<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
[_] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-23149
SANDWICH BANCORP, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-3394368
- -------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 Old Kings Highway, Sandwich, Massachusetts 02563
- ---------------------------------------------- -------------------
(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code (508) 888-0026
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy statement or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of the registrant's common stock as quoted
on the NASDAQ National Market System on March 11, 1998 was $100,830,35 (for
purposes of this calculation, directors and executive officers are treated as
"affiliates").
As of March 11, 1998, there were issued and outstanding 1,945,260 shares of the
registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Year Ended December
31, 1997 (Parts I and II).
2. Portions of Proxy Statement for the 1998 Annual Meeting of
Stockholders (Part III).
<PAGE>
PART I
Item 1. Business
- -----------------
GENERAL
The Company. Sandwich Bancorp, Inc. (the "Company"), a Massachusetts
corporation, was organized by The Sandwich Co-operative Bank (the "Bank") to be
a bank holding company. The Company was organized at the direction of the Bank
in June 1997 to acquire all of the capital stock of the Bank upon the
consummation of the reorganization of the Bank into the holding company form of
ownership (the "Reorganization"), which was completed on September 30, 1997.
The Company's common stock, par value $1.00 per share (the "Common Stock")
became registered under the Securities Exchange Act of 1934 on September 30,
1997. The Company has no significant assets other than the corporate stock of
the Bank. For that reason, substantially all of the discussion in this Form
10-K relates to the operations of the Bank and its subsidiaries.
The executive offices of the Company are located at 100 Old Kings Highway,
Sandwich, Massachusetts 02563. The telephone number is (508) 888-0026.
The Bank. The Sandwich Co-operative Bank was organized as a Massachusetts
chartered co-operative bank in 1885. The Bank merged with Wareham Co-operative
Bank in May 1982. In July 1986, the Bank converted from mutual to stock form
through the sale and issuance of 1,820,833 shares of common stock, par value
$1.00 per share (the "Common Stock"). Since 1986, the Bank's deposits have been
insured by the Federal Deposit Insurance Corporation ("FDIC"), an agency of the
federal government, up to $100,000 per insured depositor, with additional
insurance to the total amount of the deposit provided by the Share Insurance
Fund of The Co-operative Central Bank (the "Central Bank"), a deposit insuring
entity chartered by the Commonwealth of Massachusetts. The Bank is subject to
regulation by the Massachusetts Commissioner of Banks ("Commissioner") and the
FDIC.
The business of the Bank consists primarily of attracting deposits from the
general public and originating both construction and permanent loans on one-to-
four family homes. The Bank also makes consumer loans, home equity loans and
commercial loans and mortgages. The Bank invests a portion of its funds in
money market instruments, federal government and agency obligations, and various
types of corporate securities and other authorized investments.
The principal sources of funds for the Bank's lending and investment
activities are deposits, loan payments and payoffs, investment income and
maturities, and principal payments on investments, mortgage-backed securities
and collateralized mortgage obligations. As additional sources of funds, the
Bank has access to advances from the Federal Home Loan Bank of Boston and other
borrowings. The Bank's principal sources of income are interest on loans and
loan origination fees, interest and dividends on investment securities,
mortgage-backed securities and collateralized mortgage obligations and short-
term investments, customer service charges and gains on the sale of loans in the
secondary market, as well as income from servicing loans sold. Its principal
expenses are interest paid on deposits and general and administrative expenses.
The Bank's deposit and lending operations are conducted through eleven full
service office facilities located in Sandwich, South Sandwich, Buzzards Bay,
Pocasset, Wareham, Cedarville, Falmouth, Hyannis, Chatham, Orleans and South
Yarmouth, Massachusetts. In addition, the Bank maintains a loan production
office in Plymouth, Massachusetts. Significant events contributing to the
structure of the current branch network are described below.
In February 1996 and May 1996 the Bank opened free standing ATMs in
Cedarville and South Sandwich, Massachusetts, respectively, in order to provide
greater convenience and access to accounts for its customers. In addition to
its existing ATM network offerings of X-Press 24, NYCE, CIRRUS/MasterCard, the
Bank recently added the Plus/VISA networks for users of Bank ATMs.
2
<PAGE>
In June 1996, the Bank entered into an agreement with FISCO, a national
financial services group that provides a variety of investment services through
community banks to offer expanded retirement investments and financial planning.
FISCO will provide Bank customers with access to alternative investments,
including mutual funds and annuities from a number of highly rated companies.
The Bank also established a referral arrangement with State Street Global
Advisors which enables customers to avail themselves of the estate planning and
trust services of a nationally respected trust institution.
The Bank's main office is located at 100 Old Kings Highway, Sandwich,
Massachusetts 02563 and its telephone number is (508) 888-0026.
RECENT EVENTS
On February 2, 1998, the Company and the Bank entered into a definitive
agreement under which Compass Bank of New Bedford, Massachusetts will acquire
Sandwich Bancorp, Inc. Prior to the Company's consideration and approval of its
definitive agreement with Compass Bank, the Company had contacted and received
expressions of interest from three other parties who had expressed an interest
in an acquisition of the Company.
On February 24, 1998, the Company announced that its Board of Directors,
consistent with the exercise of its fiduciary duties, determined that it was
appropriate to request additional information and clarification of the renewed
expressions of interest that it had received from three other parties subsequent
to February 2.
Following a comprehensive review of the other expressions of interests for
the Company, the Company and Compass Bank jointly announced on March 23, 1998,
that they have signed an amendment to their previously announced agreement of
February 2, 1998 (the "Amended Agreement") by which Compass Bank would acquire
Sandwich Bancorp, Inc. Under the terms of the Amended Agreement, Compass Bank's
parent company, The 1855 Bancorp will convert to a 100% publicly owned stock
holding company and thereafter issue stock having a value of $64.00 per share to
Sandwich Bancorp shareholders in a tax-free exchange of common stock. The value
to be received by Sandwich Bancorp shareholders is subject to adjustment
pursuant to a formula based on the value of the stock of The 1855 Bancorp near
the transaction date. Based on 1855 Bancorp's assumed initial public offering
price of $10.00 per share, each Sandwich Bancorp share will be exchanged for
1855 Bancorp stock having a value of $64.00 per share so long as 1855 Bancorp
stock trades at an average price of between $10.00 and $13.50 per share during a
designated trading period following the initial public offering date. If this
average price exceeds $13.50 per share, the value to be received by Sandwich
Bancorp shareholders will increase proportionately up to a maximum value of
$71.11 until 1855 Bancorp's average price reaches or exceeds $15.00 per share.
If this average price is equal to or less than $10.00 per share, Sandwich
Bancorp shares will be exchanged for 6.4 shares of 1855 Bancorp stock.
Sandwich Bancorp and The 1855 Bancorp also entered into a Stock Option
Agreement, granting to The 1855 Bancorp an option to acquire up to 19.9% of
Sandwich common stock under certain circumstances. The transaction, which is
subject to all necessary regulatory and shareholder approvals, is expected to
close in the fourth quarter of 1998.
For additional information, reference is made to the Amended and Restated
Affiliation and Merger Agreement, dated as of March 23, 1998, attached hereto as
Exhibit 2.1, and the Stock Option Agreement dated as of March 23, 1998, attached
hereto as Exhibit 2.2.
3
<PAGE>
The expression of interest from CCB&T, which the Company disclosed on
February 17, 1998, as well as those from FirstFed America and Independent, were
all received subsequent to the execution and announcement on February 2, 1998 of
the Company's Merger Agreement with Compass Bank. The Merger Agreement with
Compass Bank, which remains in effect and to which the Company is bound,
provides for a cash purchase price of $53 per share.
The Company cautioned there can be no assurance that any of these
expressions of interest will result in a transaction, or a transaction which is
different from the Company's previously announced Merger Agreement with Compass
Bank, or that the value to be obtained will be equal to the nominal value
proposed by each of these parties. Upon receipt of the new information
requested from each of these parties, the Company's Board of Directors will make
a determination as to how it will proceed.
LENDING ACTIVITIES
GENERAL. The Bank's net loan portfolio totaled $366.6 million as of
December 31, 1997, which represented 70.7% of total assets. The Bank offers
residential and home equity mortgage loans, commercial real estate loans,
commercial business loans, construction loans, and personal, automobile, boat,
education and other types of consumer loans. During the year ended December 31,
1997, the Bank originated mortgage loans totaling $123.2 million and purchased
loans totaling $18.3 million for total mortgage loan originations and purchases
of $141.5 million, compared to $117.4 million in mortgage loans originated, and
$23.7 million in mortgage loans purchased for total mortgage loan originations
and purchases of $141.1 million during the year ended December 31, 1996.
Included in the Bank's mortgage loan originations for the year ended December
31, 1997 were $20.8 million of fixed rate residential loans of which $17.4
million were sold in the secondary mortgage market and the difference of $3.4
million was placed into the loan portfolio under the direction of senior
management, as "fixed construction" and "fixed upon completion" mortgage loans.
The increase in mortgage loan originations during fiscal 1997 as compared to
fiscal 1996 was a direct result of a strong residential real estate market.
Residential construction mortgages decreased from 175 loans totaling $27.9
million in 1996 to 156 loans totaling $19.8 million in 1997. In addition, the
purchase of new homes and re-sales of existing homes increased over 1997. In
early 1996, the Bank began a correspondent relationship with Anchor Mortgage
Co., Conway Financial Services and National City Mortgage (formerly known as
Commonwealth United Mortgage), which generated an additional $25.2 million (164
loans) in loan volume during 1997.
4
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The following table shows the composition of the Bank's loan portfolio by
type of loan and the percentage each type represents of the total loan portfolio
at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------- ------------------- ------------------- ------------------
Amount % Amount % Amount % Amount % Amount %
--------- -------- --------- -------- --------- -------- --------- -------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential............... $247,881 67.6% $202,032 63.7% $162,974 60.3% $150,788 60.1% $124,420 59.9%
Commercial real estate.... 62,579 17.0 61,088 19.3 59,597 22.0 49,919 19.9 40,501 19.5
Construction and land..... 38,823 10.6 38,858 12.2 26,486 9.8 26,920 10.8 23,367 11.3
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
349,283 95.2 301,978 95.2 249,057 92.1 227,627 90.8 188,288 90.7
Unadvanced portion of
loans in process.......... (7,188) (2.0) (9,763) (3.1) (6,573) (2.4) (5,810) (2.3) (5,520) (2.7)
Deferred loan origination
(fees) costs.............. 1,030 0.3 542 0.2 56 -- (42) -- (159) (0.1)
Unearned discount.......... -- -- -- -- (171) (0.1) (239) (0.1) -- --
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Total mortgage loans, net 343,125 93.5 292,757 92.3 242,369 89.6 221,536 88.4 182,609 87.9
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Other loans:
Home equity............... 12,438 3.4 12,278 3.9 13,188 4.9 14,961 6.0 15,746 7.6
Consumer.................. 4,847 1.3 5,393 1.7 6,032 2.2 4,903 1.9 2,306 1.1
Commercial................ 8,060 2.2 7,933 2.5 9,671 3.6 8,114 3.2 6,385 3.1
Secured by deposits....... 1,182 0.3 1,160 0.4 992 0.3 972 0.4 760 0.4
Education................. 826 0.2 1,123 0.3 1,660 0.6 3,193 1.3 2,397 1.1
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
27,353 7.6 27,887 8.8 31,543 11.6 32,143 12.8 27,594 13.3
Deferred loan origination
costs..................... 264 0.1 200 0.1 183 0.1 169 0.1 128 0.1
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Total other loans, net... 27,617 7.6 28,087 8.9 31,726 11.7 32,312 12.9 27,722 13.4
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Premium paid on loans, net
of
accumulated amortization.. -- -- -- -- -- -- 137 -- 287 0.1
Allowance for loan losses.. (4,100) (1.1) (3,741) (1.2) (3,674) (1.3) (3,255) (1.3) (2,983) (1.4)
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Loans, net................. $366,642 100.00% $317,103 100.00% $270,421 100.0% $250,730 100.00% $207,635 100.00%
======== ======= ======== ======= ======== ======= ======== ======= ======== ======
</TABLE>
5
<PAGE>
LOAN MATURITY OR REPRICING ANALYSIS. The following table sets forth
certain information at December 31, 1997 regarding the dollar amount of loans
maturing or repricing in the Bank's portfolio. Demand loans, loans having no
schedule of repayments or no stated maturity are reported as due in one year or
less.
<TABLE>
<CAPTION>
Due after 3 Due after 5
through 5 through 10 Due after 10
Due in Year Ended December 31, years after years after years after
-----------------------------------
1998 1999 2000 12/31/97 12/31/97 12/31/97 Total
-------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential.................... $101,623 $40,255 $ 26,057 $ 68,511 $ 7,193 $ 5,272 $248,911
Commercial real estate......... 44,975 8,589 8,697 153 111 54 62,579
Construction and land.......... 13,384 3,497 2,881 11,850 23 -- 31,635
-------- ------- --------- --------- ------- ------- --------
Total......................... 159,982 52,341 37,635 80,514 7,327 5,326 343,125
-------- ------- --------- --------- ------- ------- --------
Other:
Home equity.................... 12,358 57 287 -- -- -- 12,702
Consumer....................... 626 846 1,167 1,278 709 221 4,847
Commercial..................... 6,074 246 416 1,324 -- -- 8,060
Secured by deposits............ 1,172 10 -- -- -- -- 1,182
Education...................... -- -- -- -- -- 826 826
-------- ------- --------- --------- ------- ------- --------
Total......................... 20,230 1,159 1,870 2,602 709 1,047 27,617
-------- ------- --------- --------- ------- ------- --------
Total loans.................. $180,212 $53,500 $ 39,505 $ 83,116 $ 8,036 $ 6,373 $370,742
======== ======= ========= ========= ======= ======= ========
</TABLE>
6
<PAGE>
RESIDENTIAL LENDING. The Bank's residential mortgage loan program
currently includes the origination of a variety of adjustable rate loans which
are retained in the Bank's loan portfolio. At December 31, 1997, the Bank's
adjustable rate residential mortgages totaled $232.9 million, or 63.5%, of the
residential mortgage loan portfolio. Fixed-rate loans accounted for $15.0
million, or 4.1%, of the residential mortgage loan portfolio at that date. The
Bank stresses the origination of adjustable rate mortgages for retention in its
portfolio. The Bank continued to actively originate fixed rate loans for sale in
the secondary mortgage market. By retaining the servicing on loans sold, the
Bank generates loan servicing fee income.
The Bank's adjustable rate residential mortgage loans have a maximum term
of 35 years, and allow for periodic interest rate adjustments. The initial
offering rates on these loans may be discounted to remain competitive prior to
their first interest rate adjustment. The payment amount and the interest rate
on the one year adjustable rate loan adjusts annually to 2.75% above the weekly
average yield of the one year U.S. Treasury Securities (at time of adjustment)
with a maximum interest rate adjustment of 2% per year and 6% over the term of
the loan. Interest rates on the three year adjustable rate loans are fixed for
the first three years by reference to various market indices and competitive
rates, and rates are adjusted every three years thereafter to 2.875% above the
weekly average yield of three year U.S. Treasury Securities (at time of
adjustment) with a maximum interest rate adjustment of 2% every three years, and
6% over the term of the loan. In 1997, the Bank began offering a 4/3 adjustable
rate mortgage loan. The interest rate is fixed for the first four years and
then becomes a three year adjustable rate mortgage which adjusts every three
years at 2.875% above the weekly average yield of the three year U.S. Treasury
Securities, with a maximum interest rate adjustment of 2% per year and 3% over
the remaining term of the loan. The Bank also offers a 5/1 year adjustable rate
mortgage. The interest rate is fixed for the first five years and then becomes
a one year adjustable rate mortgage which adjusts annually at 2.75% above the
weekly average yield of the one year U.S. Treasury Securities, with a maximum
interest rate adjustment of 2% per year and 5% over the remaining term of the
loan.
Residential loans may be made as construction loans or as permanent loans
on one-to-four family residential properties and are typically written in
amounts up to 95% of appraised value. The Bank makes fixed and adjustable rate
mortgage loans of up to 95% of appraised value, if the property is owner
occupied. All loans in excess of 80% of appraised value require private
mortgage insurance, with the exception of the Bank's adjustable rate First-Time
Home Buyer products, which does not require private mortgage insurance.
As noted above, adjustable rate residential mortgage loans originated for
retention in the Bank's loan portfolio provide for periodic interest rate
adjustments. Despite the benefits of adjustable rate mortgages to the Bank's
asset and liability management program, such mortgages pose risks, because as
interest rates rise, the underlying payments by the borrowers rise, increasing
the potential for default. At the same time, the marketability of the
underlying property may be adversely affected by higher interest rates. One of
the ways the Bank seeks to protect itself on these loans is by generally
requiring private mortgage insurance as stated above.
CONSTRUCTION LENDING. The Bank's construction loans totaled $32.5 million,
or 8.9%, of the Bank's total loan portfolio at December 31, 1997. Construction
loans originated during the years ended December 31, 1997 and 1996 totaled $34.4
million and $36.0 million, respectively.
The Bank lends to individuals for the construction of residential
properties which they intend to occupy as a primary or secondary residence.
Borrowers are required to have a firm contract with a qualified builder. Such a
construction loan is generally made with the first twelve months designated as
the construction period (six months for fixed construction) after which time the
loan converts to a 30-35 year permanent residential real estate loan. A maximum
loan to value ratio of 95% of the value of the completed property, or 95% of the
total cost to construct, whichever is less, is permitted as determined by
appraisers. The majority of the Bank's construction loans are made for the
construction of pre-sold, pre-approved residential homes. Inspections of the
construction sites are primarily performed by independent inspectors.
7
<PAGE>
Due to the active real estate market in 1997, the Bank provided financing
to established, credit worthy builders for the purpose of funding construction
of residential homes which had either been pre-sold or constructed on
speculation. Sound underwriting standards were adhered to, minimizing the
inherent risks associated with construction lending. The total loan exposure to
any one builder was well within the prudent levels established by management.
All builder construction loans are performing as anticipated.
COMMERCIAL REAL ESTATE LENDING. The Bank also originates loans secured by
real estate other than one-to-four family residential properties. These
commercial real estate loans generally bear interest at variable rates based
upon a margin of one to two percent above the prime interest rate as quoted in
The Wall Street Journal, and such rates adjust when The Wall Street Journal
prime rate changes. In June 1996, the Bank started offering three year
adjustable rate commercial real estate loans where the interest rate is fixed
for the first three years, generally at 9 1/4%. After the initial three year
period, the interest rate adjusts every three years thereafter to a margin of
one and one half percent above the prime interest rate as quoted in The Wall
Street Journal. This product has enabled the Bank to be more competitive with
its product offerings. There were $62.6 million in commercial real estate loans
outstanding, which comprised 17.1% of the Bank's total loan portfolio at
December 31, 1997. In some cases, commercial real estate loans are made through
participations with other banks. Commercial real estate loans are generally
written in amounts of up to 75% of the appraised value of the property and all
commercial real estate loans over $100,000 are appraised by independent
appraisers. In addition, the Bank's underwriting procedures require verification
of the borrower's credit history and income, banking relationships, references
and income projections for the property. In certain cases, borrowers may be
required to provide additional collateral for loans made. All property securing
commercial loans is revalued or inspected periodically as required under
Massachusetts law. It is the Bank's policy to use the same underwriting
procedures for loan participations as for loans originated by the Bank. The Bank
grants loans guaranteed by the Small Business Administration as well as by the
Massachusetts Business Development Corporation's Capital Access Program.
Although the Bank is permitted to grant commercial real estate loans in
substantially greater amounts, the Bank's current policy generally limits new
commercial real estate loan originations to $2,000,000 to any individual or
entity.
CONSUMER AND OTHER LOANS. The Bank's consumer and other loans totaled
$27.4 million on December 31, 1997, representing 7.5% of the total loan
portfolio on that date. In addition to consumer loans, including personal and
automobile loans, the Bank makes education loans under the American Student
Assistance Corporation ("A.S.A.") program, which are serviced by Sallie Mae,
Inc. The interest on education loans is partially subsidized by the Federal
Government and the principal is fully guaranteed by A.S.A. The Bank sells its
student loans to Sallie Mae once the loan has begun repayment.
The Bank offers a home equity line of credit whereby the Bank makes monthly
adjustable rate loans, secured by the borrower's equity in their residence,
whether or not the loans are to be used for home improvements. As of December
31, 1997, the Bank had $12.4 million in home equity loans outstanding or 3.4% of
the Bank's total loan portfolio, as compared with $12.3 million in such loans
outstanding at December 31, 1996 or 3.9% of the Bank's total loan portfolio at
that date. Home equity loans are currently written in amounts up to 80% of the
appraised value of the property less the outstanding balance of the existing
first mortgage.
The Bank offers a three year adjustable home equity loan. The interest
rate for each three year period is based upon a margin of 3.0% above the prime
interest rate as quoted in The Wall Street Journal. The home equity loan has a
maximum interest rate adjustment of 3.0% per adjustment, and a ceiling interest
rate of 18.0%. The home equity loan amount is fully drawn down at closing.
The Bank offers a commercial line of credit program for its established
business customers with seasonal cash flow needs. The Bank's home equity line
of credit loans and commercial lines of credit accounts generally bear interest
at variable rates based upon a margin 1 - 3% above the prime interest rate as
quoted in The Wall Street Journal, while other loans are generally priced based
on market conditions.
8
<PAGE>
The Bank believes its consumer lending programs create diversity and
interest rate sensitivity within its asset mix and offer attractive yields. The
Bank is currently promoting its construction, consumer and home equity lending
programs through the activities of its loan officers, branch managers and
customer service personnel, and is utilizing careful underwriting and monitoring
procedures in these programs.
RISKS OF COMMERCIAL, CONSTRUCTION AND CONSUMER LENDING. Commercial real
estate, construction and consumer lending may entail additional risks compared
to residential mortgage lending. Commercial real estate and construction loans
may involve large loan balances to single borrowers or groups of related
borrowers. In addition, the payment experience on loans secured by income
producing properties is typically dependent on the successful operation of the
properties and thus may be subject to a greater extent to adverse conditions in
the local real estate market or in the economy generally. Construction loans
may involve additional risks, because the uncertainties inherent in estimating
construction costs, delays arising from labor problems, material shortages, and
other unpredictable contingencies, which make it relatively difficult to
evaluate accurately the total loan funds required to complete a project, and
related loan-to-value ratios. Because of these factors, the analysis of
prospective construction loan projects requires an expertise that is different
in significant respects from the expertise required for residential mortgage
lending. Consumer loans and particularly unsecured personal loans may involve
additional risks, and it may be expensive and time consuming to recover the
money lent in the event of a default. While the Bank has attempted to limit the
risk of loss on its commercial real estate, construction and consumer loans, and
has established provisions for loan losses, a reversal in the current positive
trend in the New England real estate market could negatively affect the Bank's
commercial real estate, construction and consumer loan portfolios, which would
further negatively affect the Bank's results of operations. In addition, the
status of the Bank's problem assets could be impacted by a reversal in the
continuing improvement in the New England real estate market and the Bank's
market area.
The following table indicates the amounts of construction and commercial
loans which are due after one year from December 31, 1997 that earn interest at
fixed rates and adjustable rates.
<TABLE>
<CAPTION>
Total Due After One Year
---------------------------------
Fixed Adjustable
Rate Rate Total
------- ------ -------
(in thousands)
<S> <C> <C> <C>
Construction........ $ -- $ 18,251 $ 18,251
Commercial.......... 1,986 -- 1,986
------- -------- --------
Total............. $ 1,986 $ 18,251 $ 20,237
======= ======== ========
</TABLE>
9
<PAGE>
LOANS BY INTEREST RATE AND MATURITY. The following table shows as of
December 31, 1997 information concerning the Bank's fixed and adjustable rate
permanent mortgage loans by interest rate range and by maturity date for fixed
rate mortgages and interest rate adjustment date for variable rate mortgages.
<TABLE>
<CAPTION>
Fixed Rate Mortgages Mortgages Subject to Interest Rate Adjustment
---------------------------------------------- -----------------------------------------------------
4.01- 8.01- 10.01- 12.01% 4.01- 8.01- 10.01- 12.01%
Years 8.00% 10.00% 12.00% and over Total 8.00% 10.00% 12.00% and over Total
- ----- ------- ------- ------ -------- ------- -------- -------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-1..................... $ 205 $ 147 $ -- $ -- $ 352 $ 54,773 $ 82,206 $22,575 $ 76 $159,630
1-2..................... 37 80 20 5 142 36,410 15,190 534 65 52,199
2-5..................... 1,712 442 66 11 2,231 100,363 14,811 744 -- 115,918
5-10.................... 6,732 315 182 75 7,304 -- 23 -- -- 23
10 or more.............. 4,336 990 -- -- 5,326 -- -- -- -- --
------- ------- ------ ------- ------- -------- -------- ------- -------- --------
Total.................. $13,022 $ 1,974 $ 268 $ 91 $15,355 $191,546 $112,230 $23,853 $ 141 $327,770
======= ======= ====== ======= ======= ======== ======== ======= ======== ========
</TABLE>
10
<PAGE>
ORIGINATION FEES AND OTHER FEES. The Bank offers real estate loans with
and without origination fees. During 1997, customer preference tended towards
the "no point," higher rate loans, both adjustable and fixed. The Bank does
charge the customer for expenses incurred during the loan application process to
cover such items as real estate appraisal, credit report, etc. The Bank retains
late charges on all real estate loans that are more than fifteen days late. For
information regarding the manner in which fees are taken into income, see Note 1
of Notes to Consolidated Financial Statements contained in the Company's 1997
Annual Report to Stockholders (the "Annual Report"), which is Exhibit 13 to this
report.
LOAN SOLICITATION AND APPROVAL PROCEDURES. Loan originations are developed
by the Bank's officers, managers, assistant branch managers, customer service
representatives, and loan originators from a number of sources, including
referrals from realtors, builders, attorneys and customers. Consumer loans are
solicited from existing depositors and loan customers. Various advertising
forums are also used to promote the Bank's lending programs.
Applications for all types of loans are taken at all of the Bank's offices
and mortgage loan applications are forwarded to the Bank's loan department for
processing. The Bank's loan underwriting procedures include the use of detailed
credit applications, property appraisals and verifications of an applicant's
credit history, employment situations and banking relationships. Loans up to
and including $500,000 may be approved by the Bank's senior loan officer, while
those over $500,000 must be approved by the Bank's Security Committee before
they close. All mortgage loans are approved or ratified by the Security
Committee and/or the full Board of Directors. All residential loans and
commercial mortgages over $100,000 are appraised by independent state certified
appraisers selected by the Bank. Title insurance and fire and casualty
insurance are required on all security properties.
Mortgage applicants are promptly notified of the decision concerning their
application by a commitment letter setting forth the terms and conditions of the
decision. If approved, these commitments include the amount of the loan,
interest rate, amortization term, brief description of the real estate mortgaged
to the Bank, the required amount of fire and casualty insurance to be maintained
to protect the Bank's interest and other special conditions as warranted.
LOAN ORIGINATIONS, PURCHASES AND SALES. The Bank uses the underwriting
standards and standard documents of the Federal Home Loan Mortgage Corporation
and Federal National Mortgage Association. The Bank continues to sell fixed
rate residential loans in the secondary market. The Bank has also become more
active in the Massachusetts Housing Finance Agency ("MHFA") program, and
generated five loans totaling $326,175 under their below market fixed rate
residential loan programs. Also, in 1997, the Bank began offering the low
interest rate MHFA Septic loans and closed two loans totaling $10,000 as of
December 31, 1997.
11
<PAGE>
Set forth below is a table showing the Bank's mortgage loan origination,
purchase and sales activity for the periods indicated, together with information
on repayment of principal on mortgage loans in the Bank's portfolio. Mortgage
loans purchased were whole loans originated by other New England-based financial
institutions.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance (a)......................... $292,757 $242,369 $221,536 $182,609 $151,892
Loan originations and purchases:
Fixed rate................................... 20,845 19,127 12,682 21,244 60,921
Adjustable rate.............................. 67,895 62,258 36,416 35,026 36,087
Construction................................. 34,431 35,982 27,028 23,491 11,683
-------- -------- -------- -------- --------
Total mortgage loan originations............ 123,171 117,367 76,126 79,761 108,691
Loans purchased.............................. 18,342 23,758 8,612 14,590 12,674
-------- -------- -------- -------- --------
Total loan originations and purchases....... 141,513 141,125 84,738 94,351 121,365
-------- -------- -------- -------- --------
Loan principal reduction...................... (74,023) (70,396) (49,708) (35,160) (46,739)
Loans sold.................................... (17,610) (20,999) (14,363) (20,142) (43,913)
Change in deferred net loan origination fees.. 488 487 98 117 4
Change in unearned discount................... -- 171 68 (239) --
-------- -------- -------- -------- --------
Ending balance (a)............................ $343,125 $292,757 $242,369 $221,536 $182,609
======== ======== ======== ======== ========
</TABLE>
_______________
(a) Beginning balance and ending balance are net of undisbursed proceeds of
loans in process, deferred net loan origination fees and unearned
discounts.
The following table sets forth at December 31, 1997 all mortgage loans by
categories of weighted average annual yield.
<TABLE>
<CAPTION>
Percent Weighted Average
Amount of Total Annual Yield
------ -------- ------------
(In thousands)
<S> <C> <C> <C>
12.01% and over................... $ 232 0.07% 12.71%
11.01% to 12%..................... 917 0.27 11.51
10.01% to 11%..................... 23,352 6.81 10.50
9.01% to 10%..................... 46,267 13.48 9.59
8.01% to 9%..................... 67,957 19.81 8.54
4.01% to 8%..................... 204,400 59.56 7.02
-------- ------
Total mortgage loans........... $343,125 100.00% 7.92%
======== ====== =====
</TABLE>
NON-PERFORMING ASSETS AND ASSET CLASSIFICATION. Once a loan payment is 15
days past due, the Bank notifies the borrower of the delinquency. Repeated
contacts are made if the loan remains in a delinquent status for 30 days or
more. While generally the Bank is able to work out satisfactory repayment with
a delinquent borrower, the Bank will undertake foreclosure proceedings if the
delinquency is not otherwise resolved when payments are 90 days past due.
Property acquired by the Bank as a result of foreclosure or by deed in lieu of
foreclosure is classified as "other real estate owned" until such time as it is
sold or otherwise disposed. When such property is acquired it is recorded at
the lower of unpaid principal balance of the related loan or its fair value,
less costs to dispose. Beginning for the year ended December 31, 1993, the Bank
has classified its non-performing assets in accordance with FDIC classification
regulations, so that all loans secured by residential real estate are considered
residential loans, regardless of whether they are owner-occupied or are
investment properties. During the year ended December 31, 1997, the Bank
foreclosed on
12
<PAGE>
eleven loans totaling $1,245,000 of which nine were residential mortgage loans
totaling $728,000 and two were commercial real estate loans totaling $517,000.
The Bank charged off $397,000 on various other loans during fiscal 1997.
The following table sets forth information with respect to the Bank's non-
performing assets at the dates indicated. At December 31, 1997, the Bank had one
restructured loan within the meaning of the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 15 which are
described below.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis which
are contractually past due 90 days or more:
Mortgage loans:
Residential................................... $2,755 $2,320 $2,948 $ 966 $1,614
Commercial real estate........................ 456 1,118 1,225 401 228
Construction and land......................... 72 83 65 227 264
------ ------ ------ ------ ------
Total........................................ 3,283 3,521 4,238 1,594 2,106
------ ------ ------ ------ ------
Other:
Home equity................................... 82 195 133 250 219
Consumer...................................... 42 90 138 20 6
Commercial.................................... 174 280 162 199 --
------ ------ ------ ------ ------
Total........................................ 298 565 433 469 225
------ ------ ------ ------ ------
Total non-accrual loans....................... $3,581 $4,086 $4,671 $2,063 $2,331
====== ====== ====== ====== ======
Restructured loans:
Mortgage loans:
Residential................................... $ -- $ 151 $ 504 $1,078 $ 551
Commercial real estate........................ 105 107 558 423 1,174
Construction and land......................... -- -- -- 30 --
------ ------ ------ ------ ------
Total........................................ 105 258 1,062 1,531 1,725
------ ------ ------ ------ ------
Other:
Home equity................................... -- -- -- -- 37
Commercial.................................... -- -- -- -- 303
------ ------ ------ ------ ------
Total........................................ -- -- -- -- 340
------ ------ ------ ------ ------
Total restructured loans...................... $ 105 $ 258 $1,062 $1,531 $2,065
====== ====== ====== ====== ======
Total of non-accrual loans and
restructured loans.............................. $3,686 $4,344 $5,733 $3,594 $4,396
====== ====== ====== ====== ======
Percentage of total loans......................... 1.01% 1.37% 2.12% 1.43% 2.12%
====== ====== ====== ====== ======
Real estate acquired by foreclosure
or substantively repossessed.................... $ 596 $ 465 $ 367 $ 969 $2,867
====== ====== ====== ====== ======
</TABLE>
13
<PAGE>
At December 31, 1997, the Bank had 46 loans, totaling $3.6 million which
were non-accruing. Non-accruing loans at December 31, 1997 included in the
above total were: (i) 27 loans on residential properties, including two land
loans, totaling $2.8 million with balances outstanding ranging from $2,000 to
$712,000; (ii) eight loans on commercial real estate properties, totaling
$600,000, with balances outstanding ranging from $30,000 to $111,000; (iii)
three home equity loans with combined balances outstanding of $82,000 and (iv)
$121,000 in various other loans. Reserves of $4.1 million have been established
by the Bank at December 31, 1997 to cover any losses that may be incurred on
loans.
Restructured loans at December 31, 1997 amounted to $105,000. Additional
interest income of approximately $2,000 would have been recorded on these
restructured loans during the year ended December 31, 1997 if they had been
performing in accordance with their original terms. Interest income actually
recorded on these loans for the year amounted to approximately $9,000.
Typically, restructured loans are restructured to provide either a reduction of
the interest on the loan principal or an extension of the loan maturity.
Real estate acquired by foreclosure at December 31, 1997 totaled $596,000,
representing the lower of the carrying value of the loan or the fair value less
costs to dispose of properties. These properties had secured six loans which
were foreclosed upon by the Bank. The largest of these foreclosed properties,
carried at $167,000 at December 31, 1997, is comprised of one residential loan.
For further information regarding the Bank's non-performing assets, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 of Notes to Consolidated Financial Statements contained
in the Annual Report.
ALLOWANCE FOR LOAN LOSSES
The Bank maintains an allowance for losses on loans. The annual provision
for loan losses is determined by management on the basis of many factors
including the risk characteristics of the portfolio, current economic conditions
and trends in loan delinquencies and charge-offs. The provision for loan losses
charged to earnings totaled $750,000 and $265,000 for the years ended December
31, 1997 and 1996, respectively. The Bank increased its provision for loan
losses for the year ended December 31, 1997, as compared to the year ended
December 31, 1996 as a result of the overall increase in the loan portfolio and
an increase in specific loan charge-offs. The allowance for loan losses was
$4.1 million at December 31, 1997. The allowance for loan losses is reviewed by
management on a continual basis and although management currently believes this
allowance to be adequate, there can be no assurance that this allowance will be
sufficient to cover future losses.
14
<PAGE>
The following table presents activity in the allowance for loan losses
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at the beginning of year............. $3,741 $3,674 $3,255 $2,983 $2,979
------ ------ ------ ------ ------
Provision for loan losses.................... 750 265 597 340 478
------ ------ ------ ------ ------
Loans charged-off:
Mortgage loans:
Residential................................. (59) (50) (223) (2) (250)
Commercial real estate...................... (24) (92) (36) (89) (121)
Construction and land....................... -- -- -- (51) (100)
Other loans:
Home equity................................. -- -- (21) (23) --
Consumer.................................... (151) (101) (73) (19) (16)
Commercial.................................. (246) (22) (8) -- (60)
------ ------ ------ ------ ------
Total charge-offs.......................... (480) (265) (361) (184) (547)
------ ------ ------ ------ ------
Recoveries on previously charged-off loans:
Mortgage loans.............................. 60 46 152 106 49
Other loans................................. 29 21 31 10 24
------ ------ ------ ------ ------
Total recoveries........................... 89 67 183 116 73
------ ------ ------ ------ ------
Net charge-offs.............................. (391) (198) (178) (68) (474)
------ ------ ------ ------ ------
Balance at the end of year................... $4,100 $3,741 $3,674 $3,255 $2,983
====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding........................... 0.11% 0.07% 0.07% 0.03% 0.25%
====== ====== ====== ====== ======
</TABLE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowances to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Residential......................... $1,613 $1,313 $1,396 $1,279 $1,302
Commercial real estate.............. 1,655 1,683 1,513 1,148 985
Construction and land............... 378 284 267 320 311
Other:
Home equity....................... 81 90 90 130 188
Consumer.......................... 137 146 178 273 128
Commercial........................ 236 225 230 105 69
------ ------ ------ ------ ------
Total allowance for loan losses.. $4,100 $3,741 $3,674 $3,255 $2,983
====== ====== ====== ====== ======
</TABLE>
15
<PAGE>
INVESTMENT ACTIVITIES
The Bank's management believes it prudent to maintain an investment
portfolio that provides not only a source of income but also a source of
liquidity to meet lending demands and fluctuations in deposit flows. The
relative mix of investment securities and loans in the Bank's portfolio is
dependent upon the comparative attractiveness of yields available to the Bank on
adjustable rate loans that it makes as compared to yields on short-term
investment securities. At December 31, 1997, the Bank's portfolio of short-term
investments, equity securities, mortgage-backed securities and collateralized
mortgage obligations totaled $110.7 million, which represented 21.3% of total
assets. Sales of equity securities during the year ended December 31, 1997
resulted in a net gain of $55,000. There were no sales of equity securities for
the year ended December 31, 1996. The fair value of the Bank's equity securities
portfolio as of December 31, 1997 totaled $6,000. For more information, see Note
3 of Notes to Consolidated Financial Statements in the Annual Report.
The Bank's portfolio of investment securities consists of securities
offering reasonably short maturities or adjustable interest rates, primarily
United States Treasury notes and Government agency obligations, mortgage-backed
securities, collateralized mortgage obligations, investment grade corporate
bonds, money market instruments and municipal tax anticipation notes. The
average life of the Bank's fixed-income investment portfolio was less than three
years at December 31, 1997, with final maturities greater than ten years. The
Bank's investment portfolio is presently managed by the Bank's Chief Financial
Officer.
16
<PAGE>
The following table sets forth a summary of the held to maturity and
available for sale, amortized cost and fair value of the Bank's investment
securities at the dates specified.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------------------- --------------------------------------
Held to Maturity Available for Sale Held to Maturity Available for Sale
-------------------- ------------------ ------------------ -------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
--------- --------- --------- ------- --------- ------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government obligations:
Maturing within 1 year............ $ 9,992 $10,004 $ -- $ -- $12,015 $12,035 $ 2,000 $ 1,994
Maturing after 1 year but
within 5 years................... 5,488 5,506 -- -- 10,462 10,492 -- --
------- ------- --------- ------- ------- ------- ------- -------
15,480 15,510 -- -- 22,477 22,527 2,000 1,994
------- ------- --------- ------- ------- ------- ------- -------
Collaterized mortgage
obligations (CMOs):
Maturing within 1 year............ 413 413 -- -- 1,436 1,436 -- --
Maturing after 1 year
but within 5 years............... 4,598 4,591 -- -- 6,384 6,312 -- --
Maturing after 5 years
but within 10 years.............. 5,036 5,021 -- -- 740 753 -- --
Maturing after 10 years........... 40,162 40,230 -- -- 56,220 55,708 -- --
------- ------- --------- ------- ------- ------- ------- -------
50,209 50,255 -- -- 64,780 64,209 -- --
------- ------- --------- ------- ------- ------- ------- -------
Mortgage-backed securities:
Maturing within one year........... -- -- 98 98 -- -- -- --
Maturing after 1 year
but within 5 years................ -- -- -- -- -- -- 147 147
Maturing after 5 years
but within 10 years............... 217 228 -- -- -- -- -- --
Maturing after 10 years............ 33,671 33,782 10,763 10,891 12,391 12,392 8,271 8,343
------- ------- --------- ------- ------- ------- ------- -------
33,888 34,010 10,861 10,989 12,391 12,392 8,418 8,490
------- ------- --------- ------- ------- ------- ------- -------
Other bonds and obligations:
Maturing within one year........... -- -- -- -- -- -- -- --
Maturing after 1 year
but within 5 years................ -- -- -- -- -- -- -- --
------- ------- --------- ------- ------- ------- ------- -------
-- -- -- -- -- -- -- --
------- ------- --------- ------- ------- ------- ------- -------
Marketable equity securities
Mortgage-backed mutual
funds............................. -- -- -- -- -- -- 2,520 2,510
Common and preferred
stocks............................ -- -- 2 6 -- -- 324 318
------- ------- --------- ------- ------- ------- ------- -------
Totals........................ $99,577 $99,775 $10,863 $10,995 $99,648 $99,128 $13,262 $13,312
======= ======= ========= ======= ======= ======= ======= =======
<CAPTION>
December 31, 1995
--------------------------------------
Held to Maturity Available for Sale
------------------ ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
<S> <C> <C> <C> <C>
U.S. Government obligations:
Maturing within 1 year...... $ 2,522 $ 2,534 $ 8,758 $ 8,828
Maturing after 1 year but
within 5 years............ 12,072 12,172 4,007 4,005
------- ------- ------- -------
14,594 14,706 12,765 12,833
------- ------- ------- -------
Collaterized mortgage
obligations (CMOs):
Maturing within 1 year...... -- -- -- --
Maturing after 1 year
but within 5 years......... 7,547 7,609 -- --
Maturing after 5 years
but within 10 years........ 6,022 6,001 -- --
Maturing after 10 years..... 57,385 57,077 -- --
------- ------- ------- -------
70,954 70,687 -- --
------- ------- ------- -------
Mortgage-backed securities:
Maturing within one year..... -- -- -- --
Maturing after 1 year
but within 5 years.......... -- -- 152 152
Maturing after 5 years
but within 10 years......... -- -- -- --
Maturing after 10 years...... 1,358 1,390 10,031 10,062
------- ------- ------- -------
1,358 1,390 10,183 10,214
------- ------- ------- -------
Other bonds and obligations:
Maturing within one year..... 709 707 -- --
Maturing after 1 year
but within 5 years.......... 1,853 1,898 -- --
------- ------- ------- -------
2,562 2,605 -- --
------- ------- ------- -------
Marketable equity securities:
Mortgage-backed mutual
funds....................... -- -- 2,375 2,369
Common and preferred
stocks...................... -- -- 370 354
------- ------- ------- -------
Totals..................... $89,468 $89,388 $25,693 $25,770
======= ======= ======= =======
</TABLE>
17
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Checking, savings and investment deposits have traditionally been
an important source of the Bank's funds for use in lending and for other general
business purposes. In addition to deposits, the Bank derives funds from loan
repayments, selling loans, and from other operations. The availability of funds
is influenced by general interest rates and other market conditions. Scheduled
loan repayments are a relatively stable source of funds while deposit inflows
and outflows vary widely and are influenced by prevailing interest rates and
money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in deposits or deposit inflows at less than projected
levels and may be used on a longer term basis to support expanded lending
activities, or to take advantage of favorable investment opportunities.
DEPOSITS. Consumer deposits are attracted principally from within the
Bank's market area through the offering of a broad selection of deposit
instruments including demand deposit accounts, NOW accounts, money market
deposit accounts, regular savings accounts, term deposit accounts and retirement
savings plans. The Bank does not actively solicit or advertise for deposits
outside of its market area. The Bank accepts deposits primarily through its
branch office network and through the "X-Press 24" automated teller machine
network, of which it is a member. The Bank also actively solicits deposits from
area businesses as part of its Business Services offerings and seeks to attract
deposits from local municipalities.
The Bank has adopted a policy of controlled deposit growth, by pricing its
savings products based on the Bank's need for additional funds and rates being
paid by other area financial institutions.
The Bank offers its customers a variety of pricing options which enable
them to select the combination of banking services which best meets their needs,
in the most cost effective manner.
In August 1994, the Bank introduced a new relationship banking product
called "Advantage CD." With this deposit offering, customers have the
opportunity to earn bonus interest each month, based upon their total deposit
and loan account balances with the Bank. As of December 31, 1997, over $78.1
million had been deposited into the 18 and 30 month Advantage CD's. In January
1996, the Bank reintroduced its club program, as the Presidents Club, producing
a package of benefits for customers with combined balances of $10,000 or more.
During 1997, Presidents Club household deposits with the Bank grew by $31.3
million to $179.3 million at December 31, 1997. In August 1997, a high rate,
high minimum balance money market account was introduced, resulting in deposits
of $19.8 million by year end 1997.
For further information regarding the Bank's deposits see Note 8 of Notes
to Consolidated Financial Statements in the Annual Report.
BORROWINGS. Savings deposits and loan repayments, as well as principal
payments and maturing investments, are the primary source of funds of the Bank's
lending and investment activities and for its general business purposes.
Advances from the Federal Home Loan Bank ("FHLB") of Boston and other borrowings
in the form of securities sold under agreements to repurchase, are alternative
sources of funds. The Bank increased its advances from the FHLB of Boston to
finance loan originations, loan purchases and purchases of investment
securities. Advances from the FHLB of Boston were $45.6 million at December
31, 1997 compared to $32.1 million at December 31, 1996. Additional sources
of available funds include the Co-operative Central Bank Reserve Fund and the
Federal Reserve System.
18
<PAGE>
Advances from the Federal Home Loan Bank of Boston are summarized as
follows:
<TABLE>
<CAPTION>
Maturing in At December 31,
-------------------------------
Interest Rate Year Ending 1997 1996 1995
- ------------- ----------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
4.19% - 5.61% 1996 $ -- $ -- $ 6,407
4.53% - 5.78% 1997 -- 26,026 694
5.60% - 6.47% 1998 34,000 5,000 --
5.71% - 6.83% 1999 11,000 1,000 1,000
8.32% 2015 47 47 47
6.67% 2017 54 -- --
5.66% 2018 500 -- --
------- ------- -------
$45,601 $32,073 $ 8,148
======= ======= =======
Weighted average rate
(cost of borrowings) 5.82% 5.70% 5.21%
======= ======= =======
Maximum amount outstanding
at any month end $71,515 $32,073 $15,354
======= ======= =======
</TABLE>
For further information regarding the Bank's borrowings see Note 9 of Notes
to Consolidated Financial Statements included in the Company's Annual Report to
Stockholders.
SUBSIDIARY ACTIVITIES
The Sextant Corporation (the "Corporation") is a wholly-owned subsidiary of
the Bank, originally formed to purchase equipment and lease the equipment to the
Bank to take advantage of favorable tax treatment previously but no longer
allowed to such transactions. In fiscal 1989, the Corporation constructed four
office condominium buildings which contain a total of sixteen thousand square
feet of office space (16 units). At December 31, 1997, eight units had been
sold, and two units have been leased. The Bank occupies the remaining units.
The Corporation also owns seven condominium units in Cedarville, Massachusetts.
These units have been written down to their appraised value and are actively
being marketed. The sales price for the units has been reduced as of March 1,
1997 to help facilitate a sale. No further losses are anticipated; the current
book value as of December 31, 1997 is $233,000.
The Company in its application to the Federal Reserve Bank of Boston
("FRB") to become a bank holding company committed to divest or convert to bank
premises the properties that are currently held by the Sextant Corporation
including the properties discussed above, pursuant to (S)225.22(f) of Regulation
Y. Section 225.22(f) of Regulation Y, which stipulates that a company that
becomes a bank holding company may, for a period of two years, engage in
nonbanking activities and control voting securities or assets of a nonbank
subsidiary, if the bank holding company engaged in such activities or controlled
such voting securities or assets on the date it became a bank holding company.
The FRB may grant requests for up to three one-year extensions of the two-year
period.
The Corporation is also a 49% partner in the Glasstown Group Partnership.
In July 1996, the Partnership sold approximately 12 acres of land on Old Kings
Highway adjacent to a major retail complex in Sandwich, Massachusetts. The
Corporation received $113,000 in cash and a note receivable for $174,000.
Principal and interest is payable in quarterly payments over a five year period.
The Corporation sustained no loss as a result of the transaction. At December
31, 1997, the Corporation's portion of the note receivable was $135,000.
19
<PAGE>
In March 1992, the Bank established Redeil Corporation ("Redeil"), a
Massachusetts Corporation which was established in order to allow the Bank to
transfer certain real estate owned by foreclosure to Redeil. The Bank
transferred $903,000 in real estate owned by foreclosure to Redeil in March
1992, and made an additional investment in Redeil of $20,000 in June 1992. At
July 31, 1995, the Bank dissolved Redeil and transferred its investment of
$791,000, including a real estate owned by foreclosure balance of $135,000, back
to the Bank.
In February 1993, the Bank established Sandwich Securities Corporation
("SSC"), a Massachusetts corporation for the purpose of engaging exclusively in
buying, selling and holding, on its own behalf, securities that may be held
directly by the Bank. SSC qualifies under Massachusetts General Laws, Chapter
63 Section 38B, as a Massachusetts security corporation. At December 31, 1997,
SSC held $39.6 million in U.S. Treasury notes and Government agency obligations
and mortgage-backed securities. In March 1995, the Bank established Sextant
Securities Corporation ("SEXT"), a second Massachusetts security corporation,
for the purpose of engaging exclusively in buying, selling and holding, on its
own behalf, securities that may be held directly by the Bank. At December 31,
1997, SEXT held $30.3 million in securities.
In February 1997, the Bank filed for and received permission from the
Massachusetts Commissioner of Banks to increase the amount of securities to be
held by SSC from the original amount of $15 million to an amount not to exceed
$45 million.
YIELDS EARNED AND RATES PAID
The Bank's pre-tax earnings depend primarily on its net interest income,
the difference between the income it receives on its loan portfolio and other
investments and its cost of money, consisting primarily of interest paid on
savings deposits, FHLB advances and other borrowings. Net interest income is
affected by (i) the difference ("interest rate spread") between rates of
interest earned on its interest-earning assets and rates paid on its interest-
bearing liabilities and (ii) the relative amounts of its interest-earning assets
and interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. Thrift institutions have traditionally used
interest rate spreads as a measure of net interest income. Another indicator of
an institution's net interest income is its "net yield on interest earning
assets" which is net interest income divided by average interest earning assets.
At December 31, 1997, approximately 6.4% of the Bank's total loans
outstanding consisted of fixed-rate loans with maturities of up to 30 years.
Although actions taken by management have largely reduced the Bank's reliance
on long-term fixed-rate assets in favor of short-term repricable assets, when
interest rates rise, the Bank's yield on its loan portfolio still increases at
a slower pace as the Bank's deposit base has a shorter term than its loan
portfolio and is more sensitive to rapidly increasing or decreasing rates.
REGULATION AND SUPERVISION OF THE BANK
GENERAL. The Bank is subject to extensive regulation by the Massachusetts
Commissioner of Banks and the FDIC. The lending activities and other
investments of the Bank must comply with various federal regulatory
requirements. The Massachusetts Commissioner of Banks and FDIC periodically
examine the Bank for compliance with various regulatory requirements. The Bank
must file reports with the Commissioner and the FDIC describing its activities
and financial condition. The Bank is also subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"). This supervision and regulation is intended
primarily for the protection of depositors. Certain of these regulatory
requirements are referred to below or appear elsewhere herein.
CAPITAL REQUIREMENTS. Under FDIC regulations, state-chartered banks that
are not members of the Federal Reserve System ("state nonmember banks") are
required to maintain a minimum leverage capital requirement consisting of a
ratio of Tier 1 capital to total assets of 3% if the FDIC determines that the
institution is not anticipating or
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<PAGE>
experiencing significant growth and has well-diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and in general a strong banking organization, rated composite 1 under
the CAMEL rating system. For all but the most highly rated institutions meeting
the conditions set forth above, the minimum leverage capital ratio is 3% plus an
additional "cushion" amount of at least 100 to 200 basis points so that the
ratio of Tier 1 capital to total assets is not less than 4%. Tier 1 capital is
the sum of common stockholders' equity, noncumulative perpetual preferred stock
(including any related surplus) and minority interests in consolidated
subsidiaries, minus all intangible assets (other than certain purchased mortgage
servicing rights and purchased credit card relationships), minus identified
losses and minus investments in securities subsidiaries.
In addition to the leverage ratio, state nonmember banks must maintain a
minimum ratio of qualifying total capital to risk-weighted assets of at least
8.0% of which at least four percentage points must be Tier 1 capital.
Qualifying total capital consists of Tier 1 capital plus Tier 2 (supplementary)
capital items, which include allowances for loan losses in an amount of up to
1.25% of risk-weighted assets, perpetual preferred stock that does not qualify
as Tier 1 capital and long-term preferred stock with an original maturity of at
least 20 years and certain other capital instruments. The includable amount of
Tier 2 capital cannot exceed the institution's Tier 1 capital. Qualifying total
capital is further reduced by the amount of the bank's investments in banking
and finance subsidiaries that are not consolidated for regulatory capital
purposes, reciprocal cross-holdings of capital securities issued by other banks
and certain other deductions. Under the FDIC risk-weighting system, all of a
bank's balance sheet assets and the credit equivalent amounts of certain off-
balance sheet items are assigned to one of four broad risk weight categories.
The aggregate dollar amount of each category is multiplied by the risk weight
assigned to that category. The sum of these weighted values equals the bank's
risk-weighted assets.
At December 31, 1997, the Bank's ratio of Tier 1 capital to total assets
was 7.80%, its ratio of Tier 1 capital to risk-weighted assets was 13.52% and
its ratio of total capital to risk-weighted assets was 14.77%.
All Massachusetts chartered co-operative banks are required to be members
of the Share Insurance Fund. The Share Insurance Fund maintains a deposit
insurance fund which insures all deposits in member banks which are not covered
by federal insurance, which in the case of the Bank are its deposits in excess
of $100,000 per insured account. In past years, a premium of 1/24 of 1% of
insured deposits has been assessed annually on member banks such as the Bank for
this deposit insurance. However, no premium has been assessed in recent years.
DIVIDEND LIMITATIONS. The Bank may not pay dividends on its capital stock
if its regulatory capital would thereby be reduced below the amount then
required for the liquidation account established for the benefit of certain
depositors of the Bank at the time of its conversion to stock form.
Earnings of the Bank appropriated to bad debt reserves and deducted for
Federal income tax purposes are not available for payment of cash dividends or
other distributions to stockholders without payment of taxes at the then current
tax rate by the Bank on the amount of earnings removed from the reserves for
such distributions. See "Federal and State Taxation." The Bank intends to make
full use of this favorable tax treatment and does not contemplate use of any
earnings in a manner which would limit the Bank's bad debt deduction or create
federal tax liabilities.
Under FDIC regulation, the Bank is prohibited from making any capital
distributions if after making the distribution, the Bank would have: (i) a total
risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital
ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%.
DEPOSIT INSURANCE. The Bank is assessed a premium by the FDIC for Bank
Insurance Fund ("BIF") insurance of its insurable deposit accounts. The FDIC is
required to establish an assessment rate for deposit insurance premiums that
protects the insurance fund and considers the fund's operating expenses, case
resolution expenditures, income and the effect of the assessment rate on the
earnings and capital of BIF members.
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Under the FDIC's risk-based deposit insurance assessment system, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the institution's capital level and supervisory evaluations. Based on the
data reported to regulators for the date closest to the last day of the seventh
month preceding the semi-annual assessment period, institutions are assigned to
one of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as in the prompt
corrective action regulations. See "-- Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken. As
of December 31, 1997, the Bank was assigned to Subgroup A.
The BIF deposit insurance assessment rates are determined by the FDIC based
on a number of factors to maintain a statutory designated reserve ratio for the
BIF of 1.25% of insured deposits. In March 1997, the reserve ratio was above
this target ratio and the FDIC adjusted the BIF assessment rates so that "well-
capitalized" institutions in Subgroup A, numbering 95% of BIF-insured
institutions, including the Bank, would pay no federal deposit insurance
premiums, with the remaining 5% of institutions paying a graduated range of
rates up to 0.27% of insured deposits for the highest risk-based premium
category. These rates will be effective until the FDIC takes further action.
In fiscal 1996, the FDIC imposed a one-time special assessment on SAIF-
insured institutions which required those institutions to pay a one time fee of
65 basis points based on their deposits at March 31, 1995. This special
assessment recapitalized the SAIF and as a result, the FDIC lowered the SAIF
deposit insurance assessment rates to a range from 0 to 0.31% of insured
deposits through the 1997 calendar year. In the past, the substantial disparity
existing between deposit insurance premiums paid by BIF and SAIF members, gave
the Bank a significant competitive advantage over SAIF institutions. The
reduction of SAIF deposit insurance premiums erased this disparity and could
have the effect of increasing net income of SAIF institutions and thereby
restoring the competitive equality between BIF-insured and SAIF-insured
institutions.
The FDIC has issued a separate levy for the Financing Corporation (FICO)
bonds. All FDIC-insured institutions will have to make FICO payments,
but BIF-insured deposits will be assessed at only one-fifth of the rate of SAIF-
insured deposits until January 1, 2000, or sooner, if the two funds are merged.
PROMPT CORRECTIVE REGULATORY ACTION. FDICIA requires the federal banking
regulators to take prompt corrective action in the event an FDIC-insured
institution fails to meet certain minimum capital requirements. Under FDICIA,
as implemented by regulations adopted by the FDIC, an institution is assigned to
one of the following five capital categories:
. well-capitalized -- total risk-based capital ratio of 10% or greater,
Tier 1 risk-based capital ratio of 6% or greater, leverage ratio of 5%
or greater, and no written FDIC directive or order requiring the
maintenance of specific levels of capital;
. adequately capitalized -- total risk-based capital ratio of 8% or
greater, Tier 1 risk-based capital ratio of 4% or greater, and
leverage ratio of 4% or greater (or 3% or greater if the institution's
composite rating under the FDIC's supervisory rating system is 1);
. undercapitalized -- total risk-based capital ratio of less than 8%, or
Tier 1 risk-based capital ratio of less than 4%, or leverage ratio of
less than 4% (or less than 3% if the institution's composite rating
under the FDIC's supervisory rating system is 1);
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<PAGE>
. significantly undercapitalized -- total risk-based capital ratio of
less than 6%, or Tier 1 risk-based capital ratio of less than 3% or
leverage ratio of less than 3%; and
. critically undercapitalized -- ratio of tangible equity to total
assets of 2% or less.
Under FDICIA, an "undercapitalized institution" generally is: (i) subject
to increased monitoring by the appropriate federal banking regulator; (ii)
required to submit an acceptable capital restoration plan within 45 days; (iii)
subject to asset growth limits; and (iv) required to obtain prior regulatory
approval for acquisitions, branching and new lines of businesses. A
significantly undercapitalized institution, as well as any undercapitalized
institution that does not submit an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates paid
on deposits, restrictions on asset growth and other activities, possible
replacement of directors and officers, and restrictions on capital distributions
by any bank holding company controlling the institution. Any company
controlling the institution may also be required to divest the institution. The
senior executive officers of such an institution may not receive bonuses or
increases in compensation without prior approval and the institution is
prohibited from making payments of principal or interest on its subordinated
debt, with certain exceptions. If an institution's ratio of tangible capital to
total assets falls below a level established by the appropriate federal banking
regulator, which may not be less than 2% of total assets nor more than 65% of
the minimum tangible capital level otherwise required (the "critical capital
level"), the institution is subject to conservatorship or receivership within 90
days unless periodic determinations are made that forbearance from such action
would better protect the deposit insurance fund. Unless appropriate findings
and certifications are made by the appropriate federal bank regulatory agencies,
a critically undercapitalized institution must be placed in receivership if it
remains critically undercapitalized on average during the calendar quarter
beginning 270 days after the date it became critically undercapitalized. At
December 31, 1997, the Bank was classified as "well capitalized" under the
FDIC's regulations.
STANDARDS FOR SAFETY AND SOUNDNESS. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each Federal banking agency is required to establish safety and soundness
standards for institutions under its authority. On July 10, 1995, the federal
banking agencies released Interagency Guidelines Establishing Standards for
Safety and Soundness and published a final rule establishing deadlines for
submission and review of safety and soundness compliance plans. The final rule
and the guidelines went into effect on August 9, 1995. The guidelines require
depository institutions to maintain internal controls and information systems
and internal audit systems that are appropriate for the size, nature and scope
of the institution's business. The guidelines also establish certain basic
standards for loan documentation, credit underwriting, interest rate risk
exposure, and asset growth. The guidelines further provide that depository
institutions should maintain safeguards to prevent the payment of compensation,
fees and benefits that are excessive or that could lead to material financial
loss, and should take into account factors such as comparable compensation
practices at comparable institutions. If the appropriate federal banking agency
determines that a depository institution is not in compliance with the safety
and soundness guidelines, it may require the institution to submit an acceptable
plan to achieve compliance with the guidelines. A depository institution must
submit an acceptable compliance plan to its primary federal regulator within 30
days of receipt of a request for such a plan. Failure to submit or implement a
compliance plan may subject the institution to regulatory sanctions. Management
believes that the Bank already meets substantially all the standards adopted in
the interagency guidelines, and therefore does not believe that implementation
of these regulatory standards will materially affect the operations of the Bank.
UNIFORM LENDING STANDARDS. As required by FDICIA, the federal banking
agencies adopted regulations effective March 19, 1993 that require banks to
adopt and maintain written policies establishing appropriate limits and
standards for extensions of credit that are secured by liens or interests in
real estate or are made for the purpose of financing permanent improvements to
real estate. These policies must establish loan portfolio diversification
standards, prudent underwriting standards, including loan-to-value limits, that
are clear and measurable, loan administration procedures and documentation,
approval and reporting requirements. A bank's real estate lending policy must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies (the "Interagency Guidelines") that have
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<PAGE>
been adopted by the banking agencies. The Interagency Guidelines, among other
things, call upon depository institutions to establish internal loan-to-value
limits for real estate loans that are not in excess of the loan-to-value limits
specified in the Guidelines for the various types of real estate loans. The
Interagency Guidelines state, however, that it may be appropriate in individual
cases to originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits. The Bank does not believe that the Interagency
Guidelines will materially affect its lending activities.
FEDERAL RESERVE SYSTEM. Pursuant to regulations of the Federal Reserve
Board, all FDIC-insured depository institutions must maintain average daily
reserves against their transaction accounts. The Bank must maintain reserves
equal to 3% on the first $47.8 million of transaction accounts, and a reserve of
10% must be maintained against all remaining transaction accounts. These
reserve requirements are subject to adjustment by the Federal Reserve Board.
Because required reserves must be maintained in the form of vault cash or in a
noninterest bearing account at a Federal Reserve Bank, the effect of the reserve
requirement is to reduce the amount of the institution's interest-earning
assets. At December 31, 1997, the Bank met its reserve requirements.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the Federal Home
Loan Bank System ("FHLBS") which consists of 12 regional Federal Home Loan Banks
governed and regulated by the Federal Housing Finance Board ("FHFB") of the
Federal Home Loan Bank Board. As a member, the Bank is required to purchase and
hold stock in the FHLB of Boston in an amount equal to the greater of 1% of
their aggregate unpaid home loan balances at the beginning of the year or an
amount equal to 5% of FHLB advances outstanding or 1% of 30% of total assets,
whichever is higher. As of December 31, 1997, the Bank held stock in the FHLB
of Boston in the amount of $3.7 million and was in compliance with the above
requirement.
The FHLB of Boston serves as a reserve or central bank for the member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of FHLBS. It makes loans
(i.e., advances) to members in accordance with policies and procedures
established by the FHLBS and the Board of Directors of the FHLB of Boston.
MASSACHUSETTS STATE LAW. As a state-chartered co-operative bank, the Bank
is subject to the applicable provisions of Massachusetts law and the regulations
of the Commissioner adopted thereunder. The Bank derives its lending and
investment powers from these laws, and is subject to periodic examination and
reporting requirements by and of the Commissioner. In addition, it is required
to make periodic reports to the Central Bank. In 1990, legislation was enacted
permitting banks nationwide to enter the Bank's market area and compete for
deposits and loan originations. The approval of the Massachusetts Commissioner
of Banks is required prior to any merger or consolidation, or the establishment
or relocation of any office facility.
REGULATION AND SUPERVISION OF THE COMPANY
GENERAL. The Company is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended, (the "BHCA"). As such, the
Company is registered with the Federal Reserve Board and subject to Federal
Reserve Board regulation, examination, supervision and reporting requirements.
As a bank holding company, the Company is required to furnish to the Federal
Reserve Board annual and quarterly reports of its operations at the end of each
period and to furnish such additional information as the Federal Reserve Board
may require pursuant to the BHCA. The Company is also subject to regular
examination by the Federal Reserve Board.
Under the BHCA, a bank holding company must obtain the prior approval of
the Federal Reserve Board before (i) acquiring direct or indirect ownership or
control of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (ii) acquiring all or substantially all of
the assets of another bank or bank holding company; or (iii) merging or
consolidating with another bank holding company.
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<PAGE>
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act") allows the Federal Reserve Board
to approve an application of an adequately capitalized and adequately managed
bank holding company to acquire control of, or acquire all or substantially all
of the assets of, a bank located in a state other than such holding company's
home state, without regard to whether the transaction is prohibited by the laws
of any state. The Federal Reserve Board may not approve the acquisition of bank
that has not been in existence for the minimum time period (not exceeding five
years) specified by the statutory law of the host state. The Riegle-Neal Act
also prohibits the Federal Reserve Board from approving an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the
deposits in the target bank's home state or in any state in which the target
bank maintains a branch. The Riegle-Neal Act does not affect the authority of
states to limit the percentage of total insured deposits in the state which may
be held or controlled by a bank or bank holding company to the extent such
limitation does not discriminate against out-of-state banks or bank holding
companies. Individual states may also waive the 30% state-wide concentration
limit contained in the Riegle-Neal Act.
Additionally, the federal banking agencies are authorized to approve
interstate merger transactions without regard to whether such transaction is
prohibited by the law of any state, unless the home state of one of the banks
has opted out of the Riegle-Neal Act by adopting a law after the date of
enactment of the Riegle-Neal Act and prior to June 1, 1997 which applies equally
to all out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
Interstate mergers and branch acquisitions are also subject to the nationwide
and statewide insured deposit concentration amounts described above.
The Riegle-Neal Act authorizes the OCC and FDIC to approve interstate
branching de novo by national and state banks, respectively, only in states
which specifically allow for such branching. The Riegle-Neal Act also requires
the appropriate federal banking agencies to prescribe regulations which prohibit
any out-of-state bank from using the interstate branching authority primarily
for the purpose of deposit production.
The BHCA also prohibits, with certain exceptions, a bank holding company
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of a company that is not a bank or a bank holding company, or from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve Board regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The activities of the Company are subject to these legal
and regulatory limitations under the BHCA and the Federal Reserve Board's
regulations thereunder. Notwithstanding the Federal Reserve Board's prior
approval of specific nonbanking activities, the Federal Reserve Board has the
power to order a holding company or its subsidiaries to terminate any activity,
or to terminate its ownership or control of any subsidiary, when it has
reasonable cause to believe that the continuation of such activity or such
ownership or control constitutes a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that holding company.
CAPITAL ADEQUACY. The Federal Reserve Board has adopted guidelines
regarding the capital adequacy of bank holding companies, which require bank
holding companies to maintain specified minimum ratios of capital to total
assets and capital to risk-weighted assets. See "-- Regulation and Supervision
of the Bank -- Capital Requirements."
DIVIDENDS AND DISTRIBUTIONS. The Federal Reserve Board has the power to
prohibit dividends by bank holding companies if their actions constitute unsafe
or unsound practices. The Federal Reserve Board has issued a policy statement
on the payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Board's view that a bank holding company should pay cash
dividends only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the company's capital needs, asset quality, and overall
financial condition.
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Bank holding companies are required to give the Federal Reserve Board
notice of any purchase or redemption of their outstanding equity securities if
the gross consideration for the purchase or redemption, when combined with the
net consideration paid for all such purchases or redemptions during the
preceding 12 months, is equal to 10% or more of the bank holding company's
consolidated net worth. The Federal Reserve Board may disapprove such a
purchase or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve Board order, directive, or any condition imposed by,
or written agreement with, the Federal Reserve Board. Bank holding companies
whose capital ratios exceed the thresholds for "well capitalized" banks on a
consolidated basis are exempt from the foregoing requirement if they were rated
composite 1 or 2 in their most recent inspection and are not the subject of any
unresolved supervisory issues.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION. Thrift institutions such as the Bank are generally taxed
as corporations. However, banks which meet certain definitional tests and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (the
"Code") are allowed to establish a bad debt reserve and make annual additions
thereto which may be taken as a deduction in computing net taxable income for
federal income tax purposes. The Bank elected to base its bad debt deduction on
the percentage of taxable income method for the year ended December 31, 1995.
In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts beginning after December
31, 1995. These rules also require that all thrift institutions recapture all
or a portion of their bad debt reserves added since the base year (last taxable
year beginning before January 1, 1988). The Bank has previously recorded a
deferred tax liability equal to the bad debt recapture and as such, the new
rules will have no effect on net income or federal income tax expense. Tax
deductions for bad debts will now be calculated on the basis of actual
experience.
The unrecaptured base year reserves will not be subject to recapture as
long as the institution continues to carry on the business of banking. In
addition, the balance of the pre-1988 bad debt reserves continue to be subject
to provision of present law that require recapture in the case of certain excess
distributions to shareholders. The tax effect of pre-1988 bad debt reserves
subject to recapture in the case of certain excess distributions is
approximately $2.3 million.
Current and accumulated earnings and profits of the Bank (apart from
amounts appropriated to the bad debt reserve), to the extent otherwise
available, generally may be distributed as cash dividends without any federal
income tax being imposed on the Bank because of any such distribution. However,
if income appropriated to the bad debt reserve and deducted for federal income
tax purposes is used or deemed to be used to pay cash dividends or other
distributions to stockholders, including distributions on redemption,
dissolution or liquidation, the Bank generally would be taxed at then current
corporate tax rates on approximately 151% of the amount that would be deemed
removed from such reserves by the Bank because of any such distribution. As of
December 31, 1997, the Bank had approximately $5.4 million of tax bad debt
reserve for which federal income taxes have not been provided.
STATE TAXATION. On July 27, 1995, the Bank Tax Reform law enacted by the
Commonwealth of Massachusetts reduced the income tax rate for co-operative banks
and other financial institutions. The rate reduction will be phased in over
four years beginning in 1995 and result in a reduction of the income tax rate to
10.5% of Federal taxable income adjusted by certain items. Taxable income
includes income from all sources, without exclusion, less deductions, but not
the credits, allowable under the provisions of the Code, as amended. No
deductions however, are allowed for dividends received or state income taxes.
In addition, carryforwards and carrybacks of net operating losses are not
allowed. For 1997, the Massachusetts income tax rate was 11.32%.
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The Bank's subsidiaries, Sandwich Securities Corporation and Sextant
Securities Corporation, are investment companies that have been classified as
securities corporations under the provision of the General Laws of Massachusetts
and, as such, are subject to state taxes at a rate of 1.32% of gross receipts.
Reference is made to Note 10 Notes to Consolidated Financial Statements for
additional information regarding income taxes.
COMPETITION
The Bank's competition for deposits has historically come from other co-
operative banks, savings banks, savings and loan associations, trust companies,
commercial banks and credit unions located in Massachusetts generally, and on
Cape Cod specifically, some of which have greater financial resources than the
Bank. Based upon FDIC data for branch deposits as of June 30, 1997, the Bank
ranked fourth in total deposits in its principle market of Barnstable County
(Cape Cod), when compared to other deposit gathering institutions. The Bank has
also experienced significant additional competition for investors' funds from
short term money market funds, mutual funds, annuities and other corporate and
government securities yielding interest rates which have been higher than those
being paid by the Bank on savings deposits or containing other favorable
features. The Bank anticipates that it will face continuing competition from
other financial intermediaries for deposits.
The Bank competes for deposits principally by offering depositors a wide
variety of checking, savings and investment programs, convenient branch
locations, 24-hour automated teller machine access, preauthorized payment and
withdrawal systems, tax-deferred retirement programs, and other miscellaneous
services. The Bank does not rely upon any individual, group or entity for a
material portion of its deposits.
The Bank's competition for real estate loans comes principally from
mortgage banking companies, co-operative banks and savings banks, savings and
loan associations, commercial banks, insurance companies and other institutional
lenders. The Bank competes for loan originations primarily through the interest
rates and loan fees it charges and the efficiency and quality of services it
provides borrowers, real estate brokers and builders. For 1997, Banker and
----------
Tradesman listed the Bank as being the third largest originator of residential
- ---------
mortgages on Cape Cod (Barnstable County), Massachusetts, by dollar amount. The
competition for loans encountered by the Bank, as well as the types of
institutions with which the Bank competes, varies from time to time depending
upon certain factors including the general availability of lendable funds and
credit, general and local economic conditions, current interest rate levels,
volatility in the mortgage markets and other factors which are not readily
predictable.
In addition to competing with other banks and financial services
organizations based in Massachusetts, the Bank has and is expected to face
competition from major commercial banks headquartered outside of Massachusetts
as a result of regional interstate banking laws which currently permit banks
located in New England to enter the Bank's market area and compete with it for
deposits and loan originations. The Bank also faces increased competition as a
result of the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 which, as of September 29, 1995, allowed the Federal Reserve Board to
approve a bank holding company's application to acquire control of, or
substantially all of the assets of, a Massachusetts bank without regard to
Massachusetts law.
Bank regulation is undergoing significant change with an increased number
of bank mergers and acquisitions, changes in the products and services banks can
offer, and involvement in non-banking activities by bank holding companies.
There are a number of pending legislative and regulatory proposals that may
further alter the structure, regulation, and competitive relationships of
financial institutions.
The Bank is headquartered in Sandwich, Massachusetts and operates a network
of eleven full service offices and one loan production office. The Bank's eleven
full service office facilities are located in Sandwich, South Sandwich, Buzzards
Bay (Bourne), Pocasset (Bourne), Wareham, Cedarville (Plymouth), Falmouth,
Hyannis, Chatham, Orleans
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and South Yarmouth, Massachusetts. The Bank's main office is located at 100 Old
Kings Highway, Sandwich, Massachusetts. In addition, the Bank maintains a loan
production office located in Plymouth, Massachusetts. Nine of the offices are
located on Cape Cod in Barnstable County, while the Wareham and Cedarville
offices are located in Plymouth County. The Bank's primary market area within
which the majority of the properties securing loans originated by the Bank are
located, encompasses the southern portion of Plymouth County and all of Cape Cod
(Barnstable County), Massachusetts.
EMPLOYEES
As of December 31, 1997, the Company and subsidiaries had 128 full-time and
39 part-time employees. The employees are not represented by any collective
bargaining agreement. Management considers its relations with its employees to
be good.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The executive officers of the Bank are as follows:
<TABLE>
<CAPTION>
Age at
December 31,
Name 1997 Principal Position
---- ------------ ------------------
<S> <C> <C>
Dana S. Briggs 46 Senior Vice President
George L. Larson 54 Senior Vice President, Chief Financial Officer and Treasurer
David A. Parsons 54 Senior Vice President
</TABLE>
The following is a description of the principal occupation and employment
of the executive officers of the Company during at least the past five years:
DANA S. BRIGGS joined the Bank in 1983 as Assistant Vice President and Main
Office Manager and in 1984 became the Bank's Vice President of Administration.
Presently as Senior Vice President and Senior Retail/Operations Officer, he is
in charge of the Bank's branches, operations and marketing. From 1973 to 1983,
Mr. Briggs was employed by Bass River Savings Bank and Barnstable County
National Bank.
GEORGE L. LARSON started with the Bank in November 1986 as Senior Vice
President and Chief Financial Officer and is responsible for the Financial
Division of the Bank. Mr. Larson came to the Bank with 15 years of bank
accounting and finance experience. From 1978 to 1986, Mr. Larson was employed by
Jefferson Federal Savings and Loan Association in Meriden, CT, as Senior Vice
President and Treasurer, in which capacities he was in charge of the Jefferson
Federal's accounting and data processing operations and managed the
Association's investment portfolio.
DAVID A. PARSONS joined the Bank in December, 1990 as Senior Vice
President, Senior Loan Officer and is responsible for the Bank's Lending
Division. He was employed from 1969-1989 by Shawmut Bank. His career has covered
consumer lending and collection, commercial loan collection and workouts and
equipment financing & leasing. In 1989, Mr. Parsons was employed as an Executive
Vice President/Senior Credit Officer at Home National Bank in Milford,
Massachusetts. Upon Home National's closing, Mr. Parsons was employed by the
FDIC until August 1990. From August 1990 until being hired full-time by the Bank
in December 1990, Mr. Parsons was employed as a consultant to the Bank.
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ITEM 2. PROPERTIES.
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The Bank owns the Pocasset, Falmouth, Hyannis, Chatham and Orleans offices,
and the loan servicing office in Sandwich. The Bank leases the main office,
and the Buzzard Bay, Wareham, South Sandwich and South Yarmouth offices.
Management believes that the properties are in adequate condition to conduct the
Bank's business. In December 1997, the Bank entered into a sale/leaseback
agreement for three of its offices (main office, Buzzards Bay and Wareham) for
$1,738,000. The initial lease term is twenty years followed by four five-year
renewal options. Furthermore, the Bank will have the right to re-purchase the
properties at the end of years eight, fifteen and twenty.
The following table sets forth the location of the Bank's offices, as
well as certain information relating to these offices as of December 31, 1997:
<TABLE>
<CAPTION>
Net Book
Year Value as of
Bank Facilities Opened December 31, 1997
- --------------- ------ -----------------
<S> <C> <C>
Main Office 1978 (a) $ 490,000
100 Old Kings Highway
Sandwich, MA
Buzzard Bay Office 1964 (a) 60,000
50 Cohasset Avenue
Buzzards Bay, MA
Pocasset Office 1980 260,000
30 Barlows Landing Road
Pocasset, MA
Wareham Office 1982 (a)(b) $ 59,000
261 Main Street
Wareham, MA
South Sandwich Office 1986 (c) 192,000
331 Cotuit Road
South Sandwich, MA
Cedarville Office 1988 487,000
2277 Route 3A
Cedarville, MA
Chatham Office 1992 (d) 455,000
895 Main Street
Chatham, MA
Falmouth Office 1992 (d) 448,000
310 Gifford Street
Falmouth, MA
</TABLE>
(Table continued on following page)
29
<PAGE>
<TABLE>
<CAPTION>
Net Book
Year Value as of
Bank Facilities Opened December 31, 1997
- --------------- ------ -----------------
<S> <C> <C>
Hyannis Office 1992 (d) 415,000
North Street & Bassett Lane
Hyannis, MA
Orleans Office 1992 (d) 686,000
51 Main Street
Orleans, MA
Sextant Hill Loan 1993 (e) 1,007,000
Servicing Office
90 Route 6A
Sandwich, MA
South Yarmouth Office 1994 (f) 82,000
1029 Route 28
South Yarmouth, MA
Loan Production Office 1996 (g) --
Plymouth, MA
</TABLE>
- -------------------------
(a) The lease on these properties terminate in December 2017, and provides for
four additional 5-year options. Furthermore, the Company will have the
right to repurchase the properties at the end of years eight, fifteen and
twenty.
(b) Acquired as a result of the merger with Wareham Co-operative Bank in 1982.
(c) In April 1986, the Bank opened its South Sandwich office, which it leases.
The lease on this property terminates in March 2001, and provides for two
additional 5-year options.
(d) In November 1992, the Bank acquired these branches, which were previously
offices of Shawmut Bank, N.A.
(e) In May 1993, the Bank transferred its Loan Servicing Office from Cedarville
to a Sandwich, Massachusetts facility owned by the Bank's subsidiary, The
Sextant Corporation.
(f) The Bank acquired this branch in August of 1994 as part of its acquisition
of certain assets of Northeast Savings, F.A. The lease on this property
terminates in December 1999 and provides for three additional 5-year
options.
(g) In February 1996, the Bank opened its Loan Production Office, which it
leases. The lease on this office terminates in December 1998.
The Bank's wholly owned subsidiary, the Sextant Corporation, is a 49%
partner in a partnership that sold approximately twelve acres of land on the Old
Kings Highway in Sandwich, Massachusetts. The land was originally purchased for
$300,000. See "Item I - Business - Subsidiary Activities" for more information.
The Bank uses an outside service bureau, NCR Customer Information Services
based in Framingham, Massachusetts for its on-line processing of deposit and
loan payment transactions. Blackstone Financial Corporation, in Hopedale,
Massachusetts, is utilized to provide item processing services, including
inclearing and outclearing of checks and rendering customer statements. First
National Systems in Cotuit, Massachusetts, supplies the Bank with various types
of in-house financial software for recordkeeping and other Bank operations.
30
<PAGE>
For information on properties currently held by the Bank subsidiaries,
reference is made to "Item 1 -- Business -- Subsidiary Activities."
At December 31, 1997, the total net book value of the Bank's premises and
equipment was $4.6 million. For further information, see Note 6 of Notes to
Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Other than routine litigation incidental to its business, there are no
material legal proceedings to which the Company and its subsidiaries is a party
or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Market For the Registrant's Common Stock and Related Security Holder
- -----------------------------------------------------------------------------
Matters
- -------
The Information required by this item is contained under the section
captioned "Stockholder Information -- Common Stock Information" in the Company's
Annual Report to Stockholders for the Year Ended December 31, 1997 (the "Annual
Report"), Exhibit 13 hereof, and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information set forth under the section entitled "Selected Consolidated
Financial Data" in the Annual Report, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The information set forth in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
The information required by this item is incorporated by reference to the
section captioned "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Asset and Liability Management and Market Risk"
in the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
The Independent Auditor's Report, together with the related Consolidated
Financial Statements and Notes are incorporated herein by reference to the
Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
31
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
For information concerning the directors of the Company, the information
contained under the section captioned "Proposal I -- Election of Directors" in
the Proxy Statement for the Company's 1998 Annual Meeting of Stockholders (the
"Proxy Statement") is incorporated herein by reference. For information
concerning the executive officers of the Company, see "Item 1. Business --
Executive Officers Who Are Not Directors" under Part I of this Annual Report on
Form 10-K, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information required by this item is incorporated by reference to the
section captioned - "Proposal I - Election of Directors -- Executive
Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the sections captioned "Voting Securities and Security Ownership"
in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Security Ownership"
and "Proposal I -- Election of Directors" in the Proxy Statement.
(c) Changes In Control
On February 2, 1998, the Company and the Bank entered into a
definitive agreement under which Compass Bank of New Bedford,
Massachusetts will acquire Sandwich Bancorp, Inc. Prior to the
Company's consideration and approval of its definitive agreement with
Compass Bank, the Company had contacted and received expressions of
interest from three other parties who had expressed an interest in an
acquisition of the Company.
On February 24, 1998, the Company announced that its Board of
Directors, consistent with the exercise of its fiduciary duties,
determined that it was appropriate to request additional information
and clarification of the renewed expressions of interest that it had
received from three other parties subsequent to February 2.
Following a comprehensive review of the other expressions of interests
for the Company, the Company and Compass Bank jointly announces on
March 23, 1998, that they have signed an amendment to their previously
announced agreement of February 2, 1998 (the "Amended Agreement") by
which Compass Bank would acquire Sandwich Bancorp, Inc. Under the
terms of the Amended Agreement, Compass Bank's parent company, The
1855 Bancorp will convert to a 100% publicly owned stock holding
company and thereafter issue stock having a value of $64.00 per share
to Sandwich Bancorp shareholders in a tax-free exchange of common
stock. The value to be received by Sandwich Bancorp shareholders is
subject to adjustment pursuant to a formula based on the value of the
stock of The 1855 Bancorp near the transaction date. Based on 1855
Bancorp's assumed initial public offering price of $10.00 per share,
each Sandwich Bancorp share will be exchanged for 1855 Bancorp stock
having a value of $64.00 per share so long as 1855 Bancorp stock
trades at an average price of between $10.00 and $13.50 per share
during a designated trading period following the initial public
offering date. If this average price exceeds $13.50 per share, the
value to be received by Sandwich Bancorp shareholders will increase
proportionately up to a maximum value of $71.11 until 1855 Bancorp's
average price reaches or exceeds $15.00 per share. If this average
price is equal to or less than $10.00 per share, Sandwich Bancorp
shares will be exchanged for 6.4 shares of 1855 Bancorp stock.
Sandwich Bancorp and The 1855 Bancorp also entered into a Stock Option
Agreement, granting to The 1855 Bancorp an option to acquire up to
19.9% of Sandwich common stock under certain circumstances. The
transaction, which is subject to all necessary regulatory and
shareholder approvals, is expected to close in the fourth quarter of
1998.
In connection with the Merger, the directors of the Company have
agreed to enter into a separate letter agreement with The 1855 Bancorp
(the "Company Letter Agreements") in which such director generally
agrees, among other things, to vote their individual shares of Company
common stock for approval of the Amended Agreement.
For additional information, reference is made to the Amended and
Restated Affiliation and Merger Agreement, dated as of March 23, 1998,
attached hereto as Exhibit 2.1, and the Stock Option Agreement dated
as of March 23, 1998, attached hereto as Exhibit 2.2.
32
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Transactions with Management" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ---------------------------------------------------------------------------
(a) The following documents are filed as a part of this Annual Report on
Form 10-K:
(1) Consolidated Financial Statements
---------------------------------
(a) Independent Auditors' Report
(b) Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1996
(c) Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995
(d) Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995
(e) Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
(f) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
-----------------------------
All financial statement schedules have been omitted as not
applicable or not required by SEC Rules and Regulations, or
because they are included in the Consolidated Financial
Statements or the Notes to Consolidated Financial Statements.
(3) Exhibits Required by Paragraph (c) of Item 14
---------------------------------------------
See Item 14(c) below.
33
<PAGE>
(b) Report on Form 8-K
The Company did not file a current report on Form 8-K during the
fourth quarter of the fiscal year covered by this report. However, on February
5, 1998, the Company filed a Form 8-K announcing that the Company and the Bank
had entered into an Affiliation Merger Agreement with The 1855 Bancorp, and its
wholly-owned subsidiary, Compass Bank for Savings. For more information,
reference is made to "Item 12(c) -- Change in Control" and the Form 8-K filed on
February 5, 1998.
(c) Exhibits
--------
Exhibit No. Exhibit
---------- -------
2.1 Amended and Restated Affiliation and Merger Agreement dated
as of March 23, 1998. (Schedules omitted. The Company
agrees to supplementally furnish a copy of any omitted
schedules to the Commission upon request.)
2.2 Stock Option Agreement dated as of March 23, 1998.
3.1 Articles of Organization of Sandwich Bancorp, Inc.
3.2 Bylaws of Sandwich Bancorp, Inc.
4* Stock Certificate of Sandwich Bancorp, Inc.
10.1 Employment Contracts of Executive Officers Legate, Briggs
and Larson
10.2 Employment Contract of David A. Parsons
10.3 1986 Stock Option Plan
10.4 1994 Stock Option and Incentive Plan
10.5 1983 Directors Deferred Compensation Plan
10.6 Form of 1992 Directors Deferred Compensation Plan
10.7 Form of Supplemental Executive Retirement Agreements with
Messrs. Legate, Briggs, Larson and Parsons
10.8 Management Incentive Plan
10.9 Management Incentive Compensation Plan
10.10 Form of letter agreement between the Company directors and
The 1855 Bancorp.
