, as of the Record
Date, the Rhode Island Depositors Economic Protection Corporation ("DEPCO")
beneficially owned 800,000 shares of Northeast Common Stock, representing
approximately 5.6% of the Northeast Common Stock outstanding and entitled to
vote. The directors, the four non-director executive officers of Northeast and
DEPCO have indicated their intent to vote their shares of Northeast Common Stock
for approval of the Merger Agreement. See "THE SPECIAL MEETING -- Record Date;
Voting; Solicitation and Revocation of Proxies and "THE MERGER -- Interests of
Certain Persons in the Merger."
EFFECT OF THE MERGER
Pursuant to the Merger Agreement, at the Effective Time (as defined below),
a wholly owned "shell" subsidiary of Shawmut ("Merger Sub") will be merged with
and into Northeast. As a result of the Merger, Northeast will become a wholly
owned subsidiary of Shawmut and the stockholders of Northeast will become
shareholders of Shawmut. See "THE MERGER -- General."
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 at such later time as the certificate may specify (the
"Effective Time"). The certificate will be filed on the tenth business day 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 Northeast. See "THE MERGER -- Effective Time."
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EXCHANGE RATIO
At the Effective Time, each issued and outstanding share of Northeast
Common Stock, except for shares held, directly or indirectly, by Northeast 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 a number of shares (the "Exchange Ratio") of Shawmut
Common Stock determined as follows: (i) if the Shawmut Common Stock Average
Price (as defined below) is greater than or equal to $26.235, the Exchange Ratio
will be .415; (ii) if the Shawmut Common Stock Average Price is less than
$26.235 but equal to or greater than $21.465, the Exchange Ratio will be (a)
$10.875 divided by (b) the Shawmut Common Stock Average Price; or (iii) if the
Shawmut Common Stock Average Price is less than $21.465, the Exchange Ratio will
be .507. If the Shawmut Common Stock Average Price is less than $21.465,
Northeast's Board of Directors (the "Northeast Board") has the right to, and
represents to Northeast's stockholders that it will, terminate the Merger
Agreement pursuant to its terms, whether before or after approval of the Merger
Agreement by Northeast's stockholders; provided, however, that Shawmut may avoid
such termination by electing to increase the Exchange Ratio so that the shares
of Shawmut Common Stock issued in exchange for each share of Northeast Common
Stock have a value (valued at the Shawmut Common Stock Average Price) of
$10.875. Shawmut's present intention is not to increase the Exchange Ratio above
.507; however no final decision will be made until the actual establishment of
the Shawmut Common Stock Average Price. As used in the Merger Agreement,
"Shawmut Common Stock Average Price" means the average of the daily closing
prices of shares of Shawmut Common Stock as reported on the New York Stock
Exchange ("NYSE") Composite Transactions reporting system (as reported by The
Wall Street Journal or, if not reported thereby, another authoritative source as
chosen by Shawmut) for the 15 consecutive full trading days in which such shares
are traded on the NYSE ending at the close of trading on the trading day
immediately prior to the Determination Date. "Determination Date" means the date
on which the last regulatory approval required to consummate the Merger has been
obtained and all statutory waiting periods in respect thereof have expired. Such
required regulatory approvals include all of the regulatory approvals necessary
for both the Merger and the Bank Reorganization identified under "THE MERGER --
Regulatory Approvals Required for the Merger." Under the terms of the Merger
Agreement, cash will be paid in lieu of the issuance of fractional shares of
Shawmut Common Stock. See "THE MERGER -- Exchange Ratio," "-- Conversion of
Shares; Procedures for Exchange of Certificates; Fractional Shares" and
"-- Waiver and Amendment; Termination."
NORTHEAST'S REASONS FOR THE MERGER;
RECOMMENDATION OF THE BOARD OF DIRECTORS OF NORTHEAST
The Northeast Board has approved the Merger Agreement and has determined
that the Merger is fair to, and in the best interests of, Northeast and its
stockholders, provided that the Shawmut Common Stock Average Price of the shares
of Shawmut Common Stock to be exchanged for each share of Northeast Common Stock
in the Merger is at least $10.875. The Northeast Board represents to the
Northeast stockholders that if the Shawmut Common Stock Average Price is less
than $21.465, the Northeast Board will terminate the Merger Agreement as
permitted thereunder. The Northeast Board therefore recommends that holders of
Northeast Common Stock vote FOR the approval of the Merger Agreement. The
Northeast Board believes that the Merger will enable holders of Northeast Common
Stock to realize significant value and also will enable Northeast stockholders
to participate in opportunities for growth and capital appreciation that the
Northeast Board believes the Merger makes possible. See "THE
MERGER -- Northeast's Reasons for the Merger," "-- Recommendation of the Board
of Directors of Northeast" and "-- Opinion of Northeast's Financial Advisor." In
reaching its decision to approve the Merger Agreement, the Northeast Board
consulted with its management and Lehman Brothers Inc. ("Lehman Brothers"),
Northeast's financial advisor, and Northeast's legal advisors regarding the
terms of the transaction and the Northeast Board's obligations in its
consideration of the proposed transaction. See "THE MERGER -- Northeast's
Reasons for the Merger" and " -- Recommendation of the Board of Directors of
Northeast."
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OPINION OF NORTHEAST'S FINANCIAL ADVISOR
Lehman Brothers has rendered a written opinion to the Northeast Board,
dated as of the date of this Proxy Statement/Prospectus, to the effect that, as
of such date, consideration equal to converting each share of Northeast Common
Stock into the right to receive the number of shares of Shawmut Common Stock
determined by dividing $10.875 by the Shawmut Common Stock Average Price is
fair, from a financial point of view, to the holders of Northeast Common Stock.
As discussed in "THE MERGER -- Northeast's Reasons for the Merger" and
"-- Opinion of Northeast's Financial Advisor," Lehman Brothers' opinion and
presentation to the Northeast Board, together with a review by the Northeast
Board of the assumptions used by Lehman Brothers, were among the factors
considered by the Northeast Board in reaching its determination to approve the
Merger. The opinion of Lehman Brothers is attached as Annex B 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 Lehman Brothers in
connection therewith. See "THE MERGER -- Opinion of Northeast's Financial
Advisor."
SPECIAL CONSIDERATIONS -- LITIGATION
Northeast Savings has filed suit against the United States claiming that
the government has breached a contract with Northeast Savings as well as
violated Northeast Savings' constitutional rights as a result of the denial of
core capital treatment to supervisory goodwill acquired by Northeast Savings in
its 1982 acquisitions from the Federal Savings and Loan Insurance Corporation of
three insolvent thrifts. This action is currently pending before the United
States Court of Federal Claims (the "Claims Court"). The Claims Court has
deferred action on the lawsuit as well as on lawsuits by other parties raising
similar issues, pending rulings on three cases currently on appeal. Northeast
Savings anticipates that any final judicial determination of its lawsuit will
not occur for an extended period of time and no prediction can be made as to the
outcome of such litigation. See "THE MERGER -- Special
Considerations -- Litigation."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Northeast's management and the Northeast Board may be
deemed to have interests in the Merger in addition to their interests, if any,
as stockholders of Northeast generally. These include, among other things,
provisions in the Merger Agreement relating to indemnification, the possible
increase in value of a Northeast director's interest in the Northeast Savings
Directors Pension Plan and the items presented in the table below.
8
<PAGE> 9
The following table sets forth certain benefits that the five most highly
compensated executive officers of Northeast, and George P. Rutland, former
Chairman of the Board of Northeast, may receive as a result of the Merger. The
"Total" column includes the sum of such amounts as a result of (i) certain
changes in control agreements, (ii) a non-competition agreement entered into
with Shawmut, (iii) retention bonus agreements and (iv) termination of certain
life insurance plans, in each case, assuming the Merger were consummated on
January 31, 1995.
<TABLE>
<CAPTION>
TERMINATION OF
CHANGE IN CONTROL NON-COMPETITION RETENTION LIFE INSURANCE
NAME(1) AGREEMENTS(2) AGREEMENT(3) BONUS(4) PLANS(5) TOTAL
- ------------------------------ ------------------ ---------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Kirk W. Walters............... $1,109,000 $1,144,000 -- $ 59,888 $2,312,888
George P. Rutland............. $ 767,000 -- -- -- $ 767,000
JoAnn Dolan................... -- -- $ 145,000 $20,278 $ 165,278
Daniel Steinmetz.............. -- -- $ 110,000 $25,995 $ 135,995
Victor Vrigian................ -- -- $ 100,000 $17,667 $ 117,667
Lynne Carcia Wilson........... -- -- $ 85,000 $11,323 $ 96,323
$3,595,151
=========
</TABLE>
- ---------------
(1) The "named executive officers" set forth in the table are the chief
executive officer, the former Chairman of the Board, and the four other
highest paid executive officers of Northeast based on their compensation
during calendar 1994.
(2) See "THE MERGER -- Interests of Certain Persons in The Merger -- Change in
Control Agreements."
(3) See "THE MERGER -- Interests of Certain Persons in The
Merger -- Non-competition Agreement."
(4) The Retention Bonus Arrangements also provide for certain continued health
benefits and Supplemental Medical Reimbursement Plan ("SMRP") benefits. The
SMRP has been terminated and in lieu of its continued coverage under the
Retention Bonus Arrangements, the amount of such continued benefit has been
paid to the covered executives. See "THE MERGER -- Interests of Certain
Persons in The Merger -- Retention Bonus Arrangements."
(5) Northeast maintained two executive life insurance plans to cover executives
which contained change in control provisions. Such plans have been
terminated and Northeast released its interest in the plans in the amounts
set forth above to the named executive officers. See "THE
MERGER -- Interests of Certain Persons in The Merger -- Change in Control
Agreements."
The Northeast Board was aware of these interests and considered them among
other matters in approving the Merger Agreement and the transactions
contemplated thereby. See "THE MERGER -- Interests of Certain Persons in the
Merger."
EMPLOYEE MATTERS
The Merger Agreement provides that the employees of Northeast and its
subsidiaries (the "Northeast Employees") will be entitled to participate in
Shawmut's employee benefit plans in which similarly situated employees of
Shawmut participate, to the same extent and on the same terms and conditions
(including waiver of pre-existing conditions prohibitions) as comparable
employees of Shawmut. To the extent Northeast employees participate in any
employee benefit plans of Shawmut, such employees will be credited with prior
years of service with Northeast and its subsidiaries (to the extent Northeast
gave effect to such service) as if such service were with Shawmut, for purposes
of eligibility and vesting, but not for benefit accrual purposes (except as
regards to vacation, severance and short-term disability accruals or for
purposes of determining employer contributions for retiree medical benefits).
9
<PAGE> 10
BANK REORGANIZATION
Shawmut intends that, following the consummation of the Merger, the assets
and liabilities of Northeast Savings will be transferred to national bank
subsidiaries of Shawmut (the "Bank Reorganization"). In the Bank Reorganization,
(i) Northeast Savings will relocate its home office from Hartford, Connecticut
to Saratoga Springs, New York and redesignate its Hartford, Connecticut home
office as a branch office (the "Relocation"), (ii) SBC will acquire each
Connecticut branch of Northeast Savings and SBM will acquire each Massachusetts
branch of Northeast Savings (the "Branch Purchases"), (iii) Northeast Savings
will convert into Shawmut Savings and Loan Association, a New York stock-form
savings and loan association ("SSLA") (the "Conversion"), (iv) Shawmut Bank New
York, National Association, a national bank in organization ("SBNY"), will be
chartered as a national bank subsidiary of Shawmut and Northeast (the
"Chartering") and (v) SSLA will be merged with and into SBNY (the "Subsidiary
Merger"). The Bank Reorganization is subject to the prior receipt of certain
regulatory approvals, and there can be no assurance that such approvals will be
obtained or that the Bank Reorganization will be consummated. It is expected
that all requisite regulatory approvals for the Bank Reorganization will be
received prior to, or at the time of, the receipt of all requisite regulatory
approvals of the Merger and, accordingly, that the Bank Reorganization will be
consummated shortly following the Merger. See "THE MERGER -- Regulatory
Approvals Required for the Merger."
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including,
among others, receipt of the Northeast stockholder approval solicited hereby,
receipt of necessary regulatory approvals, 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."
Regulatory approvals for the Merger, and the indirect acquisition of
Northeast Savings effected thereby, must be obtained from the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board"), which approval was
received on December 14, 1994, the OTS, which approval was received on December
22, 1994, the Connecticut Banking Commissioner, the Massachusetts Board of Bank
Incorporation and, by virtue of the conditions set forth in the OTS approval,
the other governmental authorities whose approval is necessary for the Bank
Reorganization. Regulatory approvals for the Bank Reorganization must be
obtained from the Federal Reserve Board, the OTS, the Office of the Comptroller
of the Currency, the Connecticut Banking Commissioner, the Massachusetts Board
of Bank Incorporation and the New York Banking Department. Some, but not all, of
these approvals have been received. See "THE MERGER -- Regulatory Approvals
Required for the Merger." There can be no assurance as to whether or when the
regulatory approvals yet to be obtained will be obtained.
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 Northeast and by either of them
individually under certain specified circumstances, including if the Merger has
not been consummated by June 30, 1995. In addition, the Merger Agreement
provides that the Northeast Board, has the right to, and the Northeast Board
represents to the Northeast stockholders that it will, elect to terminate the
Merger Agreement if the Shawmut Common Stock Average Price is less than $21.465
per share unless Shawmut agrees to increase the Exchange Ratio to an amount
equal to $10.875 divided by the Shawmut Common Stock Average Price. Shawmut's
present intention is not to increase the Exchange Ratio above .507. See "THE
MERGER -- Exchange Ratio" and "-- Waiver and Amendment; Termination."
NO SOLICITATION
Northeast 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 the Northeast Board (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
10
<PAGE> 11
contemplated by the Merger Agreement, except that Northeast may communicate
information about any such proposal to its stockholders if and to the extent
such communication is required under applicable law (as advised in writing by
its counsel); Northeast 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."
TERMINATION FEE
Pursuant to the Merger Agreement, Northeast has agreed to pay Shawmut a fee
of $11,000,000 following the occurrence of certain events. Such events include
(i) the acquisition by any person, other than Shawmut, of beneficial ownership
of 50% or more of Northeast Common Stock, (ii) Northeast, without having
received Shawmut's written consent, entering into an Acquisition Transaction (as
defined below) with any person other than Shawmut, or (iii) the Northeast Board
recommending that stockholders of Northeast accept any Acquisition Transaction.
The right to receive the fee terminates if the Merger is consummated or if
certain other events occur prior to or within a certain period of time following
termination of the Merger Agreement. See "THE MERGER -- Waiver and Amendment;
Termination."
The termination fee 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 termination fee may have the effect of
discouraging persons who might now or prior to the Effective Date be interested
in acquiring all or a significant interest in Northeast from considering or
proposing such an acquisition.
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 Northeast 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 "purchase" for accounting and
financial reporting purposes. See "THE MERGER -- Anticipated Accounting
Treatment."
CERTAIN 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
and Northeast of an opinion of Sullivan & Cromwell, special counsel to Shawmut,
dated as of the Effective Time, substantially to the effect that the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code. Accordingly, for federal income tax
purposes (i) no gain or loss will be recognized by Merger Sub, Shawmut or
Northeast; (ii) no gain or loss will be recognized by holders of Northeast
Common Stock upon the receipt of Shawmut Common Stock in exchange for Northeast
Common Stock in the Merger (except as discussed below with respect to cash
received in lieu of a fractional share interest in Shawmut Common Stock) as a
result of the Merger or the Bank Reorganization; (iii) the aggregate adjusted
tax basis in the shares of Shawmut Common Stock to be received by each holder of
Northeast Common Stock in the Merger will be the same as the aggregate adjusted
tax basis in the shares of Northeast Common Stock surrendered in exchange
therefor (reduced by any amount allocable to fractional share interests for
which cash is to be received); and (iv) the holding period of the shares of
Shawmut Common Stock to be received by each holder of Northeast Common Stock in
the Merger will include the holding period of the shares of Northeast Common
Stock surrendered in
11
<PAGE> 12
exchange therefor, provided, that such shares of Northeast Common Stock are held
as capital assets at the Effective Time. See "THE MERGER -- Federal Income Tax
Consequences."
NO APPRAISAL RIGHTS
No stockholders of Northeast are entitled to appraisal rights in connection
with, or as a result of, the Merger. See "THE MERGER -- No Appraisal Rights."
COMPARISON OF STOCKHOLDER RIGHTS
At the Effective Time, Northeast stockholders automatically will become
stockholders of Shawmut and their rights as stockholders of Shawmut will be
governed by the Delaware General Corporation Law and by Shawmut's Certificate of
Incorporation and By-laws. The rights of stockholders of Shawmut differ from the
rights of the stockholders of Northeast with respect to certain important
matters, including, among others, with respect to cumulative voting, the ability
of stockholders to act by written consent, the calling of a special meeting,
stockholder nominations and proposals for business, the definition of and the
vote required for certain business combinations, constituencies considered by
the respective Board of Directors in business combinations, rights plans, size
and classification of Board of Directors, removal of directors, meetings of
creditors and/or stockholders and indemnification of directors, officers,
employees and agents. For a summary of these differences, see "COMPARISON OF
STOCKHOLDER RIGHTS."
12
<PAGE> 13
MARKET PRICES
Shawmut Common Stock is listed and traded principally on the NYSE under the
symbol "SNC." Northeast Common Stock is listed and traded principally on the
NYSE under the symbol "NSB."
The following table sets forth, for the periods indicated, the high and low
sale prices per share for Shawmut Common Stock and Northeast Common Stock as
reported on the NYSE.
<TABLE>
<CAPTION>
SHAWMUT NORTHEAST
------------- ------------
YEAR HIGH LOW HIGH LOW
- ------------------------------------------------------------- ---- ---- ---- ---
<S> <C> <C> <C> <C>
1994:
First Quarter........................................... $24 $19 3/4 $ 7 1/2 $4 3/8
Second Quarter.......................................... 25 19 1/4 10 1/2 6 3/4
Third Quarter........................................... 24 1/8 20 1/4 10 1/8 9 3/8
Fourth Quarter.......................................... 21 1/8 16 3/8 10 1/8 7 5/8
1995:
First Quarter (through February 10, 1995)............... 22 5/8 16 1/2 9 3/4 7 5/8
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
MARKET VALUE PER SHARE(1): SHAWMUT NORTHEAST EQUIVALENT(2)
- ----------------------------------------------------------- ------- --------- -------------
<S> <C> <C> <C>
June 10, 1994.............................................. $24 $10 1/8 $10.875
February 10, 1995.......................................... 21 1/8 9 1/2 10.71(3)
</TABLE>
- ---------------
(1) The market values for Shawmut Common Stock and Northeast Common Stock
represent the last reported sale prices per share on June 10, 1994, the
last business day preceding public announcement of the Merger and February
10, 1995, the last practicable date prior to the mailing of this Proxy
Statement/ Prospectus.
(2) The pro forma equivalent per share market value of Northeast 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 assumed Exchange
Ratios of .453 and .507 for June 10, 1994 and February 10, 1995,
respectively. For information regarding the determination of the Exchange
Ratio see "THE MERGER -- Exchange Ratio."
(3) The Northeast Board represents to the Northeast stockholders that it will
exercise its right under the Merger Agreement to terminate the Merger
Agreement if the Shawmut Common Stock Average Price is less than $21.465
and, as a result, the value on the Determination Date of the Shawmut Common
Stock to be exchanged for each share of Northeast Common Stock is less than
$10.875. Shawmut's present intention is not to increase the Exchange Ratio
above .507; however, no final decision will be made until the actual
establishment of the Shawmut Common Stock Average Price.
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 Determination Date or 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, the Determination Date and the date
on which the Merger is consummated (assuming the Merger Agreement is not
terminated) and thereafter.
13
<PAGE> 14
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA(1)
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." Interim unaudited data for the nine months
ended September 30, 1994 and 1993 reflect, in the opinion of the management of
Shawmut, all adjustments necessary (consisting of normal recurring adjustments)
for a fair presentation of such data. The results of operations for the nine
months ended September 30, 1994 are not necessarily indicative of results which
may be expected for any other interim period or for the year as a whole.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------------
SELECTED FINANCIAL DATA 1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend income........... $1,415.9 $1,364.0 $1,826.9 $1,856.5 $2,028.1 $2,475.1 $2,824.4
Interest expense....................... 611.7 572.1 755.4 874.0 1,211.9 1,657.3 1,874.4
-------- -------- -------- -------- -------- -------- --------
Net interest income.................... 804.2 791.9 1,071.5 982.5 816.2 817.8 950.0
Provision for credit losses............ 3.0 45.8 55.9 242.1 486.4 474.0 638.4
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
credit losses........................ 801.2 746.1 1,015.6 740.4 329.8 343.8 311.6
Noninterest income..................... 274.3 302.6 401.3 428.7 465.0 449.8 364.5
Securities gains, net.................. -- 11.0 12.5 94.1 80.1 23.4 42.0
Noninterest expenses(2)................ 846.9 882.8 1,139.9 1,154.6 1,044.1 972.7 921.3
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes,
extraordinary credit and cumulative
effect of accounting changes......... 228.6 176.9 289.5 108.6 (169.2) (155.7) (203.2)
Income taxes (benefit)................. 84.7 40.3 6.6 40.9 4.1 .5 (80.8)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
credit and cumulative effect of
accounting changes................... 143.9 136.6 282.9 67.7 (173.3) (156.2) (122.4)
Extraordinary credit................... -- -- -- 18.4 -- -- --
Cumulative effect of changes in methods
of accounting........................ -- 46.2 46.2 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ 143.9 $ 182.8 $ 329.1 $ 86.1 $ (173.3) $ (156.2) $ (122.4)
======== ======== ======== ======== ======== ======== ========
Net income (loss) applicable to
common shares........................ $ 132.3 $ 171.2 $ 313.6 $ 81.3 $ (175.6) $ (158.6) $ (124.7)
======== ======== ======== ======== ======== ======== ========
COMMON SHARE DATA:
Income (loss) before extraordinary
credit and cumulative effect of
accounting changes................... $ 1.12 $ 1.11 $ 2.35 $ .60 $ (2.04) $ (1.89) $ (1.45)
Net income (loss)...................... 1.12 1.52 2.75 .78 (2.04) (1.89) (1.45)
Dividends declared..................... .60 .30 .50 .75 1.40
PERIOD END BALANCES:
Total assets........................... $ 31,352 $ 30,860 $ 31,103 $ 29,256 $ 26,878 $ 25,832 $ 29,954
Notes and debentures................... 1,634 874 759 810 665 679 699
Total shareholders' equity............. 2,129 1,943 2,102 1,732 1,269 1,355 1,588
AVERAGE BALANCES:
Total assets........................... $ 30,925 $ 28,880 $ 29,319 $ 26,467 $ 26,259 $ 27,612 $ 29,298
Notes and debentures................... 1,166 848 839 668 669 687 714
Total shareholders' equity............. 2,131 1,817 1,859 1,507 1,326 1,572 1,942
</TABLE>
- ---------------
(1) Restated to reflect the pooling of interests acquisitions that occurred
during the second quarter of 1994.
(2) Includes merger and restructuring related charges of $140.7 million ($99.8
million after-tax) for the nine months ended September 30, 1994 and
restructuring related charges of $36.3 million ($23.6 million after-tax)
for the 1993 periods presented.
14
<PAGE> 15
NORTHEAST FEDERAL CORP.
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data of Northeast. The table is based on and should be read in
conjunction with Northeast's historical financial statements and notes thereto
incorporated by reference in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE." Interim unaudited data for the nine months
ended September 30, 1994 and 1993 reflect, in the opinion of the management of
Northeast, all adjustments necessary (consisting of normal recurring
adjustments) for a fair presentation of such data. Results for the nine months
ended September 30, 1994 are not necessarily indicative of results which may be
expected for any other interim period or for the year as a whole.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED FISCAL YEAR
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED MARCH 31,
----------------- DECEMBER 31, DECEMBER 31, -----------------------------
SELECTED FINANCIAL DATA 1994 1993 1993 1992 1992 1991 1990
------ ------ ------------ ------------ ------ ------ -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)(1)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend income............ $141.3 $169.0 $220.4 $ 196.3 $326.9 $449.1 $ 608.7
Interest expense........................ 97.5 112.3 148.0 132.9 244.1 364.9 530.1
------ ------ ------ -------- ------ ------ -------
Net interest income..................... 43.8 56.7 72.4 63.4 82.8 84.2 78.6
Provision for credit losses............. 3.8 20.3 23.3 16.3 10.2 8.9 6.7
------ ------ ------ -------- ------ ------ -------
Net interest income after provision for
credit losses......................... 40.0 36.4 49.1 47.1 72.6 75.3 71.9
Noninterest income...................... 29.0 9.4 12.1 9.0 14.1 21.6 32.8
Securities gains (losses), net.......... 6.6 4.7 5.6 4.1 2.0 (2.7) (13.4)
Noninterest expenses.................... 66.8 71.8 93.1 124.5 79.3 81.0 198.0
------ ------ ------ -------- ------ ------ -------
Income (loss) before income taxes,
extraordinary credit and cumulative
effect of accounting change........... 8.8 (21.3) (26.3) (64.3) 9.4 13.2 (106.7)
Income taxes (benefit).................. (.3) (10.1) (12.2) (5.1) 4.9 6.1 .5
------ ------ ------ -------- ------ ------ -------
Income (loss) before extraordinary
credit and cumulative effect of
accounting change..................... 9.1 (11.2) (14.1) (59.2) 4.5 7.1 (107.2)
Extraordinary credit.................... .1 4.6 .1
Cumulative effect of change in method of
accounting............................ -- -- -- -- 1.0 -- --
------ ------ ------ -------- ------ ------ -------
Net income (loss)....................... $ 9.1 $(11.2) $(14.1) $ (59.2) $ 5.6 $ 11.7 $(107.1)
====== ====== ====== ======== ====== ====== =======
Net income (loss) applicable to common
shares................................ $ 6.5 $(14.9) $(18.6) $ (63.9) $ (2.9) $ 3.0 $(115.8)
====== ====== ====== ======== ====== ====== =======
COMMON SHARE DATA:
Income (loss) before extraordinary
credit and cumulative effect of
accounting change..................... $ .46 $(1.53) $(1.75) $ (11.16) $ (.70) $ (.28) $(20.28)
Net income (loss)....................... .46 (1.53) (1.75) (11.16) (.51) .52 (20.27)
Dividends declared...................... -- -- -- -- -- -- --
PERIOD END BALANCES:
Total assets............................ $3,350 $3,943 $3,920 $ 3,910 $3,821 $4,546 $ 4,974
Notes and debentures.................... 40 37 38 36 1 1 221
Total shareholders' equity.............. 135 126 133 138 191 183 171
AVERAGE BALANCES:
Total assets............................ $3,518 $3,975 $3,961 $ 3,890 $3,980 $4,902 $ 6,482
Notes and debentures.................... 40 37 37 29 1 161 251
Total shareholders' equity.............. 132 133 133 172 189 174 278
</TABLE>
- ---------------
(1) Per share amounts have been restated to give effect to the two 2% stock
dividends declared in fiscal 1990.
15
<PAGE> 16
COMPARISON OF CERTAIN PER SHARE DATA
The following table shows unaudited comparative historical per share data
for Shawmut and Northeast, unaudited pro forma per share and per share
equivalent data for Shawmut and Northeast combined and unaudited pro forma per
share and per share equivalent data for Shawmut, Northeast and Shawmut's pending
acquisition of substantially all of the assets, and assumption of certain of the
liabilities, of the Business Finance Division of Barclays Business Credit, Inc.
("Barclays") combined for the nine months ended September 30, 1994 and the year
ended December 31, 1993. Pro forma per share and per share equivalent data for
the nine months ended September 30, 1994 and the year ended December 31, 1993
are based on the minimum and maximum number of shares of Shawmut Common Stock
that may be issued pursuant to the Merger Agreement, calculated as of September
30, 1994. The information presented should be read in conjunction with the
consolidated historical financial statements and notes thereto of Shawmut and
Northeast, which are incorporated by reference in this Proxy
Statement/Prospectus, and the unaudited pro forma condensed combining 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 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 COMBINING FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
PER SHARE OF SHAWMUT COMMON STOCK:
Income before cumulative effect of accounting changes:
Historical...................................................... $ 1.12 $ 2.35
Pro forma:
Shawmut and Northeast(1)...................................... 1.12-1.11 2.09-2.06
Shawmut, Northeast and Barclays(1)............................ 1.19-1.18 2.11-2.08
Cash dividends declared:
Historical...................................................... .60 .50
Book value (as of end of period):
Historical...................................................... 16.32 16.25
Pro forma:
Shawmut and Northeast(1)...................................... 16.76-16.57 16.71-16.51
Shawmut, Northeast and Barclays(1)............................ 16.76-16.57 16.71-16.51
PER SHARE OF NORTHEAST COMMON STOCK:
Income (loss) before cumulative effect of accounting changes:
Historical...................................................... .46 (1.75)
Pro forma equivalent:
Shawmut and Northeast(1)...................................... .46-.56 .87-1.04
Shawmut, Northeast and Barclays(1)............................ .49-.60 .88-1.05
Cash dividends declared:
Historical...................................................... -- --
Pro forma equivalent(1)......................................... .25-.30 .21-.25
Book value (as of end of period):
Historical...................................................... 6.81 6.83
Pro forma equivalent:
Shawmut and Northeast(1)...................................... 6.96-8.40 6.93-8.37
Shawmut, Northeast and Barclays(1)............................ 6.96-8.40 6.93-8.37
</TABLE>
- ---------------
(1) Indicates the range of pro forma equivalent per share information. Such pro
forma information is subject to variance of the Exchange Ratio. Under the
Merger Agreement, the Exchange Ratio may vary between .415 and .507, subject
to certain Northeast termination rights. See "THE MERGER -- Exchange Ratio"
and "-- Unaudited Pro Forma Condensed Financial Information."
16
<PAGE> 17
RECENT DEVELOPMENTS
SHAWMUT
Shawmut's net income for the fourth quarter of 1994 was $93.5 million, or
$.74 per common share, versus income, excluding one-time income tax benefits of
$70.2 million, of $76.0 million, or $.62 per common share, in the fourth quarter
of 1993. Reported net income in the fourth quarter of 1993 was $146.2 million,
or $1.22 per common share.
Shawmut's net income for 1994 of $237.4 million, or $1.87 per common share,
was achieved despite merger-related charges of $73.9 million (after-tax)
associated with the integration of three acquisitions during the second quarter
of 1994 and a restructuring charge in the second quarter of 1994 of $25.9
million (after-tax) associated with its cost management program. The net income
of Shawmut for 1993 of $329.0 million or $2.75 per common share, included
after-tax charges of $23.6 million associated with the implementation of a cost
management program, $13.0 million relating to a bulk sale of real estate assets,
$9.2 million for the writedown in the value of excess servicing rights and $2.3
million related to fair lending initiatives. Also included in 1993 results were
income tax benefits of $140.7 million and an after-tax charge of $6.6 million,
each relating to changes in accounting.
Tax-equivalent net interest income of Shawmut for the fourth quarter was
$265.9 million, a decline of $3.0 million, or 1 percent, relative to third
quarter results. Strong earning-asset growth, driven by an increase in loans of
$751 million, or 17 percent on an annualized basis, in the fourth quarter
relative to the prior quarter, was insufficient to offset the 13 basis point
decline in net interest margin to 3.65 percent.
In reaction to an outlook for rising interest rates, Shawmut continued
implementation of its risk reduction strategy by extending aggregate funding
maturities and shortening the maturities of certain assets. While this strategy
is designed to reduce the pressure on net interest income should interest rates
continue to rise, its immediate effect was also to reduce the net interest
margin.
At the end of the fourth quarter, Shawmut's gap between liabilities and
assets repricing over the next twelve months was $1.3 billion liability
sensitive, or approximately 4 percent of interest-earning assets. This liability
sensitive position was more than halved from $2.8 billion, or 10 percent of
interest-earning assets, at the end of the third quarter.
Shawmut's exposure to a reduction in annualized net interest income
resulting from an immediate 100 basis point increase in interest rates was also
reduced by these balance sheet actions to approximately $12 million, or an
amount that approximates one percent of full year 1994 net interest income. At
the end of the third quarter of 1994, the earnings exposure to the same
immediate shift in the yield curve had been approximately $21 million.
The noninterest income of Shawmut, excluding securities gains and losses,
was $104.2 million for the fourth quarter of 1994, an increase of $13.3 million
from the third quarter of 1994. This increase included a gain of $8.2 million
from the sale of mortgage servicing rights in the fourth quarter. There were no
material gains from sales of this type in the third quarter of 1994. Foreign
exchange trading showed income of $2.8 million in the fourth quarter versus a
break-even third quarter. Other areas showing growth included trust and agency
fees, which were up by $2.0 million versus the third quarter. This improvement
resulted from the acquisition of Poorman-Douglas, which added $2.2 million to
fourth quarter trust and agency fees.