13 1997 Annual Report to Stockholders
21 Subsidiaries of Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
__________________
* Incorporated herein by reference to the Current Report on Form 8-K filed on
September 30, 1997 with the SEC.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SANDWICH BANCORP, INC.
Date: March 23, 1998 By: /s/ Frederic D. Legate
----------------------------------
Frederic D. Legate President
and Chief Executive Officer and
Duly Authorized Representative
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ George L. Larson By: /s/ George L. Jackson
--------------------------------- ----------------------------------
George L. Larson George L. Jackson
Principal Financial and Accounting Director
Officer
Date: March 23, 1998 Date: March 23, 1998
By: /s/ Howard P. Crowell By: /s/ Barry H. Johnson
--------------------------------- ----------------------------------
Howard P. Crowell Barry H. Johnson
Director Director
Date: March 23, 1998 Date: March 23, 1998
By: /s/ Leon Davidson By: /s/ Frederic D. Legate
--------------------------------- ----------------------------------
Leon Davidson Frederic D. Legate
Director Director
Date: March 23, 1998 Date: March 23, 1998
By: /s/ John J. Doran By: /s/ Reale J. Lemieux
--------------------------------- ----------------------------------
John J. Doran Reale J. Lemieux
Director Director
Date: March 23, 1998 Date: March 23, 1998
By: /s/ Bradford N. Eames By: /s/ David O. MacKinnon
--------------------------------- ----------------------------------
Bradford N. Eames David O. MacKinnon
Director Director
Date: March 23, 1998 Date: March 23, 1998
By: /s/ Mary F. Hebditch By: /s/ Gary A. Nickerson
--------------------------------- ----------------------------------
Mary F. Hebditch Gary A. Nickerson
Director Director
Date: March 23, 1998 Date: March 23, 1998
By: /s/ Richard S. Holway By: /s/ George B. Rockwell
--------------------------------- ----------------------------------
Richard S. Holway George B. Rockwell
Director Director
Date: March 23, 1998 Date: March 23, 1998
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
---------- -------
2.1 Amended and Restated Affiliation and Merger Agreement
dated as of March 23, 1998. (Schedules omitted. The
Company agrees to supplementally furnish a copy of any
omitted schedules to the Commission upon request.)
2.2 Stock Option Agreement dated as of March 23, 1998.
3.1 Articles of Organization of Sandwich Bancorp, Inc.
3.2 Bylaws of Sandwich Bancorp, Inc.
4* Stock Certificate of Sandwich Bancorp, Inc.
10.1 Employment Contracts of Executive Officers Legate,
Briggs and Larson
10.2 Employment Contract of David A. Parsons
10.3 1986 Stock Option Plan
10.4 1994 Stock Option and Incentive Plan
10.5 1983 Directors Deferred Compensation Plan
10.6 Form of 1992 Directors Deferred Compensation Plan
10.7 Form of Supplemental Executive Retirement Agreements
with Messrs. Legate, Briggs, Larson and Parsons
10.8 Management Incentive Plan
10.9 Management Incentive Compensation Plan
10.10 Form of letter agreement between the Company directors
and The 1855 Bancorp.
13 1997 Annual Report to Stockholders
21 Subsidiaries of Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
___________________
* Incorporated herein by reference to the Current Report on Form 8-K filed on
September 30, 1997 with the SEC.
<PAGE>
EXHIBIT 2.1
EXECUTION COPY
AFFILIATION AND MERGER AGREEMENT
AMONG
THE 1855 BANCORP
COMPASS BANK FOR SAVINGS
AND
SANDWICH BANCORP, INC.
THE SANDWICH CO-OPERATIVE BANK
FEBRUARY 2, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS....................................................... 1
ARTICLE II
THE MERGER
2.1 THE MERGER................................................................. 5
2.2 EFFECTIVE TIME............................................................ 5
2.3 CHARTER AND BY-LAWS....................................................... 5
2.4 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION........................... 5
2.5 TRUSTEES AND DIRECTORS OF 1855 BANCORP AND COMPASS BANK................... 6
2.6 ADDITIONAL ACTIONS........................................................ 6
2.7 EFFECTS OF THE MERGER..................................................... 6
2.8 POSSIBLE ALTERNATIVE STRUCTURES........................................... 6
ARTICLE III
CONVERSION OF SHARES
3.1 CONVERSION SHARES.......................................................... 7
3.2 EMPLOYEE STOCK OPTIONS.................................................... 7
3.3 DISSENTING SHARES......................................................... 8
3.4 SURRENDER OF SHARES; STOCK TRANSFER BOOKS................................. 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SANDWICH
4.1 CAPITAL STRUCTURE......................................................... 9
4.2 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH..........................10
4.3 OWNERSHIP OF SANDWICH SUBSIDIARIES........................................10
4.4 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH SUBSIDIARIES.............10
4.5 AUTHORIZED AND EFFECTIVE AGREEMENT........................................11
4.6 SECURITIES DOCUMENTS AND REGULATORY REPORTS...............................12
4.7 FINANCIAL STATEMENTS......................................................12
4.8 MATERIAL ADVERSE CHANGE...................................................13
4.9 ENVIRONMENTAL MATTERS.....................................................13
4.10 TAX MATTERS..............................................................13
4.11 LEGAL PROCEEDINGS........................................................14
4.12 COMPLIANCE WITH LAWS.....................................................14
4.13 CERTAIN INFORMATION......................................................15
4.14 EMPLOYEE BENEFIT PLANS...................................................15
4.15 CERTAIN CONTRACTS........................................................17
4.16 BROKERS AND FINDERS......................................................18
4.17 INSURANCE................................................................18
4.18 LOAN PORTFOLIO...........................................................18
4.19 PROPERTIES...............................................................18
4.20 LABOR....................................................................18
4.21 REQUIRED VOTE; INAPPLICABILITY OF ANTITAKOVER STATUTES...................19
4.22 MATERIAL INTERESTS OF CERTAIN PERSONS....................................19
4.23 CERTAIN TRANSACTIONS.....................................................19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.24 DISCLOSURES..............................................................19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF 1855 BANCORP
5.1 CAPITAL STRUCTURE.........................................................19
5.2 ORGANIZATION, STANDING AND AUTHORITY OF 1855 BANCORP......................19
5.3 OWNERSHIP OF THE 1855 BANCORP SUBSIDIARIES................................20
5.4 ORGANIZATION, STANDING AND AUTHORITY OF THE 1855 BANCORP SUBSIDIARIES.....20
5.5 AUTHORIZED AND EFFECTIVE AGREEMENT........................................20
5.6 REGULATORY REPORTS........................................................21
5.7 FINANCIAL STATEMENTS......................................................22
5.8 MATERIAL ADVERSE CHANGE...................................................22
5.9 ENVIRONMENTAL MATTERS.....................................................22
5.10 TAX MATTERS..............................................................23
5.11 LEGAL PROCEEDINGS........................................................23
5.12 COMPLIANCE WITH LAWS.....................................................23
5.13 CERTAIN INFORMATION......................................................24
5.14 EMPLOYEE BENEFIT PLANS...................................................24
5.15 CERTAIN CONTRACTS........................................................25
5.16 BROKERS AND FINDERS......................................................26
5.17 INSURANCE................................................................26
5.18 PROPERTIES...............................................................26
5.19 LABOR....................................................................26
5.20 OWNERSHIP OF SANDWICH COMMON STOCK.......................................26
5.21 CERTAIN TRANSACTIONS.....................................................26
5.22 DISCLOSURES..............................................................27
5.23 DISCLOSURE SCHEDULE......................................................27
5.24 MERGER SUB...............................................................27
ARTICLE VI
COVENANTS OF SANDWICH
6.1 CONDUCT OF BUSINESS.......................................................27
6.2 CURRENT INFORMATION.......................................................30
6.3 ACCESS TO PROPERTIES AND RECORDS..........................................30
6.4 FINANCIAL AND OTHER STATEMENTS............................................30
6.5 DISCLOSURE SUPPLEMENTS....................................................31
6.6 CONSENTS AND APPROVALS OF THIRD PARTIES...................................31
6.7 ALL REASONABLE EFFORTS....................................................31
6.8 FAILURE TO FULFILL CONDITIONS.............................................31
6.9 NO SOLICITATION...........................................................31
ARTICLE VII
COVENANTS OF 1855 BANCORP
7.1 CONDUCT OF BUSINESS.......................................................32
7.2 CURRENT INFORMATION.......................................................32
7.3 ACCESS TO PROPERTIES AND RECORDS..........................................32
7.4 FINANCIAL AND OTHER STATEMENTS............................................33
7.5 DISCLOSURE SUPPLEMENTS....................................................33
7.6 CONSENTS AND APPROVALS OF THIRD PARTIES...................................33
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7.7 ALL REASONABLE EFFORTS....................................................33
7.8 FAILURE TO FULFILL CONDITIONS.............................................34
7.9 EMPLOYEE BENEFITS.........................................................34
7.10 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE......................35
7.11 MERGER SUB................................................................36
ARTICLE VIII
REGULATORY AND OTHER MATTERS
8.1 SANDWICH SPECIAL MEETING..................................................37
8.2 SANDWICH PROXY MATERIALS..................................................37
8.3 CAPITAL OFFERING..........................................................37
8.4 REGULATORY APPROVALS......................................................39
ARTICLE IX
CLOSING CONDITIONS
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT...............39
9.2 CONDITIONS TO THE OBLIGATIONS OF 1855 BANCORP UNDER THIS AGREEMENT........39
9.3 CONDITIONS TO THE OBLIGATIONS OF SANDWICH UNDER THIS AGREEMENT............40
ARTICLE X
THE CLOSING
10.1 TIME AND PLACE...........................................................41
10.2 DELIVERIES AT THE CLOSING................................................42
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 TERMINATION..............................................................42
11.2 EFFECT OF TERMINATION....................................................43
11.3 1855 BANCORP SPECIAL PAYMENT.............................................44
11.4 SANDWICH CHANGE IN CONTROL EXPENSE FEE...................................45
11.5 AMENDMENT, EXTENSION AND WAIVER..........................................46
ARTICLE XII
MISCELLANEOUS
12.1 CONFIDENTIALITY..........................................................47
12.2 PUBLIC ANNOUNCEMENTS.....................................................47
12.3 SURVIVAL.................................................................47
12.4 NOTICES..................................................................47
12.5 PARTIES IN INTEREST......................................................48
12.6 COMPLETE AGREEMENT.......................................................48
12.7 COUNTERPARTS.............................................................48
12.8 SEVERABILITY.............................................................48
12.9 GOVERNING LAW............................................................49
12.10 INTERPRETATION...........................................................49
</TABLE>
<PAGE>
EXECUTION COPY
AFFILIATION AND MERGER AGREEMENT
AFFILIATION AND MERGER AGREEMENT ("Agreement"), dated as of February 2,
1998, by and between The 1855 Bancorp, a Massachusetts mutual holding company
("1855 Bancorp"), its wholly-owned subsidiary, COMPASS BANK FOR SAVINGS, a
Massachusetts savings bank ("Compass Bank"), SANDWICH BANCORP, INC., a
Massachusetts corporation and bank holding company ("Sandwich"), and its wholly-
owned subsidiary, THE SANDWICH CO-OPERATIVE BANK, a Massachusetts co-operative
bank ("Sandwich Bank").
WHEREAS, the Board of Trustees of 1855 Bancorp, the Board of Directors of
Compass Bank and the Boards of Directors of Sandwich and Sandwich Bank have
determined that it is in the best interests of their respective organizations
and, with respect to Sandwich, its stockholders to consummate, and have
approved, the business combination transactions provided for herein, in which a
newly-formed special-purpose subsidiary ("Merger Sub") of Compass Bank will,
subject to the terms and conditions set forth herein, merge (the "Merger") with
Sandwich, with Sandwich as the surviving corporation of the Merger; and
WHEREAS, as a condition to, and after the execution of, this Agreement,
1855 Bancorp and certain of the officers and directors of Sandwich and Sandwich
Bank are entering into voting agreements in the form attached hereto as Exhibit
A; and
WHEREAS, immediately after consummation of the Merger, it is anticipated
that Sandwich will be liquidated and Sandwich Bank will be merged with and into
Compass Bank (the "Bank Merger");
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and to prescribe certain conditions to
the Merger;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the following meanings (unless the context otherwise requires, both here
and throughout this Agreement, references to Articles and Sections refer to
Articles and Sections of this Agreement).
"Bank Commissioner" shall mean the Commissioner of Banks of the
Commonwealth of Massachusetts.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"BIF" means the Bank Insurance Fund administered by the FDIC or any
successor thereto.
"Capital Offering" shall mean the offering and sale of up to 49% of the
common stock of the Mid-Tier Holding Company or of Compass Bank or other
acceptable forms of capital or capital substitutes in comparable amount pursuant
to applicable law for purposes of funding the Merger.
"Certificate" shall have the meaning set forth in Section 34 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE>
"Compass Bank for Savings" shall mean Compass Bank, a Massachusetts-
chartered savings bank and a wholly-owned subsidiary of 1855 Bancorp.
"Depositors Insurance Fund" shall mean the Depositors Insurance Fund of the
Mutual Savings Central Fund, Inc.
"Disclosure Schedule" shall mean a written, signed disclosure schedule
delivered from the disclosing party to the other party specifically referring to
the appropriate section of this Agreement and describing in reasonable detail
the matters contained therein,
"Dissenting Shares" shall have the meaning set forth in Section 33 hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date on which the Effective Time occurs.
"Effective Time" shall mean the date and time specified pursuant to Section
22 hereof as the effective time of the Merger.
"Environmental Claim" means any written notice from any Governmental Entity
or third party alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on, or resulting from the presence, or
release into the environment, of any Materials of Environmental Concern.
"Environmental Laws" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environment Concern.
The term Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
(S)9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
-- ---
U.S.C. (S)6901, et seq; the Clean Air Act, as amended, 42 U.S.C. (S)7401, et
-- --- --
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S)1251, et
- --- --
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. (S)9601, et seq;
- --- -- ---
the Emergency Planning and Community Right to Know Act, 42 U.S.C. (S)1101, et
--
seq; the Safe Drinking Water Act, 42 U.S.C. (S)300f, et seq; and all comparable
- --- -- ---
state and local laws, and (2) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"FHLB" shall mean Federal Home Loan Bank.
"FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.
"Fixed Consideration" shall have the meaning set forth in Section 311
hereof.
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"Governmental Entity" shall mean any federal or state court, administrative
agency or commission or other governmental authority or instrumentality.
"MBCL" shall mean the Massachusetts Business Corporation Law, as amended.
"MHPF" shall mean the Massachusetts Housing Partnership Fund.
"Massachusetts Board" shall mean the Massachusetts Board of Bank
Incorporation.
"Material Adverse Effect" shall mean, with respect to the 1855 Bancorp or
Sandwich, respectively, any effect that (i) is material and adverse to the
financial condition, results of operations or business of 1855 Bancorp and its
Subsidiaries taken as a whole or Sandwich and its Subsidiaries taken as a whole,
respectively, or (ii) materially impairs the ability of either Sandwich, on the
one hand, or 1855 Bancorp, on the other hand, to consummate the transactions
contemplated by this Agreement; provided that "Material Adverse Effect" shall
not be deemed to include the impact of (a) changes in laws and regulations
particularly affecting banks, (b) changes in GAAP or regulatory accounting
principles generally applicable to financial institutions and their holding
companies, (c) actions and omissions of a party (or any of its Subsidiaries)
taken with the prior written consent of the other party, (d) changes in interest
rates, and (e) the direct effects of compliance with this Agreement on the
operating performance of the parties including expenses incurred by the parties
hereto in consummating the transactions contemplated by this Agreement,
including without limitation the expenses associated with the termination of any
of the Sandwich Employee Plans as and to the extent contemplated herein.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products, and any other
materials regulated under Environmental Laws.
"Merger" shall mean the merger of Merger Sub with and into Sandwich
pursuant to the terms hereof.
"Merger Consideration" shall have the meaning set forth in Section 311
hereof.
"Mid-Tier Holding Company" shall mean that Massachusetts corporation that
may be formed as a subsidiary of 1855 Bancorp for the purpose of (i) serving as
a "mid-tier holding company" of Compass Bank and (ii) issuing up to 49% of its
common stock in the Capital Offering.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Offering Document" shall have the meaning set forth in Section 833.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Paying Agent" shall have the meaning set forth in Section 341 hereof.
"Previously Disclosed" shall mean disclosed in a Disclosure Schedule dated
on or prior to the date hereof.
"Proxy Statement" shall mean the proxy statement, as amended or
supplemented, to be delivered to shareholders of Sandwich in connection with the
solicitation of their approval of this Agreement and the transactions
contemplated hereby.
"Rights" shall mean warrants, options, rights, convertible securities,
stock appreciation rights and other arrangements or commitments which obligate
an entity to issue or dispose of any of its capital stock or other ownership
interests or which provide for compensation based on the equity appreciation of
its capital stock.
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"SAIF" means the Savings Association Insurance Fund administered by the
FDIC or any successor thereto.
"SEC" shall mean the Securities and Exchange Commission.
"Sandwich Bank" shall mean Sandwich Co-operative Bank, a Massachusetts-
chartered co-operative bank and a wholly-owned subsidiary of Sandwich.
"Sandwich Common Stock" shall mean the common stock, par value $1.00 per
share, of Sandwich.
"Sandwich Employee Plans" shall have the meaning set forth in Section 4141
hereof.
"Sandwich Financial Statements" shall mean (i) the audited consolidated
balance sheets (including related notes and schedules, if any) of Sandwich Bank
as of December 31, 1996, 1995 and 1994 and the consolidated statements of
operations, changes in stockholders' equity and cash flows (including related
notes and schedules, if any) of Sandwich Bank for each of the three years ended
December 31, 1996, 1995 and 1994 as filed by Sandwich in its Securities
Documents, and (ii) the unaudited consolidated statements of financial condition
of Sandwich or Sandwich Bank (including related notes and schedules, if any) and
consolidated balance sheets, changes in stockholders' equity and cash flows
(including related notes and schedules, if any) of Sandwich or Sandwich Bank
included in the Securities Documents filed by Sandwich or Sandwich Bank with
respect to the quarterly periods ended subsequent to December 31, 1996, and
(iii) the unaudited consolidated balance sheets (including related notes and
schedules, if any) of Sandwich as of December 31, 1997 and the consolidated
statements of operations, changes in stockholders' equity and cash flows
(including related notes and schedules, if any) of Sandwich for the year ended
December 31, 1997, a copy of which has been provided to 1855 Bancorp.
"Sandwich Options" shall mean options to purchase shares of Sandwich Common
Stock granted pursuant to the Sandwich Option Plans or as otherwise Previously
Disclosed.
"Sandwich Option Plans" shall mean the following stock option plans of
Sandwich, as amended and as in effect as of the date hereof: The Sandwich Bank
1986 Stock Option Plan and The Sandwich Bank 1994 Stock Option and Incentive
Plan.
"Sandwich Preferred Stock" shall mean the shares of preferred stock, par
value $1.00 per share, of Sandwich.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, offering circulars, proxy
statements, registration statements and all similar documents filed, or required
to be filed, pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
"Share Insurance Fund" shall mean the share insurance fund of the Co-
operative Central Bank.
"Subsidiary" shall have the meanings set forth in Rule 1-02 of Regulation
S-X of the SEC.
"Surviving Corporation" shall have the meaning set forth in Section 21
hereof.
"1855 Bancorp Employee Plans" shall have the meaning set forth in Section
5141 hereof.
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<PAGE>
"1855 Bancorp Financial Statements" shall mean the audited consolidated
statements of financial condition (including related notes and schedules) of
1855 Bancorp as of October 31, 1997, 1996 and 1995 and the consolidated
statements of operations, shareholders' equity and cash flows (including related
notes and schedules, if any) of 1855 Bancorp for each of the three years ended
October 31, 1997, 1996 and 1995 as set forth in 1855 Bancorp's annual report for
the year ended October 31, 1997, a copy of which has been provided to Sandwich.
Other terms used herein are defined in the preamble and elsewhere in this
Agreement.
ARTICLE II
THE MERGER
2.1 THE MERGER. As promptly as practicable following the satisfaction or
waiver of the conditions to the parties' respective obligations hereunder, and
subject to the terms and conditions of this Agreement, at the Effective Time:
(a) unless theretofore done, 1855 Bancorp shall cause Merger Sub to be organized
as a wholly-owned subsidiary of Compass Bank in accordance with Massachusetts
law; (b) Merger Sub shall be merged with and into Sandwich, with Sandwich as the
surviving corporation (the "Surviving Corporation"); and (c) the separate
---------------------
existence of Merger Sub shall cease and all of the rights, privileges, powers,
franchises, properties, assets, liabilities and obligations of Merger Sub shall
be vested in and assumed by Sandwich.
2.2 EFFECTIVE TIME. The Merger shall be effected by the filing of
Articles of Merger with the Secretary of State of The Commonwealth of
Massachusetts in accordance with Massachusetts law to become effective on the
day of the closing ("Closing Date") provided for in Article X hereof (the
------------
"Closing"). The term "Effective Time" shall mean the time on the Closing Date
- -------- --------------
(or a subsequent date not later than the opening of business on the next
business day) when the Merger becomes effective as set forth in the Articles of
Merger.
2.3 CHARTER AND BY-LAWS. The Articles of Organization and By-laws of the
Surviving Corporation shall be the Articles of Organization, as amended, and By-
laws of Sandwich as in effect immediately prior to the Effective Time, until
thereafter amended as provided therein and by applicable law.
2.4 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The Directors of
Merger Sub immediately prior to the Effective Time shall be the initial
Directors of the Surviving Corporation, each to hold office in accordance with
the Articles of Organization and By-Laws of Surviving Corporation. The officers
of Merger Sub immediately prior to the Effective Time shall be the initial
officers of Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
2.5 TRUSTEES AND DIRECTORS OF 1855 BANCORP AND COMPASS BANK. Prior to or
at the Effective Time:
2.5.1 Three directors of Sandwich (one of whom shall be the President
of Sandwich and the other two of whom shall be designated by 1855 Bancorp after
consultation with Sandwich) shall be elected to the Board of Directors of
Compass Bank;
2.5.2 The President of Sandwich shall be appointed to the Executive
Committee of Compass Bank;
2.5.3 Nine directors of Sandwich (three of whom shall be the same
individuals who are appointed as members of Compass Bank's Board of Directors
and the other six of whom shall be
5
<PAGE>
designated by 1855 Bancorp after consultation with Sandwich) shall be elected to
the Board of Trustees of 1855 Bancorp; and
2.5.4 All of the directors of Sandwich shall be invited to join the
Board of Corporators of 1855 Bancorp, effective at the next annual meeting of
1855 Bancorp.
2.6 ADDITIONAL ACTIONS. If, at any time after the Effective Time,
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in Surviving Corporation, title to
and possession of any property or right of Merger Sub acquired or to be acquired
by reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, Merger Sub and its proper officers and directors
shall be deemed to have granted to Surviving Corporation an irrevocable power of
attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such property or rights in Surviving
Corporation and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of Surviving Corporation are fully authorized in
the name of Merger Sub or otherwise to take any and all such action.
2.7 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in Chapter 156B, Section 80 of the General Laws
of The Commonwealth of Massachusetts, as amended.
2.8 POSSIBLE ALTERNATIVE STRUCTURES. Notwithstanding anything to the
contrary contained in this Agreement, prior to the Effective Time, 1855 Bancorp
shall be entitled to revise the structure of the Merger, the Bank Merger and the
other transactions contemplated hereby and thereby, provided, that (i) there are
no material adverse federal or state income tax consequences to Sandwich and its
stockholders as a result of the modification; (ii) the consideration to be paid
to the holders of Sandwich Common Stock under this Agreement is not thereby
changed in kind or reduced in amount; (iii) there are no material adverse
changes to the benefits and other arrangements provided to or on behalf of
Sandwich's directors, officers and other employees; and (iv) such modification
will not delay materially or jeopardize receipt of any required regulatory
approvals or other consents and approvals relating to the consummation of the
Merger. 1855 Bancorp, Compass Bank, Sandwich and Sandwich Bank agree to
appropriately amend this Agreement and any related documents in order to reflect
any such revised structure.
ARTICLE III
CONVERSION OF SHARES
3.1 CONVERSION SHARES. At the Effective Time, by virtue of the Merger and
without any action on the part of Merger Sub, Sandwich or the holders of any of
the shares of Sandwich Common Stock (shares of Sandwich Common Stock being
hereinafter collectively referred to as "Shares"):
------
3.1.1 Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to Section 312
and any Dissenting Shares (as hereinafter defined)) shall be cancelled and shall
be converted automatically into the right to receive an amount equal to $53.00
in cash for each Share (the "Fixed Consideration"). In the event that the
-------------------
Effective Time has not occurred on or prior to October 1, 1998, and the failure
of the Effective Time to have occurred on or prior to such anniversary is not
primarily attributable to acts or omissions by or circumstances related to
Sandwich, then the Fixed Consideration shall be adjusted upwards by an amount
determined by (A) multiplying (1) the Fixed Consideration by (2) a percentage
interest rate determined for the period commencing on the day after October 1,
1998, through and including the
6
<PAGE>
Effective Date (the "Measurement Period") by averaging the discount rate,
expressed as a percentage, from face value on the [90-DAY TREASURY BILL RATE]
for the initial and each succeeding seven-day period (or portion thereof) during
the Measurement Period based on the most recent auction of such 90-day treasury
bill as reported in the "Money Rates" column of The Wall Street Journal or
-----------------------
equivalent publication or information service, rounded at the date the foregoing
calculation is made at the Effective Time, upwards to the nearest $.01, then (B)
dividing the product determined pursuant to clause (A) by 365, and then (C)
multiplying the amount obtained after the application of clauses (A) and (B) by
the number of calendar days in the Measurement Period. The Fixed Consideration,
to the extent adjusted as provided above, is referred to herein as the "Merger
------
Consideration".
- --------------
3.1.2 Each Share held in the treasury of Sandwich and each Share
owned by Merger Sub, 1855 Bancorp or any direct or indirect wholly owned
subsidiary of 1855 Bancorp or of Sandwich immediately prior to the Effective
Time shall be cancelled without any conversion thereof and no payment or
distribution shall be made with respect thereto.
3.1.3 Each share of the common stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of the
common stock of the Surviving Corporation.
3.2 EMPLOYEE STOCK OPTIONS. Prior to the Effective Time, Sandwich shall,
in accordance with the terms of the Sandwich Option Plans, provide written
notice to each holder of a then outstanding stock option to purchase Shares
pursuant to the Sandwich Option Plans (whether or not such stock option is then
vested or exercisable), that such stock option shall be, as at the date of such
notice, exercisable in full and that such stock option will be automatically
canceled at the Effective Time and that, if such stock option is not exercised
or otherwise terminated before the Effective Time, such holder shall be entitled
to receive in cancellation of such option a cash payment from Sandwich at the
Closing in an amount equal to the excess of the Merger Consideration over the
per share exercise price of such stock option, multiplied by the number of
Shares covered by such stock option, subject to any required withholding of
taxes. Subject to the foregoing, the Sandwich Option Plans and all options
issued thereunder shall terminate at the Effective Time. Sandwich hereby
represents and warrants to 1855 Bancorp that the maximum number of Shares
subject to issuance pursuant to the exercise of stock options issued and
outstanding under the Sandwich Option Plans is not and shall not be at or prior
to the Effective Time more than 144,778.
3.3 DISSENTING SHARES.
3.3.1 Notwithstanding anything in this Agreement to the contrary and
unless otherwise provided by applicable law, Shares that are issued and
outstanding immediately prior to the Effective Time and that are owned by
stockholders who have properly perfected their rights of appraisal within the
meaning of Section 85 of Chapter 156B of the Massachusetts General Laws (the
"Dissenting Shares"), shall not be converted into the right to receive the
- ------------------
Merger Consideration, unless and until such stockholders shall have failed to
perfect or shall have effectively withdrawn or lost their right of payment under
applicable law, but, instead, the holders thereof shall be entitled to payment
of the appraised value of such Dissenting Shares in accordance with the
provisions of the Massachusetts General Laws, Chapter 156B (S) 85 et seq. If
-- ----
any such holder shall have failed to perfect or shall have effectively withdrawn
or lost such right of appraisal, each Share held by such stockholder shall
thereupon be deemed to have been converted into the right to receive and become
exchangeable for, at the Effective Time, the Merger Consideration in the manner
provided in Section 28 hereof.
3.3.2 Sandwich shall give 1855 Bancorp (i) prompt notice of any
objections filed pursuant to Massachusetts General Laws, Chapter 156B, (S) 85 et
--
seq., received by Sandwich, withdrawals of
- ---
7
<PAGE>
such objections, and any other instruments served in connection with such
objections pursuant to the Massachusetts General Laws and received by Sandwich
and (ii) the opportunity to direct all negotiations and proceedings with respect
to objections under the Massachusetts General Laws consistent with the
obligations of Sandwich thereunder. Sandwich shall not, except with the prior
written consent of 1855 Bancorp, (x) make any payment with respect to any such
objection, (y) offer to settle or settle any such objections or (z) waive any
failure to timely deliver a written objection in accordance with the
Massachusetts General Laws.
3.4 SURRENDER OF SHARES; STOCK TRANSFER BOOKS.
3.4.1 Prior to the Effective Time, 1855 Bancorp or Compass Bank shall
designate a bank or trust company, reasonably acceptable to Sandwich, to act as
agent (the "Paying Agent") for the holders of Shares in connection with the
------------
Merger to receive the funds to which holders of Shares shall become entitled
pursuant to Section 311. Immediately prior to the Effective Time, Compass Bank
shall deposit, or cause to be deposited, with the Paying Agent, for the benefit
of the holders of certificates evidencing such Shares (the "Certificates"), for
------------
exchange in accordance with this Article III, such amount of cash as is
sufficient to pay the aggregate Merger Consideration which holders of Shares are
entitled to receive in exchange for outstanding Shares.
3.4.2 Promptly after the Effective Time (but in no event more than
three business days thereafter), 1855 Bancorp and Compass Bank shall cause to be
mailed to each person who was, at the Effective Time, a holder of record of
Shares entitled to receive the Merger Consideration a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates pursuant to such letter of transmittal. Sandwich
shall have the right to review the letter of transmittal, the instructions and
any accompanying letter. Upon surrender to the Paying Agent of a Certificate,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration for each Share
formerly evidenced by such Certificate, and such Certificate shall then be
cancelled. No interest shall accrue or be paid for the period following the
Effective Time on the Merger Consideration payable upon the surrender of any
Certificate for the benefit of the holder of such Certificate. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered on the stock transfer books of
Sandwich, it shall be a condition of payment that the Certificate so surrendered
shall be endorsed properly or otherwise be in proper form for transfer and that
the person requesting such payment shall have paid all transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such taxes
either have been paid or are not applicable.
3.4.3 At any time following the twelfth month after the Effective
Time, 1855 Bancorp or Compass Bank shall be entitled to require the Paying Agent
to deliver to it any funds which had been made available to the Paying Agent and
not disbursed to holders of Shares (including, without limitation, all interest
and other income received by the Paying Agent in respect of all funds made
available to it), and thereafter such holders shall be entitled to look to 1855
Bancorp and Compass Bank (subject to abandoned property, escheat and other
similar laws) only as general creditors thereof with respect to any Merger
Consideration that may be payable upon due surrender of the Certificates held by
them. Notwithstanding the foregoing, neither 1855 Bancorp nor Compass Bank nor
the Paying
8
<PAGE>
Agent shall be liable to any holder of a Share for any Merger Consideration
delivered in respect of such Share to a public official pursuant to any
abandoned property, escheat or other similar law.
3.4.4 At the close of business on the Effective Date, the stock
transfer books of Sandwich shall be closed and thereafter there shall be no
further registration of transfers of Shares on the records of Sandwich. From and
after the Effective Time, the holders of Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such Shares
except as otherwise provided herein or by applicable law.
3.4.5 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 1855
Bancorp or Compass Bank, upon the posting by such person of a bond in such
amount as 1855 Bancorp or Compass Bank may reasonably direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Paying Agent will issue in exchange for such lost, stolen or destroyed
Certificate, the cash representing the Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SANDWICH
Sandwich hereby represents and warrants to 1855 Bancorp as follows:
4.1 CAPITAL STRUCTURE. The authorized capital stock of Sandwich consists
of 15,000,000 shares of Sandwich Common Stock and 5,000,000 shares of Sandwich
Preferred Stock. As of the date of this Agreement, 1,944,260 shares of Sandwich
Common Stock are issued and outstanding, no shares of Sandwich Common Stock are
directly or indirectly held by Sandwich as treasury stock and no shares of
Sandwich Preferred Stock are issued and outstanding. All outstanding shares of
Sandwich Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable, and none of the outstanding shares of Sandwich Common
Stock has been issued in violation of the preemptive rights of any person, firm
or entity. Except for Sandwich Options to acquire not more than 144,778 shares
of Sandwich Common Stock, a schedule of which has been Previously Disclosed,
there are no Rights authorized, issued or outstanding with respect to or
relating to the capital stock of Sandwich.
4.2 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH. Sandwich is a
corporation duly organized, validly existing and in good standing under the laws
of The Commonwealth of Massachusetts with full corporate power and authority to
own or lease all of its properties and assets and to carry on its business as
now conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property or
the conduct of its business requires such licensing or qualification, except
where the failure to be so licensed, qualified or in good standing would not
have a Material Adverse Effect on Sandwich. Sandwich is duly registered as a
bank holding company under the BHCA. Sandwich has heretofore delivered to 1855
Bancorp true and complete copies of the Articles of Organization and Bylaws of
Sandwich as in effect as of the date hereof.
4.3 OWNERSHIP OF SANDWICH SUBSIDIARIES. Sandwich has Previously Disclosed
the name, jurisdiction of incorporation and percentage ownership of each direct
or indirect Sandwich Subsidiary. Except for (x) capital stock of the Sandwich
Subsidiaries, (y) securities and other interests held in a fiduciary capacity
and beneficially owned by third parties or taken in consideration of debts
previously contracted, and (z) securities and other interests which are
Previously Disclosed, Sandwich does not own or have the right or obligation to
acquire, directly or indirectly, any outstanding capital stock or other voting
securities or ownership interests of any corporation, bank, savings association,
9
<PAGE>
partnership, joint venture or other organization, other than investment
securities representing not more than 1% of any entity. The outstanding shares
of capital stock or other ownership interests of each Sandwich Subsidiary have
been duly authorized and validly issued, are fully paid and nonassessable, and
are directly or indirectly owned by Sandwich free and clear of all liens,
claims, encumbrances, charges, pledges, restrictions or rights of third parties
of any kind whatsoever. No Rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of the Sandwich
Subsidiaries and there are no agreements, understandings or commitments relating
to the right of Sandwich to vote or to dispose of such capital stock or other
ownership interests.
4.4 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH SUBSIDIARIES. Each
of the Sandwich Subsidiaries is a bank, corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized. Each of the Sandwich Subsidiaries (i)
has full power and authority to own or lease all of its properties and assets
and to carry on its business as now conducted, and (ii) is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
its ownership or leasing of property or the conduct of its business requires
such qualification, except where the failure to be so licensed, qualified or in
good standing would not have a Material Adverse Effect on Sandwich. The deposit
accounts of Sandwich Bank are insured by the BIF or, in the case of certain
deposits, the SAIF, to the maximum extent permitted by the FDIA, and by the
Share Insurance Fund for amounts in excess of FDIC limits. Sandwich Bank has
paid all deposit insurance premiums and assessments required by the FDIC and the
Share Insurance Fund. Sandwich has heretofore delivered or made available to
1855 Bancorp true and complete copies of the Charter and Bylaws of Sandwich Bank
as in effect as of the date hereof.
4.5 AUTHORIZED AND EFFECTIVE AGREEMENT.
4.5.1 Sandwich has all requisite corporate power and authority to
enter into this Agreement and (subject to receipt of all necessary governmental
approvals and the approval of Sandwich's shareholders of this Agreement) to
perform all of its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action in respect thereof
on the part of Sandwich, except for the approval of this Agreement by Sandwich's
shareholders. This Agreement has been duly and validly executed and delivered by
Sandwich and constitutes the legal, valid and binding obligations of Sandwich,
enforceable against Sandwich in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
4.5.2 Except as Previously Disclosed, neither the execution and
delivery of this Agreement, nor consummation of the transactions contemplated
hereby, nor compliance by Sandwich with any of the provisions hereof (i) does or
will conflict with or result in a breach of any provisions of the Articles of
Organization or Bylaws of Sandwich or the equivalent documents of any Sandwich
Subsidiary, (ii) violate, conflict with or result in a breach of any term,
condition or provision of, or constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, or give
rise to any right of termination, cancellation or acceleration with respect to,
or result in the creation of any lien, charge or encumbrance upon any property
or asset of Sandwich or any Sandwich Subsidiary pursuant to, any material note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Sandwich or any Sandwich Subsidiary is a
party, or by which any of their respective properties or assets may be bound or
affected, or (iii) subject to receipt of all required governmental and
shareholder approvals, violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Sandwich or any Sandwich Subsidiary.
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<PAGE>
4.5.3 Except for (i) the filing of applications and notices with, and
the consents and approvals of, as applicable, the FRB, the FDIC, the
Massachusetts Board, the MHPF, the Co-operative Central Bank and the Bank
Commissioner, (ii) the filing of the Proxy Statement with the SEC, (iii) the
approval of this Agreement by the requisite vote of the shareholders of
Sandwich, (iv) the filing of Articles of Merger with the Secretary of State of
the Commonwealth of Massachusetts pursuant to the MBCL in connection with the
Merger, and (v) review of the Merger by the DOJ under federal antitrust laws,
and except for such filings, registrations, consents or approvals which are
Previously Disclosed, no consents or approvals of or filings or registrations
with any Governmental Entity or with any third party are necessary on the part
of Sandwich or Sandwich Bank in connection with the execution and delivery by
Sandwich of this Agreement and the consummation by Sandwich of the transactions
contemplated hereby.
4.5.4 As of the date hereof, neither Sandwich nor Sandwich Bank is
aware of any reasons relating to Sandwich or Sandwich Bank (including without
limitation Community Reinvestment Act compliance) why all consents and approvals
shall not be procured from all regulatory agencies having jurisdiction over the
transactions contemplated by this Agreement as shall be necessary for (i)
consummation of the transactions contemplated by this Agreement and (ii) the
continuation by 1855 Bancorp after the Effective Time of the business of each of
1855 Bancorp and Sandwich as such business is carried on immediately prior to
the Effective Time, free of any conditions or requirements which, in the
reasonable opinion of Sandwich, could have a Material Adverse Effect on 1855
Bancorp or Sandwich or materially impair the value of Sandwich and Sandwich Bank
to 1855 Bancorp.
4.6 SECURITIES DOCUMENTS AND REGULATORY REPORTS
4.6.1 Since January 1, 1993, Sandwich has timely filed with the SEC
or the FDIC (as applicable) and the NASD all Securities Documents required by
the Securities Laws and such Securities Documents complied in all material
respects with the Securities Laws and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.6.2 Since January 1, 1993, each of Sandwich and Sandwich Bank has
duly filed with the FRB, the Bank Commissioner, the FDIC and any other
applicable federal or state banking authority, as the case may be, in correct
form the reports required to be filed under applicable laws and regulations and
such reports were in all material respects complete and accurate and in
compliance with the requirements of applicable laws and regulations. Except as
Previously Disclosed, in connection with the most recent examinations of
Sandwich and Sandwich Bank by the FRB, the Bank Commissioner and the FDIC,
neither Sandwich nor Sandwich Bank was required to correct or change any action,
procedure or proceeding which Sandwich or Sandwich Bank believes has not been
corrected or changed as required as of the date hereof in all material respects.
4.7 FINANCIAL STATEMENTS
4.7.1 Sandwich has previously delivered or made available to 1855
Bancorp accurate and complete copies of the Sandwich Financial Statements,
which, in the case of the consolidated statements of financial condition of
Sandwich Bank as of December 31, 1996, 1995 and 1994 and the consolidated
statements of operations, shareholders' equity and cash flows of Sandwich Bank
for each of the three years ended December 31, 1996, 1995 and 1994 are
accompanied by the audit reports of KPMG Peat Marwick LLP, independent public
accountants with respect to Sandwich. The Sandwich Financial Statements referred
to herein, as well as the Sandwich Financial Statements to be delivered pursuant
to Section 62 hereof, fairly present or will fairly present, as the case may be,
the consolidated financial
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condition of Sandwich or Sandwich Bank, as the case may be, as of the respective
dates set forth therein, and the consolidated results of operations,
shareholders' equity and cash flows of Sandwich for the respective periods or as
of the respective dates set forth therein.
4.7.2 Each of the Sandwich Financial Statements referred to in
Section 4.7.1 has been or will be, as the case may be, prepared in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except as stated therein. The audits of Sandwich and the
Sandwich Subsidiaries have been conducted in all material respects in
accordance with generally accepted auditing standards. The books and records of
Sandwich and the Sandwich Subsidiaries are being maintained in material
compliance with applicable legal and accounting requirements, and such books and
records accurately reflect in all material respects all dealings and
transactions in respect of the business, assets, liabilities and affairs of
Sandwich and its Subsidiaries. The minute books of Sandwich and each of its
Subsidiaries contain complete and accurate records of all meetings and other
corporate actions authorized at such meetings held or taken since January 1,
1993 to date of its stockholders and Board of Directors.
4.7.3 Except and to the extent (i) reflected, disclosed or provided
for in the consolidated statement of financial condition of Sandwich as of
December 31, 1997 (including related notes) and (ii) of liabilities incurred
since December 31, 1997 in the ordinary course of business, neither Sandwich nor
any Sandwich Subsidiary has any liabilities, whether absolute, accrued,
contingent or otherwise, material to the financial condition, results of
operations or business of Sandwich on a consolidated basis.
4.8 MATERIAL ADVERSE CHANGE. Since December 31, 1997 (i) Sandwich and its
Subsidiaries have conducted their respective businesses in the ordinary and
usual course (excluding the incurrence of expenses in connection with this
Agreement, and excluding the transactions contemplated hereby) and (ii) no event
has occurred or circumstance arisen that, individually or in the aggregate, has
had or is reasonably likely to have a Material Adverse Effect on Sandwich.
4.9 ENVIRONMENTAL MATTERS. Except as Previously Disclosed:
4.9.1 To the best of Sandwich's knowledge, Sandwich and its
Subsidiaries are in material compliance with all Environmental Laws. Neither
Sandwich nor any Sandwich Subsidiary has received any communication alleging
that Sandwich or any Sandwich Subsidiary is not in such compliance and, to the
best knowledge of Sandwich, there are no present circumstances that would
prevent or interfere with the continuation of such compliance.
4.9.2 To the best of Sandwich's knowledge, none of the properties
presently or formerly owned, leased or operated by Sandwich or a Sandwich
Subsidiary, or in which Sandwich or any Sandwich Subsidiary has a lien or other
security interest, has been or is in material violation of or materially liable
under any Environmental Law.
4.9.3 To the best of Sandwich's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents that
could reasonably form the basis of any material Environmental Claim or other
claim or action or governmental investigation that could result in the
imposition of any material liability arising under any Environmental Law against
Sandwich or a Sandwich Subsidiary or against any person or entity whose
liability for any Environmental Claim Sandwich or a Sandwich Subsidiary has or
may have retained or assumed either contractually or by operation of law.
4.9.4 Sandwich has not conducted any environmental studies during the
past five years with respect to any properties owned by it or a Sandwich
Subsidiary as of the date hereof.
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4.10 TAX MATTERS
4.10.1 Sandwich and its Subsidiaries have timely filed all federal,
state and local (and, if applicable, foreign) income, franchise, bank, excise,
real property, personal property and other tax returns required by applicable
law to be filed by them (including, without limitation, estimated tax returns,
income tax returns, information returns and withholding and employment tax
returns) and have paid, or where payment is not required to have been made, have
set up an adequate reserve or accrual for the payment of, all material taxes
required to be paid in respect of the periods covered by such returns and, as of
the Effective Time, will have paid, or where payment is not required to have
been made, will have set up an adequate reserve or accrual for the payment of,
all material taxes for any subsequent periods ending on or prior to the
Effective Time. Neither Sandwich nor a Sandwich Subsidiary will have any
material liability for any such taxes in excess of the amounts so paid or
reserves or accruals so established.
4.10.2 All federal, state and local (and, if applicable, foreign)
income, franchise, bank, excise, real property, personal property and other tax
returns filed by Sandwich and its Subsidiaries are complete and accurate in all
material respects. Neither Sandwich nor a Sandwich Subsidiary is delinquent in
the payment of any tax, assessment or governmental charge or, except as
Previously Disclosed, has requested any extension of time within which to file
any tax returns in respect of any fiscal year or portion thereof which have not
since been filed. Except as Previously Disclosed, the federal, state and local
income tax returns of Sandwich and its Subsidiaries have been examined by the
applicable tax authorities (or are closed to examination due to the expiration
of the applicable statute of limitations) and no deficiencies for any tax,
assessment or governmental charge have been proposed, asserted or assessed
(tentatively or otherwise) against Sandwich or a Sandwich Subsidiary as a result
of such examinations or otherwise which have not been settled and paid. There
are currently no agreements in effect with respect to Sandwich or a Sandwich
Subsidiary to extend the period of limitations for the assessment or collection
of any tax. As of the date hereof, no audit, examination or deficiency or refund
litigation with respect to such return is pending or, to the best of Sandwich's
knowledge, threatened.
4.10.3 Except as Previously Disclosed, neither Sandwich nor any
Sandwich Subsidiary (i) is a party to any agreement providing for the allocation
or sharing of taxes, (ii) is required to include in income any adjustment
pursuant to Section 481(a) of the Code by reason of a voluntary change in
accounting method initiated by Sandwich or a Sandwich Subsidiary (nor does
Sandwich have any knowledge that the Internal Revenue Service has proposed any
such adjustment or change of accounting method) or (iii) has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply.
4.11 LEGAL PROCEEDINGS Except as Previously Disclosed, there are no
actions, suits, claims, governmental investigations or proceedings instituted,
pending or, to the best knowledge of the senior officers and directors of
Sandwich or any Sandwich Subsidiary, threatened against Sandwich or a Sandwich
Subsidiary or against any asset, interest or right of Sandwich or a Sandwich
Subsidiary, or against any officer, director or employee of any of them, and
neither Sandwich nor a Sandwich Subsidiary is a party to any order, judgment or
decree.
4.12 COMPLIANCE WITH LAWS
4.12.1 Each of Sandwich and the Sandwich Subsidiaries has all
permits, licenses, certificates of authority, orders and approvals of, and has
made all filings, applications and registrations with, federal, state, local and
foreign governmental or regulatory bodies that are required in order to permit
it to carry on its business as it is presently being conducted and the absence
of which could
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reasonably be expected to have a Material Adverse Effect on Sandwich; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect; and to the best knowledge of Sandwich, no suspension or
cancellation of any of the same is threatened.
4.12.2 Neither Sandwich nor a Sandwich Subsidiary is in violation of
its respective Articles of Organization, Charter or Bylaws, or of any applicable
federal, state or local law or ordinance or any order, rule or regulation of any
federal, state, local or other governmental agency or body (including, without
limitation, all banking (including without limitation all regulatory capital
requirements), securities, municipal securities, safety, health, environmental,
zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances,
orders, rules and regulations), or in default with respect to any order, writ,
injunction or decree of any court, or in default under any order, license,
regulation or demand of any governmental agency, any of which violations or
defaults could reasonably be expected to have a Material Adverse Effect on
Sandwich; and neither Sandwich nor a Sandwich Subsidiary has received any notice
or communication from any federal, state or local governmental authority
asserting that Sandwich or a Sandwich Subsidiary is in violation of any of the
foregoing which could reasonably be expected to have a Material Adverse Effect
on Sandwich. Neither Sandwich nor a Sandwich Subsidiary is currently subject to
any regulatory or supervisory cease and desist order, agreement, written
directive, memorandum of understanding or written commitment (other than those
of general applicability to all banks and holding companies thereof), and
neither of them has received any written communication requesting that it enter
into any of the foregoing. No regulatory agency has initiated any proceeding or,
to the best knowledge of Sandwich, investigation into the business or operations
of Sandwich or any of the Sandwich Subsidiaries since prior to December 31,
1992. Sandwich has not received any objection from any regulatory agency to
Sandwich's response to any violation, criticism or exception with respect to any
report or statement relating to any examinations of Sandwich or any of the
Sandwich Subsidiaries.
4.13 CERTAIN INFORMATION None of the information relating to Sandwich and
its Subsidiaries supplied or to be supplied for inclusion or incorporation by
reference in (i) the Offering Document will, at the time the Offering Document
is mailed to subscribers (and, if applicable, at the time the related Form S-1
and any amendment thereto becomes effective under the Securities Act), contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) the Proxy Statement, as of the
date(s) such Proxy Statement is mailed to shareholders of Sandwich and up to and
including the date of the meeting of shareholders to which such Proxy Statement
relates, will contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that
information as of a later date shall be deemed to modify information as of an
earlier date. The Proxy Statement mailed by Sandwich to its shareholders in
connection with the meeting of shareholders at which this Agreement will be
considered by such shareholders will comply as to form in all material respects
with the Exchange Act and the rules and regulations promulgated thereunder.
4.14 EMPLOYEE BENEFIT PLANS
4.14.1 Sandwich has Previously Disclosed all stock option, employee
stock purchase and stock bonus plans, qualified pension or profit-sharing plans,
any deferred compensation, consultant, bonus or group insurance contract or any
other incentive, health and welfare or employee benefit plan or agreement
maintained for the benefit of employees or former employees of Sandwich or any
Sandwich Subsidiary (the "Sandwich Employee Plans"), whether written or oral,
and Sandwich has previously furnished or made available to 1855 Bancorp accurate
and complete copies of the same together with (i) the most recent actuarial and
financial reports prepared with respect to any qualified
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plans, (ii) the most recent annual reports filed with any governmental agency,
and (iii) all rulings and determination letters and any open requests for
rulings or letters that pertain to any qualified plan.
4.14.2 None of Sandwich, any Sandwich Subsidiary, any pension plan
maintained by either of them and qualified under Section 401 of the Code or, to
the best of Sandwich's knowledge, any fiduciary of such plan has incurred any
material liability to the PBGC or the Internal Revenue Service with respect to
any employees of Sandwich or a Sandwich Subsidiary. To the best of Sandwich's
knowledge, no reportable event under Section 4043(b) of ERISA has occurred with
respect to any such pension plan.
4.14.3 Neither Sandwich nor any Sandwich Subsidiary participates in
or has incurred any liability under Section 4201 of ERISA for a complete or
partial withdrawal from a multi-employer plan (as such term is defined in
ERISA).
4.14.5 A favorable determination letter has been issued by the
Internal Revenue Service with respect to each Sandwich Employee Plan which is an
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) (a
"Sandwich Pension Plan") which is intended to qualify under Section 401 of the
Code to the effect that such plan is qualified under Section 401 of the Code and
the trust associated with such employee pension plan is tax exempt under Section
501 of the Code. No such letter has been revoked or, to the best of Sandwich's
knowledge, is threatened to be revoked and Sandwich does not know of any ground
on which such revocation may be based. Neither Sandwich nor any Sandwich
Subsidiary has any liability under any such plan that is not reflected on the
consolidated statement of financial condition of Sandwich at December 31, 1997
included in the Sandwich Financial Statements, other than liabilities incurred
in the ordinary course of business in connection therewith subsequent to the
date thereof.
4.14.5 To the best of Sandwich's knowledge, no prohibited
transaction (which shall mean any transaction prohibited by Section 406 of ERISA
and not exempt under Section 408 of ERISA or Section 4975 of the Code) has
occurred with respect to any Sandwich Employee Plan which would result in the
imposition, directly or indirectly, of a material excise tax under Section 4975
of the Code or otherwise have a Material Adverse Effect on Sandwich.
4.14.6 Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date hereof, and full payment will be so made (or proper accruals will be so
established) of all contributions which are required for periods after the date
hereof and prior to the Effective Time, under the terms of each Sandwich
Employee Plan or ERISA; to the best of Sandwich's knowledge, no accumulated
funding deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code), whether or not waived, exists with respect to any Sandwich Pension Plan,
and there is no "unfunded current liability" (as defined in Section 412 of the
Code) with respect to any Sandwich Pension Plan.
4.14.7 To the best of Sandwich's knowledge, the Sandwich Employee
Plans have been operated in compliance in all material respects with the
applicable provisions of ERISA, the Code, all regulations, rulings and
announcements promulgated or issued thereunder and all other applicable
governmental laws and regulations.
4.14.8 There are no pending or, to the best knowledge of Sandwich,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of the Sandwich Employee Plans or any trust related thereto or any
fiduciary thereof.
4.14.9 Neither Sandwich nor 1855 Bancorp will be required to make a
Pension Payment as a result of the Merger. The term "Pension Payment" shall
---------------
mean the amount, if any, for which
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Sandwich or its successor is or would be liable to the Co-operative Banks
Employees Retirement Association in connection with the cessation of Sandwich's
participation in said Association's pension plan and its complete withdrawal
from said pension plan.
4.15 CERTAIN CONTRACTS
4.15.1 Except as Previously Disclosed, neither Sandwich nor a
Sandwich Subsidiary is a party to, is bound or affected by, receives, or is
obligated to pay, benefits under
(a) any agreement, arrangement or commitment, including without
limitation any agreement, indenture or other instrument, relating to the
borrowing of money by Sandwich or a Sandwich Subsidiary (other than in the
case of Sandwich Bank deposits, FHLB advances, federal funds purchased and
securities sold under agreements to repurchase in the ordinary course of
business) or the guarantee by Sandwich or a Sandwich Subsidiary of any
obligation, other than by Sandwich Bank in the ordinary course of its
banking business,
(b) any agreement or commitment relating to the employment of a
consultant or the employment, election or retention in office of any
present or former director, officer or employee of Sandwich or a Sandwich
Subsidiary,
(c) any agreement, arrangement or understanding pursuant to which
any payment (whether of severance pay or otherwise) became or may become
due to any director, officer or employee of Sandwich or a Sandwich
Subsidiary upon execution of this Agreement or upon or following
consummation of the transactions contemplated by this Agreement (either
alone or in connection with the occurrence of any additional acts or
events);
(d) any agreement, arrangement or understanding pursuant to which
Sandwich or a Sandwich Subsidiary is obligated to indemnify any director,
officer, employee or agent of Sandwich or a Sandwich Subsidiary;
(e) any agreement, arrangement or understanding to which Sandwich
or a Sandwich Subsidiary is a party or by which any of the same is bound
which limits the freedom of Sandwich or a Sandwich Subsidiary to compete in
any line of business or with any person,
(f) any assistance agreement, supervisory agreement, memorandum
of understanding, consent order, cease and desist order or condition of any
regulatory order or decree with or by the Bank Commissioner, the FDIC, the
FRB or any other regulatory agency,
(g) any agreement (other than any agreement with a banking
customer for the provision of banking services entered into by any Sandwich
Subsidiary in the ordinary course of business) that involves a payment or
series of payments of more than $50,000 in any one year from or to Sandwich
or any Sandwich Subsidiary (unless such agreement is cancellable by
Sandwich upon payment of a termination fee of not more than $40,000), or
(h) any other agreement, arrangement or understanding which would
be required to be filed as an exhibit to the Sandwich's Annual Report on
Form 10-K under the Exchange Act and which has not been so filed.
4.15.2 Neither Sandwich nor any Sandwich Subsidiary is in material
default or non-compliance under any contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument to which it is a party
or by which its assets, business or operations may be bound or affected, whether
entered into in the ordinary course of business or otherwise and whether written
or oral, and there has not occurred any event that with the lapse of time or the
giving of notice, or both, would constitute such a material default or non-
compliance.
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4.16 BROKERS AND FINDERS Except as Previously Disclosed, neither Sandwich
nor any Sandwich Subsidiary nor any of their respective directors, officers or
employees, has employed any broker or finder or incurred any liability for any
broker or finder fees or commissions in connection with the transactions
contemplated hereby.
4.17 INSURANCE. Each of Sandwich and its Subsidiaries is insured for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance required by applicable laws and regulations. Sandwich
has Previously Disclosed all policies of insurance maintained by it or a
Sandwich Subsidiary as of the date hereof and any claims thereunder in excess of
$50,000 since January 1, 1995. Neither Sandwich nor any Sandwich Subsidiary has
received any notice of termination of any such insurance coverage or material
increase in the premiums therefor or has any reason to believe that any such
insurance coverage will be terminated or the premiums therefor materially
increased.
4.18 LOAN PORTFOLIO. Sandwich has Previously Disclosed all of the loans
in original principal amount in excess of $200,000 of Sandwich or any Sandwich
Subsidiary that as of the date of this Agreement are classified by Sandwich or
any Bank Regulator as "Special Mention", "Substandard", "Doubtful", "Loss" or
"Classified," together with the aggregate principal amount of and accrued and
unpaid interest on such all loans by category, it being understood that no
representation is being made that the FDIC, the Bank Commissioner or any other
Bank Regulator would agree with the loan classifications of Sandwich.
4.19 PROPERTIES. All real and personal property owned by Sandwich or its
Subsidiaries or presently used by any of them in its respective business is in
an adequate condition (ordinary wear and tear excepted) and is sufficient to
carry on the business of Sandwich and its Subsidiaries in the ordinary course of
business consistent with their past practices. Sandwich has good and marketable
title free and clear of all liens, encumbrances, charges, defaults or equities
(other than equities of redemption under applicable foreclosure laws) to all of
the material properties and assets, real and personal, reflected on the
consolidated statement of financial condition of Sandwich as of December 31,
1997 included in the Sandwich Financial Statements or acquired after such date,
except (i) liens for current taxes not yet due or payable (ii) pledges to secure
deposits and other liens incurred in the ordinary course of its banking
business, (iii) such imperfections of title, easements and encumbrances, if any,
as are not material in character, amount or extent and (iv) as reflected on the
consolidated statement of financial condition of Sandwich as of December 31,
1997 included in the Sandwich Financial Statements. All real and personal
property which is material to Sandwich's business on a consolidated basis and
leased or licensed by Sandwich or a Sandwich Subsidiary is held pursuant to
leases or licenses which are valid and enforceable in accordance with their
respective terms and no such real property lease will terminate or lapse prior
to the Effective Time.
4.20 LABOR. No work stoppage involving Sandwich or a Sandwich Subsidiary
is pending or, to the best knowledge of Sandwich, threatened. Neither Sandwich
nor a Sandwich Subsidiary is involved in, or threatened with or affected by, any
labor dispute, arbitration, lawsuit or administrative proceeding involving the
employees of Sandwich or a Sandwich Subsidiary which could have a Material
Adverse Effect on Sandwich. Employees of Sandwich and the Sandwich Subsidiaries
are not represented by any labor union nor are any collective bargaining
agreements otherwise in effect with respect to such employees, and to the best
of Sandwich's knowledge, there have been no efforts to unionize or organize any
employees of Sandwich or any of the Sandwich Subsidiaries during the past five
years.
4.21 REQUIRED VOTE; INAPPLICABILITY OF ANTITAKOVER STATUTES
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4.21.1 The affirmative vote of the holders of two thirds of the
issued and outstanding shares of Sandwich Common Stock is necessary to approve
this Agreement and the transactions contemplated hereby on behalf of Sandwich.
4.21.2 Assuming the accuracy of the representation and warranty of
1855 Bancorp contained in Section 5.20 hereof, no "fair price," "moratorium,"
control share acquisition" or other form of antitakeover statute or regulation,
including without limitation Chapters 110D and 110F of the MBCL, is applicable
to this Agreement and the transactions contemplated hereby.
4.22 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as Previously
Disclosed, to the knowledge of Sandwich, no officer or director of Sandwich, or
any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act)
of any such officer or director, (i) has any material interest in any material
contract or property (real or personal), tangible or intangible, used in or
pertaining to the business of Sandwich or any of the Sandwich Subsidiaries or
(ii) is indebted to, or has the right under a line of credit to borrow from,
Sandwich or any Sandwich Subsidiary in an amount exceeding $50,000.
4.23 CERTAIN TRANSACTIONS. Since December 31, 1996, neither Sandwich nor
any Sandwich Subsidiary has been a party to any material off-balance-sheet
transactions involving interest rate and currency swaps, options and futures
contracts, or any other similar derivative transactions, except as Previously
Disclosed.
4.24 DISCLOSURES. None of the representations and warranties of Sandwich
or any of the written information or documents furnished or to be furnished by
Sandwich to 1855 Bancorp in connection with or pursuant to this Agreement or the
consummation of the transactions contemplated hereby, when considered as a
whole, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact required to be stated or necessary
to make any such information or document, in light of the circumstances, not
misleading.
4.25 DISCLOSURE SCHEDULE. The Sandwich Disclosure Schedule sets forth,
among other things, disclosures with respect to or exceptions to Sandwich's
representations and warranties in this Article IV. The mere inclusion of an
exception in the Sandwich Disclosure Schedule shall not be deemed an admission
by Sandwich that such exception represents a material fact, event or
circumstance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF 1855 BANCORP
1855 Bancorp hereby represents and warrants to Sandwich as follows:
5.1 CAPITAL STRUCTURE. 1855 Bancorp has no capital stock issued and
outstanding.
5.2 ORGANIZATION, STANDING AND AUTHORITY OF 1855 BANCORP. 1855 Bancorp is
a mutual holding company duly organized, validly existing and in good standing
under the laws of The Commonwealth of Massachusetts with full corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as now conducted and is duly licensed or qualified to do business
and is in good standing in each jurisdiction in which its ownership or leasing
of property or the conduct of its business requires such licensing or
qualification, except where the failure to be so licensed, qualified or in good
standing would not have a Material Adverse Effect on 1855 Bancorp. 1855 Bancorp
is duly registered as a bank holding company under the BHCA and the regulations
of the FRB thereunder. 1855 Bancorp has heretofore delivered to Sandwich true
and complete copies of the Articles of Organization and Bylaws of 1855 Bancorp
as in effect as of the date hereof.
5.3 OWNERSHIP OF THE 1855 BANCORP SUBSIDIARIES. 1855 Bancorp has
Previously Disclosed each direct or indirect 1855 Bancorp Subsidiary. The
outstanding shares of capital stock of each 1855
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Bancorp Subsidiary have been duly authorized and validly issued, are fully paid
and nonassessable and are directly or indirectly owned by 1855 Bancorp free and
clear of all liens, claims, encumbrances, charges, pledges, restrictions or
rights of third parties of any kind whatsoever. No Rights are authorized, issued
or outstanding with respect to the capital stock or other ownership interests of
any 1855 Bancorp Subsidiary and there are no agreements, understandings or
commitments relating to the right of 1855 Bancorp to vote or to dispose of said
shares or other ownership interests.
5.4 ORGANIZATION, STANDING AND AUTHORITY OF THE 1855 BANCORP
SUBSIDIARIES. Each of the 1855 Bancorp Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized. Each of the 1855 Bancorp Subsidiaries (i)
has full power and authority to own or lease all of its properties and assets
and to carry on its business as now conducted, and (ii) is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
its ownership or leasing of property or the conduct of its business requires
such qualification, except where the failure to be so licensed, qualified or in
good standing would not have a Material Adverse Effect on 1855 Bancorp. The
deposit accounts of Compass Bank are insured by the BIF or, in the case of
certain deposits, the SAIF, to the maximum extent permitted by the FDIA, and by
the Depositors Insurance Fund for amounts in excess of FDIC limits. Compass Bank
has paid all premiums and assessments required by the FDIC and the Depositors
Insurance Fund.
5.5 AUTHORIZED AND EFFECTIVE AGREEMENT.
5.5.1 1855 Bancorp has all requisite corporate power and authority
to enter into this Agreement and (subject to receipt of all necessary
governmental approvals and 1855 Bancorp's Corporators' approval of the Capital
Offering) to perform all of its obligations under this Agreement. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of 1855 Bancorp and Compass
Bank, except for the approval of the Capital Offering by 1855 Bancorp's
Corporators. This Agreement has been duly and validly executed and delivered by
1855 Bancorp and, assuming due authorization, execution and delivery by
Sandwich, constitutes a legal, valid and binding obligation of 1855 Bancorp
which is enforceable against 1855 Bancorp in accordance with its terms, subject,
as to enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
5.5.2 Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby (including the Capital
Offering) nor compliance by 1855 Bancorp with any of the provisions hereof (i)
does or will conflict with or result in a breach of any provisions of the
Articles of Organization or Bylaws of 1855 Bancorp or the equivalent documents
of any 1855 Bancorp Subsidiary, (ii) violate, conflict with or result in a
breach of any term, condition or provision of, or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or give rise to any right of termination, cancellation or acceleration
with respect to, or result in the creation of any lien, charge or encumbrance
upon any property or asset of 1855 Bancorp or any 1855 Bancorp Subsidiary
pursuant to, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which 1855
Bancorp or any 1855 Bancorp Subsidiary is a party, or by which any of their
respective properties or assets may be bound or affected, or (iii) subject to
receipt of all required governmental, corporator and shareholder approvals,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to 1855 Bancorp or any 1855 Bancorp Subsidiary.
5.5.3 Except for (i) the filing of applications and notices with,
and the consents and approvals of, as applicable, the FRB, the FDIC, the
Massachusetts Board, the MHPF, the Depositors Insurance Fund, and the Bank
Commissioner, (ii) the filing and effectiveness of a Form S-1 Registration
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Statement with the SEC by the Mid-Tier Subsidiary, if necessary, (iii)
compliance with applicable state securities or "blue sky" laws in connection
with the Capital Offering, (iv) the approval of the Capital Offering by the
requisite vote of the Corporators of 1855 Bancorp, (v) the filing of Articles of
Merger with the Secretary of State of the Commonwealth of Massachusetts pursuant
to the MBCL in connection with the Merger and (vi) review of the Merger by the
DOJ under federal antitrust laws, and except for such filings, registrations,
consents or approvals as are Previously Disclosed, no consents or approvals of
or filings or registrations with any Governmental Entity or with any third party
are necessary on the part of 1855 Bancorp or any 1855 Bancorp Subsidiary in
connection with the execution and delivery by 1855 Bancorp of this Agreement and
the consummation by 1855 Bancorp of the transactions contemplated hereby.
5.5.4 As of the date hereof, 1855 Bancorp is not aware of any
reasons relating to 1855 Bancorp or any of its Subsidiaries (including without
limitation Community Reinvestment Act compliance) why all consents and approvals
shall not be procured from all regulatory agencies having jurisdiction over the
transactions contemplated by this Agreement as shall be necessary for (i)
consummation of the transactions contemplated by this Agreement and (ii) the
continuation by 1855 Bancorp after the Effective Time of the business of each of
1855 Bancorp and Sandwich as such business is carried on immediately prior to
the Effective Time, free of any conditions or requirements which, in the
reasonable opinion of 1855 Bancorp, could have a Material Adverse Effect on 1855
Bancorp or Sandwich or materially impair the value of Sandwich and Sandwich Bank
to 1855 Bancorp.
5.6 REGULATORY REPORTS
5.6.1 1855 Bancorp is not required to file any Securities Documents
with the SEC.
5.6.2 Since January 1, 1993, each of 1855 Bancorp and Compass Bank
has duly filed with the FRB, the FDIC, and the Bank Commissioner, as the case
may be, in correct form the reports required to be filed under applicable laws
and regulations and such reports were in all material respects complete and
accurate and in compliance with the requirements of applicable laws and
regulations. In connection with the most recent examinations of 1855 Bancorp and
Compass Bank by the FRB, the FDIC or the Bank Commissioner, neither 1855 Bancorp
nor Compass Bank was required to correct or change any action, procedure or
proceeding which 1855 Bancorp or Compass Bank believes has not been corrected or
changed as required as of the date hereof in all material respects.
5.7 FINANCIAL STATEMENTS
5.7.1 1855 Bancorp has previously delivered or made available to
Sandwich accurate and complete copies of the 1855 Bancorp Financial Statements
which, in the case of the consolidated statements of financial condition of 1855
Bancorp as of October 31, 1997, 1996 and 1995, and the consolidated statements
of operations, shareholders' equity and cash flows for each of the three years
ended October 31, 1997, 1996 and 1995 are accompanied by the audit reports of
Arthur Andersen, independent public accountants with respect to 1855 Bancorp.
The 1855 Bancorp Financial Statements referred to herein, as well as the 1855
Bancorp Financial Statements to be delivered pursuant to Section 72 hereof,
fairly present or will fairly present, as the case may be, the consolidated
financial condition of 1855 Bancorp as of the respective dates set forth
therein, and the consolidated results of operations, shareholders' equity and
cash flows of 1855 Bancorp for the respective periods or as of the respective
dates set forth therein.
5.7.2 Each of the 1855 Bancorp Financial Statements referred to in
Section 571 has been or will be, as the case may be, prepared in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except as stated therein. The audits of 1855 Bancorp and the 1855
Bancorp Subsidiaries have been conducted in all material respects in accordance
with
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generally accepted auditing standards. The books and records of 1855 Bancorp and
the 1855 Bancorp Subsidiaries are being maintained in material compliance with
applicable legal and accounting requirements, and all such books and records
accurately reflect in all material respects all dealings and transactions in
respect of the business, assets, liabilities and affairs of 1855 Bancorp and the
1855 Bancorp Subsidiaries. The minute books of 1855 Bancorp and each of its
subsidiaries contain complete and accurate records of all meetings and other
corporate actions authorized at such meetings held or taken since January 1,
1993 to date of its stockholders and Board of Directors.
5.7.3 Except and to the extent (i) reflected, disclosed or provided
for in the consolidated statement of financial condition of 1855 Bancorp as of
October 31, 1997 (including related notes) and (ii) of liabilities incurred
since October 31, 1997 in the ordinary course of business, neither 1855 Bancorp
nor any 1855 Bancorp Subsidiary has any liabilities, whether absolute, accrued,
contingent or otherwise, material to the financial condition, results of
operations or business of 1855 Bancorp on a consolidated basis.
5.8 MATERIAL ADVERSE CHANGE. Since October 31, 1997, (i) 1855 Bancorp and
its Subsidiaries have conducted their respective businesses in the ordinary and
usual course (excluding the incurrence of expenses in connection with this
Agreement, and excluding the transactions contemplated hereby) and (ii) no event
has occurred or circumstance arisen that, individually or in the aggregate, has
had or is reasonably likely to have a Material Adverse Effect on 1855 Bancorp.
5.9 ENVIRONMENTAL MATTERS. Except as Previously Disclosed:
5.9.1 To the best of 1855 Bancorp's knowledge, 1855 Bancorp and the
1855 Bancorp Subsidiaries are in material compliance with all Environmental
Laws. Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary has received any
communication alleging that 1855 Bancorp or any 1855 Bancorp Subsidiary is not
in such compliance and, to the best knowledge of 1855 Bancorp, there are no
present circumstances that would prevent or interfere with the continuation of
such compliance.
5.9.2 To the best of 1855 Bancorp's knowledge, none of the properties
owned, leased or operated by 1855 Bancorp or the 1855 Bancorp Subsidiaries, or
in which Sandwich or any Sandwich Subsidiary has a lien or other security
interest, has been or is in violation of or liable under any Environmental Law.
5.9.3 To the best of 1855 Bancorp's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents that
could reasonably form the basis of any material Environmental Claim or other
claim or action or governmental investigation that could result in the
imposition of any liability arising under any Environmental Law against 1855
Bancorp or any 1855 Bancorp Subsidiary or against any person or entity whose
liability for any Environmental Claim 1855 Bancorp or any 1855 Bancorp
Subsidiary has or may have retained or assumed either contractually or by
operation of law.
5.10 TAX MATTERS. 1855 Bancorp and the 1855 Bancorp Subsidiaries have
timely filed all federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
required by applicable law to be filed by them (including, without limitation,
estimated tax returns, income tax returns, information returns and withholding
and employment tax returns) and have paid, or where payment is not required to
have been made, have set up an adequate reserve or accrual for the payment of,
all material taxes required to be paid in respect of the periods covered by such
returns and, as of the Effective Time, will have paid, or where payment is not
required to have been made, will have set up an adequate reserve or accrual for
the payment of, all material taxes for any subsequent periods ending on or prior
to the Effective Time. Neither 1855 Bancorp nor any of the 1855 Bancorp
Subsidiaries will have any material liability for any such taxes
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in excess of the amounts so paid or reserves or accruals so established. As of
the date hereof, no audit, examination or deficiency or refund litigation with
respect to any federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
filed by 1855 Bancorp and the 1855 Bancorp Subsidiaries is pending or, to the
best of 1855 Bancorp's knowledge, threatened.
5.11 LEGAL PROCEEDINGS. Except as Previously Disclosed, there are no
actions, suits, claims, governmental investigations or proceedings instituted,
pending or, to the best knowledge of the senior officers and directors of 1855
Bancorp or any 1855 Subsidiary, threatened against 1855 Bancorp or any 1855
Bancorp Subsidiary or against any asset, interest or right of 1855 Bancorp or
any 1855 Bancorp Subsidiary, or against any officer, director or employee of any
of them, and neither 1855 Bancorp nor any 1855 Bancorp Subsidiary is a party to
any order, judgment or decree.
5.12 COMPLIANCE WITH LAWS.
5.12.2 Each of 1855 Bancorp and each of the 1855 Bancorp Subsidiaries
has all permits, licenses, certificates of authority, orders and approvals of,
and has made all filings, applications and registrations with, federal, state,
local and foreign governmental or regulatory bodies that are required in order
to permit it to carry on its business as it is presently being conducted and the
absence of which could reasonably be expected to have a Material Adverse Effect
on 1855 Bancorp; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect; and to the best knowledge of 1855
Bancorp, no suspension or cancellation of any of the same is threatened.
5.12.2 Neither 1855 Bancorp nor any of the 1855 Bancorp Subsidiaries
is in violation of its respective Articles of Organization, Charter or other
chartering instrument or Bylaws, or of any applicable federal, state or local
law or ordinance or any order, rule or regulation of any federal, state, local
or other governmental agency or body (including, without limitation, all banking
(including without limitation all regulatory capital requirements), securities,
municipal securities, safety, health, environmental, zoning, anti-
discrimination, antitrust, and wage and hour laws, ordinances, orders, rules and
regulations), or in default with respect to any order, writ, injunction or
decree of any court, or in default under any order, license, regulation or
demand of any governmental agency, any of which violations or defaults could
reasonably be expected to have a Material Adverse Effect on 1855 Bancorp; and
neither 1855 Bancorp nor any 1855 Bancorp Subsidiary has received any notice or
communication from any federal, state or local governmental authority asserting
that 1855 Bancorp or any 1855 Bancorp Subsidiary is in violation of any of the
foregoing which could reasonably be expected to have a Material Adverse Effect
on 1855 Bancorp. Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary is subject
to any regulatory or supervisory cease and desist order, agreement, written
directive, memorandum of understanding or written commitment (other than those
of general applicability to all banks or holding companies thereof), and none of
them has received any written communication requesting that it enter into any of
the foregoing. No regulatory agency has initiated any proceeding or, to the best
knowledge of 1855 Bancorp, investigation into the business or operations of 1855
Bancorp or any of the 1855 Bancorp Subsidiaries since prior to December 31,
1992. 1855 Bancorp has not received any objection from any regulatory agency to
1855 Bancorp's response to any violation, criticism or exception with respect to
any report or statement relating to any examinations of 1855 Bancorp or any of
the 1855 Bancorp Subsidiaries.
5.13 CERTAIN INFORMATION None of the information relating to 1855 Bancorp
and the 1855 Bancorp Subsidiaries to be included or incorporated by reference in
the Proxy Statement, as of the date(s) such Proxy Statement is mailed to
shareholders of Sandwich and up to and including the date(s) of the meeting of
shareholders to which such Proxy Statement relates, will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the
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circumstances under which they were made, not misleading, provided that
information as of a later date shall be deemed to modify information as of an
earlier date.
5.14 EMPLOYEE BENEFIT PLANS
5.14.1 1855 Bancorp has Previously Disclosed all stock option,
employee stock purchase and stock bonus plans, qualified pension or profit-
sharing plans, any deferred compensation, bonus or group insurance contract or
any other incentive, health and welfare or employee benefit plan or agreement
maintained for the benefit of employees or former employees of 1855 Bancorp or
any 1855 Bancorp Subsidiary (the "1855 Bancorp Employee Plans"), whether written
---------------------------
or oral.
5.14.2 None of 1855 Bancorp, any 1855 Bancorp Subsidiary, any pension
plan maintained by any of them and qualified under Section 401 of the Code or,
to the best of 1855 Bancorp's knowledge, any fiduciary of such plan has incurred
any material liability to the PBGC or the Internal Revenue Service with respect
to any employees of 1855 Bancorp or any 1855 Bancorp Subsidiary. To the best of
1855 Bancorp's knowledge, no reportable event under Section 4043(b) of ERISA has
occurred with respect to any such pension plan.
5.14.3 Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary
participates in or has incurred any liability under Section 4201 of ERISA for a
complete or partial withdrawal from a multi-employer plan (as such term is
defined in ERISA).
5.14.4 A favorable determination letter has been issued by the
Internal Revenue Service with respect to each 1855 Bancorp Employee Plan which
is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) (an
"1855 Bancorp Pension Plan") which is intended to qualify under Section 401 of
the Code to the effect that such plan is qualified under Section 401 of the Code
and the trust associated with such employee pension plan is tax exempt under
Section 501 of the Code. No such letter has been revoked or, to the best of 1855
Bancorp's knowledge, is threatened to be revoked and 1855 Bancorp does not know
of any ground on which such revocation may be based. Neither 1855 Bancorp nor
any 1855 Bancorp Subsidiary has any liability under any such plan that is not
reflected on the consolidated statement of financial condition of 1855 Bancorp
at October 31, 1997 included in the 1855 Bancorp Financial Statements, other
than liabilities incurred in the ordinary course of business in connection
therewith subsequent to the date thereof.
5.14.5 To the best of 1855 Bancorp's knowledge, no prohibited
transaction (which shall mean any transaction prohibited by Section 406 of ERISA
and not exempt under Section 408 of ERISA or Section 4975 of the Code) has
occurred with respect to any 1855 Bancorp Employee Plan which would result in
the imposition, directly or indirectly, of a material excise tax under Section
4975 of the Code or otherwise have a Material Adverse Effect on 1855 Bancorp.
5.14.6 Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date hereof, and full payment will be so made (or proper accruals will be so
established) of all contributions which are required for periods after the date
hereof and prior to the Effective Time, under the terms of each 1855 Bancorp
Employee Plan or ERISA; to the best of 1855 Bancorp's knowledge, no accumulated
funding deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code), whether or not waived, exists with respect to any 1855 Bancorp Pension
Plan, and there is no "unfunded current liability" (as defined in Section 412 of
the Code) with respect to any 1855 Bancorp Pension Plan.
5.14.7 To the best of 1855 Bancorp's knowledge, 1855 Bancorp Employee
Plans have been operated in compliance in all material respects with the
applicable provisions of ERISA, the Code, all
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regulations, rulings and announcements promulgated or issued thereunder and all
other applicable governmental laws and regulations.
5.14.8 There are no pending or, to the best knowledge of 1855
Bancorp, threatened claims (other than routine claims for benefits) by, on
behalf of or against any of the 1855 Bancorp Employee Plans or any trust related
thereto or any fiduciary thereof.
5.15 CERTAIN CONTRACTS. Neither 1855 Bancorp nor any 1855 Bancorp
Subsidiary is in material default or in non-compliance under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party or by which its assets, business or operations may be
bound or affected, whether entered into in the ordinary course of business or
otherwise and whether written or oral, and there has not occurred any event that
with the lapse of time or the giving of notice, or both, would constitute such a
default or non-compliance.
5.16 BROKERS AND FINDERS. Except as Previously Disclosed, neither 1855
Bancorp nor any 1855 Bancorp Subsidiary, nor any of their respective directors,
officers or employees, has employed any broker or finder or incurred any
liability for any broker or finder fees or commissions in connection with the
transactions contemplated hereby.
5.17 INSURANCE. 1855 Bancorp and each 1855 Bancorp Subsidiary is insured
for reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance required by applicable laws and regulations.
5.18 PROPERTIES. All real and personal property owned by 1855 Bancorp or
any 1855 Bancorp Subsidiary or presently used by any of them in its respective
business is in an adequate condition (ordinary wear and tear excepted) and is
sufficient to carry on its business in the ordinary course of business
consistent with their past practices. 1855 Bancorp has good and marketable
title free and clear of all liens, encumbrances, charges, defaults or equities
(other than equities of redemption under applicable foreclosure laws) to all of
the material properties and assets, real and personal, reflected on the
consolidated statement of financial condition of 1855 Bancorp as of October 31,
1997 included in the 1855 Bancorp Financial Statements or acquired after such
date, except (i) liens for current taxes not yet due or payable (ii) pledges to
secure deposits and other liens incurred in the ordinary course of its banking
business, (iii) such imperfections of title, easements and encumbrances, if any,
as are not material in character, amount or extent and (iv) as reflected on the
consolidated statement of financial condition of 1855 Bancorp as of October 31,
1997 included in the 1855 Bancorp Financial Statements. All real and personal
property which is material to 1855 Bancorp's business on a consolidated basis
and leased or licensed by 1855 Bancorp or an 1855 Bancorp Subsidiary is held
pursuant to leases or licenses which are valid and enforceable in accordance
with their respective terms and no such real property lease will terminate or
lapse prior to the Effective Time.
5.19 LABOR. No work stoppage involving 1855 Bancorp or any 1855 Bancorp
Subsidiary is pending or, to the best knowledge of 1855 Bancorp, threatened.
Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary is involved in, or
threatened with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding involving its employees which could have a Material
Adverse Effect on 1855 Bancorp. Employees of 1855 Bancorp and the 1855 Bancorp
Subsidiaries are not represented by any labor union nor are any collective
bargaining agreements otherwise in effect with respect to such employees, and to
the best of 1855 Bancorp's knowledge, there have been no efforts to unionize or
organize any employees of 1855 Bancorp or any 1855 Bancorp Subsidiary during the
past five years.
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5.20 OWNERSHIP OF SANDWICH COMMON STOCK. As of the date hereof, neither
1855 Bancorp nor, to its best knowledge, any of its affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially own, directly
or indirectly, or (ii) are parties to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, in
each case, shares of Sandwich Common Stock which in the aggregate represent 5%
or more of the outstanding shares of Sandwich Common Stock (other than shares
held in a fiduciary capacity and beneficially owned by third parties, shares
taken in consideration of debts previously contracted.
5.21 CERTAIN TRANSACTIONS. Since December 31, 1996, neither 1855 Bancorp
nor any 1855 Bancorp Subsidiary has been a party to any material off-balance-
sheet transactions involving interest rate and currency swaps, options and
futures contracts, or any other similar derivative transactions, except as
Previously Disclosed.
5.22 DISCLOSURES. None of the representations and warranties of 1855
Bancorp or any of the written information or documents furnished or to be
furnished by 1855 Bancorp to Sandwich in connection with or pursuant to this
Agreement or the consummation of the transactions contemplated hereby, when
considered as a whole, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact required to be
stated or necessary to make any such information or document, in light of the
circumstances, not misleading.
5.23 DISCLOSURE SCHEDULE. The 1855 Bancorp Disclosure Schedule sets forth,
among other things, disclosures with respect to or exceptions to 1855 Bancorp's
representations and warranties in this Article V. The mere inclusion of an
exception in the 1855 Bancorp Disclosure Schedule shall not be deemed an
admission by 1855 Bancorp that such exception represents a material fact, event
or circumstance.
5.24 MERGER SUB. Upon its formation, Merger Sub will be a corporation,
duly organized, validly existing and in good standing under the laws of
Massachusetts, all of the outstanding capital stock of which is, or will be
prior to the Effective Time, owned directly or indirectly by Compass Bank free
and clear of any lien, charge or other encumbrance. From and after its
incorporation, Merger Sub has not and will not engage in any activities other
than in connection with or as contemplated by this Agreement.
5.24.1 Merger Sub has, or will have prior to the Effective Time, all
corporate power and authority to consummate the transactions contemplated
hereunder and carry out all of its obligations with respect to such
transactions. The consummation of the transactions contemplated hereby has been,
or will have been prior to the Closing, duly and validly authorized by all
necessary corporate action in respect thereof on the part of Merger Sub.
ARTICLE VI
COVENANTS OF SANDWICH
6.1 CONDUCT OF BUSINESS.
6.1.1 AFFIRMATIVE COVENANTS. During the period from the date of this
Agreement to the Effective Time, except with the written consent of 1855
Bancorp, Sandwich will operate its business, and it will cause each of the
Sandwich Subsidiaries to operate its business, only in the usual, regular and
ordinary course of business; use reasonable efforts to preserve intact its
business organization and assets and maintain its rights and franchises; and
take no action which would (i) materially adversely affect the ability of 1855
Bancorp or Sandwich to obtain any necessary approvals of governmental
authorities required for the transactions contemplated hereby or materially
increase the period of time necessary
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to obtain such approvals, or (ii) materially adversely affect its ability to
perform its covenants and agree ments under this Agreement.
6.12 NEGATIVE COVENANTS. Sandwich agrees that from the date of this
Agreement to the Effective Time, except as otherwise specifically permitted or
required by this Agreement, or consented to by 1855 Bancorp in writing (which
consent shall not be unreasonably withheld), Sandwich will not, and will cause
each of the Sandwich Subsidiaries not to:
(a) change or waive any provision of its Charter or By-laws;
(b) change the number of shares of its authorized or issued capital
stock (except for the issuance of Sandwich Common Stock pursuant to the
exercise of outstanding stock options under the Sandwich Stock Option
Plans, as contemplated by Section 41 hereof);
(c) issue or grant any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating to
the authorized or issued capital stock of Sandwich or any of the Sandwich
Subsidiaries, or any securities convertible into shares of such stock;
except that Sandwich may issue shares of Sandwich Common Stock or permit
treasury shares to become outstanding to satisfy presently outstanding
options under and in accordance with the terms of the Sandwich Stock Option
Plans;
(d) effect any recapitalization, reclassification, stock dividend,
stock split or like change in capitalization, or redeem, repurchase or
otherwise acquire any shares of its capital stock;
(e) declare or pay any dividends or other distributions with respect
to its capital stock except for a quarterly cash dividend not in excess of
$0.35 per share, declared and paid in accordance with applicable law,
regulation and contractual and regulatory commitments and for dividends
paid by any Sandwich Subsidiary to Sandwich;
(f) enter into, amend in any material respect or terminate any
contract or agreement (including without limitation any settlement
agreement with respect to litigation) except in the ordinary course of
business consistent with past practice; provided, however, that Sandwich
shall have the right, on or before the Effective Time, to amend (i) its
Supplemental Retirement Plans to nullify section 10.01(b) thereof, (ii) its
defined benefit Pension Plan to ensure that any excess funding projected as
of the Effective Time inures solely to the benefit of Sandwich's employees
who are plan participants (but only to the extent that 1855 Bancorp
receives confirmation from CBERA, or otherwise receives confirmation, in
each case reasonably satisfactory to it, that such amendment will not
result in any liability, contingent or otherwise, to 1855 Bancorp or its
Subsidiaries), and (iii) each employment agreement to permit the employee
who is party to the agreement to elect, more than 90 days before the
Effective Time, to receive severance benefits in designated annual
installments over a future period of up to two years after the Effective
Time, with interest accruing at the prevailing one-year constant maturity
treasury rate;
(g) except in the ordinary course of business consistent with past
practice, incur any material liabilities or material obligations, whether
directly or by way of guaranty, including any obligation for borrowed money
whether or not evidenced by a note, bond, debenture or similar instrument
(other than FHLB advances not exceeding 110% of the December 31, 1997
level), or acquire any equity, debt, or other investment securities;
(h) make any capital expenditures in excess of $25,000 individually
or $100,000 in the aggregate, other than pursuant to Previously Disclosed
binding commitments existing on the date hereof;
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(i) make or commit to make any commercial or commercial real estate
loan or loans to one borrower (including such borrower's related interests)
in an aggregate principal balance (or with an aggregate commitment) of
$1,000,000 or more;
(j) grant any increase in rates of compensation to its employees,
except merit increases in accordance with past practices and general
increases to employees as a class in accordance with past practice or as
required by law; grant any increase in rates of compensation to, or pay or
agree to pay any bonus or severance to, or provide any other new employee
benefit or incentive to its directors or to its officers who are currently
covered by employment or severance agreements with Sandwich except for
nondiscretionary payments required by such agreements and except for
increases in officer compensation rates by no more than 4.5% on an
aggregate basis; enter into any employment, severance or similar agreements
or arrangements with any director or employee; adopt or amend in any
material respect or terminate any employee benefit plan, pension plan or
incentive plan except as required by law or the terms of such plan or as
provided in Section 6.1.2, or permit the vesting of any material amount of
benefits under any such plan other than pursuant to the provisions thereof
as in effect on the date of this Agreement; or make any contributions to
Sandwich's deferred compensation plans, supplemental executive retirement
plans, grantor trust, defined benefit Pension Plan or 401(k) Plan not in
the ordinary course of business consistent with past practice; or make any
contributions to Sandwich's Employee Stock Ownership Plan, other than
contributions, based on Sandwich's accrual levels in effect for 1998 on the
date of this Agreement, for the period ending on the Effective Time; or
make any cash bonus payments pursuant to Sandwich's Management Incentive
Compensation Plan, other than (i) accrued but unpaid amounts from March
through December 1997 and amounts to be accrued in January and February
1998 equal to $24,167 per month, and (ii) the budgeted amount accruing from
March 1, 1998 through the earlier to occur of December 31, 1998 or the
Effective Time (it being understood that the monthly budgeted amount is
equal to $24,167 and that such amount will be paid prior to the Effective
Time to then-current employees of Sandwich or any Subsidiary); or make any
contributions to Sandwich's Grantor Trust other than nondiscretionary
contributions required by the terms of the applicable Benefit Plan ;
(k) make application for the opening or closing of any, or open or
close any, branch or automated banking facility;
(l) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other
than in connection with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructurings in the ordinary course of business
consistent with customary banking practices;
(m) except as the fiduciary duties of the Board of Directors
otherwise requires (as determined in good faith upon the advice of legal
counsel), merge into, consolidate with, affiliate with, or be purchased or
acquired by, any other Person, or permit any other to be merged,
consolidated or affiliated with it or be purchased or acquired by it, or,
except to realize upon collateral in the ordinary course of its business,
acquire a significant portion of the assets of any other Person, or sell a
significant portion of its assets;
(n) make any material change in its accounting methods or practices,
except changes as may be required by GAAP or by regulatory requirements;
(o) enter into any off-balance sheet transaction involving interest
rate and currency swaps, options and futures contracts, or any other
similar derivative transactions;
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(p) knowingly take any action that would result in the
representations and warranties of Sandwich contained in this Agreement not
being true and correct on the date of this Agreement or at any future
date on or prior to the Closing Date; or
(q) agree to do any of the foregoing.
6.2 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, Sandwich will cause one or more of its
representatives to confer with representatives of 1855 Bancorp and report the
general status of its ongoing operations at such times as 1855 Bancorp may
reasonably request. Sandwich will promptly notify 1855 Bancorp of any material
change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving Sandwich. Sandwich will also provide 1855 Bancorp such
information with respect to such events as 1855 Bancorp may reasonably request
from time to time. As soon as reasonably available, but in no event more than
45 days after the end of each calendar quarter ending after the date of this
Agreement (other than the last quarter of each fiscal year ending December 31),
the Sandwich will deliver to 1855 Bancorp its quarterly report on Form 10-Q
under the Exchange Act, and, as soon as reasonably available, but in no event
more than 90 days after the end of each fiscal year, Sandwich will deliver to
1855 Bancorp its Annual Report on Form 10-K. Within 25 days after the end of
each month, Sandwich will deliver to 1855 Bancorp a consolidated balance sheet
and a consolidated statement of operations, without related notes, for such
month.
6.3 ACCESS TO PROPERTIES AND RECORDS. Sandwich shall permit 1855 Bancorp
reasonable access upon reasonable notice to its properties and those of the
Sandwich Subsidiaries, and shall disclose and make available to 1855 Bancorp
during normal business hours all of its books, papers and records relating to
the assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and stockholders'
meetings, organizational documents, by-laws, material contracts and agreements,
filings with any regulatory authority, litigation files, plans affecting
employees, and any other business activities or prospects in which 1855 Bancorp
may have a reasonable interest; provided, however, that Sandwich shall not be
required to take any action that would provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights or business interests or confidences of any customer or other person or
would result in the waiver by it of the privilege protecting communications
between it and any of its counsel. Sandwich shall provide and shall request its
auditors to provide 1855 Bancorp with such historical financial information
regarding it (and related audit reports and consents) as 1855 Bancorp may
reasonably request for securities disclosure purposes.
6.4 FINANCIAL AND OTHER STATEMENTS.
6.4.1 Promptly upon receipt thereof, Sandwich will furnish to 1855
Bancorp copies of each annual, interim or special audit of the books of Sandwich
and the Sandwich Subsidiaries made by its independent accountants and copies of
all internal control reports submitted to Sandwich by such accountants in
connection with each annual, interim or special audit of the books of Sandwich
and the Sandwich Subsidiaries made by such accountants.
6.4.2 As soon as practicable, Sandwich will furnish to 1855 Bancorp
copies of all such financial statements and reports as it or any Subsidiary
shall send to its stockholders, the SEC, the Bank Commissioner, the FDIC or any
other regulatory authority, except as legally prohibited thereby.
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6.4.3 Sandwich will advise 1855 Bancorp promptly of the receipt of any
examination report of any federal or state regulatory or examination authority
with respect to the condition or activities of Sandwich or any of the Sandwich
Subsidiaries.
6.4.2 With reasonable promptness, Sandwich will furnish to 1855 Bancorp
such additional financial data as 1855 Bancorp may reasonably request, including
without limitation, detailed monthly financial statements and loan reports.
6.5 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective
Time, Sandwich will promptly supplement or amend the Disclosure Schedules
delivered in connection herewith pursuant to Article IV with respect to any
material matter hereafter arising which, if existing, occurring or known at the
date of this Agreement, would have been required to be set forth or described in
such Disclosure Schedules or which is necessary to correct any information in
such Schedules which has been rendered inaccurate thereby. No supplement or
amendment to such Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article IX.
6.6 CONSENTS AND APPROVALS OF THIRD PARTIES. Sandwich shall use all
reasonable efforts to obtain as soon as practicable all consents and approvals
of any other Persons necessary or desirable for the consummation of the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, Sandwich shall utilize the services of a professional proxy
soliciting firm to help obtain the shareholder vote required to be obtained by
it hereunder.
6.7 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Sandwich agrees to use all reasonable efforts to take, or cause to be
taken, all corporate or other action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
6.8 FAILURE TO FULFILL CONDITIONS. In the event that Sandwich determines
that a condition to its obligation to complete the Merger cannot be fulfilled
and that it will not waive that condition, it will promptly notify 1855 Bancorp.
6.9 NO SOLICITATION. Unless and until this Agreement shall have been
properly terminated by either party pursuant to Section 111 hereof, neither
Sandwich nor any of its subsidiaries shall (and Sandwich and Sandwich Bank shall
use all commercially reasonable efforts to cause its representatives, including,
but not limited to, investment bankers, attorneys and accountants, not to),
directly or indirectly, encourage, solicit, initiate or participate in any
discussions or negotiations with, or, provide any information to, any
corporation, partnership, person or other entity or group (other than 1855
Bancorp and its affiliates or Representatives) concerning any merger, tender
offer, sale of substantial assets, sale of shares of capital stock or debt
securities or similar transaction involving Sandwich or Sandwich Bank (an
"Acquisition Transaction"); provided, however that Sandwich and its
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representatives shall be permitted to participate in discussions or negotiations
with, or provide information to, any other corporation, partnership, person or
other entity or group with respect to an Acquisition Transaction if the Board of
Directors of Sandwich determines (in good faith upon the advice of outside
counsel) that their fiduciary duties require them to do so. Notwithstanding the
foregoing, nothing contained in this Section 69 shall prohibit Sandwich or its
Board of Directors from taking and disclosing to Sandwich's stockholders a
position with respect to a tender offer by a third party pursuant to Rules 14d-9
and 14e-2(a) promulgated under the Exchange Act or from making such disclosure
to Sandwich's stockholders which, in the judgment of the Board of Directors
(upon the advice of counsel), may be required under applicable law or is
necessary in order to comply with its fiduciary obligations. Sandwich will
immediately communicate to 1855 Bancorp the terms of any proposal, discussion,
negotiation or inquiry relating to an Acquisition Transaction and the identity
of the party making such
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proposal or inquiry which it may receive in respect of any such transaction
(which shall mean that any such communication shall be delivered no less
promptly than by telephone within 24 hours of Sandwich's receipt of any such
proposal or inquiry) or its receipt of any request for information from the FRB,
the DOJ, or any other governmental agency or authority with respect to a
proposed Acquisition Transaction. Sandwich shall continue to consult with 1855
Bancorp after receipt of such proposal or commencement of such discussion or
negotiation relating to an Acquisition Transaction, and will not take any action
with respect to such proposed Acquisition Transaction except after reasonable
consultation with 1855 Bancorp.
ARTICLE VII
COVENANTS OF 1855 BANCORP
7.1 CONDUCT OF BUSINESS. During the period from the date of this
Agreement to the Effective Time, except with the written consent of Sandwich and
except as provided below, 1855 Bancorp will take no action which would (i)
materially adversely affect the ability of 1855 Bancorp or Sandwich to obtain
any necessary approvals of governmental authorities required for the
transactions contemplated hereby or materially increase the period of time
necessary to obtain such approvals, or (ii) materially adversely affect its
ability to perform its covenants and agreements under this Agreement, or (iii)
result in the representations and warranties of 1855 Bancorp contained in this
Agreement not being true and correct on the date of this Agreement or at any
future date on or prior to the Closing Date; provided that nothing herein
contained shall preclude 1855 Bancorp from taking any action Previously
Disclosed.
7.2 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, 1855 Bancorp will cause one or more of its
representatives to confer with representatives of Sandwich and report the
general status of its ongoing operations at such times as Sandwich may
reasonably request. 1855 Bancorp will promptly notify Sandwich of any material
change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving 1855 Bancorp. 1855 Bancorp will also provide Sandwich such
information with respect to such events as Sandwich may reasonably request from
time to time. As soon as reasonably available, but in no event more than 45 days
after the end of each calendar quarter ending after the date of this Agreement
(other than the last quarter of each fiscal year ending October 31), the 1855
Bancorp will deliver to Sandwich a consolidated balance sheet and a consolidated
statement of operations, without related notes, for such quarter prepared in
accordance with generally accepted accounting principles, and within 25 days
after the end of each month, 1855 Bancorp will deliver to Sandwich a
consolidated balance sheet and a consolidated statement of operations, without
related notes, for such month prepared in accordance with generally accepted
accounting principles.
7.3 ACCESS TO PROPERTIES AND RECORDS. 1855 Bancorp shall permit Sandwich
reasonable access upon reasonable notice to its properties and those of its
subsidiaries, and shall disclose and make available to Sandwich during normal
business hours all of its books, papers and records relating to the assets,
stock ownership, properties, operations, obligations and liabilities, including,
but not limited to, all books of account (including the general ledger), tax
records, minute books of directors' and stockholders' meetings, organizational
documents, by-laws, material contracts and agreements, filings with any
regulatory authority, litigation files, plans affecting employees, and any other
business activities or prospects in which Sandwich may have a reasonable
interest; provided, however, that 1855 Bancorp shall not be required to take any
action that would provide access to or to disclose information where such access
or disclosure would violate or prejudice the rights or business interests or
confidences
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of any customer or other person or would result in the waiver by it of the
privilege protecting communications between it and any of its counsel.
7.4 FINANCIAL AND OTHER STATEMENTS.
7.4.1 Promptly upon receipt thereof, 1855 Bancorp will furnish to
Sandwich copies of each annual, interim or special audit of the books of 1855
Bancorp and its subsidiaries made by its independent accountants and copies of
all internal control reports submitted to 1855 Bancorp by such accountants in
connection with each annual, interim or special audit of the books of 1855
Bancorp and its subsidiaries made by such accountants.
7.4.2 As soon as practicable, 1855 Bancorp will furnish to Sandwich
copies of all such financial statements and reports as it or any Subsidiary
shall send to the Bank Commissioner, the FDIC, the FRB or any other regulatory
authority, except as legally prohibited thereby.
7.4.3 1855 Bancorp will advise Sandwich promptly of the receipt of
any examination report of any federal or state regulatory or examination
authority with respect to the condition or activities of 1855 Bancorp or any of
its subsidiaries.
7.4.4 With reasonable promptness, 1855 Bancorp will furnish to
Sandwich such additional financial data as Sandwich may reasonably request,
including without limitation, detailed monthly financial statements and loan
reports.
7.5 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective
Time, 1855 Bancorp will promptly supplement or amend the Disclosure Schedules
delivered in connection herewith pursuant to Article V with respect to any
material matter hereafter arising which, if existing, occurring or known at the
date of this Agreement, would have been required to be set forth or described in
such Disclosure Schedules or which is necessary to correct any information in
such Schedules which has been rendered inaccurate thereby. No supplement or
amendment to such Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article IX.
7.6 CONSENTS AND APPROVALS OF THIRD PARTIES. 1855 Bancorp shall use all
reasonable efforts to obtain as soon as practicable all consents and approvals
of any other Persons necessary or desirable for the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
approval of its Corporators of the Capital Offering.
7.7 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, 1855 Bancorp agrees to use all reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement.
7.8 FAILURE TO FULFILL CONDITIONS. In the event that 1855 Bancorp
determines that a condition to its obligation to complete the Merger cannot be
fulfilled and that it will not waive that condition, it will promptly notify
Sandwich.
7.9 EMPLOYEE BENEFITS.
7.9.1 All employees of Sandwich and its Subsidiaries as of the
Effective Time shall become employees of 1855 Bancorp or an 1855 Bancorp
Subsidiary as of the Effective Time. Nothing in this Agreement shall give any
employee of Sandwich or its Subsidiaries a right to continuing employment with
1855 Bancorp or any Subsidiary thereof after the Effective Time. Any employee of
Sandwich or any Sandwich Subsidiary whose employment with 1855 Bancorp or any
1855 Bancorp Subsidiary is terminated by 1855 Bancorp within one year after the
Effective Time shall be entitled to receive (i) a lump-sum severance benefit in
an amount equal to two-weeks' pay for each year of employment (with
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partial years of service included in the calculation on a pro-rated basis), up
to a maximum of 26 weeks' pay, and (ii) continuation of health benefits, on the
same terms and conditions applicable to 1855 Bancorp's active employees, for the
same number of weeks factored into the calculation of severance payments, and
thereafter COBRA benefits for an additional period of time determined as though
the Sandwich employee terminates employment upon expiration of the period
covered by said continued health benefits.
7.9.2 As soon as practicable after the Effective Time, 1855 Bancorp
shall provide or cause to be provided to all employees of Sandwich and any
Sandwich Subsidiary who remain employed by 1855 Bancorp or any 1855 Bancorp
Subsidiary after the Effective Time with employee benefits which, in the
aggregate, are no less favorable than those generally afforded to other
employees of 1855 Bancorp or the 1855 Bancorp Subsidiaries holding similar
positions, subject to the terms and conditions under which those employee
benefits are made available to such employees, provided, however, that (i) for
purposes of determining eligibility for and vesting of such employee benefits
only (and not for pension benefit accrual purposes), service with Sandwich or
any Sandwich Subsidiary prior to the Effective Time shall be treated as service
with an "employer" as if such persons had been employees of 1855 Bancorp, to the
extent permissible under the terms of 1855 Bancorp's Employee Plans, (ii) this
Section 79 shall not be construed to limit the ability of 1855 Bancorp and its
Subsidiaries to terminate the employment of any employee or to review employee
benefits programs from time to time and to make such changes as they deem
appropriate, and (iii) 1855 Bancorp or a Subsidiary shall continue to provide
post-retirement medical benefits to former employees of Sandwich who as of the
Effective Time are receiving post-retirement medical benefits in accordance with
Sandwich's Previously Disclosed retiree health care Plans I, II, and III, (iv)
1855 Bancorp shall honor any and all vacation leave (but not sick leave) accrued
by Sandwich's employees, except to the extent of any duplication of benefits,
and (v) no preexisting condition exclusion that is currently inapplicable to a
Sandwich employee and/or the employee's covered dependents shall affect their
rights to health benefits or coverage under 1855 Bancorp's plans, to the extent
permissible under such plans.
7.9.3 Sandwich has Previously Disclosed to 1855 Bancorp certain
employment and change of control agreements, deferred compensation plans,
Grantor Trust Agreement, Supplemental Retirement Plans and Split Dollar
Insurance Agreements (collectively, "Benefit Agreements"). Following the
Effective Time, 1855 Bancorp shall honor or cause its Subsidiaries to honor in
accordance with their terms all such Previously Disclosed Benefit Agreements and
assume or cause its Subsidiaries to assume all duties, liabilities and
obligations under such agreements and arrangements. 1855 Bancorp agrees that
(i) the consummation of the transactions contemplated hereby constitutes a
"Change in Control" as defined in the Benefit Agreements, and (ii) each of
Sandwich's officers who is party to an employment agreement with Sandwich will
be deemed to have suffered a material change in their responsibilities and
supervision as of the Effective Time, it being understood that the President of
Sandwich shall terminate employment as of the Effective Time and receive
payments under Section 11(a) of his Employment at such time.
7.9.4 The allocated assets of Sandwich's Employee Stock Ownership
Plan shall be distributed as soon as administratively practicable after the
later of the Effective Time and the receipt of a favorable determination letter,
which Sandwich may request at any time after the date of this Agreement, from
the Internal Revenue Service as to the effect of the plan's termination on its
tax-qualified status under sections 401, 409, and 4975 of the Code. Participants
in the Employee Stock Ownership Plan shall have the right to transfer their
distributions into any tax-qualified defined contribution plan that 1855 Bancorp
maintains, but only if and to the extent that such plan accepts rollover
contributions or trustee-to-trustee transfers from other tax-qualified plans.
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7.10 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE.
7.10.1 1855 Bancorp shall maintain, or shall cause Compass Bank to
maintain, in effect for six years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by
Sandwich (provided, that 1855 Bancorp may substitute therefor policies of at
least the same coverage containing terms and conditions which are not materially
less favorable) with respect to matters occurring prior to the Effective Time;
provided, however, that in no event shall 1855 Bancorp be required to expend
pursuant to this Section 7.10.1 more than $60,000 in the aggregate. In
connection with the foregoing, Sandwich agrees to provide such insurer or
substitute insurer with such representations as such insurer may request with
respect to the reporting of any prior claims.
7.10.2 From and after the Effective Time, 1855 Bancorp shall, or
shall cause Compass Bank to, indemnify, defend and hold harmless each person who
is now, or who has been at any time before the date hereof or who becomes before
the Effective Time, an officer or director of Sandwich or the Sandwich
Subsidiaries or any of their respective subsidiaries (the "Indemnified Parties")
against all losses, claims, damages, costs, expenses (including attorney's
fees), liabilities or judgments or amounts that are paid in settlement (which
settlement shall require the prior written consent of 1855 Bancorp, which
consent shall not be unreasonably withheld) of or in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal, or
administrative (each a "Claim"), in which an Indemnified Party is, or is
threatened to be made, a party or witness in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director, officer
or employee of Sandwich or any of its subsidiaries if such Claim pertains to any
matter of fact arising, existing or occurring before the Effective Time
(including, without limitation, the Merger and the other transactions
contemplated hereby), regardless of whether such Claim is asserted or claimed
before, or at or after, the Effective Time (the "Indemnified Liabilities"), to
the fullest extent permitted under applicable state or federal law in effect as
of the date hereof or as amended applicable to a time before the Effective Time
and under Sandwich's and Sandwich Bank's Articles of Organization or Charter and
By-Laws. 1855 Bancorp shall pay expenses in advance of the final disposition of
any such action or proceeding to each Indemnified Party to the full extent
permitted by applicable state or federal law in effect as of the date hereof or
as amended applicable to a time before the Effective Time upon receipt of an
undertaking to repay such advance payments if he shall be adjudicated or
determined to be not entitled to indemnification in the manner set forth below.
Any Indemnified Party wishing to claim indemnification under this Section 7.10.2
upon learning of any Claim, shall notify 1855 Bancorp (but the failure so to
notify 1855 Bancorp shall not relieve it from any liability which it may have
under this Section 7.10.2, except to the extent such failure materially
prejudices 1855 Bancorp) and shall deliver to 1855 Bancorp the undertaking
referred to in the previous sentence. In the event of any such Claim (whether
arising before or after the Effective Time) (1) 1855 Bancorp shall have the
right to assume the defense thereof (in which event the Indemnified Parties will
cooperate in the defense of any such matter) and upon such assumption 1855
Bancorp 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 1855 Bancorp elects
not to assume such defense, or counsel for the Indemnified Parties reasonably
advises the Indemnified Parties that there are or may be (whether or not any
have yet actually arisen) issues which raise conflicts of interest between 1855
Bancorp and the Indemnified Parties, the Indemnified Parties may retain counsel
reasonably satisfactory to them, and 1855 Bancorp shall pay the reasonable fees
and expenses of such counsel for the Indemnified Parties, (2) 1855 Bancorp shall
be obligated pursuant to this paragraph to pay for only one firm of counsel for
all Indemnified Parties whose reasonable fees and expenses shall be paid
promptly as statements are received, (3) 1855 Bancorp shall not be liable for
any settlement effected without its prior written consent (which consent shall
not be unreasonably withheld) and (4) no Indemnified Party
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shall be entitled to indemnification hereunder with respect to a matter as to
which (x) he shall have been adjudicated in any proceeding not to have acted in
good faith in the reasonable belief that his action was in the best interests of
Sandwich or any Subsidiary, or (y) in the event that a proceeding is compromised
or settled so as to impose any liability or obligation upon an Indemnified
Party, if there is a determination that with respect to said matter said
Indemnified Party did not act in good faith in the reasonable belief that his
action was in the best interests of Sandwich or any Subsidiary. The
determination shall be made by a majority vote of the trustees of 1855 Bancorp
who were formerly directors of Sandwich and who are not involved in such
proceeding (the "Former Sandwich Directors"), or, if a majority of the Former
Sandwich Directors are involved in the proceeding, by a committee of three
disinterested Former Sandwich Directors chosen by all of the Former Sandwich
Directors for the purpose of making such determination.
7.10.3 In the event that either 1855 Bancorp or Compass Bank or any
of its successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving bank or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of 1855 Bancorp shall
assume the obligations set forth in this Section 7.10.
7.10.4 The obligations of 1855 Bancorp provided under this Section
7.10 are intended to be enforceable against 1855 Bancorp directly by the
Indemnified Parties and shall be binding on all respective successors and
permitted assigns of 1855 Bancorp.
7.11 MERGER SUB. Prior to the Effective Time, 1855 Bancorp will take any
and all necessary action to cause (i) Merger Sub to be organized, (ii) Merger
Sub to become a direct or indirect wholly-owned subsidiary of 1855 Bancorp,
(iii) the directors and stockholder or stockholders of Merger Sub to approve the
transactions contemplated by this Agreement, and (iv) Merger Sub to execute one
or more counterparts of this Agreement and to deliver at least one such
counterpart so executed to Sandwich, whereupon Merger Sub shall become a party
to and be bound by this Agreement.
ARTICLE VIII
REGULATORY AND OTHER MATTERS
8.1 SANDWICH SPECIAL MEETING. Sandwich will (i) as promptly as
practicable, take all steps necessary to duly call, give notice of, convene and
hold a meeting of its stockholders (the "Sandwich Stockholders Meeting") for the
purpose of approving this Agreement and the Merger, and for such other purposes
as may be, in Sandwich's reasonable judgment, necessary or desirable, (ii)
subject to the fiduciary responsibility of the Board of Directors of Sandwich as
advised by counsel, recommend to its stockholders the approval of the
aforementioned matters to be submitted by it to its stockholders, and (iii)
cooperate and consult with 1855 Bancorp with respect to each of the foregoing
matters.
8.2 SANDWICH PROXY MATERIALS. As soon as practicable after the date
hereof, Sandwich shall file the Sandwich Proxy Statement with the SEC under the
Exchange Act and shall use all reasonable efforts to have the Sandwich Proxy
Statement cleared by the SEC. 1855 Bancorp and Sandwich shall cooperate with
each other in the preparation of the Sandwich Proxy Statement; 1855 Bancorp
shall provide Sandwich with any information concerning it that Sandwich may
reasonably request in connection with the Proxy Statement and Sandwich shall
notify 1855 Bancorp promptly of the receipt of any comments of the SEC with
respect to the Sandwich Proxy Statement and of any requests by the SEC for any
amendment or supplement thereto or for additional information and shall provide
to 1855 Bancorp promptly copies of all correspondence between Sandwich or any
representative of Sandwich and the SEC. Sandwich shall give 1855 Bancorp and its
counsel the opportunity to review the Sandwich Proxy Statement prior to its
being filed with the SEC and shall give 1855 Bancorp and its counsel the
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opportunity to review all amendments and supplements to the Sandwich Proxy
Statement and all responses to requests for additional information and replies
to comments prior to their being filed with, or sent to, the SEC. Each of 1855
Bancorp and Sandwich agrees to use all reasonable efforts, after consultation
with the other party hereto, to respond promptly to all such comments of and
requests by the SEC and to cause the Sandwich Proxy Statement and all required
amendments and supplements thereto to be mailed to the holders of Sandwich
Common Stock entitled to vote at the Sandwich Stockholders Meeting referred to
in Section 8.1 hereof at the earliest practicable time. 1855 Bancorp shall
promptly notify Sandwich if at any time it becomes aware that the Proxy
Statement contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading. In such event, Sandwich and 1855 Bancorp shall cooperate in the
preparation of a supplement or amendment to such Proxy Statement which corrects
such misstatement or omission, and shall cause the same to be filed with the SEC
and to be mailed to Sandwich's stockholders.
8.3 CAPITAL OFFERING. Commencing promptly after the date of this
Agreement, 1855 Bancorp and Compass Bank will take all reasonable steps
necessary to effect the Capital Offering and 1855 Bancorp shall use its best
efforts to satisfy the conditions to closing set forth in Section 9.2.5
(provided that in no event shall 1855 Bancorp or Compass Bank (or the Mid-Tier
Subsidiary) be required to undertake a full conversion to stock form or
otherwise issue more than 49% of its capital stock). If the Capital Offering is
to be effected through the Mid-Tier Holding Company, such steps shall include,
without limitation, organizing the Mid-Tier Holding Company as a newly-created
subsidiary of 1855 Bancorp and contributing all of the capital stock of Compass
Bank to the Mid-Tier Holding Company. In addition, without limiting the
generality of the foregoing, 1855 Bancorp shall cause the following to be done:
8.3.1 1855 Bancorp shall duly call, give notice of, convene and hold
a special meeting of its Board of Corporators as soon as practicable for the
purpose of approving the Capital Offering. The Board of Trustees of 1855 Bancorp
will recommend to the Corporators the approval of the Capital Offering.
8.3.2 Compass Bank will use all reasonable efforts to prepare and
file all required regulatory applications required in connection with the
Capital Offering, including, without limitation, filing applications with the
Bank Commissioner, the FDIC and the FRB (to the extent that the Capital Offering
is effected through the Mid-Tier Holding Company).
8.3.3 1855 Bancorp shall prepare as promptly as practicable, and
Sandwich shall co-operate in the preparation of, a prospectus or offering
circular (the "Offering Document") meeting all requirements of applicable
federal and state securities and banking laws and regulations. If the Capital
Offering is to be effected through the Mid-Tier Holding Company, 1855 Bancorp
shall incorporate such Offering Document into a Form S-1 Registration Statement
("Form S-1") satisfying all applicable requirements of the Securities Act, and
the rules and regulations thereunder, and shall use its reasonable best efforts
to have the Form S-1 declared effective under the Securities Act as promptly as
practicable after such filing.
8.3.4 Sandwich shall provide 1855 Bancorp with any information
concerning it that 1855 Bancorp may reasonably request in connection with the
Offering Document, and Sandwich shall promptly notify 1855 Bancorp if at any
time it becomes aware that the Offering Document or the Form S-1 contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. In such
event, Sandwich and 1855 Bancorp shall cooperate in the preparation of a
supplement or amendment to such Offering Document, which corrects such misstate-
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ment or omission, and shall cause an amended Form S-1 to be filed with the SEC
(if applicable). Sandwich shall provide to 1855 Bancorp a "comfort" letter from
the independent certified public accountants for Sandwich, dated as of the date
of the Offering Document and updated as of the date of consummation of the
Capital Offering, with respect to certain financial information regarding
Sandwich, each in form and substance which is customary in transactions such as
the Capital Offering, and shall cause its counsel to deliver to the placement
agent for the Capital Offering such opinions as 1855 Bancorp may reasonably
request.
8.3.5 1855 Bancorp shall give Sandwich and its counsel the
opportunity to review the Offering Document prior to its being filed with the
Bank Commissioner and FDIC (and the SEC, if applicable) and shall give Sandwich
and its counsel the opportunity to review all amendments and supplements to the
Offering Document and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the Bank
Commissioner, the FDIC (and the SEC, if applicable). Each of 1855 Bancorp and
Sandwich agrees to use all reasonable efforts, after consultation with the other
party hereto, to respond promptly to all such comments of and requests by the
Bank Commissioner, FDIC and the SEC and to cause the Offering Document and all
required amendments and supplements thereto to be mailed to the qualified
depositors of Compass Bank at the earliest practicable time.
8.4 REGULATORY APPROVALS. Each of Sandwich and 1855 Bancorp will cooperate
with the other and use all reasonable efforts to promptly prepare all necessary
documentation, to effect all necessary filings and to obtain all necessary
permits, consents, approvals and authorizations of all third parties and
governmental bodies necessary to consummate the transactions contemplated by
this Agreement, including without limitation the Merger, the Bank Merger and
the Capital Offering. Sandwich and 1855 Bancorp will furnish each other and each
other's counsel with all information concerning themselves, their subsidiaries,
directors, officers and stockholders and such other matters as may be necessary
or advisable in connection with the Offering Document, the Proxy Statement and
any application, petition or any other statement or application made by or on
behalf of Sandwich or 1855 Bancorp to any governmental body in connection with
the Capital Offering, the Merger, the Bank Merger, and the other transactions
contemplated by this Agreement. Sandwich and 1855 Bancorp shall have the right
to review and approve in advance all characterizations of the information
relating to 1855 Bancorp or Sandwich, as the case may be, and any of their
respective subsidiaries, which appear in any filing made in connection with the
transactions contemplated by this Agreement with any governmental body. In
addition, Sandwich and 1855 Bancorp shall each furnish to the other for review a
copy of each such filing made in connection with the transactions contemplated
by this Agreement with any governmental body prior to its filing.
ARTICLE IX
CLOSING CONDITIONS
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT. The
respective obligations of each party under this Agreement shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions,
none of which may be waived:
9.1.1 STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved in accordance with applicable law,
Articles of Organization, By-laws and NASD policy by the requisite vote of the
stockholders of Sandwich.
9.1.2 INJUNCTIONS. None of the parties hereto shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the transactions contemplated by this
Agreement.
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9.1.3 REGULATORY APPROVALS. All necessary approvals, authorizations
and consents of all governmental bodies required to consummate the transactions
contemplated by this Agreement shall have been obtained and shall remain in full
force and effect and all waiting periods relating to such approvals,
authorizations or consents shall have expired; and no such approval,
authorization or consent shall include any condition or requirement, not
reasonably foreseen as of the date of this Agreement, that would, in the good
faith reasonable judgment of the Board of Directors of 1855 Bancorp and
Sandwich, materially and adversely affect the business, operations, financial
condition, property or assets of the combined enterprise or of Sandwich or
Sandwich Bank or otherwise materially impair the value of Sandwich or Sandwich
Bank to 1855 Bancorp.
9.2 CONDITIONS TO THE OBLIGATIONS OF 1855 BANCORP UNDER THIS AGREEMENT.
The obligations of 1855 Bancorp under this Agreement shall be further subject to
the satisfaction, at or prior to the Effective Time, of the following
conditions:
9.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Sandwich set forth in Article IV hereof shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (or on the date when made in
the case of any representation and warranty which specifically relates to an
earlier date), except as otherwise contemplated by this Agreement or consented
to in writing by 1855 Bancorp; provided, however, that (i) in determining
whether or not the condition contained in this Section 9.2.1 shall be satisfied,
no effect shall be given to any exceptions in such representations and
warranties relating to materiality or Material Adverse Effect and (ii) the
condition contained in this Section 9.2.1 shall be deemed to be satisfied unless
the failure of such representations and warranties to be so true and correct
constitute, individually or in the aggregate, a Material Adverse Effect on
Sandwich and the Sandwich Subsidiaries, taken as a whole; and Sandwich shall
have delivered to 1855 Bancorp a certificate of Sandwich to such effect signed
by the Chief Executive Officer and the Chief Financial Officer of Sandwich as of
the Effective Time.
9.2.2 AGREEMENTS AND COVENANTS. Sandwich shall have performed in all
material respects all obligations and complied in all material respects with all
agreements or covenants of Sandwich to be performed or complied with by it at or
prior to the Effective Time under this Agreement, except to the extent that any
failure to perform or comply shall not individually, or in the aggregate, have a
Material Adverse Effect on Sandwich and the Sandwich Subsidiaries, taken as a
whole, or materially adversely affect consummation of the Merger and other
transactions contemplated hereby, and 1855 Bancorp shall have received a
certificate signed on behalf of Sandwich by the Chief Executive Officer and
Chief Financial Officer of Sandwich to such effect dated as of the Effective
Time.
9.2.3 PERMITS, AUTHORIZATIONS, ETC. Sandwich and the Sandwich
Subsidiaries shall have obtained any and all material permits, authorizations,
consents, waivers, clearances or approvals required for the lawful consummation
of the Merger by Sandwich, the failure to obtain which would have a Material
Adverse Effect on Sandwich and the Sandwich Subsidiaries, taken as a whole.
9.2.4 LEGAL OPINION. 1855 Bancorp shall have received an opinion,
dated the Closing Date, from Housley Kantarian and Bronstein P.C., counsel to
Sandwich, in the form attached hereto as Exhibit B.
9.2.5 CAPITAL OFFERING. 1855 Bancorp shall have consummated the
Capital Offering, and such Capital Offering shall have resulted in net proceeds
to Compass Bank or the Mid-Tier Holding Company sufficient to enable Compass
Bank to remain "well-capitalized" under applicable federal banking law and
otherwise to meet regulatory capital requirements, in each case after giving
effect to the Merger.
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Sandwich will furnish 1855 Bancorp with such certificates of its officers
or others and such other documents to evidence fulfillment of the conditions set
forth in this Section 9.2 as 1855 Bancorp may reasonably request.
9.3 CONDITIONS TO THE OBLIGATIONS OF SANDWICH UNDER THIS AGREEMENT. The
obligations of Sandwich under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
9.3.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of 1855 Bancorp set forth in Article V hereof shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (or on the date when
made in the case of any representation and warranty which specifically relates
to an earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by Sandwich; provided, however, that (i) in determining
whether or not the condition contained in this Section 9.3.1 shall be satisfied,
no effect shall be given to any exceptions in such representations and
warranties relating to materiality or Material Adverse Effect and (ii) the
condition contained in this Section 9.3.1 shall be deemed to be satisfied unless
the failure of such representations and warranties to be so true and correct
constitute, individually or in the aggregate, a Material Adverse Effect on 1855
Bancorp; and 1855 Bancorp shall have delivered to Sandwich a certificate of 1855
Bancorp to such effect signed by the Chief Executive Officer and the Chief
Financial Officer of 1855 Bancorp as of the Effective Time;
9.3.2 AGREEMENTS AND COVENANTS. 1855 Bancorp shall have performed in
all material respects all obligations and complied in all material respects with
all agreements or covenants of 1855 Bancorp to be performed or complied with by
it at or prior to the Effective Time under this Agreement except to the extent
that any failure to perform or comply shall not individually, or in the
aggregate, have a Material Adverse Effect on 1855 Bancorp and the 1855 Bancorp
Subsidiaries, taken as a whole, or materially adversely affect consummation of
the Merger and other transactions contemplated hereby, and Sandwich shall have
received a certificate signed on behalf of 1855 Bancorp by the Chief Executive
Officer and Chief Financial Officer of 1855 Bancorp to such effect dated as of
the Effective Time.
9.3.3 PERMITS, AUTHORIZATIONS, ETC. 1855 Bancorp and its subsidiaries
shall have obtained any and all material permits, authorizations, consents,
waivers, clearances or approvals required for the lawful consummation of the
Merger by 1855 Bancorp and the Bank Merger by Compass Bank, the failure to
obtain which would have a Material Adverse Effect on 1855 Bancorp and its
subsidiaries, taken as a whole.
9.3.4 LEGAL OPINION. Sandwich shall have received an opinion from
Foley, Hoag & Eliot LLP, counsel to 1855 Bancorp, dated the Closing Date, in the
form attached hereto as Exhibit C.
9.3.5 PAYMENT OF MERGER CONSIDERATIONS. 1855 Bancorp shall have
delivered to the Paying Agent on or before the Closing Date the aggregate amount
of the Merger Consideration in immediately available funds to be paid to holders
of the Sandwich common stock pursuant to Article III of this Agreement and the
Paying Agent shall provide Sandwich with a certificate evidencing such delivery.
1855 Bancorp will furnish Sandwich with such certificates of its officers
or others and such other documents to evidence fulfillment of the conditions set
forth in this Section 9.3 as Sandwich may reasonably request.
ARTICLE X
THE CLOSING
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10.1 TIME AND PLACE. Subject to the provisions of Articles IX and XI
hereof, the Closing of the transactions contemplated hereby shall take place at
the offices of Foley, Hoag & Eliot LLP, One Post Office Square, Boston,
Massachusetts at 10:00 a.m. on a date specified by 1855 Bancorp at least three
business days prior to such date. The Closing Date shall be as soon as
practicable after the later to occur of the consummation of the Capital Offering
or the receipt of last required approval for the Merger and the Bank Merger and
the expiration of the last of all required waiting periods under such approvals,
or at such other place, date or time as 1855 Bancorp and Sandwich may mutually
agree upon.
10.2 DELIVERIES AT THE CLOSING. At the Closing there shall be delivered to
1855 Bancorp and Sandwich the opinions, certificates, and other documents and
instruments required to be delivered under Article IX hereof.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by the
stockholders of Sandwich:
11.1.1 At any time by the mutual written agreement of 1855 Bancorp
and Sandwich;
11.1.2 By either Sandwich or 1855 Bancorp (provided, that the
--------
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach by its nature cannot be
cured prior to the Effective Time or within 30 business days after written
notice by 1855 Bancorp to Sandwich (or by Sandwich to 1855 Bancorp) of such
breach (for purposes of this Section 11.1.2 a material breach shall be deemed to
be a breach which has, either individually or in the aggregate, a Material
Adverse Effect on the party making such representations or warranties (provided,
--------
that no effect shall be given to any qualification relating to materiality or a
Material Adverse Effect in such representations and warranties) or a Material
Adverse Effect on the business, operations, financial condition, property or
assets of the combined enterprise or which materially adversely affects
consummation of the Merger and the other transactions contemplated hereby,
including the Capital Offering);
11.1.3 By either Sandwich or 1855 Bancorp (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 failure to perform or comply with any of the covenants or agreements
set forth in this Agreement on the part of the other party, which failure shall
not have been cured within 30 business days after written notice by 1855 Bancorp
to Sandwich (or by Sandwich to 1855 Bancorp) of such failure (for purposes of
this Section 11.1.3 a material failure to perform or comply shall be deemed to
be a failure which has, either individually or in the aggregate, a Material
Adverse Effect on the party so failing or on the business, operations, financial
condition, property or assets of the combined enterprise or which materially
adversely affects consummation of the Merger and the other transactions
contemplated hereby, including the Capital Offering);
11.1.4 At the election of either 1855 Bancorp or Sandwich, if the
Closing shall not have occurred on or before December 31, 1998 (the "Termination
-----------
Date"), or such later date as shall have been agreed to in writing by 1855
- ----
Bancorp and Sandwich; provided, that no party may terminate this Agreement
pursuant to this Section 11.1.4 if the failure of the Closing to have occurred
on or before said date was due to such party's breach of any of its obligations
under this Agreement, and provided, further, that the Termination Date may be
extended for an additional two-month period by either party by written notice to
the other party (given not later than one week prior to the Termination Date) if
the
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Closing shall not have occurred because of failure to have obtained approval
from one or more regula tory authorities whose approval is required in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, in connection with the Capital Offering) under
circumstances in which neither party has the right to terminate this Agreement
pursuant to Section 11.1.6 hereof;
11.1.5 By either Sandwich or 1855 Bancorp if the stockholders of
Sandwich shall have voted at the Sandwich stockholders meeting on the
transactions contemplated by this Agreement and such vote shall not have been
sufficient to approve such transactions;
11.1.6 By either Sandwich or 1855 Bancorp (i) if final action has
been taken by a regulatory authority whose approval is required in connection
with this Agreement and the transactions contemplated hereby (other than the
Capital Offering), which final action (x) has become unappealable and (y) does
not approve this Agreement or the transactions contemplated hereby, or (ii) if
any court of competent jurisdiction or other governmental authority shall have
issued an order, decree, ruling or taken any other action restraining, enjoining
or otherwise prohibiting the Merger or the Bank Merger and such order, decree,
ruling or other action shall have become final and nonappealable;
11.1.7 By either Sandwich or 1855 Bancorp (i) if final action has
been taken by a regulatory authority whose approval is required in connection
with the Capital Offering, which final action (x) has become unappealable and
(y) does not approve the Capital Offering, or (ii) if any court of competent
jurisdiction or other governmental authority shall have issued an order, decree,
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the Capital Offering and such order, decree, ruling or other action shall have
become final and nonappealable; or
11.1.8 By Sandwich or 1855 Bancorp if a Payment Event occurs.
11.2 EFFECT OF TERMINATION.
11.2.1 In the event of termination of this Agreement pursuant to any
provision of Section 111, this Agreement shall forthwith become void and have no
further force, except that (i) the provisions of Sections 1.1, 11.3, 11.4, 12.1,
12.2, 12.6, 12.9, 12.10, this Section 11.2, and any other Section which, by its
terms, relates to post-termination rights or obligations, shall survive such
termination of this Agreement and remain in full force and effect.
11.2.2 If this Agreement is terminated, expenses and damages of the
parties hereto shall be determined as follows:
(a) Subject to Sections 11.3 and 11.4, termination of this
Agreement pursuant to Section 11.1 (other than termination pursuant to
Sections 11.1.2 and 11.1.3 as a result of a willful breach or gross
negligence by a party hereto) shall be without liability, cost or expense
on the part of any party to the other.
(b) In the event of a termination of this Agreement pursuant to
Section 11.1.2 or 11.1.3 hereof resulting from the willful conduct or gross
negligence of a party, such party shall be obligated to reimburse the other
party for up to $1,000,000 of out-of-pocket costs and expenses, including,
without limitation, reasonable legal, accounting and investment banking
fees and expenses, incurred by such other party in connection with the
entering into of this Agreement and the carrying out of any and all acts
contemplated hereunder (collectively referred to as "Costs"). The payment
-----
of Costs is not an exclusive remedy, but is in addition to any other rights
or remedies available to the parties hereto at law or in equity or as is
contemplated herein. Notwithstanding anything to the contrary herein, if
(i) Sandwich makes the payment contemplated in Section 11.4 of this
Agreement or (ii) if 1855 Bancorp makes the payment
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contemplated in Section 113 of this Agreement, such party shall not have
any further liability to the other party (or its Subsidiaries), whether for
Costs, breach or otherwise.
11.2.3 Except as provided in Sections 11.2.2, 11.3 and 11.4, whether
or not the Merger is consummated, all Costs incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the party
incurring such costs and expenses.
11.2.4 In no event shall any officer, agent or director of Sandwich,
any Sandwich Subsidiary, 1855 Bancorp or any 1855 Bancorp Subsidiary, be
personally liable thereunder for any default by any party in any of its
obligations hereunder unless any such default was intentionally caused by such
officer, agent or director.
11.3 1855 BANCORP SPECIAL PAYMENT. As a condition of Sandwich's
willingness to, and in order to induce Sandwich to, enter into this Agreement,
and to reimburse Sandwich for incurring the damages, costs and expenses related
to entering into this Agreement and consummating the transactions contemplated
by this Agreement, 1855 Bancorp hereby agrees to pay to Sandwich, as liquidated
damages and in lieu of any other rights or remedies under this Agreement, a
payment in the amount of $4,000,000 (the "Special Payment") if and only if (i)
---------------
the Merger is not consummated and the Agreement is terminated in accordance with
its terms due to the failure of the condition set forth in Section 9.2.5 of this
Agreement, or (ii) the Agreement is terminated pursuant to Section 11.1.7, or
(iii) 1855 Bancorp otherwise does not consummate the Capital Offering by no
later than December 31, 1998 (subject to the two month extension contemplated in
Section 11.1.4 herein), or (iv) Sandwich has terminated this Agreement in
accordance with Section 11.1.2 or 11.1.3 because 1855 Bancorp has intentionally
or willfully breached any of its representations or warranties herein or
intentionally and willfully failed to perform or comply with any of its
covenants or agreements herein, to such extent as to permit such termination
(such reasons for termination being hereinafter referred to as the "Special
-------
Payment Event"). Notwithstanding the foregoing, 1855 Bancorp shall have no
- -------------
obligation to make any Special Payment to Sandwich if the Special Payment Event
is primarily due to a breach of a representation or warranty of Sandwich
(subject to the standard set forth in Section 1112 of this Agreement) or a
breach by Sandwich one or more covenants in this Agreement (subject to the
standard set forth in Section 1113 of this Agreement), which breach of
representation, warranty or covenant directly or adversely affects 1855
Bancorp's ability to consummate the Merger or satisfy the condition set forth in
Section 925 of this Agreement.
11.3.1 PAYMENTS REQUIRED. Any payment required to be made under this
Section 113 shall be paid by 1855 Bancorp to Sandwich by wire transfer of
immediately available funds to an account designated by Sandwich within five
business days after demand by Sandwich.
11.3.2 EXCLUSIVITY OF REMEDY. Notwithstanding anything to the
contrary set forth in this Agreement, if 1855 Bancorp pays or causes to be paid
to Sandwich the Special Payment, neither 1855 Bancorp nor Compass Bank will have
any further obligations or liabilities to Sandwich or Sandwich Bank with respect
to this Agreement or the transactions contemplated by this Agreement.
11.4 SANDWICH CHANGE IN CONTROL EXPENSE FEE. As a condition of 1855
Bancorp's willingness to, and in order to induce 1855 Bancorp to, enter into
this Agreement, and to reimburse 1855 Bancorp for incurring the damages, costs
and expenses related to entering into this Agreement and consummating the
transactions contemplated by this Agreement, Sandwich hereby agrees to pay to
1855 Bancorp, as liquidated damages, and in lieu of any other rights or remedies
under this Agreement, a payment in the amount of $4,000,000 (the "Expense Fee")
-----------
if and only if a Payment Event (as hereinafter defined) shall have occurred
before the Expense Fee Termination Date (as hereinafter defined) determined in
accordance with Section 11.4.3.
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11.4.1 "PAYMENT EVENT" shall mean any of the following events:
(a) Without 1855 Bancorp's prior written consent, Sandwich shall
have authorized, proposed, or entered into, or publicly announced an
intention to authorize, propose, or enter into an agreement with any person
(other than 1855 Bancorp or any 1855 Bancorp Subsidiary) to effect (A) a
merger, consolidation or similar transaction involving Sandwich or any
Sandwich Subsidiary, (B) the disposition, by sale, lease, exchange or
otherwise, of assets of Sandwich or any Sandwich Subsidiary representing in
either case 15% or more of the consolidated assets of Sandwich and the
Sandwich Subsidiaries, or (C) the issuance, sale or other disposition of
(including by way of merger, consolidation, share exchange or any similar
transaction) securities representing 15% or more of the voting power of
Sandwich or any Sandwich Subsidiary (any of the foregoing a "Change of
Control Transaction"); or
(b) any person (other than 1855 Bancorp or any 1855 Bancorp
Subsidiary) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of or the right
to acquire beneficial ownership of, or any "group" (as such term is defined
in Section 13(d)(3) of the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, 34%
or more of the then outstanding shares of Sandwich Common Stock.
11.4.2 A "TIME EXTENSION EVENT" means any of the following events:
(a) any person (other than 1855 Bancorp or any 1855 Bancorp
Subsidiary) shall have commenced (as such term is defined in Rule 14d-2
under the Exchange Act), or shall have filed a registration statement under
the Securities Act with respect to, a tender offer or exchange offer to
purchase any shares of Sandwich Common Stock such that, upon consummation
of such offer, such person would own or control 10% or more of the then
outstanding shares of Sandwich Common Stock (such an offer being referred
to herein as a "Tender Offer" and an "Exchange Offer," respectively); or
(b) following the public announcement of an Acquisition Proposal,
the holders of Sandwich Common Stock shall not have approved this Agreement
at the meeting of such stockholders held for the purpose of voting on this
Agreement (the term ""Acquisition Proposal" is defined to mean (x) a bona
--------------------
fide proposal by any person (other than 1855 Bancorp or any subsidiary of
1855 Bancorp) shall have been made to Sandwich or its stockholders to
engage in a Change of Control Transaction, (y) any person (other than 1855
Bancorp or any subsidiary of 1855 Bancorp) shall have stated its intention
to Sandwich or its stockholders to make a proposal to engage in a Change of
Control Transaction if this Agreement terminates or (z) any person (other
than 1855 Bancorp or any subsidiary of 1855 Bancorp) shall have filed an
application or notice with any Governmental Entity to engage in a Change of
Control Transaction); or
(c) following the occurrence of an Acquisition Proposal:
(i) the meeting of Sandwich stockholders held for the
purpose of voting on this Agreement shall not have been held or
shall have been canceled prior to termination of this Agreement,
(ii) Sandwich's Board of Directors shall have withdrawn or
modified in a manner adverse to 1855 Bancorp the recommendation of
Sandwich's Board of Directors with respect to this Agreement and
the Merger; or
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(iii) Sandwich shall have willfully or intentionally breached
any representation, warranty, covenant or obligation contained in
this Agreement and such breach would entitle 1855 Bancorp to
terminate this Agreement under Section 11.1.2 or 11.1.3 hereof
(without regard to the cure period provided for therein unless
such cure is promptly effected without jeopardizing consummation
of the Merger pursuant to the terms of this Agreement).
11.4.3 DURATION OF 1855 BANCORP'S RIGHTS WITH RESPECT TO EXPENSE FEE.
Notwithstanding any other provision of this Agreement, the provisions of this
Section 11.4 shall remain in effect and shall be enforceable by 1855 Bancorp or
any successor in interest until the "Expense Fee Termination Date", which shall
----------------------------
be the earliest to occur of:
(a) The Effective Time of the Merger,
(b) The date that is 12 months after termination of this Agreement
following the occurrence of a Time Extension Event;
(c) The date on which the Agreement is terminated in accordance
with its terms, but only if such termination takes place prior to the
occurrence of a Payment Event or a Time Extension Event.
11.4.4 PAYMENTS REQUIRED. Any payment required to be made under this
Section 11.4 shall be paid by Sandwich to 1855 Bancorp by wire transfer of
immediately available funds to an account designated by 1855 Bancorp within five
business days after demand by 1855 Bancorp. In the event of a termination under
circumstances that would trigger a payment under this Section 11.4, the
standstill provisions contained in the Confidentiality Agreement shall
terminate.
11.4.5 EXCLUSIVITY OF REMEDY. Notwithstanding anything to the
contrary set forth in this Agreement, if Sandwich pays or causes to be paid to
1855 Bancorp or to Compass Bank the Expense Fee, neither Sandwich nor Sandwich
Bank will have any further obligations or liabilities to 1855 Bancorp or Compass
Bank with respect to this Agreement or the transactions contemplated by this
Agreement.
11.5 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, at any
time prior to the Effective Time (whether before or after approval thereof by
the stockholders of Sandwich), the parties hereto may (a) amend this Agreement,
(b) extend the time for the performance of any of the obligations or other acts
of any other party hereto, (c) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or (d)
waive compliance with any of the agreements or conditions contained herein;
provided, however, that after any approval of this Agreement and the
transactions contemplated hereby by the stockholders of Sandwich, there may not
be, without further approval of such stockholders, any amendment of this
Agreement which reduces the amount or changes the form of consideration to be
delivered to Sandwich's stockholders pursuant to this Agreement. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto. Any agreement on the part of a party hereto to any
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party, but such waiver or failure to insist on strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE XII
MISCELLANEOUS
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12.1 CONFIDENTIALITY. Except as specifically set forth herein, 1855
Bancorp and Sandwich mutually agree to be bound by the terms of the
Confidentiality Agreements previously executed by the parties hereto, which
Agreements are hereby incorporated herein by reference. The parties hereto
agree that such Confidentiality Agreements shall continue in accordance with
their respective terms, notwithstanding the termination of this Agreement.
12.2 PUBLIC ANNOUNCEMENTS. Sandwich and 1855 Bancorp shall cooperate with
each other in the development and distribution of all news releases and other
public information disclosures with respect to this Agreement, except as may be
otherwise required by law, and neither Sandwich nor 1855 Bancorp shall issue any
joint news releases with respect to this Agreement unless such news releases
have been mutually agreed upon by the parties hereto, except as required by law.
12.3 SURVIVAL. All representations, warranties and covenants in this
Agreement or in any instrument delivered pursuant hereto or thereto shall expire
on, and be terminated and extinguished at, the Effective Date other than
covenants that by their terms are to survive or be performed after the Effective
Date.
12.4 NOTICES. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered by receipted hand delivery or
mailed by prepaid registered or certified mail (return receipt requested) or by
cable, telegram, telex or fax addressed as follows:
If to Sandwich or Sandwich Bank, to:
100 Old King's Highway
Sandwich, Massachusetts 02563
Attention: President
Fax: (508) 833-0005
With required copes to each of :
Harry K. Kantarian, Esq.
Leonard S. Volin, Esq.
Housley Kantarian & Bronstein, P.C.
1220 19/th/ Street, N.W.
Suite 700
Washington, D.C. 29936
Fax: (202) 822-9611
If to 1855 Bancorp or to Compass Bank, to:
791 Purchase Street
New Bedford, Massachusetts 02740-2101
Attention: President
Fax: (508) 984-6212
With required copies to each of:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot LLP
44
<PAGE>
One Post Office Square
Boston, Massachusetts 02109
Fax: (617) 832-7000
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
12.5 PARTIES IN INTEREST. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other party, and that (except as otherwise
expressly provided in this Agreement or as is contemplated in Section 7.9 of
this Agreement) nothing in this Agreement is intended to confer upon any other
Person any rights or remedies under or by reason of this Agreement.
12.6 COMPLETE AGREEMENT. This Agreement, including the Exhibits and
Disclosure Schedules hereto and the documents and other writings referred to
herein or therein or delivered pursuant hereto or thereto, contains the entire
agreement and understanding of the parties with respect to its subject matter.
There are no restrictions, agreements, promises, warranties, covenants or
undertakings between the parties other than those expressly set forth herein or
therein. This Agreement supersedes all prior agreements and understandings
(other than the Confidentiality Agreements referred to in Section 121 hereof)
between the parties, both written and oral, with respect to its subject matter.
12.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
12.8 SEVERABILITY. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, by any court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement and the
parties shall use their reasonable efforts to substitute a valid, legal and
enforceable provision which, insofar as practical, implements the purposes and
intents of this Agreement.
12.9 GOVERNING LAW. This Agreement shall be governed by the laws of
Massachusetts, without giving effect to its principles of conflicts of laws.
12.10 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section of or Exhibit to this
Agreement unless otherwise indicated. The recitals hereto constitute an
integral part of this Agreement. References to Sections include subsections,
which are part of the related Section (e.g., a section numbered "Section 5.5.1"
would be part of "Section 5.5" and references to "Section 5.5" would also refer
to material contained in the subsection described as "Section 5.5.1"). The table
of contents, index and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation". The phrases "the date of this Agreement", "the date
hereof" and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to the date set forth in the Recitals to this
Agreement.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
45
<PAGE>
IN WITNESS WHEREOF, 1855 Bancorp, Compass Bank, Sandwich and Sandwich Bank
have caused this Agreement to be executed under seal by their duly authorized
officers as of the date first set forth above.
THE 1855 BANCORP
[SEAL] By:________________________________
President and CEO
[SEAL] By:_________________________________
Treasurer
COMPASS BANK FOR SAVINGS
[SEAL] By:________________________________
President and CEO
[SEAL] By:_________________________________
Treasurer
SANDWICH BANCORP, INC.
[SEAL] By:__________________________________
President and CEO
[SEAL] By:_________________________________
Treasurer
THE SANDWICH CO-OPERATIVE BANK
[SEAL] By:________________________________
President and CEO
[SEAL] By:_________________________________
Treasurer
46
<PAGE>
Exhibit A
FORM OF VOTING AGREEMENT
February , 1998
The 1855 Bancorp
[address]
Ladies and Gentlemen
The undersigned is a director of Sandwich Bancorp ("Sandwich") and is the
beneficial holder of shares of common stock of Sandwich ("Sandwich Common
Stock").
Sandwich and The 1855 Bancorp ("1855 Bancorp") are considering the
execution of an Affiliation and Merger Agreement ("Affiliation Agreement")
contemplating the merger of a newly formed special-purpose subsidiary of
Compass Bank, a Massachusetts stock savings bank and wholly owned subsidiary of
1855 Bancorp, with and into Sandwich, with Sandwich as the surviving corporation
of the merger (the "Merger"), such execution being subject in the case of 1855
Bancorp to the execution and delivery of this letter agreement ("Agreement").
In consideration of the substantial expenses that 1855 Bancorp will incur in
connection with the transactions contemplated by the Affiliation Agreement and
in order to induce 1855 Bancorp to execute the Affiliation Agreement and to
proceed to incur such expenses, the undersigned agrees and undertakes, in his
capacity as a shareholder of Sandwich and not in his capacity as a director of
Sandwich, as follows:
1. The undersigned will vote or cause to be voted for approval of the
Affiliation Agreement all of the shares of Sandwich Common Stock the undersigned
is entitled to vote with respect thereto.
2. The undersigned will not effect any transfer or other disposition of any
of the undersigned's shares of Sandwich Common Stock until Sandwich's
shareholders have voted to approve the Affiliation Agreement or until the
Affiliation Agreement has been terminated pursuant to the terms thereof. In the
case of any transfer by operation of law or otherwise, this Agreement shall be
binding upon and inure to the benefit of the transferee. Any transfer or other
disposition in violation of the terms of this paragraph 2 shall be null and
void.
3. The undersigned agrees that Sandwich's transfer agent shall be given an
appropriate stop transfer order and shall not be required to register any
attempted transfer of shares of Sandwich Common Stock, unless the transfer has
been effected in compliance with the terms of this Agreement.
4. The undersigned acknowledges and agrees that any remedy at law for
breach of the foregoing provisions shall be inadequate and that, in addition to
any other relief which may be available, 1855 Bancorp shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damages.
<PAGE>
5. The foregoing restrictions shall not apply to shares with respect to
which the undersigned may have voting power as a fiduciary for others. In
addition, this agreement shall only apply to actions taken by the undersigned in
his capacity as a shareholder of Sandwich and shall not in any way limit or
affect actions the undersigned may take in his capacity as a director of
Sandwich.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
Very truly yours,
________________________
Accepted and agreed to as of
the date first above written:
THE 1855 BANCORP
By:__________________________
Its
-2-
<PAGE>
Exhibit B
FORM OF OPINION OF HOUSLEY, KANTARIAN & BRONSTEIN, P.C./LOCAL
COUNSEL REASONABLY ACCEPTABLE TO 1855 BANCORP
(a) Each of Sandwich Bancorp and Sandwich Bank is validly existing under
the laws of The Commonwealth of Massachusetts, and Sandwich Bancorp is duly
registered as a bank holding company under the BHCA.
(b) The authorized capital stock of Sandwich Bancorp consists of ______
shares of Sandwich Bancorp Common Stock and 10,000,000 shares of Sandwich
Bancorp Preferred Stock. All of the outstanding shares of Sandwich Bancorp
Common Stock have been duly authorized and are nonassessable, and the
shareholders of Sandwich Bancorp have no preemptive rights with respect to any
shares of capital stock of Sandwich Bancorp. All of the outstanding shares of
capital stock of Sandwich Bank and each other Sandwich Subsidiary have been duly
authorized and are nonassessable, and, to the actual knowledge of such counsel,
are directly or indirectly owned by Sandwich Bancorp free and clear of all
liens, claims, encumbrances, charges, restrictions or rights of third parties of
any kind whatsoever.
(c) The Agreement has been duly authorized, executed and delivered by
Sandwich Bancorp and Sandwich Bank and, assuming due authorization, execution
and delivery by 1855 Bancorp and Compass Bank, constitutes a valid and binding
obligation of Sandwich Bancorp and Sandwich Bank enforceable in accordance with
its terms, except that the enforceability of the obligations of Sandwich Bancorp
and Sandwich Bank may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors, (ii) equitable
principles limiting the right to obtain specific performance or other similar
equitable relief and (iii) considerations of public policy.
(d) Sandwich Bancorp and Sandwich Bank have all requisite corporate power
and authority to execute and deliver the Agreement and to consummate the Merger.
All corporate actions required to be taken by Sandwich Bancorp and Sandwich Bank
by law and their respective Charters and Bylaws to authorize the execution and
delivery of the Agreement and consummation of the Merger have been taken.
(e) All consents or approvals of or filings or registrations with any
federal or state banking agency which are necessary to be obtained by Sandwich
Bancorp and Sandwich Bank to permit the execution of the Agreement and
consummation of the Merger have been obtained.
(f) Neither the execution of the Agreement nor consummation of the Merger
will (i) conflict with or result in a breach of any provision of the Charter or
By-laws or similar governing instruments, of Sandwich Bancorp or any of its
Subsidiaries, (ii) constitute a breach of or default under, or give rise to a
right of termination, cancellation or acceleration with respect to, [specified
agreements listed in Disclosure Schedules] except as described in the Sandwich
Disclosure Schedule, or (iii) violate any Massachusetts banking or corporate law
or federal banking law of the United States binding upon Sandwich Bancorp or any
of its Subsidiaries, or any order, writ, injunction or decree of which we have
actual knowledge to which Sandwich Bancorp or any of its Subsidiaries, is
subject.
(g) We do not have actual knowledge of any actions, suits or proceedings
pending or threatened against Sandwich Bancorp or any Subsidiary, at law or in
equity, before any court or
-1-
<PAGE>
governmental body which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay consummation of the Merger.
In rendering their opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon certificates of
governmental officials, certificates or opinions of other counsel to Sandwich
Bancorp or a Sandwich Bancorp Subsidiary reasonably satisfactory to 1855 Bancorp
and, as to matters of fact, certificates of officers of Sandwich Bancorp or a
Sandwich Bancorp Subsidiary. The opinion of such counsel need refer only to
matters of Massachusetts and federal law and may add other qualifications and
explanations of the basis of their opinion as may be reasonably acceptable to
1855 Bancorp.
Counsel may expressly exclude any opinions as to choice of law and anti-
trust matters and may add such other qualifications and explanations of the
basis of its opinions as are consistent with the Legal Opinion Accord prepared
by the Section of Business Law of the American Bar Association.
-2-
<PAGE>
Exhibit C
---------
FORM OF OPINION OF FOLEY, HOAG & ELIOT LLP
------------------------------------------
(a) Each of 1855 Bancorp and Compass Bank is validly existing under the
laws of The Commonwealth of Massachusetts, and 1855 Bancorp is duly registered
as a bank holding company under the BHCA.
(b) The Agreement has been duly authorized, executed and delivered by 1855
Bancorp and Compass Bank and, assuming due authorization, execution and delivery
by Sandwich Bancorp and Sandwich Bank, constitutes a valid and binding
obligation of 1855 Bancorp and Compass Bank enforceable in accordance with its
terms, except that the enforceability of the obligations of 1855 Bancorp and
Compass Bank may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors, (ii) equitable
principles limiting the right to obtain specific performance or other similar
equitable relief and (iii) considerations of public policy, and except that
certain remedies may not be available in the case of a nonmaterial breach of the
Agreement.
(c) 1855 Bancorp and Compass Bank have all requisite corporate power and
authority to execute and deliver the Agreement and to consummate the Merger.
All corporate actions required to be taken by 1855 Bancorp and Compass Bank by
law and their respective Charters and Bylaws to authorize the execution and
delivery of the Agreement and consummation of the Merger have been taken.
(d) All consents or approvals of or filings or registrations with any
federal or state banking agency which are necessary to be obtained by 1855
Bancorp and Compass Bank to permit the execution of the Agreement and
consummation of the Merger have been obtained.
(e) Neither the execution of the Agreement nor consummation of the Merger
will (i) conflict with or result in a breach of any provision of the Charter or
By-laws or similar governing instruments, of 1855 Bancorp or any of its
Subsidiaries or (ii) violate any Massachusetts banking or corporate law or
federal banking law of the United States binding upon 1855 Bancorp or any of its
Subsidiaries, or any order, writ, injunction or decree of which we have actual
knowledge to which 1855 Bancorp or any of its Subsidiaries, is subject.
(f) We do not have actual knowledge of any actions, suits or proceedings
pending or threatened against 1855 Bancorp or any Subsidiary, at law or in
equity, before any court or governmental body which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay consummation of the Merger.
In rendering their opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon certificates of
governmental officials and, as to matters of fact, certificates of officers of
1855 Bancorp or any 1855 Bancorp Subsidiary. The opinion of such counsel need
refer only to matters of Massachusetts and federal law, and may add other
qualifications and explanations of the basis of their opinion as may be
reasonably acceptable to Sandwich Bancorp.
Counsel may expressly exclude any opinions as to choice of law and anti-
trust matters and may add such other qualifications and explanations of the
basis of its opinions as are consistent with
-1-
<PAGE>
the Legal Opinion Accord prepared by the Section of Business Law of the American
Bar Association.
-2-
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED
AFFILIATION AND MERGER AGREEMENT
AMONG
THE 1855 BANCORP
COMPASS BANK FOR SAVINGS
AND
SANDWICH BANCORP, INC.
THE SANDWICH CO-OPERATIVE BANK
MARCH 23, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
CERTAIN DEFINITIONS
<S> <C>
1.1 CERTAIN DEFINITIONS.......................................... 1
ARTICLE II
THE MERGER
2.1 THE MERGER................................................... 5
2.2 EFFECTIVE TIME............................................... 5
2.3 CHARTER AND BY-LAWS.......................................... 5
2.4 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.............. 6
2.5 DIRECTORS OF 1855 BANCORP AND COMPASS BANK................... 6
2.6 ADDITIONAL ACTIONS........................................... 6
2.7 EFFECTS OF THE MERGER........................................ 6
2.9 POSSIBLE ALTERNATIVE STRUCTURES.............................. 6
ARTICLE III
CONVERSION OF SHARES
3.1 MERGER CONSIDERATION......................................... 7
3.2 EMPLOYEE STOCK OPTIONS....................................... 8
3.3 DISSENTING SHARES............................................ 8
3.4 PROCEDURES FOR EXCHANGE OF SANDWICH COMMON STOCK............. 9
3.5 RESERVATION OF SHARES........................................ 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SANDWICH
4.1 CAPITAL STRUCTURE............................................ 11
4.2 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH............. 12
4.3 OWNERSHIP OF SANDWICH SUBSIDIARIES........................... 12
4.4 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH SUBSIDIAR... 12
4.5 AUTHORIZED AND EFFECTIVE AGREEMENT........................... 12
4.6 SECURITIES DOCUMENTS AND REGULATORY REPORTS.................. 14
4.7 FINANCIAL STATEMENTS......................................... 14
4.8 MATERIAL ADVERSE CHANGE...................................... 15
4.9 ENVIRONMENTAL MATTERS........................................ 15
4.10 TAX MATTERS.................................................. 15
4.11 LEGAL PROCEEDINGS............................................ 16
4.12 COMPLIANCE WITH LAWS......................................... 16
4.13 CERTAIN INFORMATION.......................................... 17
4.14 EMPLOYEE BENEFIT PLANS....................................... 17
4.15 CERTAIN CONTRACTS............................................ 18
4.16 BROKERS AND FINDERS.......................................... 19
4.17 INSURANCE.................................................... 20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.18 LOAN PORTFOLIO............................................... 20
4.19 PROPERTIES................................................... 20
4.20 LABOR........................................................ 20
4.21 REQUIRED VOTE; INAPPLICABILITY OF ANTITAKOVER STATUTES....... 20
4.22 MATERIAL INTERESTS OF CERTAIN PERSONS........................ 21
4.23 CERTAIN TRANSACTIONS......................................... 21
4.24 DISCLOSURES.................................................. 21
4.27 POOLING OF INTERESTS......................................... 21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF 1855 BANCORP
5.1 CAPITAL STRUCTURE............................................ 22
5.2 ORGANIZATION, STANDING AND AUTHORITY OF 1855 BANCORP......... 22
5.3 OWNERSHIP OF THE 1855 BANCORP SUBSIDIARIES................... 22
5.4 ORGANIZATION, STANDING AND AUTHORITY OF THE 1855 BANCORP
SUBSIDIARIES................................................. 23
5.5 AUTHORIZED AND EFFECTIVE AGREEMENT........................... 23
5.6 REGULATORY REPORTS........................................... 24
5.7 FINANCIAL STATEMENTS......................................... 24
5.8 MATERIAL ADVERSE CGE......................................... 25
5.9 ENVIRONMENTAL MATTERS........................................ 25
5.10 TAX MATTERS.................................................. 26
5.11 LEGAL PROCEEDINGS............................................ 26
5.12 COMPLIANCE WITH LAWS......................................... 26
5.13 CERTAIN INFORMATION.......................................... 27
5.14 EMPLOYEE BENEFIT PLANS....................................... 27
5.15 CERTAIN CONTRACTS............................................ 28
5.16 BROKERS AND FINDERS.......................................... 28
5.17 INSURANCE.................................................... 28
5.18 PROPERTIES................................................... 29
5.19 LABOR........................................................ 29
5.20 OWNERSHIP OF SANDWICH COMMON STOCK........................... 29
5.21 CERTAIN TRANSACTIONS......................................... 29
5.22 DISCLOSURES.................................................. 29
5.23 DISCLOSURE SCHEDULE.......................................... 30
5.24 POOLING OF INTERESTS......................................... 30
5.25 MERGER SUB................................................... 30
ARTICLE VI
COVENANTS OF SANDWICH
6.1 CONDUCT OF BUSINESS.......................................... 30
6.2 CURRENT INFORMATION.......................................... 33
6.3 ACCESS TO PROPERTIES AND RECORDS............................. 33
6.4 FINANCIAL AND OTHER STATEMENTS............................... 33
6.5 DISCLOSURE SUPPLEMENTS....................................... 34
6.6 CONSENTS AND APPROVALS OF THIRD PARTIES...................... 34
6.7 ALL REASONABLE EFFORTS....................................... 34
</TABLE>
<PAGE>
<TABLE> <CAPTION>
<S> <C>
6.8 FAILURE TO FULFILL CONDITIONS................................ 34
6.9 NO SOLICITATION.............................................. 34
6.10 CEASE NEGOTIATIONS........................................... 35
ARTICLE VII
COVENANTS OF 1855 BANCORP
7.1 CONDUCT OF BUSINESS.......................................... 35
7.2 CURRENT INFORMATION.......................................... 36
7.3 ACCESS TO PROPERTIES AND RECORDS............................. 36
7.4 FINANCIAL AND OTHER STATEMENTS............................... 36
7.5 DISCLOSURE SUPPLEMENTS....................................... 37
7.6 CONSENTS AND APPROVALS OF THIRD PARTIES...................... 37
7.7 ALL REASONABLE EFFORTS....................................... 37
7.8 FAILURE TO FULFILL CONDITIONS................................ 37
7.9 EMPLOYEE BENEFITS............................................ 37
7.10 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE......... 38
7.11 MERGER SUB................................................... 40
ARTICLE VIII
REGULATORY AND OTHER MATTERS
8.1 SANDWICH SPECIAL MEETING...................................... 40
8.2 PROXY STATEMENT-PROSPECTUS.................................... 40
8.3 1855 BANCORP CONVERSION FROM MUTUAL TO STOCK FORM............. 41
8.4 REGULATORY APPROVALS.......................................... 43
8.5 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS......... 43
ARTICLE IX
CLOSING CONDITIONS
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT... 43
9.2 CONDITIONS TO THE OBLIGATIONS OF 1855 BANCORP UNDER THIS
AGREEMENT..................................................... 45
9.3 CONDITIONS TO THE OBLIGATIONS OF SANDWICH UNDER THIS AGREEMENT. 46
ARTICLE X
THE CLOSING
10.1 TIME AND PLACE................................................ 47
10.2 DELIVERIES AT THE PRE-CLOSING AND THE CLOSING................. 47
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 TERMINATION.................................................. 47
11.2 EFFECT OF TERMINATION........................................ 49
11.4 SANDWICH CHANGE IN CONTROL EXPENSE FEE....................... 50
11.5 AMENDMENT, EXTENSION AND WAIVER.............................. 52
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XII
MISCELLANEOUS
<S> <C>
12.1 CONFIDENTIALITY............................................. 53
12.2 PUBLIC ANNOUNCEMENTS........................................ 53
12.3 SURVIVAL.................................................... 53
12.4 NOTICES..................................................... 53
12.5 PARTIES IN INTEREST......................................... 54
12.6 COMPLETE AGREEMENT.......................................... 54
12.7 COUNTERPARTS................................................ 54
12.8 SEVERABILITY................................................ 55
12.9 GOVERNING LAW............................................... 55
12.10 INTERPRETATION.............................................. 55
</TABLE>
<PAGE>
AMENDED AND RESTATED AFFILIATION AND MERGER AGREEMENT
This AMENDED AND RESTATED AFFILIATION AND MERGER AGREEMENT ("Agreement"),
is dated as of March 23, 1998 by and among THE 1855 BANCORP, a Massachusetts
mutual holding company ("1855 Bancorp"), its wholly-owned subsidiary, COMPASS
BANK FOR SAVINGS, a Massachusetts savings bank ("Compass Bank"), SANDWICH
BANCORP, INC., a Massachusetts corporation and bank holding company
("Sandwich"), and its wholly-owned subsidiary, THE SANDWICH CO-OPERATIVE BANK, a
Massachusetts co-operative bank ("Sandwich Bank").
WHEREAS, the Board of Trustees of 1855 Bancorp, the Board of Directors of
Compass Bank and the Boards of Directors of Sandwich and Sandwich Bank have
determined that it is in the best interests of their respective organizations
and, with respect to Sandwich, its stockholders to consummate a business
combination transaction among the parties, and on February 2, 1998, the parties
entered into an Affiliation and Merger Agreement (the "Original Agreement")
providing for the merger (the "Merger") of Sandwich with a newly-formed special-
purpose subsidiary ("Merger Sub") of 1855 Bancorp, with Sandwich as the
surviving corporation of the Merger;
WHEREAS, following the date of the Original Agreement, the parties
determined that it was necessary to make certain amendments to the Original
Agreement in order to consummate the Merger, including changes in the amount and
nature of the consideration to be paid to the stockholders of Sandwich;
WHEREAS, as a condition and inducement to the 1855 Bancorp's willingness to
enter into this Agreement, (i) Sandwich is concurrently entering into a Stock
Option Agreement with 1855 Bancorp (the "Sandwich Option Agreement"), in the
form attached hereto as Exhibit A, pursuant to which Sandwich is granting to
1855 Bancorp the option to purchase shares of Sandwich Common Stock (as defined
herein) under certain circumstances and (ii) 1855 Bancorp and certain of the
directors of Sandwich and Sandwich Bank are entering into voting agreements in
the form attached hereto as Exhibit B;
WHEREAS, after consummation of the Merger, it is anticipated that Sandwich
Bank will be merged with and into Compass Bank (the "Bank Merger");
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and to prescribe certain conditions to
the Merger;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, and of other good and valuable
consideration, the receipt and suffi ciency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the following meanings (unless the context otherwise requires, both here
and throughout this Agreement, refer ences to Articles and Sections refer to
Articles and Sections of this Agreement).
"Bank Commissioner" shall mean the Commissioner of Banks of the
Commonwealth of Massachusetts.
<PAGE>
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"BIF" means the Bank Insurance Fund administered by the FDIC or any
successor thereto.
"Certificate" shall have the meaning set forth in Section 34 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Compass Bank for Savings" shall mean Compass Bank, a Massachusetts-
chartered savings bank and a wholly-owned subsidiary of 1855 Bancorp.
"Conversion" shall mean the conversion from mutual to stock form of the
1855 Bancorp.
"Conversion Prospectus" shall have the meaning set forth in Section 8.3.3.
"Depositors Insurance Fund" shall mean the Depositors Insurance Fund of the
Mutual Savings Central Fund, Inc.
"Disclosure Schedule" shall mean a written, signed disclosure schedule
delivered from the disclosing party to the other party specifically referring to
the appropriate section of this Agreement and describing in reasonable detail
the matters contained therein.
"Dissenting Shares" shall have the meaning set forth in Section 3.3 hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date on which the Effective Time occurs.
"Effective Time" shall mean the date and time specified pursuant to Section
2.2 hereof as the effective time of the Merger.
"Environmental Claim" means any written notice from any Governmental Entity
or third party alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on, or resulting from the presence, or
release into the environment, of any Materials of Environmental Concern.
"Environmental Laws" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environment Concern.
The term Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
(S)9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
-- ---
U.S.C. (S)6901, et seq; the Clean Air Act, as amended, 42 U.S.C. (S)7401, et
-- --- --
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S)1251, et
- --- --
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. (S)9601, et seq;
- --- -- ---
the Emergency Planning and Community Right to Know Act, 42 U.S.C. (S)1101, et
--
seq; the Safe Drinking Water Act, 42 U.S.C. (S)300f, et seq; and all comparable
- --- -- ---
state and local laws, and (2) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened
2
<PAGE>
as a result of, the presence of or exposure to any Materials of Environmental
Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 3.4.1.
"Exchange Ratio" shall have the meaning set forth in Section 3.1.1.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"FHLB" shall mean Federal Home Loan Bank.
"FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.
"Governmental Entity" shall mean any federal or state court, administrative
agency or commission or other governmental authority or instrumentality.
"MBCL" shall mean the Massachusetts Business Corporation Law, as amended.
"MHPF" shall mean the Massachusetts Housing Partnership Fund.
"Massachusetts Board" shall mean the Massachusetts Board of Bank
Incorporation.
"Material Adverse Effect" shall mean, with respect to the 1855 Bancorp or
Sandwich, respectively, any effect that (i) is material and adverse to the
financial condition, results of operations or business of 1855 Bancorp and its
Subsidiaries taken as a whole or Sandwich and its Subsidiaries taken as a whole,
respectively, or (ii) materially impairs the ability of either Sandwich, on the
one hand, or 1855 Bancorp, on the other hand, to consummate the transactions
contemplated by this Agreement; provided that "Material Adverse Effect" shall
not be deemed to include the impact of (a) changes in laws and regulations
particularly affecting banks, (b) changes in GAAP or regulatory accounting
principles generally applicable to financial institutions and their holding
companies, (c) actions and omissions of a party (or any of its Subsidiaries)
taken with the prior written consent of the other party, (d) changes in interest
rates, and (e) the direct effects of compliance with this Agreement on the
operating performance of the parties including expenses incurred by the parties
hereto in consummating the transactions contemplated by this Agreement,
including without limitation the expenses associated with the termination of any
of the Sandwich Employee Plans as and to the extent contemplated herein.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products, and any other
materials regulated under Environmental Laws.
"Merger" shall mean the merger of Merger Sub with and into Sandwich
pursuant to the terms hereof.
"Merger Consideration" shall have the meaning set forth in Section 3.1
hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
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"Previously Disclosed" shall mean disclosed in a Disclosure Schedule dated
on or prior to the date hereof.
"Pre-Closing" shall have the meaning set forth in Section 101 hereof.
"Pre-Closing Date" shall be the date on which the Pre-Closing occurs.
"Proxy Statement-Prospectus" shall mean the proxy statement/prospectus, as
amended or supplemented, to be delivered to shareholders of Sandwich in
connection with the solicitation of their approval of this Agreement and the
transactions contemplated hereby and the offering of the 1855 Common Stock to
them as Merger Consideration.
"Rights" shall mean warrants, options, rights, convertible securities,
stock appreciation rights and other arrangements or commitments which obligate
an entity to issue or dispose of any of its capital stock or other ownership
interests or which provide for compensation based on the equity appreciation of
its capital stock.
"SAIF" means the Savings Association Insurance Fund administered by the
FDIC or any successor thereto.
"SEC" shall mean the Securities and Exchange Commission.
"Sandwich Bank" shall mean Sandwich Co-operative Bank, a Massachusetts-
chartered co-operative bank and a wholly-owned subsidiary of Sandwich.
"Sandwich Common Stock" shall mean the common stock, par value $1.00 per
share, of Sandwich.
"Sandwich Employee Plans" shall have the meaning set forth in Section
4.14.1 hereof.
"Sandwich Financial Statements" shall mean the audited consolidated balance
sheets (including related notes and schedules, if any) of Sandwich or Sandwich
Bank, as the case may be, as of December 31, 1997, 1996 and 1995 and the
consolidated statements of operations, changes in stockholders' equity and cash
flows (including related notes and schedules, if any) of Sandwich or Sandwich
Bank, as the case may be, for each of the three years ended December 31, 1997,
1996 and 1995 as filed by Sandwich or Sandwich Bank, as the case may be, in its
Securities Documents.
"Sandwich Options" shall mean options to purchase shares of Sandwich Common
Stock granted pursuant to the Sandwich Option Plans or as otherwise Previously
Disclosed.
"Sandwich Option Plans" shall mean the following stock option plans of
Sandwich, as amended and as in effect as of the date hereof: The Sandwich Bank
1986 Stock Option Plan and The Sandwich Bank 1994 Stock Option and Incentive
Plan.
"Sandwich Preferred Stock" shall mean the shares of preferred stock, par
value $1.00 per share, of Sandwich.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, offering circulars, proxy
statements, registration statements and all similar documents filed, or required
to be filed, pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
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"Share Insurance Fund" shall mean the share insurance fund of the Co-
operative Central Bank.
"Stock Exchange" shall mean the Nasdaq National Market.
"Subsidiary" shall have the meanings set forth in Rule 1-02 of Regulation
S-X of the SEC.
"Surviving Corporation" shall have the meaning set forth in Section 2.1
hereof.
"1855 Bancorp Employee Plans" shall have the meaning set forth in Section
5.14.1 hereof.
"1855 Bancorp Financial Statements" shall mean the audited consolidated
statements of financial condition (including related notes and schedules) of
1855 Bancorp as of October 31, 1997, 1996 and 1995 and the consolidated
statements of operations, shareholders' equity and cash flows (including related
notes and schedules, if any) of 1855 Bancorp for each of the three years ended
October 31, 1997, 1996 and 1995 as set forth in 1855 Bancorp's annual report for
the year ended October 31, 1997, a copy of which has been provided to Sandwich.
"1855 Common Stock" shall mean the common stock, par value to be
determined, of 1855 Bancorp.
"1855 Trading Price" shall have the meaning set forth in Section 3.1.2
hereof.
Other terms used herein are defined in the preamble and elsewhere in this
Agreement.
ARTICLE II
THE MERGER
2.1 THE MERGER. As promptly as practicable following the satisfaction or
waiver of the conditions to the parties' respective obligations hereunder, and
subject to the terms and conditions of this Agreement, at the Effective Time:
(a) unless theretofore done, 1855 Bancorp shall cause Merger Sub to be organized
as a wholly-owned subsidiary of 1855 Bancorp in accordance with Massa chusetts
law; (b) Merger Sub shall be merged with and into Sandwich, with Sandwich as the
surviving corporation (the "Surviving Corporation"); and (c) the separate
---------------------
existence of Merger Sub shall cease and all of the rights, privileges, powers,
franchises, properties, assets, liabilities and obligations of Merger Sub shall
be vested in and assumed by Sandwich.
2.2 EFFECTIVE TIME. The Merger shall be effected by the filing of Articles
of Merger with the Secretary of State of The Commonwealth of Massachusetts in
accordance with Massachusetts law to become effective on the day of the closing
("Closing Date") provided for in Article X hereof (the "Closing"). The term
------------ -------
"Effective Time" shall mean the time on the Closing Date (or a subsequent date
- ---------------
not later than the opening of business on the next business day) when the Merger
becomes effective as set forth in the Articles of Merger.
2.3 CHARTER AND BY-LAWS. The Articles of Organization and By-laws of the
Surviving Corporation shall be the Articles of Organization, as amended, and By-
laws of Sandwich as in effect immediately prior to the Effective Time, until
thereafter amended as provided therein and by applicable law.
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2.4 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The Directors of
Merger Sub immediately prior to the Effective Time shall be the initial
Directors of the Surviving Corporation, each to hold office in accordance with
the Articles of Organization and By-Laws of Surviving Corporation. The
officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
2.5 DIRECTORS OF 1855 BANCORP AND COMPASS BANK.
2.5.1 Prior to or at the Effective Time, three directors of Sandwich (one
of whom shall be the President of Sandwich and the other two of whom shall be
designated by 1855 Bancorp after consultation with Sandwich) shall be elected to
the Board of Directors of 1855 Bancorp.
2.5.2 The President of Sandwich shall be appointed to the Executive
Committee of Compass Bank.