Shawmut's noninterest income, excluding securities gains, for 1994 totaled
$378.5 million, compared with $398.3 million in 1993. Included in noninterest
income in 1993 were increased residential mortgage sale gains of $24.6 million
and $13.8 million in Federal Deposit Insurance Corporation assistance received
by acquired institutions. Noninterest income for 1994 included increased gains
on sales of mortgage servicing of $12.8 million, and increases of $12.8 million
in credit and trade related service fees, and $6.2 million in deposit and
transaction fees. These increases were partially offset by declines of $10.0
million in cash management fees, reflecting both an increase in customers'
earnings credits for deposit balances and competitive pricing pressure, and a
net decline of $3.2 million in other fees.
Shawmut achieved a 60.5 percent efficiency ratio in the fourth quarter,
just short of its stated objective of 60 percent. The efficiency ratio improved
by 230 basis points from 62.8 percent in the third quarter of 1994 and improved
by 400 basis points from 64.5 percent in last year's fourth quarter. For full
year 1994 the
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efficiency ratio was 63.6 percent, or an improvement of 420 basis points over
1993's 67.8 percent efficiency ratio.
Noninterest expenses, excluding provision for foreclosed properties,
decreased by $1.8 million, or 1 percent, from the third quarter of 1994 to
$224.0 million. Fourth quarter noninterest expenses included $4.1 million in
expenses from recent acquisitions which received purchase accounting treatment
and therefore these incremental expenses were not reflected in prior quarters.
Excluding the provision for foreclosed properties and special items as noted
above, noninterest expenses for 1994 were $926.7 million, or 9 percent lower,
compared to $1,020.7 million in 1993.
Total personnel expenses for Shawmut declined by $7.9 million, or 7 percent
relative to the $118.8 million level reported in 1994's third quarter. Relative
to the same quarter a year ago, the decline was $14.3 million, or 11 percent.
These cost savings followed a significant decline in head count of 1,783, or 16
percent, measured on a full-time equivalent ("FTE") basis relative to the
year-end 1993 totals. In the fourth quarter, head count was reduced by 405 FTEs.
The fourth quarter continued Shawmut's 1994 pattern of having no provision
for credit losses (an originally reported zero provision in the first quarter of
1994 was restated to $3.0 million to reflect provisioning actions of acquired
banks). The provision for credit losses in the fourth quarter of 1993 was $10.2
million.
Net charge-offs were $25.7 million during the fourth quarter of 1994. This
compares with net charge-offs of $26.3 million during the third quarter of 1994
and $35.1 million during the fourth quarter a year ago.
Shawmut's total average interest-earning assets increased by $684 million,
or 2 percent, from the third quarter of 1994. The performance was largely
propelled by strong loan growth with average loans up by $658 million, or 4
percent, relative to the third quarter 1994 averages.
Shawmut's period-end loan portfolio grew by $751 million, or 17 percent on
an annualized basis, in the fourth quarter of 1994 compared with the third
quarter. The commercial and industrial portfolio was up sharply from the
previous quarter with much of the increase coming from specialized lending.
Showing good loan growth in the consumer sector was installment lending which
was up $62 million, or 5 percent, in the quarter.
Total problem assets at December 31, 1994 declined to $242.8 million, down
$55.2 million, or 19 percent, from $298.0 million at September 30, 1994 and down
$194.6 million, or 44 percent, from $437.4 million a year ago. The ratio of
nonaccruing loans plus foreclosed properties to loans plus foreclosed properties
declined to 1.31 percent at December 31, 1994, compared with 1.68 percent at
September 30, 1994 and 2.48 percent at December 31, 1993. Foreclosed properties
declined by $13.3 million, or 41 percent, to $18.8 million at December 31, 1994
from $32.1 million at September 30, 1994.
The reserve for credit losses was $542.1 million at December 31, 1994,
compared with $567.8 million at September 30, 1994 and $669.2 million at
December 31, 1993. Reserve coverage continued to strengthen as the ratio of the
reserve for credit losses to nonaccruing loans was 242 percent at December 31,
1994, compared with 179 percent a year earlier. The reserve coverage was 214
percent at September 30, 1994. Net charge-offs were $25.7 million in the fourth
quarter, down $9.4 million, or 27 percent, from the same quarter a year ago.
Securities classified as held to maturity and reported at amortized cost
decreased $200 million to $8.0 billion at December 31, 1994, from $8.2 billion
at September 30, 1994. Securities classified as available for sale totaled $2.0
billion at December 31, 1994, compared with $2.1 billion at September 30, 1994.
The amortized cost of securities classified as available for sale exceeded fair
value by approximately $83.5 million at December 31, 1994, consisting of
unrealized losses of approximately $86.3 million and unrealized gains of
approximately $2.8 million. The amortized cost of securities classified as held
to maturity exceeded fair value by approximately $438.5 million at December 31,
1994, consisting of unrealized losses of approximately $439.6 million and
unrealized gains of approximately $1.1 million.
Book value per share increased by $.40, or 2 percent, to $16.72 per share
in the fourth quarter of 1994 from September 30, 1994. Common shareholders'
equity increased by $68 million in the fourth quarter of 1994. Shawmut's
preliminary risk-based tier 1 and total capital ratios were 8.37 percent and
11.66 percent, respectively, at December 31, 1994, compared with 8.47 percent
and 11.99 percent, respectively, at September 30, 1994. The leverage ratio, a
measure of tier 1 capital to quarterly average assets, was 6.56
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percent at December 31, 1994, compared with 6.54 percent at September 30, 1994.
Shawmut's and its principal banking subsidiaries' risk-based capital and
leverage ratios continued to exceed the ratios designated for well-capitalized
financial institutions.
Shawmut increased the quarterly common dividend by 10 percent to $.22 per
share. The dividend is payable January 15 to holders of record as of January 5.
Shawmut last announced an increase in its quarterly dividend in December 1993,
doubling the dividend payable in January 1994 to $.20 per share.
NORTHEAST
Northeast reported net income of $1.8 million for the quarter ended
December 31, 1994, resulting in primary and fully diluted net income per common
share of $.06 after preferred stock dividend requirements. This compares with a
net loss of $2.9 million for the quarter ended December 31, 1993, resulting in a
primary and fully diluted net loss per common share of $.28 after preferred
stock dividend requirements. Net income for the year ended December 31, 1994 was
$11.0 million, or primary and fully diluted net income per common share of $.52
after preferred stock dividend requirements, which compares with a net loss of
$14.1 million, or a primary and fully diluted net loss per common share of $1.75
after preferred stock dividend requirements for the year ended December 31,
1993.
In a series of transactions completed during the first and second quarters
of 1994, Northeast Savings restructured its mortgage portfolio and reduced its
exposure to the California real estate market by closing its mortgage lending
operation in San Diego, California and discontinuing the origination of new
loans in that state. Northeast Savings also closed its mortgage lending office
in Denver, Colorado. In addition, Northeast Savings sold virtually all of its
adjustable rate single-family loans secured by California properties as well as
virtually all of its foreclosed real estate in California. These transactions
reduced the level of Northeast's exposure to the California real estate market
to 6% of the total loan portfolio at December 31, 1994 from 47% of the total
loan portfolio at December 31, 1993. As a result of these transactions and the
branch sales discussed below under "THE MERGER -- Background of the Merger",
Northeast's total assets at December 31, 1994 decreased to $3.3 billion from
$3.9 billion at December 31, 1993.
Northeast's non-performing assets, which include non-accrual loans and real
estate owned ("REO"), declined by 70.2% to $42.5 million at December 31, 1994,
from $142.4 million at December 31, 1993. Non-accrual loans at the same
respective dates decreased to $29.3 million from $67.5 million, and REO dropped
to $13.2 million from $75.0 million.
Northeast Savings' risk based tier 1 and total capital ratios were 14.72%
and 15.69%, respectively, at December 31, 1994, compared to 9.74% and 11.03%,
respectively, at December 31, 1993. Northeast Savings' core and tangible core
capital improved to 5.31% from 4.28% and 4.27%, respectively, at the same
respective dates.
For the quarters ended December 31, 1994 and 1993, total interest income
was relatively level at $51.5 million and $51.4 million, respectively. Net
interest income before the provision for loan losses also remained relatively
flat at $15.0 million and $15.7 million for the same respective periods. The
provision for loan losses decreased to $1.1 million for the quarter ended
December 31, 1994 from $3.0 million for the quarter ended December 31, 1993, due
to the sharp reduction in non-performing assets and a significant reduction in
credit risk exposure in the residential mortgage loan portfolio.
Northeast's other income for the quarters ended December 31, 1994 and 1993
was relatively flat at $4.0 million and $3.7 million, respectively. During the
fourth quarter of 1994, Northeast completed the sale of $164.2 million of GNMA
mortgage servicing rights. General and administrative expenses for the quarters
ended December 31, 1994 and 1993 were $13.9 million and $16.3 million,
respectively. The decrease was due to lower general and administrative expenses
as a result of the sale of branch offices in the second and third quarters of
1994, and the closing of the California and Colorado mortgage offices during the
first quarter of 1994, offset by $1.0 million of expenses related to the Merger.
Expenses relating to REO also decreased to $286,000 from $2.7 million for the
quarters ended December 31, 1994 and 1993, respectively, due to the large
reduction in REO.
Northeast's total interest income for the years ended December 31, 1994 and
1993, was $192.7 million and $220.4 million, respectively. The decrease was due
to the reduction in interest earning assets resulting
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from the aforementioned sales and to a shift during 1994 in the composition of
the company's assets from single-family residential real estate loans earning a
higher average yield to mortgage-backed securities. Net interest income before
the provision for loan losses decreased to $58.8 million for the year December
31, 1994 from $72.4 million for the same period in 1993. For the years ended
December 31, 1994 and 1993, Northeast's provision for loan losses was $4.9
million and $23.3 million, respectively. The allowance for loan losses also
decreased to $11.5 million from $28.3 million at December 31, 1994 and 1993,
respectively, due to the change in the loan portfolio risk.
Non-interest income for the years ended December 31, 1994 and 1993 was
$39.7 million and $17.7 million, respectively. The increase was due to gains of
approximately $9.6 million and $13.6 million, respectively, recognized in 1994
as a result of the branch sales described below under "THE MERGER -- Background
of the Merger", and the sale of California adjustable rate single-family loans,
and to realized capital gains of approximately $7 million allocated to Northeast
Savings by two limited partnerships in which Northeast Savings invested and
holds in its available-for-sale portfolio. General and administrative expense
decreased to $61.0 million for the year ended December 31, 1994 from $67.2
million for the same period in 1993. Expenses relating to REO also decreased to
$13.2 million from $17.6 million for the years ended December 31, 1994 and 1993.
Projections of Earnings for 1995 and 1996. Northeast has updated its
previously announced earnings projections for 1995, particularly in light of a
changed interest rate environment. The following are projections by Northeast
based on its plan of operations as a stand alone entity. They are therefore
based on Northeast's own strategies for, among other things, asset/liability
management and loan growth during the periods covered. Shawmut has advised
Northeast that its plan for integrating Northeast into its operations, as well
as its business strategies, are in numerous respects different from those of
Northeast. Thus the following projections do not reflect, and should not be
viewed as reflecting, what Shawmut projects will be the contributions of
Northeast to the results of operations of the combined entity after the Merger.
Northeast expects net income for 1995 to be in the range of approximately
$14 million to $17 million, or $0.75 to $0.95 per common share after preferred
stock dividend requirements. This projection is based on, among other things,
the assumptions discussed below. Northeast's May 1994 earnings projection for
1995 was for net income to be in the range between $16 million and $19 million,
or $0.80 to $1.00 per common share after preferred stock dividend requirements,
and was based on the assumption that interest rates would remain relatively
stable compared to prevailing rates at the time of the projection. In addition,
the number of common shares outstanding used in the current projection is
greater than the number used in the May 1994 projection due to the fact that
DEPCO exercised warrants to purchase 800,000 common shares in December, 1994.
In addition, Northeast expects its net income for 1996 to be in the range
of approximately $20 million to $25 million, or $1.25 to $1.60 per common share
after preferred stock dividends requirements.
Northeast's earnings projections for 1995 and 1996 are based on an
assumption that short term interest rates increase in the first six months of
1995 between 0.5% and 1.5% and remain unchanged thereafter. Such increase in
short term interest rates would result in a relatively flat yield curve. The
projections for 1995 and 1996 also assume a 42% effective tax rate.
Net interest income for 1995 is projected to increase between 3% and 10%
from 1994 depending on interest rates. For 1995, significant reductions in
credit costs, deposit insurance expense, and general and administrative expenses
are projected to more than offset a reduction in non-interest income. Credit
costs for 1995 are projected to decline by approximately 75% from 1994 due to a
decline of 70% in non-performing assets in 1994 and the sale of the California
residential loan portfolio in the first quarter of 1994. Deposit insurance
expenses for 1995 are projected to decline by approximately 25% due to the
reduction in deposits attributable to the sale of 15 branches offices in 1994
and to a lower premium rate as a result of Northeast Savings becoming
well-capitalized in June 1994. General and administrative expenses for 1995 are
projected to decline by approximately 25% from 1994 due to reductions directly
or indirectly associated with the 15 branch offices sold in 1994, the two
mortgage lending offices closed in 1994, the relocation of Northeast's
administrative offices in 1995 and the continued streamlining of operations.
Non-interest income is projected to decline by approximately 60% in 1995.
Non-interest income for 1994 included gains recognized on the sales
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of the branch offices and the California residential loan portfolio. Northeast's
non-interest income projection for 1995 includes gains on its available-for-sale
investments comparable to those recorded in 1994, and, in addition, gains of
approximately $2.7 million from the sale of certain assets.
For 1996, an increase in net interest income combined with further
reductions in non-interest expenses are projected to more than offset a
reduction in non-interest income. Net interest income for 1996 is projected to
increase between 25% and 40% from 1995 as the repricing of adjustable rate
assets increases interest income. Non-interest expenses for 1996 are projected
to decrease approximately 5% from 1995 due primarily to the realization of a
full year's benefit of reduced occupancy costs associated with the relocation of
Northeast's administrative offices. Non-interest income for 1996 is projected to
decline by approximately 50% from 1995 based on an assumption of minimal gains
in Northeast's available-for-sale investments.
While the projected earnings reflect Northeast management's judgment
regarding what stockholders can expect, there can be no assurance that earnings
will be within the ranges predicted. In addition, the projections only relate to
the periods indicated and should not be taken as an indication of anticipated
earnings for any other period. The projections do not consider any effect that
the Merger would have on Northeast's operations.
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THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to stockholders of
Northeast Federal Corp. ("Northeast") in connection with the solicitation of
proxies by the Board of Directors of Northeast (the "Northeast Board") for use
at the special meeting of stockholders of Northeast and at any adjournments or
postponements thereof (the "Special Meeting") to be held at The Hartford Club,
46 Prospect Street, Hartford, Connecticut, on March 17, 1995 at 10:00 a.m. At
the Special Meeting, the stockholders of Northeast will be asked to approve and
adopt the Agreement and Plan of Merger, dated as of June 11, 1994 (the "Merger
Agreement"), by and between Shawmut National Corporation ("Shawmut") and
Northeast. A copy of the Merger Agreement is attached as Annex A hereto. The
Merger Agreement provides, among other things, that a wholly owned subsidiary of
Shawmut ("Merger Sub") will merge (the "Merger") with and into Northeast with
Northeast surviving as a wholly owned subsidiary of Shawmut and, except as
described below, each share of common stock, par value $0.01 per share, of
Northeast ("Northeast Common Stock") will be converted into and exchangeable for
a number of shares (the "Exchange Ratio") of common stock, par value $.01 per
share, of Shawmut ("Shawmut Common Stock") determined as follows:
(i) if the Shawmut Common Stock Average Price (as defined in "THE
MERGER -- Exchange Ratio" below) is greater than or equal to $26.235, the
Exchange Ratio will be .415;
(ii) if the Shawmut Common Stock Average Price is less than $26.235
but equal to or greater than $21.465, the Exchange Ratio will be (a)
$10.875 divided by (b) the Shawmut Common Stock Average Price; or
(iii) if the Shawmut Common Stock Average Price is less than $21.465,
the Exchange Ratio will be .507; provided, however, that, as described
below, under such circumstances Northeast has the right to, and represents
to the Northeast stockholders that it will, terminate the Merger Agreement,
subject to the right of Shawmut to avoid such termination by an increase in
the Exchange Ratio.
IF THE SHAWMUT COMMON STOCK AVERAGE PRICE IS LESS THAN $21.465, THE
NORTHEAST BOARD HAS THE RIGHT TO, AND REPRESENTS TO THE NORTHEAST STOCKHOLDERS
THAT IT WILL, TERMINATE THE MERGER AGREEMENT UNLESS SHAWMUT INCREASES THE
EXCHANGE RATIO SO THAT THE SHARES OF SHAWMUT COMMON STOCK ISSUED IN EXCHANGE FOR
EACH SHARE OF NORTHEAST COMMON STOCK HAVE A VALUE (VALUED AT THE SHAWMUT COMMON
STOCK AVERAGE PRICE) OF $10.875.
SHAWMUT'S PRESENT INTENTION IS NOT TO INCREASE THE EXCHANGE RATIO ABOVE
.507; HOWEVER, NO FINAL DECISION WILL BE MADE UNTIL THE ACTUAL ESTABLISHMENT OF
THE SHAWMUT COMMON STOCK AVERAGE PRICE.
The Northeast Board believes the Merger Agreement is in the best interest
of Northeast and its stockholders, and recommends its approval by Northeast
stockholders. See "The Merger -- Northeast Background and Reasons."
RECORD DATE; VOTING; SOLICITATION AND REVOCATION OF PROXIES
The Northeast Board has fixed the close of business on February 10, 1995 as
the record date (the "Record Date") for the determination of those Northeast
stockholders entitled to notice of and to vote at the Special Meeting and any
adjournments or postponements thereof. Only holders of record of Northeast
Common Stock at the close of business on the Record Date will be entitled to
notice of and to vote at the Special Meeting. As of the Record Date, there were
14,332,195 shares of Northeast Common Stock outstanding, entitled to vote and
held by approximately 4,703 holders of record. On such date, there were an
additional 31,802 shares of Northeast Common Stock outstanding but not entitled
to vote as a result of holders' failure to exchange certificates representing
$2.25 Cumulative Convertible Preferred Stock, Series A (the "Convertible
Preferred Stock") for certificates representing shares of Northeast Common Stock
in connection with the conversion of the Convertible Preferred Stock. Each
holder of record of shares of Northeast Common Stock on the Record Date and
entitled to vote is entitled to cast one vote per share on the proposal to
approve and adopt the Merger Agreement and on any other matter properly
submitted for the vote
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of the Northeast stockholders at the Special Meeting. The presence, either in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Northeast Common Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum at the Special Meeting. Abstentions
and broker non-votes will be counted for purposes of determining the presence or
absence of a quorum at the Special Meeting.
The approval and adoption of the Merger Agreement by Northeast stockholders
will require the affirmative vote of the holders of a majority of the
outstanding shares of Northeast 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. Under applicable Delaware law, in
determining whether the Merger Agreement 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 Agreement.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE MERGER AGREEMENT.
As of the Record Date, directors and executive officers of Northeast and
their affiliates beneficially owned 402,996 shares of Northeast Common Stock,
representing approximately 2.81% of the shares of Northeast Common Stock
outstanding as of the Record Date. In addition, as of the Record Date, the Rhode
Island Depositors Economic Protection Corporation ("DEPCO") beneficially owned
800,000 shares of Northeast Common Stock, representing approximately 5.6% of the
outstanding shares of Northeast Common Stock. As of the Record Date, no
directors or executive officers of Shawmut or their affiliates beneficially
owned any shares of Northeast Common Stock. As of the Record Date, subsidiaries
of Shawmut held of record or in the name of nominees 153,444 shares of Northeast
Common Stock in a fiduciary capacity, representing approximately 1.07% of the
outstanding shares of Northeast Common Stock, as to 108 of which shares they had
sole or shared voting authority. The directors, the four non-director executive
officers of Northeast and DEPCO have indicated their intent to vote their shares
of Northeast Common Stock for approval of the Merger Agreement.
All shares of Northeast Common Stock that are entitled to be voted and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting, and not revoked, will be voted at the Special
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 approval and adoption of the Merger Agreement and
otherwise in the discretion of the proxy holders as to any other matter which
may come before the Special Meeting or any adjournment or postponement thereof,
including, among other things, a motion to adjourn or postpone the Special
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 Special 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. Northeast does not have any knowledge
of any matters to be presented at the Special 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 Northeast, at or before the taking of the vote at the
Special 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 Northeast before the taking of the vote at the
Special Meeting, or (iii) attending the Special 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 Northeast Federal Corp.,
50 State House Square, Hartford, Connecticut 06103, Attention: Secretary, or
hand delivered to the Secretary of Northeast at or before the taking of the vote
at the Special Meeting.
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Northeast will bear all expenses of this solicitation, except that the cost
of printing and mailing this Proxy Statement/Prospectus will be borne equally by
Northeast and Shawmut. In addition to solicitation by use of the mails, proxies
may be solicited by directors, officers and employees of Northeast 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.
Northeast may retain a proxy soliciting firm to assist in such solicitation. The
fee to be paid to any such firm is not expected to exceed $10,000 plus
reasonable out-of-pocket costs and expenses. In addition, Northeast 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.
NORTHEAST STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
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. Northeast stockholders are urged to
read the Merger Agreement carefully.
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 Northeast, a wholly owned "shell" subsidiary of Shawmut will
be merged with and into Northeast. As a result of the Merger, Northeast will
become a wholly owned subsidiary of Shawmut and the stockholders of Northeast
will become stockholders of Shawmut.
EXCHANGE RATIO
At the Effective Time (as defined below), each issued and outstanding share
of Northeast Common Stock, except for shares held directly or indirectly by
Northeast or Shawmut or any of their respective subsidiaries (other than shares
held by Shawmut or Northeast directly or indirectly in trust accounts, managed
accounts and the like or otherwise in a fiduciary capacity that are beneficially
owned by third parties ("Trust Account Shares") or in respect of a debt
previously contracted ("DPC Shares")) will be converted into and exchangeable
for a number of shares of Shawmut Common Stock equal to the Exchange Ratio
determined as follows:
(i) if the Shawmut Common Stock Average Price (as defined below) is
greater than or equal to $26.235, the Exchange Ratio will be .415;
(ii) if the Shawmut Common Stock Average Price is less than $26.235
but equal to or greater than $21.465, the Exchange Ratio will be (a)
$10.875 divided by (b) the Shawmut Common Stock Average Price; or
(iii) if the Shawmut Common Stock Average Price is less than $21.465,
the Exchange Ratio will be .507; provided, however, that, as described
below, under such circumstances Northeast has the right to, and represents
to the Northeast stockholders that it will, terminate the Merger Agreement,
subject to the right of Shawmut to avoid such termination by an increase in
the Exchange Ratio.
The Merger Agreement provides that if the Shawmut Common Stock Average
Price is less than $21.465, Northeast has the right to, and the Northeast Board
represents to the Northeast stockholders that it will, elect, by action of the
Northeast Board, to terminate the Merger Agreement, whether before or after
approval of the Merger Agreement by Northeast's stockholders, by giving written
notice of such election to Shawmut at any time during the five-day period
commencing with the Determination Date, unless Shawmut elects within
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<PAGE> 25
three days of receiving such written notice to increase the Exchange Ratio such
that the value of the Exchange Ratio will be equal to the quotient obtained by
dividing (i) $10.875 by (ii) the Shawmut Common Stock Average Price. See
"-- Waiver and Amendment; Termination" below. As used in the Merger Agreement,
"Shawmut Common Stock Average Price" means the average of the daily closing
sales prices of Shawmut Common Stock as reported on the New York Stock Exchange
("NYSE") Composite Transactions reporting system (as reported by The Wall Street
Journal or, if not reported thereby, another authoritative source as chosen by
Shawmut) for the 15 consecutive full trading days in which such shares are
traded on the NYSE ending at the close of trading on the trading day immediately
prior to the Determination Date (as defined below). Under the terms of the
Merger Agreement, cash will be paid in lieu of the issuance of fractional shares
of Shawmut Common Stock. As used in the Merger Agreement, "Determination Date"
means the date on which the last regulatory approval required to consummate the
Merger has been obtained and all statutory waiting periods in respect thereof
have expired. Such required regulatory approvals include all of the regulatory
approvals necessary for both the Merger and the Bank Reorganization identified
under "THE MERGER -- Regulatory Approvals Required for the Merger." See
"-- Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares" below. In addition, each share of Shawmut Common Stock issued in the
Merger will include the corresponding rights attached thereto pursuant to
Shawmut's Shareholder Rights Agreement (as defined below). See "DESCRIPTION OF
SHAWMUT CAPITAL STOCK -- General" and " -- Rights Plan."
Shawmut's present intention is not to increase the Exchange Ratio above
.507; however, no final decision will be made until the actual establishment of
the Shawmut Common Stock Average Price.
The following table sets forth example Exchange Ratios at varying Shawmut
Common Stock Average Prices. The Shawmut Common Stock Average Prices set forth
below are for purposes of illustration only and are not intended to indicate any
expectation or prediction as to the actual Shawmut Common Stock Average Price.
<TABLE>
<CAPTION>
VALUE (BASED ON
SHAWMUT COMMON
STOCK AVERAGE PRICE)
SHAWMUT COMMON STOCK PER SHARE OF
AVERAGE PRICE EXCHANGE RATIO NORTHEAST COMMON STOCK
-------------------- -------------- ----------------------
<S> <C> <C>
$26.235 or greater .415 $10.875 or greater
less than 26.235 greater than .415 $10.875
but equal to or and less than .507
greater than
$21.465
less than $21.465 .507 less than $10.875
</TABLE>
However, in the event that the Shawmut Common Stock Average Price is less
than $21.465, the Northeast Board represents to the Northeast stockholders that
it will elect to terminate the Merger Agreement. If the Shawmut Board elects to
increase the Exchange Ratio to prevent such termination, the result would be as
follows:
<TABLE>
<S> <C> <C>
less than $21.465 greater than .507 $10.875
</TABLE>
25
<PAGE> 26
[Figure 1]
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.
The determination of the Exchange Ratio resulted from arms'-length
negotiations between Northeast and Shawmut.
In addition, at the Effective Time, each outstanding and unexercised option
and warrant granted by Northeast to purchase shares of Northeast Common Stock
will be converted into an option or warrant, as the case may be, to acquire the
number of shares of Shawmut Common Stock equal to the product rounded to the
nearest share, of the number of shares of Northeast Common Stock subject to such
Northeast option or warrant, as the case may be, and the Exchange Ratio, at a
price per share equal to the exercise price per share of Northeast Common Stock
otherwise purchasable pursuant to such Northeast option or warrant, as the case
may be, divided by the Exchange Ratio, rounded to the nearest cent.
BACKGROUND OF THE MERGER
Since 1988, Northeast Savings and, following its formation, Northeast, have
faced a series of challenges posed by changes in both the regulatory and
economic environments in which they operate. In the regulatory environment,
changes in capital standards subsequent to the passage of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") in August
1989 initially left Northeast Savings out of compliance with minimum capital
standards primarily due to the exclusion of supervisory goodwill and preferred
stock from the calculation of regulatory capital. The successful implementation
of a capital plan in 1990, including the formation of Northeast as the savings
and loan holding company of Northeast Savings, put Northeast Savings back into
compliance with capital standards in July of 1990. The passage of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") in December
1991 had the effect of increasing minimum capital provisions. Northeast Savings
met the increased standards and has been in continuous compliance with all
minimum capital standards since July 1990. Since June 30, 1994 and through
December 31, 1994, Northeast Savings has exceeded the standards for a well
capitalized institution.
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<PAGE> 27
In the economic environment, Northeast's market areas experienced severe
recessions at the same time that stricter regulatory restraints were being
imposed on Northeast. The economies of Connecticut, Massachusetts and New York
began to contract in early 1989 and continued to contract through 1993.
California entered a recession in 1990. Although the economies of these states
have begun to grow in 1994, the severe contractions they experienced brought
about job losses and depressed real estate markets and led to a significant
increase in the level of non-performing assets for Northeast Savings. Total
non-performing assets reached a peak of $196.0 million, or 4.92% of assets, at
March 31, 1993. The actions Northeast took in response to such increase in
non-performing assets included a series of sales of residential foreclosed
properties and the sale of virtually the entire California loan portfolio,
including non-performing loans. As a result, Northeast Savings has reduced total
non-performing assets to $42.5 million, or 1.27% of total assets, at December
31, 1994.
Northeast's earnings have been significantly impaired directly or
indirectly as a result of changes in its regulatory and economic environment.
Northeast recorded a net loss in three of its last six fiscal years, including
the nine-month period ended December 31, 1992, when the Company changed its
fiscal year end to December 31.
The following table shows the net income or loss reported by Northeast in
each of its last six fiscal years, including the nine-month period ended
December 31, 1992, together with Northeast's net income (loss) per common share
for such periods.
NORTHEAST FEDERAL CORP.
NET INCOME (LOSS)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NET INCOME
NET INCOME (LOSS)
(LOSS) PER COMMON SHARE
---------- ----------------
<S> <C> <C>
Year ended:
March 31, 1990.................................... $(107,136) $ (20.27)
March 31, 1991.................................... 11,728 0.52
March 31, 1992.................................... 5,607 (0.51)
Nine months ended:
December 31, 1992................................. (59,234) (11.16)
Year ended:
December 31, 1993................................. (14,139) (1.75)
December 31, 1994................................. 10,966 0.52
</TABLE>
A reduction in the value of supervisory goodwill of $109.4 million in the
twelve months ended March 31, 1990 accounts for the loss of $107.1 million
recorded in that period. A subsequent reduction of $56.6 million in the value of
supervisory goodwill in the nine months ended December 31, 1992 contributed
significantly towards the loss recorded in that period. These reductions in the
value of supervisory goodwill were precipitated by several factors that had
diminished the value of Northeast Savings' Connecticut and Massachusetts
franchises, but were primarily caused by the adverse impact on the value of
Northeast Savings' Connecticut and Massachusetts franchise rights by regulations
promulgated by the Office of Thrift Supervision (the "OTS") pursuant to FIRREA
and FDICIA.
The economic environment also has adversely affected earnings since 1992.
The direct and indirect costs associated with the high level of non-performing
assets contributed to the loss for the nine months ended December 31, 1992 and
resulted in the loss for the twelve months ended December 31, 1993. The
provision for loan losses and the costs associated with real estate acquired by
foreclosure were $26.0 million and $40.9 million, respectively, for the nine
months ended December 31, 1992 and the twelve months ended December 31, 1993.
In 1992, at the same time that Northeast announced it was reducing the
value of its supervisory goodwill by $56.6 million, it also commented publicly
on its policy regarding offers to invest in Northeast. Certain parties had made
inquiries to Northeast regarding possible investments in or acquisitions of
Northeast and had conducted private evaluations. Northeast had no offer under
consideration at that time. Northeast indicated that its policy was to meet with
any responsible party who expressed an interest in Northeast and to evaluate
27
<PAGE> 28
from the standpoint of the best interest of Northeast and its stockholders any
offer it received. This policy was based on the position that Northeast had
maintained since 1988 that it is inconsistent with maximizing stockholder value
to be unwilling to consider bona fide merger or acquisition proposals from
potential acquirors. Although Northeast continued to receive indications of
interest from time to time from other financial institutions, no offers for a
merger or acquisition were made prior to 1994.
In response to the inquiries made in 1992 regarding possible investments in
or acquisitions of Northeast and in anticipation of increased interest in the
acquisition of Northeast as a result of the virtual elimination of supervisory
goodwill, the anticipated recovery of the New England economy and the improved
financial condition of most of the region's largest banks, Northeast entered
into an agreement with Lehman Brothers Inc. ("Lehman Brothers") in 1992 for
financial advisory services, including but not limited to advising Northeast on
offers received from potential acquirors. This agreement was renewed in 1993.
In the last quarter of 1993, Northeast reassessed its business plan,
including the markets in which it was operating. In order to reduce Northeast's
non-performing assets and to focus its business activities in its core markets,
Northeast implemented steps to reduce its exposure to the California real estate
market and to sell its branches located outside its key markets. In November
1993, Northeast securitized $337 million of California residential mortgages,
thereby eliminating the credit risk on those loans. In February 1994, Northeast
closed its loan origination offices in California and Colorado; and in March
1994, Northeast sold $876.1 million of single-family residential loans, 93% of
which were secured by California properties. Included in the sale were $40.5
million of non-performing California loans. In April and May 1994, Northeast
sold $33.1 million of real estate acquired by foreclosure, all of which was
located in California.
In order to focus Northeast Savings' retail deposit franchise in those
markets which Northeast had identified as its key markets, Northeast implemented
a plan to sell Northeast Savings branches in eastern Massachusetts, Rhode
Island, and California. In February 1994, Northeast Savings signed an agreement
to sell five branches in eastern Massachusetts and five branches in Rhode Island
to Shawmut. At that time, Shawmut indicated to Northeast that it was not
interested in a transaction involving its acquisition of Northeast. In March
1994, Northeast Savings signed an agreement to sell its California branches to
Home Savings of America and an agreement to sell its remaining branch in eastern
Massachusetts to The Sandwich Co-operative Bank. As a result of the consummation
of these sales, 32 of Northeast Savings' 33 branches are now located in its four
key market areas of the capital district of New York, and the Hartford,
Springfield, and Worcester metropolitan areas.