2.6 ADDITIONAL ACTIONS. If, at any time after the Effective Time,
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in Surviving Corporation, title to
and possession of any property or right of Merger Sub acquired or to be acquired
by reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, Merger Sub and its proper officers and directors
shall be deemed to have granted to Surviving Corporation an irrevocable power of
attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such property or rights in Surviving
Corporation and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of Surviving Corporation are fully authorized in
the name of Merger Sub or otherwise to take any and all such action.
2.7 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in Chapter 156B, Section 80 of the General Laws
of The Commonwealth of Massachusetts, as amended.
2.8 THE SANDWICH OPTION AGREEMENT. The parties acknowledge that Sandwich
and 1855 Bancorp have entered into that certain Sandwich Option Agreement dated
as of even date herewith pursuant to which Sandwich has granted to 1855 Bancorp
the right to purchase certain shares of Sandwich Common Stock upon terms and
conditions specified in the Sandwich Option Agreement.
2.9 POSSIBLE ALTERNATIVE STRUCTURES. Notwithstanding anything to the
contrary contained in this Agreement, prior to the Effective Time, 1855 Bancorp
shall be entitled to revise the structure of the Merger, the Bank Merger and the
other transactions contemplated hereby and thereby, provided, that (i) there are
no material adverse federal or state income tax consequences to Sandwich and its
stockholders as a result of the modification; (ii) the consideration to be paid
to the holders of Sandwich Common Stock under this Agreement is not thereby
changed in kind or reduced in amount; (iii) there are no material adverse
changes to the benefits and other arrangements provided to or on behalf of
Sandwich's directors, officers and other employees; and (iv) such modification
will not delay materially or jeopardize receipt of any required regulatory
approvals or other consents and approvals relating to the consummation of the
Merger. 1855 Bancorp, Compass Bank, Sandwich and Sandwich Bank agree to
appropriately amend this Agreement and any related documents in order to reflect
any such revised structure.
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ARTICLE III
CONVERSION OF SHARES
3.1 MERGER CONSIDERATION. At the Effective Time, by virtue of the Merger
and without any action on the part of 1855 Bancorp, Merger Sub, Sandwich or the
holders of any of the shares of Sandwich Common Stock (shares of Sandwich Common
Stock being hereinafter collectively referred to as "Shares"):
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3.1.1 Each Share issued and outstanding immediately prior to the Effective
Time (other than any Shares to be cancelled pursuant to Section 3.1.5 and any
Dissenting Shares (as hereinafter defined)) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for a number of shares of common stock, par value $.01 per share,
of 1855 Bancorp ("1855 Common Stock") equal to one share multiplied by the
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Exchange Ratio (rounded to the nearest four decimal places), determined as
follows:
(a) If the 1855 Trading Price is between $10.01 and $13.50 (inclusive),
the Exchange Ratio shall be determined by dividing $64.00 by the 1855 Trading
Price.
(b) If the 1855 Trading Price is between $13.51 and $15.00 (inclusive),
the Exchange Ratio shall be 4.7407.
(c) If the 1855 Trading Price is greater than $15.00, the Exchange Ratio
shall be determined by dividing $71.11 by the 1855 Trading Price.
(d) If the 1855 Trading Price is $10.00 or less, the Exchange Ratio will
be 6.4.
3.1.2 For purposes of this Agreement, the "1855 Trading Price" shall be
determined by averaging the closing bid and asked price of the 1855 Common Stock
for each of the second through the ninth trading days (inclusive) following
consummation of the Conversion (the average of the closing bid and asked price
for each such day is referred to as the "Daily Closing Price"), discarding the
two highest and two lowest Daily Closing Prices, and averaging the remaining
Daily Closing Prices. The closing bid and asked prices shall be as quoted at
the close of business on the Stock Exchange.
3.1.3 The foregoing determination of the Exchange Ratio assumes that the
initial public offering ("IPO") price of the 1855 Bancorp Common Stock in the
Conversion will be $10.00 per share. If the IPO price is an amount other than
$10.00, the Exchange Ratios and dollar amounts in Section 3.1.1 shall be
proportionately adjusted to reflect the actual IPO price.
3.1.4 Shares of Sandwich Common Stock converted into 1855 Common Stock
pursuant to this Section 3.1 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 Share shall thereafter
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represent the right to receive (i) the number of whole shares of 1855 Common
Stock and (ii) cash in lieu of fractional shares into which the Shares
represented by such Certificate have been converted pursuant to this Section 3.1
and Section 3.4 hereof (the "Merger Consideration"). Certificates previously
--------------------
representing Shares of Sandwich Common Stock shall be exchanged for
certificates representing whole shares of 1855 Common Stock and cash in lieu
of fractional shares issued in consideration therefor upon the surrender of
such Certificates in accordance with Section 3.4 hereof, without any interest
thereon.
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3.1.5 Each Share held in the treasury of Sandwich and each Share owned by
Merger Sub, 1855 Bancorp or any direct or indirect wholly owned subsidiary of
1855 Bancorp or of Sandwich immediately prior to the Effective Time (other than
shares held in a fiduciary capacity or in connection with debts previously
contracted) shall, at the Effective Time, cease to exist, and the certificates
for such shares shall, as promptly as practicable thereafter, be cancelled and
no payment or distribution shall be made in consideration therefor.
3.1.6 Each share of the common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of the common stock
of the Surviving Corporation.
3.2 EMPLOYEE STOCK OPTIONS. Prior to the Effective Time, Sandwich shall,
in accordance with the terms of the Sandwich Option Plans, provide written
notice to each holder of a then outstanding Sandwich Option (whether or not such
stock option is then vested or exercisable), that such Sandwich Option shall be,
as at the date of such notice, exercisable in full and that, if such Sandwich
Option is not exercised or otherwise terminated in accordance with its terms
before the Effective Time, such Sandwich Option shall, at the Effective Time, be
automatically converted into a number of shares of 1855 Common Stock determined
by application of the following formula, subject to any required withholding of
taxes:
[(MCV - EP) (divide) TP] x OS
where:
MCV = Merger Consideration Value per share, determined by multiplying the
Exchange Ratio by the 1855 Trading Price
EP = Exercise Price per share as stated in such Sandwich Option
TP = 1855 Trading Price, as determined in accordance with Section 3.1.2
OS = Number of Option Shares covered by such Sandwich Option
Subject to the foregoing, the Sandwich Option Plans and all options issued
thereunder shall terminate at the Effective Time. Sandwich hereby represents
and warrants to 1855 Bancorp that the maximum number of Shares subject to
issuance pursuant to the exercise of stock options issued and outstanding under
the Sandwich Option Plans is not and shall not be at or prior to the Effective
Time more than 143,778.
3.3 DISSENTING SHARES.
3.3.1 Notwithstanding anything in this Agreement to the contrary and unless
otherwise provided by applicable law, Shares that are issued and outstanding
immediately prior to the Effective Time and that are owned by stockholders who
have properly perfected their rights of appraisal within the meaning of Section
85 of Chapter 156B of the Massachusetts General Laws (the "Dissenting Shares"),
-----------------
shall not be converted into the right to receive the Merger Consideration,
unless and until such stockholders shall have failed to perfect or shall have
effectively withdrawn or lost their right of payment under applicable law, but,
instead, the holders thereof shall be entitled to payment of the appraised value
of such Dissenting Shares in accordance with the provisions of the Massachusetts
General Laws, Chapter 156B (S) 85 et seq. If any such holder shall have failed
-- ----
to perfect or shall have effectively withdrawn or lost such right of appraisal,
each Share held by such stockholder shall thereupon be deemed to have been
converted into the right to receive and become
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exchangeable for, at the Effective Time, the Merger Consideration in the manner
provided in Section 3.1 hereof.
3.3.2 Sandwich shall give 1855 Bancorp (i) prompt notice of any objections
filed pursuant to Massachusetts General Laws, Chapter 156B, (S) 85 et seq.,
------
received by Sandwich, withdrawals of such objections, and any other instruments
served in connection with such objections pursuant to the Massachusetts General
Laws and received by Sandwich and (ii) the opportunity to direct all
negotiations and proceedings with respect to objections under the Massachusetts
General Laws consistent with the obligations of Sandwich thereunder. Sandwich
shall not, except with the prior written consent of 1855 Bancorp, (x) make any
payment with respect to any such objection, (y) offer to settle or settle any
such objections or (z) waive any failure to timely deliver a written objection
in accordance with the Massachusetts General Laws.
3.4 PROCEDURES FOR EXCHANGE OF SANDWICH COMMON STOCK.
3.4.1 1855 BANCORP TO MAKE SHARES AVAILABLE. Prior to the Effective Time,
1855 Bancorp or Compass Bank shall designate a bank or trust company, reasonably
acceptable to Sandwich, to act as agent (the "Exchange Agent") for the holders
--------------
of Shares in connection with the Merger to receive the Merger Consideration to
which holders of Shares shall become entitled pursuant to Section 3.1. 1855
Bancorp shall take all steps necessary on and as of the Effective Time to
deliver to the Exchange Agent, for the benefit of the holders of certificates
evidencing Shares ("Certificates"), for exchange in accordance with this Section
------------
3.4, certificates representing shares of 1855 Common Stock and the cash in lieu
of fractional shares to be paid pursuant to this Section 3.4 (such cash and
certificates for shares of 1855 Common Stock, together with any dividends or
distributions with respect thereto being hereinafter referred to as the
"Exchange Fund") to be issued and paid in exchange for outstanding Sandwich
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Common Stock in accordance with this Agreement. The Exchange Agent shall act as
agent on behalf of record holders (individually, a "Record Holder") of Sandwich
-------------
Common Stock at the Effective Time, other than Sandwich, any Sandwich
Subsidiary, 1855 Bancorp, or any 1855 Bancorp Subsidiary (in each case other
than in a fiduciary capacity or in connection with debts previously contracted),
or any Person holding Dissenting Shares.
3.4.2 EXCHANGE OF CERTIFICATES. Within three business days after the
Effective Time, 1855 Bancorp shall take all steps necessary to cause the
Exchange Agent to mail to each Record Holder of a Certificate or Certificates,
a form letter of transmittal for return to the Exchange Agent and instructions
for use in effecting the surrender of the Certificates for certificates
representing the 1855 Common Stock and the cash in lieu of fractional shares
into which the Sandwich Common Stock represented by such Certificates shall have
been converted as a result of the Merger. The form letter (which shall be
subject to the reasonable approval of Sandwich) shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent. Upon surrender of
a Certificate for exchange and cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate for the number of
whole shares of 1855 Common Stock to which such holder of Sandwich Common Stock
shall have become entitled pursuant to the provisions of this Section 3.4 and
(y) a check representing the amount of cash in lieu of the fractional shares, if
any, which such holder has the right to receive in respect of Certifi cates
surrendered pursuant to the provisions of this Section 3.4, and the Certificates
so surrendered shall forthwith be cancelled. Certificates surrendered for
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exchange by any person who is an "affiliate" of Sandwich for purposes of Rule
145(c) under the Securities Act of 1933, as amended (the "Securities Act"),
--------------
shall not exchanged for certificates representing shares of 1855
Common Stock until Buyer has received the written agreement of such person
contemplated by Section 8.5 hereof.
3.4.3 RIGHTS OF CERTIFICATE HOLDERS AFTER THE EFFECTIVE TIME. The holder
of a Certificate that prior to the Merger represented issued and outstanding
Sandwich Common Stock shall have no rights, after the Effective Time, with
respect to such Sandwich Common Stock except to surrender the Certificate in
exchange for the Merger Consideration as provided in this Agreement or to
perfect the rights of appraisal as a holder of Dissenting Shares that such
holder may have pursuant to the applicable provisions of Massachusetts law. No
dividends or other distributions declared after the Effective Time with respect
to 1855 Common Stock shall be paid to the holder of any unsurrendered
Certificate until the holder thereof shall surrender such Certificate in
accordance with this Section 3.4. After the surrender of a Certificate in
accordance with this Section 3.4, the record holder thereof shall be entitled to
receive any such dividends or other distributions, without any interest thereon,
which theretofore had become payable with respect to shares of 1855 Common
Stock represented by such Certificate.
3.4.4 FRACTIONAL SHARES. Notwithstanding anything to the contrary
contained herein, no certificates or scrip representing fractional shares of
1855 Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution with respect to 1855 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 stockholder of 1855 Bancorp. In lieu of the issuance of any such
fractional share, 1855 Bancorp shall pay to each former holder of Sandwich
Common Stock who otherwise would be entitled to receive a fractional share of
1855 Common Stock, an amount in cash determined by multiplying the closing sale
price of 1855 Common Stock on the Stock Exchange as reported by The Wall Street
Journal for the trading day immediately preceding the date of the Effective Time
(the "Last Closing Price") by the fraction of a share of 1855 Common Stock
------------------
which such holder would otherwise be entitled to receive pursuant to
Section 3.4.2 hereof. No interest will be paid on the cash which the holders of
such fractional shares shall be entitled to receive upon such delivery. For
purposes of determining any fractional share interest, all shares of Sandwich
Common Stock owned by a Sandwich shareholder shall be combined so as to
calculate the maximum number of whole shares of 1855 Bancorp Common Stock
issuable to such Sandwich shareholder.
3.4.5 SURRENDER BY PERSONS OTHER THAN RECORD HOLDERS. If the Person
surrendering a Certificate and signing the accompanying letter of transmittal is
not the Record Holder thereof, then it shall be a condition of the payment of
the Merger Consideration that such Certificate is properly endorsed to such
Person or is accompanied by appropriate stock powers, in either case signed
exactly as the name of the Record Holder appears on such Certificate, and is
otherwise in proper form for transfer, or is accompanied by appropriate evidence
of the authority of the Person surrendering such Certificate and signing the
letter of transmittal to do so on behalf of the Record Holder 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 payment to a person other than
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.
3.4.6 CLOSING OF TRANSFER BOOKS. From and after the Effective Time, there
shall be
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no transfers on the stock transfer books of Sandwich of the Sandwich Common
Stock which were 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 exchanged for the Merger
Consideration and cancelled as provided in this Section 3.4.
3.4.7 RETURN OF EXCHANGE FUND. At any time following the 12-month period
after the Effective Time, 1855 Bancorp shall be entitled to require the Exchange
Agent to deliver to it any portions of the Exchange Fund which had been made
available to the Exchange Agent and not disbursed to holders of Certificates
(including, without limitation, all interest and other income received by the
Exchange Agent in respect of all funds made available to it), and thereafter
such holders shall be entitled to look to 1855 Bancorp (subject to abandoned
property, escheat and other similar laws) with respect to any Merger
Consideration that may be payable upon due surrender of the Certificates held by
them. Notwithstanding the foregoing, neither 1855 Bancorp nor the Exchange Agent
shall be liable to any holder of a Certificate for any Merger Consideration
delivered in respect of such Certificate to a public official pursuant to any
abandoned property, escheat or other similar law.
3.4.8 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by 1855 Bancorp or Compass Bank, the posting by such
person of a bond in such amount as 1855 Bancorp 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 Merger Consideration deliverable in respect thereof.
3.5 RESERVATION OF SHARES. 1855 Bancorp shall reserve for issuance a
sufficient number of shares of 1855 Bancorp Common Stock for the purpose of
issuing shares of 1855 Bancorp Common Stock to the Sandwich shareholders and
optionholders in accordance with this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SANDWICH
Sandwich hereby represents and warrants to 1855 Bancorp as follows:
4.1 CAPITAL STRUCTURE.
4.1.1 The authorized capital stock of Sandwich consists of 15,000,000
shares of Sandwich Common Stock and 5,000,000 shares of Sandwich Preferred
Stock. As of the date of this Agreement, 1,945,260 shares of Sandwich Common
Stock are issued and outstanding, no shares of Sandwich Common Stock are
directly or indirectly held by Sandwich as treasury stock and no shares of
Sandwich Preferred Stock are issued and outstanding. All outstanding shares of
Sandwich Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable, and none of the outstanding shares of Sandwich Common
Stock has been issued in violation of the preemptive rights of any person, firm
or entity. Except for the Sandwich Option Agreement and for Sandwich Options to
acquire not more than 143,778 shares of Sandwich Common Stock, a schedule of
which has been Previously Disclosed, there are no Rights authorized, issued or
outstanding with respect to or relating to the capital stock of Sandwich.
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4.2 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH. Sandwich is a
corporation duly organized, validly existing and in good standing under the laws
of The Commonwealth of Massachusetts with full corporate power and authority to
own or lease all of its properties and assets and to carry on its business as
now conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property or
the conduct of its business requires such licensing or qualification, except
where the failure to be so licensed, qualified or in good standing would not
have a Material Adverse Effect on Sandwich. Sandwich is duly registered as a
bank holding company under the BHCA. Sandwich has heretofore delivered to 1855
Bancorp true and complete copies of the Articles of Organization and Bylaws of
Sandwich as in effect as of the date hereof.
4.3 OWNERSHIP OF SANDWICH SUBSIDIARIES. Sandwich has Previously Disclosed
the name, jurisdiction of incorporation and percentage ownership of each direct
or indirect Sandwich Subsidiary. Except for (x) capital stock of the Sandwich
Subsidiaries, (y) securities and other interests held in a fiduciary capacity
and beneficially owned by third parties or taken in consideration of debts
previously contracted, and (z) securities and other interests which are
Previously Disclosed, Sandwich does not own or have the right or obligation to
acquire, directly or indirectly, any outstanding capital stock or other voting
securities or ownership interests of any corporation, bank, savings association,
partnership, joint venture or other organization, other than investment
securities representing not more than 1% of any entity. The outstanding shares
of capital stock or other ownership interests of each Sandwich Subsidiary have
been duly authorized and validly issued, are fully paid and nonassessable, and
are directly or indirectly owned by Sandwich free and clear of all liens,
claims, encumbrances, charges, pledges, restrictions or rights of third parties
of any kind whatsoever. No Rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of the Sandwich
Subsidiaries and there are no agreements, understandings or commitments relating
to the right of Sandwich to vote or to dispose of such capital stock or other
ownership interests.
4.4 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH SUBSIDIARIES. Each
of the Sandwich Subsidiaries is a bank, corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized. Each of the Sandwich Subsidiaries (i) has
full power and authority to own or lease all of its properties and assets and to
carry on its business as now conducted, and (ii) is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed, qualified or in good
standing would not have a Material Adverse Effect on Sandwich. The deposit
accounts of Sandwich Bank are insured by the BIF or, in the case of certain
deposits, the SAIF, to the maximum extent permitted by the FDIA, and by the
Share Insurance Fund for amounts in excess of FDIC limits. Sandwich Bank has
paid all deposit insurance premiums and assessments required by the FDIC and the
Share Insurance Fund. Sandwich has heretofore delivered or made available to
1855 Bancorp true and complete copies of the Charter and Bylaws of Sandwich Bank
as in effect as of the date hereof.
4.5 AUTHORIZED AND EFFECTIVE AGREEMENT.
4.5.1 Sandwich has all requisite corporate power and authority to enter
into this Agreement and the Sandwich Option Agreement and (subject to receipt of
all necessary governmental approvals and the approval of Sandwich's shareholders
of this Agreement) to
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perform all of its obligations hereunder. The execution and delivery of this
Agreement and the Sandwich Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
Sandwich, except for the approval of this Agreement by Sandwich's shareholders.
This Agreement and the Sandwich Option Agreement have been duly and validly
executed and delivered by Sandwich and constitute the legal, valid and binding
obligations of Sandwich, enforceable against Sandwich in accordance with their
respective terms, subject, as to enforceability, to bankruptcy, insolvency and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
4.5.2 Except as Previously Disclosed, neither the execution and delivery
of this Agreement or the Sandwich Option Agreement, nor consummation of the
transactions contemplated hereby or thereby, nor compliance by Sandwich with any
of the provisions hereof or thereof (i) does or will conflict with or result in
a breach of any provisions of the Articles of Organization or Bylaws of Sandwich
or the equivalent documents of any Sandwich Subsidiary, (ii) violate, conflict
with or result in a breach of any term, condition or provision of, or constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of Sandwich or any
Sandwich Subsidiary pursuant to, any material note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Sandwich or any Sandwich Subsidiary is a party, or by which any of their
respective properties or assets may be bound or affected, or (iii) subject to
receipt of all required governmental and shareholder approvals, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Sandwich or any Sandwich Subsidiary.
4.5.3 Except for (i) the filing of applications and notices with, and the
consents and approvals of, as applicable, the FRB, the FDIC, the Massachusetts
Board, the MHPF, the Co-operative Central Bank and the Bank Commissioner, (ii)
the filing of the Proxy Statement-Prospectus with the SEC, (iii) the approval of
this Agreement by the requisite vote of the shareholders of Sandwich, (iv) the
filing of Articles of Merger with the Secretary of State of the Commonwealth of
Massachusetts pursuant to the MBCL in connection with the Merger, and (v) review
of the Merger by the DOJ under federal antitrust laws, and except for such
filings, registrations, consents or approvals which are Previously Disclosed, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary on the part of Sandwich or Sandwich
Bank in connection with the execution and delivery by Sandwich of this Agreement
or the Sandwich Option Agreement and the consummation by Sandwich of the
transactions contemplated hereby or thereby.
4.5.4 As of the date hereof, neither Sandwich nor Sandwich Bank is aware
of any reasons relating to Sandwich or Sandwich Bank (including without
limitation Community Reinvestment Act compliance) why all consents and approvals
shall not be procured from all regulatory agencies having jurisdiction over the
transactions contemplated by this Agreement as shall be necessary for (i)
consummation of the transactions contemplated by this Agreement and (ii) the
continuation by 1855 Bancorp after the Effective Time of the business of each of
1855 Bancorp and Sandwich as such business is carried on immediately prior to
the Effective Time, free of any conditions or requirements which, in the
reasonable opinion of Sandwich, could have a Material Adverse Effect on 1855
Bancorp or Sandwich or materially impair the value of Sandwich and Sandwich Bank
to 1855 Bancorp.
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4.6 SECURITIES DOCUMENTS AND REGULATORY REPORTS
4.6.1 Since January 1, 1993, Sandwich has timely filed with the SEC or
the FDIC (as applicable) and the NASD all Securities Documents required by the
Securities Laws and such Securities Documents complied in all material respects
with the Securities Laws and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
4.6.2 Since January 1, 1993, each of Sandwich and Sandwich Bank has duly
filed with the FRB, the Bank Commissioner, the FDIC and any other applicable
federal or state banking authority, as the case may be, in correct form the
reports required to be filed under applicable laws and regulations and such
reports were in all material respects complete and accurate and in compliance
with the requirements of applicable laws and regulations. Except as Previously
Disclosed, in connection with the most recent examinations of Sandwich and
Sandwich Bank by the FRB, the Bank Commissioner and the FDIC, neither Sandwich
nor Sandwich Bank was required to correct or change any action, procedure or
proceeding which Sandwich or Sandwich Bank believes has not been corrected or
changed as required as of the date hereof in all material respects.
4.7 FINANCIAL STATEMENTS
4.7.1 Sandwich has previously delivered or made available to 1855 Bancorp
accurate and complete copies of the Sandwich Financial Statements, which are
accompanied by the audit reports of KPMG Peat Marwick LLP, independent public
accountants with respect to Sandwich. The Sandwich Financial Statements referred
to herein, as well as the Sandwich Financial Statements to be delivered pursuant
to Section 6.2 hereof, fairly present or will fairly present, as the case may
be, the consolidated financial condition of Sandwich or Sandwich Bank, as the
case may be, as of the respective dates set forth therein, and the consolidated
results of operations, shareholders' equity and cash flows of Sandwich for the
respective periods or as of the respective dates set forth therein.
4.7.2 Each of the Sandwich Financial Statements referred to in Section
4.7.1 has been or will be, as the case may be, prepared in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except as stated therein. The audits of Sandwich and the Sandwich
Subsidiaries have been conducted in all material respects in accordance with
generally accepted auditing standards. The books and records of Sandwich and the
Sandwich Subsidiaries are being maintained in material compliance with
applicable legal and accounting requirements, and such books and records
accurately reflect in all material respects all dealings and transactions in
respect of the business, assets, liabilities and affairs of Sandwich and its
Subsidiaries. The minute books of Sandwich and each of its Subsidiaries contain
complete and accurate records of all meetings and other corporate actions
authorized at such meetings held or taken since January 1, 1993 to date of its
stockholders and Board of Directors.
4.7.3 Except and to the extent (i) reflected, disclosed or provided for
in the consolidated statement of financial condition of Sandwich as of December
31, 1997 (including related notes) and (ii) of liabilities incurred since
December 31, 1997 in the ordinary course of business, neither Sandwich nor any
Sandwich Subsidiary has any liabilities, whether absolute, accrued, contingent
or otherwise, material to the financial condition, results of operations or
business of Sandwich on a consolidated basis.
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4.8 MATERIAL ADVERSE CHANGE. Since December 31, 1997 (i) Sandwich and its
Subsidiaries have conducted their respective businesses in the ordinary and
usual course (excluding the incurrence of expenses in connection with this
Agreement, and excluding the transactions contemplated hereby) and (ii) no event
has occurred or circumstance arisen that, individually or in the aggregate, has
had or is reasonably likely to have a Material Adverse Effect on Sandwich.
4.9 ENVIRONMENTAL MATTERS. Except as Previously Disclosed:
4.9.1 To the best of Sandwich's knowledge, Sandwich and its Subsidiaries
are in material compliance with all Environmental Laws. Neither Sandwich nor any
Sandwich Subsidiary has received any communication alleging that Sandwich or any
Sandwich Subsidiary is not in such compliance and, to the best knowledge of
Sandwich, there are no present circumstances that would prevent or interfere
with the continuation of such compliance.
4.9.2 To the best of Sandwich's knowledge, none of the properties
presently or formerly owned, leased or operated by Sandwich or a Sandwich
Subsidiary, or in which Sandwich or any Sandwich Subsidiary has a lien or other
security interest, has been or is in material violation of or materially liable
under any Environmental Law.
4.9.3 To the best of Sandwich's knowledge, there are no past or present
actions, activities, circumstances, conditions, events or incidents that could
reasonably form the basis of any material Environmental Claim or other claim or
action or governmental investigation that could result in the imposition of any
material liability arising under any Environmental Law against Sandwich or a
Sandwich Subsidiary or against any person or entity whose liability for any
Environmental Claim Sandwich or a Sandwich Subsidiary has or may have retained
or assumed either contractually or by operation of law.
4.9.4 Sandwich has not conducted any environmental studies during the past
five years with respect to any properties owned by it or a Sandwich Subsidiary
as of the date hereof.
4.10 TAX MATTERS
4.10.1 Sandwich and its Subsidiaries have timely filed all federal, state
and local (and, if applicable, foreign) income, franchise, bank, excise, real
property, personal property and other tax returns required by applicable law to
be filed by them (including, without limitation, estimated tax returns, income
tax returns, information returns and withholding and employment tax returns) and
have paid, or where payment is not required to have been made, have set up an
adequate reserve or accrual for the payment of, all material taxes required to
be paid in respect of the periods covered by such returns and, as of the
Effective Time, will have paid, or where payment is not required to have been
made, will have set up an adequate reserve or accrual for the payment of, all
material taxes for any subsequent periods ending on or prior to the Effective
Time. Neither Sandwich nor a Sandwich Subsidiary will have any material
liability for any such taxes in excess of the amounts so paid or reserves or
accruals so established.
4.10.2 All federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
filed by Sandwich and its Subsidiaries are complete and accurate in all material
respects. Neither Sandwich nor a Sandwich Subsidiary is delinquent in the
payment of any tax, assessment or governmental charge or, except as Previously
Disclosed, has requested any extension of time within which to file any tax
returns in respect of any fiscal year or portion thereof which have not since
been filed. Except as Previously
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Disclosed, the federal, state and local income tax returns of Sandwich and its
Subsidiaries have been examined by the applicable tax authorities (or are closed
to examination due to the expiration of the applicable statute of limitations)
and no deficiencies for any tax, assessment or governmental charge have been
proposed, asserted or assessed (tentatively or otherwise) against Sandwich or a
Sandwich Subsidiary as a result of such examinations or otherwise which have not
been settled and paid. There are currently no agreements in effect with respect
to Sandwich or a Sandwich Subsidiary to extend the period of limitations for the
assessment or collection of any tax. As of the date hereof, no audit,
examination or deficiency or refund litigation with respect to such return is
pending or, to the best of Sandwich's knowledge, threatened.
4.10.3 Except as Previously Disclosed, neither Sandwich nor any Sandwich
Subsidiary (i) is a party to any agreement providing for the allocation or
sharing of taxes, (ii) is required to include in income any adjustment pursuant
to Section 481(a) of the Code by reason of a voluntary change in accounting
method initiated by Sandwich or a Sandwich Subsidiary (nor does Sandwich have
any knowledge that the Internal Revenue Service has proposed any such adjustment
or change of accounting method) or (iii) has filed a consent pursuant to Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply.
4.11 LEGAL PROCEEDINGS. Except as Previously Disclosed, there are no
actions, suits, claims, governmental investigations or proceedings instituted,
pending or, to the best knowledge of the senior officers and directors of
Sandwich or any Sandwich Subsidiary, threatened against Sandwich or a Sandwich
Subsidiary or against any asset, interest or right of Sandwich or a Sandwich
Subsidiary, or against any officer, director or employee of any of them, and
neither Sandwich nor a Sandwich Subsidiary is a party to any order, judgment or
decree.
4.12 COMPLIANCE WITH LAWS
4.12.1 Each of Sandwich and the Sandwich Subsidiaries has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as it is presently being conducted and the absence of
which could reasonably be expected to have a Material Adverse Effect on
Sandwich; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect; and to the best knowledge of Sandwich,
no suspension or cancellation of any of the same is threatened.
4.12.2 Neither Sandwich nor a Sandwich Subsidiary is in violation of its
respective Articles of Organization, Charter or Bylaws, or of any applicable
federal, state or local law or ordinance or any order, rule or regulation of any
federal, state, local or other governmental agency or body (including, without
limitation, all banking (including without limitation all regulatory capital
requirements), securities, municipal securities, safety, health, environmental,
zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances,
orders, rules and regulations), or in default with respect to any order, writ,
injunction or decree of any court, or in default under any order, license,
regulation or demand of any governmental agency, any of which violations or
defaults could reasonably be expected to have a Material Adverse Effect on
Sandwich; and neither Sandwich nor a Sandwich Subsidiary has received any notice
or communication from any federal, state or local governmental authority
asserting that Sandwich or a Sandwich Subsidiary is in violation of any of the
foregoing which could reasonably be expected to have a Material Adverse Effect
on Sandwich. Neither Sandwich nor a Sandwich Subsidiary is currently subject to
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any regulatory or supervisory cease and desist order, agreement, written
directive, memorandum of understanding or written commitment (other than those
of general applicability to all banks and holding companies thereof), and
neither of them has received any written communication requesting that it enter
into any of the foregoing. No regulatory agency has initiated any proceeding
or, to the best knowledge of Sandwich, investigation into the business or
operations of Sandwich or any of the Sandwich Subsidiaries since prior to
December 31, 1992. Sandwich has not received any objection from any regulatory
agency to Sandwich's response to any violation, criticism or exception with
respect to any report or statement relating to any examinations of Sandwich or
any of the Sandwich Subsidiaries.
4.13 CERTAIN INFORMATION. None of the information relating to Sandwich
and its Subsidiaries supplied or to be supplied for inclusion or incorporation
by reference in (i) the Conversion Prospectus will, at the time such
prospectus is mailed to subscribers (and at the time the related Form S-1 and
any amendments thereto become effective under the Securities Act), contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and (ii) the Proxy Statement-Prospectus, as of the
date(s) such Proxy Statement-Prospectus is mailed to shareholders of Sandwich
(and at the time the related Form S-4 and any amendments thereto become
effective under the Securities Act), and up to and including the date of the
meeting of shareholders to which such Proxy Statement-Prospectus relates, will
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided that information as of a later
date shall be deemed to modify information as of an earlier date. The Proxy
Statement-Prospectus mailed by Sandwich to its shareholders in connection with
the meeting of shareholders at which this Agreement will be considered by such
shareholders will comply as to form in all material respects with the Exchange
Act and the rules and regulations promulgated thereunder.
4.14 EMPLOYEE BENEFIT PLANS
4.14.1 Sandwich has Previously Disclosed all stock option, employee stock
purchase and stock bonus plans, qualified pension or profit-sharing plans, any
deferred compensation, consultant, bonus or group insurance contract or any
other incentive, health and welfare or employee benefit plan or agreement
maintained for the benefit of employees or former employees of Sandwich or any
Sandwich Subsidiary (the "Sandwich Employee Plans"), whether written or oral,
and Sandwich has previously furnished or made available to 1855 Bancorp accurate
and complete copies of the same together with (i) the most recent actuarial and
financial reports prepared with respect to any qualified plans, (ii) the most
recent annual reports filed with any governmental agency, and (iii) all rulings
and determination letters and any open requests for rulings or letters that
pertain to any qualified plan.
4.14.2 None of Sandwich, any Sandwich Subsidiary, any pension plan
maintained by either of them and qualified under Section 401 of the Code or, to
the best of Sandwich's knowledge, any fiduciary of such plan has incurred any
material liability to the PBGC or the Internal Revenue Service with respect to
any employees of Sandwich or a Sandwich Subsidiary. To the best of Sandwich's
knowledge, no reportable event under Section 4043(b) of ERISA has occurred with
respect to any such pension plan.
4.14.3 Neither Sandwich nor any Sandwich Subsidiary participates in or has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multi-employer plan (as such term is defined in ERISA).
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4.14.4 A favorable determination letter has been issued by the Internal
Revenue Service with respect to each Sandwich Employee Plan which is an
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) (a
"Sandwich Pension Plan") which is intended to qualify under Section 401 of the
Code to the effect that such plan is qualified under Section 401 of the Code and
the trust associated with such employee pension plan is tax exempt under Section
501 of the Code. No such letter has been revoked or, to the best of Sandwich's
knowledge, is threatened to be revoked and Sandwich does not know of any ground
on which such revocation may be based. Neither Sandwich nor any Sandwich
Subsidiary has any liability under any such plan that is not reflected on the
consolidated statement of financial condition of Sandwich at December 31, 1997
included in the Sandwich Financial Statements, other than liabilities incurred
in the ordinary course of business in connection therewith subsequent to the
date thereof.
4.14.5 To the best of Sandwich's knowledge, no prohibited transaction
(which shall mean any transaction prohibited by Section 406 of ERISA and not
exempt under Section 408 of ERISA or Section 4975 of the Code) has occurred with
respect to any Sandwich Employee Plan which would result in the imposition,
directly or indirectly, of a material excise tax under Section 4975 of the Code
or otherwise have a Material Adverse Effect on Sandwich.
4.14.6 Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date hereof, and full payment will be so made (or proper accruals will be so
established) of all contributions which are required for periods after the date
hereof and prior to the Effective Time, under the terms of each Sandwich
Employee Plan or ERISA; to the best of Sandwich's knowledge, no accumulated
funding deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code), whether or not waived, exists with respect to any Sandwich Pension Plan,
and there is no "unfunded current liability" (as defined in Section 412 of the
Code) with respect to any Sandwich Pension Plan.
4.14.7 To the best of Sandwich's knowledge, the Sandwich Employee Plans
have been operated in compliance in all material respects with the applicable
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder and all other applicable governmental laws and
regulations.
4.14.8 There are no pending or, to the best knowledge of Sandwich,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of the Sandwich Employee Plans or any trust related thereto or any
fiduciary thereof.
4.14.9 Neither Sandwich nor 1855 Bancorp will be required to make a Pension
Payment as a result of the Merger. The term "Pension Payment" shall mean the
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amount, if any, for which Sandwich or its successor is or would be liable to the
Co-operative Banks Employees Retirement Association in connection with the
cessation of Sandwich's participation in said Association's pension plan and its
complete withdrawal from said pension plan.
4.15 CERTAIN CONTRACTS
4.15.1 Except as Previously Disclosed, neither Sandwich nor a Sandwich
Subsidiary is a party to, is bound or affected by, receives, or is obligated to
pay, benefits under
(a) any agreement, arrangement or commitment, including without
limitation any agreement, indenture or other instrument, relating to the
borrowing of money by Sandwich
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or a Sandwich Subsidiary (other than in the case of Sandwich Bank deposits,
FHLB advances, federal funds purchased and securities sold under agreements
to repurchase in the ordinary course of business) or the guarantee by
Sandwich or a Sandwich Subsidiary of any obligation, other than by Sandwich
Bank in the ordinary course of its banking business,
(b) any agreement or commitment relating to the employment of a
consultant or the employment, election or retention in office of any present
or former director, officer or employee of Sandwich or a Sandwich Subsidiary,
(c) any agreement, arrangement or understanding pursuant to which any
payment (whether of severance pay or otherwise) became or may become due to
any director, officer or employee of Sandwich or a Sandwich Subsidiary upon
execution of this Agreement or upon or following consummation of the
transactions contemplated by this Agreement (either alone or in connection
with the occurrence of any additional acts or events);
(d) any agreement, arrangement or understanding pursuant to which
Sandwich or a Sandwich Subsidiary is obligated to indemnify any director,
officer, employee or agent of Sandwich or a Sandwich Subsidiary;
(e) any agreement, arrangement or understanding to which Sandwich or a
Sandwich Subsidiary is a party or by which any of the same is bound which
limits the freedom of Sandwich or a Sandwich Subsidiary to compete in any
line of business or with any person,
(f) any assistance agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order or condition of any
regulatory order or decree with or by the Bank Commissioner, the FDIC, the
FRB or any other regulatory agency,
(g) any agreement (other than any agreement with a banking customer for
the provision of banking services entered into by any Sandwich Subsidiary in
the ordinary course of business) that involves a payment or series of
payments of more than $50,000 in any one year from or to Sandwich or any
Sandwich Subsidiary (unless such agreement is cancellable by Sandwich upon
payment of a termination fee of not more than $40,000), or
(h) any other agreement, arrangement or understanding which would be
required to be filed as an exhibit to the Sandwich's Annual Report on Form
10-K under the Exchange Act and which has not been so filed.
4.15.2 Neither Sandwich nor any Sandwich Subsidiary is in material default
or non-compliance under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party or by which its
assets, business or operations may be bound or affected, whether entered into in
the ordinary course of business or otherwise and whether written or oral, and
there has not occurred any event that with the lapse of time or the giving of
notice, or both, would constitute such a material default or non-compliance.
4.16 BROKERS AND FINDERS. Except as Previously Disclosed, neither
Sandwich nor any Sandwich Subsidiary nor any of their respective directors,
officers or employees, has employed any broker or finder or incurred any
liability for any broker or finder fees or commissions in connection with the
transactions contemplated hereby.
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4.17 INSURANCE. Each of Sandwich and its Subsidiaries is insured for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance required by applicable laws and regulations. Sandwich
has Previously Disclosed all policies of insurance maintained by it or a
Sandwich Subsidiary as of the date hereof and any claims thereunder in excess of
$50,000 since January 1, 1995. Neither Sandwich nor any Sandwich Subsidiary has
received any notice of termination of any such insurance coverage or material
increase in the premiums therefor or has any reason to believe that any such
insurance coverage will be terminated or the premiums therefor materially
increased.
4.18 LOAN PORTFOLIO. Sandwich has Previously Disclosed all of the loans in
original principal amount in excess of $200,000 of Sandwich or any Sandwich
Subsidiary that as of the date of this Agreement are classified by Sandwich or
any Bank Regulator as "Special Mention", "Substandard", "Doubtful", "Loss" or
"Classified," together with the aggregate principal amount of and accrued and
unpaid interest on such all loans by category, it being understood that no
representation is being made that the FDIC, the Bank Commissioner or any other
Bank Regulator would agree with the loan classifications of Sandwich.
4.19 PROPERTIES. All real and personal property owned by Sandwich or its
Subsidiaries or presently used by any of them in its respective business is in
an adequate condition (ordinary wear and tear excepted) and is sufficient to
carry on the business of Sandwich and its Subsidiaries in the ordinary course of
business consistent with their past practices. Sandwich has good and marketable
title free and clear of all liens, encumbrances, charges, defaults or equities
(other than equities of redemption under applicable foreclosure laws) to all of
the material properties and assets, real and personal, reflected on the
consolidated statement of financial condition of Sandwich as of December 31,
1997 included in the Sandwich Financial Statements or acquired after such date,
except (i) liens for current taxes not yet due or payable (ii) pledges to secure
deposits and other liens incurred in the ordinary course of its banking
business, (iii) such imperfections of title, easements and encumbrances, if any,
as are not material in character, amount or extent and (iv) as reflected on the
consolidated statement of financial condition of Sandwich as of December 31,
1997 included in the Sandwich Financial Statements. All real and personal
property which is material to Sandwich's business on a consolidated basis and
leased or licensed by Sandwich or a Sandwich Subsidiary is held pursuant to
leases or licenses which are valid and enforceable in accordance with their
respective terms and no such real property lease will terminate or lapse prior
to the Effective Time.
4.20 LABOR. No work stoppage involving Sandwich or a Sandwich Subsidiary
is pending or, to the best knowledge of Sandwich, threatened. Neither Sandwich
nor a Sandwich Subsidiary is involved in, or threatened with or affected by, any
labor dispute, arbitration, lawsuit or administrative proceeding involving the
employees of Sandwich or a Sandwich Subsidiary which could have a Material
Adverse Effect on Sandwich. Employees of Sandwich and the Sandwich Subsidiaries
are not represented by any labor union nor are any collective bargaining
agreements otherwise in effect with respect to such employees, and to the best
of Sandwich's knowledge, there have been no efforts to unionize or organize any
employees of Sandwich or any of the Sandwich Subsidiaries during the past five
years.
4.21 REQUIRED VOTE; INAPPLICABILITY OF ANTITAKOVER STATUTES
4.21.1 The affirmative vote of the holders of two thirds of the issued and
outstanding shares of Sandwich Common Stock is necessary to approve this
Agreement and the transactions contemplated hereby on behalf of Sandwich.
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4.21.2 Assuming the accuracy of the representation and warranty of 1855
Bancorp contained in Section 5.2.0 hereof, no "fair price," "moratorium,"
control share acquisition" or other form of antitakeover statute or regulation,
including without limitation Chapters 110D and 110F of the MBCL, is applicable
to this Agreement and the transactions contemplated hereby.
4.22 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as Previously
Disclosed, to the knowledge of Sandwich, no officer or director of Sandwich, or
any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act)
of any such officer or director, (i) has any material interest in any material
contract or property (real or personal), tangible or intangible, used in or
pertaining to the business of Sandwich or any of the Sandwich Subsidiaries or
(ii) is indebted to, or has the right under a line of credit to borrow from,
Sandwich or any Sandwich Subsidiary in an amount exceeding $50,000.
4.23 CERTAIN TRANSACTIONS. Since December 31, 1996, neither Sandwich nor
any Sandwich Subsidiary has been a party to any material off-balance-sheet
transactions involving interest rate and currency swaps, options and futures
contracts, or any other similar derivative transactions, except as Previously
Disclosed.
4.24 DISCLOSURES. None of the representations and warranties of Sandwich
or any of the written information or documents furnished or to be furnished by
Sandwich to 1855 Bancorp in connection with or pursuant to this Agreement or the
consummation of the transactions contemplated hereby, when considered as a
whole, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact required to be stated or necessary
to make any such information or document, in light of the circumstances, not
misleading.
4.25 STANDSTILL AGREEMENTS. Sandwich has Previously Disclosed, and has
provided Compass with true and correct copies of, all standstill agreements (the
"Standstill Agreements") it has entered into pursuant to which any other person
has agreed (i) not to acquire for a period of time any assets or voting
securities of Sandwich, (ii) not to announce or publicly propose any
extraordinary transaction involving Sandwich or its assets or voting securities
or (iii) not to make any solicitation of proxies involving Sandwich's voting
securities. Except as Previously Disclosed, all of such Previously Disclosed
Standstill Agreements remain in full force and effect as of the date hereof,
such Standstill Agreements have not been amended or waived, Sandwich has not
granted any consents thereunder, and, to Sandwich's knowledge, such Standstill
Agreements are enforceable in accordance with their terms. To Sandwich's
knowledge, no party (other than 1855 Bancorp and Compass Bank) to a Standstill
Agreement with Sandwich owns, directly or indirectly, any shares of Sandwich
Common Stock.
4.26 DISCLOSURE SCHEDULE. The Sandwich Disclosure Schedule sets forth,
among other things, disclosures with respect to or exceptions to Sandwich's
representations and warranties in this Article IV. The mere inclusion of an
exception in the Sandwich Disclosure Schedule shall not be deemed an admission
by Sandwich that such exception represents a material fact, event or
circumstance.
4.27 POOLING OF INTERESTS. Sandwich knows of no reason relating to it why
the Merger would not qualify as a "pooling of interests" for accounting purposes
or a tax free reorganization under Section 368 of the Code. Except as Previously
Disclosed, since January 1, 1996, neither Sandwich nor Sandwich Bank has (A)
issued or permitted to be issued any shares of capital stock,
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or securities exercisable for or convertible into shares of capital stock, of
Sandwich, Sandwich Bank or any Sandwich Subsidiaries, other than pursuant to and
as required by the terms of any Sandwich Options that were issued and
outstanding on such date; (B) repurchased, redeemed or otherwise acquired,
directly or indirectly through one or more of its Subsidiaries, any shares of
capital stock of Sandwich, Sandwich Bank or any Sandwich Subsidiary, other than
open market purchases in the ordinary course by Sandwich's Employee Stock
Ownership Plan and its Dividend Reinvestment Plan, none of which purchases would
cause the Merger not to qualify as a pooling of interests; or (C) declared, set
aside, made or paid to the stockholders of Sandwich or Sandwich Bank dividends
or other distributions on the outstanding shares of capital stock of Sandwich or
Sandwich Bank. For purposes of clause (B) above, Sandwich and Sandwich Bank
shall be deemed to include any person that Sandwich or Sandwich Bank has caused
to purchase such shares.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF 1855 BANCORP
1855 Bancorp hereby represents and warrants to Sandwich as follows:
5.1 CAPITAL STRUCTURE. 1855 Bancorp has no capital stock issued and
outstanding as of the date hereof. As of the Effective Time, 1855 Bancorp will
have outstanding such number of shares of Common Stock as are issued and sold in
the Conversion and will not have outstanding any other classes of capital stock.
All shares of 1855 Bancorp Common Stock to be issued in exchange for Shares upon
consummation of the Merger, when issued in accordance with this Agreement, will
be, and the shares of 1855 Bancorp to be issued in connection with the
Conversion will be duly authorized, validly issued, fully paid and
nonassessable.
5.2 ORGANIZATION, STANDING AND AUTHORITY OF 1855 BANCORP. 1855 Bancorp
is a mutual holding company, and will be at the Effective Time a corporation,
duly organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts with full corporate power and authority to own or
lease all of its properties and assets and to carry on its business as now
conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property or
the conduct of its business requires such licensing or qualification, except
where the failure to be so licensed, qualified or in good standing would not
have a Material Adverse Effect on 1855 Bancorp. 1855 Bancorp is duly
registered as a bank holding company under the BHCA and the regulations of the
FRB thereunder. 1855 Bancorp has heretofore delivered to Sandwich true and
complete copies of the Articles of Organization and Bylaws of 1855 Bancorp as in
effect as of the date hereof.
5.3 OWNERSHIP OF THE 1855 BANCORP SUBSIDIARIES. 1855 Bancorp has
Previously Disclosed each direct or indirect 1855 Bancorp Subsidiary. The
outstanding shares of capital stock of each 1855 Bancorp Subsidiary have been
duly authorized and validly issued, are fully paid and nonassessable and are
directly or indirectly owned by 1855 Bancorp free and clear of all liens,
claims, encumbrances, charges, pledges, restrictions or rights of third parties
of any kind whatsoever. No Rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of any 1855 Bancorp
Subsidiary and there are no agreements, understandings or commitments relating
to the right of 1855 Bancorp to vote or to dispose of said shares or other
ownership interests.
5.4 ORGANIZATION, STANDING AND AUTHORITY OF THE 1855 BANCORP SUBSIDIARIES.
Each of the 1855 Bancorp Subsidiaries is a corporation duly organized, validly
existing and in good
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standing under the laws of the jurisdiction in which it is organized. Each of
the 1855 Bancorp Subsidiaries (i) has full power and authority to own or lease
all of its properties and assets and to carry on its business as now conducted,
and (ii) is duly licensed or qualified to do business and is in good standing in
each jurisdiction in which its ownership or leasing of property or the conduct
of its business requires such qualification, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse Effect
on 1855 Bancorp. The deposit accounts of Compass Bank are insured by the BIF or,
in the case of certain deposits, the SAIF, to the maximum extent permitted by
the FDIA, and by the Depositors Insurance Fund for amounts in excess of FDIC
limits. Compass Bank has paid all premiums and assessments required by the FDIC
and the Depositors Insurance Fund.
5.5 AUTHORIZED AND EFFECTIVE AGREEMENT.
5.5.1 1855 Bancorp has all requisite corporate power and authority to enter
into this Agreement and (subject to receipt of all necessary governmental
approvals and 1855 Bancorp's Corporators' approval of the Conversion) to perform
all of its obligations under this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action in respect thereof
on the part of 1855 Bancorp and Compass Bank, except for the approval of the
Conversion by 1855 Bancorp's Corporators and the approval of a specific plan of
Conversion by 1855 Bancorp's Board of Trustees (the Board of Trustees has
already approved the Conversion). This Agreement has been duly and validly
executed and delivered by 1855 Bancorp and, assuming due authorization,
execution and delivery by Sandwich, constitutes a legal, valid and binding
obligation of 1855 Bancorp which is enforceable against 1855 Bancorp in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
5.52 Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby (including the Conversion)
nor compliance by 1855 Bancorp with any of the provisions hereof (i) does or
will conflict with or result in a breach of any provisions of the Articles of
Organization or Bylaws of 1855 Bancorp or the equivalent documents of any 1855
Bancorp Subsidiary, (ii) violate, conflict with or result in a breach of any
term, condition or provision of, or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon any
property or asset of 1855 Bancorp or any 1855 Bancorp Subsidiary pursuant to,
any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which 1855 Bancorp or any 1855
Bancorp Subsidiary is a party, or by which any of their respective properties or
assets may be bound or affected, or (iii) subject to receipt of all required
governmental, corporator and shareholder approvals, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to 1855 Bancorp or
any 1855 Bancorp Subsidiary.
5.5.3 Except for (i) the filing of applications and notices with, and the
consents and approvals of, as applicable, the FRB, the FDIC, the Massachusetts
Board, the MHPF, the Depositors Insurance Fund, and the Bank Commissioner, (ii)
the filing and effectiveness of a Form S-1 Registration Statement with the SEC
in connection with the Conversion, (iii) the filing and effectiveness of a Form
S-4 Registration Statement with the SEC in connection with the Merger, (iii)
compliance with applicable state securities or "blue sky" laws, (iv) the
approval of the
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Conversion by the requisite vote of the Corporators of 1855 Bancorp, (v) the
filing of Articles of Merger with the Secretary of State of the Commonwealth of
Massachusetts pursuant to the MBCL in connection with the Merger and (vi) review
of the Merger by the DOJ under federal antitrust laws, and except for such
filings, registrations, consents or approvals as are Previously Disclosed, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary on the part of 1855 Bancorp or any
1855 Bancorp Subsidiary in connection with the execution and delivery by 1855
Bancorp of this Agreement and the consummation by 1855 Bancorp of the
transactions contemplated hereby.
5.5.4 As of the date hereof, 1855 Bancorp is not aware of any reasons
relating to 1855 Bancorp or any of its Subsidiaries (including without
limitation Community Reinvestment Act compliance) why all consents and approvals
shall not be procured from all regulatory agencies having jurisdiction over the
transactions contemplated by this Agreement as shall be necessary for (i)
consummation of the transactions contemplated by this Agreement and (ii) the
continuation by 1855 Bancorp after the Effective Time of the business of each of
1855 Bancorp and Sandwich as such business is carried on immediately prior to
the Effective Time, free of any conditions or requirements which, in the
reasonable opinion of 1855 Bancorp, could have a Material Adverse Effect on 1855
Bancorp or Sandwich or materially impair the value of Sandwich and Sandwich Bank
to 1855 Bancorp.
5.6 REGULATORY REPORTS
5.6.1 1855 Bancorp is not currently required to file any Securities
Documents with the SEC.
5.6.2 Since January 1, 1993, each of 1855 Bancorp and Compass Bank has duly
filed with the FRB, the FDIC, and the Bank Commissioner, as the case may be, in
correct form the reports required to be filed under applicable laws and
regulations and such reports were in all material respects complete and accurate
and in compliance with the requirements of applicable laws and regulations. In
connection with the most recent examinations of 1855 Bancorp and Compass Bank by
the FRB, the FDIC or the Bank Commissioner, neither 1855 Bancorp nor Compass
Bank was required to correct or change any action, procedure or proceeding which
1855 Bancorp or Compass Bank believes has not been corrected or changed as
required as of the date hereof in all material respects.
5.7 FINANCIAL STATEMENTS
5.7.1 1855 Bancorp has previously delivered or made available to Sandwich
accurate and complete copies of the 1855 Bancorp Financial Statements which, in
the case of the consolidated statements of financial condition of 1855 Bancorp
as of October 31, 1997, 1996 and 1995, and the consolidated statements of
operations, shareholders' equity and cash flows for each of the three years
ended October 31, 1997, 1996 and 1995 are accompanied by the audit reports of
Arthur Andersen, independent public accountants with respect to 1855 Bancorp.
The 1855 Bancorp Financial Statements referred to herein, as well as the 1855
Bancorp Financial Statements to be delivered pursuant to Section 7.2 hereof,
fairly present or will fairly present, as the case may be, the consolidated
financial condition of 1855 Bancorp as of the respective dates set forth
therein, and the consolidated results of operations, shareholders' equity and
cash flows of 1855 Bancorp for the respective periods or as of the respective
dates set forth therein.
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5.7.2 Each of the 1855 Bancorp Financial Statements referred to in
Section 5.7.1 has been or will be, as the case may be, prepared in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except as stated therein. The audits of 1855 Bancorp and the
1855 Bancorp Subsidiaries have been conducted in all material respects in
accordance with generally accepted auditing standards. The books and records
of 1855 Bancorp and the 1855 Bancorp Subsidiaries are being maintained in
material compliance with applicable legal and accounting requirements, and all
such books and records accurately reflect in all material respects all dealings
and transactions in respect of the business, assets, liabilities and affairs of
1855 Bancorp and the 1855 Bancorp Subsidiaries. The minute books of 1855 Bancorp
and each of its subsidiaries contain complete and accurate records of all
meetings and other corporate actions authorized at such meetings held or taken
since January 1, 1993 to date of its stockholders and Board of Directors.
5.7.3 Except and to the extent (i) reflected, disclosed or provided for
in the consolidated statement of financial condition of 1855 Bancorp as of
October 31, 1997 (including related notes) and (ii) of liabilities incurred
since October 31, 1997 in the ordinary course of business, neither 1855 Bancorp
nor any 1855 Bancorp Subsidiary has any liabilities, whether absolute, accrued,
contingent or otherwise, material to the financial condition, results of
operations or business of 1855 Bancorp on a consolidated basis.
5.8 MATERIAL ADVERSE CHANGE. Since October 31, 1997, (i) 1855 Bancorp and
its Subsidiaries have conducted their respective businesses in the ordinary and
usual course (excluding the incurrence of expenses in connection with this
Agreement, and excluding the transactions contemplated hereby) and (ii) no event
has occurred or circumstance arisen that, individually or in the aggregate, has
had or is reasonably likely to have a Material Adverse Effect on 1855 Bancorp.
5.9 ENVIRONMENTAL MATTERS. Except as Previously Disclosed:
5.9.1 To the best of 1855 Bancorp's knowledge, 1855 Bancorp and the 1855
Bancorp Subsidiaries are in material compliance with all Environmental Laws.
Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary has received any
communication alleging that 1855 Bancorp or any 1855 Bancorp Subsidiary is not
in such compliance and, to the best knowledge of 1855 Bancorp, there are no
present circumstances that would prevent or interfere with the continuation of
such compliance.
5.9.2 To the best of 1855 Bancorp's knowledge, none of the properties
owned, leased or operated by 1855 Bancorp or the 1855 Bancorp Subsidiaries, or
in which Sandwich or any Sandwich Subsidiary has a lien or other security
interest, has been or is in violation of or liable under any Environmental Law.
5.9.3 To the best of 1855 Bancorp's knowledge, there are no past or present
actions, activities, circumstances, conditions, events or incidents that could
reasonably form the basis of any material Environmental Claim or other claim or
action or governmental investigation that could result in the imposition of any
liability arising under any Environmental Law against 1855 Bancorp or any 1855
Bancorp Subsidiary or against any person or entity whose liability for any
Environmental Claim 1855 Bancorp or any 1855 Bancorp Subsidiary has or may have
retained or assumed either contractually or by operation of law.
5.10 TAX MATTERS. 1855 Bancorp and the 1855 Bancorp Subsidiaries have
timely filed all federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
required by applicable law to be filed by them (including,
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without limitation, estimated tax returns, income tax returns, information
returns and withholding and employment tax returns) and have paid, or where
payment is not required to have been made, have set up an adequate reserve or
accrual for the payment of, all material taxes required to be paid in respect of
the periods covered by such returns and, as of the Effective Time, will have
paid, or where payment is not required to have been made, will have set up an
adequate reserve or accrual for the payment of, all material taxes for any
subsequent periods ending on or prior to the Effective Time. Neither 1855
Bancorp nor any of the 1855 Bancorp Subsidiaries will have any material
liability for any such taxes in excess of the amounts so paid or reserves or
accruals so established. As of the date hereof, no audit, examination or
deficiency or refund litigation with respect to any federal, state and local
(and, if applicable, foreign) income, franchise, bank, excise, real property,
personal property and other tax returns filed by 1855 Bancorp and the 1855
Bancorp Subsidiaries is pending or, to the best of 1855 Bancorp's knowledge,
threatened.
5.11 LEGAL PROCEEDINGS. Except as Previously Disclosed, there are no
actions, suits, claims, governmental investigations or proceedings instituted,
pending or, to the best knowledge of the senior officers and directors of 1855
Bancorp or any 1855 Subsidiary, threatened against 1855 Bancorp or any 1855
Bancorp Subsidiary or against any asset, interest or right of 1855 Bancorp or
any 1855 Bancorp Subsidiary, or against any officer, director or employee of any
of them, and neither 1855 Bancorp nor any 1855 Bancorp Subsidiary is a party to
any order, judgment or decree.
5.12 COMPLIANCE WITH LAWS.
5.12.1 Each of 1855 Bancorp and each of the 1855 Bancorp Subsidiaries has
all permits, licenses, certificates of authority, orders and approvals of, and
has made all filings, applications and registrations with, federal, state, local
and foreign governmental or regulatory bodies that are required in order to
permit it to carry on its business as it is presently being conducted and the
absence of which could reasonably be expected to have a Material Adverse Effect
on 1855 Bancorp; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect; and to the best knowledge of 1855
Bancorp, no suspension or cancellation of any of the same is threatened.
5.12.2 Neither 1855 Bancorp nor any of the 1855 Bancorp Subsidiaries is in
violation of its respective Articles of Organization, Charter or other
chartering instrument or Bylaws, or of any applicable federal, state or local
law or ordinance or any order, rule or regulation of any federal, state, local
or other governmental agency or body (including, without limitation, all banking
(including without limitation all regulatory capital requirements), securities,
municipal securities, safety, health, environmental, zoning, anti-
discrimination, antitrust, and wage and hour laws, ordinances, orders, rules and
regulations), or in default with respect to any order, writ, injunction or
decree of any court, or in default under any order, license, regulation or
demand of any governmental agency, any of which violations or defaults could
reasonably be expected to have a Material Adverse Effect on 1855 Bancorp; and
neither 1855 Bancorp nor any 1855 Bancorp Subsidiary has received any notice or
communication from any federal, state or local governmental authority asserting
that 1855 Bancorp or any 1855 Bancorp Subsidiary is in violation of any of the
foregoing which could reasonably be expected to have a Material Adverse Effect
on 1855 Bancorp. Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary is subject
to any regulatory or supervisory cease and desist order, agreement, written
directive, memorandum of understanding or written commitment (other than those
of general applicability to all banks or holding companies thereof),
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and none of them has received any written communication requesting that it enter
into any of the foregoing. No regulatory agency has initiated any proceeding or,
to the best knowledge of 1855 Bancorp, investigation into the business or
operations of 1855 Bancorp or any of the 1855 Bancorp Subsidiaries since prior
to December 31, 1992. 1855 Bancorp has not received any objection from any
regulatory agency to 1855 Bancorp's response to any violation, criticism or
exception with respect to any report or statement relating to any examinations
of 1855 Bancorp or any of the 1855 Bancorp Subsidiaries.
5.13 CERTAIN INFORMATION. None of the information relating to 1855
Bancorp and its Subsidiaries to be included or incorporated by reference in (i)
the Conversion Prospectus will, at the time such prospectus is mailed to
subscribers (and at the time the related Form S-1 and any amendments thereto
become effective under the Securities Act), contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) the Proxy Statement-Prospectus, as of the date(s) such
Proxy Statement-Prospectus is mailed to shareholders of Sandwich (and at the
time the related Form S-4 and any amendments thereto become effective under the
Securities Act), and up to and including the date of the meeting of shareholders
to which such Proxy Statement-Prospectus relates, will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, provided that information as of a later date shall be
deemed to modify information as of an earlier date.
5.14 EMPLOYEE BENEFIT PLANS
5.14.1 1855 Bancorp has Previously Disclosed all stock option, employee
stock purchase and stock bonus plans, qualified pension or profit-sharing plans,
any deferred compensation, bonus or group insurance contract or any other
incentive, health and welfare or employee benefit plan or agreement maintained
for the benefit of employees or former employees of 1855 Bancorp or any 1855
Bancorp Subsidiary (the "1855 Bancorp Employee Plans"), whether written or oral.
---------------------------
5.14.2 None of 1855 Bancorp, any 1855 Bancorp Subsidiary, any pension plan
maintained by any of them and qualified under Section 401 of the Code or, to the
best of 1855 Bancorp's knowledge, any fiduciary of such plan has incurred any
material liability to the PBGC or the Internal Revenue Service with respect to
any employees of 1855 Bancorp or any 1855 Bancorp Subsidiary. To the best of
1855 Bancorp's knowledge, no reportable event under Section 4043(b) of ERISA has
occurred with respect to any such pension plan.
5.14.3 Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary participates
in or has incurred any liability under Section 4201 of ERISA for a complete or
partial withdrawal from a multi-employer plan (as such term is defined in
ERISA).
5.13.4 A favorable determination letter has been issued by the Internal
Revenue Service with respect to each 1855 Bancorp Employee Plan which is an
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) (an "1855
Bancorp Pension Plan") which is intended to qualify under Section 401 of the
Code to the effect that such plan is qualified under Section 401 of the Code and
the trust associated with such employee pension plan is tax exempt under Section
501 of the Code. No such letter has been revoked or, to the best of 1855
Bancorp's knowledge, is threatened to be revoked and 1855 Bancorp does not know
of any ground on which such revocation
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may be based. Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary has any
liability under any such plan that is not reflected on the consolidated
statement of financial condition of 1855 Bancorp at October 31, 1997 included in
the 1855 Bancorp Financial Statements, other than liabilities incurred in the
ordinary course of business in connection therewith subsequent to the date
thereof.
5.14.5 To the best of 1855 Bancorp's knowledge, no prohibited transaction
(which shall mean any transaction prohibited by Section 406 of ERISA and not
exempt under Section 408 of ERISA or Section 4975 of the Code) has occurred with
respect to any 1855 Bancorp Employee Plan which would result in the imposition,
directly or indirectly, of a material excise tax under Section 4975 of the Code
or otherwise have a Material Adverse Effect on 1855 Bancorp.
5.14.6 Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date hereof, and full payment will be so made (or proper accruals will be so
established) of all contributions which are required for periods after the date
hereof and prior to the Effective Time, under the terms of each 1855 Bancorp
Employee Plan or ERISA; to the best of 1855 Bancorp's knowledge, no accumulated
funding deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code), whether or not waived, exists with respect to any 1855 Bancorp Pension
Plan, and there is no "unfunded current liability" (as defined in Section 412 of
the Code) with respect to any 1855 Bancorp Pension Plan.
5.14.7 To the best of 1855 Bancorp's knowledge, 1855 Bancorp Employee
Plans have been operated in compliance in all material respects with the
applicable provisions of ERISA, the Code, all regulations, rulings and
announcements promulgated or issued thereunder and all other applicable
governmental laws and regulations.
5.14.8 There are no pending or, to the best knowledge of 1855 Bancorp,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of the 1855 Bancorp Employee Plans or any trust related thereto or
any fiduciary thereof.
5.15 CERTAIN CONTRACTS. Neither 1855 Bancorp nor any 1855 Bancorp
Subsidiary is in material default or in non-compliance under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party or by which its assets, business or operations may be
bound or affected, whether entered into in the ordinary course of business or
otherwise and whether written or oral, and there has not occurred any event that
with the lapse of time or the giving of notice, or both, would constitute such a
default or non-compliance.
5.16 BROKERS AND FINDERS. Except as Previously Disclosed, neither 1855
Bancorp nor any 1855 Bancorp Subsidiary, nor any of their respective directors,
officers or employees, has employed any broker or finder or incurred any
liability for any broker or finder fees or commissions in connection with the
transactions contemplated hereby.
5.17 INSURANCE. 1855 Bancorp and each 1855 Bancorp Subsidiary is insured
for reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance required by applicable laws and regulations.
5.18 PROPERTIES. All real and personal property owned by 1855 Bancorp or
any 1855 Bancorp Subsidiary or presently used by any of them in its respective
business is in an adequate condition (ordinary wear and tear excepted) and is
sufficient to carry on its business in the ordinary
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course of business consistent with their past practices. 1855 Bancorp has good
and marketable title free and clear of all liens, encumbrances, charges,
defaults or equities (other than equities of redemption under applicable
foreclosure laws) to all of the material properties and assets, real and
personal, reflected on the consolidated statement of financial condition of 1855
Bancorp as of October 31, 1997 included in the 1855 Bancorp Financial Statements
or acquired after such date, except (i) liens for current taxes not yet due or
payable (ii) pledges to secure deposits and other liens incurred in the ordinary
course of its banking business, (iii) such imperfections of title, easements and
encumbrances, if any, as are not material in character, amount or extent and
(iv) as reflected on the consolidated statement of financial condition of 1855
Bancorp as of October 31, 1997 included in the 1855 Bancorp Financial
Statements. All real and personal property which is material to 1855 Bancorp's
business on a consolidated basis and leased or licensed by 1855 Bancorp or an
1855 Bancorp Subsidiary is held pursuant to leases or licenses which are valid
and enforceable in accordance with their respective terms and no such real
property lease will terminate or lapse prior to the Effective Time.
5.19 LABOR. No work stoppage involving 1855 Bancorp or any 1855 Bancorp
Subsidiary is pending or, to the best knowledge of 1855 Bancorp, threatened.
Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary is involved in, or
threatened with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding involving its employees which could have a Material
Adverse Effect on 1855 Bancorp. Employees of 1855 Bancorp and the 1855 Bancorp
Subsidiaries are not represented by any labor union nor are any collective
bargaining agreements otherwise in effect with respect to such employees, and to
the best of 1855 Bancorp's knowledge, there have been no efforts to unionize or
organize any employees of 1855 Bancorp or any 1855 Bancorp Subsidiary during the
past five years.
5.20 OWNERSHIP OF SANDWICH COMMON STOCK. As of the date hereof, neither
1855 Bancorp nor, to its best knowledge, any of its affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially own, directly
or indirectly, or (ii) are parties to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, in
each case, shares of Sandwich Common Stock which in the aggregate represent 5%
or more of the outstanding shares of Sandwich Common Stock (other than shares
held in a fiduciary capacity and beneficially owned by third parties, shares
taken in consideration of debts previously contracted or in the case of 1855
Bancorp shares which may be acquired pursuant to the Sandwich Option Agreement).
5.21 CERTAIN TRANSACTIONS. Since December 31, 1996, neither 1855 Bancorp
nor any 1855 Bancorp Subsidiary has been a party to any material off-balance-
sheet transactions involving interest rate and currency swaps, options and
futures contracts, or any other similar derivative transactions, except as
Previously Disclosed.
5.22 DISCLOSURES. None of the representations and warranties of 1855
Bancorp or any of the written information or documents furnished or to be
furnished by 1855 Bancorp to Sandwich in connection with or pursuant to this
Agreement or the consummation of the transactions contemplated hereby, when
considered as a whole, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact required to be
stated or necessary to make any such information or document, in light of the
circumstances, not misleading.
5.23 DISCLOSURE SCHEDULE. The 1855 Bancorp Disclosure Schedule sets
forth, among other things, disclosures with respect to or exceptions to 1855
Bancorp's representations and
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warranties in this Article V. The mere inclusion of an exception in the 1855
Bancorp Disclosure Schedule shall not be deemed an admission by 1855 Bancorp
that such exception represents a material fact, event or circumstance.
5.24 POOLING OF INTERESTS. Neither 1855 Bancorp nor Compass Bank knows
of any reason relating to it why the Merger would not qualify as a "pooling of
interests" for accounting purposes or a tax free reorganization under Section
368 of the Code.
5.25 MERGER SUB. Upon its formation, Merger Sub will be a corporation,
duly organized, validly existing and in good standing under the laws of
Massachusetts, all of the outstanding capital stock of which is, or will be
prior to the Effective Time, owned directly or indirectly by 1855 Bancorp free
and clear of any lien, charge or other encumbrance. From and after its
incorporation, Merger Sub has not and will not engage in any activities other
than in connection with or as contemplated by this Agreement.
5.25.1 Merger Sub has, or will have prior to the Effective Time, all
corporate power and authority to consummate the transactions contemplated
hereunder and carry out all of its obliga tions with respect to such
transactions. The consummation of the transactions contemplated hereby has been,
or will have been prior to the Closing, duly and validly authorized by all
necessary corporate action in respect thereof on the part of Merger Sub.
ARTICLE VI
COVENANTS OF SANDWICH
6.1 CONDUCT OF BUSINESS.
6.1.1 AFFIRMATIVE COVENANTS. During the period from the date of this
Agreement to the Effective Time, except with the written consent of 1855
Bancorp, Sandwich will operate its business, and it will cause each of the
Sandwich Subsidiaries to operate its business, only in the usual, regular and
ordinary course of business; use reasonable efforts to preserve intact its
business organization and assets and maintain its rights and franchises; and
take no action which would (i) materially adversely affect the ability of 1855
Bancorp or Sandwich to obtain any necessary approvals of governmental
authorities required for the transactions contemplated hereby or materially
increase the period of time necessary to obtain such approvals, or (ii)
materially adversely affect its ability to perform its covenants and agreements
under this Agreement.
6.1.2 NEGATIVE COVENANTS. Sandwich agrees that from the date of this
Agreement to the Effective Time, except as otherwise specifically permitted or
required by this Agreement, or consented to by 1855 Bancorp in writing (which
consent shall not be unreasonably withheld), Sandwich will not, and will cause
each of the Sandwich Subsidiaries not to:
(a) change or waive any provision of its Charter or By-laws;
(b) change the number of shares of its authorized or issued capital
stock (except for the issuance of Sandwich Common Stock pursuant to the
Sandwich Option Agreement or upon the exercise of outstanding Sandwich
Options under the Sandwich Stock Option Plans, as contemplated by
Section 4.1 hereof);
(c) issue or grant any option, warrant, call, commitment, subscription,
right to purchase or agreement of any character relating to the authorized or
issued capital stock of Sandwich or any of the Sandwich Subsidiaries, or any
securities convertible into shares of
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such stock; except that (i) Sandwich may issue shares of Sandwich Common
Stock or permit treasury shares to become outstanding to satisfy presently
outstanding options under and in accordance with the terms of the Sandwich
Stock Option Plans and (ii) Sandwich may issue shares of Sandwich Common
Stock to 1855 Bancorp in accordance with the terms of the Sandwich Option
Agreement;
(d) effect any recapitalization, reclassification, stock dividend, stock
split or like change in capitalization, or redeem, repurchase or otherwise
acquire any shares of its capital stock;
(e) declare or pay any dividends or other distributions with respect to
its capital stock except for a quarterly cash dividend not in excess of $0.35
per share, declared and paid in accordance with applicable law, regulation
and contractual and regulatory commitments and for dividends paid by any
Sandwich Subsidiary to Sandwich;
(f) enter into, amend in any material respect or terminate any contract
or agreement (including without limitation any settlement agreement with
respect to litigation) except in the ordinary course of business consistent
with past practice; provided, however, that Sandwich shall have the right, on
or before the Effective Time, to amend (i) its Supplemental Retirement Plans
to nullify section 10.01(b) thereof, (ii) its defined benefit Pension Plan to
ensure that any excess funding projected as of the Effective Time inures
solely to the benefit of Sandwich's employees who are plan participants (but
only to the extent that 1855 Bancorp receives confirmation from CBERA, or
otherwise receives confirmation, in each case reasonably satisfactory to it,
that such amendment will not result in any liability, contingent or
otherwise, to 1855 Bancorp or its Subsidiaries), and (iii) each employment
agreement to permit the employee who is party to the agreement to elect, more
than 90 days before the Effective Time, to receive severance benefits in
designated annual installments over a future period of up to two years after
the Effective Time, with interest accruing at the prevailing one-year
constant maturity treasury rate;
(g) amend (either orally or in writing), terminate, waive or provide
consent under any Standstill Agreement in a manner that permits any party
thereto to purchase any Sandwich Common Stock, or, except as the fiduciary
duties of the Sandwich Board of Directors require and after giving prior
written notice to 1855 Bancorp, otherwise amend (either orally or in
writing), terminate, waive or provide consent under any Standstill Agreement;
(h) except in the ordinary course of business consistent with past
practice, incur any material liabilities or material obligations, whether
directly or by way of guaranty, including any obligation for borrowed money
whether or not evidenced by a note, bond, debenture or similar instrument
(other than FHLB advances not exceeding 110% of the December 31, 1997 level),
or acquire any equity, debt, or other investment securities;
(i) make any capital expenditures in excess of $25,000 individually or
$100,000 in the aggregate, other than pursuant to Previously Disclosed
binding commitments existing on the date hereof;
(j) make or commit to make any commercial or commercial real estate loan
or loans to one borrower (including such borrower's related interests) in an
aggregate principal balance (or with an aggregate commitment) of $1,000,000
or more;
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(k) grant any increase in rates of compensation to its employees, except
merit increases in accordance with past practices and general increases to
employees as a class in accordance with past practice or as required by law;
grant any increase in rates of compensation to, or pay or agree to pay any
bonus or severance to, or provide any other new employee benefit or incentive
to its directors or to its officers who are currently covered by employment
or severance agreements with Sandwich except for nondiscretionary payments
required by such agreements and except for increases in officer compensation
rates by no more than 4.5% on an aggregate basis; enter into any employment,
severance or similar agreements or arrangements with any director or
employee; adopt or amend in any material respect or terminate any employee
benefit plan, pension plan or incentive plan except as required by law or the
terms of such plan or as provided in Section 6.1.2, or permit the vesting of
any material amount of benefits under any such plan other than pursuant to
the provisions thereof as in effect on the date of this Agreement; or make
any contributions to Sandwich's deferred compensation plans, supplemental
executive retirement plans, grantor trust, defined benefit Pension Plan or
401(k) Plan not in the ordinary course of business consistent with past
practice; or make any contributions to Sandwich's Employee Stock Ownership
Plan, other than contributions, based on Sandwich's accrual levels in effect
for 1998 on the date of this Agreement, for the period ending on the
Effective Time; or make any cash bonus payments pursuant to Sandwich's
Management Incentive Compensation Plan, other than (i) accrued but unpaid
amounts from March through December 1997 and amounts to be accrued in January
and February 1998 equal to $24,167 per month, and (ii) the budgeted amount
accruing from March 1, 1998 through the earlier to occur of December 31, 1998
or the Effective Time (it being understood that the monthly budgeted amount
is equal to $24,167 and that such amount will be paid prior to the Effective
Time to then-current employees of Sandwich or any Subsidiary); or make any
contributions to Sandwich's Grantor Trust other than nondiscretionary
contributions required by the terms of the applicable Benefit Plan;
(l) make application for the opening or closing of any, or open or close
any, branch or automated banking facility;
(m) make any equity investment or commitment to make such an investment
in real estate or in any real estate development project, other than in
connection with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructurings in the ordinary course of business
consistent with customary banking practices;
(n) except as the fiduciary duties of the Board of Directors otherwise
requires (as determined in good faith upon the advice of legal counsel),
merge into, consolidate with, affiliate with, or be purchased or acquired by,
any other Person, or permit any other to be merged, consolidated or
affiliated with it or be purchased or acquired by it, or, except to realize
upon collateral in the ordinary course of its business, acquire a significant
portion of the assets of any other Person, or sell a significant portion of
its assets;
(o) make any material change in its accounting methods or practices,
except changes as may be required by GAAP or by regulatory requirements;
(p) enter into any off-balance sheet transaction involving interest rate
and currency swaps, options and futures contracts, or any other similar
derivative transactions;
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(q) knowingly take any action that would result in the representations
and warranties of Sandwich contained in this Agreement not being true and
correct on the date of this Agreement or at any future date on or prior to
the Closing Date;
(r) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code, including, without limitation,
cashing out or accelerating any Sandwich Options, except for automatic
acceleration in accordance with the terms of such Sandwich Options; or
(s) agree to do any of the foregoing.
6.2 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, Sandwich will cause one or more of its
representatives to confer with representatives of 1855 Bancorp and report the
general status of its ongoing operations at such times as 1855 Bancorp may
reasonably request. Sandwich will promptly notify 1855 Bancorp of any material
change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving Sandwich. Sandwich will also provide 1855 Bancorp such
information with respect to such events as 1855 Bancorp may reasonably request
from time to time. As soon as reasonably available, but in no event more than 45
days after the end of each calendar quarter ending after the date of this
Agreement (other than the last quarter of each fiscal year ending December 31),
the Sandwich will deliver to 1855 Bancorp its quarterly report on Form 10-Q
under the Exchange Act, and, as soon as reasonably available, but in no event
more than 90 days after the end of each fiscal year, Sandwich will deliver to
1855 Bancorp its Annual Report on Form 10-K. Within 25 days after the end of
each month, Sandwich will deliver to 1855 Bancorp a consolidated balance sheet
and a consolidated statement of operations, without related notes, for such
month.
6.3 ACCESS TO PROPERTIES AND RECORDS. Sandwich shall permit 1855 Bancorp
reasonable access upon reasonable notice to its properties and those of the
Sandwich Subsidiaries, and shall disclose and make available to 1855 Bancorp
during normal business hours all of its books, papers and records relating to
the assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and stockholders'
meetings, organizational documents, by-laws, material contracts and agreements,
filings with any regulatory authority, litigation files, plans affecting
employees, and any other business activities or prospects in which 1855 Bancorp
may have a reasonable interest; provided, however, that Sandwich shall not be
required to take any action that would provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights or business interests or confidences of any customer or other person or
would result in the waiver by it of the privilege protecting communications
between it and any of its counsel. Sandwich shall provide and shall request its
auditors to provide 1855 Bancorp with such historical financial information
regarding it (and related audit reports and consents) as 1855 Bancorp may
reasonably request for securities disclosure purposes.
6.4 FINANCIAL AND OTHER STATEMENTS.
6.4.1 Promptly upon receipt thereof, Sandwich will furnish to 1855 Bancorp
copies of each annual, interim or special audit of the books of Sandwich and the
Sandwich Subsidiaries made
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by its independent accountants and copies of all internal control reports
submitted to Sandwich by such accountants in connection with each annual,
interim or special audit of the books of Sandwich and the Sandwich Subsidiaries
made by such accountants.
6.4.2 As soon as practicable, Sandwich will furnish to 1855 Bancorp copies
of all such financial statements and reports as it or any Subsidiary shall send
to its stockholders, the SEC, the Bank Commissioner, the FDIC or any other
regulatory authority, except as legally prohibited thereby.
6.4.3 Sandwich will advise 1855 Bancorp promptly of the receipt of any
examination report of any federal or state regulatory or examination authority
with respect to the condition or activities of Sandwich or any of the Sandwich
Subsidiaries.
6.4.4 With reasonable promptness, Sandwich will furnish to 1855 Bancorp
such additional financial data as 1855 Bancorp may reasonably request, including
without limitation, detailed monthly financial statements and loan reports.
6.5 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective Time,
Sandwich will promptly supplement or amend the Disclosure Schedules delivered in
connection herewith pursuant to Article IV with respect to any material matter
hereafter arising which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedules or which is necessary to correct any information in such
Schedules which has been rendered inaccurate thereby. No supplement or
amendment to such Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article IX.
6.6 CONSENTS AND APPROVALS OF THIRD PARTIES. Sandwich shall use all
reasonable efforts to obtain as soon as practicable all consents and approvals
of any other Persons necessary or desirable for the consummation of the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, Sandwich shall utilize the services of a professional proxy
soliciting firm to help obtain the shareholder vote required to be obtained by
it hereunder.
6.7 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Sandwich agrees to use all reasonable efforts to take, or cause to be
taken, all corporate or other action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, Sandwich agrees to take all
such actions as 1855 Bancorp may reasonably request in order to enforce its
rights under, and hereby grants 1855 Bancorp the irrevocable right and authority
to act as Sandwich's agent for purposes of enforcing its rights under, all
Standstill Agreements to the extent that any other party to any Standstill
Agreement purchases or attempts to purchase any shares of Sandwich Common Stock
in violation thereof.
6.8 FAILURE TO FULFILL CONDITIONS. In the event that Sandwich determines
that a condition to its obligation to complete the Merger cannot be fulfilled
and that it will not waive that condition, it will promptly notify 1855 Bancorp.
6.9 NO SOLICITATION. Unless and until this Agreement shall have been
properly terminated by either party pursuant to Section 111 hereof, neither
Sandwich nor any of its subsidiaries shall (and Sandwich and Sandwich Bank shall
use all commercially reasonable efforts to cause its
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representatives, including, but not limited to, investment bankers, attorneys
and accountants, not to), directly or indirectly, encourage, solicit, initiate
or participate in any discussions or negotiations with, or, provide any
information to, any corporation, partnership, person or other entity or group
(other than 1855 Bancorp and its affiliates or Representatives) concerning any
merger, tender offer, sale of substantial assets, sale of shares of capital
stock or debt securities or similar transaction involving Sandwich or Sandwich
Bank (an "Acquisition Transaction"); provided, however that Sandwich and its
-----------------------
representatives shall be permitted to participate in discussions or negotiations
with, or provide information to, any other corporation, partnership, person or
other entity or group with respect to an Acquisition Transaction if the Board of
Directors of Sandwich determines (in good faith upon the advice of outside
counsel) that their fiduciary duties require them to do so. Notwithstanding the
foregoing, nothing contained in this Section 6.9 shall prohibit Sandwich or its
Board of Directors from taking and disclosing to Sandwich's stockholders a
position with respect to a tender offer by a third party pursuant to Rules 14d-9
and 14e-2(a) promulgated under the Exchange Act or from making such disclosure
to Sandwich's stockholders which, in the judgment of the Board of Directors
(upon the advice of counsel), may be required under applicable law or is
necessary in order to comply with its fiduciary obligations. Sandwich will
immediately communicate to 1855 Bancorp the terms of any proposal, discussion,
negotiation or inquiry relating to an Acquisition Transaction and the identity
of the party making such proposal or inquiry which it may receive in respect of
any such transaction (which shall mean that any such communication shall be
delivered no less promptly than by telephone within 24 hours of Sandwich's
receipt of any such proposal or inquiry) or its receipt of any request for
information from the FRB, the DOJ, or any other governmental agency or authority
with respect to a proposed Acquisition Transaction. Sandwich shall continue to
consult with 1855 Bancorp after receipt of such proposal or commencement of such
discussion or negotiation relating to an Acquisition Transaction, and will not
take any action with respect to such proposed Acquisition Transaction except
after reasonable consultation with 1855 Bancorp.
6.10 CEASE NEGOTIATIONS. Sandwich hereby agrees to cease all pending
discussions or negotiations with other interested persons relating to a possible
merger with or acquisition of Sandwich, and to instruct all such persons to
immediately return to Sandwich all copies of the evaluation materials provided
to such persons by Sandwich, without retaining any copy thereof, and to destroy
any notes such persons or their representatives may have prepared relating to a
possible combination with Sandwich, as required by the terms of the Standstill
Agreements between such parties and Sandwich; provided, however, that the
foregoing shall not be deemed to prevent Sandwich from acting in the future in
the manner permitted by Section 6.9.
ARTICLE VII
COVENANTS OF 1855 BANCORP
7.1 CONDUCT OF BUSINESS. During the period from the date of this
Agreement to the Effective Time, except with the written consent of Sandwich and
except as provided below, 1855 Bancorp will take no action which would (i)
materially adversely affect the ability of 1855 Bancorp or Sandwich to obtain
any necessary approvals of governmental authorities required for the transac
tions contemplated hereby or materially increase the period of time necessary to
obtain such approvals, or (ii) materially adversely affect its ability to
perform its covenants and agreements under this Agreement, (iii) disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 3.6.8 of the Code; or (iv) result in the
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representations and warranties of 1855 Bancorp contained in this Agreement not
being true and correct on the date of this Agreement or at any future date on or
prior to the Closing Date; provided that nothing herein contained shall preclude
1855 Bancorp from exercising its rights under the Sandwich Option Agreement or
taking any action Previously Disclosed, and provided further, that nothing
herein shall preclude 1855 Bancorp from electing to convert its charter to a
federal mutual holding company charter, subject to applicable law and
regulation.
7.2 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, 1855 Bancorp will cause one or more of its
representatives to confer with represen tatives of Sandwich and report the
general status of its ongoing operations at such times as Sandwich may
reasonably request. 1855 Bancorp will promptly notify Sandwich of any material
change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving 1855 Bancorp. 1855 Bancorp will also provide Sandwich such
information with respect to such events as Sandwich may reasonably request from
time to time. As soon as reasonably available, but in no event more than 45 days
after the end of each calendar quarter ending after the date of this Agreement
(other than the last quarter of each fiscal year ending October 31), the 1855
Bancorp will deliver to Sandwich a consolidated balance sheet and a consolidated
statement of operations, without related notes, for such quarter prepared in
accordance with generally accepted accounting principles, and within 25 days
after the end of each month, 1855 Bancorp will deliver to Sandwich a
consolidated balance sheet and a consolidated statement of operations, without
related notes, for such month prepared in accordance with generally accepted
accounting principles.
7.3 ACCESS TO PROPERTIES AND RECORDS. 1855 Bancorp shall permit Sandwich
reasonable access upon reasonable notice to its properties and those of its
subsidiaries, and shall disclose and make available to Sandwich during normal
business hours all of its books, papers and records relating to the assets,
stock ownership, properties, operations, obligations and liabilities, including,
but not limited to, all books of account (including the general ledger), tax
records, minute books of directors' and stockholders' meetings, organizational
documents, by-laws, material contracts and agreements, filings with any
regulatory authority, litigation files, plans affecting employees, and any other
business activities or prospects in which Sandwich may have a reasonable
interest; provided, however, that 1855 Bancorp shall not be required to take any
action that would provide access to or to disclose information where such access
or disclosure would violate or prejudice the rights or business interests or
confidences of any customer or other person or would result in the waiver by it
of the privilege protecting communications between it and any of its counsel.