Concurrent with these activities, and pursuant to the financial advisory
agreement referenced above, during the period from September 1993 through
February 1994, Lehman Brothers identified with Northeast and contacted twelve
institutions that might have been interested in acquiring Northeast. Six of
those institutions, including Shawmut, expressed general interest, signed
confidentiality agreements and conducted at least preliminary due diligence.
On February 14, 1994, the Northeast Board met to review three possible
alternatives for realizing increased shareholder value. The three alternatives
were continuing as an independent institution, selling selected deposit
franchises or combining with another financial institution by merger or
acquisition. The Northeast Board also considered on that date two proposals
received in response to the solicitation efforts described above. One verbal
proposal related to an acquisition by a bank holding company headquartered in
New York state. The terms of the proposed acquisition were that Northeast
shareholders would receive $8.00 in cash for each share of Northeast Common
Stock. The proposal was contingent upon the completion of a satisfactory due
diligence review, the negotiation and execution of a definitive agreement and
regulatory and shareholder approvals. The other proposal related to the
acquisition of a portion of Northeast Savings' retail franchise and was
evaluated to have a value, together with the value of the remaining retail
franchise, of less than the current agreement with Shawmut or the other proposal
considered at the same time. The Northeast Board rejected both proposals as not
in the best interest of stockholders and inadequate when compared to the value
to be achieved by remaining an independent institution.
In April 1994, the Northeast Board reviewed Northeast's three-year business
plan for 1994 through 1996, which plan incorporated the effects of the
initiatives to reduce non-performing assets and to focus its market
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<PAGE> 29
franchise discussed above. In light of the significant improvement in financial
performance projected in this business plan, Northeast departed from past
practice and announced at its annual meeting on May 20, 1994 that it expected
net earnings for 1994 to be in the range of approximately $9 million to $11
million, or $0.40 to $0.50 per share, and net earnings for 1995 to be in the
range of $16 million to $19 million, or $0.80 to $1.00 per share. The
improvement in net income reflected in the projected earnings were expected to
come from: (i) a reduction in credit costs due to the reduction in
non-performing assets and credit risk exposure to the California economy; (ii) a
reduction in general and administrative expenses due to the relocation of
corporate headquarters from Hartford to Farmington in 1995 and the sale of the
branches in eastern Massachusetts, Rhode Island and California; and (iii) an
increase in net interest margin, primarily due to the reduction in
non-performing assets. Net income for the year ended December 31, 1994 was in
line with the expectations of the three-year business plan. Those projections
reflected Northeast management's judgment regarding what stockholders could
expect from the continued independent operation of Northeast. The projections
assumed the national economy would continue to grow moderately and that the
regional economies in the market areas to be focused upon by Northeast would
begin to recover in 1994, but at a slower pace than the national economy, and
that interest rates would remain relatively stable compared to then current
levels. See "RECENT DEVELOPMENTS -- Northeast."
Subsequent to the steps taken in the first quarter of 1994 to reduce
non-performing assets and to sell branches outside Northeast's key markets,
three financial institutions, including one which had made a previous proposal,
contacted Northeast expressing interest in a possible business combination.
Shawmut was one of these three other institutions. Proposals were received from
Shawmut and one other institution. The third institution declined to submit a
proposal. The proposal from the other institution was from a bank holding
company based in New York state which was not the same company whose proposal
was rejected in February. This proposal was for the acquisition of Northeast for
$9.125 in cash for each share of Northeast Common Stock. The proposal was
contingent upon the completion of a satisfactory due diligence review, the
negotiation and execution of a definitive agreement and regulatory and
shareholder approvals. In May 1994, the Northeast Board considered the proposals
made by Shawmut and the other institution and rejected both proposals as not
being in the best interests of Northeast's stockholders in view of the value to
be achieved by continuing as an independent institution and proceeding with the
business plan. At the direction of the Northeast Board, management indicated to
Shawmut and the other institution that further discussions and exchange of
information would proceed only if their proposals could be increased in value.
Additional discussions and exchanges of information continued with
representatives of Shawmut through the beginning of June. On June 5th, a
representative of Shawmut made an oral proposal for the acquisition of
Northeast. At a special meeting on June 6, 1994, the Northeast Board determined
that such proposal was not acceptable, but authorized continued discussions with
Shawmut regarding the terms and conditions of a merger agreement. Such
discussions culminated in the Merger Agreement.
At a special meeting on June 11, 1994, the Northeast Board met to consider
the Merger Agreement, including a detailed review of its terms. Copies of the
Merger Agreement had previously been furnished to the board members. In
addition, in the course of the Northeast Board's consideration of the Merger
Agreement, it discussed various financial and other considerations, including
the high degree of uncertainty of recovery and possible magnitude thereof by
Northeast Savings under its goodwill litigation (see "Special Considerations --
Litigation"). It was the judgment of the Northeast Board that it should continue
to act in what it perceived as the best interests of Northeast and its
stockholders based on the financial prospects of Northeast without regard to the
uncertain and remote in time prospects for any recovery on the litigation. Also,
by receiving stock in Shawmut, Northeast's stockholders could continue to share
in the litigation prospects to the extent Shawmut continues the litigation,
along with all the business prospects of the combined entities, albeit on a
substantially diluted basis in terms of their ownership percentage of Shawmut
compared to their ownership of Northeast.
The Northeast Board reviewed the business and financial prospects of
Northeast and received a presentation by Lehman Brothers regarding efforts
undertaken to identify possible acquirors, the terms of the Shawmut Proposal
compared to recent acquisitions and pending acquisitions, the business and
financial prospects of Shawmut and trading market information pertaining to both
Northeast and Shawmut common
29
<PAGE> 30
stock. The Northeast Board also received and reviewed the written opinion of
Lehman Brothers that the consideration was fair from a financial point of view.
See "-- Opinion of Financial Advisor." Following the review of all materials,
the Northeast Board approved the Merger Agreement and the transactions
contemplated thereby. Northeast believes that the consideration to be received
by its stockholders pursuant to the Merger Agreement has not been affected by
the prior branch sale transaction with Shawmut.
NORTHEAST'S REASONS FOR THE MERGER
In the course of reaching its conclusion to approve the Merger and the
Merger Agreement, the Northeast Board considered numerous factors. The Northeast
Board did not assign any relative or specific weights to the factors considered.
The material factors considered by the Northeast Board were as follows:
(i) The Northeast Board's familiarity with and review of Northeast's
business, current and prospective operations and financial condition,
including its capital position, asset quality and future growth prospects
were it to remain independent;
(ii) The recessionary economic conditions, weak real estate markets
and relatively limited growth prospects in the markets in which Northeast
operates, the continuing trend toward consolidation within the banking
industry and the fact that a business combination with a significantly
larger bank holding company such as Shawmut could provide Northeast's
stockholders with substantial competitive advantages, including cost
savings through the integration of overlapping operations and support
functions, improved access to capital and funding, greater diversity in
product offerings and the ability to spread costs of new products, services
and research and development over a wider customer base;
(iii) The presentations of Northeast's financial advisor, Lehman
Brothers, as to selected financial and stock market data concerning
Shawmut, Northeast and other publicly held bank holding companies, certain
financial analyses of the terms of the Merger and a comparison to the terms
of other recent business combinations involving bank holding companies, and
the opinion rendered by Lehman Brothers to the effect that consideration
equal to converting each share of Northeast Common Stock into the right to
receive the number of shares of Shawmut Common Stock determined by dividing
$10.875 by the Shawmut Common Stock Average Price was fair, from a
financial point of view, to the holders of Northeast Common Stock as
further described under "Opinion of Financial Advisor";
(iv) The consideration (based on an assumed consideration of $10.875
of Shawmut Common Stock per share of Northeast Common Stock) in relation to
the then market price and book value of Northeast Common Stock, and the
past and projected earnings of Northeast;
(v) Reports by management and Lehman Brothers as to discussions with
other parties which had been contacted concerning the possibility of a
business combination with Northeast, and the fact that the Shawmut Proposal
was a firm offer representing greater value to Northeast's shareholders in
terms of premium over current market prices and on a long-term basis than
any other proposal received by Northeast during its discussions with other
financial institution holding companies, as described in greater detail
above under "Background of the Merger";
(vi) The current and historical market prices and liquidity of and
dividends on Northeast Common Stock and Shawmut Common Stock, the fact that
Shawmut currently pays dividends on Shawmut Common Stock (equivalent to
$0.36 per share of Northeast Common Stock based on an assumed Exchange
Ratio of .456 based on the average closing price of $23.85 for Shawmut
Common Stock over the five days prior to the execution of the Merger
Agreement and Shawmut's current dividend policy) in comparison to
Northeast, which had declared no dividends on Northeast Common Stock since
1989, and which is not expected to pay dividends in the foreseeable future
(see "Summary -- Selected Comparative Per Share Data" for certain
historical and pro forma data regarding dividends on Northeast Common Stock
and Shawmut Common Stock);
(vii) The business, results of operations, prospects and financial
condition of Shawmut, the future growth prospects, including deposit, loan
and earnings growth prospects, of Shawmut and Northeast
30
<PAGE> 31
following the Merger and separately, the potential synergies and cost
savings expected to be realized from the Merger and the resources to be
obtained from combining Northeast with Shawmut;
(viii) The fact that the Merger would provide holders of Northeast
Common Stock with the opportunity to receive a premium over current market
prices for their shares on a tax-free basis while at the same time enabling
them to participate in the expanded opportunities for growth made possible
by the Merger; and
(ix) The impact generally of the Merger on the employees, depositors
and customers of Northeast and the communities in which Northeast operates.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF NORTHEAST
THE BOARD OF DIRECTORS OF NORTHEAST BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF NORTHEAST ASSUMING THAT THE SHAWMUT COMMON
STOCK AVERAGE PRICE IS AT LEAST $21.465, AND, ACCORDINGLY, RECOMMENDS THAT
HOLDERS OF NORTHEAST COMMON STOCK VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
THE NORTHEAST BOARD REPRESENTS TO THE NORTHEAST STOCKHOLDERS THAT IT SHALL
TERMINATE THE MERGER AGREEMENT IF THE SHAWMUT COMMON STOCK AVERAGE PRICE IS LESS
THAN $21.465.
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 Northeast, of the business,
operations, earnings and financial condition of Northeast 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 Northeast conducts business; (iv)
the current and prospective economic environment facing financial institutions,
including Shawmut; (v) the terms of the Merger 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.
IF THE NORTHEAST BOARD EXERCISES ITS RIGHT TO TERMINATE THE MERGER
AGREEMENT IN THE EVENT THE SHAWMUT COMMON STOCK AVERAGE PRICE IS LESS THAN
$21.465, SHAWMUT'S PRESENT INTENTION IS NOT TO INCREASE THE EXCHANGE RATIO ABOVE
.507; HOWEVER, NO FINAL DECISION WILL BE MADE UNTIL THE ACTUAL ESTABLISHMENT OF
THE SHAWMUT COMMON STOCK AVERAGE PRICE.
OPINION OF NORTHEAST'S FINANCIAL ADVISOR
The Northeast Board retained the investment banking firm of Lehman Brothers
to act as its financial advisor as it relates to the Merger and to render its
opinion with respect to the fairness, from a financial point of view, to
Northeast's stockholders of the consideration to be received in the Merger. At
the meeting of the Northeast Board on June 11, 1994, in connection with the
Northeast Board's consideration of the Merger, Lehman Brothers made a
presentation to the Northeast Board with respect to the Merger and delivered its
written opinion stating that, on and as of the date of such opinion and based
upon and subject to the assumptions, factors and limitations set forth in such
opinion and described below, consideration equal to converting each share of
Northeast Common Stock into the right to receive the number of shares of Shawmut
Common Stock determined by dividing $10.875 by the Shawmut Common Stock Average
Price is fair to
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<PAGE> 32
holders of Northeast Common Stock from a financial point of view. This was
confirmed by Lehman Brothers in its updated opinion, dated the date hereof,
which is substantially identical to the opinion of Lehman Brothers delivered to
the Northeast Board on June 11, 1994. The full text of the written opinion of
Lehman Brothers, dated as of the date hereof, sets forth assumptions made,
factors considered and limitations on the review undertaken by Lehman Brothers,
is included as Annex B to this Proxy Statement/Prospectus. Northeast
stockholders are urged to read such opinion carefully and in its entirety.
No limitations were imposed by Northeast on the scope of Lehman Brothers'
investigation or the procedures followed by Lehman Brothers in rendering its
opinion. Lehman Brothers was not requested to and did not make any
recommendation to the Northeast Board as to the form or amount of the
consideration to be paid to stockholders of Northeast in the Merger, which was
determined through arms'-length negotiations among the parties and their
respective financial advisors. In arriving at its opinion, Lehman Brothers did
not ascribe a specific range of value to Northeast, but made its determination
as to the fairness, from a financial point of view, of the consideration to be
offered in the Merger on the basis of the financial and comparative analyses
described below. Lehman Brothers' opinion is directed to the Northeast Board
only and does not constitute a recommendation to any Northeast stockholder as to
how such stockholder should vote at the Special Meeting. Lehman Brothers was not
requested to opine as to, and its opinion does not in any manner address,
Northeast's underlying business decision to proceed with or effect the Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i) the
Merger Agreement; (ii) the Form 10-Q for the quarters ended March 31, 1994, June
30, 1994 and September 30, 1994, the Form 10-K for the year ended December 31,
1993, and the year end 1994 press releases for both Northeast and Shawmut and
such other publicly available information concerning Northeast and Shawmut which
Lehman Brothers believed to be relevant to its inquiry; (iii) financial and
operating information with respect to the business, operations and prospects of
Northeast and Shawmut furnished to it by Northeast and Shawmut; (iv) market
valuation and price performance of Northeast Common Stock and the common stock
of other northeastern thrifts and other thrifts which Lehman Brothers deemed
relevant; (v) a comparison of the historical financial results and present
financial condition of Northeast with those of other northeastern thrifts and
other thrifts which Lehman Brothers deemed relevant; (vi) market valuation and
price performance of Shawmut Common Stock and the common stock of other
super-regional banking companies which Lehman Brothers deemed relevant; (vii) a
comparison of the historical financial results and present financial condition
of Shawmut with those of other super-regional banking companies which Lehman
Brothers deemed relevant; and (viii) a comparison of the financial terms of the
Merger with the terms of certain other recent transactions which Lehman Brothers
deemed relevant. Lehman Brothers also considered the results of its efforts
(undertaken in conjunction with Northeast) to solicit proposals from third
parties with respect to a purchase of Northeast and reviewed such proposals. In
addition, Lehman Brothers had discussions with the managements of Northeast and
Shawmut concerning their respective businesses, operations, assets, financial
conditions and prospects and undertook such other studies, analyses and
investigations it deemed appropriate.
In connection with its review, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion without assuming any responsibility for the independent
verification of such information and further relied upon the assurances of the
managements of Northeast and Shawmut that they were not aware of any facts that
would make such information inaccurate or misleading. With respect to the
financial projections of Northeast, upon advice of Northeast, Lehman Brothers
assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of Northeast, as to the future financial performance of Northeast,
and Lehman Brothers relied upon such projections in arriving at its opinion. In
arriving at its opinion, Lehman Brothers did not conduct a physical inspection
of the properties and facilities of Northeast or Shawmut and did not make nor
obtain any evaluations or appraisals of the assets or liabilities of Northeast
or Shawmut. In addition, in arriving at its opinion, Lehman Brothers did not
consider the potential effects to Northeast of pending litigation. Lehman
Brothers has assumed that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and therefore as a tax-free transaction. Lehman Brothers' opinion was
necessarily based upon market, economic, regulatory and other conditions as they
existed on, and can be evaluated as of, the date of its letter.
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<PAGE> 33
The following paragraphs summarize certain of the financial and comparative
analyses performed by Lehman Brothers in arriving at its opinion as to the
fairness, from a financial point of view, of the consideration to be offered to
Northeast's Stockholders in the Merger. Lehman Brothers presented certain of
these analyses to the Northeast Board on June 11, 1994 and updated these
analyses in connection with the rendering of its written opinion dated as of the
date hereof. The following does not purport to be a complete description of the
analyses performed, or the matters considered, by Lehman Brothers in arriving at
its opinion.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its fairness opinion, Lehman Brothers did not attribute any
particular weight to any analysis, or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Lehman Brothers believes that its analyses must be
considered as a whole and that considering any portion or portions of such
analyses and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
its fairness opinion. In its analyses, Lehman Brothers made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond Northeast's and Shawmut's control.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or value, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
Purchase Price Analysis. The closing price of Shawmut Common Stock on June
10, 1994, was $24.00 and the average of the closing prices of Shawmut Common
Stock for the 5-day period ended June 10, 1994, was $23.85. The shares of
Shawmut Common Stock to be received by the holders of Northeast Common Stock
based on the average of the closing prices of Shawmut Common Stock for the 5-day
period ended June 10, 1994, was 0.456. The consideration (based on such average
closing price) implied a premium to be received by holders of Northeast Common
Stock of 7.4% over the closing price of Northeast Common Stock on June 10, 1994,
which was $10.125. In addition, the consideration (based on such average closing
price), reflecting a value of $10.875, represented a 30% and 39% premium over
the average of the closing prices of Northeast's Common Stock for the 30-day
period and 60-day period ended June 10, 1994, which were $8.363 and $7.835,
respectively. For the period beginning January 1, 1994 and ending June 10, 1994,
such value of $10.875 represented a 65% premium over the average closing price
of $6.582 for the period.
Comparable Company Analysis. Using publicly available information, Lehman
Brothers compared the financial performance and stock market valuation of
Northeast with the following twelve selected thrifts and thrift holding
companies (the "Comparable Group") deemed relevant by Lehman Brothers: Anchor
Bancorp, Inc., ALBANK Financial Corporation, Astoria Financial Corporation,
Collective Bancorp, Inc., Centerbank, Dime Bancorp, Inc., Fidelity New York,
F.S.B., The Greater New York Savings Bank, Peoples Heritage Financial Group,
Inc., The Rochester Community Savings Bank, Sovereign Bancorp, Inc. and Webster
Financial Corporation. Indications of such financial performance and stock
market valuation included profitability (a median return on average assets and
return on average equity for the twelve month period ended March 31, 1994 of
0.64% and 10.31%, respectively, for the Comparable Group and negative values for
Northeast); the ratio of tangible equity to tangible assets (a median of 5.9%
for the Comparable Group and 3.6% for Northeast); the ratio of non-performing
assets to total loans and foreclosed real estate (a median of 4.1% for the
Comparable Group and 8.6% for Northeast); and price-to-book ratios (a median of
1.00x for the Comparable Group and 1.51x for Northeast). These ratios are based
on public financial statement information as of March 31, 1994, and closing
stock market prices on June 10, 1994. Because of the inherent differences
between the operations of Northeast and the selected comparable companies,
Lehman Brothers believed that it was inappropriate to, and therefore did not,
rely solely on the results of the quantitative analysis and accordingly also
made qualitative judgments concerning differences between the financial and
operating characteristics of Northeast and the selected companies. These
qualitative judgments included Lehman Brothers' views as to business conditions
and prospects in the various markets in which these selected
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companies operate and business mix, sources of revenue, risk profile and
prospects for these selected companies. Although Lehman Brothers did not
attribute any particular weight to any such factor, such qualitative factors as
a whole influenced the significance and relevance placed on the comparison
between Northeast and each of the comparable companies.
Discounted Cash Flow Analysis. Lehman Brothers discounted an estimated
terminal value of Northeast Common Stock, using a range of discount rates from
12% to 18%, which were chosen to reflect different assumptions regarding the
required rates of return of holders or prospective buyers of Northeast Common
Stock. Lehman Brothers derived an estimate of a range of terminal values by
applying multiples ranging from 8 to 12 times projected 1996 net income. These
multiples were derived to reflect appropriate trading multiples for thrift
stocks. In connection with this analysis, Northeast management provided Lehman
Brothers with net income, book value and dividend payment projections (including
projections regarding no resumption of common stock dividend payments in the
foreseeable future). This analysis, and its underlying assumptions, yielded a
range of values for Northeast Common Stock from $6.50 to approximately $10.82
per share.
Comparable Transaction Analysis. Using publicly available information,
Lehman Brothers reviewed certain terms, and financial characteristics of, and
book value and historical earnings multiples, as well as core deposit premiums,
applicable to, fourteen banking or thrift merger and acquisition transactions
("Comparable Transactions Group") publicly announced in the period 1992 through
June 10, 1994, which Lehman Brothers deemed to be comparable to the present
transaction. The Comparable Transactions Group considered by Lehman Brothers in
its analysis consists of the following transactions (identified by
acquiror/acquiree): Sovereign Bancorp, Inc./Shadow Lawn Savings Bank; Anchor
Bank FSB/Lincoln Savings Bank, FSB; Summit Bancorporation/Crestmont Financial
Corp.; First Fidelity Bancorporation/First Inter-Bancorp Inc.; Shawmut/Gateway
Financial Corporation; Citizens Financial Group, Inc./Neworld Bancorp, Inc.;
First Fidelity Bancorporation/Greenwich Financial Corporation; First Fidelity
Bancorporation/Peoples Westchester Savings Bank; Citizens Financial Group,
Inc./The Boston Five Bancorp, Inc.; Shawmut/New Dartmouth Bank; First Fidelity
Bancorporation/Village Financial Services, Ltd.; Collective Bancorp,
Inc./Montclair Bancorp, Inc.; Bank of Boston Corporation/Society for Savings
Bancorp, Inc.; and Sovereign Bancorp, Inc./Harmonia Bancorp, Inc. Lehman
Brothers calculated price-to-book ratios, price-to-last-twelve-months ("LTM")
earnings ratios and core deposit premiums for the Comparable Transactions Group.
The high, median and low values for these transactions were 1.7x, 1.3x and 0.7x
price-to-book, 16.8x, 13.0x and "not meaningful" price-to-LTM earnings, and
5.9%, 3.3% and (1.4)% core deposit premiums. By comparison, the values for the
Merger were 1.6x price-to-book, "not meaningful" price-to-LTM-earnings, and 3.2%
core deposit premium. Because the reasons for and circumstances surrounding each
of the transactions analyzed were so diverse and because of the inherent
differences between the operations of Northeast, Shawmut and the selected
companies, Lehman Brothers believed that it was inappropriate to, and therefore
did not, rely solely on the quantitative results of the analysis and accordingly
also made qualitative judgments concerning differences between the
characteristics of these transactions and the Merger which would affect the
acquisition value of the acquired companies and Northeast. These qualitative
judgments included Lehman Brothers' views as to the universe of potential buyers
in each of these transactions, their potential level of interest in an
acquisition of these companies and the ability of the acquirors to implement
cost savings at and business synergies with the acquired companies and, in
addition, Lehman Brothers' views as to the business conditions and prospects in
various markets in which these acquired companies operate and business mix,
sources of revenue, risk profile and prospects for these acquired companies.
Although Lehman Brothers did not attribute any particular weight to any such
factor, such qualitative factors as a whole influenced the significance and
relevance placed on the comparison between Northeast and each of the comparable
transactions.
Historical Stock Price Analysis. Lehman Brothers reviewed the historical
performance of Northeast Common Stock from June 3, 1989, through June 8, 1994;
the closing price of Northeast Common Stock did not exceed $10.125 through the
end of this period. Lehman Brothers also compared the price performance of
Northeast Common Stock with the performance of a nationwide index of stocks of
thrifts (prepared by Lehman Brothers) and an index of stocks of the Comparable
Group during this period. Lehman Brothers
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compared the price performance of Northeast Common Stock with the consideration
to be received by holders of Northeast Common Stock in the Merger.
Financial Review of Shawmut. Lehman Brothers reviewed the historical price
performance of Shawmut Common Stock from June 2, 1989 through June 7, 1994 and
compared such performance with that of a nationwide index of stocks of regional
banking companies. Lehman Brothers compared the financial performance, dividend
policy, historical and future estimated price/earnings ratios and price-to-book
ratios of Shawmut to nine banking companies ("Shawmut Group"): Bank of Boston
Corporation, The Bank of New York Company, Inc., BayBanks, Inc., CoreStates
Financial Corp, First Empire State Corporation, First Fidelity Bancorporation,
Fleet Financial Group, Inc., Mellon Bank Corporation and Midlantic Corporation.
The historical price/earnings ratio was a median of 10.1x for the Shawmut Group
and 7.2x for Shawmut. The price-to-book ratio was a median of 1.51x for the
Shawmut Group and 1.39x for Shawmut. These ratios are based on public financial
statement information as of March 31, 1994 and closing stock market prices on
June 9, 1994.
Pro Forma Merger Analysis. Lehman Brothers estimated the impact of the
Merger on Shawmut's projected earnings per share and book value per share for
1995 and the following three years. In connection with this analysis, management
of Northeast and Shawmut provided Lehman Brothers with information with regard
to expected future earnings. Based on such information, the terms of the present
transaction, assuming a Shawmut Common Stock Average Price of $23.85 and,
accordingly, an Exchange Ratio of 0.456 and consideration of $10.875 per share
of Northeast Common Stock, and Lehman Brothers' judgment, Lehman Brothers
concluded that the Merger would be slightly dilutive to earnings per share of
Shawmut's Common Stock in 1995 and accretive thereafter.
In rendering its opinion, Lehman Brothers also considered the financial
terms of the other proposals received by Northeast as described above (see "THE
MERGER -- Background of the Merger"), compared such terms to the consideration
and applied certain of the analyses described above to such proposals. This
comparison and analysis supported Lehman Brothers' opinion that from a financial
point of view consideration equal to converting each share of Northeast Common
Stock into the right to receive the number of shares of Shawmut Common Stock
determined by dividing $10.875 by the Shawmut Common Stock Average Price is fair
to the holders of Northeast Common Stock.
In arriving at its updated opinion, Lehman Brothers considered market,
economic and other conditions as they existed on the date of the updated
opinion. Although changes in such conditions since the date of Lehman Brothers'
initial opinion affected certain of the above-described financial and
comparative analyses performed by Lehman Brothers, Lehman Brothers is still of
the opinion that, as of the date hereof, consideration equal to converting each
share of Northeast Common Stock into the right to receive the number of shares
of Shawmut Common Stock determined by dividing $10.875 by the Shawmut Common
Stock Average Price is fair, from a financial point of view, to the holders of
Northeast Common Stock.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, Lehman Brothers is regularly
engaged in the evaluation of businesses and their securities in connection with
mergers and acquisitions, including thrift and bank holding company
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Northeast Board selected Lehman
Brothers because of its expertise, its reputation and its familiarity with
Northeast and the thrift and commercial banking industries in general.
As compensation for its services in connection with the Merger, Northeast
has (A) paid Lehman Brothers a retainer fee of $25,000 in 1993 and (B) agreed to
pay (i) a fee of $150,000 for its rendering a written opinion to the Northeast
Board and (ii) a fee payable upon consummation of the Merger based on the
aggregate value of Shawmut Common Stock received by Northeast stockholders as
determined at that time. Assuming the Shawmut Common Stock Average Price is
$21.465, the fee payable upon consummation of the Merger would total
approximately $1.7 million. In addition, Northeast has agreed to reimburse
Lehman Brothers for reasonable out-of-pocket expenses incurred in connection
with the Merger and to indemnify Lehman Brothers against certain liabilities,
including liabilities that may arise under the federal securities laws.
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Lehman Brothers has acted as financial advisor to Northeast in connection
with the Merger. In the ordinary course of its business, Lehman Brothers
actively trades in the debt and equity securities of Northeast for its own
account and for the accounts of others and, accordingly, may at any time hold a
long or short position in such securities.
SPECIAL CONSIDERATIONS -- LITIGATION
On December 9, 1989, Northeast Savings filed suit in the United States
District Court for the District of Columbia claiming that the government has
breached its contract with Northeast Savings as well as violated Northeast
Savings' constitutional rights as a result of the denial of core capital
treatment to supervisory goodwill acquired by Northeast Savings as a result of
its 1982 acquisitions from the Federal Savings and Loan Insurance Corporation
("FSLIC") of three insolvent thrifts. The district court dismissed this action
on July 16, 1991 for lack of jurisdiction and indicated that proper jurisdiction
lay in an action for money damages in the United States Claims Court. (The name
of the United States Claims Court subsequently was changed to the United States
Court of Federal Claims, such court hereinafter is referred to as the "Claims
Court.") Northeast Savings appealed this ruling to the United States Court of
Appeals for the District of Columbia Circuit (the "Court of Appeals for D.C."),
and then on July 8, 1992, filed a motion to voluntarily dismiss its appeal. On
July 9, 1992, the Court of Appeals for D.C. granted this motion to dismiss.
Northeast Savings then filed its claim for damages in the Claims Court on August
12, 1992. This action is still pending. The Claims Court has indicated that it
is deferring action on the Northeast Savings case, as well as on over 30 other
supervisory goodwill cases pending before the Claims Court, until three cases
(the "Test Cases"), currently on appeal to the United States Court of Appeals
for the Federal Circuit ("Federal Circuit Court of Appeals"), are finally ruled
upon. In the Test Cases, including Winstar v. United States, the government has
vigorously defended itself. Among other things, the government has contended
that the "supervisory goodwill" that was created in connection with the
resolution by the Federal Home Loan Bank Board (the "Bank Board"), which was the
predecessor agency to the OTS, of supervisory problems existed "under the Bank
Board's regulatory function and represents a statement of compliance with
then-existing statutory and regulatory requirements which requirements, however,
were subject to change." Thus, the government contends that Congress was
entitled to override the existing regulatory requirements which recognized
supervisory goodwill by new legislation directed at the general public welfare.
The government then contends that it cannot be obligated to measure regulatory
capital in a manner inconsistent with what Congress has mandated under FIRREA,
and therefore, it is absolved of any and all contract liability based on the
elimination of supervisory goodwill under the "Sovereign Acts Doctrine." In
support of its arguments, the government cites, among other things, the 1992
holding of the Court of Appeals for D.C. in Transohio Savings Bank v. Director
("Transohio") in rejecting the attempt of a savings institution to obtain
injunctive relief against the application of the FIRREA capital standards.
In each of the Test Cases, the Claims Court determined that plaintiffs had
contracts with the United States governing long-term regulatory treatment of
goodwill, and that those contracts had been breached by FIRREA's new
restrictions on use of goodwill to meet statutory capital mandates. The Claims
Court consolidated its rulings in the Test Cases for immediate interlocutory
appeal. On May 25, 1993, a divided panel of the Federal Circuit Court of Appeals
reversed the Claims Court's finding that the government was liable for breach of
contract in the Test Cases. The Federal Circuit Court of Appeals, among other
things, based its decision on its conclusion that "... the plaintiffs had no
contract right to have the goodwill generated by their acquisitions treated as
regulatory capital." According to the Federal Circuit Court of Appeals, "[a]ll
of the subject contracts left the Bank Board (and OTS) free to regulate in
accordance with subsequent acts of Congress, specifically FIRREA. Thus, there
was no contractual promise by the government which could be breached."
Approximately one and one-half months later, on July 7, 1993, in Hughes
Communications Galaxy, Inc. v. United States ("Hughes") a different panel of the
Federal Circuit Court of Appeals issued what has generally been interpreted as
an opposite ruling from that given in the Test Cases on another government
breach of contract dispute. In Hughes, which was not a case involving depository
institutions, the Federal Circuit Court of Appeals determined that there was a
breach of contract by the government, and in doing so,
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apparently rejected some of the same arguments advanced by the government and
accepted by the Federal Circuit Court of Appeals in the test cases. Although the
government in Hughes petitioned the Federal Circuit Court of Appeals for a
rehearing and an en banc hearing, on October 26, 1993, both were denied. The
Federal Circuit Court of Appeals, however, did vacate the panel decision in the
Test Cases, which decision was in favor of the government's position, and
ordered an en banc hearing. Briefing for that hearing has been completed and
oral arguments took place in February 1994. No decision on such rehearing has
been rendered by the Federal Circuit Court of Appeals at this time. Recently, a
panel of the Court of Appeals for D.C. issued a clarification of its Transohio
decision indicating that its analysis was solely directed at an action for
injunctive relief and did not address the merits of a claim for money damages in
the Claims Court.
Another supervisory goodwill case, Resolution Trust Corporation v. FSLIC
(the "Resolution Trust Corporation"), was recently decided by the Court of
Appeals of the 10th Circuit (the "10th Circuit Court of Appeals") in favor of
the purchasers of Security Federal from the FSLIC, whose purchase was made prior
to FIRREA. Pursuant to an arrangement with the FSLIC, the purchasers infused $6
million into Security Federal, an insolvent institution, and thereby saved the
FSLIC the cost of liquidating Security Federal. Even with such capital infusion,
were it not for the treatment of supervisory goodwill as capital, Security
Federal would have remained significantly under-capitalized at the time, and
thereby would have had to have been liquidated by the FSLIC.
As a result of the restriction on the use of supervisory goodwill as
capital pursuant to FIRREA and resulting OTS regulations, the OTS determined
that Security Federal was insolvent and in February 1990 ordered the purchasers
to infuse additional capital into it. In March of 1990, the purchasers notified
the OTS that they were rescinding the agreement to acquire the institution,
tendered their stock to the OTS, and requested the return of their capital
contribution. The OTS refused the tender, and the purchasers filed suit seeking
rescission and restitution for breach of contract. In Resolution Trust
Corporation, the FDIC and the OTS appealed a district court's summary judgment
ruling in favor of the purchasers for breach of contract, holding that the
treatment of goodwill as regulatory capital was an express term of the overall
contractual agreement. The 10th Circuit Court of Appeals affirmed the lower
court's ruling and stated that "[b]ecause the Agencies breached their agreement
to treat supervisory goodwill...as assets for regulatory purposes, we [the
Court] agree that the investors [i.e., purchasers] properly rescinded the
agreement and thus are entitled to restitution."
Northeast cannot predict when the Federal Circuit Court of Appeals will
render any decision on the test cases, or the nature of any such decision and
its effect on Northeast Savings' pending goodwill litigation in the Claims
Court. In addition, the Claims Court's initial decision in the Test Cases did
not address the amount of damages, if any; therefore, questions regarding the
amount of damages are not subject to the current appeal pending in the Federal
Circuit Court of Appeals. Northeast anticipates that even if the Federal Circuit
Court of Appeals renders a decision in the Test Cases that is favorable to the
claims made by Northeast Savings in its goodwill litigation, a final judicial
determination, if any, as to Northeast Savings' pending goodwill litigation,
after addressing the issue of damages and the resolution of all appeals,
including likely appeals to the Supreme Court, will not occur for an extended
period of time; and even if Northeast Savings attains a final money judgment in
its goodwill litigation, as to which no prediction can be made, the amount of
any such judgment is highly uncertain. No amount has been recorded on
Northeast's financial statements based on any possible recovery by Northeast
under the litigation.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Northeast's management and the Northeast Board may be
deemed to have interests in the Merger in addition to their interests, if any,
as stockholders of Northeast generally. The Northeast Board was aware of these
factors and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
Change in Control Agreements. Northeast and Northeast Savings have entered
into change in control agreements with George P. Rutland, former Chairman of the
Board, and Kirk W. Walters, Chairman of the Board, Chief Executive Officer,
President, Chief Operating Officer and Chief Financial Officer. In the event of
a "change in control" of Northeast, Messrs. Rutland and Walters are entitled to
certain payments in the event
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of their termination of employment other than upon death, retirement or
disability or by Northeast for "cause" or a termination by themselves for "good
reason" following such change in control (a "Change in Control Termination").
Execution of the Merger Agreement resulted in a change in control under these
agreements. The Merger Agreement expressly provides that Shawmut will honor
these agreements. If either person terminates his employment, because of, among
other things, a substantial alteration in the nature or status of his
responsibilities or an assignment of duties inconsistent with his office, a
reduction in his base salary or substantial change in his employee benefits, the
relocation of Northeast's principal executive offices, or a failure of Northeast
to obtain a satisfactory agreement from any successors to assume and agree to
perform the change in control agreements, such termination will be considered to
be for "good reason."
Upon a Change in Control Termination, Mr. Walters would be entitled to,
among other benefits, payment of 2.99 times his base salary upon such
termination of employment, if the termination occurs within one year following a
change in control; payment of two times his base salary if the termination
occurs more than one but less than two years following a change in control; and
payment of his base salary if the termination occurs more than two years
following a change in control; provided, however, that in the event Mr. Walters'
employment is terminated, if any such payments together with any other payments
or benefits received or to be received by Mr. Walters under any other plan,
arrangement or agreement which he has the right to receive would constitute a
"parachute payment" for federal income tax purposes, such payments shall be
reduced to the largest amount as will result in no portion of such aggregate
payments being subject to the federal excise tax with respect to "excess
parachute payments" so as to enable him to retain the payments he would have
retained had he not been subject to such excise tax.
Upon a Change in Control Termination, Mr. Rutland would be entitled to,
among other benefits, the greater of (i) all salary payments due pursuant to his
change in control agreement for the remaining employment term or (ii) one year's
base salary, at the rate in effect on the date of termination; provided, that if
any of such payment, together with any other payments or benefits received or to
be received by Mr. Rutland under any other plan, arrangement or agreement which
he has the right to receive would constitute a "parachute payment" for federal
income tax purposes, he is entitled to a "gross up" payment for any portion of
such payments that are subject to the federal excise tax relating to "excess
parachute payments" so as to enable him to retain the payments he would have
retained had he not been subject to such excise tax.
Assuming the Merger were consummated on March 31, 1995, if Messrs. Rutland
and Walters were to terminate their employment at the Effective Time upon a
Change in Control Termination, Mr. Rutland would be entitled to approximately
$767,000 and Mr. Walters would be entitled to approximately $1,109,000 pursuant
to their change in control agreements, subject to certain conditions.
In addition, Northeast Savings has maintained two executive life insurance
plans to cover executives of Northeast Savings and its principal subsidiaries.
Under the plans, if a change in control occurs, Northeast Savings is required to
release its interest in the life insurance policies covered by the plans to the
covered employee upon the happening of one of the following: (i) termination of
the employee's employment; (ii) termination of the plan or (iii) an amendment
reducing employee benefits under the plan. The Merger Agreement constituted a
change in control under the plans. In light of the prospective requirement for
the release of Northeast Savings' interest to the covered employees subsequent
to the Merger, and with the consent of Shawmut, Northeast Savings terminated
both plans effective December 1, 1994. As a result of such termination, Mr.
Walters will receive a release of Northeast Savings' interest in his insurance
policy having a value of $59,888. The four other executive officers of Northeast
will receive releases of Northeast Savings' interest in their insurance policies
having an aggregate value of approximately $75,000.
Noncompetition Agreement. In addition, Mr. Walters has entered into a
noncompetition agreement with Shawmut (the "Noncompetition Agreement"). Pursuant
to the Noncompetition Agreement, Mr. Walters has agreed not to engage in
competitive activity with Shawmut by becoming the chairman, chief executive
officer or president (or perform the duties of such positions) of any bank,
savings and loan, savings bank, credit union or other depository institution or
bank holding company, savings and loan holding company or other depository
institution holding company for a period of 30 months commencing upon the first
date following the Effective Time that he is not employed by Northeast or
Shawmut, if at the time of his
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commencement of employment with such entity the entity has total assets or
deposits in excess of $1 billion and maintains its principal office(s) in
Connecticut or Massachusetts, or more than 50% of its deposits or assets are in
Connecticut and Massachusetts.
In consideration for his agreement not to compete, Mr. Walters will be paid
an amount currently estimated to be approximately $1,144,000 (and subject to
revaluation prior to the Effective Time), to be paid in three equal installments
on the 1st, 13th and 25th month anniversaries of Mr. Walters ceasing to be
employed by Northeast or Shawmut; provided, that if any such payment, together
with any other payments under any other plan, agreement or arrangement would
constitute a "parachute payment" for federal income tax purposes, Mr. Walters
would be entitled to a "gross up" payment for any portion of such payments that
are subject to the federal excise tax relating to "excess parachute payments" so
as to enable him to retain the payments he would have retained had he not been
subject to such excise tax.
Retention Bonus Arrangements. Shawmut has committed to pay bonuses, at 50%
of base salary, to 18 executive officers of Northeast, not including Mr. Walters
and Mr. Rutland, provided they continue in their current positions through the
consummation of the Merger and to pay additional bonuses, at 50% of base salary,
to such employees if such employees are not offered similar positions following
the Merger, or do not accept similar positions. These payments are to be made in
recognition of the essential roles these individuals will play in the Merger
process and as compensation for the additional work that will be required and to
encourage such individuals to remain with Shawmut following the Merger. Under
these arrangements, such executive officers of Northeast may be paid bonuses up
to an aggregate maximum amount of approximately $1.7 million under such bonus
arrangements. Such executives are also generally provided with continued health
coverage for 18 months upon a termination of employment at any time prior to 18
months from the Effective Time, and continued coverage under a Supplemental
Medical Reimbursement Plan ("SMRP") and disability plan for 18 months after the
Effective Time. Northeast Savings, with the consent of Shawmut, elected to
terminate its SMRP and disability plan effective December 1, 1994 and to pay the
covered executives an amount equivalent to their coverage under or reimbursable
to them under the plans for an 18 month period. In consideration for Shawmut's
consent, Shawmut was relieved of any obligation to provide the 18 months
coverage after the Effective Time discussed above. As a result of such
termination, Mr. Walters will be paid $29,200, Mr. Rutland will be paid $3,400
and four other executive officers will be paid an aggregate of $49,000.
Directors Pension Plan. Northeast Savings has a pension plan for directors
who are not employees of Northeast (the "Directors Pension Plan"), which
provides an annual benefit of $15,000 for the lesser of ten years or the
cumulative period of full and partial years of board service by a director,
determined in full calendar quarters. Payment of such benefit commences after
the annual meeting of stockholders after a director attains age 70. The
Directors Pension Plan also contains a change in control provision pursuant to
which each eligible and active director as of the date of the change in control
is deemed to have the years of service such director would have if he remained a
director until the June 30 after he attained age 70, and that each director
would be paid the actuarial present value of his or her pension benefit prior to
the change in control. The Merger would constitute a change in control under the
Directors Pension Plan. Assuming such change in control occurred as of January
31, 1995, directors Carmen, Clark, Fantini, Gordon, Hamilton, Lawrence, O'Neill,
Sarney, Schuler, Silber and Zuckerman each would receive a payment in an amount
ranging between $31,696 and $93,942 as the full payment of his or her benefits
under the Directors Pension Plan. The aggregate of such payments would be
$656,856. The amount of such payments that result from an increase in the value
of a director's interest under the Directors Pension Plan as a result of the
Merger ranges from $0 to $32,673.
Indemnification. The Merger Agreement also provides that, in the event of
any threatened or actual claim, action, suit, proceeding or investigation in
which any person who is or has been a director, officer or employee of Northeast
or any of its subsidiaries is, or is threatened to be, made a party based in
whole or in part on, or pertaining to the fact that such person was a director,
officer or employee of Northeast or any of its subsidiaries, Shawmut will,
subject to the conditions set forth in the Merger Agreement, indemnify such
person to the fullest extent permitted by Northeast's Certificate of
Incorporation and By-laws and permitted by Delaware law, against any liability
or expense incurred in connection with any such action, suit, claim, proceeding
or investigation. Such indemnification rights will continue for a period of six
years from the
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Effective Time. The Merger Agreement further provides that Shawmut will, subject
to the conditions set forth in the Merger Agreement including certain cost-based
limitations, use its best efforts to cause the persons serving as officers and
directors of Northeast immediately prior to the Merger to be covered for a
period of four years by Northeast's directors and officers liability insurance
policy (or any equivalent substitute therefor).
DEPCO. As of the Record Date, DEPCO beneficially owned 800,000 shares, or
5.6% of the outstanding shares, of Northeast Common Stock, which it acquired
upon exercise of warrants (the "Warrants") subsequent to September 30, 1994. In
addition, DEPCO holds all outstanding shares of Northeast's $8.50 Cumulative
Preferred Stock, Series B (the "Series B Preferred Stock"). As holder of the
Series B Preferred Stock, DEPCO currently is entitled to elect two members of
the Northeast Board. Currently, John F. McJennett III, the Executive Director of
DEPCO, serves as a member of the Northeast Board pursuant to the election by
DEPCO. DEPCO acquired the Warrants and the Series B Preferred Stock pursuant to
a Stock and Warrant Purchase Agreement, dated as of April 21, 1992 (the "DEPCO
Agreement"), by and between DEPCO and Northeast. In the event of a change in
control of Northeast, the DEPCO Agreement requires Northeast to make an offer to
repurchase the Series B Preferred Stock, to the extent Northeast has available
funds, within 45 days of the consummation of such change in control, so long as
DEPCO (or a certain nominee holder) is entitled under the Series B Preferred
Stock to elect at least one director. The consummation of the Merger would
constitute a change in control under the DEPCO Agreement. It is anticipated
that, upon consummation of the Merger, Shawmut will redeem the Series B
Preferred Stock. The aggregate amount of such redemption would be $44,720,639,
as of March 31, 1995.
EMPLOYEE MATTERS
The Merger Agreement provides that the employees of Northeast and its
subsidiaries (the "Northeast Employees") will be entitled to participate in
Shawmut's employee benefit plans in which similarly situated employees of
Shawmut participate, to the same extent and on the same terms and conditions
(including waiver of pre-existing conditions prohibitions) as comparable
employees of Shawmut. To the extent Northeast employees participate in any
employee benefit plans of Shawmut, such employees will be credited with prior
years of service with Northeast and its subsidiaries (to the extent Northeast
gave effect to such service) as if such service were with Shawmut, for purposes
of eligibility and vesting, but not for benefit accrual purposes (except as
regards to vacation, severance and short-term disability accruals or for
purposes of determining employer contributions for retiree medical benefits).
In addition, Northeast maintains certain stock option plans. Such plans
provide for an immediate acceleration of the vesting period for options granted
under the plans as a result of the execution of the Merger Agreement. For a
description of the treatment of Northeast options granted pursuant to such plans
under the Merger, See "-- Exchange Ratio."
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 tenth
business day after satisfaction or waiver of the latest to occur of the
conditions to the Merger specified in the Merger Agreement, unless another date
is agreed to in writing by Shawmut and Northeast. See "-- Conditions to the
Merger" below. It is expected that a period of time will elapse between the
Special Meeting and the Effective Time while the parties seek to obtain the
regulatory approvals required to consummate the Merger. There can be no
assurance that such approvals will be obtained or that the Merger will be
completed. There can also be no assurance that such approvals will not contain
materially adverse conditions. 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 June 30, 1995
unless the failure to consummate is due to a breach of an agreement or covenant
of the Merger Agreement by the party seeking to terminate the Merger Agreement.
See "-- Waiver and Amendment; Termination" below.
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CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
As soon as practicable after the Effective Time, Chemical Bank, acting in
the capacity of exchange agent (the "Exchange Agent"), will mail to each holder
of record of Northeast Common Stock a form of letter of transmittal, together
with instructions for the exchange of such holder's certificates formerly
representing shares of Northeast Common Stock for certificates representing
shares of Shawmut Common Stock and cash in lieu of fractional shares.
HOLDERS OF NORTHEAST COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE
EXCHANGE AGENT.
Upon proper surrender to the Exchange Agent of one or more certificates
representing shares of Northeast Common Stock, together with a properly
completed letter of transmittal, there will be issued and mailed to the holder
of Northeast 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 Northeast certificate or certificates so surrendered will be cancelled.
Notwithstanding anything to the contrary contained herein, no certificate
representing Shawmut Common Stock or cash in lieu of a fractional share interest
will be delivered to a person who is an affiliate (for purposes of Rule 145
under the Securities Act) of Northeast unless such affiliate has theretofore
executed and delivered to Shawmut the agreement referred to below under
"-- Resales of Shawmut Common Stock Received in the Merger."
No dividend or other distribution payable after the Effective Time with
respect to Shawmut Common Stock will be paid to the holder of any unsurrendered
Northeast 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 Northeast
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 Northeast
Common Stock have been converted.
After the Effective Time, there will be no transfers on the stock transfer
books of Northeast of shares of Northeast Common Stock issued and outstanding
immediately prior to the Effective Time. If certificates representing shares of
Northeast 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 Northeast nor any other person will be liable to any
former holder of Northeast Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
If a certificate for Northeast 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 Northeast
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 Northeast 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 Northeast Common
Stock entitled to vote thereon; (ii) the authorization for listing on the NYSE,
subject to official notice of issuance of the shares of Shawmut Common Stock
issuable to holders of Northeast Common Stock pursuant to the Merger; (iii)
approval of the Merger Agreement and the transactions contemplated thereby by
the required governmental authorities and the expiration of any statutory
waiting periods in respect thereof, and the approval, consent or waiver of all
other governmental authorities that are necessary to the consummation of the
Merger (other than immaterial consents, the failure to obtain which would not
have a material adverse effect on Shawmut (on a combined basis giving effect to
the Merger)); provided, however, that no approval, consent or waiver will be
deemed to have been received if it includes any condition or requirement that,
in the opinion of Shawmut, would so materially adversely affect the economic or
business benefits of the transaction contemplated by Shawmut as to render
inadvisable the consummation of the Merger; provided further, that no condition
or requirement that does no more than subject Shawmut or Northeast to legal
requirements generally applicable to a bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), or savings and loan
holding company under the Home Owners' Loan Act of 1933, as amended ("HOLA"), as
a matter of law will be deemed to affect materially and adversely the economic
or business benefits of the transactions contemplated; (see "-- Regulatory
Approvals Required for the Merger" below); (iv) no issuance of a stop order
suspending the effectiveness of the Registration Statement of which this Proxy
Statement/Prospectus forms a part and no initiation or threat by the Commission
of proceedings for that purpose; (v) no order, injunction or decree issued by
any court or agency of competent jurisdiction or other legal restraint or
prohibition which prohibits the consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement (an "Injunction") will be in
effect; (vi) no statute, rule, regulation, order, injunction or decree will have
been enacted, entered, promulgated or enforced by any governmental authority
which prohibits, restricts or makes illegal consummation of the Merger; and
(vii) Shawmut and Northeast will have received an opinion of Sullivan &
Cromwell, special counsel to Shawmut, in form and substance reasonably
satisfactory to Shawmut and Northeast, as to certain tax consequences described
under "-- Federal Income Tax Consequences" below.
The obligations of Shawmut to effect the Merger are further subject to the
satisfaction, or waiver by Shawmut, of the following conditions: (i) the
representations and warranties of Northeast contained in the Merger Agreement
will 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; (ii) Northeast will have 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 authorities referred to in clause (iii) of
the immediately preceding paragraph) whose consent or approval is required in
order to permit the succession by the surviving corporation in the Merger to any
obligation, right or interest of Northeast or any subsidiary of Northeast under
any agreement or instrument will 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 authority seeking an Injunction
will be pending; (v) DEPCO or a nominee holder or partnership created
specifically for the purpose of holding shares of the Series B Preferred Stock
and the Warrants pursuant to the DEPCO Agreement (a) will own all of the issued
and outstanding shares of the Series B Preferred Stock and will have the right
to elect and will have elected at least one current member of the Northeast
Board and (b) the directors of Northeast elected by DEPCO or any such nominee
pursuant to the terms of the Series B Preferred Stock will represent less than
20% of the number of members of the Northeast Board; and (vi) Shawmut will have
received from Northeast's independent public accountants certain customary
letters with respect to certain financial information of Northeast included in
the Registration Statement.
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The obligations of Northeast to effect the Merger are further subject to
the satisfaction, or waiver by Northeast, of the following conditions: (i) the
representations and warranties of Shawmut contained in the Merger Agreement will
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; (ii) Shawmut will have performed 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
authorities referred to in clause (iii) of the second preceding paragraph) whose
consent or approval is required in connection with the transactions contemplated
by the Merger Agreement under any agreement or instrument 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), will
have been obtained; and (iv) no proceeding initiated by any governmental
authority seeking an Injunction is pending.
No assurance can be provided as to when, or whether, all of 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 June 30, 1995,
the Merger Agreement may be terminated by a vote of a majority of the Board of
Directors of either Shawmut or Northeast, unless the failure to effect the
Merger by such date is due to the breach of an agreement or covenant of the
Merger Agreement by the party seeking to terminate the Merger Agreement.
BANK REORGANIZATION
Shawmut intends that, following the consummation of the Merger, the assets
and liabilities of Northeast Savings will be transferred to national bank
subsidiaries of Shawmut (the "Bank Reorganization"). In the Bank Reorganization,
(i) Northeast Savings will relocate its home office from Hartford, Connecticut
to Saratoga Springs, New York (the "Relocation"), (ii) Shawmut Bank Connecticut,
National Association, a national bank subsidiary of Shawmut ("SBC"), will
acquire each Connecticut branch of Northeast Savings, and Shawmut Bank, National
Association, a national bank subsidiary of Shawmut ("SBM"), will acquire each
Massachusetts branch of Northeast Savings (the "Branch Purchases"), (iii)
Northeast Savings will convert into Shawmut Savings and Loan Association, a New
York stock-form savings and loan association ("SSLA") (the "Conversion"), (iv)
Shawmut Bank New York, National Association ("SBNY") will be chartered (the
"Chartering") and (v) SSLA will be merged with and into SBNY (the "Subsidiary
Merger"). The Bank Reorganization is subject to the prior receipt of certain
regulatory approvals, and there can be no assurance that such approvals will be
obtained or that the Bank Reorganization will be consummated. It is expected
that all requisite regulatory approvals for the Bank Reorganization will be
received prior to, or at the time of, the receipt of all requisite regulatory
approvals for the Merger and, accordingly, that the Bank Reorganization will be
consummated shortly following the Merger. As a result of the conditions set
forth in the letter, dated December 22, 1994, by which the OTS approved the
Merger (the "OTS Approval Letter"), the Merger may not be consummated prior to
receipt of all required regulatory approvals for the Bank Reorganization. See
"-- Regulatory Approvals Required for the Merger."
REGULATORY APPROVALS REQUIRED FOR THE MERGER
The Merger. The Merger is subject to the prior approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") under
Section 4 of the BHC Act, which requires that Shawmut obtain the prior approval
of the Federal Reserve Board for the indirect acquisition of certain nonbanking
companies, including a savings association such as Northeast Savings, which are
engaged in activities that the Federal Reserve Board, by order or regulation,
has determined to be so closely related to banking or to managing or controlling
banks as to be a proper incident thereto. Such approval of the Federal Reserve
Board was received on December 14, 1994 and provides, among other things, that
the Merger must be consummated by March 14, 1995, unless such date is extended
by the Federal Reserve Board. In the event
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such an extension would be needed, no assurances can be provided as to when or
whether such extension would be granted.
The Merger is also subject to approval of the OTS under Section 10(e)(2) of
HOLA, which requires the approval of the OTS before a savings and loan holding
company may acquire control of a savings association or a savings and loan
holding company. HOLA directs the OTS to take into consideration the financial
and managerial resources and future prospects of the company and savings
association involved, the effect of the acquisition on the savings association,
the insurance risk to the Bank Insurance Fund (the "BIF") or the Savings
Association Insurance Fund (the "SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC") and the convenience and needs of the community to be
served. The OTS, however, may not approve a transaction such as the Merger if it
(i) would result in a monopoly, or would be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the savings and loan
business in any part of the United States, or (ii) may substantially lessen
competition in any section of the United States or tend to create a monopoly, or
in any other manner would be in restraint of trade, unless the OTS finds that
the anticompetitive effects of such transaction are clearly outweighed in the
public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served. The OTS approved the Merger
in the OTS Approval Letter. The OTS Approval Letter also approved the
transactions comprising the Bank Reorganization. The OTS Approval Letter
provides, among other things, that (i) the Merger may not be consummated until
receipt of all necessary regulatory approvals for the Bank Reorganization and
(ii) the Merger and Bank Reorganization must be consummated by April 21, 1994,
unless such date is extended by the OTS for good cause. In the event such an
extension would be needed, no assurances can be provided as to when or whether
such extension would be granted.
In addition, the Merger is subject to the approval of the Massachusetts
Board of Bank Incorporation (the "Massachusetts Board") under Chapter 167A,
Section 2 of the Massachusetts General Laws. In granting its approvals under the
Massachusetts statute, the decision of the Massachusetts Board must be based,
among other things, upon finding whether or not competition among banking
institutions will be unreasonably affected and whether public convenience and
advantage will be promoted. In making such determination, the Massachusetts
Board must consider initial capital investments, job creation plans, consumer
and business services, commitments to maintain and open branch offices within a
bank's delineated local community and such other matters as the Massachusetts
Board may deem necessary or advisable. An application for the foregoing approval
has been submitted. In addition, the Massachusetts Board may not approve the
Merger until it has received notice from the Massachusetts Housing Partnership
Fund Board ("MHP") that Shawmut or SBM has made satisfactory arrangements to
agree to lend to the MHP an amount equal to approximately 90 basis points of the
assets located in Massachusetts to be acquired by Shawmut as a result of the
Merger, for the purpose of financing affordable housing in Massachusetts. It is
anticipated that negotiations between the MHP and Shawmut or SBM in this regard
will be held concurrently with the processing of the application now before the
Massachusetts Board.
The Merger is also subject to the filing of an application with the
Connecticut Banking Commissioner under Section 36-423 of the Banking Law of
Connecticut. Under the Connecticut statute, the Connecticut Banking Commissioner
may disapprove the Merger only if it would result in a monopoly, or would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in the state of Connecticut or if the
Connecticut Banking Commissioner should determine that the effect of the
proposed establishment or acquisition may be substantially to lessen
competition, or would tend to create a monopoly, or would be in restraint of
trade, unless the Connecticut Banking Commissioner finds that the
anticompetitive effects of the merger are clearly outweighed in the public
interest by the probable effect of the merger in meeting the convenience and
needs of the community to be served. In addition, the Connecticut Banking
Commissioner must consider whether: (i) the investment and lending policies of
Northeast Savings are consistent with safe and sound banking practices and will
benefit the economy of Connecticut; (ii) the services of Northeast Savings are
consistent with safe and sound banking practices and will benefit the economy of
Connecticut; (iii) the acquisition will not substantially lessen competition in
the banking industry of Connecticut; and (iv) Shawmut (A) has sufficient capital
to ensure, and agrees to ensure, that Northeast Savings will comply with
applicable minimum capital requirements, and (B) has sufficient managerial
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resources to operate Northeast and Northeast Savings in a safe and sound manner.
The Connecticut Banking Commissioner must also find that the subsidiaries of
Shawmut have a record of compliance with the requirements of the Community
Reinvestment Act of 1977 (the "CRA"), and applicable consumer protection laws;
and Northeast Savings will provide adequate services to meet the banking needs
of all community residents, including low income residents and moderate income
residents, in accordance with a plan submitted by Shawmut to the Connecticut
Banking Commissioner. In making such finding, the Connecticut Banking
Commissioner must consider, among other factors, whether the plan identifies
specific unmet credit and consumer banking needs in the local community and
specifies how such needs will be satisfied, provides for sufficient distribution
of banking services among branches or satellite devices, or both, located in low
income neighborhoods, contains adequate assurances that banking services will be
offered on a nondiscriminatory basis and demonstrates a commitment to extend
credit for housing, small business and consumer purposes in low income
neighborhoods. An application for the foregoing approval has been submitted.
The Bank Reorganization. The transactions that are part of the Bank
Reorganization are also subject to the making of applications to and the receipt
of approvals from a number of regulatory agencies.
The Relocation required the approval of the OTS pursuant to 12 C.F.R.
sec.sec. 545.92 and 545.95. As stated above, the OTS approved the Relocation in
the OTS Approval Letter. In granting its approval under such regulations, the
OTS assessed the overall policies, condition and operation of Northeast Savings
as well as its record of helping to meet the credit needs of its entire
community, including low- and moderate-income neighborhoods.
The Branch Purchases will each require the approval of the Office of the
Comptroller of the Currency (the "OCC") pursuant to (i) 12 U.S.C. sec. 215c and
the Bank Merger Act (Section 18(c)(2) of the Federal Deposit Insurance Act (the
"FDIA")), relating to the acquisition of assets and assumption of liabilities by
national banks, and (ii) Section 5(d)(3) of the FDIA, relating to the assumption
of deposit liabilities of a SAIF member (such as Northeast Savings) by a BIF
member (such as SBC and SBM). Applications for the foregoing approvals have been
filed. In addition, a notice was filed with the OTS with respect to each of the
Branch Purchases pursuant to 12 C.F.R. sec. 562.22(h)(2). In granting its
approvals under 12 U.S.C. sec. 215c and the Bank Merger Act, 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. The Bank Merger Act prohibits the OCC from approving a
transaction if (i) 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 (ii) 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 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. A transaction subject to the Bank
Merger Act may not be consummated until the 30th day following the date of
receipt of Bank Merger Act approval, during which time the United States
Department of Justice may challenge the transaction on antitrust grounds, or, if
the OCC has not received any adverse comments from the Department of Justice on
antitrust grounds, such shorter period of time as may be prescribed by the OCC
with the concurrence of the Department of Justice, but in no event less than 15
days after OCC approval, except that the OCC and the Department of Justice may
waive such post-approval waiting period altogether in the case of certain
affiliate transactions. The standards for approval under Section 5(d)(3) of the
FDIA are substantially similar to the standards imposed by the Bank Merger Act.
The Conversion required an application to the New York Banking Department
pursuant to Section 410 of the New York Banking Law and Part 87 of the General
Regulations of the New York Banking Board. Such application has been filed. In
addition, the Conversion must comply with the procedural requirements of the OTS
set forth in Section 5(i)(3) of HOLA.
The Chartering required (i) an application to the OCC to charter SBNY, (ii)
an application to the Federal Reserve Board pursuant to Sections 3(a)(1) and (3)
of the BHC Act for Shawmut to acquire SBNY and for Northeast to become a bank
holding company, (iii) an application to the New York Banking Board
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pursuant to Section 142 of the New York Banking Law to authorize Shawmut to
become a New York bank holding company and an application to the New York
Banking Department pursuant to Section 142-b(1) of the New York Banking Law for
a determination that Shawmut, a non-New York bank holding company, may acquire
SBNY, a national bank located in New York, and (iv) an application to the
Massachusetts Board pursuant to Chapter 167A, Section 2 of the Massachusetts
General Laws to authorize Shawmut to acquire SBNY. Such applications have been
filed. In addition, SBNY must submit an application for subscription for the
capital stock of the Federal Reserve Bank of New York under Section 2 of the
Federal Reserve Act.
In considering a charter application, the OCC must consider, among other
things, (i) the bank's future earnings prospects, (ii) the general character of
its management, (iii) the adequacy of its capital structure, (iv) the
convenience and needs of the community to be served by the bank, (v) the
financial history and condition of the bank and (vi) whether or not the bank has
complied with all provisions of the National Bank Act and whether or not its
corporate powers are consistent with the purposes of the FDIA. On November 21,
1994, the OCC approved the organization of SBNY as an interim national bank.
Certain additional approvals of the OCC are required to complete the
establishment of SBNY.
The standards for approval under Section 3 of the BHC Act are substantially
similar to those standards described above with respect to the Bank Merger Act.
The Federal Reserve Board has the authority to deny an application under Section
3 of the BHC Act if it concludes that the combined organization would have an
inadequate capital position or if the acquiring organization does not meet the
requirements of the CRA. Section 3(d) of the BHC Act as currently in effect
prohibits the Federal Reserve Board from approving the acquisition by a bank
holding company of a bank located in a state other than such bank holding
company's principal state of operations unless the laws of the state in which
the bank to be acquired is located expressly permit such acquisition. For
purposes of Section 3(d) of the BHC Act, Shawmut's principal state of operation
is Massachusetts. New York, which is the state in which SBNY is located, has
enacted legislation that permits the acquisition of a New York bank by a bank
holding company located in another state so long as that state permits a bank
holding company, the principal operations of which are located in New York, to
acquire a bank located in such state under conditions substantially the same as
those imposed by the laws of New York. On January 4, 1995, the New York Banking
Department issued a determination that Massachusetts satisfies the standards of
such legislation. On January 24, 1995, the Federal Reserve Board approved the
application of Shawmut under Section 3 of the BHC Act to acquire SBNY. Under
Section 3 of the BHC Act, the acquisition of a bank may not be consummated until
the 30th day following the date of Federal Reserve Board approval, during which
time the United States Department of Justice may challenge the transaction on
antitrust grounds, or if the Federal Reserve Board has not received any adverse
comments from the Department of Justice on antitrust grounds, such shorter
period of time as may be prescribed by the Federal Reserve Board with the
concurrence of the Department of Justice, but in no event less than 15 days
after Federal Reserve Board approval. The commencement of any antitrust action
would stay the effectiveness of the Federal Reserve Board's approval unless a
court specifically orders otherwise. In its approval of the acquisition of SBNY
by Shawmut, the Federal Reserve Board required such acquisition to be
consummated no later than three months after January 24, 1995, unless such date
is extended by the Federal Reserve Board. In the event such an extension would
be needed, no assurances can be given as to when or whether such extension would
be granted.
New York law requires the New York Banking Board, in determining whether or
not to approve an application under Section 142 of the New York Banking Law, to
take into consideration, among other things, (i) whether the proposed
transaction would be inconsistent with adequate or sound banking or would result
in such a lessening of competition as to be injurious to the interest of the
public or tend toward monopoly and (ii) the public interest and the needs and
convenience thereof. Section 142-b(1) of the New York Banking Law requires any
acquisition of a New York bank by an out-of-state bank holding company to be
approved by the Superintendent of Banks of the State of New York and prohibits
the approval of any such acquisition unless the principal state of operations of
such bank holding company permits a bank holding company, the principal
operations of which are located in New York, to acquire a bank located in such
state under conditions substantially the same as those imposed by the laws of
New York. For purposes of Section 142-b(1) of the New York Banking Law,
Shawmut's principal state of operation is Connecticut. On December 1, 1994, (i)
the New York Banking Board approved Shawmut's application pursuant to Section
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142 of the New York Banking Law to become a New York bank holding company as a
result of Shawmut's acquisition of SBNY and (ii) the Superintendent of Banks of
the State of New York approved Shawmut's application under Section 142-b of the
New York Banking Law to acquire SBNY.
The standards for approval under Massachusetts law are discussed above.