7.4 FINANCIAL AND OTHER STATEMENTS.
7.4.1 Promptly upon receipt thereof, 1855 Bancorp will furnish to Sandwich
copies of each annual, interim or special audit of the books of 1855 Bancorp and
its subsidiaries made by its independent accountants and copies of all internal
control reports submitted to 1855 Bancorp by such accountants in connection with
each annual, interim or special audit of the books of 1855 Bancorp and its
subsidiaries made by such accountants.
7.4.2 As soon as practicable, 1855 Bancorp will furnish to Sandwich copies
of all such financial statements and reports as it or any Subsidiary shall send
to the Bank Commissioner, the FDIC, the FRB or any other regulatory authority,
except as legally prohibited thereby.
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7.4.3 1855 Bancorp will advise Sandwich promptly of the receipt of any
examination report of any federal or state regulatory or examination authority
with respect to the condition or activities of 1855 Bancorp or any of its
subsidiaries.
7.4.4 With reasonable promptness, 1855 Bancorp will furnish to Sandwich
such additional financial data as Sandwich may reasonably request, including
without limitation, detailed monthly financial statements and loan reports.
7.5 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective
Time, 1855 Bancorp will promptly supplement or amend the Disclosure Schedules
delivered in connection herewith pursuant to Article V with respect to any
material matter hereafter arising which, if existing, occur ring 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 Schedules which has been rendered inaccurate thereby. No supplement or
amendment to such Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article IX.
7.6 CONSENTS AND APPROVALS OF THIRD PARTIES. 1855 Bancorp shall use all
reasonable efforts to obtain as soon as practicable all consents and approvals
of any other Persons necessary or desirable for the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
approval of its Corporators of the Conversion.
7.7 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, 1855 Bancorp agrees to use all reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement.
7.8 FAILURE TO FULFILL CONDITIONS. In the event that 1855 Bancorp
determines that a condition to its obligation to complete the Merger cannot be
fulfilled and that it will not waive that condition, it will promptly notify
Sandwich.
7.9 EMPLOYEE BENEFITS.
7.9.1 All employees of Sandwich and its Subsidiaries as of the Effective
Time shall become employees of 1855 Bancorp or an 1855 Bancorp Subsidiary as of
the Effective Time. Nothing in this Agreement shall give any employee of
Sandwich or its Subsidiaries a right to continuing employment with 1855 Bancorp
or any Subsidiary thereof after the Effective Time. Any employee of Sandwich or
any Sandwich Subsidiary whose employment with 1855 Bancorp or any 1855 Bancorp
Subsidiary is terminated by 1855 Bancorp within one year after the Effective
Time shall be entitled to receive (i) a lump-sum severance benefit in an amount
equal to two-weeks' pay for each year of employment (with partial years of
service included in the calculation on a pro-rated basis), up to a maximum of 26
weeks' pay, and (ii) continuation of health benefits, on the same terms and
conditions applicable to 1855 Bancorp's active employees, for the same number of
weeks factored into the calculation of severance payments, and thereafter COBRA
benefits for an additional period of time determined as though the Sandwich
employee terminates employment upon expiration of the period covered by said
continued health benefits.
7.9.2 As soon as practicable after the Effective Time, 1855 Bancorp shall
provide or cause to be provided to all employees of Sandwich and any Sandwich
Subsidiary who remain employed by 1855 Bancorp or any 1855 Bancorp Subsidiary
after the Effective Time with
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employee benefits which, in the aggregate, are no less favorable than those
generally afforded to other em ployees of 1855 Bancorp or the 1855 Bancorp
Subsidiaries holding similar positions, subject to the terms and conditions
under which those employee benefits are made available to such employees,
provided, however, that (i) for purposes of determining eligibility for and
vesting of such employee benefits only (and not for pension benefit accrual
purposes), service with Sandwich or any Sandwich Subsidiary prior to the
Effective Time shall be treated as service with an "employer" as if such persons
had been employees of 1855 Bancorp, to the extent permissible under the terms of
1855 Bancorp's Employee Plans, (ii) this Section 7.9 shall not be construed to
limit the ability of 1855 Bancorp and its Subsidiaries to terminate the
employment of any employee or to review employee benefits programs from time to
time and to make such changes as they deem appropriate, and (iii) 1855 Bancorp
or a Subsidiary shall continue to provide post-retirement medical benefits to
former employees of Sandwich who as of the Effective Time are receiving post-
retirement medical benefits in accordance with Sandwich's Previously Disclosed
retiree health care Plans I, II, and III, (iv) 1855 Bancorp shall honor any and
all vacation leave (but not sick leave) accrued by Sandwich's employees, except
to the extent of any duplication of benefits, and (v) no preexisting condition
exclusion that is currently inapplicable to a Sandwich employee and/or the
employee's covered dependents shall affect their rights to health benefits or
coverage under 1855 Bancorp's plans, to the extent permissible under such plans.
7.9.3 Sandwich has Previously Disclosed to 1855 Bancorp certain employment
and change of control agreements, deferred compensation plans, Grantor Trust
Agreement, Supplemental Retirement Plans and Split Dollar Insurance Agreements
(collectively, "Benefit Agreements") and the Sandwich Employee Stock Ownership
Plan (the "ESOP"). Following the Effective Time, 1855 Bancorp shall honor or
cause its Subsidiaries to honor in accordance with their terms all such
Previously Disclosed Benefit Agreements and the ESOP and assume or cause its
Subsidiaries to assume all duties, liabilities and obligations under such
agreements and arrangements. 1855 Bancorp agrees that (i) the consummation of
the transactions contemplated hereby constitutes a "Change in Control" as
defined in the Benefit Agreements, and (ii) each of Sandwich's officers who is
party to an employment agreement with Sandwich will be deemed to have suffered a
material change in their responsibilities and supervision as of the Effective
Time, it being understood that the President of Sandwich shall terminate
employment as of the Effective Time and receive payments under Section 11(a) of
his Employment at such time.
7.10 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE.
7.10.1 1855 Bancorp shall maintain, or shall cause Compass Bank to
maintain, in effect for six years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by
Sandwich (provided, that 1855 Bancorp may substitute therefor policies of at
least the same coverage containing terms and conditions which are not materially
less favorable) with respect to matters occurring prior to the Effective Time;
provided, however, that in no event shall 1855 Bancorp be required to expend
pursuant to this Section 7.10.1 more than $60,000 in the aggregate. In
connection with the foregoing, Sandwich agrees to provide such insurer or
substitute insurer with such representations as such insurer may request with
respect to the reporting of any prior claims.
7.10.2 From and after the Effective Time, 1855 Bancorp shall, or shall
cause Compass Bank to, indemnify, defend and hold harmless each person who is
now, or who has been at any time before the date hereof or who becomes before
the Effective Time, an officer or director
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of Sandwich or the Sandwich Subsidiaries or any of their respective subsidiaries
(the "Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorney's fees), liabilities or judgments or amounts that are paid
in settlement (which settlement shall require the prior written consent of 1855
Bancorp, which consent shall not be unreasonably withheld) of or in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, or administrative (each a "Claim"), in which an Indemnified Party is,
or is threatened to be made, a party or witness in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer or employee of Sandwich or any of its subsidiaries if such
Claim pertains to any matter of fact arising, existing or occurring before the
Effective Time (including, without limitation, the Merger and the other
transactions contemplated hereby), regardless of whether such Claim is asserted
or claimed before, or at or after, the Effective Time (the "Indemnified
Liabilities"), to the fullest extent permitted under applicable state or federal
law in effect as of the date hereof or as amended applicable to a time before
the Effective Time and under Sandwich's and Sandwich Bank's Articles of
Organization or Charter and By-Laws. 1855 Bancorp shall pay expenses in advance
of the final disposition of any such action or proceeding to each Indemnified
Party to the full extent permitted by applicable state or federal law in effect
as of the date hereof or as amended applicable to a time before the Effective
Time upon receipt of an undertaking to repay such advance payments if he shall
be adjudicated or determined to be not entitled to indemnification in the manner
set forth below. Any Indemnified Party wishing to claim indemnification under
this Section 7.10.2 upon learning of any Claim, shall notify 1855 Bancorp (but
the failure so to notify 1855 Bancorp shall not relieve it from any liability
which it may have under this Section 7.10.2, except to the extent such failure
materially prejudices 1855 Bancorp) and shall deliver to 1855 Bancorp the
undertaking referred to in the previous sentence. In the event of any such Claim
(whether arising before or after the Effective Time) (1) 1855 Bancorp shall have
the right to assume the defense thereof (in which event the Indemnified Parties
will cooperate in the defense of any such matter) and upon such assumption 1855
Bancorp 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 1855 Bancorp elects
not to assume such defense, or counsel for the Indemnified Parties reasonably
advises the Indemnified Parties that there are or may be (whether or not any
have yet actually arisen) issues which raise conflicts of interest between 1855
Bancorp and the Indemnified Parties, the Indemnified Parties may retain counsel
reasonably satisfactory to them, and 1855 Bancorp shall pay the reasonable fees
and expenses of such counsel for the Indemnified Parties, (2) 1855 Bancorp shall
be obligated pursuant to this paragraph to pay for only one firm of counsel for
all Indemnified Parties whose reasonable fees and expenses shall be paid
promptly as statements are received, (3) 1855 Bancorp shall not be liable for
any settlement effected without its prior written consent (which consent shall
not be unreasonably withheld) and (4) no Indemnified Party shall be entitled to
indemnification hereunder with respect to a matter as to which (x) he shall have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his action was in the best interests of Sandwich or any
Subsidiary, or (y) in the event that a proceeding is compromised or settled so
as to impose any liability or obligation upon an Indemnified Party, if there is
a determination that with respect to said matter said Indemnified Party did not
act in good faith in the reasonable belief that his action was in the best
interests of Sandwich or any Subsidiary. The determination shall be made by a
majority vote of the Directors of 1855 Bancorp who were formerly directors of
Sandwich and who are not involved in such proceeding (the "Former Sandwich
Directors"), or, if a majority of the Former Sandwich Directors are involved in
the proceeding, by a committee of three
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disinterested Former Sandwich Directors chosen by all of the Former Sandwich
Directors for the purpose of making such determination.
7.10.3 In the event that either 1855 Bancorp or Compass Bank or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving bank or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns of 1855 Bancorp shall assume the obligations set
forth in this Section 7.10.
7.10.4 The obligations of 1855 Bancorp provided under this Section 7.10 are
intended to be enforceable against 1855 Bancorp directly by the Indemnified
Parties and shall be binding on all respective successors and permitted assigns
of 1855 Bancorp.
7.11 MERGER SUB. Prior to the Effective Time, 1855 Bancorp will take any
and all necessary action to cause (i) Merger Sub to be organized, (ii) Merger
Sub to become a direct or indirect wholly-owned subsidiary of 1855 Bancorp,
(iii) the directors and stockholder or stock holders of Merger Sub to approve
the transactions contemplated by this Agreement, and (iv) Merger Sub to execute
one or more counterparts of this Agreement and to deliver at least one such
counterpart so executed to Sandwich, whereupon Merger Sub shall become a party
to and be bound by this Agreement.
7.12 STOCK LISTING. 1855 Bancorp agrees to list on the Stock Exchange
(or such other national securities exchange on which the shares of 1855 Bancorp
Common Stock shall be listed as of the date of consummation of the Merger),
subject to official notice of issuance, the shares of 1855 Common Stock to be
issued in the Merger.
ARTICLE VIII
REGULATORY AND OTHER MATTERS
8.1 SANDWICH SPECIAL MEETING. Sandwich will (i) as promptly as practicable
after the Merger Registration Statement is declared effective by the SEC, take
all steps necessary to duly call, give notice of, convene and hold a meeting of
its stockholders (the "Sandwich Stockholders Meeting") for the purpose of
approving this Agreement and the Merger, and for such other purposes as may be,
in Sandwich's reasonable judgment, necessary or desirable, (ii) subject to the
fiduciary responsibility of the Board of Directors of Sandwich as advised by
counsel, recommend to its stockholders the approval of the aforementioned
matters to be submitted by it to its stockholders, and (iii) cooperate and
consult with 1855 Bancorp with respect to each of the foregoing matters.
8.2 PROXY STATEMENT-PROSPECTUS.
8.2.1 For the purposes (x) of registering 1855 Bancorp's Common Stock to be
issued to holders of Sandwich Common Stock in connection with the Merger with
the SEC under the Securities Act and applicable state securities laws and (y) of
holding the Sandwich shareholders' meeting, 1855 Bancorp and Sandwich shall
cooperate in the preparation of a registration statement (such registration
statement, together with all and any amendments and supplements thereto, being
herein referred to as the "Merger Registration Statement"), including a proxy
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statement/prospectus or statements satisfying all applicable requirements of
applicable state securities and banking laws, and of the Securities Act and the
Exchange Act, and the rules and regulations thereunder (such
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proxy statement/prospectus in the form mailed by Sandwich to the Sandwich
shareholders, together with any and all amendments or supplements thereto, being
herein referred to as the "Proxy Statement-Prospectus"). 1855 Bancorp shall
--------------------------
file the Merger Registration Statement with the SEC. Each of 1855 Bancorp and
Sandwich shall use their best efforts to have the Merger Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing, and Sandwich shall thereafter promptly mail the Proxy Statement-
Prospectus to its stockholders. 1855 Bancorp shall also use its best efforts to
obtain all necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement, and
Sandwich shall furnish all information concerning Sandwich and the holders of
Sandwich Common Stock as may be reasonably requested in connection with any such
action.
8.2.2 The parties shall provide each other with any information concerning
itself that the other party may reasonably request in connection with the Proxy
Statement-Prospectus and 1855 Bancorp shall notify Sandwich promptly of the
receipt of any comments of the SEC with respect to the Proxy Statement-
Prospectus and of any requests by the SEC for any amendment or supplement
thereto or for additional information and shall provide to Sandwich promptly
copies of all correspondence between 1855 Bancorp or any representative of 1855
Bancorp and the SEC. 1855 Bancorp shall give Sandwich and its counsel the
opportunity to review and comment on the Proxy Statement -Prospectus prior to
its being filed with the SEC and shall give Sandwich and its counsel the
opportunity to review and comment on all amendments and supplements to the Proxy
Statement-Prospectus and all responses to requests for additional information
and replies to comments prior to their being filed with, or sent to, the SEC.
Each of 1855 Bancorp and Sandwich agrees to use all reasonable efforts, after
consultation with the other party hereto, to respond promptly to all such
comments of and requests by the SEC and to cause the Proxy Statement-Prospectus
and all required amendments and supplements thereto to be mailed to the holders
of Sandwich Common Stock entitled to vote at the Sandwich Stockholders Meeting
referred to in Section 81 hereof at the earliest practicable time.
8.2.3 Sandwich and 1855 Bancorp shall promptly notify the other party if
at any time it becomes aware that the Proxy Statement-Prospectus or the Merger
Registration Statement contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. In such event, Sandwich and 1855 Bancorp shall
cooperate in the preparation of a supplement or amendment to such Proxy
Statement-Prospectus which corrects such misstatement or omission, and shall
cause an amended Merger Registration Statement to be filed with the SEC and an
amended Proxy Statement-Prospectus to be mailed to Sandwich's stockholders.
Sandwich and 1855 Bancorp shall each provide to the other a "comfort" letter
from its independent certified public accountant, dated as of the date of the
Proxy Statement-Prospectus and updated as of the date of consummation of the
Merger, with respect to certain financial information regarding Sandwich and
1855 Bancorp, respectively, each in form and substance which is customary in
transactions such as the Merger.
8.3 1855 BANCORP CONVERSION FROM MUTUAL TO STOCK FORM. Commencing
promptly after the date of this Agreement, 1855 Bancorp and Compass Bank will
take all reasonable steps neces sary to effect the Conversion and 1855 Bancorp
shall use its best efforts to satisfy the conditions to closing set forth in
Section 9.2.5. In addition, without limiting the generality of the foregoing,
1855 Bancorp shall cause the following to be done:
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8.3.1 1855 Bancorp shall duly call, give notice of, convene and hold a
special meeting of its Board of Corporators as soon as practicable for the
purpose of approving the Conversion. The Board of Trustees of 1855 Bancorp will
recommend to the Corporators the approval of the Conversion.
8.3.2 1855 Bancorp will use all reasonable efforts to prepare and file all
required regulatory applications required in connection with the Conversion,
including, without limitation, filing applications with the Bank Commissioner,
the FDIC and the FRB.
8.3.3 1855 Bancorp shall prepare as promptly as practicable, and Sandwich
shall co-operate in the preparation of, a prospectus (the "Conversion
Prospectus") meeting all requirements of applicable federal and state securities
and banking laws and regulations. Such Conversion Prospectus shall be
incorporated into a Form S-1 Registration Statement (the "Form S-1") satisfying
all applicable requirements of the Securities Act, and the rules and regulations
thereunder. 1855 Bancorp shall file the Form S-1 with the SEC. Each of 1855
Bancorp and Sandwich shall use their reasonable best efforts to have the Form S-
1 declared effective under the Securities Act as promptly as practicable after
such filing, and 1855 Bancorp shall thereafter promptly mail the Conversion
Prospectus to its qualified depositors.
8.3.4 Sandwich shall provide 1855 Bancorp with any information concerning
it that 1855 Bancorp may reasonably request in connection with the Conversion
Prospectus, and 1855 Bancorp shall notify Sandwich promptly of the receipt of
any comments of the SEC, the FDIC or the Bank Commissioner with respect to the
Conversion Prospectus and of any requests by the SEC, the FDIC or the Bank
Commissioner for any amendment or supplement thereto or for additional
information, and shall provide to Sandwich promptly copies of all correspondence
between 1855 Bancorp or any representative of 1855 Bancorp and the SEC, the FDIC
or the Bank Commissioner. 1855 Bancorp shall give Sandwich and its counsel the
opportunity to review and comment on the Conversion Prospectus prior to its
being filed with the SEC, the Bank Commissioner and the FDIC and shall give
Sandwich and its counsel the opportunity to review and comment on all amendments
and supplements to the Conversion Prospectus and all responses to requests for
additional information and replies to comments prior to their being filed with,
or sent to, the SEC, the Bank Commissioner, and the FDIC. Each of 1855 Bancorp
and Sandwich agrees to use all reasonable efforts, after consultation with the
other party hereto, to respond promptly to all such comments of and requests by
the Bank Commissioner, FDIC and the SEC and to cause the Conversion Prospectus
and all required amendments and supplements thereto to be mailed to the
qualified depositors of Compass Bank at the earliest practicable time.
8.3.5 Sandwich shall promptly notify 1855 Bancorp if at any time it becomes
aware that the Conversion Prospectus or the Form S-1 contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading. In such event,
Sandwich and 1855 Bancorp shall cooperate in the preparation of a supplement or
amendment to such Conversion Prospectus, which corrects such misstatement or
omission, and shall cause an amended Form S-1 to be filed with the SEC.
Sandwich shall provide to 1855 Bancorp a "comfort" letter from the independent
certified public accountants for Sandwich, dated as of the date of the
Conversion Prospectus and updated as of the date of consummation of the
Conversion, with respect to certain financial information regarding Sandwich,
each in form and substance which is customary in transactions such as the
Conversion, and shall cause its counsel to
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deliver to the placement agent for the Conversion such opinions as 1855 Bancorp
may reasonably request.
8.4 REGULATORY APPROVALS. Each of Sandwich and 1855 Bancorp will
cooperate with the other and use all reasonable efforts to promptly prepare all
necessary documentation, to effect all necessary filings and to obtain all
necessary permits, consents, approvals and authorizations of all third parties
and governmental bodies necessary to consummate the transactions contemplated by
this Agreement, including without limitation the Merger, the Bank Merger and the
Conversion. Sandwich and 1855 Bancorp will furnish each other and each other's
counsel with all information concerning themselves, their subsidiaries,
directors, officers and stockholders and such other matters as may be necessary
or advisable in connection with the Conversion Prospectus, the Proxy Statement-
Prospectus and any application, petition or any other statement or application
made by or on behalf of Sandwich or 1855 Bancorp to any governmental body in
connection with the Conversion, the Merger, the Bank Merger, and the other
transactions contemplated by this Agree ment. Sandwich and 1855 Bancorp shall
have the right to review and approve in advance all charac terizations of the
information relating to 1855 Bancorp or Sandwich, as the case may be, and any of
their respective subsidiaries, which appear in any filing made in connection
with the transactions contemplated by this Agreement with any governmental body.
In addition, Sandwich and 1855 Bancorp shall each furnish to the other for
review a copy of each such filing made in connection with the transactions
contemplated by this Agreement with any governmental body prior to its filing.
8.5 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS.
8.5.1 Sandwich shall use all reasonable efforts to cause each director,
executive officer and other person who is an "affiliate" (for purposes of Rule
145 under the Securities Act and for purposes of qualifying the Merger for
"pooling of interests" accounting treatment) of Sandwich to deliver to 1855
Bancorp, as soon as practicable after the date of this Agreement, and prior to
the date of the shareholders meeting called by Sandwich to approve this
Agreement, a written agreement, in the form of Exhibit C hereto, providing that
---------
such person will not sell, pledge, transfer or otherwise dispose of any shares
of 1855 Common Stock or Sandwich Common Stock now or hereafter held by such
"affiliate", including, without limitation, the shares of 1855 Common Stock to
be received by such "affiliate" in the Merger: (1) otherwise than in compliance
with the applicable provisions of the Securities Act and the rules and
regulations thereunder or (2) during the period commencing 30 days prior to the
consummation of the Merger and ending at the time of the publication of
financial results covering at least 30 days of combined operations of 1855
Bancorp and Sandwich.
8.5.2 1855 Bancorp shall use its best efforts to publish no later than
thirty (30) days after the end of the first month after the Effective Time in
which there are at least thirty (30) days of post-Merger combined operations
(which month may be the month in which the Effective Time occurs), combined
sales and net income figures as contemplated by and in accordance with the terms
of SEC Accounting Series Release No. 135.
ARTICLE IX
CLOSING CONDITIONS
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT. The
respective obligations of each party under this Agreement shall be subject to
the fulfillment at or prior to the
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Pre-Closing Date of the following conditions, none of which may be waived:
9.1.1 STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved in accordance with applicable law,
Articles of Organization, By-laws and NASD policy by the requisite vote of the
stockholders of Sandwich.
9.1.2 INJUNCTIONS. None of the parties hereto shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consum mation of the transactions contemplated by this
Agreement.
9.1.3 REGULATORY APPROVALS. All necessary approvals, authorizations and
consents of all governmental bodies required to consummate the transactions
contemplated by this Agreement shall have been obtained and shall remain in full
force and effect and all waiting periods relating to such approvals,
authorizations or consents shall have expired; and no such approval,
authorization or consent shall include any condition or requirement, not
reasonably foreseen as of the date of this Agreement, that would, in the good
faith reasonable judgment of the Board of Directors of 1855 Bancorp and
Sandwich, materially and adversely affect the business, operations, financial
condition, property or assets of the combined enterprise or of Sandwich or
Sandwich Bank or otherwise materially impair the value of Sandwich or Sandwich
Bank to 1855 Bancorp.
9.1.4 EFFECTIVENESS OF MERGER REGISTRATION STATEMENT. The Merger
Registration Statement shall have become effective under the Securities Act and
no stop order suspending the effectiveness of the Merger Registration Statement
shall have been issued, and no proceedings for that purpose shall have been
initiated or threatened by the SEC and, if the offer and sale of 1855 Common
Stock in the Merger is subject to the blue sky laws of any state, shall not be
subject to a stop order of any state securities commissioner.
9.1.5 STOCK EXCHANGE LISTING. The shares of 1855 Common Stock to be
issued in the Merger shall have been authorized for listing on the Stock
Exchange, subject to official notice of issuance.
9.1.6 TAX OPINION. On the basis of facts, representations and assumptions
which shall be consistent with the state of facts existing at the Pre-Closing
Date, each of 1855 Bancorp and Sandwich shall have received an opinion of
counsel reasonably acceptable in form and substance to 1855 Bancorp and Sandwich
dated as of the Pre-Closing Date, substantially to the effect that, for federal
income tax purposes:
(a) The Merger and the Bank Merger, when consummated in accordance with
the terms hereof, either will constitute a reorganization within the meaning
of Section 368(a) of the Code or will be treated as part of a reorganization
within the meaning of Section 368(a) of the Code,
(b) No gain or loss will be recognized by 1855 Bancorp, Compass,
Sandwich or Sandwich Bank by reason of the Merger or the Bank Merger,
(c) The exchange of Sandwich Common Stock to the extent exchanged for
1855 Common Stock will not give rise to recognition of gain or loss for
federal income tax purposes to the shareholders of Sandwich,
(d) The basis of the Sandwich Common Stock to be received (including any
fractional shares deemed received for tax purposes) by a Sandwich shareholder
will be the
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same as the basis of the Sandwich Common Stock surrendered pursuant to the
Merger in exchange therefor, and
(e) The holding period of the shares of 1855 Bancorp Sandwich Common
Stock to be received by a shareholder of Sandwich will include the period
during which the shareholder held the shares of Sandwich Common Stock
surrendered in exchange therefor, provided the Sandwich Common Stock
surrendered is held as a capital asset at the Effective Time.
Each of 1855 Bancorp and Sandwich shall provide a letter setting forth the
facts, assumptions and representations on which such counsel may rely in
rendering its opinion.
9.1.7 CONVERSION. 1855 Bancorp shall have consummated the Conversion,
and such Conversion shall have resulted in net proceeds sufficient to enable
Compass Bank to remain "well-capitalized" under applicable federal banking law
and otherwise to meet regulatory capital requirements, in each case after giving
effect to the Merger.
9.2 CONDITIONS TO THE OBLIGATIONS OF 1855 BANCORP UNDER THIS AGREEMENT.
The obligations of 1855 Bancorp under this Agreement shall be further subject to
the satisfaction, at or prior to the Pre-Closing, of the following conditions:
9.2.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Sandwich set forth in Article IV hereof shall be true and correct in all
material respects as of the date of this Agreement and as of the Pre-Closing
Date as though made on and as of the Pre-Closing Date (or on the date when made
in the case of any representation and warranty which specifically relates to
an earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by 1855 Bancorp; provided, however, that (i) in
determining whether or not the condition contained in this Section 9.2.1 shall
be satisfied, no effect shall be given to any exceptions in such representations
and warranties relating to materiality or Material Adverse Effect and (ii) the
condition contained in this Section 9.2.1 shall be deemed to be satisfied unless
the failure of such representations and warranties to be so true and correct
constitute, individually or in the aggregate, a Material Adverse Effect on
Sandwich and the Sandwich Subsidiaries, taken as a whole; and Sandwich shall
have delivered to 1855 Bancorp a certificate of Sandwich to such effect signed
by the Chief Executive Officer and the Chief Financial Officer of Sandwich as of
the Effective Time.
9.2.2 AGREEMENTS AND COVENANTS. As of the Pre-Closing Date, Sandwich shall
have performed in all material respects all obligations and complied in all
material respects with all agreements or covenants of Sandwich to be performed
or complied with by it at or prior to the Effective Date under this Agreement,
except to the extent that any failure to perform or comply shall not
individually, or in the aggregate, have a Material Adverse Effect on Sandwich
and the Sandwich Subsidiaries, taken as a whole, or materially adversely affect
consummation of the Merger and other transactions contemplated hereby, and 1855
Bancorp shall have received a certificate signed on behalf of Sandwich by the
Chief Executive Officer and Chief Financial Officer of Sandwich to such effect
dated as of the Effective Time.
9.2.3 PERMITS, AUTHORIZATIONS, ETC. Sandwich and the Sandwich Subsidiaries
shall have obtained any and all material permits, authorizations, consents,
waivers, clearances or approv als required for the lawful consummation of the
Merger by Sandwich, the failure to obtain which would have a Material Adverse
Effect on Sandwich and the Sandwich Subsidiaries, taken as a whole.
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9.2.4 LEGAL OPINION. 1855 Bancorp shall have received an opinion, dated
the Pre-Closing Date, from Housley Kantarian and Bronstein P.C., counsel to
Sandwich, in the form attached hereto as Exhibit D.
9.2.5 POOLING OF INTERESTS. 1855 Bancorp shall have received a letter from
Arthur Andersen LLP, addressed to 1855 Bancorp, to the effect that the Merger
will qualify for "pooling of interests" accounting treatment.
9.2.6 ACCOUNTANTS' LETTER. 1855 Bancorp shall have received a "comfort"
letter from the independent certified public accountants for Sandwich, dated (i)
the effective date of the Merger Registration Statement and (ii) the Pre-Closing
Date, with respect to certain financial information regarding Sandwich, each in
form and substance which is customary in transactions of the nature contemplated
by this Agreement.
Sandwich will furnish 1855 Bancorp with such certificates of its officers or
others and such other documents to evidence fulfillment of the conditions set
forth in this Section 9.2 as 1855 Bancorp may reasonably request.
9.3 CONDITIONS TO THE OBLIGATIONS OF SANDWICH UNDER THIS AGREEMENT. The
obligations of Sandwich under this Agreement shall be further subject to the
satisfaction of the conditions set forth in Sections 9.3.1 through 9.3.5 at or
prior to the Pre-Closing and the satisfaction of the condition set forth in
Section 9.3.6 at or prior to the Closing:
9.3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of 1855 Bancorp set forth in Article V hereof shall be true and correct in all
material respects as of the date of this Agreement and as of the Pre-Closing
Date as though made on and as of the Pre-Closing Date (or on the date when
made in the case of any representation and warranty which specifically relates
to an earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by Sandwich; provided, however, that (i) in determining
whether or not the condition contained in this Section 9.3.1 shall be satisfied,
no effect shall be given to any exceptions in such representations and
warranties relating to materiality or Material Adverse Effect and (ii) the
condition contained in this Section 9.3.1 shall be deemed to be satisfied unless
the failure of such representations and warranties to be so true and correct
constitute, individually or in the aggregate, a Material Adverse Effect on 1855
Bancorp; and 1855 Bancorp shall have delivered to Sandwich a certificate of 1855
Bancorp to such effect signed by the Chief Executive Officer and the Chief
Financial Officer of 1855 Bancorp as of the Effective Time;
9.3.2 AGREEMENTS AND COVENANTS. As of the Pre-Closing Date, 1855 Bancorp
shall have performed in all material respects all obligations and complied in
all material respects with all agreements or covenants of 1855 Bancorp to be
performed or complied with by it at or prior to the Effective Date under this
Agreement except to the extent that any failure to perform or comply shall not
individually, or in the aggregate, have a Material Adverse Effect on 1855
Bancorp and the 1855 Bancorp Subsidiaries, taken as a whole, or materially
adversely affect consummation of the Merger and other transactions contemplated
hereby, and Sandwich shall have received a certificate signed on behalf of 1855
Bancorp by the Chief Executive Officer and Chief Financial Officer of 1855
Bancorp to such effect dated as of the Effective Time.
9.3.3 PERMITS, AUTHORIZATIONS, ETC. 1855 Bancorp and its subsidiaries
shall have obtained any and all material permits, authorizations, consents,
waivers, clearances or approvals required for the lawful consummation of the
Merger by 1855 Bancorp, the failure to obtain which
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would have a Material Adverse Effect on 1855 Bancorp and its subsidiaries, taken
as a whole.
9.3.4 ACCOUNTANTS' LETTER. Sandwich shall have received a "comfort" letter
from the independent certified public accountants for 1855 Bancorp, dated (i)
the effective date of the Merger Registration Statement and (ii) the Pre-Closing
Date, with respect to certain financial information regarding 1855 Bancorp, each
in form and substance which is customary in transactions of the nature
contemplated by this Agreement.
9.3.5 LEGAL OPINION. Sandwich shall have received an opinion from Foley,
Hoag & Eliot LLP, counsel to 1855 Bancorp, dated the Pre-Closing Date, in the
form attached hereto as Exhibit E.
9.3.6 PAYMENT OF MERGER CONSIDERATION. 1855 Bancorp shall have delivered
the Exchange Fund to the Exchange Agent on or before the Closing Date and the
Exchange Agent shall provide Sandwich with a certificate evidencing such
delivery.
1855 Bancorp will furnish Sandwich with such certificates of its officers
or others and such other documents to evidence fulfillment of the conditions set
forth in this Section 9.3 as Sandwich may reasonably request.
ARTICLE X
THE CLOSING
10.1 TIME AND PLACE. Subject to the provisions of Articles IX and XI
hereof, the Closing of the transactions contemplated hereby shall take place at
the offices of Foley, Hoag & Eliot LLP, One Post Office Square, Boston,
Massachusetts at 10:00 a.m. on the tenth trading day following consummation of
the Conversion, or at such other place, date or time as 1855 Bancorp and
Sandwich may mutually agree upon. A pre-closing of the transactions
contemplated hereby (the "Pre-Closing") shall take place at the offices of
Foley, Hoag & Eliot LLP, One Post Office Square, Boston, Massachusetts at 10:00
a.m. on the date of consummation of the Conversion.
10.2 DELIVERIES AT THE PRE-CLOSING AND THE CLOSING. At the Pre-Closing
there shall be delivered to 1855 Bancorp and Sandwich the opinions,
certificates, and other documents and instruments required to be delivered at
the Pre-Closing under Article IX hereof. At the Closing there shall be delivered
to Sandwich the Merger Consideration required to be delivered at the Closing
under Section 9.3.6 hereof.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 TERMINATION. This Agreement may be terminated at any time prior to
the Pre-Closing Date, whether before or after approval of the Merger by the
stockholders of Sandwich:
11.1.1 At any time by the mutual written agreement of 1855 Bancorp and
Sandwich;
11.1.2 By either Sandwich or 1855 Bancorp (provided, that the terminating
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party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the representations or warranties set forth in this Agreement on the
part of the other party, which breach by its nature cannot be cured prior to the
Pre-Closing Date or shall not have been cured within 30 business days after
written notic eby 1855 Bancorp to Sandwich (or by Sandwich to 1855 Bancorp) of
such breach (for
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purposes of this Section 11.1.2 a material breach shall be deemed to be a breach
which has, either individually or in the aggregate, a Material Adverse Effect
on the party making such representations or warranties (provided, that no
--------
effect shall be given to any qualification relating to materiality or a
Material Adverse Effect in such representations and warranties) or a Material
Adverse Effect on the business, operations, financial condition, property or
assets of the combined enterprise or which materially adversely affects
consummation of the Merger and the other transactions contemplated hereby,
including the Conversion);
11.1.3 By either Sandwich or 1855 Bancorp (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 failure
to perform or comply with any of the covenants or agreements set forth in this
Agreement on the part of the other party, which failure by its nature cannot be
cured prior to the Pre-Closing Date or shall not have been cured within 30
business days after written notice by 1855 Bancorp to Sandwich (or by Sandwich
to 1855 Bancorp) of such failure (for purposes of this Section 11.1.3 a material
failure to perform or comply shall be deemed to be a failure which has, either
individually or in the aggregate, a Material Adverse Effect on the party so
failing or on the business, operations, financial condition, property or assets
of the combined enterprise or which materially adversely affects consummation of
the Merger and the other transactions contemplated hereby, including the
Conversion);
11.1.4 At the election of either 1855 Bancorp or Sandwich, if the Closing
shall not have occurred on or before February 20, 1999 (the "Termination Date"),
----------------
or such later date as shall have been agreed to in writing by 1855 Bancorp and
Sandwich; provided, that no party may terminate this Agreement pursuant to this
Section 11.1.4 if the failure of the Closing to have occurred on or before said
date was due to such party's breach of any of its obligations under this
Agreement, and provided, further, that the Termination Date may be extended for
an additional one-month period by either party by written notice to the other
party (given not later than one week prior to the Termination Date) if the
Closing shall not have occurred because of failure to have obtained approval
from one or more regulatory authorities whose approval is required in connection
with this Agreement and the transactions contemplated hereby (including, without
limitation, in connection with the Conversion) under circumstances in which
neither party has the right to terminate this Agreement pursuant to Section
11.1.6 hereof;
11.1.5 By either Sandwich or 1855 Bancorp if the stockholders of Sandwich
shall have voted at the Sandwich stockholders meeting on the transactions
contemplated by this Agreement and such vote shall not have been sufficient to
approve such transactions;
11.1.6 By either Sandwich or 1855 Bancorp (i) if final action has been
taken by a regulatory authority whose approval is required in connection with
this Agreement and the transactions contemplated hereby (other than the
Conversion), which final action (x) has become unappealable and (y) does not
approve this Agreement or the transactions contemplated hereby, or (ii) if any
court of competent jurisdiction or other governmental authority shall have
issued an order, decree, ruling or taken any other action restraining, enjoining
or otherwise prohibiting the Merger or the Bank Merger and such order, decree,
ruling or other action shall have become final and nonappealable;
11.1.7 By either Sandwich or 1855 Bancorp (i) if final action has been
taken by a regulatory authority whose approval is required in connection with
the Conversion, which final action (x) has become unappealable and (y) does not
approve the Conversion, or (ii) if any court of
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competent jurisdiction or other governmental authority shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Conversion and such order, decree, ruling or other
action shall have become final and nonappealable;
11.1.8 By Sandwich or 1855 Bancorp if a Payment Event occurs; or
11.1.9 By the Board of Directors of either party (provided, that the
--------
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) in the event that any
of the conditions precedent to the obligations of such party to consummate the
Merger cannot be satisfied or fulfilled by the date specified in Section 11.1.4
of this Agreement.
It is the intention of the parties that following completion of the Pre-Closing,
which completion will be acknowledged in writing by the parties at such time,
neither party shall have the right to terminate this Agreement at any time
thereafter. If, after the Pre-Closing Date, any party hereto shall attempt to
terminate this Agreement or shall fail to take any action necessary to effect
the consummation of the Merger (including, without limitation, 1855 Bancorp's
obligation to satisfy the condition set forth in Section 9.3.6), the other party
shall be entitled to injunctive relief to enforce this Agreement, and the first
party hereby agrees not to contest any judicial proceeding seeking the granting
of such an injunction.
11.2 EFFECT OF TERMINATION.
11.2.1 In the event of termination of this Agreement pursuant to any
provision of Section 11.1, this Agreement shall forthwith become void and have
no further force, except that (i) the provisions of Sections 1.1, 11.3, 11.4,
12.1, 12.2, 12.6, 12.9, 12.10, this Section 11.2, and any other Section which,
by its terms, relates to post-termination rights or obligations, shall survive
such termination of this Agreement and remain in full force and effect.
11.2.2 If this Agreement is terminated, expenses and damages of the parties
hereto shall be determined as follows:
(a) Subject to Sections 11.3 and 11.4, termination of this Agreement
pursuant to Section 11.1 (other than termination pursuant to Sections 11.1.2
and 11.1.3 as a result of a willful breach or gross negligence by a party
hereto) shall be without liability, cost or expense on the part of any
party to the other.
(b) In the event of a termination of this Agreement pursuant to Section
11.1.2 or 11.1.3 hereof resulting from the willful conduct or gross
negligence of a party, such party shall be obligated to reimburse the other
party for up to $1,000,000 of out-of-pocket costs and expenses, including,
without limitation, reasonable legal, accounting and investment banking fees
and expenses, incurred by such other party in connection with the entering
into of this Agreement and the carrying out of any and all acts contemplated
hereunder (collectively referred to as "Costs"). The payment of Costs is
-----
not an exclusive remedy, but is in addition to any other rights or remedies
available to the parties hereto at law or in equity or as is contemplated
herein. Notwithstanding anything to the contrary herein, if (i) Sandwich
makes the payment contemplated in Section 11.4 of this Agreement or (ii) if
1855 Bancorp makes the payment contemplated in Section 11.3 of this
Agreement, such party shall not have any further liability to the other
party (or its Subsidiaries), whether for Costs, breach or otherwise.
49
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11.2.3 Except as provided in Sections 11.2.2, 11.3 and 11.4, whether or
not the Merger is consummated, all Costs incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the party
incurring such costs and expenses.
11.2.4 In no event shall any officer, agent or director of Sandwich, any
Sandwich Subsidiary, 1855 Bancorp or any 1855 Bancorp Subsidiary, be personally
liable thereunder for any default by any party in any of its obligations
hereunder unless any such default was intentionally caused by such officer,
agent or director.
11.3 1855 BANCORP SPECIAL PAYMENT. As a condition of Sandwich's
willingness to, and in order to induce Sandwich to, enter into this Agreement,
and to reimburse Sandwich for incurring the damages, costs and expenses related
to entering into this Agreement and consummating the transactions contemplated
by this Agreement, 1855 Bancorp hereby agrees to pay to Sandwich, as liquidated
damages and in lieu of any other rights or remedies under this Agreement, a
payment in the amount of $6,000,000 (the "Special Payment") if and only if (i)
---------------
the Merger is not consummated and the Agreement is terminated in accordance
with its terms due to the failure of the condition set forth in Section 9.1.7 of
this Agreement, or (ii) the Agreement is terminated pursuant to Section 11.1.7
or (iii) 1855 Bancorp otherwise does not consummate the Conversion by no later
than February 20, 1999 (subject to the one month extension contemplated in
Section 11.1.4 herein), or (iv) Sandwich has terminated this Agreement in
accordance with Section 11.1.2 or 11.1.3 because 1855 Bancorp has intentionally
or willfully breached any of its representations or warranties herein or
intentionally and willfully failed to perform or comply with any of its
covenants or agreements herein, to such extent as to permit such termination
(such reasons for termination being hereinafter referred to as the
"Special Payment Event"). It is understood and agreed that 1855 Bancorp does
---------------------
not intend to (and shall not be obligated to) consummate the Conversion unless
the conditions to its obligations to consummate the Merger have been satisfied
on or before the Pre-Closing Date. Notwithstanding the foregoing, 1855 Bancorp
shall have no obligation to make any Special Payment to Sandwich if the Special
Payment Event is primarily due to a breach of a representation or warranty of
Sandwich (subject to the standard set forth in Section 9.2.1 of this Agreement)
or a breach by Sandwich of one or more covenants in this Agreement (subject to
the standard set forth in Section 9.2.2 of this Agreement), which breach of
representation, warranty or covenant directly or adversely affects 1855
Bancorp's ability to consummate the Merger or satisfy the condition set forth
in Section of this 9.1.7 Agreement.
11.3.1 PAYMENTS REQUIRED. Any payment required to be made under this
Section 11.3 shall be paid by 1855 Bancorp to Sandwich by wire transfer of
immediately available funds to an account designated by Sandwich within five
business days after demand by Sandwich.
11.3.2 EXCLUSIVITY OF REMEDY. Notwithstanding anything to the contrary set
forth in this Agreement, if 1855 Bancorp pays or causes to be paid to Sandwich
the Special Payment, neither 1855 Bancorp nor Compass Bank will have any further
obligations or liabilities to Sandwich or Sandwich Bank with respect to this
Agreement or the transactions contemplated by this Agreement.
11.4 SANDWICH CHANGE IN CONTROL EXPENSE FEE. As a condition of 1855
Bancorp's willingness to, and in order to induce 1855 Bancorp to, enter into
this Agreement, and to reimburse 1855 Bancorp for incurring the damages, costs
and expenses related to entering into this Agreement and consummating the
transactions contemplated by this Agreement, Sandwich hereby agrees to pay to
1855 Bancorp, as liquidated damages, and in lieu of any other rights or remedies
50
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under this Agreement, a payment in the amount of $6,000,000 (the "Expense Fee")
-----------
if and only if a Payment Event (as hereinafter defined) shall have occurred
before the Expense Fee Termination Date (as hereinafter defined) determined in
accordance with Section 11.4.3.
11.4.1 "PAYMENT EVENT" shall mean any of the following events:
(a) Without 1855 Bancorp's prior written consent, Sandwich shall have
authorized, proposed, or entered into, or publicly announced an intention to
authorize, propose, or enter into an agreement with any person (other than
1855 Bancorp or any 1855 Bancorp Subsidiary) to effect (A) a merger,
consolidation or similar transaction involving Sandwich or any Sandwich
Subsidiary, (B) the disposition, by sale, lease, exchange or otherwise, of
assets of Sandwich or any Sandwich Subsidiary representing in either case 15%
or more of the consolidated assets of Sandwich and the Sandwich Subsidiaries,
or (C) the issuance, sale or other disposition of (including by way of
merger, consolidation, share exchange or any similar transaction) securities
representing 15% or more of the voting power of Sandwich or any Sandwich
Subsidiary (any of the foregoing a "Change of Control Transaction"); or
(b) any person (other than 1855 Bancorp or any 1855 Bancorp Subsidiary)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined in Section
13(d)(3) of the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Sandwich Common Stock.
11.4.2 A "TIME EXTENSION EVENT" means any of the following events:
(a) any person (other than 1855 Bancorp or any 1855 Bancorp Subsidiary)
shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act), or shall have filed a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to purchase
any shares of Sandwich Common Stock such that, upon consummation of such
offer, such person would own or control 10% or more of the then outstanding
shares of Sandwich Common Stock (such an offer being referred to herein as
a "Tender Offer" and an "Exchange Offer," respectively); or
(b) following the public announcement of an Acquisition Proposal (which
the parties hereto acknowledge has already taken place), the holders of
Sandwich Common Stock shall not have approved this Agreement at the meeting
of such stockholders held for the purpose of voting on this Agreement (the
term ""Acquisition Proposal" is defined to mean (x) a bona fide proposal by
--------------------
any person (other than 1855 Bancorp or any subsidiary of 1855 Bancorp) shall
have been made to Sandwich or its stockholders to engage in a Change of
Control Transaction, (y) any person (other than 1855 Bancorp or any
subsidiary of 1855 Bancorp) shall have stated its intention to Sandwich or
its stockholders to make a proposal to engage in a Change of Control
Transaction if this Agreement terminates or (z) any person (other than 1855
Bancorp or any subsidiary of 1855 Bancorp) shall have filed an application or
notice with any Governmental Entity to engage in a Change of Control
Transaction); or
(c) following the occurrence of an Acquisition Proposal (which the
parties hereto acknowledge has already taken place):
51
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(i) the meeting of Sandwich stockholders held for the purpose of
voting on this Agreement shall not have been held or shall have been
canceled prior to termination of this Agreement,
(ii) Sandwich's Board of Directors shall have withdrawn or
modified in a manner adverse to 1855 Bancorp the recommendation of
Sandwich's Board of Directors with respect to this Agreement and the
Merger;
(iii) Sandwich shall have willfully or intentionally breached
any representation, warranty, covenant or obligation contained in this
Agreement and such breach would entitle 1855 Bancorp to terminate this
Agreement under Section 11.1.2 or 11.1.3 hereof (without regard to the
cure period provided for therein unless such cure is promptly effected
without jeopardizing consummation of the Merger pursuant to the terms of
this Agreement); or
(iv) The Merger shall not have been consummated by reason of failure
of the pooling of interests condition, and such failure is the result
of the actions of a party not affiliated with either 1855 Bancorp or
Sandwich.
11.4.3 DURATION OF 1855 BANCORP'S RIGHTS WITH RESPECT TO EXPENSE FEE.
Notwithstanding any other provision of this Agreement, the provisions of this
Section 11.4 shall remain in effect and shall be enforceable by 1855 Bancorp or
any successor in interest until the "Expense Fee Termination Date", which shall
----------------------------
be the earliest to occur of:
(a) The Effective Time of the Merger,
(b) The date that is 12 months after termination of this Agreement
following the occurrence of a Time Extension Event;
(c) The date on which the Agreement is terminated in accordance with
its terms, but only if such termination takes place prior to the occurrence
of a Payment Event or a Time Extension Event.
11.4.4 PAYMENTS REQUIRED. Any payment required to be made under this
Section 11.4 shall be paid by Sandwich to 1855 Bancorp by wire transfer of
immediately available funds to an account designated by 1855 Bancorp within
five business days after demand by 1855 Bancorp. In the event of a termination
under circumstances that would trigger a payment under this Section 11.4, the
standstill provisions contained in the Confidentiality Agreement shall
terminate.
11.4.5 EXCLUSIVITY OF REMEDY. Notwithstanding anything to the contrary set
forth in this Agreement, if Sandwich pays or causes to be paid to 1855 Bancorp
or to Compass Bank the Expense Fee, neither Sandwich nor Sandwich Bank will have
any further obligations or liabilities to 1855 Bancorp or Compass Bank with
respect to this Agreement or the transactions contemplated by this Agreement.
11.5 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, at any
time prior to the Effective Time (whether before or after approval thereof by
the stockholders of Sandwich), the parties hereto may (a) amend this Agreement,
(b) extend the time for the performance of any of the obligations or other acts
of any other party hereto, (c) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or (d)
waive compliance with any of the agreements or conditions contained herein;
provided, however, that
52
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after any approval of this Agreement and the transactions contemplated hereby by
the stockholders of Sandwich, there may not be, without further approval of such
stockholders, any amendment of this Agreement which reduces the amount or
changes the form of consideration to be delivered to Sandwich's stockholders
pursuant to this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with re spect to, any subsequent or other failure.
ARTICLE XII
MISCELLANEOUS
CONFIDENTIALITY. Except as specifically set forth herein, 1855 Bancorp and
Sandwich mutually agree to be bound by the terms of the Confidentiality
Agreements, as amended, previously executed by the parties hereto, which
Agreements and any amendments thereto are hereby incorporated herein by
reference. The parties hereto agree that such Confidentiality Agreements, as
amended, shall continue in accordance with their respective terms,
notwithstanding the termination of this Agreement.
12.1 PUBLIC ANNOUNCEMENTS. Sandwich and 1855 Bancorp shall cooperate
with each other in the development and distribution of all news releases and
other public information disclosures with respect to this Agreement, except as
may be otherwise required by law, and neither Sandwich nor 1855 Bancorp shall
issue any joint news releases with respect to this Agreement unless such news
releases have been mutually agreed upon by the parties hereto, except as
required by law.
12.3 SURVIVAL. All representations, warranties and covenants in this
Agreement or in any instrument delivered pursuant hereto or thereto shall
expire on, and be terminated and extinguished at, the Effective Date other
than covenants that by their terms are to survive or be performed after the
Effective Date.
12.4 NOTICES. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered by receipted hand delivery or
mailed by prepaid registered or certified mail (return receipt requested) or by
cable, telegram, telex or fax addressed as follows:
If to Sandwich or Sandwich Bank, to:
100 Old King's Highway
Sandwich, Massachusetts 02563
Attention: President
Fax: (508) 833-0005
With required copes to each of :
Harry K. Kantarian, Esq.
Leonard S. Volin, Esq.
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W.
Suite 700
Washington, D.C. 29936
Fax: (202) 822-9611
53
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If to 1855 Bancorp or to Compass Bank, to:
791 Purchase Street
New Bedford, Massachusetts 02740-2101
Attention: President
Fax: (508) 984-6212
With required copies to each of:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Fax: (617) 832-7000
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
12.5 PARTIES IN INTEREST. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other party, and that (except as otherwise
expressly provided in this Agreement or as is contemplated in Section 7.9 of
this Agreement) nothing in this Agreement is intended to confer upon any other
Person any rights or remedies under or by reason of this Agreement.
12.6 COMPLETE AGREEMENT. This Agreement, including the Exhibits and
Disclosure Schedules hereto and the documents and other writings referred to
herein or therein or delivered pursuant hereto or thereto, together with the
Stock Option Agreement and the Confidentiality Agreement, as amended, referred
to in Section 12.1, contains the entire agreement and understanding of the
parties with respect to its subject matter. There are no restrictions,
agreements, promises, warranties, covenants or undertakings between the parties
other than those expressly set forth herein or therein. This Agreement
supersedes all prior agreements and understandings (other than the
Confidentiality Agreements referred to in Section 12.1 hereof) between the
parties, both written and oral, with respect to its subject matter, including
without limitation the Original Agreement.
12.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
12.8 SEVERABILITY. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, by any court of competent
54
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jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement and the parties shall use their
reasonable efforts to substitute a valid, legal and enforceable provision which,
insofar as practical, implements the purposes and intents of this Agreement.
12.9 GOVERNING LAW. This Agreement shall be governed by the laws of
Massachusetts, without giving effect to its principles of conflicts of laws.
12.10 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section of or Exhibit to this
Agreement unless otherwise indicated. The recitals hereto constitute an integral
part of this Agreement. References to Sections include subsections, which are
part of the related Section (e.g., a section numbered "Section 5.5.1" would be
part of "Section 5.5" and references to "Section 5.5" would also refer to
material contained in the subsection described as "Section 5.5.1"). The table of
contents, index and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrases "the date of this Agreement", "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the Recitals to this Agreement.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
55
<PAGE>
IN WITNESS WHEREOF, 1855 Bancorp, Compass Bank, Sandwich and Sandwich Bank
have caused this Agreement to be executed under seal by their duly authorized
officers as of the date first set forth above.
THE 1855 BANCORP
[SEAL] By: /s/ Kevin G. Champagne
-----------------------------------------------
President and CEO
[SEAL] By: /s/ Francis S. Mascianica
-------------------------------------------------
Treasurer
COMPASS BANK FOR SAVINGS
[SEAL] By: /s/ Kevin G. Champagne
-----------------------------------------------
President and CEO
[SEAL] By: /s/ Francis S. Mascianica
-----------------------------------------------
Treasurer
SANDWICH BANCORP, INC.
[SEAL] By: /s/ Frederic D. Legate
-----------------------------------------------
President and CEO
[SEAL] By: /s/ George L. Larson
-----------------------------------------------
Treasurer
THE SANDWICH CO-OPERATIVE BANK
[SEAL] By: /s/ Frederic D. Legate
-----------------------------------------------
President and CEO
[SEAL] By: /s/ George L. Larson
--------------------------------------------------
Treasurer
56
<PAGE>
EXHIBIT A
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS
CONTAINED HEREIN AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
Stock Option Agreement, dated as of March __, 1998 (the "Agreement"),
---------
by and between Sandwich Bancorp, Inc. ("Issuer"), a Massachusetts corporation
------
and bank holding company and the parent of the Sandwich Co-operative Bank, a
Massachusetts co-operative bank ("Sandwich Bank"), and The 1855 Bancorp
-------------
("Grantee"), a Massachusetts mutual holding company and the parent of Compass
- ---------
Bank For Savings, a Massachusetts savings bank ("Compass Bank").
------------
WITNESSETH:
WHEREAS, Issuer, Grantee, Compass Bank and Sandwich Bank have entered
into an Amended and Restated Affiliation and Merger Agreement dated as of March
23, 1998 (the "Affiliation Agreement"), providing for, among other things, the
---------------------
merger of Issuer with Grantee or an Affiliate of Grantee (the "Merger"); and
------
WHEREAS, as a condition and inducement to Grantee's execution of the
Affiliation Agreement, Grantee has required that Issuer agree, and Issuer has
agreed, to grant to Grantee the Option (as hereinafter defined); and
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Affiliation Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1 DEFINED TERMS. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Affiliation
Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
------
purchase up to 387,107 shares (as adjusted as set forth herein, the "Option
------
Shares," which shall include the Option Shares before and after any transfer of
- ------
such Option Shares) of Common Stock, par value $1.00 per share ("Issuer Common
-------------
Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price")
- ----- --------------
of $57.00, provided, however, that in no event shall the number of Option Shares
for which the Option is exercisable exceed 19.9% of the issued and outstanding
shares of Issuer Common Stock without giving effect to any shares subject to or
issued pursuant to the Option. The number of shares of Issuer Common Stock that
may be received upon the exercise of the Option and the Purchase Price are
subject to adjustment as herein set forth.
3. EXERCISE OF OPTION.
(a) Grantee or Holder (as hereinafter defined) may exercise the
Option, in whole or in part, at any time and from time to time following the
occurrence of a Purchase Event (as hereinafter defined) and before an Exercise
Termination Event (as hereinafter defined). Each of the following shall be an
"Exercise Termination Event":
(i) The Effective Time (as defined in the Affiliation Agreement) of the
Merger,
(ii) The passage of 12 months after termination of the Affiliation Agreement
following the occurrence of a Purchase Event or a Preliminary Purchase Event;
<PAGE>
(iii) The date on which the Affiliation Agreement is terminated in
accordance with its terms, but only if such termination takes place prior to
the occurrence of a Purchase Event or a Preliminary Purchase Event; and
(iv) The passage of 12 months after the Affiliation Agreement is terminated
by Grantee pursuant to Section 11.1.2 or 11.1.3 of the Affiliation Agreement.
Any purchase of shares upon exercise of the Option shall be subject to
compliance with applicable laws, including without limitation the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and the Bank Merger Act, as
-------
amended ("Bank Merger Act"). The term "Holder" shall mean the holder or holders
--------------- ------
of the Option from time to time (subject to the limitations contained in Section
12(h)). The Grantee is the initial Holder. The rights set forth in Section 8
hereof shall terminate when the right to exercise the Option terminates (other
than as a result of a complete exercise of the Option) as set forth above.
(b) As used herein, a "Purchase Event" means any of the following events:
--------------
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended or publicly proposed, or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any subsidiary of Grantee) to effect
(A) a merger, consolidation or similar transaction involving Issuer or any of
its subsidiaries, (B) the disposition, by sale, lease, exchange or otherwise,
of assets of Issuer or any Issuer Subsidiary representing in either case 15%
or more of the consolidated assets of Issuer and the Issuer Subsidiaries, or
(C) the issuance, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 15% or more of the voting power of Issuer or any of the Issuer
Subsidiaries (any of the foregoing an "Acquisition Transaction"); or
-----------------------
(ii) any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined in Section
-----
13(d)(3) of the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of
--------------------------
the following events:
(i) any person (other than Grantee or any subsidiary of Grantee)
shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act), or shall have filed a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to purchase
any shares of Issuer Common Stock such that, upon consummation of such offer,
such person would own or control 10% or more of the then outstanding shares
of Issuer Common Stock (such an offer being referred to herein as a "Tender
------
Offer" and an "Exchange Offer," respectively); or
----- --------------
(ii) following the public announcement of an Acquisition Proposal
(which the parties hereto acknowledge has already taken place), the holders
of Issuer Common Stock shall not have approved the Affiliation Agreement at
the meeting of such stockholders held for the purpose of voting on the
Affiliation Agreement (the term ""Acquisition Proposal" is defined to mean
--------------------
(x) a bona fide proposal by any person (other than Grantee or any subsidiary
of Grantee) shall have been made to Issuer or its stockholders to engage in a
Acquisition Transaction, (y) any person (other than Grantee or any subsidiary
-2-
<PAGE>
of Grantee) shall have stated its intention to Issuer or its stockholders to
make a proposal to engage in a Acquisition Transaction if the Affiliation
Agreement terminates or (z) any person (other than Grantee or any subsidiary
of Grantee) shall have filed an application or notice with any Governmental
Entity to engage in a Acquisition Transaction); or
(iii) following the occurrence of an Acquisition Proposal (which
the parties hereto acknowledge has already taken place):
(A) the meeting of Issuer stockholders held for the purpose of
voting on the Affiliation Agreement shall not have been held or shall have
been canceled prior to termination of the Affiliation Agreement,
(B) Issuer's Board of Directors shall have withdrawn or modified,
or publicly announced its intention to withdraw or modify, in a manner
adverse to Grantee the recommendation of Issuer's Board of Directors with
respect to the Affiliation Agreement and the Merger;
(C) Issuer shall have breached any representation, warranty,
covenant or obligation contained in the Affiliation Agreement and such breach
would entitle Grantee to terminate the Affiliation Agreement under Section
11.1.2 or 11.1.3 of the Affiliation Agreement (without regard to the cure
period provided for therein unless such cure is promptly effected without
jeopardizing consummation of the Merger pursuant to the terms of the
Affiliation Agreement); or
(D) The Merger shall not have been consummated by reason of
failure of the pooling of interests condition, and such failure is the
result of the actions of a party not affiliated with either Grantee or
Issuer; or
(iv) any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have (x) acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or (y) filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to
acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or otherwise to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified
------
in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Preliminary Purchase Event or Purchase Event, it being understood that
the giving of such notice by Issuer shall not be a condition to the right of
Holder to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it shall send
to Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
- ------------
purchase pursuant to such exercise, and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
------- ------------
notification to or approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), the
---------------------
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<PAGE>
Federal Deposit Insurance Corporation, the Massachusetts Division of Banks, or
any other Governmental Entity is required in connection with such purchase,
Issuer shall cooperate with Grantee in the filing of the required notice of
application for approval and the obtaining of such approval and the Closing
shall occur immediately following such regulatory approvals (and any mandatory
waiting periods). Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account designated by
Issuer, an amount equal to the Purchase Price multiplied by the number of Option
Shares to be purchased on such Closing Date, and (ii) present and surrender this
Agreement to Issuer at the address of Issuer specified in Section 12(f) hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a), (i)
Issuer shall deliver to Holder (A) a certificate or certificates representing
the Option Shares to be purchased at such Closing, which Option Shares shall be
free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever and subject to no preemptive rights, and (B) if the Option is
exercised in part only, an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the shares of Issuer
Common Stock purchasable hereunder, and (ii) Holder shall deliver to Issuer a
letter agreeing that Holder shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
(c) In addition to any other legend that is required by applicable
law, certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF
MARCH 23, 1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER
HEREOF WITHOUT CHARGE UPON RECEIPT BY ISSUER OF A WRITTEN REQUEST
THEREFOR.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if Holder shall have delivered to Issuer a copy of a letter from the staff of
the SEC, or an opinion of counsel, in form and substance reasonably satisfactory
to Issuer, to the effect that such legend is not required for purposes of the
1933 Act; (ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(d) Upon the giving by Holder to Issuer of the written notice of
exercise of the Option provided for under Section 3(e), the tender of the
applicable purchase price in immediately available funds and the tender of this
Agreement to Issuer, Holder shall be deemed to be the holder
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<PAGE>
of record of the shares of Issuer Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Issuer Common Stock shall not then
be actually delivered to Holder.
(e) Issuer agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock so that the Option may be exercised without
requiring Issuer's stockholders to approve an increase in the number of
authorized shares of Issuer Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Issuer
Common Stock, (ii) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer, (iii) promptly to take all action as may from time to time
be required (including (A) complying with all premerger notification, reporting
and waiting period requirements and (B) in the event prior approval of or notice
to any Governmental Entity is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or notices and
providing such information to such Governmental Entity as it may require) in
order to permit Holder to exercise the Option and Issuer duly and effectively to
issue shares of Issuer Common Stock pursuant hereto, and (iv) promptly to take
all action provided herein to protect the rights of Holder against dilution.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby
represents and warrants to Grantee (and Holder, if different than Grantee) as
follows:
(a) CORPORATE POWER AND AUTHORITY. Issuer has all requisite corporate
power and authority to enter into this Agreement, and subject to any approvals
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer, and this Agreement has been duly
executed and delivered by Issuer.
(b) NO VIOLATIONS. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by Issuer
with any of the provisions hereof will not (i) conflict with or result in a
breach of any provision of its Articles of Organization or Bylaws or a default
(or give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, bond, debenture,
mortgage, indenture, license, material agreement or other material instrument or
obligation to which Issuer is a party, or by which it or any of its properties
or assets may be bound, or (ii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Issuer or any of its properties or
assets.
(c) AUTHORIZED STOCK. Issuer has taken all necessary corporate and
other action to authorize and reserve and to permit it to issue, and at all
times from the date hereof until the obligation to deliver Issuer Common Stock
upon the exercise of the Option terminates, will have reserved for issuance upon
exercise of the Option that number of shares of Issuer Common Stock equal to the
maximum number of shares of Issuer Common Stock at any time and from time to
time purchasable upon exercise of the Option, and all such shares, upon issuance
pursuant to the Option, will be duly and validly issued, fully paid and
nonassessable, and will be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever and not subject to any
preemptive rights.
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<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby
represents and warrants to Issuer as follows:
(a) CORPORATE POWER AND AUTHORITY. Grantee has all requisite
corporate power and authority to enter into this Agreement and, subject to any
approvals or consents referred to herein, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Grantee, and this Agreement
has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Issuer Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
7. ADJUSTMENT UPON CHANGES IN ISSUER CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of a
stock dividend, stock split, split-up, recapitalization, combination, exchange
of shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transactions so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, it, together with any
shares of Issuer Common Stock previously issued pursuant hereto, equals 19.9% of
the number of shares of Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant to the Option.
(b) In the event that Issuer shall enter into an agreement: (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
----------
Option"), at the election of Holder, of any of (x) the Acquiring Corporation (as
hereinafter defined), (y) any person that controls the Acquiring Corporation or
(z) in the case of a merger described in clause (ii), Issuer (such person being
referred to as "Substitute Option Issuer").
------------------------
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<PAGE>
(c) The Substitute Option shall have the same terms as the Option,
provided that, if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Holder. Substitute Option Issuer also shall enter
into an agreement with Holder in substantially the same form as this Agreement,
which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock (as hereinafter defined) as is equal to the
Assigned Value (as hereinafter defined) multiplied by the number of shares of
Issuer Common Stock for which the Option was theretofore exercisable, divided by
the Average Price (as hereinafter defined). The exercise price of Substitute
Option per share of Substitute Common Stock (the "Substitute Option Price")
-----------------------
shall then be equal to the Purchase Price multiplied by a fraction in which the
numerator is the number of shares of Issuer Common Stock for which the Option
was theretofore exercisable and the denominator is the number of shares of the
Substitute Common Stock for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
---------------------
surviving corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, or (iii) the transferee of all or substantially all of
Issuer's assets (or a substantial part of the assets of its subsidiaries
taken as a whole).
(2) "Substitute Common Stock" shall mean the shares of capital
-----------------------
stock (or similar equity interest) with the greatest voting power in respect
of the election of directors (or persons similarly responsible for the
direction of the business and affairs) of the Substitute Option Issuer.
(3) "Assigned Value" shall mean the highest of (w) the price per
--------------
share of Issuer Common Stock at which a Tender Offer or an Exchange Offer
therefor has been made (other than by Holder), (x) the price per share of
Issuer Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (y) the highest closing price for shares of Issuer Common Stock
within the six-month period immediately preceding the consolidation, merger
or sale in question and (z) in the event of a sale of all or substantially
all of Issuer's assets or deposits, an amount equal to (i) the sum of the
price paid in such sale for such assets (and/or deposits) and the current
market value of the remaining assets of Issuer, as determined by a
nationally-recognized investment banking firm selected by the Holder and
reasonably acceptable to the Issuer, divided by (ii) the number of shares of
Issuer Common Stock outstanding at such time. In the event that a Tender
Offer or an Exchange Offer is made for Issuer Common Stock or an agreement is
entered into for a merger or consolidation involving consideration other than
cash, the value of the securities or other property issuable or deliverable
in exchange for Issuer Common Stock shall be determined by a nationally-
recognized investment banking firm selected by Holder and reasonably
acceptable to the Issuer.
(4) "Average Price" shall mean the average closing price of a
-------------
share of Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by Issuer, the person merging into Issuer or by
any company which controls such person, as Holder may elect.
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<PAGE>
(f) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for the limitation in the first sentence of this Section 7(f), Substitute
Option Issuer shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in the
first sentence of this Section 7(f) over (ii) the value of the Substitute Option
after giving effect to the limitation in the first sentence of this Section
7(f). This difference in value shall be determined by a nationally-recognized
investment banking firm selected by Holder and reasonably acceptable to the
Issuer.
(g) Issuer shall not enter into any transaction described in Section
7(b) unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder and take
all other actions that may be necessary so that the provisions of this Section 7
are given full force and effect (including, without limitation, any action that
may be necessary so that the holders of the other shares of common stock issued
by Substitute Option Issuer are not entitled to exercise any rights by reason of
the issuance or exercise of the Substitute Option and the shares of Substitute
Common Stock are otherwise in no way distinguishable from or have lesser
economic value (other than any diminution in value resulting from the fact that
the shares of Substitute Common Stock are restricted securities, as defined in
Rule 144 under the Securities Act or any successor provision) than other shares
of common stock issued by Substitute Option Issuer).
8. REPURCHASE AT THE OPTION OF HOLDER.
(a) At the request of Holder at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 12
months immediately thereafter, Issuer shall repurchase from Holder (i) the
Option and (ii) all shares of Issuer Common Stock purchased by Holder pursuant
hereto with respect to which Holder then has beneficial ownership. The date on
which Holder exercises its rights under this Section 8 is referred to as the
"Request Date." Such repurchase shall be at an aggregate price (the "Section 8
- ------------- ---------
Repurchase Consideration") equal to the sum of:
- ------------------------
(i) the aggregate Purchase Price paid by Holder for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to which
Holder then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the
Purchase Price (subject to adjustment pursuant to Section 7) paid (or, in the
case of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Holder for each share of
Issuer Common Stock with respect to which the Option has been exercised and
with respect to which Holder then has beneficial ownership, multiplied by the
number of such shares.
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<PAGE>
(b) If Holder exercises its rights under this Section 8, Issuer
shall, within 10 business days after the Request Date, pay the Section 8
Repurchase Consideration to Holder in immediately available funds, and
contemporaneously with such payment Holder shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Holder then has beneficial ownership, and shall
warrant that it has sole record and beneficial ownership of such shares and that
the same are then free and clear of all liens, claims, charges and encumbrances
of any kind whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of the Federal Reserve Board, the Federal Deposit
Insurance Corporation, the Massachusetts Division of Banks or any other
Governmental Entity is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Holder shall have the ongoing
option to revoke its request for repurchase pursuant to Section 8, in whole or
in part, or to require that Issuer deliver from time to time that portion of the
Section 8 Repurchase Consideration that it is not then so prohibited from paying
and promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the
other in the filing of any such notice or application and the obtaining of any
such approval). If the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Massachusetts Division of Banks or any other Governmental
Entity disapproves of any part of Issuer's proposed repurchase pursuant to this
Section 8, Issuer shall promptly give notice of such fact to Holder. If the
Federal Reserve Board, the Federal Deposit Insurance Corporation, the
Massachusetts Division of Banks or any other Governmental Entity prohibits the
repurchase in part but not in whole, then Holder shall have the right (i) to
revoke the repurchase request or (ii) to the extent permitted by the Federal
Reserve Board, the Federal Deposit Insurance Corporation, the Massachusetts
Division of Banks or other Governmental Entity, determine whether the repurchase
should apply to the Option and/or Option Shares and to what extent to each, and
Holder shall thereupon have the right to exercise the Option as to the number of
Option Shares for which the Option was exercisable at the Request Date less the
sum of the number of shares covered by the Option in respect of which payment
has been made pursuant to Section 8(a)(ii) and the number of shares covered by
the portion of the Option (if any) that has been repurchased. Holder shall
notify Issuer of its determination under the preceding sentence within five
business days of receipt of notice of disapproval of the repurchase. The parties
hereto agree that Issuer's obligations to repurchase the Option or Option Shares
under this Section 8 shall terminate upon the occurrence of an Exercise
Termination Event unless a Purchase Event shall have occurred prior to the
occurrence of an Exercise Termination Event.
(c) For purposes of this Agreement, the "Applicable Price" means the
----------------
highest of (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i), (ii) the price
per share of Issuer Common Stock received by holders of Issuer Common Stock in
connection with any merger or other business combination transaction described
in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the highest closing sales
price per share of Issuer Common Stock quoted on the Nasdaq Stock Market's
National Market ("NASDAQ/NMS") (or if Issuer Common Stock is not quoted on
----------
NASDAQ/NMS, the highest bid price per share as quoted on the principal trading
market or securities exchange on which such shares are traded, as reported by a
recognized source chosen by Holder) during the 60 business days preceding the
Request Date; provided, however, that in the event of a sale of less than all of
Issuer's assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally-recognized investment banking firm selected
by Holder and reasonably acceptable to the Issuer, divided by the number of
shares of Issuer Common Stock outstanding at the time of such sale. If the
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<PAGE>
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally-
recognized investment banking firm selected by Holder and reasonably acceptable
to Issuer, which determination shall be conclusive for all purposes of this
Option.
(d) As used herein, a "Repurchase Event" shall occur if (i) any
----------------
person (other than Grantee or any subsidiary of Grantee) shall have acquired
beneficial ownership of (as such term is defined in Rule 13d-3 promulgated under
the Exchange Act), or the right to acquire beneficial ownership of, or any
"group" (as such term is defined in Section 13(d)(3) of the Exchange Act) shall
- ------
have been formed which beneficially owns or has the right to acquire beneficial
ownership of, 50% or more of the then outstanding shares of Issuer Common Stock,
or (ii) any of the transactions described in Section 7(b)(i), Section 7(b)(ii)
or Section 7(b)(iii) shall be consummated.
9. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. Issuer shall, subject to the
conditions of Section 9(c), at the request of Grantee (whether on its own behalf
or on behalf of any subsequent Holder of this Option (or part thereof) or any
of the shares of Issuer Common Stock issued pursuant hereto), as expeditiously
as possible prepare and file a registration statement under the Securities Act
if such registration is necessary in order to permit the sale or other
disposition of any or all shares of Issuer Common Stock or other securities that
have been acquired by or are issuable to Holder upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Holder in such request, including without limitation a "shelf" registration
-----
statement under Rule 415 under the Securities Act or any successor provision,
and Issuer shall use its best efforts to qualify such shares or other
securities for sale under any applicable state securities laws.
(b) ADDITIONAL REGISTRATION RIGHTS. If Issuer at any time after the
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to Holder of
its intention to do so and, upon the written request of Holder given within 30
days after receipt of any such notice (which request shall specify the number of
shares of Issuer Common Stock intended to be included in such underwritten
public offering by Holder), Issuer will cause all such shares for which a Holder
shall have requested participation in such registration to be so registered and
included in such underwritten public offering; provided, however, that Issuer
may elect to not cause any such shares to be so registered (i) if the
underwriters in good faith object for valid business reasons, or (ii) in the
case of a registration solely to implement an employee benefit plan or a
registration filed on Form S-4 under the Securities Act or any successor form;
provided, further, however, that such election pursuant to clause (i) may only
be made one time. If some but not all the shares of Issuer Common Stock with
respect to which Issuer shall have received requests for registration pursuant
to this Section 9(b) shall be excluded from such registration, Issuer shall make
appropriate allocation of shares to be registered among Holders permitted to
register their shares of Issuer Common Stock in connection with such
registration pro rata in the proportion that the number of shares requested to
be registered by each such Holder bears to the total number of shares requested
to be registered by all such Holders then desiring to have Issuer Common Stock
registered for sale.
(c) CONDITIONS TO REQUIRED REGISTRATION. Issuer shall use all
reasonable efforts to cause each registration statement referred to in Section
9(a) to become effective and to obtain all consents or waivers of other parties
which are required therefor and to keep such registration statement
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<PAGE>
effective; provided, however, that Issuer may delay any registration of Option
Shares required pursuant to Section 9(a) for a period not exceeding 90 days if
Issuer shall in good faith determine that any such registration would adversely
affect an offering or contemplated offering of other securities by Issuer, and
Issuer shall not be required to register Option Shares under the Securities Act
pursuant to Section 9(a):
(i) prior to the earliest of (A) termination of the Affiliation
Agreement pursuant to Article XI thereof, and (B) a Purchase Event or a
Preliminary Purchase Event;
(ii) on more than one occasion during any calendar year and on
more than two occasions in total;
(iii) within 90 days after the effective date of a registration
referred to in Section 9(b) pursuant to which the Holder or Holders concerned
were afforded the opportunity to register such shares under the Securities
Act and such shares were registered as requested; and
(iv) unless a request therefor is made to Issuer by the Holder or
Holders of at least 25% or more of the aggregate number of Option Shares
(including shares of Issuer Common Stock issuable upon exercise of the
Option) then outstanding.
In addition to the foregoing, Issuer shall not be required to maintain
the effectiveness of any registration statement after the expiration of nine
months from the effective date of such registration statement. Issuer shall use
all reasonable efforts to make any filings, and take all steps, under all
applicable state securities laws to the extent necessary to permit the sale or
other disposition of the Option Shares so registered in accordance with the
intended method of distribution for such shares, provided, however, that Issuer
shall not be required to consent to general jurisdiction or to qualify to do
business in any state where it is not otherwise required to so consent to such
jurisdiction or to so qualify to do business. Notwithstanding anything to the
contrary contained herein, in no event shall Issuer be obligated to effect more
than two registrations pursuant to this Section 9 by reason of the fact that
there shall be more than one Holder as a result of any assignment or division of
this Agreement.
(d) EXPENSES. Issuer will pay all expenses (including without
limitation registration fees, qualification fees, blue sky fees and expenses,
accounting expenses, legal expenses and printing expenses incurred by it) in
connection with the first registration pursuant to Section 9(a) or (b) and all
other qualifications, notifications or exemptions pursuant to Section 9(a) or
(b). Underwriting discounts and commissions relating to Option Shares, fees and
disbursements of counsel to the Holder(s) of Option Shares being registered and
any other expenses incurred by such Holder(s) in connection with any such
registration shall be borne by such Holder(s).
(e) INDEMNIFICATION. In connection with any registration under
Section 9(a) or (b), Issuer hereby indemnifies each Holder, and each underwriter
thereof, including each person, if any, who controls such Holder or underwriter
within the meaning of Section 15 of the Securities Act, against all expenses,
losses, claims, damages and liabilities caused by any untrue, or alleged untrue,
statement of a material fact contained in any registration statement or
prospectus or notification or offering circular (including any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission,
or alleged omission, to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any
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<PAGE>
untrue statement or alleged untrue statement that was included by Issuer in any
such registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such indemnified
party expressly for use therein, and Issuer and each officer, director and
controlling person of Issuer shall be indemnified by such Holder, or by such
underwriter, as the case may be, for all such expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement that was
included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such Holder or such underwriter, as the case may be,
expressly for such use.
Promptly upon receipt by a party indemnified under this Section 9(e)
of notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 9(e), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but,
except to the extent of any actual prejudice to the indemnifying party, the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 9(e). In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified party unless
(i) the indemnifying party agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel reasonably satisfactory
to the indemnified party, or (iii) the indemnified party has been advised by
counsel that one or more legal defenses may be available to the indemnifying
party that may be contrary to the interest of the indemnified party, in which
case the indemnifying party shall be entitled to assume the defense of such
action notwithstanding its obligation to bear fees and expenses of such counsel.
No indemnifying party shall be liable for any settlement entered into without
its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 9(e) is
unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to be
indemnified, shall contribute to the amount paid or payable by such party to be
indemnified as a result of such expenses, losses, claims, damages or liabilities
in such proportion as is appropriate to reflect the relative benefits received
by Issuer, the selling Holders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the selling Holders and the
underwriters in connection with the statement or omissions which results in such
expenses, losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The amount paid or payable by a party as a result of
the expenses, losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim;
provided, however, that in no case shall the selling Holders be responsible, in
the aggregate, for any amount in excess of the net offering proceeds
attributable to its Option Shares included in the offering. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(g) of the
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<PAGE>
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any obligation by any Holder to
indemnify shall be several and not joint with other Holders.
In connection with any registration pursuant to Section 9(a) or (b)
above, Issuer and each selling Holder (other than Grantee) shall enter into an
agreement containing the indemnification provisions of this Section 9(e).
(f) MISCELLANEOUS REPORTING. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Holder(s) in accordance
with and to the extent permitted by any rule or regulation permitting
nonregistered sales of securities promulgated by the Commission from time to
time, including, without limitation, Rule 144A. Issuer shall at its expense
provide the Holder with any information necessary in connection with the
completion and filing of any reports or forms required to be filed by them under
the Securities Act or the Exchange Act, or required pursuant to any state
securities laws or the rules of any stock exchange.
(g) ISSUE TAXES. Issuer will pay all stamp taxes in connection with
the issuance and the sale of the Option Shares and in connection with the
exercise of the Option, and will save any Holder harmless, without limitation as
to time, against any and all liabilities, with respect to all such taxes.
10. QUOTATION; LISTING. If Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are then authorized for
quotation or trading or listing on NASDAQ/NMS or any securities exchange,
Issuer, upon the request of Holder, will promptly file an application, if
required, to authorize for quotation or trading or listing the shares of Issuer
Common Stock or other securities to be acquired upon exercise of the Option on
NASDAQ/NMS or such other securities exchange and will use its best efforts to
obtain approval, if required, of such quotation or listing as soon as
practicable.
11. DIVISION OF OPTION. Upon the occurrence of a Purchase Event or a
Preliminary Purchase Event, this Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of the Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
--------- ------
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
12. MISCELLANEOUS.
(a) EXPENSES. Except as otherwise provided in Section 9, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
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<PAGE>
(b) WAIVER AND AMENDMENT. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(c) ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; SEVERABILITY.
This Agreement, together with the Affiliation Agreement and the other documents
and instruments referred to herein and therein, between Grantee and Issuer (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and (ii) is not intended to confer upon any person other
than the parties hereto (other than the indemnified parties under Section 9(e)
and any transferee of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 12(h)) any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or a federal or state regulatory agency to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Holder to acquire,
or does not require Issuer to repurchase, the full number of shares of Issuer
Common Stock as provided in Sections 3 and 8 (as adjusted pursuant to Section
7), it is the express intention of Issuer to allow Holder to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible
without any amendment or modification hereof.
(d) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts without regard to
any applicable conflicts of law rules.
(e) DESCRIPTIVE HEADINGS. The descriptive headings contained herein
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or sent by overnight mail service or mailed by registered or
certified mail (return receipt requested) postage prepaid, to the parties at the
following address (or at such other address for a party as shall be specified by
like notice):
If to Grantee:
100 Old King's Highway
Sandwich, Massachusetts 02563
Attention: President
Fax: (508) 833-0005
With required copes to each of :
Harry K. Kantarian, Esq.
Leonard S. Volin, Esq.
Housley Kantarian & Bronstein, P.C.
1220 19/th/ Street, N.W.
Suite 700
Washington, D.C. 29936
Fax: (202) 822-9611
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<PAGE>
If to Grantee, to:
791 Purchase Street
New Bedford, Massachusetts 02740-2101
Attention: President
Fax: (508) 984-6212
With required copies to each of:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Fax: (617) 832-7000
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
(g) COUNTERPARTS. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Purchase Event shall have occurred prior to an Exercise Termination
Event, Grantee, subject to the express provisions hereof, may assign in whole or
in part its rights and obligations hereunder; provided, however, that until the
date 15 days following the date on which the Federal Reserve Board approves an
application by Grantee under the BHCA to acquire the shares of Issuer Common
Stock subject to the Option, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g., a broker
or investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf, or (iv) any other manner approved by the
Federal Reserve Board.
(i) FURTHER ASSURANCES. In the event of any exercise of the Option by
Holder, Issuer and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement
may be enforced by either party through specific performance, injunctive relief
and other equitable relief. Both parties further agree to waive any requirement
for the securing or posting of any bond in
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<PAGE>
connection with the obtaining of any such equitable relief and that this
provision is without prejudice to any other rights that the parties hereto may
have for any failure to perform this Agreement.
(k) EXTENSION OF EXERCISE TIME PERIODS FOR REGULATORY COMPLIANCE. The time
periods set forth in this Agreement for the exercise by Grantee or the Holder to
exercise its rights with respect to the Option or a Substitute Option or with
respect to repurchase of the Option shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights and
for the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason of
such exercise.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
Attest: SANDWICH BANCORP, INC.
By:
- -------------------------------------- -----------------------------------
Name: Frederic D. Legate
Title: President and Chief
Executive Officer
THE 1855 BANCORP
Attest:
By:
- -------------------------------------- -----------------------------------
Name: Kevin G. Champagne
Title: President and Chief
Executive Officer
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<PAGE>
EXHIBIT B
FORM OF VOTING AGREEMENT
March , 1998
The 1855 Bancorp
791 Purchase Street
New Bedford, Massachusetts 02741-2101
Ladies and Gentlemen
The undersigned is a director of Sandwich Bancorp ("Sandwich") and is the
beneficial holder of shares of common stock of Sandwich ("Sandwich Common
Stock").
Sandwich and The 1855 Bancorp ("1855 Bancorp") are considering the
execution of an Amended and Restated Affiliation and Merger Agreement
("Agreement") contemplating the merger of a newly formed special-purpose
subsidiary of 1855 Bancorp with and into Sandwich, with Sandwich as the
surviving corporation of the merger (the "Merger"), such execution being subject
in the case of 1855 Bancorp to the execution and delivery of this letter
agreement ("letter agreement"). In consideration of the substantial expenses
that 1855 Bancorp will incur in connection with the transactions contemplated by
the Agreement and in order to induce 1855 Bancorp to execute the Agreement and
to proceed to incur such expenses, the undersigned agrees and undertakes, in his
capacity as a shareholder of Sandwich and not in his capacity as a director of
Sandwich, as follows:
1. The undersigned, while this letter agreement is in effect, shall vote or
cause to be voted all of the Shares of Sandwich Common Stock that the
undersigned shall be entitled to so vote, whether such Shares are beneficially
owned by the undersigned on the date of this letter agreement or are
subsequently acquired, whether pursuant to the exercise of stock options or
otherwise, at the Special Meeting of Sandwich's stockholders to be called and
held following the date hereof, for the approval of the Agreement and the
Merger.
2. The undersigned acknowledges and agrees that any remedy at law for
breach of the foregoing provisions shall be inadequate and that, in addition to
any other relief which may be available, 1855 Bancorp shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damages.
3. The foregoing restrictions shall not apply to shares with respect to
which the undersigned may have voting power as a fiduciary for others. In
addition, this letter agreement shall only apply to actions taken by the
undersigned in his capacity as a shareholder of Sandwich and shall not in any
way limit or affect actions the undersigned may take in his capacity as a
director of Sandwich.
4. This letter agreement shall automatically terminate upon termination of
the Agreement in accordance with its terms.
<PAGE>
5. This letter agreement shall supersede the letter agreement between the
undersigned and 1855 Bancorp dated February 2, 1998, which prior letter
agreement is hereby terminated.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
Very truly yours,
---------------------------------------------
Signature
---------------------------------------------
Name (please print)
Accepted and agreed to as of
the date first above written:
THE 1855 BANCORP
By:
---------------------------------
Its
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<PAGE>
EXHIBIT C
AFFILIATES AGREEMENT
March 23, 1998
The 1855 Bancorp
791 Purchase Street
New Bedford, Massachusetts 02741-2101
Gentlemen:
I have been advised that I might be considered to be an "affiliate" of
Sandwich Bancorp, Inc., a Massachusetts corporation (the "Company"), for
purposes of paragraphs (c) and (d) of Rule 145 of the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act")
and for purposes of generally accepted accounting principles ("GAAP") as such
term relates to pooling of interests accounting treatment for certain business
combinations under GAAP and the interpretations of the SEC or its staff,
including, without limitation, Section 201.01 of the SEC's Codification of
Financial Reporting Policies ("Section 201.01") and the SEC's Staff Accounting
Bulletin No. 65.
The 1855 Bancorp ("1855 Bancorp") and the Company have entered into an
Amended and Restated Affiliation and Merger Agreement, dated as of March 23,
1998 (the "Merger Agreement"). Upon consummation of the merger contemplated by
the Merger Agreement (the "Merger"), I may receive shares of common stock of
1855 Bancorp ("1855 Bancorp Common Stock") in exchange for my shares of common
stock, par value $1.00 per share, of the Company ("Company Common Stock"). This
agreement is hereinafter referred to as the "Letter Agreement."
A. I represent and warrant to, and agree with, 1855 Bancorp as follows:
1. I have read this Letter Agreement and the Merger Agreement and have
discussed their requirements and other applicable limitations upon my ability to
sell, pledge, transfer or otherwise dispose of share of 1855 Bancorp Common
Stock, and any other capital stock of 1855 Bancorp and Company Common Stock, to
the extent I felt necessary, with my counsel or counsel for the Company.
2. I shall not make any offer, sale, pledge, transfer or other
disposition in violation of the Act or the rules and regulations of the SEC
thereunder of the shares of 1855 Bancorp Common Stock I receive pursuant to the
Merger.
3. Notwithstanding the foregoing and any other agreements on my part in
connection with the 1855 Bancorp Common Stock, any other capital stock of 1855
Bancorp
<PAGE>
The 1855 Bancorp
Page 2
and Company Common Stock, I hereby agree that, without the consent of
1855 Bancorp, I will not sell or otherwise reduce my risk relative to any shares
of Company Common Stock, 1855 Bancorp Common Stock or any other capital stock of
1855 Bancorp during the period beginning thirty days prior to the effective date
of the Merger and continuing until financial results covering at least thirty
days of combined operations have been published following the effective date of
the Merger within the meaning of Section 201.01.
B. I understand and agree that:
1. I have been advised that any issuance of shares of 1855 Bancorp
Common Stock to me pursuant to the Merger will be registered with the SEC. I
have also been advised, however, that, because I may be an "affiliate" of the
Company at the time the Merger will be submitted for a vote of the stockholders
of the Company and my disposition of such shares has not been registered under
the Act, I must hold such shares indefinitely unless (i) such disposition of
such shares is subject to an effective registration statement and to the
availability of a prospectus under the Act, (ii) a sale of such shares is made
in conformity with the provisions of Rule 145(d) under the Act, (iii) a sale of
such shares is made following expiration of the restrictive period set forth in
Rule 145(d) or (iv) in an opinion of counsel, in form and substance reasonably
satisfactory to 1855 Bancorp, some other exemption from registration is
available with respect to any such proposed disposition of such shares.
2. Stop transfer instructions will be given to the transfer agents of
the Company and 1855 Bancorp with respect to the shares of the Company Common
Stock and the shares of 1855 Bancorp Common Stock and any other capital stock in
connection with the restrictions set forth herein, and there will be placed on
the certificate representing shares of 1855 Bancorp Common Stock I receive
pursuant to the Merger, or any certificates delivered in substitution therefor,
a legend stating in substance:
The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933
applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an agreement between the
registered holder hereof and The 1855 Bancorp, a copy of which
agreement is on file at the principal offices of The 1855 Bancorp. A
copy of such agreement shall be provided to the holder hereof without
charge upon receipt by The 1855 Bancorp of a written request.
3. Unless a transfer of my shares of 1855 Bancorp Common Stock is a
sale made in conformity with the provisions of Rule 145(d), made following
expiration of the restrictive period set forth in Rule 145(d) or made pursuant
to any effective registration statement under the Act, 1855 Bancorp reserves the
right to put an appropriate legend on the certificate issued to my transferee.
<PAGE>
The 1855 Bancorp
Page 3
It is understood and agreed that this Letter Agreement shall terminate and
be of no further force and effect if the Merger Agreement is terminated in
accordance with its terms. It is also understood and agreed that this Letter
Agreement shall terminate and be of no further force and effect and the stop
transfer instructions set forth in Paragraph B.2. above shall be lifted
forthwith upon the later of (i) such time as financial results covering at least
thirty days of combined operations following the effective date of the Merger
have been published within the meaning of Section 201.01 and (ii) delivery by
the undersigned to 1855 Bancorp of a copy of a letter from the staff of the SEC,
an opinion of counsel in form and substance reasonably satisfactory to 1855
Bancorp, or other evidence reasonably satisfactory to 1855 Bancorp, to the
effect that a transfer of my shares of 1855 Bancorp Common Stock will not
violate the Act or any of the rules and regulations of the SEC thereunder. In
addition, it is understood and agreed that the legend set forth in Paragraph
B.2. above shall be removed forthwith from the certificate or certificates
representing my shares of 1855 Bancorp Common Stock upon expiration of the
restrictive period set forth in Rule 145(d) or if I shall have delivered to 1855
Bancorp a copy of a letter from the staff of the SEC, an opinion of counsel in
form and substance reasonably satisfactory to 1855 Bancorp, or other evidence
satisfactory to 1855 Bancorp that a transfer of my shares of 1855 Bancorp Common
Stock represented by such certificate or certificates will be a sale made in
conformity with the provisions of Rule 145(d), or made pursuant to an effective
registration statement under the Act.
4. I recognize and agree that the foregoing provisions also apply to
(i) my spouse, (ii) any relative of mine or my spouse=s occupying my home,
(iii), any trust or estate in which I, my spouse or any such relative owns at
least 10% beneficial interest or of which any of us serves as trustee, executor
or in any similar capacity and (iv) any corporation or other organization in
which I, my spouse or any such relative owns at least 10% of any class of equity
securities or of the equity interest.
5. I further recognize that in the event I become a director or officer
of 1855 Bancorp upon consummation of the Merger, any sale of 1855 Bancorp stock
by me may be subject to liability pursuant to Section 16 (b) of the Securities
Exchange Act of 1934, as amended.
6. Execution of this Letter Agreement should not be construed as an
admission on my part that I am an "affiliate" of the Company as described in the
first paragraph of this Letter Agreement or as a waiver of any rights I may have
to object to any claim that I am such an affiliate on or after the date of this
Letter Agreement.
* * * * *
<PAGE>
The 1855 Bancorp
Page 4
This Letter Agreement shall be binding on my heirs, legal representative
and successors.
Very truly yours,
______________________________
Signature
______________________________
Name (Please Print)
Accepted as of the date first above
written
THE 1855 BANCORP
By:__________________________________
Name:
Title:
<PAGE>
EXHIBIT 2.2
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS
CONTAINED HEREIN AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
Stock Option Agreement, dated as of March 23, 1998 (the "Agreement"), by
---------
and between Sandwich Bancorp, Inc. ("Issuer"), a Massachusetts corporation and
------
bank holding company and the parent of the Sandwich Co-operative Bank, a
Massachusetts co-operative bank ("Sandwich Bank"), and The 1855 Bancorp
-------------
("Grantee"), a Massachusetts mutual holding company and the parent of Compass
- ---------
Bank For Savings, a Massachusetts savings bank ("Compass Bank").
------------
WITNESSETH:
WHEREAS, Issuer, Grantee, Compass Bank and Sandwich Bank have entered into
an Amended and Restated Affiliation and Merger Agreement dated as of March 23,
1998 (the "Affiliation Agreement"), providing for, among other things, the
---------------------
merger of Issuer with Grantee or an Affiliate of Grantee (the "Merger"); and
------
WHEREAS, as a condition and inducement to Grantee's execution of the
Affiliation Agreement, Grantee has required that Issuer agree, and Issuer has
agreed, to grant to Grantee the Option (as hereinafter defined); and
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Affiliation Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1 DEFINED TERMS. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Affiliation Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
------
up to 387,107 shares (as adjusted as set forth herein, the "Option Shares,"
-------------
which shall include the Option Shares before and after any transfer of such
Option Shares) of Common Stock, par value $1.00 per share ("Issuer Common
-------------
Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price")
--------------
of $57.00, provided, however, that in no event shall the number of Option Shares
for which the Option is exercisable exceed 19.9% of the issued and outstanding
shares of Issuer Common Stock without giving effect to any shares subject to or
issued pursuant to the Option. The number of shares of Issuer Common Stock that
may be received upon the exercise of the Option and the Purchase Price are
subject to adjustment as herein set forth.
3. EXERCISE OF OPTION.
(a) Grantee or Holder (as hereinafter defined) may exercise the Option, in
whole or in part, at any time and from time to time following the occurrence of
a Purchase Event (as hereinafter defined) and before an Exercise Termination
Event (as hereinafter defined). Each of the following shall be an "Exercise
Termination Event":
(i) The Effective Time (as defined in the Affiliation Agreement) of the
Merger,
(ii) The passage of 12 months after termination of the Affiliation
Agreement following the occurrence of a Purchase Event or a Preliminary
Purchase Event;
<PAGE>
(iii) The date on which the Affiliation Agreement is terminated in
accordance with its terms, but only if such termination takes place prior
to the occurrence of a Purchase Event or a Preliminary Purchase Event; and
(iv) The passage of 12 months after the Affiliation Agreement is
terminated by Grantee pursuant to Section 11.1.2 or 11.1.3 of the
Affiliation Agreement.
Any purchase of shares upon exercise of the Option shall be subject to
compliance with applicable laws, including without limitation the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and the Bank Merger Act, as
-------
amended ("Bank Merger Act"). The term "Holder" shall mean the holder or holders
--------------- ------
of the Option from time to time (subject to the limitations contained in Section
12(h)). The Grantee is the initial Holder. The rights set forth in Section 8
hereof shall terminate when the right to exercise the Option terminates (other
than as a result of a complete exercise of the Option) as set forth above.
(b) As used herein, a "Purchase Event" means any of the following events:
--------------
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended or publicly proposed, or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any subsidiary of Grantee) to effect
(A) a merger, consolidation or similar transaction involving Issuer or any
of its subsidiaries, (B) the disposition, by sale, lease, exchange or
otherwise, of assets of Issuer or any Issuer Subsidiary representing in
either case 15% or more of the consolidated assets of Issuer and the Issuer
Subsidiaries, or (C) the issuance, sale or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction)
securities representing 15% or more of the voting power of Issuer or any of
the Issuer Subsidiaries (any of the foregoing an "Acquisition
-----------
Transaction"); or
(ii) any person (other than Grantee or any subsidiary of Grantee) shall
have acquired beneficial ownership (as such term is defined in Rule 13d-3
promulgated under the Exchange Act) of or the right to acquire beneficial
ownership of, or any "group" (as such term is defined in Section 13(d)(3)
-----
of the Exchange Act) shall have been formed which beneficially owns or has
the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of the
--------------------------
following events:
(i) any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act), or shall have filed a registration statement under the Securities Act
with respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control 10% or more of the then outstanding shares of Issuer
Common Stock (such an offer being referred to herein as a "Tender Offer"
------------
and an "Exchange Offer," respectively); or
--------------
(ii) following the public announcement of an Acquisition Proposal (which
the parties hereto acknowledge has already taken place), the holders of
Issuer Common Stock shall not have approved the Affiliation Agreement at
the meeting of such stockholders held for the purpose of voting on the
Affiliation Agreement (the term "Acquisition Proposal" is defined to mean
--------------------
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<PAGE>
(x) a bona fide proposal by any person (other than Grantee or any
subsidiary of Grantee) shall have been made to Issuer or its stockholders
to engage in a Acquisition Transaction, (y) any person (other than Grantee
or any subsidiary of Grantee) shall have stated its intention to Issuer or
its stockholders to make a proposal to engage in a Acquisition Transaction
if the Affiliation Agreement terminates or (z) any person (other than
Grantee or any subsidiary of Grantee) shall have filed an application or
notice with any Governmental Entity to engage in a Acquisition
Transaction); or
(iii) following the occurrence of an Acquisition Proposal (which the
parties hereto acknowledge has already taken place):
(A) the meeting of Issuer stockholders held for the purpose of voting
on the Affiliation Agreement shall not have been held or shall have been
canceled prior to termination of the Affiliation Agreement,
(B) Issuer's Board of Directors shall have withdrawn or modified, or
publicly announced its intention to withdraw or modify, in a manner
adverse to Grantee the recommendation of Issuer's Board of Directors
with respect to the Affiliation Agreement and the Merger;
(C) Issuer shall have breached any representation, warranty,
covenant or obligation contained in the Affiliation Agreement and such
breach would entitle Grantee to terminate the Affiliation Agreement
under Section 11.1.2 or 11.1.3 of the Affiliation Agreement (without
regard to the cure period provided for therein unless such cure is
promptly effected without jeopardizing consummation of the Merger
pursuant to the terms of the Affiliation Agreement); or
(D) The Merger shall not have been consummated by reason of failure
of the pooling of interests condition, and such failure is the result of
the actions of a party not affiliated with either Grantee or Issuer; or
(iv) any person other than Grantee or any Grantee Subsidiary, other than
in connection with a transaction to which Grantee has given its prior
written consent, shall have (x) acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or (y) filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to
acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or otherwise to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in
------
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Holder
to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
- ------------
-3-
<PAGE>
purchase pursuant to such exercise, and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
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notification to or approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), the Federal Deposit Insurance Corporation,
---------------------
the Massachusetts Division of Banks, or any other Governmental Entity is
required in connection with such purchase, Issuer shall cooperate with Grantee
in the filing of the required notice of application for approval and the
obtaining of such approval and the Closing shall occur immediately following
such regulatory approvals (and any mandatory waiting periods). Any exercise of
the Option shall be deemed to occur on the Notice Date relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately
available funds by wire transfer to a bank account designated by Issuer, an
amount equal to the Purchase Price multiplied by the number of Option Shares to
be purchased on such Closing Date, and (ii) present and surrender this Agreement
to Issuer at the address of Issuer specified in Section 12(f) hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a), (i)
Issuer shall deliver to Holder (A) a certificate or certificates representing
the Option Shares to be purchased at such Closing, which Option Shares shall be
free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever and subject to no preemptive rights, and (B) if the Option is
exercised in part only, an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the shares of Issuer
Common Stock purchasable hereunder, and (ii) Holder shall deliver to Issuer a
letter agreeing that Holder shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF MARCH
23, 1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER
HEREOF WITHOUT CHARGE UPON RECEIPT BY ISSUER OF A WRITTEN REQUEST
THEREFOR.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if Holder shall have delivered to Issuer a copy of a letter from the staff of
the SEC, or an opinion of counsel, in form and substance reasonably satisfactory
to Issuer, to the effect that such legend is not required for purposes of the
1933 Act; (ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
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<PAGE>
(d) Upon the giving by Holder to Issuer of the written notice of exercise
of the Option provided for under Section 3(e), the tender of the applicable
purchase price in immediately available funds and the tender of this Agreement
to Issuer, Holder shall be deemed to be the holder of record of the shares of
Issuer Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates representing
such shares of Issuer Common Stock shall not then be actually delivered to
Holder.
(e) Issuer agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock so that the Option may be exercised without
requiring Issuer's stockholders to approve an increase in the number of
authorized shares of Issuer Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Issuer
Common Stock, (ii) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer, (iii) promptly to take all action as may from time to time
be required (including (A) complying with all premerger notification, reporting
and waiting period requirements and (B) in the event prior approval of or notice
to any Governmental Entity is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or notices and
providing such information to such Governmental Entity as it may require) in
order to permit Holder to exercise the Option and Issuer duly and effectively to
issue shares of Issuer Common Stock pursuant hereto, and (iv) promptly to take
all action provided herein to protect the rights of Holder against dilution.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee (and Holder, if different than Grantee) as follows:
(a) CORPORATE POWER AND AUTHORITY. Issuer has all requisite corporate
power and authority to enter into this Agreement, and subject to any approvals
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer, and this Agreement has been duly
executed and delivered by Issuer.
(b) NO VIOLATIONS. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by Issuer
with any of the provisions hereof will not (i) conflict with or result in a
breach of any provision of its Articles of Organization or Bylaws or a default
(or give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, bond, debenture,
mortgage, indenture, license, material agreement or other material instrument or
obligation to which Issuer is a party, or by which it or any of its properties
or assets may be bound, or (ii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Issuer or any of its properties or
assets.
(c) AUTHORIZED STOCK. Issuer has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue, and at all times from
the date hereof until the obligation to deliver Issuer Common Stock upon the
exercise of the Option terminates, will have
-5-
<PAGE>
reserved for issuance upon exercise of the Option that number of shares of
Issuer Common Stock equal to the maximum number of shares of Issuer Common Stock
at any time and from time to time purchasable upon exercise of the Option, and
all such shares, upon issuance pursuant to the Option, will be duly and validly
issued, fully paid and nonassessable, and will be delivered free and clear of
all liens, claims, charges and encumbrances of any kind or nature whatsoever and
not subject to any preemptive rights.
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents
and warrants to Issuer as follows:
(a) CORPORATE POWER AND AUTHORITY. Grantee has all requisite corporate
power and authority to enter into this Agreement and, subject to any approvals
or consents referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee, and this Agreement has been duly
executed and delivered by Grantee.
(b) The Option is not being, and any shares of Issuer Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the 1933 Act.
7. ADJUSTMENT UPON CHANGES IN ISSUER CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transactions so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, it, together with any
shares of Issuer Common Stock previously issued pursuant hereto, equals 19.9% of
the number of shares of Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant to the Option.
(b) In the event that Issuer shall enter into an agreement: (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the
-6-
<PAGE>
agreement governing such transaction shall make proper provisions so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of Holder, of any of (x) the
-----------------
Acquiring Corporation (as hereinafter defined), (y) any person that controls
the Acquiring Corporation or (z) in the case of a merger described in clause
(ii), Issuer (such person being referred to as "Substitute Option Issuer").
------------------------
(c) The Substitute Option shall have the same terms as the Option,
provided that, if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Holder. Substitute Option Issuer also shall enter
into an agreement with Holder in substantially the same form as this Agreement,
which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of Substitute Option
per share of Substitute Common Stock (the "Substitute Option Price") shall then
-----------------------
be equal to the Purchase Price multiplied by a fraction in which the numerator
is the number of shares of Issuer Common Stock for which the Option was
theretofore exercisable and the denominator is the number of shares of the
Substitute Common Stock for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
---------------------
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, or (iii) the transferee of all or substantially all of
Issuer's assets (or a substantial part of the assets of its subsidiaries
taken as a whole).
(2) "Substitute Common Stock" shall mean the shares of capital stock
-----------------------
(or similar equity interest) with the greatest voting power in respect of
the election of directors (or persons similarly responsible for the
direction of the business and affairs) of the Substitute Option Issuer.
(3) "Assigned Value" shall mean the highest of (w) the price per share
--------------
of Issuer Common Stock at which a Tender Offer or an Exchange Offer
therefor has been made (other than by Holder), (x) the price per share of
Issuer Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (y) the highest closing price for shares of Issuer Common
Stock within the six-month period immediately preceding the consolidation,
merger or sale in question and (z) in the event of a sale of all or
substantially all of Issuer's assets or deposits, an amount equal to (i)
the sum of the price paid in such sale for such assets (and/or deposits)
and the current market value of the remaining assets of Issuer, as
determined by a nationally-recognized investment banking firm selected by
the Holder and reasonably acceptable to the Issuer, divided by (ii) the
number of shares of Issuer Common Stock outstanding at such time. In the
event that a Tender Offer or an Exchange Offer is made for Issuer Common
Stock or an agreement is entered into for a merger or consolidation
involving consideration other than cash, the value of the securities or
other property issuable or deliverable in exchange for Issuer Common Stock
shall be determined
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<PAGE>
by a nationally-recognized investment banking firm selected by Holder and
reasonably acceptable to the Issuer.
(4) "Average Price" shall mean the average closing price of a share of
-------------
Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by Issuer, the person merging into Issuer
or by any company which controls such person, as Holder may elect.
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for the limitation in the first sentence of this Section 7(f), Substitute
Option Issuer shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in the
first sentence of this Section 7(f) over (ii) the value of the Substitute Option
after giving effect to the limitation in the first sentence of this Section
7(f). This difference in value shall be determined by a nationally-recognized
investment banking firm selected by Holder and reasonably acceptable to the
Issuer.
(g) Issuer shall not enter into any transaction described in Section 7(b)
unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder and take
all other actions that may be necessary so that the provisions of this Section 7
are given full force and effect (including, without limitation, any action that
may be necessary so that the holders of the other shares of common stock issued
by Substitute Option Issuer are not entitled to exercise any rights by reason of
the issuance or exercise of the Substitute Option and the shares of Substitute
Common Stock are otherwise in no way distinguishable from or have lesser
economic value (other than any diminution in value resulting from the fact that
the shares of Substitute Common Stock are restricted securities, as defined in
Rule 144 under the Securities Act or any successor provision) than other shares
of common stock issued by Substitute Option Issuer).
8. REPURCHASE AT THE OPTION OF HOLDER.
(a) At the request of Holder at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 12
months immediately thereafter, Issuer shall repurchase from Holder (i) the
Option and (ii) all shares of Issuer Common Stock purchased by Holder pursuant
hereto with respect to which Holder then has beneficial ownership. The date on
which Holder exercises its rights under this Section 8 is referred to as the
"Request Date." Such repurchase shall be at an aggregate price (the "Section 8
- ------------- ---------
Repurchase Consideration") equal to the sum of:
- ------------------------
(i) the aggregate Purchase Price paid by Holder for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to which
Holder then has beneficial ownership;
-8-
<PAGE>
(ii) the excess, if any, of (x) the Applicable Price (as defined below)
for each share of Issuer Common Stock over (y) the Purchase Price (subject
to adjustment pursuant to Section 7), multiplied by the number of shares of
Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 7) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Holder for each share of
Issuer Common Stock with respect to which the Option has been exercised and
with respect to which Holder then has beneficial ownership, multiplied by
the number of such shares.
(b) If Holder exercises its rights under this Section 8, Issuer shall,
within 10 business days after the Request Date, pay the Section 8 Repurchase
Consideration to Holder in immediately available funds, and contemporaneously
with such payment Holder shall surrender to Issuer the Option and the
certificates evidencing the shares of Issuer Common Stock purchased thereunder
with respect to which Holder then has beneficial ownership, and shall warrant
that it has sole record and beneficial ownership of such shares and that the
same are then free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of the Federal Reserve Board, the Federal Deposit
Insurance Corporation, the Massachusetts Division of Banks or any other
Governmental Entity is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Holder shall have the ongoing
option to revoke its request for repurchase pursuant to Section 8, in whole or
in part, or to require that Issuer deliver from time to time that portion of the
Section 8 Repurchase Consideration that it is not then so prohibited from paying
and promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the other in
the filing of any such notice or application and the obtaining of any such
approval). If the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Massachusetts Division of Banks or any other Governmental
Entity disapproves of any part of Issuer's proposed repurchase pursuant to this
Section 8, Issuer shall promptly give notice of such fact to Holder. If the
Federal Reserve Board, the Federal Deposit Insurance Corporation, the
Massachusetts Division of Banks or any other Governmental Entity prohibits the
repurchase in part but not in whole, then Holder shall have the right (i) to
revoke the repurchase request or (ii) to the extent permitted by the Federal
Reserve Board, the Federal Deposit Insurance Corporation, the Massachusetts
Division of Banks or other Governmental Entity, determine whether the repurchase
should apply to the Option and/or Option Shares and to what extent to each, and
Holder shall thereupon have the right to exercise the Option as to the number of
Option Shares for which the Option was exercisable at the Request Date less the
sum of the number of shares covered by the Option in respect of which payment
has been made pursuant to Section 8(a)(ii) and the number of shares covered by
the portion of the Option (if any) that has been repurchased. Holder shall
notify Issuer of its determination under the preceding sentence within five
business days of receipt of notice of disapproval of the repurchase. The parties
hereto agree that Issuer's obligations to repurchase the Option or Option Shares
under this Section 8 shall terminate upon the occurrence of an Exercise
Termination Event unless a Purchase Event shall have occurred prior to the
occurrence of an Exercise Termination Event.
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<PAGE>
(c) For purposes of this Agreement, the "Applicable Price" means the
----------------
highest of (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i), (ii) the price
per share of Issuer Common Stock received by holders of Issuer Common Stock in
connection with any merger or other business combination transaction described
in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the highest closing sales
price per share of Issuer Common Stock quoted on the Nasdaq Stock Market's
National Market ("NASDAQ/NMS") (or if Issuer Common Stock is not quoted on
----------
NASDAQ/NMS, the highest bid price per share as quoted on the principal trading
market or securities exchange on which such shares are traded, as reported by a
recognized source chosen by Holder) during the 60 business days preceding the
Request Date; provided, however, that in the event of a sale of less than all of
Issuer's assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally-recognized investment banking firm selected
by Holder and reasonably acceptable to the Issuer, divided by the number of
shares of Issuer Common Stock outstanding at the time of such sale. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally-
recognized investment banking firm selected by Holder and reasonably acceptable
to Issuer, which determination shall be conclusive for all purposes of this
Option.
(d) As used herein, a "Repurchase Event" shall occur if (i) any person
----------------
(other than Grantee or any subsidiary of Grantee) shall have acquired beneficial
ownership of (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act), or the right to acquire beneficial ownership of, or any "group"
-----
(as such term is defined in Section 13(d)(3) of the Exchange Act) shall have
been formed which beneficially owns or has the right to acquire beneficial
ownership of, 50% or more of the then outstanding shares of Issuer Common Stock,
or (ii) any of the transactions described in Section 7(b)(i), Section 7(b)(ii)
or Section 7(b)(iii) shall be consummated.
9. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. Issuer shall, subject to the conditions
of Section 9(c), at the request of Grantee (whether on its own behalf or on
behalf of any subsequent Holder of this Option (or part thereof) or any of the
shares of Issuer Common Stock issued pursuant hereto), as expeditiously as
possible prepare and file a registration statement under the Securities Act if
such registration is necessary in order to permit the sale or other disposition
of any or all shares of Issuer Common Stock or other securities that have been
acquired by or are issuable to Holder upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by Holder in such
request, including without limitation a "shelf" registration statement under
-----
Rule 415 under the Securities Act or any successor provision, and Issuer shall
use its best efforts to qualify such shares or other securities for sale under
any applicable state securities laws.
(b) ADDITIONAL REGISTRATION RIGHTS. If Issuer at any time after the
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to Holder of
its intention to do so and, upon the written request of Holder given within 30
days after receipt of any such notice (which request shall specify the number of
shares of Issuer Common Stock intended to be included in such underwritten
public offering by Holder), Issuer will cause all such shares for which a Holder
shall have requested participation in such registration to be
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<PAGE>
so registered and included in such underwritten public offering; provided,
however, that Issuer may elect to not cause any such shares to be so registered
(i) if the underwriters in good faith object for valid business reasons, or (ii)
in the case of a registration solely to implement an employee benefit plan or a
registration filed on Form S-4 under the Securities Act or any successor form;
provided, further, however, that such election pursuant to clause (i) may only
be made one time. If some but not all the shares of Issuer Common Stock with
respect to which Issuer shall have received requests for registration pursuant
to this Section 9(b) shall be excluded from such registration, Issuer shall make
appropriate allocation of shares to be registered among Holders permitted to
register their shares of Issuer Common Stock in connection with such
registration pro rata in the proportion that the number of shares requested to
be registered by each such Holder bears to the total number of shares requested
to be registered by all such Holders then desiring to have Issuer Common Stock
registered for sale.
(c) CONDITIONS TO REQUIRED REGISTRATION. Issuer shall use all reasonable
efforts to cause each registration statement referred to in Section 9(a) to
become effective and to obtain all consents or waivers of other parties which
are required therefor and to keep such registration statement effective;
provided, however, that Issuer may delay any registration of Option Shares
required pursuant to Section 9(a) for a period not exceeding 90 days if Issuer
shall in good faith determine that any such registration would adversely affect
an offering or contemplated offering of other securities by Issuer, and Issuer
shall not be required to register Option Shares under the Securities Act
pursuant to Section 9(a):
(i) prior to the earliest of (A) termination of the Affiliation
Agreement pursuant to Article XI thereof, and (B) a Purchase Event or a
Preliminary Purchase Event;
(ii) on more than one occasion during any calendar year and on more
than two occasions in total;
(iii) within 90 days after the effective date of a registration
referred to in Section 9(b) pursuant to which the Holder or Holders
concerned were afforded the opportunity to register such shares under the
Securities Act and such shares were registered as requested; and
(iv) unless a request therefor is made to Issuer by the Holder or
Holders of at least 25% or more of the aggregate number of Option Shares
(including shares of Issuer Common Stock issuable upon exercise of the
Option) then outstanding.
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of nine months
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares, provided, however, that Issuer shall not
be required to consent to general jurisdiction or to qualify to do business in
any state where it is not otherwise required to so consent to such jurisdiction
or to so qualify to do business. Notwithstanding anything to the contrary
contained herein, in no event shall Issuer be obligated to effect more than two
registrations pursuant to this Section 9 by reason of the fact that there shall
be more than one Holder as a result of any assignment or division of this
Agreement.
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<PAGE>
(d) EXPENSES. Issuer will pay all expenses (including without limitation
registration fees, qualification fees, blue sky fees and expenses, accounting
expenses, legal expenses and printing expenses incurred by it) in connection
with the first registration pursuant to Section 9(a) or (b) and all other
qualifications, notifications or exemptions pursuant to Section 9(a) or (b).
Underwriting discounts and commissions relating to Option Shares, fees and
disbursements of counsel to the Holder(s) of Option Shares being registered and
any other expenses incurred by such Holder(s) in connection with any such
registration shall be borne by such Holder(s).
(e) INDEMNIFICATION. In connection with any registration under Section
9(a) or (b), Issuer hereby indemnifies each Holder, and each underwriter
thereof, including each person, if any, who controls such Holder or underwriter
within the meaning of Section 15 of the Securities Act, against all expenses,
losses, claims, damages and liabilities caused by any untrue, or alleged untrue,
statement of a material fact contained in any registration statement or
prospectus or notification or offering circular (including any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission,
or alleged omission, to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue statement
that was included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such indemnified party expressly for use therein, and
Issuer and each officer, director and controlling person of Issuer shall be
indemnified by such Holder, or by such underwriter, as the case may be, for all
such expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in conformity with,
information furnished in writing to Issuer by such Holder or such underwriter,
as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 9(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 9(e), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but,
except to the extent of any actual prejudice to the indemnifying party, the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 9(e). In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably satisfactory
to such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party agrees to pay the same, (ii) the indemnifying party fails to
assume the defense of such action with counsel reasonably satisfactory to the
indemnified party, or (iii) the indemnified party has been advised by counsel
that one or more legal defenses may be available to the indemnifying party that
may be contrary to the interest of the indemnified party, in which case the
indemnifying party shall be entitled to assume the defense of
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<PAGE>
such action notwithstanding its obligation to bear fees and expenses of such
counsel. No indemnifying party shall be liable for any settlement entered into
without its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 9(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses, losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such party otherwise entitled to be indemnified, shall
contribute to the amount paid or payable by such party to be indemnified as a
result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by
Issuer, the selling Holders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the selling Holders and the
underwriters in connection with the statement or omissions which results in such
expenses, losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The amount paid or payable by a party as a result of
the expenses, losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim;
provided, however, that in no case shall the selling Holders be responsible, in
the aggregate, for any amount in excess of the net offering proceeds
attributable to its Option Shares included in the offering. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(g) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any obligation by any Holder to
indemnify shall be several and not joint with other Holders.
In connection with any registration pursuant to Section 9(a) or (b) above,
Issuer and each selling Holder (other than Grantee) shall enter into an
agreement containing the indemnification provisions of this Section 9(e).
(f) MISCELLANEOUS REPORTING. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Holder(s) in accordance
with and to the extent permitted by any rule or regulation permitting
nonregistered sales of securities promulgated by the Commission from time to
time, including, without limitation, Rule 144A. Issuer shall at its expense
provide the Holder with any information necessary in connection with the
completion and filing of any reports or forms required to be filed by them under
the Securities Act or the Exchange Act, or required pursuant to any state
securities laws or the rules of any stock exchange.
(g) ISSUE TAXES. Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save any Holder harmless, without limitation as to time,
against any and all liabilities, with respect to all such taxes.
10. QUOTATION; LISTING. If Issuer Common Stock or any other securities to
be acquired upon exercise of the Option are then authorized for quotation or
trading or listing on NASDAQ/NMS or any securities exchange, Issuer, upon the
request of Holder, will promptly file an application, if required, to authorize
for quotation or trading or listing the shares of Issuer Common Stock or other
securities to be acquired upon exercise of the Option on NASDAQ/NMS or such
other securities exchange and will use its best efforts to obtain approval, if
required, of such quotation or listing as soon as practicable.
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<PAGE>
11. DIVISION OF OPTION. Upon the occurrence of a Purchase Event or a
Preliminary Purchase Event, this Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of the Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
--------- ------
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
12. MISCELLANEOUS.
(a) EXPENSES. Except as otherwise provided in Section 9, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(b) WAIVER AND AMENDMENT. Any provision of this Agreement may be waived
at any time by the party that is entitled to the benefits of such provision.
This Agreement may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the parties
hereto.
(c) ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; SEVERABILITY. This
Agreement, together with the Affiliation Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and (ii) is not intended to confer upon any person other
than the parties hereto (other than the indemnified parties under Section 9(e)
and any transferee of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 12(h)) any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or a federal or state regulatory agency to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Holder to acquire,
or does not require Issuer to repurchase, the full number of shares of Issuer
Common Stock as provided in Sections 3 and 8 (as adjusted pursuant to Section
7), it is the express intention of Issuer to allow Holder to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible
without any amendment or modification hereof.
(d) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts without regard to
any applicable conflicts of law rules.
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<PAGE>
(e) DESCRIPTIVE HEADINGS. The descriptive headings contained herein are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or sent by overnight mail service or mailed by registered or
certified mail (return receipt requested) postage prepaid, to the parties at the
following address (or at such other address for a party as shall be specified by
like notice):
If to Grantee:
100 Old King=s Highway
Sandwich, Massachusetts 02563
Attention: President
Fax: (508) 833-0005
With required copes to each of :
Harry K. Kantarian, Esq.
Leonard S. Volin, Esq.
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W.
Suite 700
Washington, D.C. 29936
Fax: (202) 822-9611
If to Grantee, to:
791 Purchase Street
New Bedford, Massachusetts 02740-2101
Attention: President
Fax: (508) 984-6212
With required copies to each of:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Fax: (617) 832-7000
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
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<PAGE>
(g) COUNTERPARTS. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Purchase Event shall have occurred prior to an Exercise Termination
Event, Grantee, subject to the express provisions hereof, may assign in whole or
in part its rights and obligations hereunder; provided, however, that until the
date 15 days following the date on which the Federal Reserve Board approves an
application by Grantee under the BHCA to acquire the shares of Issuer Common
Stock subject to the Option, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g., a broker
or investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf, or (iv) any other manner approved by the
Federal Reserve Board.
(i) FURTHER ASSURANCES. In the event of any exercise of the Option by
Holder, Issuer and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement
may be enforced by either party through specific performance, injunctive relief
and other equitable relief. Both parties further agree to waive any requirement
for the securing or posting of any bond in connection with the obtaining of any
such equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
(k) EXTENSION OF EXERCISE TIME PERIODS FOR REGULATORY COMPLIANCE. The time
periods set forth in this Agreement for the exercise by Grantee or the Holder to
exercise its rights with respect to the Option or a Substitute Option or with
respect to repurchase of the Option shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights and
for the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason of
such exercise.
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IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
Attest: SANDWICH BANCORP, INC.
/s/ Pamela J. Buttrick By: /s/ Frederic D. Legate
- ----------------------------------- ----------------------------------
Name: Frederic D. Legate
Title: President and Chief
Executive Officer
THE 1855 BANCORP
Attest:
/s/ Marilyn H. Parkinson By: /s/ Kevin G. Champagne
- ------------------------------------ -------------------------------
Name: Kevin G. Champagne
Title: President and Chief
Executive Officer
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EXHIBIT 3.1
ARTICLES OF ORGANIZATION
OF
SANDWICH BANCORP, INC.
ARTICLE I
NAME
The name by which the corporation shall be known is: Sandwich Bancorp,
Inc. (the "Corporation").
ARTICLE II
PURPOSES
The purpose for which the Corporation is formed is to engage generally in
any business activity which may be lawfully carried on by a corporation
organized under Chapter 156B of the Massachusetts General Laws and to acquire,
invest in or hold stock in any subsidiary permitted under the Bank Holding
Company Act of 1956, as amended, and to engage in any other activity or
enterprise permitted to a bank holding company under said statute or other
applicable law.
ARTICLE III
SHARES OF CAPITAL STOCK
The total number of shares and the par value, if any, of each class of
stock which the Corporation is authorized to issue is as follows:
<TABLE>
<CAPTION>
Without Par Value With Par Value
----------------- ---------------------------
Class of Stock Number of Shares Number of Shares Par Value
---------------- ----------------- ---------------- ---------
<S> <C> <C> <C>
Preferred -0- 5,000,000 $1.00
Common -0- 15,000,000 $1.00
</TABLE>
ARTICLE IV
DESCRIPTION OF CAPITAL STOCK
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 20,000,000, of which 15,000,000 are to be
shares of common stock, $1.00 par value per share, and of which 5,000,000 are to
be shares of serial preferred stock, $1.00 par value per share. The shares may
be issued by the Corporation from time to time as approved by the Board of
Directors of the Corporation without the approval of the stockholders except as
otherwise provided in this Article IV or the rules of a national securities
exchange or registered securities association if applicable. The consideration
for the issuance of the shares shall be paid to or received by the Corporation
in full before their issuance and shall not be less than the par value per
share. The consideration for the issuance of the shares shall be cash, services
rendered, personal property (tangible or intangible), real property, leases of
real property or any other consideration deemed appropriate by the Board of
Directors. In the absence of actual fraud in the transaction, the judgment of
the Board of Directors as to the value of such consideration shall be
conclusive. Upon payment of such consideration, such shares shall be deemed to
be fully paid and nonassessable. In the case of a stock dividend, the part
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of the surplus of the Corporation which is transferred to stated capital upon
the issuance of shares as a stock dividend shall be deemed to be the
consideration for their issuance.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. COMMON STOCK. Except as provided in these Articles (or in any
certificate of establishment of series of preferred stock), the holders of the
common stock shall exclusively possess all voting power. Each holder of shares
of common stock shall be entitled to one vote for each share held by such
holder.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and sinking fund or retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock, and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when and as
declared by the Board of Directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock in any such event the full preferential amounts to which
they are respectively entitled, the holders of the common stock and of any class
or series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to receive the remaining assets
of the Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative powers, preferences
and rights as, and shall be identical in all respects with, all the other shares
of common stock of the Corporation.
B. SERIAL PREFERRED STOCK. Subject to any limitations prescribed by law
or these Articles, the Board of Directors of the Corporation is authorized, by
vote from time to time taken, to provide for the issuance of serial preferred
stock in one or more series and to fix and state the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series, and the qualifications, limitations or restrictions
thereof, including, but not limited to, the determination of any of the
following:
1. the distinctive serial designation and the number of shares
constituting such series; and
2. the dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to dividends;
and
3. the voting powers, full or limited, if any, of the shares of such
series; and
4. whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions upon which such
shares may be redeemed; and
5. the amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or winding
up of the Corporation; and
6. whether the shares of such series shall be entitled to the
benefits of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and, if so entitled, the amount of such fund
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<PAGE>
and the manner of its application, including the price or prices at which
such shares may be redeemed or purchased through the application of such
fund; and
7. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other series
of the same or any other class of classes of stock of the Corporation and,
if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which
such conversion or exchange may be made, and any other terms and conditions
of such conversion or exchange; and
8. the subscription or purchase price and form of consideration for
which the shares of such series shall be issued; and
9. whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any
other series of serial preferred stock.
Any establishment of a series of preferred stock by the Board of Directors
shall become effective when the Corporation files with the Secretary of State of
the Commonwealth of Massachusetts a certificate of establishment of series of
preferred stock, signed under the penalties of perjury by the Chairman of the
Board, the President or any Vice President and by the Clerk or an Assistant
Clerk, setting forth the text of the vote of the Board of Directors determining
the terms of the class or the number of shares and the terms of any series, the
date of adoption of such vote and a certification that such vote was duly
adopted by the Board of Directors of the Corporation.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None, however, see ARTICLE VI(L), "Approval of Certain Business
Combinations."
ARTICLE VI
Other lawful provisions, for the conduct and regulation of business and
affairs of the Corporation, for its voluntary dissolution or for limiting,
defining or regulating the powers of the Corporation, or of its directors or
stockholders, or of any class of stockholders are as follows:
ARTICLE VI(A)
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, charters of indebtedness, debentures or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, charters or indebtedness, debentures or other securities
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<PAGE>
convertible into or exchangeable for stock or carrying any right to purchase
stock may be issued pursuant to a vote of the Board of Directors of the
Corporation to such persons, firms, corporations or associations, whether or not
holders thereof, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
ARTICLE VI(B)
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the
Board of Directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
Board of Directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by applicable law.
ARTICLE VI(C)
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING
A. Notwithstanding any other provision of these Articles or the Bylaws of
the Corporation, no action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, unless all stockholders entitled to vote on the matter
consent to the action in writing and the written consents are filed with the
records of the meetings of stockholders. Such consent shall be treated for all
purposes as a vote at a meeting.
B. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Board of Directors of the
Corporation, the President of the Corporation or a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authorities, as provided in a vote of the Board of Directors or in
the Bylaws of the Corporation, include the power and authority to call such
special meetings. Such special meetings may not be called by any other person
or persons, except to the extent the Massachusetts Business Corporation Law
requires corporations that do not have a class of voting stock registered
pursuant to the Securities Exchange Act of 1934 to call a special meeting upon
written application of one or more stockholders who hold at least ten percent in
interest of the capital stock entitled to vote at the meeting.
C. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
ARTICLE VI(D)
NOTICE FOR NOMINATIONS AND PROPOSALS
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the Board of Directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of the Corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Clerk of the
Corporation not less than 30 days nor more than 60 days prior to any such
meeting. Each such notice given by a stockholder with respect to nominations
for the election of directors shall set forth (i) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee, and
(iii) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee. In addition, the
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<PAGE>
stockholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation. Each such notice given by a stockholder
with respect to new business shall set forth as to each matter that the
stockholder proposes to bring before the meeting of stockholders (i) a brief
description of the proposal desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and address,
as they appear on the Corporation's stock transfer books, of the stockholder
proposing such business and of the beneficial owners (if any) of the stock
registered in such stockholder's name and the name and address of other
stockholders known by such stockholder to be supporting the proposal, (iii) the
class and number of shares of the Corporation's capital stock which are held of
record, beneficially owned or represented by proxy by the stockholder and by any
other stockholders known by such stockholder to be supporting such proposal on
the record date for the meeting in question and on the date of such
stockholder's notice, and (iv) any material interest of the stockholder (or any
other stockholders known by such stockholders to be supporting such proposal) in
such proposal.
B. The presiding officer of the annual or special meeting of stockholders
may, if the facts warrant, determine and declare to such meeting that a
nomination or proposal was not made in accordance with the foregoing procedure,
and, if he should so determine, he shall so declare to the meeting and the
defective nomination or proposal shall be disregarded and laid over for action
at the next succeeding adjourned, special or annual meeting of the stockholders
taking place 30 days or more thereafter. This provision shall not require the
holding of any adjourned or special meeting of stockholders for the purpose of
considering such defective nomination or proposal.
ARTICLE VI(E)
DIRECTORS
A. NUMBER; VACANCIES. The number of directors of the Corporation shall
be such number, not less than 7 nor more than 18 as shall be provided from time
to time in or in accordance with the Bylaws, provided that no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director, and provided further that no action shall be taken to
decrease or increase the number of directors from time to time unless at least
two-thirds of the directors then in office shall concur in said action.
Vacancies in the Board of Directors of the Corporation, however caused, and
newly created directorships shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, whether or not a quorum, and
any director so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which the director has
been chosen expires and until the director's successor is elected and qualified.
Each director, when appointed or elected, shall take an oath that he will
faithfully perform the duties of his office and that he is the owner, in his own
right and free of any lien or encumbrance, of the required amount of stock as
set forth in the Bylaws of the Corporation. The oath shall be taken before a
notary public or justice of the peace, who is not an officer of the Corporation,
and a record of the oath shall be made a part of the records of the Corporation.
B. CLASSIFIED BOARD. The Board of Directors of the Corporation shall be
divided into three classes of directors as nearly equal in number as possible,
with one class to be elected annually. The initial directors of the Corporation
shall hold office as follows: the first class of directors shall hold office
initially for a term expiring at the annual meeting of stockholders to be held
in calendar 1998, the second class of directors shall hold office initially for
a term expiring at the annual of stockholders meeting to be held in calendar
1999, and the third class of directors shall hold office initially for a term
expiring at the annual meeting of stockholders to be held in calendar 2000, with
the members of each class to hold office until their respective successors are
duly elected and qualified. At each annual meeting of stockholders of the
Corporation, the successors to the class of directors whose term expires at the
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their respective successors are elected and qualified.
Should the number of directors of the Corporation be increased, the additional
directorships shall be allocated among classes as appropriate so that the number
of directors in each class is as nearly equal as possible.
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Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the Board of Directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article VI(E). Notwithstanding the foregoing, and except as
otherwise may be required by law, whenever the holders of any one or more series
of preferred stock of the Corporation shall have the right, voting separately as
a class, to elect one or more directors of the Corporation, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of stockholders.
ARTICLE VI(F)
REMOVAL OF DIRECTORS
Notwithstanding any other provision of these Articles or the Bylaws of the
Corporation, any director or the entire Board of Directors of the Corporation
may be removed at any time for cause only by the affirmative vote of the holders
of a majority of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose. For the purpose of this Article VI(F), "cause" shall mean (a) a
conviction of a felony by a court of competent jurisdiction, which conviction is
no longer subject to direct appeal, (b) a declaration of unsound mind by order
of court, (c) a gross dereliction of the director's duty to the Corporation, (d)
the commission by the director of an action involving moral turpitude, or (e)
the commission by the director of an action that constitutes intentional
misconduct or a knowing violation of law if such action in either event results
both in an improper substantial personal benefit and a material injury to the
Corporation. In addition, any director or the entire Board of Directors of the
Corporation may be removed, at any time, without cause only by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of stockholders
called for that purpose. Notwithstanding the foregoing, whenever the holders of
any one or more series of preferred stock of the Corporation shall have the
right, voting separately as a class, to elect one or more directors of the
Corporation, the preceding provisions of this Article VI(F) respecting removal
by stockholders of the Corporation shall not apply with respect to the director
or directors elected by such holders of preferred stock.
ARTICLE VI(G)
AFFILIATED TRANSACTIONS
A. VALIDITY. Except as otherwise provided in these Articles, if paragraph
B is satisfied, no contract or transaction between the Corporation and any of
its directors, officers or security holders, or any corporation, partnership,
association or other organization in which any of such directors, officers or
security holders are directly or indirectly financially interested, shall be
void or voidable solely because of this relationship, or solely because of the
presence of the director, officer or security holder at the meeting authorizing
the contract or transaction, or solely because of his or their participation in
the authorization of such contract or transaction or vote at the meeting
therefor, whether or not such participation or vote was necessary for the
authorization of such contract or transaction.
B. DISCLOSURE, APPROVAL; FAIRNESS. PARAGRAPH A SHALL APPLY ONLY IF:
1. the material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors (or
a committee thereof) and it nevertheless in good faith authorizes or ratifies
the contract or transaction by a majority of the directors present, each such
interested director to be counted in determining whether a quorum is present but
not in calculating the majority necessary to carry the vote; and
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2. the contract or transaction is fair to the Corporation as of the time it
is authorized or ratified by the Board of Directors (or committee thereof) or
the stockholders.
ARTICLE VI(H)
INDEMNIFICATION
The Corporation shall indemnify each director or officer of the Corporation
to the fullest extent now or hereafter permitted by law against all expenses
(including attorneys' fees and disbursements), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative to which he is or is threatened to be
made a party by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation or of a subsidiary of the Corporation, or
is or was a director, custodian, administrator, committeeman or fiduciary of any
employee benefit plan established and maintained by the Corporation or by a
subsidiary of the Corporation, or is or was serving another enterprise in any
such capacity at the written request of the Corporation. To the extent
authorized at any time by the Board of Directors of the Corporation, the
Corporation may similarly indemnify other persons against liability incurred in
any capacity, or arising out of any status, of the character described in the
immediately preceding sentence. At the discretion of the Board of Directors,
any indemnification hereunder may include payment by the Corporation of expenses
incurred in defending a civil or criminal action or proceeding in advance of the
final disposition of such action or proceeding, upon receipt of an undertaking
by the person indemnified to repay such payment if he shall be adjudicated to be
not entitled to indemnification under this Article VI(H) or applicable laws. In
no event, however, shall the Corporation indemnify any director, officer, or
other person hereunder with respect to any matter as to which he shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Corporation. The
Corporation may purchase and maintain insurance to protect itself and any
present or former director, officer or other person against any liability of any
character asserted against and incurred by the Corporation or any such director,
officer or other person in any capacity, or arising out of any status, whether
or not the Corporation would have the power to indemnify such person against
such liability by law or under the provisions of this Article VI(H). The
provisions of this Article VI(H) shall be applicable to persons who shall have
ceased to be directors or officers of the Corporation, and shall inure to the
benefit of the heirs, executors and administrators of persons entitled to
indemnity hereunder. Nothing herein shall be deemed to limit the Corporation's
authority to indemnify any person pursuant to any contract or otherwise.
ARTICLE VI(I)
ACTING AS PARTNER
The Corporation may be a partner in any business enterprise which it would
have power to conduct by itself.
ARTICLE VI(J)
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make,
repeal, alter, amend and rescind the Bylaws of the Corporation. Notwithstanding
any other provision of these Articles or the Bylaws of the Corporation (and
notwithstanding the fact that some lesser percentage may be specified by law),
the Bylaws shall not be made, repealed, altered, amended, or rescinded by the
stockholders of the Corporation except by the vote of the holders of not less
than two-thirds of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such
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proposed adoption, repeal, alteration, amendment or rescission is included in
the notice of such meeting), or, as set forth above, by the Board of Directors
by the affirmative vote of not less than two-thirds of the directors then in
office.
ARTICLE VI(K)
AMENDMENT OF ARTICLES OF ORGANIZATION
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in these Articles in the manner now or hereafter prescribed
by law, and all rights conferred on stockholders herein are granted subject to
this reservation. Notwithstanding the foregoing, the provisions set forth in
Articles V, VI(C), VI(D), VI(E), VI(F), VI(H), VI(J) and this Article VI(K) of
these Articles may not be repealed, altered, amended, or rescinded in any
respect unless the same is approved by the affirmative vote of the holders of
not less than two-thirds of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as a single class) cast at a meeting of the stockholders called
for that purpose (provided that notice of such proposed adoption, repeal,
alteration, amendment or rescission is included in the notice of such meeting).
Any amendment, addition, alteration, change or repeal so acted upon shall be
effective on the date it is filed with the Secretary of State of the
Commonwealth of Massachusetts or on such other date as the Secretary of State
may specify.
ARTICLE VI(L)
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this Article V. Such stockholder
vote shall be in addition to any affirmative vote required by the Massachusetts
General Laws.
A. (1) Except as otherwise expressly provided in this Article V, the
affirmative vote of the holders of at least two-thirds of the outstanding shares
entitled to vote thereon (and, if any class or series of shares is entitled to
vote thereon separately, the affirmative vote of the holders of at least two-
thirds of the outstanding shares of each such class or series) shall be required
in order to authorize any of the following:
(a) any merger or consolidation of the Corporation with or into a
Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security device, of all
or any Substantial Part (as hereinafter defined) of the assets of the
Corporation (including without limitation any voting securities of a subsidiary)
or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into the
Corporation or a subsidiary of the Corporation;
(d) any sale, lease, exchange, transfer or other disposition of all or
any Substantial Part of the assets of a Related Person to the Corporation or a
subsidiary of the Corporation;
(e) the issuance of any securities of the Corporation or a subsidiary
of the Corporation to a Related Person;
(f) the acquisition by the Corporation or a subsidiary of the
Corporation of any securities of a Related Person,
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(g) any reclassification of the common stock of the Corporation, or
any recapitalization involving the common stock of the Corporation, and
(h) any agreement, contract or other arrangement providing for any of
the transactions described in this Article V.
(2) Such affirmative vote shall be required notwithstanding any other
provisions of these Articles, any provision of law, or any agreement with any
regulatory agency, national securities exchange or registered securities
association which might otherwise permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this Article V shall mean
any transaction which is referred to in any one or more of subparagraphs 1(a)
through 1(h) above.
B. The provisions of Part A of this Article V shall not be applicable to
any particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by any other provision of these
Articles, any provision of law, or any agreement with any regulatory agency,
national securities exchange or registered securities association, if the
Business Combination shall have been approved by a majority of the Continuing
Directors (as hereinafter defined); provided, however, that such approval shall
only be effective if obtained at a meeting at which a Continuing Director Quorum
(as hereinafter defined) is present.
C. For the purposes of this section the following definitions apply:
(1) The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which together
with its "affiliates" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934), "beneficially
owns" (as that term is defined in Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934) in the aggregate 10% or
more of the outstanding shares of the common stock of the Corporation; and (b)
any "affiliate" (as that term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934) of any such individual, corporation, partnership or other
person or entity. Without limitation, any shares of the common stock of the
Corporation which any Related Person has the right to acquire pursuant to any
agreement, or upon exercise or conversion rights, warrants or options, or
otherwise, shall be deemed "beneficially owned" by such Related Person.
(2) The term "Substantial Part" shall mean more than 25 percent of the
total assets of the Corporation, as of the end of its most recent fiscal year
ending prior to the time the determination is made.
(3) The term "Continuing Director" shall mean any member of the Board
of Directors of the Corporation who is unaffiliated with the Related Person and
was a member of the Board prior to the time that the Related Person became a
Related Person, and any successor of a Continuing Director who is unaffiliated
with the Related Person and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the Board.
(4) The term "Continuing Director Quorum" shall mean two-thirds of the
Continuing Directors capable of exercising the powers conferred on them.
ARTICLE VII
The effective date of organization of the corporation shall be the date
approved and filed by the Secretary of the Commonwealth of Massachusetts.
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ARTICLE VIII
a. The street address of the principal office of the Corporation in
Massachusetts is:
100 Old Kings Highway, Sandwich, Massachusetts 02563
b. The name, residence and post office address (if different) of the
directors and officers of the Corporation are:
NAME RESIDENCE POST OFFICE ADDRESS
President: Frederic D. Legate
Treasurer: George L. Larson
Clerk: Dana S. Briggs
Directors:
Leon Davidson
John L. Doran
Mary F. Hebditch
George L. Jackson
Richard S. Holway
Bradford N. Eames
Barry H. Johnson
Reale J. Lemieux
Gary A. Nickerson
Frederic D. Legate
Howard P. Crowell
David O. MacKinnon
George B. Rockwell
c. The fiscal year (i.e., tax year) of the Corporation shall end on the last
day of the month of December.
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ARTICLE IX
Bylaws of the Corporation have been duly adopted and the President,
Treasurer, Clerk and directors whose names are set forth above, have been duly
elected.
IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I, Frederic
D. Legate, as incorporator and whose name and post office address are clearly
typed beneath my signature do hereby associate with the intention of forming
this Corporation under the provisions of General Laws, Chapter 156B and do
hereby sign these Articles of Organization as incorporator this ____ day of ____
in the year 1997.
/s/ Frederic D. Legate
_________________________
Frederic D. Legate
100 Old Kings Highway
Sandwich, Massachusetts 02563
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EXHIBIT 3.2
BYLAWS
OF
SANDWICH BANCORP, INC.
ARTICLE I
MAIN OFFICE
The main office of Sandwich Bancorp, Inc. (the "Corporation") shall be in
the Town of Sandwich, Massachusetts, or such other location as the Board of
Directors may designate, subject to applicable law.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The Annual Meeting of the stockholders for
elections and other purposes shall be held within six months after the end of
the Corporation's fiscal year at such date, time and place as fixed by the Board
of Directors, the Chairman of the Board or the President, consistent with the
requirements of Massachusetts law. The purposes for which the Annual Meeting is
to be held, in addition to those prescribed by law, by the Articles of
Organization or by these Bylaws, may be specified by the Board of Directors, the
Chairman of the Board or the President.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called only as provided in the Corporation's Articles of Organization.
SECTION 3. NOTICE OF MEETINGS. A written notice of all annual and special
meetings of stockholders stating the place, date and hour and the purpose or
purposes of such meeting shall be given by the Clerk or an assistant clerk (or
other person authorized by these Bylaws) at least seven days before the meeting
to each stockholder entitled to vote thereat and to each stockholder who, by
law, under the Articles of Organization or under these Bylaws, is entitled to
such notice, by delivering such notice to him or by mailing it, postage prepaid,
and addressed to such stockholder at his address as it appears on the stock
transfer books of the Corporation. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
When any stockholders' meeting, either annual or special, is adjourned for
30 days or more, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any notice of the
time and place of any meeting adjourned for less than 30 days or of the business
to be transacted thereat, other than an announcement at the meeting at which
such adjournment is taken.
SECTION 4. QUORUM. The holders of a majority in interest of all stock
issued, outstanding, and entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders. If a quorum is not
present, a lesser number may adjourn the meeting from time to time and the
meeting may be held as adjourned without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
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SECTION 5. VOTING AND PROXIES. Stockholders shall have one vote for each
share of stock entitled to vote owned by them of record according to the books
of the Corporation, and a proportionate vote for a fractional share, unless
otherwise provided by law or by the Articles of Organization. Stockholders may
vote either in person or by written proxy dated not more than six months before
the meeting named therein. Proxies shall be filed with the clerk of the
meeting, or of any adjournment thereof, before being voted. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting, but they shall not be valid after final
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by one of them unless at or prior
to exercise of the proxy the Corporation receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
SECTION 6. ACTION AT MEETING. When a quorum is present, any matter before
the meeting shall be decided by vote of the holders of a majority of the shares
of stock voting on such matter, except where a larger vote is required by law,
by the Articles of Organization or by these Bylaws. Any election by
stockholders shall be determined by a plurality of the votes cast, except where
a larger vote is required by law, by the Articles of Organization or by these
Bylaws. No action may be taken on the nomination of a director unless the
procedures set forth in the Articles of Organization have been complied with.
No ballot shall be required for any election unless requested by a stockholder
entitled to vote in the election. The Corporation shall not directly or
indirectly vote any share of its own stock; provided however, that no provision
of these Bylaws shall be construed to limit the voting rights and powers
relating to shares of stock held pursuant to a plan which is intended to be an
"employee stock ownership plan" as defined in section 409A of the Internal
Revenue Code, as now or hereafter in effect.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. The business and affairs of the Corporation shall be
managed by a Board of Directors who may exercise all the powers of the
Corporation except as otherwise provided by law, by the Articles of Organization
or by these Bylaws.
SECTION 2. NUMBER, TERM AND ELECTION. The Board of Directors shall
initially consist of 13 members and shall be divided into three classes as
nearly equal in number as possible, with one class to be elected annually. The
Board of Directors shall be classified in accordance with the provisions of the
Corporation's Articles of Organization. At each annual meeting of stockholders,
the successors to the directors of the class whose term shall expire in that
year shall be elected to hold office for a term expiring at the annual meeting
of stockholders held in the third year following the year of their election and
until their respective successors are elected and qualified. The Board of
Directors may increase or decrease the number of members of the Board of
Directors by a vote of at least two-thirds of the board members then in office,
provided the total number of directors on the board may not be more than 18 nor
less than 7.
SECTION 3. QUALIFICATION. Each director shall have such qualifications as
are required by applicable law. In addition, all directors shall be citizens of
the United States of America and residents therein. Each director shall own,
free of any lien or encumbrance, in his own right or through a company in which
he holds an ownership interest of at least seventy-five percent, common stock of
the Corporation, having a par value, or a fair market value on the date the
person became a director, of not less than one thousand dollars. Any director
who ceases to be the owner of the required number of shares of stock, or who
becomes in any other manner disqualified, shall vacate his office forthwith. No
person shall be eligible for election or reelection to the Board if he shall
have attained 72 years of age.
SECTION 4. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw at the same place as the
annual meeting of stockholders, or the special meeting held in lieu thereof,
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following such meeting of stockholders. The Board of Directors may provide, by
resolution, the time and place for the holding of regular meetings without other
notice than such resolution.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the President,
or a majority of the directors. The persons authorized to call special meetings
of the Board of Directors may fix the place for holding any special meeting of
the Board of Directors called by such persons.
SECTION 6. NOTICE. Notice of any special meeting shall be given to each
director in person or by telephone or sent to his business or home address by
telegram at least 24 hours in advance of the meeting or by written notice mailed
to his business or home address at least 48 hours in advance of such meeting.
Such notice shall be deemed to be delivered when deposited in the mail so
addressed, with postage thereon prepared if mailed, or when delivered to the
telegraph company if sent by telegram. Any director may waive notice of any
meeting by a writing filed with the records of the meeting. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
converted. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time.
When any Board of Directors' meeting either regular or special is adjourned for
30 days or more, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any notice of the
time and place of any meeting adjourned for less than 30 days or of the business
to be transacted thereat, other than an announcement at the meeting at which
such adjournment is taken.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by governing law, by the
Articles of Organization or these Bylaws.
SECTION 9. ACTION BY CONSENT. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors and such consents are filed with the records of the meetings of
directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the main office of the Corporation
addressed to the Chairman of the Board or the President. Unless otherwise
specified therein, such resignation shall take effect upon receipt thereof by
the Chairman of the Board or the President.
SECTION 11. REMOVALS. A director may be removed from office only as
provided in the Articles of Organization.
SECTION 12. VACANCIES. Any vacancy occurring on the Board of Directors as
a result of resignation, removal or death may be filled in accordance with the
provisions of the Articles of Organization.
SECTION 13. COMPENSATION. The members of the Board of Directors and the
members of either standing or special committees may be allowed such
compensation as the Board of Directors may determine.
SECTION 14. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she shall file a written dissent to such action with
the person acting as the clerk of the meeting before the adjournment thereof or
shall
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forward such dissent by registered mail to the Clerk of the Corporation within
five days after the date a copy of the minutes of the meeting is received. Such
right to dissent shall not apply to a director who voted in favor of such
action.
SECTION 15. COMMITTEES. The Board of Directors, by a vote of a majority
of the directors then in office, may elect from its number, not less than three
members in each case to serve as an Executive Committee or other committees and
may delegate thereto some or all of its powers except those which by law, by the
Articles of Organization, or by these Bylaws may not be delegated. Except as
the Board of Directors may otherwise determine, any such committee may make
rules for the conduct of its business, but unless otherwise provided by the
Board of Directors or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these Bylaws for the Board of
Directors. All members of such committees shall hold such offices at the
pleasure of the Board of Directors. The Board of Directors may abolish any such
committee at any time, subject to any applicable requirements of law. Any
committee to which the Board of Directors delegates any of its powers or duties
shall keep records of its meetings and shall report its action to the Board of
Directors. The Board of Directors shall have power to rescind any action of any
committee, but no such rescission shall have retroactive effect. In the case of
the Nominating Committee, which shall be established for the purpose of making
nominations for election to the Board of Directors, such committee shall consist
of at least five members, including the president. The committee shall deliver
its nominations to the secretary of the Corporation at least 30 days in advance
of the meeting at which elections are to be held.
SECTION 16. MANNER OF PARTICIPATION. Members of the Board of Directors
may participate in meetings of the Board of Directors by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other. Such participation shall constitute
presence in person but shall not constitute attendance for the purpose of
compensation pursuant to Section 13 of this Article III, unless the Board of
Directors by resolution so provides.
ARTICLE IV
OFFICERS
SECTION 1. ENUMERATION. The officers of the Corporation shall consist of
a President, a Treasurer, a Clerk, and such other officers, including Chairman,
Vice Chairmen of the Board, Vice Presidents or Assistant Vice Presidents,
Assistant Treasurers, Assistant Clerks or a Secretary or Assistant Secretaries,
as the Board of Directors may determine.
SECTION 2. ELECTION. The President, Treasurer and Clerk shall be elected
annually by the Board of Directors at their first meeting following the annual
meeting of stockholders. The President shall be a director of the Corporation.
Other officers may be chosen by the Board of Directors at such first meeting of
the Board of Directors or at any other meeting.
SECTION 3. QUALIFICATION. No officer need be a stockholder. Any two or
more offices may be held by any person. The Clerk shall be a resident of
Massachusetts unless the Corporation has a resident agent appointed for the
purpose of service of process. Any officer may be required by the Board of
Directors to give bond for the faithful performance of his duties in such amount
and with such sureties as the Board of Directors may determine.
SECTION 4. TENURE. Except as otherwise provided by law, by the Articles
of Organization or by these Bylaws, all officers shall hold office until the
first meeting of the Board of Directors following the next annual meeting of
stockholders and until their respective successors are chosen and qualified.
Any officer may resign by delivering his written resignation to the Corporation
at its main office addressed to the Chairman of the Board, the President, Clerk
or Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event. Election or appointment of an officer, employee or agent shall not of
itself create contract rights. The Board of Directors may authorize the
Corporation to enter into an employment contract with any officer in accordance
with governing law or regulation, but no such contract right shall impair the
right of the Board of Directors to remove any officer at any time in accordance
with Section 5 of this Article IV.
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SECTION 5. REMOVAL. The Board of Directors may remove any officer with
cause by a vote of a majority of the entire number of directors then in office.
In addition, the Board of Directors may remove any officer without cause by a
vote of two-thirds of the entire number of directors then in office, provided,
however, that such removal other than for cause shall be without prejudice to
the contract rights, if any, of the persons involved. An officer may be removed
for cause only after reasonable notice and opportunity to be heard by the Board
of Directors.
SECTION 6. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 7. CHAIRMAN OF THE BOARD. The Board of Directors may annually
elect a Chairman of the Board. Unless the Board of Directors otherwise provides,
the Chairman of the Board shall preside, when present, at all meetings of the
stockholders and the Board of Directors.
SECTION 8. CHIEF EXECUTIVE OFFICER. Unless otherwise provided by the
Board of Directors, the President shall be the chief executive officer and
shall, subject to the direction of the Board of Directors, have general
supervision and control of the Corporation's business.
SECTION 9. PRESIDENT AND VICE PRESIDENTS. The President shall have such
powers and shall perform such duties as the Board of Directors may from time to
time designate. Unless otherwise provided by the Board of Directors he shall
preside, when present, at all meetings of stockholders and of the Board of
Directors if the Chairman of the Board does not attend such meetings. The Board
shall rank the Vice Presidents, if there be more than one, and may give them
such additional designations as it may determine. In the event of the absence
or disability of the President, the ranking Vice President shall have all of the
powers and perform all of the duties of the President.
SECTION 10. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall,
subject to the direction of the Board of Directors and the finance committee, if
any, have general charge of the financial affairs of the Corporation and shall
cause to be kept accurate books of account. He shall have custody of all funds,
securities, and valuable documents of the Corporation, except as the Board of
Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
SECTION 11. CLERK AND ASSISTANT CLERKS. The Clerk shall keep a record of
the meetings of stockholders. In case a Secretary is not elected or is absent,
the Clerk or an Assistant Clerk shall keep a record of the meetings of the Board
of Directors. In the absence of the Clerk from any meeting of stockholders, an
Assistant Clerk, if one be elected, shall perform the duties of the Clerk.
SECTION 12. SECRETARY AND ASSISTANT SECRETARIES. The Secretary, if one be
elected, shall keep a record of the meetings of the Board of Directors. In the
absence of the Secretary, any Assistant Secretary, the Clerk and any Assistant
Clerk, a Temporary Secretary shall be designated by the person presiding at such
meeting to perform the duties of the Secretary.
SECTION 13. OTHER POWERS AND DUTIES. Subject to these Bylaws, each
officer of the Corporation shall have in addition to the duties and powers
specifically set forth in applicable law and in these Bylaws, such duties and
powers as may be designated from time to time by the Board of Directors. The
President shall have the authority to appoint additional officers of the
Corporation other than those enumerated herein.
-5-
<PAGE>
ARTICLE V
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimile if the certificate is signed by a
transfer agent, or by a registrar, other than a director, officer or employee of
the Corporation. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the time of its issue.
SECTION 2. TRANSFERS. Subject to any restrictions on transfer, shares of
stock may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment and power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. RECORD HOLDERS. Except as may be otherwise required by law, by
the Articles of Organization or by these Bylaws, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the Corporation in accordance with the requirements of these Bylaws.
It shall be the duty of each stockholder to notify the Corporation of his
postal address.
SECTION 4. RECORD DATE. The Board of Directors may fix in advance a time
of not more than 60 days preceding the date of any meeting of stockholders, or
the date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting, or
the right to receive such dividend or distribution or the right to give such
consent or dissent. In such case only stockholders of record on such record date
shall have such right, notwithstanding any transfer of stock on the books of the
Corporation after the record date. Without fixing such record date the Board of
Directors may for any of such purposes close the transfer books for all or any
part of such period.
If no record date is fixed and the transfer books are not closed, (a) the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
SECTION 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms, including appropriate
indemnification of the Corporation, as the Board of Directors may prescribe.
SECTION 6. ISSUANCE OF CAPITAL STOCK. The Board of Directors shall have
the authority to issue or reserve for issue from time to time the whole or any
part of the capital stock of the Corporation which may be authorized from time
to time, to such persons or organizations, and on such terms as the Board of
Directors may determine, including without limitation the granting of options,
warrants, or conversion or other rights to subscribe to said capital stock.
-6-
<PAGE>
SECTION 7. DIVIDENDS. Subject to applicable law, the Articles of
Organization and these Bylaws, the Board of Directors may from time to time
declare, and the Corporation may pay, dividends on the outstanding shares of its
capital stock. Such dividends may be in the form of cash, property or stock.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall be the twelve months ending
December 31st. The Corporation shall be subject to an annual audit as of the
end of its fiscal year by independent accountants appointed by the Board of
Directors.
SECTION 2. SEAL. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
SECTION 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Board of Directors
action may be executed on behalf of the Corporation by the Chairman of the
Board, President, Treasurer or any other officer, employee or agent of the
Corporation as the Board of Directors may authorize.
SECTION 4. INDEMNIFICATION. Directors and officers of the Corporation
shall be entitled to indemnification as provided in the Articles of
Organization.
SECTION 5. VOTING OF SECURITIES. Unless otherwise provided by the Board
of Directors, the Chairman of the Board, the President or Treasurer may waive
notice of and act on behalf of the Corporation, or appoint another person or
persons to act as proxy or attorney in fact for the Corporation with or without
discretionary power and/or power of substitutions, at any meeting of
stockholders or shareholders of any other organization, any of whose securities
are held by the Corporation.
SECTION 6. RESIDENT AGENT. The Board of Directors may appoint a resident
agent upon whom legal process may be served in any action or proceeding against
the Corporation. Said resident agent shall be either an individual who is a
resident of and has a business address in Massachusetts, or a corporation
organized under the law of any other state of the United States, which has
qualified to do business in, and has an office in, Massachusetts.
SECTION 7. CORPORATE RECORDS. The original, or attested copies, of the
Articles of Organization, Bylaws and records of all meetings of the directors
and stockholders, and the stock and transfer records, which shall contain the
names of all stockholders and the record address and amount of stock held by
each, shall be kept in Massachusetts at the main office of the Corporation, or
at an office of its transfer agent, Clerk or resident agent.
SECTION 8. ARTICLES OF ORGANIZATION. All references in these Bylaws to
the Articles of Organization shall be deemed to refer to the Articles of
Organization of the Corporation, as in effect from time to time.
SECTION 9. AMENDMENTS. These Bylaws may be altered, amended or repealed
as provided in the Articles of Organization.
-7-
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 18th day of July, 1994, by and between The
Sandwich Co-operative Bank (the "Bank") and Frederic D. Legate (the "Employee"),
and hereby replaces the Employment Agreement between the Bank and the Employee,
as first dated July 17, 1989 (as amended).
WHEREAS, the Employee has heretofore been employed by the Bank as President
and Chief Executive Officer and is experienced in all phases of the business of
the Bank; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the President and Chief
----------
Executive officer of the Bank. The Employee shall render such administrative
and management services for the Bank as are currently rendered and as are
customarily performed by persons situated in a similar executive capacity. The
Employee shall also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of the Bank. The Employee's other duties shall
be such as the Board of Directors of the Bank ("Board") may from time to time
reasonably direct, including normal duties as an officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $185,000 per annum, payable in
cash not less frequently than monthly. The Board shall review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
3. Discretionary Bonuses. The Employee shall participate in an equitable
---------------------
manner with all other senior management employees of the Bank in discretionary
bonuses that the Board may award from time to time to the Bank's senior
management employees. No other compensation provided for in this Agreement
shall be deemed a substitute for the Employee's right to participate in such
discretionary bonuses.
4. (a) Participation in Retirement, Medical and Other Plans.
----------------------------------------------------
The Employee shall participate in any plan that the Bank maintains for the
benefit of its employees if the plan relates to (i) pension, profit-sharing, or
other retirement benefits, (ii) medical insurance or the reimbursement of
medical or dependent care expenses, or (iii) other group benefits, including
disability and life insurance plans.
(b) Employee Benefits, Expenses. The Employee shall participate in
---------------------------
any fringe benefits which are or may become
<PAGE>
available to the Bank's senior management employees, including for example: any
stock option or incentive compensation plans, club memberships, and any other
benefits which are commensurate with the responsibilities and functions to be
performed by the Employee under this Agreement. The Employee shall be reimbursed
for all reasonable out-of-pocket business expenses which he shall incur in
connection with his services under this Agreement upon substantiation of such
expenses in accordance with the policies of the Bank.
5. Term. The Bank hereby employs the Employee, and the Employee hereby
----
accepts such employment under this Agreement, for the period commencing on July
18, 1994 and ending 36 months thereafter on July 17, 1997 (or such earlier date
as is determined in accordance with Section 9) ; provided that notwithstanding
any determination by the Bank not to extend the term of this Agreement I said
term shall not expire prior to the expiration of thirty-six (36) months after a
Change in Control (as defined in Section 11) shall have occurred. Additionally,
on each annual anniversary date from the Effective Date, the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards, and that this Agreement shall be extended.
6. Loyalty; Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of Employee's duties pursuant
to this Agreement, or will not violate any applicable statute or regulation.
"Full business time" is hereby defined as that amount of time usually devoted to
like companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank, or be
gainfully employed in any other position or job other than as provided above.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent
or limit the Employee's right to invest in the capital stock or other securities
of any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
-2-
<PAGE>
7. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Bank will provide Employee with the working facilities and
staff customary for similar executives and necessary for him to perform his
duties.
8. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies that the Board periodically establishes for senior management
employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and -for
such valid and legitimate reasons as the Board may in its discretion determine.
Further, the Board may grant to the Employee a leave or leaves of absence, with
or without pay, at such time or times and upon such terms and conditions as such
Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee Is employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. If the Employee shall become disabled or
----------
incapacitated to the extent that he is unable to perform his duties hereunder,
by reason of a medically determinable physical or mental impairment, as
determined by a doctor engaged by the Board of Directors, Employee shall
nevertheless continue to receive the following percentages of his compensation,
inclusive of any benefits which may be payable to Employee under the provisions
of disability insurance coverage in effect for Bank employees, under
-3-
<PAGE>
Paragraph 2 of this Agreement for the following periods of his disability: 60%
for the remaining term of this Agreement. Upon returning to active full-time
employment, the Employee's full compensation as set forth in this Agreement
shall be reinstated. In the event that said Employee returns to active
employment on other than a full-time basis, then his compensation (as set forth
in Paragraph 2 of this Agreement) shall be reduced in proportion to the time
spent in said employment, or as shall otherwise be agreed to by the parties.
(c) Just Cause. The Board may, by written notice to the Employee,
----------
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Board, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. No act, or failure to art, on the
Employee's part shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank. Notwithstanding
the foregoing, (i) the Employee shall not be deemed to have been terminated for
Just Cause unless there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board at a meeting of the Board called and held for
that purpose (after reasonable notice to the Employee and an opportunity for the
Employee to be heard before the Board), finding that in the good faith opinion
of the Board the Employee was guilty of conduct set forth above in the third
sentence of this Subsection (c) and specifying the particulars thereof in
detail.
(d) Without Just Cause. Subject to Section 11 hereof, the Board may,
------------------
by written notice to the Employee, immediately terminate his employment at any
time for a reason other than Just Cause, in which event the Employee shall be
entitled to receive the following compensation and benefits: (I) the salary
provided pursuant to Section 2 hereof,, up to the date of termination of the
term (including any renewal term) of this Agreement (the "Expiration Date"),
plus said salary for an additional 12-month period, but in no event in excess of
three years' salary and (ii) the cost to the Employee of obtaining all health,
life, disability and other benefits which the Employee would have been eligible
to participate in through the Expiration Date based upon the benefit levels
substantially equal to those that the Bank provided for the Employee at the date
of termination of employment. Said sum shall be paid, at the option of the
Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the
-4-
<PAGE>
Employee's employment had not been terminated, or (II) in one lump sum within
ten (10) days of such termination.
(e) Termination or Suspension Under Federal Law. (1) If the Employee
-------------------------------------------
is removed and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Sections 8 (e) (4) or 8 (g) (1) of
the Federal Deposit Insurance Act ("FDIC") (12 U.S.C. 1818(e) (4) and (g) (1)),
all obligations of the Bank under this Agreement shall terminate, as of the
effective date of the order, but vested rights of the parties shall not be
affected.
(2) If the Bank is in default (as defined in Section 3 (x) (1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(3) All obligations under this Agreement shall terminate, except to
the extent that continuation of this Agreement is necessary for the continued
operation of the Bank: (I) by the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Commissioner") or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the commissioner, or his or her designee, at
the time that the Commissioner, or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by the Commissioner to be in an unsafe or unsound condition. Such
action shall not affect any vested rights of the parties.
(4) If a notice served under Section 8 (e) (3) or (g) (1) of the FDIA
(12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the
Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank shall (I) pay the Employee all or part of the
compensation withhold while its contract obligations were suspended, and (ii)
reinstate (in whole or -in part) any of its obligations which were suspended.
(f) Voluntary Termination by Employee. Subject to Section 11 hereof,
---------------------------------
the Employee may voluntarily terminate employment with the Bank during the term
of this Agreement, upon at least 60 days' prior written notice to the Board of
Directors, in which case the Employee shall receive only his compensation,
vested rights and employee benefits up to the date of his termination.
10. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement
-5-
<PAGE>
by seeking other employment or otherwise and no such payment shall be offset or
reduced by the amount of any compensation or benefits provided to the Employee
in any subsequent employment.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Bank, without
the Employee's prior written consent and for a reason other than Just Cause, in
connection with or within twelve (12) months after any change in control of the
Bank, the Employee shall be paid an amount equal to the difference between (I)
the product of 2.99 times his "base amount" as defined in Section 28OG(b) (3) of
the Internal Revenue Code of 1986, as amended (the "Code") and regulations
promulgated thereunder, and (ii) the sum of any other parachute payments (as
defined under Section 28OG(b) (2) of the Code) that the Employee receives on
account of the change in control. Said sum shall be paid in one lump sum within
ten (10) days of such termination.
The term "change in control" shall mean (1) the ownership, holding or power
to vote more than 25% of the Bank's voting stock-, (2) the control of the
election of a majority of the Bank's directors, (3) the exercise of a
controlling influence over the management or policies of the Bank by any person
or by persons acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934), or (4) during any period of two consecutive
years, individuals (the "Continuing Directors") who at the beginning of such
period constitute the Board of Directors of the Bank (the "Incumbent Board")
cease for any reason to constitute at least two-thirds thereof, provided that
any individual whose election or nomination for election as a member of the
Incumbent Board was approved by a vote of at least two-thirds of the Continuing
Directors then in office shall be considered a Continuing Director. The term
"person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the Employee may voluntarily terminate his employment under this
Agreement within twelve (12) months following a change in control of the Bank,
and the Employee shall thereupon be entitled to receive the payment described in
Section 11(a) of this Agreement, upon the occurrence of any of the following
events, or within ninety (90) days thereafter, which have not been consented to
in advance by the Employee in writing: (i) the requirement that the Employee
move his personal residence, or perform his principal executive functions, more
than thirty-five (35) miles from Sandwich, Massachusetts; (ii) a material
reduction in the Employee's base compensation as in effect on the date of the
-6-
<PAGE>
change in control or as the same may be increased from time to time; (iii) the
failure by the Bank to continue to provide the Employee with compensation and
benefits provided for under this Agreement, as the same may be increased from
time to time, or with benefits substantially similar to those provided to him
under any of the employee benefit plans in which the Employee now or hereafter
becomes a participant, or the taking of any action by the Bank which would
directly or indirectly reduce any of such benefits or deprive the Employee of
any material fringe benefit enjoyed by him at the time of the change in control;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position as referenced at
Section 1; (v) a failure to elect or reelect the Employee to the Board of
Directors of the Bank, if the Employee is serving on the Board on the date of
the change in control; or (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting responsibilities)
in connection with his employment with the Bank.
(c) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
(d) Within five business days before or after a change in control as
defined in 511(a) of this Agreement, the Bank shall (I) deposit, or cause to be
deposited, in trust (the "Trust) an amount equal to 2.99 times the Employee's
"base amount" as defined in Section 28OG(b) (3) of the Code, and (ii) provide
the trustee of the Trust with a written direction to hold said amount and any
investment return thereon in a segregated account for the benefit of the
Employee, and to follow the procedures set forth in the next paragraph as to the
payment of such amounts from the Trust.
During the 12-consecutive month period following the date on which the
Bank makes the deposit referred to in the preceding paragraph, the Employee may
provide the trustee of the Trust with a written notice requesting that the
trustee pay to the Employee an amount designated in the notice as being payable
pursuant to Section 11 (a) or (b). Within three business days after receiving
said notice, the trustee of the Trust shall send a copy of the notice to the
Bank via overnight and registered mail return receipt requested. On the tenth
(10th) business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to nonappealable binding arbitration
for a determination of the amount payable to the Employee pursuant to Section 11
(a) or (b) hereof, and the costs of such arbitration (including any legal fees
and expenses incurred by the Employee) shall be paid by the Bank.
-7-
<PAGE>
The trustee shall choose the arbitrator to settle the dispute, and such
arbitrator shall be bound by the rules of the American Arbitration Association
in making his determination. The parties and the trustee shall be bound by the
results of the arbitration and, within 3 days of the determination by the
arbitrator, the trustee shall pay from the Trust the amounts required to be paid
to the Employee and/or the Bank, and in no event shall the trustee be liable to
either party for making the payments as determined by the arbitrator.
Upon the earlier of (I) any payment from the Trust to the Employee, or
(ii) the date 12 months after the date on which the Bank makes the deposit
referred to in the first paragraph of this subsection (d), the trustee of the
Trust shall pay to the Bank the entire balance remaining in the segregated
account maintained for the benefit of the Employee. The Employee shall
thereafter have no further rights under this Section 11, no further interest in
the Trust pursuant to this Agreement, and no further rights or claims against
the Bank pursuant to this Agreement.
(e) In the event that any dispute arises between the Employee and the
Bank as to the terms or interpretation of this Agreement, including this Section
11, whether instituted by formal legal proceedings or otherwise, including any
action that the Employee takes to enforce the terms of this Section 11 or to
defend against any action taken by the Bank, the Employee shall be reimbursed
for all costs and expenses, including reasonable attorneys' fees, arising from
such dispute, proceedings or actions, provided that the Employee shall obtain a
final judgement by a court of competent jurisdiction in favor of the Employee.
Such reimbursement shall be paid within ten (10) days of Employee's furnishing
to the Bank written evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by the Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of tho Bank.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
13. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
-8-
<PAGE>
14. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the Commonwealth of Massachusetts shall govern this Agreement in all
respects, whether as to its validity, construction, capacity, performance or
otherwise.
15. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: The Sandwich Co-operative Bank
/s/ Dana S. Briggs By: /s/ Leon Davidson
- ------------------------- --------------------------
Secretary Its: Chairman of the Board
WITNESS:
/s/ Pamela J. Buttrick /s/ Frederic D. Legate
- ------------------------- ----------------------
Frederic D. Legate
President
-9-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 18th day of July, 1994, by and between The
Sandwich Co-operative Bank (the "Bank") and Dana S. Briggs (the "Employee"), and
hereby replaces the Employment Agreement between the Bank and the Employee, as
first dated July 17, 1989 (as amended).
WHEREAS, the Employee has heretofore been employed by the Bank as Senior
Vice President and Administration Officer and is experienced in all phases of
the business of the Bank; and
WHEREAS, the parties desire by this writing to set forth the
continuing employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the Senior Vice President and
----------
Administration Officer of the Bank. The Employee shall render such
administrative and management services for the Bank as are currently rendered
and as are customarily performed by persons situated in a similar executive
capacity. The Employee shall also promote, by entertainment or otherwise, as
and to the extent permitted by law, the business of the Bank. The Employee's
other duties shall be such as the Board of Directors of the Bank ("Board") may
from time to time reasonably direct, including normal duties as an officer of
the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $76,000 per annum, payable in
cash not less frequently than monthly. The Board shall review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
3. Discretionary Bonuses. The Employee shall participate in an equitable
---------------------
manner with all other senior management employees of the Bank in discretionary
bonuses that the Board may award from time to time to the Bank's senior
management employees. No other compensation provided for in this Agreement
shall be deemed a substitute for the Employee's right to participate in such
discretionary bonuses.
4. (a) Participation in Retirement, Medical and Other Pl=.
--------------------------------------------------
The Employee shall participate in any plan that the Bank maintains for the
benefit of its employees if the plan relates to (i) pension, profit-sharing, or
other retirement benefits, (ii) medical insurance or the reimbursement of
medical or dependent care expenses, or (iii) other group benefits, including
disability and life insurance plans.
(b) Employee Benefits: Expenses. The Employee shall participate in
---------------------------
any fringe benefits which are or may become
<PAGE>
available to the Bank's senior management employees, including for example: any
stock option or incentive compensation plans, club memberships, and any other
benefits which are commensurate with the responsibilities and functions to be
performed by the Employee under this Agreement. The Employee shall be
reimbursed for all reasonable out-of-pocket business expenses which he shall
incur in connection with his services under this Agreement upon substantiation
of such expenses in accordance with the policies of the Bank.
5. Term. The Bank hereby employs the Employee, and the Employee hereby
----
accepts such employment under this Agreement, for the period commencing on July
18, 1994 and ending 36 months thereafter on July 17, 1997 (or such earlier date
as is determined in accordance with Section 9); provided that notwithstanding
any determination by the Bank not to extend the term of this Agreement, said
term shall not expire prior to the expiration of thirty-six (36) months after a
Change in Control (as defined in Section 11) shall have occurred. Additionally,
on each annual anniversary date from the Effective Date, the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards, and that this Agreement shall be extended.
6. Loyalty: Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of Employee's duties pursuant
to this Agreement, or will not violated any applicable statute or regulation.
"Full business time" is hereby defined as that amount of time usually devoted to
like companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank, or be
gainfully employed in any other position or job other than as provided above.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent
or limit the Employee's right to invest in the capital stock or other securities
of any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
-2-
<PAGE>
7. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Bank will provide Employee with the working facilities and
staff customary for similar executives and necessary for him to perform his
duties.
8. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies that the Board periodically establishes for senior management
employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board may in its discretion determine.