The Subsidiary Merger required (i) an application to the OCC pursuant to 12
U.S.C. sec. 215c and the Bank Merger Act and (ii) an application to the New York
Banking Department pursuant to Section 600(7) of the New York Banking Law and
Part 16 of the General Regulations of the New York Banking Board. Applications
for the foregoing approvals have been submitted. In addition, a notice to the
OTS was filed with respect to the Subsidiary Merger pursuant to 12 C.F.R.
sec. 562.22(h). The standards for approval under 12 U.S.C. sec. 215c and the
Bank Merger Act are discussed above. The standards for approval by the New York
Banking Department are substantially similar to those discussed above with
respect to Section 142 of the New York Banking Law.
The Merger cannot proceed in the absence of the requisite regulatory
approvals for the Merger. In addition, the OTS Approval Letter requires the
receipt of all necessary regulatory approvals for the Bank Reorganization as a
condition to the consummation of the Merger. See "-- Conditions to Consummation
of the Merger" and "-- Waiver and Amendment; Termination." THERE CAN BE NO
ASSURANCE THAT ALL OF REQUIRED REGULATORY APPROVALS WILL BE OBTAINED, AND, IF
THE MERGER IS APPROVED, THERE CAN BE NO ASSURANCE AS TO THE DATE OF ANY SUCH
APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT ANY SUCH APPROVALS WILL NOT
CONTAIN A CONDITION OR REQUIREMENT THAT CAUSES SUCH APPROVALS TO FAIL TO SATISFY
THE CONDITIONS SET FORTH IN THE MERGER AGREEMENT AND DESCRIBED ABOVE UNDER
"-- CONDITIONS TO CONSUMMATION OF THE MERGER."
Shawmut and Northeast are not aware of any material governmental approvals
or actions that are required for consummation of the Merger (as currently
structured), except as described above. A restructuring of the Merger could
result in different approvals being required. Should any other approval or
action be required, it is presently contemplated that such approval or action
would be sought.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, Northeast has agreed that until the
Effective Time, except as provided in the Merger Agreement or with the prior
consent of Shawmut, Northeast and its subsidiaries will carry on their
respective businesses in the ordinary course consistent with prudent banking
practices. Northeast has agreed to, and to use its best efforts to cause its
subsidiaries to, (i) preserve intact its and their business organizations; (ii)
keep available to itself and Shawmut the present services of its and their
employees; and (iii) preserve intact for itself and Shawmut the goodwill of its
and their customers and others with whom business relationships exist.
The Merger Agreement also contains certain restrictions on the conduct of
Northeast's business pending consummation of the Merger. In particular, the
Merger Agreement provides that, except with the prior written consent of Shawmut
and subject to certain exceptions, Northeast and its subsidiaries may not, among
other things: (i) solely in the case of Northeast, declare or pay any dividends
on, or make any other distributions in respect of, any of its capital stock
except for regular dividends on the Series B Preferred Stock; (ii) (a) adjust,
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 (other than payment of
regular dividends on the Series B Preferred Stock) or grant any stock
appreciation rights except upon the exercise or fulfillment of rights or options
issued or existing pursuant to plans, programs or arrangements in existence on
the date of the Merger Agreement or (b) repurchase, redeem or otherwise acquire
(except for the acquisition of Trust Account Shares and DPC Shares or as
required by the DEPCO Agreement) any shares of the capital stock of Northeast or
any of its subsidiaries or securities convertible into or exchangeable therefor;
(iii) issue, deliver or sell, or authorize or propose the issuance, delivery or
sale of, any shares of its capital stock (other than payment of regular
dividends on the Series B Preferred Stock) or securities convertible into or
exchangeable therefor or any rights or warrants or options to acquire shares or
enter into any agreement with respect to the foregoing, other than grants of
options to directors and the issuance of common stock upon exercise of options;
(iv) amend its Certificate of Incorporation or By-laws; (v) make any
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capital expenditures other than in the ordinary course of business, as necessary
to maintain existing assets in good repair or certain other contemplated capital
expenditures; (vi) enter into any new or materially alter or expand any present
line of business other than certain contemplated new lines of businesses, or
material alterations or expansions of present lines of business; (vii) acquire
or agree to acquire any business or division thereof or otherwise acquire any
assets (other than in the ordinary course of business); (viii) except as
required by law, take any action that is intended or could 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; (ix) change its methods of accounting in
effect at March 31, 1994; (x) (a) adopt, amend, renew (for a term longer than
the prior term) or terminate (except as may be required by law) any employee
benefit plan or agreement, arrangement, plan or policy between Northeast 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 (for a term longer than the prior term) any
contract, agreement, commitment or arrangement providing for the payment to any
director, officer or employee 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; (xi) take or cause to be
taken any action that would cause the Merger to fail to qualify as a tax-free
reorganization under Section 368 of the Code; (xii) other than in the ordinary
course of business consistent with prudent banking practice dispose or agree to
dispose of its material assets, properties or other rights or agreements; (xiii)
other than in the ordinary course of business consistent with prudent banking
practice, 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
Northeast's or its subsidiaries' banking offices (other than the move of
Northeast's head office to Farmington, Connecticut); (xv) breach or default on
any regulatory agreement or materially breach or default on any material
contract or license to which Northeast or any of its subsidiaries is a party or
by which any of them or their respective properties is bound; (xvi) 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
Northeast or any of its subsidiaries is a party or by which Northeast or any of
its subsidiaries or their respective property is bound, except that Northeast
may renew contracts, agreements or leases in the ordinary course of business
after consultation with Shawmut; (xviii) settle any claim, action or proceeding
involving any liability of Northeast or any subsidiary of Northeast for material
money damages or material restrictions upon the operation of Northeast or any
subsidiary of Northeast; (xix) take any other action that would materially
adversely affect or materially delay the ability of Shawmut or Northeast to
obtain the requisite regulatory approvals or otherwise materially adversely
affect Shawmut's ability to consummate the transactions contemplated by this
agreement; or (xx) authorize or enter into any agreement or commitment to do any
of the foregoing.
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 Northeast, Shawmut and its subsidiaries will carry on their
respective businesses in the ordinary course consistent with prudent banking
practice. The Merger Agreement also provides, among other things, that Shawmut
will not and will not permit any of its subsidiaries to: (i) 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, except as may be required by applicable law; (ii) take or cause to be
taken any action that would cause the Merger to fail to qualify as a tax-free
reorganization under Section 368 of the Code; (iii) take any action that would
materially adversely affect or materially delay the ability of Shawmut or
Northeast to obtain the regulatory approvals required to consummate the Merger
or otherwise materially adversely affect Shawmut's ability to consummate the
transaction contemplated by this Agreement; (iv) solely in the case of Shawmut,
declare or pay any dividend on, or make any other distributions in respect of,
Shawmut Common Stock except for regular dividends and dividends or distributions
in Shawmut Common Stock; (v) consolidate with or merge into any other person or
convey, transfer or lease its properties and assets substantially as an
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entirety to any person unless such person shall expressly assume the obligations
of Shawmut under the Merger Agreement; or (vi) authorize or enter into any
agreement or commitment 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
or authorized by the Boards of Directors of Shawmut and Northeast, provided that
after the vote of the stockholders of Northeast the Merger Agreement may not be
amended to reduce the amount or change the form of the consideration to be
received by Northeast stockholders.
The Merger Agreement may be terminated at any time prior to the Effective
Time, either before or after its approval by the Northeast stockholders, as
follows: (i) by the mutual consent of Shawmut and Northeast if the majority of
the Boards of Directors of each so determines; (ii) by either Shawmut or
Northeast 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 authority that 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 authority
(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 authority 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 Northeast if its Board of Directors so determines, in the event that
the Merger has not been consummated by June 30, 1995, unless the failure to
consummate the Merger is due to a breach of an agreement or covenant of the
Merger Agreement by the party seeking to terminate the Merger Agreement; (iv) by
either Shawmut or Northeast, if the Northeast stockholders fail to approve the
Merger Agreement (provided that if Northeast is the terminating party, it is not
in breach of its obligations in the Merger Agreement with respect to other
takeover proposals (as defined below) or the meeting of its stockholders to
approve the Merger Agreement); (v) by either Shawmut or Northeast 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 Northeast, by action of
a majority of its Board of Directors, by giving written notice of such election
to Shawmut within the five day period commencing with the Determination Date, in
the event the Shawmut Common Stock Average Price on the Determination Date is
less than $21.465 per share, provided that no right of termination will arise
under this provision if Shawmut elects within three 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 Determination Date) to be paid in
respect of shares of Northeast Common Stock is at least equal to $10.875 per
share. See "-- Exchange Ratio" above.
In the event of the termination of the Merger Agreement by either Shawmut
or Northeast, neither Shawmut nor Northeast will have any further obligations
under the Merger Agreement except (i) for certain specified provisions of the
Merger Agreement relating to confidentiality and expenses; (ii) any payments by
Northeast to Shawmut following the occurrence of a "Purchase Event" described
below; and (iii) 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.
Pursuant to the Merger Agreement, Northeast has agreed to pay Shawmut a fee
of $11,000,000 following the occurrence of a Purchase Event.
A "Purchase Event" means either of the following events or transactions:
(1) The acquisition by any person, other than Shawmut or any
subsidiary of Shawmut, alone or together with such person's affiliates and
associates, or any group, of beneficial ownership of 50% or more of
Northeast Common Stock; or
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(2) Northeast or any subsidiaries of Northeast, without having
received Shawmut's prior written consent, enter into an agreement to engage
in an Acquisition Transaction (as defined below) (except that the
percentage referred to in clause (c) below is 50%) with any person other
than Shawmut or any subsidiaries of Shawmut or the Northeast Board
recommends that the shareholders of Northeast approve or accept any
Acquisition Transaction (except that the percentage referred to in clause
(c) below is 50%) with any person other than Shawmut or any subsidiaries of
Shawmut. Under the Merger Agreement, "Acquisition Transaction" means (a) a
merger or consolidation, or any similar transaction, involving Northeast or
any significant subsidiary of Northeast, (b) a purchase, lease or other
acquisition of all or substantially all of the assets or deposits of
Northeast or any significant subsidiaries of Northeast, or (c) a purchase
or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of the voting
power of Northeast or a significant subsidiary of Northeast; provided that
the term "Acquisition Transaction" does not include any internal merger or
consolidation involving only Northeast and/or a subsidiary of Northeast.
The right to receive the fee terminates if any of the following occurs
prior to a Purchase Event: (i) the Effective Time, (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of a Preliminary Purchase Event (as defined
below), except a termination by Shawmut pursuant to the Merger Agreement upon a
material breach of a representation, warranty, covenant, or other agreement by
Northeast (unless the breach by Northeast is non-volitional), or (iii) if
termination of the Merger Agreement follows the occurrence of a Preliminary
Purchase Event, (x) the passage of twenty-four months after termination of the
Merger Agreement (eighteen months in the case of a Preliminary Purchase Event
listed in clause (4) or (5) below) if such termination is by Shawmut pursuant to
the Merger Agreement upon a material breach of a representation, warranty,
covenant, or other agreement by Northeast (unless the breach by Northeast is
non-volitional) or upon the failure to obtain the approval of the stockholders
of Northeast for the consummation of the Merger, or (y) if such termination is
otherwise pursuant to the Merger Agreement.
A "Preliminary Purchase Event" means any of the following events or
transactions:
(1) Northeast or any subsidiary of Northeast without having received
Shawmut's prior written consent enters into an agreement to engage in an
Acquisition Transaction with any person other than Shawmut or any
subsidiary of Shawmut or the Northeast Board recommends that the
shareholders of Northeast approve or accept any Acquisition Transaction
with any person other than Shawmut or any subsidiary of Shawmut;
(2) (A) Any person (other than Shawmut or any subsidiary of Shawmut)
acquires beneficial ownership or the right to acquire beneficial ownership
of 10% or more of the outstanding shares of Northeast Common Stock, or (B)
any group, other than a group of which Shawmut or any subsidiary of Shawmut
is a member, beneficially owns 10% or more of the Northeast Common Stock
then outstanding;
(3) Any person other than Shawmut or any subsidiary of Shawmut has
made a bona fide proposal to Northeast or its stockholders, by public
announcement or written communication that is or becomes the subject of
public disclosure, to engage in an Acquisition Transaction (including,
without limitation, any situation, which any person other than Shawmut or
any subsidiary of Shawmut has commenced or has filed a registration
statement under the Securities Act with respect to a tender offer or
exchange offer to purchase any shares of Northeast Common Stock such that,
upon consummation of such offer, such person would own or control 10% or
more of the then outstanding shares of Northeast Common Stock (such an
offering referred to herein as a "Tender Offer" or an "Exchange Offer,"
respectively));
(4) After a proposal is made by a third party to Northeast or its
stockholders to engage in an Acquisition Transaction, or such third party
states its intention to Northeast to make such a proposal if the Merger
Agreement terminates, Northeast breaches any representation, covenant or
obligation contained in the Merger Agreement and such breach would entitle
Shawmut to terminate the Merger Agreement (without regard to the cure
periods provided for therein unless such cure is promptly effected without
jeopardizing consummation of the Merger pursuant to the terms of the Merger
Agreement); or
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(5) The holders of Northeast Common Stock do not approve the Merger
Agreement at the Special Meeting or such meeting is not held or is canceled
prior to termination of the Merger Agreement, in each case after any person
(other than Shawmut or any subsidiary of Shawmut) (A) makes, or discloses
an intention to make, a bona fide proposal to engage in an Acquisition
Transaction or (B) commences a Tender Offer or files a registration
statement under the Securities Act with respect to an Exchange Offer.
NO SOLICITATION OF TRANSACTIONS
Northeast 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 directly or indirectly to 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 Northeast Board, as advised in writing
by such board's outside 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, however, that Northeast may communicate information about
any such takeover proposal to its stockholders if, in the judgment of the
Northeast Board with the written advice of such Board's outside counsel, such
communication is required under applicable law. Northeast has agreed to cease
any activities, discussions or negotiations previously conducted with any
parties other than Shawmut with respect to any of the foregoing and will demand
the return of any confidential information provided to any other person and will
enforce its rights, under any confidentiality agreement, to the return of any
confidential information in the event any such other person does not return such
information; 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 Northeast or any subsidiary of Northeast or any proposal
or offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets or deposits of, Northeast or any subsidiary of
Northeast other than the transactions contemplated or permitted by the Merger
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 Northeast stockholder who is an
"affiliate" of Northeast 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 Northeast. Persons who may be deemed to be affiliates of Northeast generally
include individuals or entities that control, are controlled by or are under
common control with Northeast, and may include certain officers and directors as
well as principal stockholders of Northeast.
Northeast 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) of such party to deliver to Shawmut a written agreement intended
to ensure compliance with the Securities Act.
STOCK EXCHANGE LISTING
Shawmut Common Stock is listed on the NYSE. Shawmut has agreed to use its
best efforts 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.
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ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a "purchase" for accounting and
financial reporting purposes. Under the purchase method of accounting, the
assets and liabilities of the company not surviving a merger are, as of the
Effective Time, recorded at their respective fair values and added to those of
the surviving company. Financial statements of the surviving company issued
after consummation of a merger reflect such values and are not restated
retroactively to reflect the historical financial position or results of
operations of the company not surviving.
The unaudited pro forma condensed financial information contained in this
Proxy Statement/Prospectus has been prepared using the purchase method of
accounting to account for the Merger. See "UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The federal income tax discussion set forth below is included for general
information only. It may not be applicable to certain classes of taxpayers,
including securities dealers, foreign persons, persons who acquired shares of
Northeast Common Stock pursuant to the exercise of employee stock options or
rights or otherwise as compensation and persons who hold shares of Northeast
Common Stock as part of a "straddle" or "conversion" transaction as defined in
Sections 1092(c) and 1258(c) of the Code. Northeast shareholders are urged to
consult their own tax advisers as to the specific tax consequences to them of
the Merger, including the applicability and effect of federal, state, local and
other tax laws.
General. It is intended that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code, and that,
accordingly, for federal income tax purposes: (i) no gain or loss will be
recognized by Merger Sub, Shawmut or Northeast as a result of the Merger; (ii)
no gain or loss will be recognized by holders of Northeast Common Stock upon the
receipt of Shawmut Common Stock in exchange for Northeast Common Stock in the
Merger (except as discussed below with respect to cash received in lieu of a
fractional share interest in Shawmut Common Stock) as a result of the Merger or
the Bank Reorganization; (iii) the aggregate adjusted tax basis of the shares of
Shawmut Common Stock to be received by each holder of Northeast Common Stock in
the Merger will be the same as the aggregate adjusted tax basis in the shares of
Northeast Common Stock surrendered in exchange therefor (reduced by any amount
allocable to fractional share interests for which cash is to be received); and
(iv) the holding period of the shares of Shawmut Common Stock to be received by
each holder of Northeast Common Stock in the Merger will include the holding
period of the shares of Northeast Common Stock surrendered in exchange therefor,
provided, that such shares of Northeast Common Stock are held as capital assets
at the Effective Time.
The discussion of federal income tax considerations above summarizes the
opinion of Sullivan & Cromwell. Consummation of the Merger is conditioned upon
receipt by each of Shawmut and Northeast of an opinion, dated as of the
Effective Time, of Sullivan & Cromwell, special counsel to Shawmut, describing
certain federal income tax consequences of the Merger. In rendering its opinions
Sullivan & Cromwell is relying on certain assumptions and representations made
by Shawmut and Northeast as provided in the opinion letters.
Consequences of Receipt of Cash in Lieu of Fractional Shares. A holder of
shares of Northeast Common Stock who receives cash in the Merger in lieu of a
fractional share interest in Shawmut Common Stock will be treated for federal
income tax purposes as having received cash in redemption of such fractional
share interest. The receipt of such cash generally should result in capital gain
or loss, in an amount equal to the difference between the amount of cash
received and the portion of such shareholder's adjusted tax basis in the shares
of Northeast Common Stock allocable to the fractional share interest. Such
capital gain or loss will be long-term capital gain or loss if the holding
period (determined as described above) for the fractional shares of Shawmut
Common Stock deemed to be received and then redeemed is more than one year.
HOLDERS OF NORTHEAST COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
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THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
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 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.
Northeast stockholders are not entitled to appraisal rights generally because
the shares of Northeast Common Stock are listed on the NYSE, a national
securities exchange, 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 NYSE 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 REGULATORY CONSIDERATIONS
SUPERVISION AND REGULATION -- GENERAL
Shawmut is a bank holding company subject to supervision and regulation by
the Federal Reserve Board pursuant to the BHC Act, and files with the Federal
Reserve Board an annual report and such additional reports as the Federal
Reserve Board may require. As a bank holding company, Shawmut's activities and
those of its banking and nonbanking subsidiaries are limited to the business of
banking and activities closely related or incidental to banking, and Shawmut may
not directly or indirectly acquire the ownership or control of more than 5% of
any class of voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal Reserve Board. As a
result of Shawmut's acquisition of Guardian Bank (now known as Shawmut Bank, FSB
("SBFSB")), a federal savings bank located in Boca Raton, Florida, Shawmut is
subject to supervision and regulation by the OTS as a savings and loan holding
company under HOLA.
Shawmut's banking and savings association subsidiaries (collectively, the
"subsidiary banks") are subject to supervision and examination by various
regulatory authorities. The OCC is the primary bank supervisor of Shawmut's
national bank subsidiaries, SBC and SBM. Shawmut Bank NH ("SBNH"), a state
non-member bank, is supervised by the State of New Hampshire Banking Department
and the FDIC. SBFSB is supervised by the OTS. The deposits of Shawmut's
subsidiary banks are insured by, and therefore the subsidiary banks are subject
to the regulations of, the FDIC and are also subject to requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be granted and the interest that may be charged thereon, and limitations on
the types of investments that may be made and the types of services that may be
offered. Various consumer laws and regulations also affect the operations of
Shawmut's subsidiary banks.
HOLDING COMPANY LIABILITY
Federal Reserve Board policy requires bank holding companies to serve as a
source of financial strength to their subsidiary banks by standing ready to use
available resources to provide adequate capital funds to subsidiary banks during
periods of financial stress or adversity. A bank holding company also could be
liable
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under certain provisions of banking law for the capital deficiencies of an
undercapitalized bank subsidiary. In the event of a bank holding company's
bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be
deemed to have assumed and is required to cure immediately any deficit under any
commitment by the debtor to any of the federal banking agencies to maintain the
capital of an insured depository institution, and any claim for a subsequent
breach of such obligation will generally have priority over most other unsecured
claims.
TRANSACTIONS WITH AFFILIATES
Shawmut's subsidiary banks are subject to restrictions under federal law
which limit certain transactions by each of them with Shawmut and its nonbanking
subsidiaries, including loans, other extensions of credit, investments or asset
purchases. Such transactions by any subsidiary bank with any one affiliate are
limited in amount to 10% of such subsidiary bank's capital and surplus and with
all affiliates to 20% of such subsidiary bank's capital and surplus.
Furthermore, such loans and extensions of credit, as well as certain other
transactions, are required to be secured in accordance with specific statutory
requirements. The purchase of low quality assets from affiliates is generally
prohibited. Federal law also provides that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same, or at least as
favorable to, the institution as those prevailing at the time for comparable
transactions involving other non-qualified companies or, in the absence of
comparable transactions, on terms and under circumstances, including credit
standards, that in good faith would be offered to, or would apply to,
nonaffiliated companies. Further, Shawmut and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
CAPITAL
Certain regulations of the federal banking agencies require the maintenance
of minimum risk-based capital ratios, which are calculated with reference to
risk-weighted assets, which include on- and off-balance sheet exposures. The
federal banking agencies have established risk-based capital and leverage ratio
guidelines that apply to Shawmut and its subsidiary banks. The minimum total
risk-based capital to risk-weighted assets ratio requirement is 8%, of which
one-half must be comprised of common equity, qualifying perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries, less deductible intangibles ("Tier 1 capital"). The leverage ratio
guidelines require a minimum ratio of Tier 1 capital to average quarterly
tangible assets of at least 3%. This leverage ratio is the minimum requirement
for the most highly rated banking organizations and other banking organizations
are expected to maintain a ratio at least 100 to 200 basis points higher. The
capital ratios of Shawmut and its subsidiary banks as of December 31, 1994
exceeded all general minimum capital requirements imposed by the federal banking
agencies.
In addition to considering specific minimum capital levels, bank regulators
review capital adequacy in light of a variety of factors, including asset
quality. Therefore, the capital adequacy of a banking organization will be
impacted by, and assessed in relation to, its asset quality. In addition,
institutions which meet minimum regulatory capital requirements but are not
"well capitalized" are subject to certain restrictions and disadvantages, such
as restrictions on the receipt of brokered deposits.
Failure to satisfy the minimum capital standards of the regulatory
guidelines and requirements could subject a banking organization to enforcement
action by the regulatory authorities, including the termination of FDIC deposit
insurance.
REGULATORY RESTRICTIONS ON DIVIDENDS
It is the policy of the Federal Reserve Board that bank holding companies
should pay cash dividends on common stock only out of income available over the
past year 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
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dividends received from its banks and other subsidiaries and interest earned on
short-term investments and advances to subsidiaries. In addition, the OCC and
the FDIC have issued policy statements that provide that insured banks should
generally only pay dividends out of current operating earnings. In addition,
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 losses. Under the recent earnings test, which is the
more restrictive of the two tests, at January 1, 1995, SBC and SBM could pay up
to $170.8 million and $180.4 million, respectively, in dividends to Shawmut. SBC
and SBM had undivided profits of $319.9 million and $558.1 million,
respectively, at December 31, 1994.
In addition, the Federal regulatory agencies are authorized to prohibit a
banking organization from engaging in an unsafe or unsound banking practice.
Depending upon the circumstances, the agencies could take the position that
paying a dividend would constitute an unsafe or unsound banking practice.
FIRREA
Federal legislation that affects the competitive environment for Shawmut
and its subsidiaries includes FIRREA which, among other things, provides for the
acquisition of thrift institutions by bank holding companies, increases deposit
insurance assessments for insured banks, broadens the enforcement power of
federal bank regulatory agencies, and provides that any FDIC-insured depository
institution may be liable for any loss incurred by the FDIC, or any loss which
the FDIC reasonably anticipates incurring, in connection with the default of any
commonly controlled FDIC-insured depository institution or any assistance
provided by the FDIC to any such institution in danger of default.
FDICIA
FDICIA substantially revised the depository institution regulatory and
funding provisions of FDIA and several other federal banking statutes. Among
other things, FDICIA required the federal banking regulators to broaden the
scope of the regulatory corrective action taken with respect to depository
institutions that do not meet minimum capital requirements and to take such
action promptly.
FDICIA established five capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized" and required federal banking regulators to
establish capital measures with respect to each category. Under OCC, FDIC and
OTS regulations, a "well capitalized" institution has a minimum total capital to
total risk-weighted assets ratio of at least 10%, a minimum Tier 1 capital to
total risk-weighted assets ratio of at least 6%, a minimum leverage ratio of at
least 5% and is not subject to any written order, agreement, or directive to
meet and maintain a specific capital level for any capital measure. An
"adequately capitalized" institution has a total capital to total risk-weighted
assets ratio of at least 8%, a Tier 1 capital to total risk-weighted assets
ratio of at least 4%, and a leverage ratio of at least 4% (3% if given the
highest regulatory rating and not experiencing significant growth), but does not
qualify as "well capitalized." An "undercapitalized" institution fails to meet
any one of the three minimum capital requirements. A "significantly
undercapitalized" institution has a total capital to total risk-weighted assets
ratio of less than 6%, a Tier 1 capital to total risk-weighted assets ratio of
less than 3% or a leverage ratio of less than 3%. A "critically
undercapitalized" institution has a ratio of tangible equity to quarterly
average tangible assets of 2% or less. Under certain circumstances, a "well
capitalized," "adequately capitalized" or "undercapitalized" institution may be
required to comply with supervisory actions as if the institution were in the
next lowest capital category. Each of Shawmut's subsidiary banks was considered
well capitalized as of December 31, 1994.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution
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would thereafter be undercapitalized. Undercapitalized depository institutions
are subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth and
activity limitations and are required to submit "acceptable" capital restoration
plans. Such a plan will not be accepted unless, among other things, the
depository institution's holding company guarantees the capital plan, up to an
amount equal to the lesser of 5% of the depository institution's total assets at
the time it became undercapitalized and the amount of the capital deficiency
when the institution fails to comply with the plan. The federal banking agencies
may not accept a capital plan without determining, among other things, that the
plan is based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized and
may be placed into conservatorship or receivership.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, more stringent requirements to
reduce total assets, cessation of receipt of deposits from correspondent banks,
further activity restricting prohibitions on dividends to the holding company
and requirements that the holding company divest its bank subsidiary, in certain
instances. Subject to certain exceptions, critically undercapitalized depository
institutions must have a conservator or receiver appointed for them within a
certain period after becoming critically undercapitalized.
Brokered Deposits. FDIC regulations adopted under FDICIA prohibit an
FDIC-insured bank or savings association from accepting brokered deposits (which
term is defined to include any deposit obtained, directly or indirectly, from
any person engaged in the business of placing deposits with, or selling
interests in deposits of, an insured depository institution) unless (i) it is
well capitalized, or (ii) it is adequately capitalized and receives a waiver
from the FDIC. A bank or savings association that is adequately capitalized and
that accepts brokered deposits under a waiver from the FDIC may not pay an
interest rate on any deposit in excess of 75 basis points over certain
prevailing market rates. There are no such restrictions on a bank or savings
association that is well capitalized. Shawmut does not believe that the brokered
deposits regulation will have a material effect on the funding or liquidity of
any of Shawmut's subsidiary banks.
FDIC Insurance Assessments. Shawmut's subsidiaries, the deposits of which
are insured by the FDIC, are subject to FDIC deposit insurance assessments.
The FDIC has adopted a risk-based assessment system under which the
assessment rate for an insured depository institution varies according to the
level of risk involved in its activities. An institution's risk category is
based partly upon whether the institution is well capitalized, adequately
capitalized or less than adequately capitalized. Each insured depository
institution is assigned to one of the following "supervisory subgroups": "A",
"B" or "C". Subgroup "A" institutions are financially sound institutions with
only a few minor weaknesses. Subgroup "B" institutions are institutions that
demonstrate weaknesses which, if not corrected, could result in significant
deterioration. Subgroup "C" institutions are institutions for which there is a
substantial probability that the FDIC will suffer a loss in connection with the
institution unless effective action is taken to correct the areas of weakness.
Based on its capital and supervisory subgroups, each BIF and SAIF member
institution is assigned an annual FDIC assessment rate varying between 0.23
percent and 0.31 percent of deposits. The FDIC has proposed to establish a new
BIF assessment rate schedule providing for assessments of from 0.04 percent to
0.31 percent of deposits, depending on an institution's assigned risk category;
such proposal would not apply to SAIF assessment rates. It remains possible that
assessments will be raised to higher levels in the future. The FDIC is also
authorized to impose special additional assessments.
Conservatorship and Receivership Powers of Federal Banking
Agencies. FDICIA significantly expanded the authority of the federal banking
regulators to place depository institutions into conservatorship or receivership
to include, among other things, appointment of the FDIC as conservator or
receiver of an undercapitalized institution under certain circumstances. In the
event a bank is placed into conservatorship or receivership, the FDIC is
required, subject to certain exceptions, to choose the method for resolving the
institution that is least costly to BIF or SAIF, as the case may be, such as
liquidation. In any event, if any of Shawmut's subsidiary banks were placed into
conservatorship or receivership, because of the cross-guarantee
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provisions of the FDIA, Shawmut, as the sole stockholder of Shawmut's subsidiary
banks, would likely lose its investment in its subsidiary banks.
The FDIC may provide federal assistance to a "troubled institution" without
placing the institution into conservatorship or receivership. In such case,
pre-existing debtholders and shareholders may be required to make substantial
concessions and, insofar as practical, the FDIC will succeed to their interests
in proportion to the amount of federal assistance provided.
Various other legislation, including proposals to overhaul the banking
regulatory system and to limit the investments that a depository institution may
make with insured funds are from time to time introduced in Congress. Shawmut
cannot determine the ultimate effect that FDICIA and the implementing
regulations to be adopted thereunder, or any other potential legislation, if
enacted, would have upon its financial condition or results of operations.
Safety and Soundness Standards. FDICIA requires that federal bank
regulators prescribe by regulation the depository institution and depository
institution holding company standards relating to internal controls, information
systems, internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, and employee compensation, fees and
benefits as well as standards specifying minimum earnings sufficient to absorb
losses without impairing capital, and, to the extent feasible, a minimum ratio
of market value to book value for publicly traded shares and such other
standards relating to the foregoing as it deems appropriate. A holding company
or institution that fails to comply with such standards will be required to
submit a plan designed to achieve such compliance. If no such plan is submitted
or a failure to implement such a plan exists, the depository institution or
holding company would become subject to additional regulatory action or
enforcement proceedings. Under FDICIA, final regulations under such provisions
should have become effective no later than December 1, 1993. Because the
standards have not yet been prescribed in final form, Shawmut cannot assess the
significance of the impact such standards will have on its operations, which
could be material.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The recently enacted Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") authorizes (i) interstate
acquisitions of banks by bank holding companies without geographic limitation
beginning September 29, 1995, (ii) interstate mergers between insured banks with
different home states, subject to the ability of states to opt-out, and (iii)
any state to enact laws permitting de novo branching by banks with a home state
other than such state. Specifically, beginning June 1, 1997, a bank may merge
with a bank with a different home state so long as neither of the home states
have opted out of interstate branching between the date of enactment of the
Interstate Act and May 31, 1997. Once a bank has established branches in a state
through an interstate merger transaction, such bank may establish and acquire
additional branches at any location in that state where any bank involved in the
interstate merger transaction could have established or acquired branches under
applicable Federal or state law. The Interstate Act further provides that states
may enact laws permitting interstate merger transactions prior to June 1, 1997.
If a state opts out of interstate branching within the specified time period, no
bank in any other state may establish a branch in that state, either through an
acquisition or de novo.
DESCRIPTION OF SHAWMUT CAPITAL STOCK
GENERAL
The authorized capital stock of Shawmut consists of 300,000,000 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 determines. As of
January 31, 1995, there were issued 121,586,053 shares of Shawmut Common Stock
(including 13,390 shares of treasury stock), 700,000 shares of Shawmut Preferred
Stock designated as Preferred Stock with Cumulative and Adjustable Dividends
(the "Adjustable Preferred"), 575,000 shares of Shawmut Preferred Stock
designated as 9.30% Cumulative Preferred Stock (the "9.30% Cumulative
Preferred") and 500,000
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shares of Shawmut Preferred Stock designated as 9.35% Cumulative Preferred Stock
(the "9.35% Cumulative Preferred") .
As of January 31, 1995, approximately 9,409,380 shares of Shawmut Common
Stock had been reserved for issuance upon the exercise of outstanding stock
options under various employee incentive and purchase plans, 10,314,108 shares
of Shawmut Common Stock were reserved for issuance pursuant to Shawmut's
dividend reinvestment and stock purchase plans. In addition, as of February 6,
1995, 3,000,000 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 with 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 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, the
9.30% Cumulative Preferred and the 9.35% Cumulative Preferred were issued and
the terms of the Rights Agreement, dated as of February 28, 1989 (the "Shawmut
Rights Agreement"), between Shawmut and Chemical Bank, successor by merger to
Manufacturers Hanover Trust Company, as Rights Agent 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 out of funds legally available therefor. The
Adjustable Preferred, the 9.30% Cumulative Preferred and the 9.35% Cumulative
Preferred have 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 "CERTAIN REGULATORY CONSIDERATIONS."
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 outstanding 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 outstanding series of Shawmut Preferred
Stock. See "-- Shawmut Preferred Stock" below.
Except as otherwise provided in the Certificate of Designation 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 (including the Adjustable Preferred, the 9.30%
Cumulative Preferred and the 9.35% Cumulative Preferred) 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
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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 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. Prior to
the occurrence of a Distribution Date (described below), Shawmut Rights will 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.
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% 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% 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% 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 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% 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
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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) will 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 Shawmut Board who
was a member of the Shawmut Board prior to the date of the Shawmut Rights
Agreement, and any person who is subsequently elected to the Shawmut 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.
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 Shawmut 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 Shawmut Preferred Stock in series and to determine the
designation of each series, dividend rate, voting rights, conversion or exchange
provisions, redemption provisions, liquidation preferences, sinking fund
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provisions and all other rights pertaining to the Shawmut Preferred Stock. The
following is a brief description of the Adjustable Preferred, 9.30% Cumulative
Preferred and the 9.35% Cumulative Preferred, the only series of Shawmut
Preferred Stock outstanding. The Adjustable Preferred, the 9.30% Cumulative
Preferred and the 9.35% 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, 9.30% Cumulative
Preferred and the 9.35% Cumulative Preferred are cumulative. The dividend rate
on the Adjustable Preferred is established quarterly at the rate of 2.25% 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 the Adjustable
Preferred, the 9.30% Cumulative Preferred or the 9.35% 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, the 9.30%
Cumulative Preferred and the 9.35% 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, the 9.30% Cumulative Preferred or the
9.35% Cumulative Preferred, respectively; and the vote of two-thirds of the
Adjustable Preferred, the 9.30% Cumulative Preferred, the 9.35% Cumulative
Preferred and all of the series of Shawmut Preferred Stock ranking on a parity,
either as to dividends or upon liquidation, with the Adjustable Preferred, the
9.30% Cumulative Preferred and the 9.35% Cumulative Preferred, voting together
as a single class, is required in order to reclassify stock of Shawmut into
stock ranking prior, either as to dividends or upon liquidation, to the
Adjustable Preferred, the 9.30% Cumulative Preferred and the 9.35% 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, either
as to dividends or upon liquidation, to the Adjustable Preferred, the 9.30%
Cumulative Preferred and the 9.35% 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 and the 9.35% Cumulative Preferred are entitled to receive $250.00 per
share plus accrued and unpaid dividends. 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 (the "9.30% Depositary Shares"). Each 9.30% 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 is 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.
The shares of the 9.35% Cumulative Preferred are represented by Depositary
Shares (the "9.35% Depositary Shares"). Each 9.35% Depositary Share represents a
one-tenth interest in a share of 9.35% Cumulative Preferred and is not subject
to any mandatory redemption or sinking fund provisions. The 9.35% Cumulative
Preferred is 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 January 15,
2000 at a redemption price equal to $250 per share plus accrued and unpaid
dividends.
COMPARISON OF STOCKHOLDER RIGHTS
Upon the consummation of the transactions contemplated in the Merger
Agreement, the stockholders of Northeast will become stockholders of Shawmut.
Since both Shawmut and Northeast are Delaware
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corporations, Northeast 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 Northeast's stockholders under the
relevant provisions of the Certificate of Incorporation of Northeast (the
"Northeast Certificate") and the By-laws of Northeast (the "Northeast By-laws")
differ in some respects from the rights they would have as stockholders 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
Northeast Certificate, the Northeast By-laws, the DGCL and the Shawmut Rights
Agreement.
VOTING RIGHTS
Shawmut. Shawmut's Certificate provides that holders of shares of Shawmut
Common Stock are entitled to one vote per share of record for the election of
directors and all other purposes, subject to the voting rights, if any, of
holders of any Shawmut Preferred Stock.
Northeast. The Northeast Certificate provides that holders of shares of
Northeast Common Stock have cumulative voting rights with respect to election of
directors.
Northeast's cumulative voting rights, together with the classification of
the Northeast Board discussed below under "-- Size and Classification of Board
of Directors," increases the difficulty of a stockholder to ensure the election
of a particular director or to gain control of the Northeast Board.
ACTION BY WRITTEN CONSENT
Shawmut. The DGCL provides that, unless otherwise provided in the
certificate of incorporation, stockholders 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.
Northeast. The Northeast Certificate provides that stockholders may not
act by written consent, subject to the rights of holders of any class or series
of Preferred Stock.
The certificate of designation of the outstanding Series B Preferred Stock
permits holders of such series to act by written consent, but only as to any
amendment to the provisions of the Series B Preferred Stock and to the creation,
authorization or issuance of a new series of preferred stock (or increase in the
authorized amount of an existing series of preferred stock) or a class of other
stock with preference or priority over or on a parity with the Series B
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of Northeast.
In a publicly-held corporation with many stockholders, such as Shawmut, the
practical ability of stockholders to act by written consent in circumstances in
which they could not otherwise call a special meeting, as described below, is
remote.
SPECIAL MEETINGS OF STOCKHOLDERS
Shawmut. Pursuant to the Shawmut By-laws, special meetings of stockholders
may be called by the Shawmut Board, the Chairman of the Board or upon the
written request of seven or more stockholders holding not less than 30% of the
outstanding shares of Shawmut Common Stock.
Northeast. Neither the Northeast Certificate nor the Northeast By-laws
give the right to stockholders to call special meetings.
Thus, under certain circumstances Shawmut stockholders have the right to
have a special meeting called, whereas Northeast stockholders do not have such a
right.
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STOCKHOLDER NOMINATIONS AND PROPOSALS FOR BUSINESS
Shawmut. The Shawmut By-laws establish procedures that must be followed
for stockholders to nominate individuals to the Shawmut Board or to propose
business at the annual meeting of stockholders. In order to nominate individuals
to the Shawmut Board, a stockholder 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 capital stock of Shawmut
beneficially owned by the stockholder giving such notice.
In order to properly propose that certain business come before the annual
meeting of stockholders, a stockholder 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 capital stock of
Shawmut beneficially owned by the stockholder giving such notice and any
material interest of the stockholder 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 stockholder 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.
Northeast. The Northeast By-laws establish similar procedures that must be
followed for stockholders to nominate individuals to the Northeast Board or to
propose business at the annual meeting of stockholders. The informational
requirements of the Northeast By-laws for nominations to the Northeast Board and
business proposals are essentially the same as those of Shawmut; however, under
the Northeast By-laws, in order to be timely, notice must be delivered to
Northeast not less than 60 days prior to the meeting at which directors are to
be elected or the proposed business is to be conducted, or, if Northeast gives
less than 70 days' notice of the meeting 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.
Except for the timing requirements described above for nominating directors
or proposing business at a stockholder meeting and the differences between such
timing requirements for Shawmut and Northeast stockholders, there are no
material differences between Shawmut and Northeast's procedures for nominating
directors or proposing business at a stockholders meeting.
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 or certain affiliates or associates of Shawmut (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 stockholders
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 the applicable 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
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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 or any subsidiary 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 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.
Northeast. The Northeast Certificate provides that any "Northeast Business
Combination" (as defined below) involving Northeast and any person who, together
with affiliates and associates, beneficially owns 5% or more of Northeast Common
Stock (a "Northeast Related Person") must be approved by the holders of at least
80% of each class of stock of Northeast unless (i) the Northeast Business
Combination was approved by at least two thirds of the Northeast Continuing
Directors (defined generally as a director who was a member of the Northeast
Board immediately prior to the time the Northeast Related Person acquired 5% or
more of Northeast Common Stock), or (ii) that (a) certain "fair price" (defined
generally to mean that the aggregate consideration to be received per share of
capital stock of Northeast in the Northeast Business Combination by the holders
of capital stock of Northeast, other than the Northeast Related Person involved
in the Northeast Business Combination, is in the same form as, and is not less
than, the highest per share price paid by such Related Person in acquiring any
of its holdings of Northeast's capital stock); and (b) the Northeast Business
Combination is approved by the affirmative vote of the holders of not less than
two thirds of each class of stock of Northeast. As defined in the Northeast
Certificate, a Northeast Business Combination means (i) any merger or
consolidation of Northeast with or into a Northeast Related Person, (ii) any
sale, lease, exchange, transfer or other disposition of 10% or more of the
assets of Northeast or of a subsidiary, to a Northeast Related Person, (iii) any
merger or consolidation of a Northeast Related Person with or into Northeast or
a subsidiary of Northeast, (iv) any sale, lease, exchange, transfer or other
disposition of 10% or more of the assets of a Northeast Related Person to
Northeast or a subsidiary of Northeast, (v) the issuance of any securities of
Northeast to a Northeast Related Person, (vi) the acquisition by Northeast or a
subsidiary of Northeast of any securities of a Northeast Related Person, (vii)
any reclassification of Northeast Common Stock or any recapitalization involving
Northeast Common Stock, consummated within five years after a Northeast Related
Person becomes a Northeast Related Person, and (viii) any agreement, contract or
other arrangement providing for any of the foregoing.
This provision of the Northeast Certificate can only be amended or repealed
if it is first proposed by the Northeast Board and thereafter approved by the
affirmative vote of the holders of at least 80% of each class of stock of
Northeast, voting separately as a class, which shall include the affirmative
vote of at least 50% of the outstanding vote of Northeast Common Stock held by
shareholders other than a Related Person; provided, however, that such 80% vote
shall not be required for any such amendment, change or repeal recommended to
shareholders of Northeast by the affirmative vote of not less than two thirds of
the Northeast Continuing Directors and in such event such amendment, change or
repeal so recommended shall require only the vote, if any, required under the
applicable provisions of law.
In addition, the Northeast Certificate provides that the Northeast Board,
when evaluating any offer of another person to (A) make a tender or exchange
offer for any equity security of Northeast, (B) merge or consolidate Northeast
with another corporation or entity or (C) purchase or otherwise acquire all or
substantially all of the properties and assets of Northeast may, in connection
with the exercise of its judgment in determining what is in the best interest of
Northeast and its stockholders, give due consideration to all relevant factors,
including, without limitation, the social and economic effect of acceptance of
such offer on Northeast's present and future customers and employees and those
of its subsidiaries; on the communities in
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which Northeast and its subsidiaries operate or are located; on the ability of
its subsidiary savings association to fulfill the objectives of a savings
association under applicable statutes and regulations.
The Northeast Certificate's business combination provision generally
provides for additional and higher tests to be met for approval of a "Northeast
Business Combination" under the Northeast Certificate than the Shawmut's
Certificate's "Business Combination" provision.
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 stockholders of record at the close of business on March 13, 1989. For
a description of the Shawmut Rights and the related Shawmut Rights Agreement,
together with a discussion of the effects of the Shawmut Rights, see
"DESCRIPTION OF SHAWMUT CAPITAL STOCK -- Rights Plan."
Northeast. The Northeast Board has not adopted a stockholder rights plan.
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS
Shawmut. The Shawmut By-laws provide for not less than three directors.
The Shawmut By-laws also provide that the majority of the directors then in
office may, between annual meetings of stockholders, increase the membership of
the Board by up to eight members. Shawmut currently has 12 directors. 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.
Northeast. Northeast's Certificate and By-laws provide for division of the
Northeast 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 entire Board of Directors. As a result of the
classification of the Northeast Board, any person attempting to have a slate of
nominees elected which would constitute a majority of the Northeast Board would
need at least two Annual Meetings to do so. Northeast's By-laws provide further
that the Northeast Board will consist of twelve directors, subject to the rights
of the holders of any class or series of preferred stock.
Pursuant to the terms of the Series B Preferred Stock, the size of the
Northeast Board has been increased by two members and DEPCO, or a permitted
nominee under the DEPCO Agreement, has the right to elect both of these
directors provided that it holds at least 211,020 shares of Series B Preferred
Stock. If DEPCO and permitted nominees hold less than 211,020 shares but 105,510
shares or more of Series B Preferred Stock, the size of the Northeast Board will
be reduced by one and such holder will have the right to elect only one member
of the Northeast Board. If DEPCO and permitted nominees hold less than 105,510
shares of Series B Preferred Stock, the Northeast Board will be reduced and such
holder will lose the right to elect a member of the Northeast Board. DEPCO
currently has the right to elect two directors of Northeast. However, one of the
two directors elected by DEPCO has recently resigned and, accordingly, the
Northeast Board currently consists of thirteen members.
Any person attempting to have a slate of nominees for Northeast director
elected which would constitute a majority of the Northeast Board would need at
least two Annual Meetings to do so and, as a result, Northeast's classified
board may have certain anti-takeover effects.
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.
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<PAGE> 66
Northeast. The DGCL provides that unless the certificate of incorporation
provides otherwise, in the case of a corporation whose board is classified, as
is Northeast's, stockholders may remove a director only with cause. The
Northeast Certificate provides that subject to the rights of the holders of any
series of Northeast preferred stock outstanding, any director, or the entire
Northeast Board, may be removed from office, only for cause, by affirmative vote
of the holders of a majority of the voting power of all outstanding shares of
capital stock of Northeast entitled to vote generally in the election of
directors, voting together as a single class.
Thus, the Northeast Certificate restricts the ability of Northeast
stockholders to remove directors from office whereas the Shawmut Certificate
does not contain any such restrictions.
INDEMNIFICATION
Shawmut. The Shawmut By-laws provide that Shawmut will, under certain
circumstances, indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he or she is or was a director, officer, employee or agent of Shawmut, or
is or was serving at the request of Shawmut as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. Expenses incurred in defending or
investigating such a threatened or pending action, suit or proceeding will be
paid by Shawmut in advance of the final disposition of such action, suit or
proceeding as authorized by the board of directors in the specific case upon
receipt of an undertaking by or on the behalf of the director, officer, employee
or agent to repay such amount in the event that it is determined that he or she
is not entitled to be indemnified.
Northeast. The Northeast Certificate provides that Northeast will, under
certain circumstances, indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he or she is or was a director or officer of Northeast
or is or was serving at the request of Northeast as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The Northeast Certificate does not
require Northeast to indemnify Northeast employees or agents. Expenses incurred
in defending or investigating such a threatened or pending action, suit or
proceeding will be paid by Northeast in advance of the final disposition of such
action, suit or proceeding, provided that, as required by the DGCL, it will
receive an undertaking by or on the behalf of the director or officer to repay
all amounts so advanced if it is determined that he or she is not entitled to be
indemnified. Such expenses will be advanced to directors or officers only in
their capacity as directors or officers (and not in any other capacity in which
service will be rendered by such director or officer, including, for example,
service to an employee benefit plan). Northeast may, however, to the extent
authorized from time to time by its Board of Directors and by the DGCL grant the
right to indemnification and the right to the advancement of expenses to any
employee or agent of Northeast.
Although Shawmut's indemnification obligations described above are slightly
broader than those of Northeast, the practical effect on stockholders is likely
to be minimal.
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UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NORTHEAST FEDERAL CORP. AND SUBSIDIARIES
BUSINESS FINANCE DIVISION OF BARCLAYS BUSINESS CREDIT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
SEPTEMBER 30, 1994
The following Unaudited Pro Forma Condensed Combining Balance Sheet was
prepared by Shawmut and presents the combined financial position of Shawmut and
Northeast as of September 30, 1994, assuming the Merger had occurred on
September 30, 1994. The Unaudited Pro Forma Condensed Combining Balance Sheet
also gives effect to Shawmut's pending acquisition of substantially all of the
assets, and assumption of certain of the liabilities, of the Business Finance
Division of Barclays Business Credit, Inc. ("Barclays"), assuming such
acquisition and assumption also had occurred on September 30, 1994. Such pro
forma information is based on historical balance sheet data of Shawmut,
Northeast and Barclays as of September 30, 1994 and gives effect to the Merger
and the pending acquisition by Shawmut of Barclays accounted for under the
purchase method of accounting, along with the assumptions and adjustments in the
accompanying notes to the unaudited pro forma condensed financial information.
This Unaudited Pro Forma Condensed Combining Balance Sheet should be read in
conjunction with the Unaudited Pro Forma Condensed Combining Statements of
Income appearing elsewhere in this Proxy Statement/Prospectus and the historical
financial statements and notes thereto of Shawmut, Northeast and Barclays 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 Merger and the pending acquisition by Shawmut of Barclays
had been consummated on September 30, 1994 or which may be obtained in the
future.
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SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NORTHEAST FEDERAL CORP. AND SUBSIDIARIES
BUSINESS FINANCE DIVISION OF BARCLAYS BUSINESS CREDIT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SHAWMUT/
HISTORICAL NORTHEAST NORTHEAST AGGREGATE
------------------------- PRO FORMA PRO FORMA BARCLAYS PRO FORMA
SHAWMUT NORTHEAST ADJUSTMENTS COMBINED PRO FORMA(5) COMBINED
----------- ---------- ----------- ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................ $ 1,675,479 $ 26,881 $ (41,987)(1b) $ 1,620,068 $ 11,206 $ 1,631,274
(40,305)(1c)
Securities
Available for sale, at fair value.... 2,086,786 163,715 (8,238)(1a) 2,242,263 2,242,263
Held to maturity..................... 8,200,234 1,961,378 (45,023)(1a) 10,116,589 10,116,589
Federal funds sold and securities
purchased under agreement to
resell............................... 278,960 4,270 283,230 283,230
Residential mortgages held for sale.... 99,518 7,003 106,521 106,521
Loans.................................. 17,735,885 971,425 (23,717)(1a) 18,683,593 2,226,079 20,909,672
Less: reserve for credit losses........ 567,805 11,698 579,503 41,366 620,869
----------- ---------- --------- ----------- ---------- -----------
Net loans.............................. 17,168,080 959,727 (23,717) 18,104,090 2,184,713 20,288,803
Rhode Island covered assets............ 86,826 86,826 86,826
Trading account securities............. 41,840 41,840 41,840
Premises and equipment................. 328,466 27,279 (6,000)(1a) 349,745 3,493 353,238
Intangibles............................ 151,506 145,820 (1a) 297,326 225,000 522,326
Other assets........................... 1,320,796 112,626 37,194 (1a) 1,470,616 3,358 1,473,974
----------- ---------- --------- ----------- ---------- -----------
Total assets................... $31,351,665 $3,349,705 $ 17,744 $34,719,114 $2,427,770 $37,146,884
=========== ========== ========= =========== ========== ===========
LIABILITIES
Deposits............................... $19,519,148 $2,375,460 $ 5,162 (1a) $21,899,770 $21,899,770
Other borrowings....................... 7,668,611 731,620 (1,191)(1a) 8,399,040 $1,912,305 10,311,345
Notes and debentures................... 1,633,829 40,305 (40,305)(1c) 1,633,829 400,000 2,033,829
Other liabilities...................... 400,812 67,188 23,640 (1a) 493,640 15,465 509,105
2,000 (1a)
----------- ---------- --------- ----------- ---------- -----------
Total liabilities.............. 29,222,400 3,214,573 (10,694) 32,426,279 2,327,770 34,754,049
----------- ---------- --------- ----------- ---------- -----------
SHAREHOLDERS' EQUITY
Preferred stock........................ 178,185 4 (4)(1b) 178,185 100,000 278,185
Common stock........................... 1,196 136 (136)(1a) 1,276 1,276
80 (1a)
Surplus................................ 1,270,347 188,673 (146,690)(1a) 1,433,837 1,433,837
163,490 (1a)
(41,983)(1b)
Retained earnings...................... 719,229 (53,061) 53,061 (1a) 719,229 719,229
Net unrealized gain (loss) on
securities available for sale........ (39,502) 2,330 (2,330)(1a) (39,502) (39,502)
Unallocated ESOP shares................ (3,842) 3,842 (1a) 0
Stock dividend distributable........... 892 (892)(1a) 0
Treasury stock......................... (190) (190) (190)
----------- ---------- --------- ----------- ---------- -----------
Total shareholders' equity..... 2,129,265 135,132 28,438 2,292,835 100,000 2,392,835
----------- ---------- --------- ----------- ---------- -----------
Total liabilities and
shareholders' equity......... $31,351,665 $3,349,705 $ 17,744 $34,719,114 $2,427,770 $37,146,884
=========== ========== ========= =========== ========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
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SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NORTHEAST FEDERAL CORP. AND SUBSIDIARIES
BUSINESS FINANCE DIVISION OF BARCLAYS BUSINESS CREDIT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
SEPTEMBER 30, 1994
The following Unaudited Pro Forma Condensed Combining Statement of Income
was prepared by Shawmut and gives effect to the Merger by combining the results
of operations of Shawmut and Northeast for the nine months ended September 30,
1994 and the year ended December 31, 1993, as if the Merger had been consummated
at the beginning of the periods presented. Also presented is the Unaudited Pro
Forma Condensed Combining Statement of Income of Shawmut, Northeast and Barclays
for the same periods, as if the Merger and the pending acquisition by Shawmut of
Barclays had been consummated at the beginning of the periods presented. Income
before cumulative effect of accounting changes per common share and weighted
average common shares outstanding are based on the exchange ratio as specified
in the Merger Agreement. The Unaudited Pro Forma Condensed Combining Statements
of Income give effect to the Merger and the pending acquisition by Shawmut of
Barclays accounted for under the purchase method of accounting, along with the
assumptions and adjustments in the accompanying notes to the unaudited pro forma
condensed financial information. The Unaudited Pro Forma Condensed Combining
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, Northeast and Barclays which are incorporated by reference in this
Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE." The Unaudited Pro Forma Condensed Combining Statements of Income do
not reflect potential savings that may result from the consolidation of the
operations of Shawmut, Northeast and Barclays. The Unaudited Pro Forma Condensed
Combining 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 Merger and the pending acquisition by Shawmut of Barclays
had been consummated at the beginning of the periods indicated or which may be
obtained in the future.
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SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NORTHEAST FEDERAL CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SHAWMUT/
HISTORICAL NORTHEAST NORTHEAST
------------------------ PRO FORMA PRO FORMA
SHAWMUT NORTHEAST ADJUSTMENTS COMBINED
---------- --------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans........................................................ $ 952,517 $ 65,380 $ 1,186 (1e) $1,019,083
Securities
Available for sale, at fair value.......................... 110,606 4,924 1,030 (1d) 116,560
Held to maturity........................................... 325,963 69,324 5,628 (1d) 400,915
Residential mortgages held for sale.......................... 13,598 13,598
Federal funds sold and securities purchased
under agreements to resell................................. 4,625 1,626 6,251
Interest-bearing deposits in other banks..................... 7,857 7,857
Trading account securities................................... 659 659
---------- -------- ------- ----------
Total interest and dividend income................... 1,415,825 141,254 7,844 1,564,923
---------- -------- ------- ----------
INTEREST EXPENSE
Deposits..................................................... 283,959 76,742 (1,935)(1h) 358,766
Other borrowings............................................. 264,454 18,016 297 (1i) 282,767
Notes and debentures......................................... 63,261 2,721 (2,721)(1j) 63,261
---------- -------- ------- ----------
Total interest expense............................... 611,674 97,479 (4,359) 704,794
---------- -------- ------- ----------
NET INTEREST INCOME.......................................... 804,151 43,775 12,203 860,129
Provision for credit losses.................................. 3,000 3,800 6,800
---------- -------- ------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES.......................................... 801,151 39,975 12,203 853,329
---------- -------- ------- ----------
NONINTEREST INCOME
Customer service fees........................................ 146,008 5,572 151,580
Trust and agency fees........................................ 87,002 87,002
Gain on sale of loans, net................................... 13,849 13,849
Securities gains, net........................................ 6,649 6,649
Other........................................................ 41,292 9,566 (2,232)(1g) 48,626
---------- -------- ------- ----------
Total noninterest income............................. 274,302 35,636 (2,232) 307,706
---------- -------- ------- ----------
NONINTEREST EXPENSES
Compensation and benefits.................................... 367,263 20,853 388,116
Occupancy and equipment...................................... 115,922 13,108 (450)(1f) 128,580
Foreclosed properties provision and expense.................. 10,218 12,917 23,135
Merger related charges....................................... 100,900 100,900
Restructuring related charges................................ 39,800 39,800
Other........................................................ 212,799 19,911 7,291 (1m) 240,001
---------- -------- ------- ----------
Total noninterest expenses........................... 846,902 66,789 6,841 920,532
---------- -------- ------- ----------
INCOME BEFORE INCOME TAXES................................... 228,551 8,822 3,130 240,503
Income taxes (benefit)....................................... 84,671 (295) 4,168 (1k) 88,544
---------- -------- ------- ----------
NET INCOME................................................... $ 143,880 $ 9,117 $(1,038) $ 151,959
========== ======== ======= ==========
NET INCOME APPLICABLE TO COMMON SHARES....................... $ 132,304 $ 6,496 $ 1,583 (1n) $ 140,383
========== ======== ======= ==========
COMMON SHARE DATA
Net income................................................. $ 1.12 $ 0.46 $ 1.11
Weighted average shares outstanding........................ 118,518 14,039 126,542
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
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<PAGE> 71
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NORTHEAST FEDERAL CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
SHAWMUT/
HISTORICAL NORTHEAST NORTHEAST
---------------------- PRO FORMA PRO FORMA
SHAWMUT NORTHEAST ADJUSTMENTS COMBINED
---------- --------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans.................................................. $1,242,683 $154,116 $ 1,581 (1e) $1,398,380
Securities
At lower of aggregate cost or fair value............. 236,455 1,373 (1d) 237,828
Held to maturity..................................... 303,217 65,175 7,504 (1d) 375,896
Residential mortgages held for sale.................... 29,636 29,636
Federal funds sold and securities purchased
under agreements to resell........................... 12,590 1,085 13,675
Interest-bearing deposits in other banks............... 839 839
Trading account securities............................. 1,562 1,562
---------- -------- ------- ----------
Total interest and dividend income............ 1,826,982 220,376 10,458 2,057,816
---------- -------- ------- ----------
INTEREST EXPENSE
Deposits............................................... 420,966 121,163 (2,581)(1h) 539,548
Other borrowings....................................... 262,413 23,345 397 (1i) 286,155
Notes and debentures................................... 72,040 3,460 (3,460)(1j) 72,040
---------- -------- ------- ----------
Total interest expense........................ 755,419 147,968 (5,644) 897,743
---------- -------- ------- ----------
NET INTEREST INCOME.................................... 1,071,563 72,408 16,102 1,160,073
Provision for credit losses............................ 55,944 23,300 79,244
---------- -------- ------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES.................................... 1,015,619 49,108 16,102 1,080,829
---------- -------- ------- ----------
NONINTEREST INCOME
Customer service fees.................................. 187,022 10,181 197,203
Trust and agency fees.................................. 116,845 116,845
Securities gains, net.................................. 12,468 5,625 18,093
Other.................................................. 97,471 1,933 (2,975)(1g) 96,429
---------- -------- ------- ----------
Total noninterest income...................... 413,806 17,739 (2,975) 428,570
---------- -------- ------- ----------
NONINTEREST EXPENSES
Compensation and benefits.............................. 500,254 32,324 532,578
Occupancy and equipment................................ 163,792 15,399 (600)(1f) 178,591
Foreclosed properties provision and expense............ 105,173 17,606 122,779
Restructuring related charges.......................... 36,319 36,319
Other.................................................. 334,411 27,850 9,721 (1m) 371,982
---------- -------- ------- ----------
Total noninterest expenses.................... 1,139,949 93,179 9,121 1,242,249
---------- -------- ------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES......................... 289,476 (26,332) 4,006 267,150
Income taxes (benefit)................................. 6,628 (12,193) 5,491 (1k) (74)
---------- -------- ------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES................................ $ 282,848 $(14,139) $(1,485) $ 267,224
========== ======== ======== ==========
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES APPLICABLE TO COMMON SHARES.... $ 267,379 $(18,640) $ 3,016 (1n) $ 251,755
========== ======== ======= ==========
COMMON SHARE DATA
Income (loss) before cumulative effect
of accounting changes.............................. $ 2.35 $ (1.75) $ 2.06
Weighted average shares outstanding.................. 113,908 10,649 121,932
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
71
<PAGE> 72
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NORTHEAST FEDERAL CORP. AND SUBSIDIARIES
BUSINESS FINANCE DIVISION OF BARCLAYS BUSINESS CREDIT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SHAWMUT/
HISTORICAL NORTHEAST NORTHEAST BARCLAYS AGGREGATE
---------------------- PRO FORMA PRO FORMA PRO PRO FORMA
SHAWMUT NORTHEAST ADJUSTMENTS COMBINED FORMA(5) COMBINED
---------- --------- ------------ ---------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans............................................ $ 952,517 $ 65,380 $ 1,186 (1e) $1,019,083 $122,125 $1,141,208
Securities.......................................
Available for sale, at fair value.............. 110,606 4,924 1,030 (1d) 116,560 116,560
Held to maturity............................... 325,963 69,324 5,628 (1d) 400,915 400,915
Residential mortgages held for sale.............. 13,598 13,598 13,598
Federal funds sold and securities purchased
under agreements to resell..................... 4,625 1,626 6,251 6,251
Interest-bearing deposits in other banks......... 7,857 7,857 7,857
Trading account securities....................... 659 659 659
---------- -------- ------- ---------- -------- ----------
Total interest and dividend income....... 1,415,825 141,254 7,844 1,564,923 122,125 1,687,048
---------- -------- ------- ---------- -------- ----------
INTEREST EXPENSE
Deposits......................................... 283,959 76,742 (1,935)(1h) 358,766 358,766
Other borrowings................................. 264,454 18,016 297 (1i) 282,767 65,850 348,617
Notes and debentures............................. 63,261 2,721 (2,721)(1j) 63,261 63,261
---------- -------- ------- ---------- -------- ----------
Total interest expense................... 611,674 97,479 (4,359) 704,794 65,850 770,644
---------- -------- ------- ---------- -------- ----------
NET INTEREST INCOME.............................. 804,151 43,775 12,203 860,129 56,275 916,404
Provision for credit losses...................... 3,000 3,800 6,800 3,300 10,100
---------- -------- ------- ---------- -------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES.............................. 801,151 39,975 12,203 853,329 52,975 906,304
---------- -------- ------- ---------- -------- ----------
NONINTEREST INCOME
Customer service fees............................ 146,008 5,572 151,580 10,250 161,830
Trust and agency fees............................ 87,002 87,002 87,002
Gain on sale of loans, net....................... 13,849 13,849 13,849
Securities gains, net............................ 6,649 6,649 6,649
Other............................................ 41,292 9,566 (2,232)(1g) 48,626 48,626
---------- -------- ------- ---------- -------- ----------
Total noninterest income................. 274,302 35,636 (2,232) 307,706 10,250 317,956
---------- -------- ------- ---------- -------- ----------
NONINTEREST EXPENSES
Compensation and benefits........................ 367,263 20,853 388,116 22,000 410,116
Occupancy and equipment.......................... 115,922 13,108 (450)(1f) 128,580 4,900 133,480
Foreclosed properties provision and expense...... 10,218 12,917 23,135 23,135
Merger related charges........................... 100,900 100,900 100,900
Restructuring related charges.................... 39,800 39,800 39,800
Other............................................ 212,799 19,911 7,291 (1m) 240,001 9,950 249,951
---------- -------- ------- ---------- -------- ----------
Total noninterest expenses............... 846,902 66,789 6,841 920,532 36,850 957,382
---------- -------- ------- ---------- -------- ----------
INCOME BEFORE INCOME TAXES....................... 228,551 8,822 3,130 240,503 26,375 266,878
Income taxes (benefit)........................... 84,671 (295) 4,168 (1k) 88,544 10,550 99,094
---------- -------- ------- ---------- -------- ----------
NET INCOME....................................... $ 143,880 $ 9,117 $(1,038) $ 151,959 $ 15,825 $ 167,784
========== ======== ======= ========== ======== ==========
NET INCOME APPLICABLE TO COMMON SHARES........... $ 132,304 $ 6,496 $ 1,583 (1n) $ 140,383 $ 8,887 $ 149,270
========== ======== ======= ========== ======== ==========
COMMON SHARE DATA
Net income..................................... $ 1.12 $ 0.46 $ 1.11 $ 1.18
Weighted average shares outstanding............ 118,518 14,039 126,542 126,542
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
72
<PAGE> 73
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NORTHEAST FEDERAL CORP. AND SUBSIDIARIES
BUSINESS FINANCE DIVISION OF BARCLAYS BUSINESS CREDIT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
SHAWMUT/
HISTORICAL NORTHEAST NORTHEAST BARCLAYS AGGREGATE
---------------------- PRO FORMA PRO FORMA PRO PRO FORMA
SHAWMUT NORTHEAST ADJUSTMENTS COMBINED FORMA(5) COMBINED
---------- --------- ----------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans......................................... $1,242,683 $154,116 $ 1,581 (1e) $1,398,380 $123,550 $1,521,930
Securities....................................