Further, the Board may grant to the Employee a leave or leaves of absence, with
or without pay, at such time or times and upon such terms and conditions as such
Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. If the Employee shall become disabled or
----------
incapacitated to the extent that he is unable to perform his duties hereunder,
by reason of a medically determinable physical or mental impairment, as
determined by a doctor engaged by the Board of Directors, Employee shall
nevertheless continue to receive the following percentages of his compensation,
inclusive of any benefits which may be payable to Employee under the provisions
of disability insurance coverage in effect for Bank employees, under
-3-
<PAGE>
Paragraph 2 of this Agreement for the following periods of his disability: 60%
for the remaining term of this Agreement. Upon returning to active full-time
employment, the Employee's full compensation as set forth in this Agreement
shall be reinstated. In the event that said Employee returns to active
employment on other than a full-time basis, then his compensation (as set forth
in Paragraph 2 of this Agreement) shall be reduced in proportion to the time
spent in said employment, or as shall otherwise be agreed to by the parties.
(c) Just Cause. The Board may, by written notice to the Employee,
----------
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Board, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. No act, or failure to act, on the
Employee's part shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank. Notwithstanding
the foregoing, (i) the Employee shall not be deemed to have been terminated for
Just Cause unless there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board at a meeting of the Board called and held for
that purpose (after reasonable notice to the Employee and an opportunity for the
Employee to be heard before the Board), finding that in the good faith opinion
of the Board the Employee was guilty of conduct set forth above in the third
sentence of this Subsection (c) and specifying the particulars thereof in
detail.
(d) Without Just Cause. Subject to Section 11 hereof, the Board may,
------------------
by written notice to the Employee, immediately terminate his employment at any
time for a reason other than Just Cause, in which event the Employee shall be
entitled to receive the following compensation and benefits: (i) the salary
provided pursuant to Section 2 hereof , up to the date of termination of the
term (including any renewal term) of this Agreement (the "Expiration Date"),
plus said salary for an additional 12-month period, but in no event in excess of
three years' salary and (ii) the cost to the Employee of obtaining all health,
life, disability and other benefits which the Employee would have been eligible
to participate in through the Expiration Date based upon the benefit levels
substantially equal to those that the Bank provided for the Employee at the date
of termination of employment. Said sum shall be paid, at the option of the
Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the
-4-
<PAGE>
Employee's employment had not been terminated, or (II) in one lump sum within
ten (10) days of such termination.
(e) Termination or Suspension Under Federal Law. (1) If the Employee
-------------------------------------------
is removed and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Sections 8 (e) (4) or 8 (g) (1) of
the Federal Deposit Insurance Act ("FDIC") (12 U.S.C. 1818(e) (4) and (g) (1)),
all obligations of the Bank under this Agreement shall terminate, as of the
effective date of the order, but vested rights of the parties shall not be
affected.
(2) If the Bank is in default (as defined in Section 3 (x) (1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(3) All obligations under this Agreement shall terminate, except to
the extent that continuation of this Agreement is necessary for the continued
operation of the Bank: (I) by the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Commissioner") or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the commissioner, or his or her designee, at
the time that the Commissioner, or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by the Commissioner to be in an unsafe or unsound condition. Such
action shall not affect any vested rights of the parties.
(4) If a notice served under Section 8 (e) (3) or (g) (1) of the FDIA
(12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the
Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank shall (I) pay the Employee all or part of the
compensation withhold while its contract obligations were suspended,, and (ii)
reinstate (in whole or -in part) any of its obligations which were suspended.
(f) Voluntary Termination by Employee. Subject to Section 11 hereof,
---------------------------------
the Employee may voluntarily terminate employment with the Bank during the term
of this Agreement, upon at least 60 days' prior written notice to the Board of
Directors, in which case the Employee shall receive only his compensation,
vested rights and employee benefits up to the date of his termination.
10. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement
-5-
<PAGE>
by seeking other employment or otherwise and no such payment shall be offset or
reduced by the amount of any compensation or benefits provided to the Employee
in any subsequent employment.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Bank, without
the Employee's prior written consent and for a reason other than Just Cause, in
connection with or within twelve (12) months after any change in control of the
Bank, the Employee shall be paid an amount equal to the difference between (I)
the product of 2.99 times his "base amount" as defined in Section 28OG(b) (3) of
the Internal Revenue Code of 1986, as amended (the "Code") and regulations
promulgated thereunder, and (ii).the sum of any other parachute payments (as
defined under Section 28OG(b) (2) of the Code) that the Employee receives on
account of the change in control. Said sum shall be paid in one lump sum within
ten (10) days of such termination.
The term "change in control" shall mean (1) the ownership, holding or power
to vote more than 25% of the Bank's voting stock-, (2) the control of the
election of a majority of the Bank's directors, (3) the exercise of a
controlling influence over the management or policies of the Bank by any person
or by persons acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934), or (4) during any period of two consecutive
years, individuals (the "Continuing Directors") who at the beginning of such
period constitute the Board of Directors of the Bank (the "Incumbent Board")
cease for any reason to constitute at least two-thirds thereof, provided that
any individual whose election or nomination for election as a member of the
Incumbent Board was approved by a vote of at least two-thirds of the Continuing
Directors then in office shall be considered a Continuing Director. The term
"person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the Employee may voluntarily terminate his employment under this
Agreement within twelve (12) months following a change in control of the Bank,
and the Employee shall thereupon be entitled to receive the payment described in
Section 11(a) of this Agreement, upon the occurrence of any of the following
events, or within ninety (90) days thereafter, which have not been consented to
in advance by the Employee in writing: (i) the requirement that the Employee
move his personal residence, or perform his principal executive functions, more
than thirty-five (35) miles from Sandwich, Massachusetts; (ii) a material
reduction in the Employee's base compensation as in effect on the date of the
-6-
<PAGE>
change in control or as the same may be increased from time to time; (iii) the
failure by the Bank to continue to provide the Employee with compensation and
benefits provided for under this Agreement, as the same may be increased from
time to time, or with benefits substantially similar to those provided to him
under any of the employee benefit plans in which the Employee now or hereafter
becomes a participant, or the taking of any action by the Bank which would
directly or indirectly reduce any of such benefits or deprive the Employee of
any material fringe benefit enjoyed by him at the time of the change in control;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position as referenced at
Section 1; (v) a failure to elect or reelect the Employee to the Board of
Directors of the Bank, if the Employee is serving on the Board on the date of
the change in control; or (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting responsibilities)
in connection with his employment with the Bank.
(c) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
(d) Within five business days before or after a change in control as
defined in 511(a) of this Agreement, the Bank shall (I) deposit, or cause to be
deposited, in trust (the "Trust) an amount equal to 2.99 times the Employee's
"base amount" as defined in Section 28OG(b) (3) of the Code, and (ii) provide
the trustee of the Trust with a written direction to hold said amount and any
investment return thereon in a segregated account for the benefit of the
Employee, and to follow the procedures set forth in the next paragraph as to the
payment of such amounts from the Trust.
During the 12-consecutive month period following the date on which the
Bank makes the deposit referred to in the preceding paragraph, the Employee may
provide the trustee of the Trust with a written notice requesting that the
trustee pay to the Employee an amount designated in the notice as being payable
pursuant to Section 11 (a) or (b). Within three business days after receiving
said notice, the trustee of the Trust shall send a copy of the notice to the
Bank via overnight and registered mail return receipt requested. On the tenth
(10th) business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to nonappealable binding arbitration
for a determination of the amount payable to the Employee pursuant to Section 11
(a) or (b) hereof, and the costs of such arbitration (including any legal fees
and expenses incurred by the Employee) shall be paid by the Bank. The trustee
shall choose the arbitrator to settle the dispute, and such arbitrator shall be
bound by the rules of the American Arbitration Association in making his
determination. The parties and the
-7-
<PAGE>
trustee shall be bound by the results of the arbitration and, within 3 days of
the determination by the arbitrator, the trustee shall pay from the Trust the
amounts required to be paid to the Employee and/or the Bank, and in no event
shall the trustee be liable to either party for making the payments as
determined by the arbitrator.
Upon the earlier of (I) any payment from the Trust to the Employee, or
(ii) the date 12 months after the date on which the Bank makes the deposit
referred to in the first paragraph of this subsection (d), the trustee of the
Trust shall pay to the Bank the entire balance remaining in the segregated
account maintained for the benefit of the Employee. The Employee shall
thereafter have no further rights under this Section 11, no further interest in
the Trust pursuant to this Agreement, and no further rights or claims against
the Bank pursuant to this Agreement.
(e) In the event that any dispute arises between the Employee and the
Bank as to the terms or interpretation of this Agreement, including this Section
11, whether instituted by formal legal proceedings or otherwise, including any
action that the Employee takes to enforce the terms of this Section 11 or to
defend against any action taken by the Bank, the Employee shall be reimbursed
for all costs and expenses, including reasonable attorneys' fees, arising from
such dispute, proceedings or actions, provided that the Employee shall obtain a
final judgement by a court of competent jurisdiction in favor of the Employee.
Such reimbursement shall be paid within ten (10) days of Employee's furnishing
to the Bank written evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by the Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
13. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
14. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the Commonwealth of Massachusetts shall govern
-8-
<PAGE>
this Agreement in all respects, whether as to its validity, construction,
capacity, performance or otherwise.
15. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: The Sandwich Co-operative Bank
/s/ Dana S. Briggs By: /s/ Leon Davidson
- ------------------------- --------------------------
Secretary Its: President
WITNESS:
/s/ Pamela J. Buttrick /s/ Dana S. Briggs
- ------------------------- ----------------------
Dana S. Briggs
Senior Vice President and
Administration Officer
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 18th day of July, 1994, by and between The
Sandwich Co-operative Bank (the "Bank") and Dana S. Briggs (the "Employee"), and
hereby replaces the Employment Agreement between the Bank and the Employee, as
first dated July 17, 1989 (as amended).
WHEREAS, the Employee has heretofore been employed by the Bank as Senior
Vice President and Administration Officer and is experienced in all phases of
the business of the Bank; and
WHEREAS, the parties desire by this writing to set forth the
continuing employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the Senior Vice President and
----------
Administration Officer of the Bank. The Employee shall render such
administrative and management services for the Bank as are currently rendered
and as are customarily performed by persons situated in a similar executive
capacity. The Employee shall also promote, by entertainment or otherwise, as
and to the extent permitted by law, the business of the Bank. The Employee's
other duties shall be such as the Board of Directors of the Bank ("Board") may
from time to time reasonably direct, including normal duties as an officer of
the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $76,000 per annum, payable in
cash not less frequently than monthly. The Board shall review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
3. Discretionary Bonuses. The Employee shall participate in an equitable
---------------------
manner with all other senior management employees of the Bank in discretionary
bonuses that the Board may award from time to time to the Bank's senior
management employees. No other compensation provided for in this Agreement shall
be deemed a substitute for the Employee's right to participate in such
discretionary bonuses.
4. (a) Participation in Retirement, Medical and Other Plans. The Employee
----------------------------------------------------
shall participate in any plan that the Bank maintains for the benefit of its
employees if the plan relates to (i) pension, profit-sharing, or other
retirement benefits, (ii) medical insurance or the reimbursement of medical or
dependent care expenses, or (iii) other group benefits, including disability and
life insurance plans.
(b) Employee Benefits: Expenses. The Employee shall participate in
---------------------------
any fringe benefits which are or may become
<PAGE>
available to the Bank's senior management employees, including for example: any
stock option or incentive compensation plans, club memberships, and any other
benefits which are commensurate with the responsibilities and functions to be
performed by the Employee under this Agreement. The Employee shall be reimbursed
for all reasonable out-of-pocket business expenses which he shall incur in
connection with his services under this Agreement upon substantiation of such
expenses in accordance with the policies of the Bank.
5. Term. The Bank hereby employs the Employee, and the Employee hereby
----
accepts such employment under this Agreement, for the period commencing on July
18, 1994 and ending 36 months thereafter on July 17, 1997 (or such earlier date
as is determined in accordance with Section 9) ; provided that notwithstanding
any determination by the Bank not to extend the term of this Agreement, said
term shall not expire prior to the expiration of thirty-six (36) months after a
Change in Control (as defined in Section 11) shall have occurred. Additionally,
on each annual anniversary date from the Effective Date, the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards, and that this Agreement shall be extended.
6. Loyalty: Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of Employee's duties pursuant
to this Agreement, or will not violated any applicable statute or regulation.
"Full business time" is hereby defined as that amount of time usually devoted to
like companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank, or be
gainfully employed in any other position or job other than as provided above.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent
or limit the Employee's right to invest in the capital stock or other securities
of any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
-2-
<PAGE>
7. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Bank will provide Employee with the working facilities and
staff customary for similar executives and necessary for him to perform his
duties.
8. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies that the Board periodically establishes for senior management
employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board may in its discretion determine.
Further, the Board may grant to the Employee a leave or leaves of absence, with
or without pay, at such time or times and upon such terms and conditions as such
Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. If the Employee shall become disabled or
----------
incapacitated to the extent that he is unable to perform his duties hereunder,
by reason of a medically determinable physical or mental impairment, as
determined by a doctor engaged by the Board of Directors, Employee shall
nevertheless continue to receive the following percentages of his compensation,
inclusive of any benefits which may be payable to Employee under the provisions
of disability insurance coverage in effect for Bank employees, under
-3-
<PAGE>
Paragraph 2 of this Agreement for the following periods of his disability: 60%
for the remaining term of this Agreement. Upon returning to active full-time
employment, the Employee's full compensation as set forth in this Agreement
shall be reinstated. In the event that said Employee returns to active
employment on other than a full-time basis, then his compensation (as set forth
in Paragraph 2 of this Agreement) shall be reduced in proportion to the time
spent in said employment, or as shall otherwise be agreed to by the parties.
(c) Just Cause. The Board may, by written notice to the Employee,
----------
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Board, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. No act, or failure to act, on the
Employee's part shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank. Notwithstanding
the foregoing, (i) the Employee shall not be deemed to have been terminated for
Just Cause unless there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board at a meeting of the Board called and held for
that purpose (after reasonable notice to the Employee and an opportunity for the
Employee to be heard before the Board), finding that in the good faith opinion
of the Board the Employee was guilty of conduct set forth above in the third
sentence of this Subsection (c) and specifying the particulars thereof in
detail.
(d) Without Just Cause. Subject to Section 11 hereof, the Board may,
------------------
by written notice to the Employee, immediately terminate his employment at any
time for a reason other than Just Cause, in which event the Employee shall be
entitled to receive the following compensation and benefits: (i) the salary
provided pursuant to Section 2 hereof , up to the date of termination of the
term (including any renewal term) of this Agreement (the "Expiration Date"),
plus said salary for an additional 12-month period, but in no event in excess of
three years' salary and (ii) the cost to the Employee of obtaining all health,
life, disability and other benefits which the Employee would have been eligible
to participate in through the Expiration Date based upon the benefit levels
substantially equal to those that the Bank provided for the Employee at the date
of termination of employment. Said sum shall be paid, at the option of the
Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the
-4-
<PAGE>
Employee's employment had not been terminated, or (II) in one lump sum within
ten (10) days of such termination.
(e) Termination or Suspension Under Federal Law. (1) If the Employee
-------------------------------------------
is removed and/or permanently' prohibited from participating in the conduct of
the Bank's affairs by an order issued under Sections 8 (e) (4) or 8 (g) (1) of
the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)),
all obligations of the Bank under this Agreement shall terminate, as of the
effective date of the order, but vested rights of the parties shall not be
affected.
(2) If the Bank is in default (as defined in Section 3 (x) (1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(3) All obligations under this Agreement shall terminate, except to
the extent that continuation of this Agreement is necessary for the continued
operation of the Bank: (I) by the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Commissioner") or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the commissioner, or his or her designee, at
the time that the commissioner, or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by the Commissioner to be in an unsafe or unsound condition. Such
action shall not affect any vested rights of the parties.
(4) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the Employee
from participating in the conduct of the Bank's affairs, the Bank's obligations
under this Agreement shall be suspended as of the date of such service, unless
stayed by appropriate proceedings. If the charges in the notice are dismissed,
the Bank shall (I) pay the Employee all or part of the compensation withheld
while its contract obligations were suspended, and (ii) reinstate (in whole or
in part) any of its obligations which were suspended.
(f) Voluntary Termination by Employee. Subject to Section 11 hereof,
---------------------------------
the Employee may voluntarily terminate employment with the Bank during the term
of this Agreement, upon at least 60 days' prior written notice to the Board of
Directors, in which case the Employee shall receive only his compensation,
vested rights and employee benefits up to the date of his termination.
10. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement
-5-
<PAGE>
by seeking other employment or otherwise and no such payment shall be offset or
reduced by the amount of any compensation or benefits provided to the Employee
in any subsequent employment.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Bank, without
the Employee's prior written consent and for a reason other than Just Cause, in
connection with or within twelve (12) months after any change in control of the
Bank, the Employee shall be paid an amount equal to the difference between (I)
the product of 2.99 times his "base amount" as defined in Section 28OG(b) (3) of
the Internal Revenue Code of 1986, as amended (the "Code") and regulations
promulgated thereunder, and (ii) the sum of any other parachute payments (as
defined under Section 28OG(b) (2) of the Code) that the Employee receives on
account of the change in control. Said sum shall be paid in one lump sum within
ten (10) days of such termination.
The term "change in control" shall mean (1) the ownership, holding or power
to vote more than 25% of the Bank's voting stock, (2) the control of the
election of a majority of the Bank's directors, (3) the exercise of a
controlling influence over the management or policies of the Bank by any person
or by persons acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934), or (4) during any period of two consecutive
years, individuals (the "Continuing Directors") who at the beginning of such
period constitute the Board of Directors of the Bank (the "Incumbent Board")
cease for any reason to constitute at least two-thirds thereof, provided that
any individual whose election or nomination for election as a member of the
Incumbent Board was approved by a vote of at least two-thirds of the Continuing
Directors then in office shall be considered a Continuing Director. The term
"person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the Employee may voluntarily terminate his employment under this
Agreement within twelve (12) months following a change in control of the Bank,
and the Employee shall thereupon be entitled to receive the payment described in
Section 11(a) of this Agreement, upon the occurrence of any of the following
events, or within ninety (90) days thereafter, which have not been consented to
in advance by the Employee in writing: (I) the requirement that the Employee
move his personal residence, or perform his principal executive functions, more
than thirty-five (35) miles from Sandwich, Massachusetts; (ii) a material
reduction in the Employee's base compensation as in effect on the date of the
-6-
<PAGE>
change in control or as the same may be increased from time to time; (iii) the
failure by the Bank to continue to provide the Employee with compensation and
benefits provided for under this Agreement, as the same may be increased from
time to time, or with benefits substantially similar to those provided to him
under any of the employee benefit plans in which the Employee now or hereafter
becomes a participant, or the taking of any action by the Bank which would
directly or indirectly reduce any of such benefits or deprive the Employee of
any material fringe benefit enjoyed by him at the time of the change in control;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position as referenced at
Section 1; or (v) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank.
(c) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
(d) Within five business days before or after a change in control as
defined in (S)11(a) of this Agreement, the Bank shall (i) deposit, or cause to
be deposited, in trust (the "Trust) an amount equal to 2.99 times the Employee's
"base amount" as defined in Section 28OG(b) (3) of the Code, and (ii) provide
the trustee of the Trust with a written direction to hold said amount and any
investment return thereon in a segregated account for the benefit of the
Employee, and to follow the procedures set forth in the next paragraph as to the
payment of such amounts from the Trust.
During the 12-consecutive month period following the date on which the
Bank makes the deposit referred to in the preceding paragraph, the Employee may
provide the trustee of the Trust with a written notice requesting that the
trustee pay to the Employee an amount designated in the notice as being payable
pursuant to Section 11(a) or (b). Within three business days after receiving
said notice, the trustee of the Trust shall send a copy of the notice to the
Bank via overnight and registered mail return receipt requested. On the tenth
(10th) business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to nonappealable binding arbitration
for a determination of the amount payable to the Employee pursuant to Section
11(a) or (b) hereof, and the costs of such arbitration (including any legal fees
and expenses incurred by the Employee) shall be paid by the Bank. The trustee
shall choose the arbitrator to settle the dispute, and such arbitrator shall be
bound by the rules of the American Arbitration Association in making his
determination. The parties and the
-7-
<PAGE>
trustee shall be bound by the results of the arbitration and, within 3 days of
the determination by the arbitrator, the trustee shall pay from the Trust the
amounts required to be paid to the Employee and/or the Bank, and in no event
shall the trustee be liable to either party for making the payments as
determined by the arbitrator.
Upon the earlier of (I) any payment from the Trust to the Employee, or
(ii) the date 12 months after the date on which the Bank makes the deposit
referred to in the first paragraph of this subsection (d), the trustee of the
Trust shall pay to the Bank the entire balance remaining in the segregated
account maintained for the benefit of the Employee. The Employee shall
thereafter have no further rights under this Section 11, no further interest in
the Trust pursuant to this Agreement, and no further rights or claims against
the Bank pursuant to this Agreement.
(e) In the event that any dispute arises between the Employee and the
Bank as to the terms or interpretation of this Agreement, including this Section
11, whether instituted by formal legal proceedings or otherwise, including any
action that the Employee takes to enforce the terms of this Section 11 or to
defend against any action taken by the Bank, the Employee shall be reimbursed
for all costs and expenses, including reasonable attorneys' fees, arising from
such dispute, proceedings or actions, provided that the Employee shall obtain a
final judgement by a court of competent jurisdiction in favor of the Employee.
Such reimbursement shall be paid within ten (10) days of Employee's furnishing
to the Bank written evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by the Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
13. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
14. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the Commonwealth of Massachusetts shall govern
-8-
<PAGE>
this Agreement in all respects, whether as to its validity, construction,
capacity, performance or otherwise.
15. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: The Sandwich Co-operative Bank
/s/ Dana S. Briggs By: /s/ Leon Davidson
- ------------------------- --------------------------
Secretary Its: President
WITNESS:
/s/ Pamela J. Buttrick /s/ George L. Larson
- ------------------------- -------------------------
George L. Larson
Senior vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 17th day of December, 1991, by and between
The Sandwich Co-operative Bank (hereinafter referred to as the "Bank") and David
A. Parsons (hereafter referred to as the "Employee").
WHEREAS, the Employee is being employed by the Bank as Senior Vice
President - Senior Loan officer and is experienced in all phases of the lending
operations of the Bank; and
WHEREAS, the parties desire by this writing to set forth the employment
relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the Senior Vice President 7
----------
Senior Loan Officer of the Bank. The Employee shall render administrative and
management . services to the Bank such as are customarily performed by persons
situated in a similar executive capacity. The Employee shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the business
of the Bank. The Employee's other duties shall be such as the Board of
Directors may from time to time reasonably direct, including normal duties as an
officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $76,000 per annum, payable in
cash not less frequently than monthly; provided, that the rate of such salary
shall be reviewed by the Board of Directors of the Bank not less often than
annually, and Employee shall be entitled to receive annually an increase at such
percentage or in such an amount as the Board of Directors in its sole discretion
may decide.
3. Discretionary Bonuses. The Employee shall be entitled to participate
---------------------
in an equitable manner with all other senior management employees of the Bank in
discretionary bonuses that may be authorized and declared by the Board of
Directors of the Bank to its senior management employees from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Employee's right to participate in such discretionary bonuses when and
as declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee shall
---------------------------------------------
be entitled to participate in any Plan of the Bank relating to pension, profit-
sharing, or other retirement benefits and medical coverage or reimbursement
plans that the Bank may adopt for the benefit of its employees.
1
<PAGE>
(b) Employee Benefits; Expenses. The Employee shall be eligible to
---------------------------
participate in any fringe benefits which may be or may become applicable to the
Bank's executive employees, including by example, participation in any stock
option or incentive plans adopted by the Board of Directors, club memberships, a
reasonable expense account, and any other benefits which are commensurate with
the responsibilities and functions to be performed by the Employee under this
Agreement. The Bank shall reimburse Employee for all reasonable out-of-pocket
expenses which Employee shall incur in connection with his services for the
Bank.
5. Term. The term of employment of Employee under this Agreement shall
----
be for the period commencing on December 17, 1991 and ending thirty-six (36)
months thereafter on December 17, 1994. Not less than three (3) months prior to
the expiration date of this Agreement or at such other times as may be mutually
agreed upon, the Employee and the Bank shall discuss the terms and conditions
for any renewal or extension of this Agreement. Additionally, on each annual
anniversary date from the date of commencement of this Agreement, the term of
employment shall automatically be extended for an additional one year period
beyond the then effective expiration date unless written notice from the Bank or
the Employee is received prior to such anniversary date advising the other party
that this Agreement shall not be further extended. Any such written notice
shall not effect any prior extensions of the term of employment hereunder.
6. Loyalty; Noncompetition.
-----------------------
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the Bank.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent
or limit the right of Employee to invest in the capital stock or other
securities of any business dissimilar from that of the Bank, or, solely as a
passive or minority investor, in any business.
7. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards expected of employees with
comparable positions in comparable organizations and as may be established from
time to time by the Bank's Board of Directors. The Bank will provide Employee
with the working facilities and staff customary for similar executives and
necessary for him to perform his duties.
-2-
<PAGE>
8. Vacation and Sick Leave. At such reasonable times as the Board of
-----------------
Directors shall in its discretion permit, the Employee shall be entitled,
without loss of pay, to absent himself voluntarily from the performance of his
employment under this Agreement, all such voluntary absences to count as
vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies as are periodically established by the Board of Directors for
senior management employees of the Bank.
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank on account of his failure to take a vacation; the
Employee shall not be entitled to accumulate unused vacation from one fiscal
year to the next except to the extent authorized by the Board of Directors for
senior management employees of the Bank.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors in its discretion may
determine. Further, the Board of Directors shall be entitled to grant to the
Employee a leave or leaves of absence with or without pay at such time or times
and upon such terms and conditions as the Board of Directors in its discretion
may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board of Directors for senior management
employees of the Bank. In the event any sick leave benefit shall not have been
used during any year, such leave shall accrue to subsequent years only to the
extent authorized by the Board of Directors. Upon termination of his
employment, the Employee shall not be entitled to receive any additional
compensation from the Bank for any unused sick leave benefits.
9. Termination and Termination Pay.
-------------------------------
The Employee's employment under this Agreement shall be terminated
upon the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the last day of the calendar month in which his death
shall have occurred, and any vested rights and benefits of the Employee.
-3-
<PAGE>
(b) Employee's employment under this Agreement may be terminated at
any time by a decision of the Board of Directors of the Bank for conduct not
constituting termination for Just Cause. In the event Employee's employment
under this Agreement is terminated by the Board of Directors without Just Cause,
the Bank shall be obligated to continue to pay the Employee his salary, up to
the date of termination of the term (including any renewal term) of this
Agreement.
(c) The Bank reserves the right to 'terminate this Agreement at any
time for Just Cause. Termination for "Just Cause" shall mean termination for
personal dishonesty, misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than a law, rule or regulation relating to a
traffic violation or similar offense), final cease-and-desist order, or material
breach of any provision of this Agreement. Subject to the provisions of Section
11 hereof, in the event this Agreement is terminated for Just Cause, the Bank
shall only be obligated to continue to pay the Employee his salary, up to the
date of termination, and the vested rights of the parties shall not be affected.
10. Disability. If the Employee shall become disabled or incapacitated to
----------
the extent that he is unable to perform his duties hereunder, by reason of a
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall nevertheless continue to
receive the following percentages of his compensation, inclusive of any benefits
which may be payable to Employee under the provisions of disability insurance
coverage in effect for Bank employees, under Paragraph 2 of this Agreement for
the following periods of his disability: 60% for the remaining term of this
Agreement.. Upon returning to active full-time employment, the Employee's full
compensation as set forth in this Agreement shall be reinstated. In the event
that said Employee returns to active employment on other than a full-time basis,
then his compensation (as set forth in Paragraph 2 of this Agreement) shall be
reduced in proportion to the time spent in said employment, or as shall
otherwise be agreed to by the parties.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, in the event
of involuntary termination of Employee's employment under this Agreement in
connection with, or within six (6) months after, any change in control of the
Bank which has not been approved in advance by a two-thirds (2/3) vote of the
full Board of Directors, or in the event of voluntary termination by the
Employee in connection with, or within six (6) months after, any change in
control of the Bank which has not been approved in advance by a two-thirds (2/3)
vote of the full Board of Directors, Employee shall be paid an amount equal to
the difference between (i) the product of 2.99 times the Employee's "base
amount" as defined in Section 28OG(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code"), and (ii) the sum of any other
-4-
<PAGE>
parachute payments (as defined under Section 28OG(b)(2) of the Code) that the
Employee receives on account of the change in control. Said sum shall be paid,
at the option of Employee, either in one (1) lump sum within thirty (30) days of
such termination, or in periodic payments over the remaining term of this
Agreement as if Employee's employment had not been terminated. The term
"control" shall refer to the ownership, holding or power to vote more than 25%
of the Bank's voting stock, the control of the election of a majority of the
Bank's directors, or the exercise of a controlling influence over the management
or policies of the Bank by any person or by persons acting as a group within the
meaning of Section 13(d) of the Securities Exchange Act of 1934. The term
"person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Employee may voluntarily terminate his employment under this Agreement
following a change in control of the Bank, whether approved in advance by the
Board of Directors or otherwise (as defined in Paragraph 11(a) of this
Agreement), and shall thereupon be entitled to receive the payment described in
Paragraph 11(a) of this Agreement, upon the occurrence, or within sixty (60)
days thereafter, of any of the following events, which have not been consented
to in advance by the Employee in writing: (I) if Employee would be required to
move his personal residence or perform his principal executive functions more
than thirty-five (35) miles from Sandwich, Massachusetts; (ii) if in the
organizational structure of the Bank Employee would be required to report to a
person or persons other than the President and/or Board of Directors of the
Bank; (iii) if the Bank should fail to maintain existing employee benefits
plans, including material fringe benefit, stock option and retirement plans;
(iv) if Employee would be assigned duties and responsibilities other than those
normally associated with his position as Senior Vice President - Senior Loan
Officer; or (v) if Employee's responsibilities or authority have in any way been
materially diminished or reduced.
(c) In the event any dispute shall arise between the Employee and the
Bank as to the terms or interpretation of this Agreement, including this-
Paragraph 11, whether instituted by formal legal proceedings or otherwise,
including any action taken by Employee to enforce the terms of this Paragraph 11
or in defending against any action taken by the Bank, the Bank shall reimburse
Employee for all costs and Expenses, including reasonable attorneys' fees,
arising from such dispute, proceedings or actions, notwithstanding the ultimate
outcome thereof. Such reimbursement shall be paid within 10 days of Employee
furnishing to the Bank written evidence, which may be in the form, among other
things, of a canceled check or receipt, of any costs or expenses incurred by
Employee. Any such request for reimbursement by Employee shall be made no more
frequently than at sixty (60) day intervals.
-5-
<PAGE>
12. Successors and Assigns.
----------------------
(a) This Employment Agreement, which shall supersede and replace all
previous employment agreements between the parties, shall inure to the benefit
of and be binding upon any corporate or other successor of the Bank which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets of the Bank.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
13. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by both parties, except as herein
otherwise specifically provided.
14. Applicable Law. This Agreement shall be governed by all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the Commonwealth of Massachusetts, except to the extent that Federal law
shall be deemed to apply.
15. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Entire Agreement. This Agreement together with any understanding or
----------------
modifications thereof as approved to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
SANDWICH CO-OPERATIVE BANK
ATTEST: By: Frederic D. Legate
------------------
/s/ Dana S. Briggs
- ---------------------------
Dana S. Briggs, Clerk
WITNESS:
/s/ Pamela J. Buttrick /s/ David A. Parsons
- --------------------------- -------------------------
Employee
<PAGE>
EXHIBIT 10.3
THE SANDWICH CO-OPERATIVE BANK
1986 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The Plan shall be known as The Sandwich Co-operative Bank 1986 Stock Option
Plan (the "Plan"). The purpose of the Plan is to attract and retain the best
available personnel for positions of substantial responsibility and to provide
additional incentive to key employees of The Sandwich Co-operative Bank or any
present or future parent or subsidiary of The Sandwich Co-operative Bank to
promote the success of the business. It is intended that options issued
pursuant to this Plan may constitute both incentive stock options within the
meaning of Section 422A of the Internal Revenue Code of 1954, as amended, and
options that do not so qualify.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Bank" shall mean The Sandwich Co-operative Bank.
(b) "Board" shall mean the Board of Directors of the Bank.
(c) "Common Stock" shall mean Common Stock, par value $1.00 per share,
of the Bank.
(d) "Code" shall mean the Internal Revenue Code of 1954, as amended.
(e) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with paragraph 4(a) of the Plan.
(f) "Continuous Employment" or "Continuous Status as an Employee"
shall mean the absence of any interruption or termination of employment by the
Bank or any present or future Parent or Subsidiary of the Bank. Employment
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Bank or in the case of transfers
between payroll locations of the Bank or between the Bank, its Parent, its
Subsidiaries or a successor.
(g) "Effective Date" shall mean the date specified in paragraph 15
hereof.
(h) "Employee" shall mean any person employed on a full-time basis by
the Bank or any present or future Parent or Subsidiary of the Bank.
-1-
<PAGE>
(i) "Option" shall mean an option to purchase Common Stock granted
pursuant to this Plan.
(j) "Optioned Stock" shall mean stock subject to an Option granted
pursuant to this Plan.
(k) "Optionee" shall mean a person who receives an Option under the
terms of this Plan.
(l) "Parent" shall mean any present or future corporation which would
be a "parent corporation" as defined in Subsections 425(e) and (g) of the Code.
(m) "Plan" shall mean The Sandwich Co-operative Bank 1986 Stock Option
Plan.
(n) "Share" shall mean one share of the Common Stock.
(o) "Subsidiary" shall mean any present or future corporation which
would be a "subsidiary corporation" as defined in Subsections 425(f) and (g) of
the Code.
3. SHARES SUBJECT TO THE PLAN.
Except as otherwise required by the provisions of paragraph 13 hereof, the
aggregate number of shares of Common Stock deliverable upon the exercise of
Options pursuant to the Plan shall not exceed 182,083 shares. Such shares may
either be authorized but unissued or treasury shares.
If Options should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased shares which were subject thereto
shall, unless the Plan shall have been terminated, be available for the grant of
other Options under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Composition of Option Committee. The Plan shall be administered by an
Option Committee (the "Committee") consisting of not less than three directors
of the Bank appointed by the Board. All persons designated as members of the
Committee shall be "disinterested persons" within the meaning of Rule 16b-3 of
the Securities and Exchange Act of 1934.
(b) Powers of the Committee. The Committee is authorized (but only to the
extent not contrary to the express provisions of the Plan or to resolutions
adopted by the Board) to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, to determine the form and content of
Options to be issued under the Plan and to make other determinations necessary
or advisable for the administration of the Plan, and shall have and may exercise
such other power and authority as may be delegated to it by the Board from time
to time. A majority of the entire Committee shall constitute a quorum and the
action of a majority of the members present at any meeting at which a quorum is
present shall be deemed the action of the Committee.
-2-
<PAGE>
(c) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and conclusive on all persons
affected thereby.
5. ELIGIBILITY.
Options may be granted to such Employees of the Bank or any present or
future Parent or Subsidiary as shall be designated by the Committee. An
Employee who has been granted an Option may, if otherwise eligible, be granted
an additional Option or Options.
The aggregate fair market value (determined pursuant to Section 7 hereof as
of the date the Option is granted) of the Shares for which any Employee may be
granted Options in any calendar year (under all Incentive Stock Option Plans, as
defined in Section 422A of the Code, of the Bank or any present or future Parent
or Subsidiary of the Bank), for options granted prior to December 31, 1986,
shall not exceed $100,000, plus any unused limit carryover to such year, as
defined in Section 422A(c) of the Code. The aggregate fair market value
(determined as of the date the option is granted) of the Shares with respect to
which Incentive Stock Options granted after December 31, 1986, are exercisable
for the first time by an employee during any calendar year shall not exceed
$100,000. Notwithstanding the prior provisions of this paragraph, the Committee
may grant Options in excess of the foregoing limitations, provided said Options
shall be clearly and specifically designated as not being Incentive Stock
Options, as defined in Section 422A of the Code.
No Option which qualifies as an Incentive Stock Option (for purposes of
this paragraph 5 called "New Option"), and was granted prior to December 31,
1986, shall be exercisable while there is outstanding any Incentive Stock Option
(as defined in Section 422A of the Code) which was granted, before the granting
of the New Option, to the Employee to whom the New Option is granted. A
previously granted Incentive Stock Option, granted prior to December 31, 1986,
shall be treated as outstanding until such prior option is exercised in full or
expires by reason of lapse in time.
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<PAGE>
6. TERM OF PLAN; TERM OF OPTIONS.
(a) The Plan shall continue in effect for a term of ten years from its
Effective Date, unless sooner terminated pursuant to paragraph 16. No Option
shall be granted under the Plan after ten years from the Effective Date.
(b) The term of each Option granted under the Plan shall be established by
the Committee, but shall not exceed 10 years, provided however that in the case
of an Employee who owns stock representing more than ten percent of the Bank's
outstanding Common Stock at the time the Option is granted, the term of such
Option shall not exceed five years.
7. OPTION PRICE.
The price per share at which each Option granted under the Plan may be
exercised shall not, as to any particular Option, be less than the fair market
value of the stock at the time such Option is granted. In the case of an
Employee who owns stock representing more than ten percent of the Bank's
outstanding Common Stock at the time the Option is granted, the Option price
shall not be less than 110% of the fair market value of the stock at the time
the Option is granted. If the Common Stock is traded otherwise than on a
national securities exchange at the time of the granting of an Option, then the
price per share shall be not less than the mean between the bid and asked price
on the date the Option is granted or, if there is no bid and asked price on said
date, then on the next prior business day on which there was a bid and asked
price. If no such bid and asked price is available, then the price per share
shall be determined by the Committee. If the Common Stock is listed on a
national securities exchange (including the NASDAQ national market) at the time
of granting an Option, then the price per share shall be not less than the
average of the highest and lowest selling price on such exchange on the date
such Option is granted or if there were no sales on said date, then the price
shall be not less than the mean between the bid and asked price on such date.
8. EXERCISE OF OPTION.
(a) Procedure for Exercise. Any Option granted hereunder shall be
exercisable at such times and under such conditions as shall be permissible
under the terms of the Plan and of the Option granted to an Optionee. An Option
may not be exercised for a fractional Share.
An Option granted pursuant to the Plan may be exercised, subject to
provisions relative to its termination and limitations on its exercise, from
time to time only by (a) written notice of intent to exercise the Option with
respect to a specified number of shares, and (b) payment to the Bank
(contemporaneously with delivery of such notice), in cash, in Common Stock, or a
combination of cash and Common Stock, of the amount of the Option price for the
number of shares with respect to which the Option is then being exercised. Each
such notice and payment shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Treasurer of the Bank at the Bank's executive
offices. Common Stock utilized in full or partial payment of the exercise price
shall be valued at its fair market value at the date of exercise.
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(b) Exercise During Employment or Following Death or Disability. Unless
otherwise provided in the terms of an Option, an Option may be exercised by an
Optionee only while he is an Employee and has maintained Continuous Status As An
Employee since the date of the grant of the Option, or within 90 days after
termination of his status as an Employee (but not later than the date on which
the Option would otherwise expire), except if his Continuous Employment is
terminated by reason of (1) death, then to the extent that the Optionee would
have been entitled to exercise the Option immediately prior to his death, such
Option of the deceased Optionee may be exercised within two years from the date
of his death (but not later than the date on which the Option would otherwise
expire) by the personal representatives of his estate or person or persons to
whom his rights under such Option shall have passed by will or by laws of
descent and distribution, or (2) Permanent and Total Disability (as such term is
defined in Section 105(d)(4) of the Code), then to the extent that the Optionee
would have been entitled to exercise the Option immediately prior to his
Permanent and Total Disability, such Option may be exercised within one year
from the date of such Permanent and Total Disability, but not later than the
date on which the Option would otherwise expire.
The Committee's determination whether an Optionee's employment has ceased,
and the effective date thereof, shall be final and conclusive on all persons
affected thereby.
Notwithstanding any other provision of this Plan, if an Employee is
terminated for cause, all Options outstanding to such Employee shall be
cancelled as of the effective date of such termination and may not be exercised
thereafter.
9. CHANGE IN CONTROL.
Notwithstanding the provisions of any Option which provides for its
exercise in installments as designated by the Committee, such Option shall
become immediately exercisable, and the Optionee shall, at the discretion of the
Committee, be entitled to receive cash in an amount equal to the excess of the
fair market value of the Common Stock (determined in accordance with Section 7)
subject to such Option over the Option price of such shares, in exchange for the
surrender of such options by the Optionee, in the event of a change in control
or offer to effect a change in control. For purposes of this Section 9, "change
in control" shall refer to the acquisition of the beneficial ownership (as that
term is defined in Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934) of 25 percent or more of the voting securities
of the Bank by any person or by persons acting as a group within the meaning of
Section 13(d) of the Securities Exchange Act of 1934; provided, however, that
for the purposes hereof no change in control or offer to effect a change in
control shall be deemed to have occurred if prior to the acquisition of, or
offer to acquire, 25 percent or more of the voting securities of Bank, the full
Board of Directors shall have adopted by not less than a two-thirds vote a
resolution specifically approving such acquisition or offer. The term "person"
refers to an individual or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein. The decision of the
Committee as to whether a change in control or offer to effect a change in
control has occurred shall be conclusive and binding.
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10. NON-TRANSFERABILITY OF OPTIONS.
Options granted under the Plan may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution. An Option may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN.
In the event that each of the outstanding shares of Common Stock (other
than shares held by dissenting shareholders) shall be changed into or exchanged
for a different number or kind of shares of stock of the Bank or of another
corporation (whether by reason of merger, consolidation, recapitalization,
reclassification, stock dividend, split-up, combination of shares, or
otherwise), then there shall be substituted for each share of Common Stock then
under Option or available for Option the number and kind of shares of stock into
which each outstanding share of Common Stock (other than shares held by
dissenting shareholders) shall be so changed or for which each such share shall
be so exchanged, together with an appropriate adjustment of the Option Price.
In the event there shall be any change in the number of, or kind of, issued
shares of Common Stock, or of any stock or other securities into which such
Common Stock shall have been changed, or for which it shall have been exchanged,
then if the Committee shall, in its discretion, determine that such change
equitably requires an adjustment in the number, or kind, or Option Price of
shares then subject to an Option or available for Option, such adjustment shall
be made by the Board and shall be effective and binding for all purposes of the
Plan.
12. TIME OF GRANTING OPTIONS.
The date of grant of an Option under the Plan shall, for all purposes, be
the date on which the Committee makes the determination of granting such Option.
Notice of the determination shall be given to each Employee to whom an Option is
so granted within a reasonable time after the date of such grant.
13. EFFECTIVE DATE.
The Plan shall become effective upon the effective date of the conversion
of the Bank from mutual to stock form. Options may be granted prior to
ratification of the Plan by the stockholders if the exercise of such Options is
subject to such stockholder ratification. The Plan shall continue in effect for
a term of ten years from the Effective Date, unless sooner terminated under
paragraph 16 of the Plan.
14. APPROVAL BY STOCKHOLDERS.
The Plan shall be approved by stockholders of the Bank within twelve (12)
months before or after the date it becomes effective.
15. MODIFICATION OF OPTIONS.
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At any time and from time to time the Board may authorize the Committee to
direct execution of an instrument providing for the modification of any
outstanding Option, provided no such modification, extension or renewal shall
confer on the holder of said Option any right or benefit which could not be
conferred on him by the grant of a new Option at such time, or impair the Option
without the consent of the holder of the Option.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may alter, suspend or discontinue the Plan except that no action
of the Board may increase (other than as provided in paragraph 11) the maximum
number of shares permitted to be optioned or become available for the granting
or Options under the Plan, or reduce the minimum Option price, or extend the
period within which Options may be exercised, unless such action of the Board
shall be subject to approval or ratification by the shareholders of the Bank.
No action of the Board may, without the consent of the holder of the
Option, impair any then outstanding Option.
17. CONDITIONS UPON ISSUANCE OF SHARES.
Shares shall not be issued with respect to any Option granted under the
Plan unless the issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the rules and regulations promulgated thereunder, any
applicable state securities law, and the requirements of any stock exchange upon
which the Shares may then be listed.
Inability of the Bank to obtain from any regulatory body or authority
deemed by the Bank's counsel to be necessary to the lawful issuance and sale of
any Shares hereunder shall relieve the Bank of any liability in respect of the
non-issuance or sale of such Shares.
As a condition to the exercise of an Option, the Bank may require the
person exercising the Option to make such representations and warranties as may
be necessary to assure the availability of an exemption from the registration
requirements of federal or state securities law.
18. RESERVATION OF SHARES.
The Bank, during the term of this Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.
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EXHIBIT 10.4
THE SANDWICH CO-OPERATIVE BANK
1994 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of this The Sandwich Co-operative Bank 1994 Stock Option and
Incentive Plan (the "Plan") is to advance the interests of the Bank through
providing select key Employees of the Bank and its Affiliates with the
opportunity to acquire Shares. By encouraging such stock ownership, the Bank
seeks to attract, retain and motivate the best available personnel for positions
of substantial responsibility and to provide additional incentive to key
Employees of the Bank or any Affiliate to promote the success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation' or "subsidiary
corporation' of the Bank, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in accordance
with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options and SARS, unless the
context clearly indicates a different meaning.
(d) "Bank" shall mean The Sandwich Co-operative Bank.
(e) "Board' shall mean the Board of Directors of the Bank.
(f) "Change in Control" shall refer to the acquisition of the beneficial
ownership (as that term is defined in Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934) of 25% or more of the
Bank's voting securities by any person or by persons acting as a "group" (within
the meaning of Section 13(d) of the Securities Exchange Act of 1934). For
purposes of this subparagraph only, the term 'person" refers to an individual or
a corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a
change in control has occurred shall be conclusive and binding.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(h) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Paragraph 5(a) hereof.
(i) "Common Stock" shall mean the common stock, par value $1.00 per share,
of the Bank.
(j) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee of the Bank or an Affiliate. Continuous
Service shall not be considered interrupted in the case of sick leave, military
leave or any other leave of absence approved by the Bank or in the case of
transfers between payroll locations of the Bank or between the Bank, an
Affiliate or a successor.
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(k) "Disinterested Person" shall mean any member of the Board who, at the
time discretion under the Plan is exercised, is a 'disinterested person' within
the meaning of Rule 16b-3.
(1) "Effective Date" shall mean the date specified in Paragraph 14 hereof.
(m) "Employee" shall mean any person employed by the Bank or an Affiliate.
(n) "Exercise Price" shall mean the price per Optioned Share at which an
Option or SAR may be exercised.
(o) "ISO' means an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option' within the meaning of Section 422 of
the Code.
(p) "Market Value" shall mean the fair market value of the Common Stock,
as determined under Paragraph 7(b) hereof.
(q) "Non-ISO' means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be and is not
identified as an ISO.
(r) "Option" means an ISO and/or a Non-ISO.
(s) "Optioned Shares" shall mean Shares subject to an Option granted
pursuant to this Plan.
(t) 'Participant' shall mean any person who receives an Award pursuant to
the Plan.
(u) "Plan" shall mean The Sandwich Co-operative Bank 1994 Stock Option and
Incentive Plan.
(v) "Rule 16b-3' shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(w) "Share" shall mean one share of Common Stock,
(x) "SAR" (or 'Stock Appreciation Right") means a right to receive the
appreciation in value, or a portion of the appreciation in value, of a specified
number of shares of Common Stock.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect for a term of five
years from the Effective Date, unless sooner terminated pursuant to Paragraph 17
hereof. No Award shall be granted under the Plan after ten years from the
Effective Date.
(b) "Term of Awards. 'Me term of each Award granted under the Plan shall
be established by the Committee, but shall not exceed 10 years; provided,
however, that in the case of an Employee who owns Shares representing more than
10% of the outstanding Common Stock at the time an ISO is granted, the term of
such ISO shall not exceed five years.
4. SHARES SUBJECT TO THE PLAN.
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(a) General Rule. Except as otherwise required by the provisions of
Paragraph I 1 hereof, the aggregate number of Shares deliverable pursuant to
Awards shall not exceed 90,000 Shares. Such Shares may either be authorized but
unissued Shares or Shares held in treasury. If Awards should expire, become
unexercisable or be forfeited for any reason without having been exercised or
become vested in full, the Optioned Shares shall, unless the Plan shall have
been terminated, be available for the grant of additional Awards under the Plan.
(b) Special Rule for SARS. The number of Shares with respect to which an
SAR is granted shall be charged against the aggregate number of Shares remaining
available under the Plan; provided, however, that in the case of an SAR granted
in conjunction with an Option, under circumstances in which the exercise of the
SAR results in termination of the Option and vice versa, only the number of
Shares subject to the Option shall be charged against the aggregate number of
Shares remaining available under the Plan. The Shares involved in an Option as
to which option rights have terminated by reason of the exercise of a related
SAR, as provided in Paragraph 10 hereof, shall not be available for the grant of
further Options under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be administered by the
Committee, which shall consist of not less than three (3) members of the Board
who are Disinterested Persons. Members of the Committee shall serve at the
pleasure of the Board. In the absence at any time of a duly appointed
Committee, the Plan shall be administered by those members of the Board who are
Disinterested Persons.
(b) Powers of the Committee. Except as limited by the express provisions
of the Plan or by resolutions adopted by the Board, the Committee shall have
sole and complete authority and discretion (i) to select Participants and grant
Awards, (ii) to determine the form and content of Awards to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan, and (v)
to make other determinations necessary or advisable for the administration of
the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. A majority
of the entire Committee shall constitute a quorum and the action of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee without a meeting, shall be
deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Bank and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The
terms of each such Agreement shall be in accordance with the Plan, but each
Agreement may include such additional provisions and restrictions determined by
the Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular,
the Committee shall set forth in each Agreement (i) the Exercise Price of an
Option or SAR, (ii) the number of Shares subject to, and the expiration date of,
the Award, (iii) the manner, time and rate (cumulative or otherwise) of exercise
or vesting of such Award, and (iv) the restrictions, if any, to be placed upon
such Award, or upon Shares which may be issued upon exercise of such Award.
The Chairman of the Committee and such other officers as shall be
designated by the Committee are hereby authorized to execute Agreements on
behalf of the Bank and to cause them to be delivered to the recipients of
Awards.
(d) Effect of the Committee's Decisions. All decisions, determinations and
interpretations of the Committee shall be final and conclusive on all persons
affected thereby.
(e) Indemnification. In addition to such other rights of indemnification
as they may have, the members of the Committee shall be indemnified by the Bank
in connection with any claim, action, suit or proceeding relating to any action
taken or failure to act under or in connection with the Plan or any Award,
granted hereunder to the full extent
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provided for under the Bank's Charter or Bylaws with respect to the
indemnification of Directors.
6. GRANT OF OPTIONS.
(a) General Rule. In its sole discretion, the Committee may grant Options
to Employees of the Bank or its Affiliates
(b) Special Rules for ISOs. The aggregate Market Value, as of the date the
Option is granted, of the Shares with respect to which ISOs are exercisable for
the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in Section 422 of the Code, of the Bank or any
present or future Parent or Subsidiary of the Bank) shall not exceed $100,000.
Notwithstanding the prior provisions of this paragraph, the Committee may grant
Options in excess of the foregoing limitations, in which case such Options
granted in excess of such limitation shall be Options which are Non-ISOs.
7. Exercise Price for Options.
(a) Limits on Committee Discretion. The Exercise Price as to any
particular Option granted under the Plan shall not be less than the Market Value
of the Optioned Shares on the date of grant. In the case of an Employee who owns
Shares representing more than 10% of the Bank's outstanding Shares of Common
Stock at the time an ISO is granted, the Exercise Price shall not be less than I
IO % of the Market Value of the Optioned Shares at the time the ISO is granted.
(b) Standards for Determining Exercise Price. If the Common Stock is
listed on a national securities exchange (including the NASDAQ National Market
System) on the date in question, then the Market Value per Share shall be not
less than the average of the highest and lowest selling price on such exchange
on such date, or if there were no sales on such date, then the Exercise Price
shall be not less than the mean between the bid and asked price on such date. If
the Common Stock is traded otherwise than on a national securities exchange on
the date in question, then the Market Value per Share shall be not less than the
mean between the bid and asked price on such date, or, if there is no bid and
asked price on such date, then on the next prior business day on which there was
a bid and asked price. If no such bid and asked price is available, then the
Market Value per Share shall be its fair market value as determined by the
Committee, in its sole and absolute discretion.
8. EXERCISE OF OPTIONS.
(a) Generally. Any Option granted hereunder shall be exercisable at such
times and under such conditions as shall be permissible under the terms of the
Plan and of the Agreement granted to a Participant. An Option may not be
exercised for a fractional Share.
(b) Procedure for Exercise. A Participant may exercise Options, subject to
provisions relative to its termination and limitations on its exercise, only by
(1) written notice of intent to exercise the Option with respect to a specified
number of Shares, and (2) payment to the Bank (contemporaneously with delivery
of such notice) in cash, in Common Stock, or a combination of cash and Common
Stock, of the amount of the Exercise Price for the number of Shares with respect
to which the Option is then being exercised. Each such notice (and payment where
required) shall be delivered, or mailed by prepaid registered or certified mail,
addressed to the Treasurer of the Bank at the Bank's executive offices. Common
Stock utilized in full or partial payment of the Exercise Price for Options
shall be valued at its Market Value at the date of exercise.
(c) Period of Exercisability. Except to the extent otherwise provided in
the terms of an Agreement, an Option may be exercised by a Participant only
while he is an Employee and has maintained Continuous Service from the date of
the grant of the Option, or within three months after termination of such
Continuous Service (but not later than the date on which the Option would
otherwise expire), except if the Employee's Continuous Service terminates by
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reason of --
(1) "Just Cause" which for purposes hereof shall have the meaning set
forth in any unexpired employment or severance agreement between the
Participant and the Bank (and, in the absence of any such agreement, shall
mean termination because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order), then the Participant's
rights to exercise such Option shall expire on the date of such
termination;
(2) death, then to the extent that the Participant would have been
entitled to exercise the Option immediately prior to his death, such Option
of the deceased Participant may be exercised within two years from the date
of his death (but not later than the date on which the Option would
otherwise expire) by the personal representatives of his estate or person
or persons to whom his rights under such Option shall have passed by will
or by laws of descent and distribution;
(3) Permanent and Total Disability (as such term is defined in Section
22(e)(3) of the Code), then to the extent that the Participant would have
been entitled to exercise the Option immediately prior to his Permanent and
Total Disability, such Option may be exercised within one year from the
date of such Permanent and Total Disability, but not later than the date on
which the Option would otherwise expire.
Notwithstanding the provisions of any Option which provides for its exercise in
installments as designated by the Committee, such Option shall become
immediately exercisable upon the Participant's death or Permanent and Total
Disability.
(d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof shall be final and conclusive on all persons affected thereby.
9. SARS (STOCK APPRECIATION RIGHTS)
(a) Granting of SARS. In its sole discretion, the Committee may from time
to time grant SARs to Employees either in conjunction with, or independently of,
any Options granted under the Plan. An SAR granted in conjunction with an
Option may be an alternative right wherein the exercise of the Option terminates
the SAR to the extent of the number of shares purchased upon exercise of the
Option and, correspondingly, the exercise of the SAR terminates the Option to
the extent of the number of Shares with respect to which the SAR is exercised.
Alternatively, an SAR granted in conjunction with an Option may be an additional
right wherein both the SAR and the Option may be exercised. An SAR may not be
granted in conjunction with an ISO under circumstances in which the exercise of
the SAR affects the right to exercise the ISO or vice versa, unless the SAR, by
its terms, meets all of the following requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference between the Exercise
Price of the ISO and the Market Value of the Shares subject to the ISO at
the time the SAR is exercised;
(3) The SAR is transferable only when the ISO is transferable, and under
the same conditions;
(4) The SAR may be exercised only when the ISO may be exercised; and
(5) The SAR may be exercised only when the Market Value of the Shares
subject to the ISO exceeds the Exercise Price of the ISO.
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(b) Exercise Price. The Exercise Price as to any particular SAR shall not
be less than the Market Value of the Optioned Shares on the date of grant.
(c) Timing of Exercise. Any election by a Participant to exercise SARs
shall be made during the period beginning on the 3rd business day following the
release for publication of quarterly or annual financial information and ending
on the 12th business day following such date. This condition shall be deemed to
be satisfied when the specified financial data is first made publicly available.
In no event, however, may an SAR be exercised within the six-month period
following the date of its grant.
The provisions of Paragraph 8(c) regarding the period of exercisability of
Options is incorporated by reference herein, and shall determine the period of
exercisability of SARS.
(d) Exercise of SARS. An SAR granted hereunder shall be exercisable at
such times and under such conditions as shall be permissible under the terms of
the Plan and of the Agreement granted to a Participant, provided that an SAR may
not be exercised for a fractional Share. Upon exercise of an SAR, the
Participant shall be entitled to receive, without payment to the Bank except for
applicable withholding taxes, an amount equal to the excess of (or, in the
discretion of the Committee if provided in the Agreement, a portion of) the
excess of the then aggregate Market Value of the number of Optioned Shares with
respect to which the Participant exercises the SAR, over the aggregate Exercise
Price of such number of Optioned Shares. This amount shall be payable by the
Bank in cash.
(e) Procedure for Exercising SARS. To the extent not inconsistent
herewith, the provisions of Paragraph 8(b) as to the procedure for exercising
Options are incorporated by reference, and shall determine the procedure for
exercising SARS.
10. CHANGE IN CONTROL
(a) General Rule. Notwithstanding the provisions of any Award which
provides for its exercise or vesting in installments, upon the date of a Change
in Control or an offer to effect a Change in Control, (i) all Options and SARs
shall become immediately exercisable and fully vested, and (ii) the Participant
shall, at the discretion of the Committee, be entitled to receive cash in an
amount equal to the excess of the Market Value of the Common Stock subject to
such Option over the Exercise Price of such Shares, in exchange for the
cancellation of such Options by the Participant.
(b) Exception to General Rule. Notwithstanding subparagraph (A) of this
Paragraph, in no event may an SAR be exercised, or an Option be canceled in
exchange for cash, within the six-month period following the date of its grant.
11. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) Recapitalizations; Stock Splits, Etc. The number and kind of shares
reserved for issuance under the Plan, and the number and kind of shares subject
to outstanding Awards (and the Exercise Price thereof in the case of Options and
SARS), shall be proportionately adjusted for any increase, decrease, change or
exchange of Shares for a different number or kind of shares or other securities
of the Bank which results from a merger, consolidation, recapitalization,
reorganization, reclassification, stock dividend, split-up, combination of
shares, or similar event in which the number or kind of shares is changed
without the receipt or payment of consideration by the Bank.
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(b) Transactions in which the Bank is Not the Surviving Entity. Subject to
Paragraph 10 hereof, in the event of (i) the liquidation or dissolution of the
Bank, (ii) a merger or consolidation in which the Bank is not the surviving
entity, or (iii) the sale or disposition of all or substantially all of the
Bank's assets (any of the foregoing to be referred to herein as a
"Transaction"), all outstanding Awards shall be surrendered. With respect to
each Award so surrendered the Committee shall in its sole and absolute
discretion determine whether the holder of the surrendered Award shall
receive --
(1) for each Share then subject to an outstanding Award the number and
kind of shares into which each outstanding Share (other than Shares held by
dissenting stockholders) is changed or exchanged, together with an
appropriate adjustment to the Exercise Price; or
(2) a cash payment (from the Bank or the successor corporation) in an
amount equal to the Market Value of the Shares subject to the Award on the
date of the Transaction, less the Exercise Price of the Award.
(c) Special Rule for ISOS. Any adjustment made pursuant to subparagraphs
(a) or (b)(1) hereof shall be made in such a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
ISOs.
(d) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Paragraph, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment was made.
(e) Other Issuances. Except as expressly provided in this Paragraph, the
issuance by the Bank or an Affiliate of shares of stock of any class, or of
securities convertible into Shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no adjustment
shall be made with respect to, the number, class, or Exercise Price of Shares
then subject to Awards or reserved for issuance under the Plan.
12. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution, or pursuant to the terms of a "qualified domestic relations order"
(within the meaning of Section 414(p) of the Code and the regulations and
rulings thereunder).
13. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the date on which
the Committee makes the determination of granting such Award. Notice of the
determination shall be given to each Participant to whom an Award is so granted
within a reasonable time after the date of such grant.
14. EFFECTIVE DATE.
The Plan shall become effective immediately upon its approval by the Board.
Awards may be made prior to approval of the Plan by the stockholders of the Bank
if the exercise of Awards in the form of Options and/or SARs is subject to such
stockholder approval.
7
<PAGE>
15. APPROVAL BY STOCKHOLDERS.
The Plan shall be approved by stockholders of the Bank within twelve (12)
months before or after the Effective Date.
16. MODIFICATION OF AWARDS.
At any time, and from time to time, the Board may authorize the Committee
to direct execution of an instrument providing for the modification of any
outstanding Award, provided no such modification shall confer on the holder of
said Award any right or benefit which could not be conferred on him by the grant
of a new Award at such time, or impair the Award without the consent of the
holder of the Award.
17. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the Plan, provided that any amendment that is "material" within the meaning of
Rule 16b-3 shall be subject to stockholder approval.
No amendment, suspension or termination of the Plan shall, without the
consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
18. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued with respect to any Award unless the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities law, and the requirements of any
stock exchange upon which the Shares may then be listed. The Plan is intended to
comply with Rule 16b-3, and any provision of the Plan which the Committee
determines in its sole and absolute discretion to be inconsistent with said Rule
shall, to the extent of such inconsistency, be inoperative and null and void,
and shall not affect the validity of the remaining provisions of the Plan.
(b) Special Circumstances. The inability of the Bank to obtain approval
from any regulatory body or authority deemed by the Bank's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Bank of any liability in respect of the non-issuance or sale of such Shares.
As a condition to the exercise of an Option or SAR, the Bank may require the
person exercising the Option or SAR to make such representations and warranties
as may be necessary to assure the availability of an exemption from the
registration requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable, including but not limited to the authority to impose a
right of first refusal or to establish repurchase rights or both of these
restrictions.
19. RESERVATION OF SHARES.
The Bank, during the term of the Plan, will reserve and keep available A
number of Shares sufficient to satisfy the requirements of the Plan.
8
<PAGE>
20. WITHHOLDING TAX.
The Bank's obligation to deliver Shares upon exercise of Awards shall be
subject to the Participant's satisfaction of all applicable federal, state and
local income and employment tax withholding obligations. The Committee, in its
discretion, may permit the Participant to satisfy the obligation, in whole or in
part, by irrevocably electing to have the Bank withhold Shares, or to deliver to
the Bank Shares that he already owns, having a value equal to the amount
required to be withheld. The value of Shares to be withheld, or delivered to
the Bank, shall be based on the Market Value of the Shares on the date the
amount of tax to be withheld is to be determined. As an alternative, the Bank
may retain, or sell without notice, a number of such Shares sufficient to cover
the amount required to be withheld.
21. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's eligibility to participate or participation
in the Plan create or be deemed to create any legal or equitable right of the
Employee, or any other party to continue service with the Bank or any Affiliate.
No Employee shall have a right to be granted an Award or, having received an
Award, the right to again be granted an Award. However, an Employee who has
been granted an Award may, if otherwise eligible, be granted an additional Award
or Awards.
22. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts, except to the extent that federal law shall
be deemed to apply.
9
<PAGE>
EXHIBIT 10.5
BOARD OF DIRECTORS
SANDWICH CO-OPERATIVE BANK
SANDWICH, MASSACHUSETTS
NOVEMBER 15, 1983
PRESENTED BY:
GEORGE SYLVIA
WILLIAM CONNELL AGENCY
<PAGE>
DEFERRED INCOME AGREEMENT
-------------------------
THE FOUNDATION OF THE PLAN IS AN AGREEMENT BETWEEN EACH DIRECTOR AND
SANDWICH CO-OPERATIVE BANK.
THE THREE MAIN PROVISIONS OF THE AGREEMENT ARE AS FOLLOWS:
1. THE DIRECTOR AGREES TO SERVE ON THE BOARD FOR FIVE YEARS, IF
ELECTED.
2. THE BANK WILL PAY THE DIRECTOR A FUTURE MONTHLY INCOME FOR TEN
YEARS BEGINNING AT AGE 65. *
3. IN THE EVENT OF THE DIRECTOR'S PREMATURE DEATH, THE BANK WILL
MAKE SPECIFIED MONTHLY PAYMENTS TO THE DIRECTOR'S
BENEFICIARY(IES).
EACH DIRECTOR'S AGREEMENT IS CONTAINED IN A LATER SECTION OF THIS BOOK, THE
AGREEMENTS CONFORM STRICTLY TO THE IRS DOCTRINES OF ECONOMIC BENEFIT AND
CONSTRUCTIVE RECEIPT TO ASSURE PROPER TAX TREATMENT.
* The term or age may be different for each Director or see individual
agreements.
PAGE TWO
<PAGE>
FUNDING THE PLAN
----------------
THE BANK HAS ACQUIRED AN AMOUNT OF KEY MAN INSURANCE ON THE LIFE OF EACH
DIRECTOR CALCULATED TO MEET ITS OBLIGATIONS UNDER THE COMPENSATION AGREEMENT.
As OWNER OF THE POLICY, THE BANK IS THE NAMED BENEFICIARY AND THE CASH VALUE IS
AN UNRESTRICTED ASSET OF SANDWICH CO-OPERATIVE BANK.
ANNUAL PREMIUMS WILL BE EQUAL TO THE DIRECTOR'S DEFERRAL SO THE BANK'S CASH
FLOW WILL NOT BE CHANGED DURING THE FIVE YEAR DE FERRAL PERIOD. AFTER THE
FIFTH YEAR, THE BANK WILL PAY ALL FUTURE PREMIUMS AND AFTER-TAX INTEREST COSTS
WITH A POLICY LOAN. THE CASH VALUE OF THE POLICY WILL ALWAYS BE LARGE ENOUGH TO
PROVIDE FOR THESE ANNUAL LOANS. AS A RESULT, THE BANK HAS A ZERO NET OUTLAY
ANNUALLY AFTER THE FIFTH YEAR. (SEE EXHIBIT I ON PAGE 4.)
ALL LOANS ARE MADE WITH THE AUTOMATIC LOAN PROVISION IN THE POLICY.
THEREFORE, THERE IS NO ADMINISTRATIVE PROCEDURE REQUIRED BY THE BANK.
PAGE THREE
<PAGE>
EXHIBIT I
---------
NET AFTER-TAX OUTLAY FOR INSURANCE PREMIUMS
-------------------------------------------
Director, Age 55 - Annual Deferral $3,000 for Five Years - Annual Premium $3,000
<TABLE>
<CAPTION>
(2) (3) (4) (5) (6) (7) (8)
Director's After-Tax Policy Loan Bank's Net
Director's Annual Annual Annual Interest Cost (Co. 3 + Outlay (Co. 3
Age Premium Deferral Interest (.54 x Col.5) Col.6-Col.4) Col.6-Col.7)
- ---------- ------- -------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
55 $3,000 $3,000 $ 0 $ 0 $ 0 $ 3,000
56 3,000 3,000 0 0 0 3,000
57 3,000 3,000 0 0 0 3,000
58 3,000 3,000 0 0 0 3,000
59 3,000 3,000 0 0 0 3,000
60 3,000 0 0 0 3,000 0
61 3,000 0 240 130 3,130 0
62 3,000 0 480 260 3,260 0
63 3,000 0 720 390 3,390 0
64 3,000 0 960 520 3,520 0
65 3,000 0 1,200 650 3,650 0
66 3,000 0 1,440 780 3,780 0
67 3,000 0 1,680 910 3,910 0
68 3,000 0 1,920 1,040 4,040 0
69 3,000 0 2,160 1,170 4,170 0
70 3,000 0 2,400 1,300 4,300 0
71 3,000 0 2,640 1,430 4,430 0
72 3,000 0 2,880 1,560 4,560 0
73 3,000 0 3,120 1,690 4,690 0
74 3,000 0 3,360 1,820 4,820 0
</TABLE>
PAGE FOUR
<PAGE>
INCOME TAX PROVISIONS
---------------------
TAX TREATMENT OF DEFERRED COMPENSATION HAS NEVER BEEN MORE FAVORABLE OR
STATED MORE CLEARLY THAN THAT PROVIDED BY THE REVENUE ACT OF 1978.
FOR SANDWICH CO-OPERATIVE BANK:
- ------------------------------
1. ANNUAL PREMIUM DEPOSITS ARE NOT TAX DEDUCTIBLE. (IRC SEC. 264 (A)
(1).) THE CASH VALUE, OWNED BY THE BANK, IS AN OFFSETTING ASSET.
UNDER THE PRECEPTS OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS, THE ACTUAL INSURANCE EXPENSE IS THE EXCESS OF THE ANNUAL
PREMIUM PAID OVER THE ANNUAL INCREASE IN CASH VALUE.
2. DEFERRED INCOME PAID UNDER THE AGREEMENT IS FULLY TAX DEDUCTIBLE.
3. POLICY PROCEEDS RECEIVED BY THE BANK ARE TAX-FREE.
FOR YOUR DIRECTORS:
- ------------------
1. THE DIRECTOR HAS NO INCOME TAX LIABILITY UNTIL HE RECEIVES DEFERRED
INCOME PAYMENTS.
2. DEFERRED INCOME PAYMENTS ARE TAXED AS ORDINARY INCOME.
3. WHEN HE RECEIVES THE DEFERRED INCOME, THE DIRECTOR MAY BE IN A LOWER
TAX BRACKET.
4. ANY. INCOME, RECEIVED BY THE DIRECTOR"S FAMILY IS TAXED AS ORDINARY
INCOME.
PAGE FIVE
<PAGE>
EXHIBIT 11
----------
TAX TREATMENT OF DEFERRED INCOME FOR DIRECTORS
----------------------------------------------
EXCERPT FROM REVENUE ACT OF 1978
--------------------------------
ACT SEC. 133; CLARIFICATION OF DEDUCTIBILITY OF PAYMENTS OF
DEFERRED COMPENSATION, ETC., TO INDEPENDENT
CONTRACTORS.
ACT. SEC. 133 (A) IN GENERAL - SECTION 404 (RELATING TO DEDUCTION FOR
CONTRIBUTIONS OF AN EMPLOYER TO AN EMPLOYEES TRUST OR ANNUITY PLAN AND
COMPENSATION UNDER A DEFERRED PAYMENT PLAN) IS AMENDED BY INSERTING AFTER
SUBSECTION (C) THE FOLLOWING NEW SUBSECTION:
CODE SEC. 404 (D)
"(D) DEDUCTIBILITY OF PAYMENTS OF DEFERRED COMPENSATION ETC., TO
INDEPENDENT CONTRACTORS. - IF A PLAN WOULD BE DESCRIBED IN SO MUCH OF
SUBSECTION (A) AS PRECEDES PARAGRAPH (1) THEREOF (AS MODIFIED BY SUBSECTION
(B) BUT FOR THE FACT THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP, THE
CONTRIBUTIONS OR COMPENSATION -
(l) SHALL NOT BE DEDUCTIBLE BY THE PAYOR THEREOF UNDER SECTION 162 OR
212, BUT
"(2) SHALL (IF THEY WOULD BE DEDUCTIBLE UNDER THIS SUBSECTION FOR THE
TAXABLE YEAR IN WHICH AN AMOUNT ATTRIBUTABLE TO THE. CONTRIBUTION OR
COMPENSATION IS INCLUDIBLE IN THE GROSS INCOME OF THE PERSONS
PARTICIPATING IN THE PLAN."
PAGE SIX
<PAGE>
ACCOUNTING FOR YOUR DIRECTORS' DEFERRED INCOME PLAN
---------------------------------------------------
THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS HAS NOT ESTABLISHED
A STANDARD METHOD OF ACCOUNTING FOR DEFERRED IN COME PLANS FINANCED WITH KEY
MAN LIFE INSURANCE.
IT SEEMS CLEAR THAT THE KEY MAN INSURANCE AND THE DEFERRED COMPENSATION
OBLIGATION MUST BE ACCOUNTED FOR SEPARATELY. THE MOST WIDELY ACCEPTED VIEWS
APPEAR TO BE AS FOLLOWS:
1. Key Man Insurance is discussed in the Unofficial Accounting
-----------------
Interpretations of the AICPA. it states, "The generally accepted
method of accounting for non-term insurance on the life of a corporate
officer (or director) is to charge the increase in the cash surrender
value of the policy to an asset account and to charge the remaining
balance of the annual premium to expense (or income)".
2. Deferred Income Agreements constitute a future obligation of the Bank.
--------------------------
it this is considered to be a material amount, one method is to accrue
a reserve equal to the present value of the payments at the time the
payments are scheduled to commence. If the amount is not considered
to be material, the deferred payments are expensed as paid.
YOUR ACCOUNTANT WILL BE ABLE TO RECOMMEND GOOD ACCOUNTING PRACTICE BEST
SUITED TO YOUR NEEDS. BRICK AND COMPANY IS ALWAYS AVAILABLE TO MEET WITH YOUR
ACCOUNTANTS.
PAGE SEVEN
<PAGE>
ACTUARIAL ASSUMPTIONS
---------------------
THIS DEFERRED INCOME PLAN HAS BEEN DEVELOPED IN ACCORDANCE WITH SOUND
ACTUARIAL PRINCIPLES. THE FOLLOWING ASSUMPTIONS HAVE BEEN MADE:
1. EACH DIRECTOR WILL REACH NORMAL LIFE EXPECTANCY.
2. LIFE INSURANCE PREMIUMS WILL BE PAID THROUGHOUT THE DIRECTOR'S
LIFETIME. THE BANK HAS A ZERO NET OUTLAY ANNUALLY AFTER THE FIFTH
YEAR BECAUSE PREMIUMS AND AFTER-TAX INTEREST COSTS ARE PAID WITH
POLICY LOANS. (SEE EXHIBIT I ON PAGE FOUR.)
3. DEFERRED INCOME PAYMENTS, AS SPECIFIED IN THE AGREEMENT, WILL BE MADE
BY THE BANK.
4. CURRENT DIVIDEND SCALES WILL BE MAINTAINED BY THE INSURANCE CARRIER.
5. THE BANK WILL BE REIMBURSED FOR THE USE OF ITS FUNDS AT THE RATE OF
12% COMPOUNDED ANNUALLY (6% AFTER-TAX).
6. THE BANK'S MARGINAL INCOME TAX-BRACKET IS 30%.
IF THESE ASSUMPTIONS ARE REALIZED, THE BANK WILL BE FULLY REIMBURSED FOR
ITS OUTLAY PLUS INTEREST AT THE RATE OF 12% COM POUNDED ANNUALLY. THE NET COST
TO THE BANK WILL BE THE SAME AS PAYING CURRENT CASH FEES.
PAGE EIGHT
<PAGE>
SUMMARY AND CONCLUSION
----------------------
THE PURPOSE OF THIS PROGRAM IS TO PROVIDE A MORE ATTRACTIVE MEANS OF
COMPENSATION FOR SOME DIRECTORS OF SANDWICH CO-OPERATIVE BANK.
THE BANK'S NET COST TO ADOPT THE PLAN IS DESIGNED TO BE THE SAME AS PAYING
CURRENT CASH FEES. THIS PERMITS EACH BOARD MEMBER TO ELECT BETWEEN CURRENT AND
FUTURE INCOME.
THE CASH VALUE OF EACH INSURANCE POLICY IS AN UNRESTRICTED ASSET OF THE
BANK, TO THE EXTENT THAT THE CASH VALUE EXCEEDS THE POLICY LOAN, THE BANK MAY
BORROW THIS EXCESS TO GENERATE INCOME FOR THE BANK.
A DIRECTOR COULD NOT DUPLICATE THIS ECONOMIC BENEFIT WITH HIS OWN AFTER-TAX
DOLLARS. FOR THIS REASON, THE PROGRAM MAY BE FAR MORE VALUABLE TO HIM THAN CASH
FEES TAXED AT A HIGH RATE.
FINALLY, IT IS IMPORTANT TO RECOGNIZE THAT AN IMMEDIATE ESTATE ASSET IS
CREATED FOR EACH DIRECTOR WHO PARTICIPATES. THERE IS NO OTHER MEANS OF PROVIDING
THIS BENEFIT AT A COMPARABLE LOW NET COST.
PAGE NINE
<PAGE>
EXHIBIT 10.6
SANDWICH COOPERATIVE BANK
DEFERRED COMPENSATION PLAN
--------------------------
THIS PLAN is dated as of the first day of , 19 , by
Sandwich Cooperative Bank, a Massachusetts Corporation, having its principal
place of business in Sandwich, Massachusetts (hereinafter the "Bank").
WITNESSETH:
WHEREAS, the Bank has a group of Directors who serve the Bank in a
Director's capacity;
WHEREAS, the Bank wishes to adopt a non-qualified deferred compensation
plan in order to allow this select group of Directors to defer their fees as
herein provided;
NOW, THEREFORE, the Bank hereby adopts the Sandwich Cooperative Bank
DEFERRED COMPENSATION PLAN (hereinafter the "Plan") effective as of January 1,
1992 as follows:
1. PLAN YEAR
The initial Plan year shall commence on January 1, 1992 and shall end on
December 31, 1992, and thereafter shall be the twelve (12) month period
commencing on January 1 and ending. on December 31.
2. PARTICIPATION IN PLAN
Any Eligible Director of the Bank who has complied with the provisions
of Section 6 herein shall be eligible to participate in the Plan. For the
purposes of the Plan, an Eligible Director means any Director of the Bank who
voluntarily participates in the Plan.
3. DEFERRED COMPENSATION
Any Eligible Director may elect to become a Participant in the Plan in
accordance
<PAGE>
with Section 6 of the Plan by deferring up to one hundred percent (100%) of his
Eligible Compensation in whole percentages in any calendar year. Such deferrals
shall hereinafter be referred to as "Deferred Compensation". For the purposes
of this Plan, Eligible Compensation means the Eligible Director's fees paid or
accrued by the Bank.
The amount of Eligible Compensation that a Participant elects to defer
is irrevocable for the Plan year for which such election is effective.
4. BANK CONTRIBUTIONS
The Bank shall make no matching contribution of the Deferred
Compensation on behalf of each Participant under the Plan.
5. DEFERRED COMPENSATION ACCOUNTS
(a) Establishment of accounts
The Bank shall record Deferred Compensation amounts made on
behalf of each Participant in a deferred compensation account; or, as a
bookkeeping entry, (hereinafter the "Account") for such Participant. The Bank
shall also credit to each Participant's Account a rate of return for each Plan
Year after the Plan Year in which his participation begins no less than simple
interest credited annually at the quarterly average rate on United States
Treasury Securities adjusted to a constant maturity of one year as published by
the Federal Reserve Board in Selected Interest Rates Publication H 15.
(b) Investment of Accounts
Funds so credited to each Participant's Account, if any, may be kept
in cash or invested or reinvested in mutual funds, stocks, bonds, securities,
annuity contracts, life insurance, contracts or any other assets as the Bank may
select in its sole discretion. The Bank, in its discretion, may engage
investment counsel, and may delegate to such counsel authority as it may deem
<PAGE>
appropriate with respect to the investment of such funds, if any.
The rate of return attributable to a Participant's Account for each Plan
Year after the Plan Year in which his participation begins will in no event be
less than simple interest credited annually at the quarterly average rate on
United States Treasury Securities adjusted to a constant maturity of one year as
published by the Federal Reserve Board in Selected Interest Rates Publication H
15.
(c) Funding
The Bank reserves the absolute right at its sole and exclusive
discretion to insure or otherwise provide for the obligations of the Bank
undertaken by this Plan or to refrain from same, and to determine the extent,
nature and method thereof, including the establishment of one or more trusts.
Should the Bank elect to insure this Plan, in whole or in part, through the
medium of insurance or annuities, or both, the Bank shall be the owner and
beneficiary of the policy. At no time shall the Participant be deemed to have
any right, title or interest in or to any specified asset or assets of the Bank,
or any trust or escrow arrangement, including, but not by way of restriction,
any insurance or annuity or contracts or the proceeds therefrom.
Any such policy, contract or asset shall not in any way be considered to be
security for the performance of the obligations of this Plan.
If the Bank purchases a life insurance or annuity policy on the life of the
Participant, the Participant agrees to sign any papers that may be required for
that purpose and to undergo any medical examination or tests (at the Bank's
expense) which may be necessary, and generally cooperate with the Bank in
securing such policy.
To the extent the Participant acquires a right to receive benefits under
this Plan, such right shall be no greater than the right of any unsecured
general creditor of the Bank.
<PAGE>
6. ELECTION TO DEFER COMPENSATION
(a) Election Procedure
In order for an Eligible Director to become a Participant in the Plan,
such Director must properly complete and file an election form to defer a
percentage of his Eligible Compensation as set forth in Section 3 with the
Treasurer of the Bank (hereinafter the "Plan Administrator").
(b) Filing of Election Form
An Eligible Director must file such form prior to the first day of
each Plan year, except for the first Plan Year, in order to become a Participant
during such Plan Year. An Eligible Director who is hired by the Bank after the
beginning of any Plan Year shall become a Participant as of the first day of the
month following the date on which he commences services with the Bank, provided
that such Eligible Director files the election form on or before the first day
that such new Eligible Director commences services with the Bank.
An Eligible Director shall file only one election form for each Plan Year.
Such election form may not be changed after its effective date and shall remain
in effect for the Plan Year for which it is effective.
(c) Improper or No Election
An Eligible Director who has not filed an election form for a
Plan Year, or who files an election form in a manner which does not comply with
the terms and conditions provided in Section 3 and this Section 6 shall not
become a Participant in the Plan.
7. DISTRIBUTION
Upon the Participant's termination of services as Director for the
Bank for any reason, including death, disability or retirement, the Bank will
distribute the entire amount credited to such Participant's Account, taking into
account earnings and losses thereon; to the Participant (or his
<PAGE>
Beneficiary or Beneficiaries, as applicable) within thirty (30) days following
the last day of the month of such termination, or within a reasonable period of
time thereafter as the Bank and Participant shall determine.
The former Participant (or his Beneficiary or Beneficiaries, as
applicable) shall receive the benefit payable in accordance with this Section 7
in the form of a lump sum payment or monthly, quarterly, semi-annual or annual
cash installments, as elected by the former Participant (or his Beneficiary or
Beneficiaries, as applicable). The Participant shall elect such form of benefit
on an appropriate form which shall be provided by the Plan Administrator, and
filed with the Plan Administrator no later than the close of the business day
immediately preceding the first day of the first period during which the
Participant makes contributions to the Plan. The Participant may change such
elections prospectively, effective on the first day of any Plan Year. A
Participant who fails to file a timely election under this Section 7 shall be
deemed to have elected to receive the benefit payable hereunder in the form of a
lump sum payment.
The Participant shall be fully vested in the portion of his Account which
is attributable to his Deferred Compensation and the earnings thereon.
8 BENEFICIARY DESIGNATION
The Participant shall designate a Beneficiary or Beneficiaries to
receive benefits hereunder in accordance with Section 7. The Participant shall
make such election on a beneficiary designation form provided by the Plan
Administrator. Such form must be filed with the Plan Administrator as the Plan
Administrator shall, in his discretion, require. The Participant may revoke or
change such beneficiary election at any time prior to the commencement of
benefits as provided in Section 7, and, provided that such beneficiary election
form is duly filed with the Plan Administrator.
<PAGE>
9. FORFEITURE
Notwithstanding anything contained herein to the contrary, the Plan
Administrator may determine, in its sole discretion, that the Participant shall
forfeit any earnings credited to his Participant Account in the event such
Participant is terminated for "cause". For this purpose, cause shall mean
conviction by a court of law for fraud, misappropriation or embezzlement.
10. ADMINISTRATION
This Plan is intended to be and shall be administered as an unfunded,
unsecured, plan which is not qualified under Section 401 of the Internal Revenue
Code. The benefits provided hereunder shall be paid from the Participants'
Deferred Compensation and from the general assets of the Bank.
11. PARTICIPANT'S RIGHTS UNSECURED
The right of any Participant (or his Beneficiary or Beneficiaries, as
applicable) to receive any benefits hereunder shall be an unsecured claim
against the general assets of the Bank.
12. NON-TRANSFERABILITY
The right of the Eligible Director or any other person to the payment
of benefits hereunder shall not be assigned, transferred, pledged or encumbered
except by will or by the laws of descent and distribution.
13. COMMUNICATIONS
Any notice or communication required by the Bank with respect to this
Plan shall be made in writing and may either be delivered personally or sent by
First Class mail, as the case may be:
To the Corporation:
Treasurer
Sandwich Cooperative Bank
<PAGE>
P.O. Box 959
100 Old King's Highway
Sandwich, MA 02563
Each party shall have the right by written notice to change the place
to which any notice may be addressed.
14. NOTIFICATION OF BENEFIT
Within thirty (30) days of the retirement, death, disability or
termination of services of the Participant, or the merger, consolidation or sale
of the Bank, the Bank shall deliver to the Participant a notice (the "Award
Notice") stating the amount of benefits, and the timing of the payment of such
benefits, to which the Participant is entitled under the terms of this Plan as a
result of such event, or, if the Participant is not entitled to benefits under
this Plan as a result of such event, the reason why he is not so entitled.
15. CLAIMS PROCEDURE
(a) The Participant (or his beneficiary in the case of the
Participant's death), may make a claim for benefits in writing to the Bank
within one (1) year of
(1) the Bank's failure to deliver an Award Notice to the
Participant or his beneficiary in accordance with
Section 14,
(2) the delivery of an Award Notice to the Participant or
the beneficiary in accordance with Section 14 if the
Participant or beneficiary believes such Notice does
not properly state such person's entitlement to
benefits under this Plan, or
(3) the failure of the Bank to make any payment in
accordance with the terms of an Award Notice.
Such claim shall be reviewed by the Bank. If the claim is approved or denied,
in whole or in part,
<PAGE>
the Bank shall provide a written notice of approval or denial within sixty (60)
days of the Bank's receipt of the notice of the claim. In the case of denial the
notice shall set forth the specific reason for the denial, specific reference to
the provisions of the Plan upon which the denial is based, and any additional
material or information necessary to perfect the claim and an explanation of why
such material or information is to be taken if a review of the denial is
desired. If the claim is not approved or denied within such sixty (60) days, the
claim will be deemed denied.
(b) If a claim is denied and a review is desired, the Participant (or
his beneficiary in the case of the Participant's death), shall notify the Bank
of his request for a review in writing within sixty (60) days of the date the
claim is denied. The Participant, his beneficiary, or his duly authorized
representative may review this Plan and any documents relating to it and submit
any written issues and comments he may feel appropriate within thirty (30) days
of his notice of request for review. In its sole discretion, the Bank shall
then review the claim and any written issues and comments submitted by or on
behalf of the Participant, and provide a written decision within sixty (60) days
of the later of the Bank's receipt of the notice of request for review or the
submission of such written issues and comments. This decision likewise shall
state the specific reasons for the decision and shall include reference to
specific provisions of this Plan on which the decision is based.
(c) Any decision of the Bank shall not be binding on the Participant,
his personal representative, or any beneficiary without consent, nor shall it
preclude further action by the Participant, his personal representative or
beneficiary.