At lower of aggregate cost or fair value.... 236,455 1,373 (1d) 237,828 237,828
Held to maturity............................ 303,217 65,175 7,504 (1d) 375,896 375,896
Residential mortgages held for sale........... 29,636 29,636 29,636
Federal funds sold and securities purchased
under agreements to resell.................. 12,590 1,085 13,675 13,675
Interest-bearing deposits in other banks...... 839 839 839
Trading account securities.................... 1,562 1,562 1,562
---------- -------- ------- ---------- -------- ----------
Total interest and dividend income.... 1,826,982 220,376 10,458 2,057,816 123,550 2,181,366
---------- -------- ------- ---------- -------- ----------
INTEREST EXPENSE
Deposits...................................... 420,966 121,163 (2,581)(1h) 539,548 539,548
Other borrowings.............................. 262,413 23,345 397 (1i) 286,155 65,000 351,155
Notes and debentures.......................... 72,040 3,460 (3,460)(1j) 72,040 72,040
---------- -------- ------- ---------- -------- ----------
Total interest expense................ 755,419 147,968 (5,644) 897,743 65,000 962,743
---------- -------- ------- ---------- -------- ----------
NET INTEREST INCOME........................... 1,071,563 72,408 16,102 1,160,073 58,550 1,218,623
Provision for credit losses................... 55,944 23,300 79,244 4,700 83,944
---------- -------- ------- ---------- -------- ----------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES...................................... 1,015,619 49,108 16,102 1,080,829 53,850 1,134,679
---------- -------- ------- ---------- -------- ----------
NONINTEREST INCOME
Customer service fees......................... 187,022 10,181 197,203 13,250 210,453
Trust and agency fees......................... 116,845 116,845 116,845
Securities gains, net......................... 12,468 5,625 18,093 18,093
Other......................................... 97,471 1,933 (2,975)(1g) 96,429 96,429
---------- -------- ------- ---------- -------- ----------
Total noninterest income.............. 413,806 17,739 (2,975) 428,570 13,250 441,820
---------- -------- ------- ---------- -------- ----------
NONINTEREST EXPENSES
Compensation and benefits..................... 500,254 32,324 532,578 25,500 558,078
Occupancy and equipment....................... 163,792 15,399 (600)(1f) 178,591 6,500 185,091
Foreclosed properties provision and expense... 105,173 17,606 122,779 122,779
Restructuring related charges................. 36,319 36,319 36,319
Other......................................... 334,411 27,850 9,721 (1m) 371,982 16,100 388,082
---------- -------- ------- ---------- -------- ----------
Total noninterest expenses............ 1,139,949 93,179 9,121 1,242,249 48,100 1,290,349
---------- -------- ------- ---------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES..... 289,476 (26,332) 4,006 267,150 19,000 286,150
Income taxes (benefit)........................ 6,628 (12,193) 5,491 (1k) (74) 7,600 7,526
---------- -------- ------- ---------- -------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES.......................... $ 282,848 $(14,139) $(1,485) $ 267,224 $ 11,400 $ 278,624
========== ======== ======= ========== ======== ==========
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES APPLICABLE TO COMMON
SHARES...................................... $ 267,379 $(18,640) $ 3,016 (1n) $ 251,755 $ 2,150 $ 253,905
========== ======== ======= ========== ======== ==========
COMMON SHARE DATA
Income (loss) before cumulative effect of
accounting changes........................ $ 2.35 $ (1.75) $ 2.06 $ 2.08
Weighted average shares outstanding......... 113,908 10,649 121,932 121,932
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
73
<PAGE> 74
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NORTHEAST FEDERAL CORP. AND SUBSIDIARIES
BUSINESS FINANCE DIVISION OF BARCLAYS BUSINESS CREDIT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
NOTE 1:
The pro forma adjustments are based on the best available preliminary
information as of September 30, 1994 and may be different from the actual
adjustments to reflect the fair value of the net assets purchased as of the date
of acquisition. The number of shares of Shawmut Common Stock to be issued is
based upon the number of shares of Northeast Common Stock, stock options and
warrants outstanding at September 30, 1994, adjusted for the proceeds of the
exercise price of stock options and warrants.
1(a) Acquisition of Northeast:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Purchase Price:
8,023,915 shares of Shawmut common stock issued with a value of
$21.465 per share, adjusted for the exercise price of stock
options and warrants.......................................... $163,570
Estimated direct acquisition expenses............................ 2,000
--------
Total purchase price..................................... 165,570
--------
Estimated fair value of net assets purchased:
Historical net assets of Northeast at September 30, 1994
applicable to common equity interests......................... 93,145
Add (deduct) adjustments to reflect fair value:
Securities:
Available for sale............................................ (8,238)
Held to maturity.............................................. (45,023)
Loans............................................................ (23,717)
Premises and equipment........................................... (6,000)
Other assets:
Other real estate owned....................................... (254)
Mortgage servicing rights..................................... 23,803
Write-off of deferred tax asset............................... (21,171)
Tax effects of purchase adjustments........................... 34,816
--------
Subtotal other assets......................................... 37,194
--------
Deposits......................................................... (5,162)
Other borrowings (FHLB advances)................................. 1,191
Other liabilities (acquisition related charges).................. (23,640)
--------
Estimated fair value of net assets................................. 19,750
--------
Excess of purchase price over fair value of identifiable net
assets........................................................... $145,820
========
</TABLE>
The adjustments to fair value for securities, loans, deposits, mortgaging
service rights and premises and equipment will be amortized in relation to the
expected life or maturity of the related asset or liability. The excess of
purchase price over the fair value of identifiable net assets will be amortized
generally over 15 years.
1(b) Represents the redemption of the Series B Preferred Stock assumed to occur
upon the consummation of the Merger. The provisions of the DEPCO Agreement
require Northeast to make an offer to repurchase the Series B Preferred
Stock not less than 45 days following a change in control of Northeast. The
terms of the Series B Preferred Stock require 45 days notice prior to
redemption. Shawmut intends to redeem the Series B Preferred Stock as soon
as practicable following the consummation of the Merger which is
anticipated to be on or close to 45 days following consummation of Merger.
1(c) Represents the redemption of the Northeast 9% Sinking Fund Uncertificated
Debentures, due May 8, 2012 (the "Debentures") assumed to occur upon the
consummation of the Merger. The Debentures
74
<PAGE> 75
were originally issued in connection with the acquisition of assets from
four Rhode Island financial institutions and in connection with the
repurchase of adjustable rate preferred stock of Northeast.
1(d) Represents the accretion of the adjustment to reflect the fair value of
securities, accreted over an estimated remaining life of six years.
1(e) Represents the accretion of the adjustment to reflect the fair value of
loans, accreted over an estimated remaining life of fifteen years.
1(f) Represents depreciation expense reduction related to the adjustment to
reflect the fair value of premises and equipment, over an estimated
remaining life of ten years.
1(g) Represents the amortization of the adjustment to reflect the fair value of
purchased mortgage servicing rights, amortized over an estimated remaining
life of eight years.
1(h) Represents the amortization of the adjustment to reflect the fair value of
deposits, amortized over an estimated remaining life of two years.
1(i) Represents the amortization of the adjustment to reflect the fair value of
other borrowings, amortized over an estimated remaining life of three
years.
1(j) Represents the interest adjustment due to the pro forma redemption of the
Debentures as described in 1(c) above.
1(k) Represents the adjustment of deferred taxes related to the
amortization/accretion of fair value adjustments in items 1(c) through 1(j)
above, estimated at a 40 percent combined effective income tax rate.
1(m) Represents the amortization of the excess of purchase price over fair value
of identifiable net assets over a fifteen year period.
1(n) Represents the adjustments to net income applicable to common shares and
income (loss) before cumulative effect of accounting changes applicable to
common shares due to the pro forma redemption of the Series B Preferred
Stock as described in 1(b) above.
NOTE 2:
Certain reclassifications have been made to the accounts of Northeast and
Barclays in the accompanying Unaudited Pro Forma Condensed Combining Balance
Sheet and Unaudited Pro Forma Condensed Combining Statements of Income to
conform to Shawmut presentation. Pro forma results of operations 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 $4,299,000 for Barclays for the
year ended December 31, 1993; and 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.
NOTE 3:
The pro forma shareholders' equity accounts of Shawmut and Northeast have
been adjusted in the accompanying Unaudited Pro Forma Condensed Combining
Balance Sheet (see Note 1) to reflect the issuance of shares of Shawmut Common
Stock in exchange for all of the outstanding shares of Northeast Common Stock,
stock options and warrants and the elimination of Northeast's shareholders'
equity accounts in accordance with the purchase method of accounting.
NOTE 4:
The Exchange Ratio of .507 (based on a Shawmut Common Stock Average Price
of $21.465) reflected in the unaudited pro forma condensed financial information
is the highest Exchange Ratio pursuant to the calculation as set forth in the
Merger Agreement (see "THE MERGER -- Exchange Ratio"). As discussed
under -- "Exchange Ratio", if the Shawmut Common Stock Average Price is less
than $21.465, the Exchange Ratio will be .507. In such event, the Merger
Agreement provides that Northeast may terminate the Merger Agreement, unless
Shawmut exercises its option to increase the consideration to be received by
75
<PAGE> 76
Northeast stockholders to adjust the Exchange Ratio to equal a number equal to
$10.875 divided by the Shawmut Common Stock Average Price. If the Shawmut Common
Stock Average Price were greater or equal to $26.235 the Exchange Ratio would be
.415, which is the lowest Exchange Ratio possible pursuant to the calculation as
set forth in the Merger Agreement. If the Exchange Ratio were .415 the number of
shares of Shawmut Common Stock assumed to be issued would be 6,567,899.
NOTE 5:
Shawmut has agreed to acquire certain net assets from Barclays (see below)
totaling $2,112,305,000 for a premium of $290,000,000. Funding assumptions for
this transaction are as follows:
-- Proceeds from the issuance of Shawmut preferred stock of $100,000,000;
-- Proceeds from the issuance of SBC subordinated notes of $200,000,000;
-- Proceeds from the issuance of SBC senior bank notes of $200,000,000; and
-- Proceeds from other funding sources (primarily repurchase agreements,
federal funds purchased and FHLB borrowings) of $1,912,305,000.
Expenses of $5,000,000 relating to the transaction are included in the
amount of estimated goodwill. The excess of purchase price and acquisition costs
over the book value of net assets acquired ($295,000,000) has been allocated
between loan premium ($70,000,000) and goodwill ($225,000,000). The assets and
liabilities of Barclays will be recorded at estimated fair value upon closing
and, as a result, the pro forma amounts of loan premium and goodwill may be
different. A detailed analysis of the net assets acquired as of September 30,
1994 and pro forma adjustments follows (000's):
<TABLE>
<CAPTION>
BARCLAYS
PRO FORMA BARCLAYS
BARCLAYS ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Cash.................................................. $ 1,206 $ 10,000 $ 11,206
Loans................................................. 2,156,079 70,000 2,226,079
Reserve for credit losses............................. (41,366) (41,366)
Premises and equipment................................ 3,493 3,493
Goodwill.............................................. 225,000 225,000
Other assets.......................................... 3,358 3,358
---------- ----------- ----------
Total assets................................ 2,122,770 305,000 2,427,770
---------- ----------- ----------
Other liabilities..................................... 10,465 5,000 15,465
Other borrowings...................................... 1,912,305 1,912,305
Notes and debentures.................................. 400,000 400,000
Preferred stock....................................... 100,000 100,000
---------- ----------- ----------
Total liabilities and capital............... 10,465 2,417,305 2,427,770
---------- ----------- ----------
$2,112,305 $(2,112,305) $ 0
========== =========== ==========
</TABLE>
For purposes of the Unaudited Pro Forma Condensed Combining Statement of
Income, the loan premium is being amortized over an estimated life of four years
and goodwill is being amortized over an estimated twenty-five year period. Net
income applicable to common shares and income (loss) before cumulative effect of
accounting changes applicable to common shares have been reduced by the assumed
dividend declared on the Shawmut preferred stock (9.25% estimated annual
dividend rate) to be issued.
Adjustments to increase interest expense in the amounts of $15,800,000 and
$11,850,000 for the year ended December 31, 1993 and the nine months ended
September 30, 1994, respectively, have been assumed to reflect an estimate of
the interest expense on $200,000,000 of SBC subordinated notes (7.90% estimated
annual interest rate) to be issued. Excluded from Barclays financial information
are the results of operations of a leasing division which was sold in 1994 and
will not have an ongoing effect on the results of operations in the
76
<PAGE> 77
future. Further, noninterest income for the year ended December 31, 1993 does
not include approximately $6,300,000 related to a litigation settlement that
will not have an ongoing effect on the results of operations in the future.
VALIDITY OF SECURITIES
The validity of the shares of Shawmut Common Stock and associated Shawmut
Rights to be issued in connection with the Merger has been passed upon by
Sullivan & Cromwell, New York, New York, special counsel to Shawmut. The opinion
of Sullivan & Cromwell was conditioned upon, and subject to the assumption that,
such Shawmut Common Stock and associated Shawmut Rights will be duly issued and
delivered as contemplated by the Merger Agreement.
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 and the consolidated financial statements of
Shawmut incorporated in this Proxy Statement/Prospectus by reference to
Shawmut's current report on Form 8-K, dated August 2, 1994, have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Cohasset incorporated herein by
reference to Shawmut's 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. incorporated by
reference 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 Shawmut's 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. incorporated by
reference herein, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Northeast and subsidiaries as of
December 31, 1993 and for the year then ended, included in Northeast's Annual
Report on Form 10-K for the year ended December 31, 1993 incorporated by
reference into this Proxy Statement/Prospectus, have been incorporated by
reference herein and in the Registration Statement of which the Proxy
Statement/Prospectus is a part in reliance upon the report of Deloitte & Touche,
LLP, independent accountants, dated January 21, 1993 (February 9, 1994 as to
Note 26), and upon the authority of said firm as experts in accounting and
auditing. Such consolidated financial statements of Northeast, updated for
subsequent events, are included in the Current Report on Form 8-K dated January
11, 1995 of Shawmut National Corporation; the report of Deloitte & Touche, LLP,
independent accountants, with respect thereto dated January 21, 1994 (August 12,
1994 as to Note 26) is also included therein. Shawmut's Current Report on Form
8-K dated January 11, 1995 has been incorporated by reference into this Proxy
Statement/Prospectus. The consolidated financial statements of Northeast and
subsidiaries as of December 31, 1992 and for the nine months ended December 31,
1992 and for the year ended March 31, 1992, included in Northeast's Annual
Report on Form 10-K for the year ended December 31, 1993 incorporated by
reference into this Proxy Statement/Prospectus, have been incorporated by
reference herein and in the Registration Statement of which the Proxy
Statement/Prospectus is a part in reliance upon the report of Coopers & Lybrand,
LLP, independent accountants, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of the Business Finance Division of Barclays
Business Credit, Inc. incorporated in this Proxy Statement/Prospectus by
reference to Shawmut's Current Report on Form 8-K, dated January 11, 1995, have
been so incorporated in reliance upon the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
77
<PAGE> 78
ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
SHAWMUT NATIONAL CORPORATION
AND
NORTHEAST FEDERAL CORP.
DATED AS OF JUNE 11, 1994
- --------------------------------------------------------------------------------
<PAGE> 79
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 11, 1994 (this "Agreement"),
by and between Shawmut National Corporation, a Delaware corporation ("Parent"),
and Northeast Federal Corp., a Delaware corporation ("Target").
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
a subsidiary of Parent ("Merger Sub") will, subject to the terms and conditions
set forth herein, merge (the "Merger") with and into Target; 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), Merger Sub shall merge with
and into Target. Target 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. Upon consummation of the Merger, the separate
corporate existence of Merger Sub 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; Target Preferred 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 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 the number of shares
(the "Exchange Ratio") of 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) determined as follows:
(i) if the Parent Common Stock Average Price (as defined in Section
8.1(g) hereof) is greater than or equal to $26.235, the Exchange Ratio will
be .415;
(ii) if the Parent Common Stock Average Price is less than $26.235 but
equal to or greater than $21.465, the Exchange Ratio will be (i) $10.875
divided by (ii) the Parent Common Stock Average Price; or
(iii) if the Parent Common Stock Average Price is less than $21.465,
the Exchange Ratio will be .507.
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
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thereafter represent the right to receive (i) a certificate representing 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 or any of their respective
subsidiaries, 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 or any of their respective subsidiaries, 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.
(c) At and after the Effective Time each share of the $8.50 Cumulative
Preferred Stock, Series B, of Target (the "Target Series B Preferred Stock"),
outstanding shall remain outstanding.
1.5 Conversion of Merger Sub Common Stock. Each of the 100 shares of the
common stock, par value $1.00 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall by virtue of this Agreement and
without any action on the part of the holder thereof, be converted into and
exchangeable for one share common stock, par value $1.00, of the Surviving
Corporation, which shall thereafter constitute all of the issued and outstanding
shares of Common Stock of the Surviving Corporation.
1.6 Options and Warrants. At the Effective Time, each option and warrant
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 or warrant, as the case may be, to purchase shares of Parent Common
Stock in an amount and at an exercise price determined as provided below (and,
in the case of options, otherwise subject to the terms of the 1983 Stock Option
Plan of Target, The 1986 Stock Option Plan of Target, the Target 1993 Stock
Option Plan, or the Target 1993 Stock Option Plan for Three Year Term Outside
Directors, as the case may be (each a "Target Stock Option Plan"; collectively
the "Target Stock Option Plans") or, in the case of warrants, otherwise subject
to the terms of the Stock Warrants, each dated April 22, 1992, of Target (the
"Target Warrants")):
(a) The number of shares of Parent Common Stock to be subject to the
new option or warrant shall be equal to the product of the number of shares
of Target Common Stock subject to the original option or warrant and the
Exchange Ratio, provided that any fractional shares of Parent Common Stock
resulting from such multiplication shall be rounded to the nearest whole
share; and
(b) The exercise price per share of Parent Common Stock under the new
option or warrant shall be equal to the exercise price per share of Target
Common Stock under the original option or warrant divided by the Exchange
Ratio, provided that such exercise price shall be rounded 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
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new option or warrant shall be the same as the original option or warrant,
except that all references to Target shall be deemed to be references to Parent.
1.7 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of Target, 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,
provided that so long as the Target Series B Preferred Stock is outstanding by
the terms thereof, and DEPCO or any Nominee (each as defined in Section 3.27) is
entitled to elect directors of Target pursuant to the terms of the Target Series
B Preferred Stock, the directors elected by the holders of the Target Series B
Preferred Stock shall be directors of the Surviving Corporation.
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. As of 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, 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 actual receipt of the Certificates by 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 cash in lieu
of fractional shares, if any, into which the shares of Target Common Stock
previously represented by such Certificate or Certificates shall have been
converted pursuant to this Agreement. Upon proper surrender to the Exchange
Agent of a Certificate for exchange and cancellation, together with such
properly completed 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 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.
Notwithstanding anything to the contrary contained herein, no certificate
representing Parent Common Stock or cash in lieu of a fractional share interest
shall be delivered to a person who is an Affiliate (as defined in Section 6.5)
of Target unless such Affiliate has theretofore executed and delivered to Parent
the agreement referred to in Section 6.5.
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(b) No dividends or other distributions payable after the Effective Time
with respect to Parent Common Stock shall be paid to the holder of any
unsurrendered Certificate until the holder thereof shall duly 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 dividends or other distributions, without any
interest thereon, which became payable with respect to the shares of Parent
Common Stock represented by such Certificate after the Effective Time but on or
before the time of such surrender. 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 or her 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 six 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 lost, stolen or
destroyed Certificate the shares of Parent Common Stock and cash in lieu of
fractional shares and unpaid dividends and distributions on Parent Common Stock
deliverable in respect thereof pursuant to this Agreement.
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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, prospects,
results of operations or financial condition of such party and its Subsidiaries
taken as a whole or the ability of any party to consummate the transactions
contemplated hereby on the terms hereof, it being understood that a Material
Adverse Effect will not include a change with respect to, or effect on, such
entity resulting from a change in law, rule, regulation, generally accepted or
regulatory accounting principles, or a change with respect to, or effect on,
such entity resulting from any other matter affecting financial institutions or
their holding companies generally. 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 or of which the
party holds 25% or more of the shares. Target is duly registered as a savings
and loan holding company under the Home Owners' Loan Act, as amended ("HOLA").
The copies of the Certificate of Incorporation and By-laws of Target 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) Northeast Savings, F.A. ("Target Bank") is a federal savings and loan
association or savings bank duly organized, validly existing and in good
standing under the laws of the United States. The deposit accounts of Target
Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC")
through the Savings Association Insurance Fund (the "SAIF") 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 direct
Subsidiary of Target, and 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 copies of the Federal Stock Charter and
By-laws of Target Bank 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 January 1, 1989 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 25,000,000 shares of Target Common Stock and 15,000,000 shares of preferred
stock, par value $.01 per share ("Target Preferred Stock"). As of March 31,
1994, there are (x) 13,519,193 shares of Target Common Stock issued and
outstanding and no shares of Target Common Stock held in Target's treasury and
402,576 shares of Target Series B Preferred Stock issued and outstanding, (y) no
shares of Target Common Stock reserved for issuance upon exercise of outstanding
stock options or warrants or otherwise except for (i) 1,497,292 shares of Target
Common Stock reserved for issuance pursuant to the Target Stock Option Plans and
(ii) 800,000 shares of Target Common Stock reserved for issuance pursuant to the
Target Warrants and (z), except for the 402,576 shares of Target Series B
Preferred Stock issued and outstanding and shares of such stock which may be
issued in payment for dividends on the Target Series B Preferred Stock, no
shares of Target Preferred Stock
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are issued or outstanding or reserved for issuance. All of the issued and
outstanding shares of Target Common Stock and Target Series B 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. 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"), 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 Option Plans are set forth in Section 3.2(a) of the
Target Disclosure Schedule. Except as set forth in Section 3.2(a) of the Target
Disclosure Schedule, since March 31, 1994, 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 or
director stock options granted prior to such date and except for Series B
Preferred Stock issued in payment of dividends on outstanding shares of Series B
Preferred Stock. Section 3.2(a) of the Target Disclosure Schedule sets forth the
number of shares of Target Common Stock issued and outstanding as of the date of
this Agreement. Target has reserved an adequate number of shares to cover
exercise of options under the currently outstanding options granted pursuant to
the Target Stock Option Plans.
(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 in 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. Each Target Subsidiary is duly organized and validly existing as a
corporation or partnership under the laws of its jurisdiction of organization.
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 and
except pursuant to the DEPCO Agreement (as defined in Section 3.27), 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 constitutes a valid and binding obligation
of Target.
(b) Except as set forth in Section 3.3(b) of the Target Disclosure
Schedule, neither the execution and delivery of this Agreement by Target nor the
consummation by Target of the transactions contemplated hereby or thereby, nor
compliance by Target 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
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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 Bank Holding Company Act of 1956,
as amended (the "BHC Act") and approval of such applications and notices, (b)
the filing of applications with the Office of Thrift Supervision (the "OTS")
under the HOLA and approval of such applications, (c) the filing of any required
applications or notices with any state agencies and approval of such
applications (the "State Approvals"), (d) the filing with the SEC of a proxy
statement in definitive form relating to any 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, and (g) 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 and (2) the consummation by Target of the Merger and the other
transactions contemplated hereby.
3.5 Loan Portfolio; Reports. (a) Except as set forth in Section 3.5(a) of
the Target Disclosure Schedule, as of March 31, 1994, 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 was, as of March
31, 1994, over 90 days delinquent in payment of principal or interest or in
default under any other provision, or (ii) Loan to 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 of Target or any of its
Subsidiaries the unpaid principal amount in excess of (A) $100,000 that as of
the date of this Agreement are internally classified as "Substandard,"
"Doubtful," "Loss," or "Classified," (B) $100,000 that as of the date of this
Agreement are internally classified as "Criticized," "Other Loans Especially
Mentioned" or "Special Mention", (C) $750,000 that as of the date of this
Agreement are internally classified as "Credit Risk Assets," "Concerned Loans,"
"Watch List" or words of similar import, in each case 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. Target and its Subsidiaries have internally classified, in the manner
described above, all Loans that any auditor or government examiner has
criticized or classified, and the internal classification of such Loans is at
least as strict as the criticism or classification thereof by an auditor or
government examiner.
(b) Target and Target Bank have timely filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file since January 1, 1990 with (i) the
Federal Reserve Board, (ii) the FDIC, (iii) the OTS, (iv) any state regulatory
authority (each a
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"State Regulator") and (v) any self-regulatory organization ("SRO")
(collectively "Regulatory Agencies"), and all other material reports and
statements required to be filed by them since January 1, 1989, including,
without limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, any state, the Federal Reserve
Board, the FDIC, the OTS, 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 January 1,
1989. 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 ended December 31, 1992 and 1993, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the fiscal years in the three year period ended December
31, 1993, as reported in Target's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 filed with the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), accompanied by the audit reports of
Deloitte & Touche or Coopers & Lybrand, independent public accountants with
respect to Target, and (b) the unaudited consolidated balance sheets of Target
and its Subsidiaries as of March 31, 1993 and March 31, 1994 and the related
unaudited consolidated statements of income, cash flows and changes in
stockholders' equity for the three month periods then ended as reported in
Target's Quarterly Report on Form 10-Q for the period ended March 31, 1994 filed
with the SEC under the Exchange Act. The March 31, 1994 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 6.8 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 6.8 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 6.8 hereof will be,
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved, except 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.
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, except
that Target has engaged, and will pay a fee or commission to, Lehman Brothers
Inc. ("Lehman Brothers") in accordance with the terms of a letter agreement
between Lehman Brothers 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 March 31, 1994, true,
complete and correct copies of which have previously been delivered to Parent,
since December 31, 1993, (i) neither Target nor any of its Subsidiaries has
incurred any material liability, except in the ordinary course of its business
consistent with prudent banking practices, and (ii) no events have occurred
which have had, individually or in the aggregate, a Material Adverse Effect on
Target.
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(b) Except as set forth in Section 3.8(b) of the Target Disclosure Schedule
or as disclosed in Target's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994, since December 31, 1993, Target and its Subsidiaries have
carried on their respective businesses in the ordinary and usual course
consistent with prudent banking practices.
(c) Except as set forth in Section 3.8(c) of the Target Disclosure
Schedule, since December 31, 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, 1993, 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 1993
and 1994 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(a) 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 as to which there is a reasonable probability
of an adverse determination and (i) which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect on Target or
the Surviving Corporation or (ii) challenging the validity or propriety of the
transactions contemplated by this Agreement.
(b) Except as otherwise disclosed in Section 3.9(b) 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 or the Surviving
Corporation.
(c) Section 3.9(c) of the Target Disclosure Schedule sets forth all pending
litigation involving any claim against the Target Bank or any of its
Subsidiaries, 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 or, in the aggregate, otherwise would not have
a Material Adverse Effect on Target, Parent or the Surviving Corporation, each
of Target and its Subsidiaries has duly filed all Federal, state, and to the
best of its knowledge, county, local and foreign Tax returns (including, without
limitation, information returns and returns of estimated tax) required to be
filed by it on or prior to the date hereof (all such returns being accurate and
complete) and has duly paid or made adequate provision for the payment of all
Taxes (as defined below) that have been incurred by it or are due or claimed to
be due from it by Federal, state, county, local or foreign taxing 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 that are being contested in good faith (and which are set forth in Section
3.10 of the Target Disclosure Schedule). The income tax returns of Target and
its Subsidiaries have been examined by the Internal Revenue Service (the "IRS")
for all years through and including 1979, and the deficiencies (if any) asserted
as a result of such examination either, in the aggregate, were not material, or
have been satisfied. Except as may be reflected in Section 3.10 of the Target
Disclosure Schedule there are no material disputes pending, or claims asserted
for, Taxes or assessments upon Target or any of its Subsidiaries, nor does
Target or any of its Subsidiaries have outstanding any currently effective
waivers extending the statutory period of limitation applicable to any Federal,
state, county, local or foreign income tax return for any period. In addition,
(i) proper and accurate amounts have been withheld by Target and its
Subsidiaries from their employees, customers, depositors, shareholders and
others from whom they are required to withhold Tax in compliance with all
applicable Federal, state, county, local and foreign laws, except where the
failures to do so would not, in the aggregate, have a Material Adverse Effect on
Target, Parent or the Surviving Corporation and (ii) there are no Tax liens upon
any property or assets of the Target or its Subsidiaries except liens for
current Taxes not yet due. Except as, in the aggregate, would not have a
Material Adverse Effect on Target, Parent or the Surviving Corporation, or as
disclosed in Section 3.10 of the Target Disclosure Schedule, to the
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best of its knowledge, (i) 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 Internal Revenue Code of 1954, as amended (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; (ii) 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 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; and (iii) 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.
(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, transfer gains, property, sales, transfer, use, payroll,
employment, severance, withholding, backup withholding, intangibles, franchise,
and other taxes, governmental charges, levies or like assessments together with
all penalties and additions to Tax and interest thereon.
(c) Target Bank, at the close of its most recent taxable year, qualified,
and on the Closing Date will qualify either as a "domestic building and loan
association" within the meaning of Section 7701(a)(19) of the Code or as a
"mutual savings bank" within the meaning of Section 591(b) of the Code that
meets the requirements of Section 7701(a)(19)(C) of the Code.
3.11 Employees. (a) The Target Reports (as defined in Section 3.12 hereof)
accurately describe all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plans, all employment or severance
contracts, other material employee benefit plans and any applicable "change of
control" or similar provisions in any plan, contract or arrangement which cover
employees or former employees of Target or its Subsidiaries (collectively, the
"Compensation and Benefit Plans") required to be described in such Target
Reports. The Compensation and Benefit Plans and all other benefit plans,
contracts or arrangements covering directors, employees or former employees of
Target or its Subsidiaries (the "Employees"), including, but not limited to,
"employee benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), are listed in
Section 3.11 of the Target Disclosure Schedule. True and complete copies of all
Compensation and Benefit Plans and such other benefit plans, contracts or
arrangements, including, but not limited to, any trust instruments and/or
insurance contracts, if any, forming a part of any such plans and agreements,
and all amendments thereto, 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 IRS (if applicable) for such plan,
have heretofore been delivered to Parent.
(b) All employee benefit plans, other than "multiemployer plans" within the
meaning of Sections 3(37) or 4001(a)(3) of ERISA, covering Employees (the
"Plans"), to the extent subject to ERISA, are in substantial compliance with
ERISA. Each Plan which is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), has received a favorable determination letter from the IRS, and Target
is not aware of any circumstances likely to result in revocation of any such
favorable determination letter. The 1985 Target Employee Stock Ownership Plan
satisfies the requirements for an employee stock ownership plan under Section
4975(e)(7) of the Code. There is no material pending or threatened litigation
relating to the Plans. Neither Target nor any of its Subsidiaries has engaged in
a transaction with respect to any Plan that, assuming the taxable period of such
transaction expired as of the date hereof, could subject Target or any of its
Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount which would be material.
(c) No liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by Target or any of its Subsidiaries with respect to any
ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is considered one employer with
Target or any of its Subsidiaries under Section 4001 of ERISA or Section 414 of
the Code (an "ERISA Affiliate"). Target and its
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Subsidiaries have not incurred and do not expect to incur any withdrawal
liability with respect to a multiemployer plan under Subtitle E of Title IV of
ERISA (regardless of whether based on contributions of an ERISA Affiliate). No
notice of a "reportable event", within the meaning of Section 4043 of ERISA for
which the 30-day reporting requirement has not been waived, has been required to
be filed for any Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(d) All contributions required to be made under the terms of any Plan have
been timely made. Neither any Pension Plan nor any single-employer plan of an
ERISA Affiliate has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither
Target nor its Subsidiaries has provided, or is required to provide, security to
any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(e) Under each Pension Plan which is a single-employer plan, as of the last
day of the most recent plan year ended prior to the date hereof, the actuarially
determined present value of all "benefit liabilities", within the meaning of
Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions contained in the Plan's most recent actuarial valuation), did not
exceed the then current value of the assets of such Plan, and there has been no
material change in the financial condition of such Plan since the last day of
the most recent Plan Year. The withdrawal liability of Target and its
Subsidiaries under each Benefit Plan which is a multiemployer plan to which
Target, its Subsidiaries or an ERISA Affiliate has contributed during the
preceding 12 months, determined as if a "complete withdrawal", within the
meaning of Section 4203 of ERISA, had occurred as of the date hereof, does not
exceed $100,000.
(f) Neither Target nor its Subsidiaries has any obligations for retiree
health and life benefits under any Plan, except as set forth in Section 3.11 of
the Target Disclosure Schedule. Except as set forth in Section 3.11 of the
Target Disclosure Schedule, there are no restrictions on the rights of Target or
its Subsidiaries to amend or terminate any such Plan without incurring any
liability thereunder.
(g) Target and its Subsidiaries have no material unfunded liabilities with
respect to any Pension Plan which covers foreign Employees.
(h) Neither Target nor any of its Subsidiaries is a party to, or is bound
by, any collective bargaining agreement, contract, or other agreement or
understanding with a labor union or labor organization, nor is Target or any of
its Subsidiaries the subject of any material proceeding asserting that Target or
any such Subsidiary has committed an unfair labor practice or seeking to compel
Target or such Subsidiary to bargain with any labor organization as to wages or
conditions of employment, nor is there any strike involving Target or any of its
Subsidiaries pending or, to the best of Target's knowledge, threatened, nor is
Target aware of any activity involving its or any of its Subsidiaries' employees
seeking to certify a collective bargaining unit or engaging in any other
organizational activity.
3.12 SEC Reports. Target has made or will make available to Parent an
accurate and complete copy of each (a) registration statement, prospectus,
report, schedule, proxy statement, information statement or other stockholder
communication used, circulated or filed after January 1, 1990 by Target, and no
such registration statement, prospectus, report, schedule, proxy statement,
information statement or communication, each in the form (including exhibits and
amendments thereto) filed with the SEC (or if not so filed, in the form first
used or circulated) (collectively, the "Target Reports"), contained, as of its
date, 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.
Target has timely filed, and will timely file, all Target Reports and other
documents required to be filed by it under the Securities Act of 1933, as
amended (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 or provided by Target
and its Subsidiaries to be contained or incorporated by reference in the Proxy
Statement and the registration statement on Form S-4 (the "S-4") in 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
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fact or omit to state a material fact necessary to make the statements therein
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 laws, statutes, orders, rules, regulations,
policies and/or guidelines 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 or the Surviving
Corporation, and neither Target nor any of its Subsidiaries knows of, or has
received notice of, any violations of any 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 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 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 filed with the SEC during 1994, (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, or (vi) (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 value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this 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
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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 March 31, 1994 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, book yields
and weighted average coupon, in each case as of March 31, 1994.
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 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 March 31, 1994 and (c) for
liabilities incurred in the ordinary course of business consistent with past
practice since March 31, 1994, 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 Target or the Surviving Corporation.
3.20 Takeover Restrictions. (a) The Board of Directors of Target has
approved the transactions contemplated by this Agreement such that the
supermajority vote provisions of Section 203 of the DGCL and Section 8 of
Target's Certificate of Incorporation will not apply to this Agreement or any of
the transactions contemplated hereby.
(b) No "business combination", "moratorium", "control share", or other
federal or state antitakeover statute or regulation (collectively, "Antitakeover
Provisions") other than HOLA or the Federal Deposit Insurance Act (i) prohibits
or restricts Target's ability to perform its obligations under this Agreement,
or its ability to consummate the transactions contemplated hereby, (ii) would
have the effect of invalidating or voiding this Agreement, or any provision
hereof, (iii) would subject Parent or Merger Sub to any material impediment or
condition in connection with the exercise of any of its rights under this
Agreement, or (iv) would provide any rights to, or permit the exercise of rights
by, Target's stockholders.
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, to the knowledge of Target:
(a) Each of Target, its Subsidiaries, the Participation Facilities and the
Loan/Fiduciary 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
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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/Fiduciary 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/Fiduciary
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/Fiduciary 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;
(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 or
other interest in a Loan/Fiduciary 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 or other interest in a
Loan/Fiduciary 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/Fiduciary 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/Fiduciary Property" means any property owned or controlled by Target or
any Target Subsidiary or in which Target or any of its Subsidiaries holds a
security or other 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. Section 3.23 of the Target Disclosure
Schedule sets forth the market value, as of May 31, 1994, of all holdings by
Target or any of its Subsidiaries of positions in forwards, futures, options on
futures, swaps and any other instrument within the scope of Target's
Board-approved investment policy ("Derivative Instruments"). Except as set forth
in Section 3.23 of the Target Disclosure Schedule, since December 31, 1993
neither Target nor any of its Subsidiaries has engaged in any transactions in or
involving Derivative Instruments except as agent on the order and for the
account of others. 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 Especially
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
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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 or in any other written document delivered by or
on behalf of Seller pursuant to the terms of this Agreement are true and
correct, and such statements and documents do not omit any 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 Lehman Brothers 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 or state 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 DEPCO Directors. On the date hereof, (i) the Rhode Island Depositors
Economic Protection Corporation ("DEPCO") or any "Nominee" as defined in the
Stock and Warrant Purchase Agreement dated as of April 21, 1992, by and between
DEPCO and Target (the "DEPCO Agreement") (A) owns all of the issued and
outstanding shares of Target's Series B Preferred Stock and (B) has the right to
elect and has elected at least one current member of Target's Board of Directors
and (ii) on the date hereof, and at all times through and including the
Effective Date, the Directors elected by DEPCO or any "Nominee" as defined in
the DEPCO Agreement pursuant to the terms of the Target Series B Preferred Stock
shall represent less than 20% of the members of Target's Board of Directors.
3.28 Qualified Thrift Lender. Target Bank is a "qualified thrift lender"
within the meaning set forth in Section 10(m) of HOLA.
3.29 Knowledge as to Conditions. Target knows of no reason why the
Requisite Regulatory Approvals (as defined below) should not be obtained.
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 or will be 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
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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.
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
March 31, 1994 there were 95,927,307 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 543 shares of Parent Common Stock held in Parent's
treasury. On March 31, 1994, no shares of Parent Common Stock or Parent
Preferred Stock were reserved for issuance, except that 13,052,807 shares of
Parent Common Stock were reserved for issuance pursuant to Parent's dividend
reinvestment and stock purchase plans, 6,115,251 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"), 9,357,452 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, 8,453,445 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, 7,627,301 shares of Parent Common
Stock were reserved for issuance upon consummation of the merger of Gateway
Financial Corporation ("Gateway") with a Subsidiary of Parent, pursuant to the
Agreement and Plan of Merger between Parent, Shawmut Service Corporation and
Gateway dated as of November 5, 1993, and 1,500,000 shares of Parent Series A
Junior Participating Preferred Stock were reserved for issuance upon 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 has issued and
outstanding 1,329,115 warrants to purchase Parent Common Stock. 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(a) 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 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.
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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 constitutes a valid and binding obligation of Parent.
(b) Except as set forth in Section 4.3(b) of the Parent Disclosure
Schedule, neither the execution and delivery of this Agreement by Parent, nor
the consummation by Parent or Merger Sub, as the case may be, of the
transactions contemplated hereby or thereby, nor compliance by Parent or Merger
Sub 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 or the
Certificate of Incorporation or By-Laws of Merger Sub, 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, or 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. Except for (i) the filing of applications and
notices, as applicable, with the Federal Reserve Board under the BHC Act and
approval of such applications and notices, (ii) the filing of applications with
the OTS under HOLA and approval of such applications, (iii) the State Approvals,
(iv) the filing with the SEC of 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 pursuant to the DGCL, (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, and (viii) 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 of this Agreement and (2) the
consummation by Parent and Merger Sub of the Merger and the other transactions
contemplated hereby. 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.
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 1992 and 1993 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
fiscal years 1991 through 1993, inclusive, as reported in Parent's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 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 March
31, 1994 and March 31, 1993 and the related unaudited consolidated statements of
income, changes in shareholders' equity and cash flows for the three month
periods then ended as reported in Parent's Quarterly Report on Form 10-Q for the
period ended March 31, 1994 filed with the SEC under the Exchange Act. The
December 31, 1993 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
6.8 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
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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
6.8 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 6.8
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,
except that Parent has engaged, and will pay a financial advisory service fee
to, Morgan Stanley & Co. Incorporated.
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 March 31, 1994 or in any
Current Reports of Parent on Form 8-K filed prior to the date of this Agreement,
true, complete and correct copies of which have previously been delivered to
Target, since December 31, 1993, no event has occurred which has had or is
reasonably likely to have, 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 March 31, 1994, 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,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against Parent or any of
its Subsidiaries as to which there is a reasonable probability of an adverse
determination and (i) which, if adversely determined, would, individually or in
the aggregate, have a Material Adverse Effect on Parent or (ii) challenging the
validity or propriety of the transactions contemplated by this Agreement. 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, or might reasonably be expected to have, a Material
Adverse Effect on Parent.
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 laws, statutes, orders, rules, regulations,
policies and/or guidelines 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 noncompliance 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 made or will make available to Target an
accurate and complete copy of each (a) registration statement, prospectus,
report, schedule, proxy statement, information statement or other stockholder
communication used, circulated or filed after January 1, 1990 by Parent, and no
such registration statement, prospectus, report, schedule, proxy statement,
information statement or other stockholder communication used, each in the form
(including exhibits and amendments thereto) filed with the SEC (or if not so
filed, in the form first used or circulated) (collectively, the "Parent
Reports"), contained, as of its date, 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. Parent has timely filed, and will timely file,
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.
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4.11 Parent Information. The information relating to or provided by Parent
and its Subsidiaries to be contained or incorporated by reference 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 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 Parent 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 Undisclosed Liabilities. Except (a) as set forth in Section 4.13 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 quarter ended March 31, 1994 and (c) for
liabilities incurred in the ordinary course of business consistent with past
practice, since December 31, 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 have a Material Adverse Effect.
4.14 Knowledge as to Conditions. Parent knows of no reason why the
Requisite Regulatory Approvals should not be obtained.
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 or with the prior written consent of Parent, Target
and its Subsidiaries shall carry on their respective businesses in the ordinary
course and consistent with prudent banking practice. Target will, and will use
its best efforts to cause each of its Subsidiaries, to (x) preserve intact its
and their business organizations, (y) keep available to itself and Parent the
present services of its and their employees and (z) preserve intact for itself
and Parent the goodwill of its and their customers and others with whom business
relationships exist. Without limiting the generality of the foregoing, and
except as 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 except for regular
dividends on Target Series B Preferred Stock;
(b) (i) adjust, 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 (other
than payment of regular dividends on Target Series B Preferred Stock) or grant
any stock appreciation rights except upon the exercise or fulfillment of rights
or options issued or existing pursuant to employee or director benefit plans,
programs or arrangements, all to the extent outstanding and in existence on the
date of this Agreement and listed in Section 3.11 of the Target Disclosure
Schedule, 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 or as required by the DEPCO Agreement) 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 (other than payment of regular
dividends on Target Series B Preferred 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 the grant of options required pursuant to the Subsequent Grant provision of
the Target 1993 Stock Option Plan For Three Year Term Outside Directors
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(the "Subsequent Options") and the issuance of Target Common Stock upon exercise
of Subsequent Options, the issuance of Target Common Stock upon exercise of
Subsequent Options, 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 Plans and outstanding prior to the date of this Agreement or
pursuant to the Target Warrants, in each case in accordance with their terms on
the date hereof;
(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
directly or indirectly to solicit, initiate or encourage any inquiries relating
to, or other 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 outside 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 written advice of such Board's 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 and shall demand the return of any confidential information
provided to any other person and will enforce its rights, under any
confidentiality agreement, to the return of any confidential information in the
event any such other person does not return such information. Target will take
all actions necessary or advisable to inform the appropriate individuals or
entities referred to in the first sentence of this Section 5.1(e) 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 or deposits of, Target or any Subsidiary of
Target other than the transactions contemplated or permitted by this Agreement;
(f) except as set forth in Section 5.1 of the Target Disclosure Schedule,
make any capital expenditures other than in the ordinary course of business, as
necessary to maintain existing assets in good repair or capital expenditures
contemplated by the Target Business Plan dated as of April 15, 1994 previously
furnished to Parent (the "Business Plan");
(g) enter into any new, or materially alter or expand any present line of
business other than new lines of businesses, or material alterations or
expansions of present lines of business contemplated by the Business Plan;
(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 (other than in
the ordinary course of business) 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 or Target Bank, as the case may be;
(i) except as required by law, take any action that is intended or could
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;
(j) change its methods of accounting in effect at March 31, 1994, except as
required by changes in GAAP or regulatory accounting principles as concurred in
by Target's independent auditors;
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(k) except as set forth in Section 5.1 of the Target Disclosure Schedule,
(i) except as required by applicable law or to maintain qualification pursuant
to the Code, adopt, amend, renew (for a term longer than the prior term) or
terminate any Plan or any agreement, arrangement, plan or policy between Target
or any Subsidiary of Target and one or more of its current or former directors,
officers or employees or (ii) except as set forth in Section 5.1 of the Target
Disclosure Schedule, 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 (for
a term longer than the prior term) 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;
(l) take or cause to be taken any action which would disqualify the Merger
as a tax free reorganization under Section 368 of the Code;
(m) other than activities in the ordinary course of business consistent
with prudent banking 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 prudent
banking practice or to cover expenses and obligations under this Agreement,
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
office of it or any of its Subsidiaries (other than the previously announced
move of Target's head office to Farmington, Connecticut);
(p) commit any act or omission which constitutes a breach or default by
Target or any of its Subsidiaries under any Regulatory Agreement or a material
breach or default by Target or any of its Subsidiaries 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 foreclosure, 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;
(s) settle any claim, action or proceeding involving any liability of
Target or any Subsidiary of Target for material money damages or material
restrictions upon the operation of Target or any Subsidiary of Target;
(t) take any other action that would materially adversely affect or
materially delay the ability of Parent or Target to obtain the Requisite
Regulatory Approvals (as defined below) or otherwise materially adversely affect
Parent's ability to consummate the transactions contemplated by this Agreement;
or
(u) authorize or enter into any agreement or commitment 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
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consistent with prudent banking practice. Without limiting the generality of the
foregoing, and except as consented to in writing by Target, Parent shall not,
and shall not permit any of its Subsidiaries to:
(a) 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, except, in every case, as may be required by
applicable law;
(b) take or cause to be taken any action which would disqualify the Merger
as a tax free reorganization under Section 368 of the Code;
(c) 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;
(d) solely in the case of Parent, declare or pay any dividend on, or make
any other distributions in respect of, the Parent Common Stock except for
regular dividends and dividends or distributions in Parent Common Stock;
(e) consolidate with or merge into any other person or convey, transfer or
lease its properties and assets substantially as an entirety to any person
unless such person shall expressly assume the obligations of Parent hereunder;
or
(f) authorize or enter into any agreement or commitment 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 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
reasonable best efforts promptly to 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) (it being understood that
any amendments to the S-4 or a resolicitation of proxies as a 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 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.
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(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, savings and loan or savings
association 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.
(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 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 legally 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 written opinion
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of its outside 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.
(e) Within ten business days of the date of this Agreement, Target shall
deliver to Parent amended Section 3.17 of the Target Disclosure Statement
setting forth an investment securities report which includes pay down factors,
paydown speeds, durations, and weighted average life, in each case as of March
31, 1994.
6.3 Stockholders 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
such Board's outside 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 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 other transactions contemplated by this Agreement.
6.5 Affiliates. 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) of Target (each an "Affiliate") to deliver to
Parent, 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 substantially the form of Exhibit 6.5 hereto.
6.6 Stock Exchange Listing. Parent shall use its best efforts to 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.
6.7 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 any action or omission by such person in his or her capacity as a
director, officer or employee of Target, any of the Target Subsidiaries or any
of their respective predecessors, 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 provided in Target's Certificate of Incorporation and
Bylaws and permitted by Delaware law, each such Indemnified Party against any
losses, claims, damages, liabilities, costs, expenses (including, to the extent
so provided and permitted, reasonable attorney's fees and expenses in advance of
the final disposition of any claim, suit, proceeding or investigation upon
receipt of any undertaking required by applicable law or Target's Certificate of
Incorporation or Bylaws), 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
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asserted or arising before or after the Effective Time), an Indemnified Party
may retain counsel reasonably satisfactory to him or her 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 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 under applicable law. Any Indemnified Party wishing to claim
Indemnification under this Section 6.7, 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 6.7 except to the extent such failure to notify materially prejudices
Parent. Parent's obligations under this Section 6.7 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 its 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, including limits, deductibles and prior
acts coverage, 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 the event that the annual amount Parent would be required to expend would be
more than 200% of the current annual amount expended by Target (the "Insurance
Amount") to maintain insurance coverage for such persons under Target's current
policies, Parent may self insure; and further provided that if Parent is unable
to maintain or obtain the insurance called for by this Section 6.7(b), Parent
shall use its best efforts to obtain as much comparable insurance as available
for the Insurance Amount. Nothing in this Section 6.7(b) shall be deemed to
modify any existing contractual obligations under any agreements of Target or
any of its Subsidiaries.
(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 6.7 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
6.8 Subsequent Financial Statements. 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.
6.9 Additional Agreements. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to the Merger, the proper officers and directors of each party to this
Agreement and their respective Subsidiaries shall take all such necessary action
as may be reasonably requested by, and at the sole expense of, Parent.
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6.10 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
effect for the purpose of determining satisfaction of the conditions set forth
in Section 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.
6.11 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 unpaid 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.
6.12 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.
6.13 Tax Returns. Target shall prepare and file, as approved and directed
by Parent, any Tax returns (including, without limitation, New York Real
Property Transfer and Transfer Gains Tax pre-clearance forms) with respect to
the Merger as Parent shall reasonably request.
6.14 Employee Benefit Plans; Existing Agreements. (a) Except as otherwise
provided herein, the employees of Target and its Subsidiaries (the "Target
Employees") shall be entitled to participate in Parent's employee benefit plans
in which similarly situated employees of Parent participate, to the same extent
as comparable employees of Parent. As soon as administratively practicable after
the Effective Time, Parent shall permit the Target Employees to participate in
Parent's group hospitalization, medical, life and disability insurance plans,
defined benefit pension plan, thrift plan, severance plan and similar plans, on
the same terms and conditions as applicable to comparable employees of Parent
and its Subsidiaries (including the waiver of pre-existing condition
prohibitions), giving effect to years of service with Target and its
Subsidiaries (to the extent Target gave effect) as if such service were with
Parent, for purposes of eligibility and vesting, but not for benefit accrual
purposes (except as regards to vacation, severance and short-term disability
accruals or for purposes of determining employer contributions for retiree
medical benefits). Notwithstanding anything in this Section 6.14 to the
contrary, participation by Target Employees in employee benefit plans and
programs of Parent with respect to which eligibility for employees of Parent to
participate is at the discretion of Parent shall be at the sole discretion of
Parent.
(b) Following the Effective Time, Parent shall honor and shall cause the
Surviving Corporation to honor in accordance with their terms all individual
employment, severance and other compensation agreements existing prior to the
execution of this Agreement, which are between Target and any director, officer
or employee thereof and which have been disclosed in the Target Disclosure
Schedule.
(c) To the extent not duplicative of any agreement or arrangement described
in paragraph (b) above, Parent agrees to make the payments and provide the
benefits set forth on Exhibit 6.14(c)(1) to the employees of Target or Target
Bank (the names of which shall be set forth on Section 3.11 of the Target
Disclosure
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Schedule). Parent further agrees to honor and cause the Surviving Corporation to
honor the retirement plan, in substantially the form attached as Exhibit
6.14(c)(2) hereto, previously adopted for the members of the board of directors
of Target.
(d) Notwithstanding anything in this Section 6.14 to the contrary, Parent
shall have sole discretion with respect to the determination as to whether to
terminate, merge or continue any employee benefit plans and programs of Target;
provided, however, that Parent shall continue to maintain Target plans (other
than stock-based or incentive plans) until Target Employees are permitted to
participate in Parent's plans.
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 shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof shall
have expired; and the parties shall have procured all other regulatory
approvals, consents or waivers of governmental authorities that are necessary to
the consummation of this Agreement (other than immaterial consents, the failure
to obtain which would not have a Material Adverse Effect on Parent (on a
combined basis giving effect to the Merger)); provided, however, that no
approval, consent or waiver referred to in this Section 7.1(c) shall be deemed
to have been received if it shall include any condition or requirement that, in
the opinion of Parent, would so 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; provided further, that
no condition or requirement which does no more than subject Parent or Target to
legal requirements generally applicable to a bank holding company under the BHC
Act or savings and loan holding company under HOLA as a matter of law shall be
deemed to affect materially and adversely the economic or business benefits of
the transactions contemplated by this Agreement (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 preventing the consummation of the Merger or any of the
other transactions contemplated by this Agreement (an "Injunction") 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.
(f) Federal Tax Opinion. Parent and Target shall have received an opinion
of Sullivan & Cromwell, counsel to Parent, in form and substance reasonably
satisfactory to Parent and Target, dated as of the Closing Date, substantially
to the effect that, on the basis of facts, representations and assumptions set
forth in such
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opinion, the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368 of the Code and that
accordingly:
(i) No gain or loss will be recognized by Parent, Merger Sub or Target
as a result of the Merger; and
(ii) No gain or loss will be recognized by the stockholders of Target
who or which 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).
In rendering such opinion, Sullivan & Cromwell may require and rely upon
representations contained in certificates of officers of Parent, Merger Sub,
Target and others.
7.2 Conditions to Obligations of Parent. The obligation of Parent 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. 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. 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 pursuant to the Merger 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) DEPCO Directors. (i) DEPCO or any "Nominee" as defined in the DEPCO
Agreement (A) shall own all of the issued and outstanding shares of Target
Series B Preferred Stock and (B) shall have the right to elect and shall have
elected at least one current member of Target's Board of Directors and (ii) the
Directors elected by DEPCO or any "Nominee" as defined in the DEPCO Agreement
pursuant to the Target Series B Preferred Stock shall represent less than 20% of
the number of Target's Board of Directors.
(f) 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
Closing Date, and addressed to Parent and Target, with respect to Target's
consolidated financial position and results of operation, which letters shall be
based upon SAS 72 and certain 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.
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. 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
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made on and as of the Closing Date. 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 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 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.
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 June 30, 1995, 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 5.1(e) or 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;
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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) (i) by Target, if (either before or after the approval by the
stockholders of this Agreement) its Board of Directors so determines by a vote
of a majority of the members of its entire Board, at any time during the
five-day period commencing with the Determination Date, if the Parent Common
Stock Average Price on the Determination Date shall be less than $21.465;
subject, however, to subsection (g)(ii).
(ii) If Target elects to exercise its termination right pursuant to
subsection (g)(i), it shall give prompt written notice to Parent (provided that
such notice of election to terminate may be withdrawn at any time within the
aforementioned five-day period). During the three-day period commencing with its
receipt of such notice, Parent shall have the option of increasing the
consideration to be received by holders of Target Common Stock hereunder by
adjusting the Exchange Ratio to equal a number equal to $10.875 divided by the
Parent Common Stock Average Price. If Parent makes an election contemplated by
this subsection (g)(ii) within such three-day period, it shall give prompt
written notice to Target of such election and the revised Exchange Ratio,
whereupon no termination shall have occurred pursuant to this subsection (g) and
this Agreement shall remain in effect in accordance with its terms (except as
the Exchange Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the
Exchange Ratio as adjusted pursuant to this subsection (g).
For purposes of this subsection (g), the following terms shall have the
meanings indicated:
"Determination Date" means the date on which the last regulatory approval
required to consummate the Merger has been obtained and all statutory waiting
periods in respect thereof have expired.
"Parent Common Stock Average Price" means the average of the daily closing
sales prices of Parent Common Stock as reported on the NYSE Composite
Transactions reporting system (as reported by The Wall Street Journal or, if not
reported thereby, another authoritative source as chosen by Parent) for the 15
consecutive full trading days in which such shares are traded on the NYSE ending
at the close of trading on the trading day immediately prior to the
Determination Date.
8.2 Fee. (a) Target hereby agrees to pay Parent and Parent shall be
entitled to payment of, a fee (the "Fee") of $11,000,000 following the
occurrence of a Purchase Event (as defined below); provided that Parent shall
have sent written notice of such entitlement within 90 days following such
Purchase Event. Such payment shall be made in immediately available funds within
five business days after delivery of such notice. The right to receive the Fee
shall terminate if any of the following (a "Fee Termination Event") occurs prior
to a Purchase Event: (i) the Effective Time of the Merger, (ii) termination of
this Agreement in accordance with the provisions hereof if such termination
occurs prior to the occurrence of a Preliminary Purchase Event, except a
termination by Parent pursuant to Sections 8.1(e) or (f) hereof (unless the
breach by Target is non-volitional), or (iii) if termination of this Agreement
follows the occurrence of a Preliminary Purchase Event (x) the passage of
twenty-four months after termination of this Agreement (eighteen months in the
case of a Preliminary Purchase Event listed in subsection (c)(iv) or (c)(v)) if
such termination is by Parent pursuant to Sections 8.1(e) or (f) of this
Agreement (unless the breach by Target is non-volitional) or pursuant to Section
8.1(d), or (y) if such termination is otherwise pursuant to Section 8.1. The
"Last Preliminary Purchase Event" shall mean the last Preliminary Purchase Event
to expire.
(c) The term "Preliminary Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Target or any of the Target Subsidiaries without having received
Parent's prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as defined below) with any person
(the term "person" for purposes of this Agreement having the meaning
assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Securities Exchange Act") and the
rules and regulations thereunder) other than Parent or any of the Parent
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Subsidiaries or the Board of Directors of Target shall have recommended
that the shareholders of Target approve or accept any Acquisition
Transaction with any person other than Parent or any Parent Subsidiary. For
purposes of this Agreement, "Acquisition Transaction" shall mean (A) a
merger or consolidation, or any similar transaction, involving Target or
any Target Significant Subsidiary, (B) a purchase, lease or other
acquisition of all or substantially all of the assets or deposits of Target
or any Target Significant Subsidiary, (C) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of Target or a
Target Significant Subsidiary; provided that the term "Acquisition
Transaction" does not include any internal merger or consolidation
involving only Target and/or Target Subsidiaries;
(ii) (A) Any person (other than Parent or any Parent Subsidiary) shall
have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Target Common Stock
(the term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Securities Exchange Act,
and the rules and regulations thereunder), or (B) any group (as such term
"group" is defined in Section 13(d)(3) of the Securities Exchange Act),
other than a group of which Parent or any Parent Subsidiary is a member,
shall have been formed that beneficially owns 10% or more of the Target
Common Stock then outstanding;
(iii) Any person other than Parent or any Parent Subsidiary shall have
made a bona fide proposal to Target or its shareholders, by public
announcement or written communication that is or becomes the subject of
public disclosure, to engage in an Acquisition Transaction (including,
without limitation, any situation which any person other than Parent or any
Parent Subsidiary shall have commenced (as such term is defined in Rule
14d-2 under the Securities 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 Target Common Stock such that,
upon consummation of such offer, such person would own or control 10% or
more of the then outstanding shares of Target Common Stock (such an
offering referred to herein as a "Tender Offer" or an "Exchange Offer",
respectively));
(iv) After a proposal is made by a third party to Target or its
shareholders to engage in an Acquisition Transaction, or such third party
states its intention to Target to make such a proposal if the Plan
terminates, Target shall have breached any representation, covenant or
obligation contained in this Agreement and such breach would entitle Parent
to terminate this Agreement under Sections 8.01(e) or (f) of this Agreement
(without regard to the cure periods provided for therein unless such cure
is promptly effected without jeopardizing consummation of the Merger
pursuant to the terms of this Agreement); or
(v) the holders of Target Common Stock shall not have approved this
Agreement at the meeting of such stockholders held for the purpose of
voting on this Agreement or such meeting shall not have been held or shall
have been canceled prior to termination of this Agreement, in each case
after any person (other than Parent or any Parent Subsidiary) shall have
(A) made, or disclosed an intention to make, a bona fide proposal to engage
in an Acquisition Transaction or (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an Exchange
Offer.
(d) The Term "Purchase Event" shall mean either of the following events or
transactions occurring after the date hereof:
(i) The acquisition by any person, other than Parent or any Parent
Subsidiary, alone or together with such person's affiliates and associates,
or any group (as defined in Section 13(d)(3) of the Securities Exchange
Act), of beneficial ownership of 50% or more of the Target Common Stock; or
(ii) The occurrence of a Preliminary Purchase Event described in
Section 8.2(c)(i) except that the percentage referred to in clause (C)
shall be 50%.
(e) Target shall notify Parent promptly in writing of its knowledge of the
occurrence of any Preliminary Purchase Event or Purchase Event; provided,
however, that the giving of such notice by Target shall not be a condition to
the right of Parent to the Fee.
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8.3 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, 8.3, 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.
8.4 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 common stockholders of
Target; provided, however, that after any approval of the transactions
contemplated by this Agreement by Target's common 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.
8.5 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 common 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.
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to
be selected by Parent, which shall be the tenth business day 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 Parent, 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 related transactions provided
that each of the transactions comprising such revised structure shall (i) not
subject any of the stockholders of Target to adverse tax consequences or change
the amount of consideration to be received by such stockholders and (ii) be
capable of consummation without material delay. 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 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 he 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, provided, further, however, that in
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the event of termination of this Agreement in accordance with the provisions
hereof, except a termination by Parent pursuant to Section 8.1(e) or (f) hereof,
Parent shall pay for the accountant's letters pursuant to Section 7.2(f).
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:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Fax: (212) 558-3588
Attn: Donald J. Toumey, Esq.
and
(b) if to Target, to:
Northeast Federal Corp.
50 State House Square
Hartford, CT 06103
Fax: (203) 280-0008
Attn: Chief Executive Officer
with a copy to:
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Fax: (202) 966-9409
Attn: Thomas J. Haggerty, 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.
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9.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and wholly to be performed in such state.
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 written statement for general circulation with respect to the transactions
contemplated by this Agreement, without the consent of the other party, which
consent shall not be unreasonably withheld.
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, and any purported such assignment shall be null and void. 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 6.7 hereof, this
Agreement (including the documents and instruments referred to herein) is not
intended to, and shall not, confer upon any person other than the parties hereto
any rights or remedies hereunder.
IN WITNESS WHEREOF, Parent 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/ GUNNAR S. OVERSTROM, JR.
--------------------------------------
Name: Gunnar S. Overstrom, Jr.
Title: President and Chief Operating
Officer
NORTHEAST FEDERAL CORP.
By /s/ KIRK WALTERS
--------------------------------------
Name: Kirk Walters
Title: Chairman of the Board,
President and
Chief Executive Officer
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<PAGE> 113
ANNEX B
LEHMAN BROTHERS INC.
February 10, 1995
Board of Directors
Northeast Federal Corp.
50 State House Square
Hartford, CT 06103
Members of the Board:
We understand that Northeast Federal Corp. (the "Company") and Shawmut
National Corporation ("Shawmut") have entered into a definitive merger agreement
pursuant to which the Company will be merged with and into Shawmut and each
share of common stock of the Company will be converted into the right to receive
the number of shares of the common stock of Shawmut determined by dividing
$10.875 by the average closing price per share of Shawmut's common stock for the
fifteen trading days ending on the business day prior to the date on which the
last regulatory approval required to consummate the proposed merger has been
obtained and all statutory waiting periods in respect thereof have expired (the
"Proposed Transaction"). The terms and conditions of the Proposed Transaction
are set forth in more detail in the Agreement and Plan of Merger, dated as of
June 11, 1994, by and between the Company and Shawmut (the "Agreement").
We have been requested by the Company to render our opinion with respect to
the fairness, from a financial point of view, to the Company's stockholders of
the consideration to be offered in the Proposed Transaction. We have not been
requested to opine as to, and our opinion does not in any manner address, the
Company's underlying business decision to proceed with or effect the Proposed
Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement,
(2) the Form 10-K for the twelve months ended December 31, 1993 for the Company
and Shawmut, the earnings press release for the year ended December 31, 1994 for
the Company and Shawmut, the interim reports on Form 10-Q for the Company and
Shawmut for the quarters ended March 31, 1994, June 30, 1994 and September 30,
1994 and such other publicly available information concerning the Company and
Shawmut which we believe to be relevant to our inquiry, (3) financial and
operating information with respect to the business, operations and prospects of
the Company furnished to us by the Company, (4) financial and operating
information with respect to the business, operations, and prospects of Shawmut
furnished to us by Shawmut, (5) trading history for the past three years
(through February 9, 1995) and market valuation of the Company's common stock
and Shawmut's common stock and a comparison of those trading histories with
those of other companies which we deemed relevant, (6) a comparison of the
historical financial results and present financial condition of the Company with
those of other companies which we deemed relevant, and (7) a comparison of the
financial terms of the Proposed Transaction with the financial terms of certain
other recent transactions which we deemed relevant. In addition, we have had
discussions with the management of the Company and Shawmut concerning their
respective businesses, operations, assets, financial conditions and prospects
and undertook such other studies, analyses and investigations as we deemed
appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification and have further relied upon the assurances of
management of the Company and Shawmut that they are not aware of any facts that
would make such information inaccurate or misleading. With respect to the
financial projections of the Company, upon advice of the Company, we have
assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company, as to the future financial performance of the
Company, and we have relied upon such projections in arriving at our
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<PAGE> 114
opinion. In arriving at our opinion, we have not conducted a physical inspection
of the properties and facilities of the Company or Shawmut and have not made nor
obtained any evaluations or appraisals of the assets or liabilities of the
Company or Shawmut. In addition, in arriving at our opinion, we have not
considered the potential effects to the Company of pending litigation. Upon
advice of the Company, we have assumed that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and therefore as a tax-free transaction. Our opinion is
necessarily based upon market, economic, regulatory and other conditions as they
exist on, and can be evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the stockholders of the Company in the Proposed Transaction is fair
to such stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that might arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company in the past (including acting as financial advisor for
the reclassification of the Company's $2.25 Cumulative Convertible Preferred
Stock, Series A, completed in May 1993) and have received customary fees for
such services. In the ordinary course of our business, we actively trade in the
debt and equity securities of the Company and Shawmut for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities.
This opinion is solely for the use and benefit of the Board of Directors of
the Company. This opinion is not intended to be and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS INC.
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<PAGE> 115
APPENDIX TO FIGURE 1.
- ---------------------
Chart setting forth the value given to holders of Northeast Common Stock at
various Shawmut Common Stock Average Prices. Below a Shawmut Common Stock
Average Price of $21.465, the transaction is subject to termination. Between
$21.465 and $26.235, the value is $10.875. Above a Shawmut Common Stock Average
Price of $26.235, the value increases above $10.875.