16. ENTIRE AGREEMENT
This Plan constitutes the entire agreement between the parties with
respect to the subject matter hereof
<PAGE>
17. JURISDICTION
The terms and conditions of this Plan are subject to the laws of the
Commonwealth of Massachusetts.
18. GENDER
Any reference in this Plan to the masculine shall be deemed to include
the feminine.
19. AMENDMENTS
This Plan may not be amended except by a Board of Directors'
resolution in writing executed by the duly authorized officers of the Bank,
provided that no amendment that adversely affects the Participant's rights or
interest under the Plan shall take effect unless the Participant consents
thereto in writing.
<PAGE>
20. INTERPRETATION
Any matters involving the approval or denial by the Bank of claims
pursuant to Article Fifteen, the granting of approvals, consents or waivers by
the Bank, or the interpretation of any term or condition of this Plan shall be
referred to the Chairman of the Board of Directors of the Bank for final
determination by the members of that committee.
21. TERMINATION
The Bank has established the Plan with the bonafide intention and
expectation that it will be continued indefinitely, but the Bank shall have no
obligation whatsoever to maintain the Plan for any given length of time and may
discontinue or terminate the Plan at any time. If the Plan is discontinued, all
election forms shall terminate, and the Participants shall receive their
benefits as provided herein.
22. MISCELLANEOUS
This Plan shall be binding upon and inure to the benefit of the Bank,
its successors and assigns and the Participants, and their heirs, executors,
administrators and legal representatives.
IN WITNESS WHEREOF, the Bank has caused this Plan to be signed and
sealed by its duly authorized officers as of the date first above written.
SANDWICH COOPERATIVE BANK
_______________________ By:________________________
Witness Frederic D. Legate
President and Chief
Executive Officer
<PAGE>
- --------------------------------------------------------------------------------
SANDWICH COOPERATIVE BANK
DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION FORM
- --------------------------------------------------------------------------------
Director's Name:
Effective Date of Election: Plan Year:
I, the Director whose signature appears below, hereby elect to participate
in Sandwich Cooperative Bank Deferred Compensation Plan (the "Plan"):
I hereby elect that [ ] my Director's Fee should be reduced by ______%
my [ ] Committee Fee shall be reduced by ______%, effective beginning
_______________ and continuing until the end of the Plan Year;
I understand that the Plan Year commences on January 1 and ends on December
31 of each year;
I understand that the Bank shall make no matching contribution of my
Deferred Compensation. I understand that I shall be one hundred percent (100%)
vested in all of my Deferred Compensation, subject to the forfeiture provision
included in the Plan and any amounts I may forfeit as an unsecured general
creditor for any claim I may have against the assets of the Bank in the event
of bankruptcy or otherwise. I further understand that for the purposes of the
Plan, my Eligible Compensation means my Directors fees paid or accrued by the
Bank.
I hereby understand that the rate of return on my Deferred Compensation
shall be determined under Section 5 of the Plan (copy attached). I further
understand that the Bank is under no obligation to create a trust or fund on my
behalf and the Bank may, in its discretion, record such amounts in a bookkeeping
entry on my behalf.
I hereby understand that this Deferral Election Form is legally binding and
irrevocable with respect to compensation earned while it is in effect, and such
election hereunder shall continue in effect until the end of the applicable Plan
Year.
I understand that in the event of my termination of serving as Director for
the Bank for any reason, or in the event the Plan is terminated or discontinued,
this Deferral Election Form shall thereupon terminate.
I understand that this Deferral Election Form is subject to the terms and
conditions of the Plan, as from time to time may be amended, and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts, and shall take effect as a sealed instrument under the laws of
said Commonwealth.
IN WITNESS WHEREOF, this Deferral Election Form is hereby executed as of
___________________, 199__ by the Director whose signature appears below.
WITNESS:____________________________ DIRECTOR: __________________________
DATE: ______________________________
<PAGE>
- --------------------------------------------------------------------------------
SANDWICH COOPERATIVE BANK
DEFERRED COMPENSATION PLAN
BENEFICIARY DESIGNATION FORM
- --------------------------------------------------------------------------------
I, the Director whose signature appears below, as a Participant in Sandwich
Cooperative Bank Deferred Compensation (the "Plan), elect that my benefit under
the Plan be made as elected below:
ELECTION AS TO DESIGNATION OF BENEFICIARY
-----------------------------------------
I hereby elect to have my benefit under the Plan be paid to the following
beneficiary or beneficiaries:
1. Primary Beneficiary. I hereby designate as my Beneficiary the person
-------------------
or person listed below. (If any Beneficiary is a trust, please indicate the name
and address of the trustees and the date of the trust.) If more than one person
is listed, benefits shall be divided according to the percentages indicated; if
no percentages are indicated, I intend that all persons listed shall be equal
tenants in common.
________________________________________________________________________________
Name Relationship Percentage
________________________________________________________________________________
Name Relationship Percentage
2. Secondary Beneficiary. If no person listed in Part I above is living,
---------------------
or in the event that a trust is designated Primary Beneficiary and is not in
existence on the date my benefits are due to be paid, I hereby designate as my
Beneficiary the person or persons listed below. (If any Beneficiary is a trust,
please indicate the name and address of the trustees and the date of the trust.)
If more than one person is listed, benefits shall be divided according to the
percentages indicated; if no percentages are indicated, I intend that all
persons listed shall be equal tenants in common.
________________________________________________________________________________
Name Relationship Percentage
________________________________________________________________________________
Name Relationship Percentage
<PAGE>
Beneficiary Designation Form
Page Two
IN WITNESS WHEREOF, this Deferral Election Form is hereby executed as of
___________________, 199__ by the Director whose signature appears below.
WITNESS:____________________________ DIRECTOR: ___________________________
Signature
DIRECTOR: ___________________________
Named Printed
SOC. SEC. NO. _______________________
DATE OF BIRTH: ______________________
<PAGE>
EXHIBIT 10.7
THE SANDWICH CO-OPERATIVE BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
____________________
1997 Amendment
____________________
WHEREAS, The Sandwich Co-operative Bank (the "Bank") has entered into a
Supplemental Executive Retirement Agreement with Frederic D. Legate (the
"Agreement"); and
WHEREAS, the Board of Directors of the Bank deems it to be in the best
interest of the Bank to amend the Agreement to change the number of years of
service required for maximum benefits under the Agreement from 25 years to 20
years.
NOW, THEREFORE, pursuant to Section 14.01 of the Agreement, the Agreement
is hereby amended as follows, effective March 24, 1997 (date of Board Vote).
1. Section 2.01(b) of the Agreement shall be amended by replacing the
words "twenty-five (25) years (or 300 months)" with "twenty (20) years (or 240
months)" and the words "three hundred (300) months" with "two hundred forty
(240) months" wherever they appear.
2. Section 2.03 shall be amended by replacing the words "three hundred
(300) months" with the words "two hundred forty (240) months" wherever they
appear.
3. Nothing contained herein shall be held to alter, vary or affect any of
the terms, provisions, or conditions of the Agreement other than as stated
above.
WHEREFORE, on this 25th day of August, 1997, the Bank hereby executes this
1997
Amendment to the Agreement.
THE SANDWICH CO-OPERATIVE BANK
/s/ Leon Davidson By /s/ Gary A. Nickerson
- -------------------------------- ------------------------------------
Witness Gary A. Nickerson
Chairman of the Personnel Committee
August 25, 1997 Attest: /s/ Bradford N. Eames (Seal)
-------------------------------
Clerk
<PAGE>
SANDWICH COOPERATIVE BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT
AGREEMENT
April 24, 1995
85020695
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT, made and entered into this 5th day of May, 1995 by and
between Sandwich Cooperative Bank, its subsidiaries and affiliates, (hereinafter
called the "Corporation") and Frederic D. Legate (hereinafter called the
"Executive").
WITNESSETH:
WHEREAS, the Executive has been in the employ of the Corporation and/or its
subsidiaries and is now serving the Corporation as its Chief Executive Officer;
and,
WHEREAS, because of the Executive's experience, knowledge of affairs of the
Corporation, and reputation and contacts in the industry, the Corporation deems
the Executive's continued employment with the Corporation important for its
future growth; and, WHEREAS, it is the desire of the Corporation and in its best
interest that the Executive's service be retained;
WHEREAS, in order to induce the Executive to continue in the employ of the
Corporation and in recognition of his past service, the Board of Directors voted
on January 16, 1990 to authorize the Corporation to enter into an agreement
dated April 26, 1990 to provide him or his beneficiaries certain benefits; and,
WHEREAS, in order to amend the agreement dated April 26, 1990 and modify
specific provisions contained therein, the Board of Directors voted on January
23, 1995 to authorize the Corporation to restate the April 26, 1990 agreement
and enter into this Agreement with the terms and conditions hereinafter set
forth:
NOW, THEREFORE, in consideration of services performed in the past and to
be performed in the future as well as of the mutual promises and covenants
herein contained, it is agreed as follows:
1
<PAGE>
ARTICLE ONE
-----------
1.01 EMPLOYMENT. The Corporation may employ the Executive in such capacity
----------
as the Corporation may from time to time determine. Notwithstanding anything
contained herein, this Agreement is not an agreement of employment and nothing
herein shall restrict the Corporation concerning the terms and conditions of the
Executive's employment.
The benefits provided by this Agreement are not part of any salary reduction
plan or an arrangement deferring a bonus or a salary increase. The Executive has
no option to take any current payment or bonus in lieu of these salary
continuation benefits.
ARTICLE TWO
-----------
2.01 NORMAL RETIREMENT BENEFITS.
--------------------------
(a) If the Executive shall continue in the employment of the Corporation
until the first of the month coincident with or next following his
sixtieth birthday (hereinafter referred to as the "Normal Retirement
Date"), he shall be entitled to a Normal Retirement Benefit, determined
as of the effective date of his actual retirement and continuing for
twenty (20) years, payable monthly, in the annual amount of sixty percent
(60%) of his Benefit Computation Base (hereinafter defined), reduced by
the sum of (1), (2) and (3) below.
1. Fifty percent (50%) of the Executive's (actual or projected)
annual primary social security retirement benefit projected as of
the Executive's social security normal retirement age based on
his Benefit Computation Base in effect on the date of termination
of the Executive's employment with the Corporation;
2. The annual amount of benefits payable to the Executive (or his
beneficiaries) at the Normal Retirement Date calculated on a
single life annuity basis from any qualified defined benefit
pension plan maintained and funded by the
2
<PAGE>
Corporation, as such plan or plans may be amended or modified
from time to time;
3. The annual amount of benefits payable at the Normal Retirement
Date on a single life annuity basis attributable to the portion
of the account balances of the Executive arising from employer
contributions (but excluding the portion of such balances arising
from employee salary reduction and elective contributions) at the
date of determination, from the Corporation's Employee Stock
Ownership Plan ("ESOP"), 401(k) and other defined contribution
retirement plans maintained by the Corporation as of the date of
this agreement, or their successors, as such plan or plans may be
modified from time to time.
(b) If the Executive has (or will have) completed fewer than twenty-five (25)
years (or 300 months) of service with the Corporation as of his Normal
Retirement Date, then the Normal Retirement Benefit shall be the amount
determined by multiplying the amount which would otherwise be the Normal
Retirement Benefit under paragraph (a) above, by a fraction, not to
exceed one (1), the numerator of which is the actual number of months of
the Executive's employment with the Corporation, and the denominator of
which is three hundred (300) months.
2.02 BENEFIT COMPUTATION BASE. The Executive's Benefit Computation Base
------------------------
shall be the average of the Executive's annual base salary (including any salary
reduction amounts pursuant to Sections 401(k) or 125 of the Internal Revenue
Code of 1986, as amended) paid during the thirty-six (36) consecutive calendar
months during the Executive's period of employment by the Corporation in which
such compensation is the highest.
2.03 ACCRUED BENEFIT. As used herein for the purposes of Section 3.01, 4.01,
---------------
5.01, or 5.02, the term "Accrued Benefit" shall mean:
3
<PAGE>
1. The benefit amount the Executive would be entitled to under
Section 2. 0 1, commencing at the Executive's Normal Retirement
Date except that in the event of (a) death, (b) disability, (c)
termination of employment, (d) early retirement, or (e) merger,
consolidation or sale (in the event of (d), as modified by
Section 10.1 hereof as the case may be, the benefit to which the
Executive will be entitled shall be determined by multiplying the
Normal Retirement Benefit amount by a fraction, not to exceed one
(1), the numerator of which is the actual number of months of the
Executive's employment with the Corporation, and the denominator
of which is three hundred (300) months.
2. If the Executive terminates employment prior to his Normal
Retirement Date, in calculating his Accrued Benefit, (i) the
offset for primary social security retirement benefit shall be
calculated on the basis of the amount projected to be payable at
the Executive's social security normal retirement age assuming
continued earnings by the Executive at the rate in effect at
termination of employment until the Executive's social security
normal retirement age; (ii) the offset for any qualified defined
benefit plan shall be calculated on the basis of the Executive's
accrued benefit in said plan upon termination of employment
projected to be payable at the Executive's Normal Retirement
Date, and (iii) the offset for any benefits arising from employer
contributions attributable to the account balances of the
Executive arising from the Corporation's ESOP, 401(k) plan or any
other defined contribution retirement plan shall also be
calculated on the basis of the Executive's accrued benefit in
such plan(s) upon termination of employment projected to be
payable at the Executive's Normal Retirement Date.
4
<PAGE>
2.04 OPTIONAL FORMS OF PAYMENT. In lieu of the twenty (20) year certain
-------------------------
payments provided in Section 2.01 above, or whenever an Accrued Benefit is
payable under Section 4.01, 5.01 (5.02 or 10.01) of this Agreement, the
Executive may elect in the calendar year prior to the calendar year in which
payments are to begin, any optional form of payment which shall be the actuarial
equivalent (factors defined in the Corporation's qualified defined benefit
pension plan) of the said twenty (20) year certain payments. The optional form
of payment may be a lump sum payment and any optional form of annuity payment
which is provided to the Executive under the terms of the Corporation's
qualified defined benefit pension plan.
2.05 VESTING. Anything to the contrary in this Agreement notwithstanding, the
-------
Executive shall be entitled to one hundred percent (100%) of any benefit payable
under this Agreement under any one or more of Sections 2.01, 3.01, 4.01, 5.01,
5.02, or 10.01 at the date on which his entitlement to such benefit shall be
determined commencing with his original date of hire with the Corporation.
ARTICLE THREE
-------------
3.01 DEATH OF EXECUTIVE.
------------------
(a) If the Executive dies while employed by the Corporation but prior to the
commencement of the payment of benefits under Section 2.01, 4.01, 5.01,
5.02, or 10.01, the Corporation will pay to the Executive's named
beneficiaries, for a period of twenty (20) years certain commencing on
the first day of the month next following the delivery to the Corporation
of a death certificate, a total annual amount equal to the Accrued
Benefit earned by the Executive as of the date of death.
(b) If the Executive dies following the commencement of the payment of
benefits under Section 2.01, 4.01, 5.01, 5.02, or 10.01, such payment of
benefits shall continue to the named beneficiaries of the Executive until
all such benefits have been paid.
5
<PAGE>
(c) If the Executive dies following the termination of his employment with
the Corporation and prior to the commencement of the payment of benefits
under Section 2.01, 4.01, 5.01, 5.02, or 10.01, the Corporation shall pay
to the Executive's named beneficiaries an annual benefit which shall be
the Executive's Accrued Benefit as of the date of his termination of his
employment. Such benefits shall be payable monthly, commencing on the
first day of the month next following the Normal Retirement Date, or any
date prior to the Normal Retirement Date approved by the Corporation, and
continuing for twenty (20) years.
3.02 BENEFICIARIES. The Executive may designate, in writing to the
-------------
Corporation, one or more beneficiaries. If no beneficiary is so named or if no
named beneficiary is living at the time a payment is due, benefit payments shall
be made, when due, to the Executive's estate.
ARTICLE FOUR
------------
4.01 DISABILITY PRIOR TO RETIREMENT. In the event the Executive shall become
------------------------------
disabled, mentally or physically, which disability prevents him from performing
the material aspects of his duties, the Corporation will pay no disability
benefits hereunder. Disability benefits (if any) will be paid to the Executive
through such insurance programs as may be sponsored by the Corporation. Upon the
later of termination of such other disability benefits (if any), or the
Executive's attainment of the Normal Retirement Date, the Executive shall
commence receiving payment of his Accrued Benefit determined as of the date of
the disability, but with additional service credited as if the Executive were
working until the earlier of his Normal Retirement Date or Termination of
Service Date or Discharge Date as determined by the Corporation. The Accrued
Benefit shall be paid monthly, for twenty (20) years certain commencing on the
first day of the month following the later of the termination of such benefits
or the Normal Retirement Date, or in the manner provided in Section 2.04.
6
<PAGE>
4.02 RE-EMPLOYMENT FOLLOWING DISABILITY. In the event the Executive returns
----------------------------------
to work with the Corporation after terminating employment because of disability,
this Agreement shall continue in full force and effect as though such disability
had not occurred (including crediting the Executive with all service with
Corporation as if he were working).
ARTICLE FIVE
------------
5.01 EARLY RETIREMENT, TERMINATION OF SERVICE OR DISCHARGE. Except to the
-----------------------------------------------------
extent otherwise provided in Sections 5.03 and 5.04, in the event that the
Executive's employment with the Corporation is terminated, voluntarily or
involuntarily, before the Executive attains the Normal Retirement Date, for
reasons other than death or disability, the Executive shall be entitled to an
annual benefit, which shall be his Accrued Benefit as of the date of his
termination of employment. Such benefit shall be payable monthly, commencing on
the first day of the month next following the Normal Retirement Date and
continuing for twenty (20) years. The Executive may elect to receive such
benefit provided in this Section 5.01 prior to the Normal Retirement Date at any
date between age 55 and the Normal Retirement Date. Such early commencement will
result in an early commencement reduction provided under the terms of the
Corporation's Qualified defined benefit pension plan for each month payment
commences prior to the Normal Retirement Date.
5.02 OPTIONAL FORMS OF PAYMENT. In lieu of the twenty (20) year certain
-------------------------
payments provided in Section 5.01, the benefits payable under such Sections may
be payable in the manner provided in Section 2.04.
5.03 EMPLOYMENT BY COMPETITION. Anything to the contrary in this Agreement
-------------------------
notwithstanding, in the event that either (a) prior to the Normal Retirement
Date, the Executive's employment with the Corporation, shall have terminated for
whatever reason or (b) after he shall have begun to receive benefits under this
Agreement, the Executive will not
7
<PAGE>
forfeit any payments which might otherwise be due and payable hereunder should
the Executive become employed by a company in competition with the Corporation
5.04 FORFEITURE. Anything to the contrary in this Agreement notwithstanding,
----------
benefits under this Agreement shall be immediately forfeited and all rights of
the Executive and his beneficiaries hereunder shall become null and void, if the
Executive's employment with the Corporation is terminated for cause. For this
purpose, a termination for "Cause" shall mean conviction by a court of law for
fraud, misappropriation or embezzlement.
5.05 AVAILABILITY TO CONSULT. From and after prior commencement of receipt
-----------------------
of benefits pursuant to this Agreement; the Executive will keep himself
available to consult with, and respond to inquiries from, the Corporation
relating to its business affairs, at reasonable time(s) and to reasonable
extent.
ARTICLE SIX
-----------
6.01 INTEREST. Any payment that is required to be made hereunder that is
--------
delayed beyond the date specified in this agreement shall bear interest at a
variable rate which shall be the rate of interest on one year U.S. Treasury
Bills determined at the first auction of each calendar year or part thereof
during the period of which interest is to be applied to any obligation
hereunder.
ARTICLE SEVEN
-------------
7.01 ALIENABILITY. Neither the Executive, nor any beneficiary under this
------------
Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the benefits payable hereunder, nor shall
8
<PAGE>
any of said benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance, owed by the Executive or his
beneficiary or any of them, or be transferable by operation of law in the event
of bankruptcy, or otherwise.
ARTICLE EIGHT
-------------
8.01 PARTICIPATION IN OTHER PLANS. Nothing contained in this Agreement shall
----------------------------
be construed to alter, abridge, or in any manner affect the rights and
privileges of the Executive to participate in and be covered by any pension,
profit sharing, group insurance, bonus or any other employee plan or plans which
the Corporation may have or hereafter have.
ARTICLE NINE
------------
9.01 FUNDING.
-------
(a) The Corporation reserves the right at its sole and exclusive discretion
to insure or otherwise provide for the obligations of the Corporation
undertaken by this Agreement or to refrain from same, and to determine
the extent, nature and method thereof, including the establishment of one
or more trusts. Should the Corporation elect to insure this Agreement, in
whole or in part, through the medium of insurance or annuities, or both,
the Corporation shall be the owner and beneficiary of the policy or
annuity. At no time shall the Executive be deemed to have any right,
title or interest in or to any specified asset or assets of the
Corporation, or any trust or escrow arrangement, including, but not by
way of restriction, any insurance or annuity contracts or the proceeds
therefrom.
(b) Any such policy, contract or asset shall not in any way be considered to
be security for the performance of the obligations of this Agreement.
9
<PAGE>
(c) If the Corporation purchases a life insurance or annuity policy on the
life of the Executive, the Executive agrees to sign any papers that may
be required for that purpose and to undergo any medical examination or
tests (at the Corporation's expense) which may be necessary, and
generally cooperate with the Corporation in securing such policy.
(d) To the extent the Executive acquires a right to receive benefits under
this Agreement, such right shall be equivalent to the right of an
unsecured general creditor of the Corporation.
ARTICLE TEN
-----------
10.01 REORGANIZATION. The Corporation shall not merge or consolidate into or
--------------
with another corporation if such merger or consolidation shall result in the
other corporation being the survivor corporation, nor shall it sell
substantially all of its assets to another corporation, firm or person, unless
and until:
(a) The Executive and such other corporation, firm or person agree that the
Executive shall continue in the employ of the succeeding, continuing or
acquiring corporation, firm or person and such other corporation, firm or
person agrees in writing without further qualification to assume and
discharge the obligations of the Corporation under this Agreement, or,
(b) If the Executive and such corporation, firm or person do not agree that
the Executive shall continue in the employ of such corporation, firm or
person, or such corporation, firm or person does not so agree to assume
and discharge such obligations, the Corporation shall pay to the
Executive, in one lump sum, his Accrued Benefit as of the date of such
merger, consolidation or sale. AR calculations of the Accrued Benefit for
purposes of this Section 10.1(b), shall further be discounted to present
value in accordance with the actuarial tables used in the Corporation's
defined benefit pension plan.
10
<PAGE>
Upon the occurrence of any such event and the written unqualified assumption of
the obligations of the Corporation by such successor corporation, firm or
person, the term "Corporation" as used in this Agreement shall be deemed to
refer to such successor or survivor corporation, firm or person,
ARTICLE ELEVEN
--------------
11.01 BENEFITS AND BURDENS. This Agreement shall be binding upon and inure to
--------------------
the benefit of the Executive and his personal representatives, the Corporation,
and any successor organization which shall succeed to substantially all of the
Corporation's assets and business without regard to the form of such succession.
11.02 CORPORATION. As used in this Agreement, Corporation shall mean the
-----------
Sandwich Cooperative Bank, a Massachusetts Corporation, and any affiliated
entity, successor organization, parent, subsidiary or holding company.
ARTICLE TWELVE
--------------
12.01 COMMUNICATIONS. Any notice or communication required of either party
--------------
with respect to this Agreement shall be made in writing and may either be
delivered personally or sent by First Class mail, as the case may be:
To the Corporation:
c/o Chairman of the Board
Sandwich Cooperative Bank
100 Old King's Highway
P.O. Box 959
Sandwich, MA 02563
11
<PAGE>
To the Executive:
Frederic D. Legate
12 Shaker House Road
Marshfield, MA 02563
Each party shall have the right by written notice to change the place to which
any notice may be addressed.
ARTICLE THIRTEEN
----------------
13.01 CLAIMS PROCEDURE. In the event that benefits under this Agreement are
----------------
not paid to the Executive (or his beneficiary in the case of the Executive's
death), and such person feels entitled to receive them, a claim shall be made in
writing to the Corporation within sixty (60) days after written notice from the
Corporation to the Executive or his beneficiary or personal representative that
payments are not being made or are not to be made under this Agreement. Such
claim shall be reviewed by the Corporation. If the claim is approved or denied,
in full or in part, the Corporation shall provide a written notice of approval
or denial within sixty (60) days from the date of receipt of the claim setting
forth the specific reason for denial, specific reference to the provision of
this Agreement upon which the denial is based, and any additional material or
information necessary to perfect the claim if any. Also, such written notice
shall indicate the steps to be taken if a review of the denial is desired. If a
claim is denied (a claim shall be deemed denied if the Corporation does not take
action within the aforesaid sixty (60) day period) and a review is desired, the
Executive (or beneficiary in the case of the Executive's death), shall notify
the Corporation in writing within twenty (20) days. In requesting a review, the
Executive or his beneficiary may review this Agreement or any document relating
to it and submit any written issues and comments he or she may feel appropriate.
In its sole discretion the Corporation shall then review the claim and provide a
written decision within sixty (60) days. This decision likewise shall state the
12
<PAGE>
specific reasons for the decision and shall include reference to specific
provisions of this Agreement on which the decision is based.
Any decision of the Corporation shall not be binding on the Executive, his
personal representative, or any beneficiary without consent, nor shall it
preclude further action by the Executive, his personal representatives or
beneficiary.
13.02 ARBITRATION. All claims, disputes and other matters in question between
-----------
the parties hereto arising out of or relating to this Agreement or the breach
thereof may be decided by arbitration with the express mutual consent of the
Executive and the Corporation in accordance with the Rules of the American
Arbitration Association then obtaining, subject to the notations and
restrictions stated below. This Agreement to arbitrate and any other agreement
or consent to arbitrate entered into in accordance herewith will be specifically
enforceable under the prevailing arbitration law of any court having
jurisdiction.
Notice of demand for arbitration must be filed in writing with the other parties
to this Agreement and with the American Arbitration Association. The demand must
be made within a reasonable time after the claim, dispute or other matter in
question has arisen. In no event may the demand for arbitration be made after
institution of legal or equitable proceedings based on such claim, dispute or
other matter in question would be barred by the applicable statute of
limitations.
The award rendered by the arbitrators will be final, not subject to appeal
and judgment may be entered upon it in any court having jurisdiction thereof.
13
<PAGE>
ARTICLE FOURTEEN
----------------
14.01 ENTIRE AGREEMENT. This instrument may be altered or amended only by
----------------
written agreement signed by the parties hereto.
14.02 JURISDICTION. The parties, terms and conditions of this Agreement are
------------
subject to and shall be governed by the laws of the Commonwealth of
Massachusetts.
14.03 GENDER. Any reference in this Agreement to the masculine shall be deemed
------
to include the feminine where the context so requires.
14.04 OPERATION OF LAW ON CORPORATION'S OBLIGATIONS. In the event that any
---------------------------------------------
governmental entity promulgates any statute, rule, regulation, policy or order
which restricts or prohibits the Corporation from making payments to the
Executive under this Agreement, then the Corporation's obligations to make
payments to the Executive (or his beneficiary) hereunder shall terminate or be
restricted or suspended (consistent with such law or binding regulation, policy
or order) for so long as such restriction or prohibition applies to the
Corporation. Nothing in this Agreement is intended to require or shall be
construed as requiring the Corporation to do or fail to do any act in violation
of any applicable law or binding regulation, policy or order.
14
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its duly authorized officer and its Corporate Seal affixed at
Sandwich, Massachusetts the day and year first above written.
- --------
SANDWICH COOPERATIVE BANK
/s/ Pamela J. Buttrick By /s/ Gary A. Nickerson
- ----------------------------------- ---------------------------------
Witness Chairman of the Personnel Committee
/s/ Pamela J. Buttrick By /s/ Frederic D. Legate
- ----------------------------------- ---------------------------------
Witness Frederic D. Legate, Chief Executive
Officer
15
<PAGE>
THE SANDWICH CO-OPERATIVE BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
____________________
1997 Amendment
____________________
WHEREAS, The Sandwich Co-operative Bank (the "Bank") has entered into a
Supplemental Executive Retirement Agreement with Dana S. Briggs (the
"Agreement"); and
WHEREAS, the Board of Directors of the Bank deems it to be in the best
interest of the Bank to amend the Agreement to change the number of years of
service required for maximum benefits under the Agreement from 25 years to 20
years.
NOW, THEREFORE, pursuant to Section 14.01 of the Agreement, the Agreement
is hereby amended as follows, effective March 24, 1997 (date of Board Vote).
1. Section 2.01(b) of the Agreement shall be amended by replacing the
words "twenty-five (25) years (or 300 months)" with "twenty (20) years (or 240
months)" and the words "three hundred (300) months" with "two hundred forty
(240) months" wherever they appear.
2. Section 2.03 shall be amended by replacing the words "three hundred
(300) months" with the words "two hundred forty (240) months" wherever they
appear.
3. Nothing contained herein shall be held to alter, vary or affect any
of the terms, provisions, or conditions of the Agreement other than as stated
above.
WHEREFORE, on this 25th day of August, 1997, the Bank hereby executes this
1997 Amendment to the Agreement.
THE SANDWICH CO-OPERATIVE BANK
/s/ Leon Davidson By /s/ Gary A. Nickerson
- ---------------------------------- ------------------------------
Witness Gary A. Nickerson
Chairman of the Personnel Committee
__________________________________ Attest: /s/ Bradford N. Eames (Seal)
-----------------------------
Clerk
<PAGE>
SANDWICH COOPERATIVE BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT
AGREEMENT
April 24, 1995
95041095
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT, made and entered into this 5th day of May, 1995 by and
between Sandwich Cooperative Bank, its subsidiaries and affiliates, (hereinafter
called the "Corporation") and Dana S. Briggs (hereinafter called the
"Executive").
WITNESSETH:
WHEREAS, the Executive has been in the employ of the Corporation and/or its
subsidiaries and is now serving the Corporation as its Senior Vice President;
and,
WHEREAS, because of the Executive's experience, knowledge of affairs of the
Corporation, and reputation and contacts in the industry, the Corporation deems
the Executive's continued employment with the Corporation important for its
future growth; and,
WHEREAS, it is the desire of the Corporation and in its best interest that
the Executive's service be retained;
WHEREAS, in order to induce the Executive to continue in the employ of the
Corporation and in recognition of his past service, the Board of Directors voted
on January 16, 1990 to authorize the Corporation to enter into an agreement
dated April 26, 1990 to provide him or his beneficiaries certain benefits; and,
WHEREAS, in order to amend the agreement dated April 26, 1990 and modify
specific provisions contained therein, the Board of Directors voted on January
23, 1995 to authorize the Corporation to restate the April 26, 1990 agreement
and enter into this Agreement with the terms and conditions hereinafter set
forth:
NOW, THEREFORE, in consideration of services performed in the past and to
be performed in the future as well as of the mutual promises and covenants
herein contained, it is agreed as follows:
1
<PAGE>
ARTICLE ONE
-----------
1.01 EMPLOYMENT. The Corporation may employ the Executive in such capacity
----------
as the Corporation may from time to time determine. Notwithstanding anything
contained herein, this Agreement is not an agreement of employment and nothing
herein shall restrict the Corporation concerning the terms and conditions of the
Executive's employment.
The benefits provided by this Agreement are not part of any salary reduction
plan or an arrangement deferring a bonus or a salary increase. The Executive has
no option to take any current payment or bonus in lieu of these salary
continuation benefits.
ARTICLE TWO
-----------
2.01 NORMAL RETIREMENT BENEFITS.
--------------------------
(a) If the Executive shall continue in the employment of the Corporation
until the first of the month coincident with or next following his
sixtieth birthday (hereinafter referred to as the "Normal Retirement
Date"), he shall be entitled to a Normal Retirement Benefit, determined
as of the effective date of his actual retirement and continuing for
twenty (20) years, payable monthly, in the annual amount of sixty percent
(60%) of his Benefit Computation Base (hereinafter defined), reduced by
the sum of (1), (2) and (3) below.
1. Fifty percent (50%) of the Executive's (actual or projected)
annual primary social security retirement benefit projected as of
the Executive's social security normal retirement age based on
his Benefit Computation Base in effect on the date of termination
of the Executive's employment with the Corporation;
2. The annual amount of benefits payable to the Executive (or his
beneficiaries) at the Normal Retirement Date calculated on a
single life annuity basis from any qualified defined benefit
pension plan maintained and funded by the
2
<PAGE>
Corporation, as such plan or plans may be amended or modified
from time to time;
3. The annual amount of benefits payable at the Normal Retirement
Date on a single life annuity basis attributable to the portion
of the account balances of the Executive arising from employer
contributions (but excluding the portion of such balances arising
from employee salary reduction and elective contributions) at the
date of determination, from the Corporation's Employee Stock
Ownership Plan ("ESOP"), 401(k) and other defined contribution
retirement plans maintained by the Corporation as of the date of
this agreement, or their successors, as such plan or plans may be
modified from time to time.
(b) If the Executive has (or will have) completed fewer than twenty-five (25)
years (or 300 months) of service with the Corporation as of his Normal
Retirement Date, then the Normal Retirement Benefit shall be the amount
determined by multiplying the amount which would otherwise be the Normal
Retirement Benefit under paragraph (a) above, by a fraction, not to
exceed one (1), the numerator of which is the actual number of months of
the Executive's employment with the Corporation, and the denominator of
which is three hundred (300) months.
2.02 BENEFIT COMPUTATION BASE. The Executive's Benefit Computation Base
------------------------
shall be the average of the Executive's annual base salary (including any salary
reduction amounts pursuant to Sections 401(k) or 125 of the Internal Revenue
Code of 1986, as amended) paid during the thirty-six (36) consecutive calendar
months during the Executive's period of employment by the Corporation in which
such compensation is the highest.
2.03 ACCRUED BENEFIT. As used herein for the purposes of Section 3.01, 4.01,
---------------
5.01, or 5.02, the term "Accrued Benefit" shall mean:
3
<PAGE>
1. The benefit amount the Executive would be entitled to under Section 2.01,
commencing at the Executive's Normal Retirement Date except that in the
event of (a) death, (b) disability, (c) termination of employment, (d)
early retirement, or (e) merger, consolidation or sale (in the event of
(d), as modified by Section 10.1 hereof as the case may be, the benefit to
which the Executive will be entitled shall be determined by multiplying the
Normal Retirement Benefit amount by a fraction, not to exceed one (1), the
numerator of which is the actual number of months of the Executive's
employment with the Corporation, and the denominator of which is three
hundred (300) months.
2. If the Executive terminates employment prior to his Normal Retirement Date,
in calculating his Accrued Benefit, (i) the offset for primary social
security retirement benefit shall be calculated on the basis of the amount
projected to be payable at the Executive's social security normal
retirement age assuming continued earnings by the Executive at the rate in
effect at termination of employment until the Executive's social security
normal retirement age; (ii) the offset for any qualified defined benefit
plan shall be calculated on the basis of the Executive's accrued benefit in
said plan upon termination of employment projected to be payable at the
Executive's Normal Retirement Date, and (iii) the offset for any benefits
arising from employer contributions attributable to the account balances of
the Executive arising from the Corporation's ESOP, 401(k) plan or any other
defined contribution retirement plan shall also be calculated on the basis
of the Executive's accrued benefit in such plan(s) upon termination of
employment projected to be payable at the Executive's Normal Retirement
Date.
4
<PAGE>
2.04 OPTIONAL FORMS OF PAYMENT. In lieu of the twenty (20) year certain
-------------------------
payments provided in Section 2.01 above, or whenever an Accrued Benefit is
payable under Section 4.01, 5.01 (5.02 or 10.01) of this Agreement, the
Executive may elect in the calendar year prior to the calendar year in which
payments are to begin, any optional form of payment which shall be the actuarial
equivalent (factors defined in the Corporation's qualified defined benefit
pension plan) of the said twenty (20) year certain payments. The optional form
of payment may be a lump sum payment and any optional form of annuity payment
which is provided to the Executive under the terms of the Corporation's
qualified defined benefit pension plan.
2.05 VESTING. Anything to the contrary in this Agreement notwithstanding, the
-------
Executive shall be entitled to one hundred percent (100%) of any benefit payable
under this Agreement under any one or more of Sections 2.01, 3.01, 4.01, 5.01,
5.02, or 10.01 at the date on which his entitlement to such benefit shall be
determined commencing with his original date of hire with the Corporation.
ARTICLE THREE
-------------
3.01 DEATH OF EXECUTIVE.
------------------
(a) If the Executive dies while employed by the Corporation but prior to the
commencement of the payment of benefits under Section 2.01, 4.01, 5.01,
5.02, or 10.01, the Corporation will pay to the Executive's named
beneficiaries, for a period of twenty (20) years certain commencing on the
first day of the month next following the delivery to the Corporation of a
death certificate, a total annual amount equal to the Accrued Benefit
earned by the Executive as of the date of death.
(b) If the Executive dies following the commencement of the payment of benefits
under Section 2.01, 4.01, 5.01, 5.02, or 10.01, such payment of benefits
shall continue to the named beneficiaries of the Executive until all such
benefits have been paid.
5
<PAGE>
(c) If the Executive dies following the termination of his employment with
the Corporation and prior to the commencement of the payment of benefits
under Section 2.01, 4.01, 5.01, 5.02, or 10.01, the Corporation shall pay
to the Executive's named beneficiaries an annual benefit which shall be the
Executive's Accrued Benefit as of the date of his termination of his
employment. Such benefits shall be payable monthly, commencing on the
first day of the month next following the Normal Retirement Date, or any
date prior to the Normal Retirement Date approved by the Corporation, and
continuing for twenty (20) years.
3.02 BENEFICIARIES. The Executive may designate, in writing to the Corporation,
-------------
one or more beneficiaries. If no beneficiary is so named or if no named
beneficiary is living at the time a payment is due, benefit payments shall be
made, when due, to the Executive's estate.
ARTICLE FOUR
------------
4.01 DISABILITY PRIOR TO RETIREMENT. In the event the Executive shall become
------------------------------
disabled, mentally or physically, which disability prevents him from performing
the material aspects of his duties, the Corporation will pay no disability
benefits hereunder. Disability benefits (if any) will be paid to the Executive
through such insurance programs as may be sponsored by the Corporation. Upon the
later of termination of such other disability benefits (if any), or the
Executive's attainment of the Normal Retirement Date, the Executive shall
commence receiving payment of his Accrued Benefit determined as of the date of
the disability, but with additional service credited as if the Executive were
working until the earlier of his Normal Retirement Date or Termination of
Service Date or Discharge Date as determined by the Corporation. The Accrued
Benefit shall be paid monthly, for twenty (20) years certain commencing on the
first day of the month following the later of the termination of such benefits
or the Normal Retirement Date, or in the manner provided in Section 2.04.
6
<PAGE>
4.02 RE-EMPLOYMENT FOLLOWING DISABILITY. In the event the Executive returns to
----------------------------------
work with the Corporation after terminating employment because of disability,
this Agreement shall continue in full force and effect as though such disability
had not occurred (including crediting the Executive with all service with
Corporation as if he were working).
ARTICLE FIVE
------------
5.01 EARLY RETIREMENT, TERMINATION OF SERVICE OR DISCHARGE. Except to the
-----------------------------------------------------
extent otherwise provided in Sections 5.03 and 5.04, in the event that the
Executive's employment with the Corporation is terminated, voluntarily or
involuntarily, before the Executive attains the Normal Retirement Date, for
reasons other than death or disability, the Executive shall be entitled to an
annual benefit, which shall be his Accrued Benefit as of the date of his
termination of employment. Such benefit shall be payable monthly, commencing on
the first day of the month next following the Normal Retirement Date and
continuing for twenty (20) years. The Executive may elect to receive such
benefit provided in this Section 5.01 prior to the Normal Retirement Date at any
date between age 55 and the Normal Retirement Date. Such early commencement will
result in an early commencement reduction provided under the terms of the
Corporation's Qualified defined benefit pension plan for each month payment
commences prior to the Normal Retirement Date.
5.02 OPTIONAL FORMS OF PAYMENT. In lieu of the twenty (20) year certain
-------------------------
payments provided in Section 5.01, the benefits payable under such Sections may
be payable in the manner provided in Section 2.04.
5.03 EMPLOYMENT BY COMPETITION. Anything to the contrary in this Agreement
-------------------------
notwithstanding, in the event that either (a) prior to the Normal Retirement
Date, the Executive's employment with the Corporation, shall have terminated for
whatever reason or (b) after he shall have begun to receive benefits under this
Agreement, the Executive will not
7
<PAGE>
forfeit any payments which might otherwise be due and payable hereunder
should the Executive become employed by a company in competition with the
Corporation
5.04 FORFEITURE. Anything to the contrary in this Agreement notwithstanding,
----------
benefits under this Agreement shall be immediately forfeited and all rights of
the Executive and his beneficiaries hereunder shall become null and void, if the
Executive's employment with the Corporation is terminated for cause. For this
purpose, a termination for "Cause" shall mean conviction by a court of law for
fraud, misappropriation or embezzlement.
5.05 AVAILABILITY TO CONSULT. From and after prior commencement of receipt
-----------------------
of benefits pursuant to this Agreement; the Executive will keep himself
available to consult with, and respond to inquiries from, the Corporation
relating to its business affairs, at reasonable time(s) and to reasonable
extent.
ARTICLE SIX
-----------
6.01 INTEREST. Any payment that is required to be made hereunder that is
--------
delayed beyond the date specified in this agreement shall bear interest at a
variable rate which shall be the rate of interest on one year U.S. Treasury
Bills determined at the first auction of each calendar year or part thereof
during the period of which interest is to be applied to any obligation
hereunder.
ARTICLE SEVEN
-------------
7.01 ALIENABILITY. Neither the Executive, nor any beneficiary under this
------------
Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the benefits payable hereunder, nor shall
8
<PAGE>
any of said benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance, owed by the Executive or his
beneficiary or any of them, or be transferable by operation of law in the event
of bankruptcy, or otherwise.
ARTICLE EIGHT
-------------
8.01 PARTICIPATION IN OTHER PLANS. Nothing contained in this Agreement shall
----------------------------
be construed to alter, abridge, or in any manner affect the rights and
privileges of the Executive to participate in and be covered by any pension,
profit sharing, group insurance, bonus or any other employee plan or plans which
the Corporation may have or hereafter have.
ARTICLE NINE
------------
9.01 FUNDING.
-------
(a) The Corporation reserves the right at its sole and exclusive discretion to
insure or otherwise provide for the obligations of the Corporation
undertaken by this Agreement or to refrain from same, and to determine the
extent, nature and method thereof, including the establishment of one or
more trusts. Should the Corporation elect to insure this Agreement, in
whole or in part, through the medium of insurance or annuities, or both,
the Corporation shall be the owner and beneficiary of the policy or
annuity. At no time shall the Executive be deemed to have any right, title
or interest in or to any specified asset or assets of the Corporation, or
any trust or escrow arrangement, including, but not by way of restriction,
any insurance or annuity contracts or the proceeds therefrom.
(b) Any such policy, contract or asset shall not in any way be considered to be
security for the performance of the obligations of this Agreement.
9
<PAGE>
(c) If the Corporation purchases a life insurance or annuity policy on the life
of the Executive, the Executive agrees to sign any papers that may be
required for that purpose and to undergo any medical examination or tests
(at the Corporation's expense) which may be necessary, and generally
cooperate with the Corporation in securing such policy.
(d) To the extent the Executive acquires a right to receive benefits under
this Agreement, such right shall be equivalent to the right of an unsecured
general creditor of the Corporation.
ARTICLE TEN
-----------
10.01 REORGANIZATION. The Corporation shall not merge or consolidate into
--------------
or with another corporation if such merger or consolidation shall result in the
other corporation being the survivor corporation, nor shall it sell
substantially all of its assets to another corporation, firm or person, unless
and until:
(a) The Executive and such other corporation, firm or person agree that the
Executive shall continue in the employ of the succeeding, continuing or
acquiring corporation, firm or person and such other corporation, firm or
person agrees in writing without further qualification to assume and
discharge the obligations of the Corporation under this Agreement, or,
(b) If the Executive and such corporation, firm or person do not agree that
the Executive shall continue in the employ of such corporation, firm or
person, or such corporation, firm or person does not so agree to assume and
discharge such obligations, the Corporation shall pay to the Executive, in
one lump sum, his Accrued Benefit as of the date of such merger,
consolidation or sale. AR calculations of the Accrued Benefit for purposes
of this Section 10.1(b), shall further be discounted to present value in
accordance with the actuarial tables used in the Corporation's defined
benefit pension plan.
10
<PAGE>
Upon the occurrence of any such event and the written unqualified assumption of
the obligations of the Corporation by such successor corporation, firm or
person, the term "Corporation" as used in this Agreement shall be deemed to
refer to such successor or survivor corporation, firm or person,
ARTICLE ELEVEN
--------------
11.01 BENEFITS AND BURDENS. This Agreement shall be binding upon and inure
--------------------
to the benefit of the Executive and his personal representatives, the
Corporation, and any successor organization which shall succeed to substantially
all of the Corporation's assets and business without regard to the form of such
succession.
11.02 CORPORATION. As used in this Agreement, Corporation shall mean the
-----------
Sandwich Cooperative Bank, a Massachusetts Corporation, and any affiliated
entity, successor organization, parent, subsidiary or holding company.
ARTICLE TWELVE
--------------
12.01 COMMUNICATIONS. Any notice or communication required of either
--------------
party with respect to this Agreement shall be made in writing and may either be
delivered personally or sent by First Class mail, as the case may be:
To the Corporation:
c/o Chairman of the Board
Sandwich Cooperative Bank
100 Old King's Highway
P.O. Box 959
Sandwich, MA 02563
11
<PAGE>
To the Executive:
Dana S. Briggs
One Jonathan Lane
Sandwich, MA 02563
Each party shall have the right by written notice to change the place to which
any notice may be addressed.
ARTICLE THIRTEEN
----------------
13.01 CLAIMS PROCEDURE. In the event that benefits under this Agreement are
----------------
not paid to the Executive (or his beneficiary in the case of the Executive's
death), and such person feels entitled to receive them, a claim shall be made in
writing to the Corporation within sixty (60) days after written notice from the
Corporation to the Executive or his beneficiary or personal representative that
payments are not being made or are not to be made under this Agreement. Such
claim shall be reviewed by the Corporation. If the claim is approved or denied,
in full or in part, the Corporation shall provide a written notice of approval
or denial within sixty (60) days from the date of receipt of the claim setting
forth the specific reason for denial, specific reference to the provision of
this Agreement upon which the denial is based, and any additional material or
information necessary to perfect the claim if any. Also, such written notice
shall indicate the steps to be taken if a review of the denial is desired. If a
claim is denied (a claim shall be deemed denied if the Corporation does not take
action within the aforesaid sixty (60) day period) and a review is desired, the
Executive (or beneficiary in the case of the Executive's death), shall notify
the Corporation in writing within twenty (20) days. In requesting a review, the
Executive or his beneficiary may review this Agreement or any document relating
to it and submit any written issues and comments he or she may feel appropriate.
In its sole discretion the Corporation shall then review the claim and provide a
written decision within sixty (60) days. This decision likewise shall state the
12
<PAGE>
specific reasons for the decision and shall include reference to specific
provisions of this Agreement on which the decision is based.
Any decision of the Corporation shall not be binding on the Executive, his
personal representative, or any beneficiary without consent, nor shall it
preclude further action by the Executive, his personal representatives or
beneficiary.
13.02 ARBITRATION. All claims, disputes and other matters in question
-----------
between the parties hereto arising out of or relating to this Agreement or the
breach thereof may be decided by arbitration with the express mutual consent of
the Executive and the Corporation in accordance with the Rules of the American
Arbitration Association then obtaining, subject to the notations and
restrictions stated below. This Agreement to arbitrate and any other agreement
or consent to arbitrate entered into in accordance herewith will be specifically
enforceable under the prevailing arbitration law of any court having
jurisdiction.
Notice of demand for arbitration must be filed in writing with the other parties
to this Agreement and with the American Arbitration Association. The demand must
be made within a reasonable time after the claim, dispute or other matter in
question has arisen. In no event may the demand for arbitration be made after
institution of legal or equitable proceedings based on such claim, dispute or
other matter in question would be barred by the applicable statute of
limitations.
The award rendered by the arbitrators will be final, not subject to appeal and
judgment may be entered upon it in any court having jurisdiction thereof.
13
<PAGE>
ARTICLE FOURTEEN
----------------
14.01 ENTIRE AGREEMENT. This instrument may be altered or amended only by
----------------
written agreement signed by the parties hereto.
14.02 JURISDICTION. The parties, terms and conditions of this Agreement are
------------
subject to and shall be governed by the laws of the Commonwealth of
Massachusetts.
14.03 GENDER. Any reference in this Agreement to the masculine shall be deemed
------
to include the feminine where the context so requires.
14.04 OPERATION OF LAW ON CORPORATION'S OBLIGATIONS. In the event that any
---------------------------------------------
governmental entity promulgates any statute, rule, regulation, policy or order
which restricts or prohibits the Corporation from making payments to the
Executive under this Agreement, then the Corporation's obligations to make
payments to the Executive (or his beneficiary) hereunder shall terminate or be
restricted or suspended (consistent with such law or binding regulation, policy
or order) for so long as such restriction or prohibition applies to the
Corporation. Nothing in this Agreement is intended to require or shall be
construed as requiring the Corporation to do or fail to do any act in violation
of any applicable law or binding regulation, policy or order.
14
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its duly authorized officer and its Corporate Seal affixed at
Sandwich, Massachusetts the day and year first above written.
- --------
SANDWICH COOPERATIVE BANK
/s/ Pamela J. Buttrick By /s/ Gary A. Nickerson
- ---------------------- ----------------------------------
Witness Chairman of the Personnel
Committee
/s/ Pamela J. Buttrick By /s/ Dana S. Briggs
- ---------------------- ----------------------------------
Witness Dana S. Briggs, Senior Vice
President
15
<PAGE>
THE SANDWICH CO-OPERATIVE BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
____________________
1997 Amendment
____________________
WHEREAS, The Sandwich Co-operative Bank (the "Bank") has entered into a
Supplemental Executive Retirement Agreement with Dana S. Briggs (the
"Agreement"); and
WHEREAS, the Board of Directors of the Bank deems it to be in the best
interest of the Bank to amend the Agreement to change the number of years of
service required for maximum benefits under the Agreement from 25 years to 20
years.
NOW, THEREFORE, pursuant to Section 14.01 of the Agreement, the Agreement
is hereby amended as follows, effective March 24, 1997 (date of Board Vote).
1. Section 2.01(b) of the Agreement shall be amended by replacing the
words "twenty-five (25) years (or 300 months)" with "twenty (20) years (or 240
months)" and the words "three hundred (300) months" with "two hundred forty
(240) months" wherever they appear.
2. Section 2.03 shall be amended by replacing the words "three hundred
(300) months" with the words "two hundred forty (240) months" wherever they
appear.
3. Nothing contained herein shall be held to alter, vary or affect any
of the terms, provisions, or conditions of the Agreement other than as stated
above.
WHEREFORE, on this 25th day of August, 1997, the Bank hereby executes this
1997 Amendment to the Agreement.
THE SANDWICH CO-OPERATIVE BANK
/s/ Leon Davidson By /s/ Gary A. Nickerson
- ----------------- ----------------------------
Witness Gary A. Nickerson
Chairman of the Personnel Committee
__________________________ Attest: /s/ Bradford N. Eames (Seal)
------------------------
Clerk
<PAGE>
SANDWICH COOPERATIVE BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT
AGREEMENT
April 24, 1995
96041095
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT, made and entered into this 5th day of May, 1995 by and
between Sandwich Cooperative Bank, its subsidiaries and affiliates,
(hereinafter called the "Corporation") and Dana S. Briggs (hereinafter
called the "Executive").
WITNESSETH:
WHEREAS, the Executive has been in the employ of the Corporation
and/or its subsidiaries and is now serving the Corporation as its Senior
Vice President; and,
WHEREAS, because of the Executive's experience, knowledge of affairs
of the Corporation, and reputation and contacts in the industry, the
Corporation deems the Executive's continued employment with the Corporation
important for its future growth; and,
WHEREAS, it is the desire of the Corporation and in its best interest
that the Executive's service be retained;
WHEREAS, in order to induce the Executive to continue in the employ of
the Corporation and in recognition of his past service, the Board of
Directors voted on January 16, 1990 to authorize the Corporation to enter
into an agreement dated April 26, 1990 to provide him or his beneficiaries
certain benefits; and,
WHEREAS, in order to amend the agreement dated April 26, 1990 and
modify specific provisions contained therein, the Board of Directors voted
on January 23, 1995 to authorize the Corporation to restate the April 26,
1990 agreement and enter into this Agreement with the terms and conditions
hereinafter set forth:
NOW, THEREFORE, in consideration of services performed in the past and
to be performed in the future as well as of the mutual promises and
covenants herein contained, it is agreed as follows:
1
<PAGE>
ARTICLE ONE
-----------
1.01 EMPLOYMENT. The Corporation may employ the Executive in such
----------
capacity as the Corporation may from time to time determine.
Notwithstanding anything contained herein, this Agreement is not an
agreement of employment and nothing herein shall restrict the Corporation
concerning the terms and conditions of the Executive's employment.
The benefits provided by this Agreement are not part of any salary
reduction plan or an arrangement deferring a bonus or a salary increase.
The Executive has no option to take any current payment or bonus in lieu of
these salary continuation benefits.
ARTICLE TWO
-----------
2.01 NORMAL RETIREMENT BENEFITS.
--------------------------
(a) If the Executive shall continue in the employment of the Corporation
until the first of the month coincident with or next following his
sixtieth birthday (hereinafter referred to as the "Normal Retirement
Date"), he shall be entitled to a Normal Retirement Benefit,
determined as of the effective date of his actual retirement and
continuing for twenty (20) years, payable monthly, in the annual
amount of sixty percent (60%) of his Benefit Computation Base
(hereinafter defined), reduced by the sum of (1), (2) and (3) below.
1. Fifty percent (50%) of the Executive's (actual or projected)
annual primary social security retirement benefit projected as of
the Executive's social security normal retirement age based on
his Benefit Computation Base in effect on the date of termination
of the Executive's employment with the Corporation;
2. The annual amount of benefits payable to the Executive (or his
beneficiaries) at the Normal Retirement Date calculated on a
single life annuity basis from any qualified defined benefit
pension plan maintained and funded by the
2
<PAGE>
Corporation, as such plan or plans may be amended or modified
from time to time;
3. The annual amount of benefits payable at the Normal Retirement
Date on a single life annuity basis attributable to the portion
of the account balances of the Executive arising from employer
contributions (but excluding the portion of such balances arising
from employee salary reduction and elective contributions) at the
date of determination, from the Corporation's Employee Stock
Ownership Plan ("ESOP"), 401(k) and other defined contribution
retirement plans maintained by the Corporation as of the date of
this agreement, or their successors, as such plan or plans may be
modified from time to time.
(b) If the Executive has (or will have) completed fewer than twenty-five
(25) years (or 300 months) of service with the Corporation as of his
Normal Retirement Date, then the Normal Retirement Benefit shall be
the amount determined by multiplying the amount which would otherwise
be the Normal Retirement Benefit under paragraph (a) above, by a
fraction, not to exceed one (1), the numerator of which is the actual
number of months of the Executive's employment with the Corporation,
and the denominator of which is three hundred (300) months.
2.02 BENEFIT COMPUTATION BASE. The Executive's Benefit Computation Base
------------------------
shall be the average of the Executive's annual base salary (including any
salary reduction amounts pursuant to Sections 401(k) or 125 of the Internal
Revenue Code of 1986, as amended) paid during the thirty-six (36)
consecutive calendar months during the Executive's period of employment by
the Corporation in which such compensation is the highest.
2.03 ACCRUED BENEFIT. As used herein for the purposes of Section 3.01,
---------------
4.01, 5.01, or 5.02, the term "Accrued Benefit" shall mean:
3
<PAGE>
1. The benefit amount the Executive would be entitled to under
Section 2.01, commencing at the Executive's Normal Retirement
Date except that in the event of (a) death, (b) disability, (c)
termination of employment, (d) early retirement, or (e) merger,
consolidation or sale (in the event of (d), as modified by
Section 10.1 hereof as the case may be, the benefit to which the
Executive will be entitled shall be determined by multiplying the
Normal Retirement Benefit amount by a fraction, not to exceed one
(1), the numerator of which is the actual number of months of the
Executive's employment with the Corporation, and the denominator
of which is three hundred (300) months.
2. If the Executive terminates employment prior to his Normal
Retirement Date, in calculating his Accrued Benefit, (i) the
offset for primary social security retirement benefit shall be
calculated on the basis of the amount projected to be payable at
the Executive's social security normal retirement age assuming
continued earnings by the Executive at the rate in effect at
termination of employment until the Executive's social security
normal retirement age; (ii) the offset for any qualified defined
benefit plan shall be calculated on the basis of the Executive's
accrued benefit in said plan upon termination of employment
projected to be payable at the Executive's Normal Retirement
Date, and (iii) the offset for any benefits arising from employer
contributions attributable to the account balances of the
Executive arising from the Corporation's ESOP, 401(k) plan or any
other defined contribution retirement plan shall also be
calculated on the basis of the Executive's accrued benefit in
such plan(s) upon termination of employment projected to be
payable at the Executive's Normal Retirement Date.
4
<PAGE>
2.04 OPTIONAL FORMS OF PAYMENT. In lieu of the twenty (20) year certain
-------------------------
payments provided in Section 2.01 above, or whenever an Accrued Benefit is
payable under Section 4.01, 5.01 (5.02 or 10.01) of this Agreement, the
Executive may elect in the calendar year prior to the calendar year in
which payments are to begin, any optional form of payment which shall be
the actuarial equivalent (factors defined in the Corporation's qualified
defined benefit pension plan) of the said twenty (20) year certain
payments. The optional form of payment may be a lump sum payment and any
optional form of annuity payment which is provided to the Executive under
the terms of the Corporation's qualified defined benefit pension plan.
2.05 VESTING. Anything to the contrary in this Agreement notwithstanding,
-------
the Executive shall be entitled to one hundred percent (100%) of any
benefit payable under this Agreement under any one or more of Sections
2.01, 3.01, 4.01, 5.01, 5.02, or 10.01 at the date on which his entitlement
to such benefit shall be determined commencing with his original date of
hire with the Corporation.
ARTICLE THREE
-------------
3.01 DEATH OF EXECUTIVE.
------------------
(a) If the Executive dies while employed by the Corporation but prior to
the commencement of the payment of benefits under Section 2.01, 4.01,
5.01, 5.02, or 10.01, the Corporation will pay to the Executive's
named beneficiaries, for a period of twenty (20) years certain
commencing on the first day of the month next following the delivery
to the Corporation of a death certificate, a total annual amount
equal to the Accrued Benefit earned by the Executive as of the date
of death.
(b) If the Executive dies following the commencement of the payment of
benefits under Section 2.01, 4.01, 5.01, 5.02, or 10.01, such payment
of benefits shall continue to the named beneficiaries of the
Executive until all such benefits have been paid.
5
<PAGE>
(c) If the Executive dies following the termination of his employment
with the Corporation and prior to the commencement of the payment of
benefits under Section 2.01, 4.01, 5.01, 5.02, or 10.01, the
Corporation shall pay to the Executive's named beneficiaries an
annual benefit which shall be the Executive's Accrued Benefit as of
the date of his termination of his employment. Such benefits shall be
payable monthly, commencing on the first day of the month next
following the Normal Retirement Date, or any date prior to the Normal
Retirement Date approved by the Corporation, and continuing for
twenty (20) years.
3.02 BENEFICIARIES. The Executive may designate, in writing to the
-------------
Corporation, one or more beneficiaries. If no beneficiary is so named or
if no named beneficiary is living at the time a payment is due, benefit
payments shall be made, when due, to the Executive's estate.
ARTICLE FOUR
------------
4.01 DISABILITY PRIOR TO RETIREMENT. In the event the Executive shall
------------------------------
become disabled, mentally or physically, which disability prevents him from
performing the material aspects of his duties, the Corporation will pay no
disability benefits hereunder. Disability benefits (if any) will be paid
to the Executive through such insurance programs as may be sponsored by the
Corporation. Upon the later of termination of such other disability
benefits (if any), or the Executive's attainment of the Normal Retirement
Date, the Executive shall commence receiving payment of his Accrued Benefit
determined as of the date of the disability, but with additional service
credited as if the Executive were working until the earlier of his Normal
Retirement Date or Termination of Service Date or Discharge Date as
determined by the Corporation. The Accrued Benefit shall be paid monthly,
for twenty (20) years certain commencing on the first day of the month
following the later of the termination of such benefits or the Normal
Retirement Date, or in the manner provided in Section 2.04.
6
<PAGE>
4.02 RE-EMPLOYMENT FOLLOWING DISABILITY. In the event the Executive
----------------------------------
returns to work with the Corporation after terminating employment because
of disability, this Agreement shall continue in full force and effect as
though such disability had not occurred (including crediting the Executive
with all service with Corporation as if he were working).
ARTICLE FIVE
------------
5.01 EARLY RETIREMENT, TERMINATION OF SERVICE OR DISCHARGE. Except to the
-----------------------------------------------------
extent otherwise provided in Sections 5.03 and 5.04, in the event that the
Executive's employment with the Corporation is terminated, voluntarily or
involuntarily, before the Executive attains the Normal Retirement Date, for
reasons other than death or disability, the Executive shall be entitled to
an annual benefit, which shall be his Accrued Benefit as of the date of his
termination of employment. Such benefit shall be payable monthly,
commencing on the first day of the month next following the Normal
Retirement Date and continuing for twenty (20) years. The Executive may
elect to receive such benefit provided in this Section 5.01 prior to the
Normal Retirement Date at any date between age 55 and the Normal Retirement
Date. Such early commencement will result in an early commencement
reduction provided under the terms of the Corporation's Qualified defined
benefit pension plan for each month payment commences prior to the Normal
Retirement Date.
5.02 OPTIONAL FORMS OF PAYMENT. In lieu of the twenty (20) year certain
-------------------------
payments provided in Section 5.01, the benefits payable under such Sections
may be payable in the manner provided in Section 2.04.
5.03 EMPLOYMENT BY COMPETITION. Anything to the contrary in this Agreement
-------------------------
notwithstanding, in the event that either (a) prior to the Normal
Retirement Date, the Executive's employment with the Corporation, shall
have terminated for whatever reason or (b) after he shall have begun to
receive benefits under this Agreement, the Executive will not
7
<PAGE>
forfeit any payments which might otherwise be due and payable hereunder
should the Executive become employed by a company in competition with the
Corporation
5.04 FORFEITURE. Anything to the contrary in this Agreement
----------
notwithstanding, benefits under this Agreement shall be immediately
forfeited and all rights of the Executive and his beneficiaries hereunder
shall become null and void, if the Executive's employment with the
Corporation is terminated for cause. For this purpose, a termination for
"Cause" shall mean conviction by a court of law for fraud, misappropriation
or embezzlement.
5.05 AVAILABILITY TO CONSULT. From and after prior commencement of
-----------------------
receipt of benefits pursuant to this Agreement; the Executive will keep
himself available to consult with, and respond to inquiries from, the
Corporation relating to its business affairs, at reasonable time(s) and to
reasonable extent.
ARTICLE SIX
-----------
6.01 INTEREST. Any payment that is required to be made hereunder that is
--------
delayed beyond the date specified in this agreement shall bear interest at
a variable rate which shall be the rate of interest on one year U.S.
Treasury Bills determined at the first auction of each calendar year or
part thereof during the period of which interest is to be applied to any
obligation hereunder.
ARTICLE SEVEN
-------------
7.01 ALIENABILITY. Neither the Executive, nor any beneficiary under this
------------
Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance
any of the benefits payable hereunder, nor shall
8
<PAGE>
any of said benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance, owed by the Executive or his
beneficiary or any of them, or be transferable by operation of law in the
event of bankruptcy, or otherwise.
ARTICLE EIGHT
-------------
8.01 PARTICIPATION IN OTHER PLANS. Nothing contained in this Agreement
----------------------------
shall be construed to alter, abridge, or in any manner affect the rights
and privileges of the Executive to participate in and be covered by any
pension, profit sharing, group insurance, bonus or any other employee plan
or plans which the Corporation may have or hereafter have.
ARTICLE NINE
------------
9.01 FUNDING.
-------
(a) The Corporation reserves the right at its sole and exclusive
discretion to insure or otherwise provide for the obligations of the
Corporation undertaken by this Agreement or to refrain from same, and
to determine the extent, nature and method thereof, including the
establishment of one or more trusts. Should the Corporation elect to
insure this Agreement, in whole or in part, through the medium of
insurance or annuities, or both, the Corporation shall be the owner
and beneficiary of the policy or annuity. At no time shall the
Executive be deemed to have any right, title or interest in or to any
specified asset or assets of the Corporation, or any trust or escrow
arrangement, including, but not by way of restriction, any insurance
or annuity contracts or the proceeds therefrom.
(b) Any such policy, contract or asset shall not in any way be considered
to be security for the performance of the obligations of this
Agreement.
9
<PAGE>
(c) If the Corporation purchases a life insurance or annuity policy on
the life of the Executive, the Executive agrees to sign any papers
that may be required for that purpose and to undergo any medical
examination or tests (at the Corporation's expense) which may be
necessary, and generally cooperate with the Corporation in securing
such policy.
(d) To the extent the Executive acquires a right to receive benefits
under this Agreement, such right shall be equivalent to the right of
an unsecured general creditor of the Corporation.
ARTICLE TEN
-----------
10.01 REORGANIZATION. The Corporation shall not merge or consolidate into
--------------
or with another corporation if such merger or consolidation shall result in
the other corporation being the survivor corporation, nor shall it sell
substantially all of its assets to another corporation, firm or person,
unless and until:
(a) The Executive and such other corporation, firm or person agree that
the Executive shall continue in the employ of the succeeding,
continuing or acquiring corporation, firm or person and such other
corporation, firm or person agrees in writing without further
qualification to assume and discharge the obligations of the
Corporation under this Agreement, or,
(b) If the Executive and such corporation, firm or person do not agree
that the Executive shall continue in the employ of such corporation,
firm or person, or such corporation, firm or person does not so agree
to assume and discharge such obligations, the Corporation shall pay
to the Executive, in one lump sum, his Accrued Benefit as of the date
of such merger, consolidation or sale. AR calculations of the Accrued
Benefit for purposes of this Section 10.1(b), shall further be
discounted to present value in accordance with the actuarial tables
used in the Corporation's defined benefit pension plan.
10
<PAGE>
Upon the occurrence of any such event and the written unqualified
assumption of the obligations of the Corporation by such successor
corporation, firm or person, the term "Corporation" as used in this
Agreement shall be deemed to refer to such successor or survivor
corporation, firm or person,
ARTICLE ELEVEN
--------------
11.01 BENEFITS AND BURDENS. This Agreement shall be binding upon and
--------------------
inure to the benefit of the Executive and his personal representatives, the
Corporation, and any successor organization which shall succeed to
substantially all of the Corporation's assets and business without regard
to the form of such succession.
11.02 CORPORATION. As used in this Agreement, Corporation shall mean the
-----------
Sandwich Cooperative Bank, a Massachusetts Corporation, and any affiliated
entity, successor organization, parent, subsidiary or holding company.
ARTICLE TWELVE
--------------
12.01 COMMUNICATIONS. Any notice or communication required of either
--------------
party with respect to this Agreement shall be made in writing and may
either be delivered personally or sent by First Class mail, as the case may
be:
To the Corporation:
c/o Chairman of the Board
Sandwich Cooperative Bank
100 Old King's Highway
P.O. Box 959
Sandwich, MA 02563
11
<PAGE>
To the Executive:
George L. Larson
One Firefly Lane
Sandwich, MA 02563
Each party shall have the right by written notice to change the place to
which any notice may be addressed.
ARTICLE THIRTEEN
----------------
13.01 CLAIMS PROCEDURE. In the event that benefits under this Agreement
----------------
are not paid to the Executive (or his beneficiary in the case of the
Executive's death), and such person feels entitled to receive them, a claim
shall be made in writing to the Corporation within sixty (60) days after
written notice from the Corporation to the Executive or his beneficiary or
personal representative that payments are not being made or are not to be
made under this Agreement. Such claim shall be reviewed by the Corporation.
If the claim is approved or denied, in full or in part, the Corporation
shall provide a written notice of approval or denial within sixty (60) days
from the date of receipt of the claim setting forth the specific reason for
denial, specific reference to the provision of this Agreement upon which
the denial is based, and any additional material or information necessary
to perfect the claim if any. Also, such written notice shall indicate the
steps to be taken if a review of the denial is desired. If a claim is
denied (a claim shall be deemed denied if the Corporation does not take
action within the aforesaid sixty (60) day period) and a review is desired,
the Executive (or beneficiary in the case of the Executive's death), shall
notify the Corporation in writing within twenty (20) days. In requesting a
review, the Executive or his beneficiary may review this Agreement or any
document relating to it and submit any written issues and comments he or
she may feel appropriate. In its sole discretion the Corporation shall
then review the claim and provide a written decision within sixty (60)
days. This decision likewise shall state the
12
<PAGE>
specific reasons for the decision and shall include reference to specific
provisions of this Agreement on which the decision is based.
Any decision of the Corporation shall not be binding on the Executive, his
personal representative, or any beneficiary without consent, nor shall it
preclude further action by the Executive, his personal representatives or
beneficiary.
13.02 ARBITRATION. All claims, disputes and other matters in question
-----------
between the parties hereto arising out of or relating to this Agreement or
the breach thereof may be decided by arbitration with the express mutual
consent of the Executive and the Corporation in accordance with the Rules
of the American Arbitration Association then obtaining, subject to the
notations and restrictions stated below. This Agreement to arbitrate and
any other agreement or consent to arbitrate entered into in accordance
herewith will be specifically enforceable under the prevailing arbitration
law of any court having jurisdiction.
Notice of demand for arbitration must be filed in writing with the other
parties to this Agreement and with the American Arbitration Association.
The demand must be made within a reasonable time after the claim, dispute
or other matter in question has arisen. In no event may the demand for
arbitration be made after institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be barred by
the applicable statute of limitations.
The award rendered by the arbitrators will be final, not subject to appeal
and judgment may be entered upon it in any court having jurisdiction
thereof.
13
<PAGE>
ARTICLE FOURTEEN
----------------
14.01 ENTIRE AGREEMENT. This instrument may be altered or amended only by
----------------
written agreement signed by the parties hereto.
14.02 JURISDICTION. The parties, terms and conditions of this Agreement
------------
are subject to and shall be governed by the laws of the Commonwealth of
Massachusetts.
14.03 GENDER. Any reference in this Agreement to the masculine shall be
------
deemed to include the feminine where the context so requires.
14.04 OPERATION OF LAW ON CORPORATION'S OBLIGATIONS. In the event that
---------------------------------------------
any governmental entity promulgates any statute, rule, regulation, policy
or order which restricts or prohibits the Corporation from making payments
to the Executive under this Agreement, then the Corporation's obligations
to make payments to the Executive (or his beneficiary) hereunder shall
terminate or be restricted or suspended (consistent with such law or
binding regulation, policy or order) for so long as such restriction or
prohibition applies to the Corporation. Nothing in this Agreement is
intended to require or shall be construed as requiring the Corporation to
do or fail to do any act in violation of any applicable law or binding
regulation, policy or order.
14
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its duly authorized officer and its Corporate Seal affixed at
Sandwich, Massachusetts the day and year first above written.
- --------
SANDWICH COOPERATIVE BANK
/s/ Pamela J. Buttrick By /s/ Gary A. Nickerson
- ---------------------- -------------------------------
Witness Chairman of the Personnel
Committee
/s/ Pamela J. Buttrick By /s/ George L. Larson
- ---------------------- -------------------------------
Witness George L. Larson, Senior Vice
President
15
<PAGE>
THE SANDWICH CO-OPERATIVE BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
____________________
1997 Amendment
____________________
WHEREAS, The Sandwich Co-operative Bank (the "Bank") has entered into a
Supplemental Executive Retirement Agreement with George L. Larson (the
"Agreement"); and
WHEREAS, the Board of Directors of the Bank deems it to be in the best
interest of the Bank to amend the Agreement to change the number of years of
service required for maximum benefits under the Agreement from 25 years to 20
years.
NOW, THEREFORE, pursuant to Section 14.01 of the Agreement, the Agreement
is hereby amended as follows, effective March 24, 1997 (date of Board Vote).
1. Section 2.01(b) of the Agreement shall be amended by replacing the
words "twenty-five (25) years (or 300 months)" with "twenty (20) years (or 240
months)" and the words "three hundred (300) months" with "two hundred forty
(240) months" wherever they appear.
2. Section 2.03 shall be amended by replacing the words "three hundred
(300) months" with the words "two hundred forty (240) months" wherever they
appear.
3. Nothing contained herein shall be held to alter, vary or affect any
of the terms, provisions, or conditions of the Agreement other than as stated
above.
WHEREFORE, on this 25th day of August, 1997, the Bank hereby executes this
1997 Amendment to the Agreement.
THE SANDWICH CO-OPERATIVE BANK
/s/ Leon Davidson By /s/ Gary A. Nickerson
- ----------------- -----------------------
Witness Gary A. Nickerson
Chairman of the Personnel Committee
______________________________ Attest: /s/ Bradford N. Eames (Seal)
----------------------
Clerk
<PAGE>
SANDWICH COOPERATIVE BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT
AGREEMENT
April 24, 1995
96041095
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT, made and entered into this 5th day of May, 1995 by and
between Sandwich Cooperative Bank, its subsidiaries and affiliates,
(hereinafter called the "Corporation") and George L. Larson (hereinafter
called the "Executive").
WITNESSETH:
WHEREAS, the Executive has been in the employ of the Corporation
and/or its subsidiaries and is now serving the Corporation as its Senior
Vice President; and,
WHEREAS, because of the Executive's experience, knowledge of affairs
of the Corporation, and reputation and contacts in the industry, the
Corporation deems the Executive's continued employment with the Corporation
important for its future growth; and, WHEREAS, it is the desire of the
Corporation and in its best interest that the Executive's service be
retained;
WHEREAS, in order to induce the Executive to continue in the employ of
the Corporation and in recognition of his past service, the Board of
Directors voted on January 16, 1990 to authorize the Corporation to enter
into an agreement dated April 26, 1990 to provide him or his beneficiaries
certain benefits; and,
WHEREAS, in order to amend the agreement dated April 26, 1990 and
modify specific provisions contained therein, the Board of Directors voted
on January 23, 1995 to authorize the Corporation to restate the April 26,
1990 agreement and enter into this Agreement with the terms and conditions
hereinafter set forth:
NOW, THEREFORE, in consideration of services performed in the past and
to be performed in the future as well as of the mutual promises and
covenants herein contained, it is agreed as follows:
1
<PAGE>
ARTICLE ONE
-----------
1.01 EMPLOYMENT. The Corporation may employ the Executive in such
----------
capacity as the Corporation may from time to time determine.
Notwithstanding anything contained herein, this Agreement is not an
agreement of employment and nothing herein shall restrict the Corporation
concerning the terms and conditions of the Executive's employment.
The benefits provided by this Agreement are not part of any salary
reduction plan or an arrangement deferring a bonus or a salary increase.
The Executive has no option to take any current payment or bonus in lieu of
these salary continuation benefits.
ARTICLE TWO
-----------
2.01 NORMAL RETIREMENT BENEFITS.
--------------------------
(a) If the Executive shall continue in the employment of the Corporation
until the first of the month coincident with or next following his
sixtieth birthday (hereinafter referred to as the "Normal Retirement
Date"), he shall be entitled to a Normal Retirement Benefit,
determined as of the effective date of his actual retirement and
continuing for twenty (20) years, payable monthly, in the annual
amount of sixty percent (60%) of his Benefit Computation Base
(hereinafter defined), reduced by the sum of (1), (2) and (3) below.
1. Fifty percent (50%) of the Executive's (actual or projected)
annual primary social security retirement benefit projected as
of the Executive's social security normal retirement age based
on his Benefit Computation Base in effect on the date of
termination of the Executive's employment with the Corporation;
2. The annual amount of benefits payable to the Executive (or his
beneficiaries) at the Normal Retirement Date calculated on a
single life annuity basis from any qualified defined benefit
pension plan maintained and funded by the
2
<PAGE>
Corporation, as such plan or plans may be amended or modified from
time to time;
3. The annual amount of benefits payable at the Normal Retirement Date on
a single life annuity basis attributable to the portion of the account
balances of the Executive arising from employer contributions (but
excluding the portion of such balances arising from employee salary
reduction and elective contributions) at the date of determination,
from the Corporation's Employee Stock Ownership Plan ("ESOP"), 401(k)
and other defined contribution retirement plans maintained by the
Corporation as of the date of this agreement, or their successors, as
such plan or plans may be modified from time to time.
(b) If the Executive has (or will have) completed fewer than twenty-five (25)
years (or 300 months) of service with the Corporation as of his Normal
Retirement Date, then the Normal Retirement Benefit shall be the amount
determined by multiplying the amount which would otherwise be the Normal
Retirement Benefit under paragraph (a) above, by a fraction, not to exceed
one (1), the numerator of which is the actual number of months of the
Executive's employment with the Corporation, and the denominator of which
is three hundred (300) months.
2.02 BENEFIT COMPUTATION BASE. The Executive's Benefit Computation Base shall
------------------------
be the average of the Executive's annual base salary (including any salary
reduction amounts pursuant to Sections 401(k) or 125 of the Internal Revenue
Code of 1986, as amended) paid during the thirty-six (36) consecutive calendar
months during the Executive's period of employment by the Corporation in which
such compensation is the highest.
2.03 ACCRUED BENEFIT. As used herein for the purposes of Section 3.01, 4.01,
---------------
5.01, or 5.02, the term "Accrued Benefit" shall mean:
3
<PAGE>
1. The benefit amount the Executive would be entitled to under Section 2.
0 1, commencing at the Executive's Normal Retirement Date except that
in the event of (a) death, (b) disability, (c) termination of
employment, (d) early retirement, or (e) merger, consolidation or sale
(in the event of (d), as modified by Section 10. 1 hereof as the case
may be, the benefit to which the Executive will be entitled shall be
determined by multiplying the Normal Retirement Benefit amount by a
fraction, not to exceed one (1), the numerator of which is the actual
number of months of the Executive's employment with the Corporation,
and the denominator of which is three hundred (300) months.
2. If the Executive terminates employment prior to his Normal Retirement
Date, in calculating his Accrued Benefit, (i) the offset for primary
social security retirement benefit shall be calculated on the basis of
the amount projected to be payable at the Executive's social security
normal retirement age assuming continued earnings by the Executive at
the rate in effect at termination of employment until the Executive's
social security normal retirement age; (ii) the offset for any
qualified defined benefit plan shall be calculated on the basis of the
Executive's accrued benefit in said plan upon termination of
employment projected to be payable at the Executive's Normal
Retirement Date, and (iii) the offset for any benefits arising from
employer contributions attributable to the account balances of the
Executive arising from the Corporation's ESOP, 401(k) plan or any
other defined contribution retirement plan shall also be calculated on
the basis of the Executive's accrued benefit in such plan(s) upon
termination of employment projected to be payable at the Executive's
Normal Retirement Date.
4
<PAGE>
2.04 OPTIONAL FORMS OF PAYMENT. In lieu of the twenty (20) year certain
-------------------------
payments provided in Section 2.01 above, or whenever an Accrued Benefit is
payable under Section 4.01, 5.01 (5.02 or 10.01) of this Agreement, the
Executive may elect in the calendar year prior to the calendar year in which
payments are to begin, any optional form of payment which shall be the actuarial
equivalent (factors defined in the Corporation's qualified defined benefit
pension plan) of the said twenty (20) year certain payments. The optional form
of payment may be a lump sum payment and any optional form of annuity payment
which is provided to the Executive under the terms of the Corporation's
qualified defined benefit pension plan.
2.05 VESTING. Anything to the contrary in this Agreement notwithstanding, the
-------
Executive shall be entitled to one hundred percent (100%) of any benefit payable
under this Agreement under any one or more of Sections 2.01, 3.01, 4.01, 5.01,
5.02, or 10.01 at the date on which his entitlement to such benefit shall be
determined commencing with his original date of hire with the Corporation.
ARTICLE THREE
-------------
3.01 DEATH OF EXECUTIVE.
------------------
(a) If the Executive dies while employed by the Corporation but prior to the
commencement of the payment of benefits under Section 2.01, 4.01, 5.01,
5.02, or 10.01, the Corporation will pay to the Executive's named
beneficiaries, for a period of twenty (20) years certain commencing on
the first day of the month next following the delivery to the Corporation
of a death certificate, a total annual amount equal to the Accrued
Benefit earned by the Executive as of the date of death.
(b) If the Executive dies following the commencement of the payment of
benefits under Section 2.01, 4.01, 5.01, 5.02, or 10.01, such payment of
benefits shall continue to the named beneficiaries of the Executive until
all such benefits have been paid.
5
<PAGE>
(c) If the Executive dies following the termination of his employment with
the Corporation and prior to the commencement of the payment of benefits
under Section 2.01, 4.01, 5.01, 5.02, or 10.01, the Corporation shall pay
to the Executive's named beneficiaries an annual benefit which shall be
the Executive's Accrued Benefit as of the date of his termination of his
employment. Such benefits shall be payable monthly, commencing on the
first day of the month next following the Normal Retirement Date, or any
date prior to the Normal Retirement Date approved by the Corporation, and
continuing for twenty (20) years.
3.02 BENEFICIARIES. The Executive may designate, in writing to the
-------------
Corporation, one or more beneficiaries. If no beneficiary is so named or if no
named beneficiary is living at the time a payment is due, benefit payments shall
be made, when due, to the Executive's estate.
ARTICLE FOUR
------------
4.01 DISABILITY PRIOR TO RETIREMENT. In the event the Executive shall become
------------------------------
disabled, mentally or physically, which disability prevents him from performing
the material aspects of his duties, the Corporation will pay no disability
benefits hereunder. Disability benefits (if any) will be paid to the Executive
through such insurance programs as may be sponsored by the Corporation. Upon the
later of termination of such other disability benefits (if any), or the
Executive's attainment of the Normal Retirement Date, the Executive shall
commence receiving payment of his Accrued Benefit determined as of the date of
the disability, but with additional service credited as if the Executive were
working until the earlier of his Normal Retirement Date or Termination of
Service Date or Discharge Date as determined by the Corporation. The Accrued
Benefit shall be paid monthly, for twenty (20) years certain commencing on the
first day of the month following the later of the termination of such benefits
or the Normal Retirement Date, or in the manner provided in Section 2.04.
6
<PAGE>
4.02 RE-EMPLOYMENT FOLLOWING DISABILITY. In the event the Executive returns
----------------------------------
to work with the Corporation after terminating employment because of disability,
this Agreement shall continue in full force and effect as though such disability
had not occurred (including crediting the Executive with all service with
Corporation as if he were working).
ARTICLE FIVE
------------
5.01 EARLY RETIREMENT, TERMINATION OF SERVICE OR DISCHARGE. Except to the
-----------------------------------------------------
extent otherwise provided in Sections 5.03 and 5.04, in the event that the
Executive's employment with the Corporation is terminated, voluntarily or
involuntarily, before the Executive attains the Normal Retirement Date, for
reasons other than death or disability, the Executive shall be entitled to an
annual benefit, which shall be his Accrued Benefit as of the date of his
termination of employment. Such benefit shall be payable monthly, commencing on
the first day of the month next following the Normal Retirement Date and
continuing for twenty (20) years. The Executive may elect to receive such
benefit provided in this Section 5.01 prior to the Normal Retirement Date at any
date between age 55 and the Normal Retirement Date. Such early commencement will
result in an early commencement reduction provided under the terms of the
Corporation's Qualified defined benefit pension plan for each month payment
commences prior to the Normal Retirement Date.
5.02 OPTIONAL FORMS OF PAYMENT. In lieu of the twenty (20) year certain
-------------------------
payments provided in Section 5.01, the benefits payable under such Sections may
be payable in the manner provided in Section 2.04.
5.03 EMPLOYMENT BY COMPETITION. Anything to the contrary in this Agreement
-------------------------
notwithstanding, in the event that either (a) prior to the Normal Retirement
Date, the Executive's employment with the Corporation, shall have terminated for
whatever reason or (b) after he shall have begun to receive benefits under this
Agreement, the Executive will not
7
<PAGE>
forfeit any payments which might otherwise be due and payable hereunder should
the Executive become employed by a company in competition with the Corporation
5.04 FORFEITURE. Anything to the contrary in this Agreement notwithstanding,
----------
benefits under this Agreement shall be immediately forfeited and all rights of
the Executive and his beneficiaries hereunder shall become null and void, if the
Executive's employment with the Corporation is terminated for cause. For this
purpose, a termination for "Cause" shall mean conviction by a court of law for
fraud, misappropriation or embezzlement.
5.05 AVAILABILITY TO CONSULT. From and after prior commencement of receipt of
-----------------------
benefits pursuant to this Agreement; the Executive will keep himself available
to consult with, and respond to inquiries from, the Corporation relating to its
business affairs, at reasonable time(s) and to reasonable extent.
ARTICLE SIX
-----------
6.01 INTEREST. Any payment that is required to be made hereunder that is
--------
delayed beyond the date specified in this agreement shall bear interest at a
variable rate which shall be the rate of interest on one year U.S. Treasury
Bills determined at the first auction of each calendar year or part thereof
during the period of which interest is to be applied to any obligation
hereunder.
ARTICLE SEVEN
-------------
7.01 ALIENABILITY. Neither the Executive, nor any beneficiary under this
------------
Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the benefits payable hereunder, nor shall
8
<PAGE>
any of said benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance, owed by the Executive or his
beneficiary or any of them, or be transferable by operation of law in the event
of bankruptcy, or otherwise.
ARTICLE EIGHT
-------------
8.01 PARTICIPATION IN OTHER PLANS. Nothing contained in this Agreement shall
----------------------------
be construed to alter, abridge, or in any manner affect the rights and
privileges of the Executive to participate in and be covered by any pension,
profit sharing, group insurance, bonus or any other employee plan or plans which
the Corporation may have or hereafter have.
ARTICLE NINE
------------
9.01 FUNDING.
-------
(a) The Corporation reserves the right at its sole and exclusive discretion
to insure or otherwise provide for the obligations of the Corporation
undertaken by this Agreement or to refrain from same, and to determine
the extent, nature and method thereof, including the establishment of one
or more trusts. Should the Corporation elect to insure this Agreement, in
whole or in part, through the medium of insurance or annuities, or both,
the Corporation shall be the owner and beneficiary of the policy or
annuity. At no time shall the Executive be deemed to have any right,
title or interest in or to any specified asset or assets of the
Corporation, or any trust or escrow arrangement, including, but not by
way of restriction, any insurance or annuity contracts or the proceeds
therefrom.
(b) Any such policy, contract or asset shall not in any way be considered to
be security for the performance of the obligations of this Agreement.
9
<PAGE>
(c) If the Corporation purchases a life insurance or annuity policy on the
life of the Executive, the Executive agrees to sign any papers that may
be required for that purpose and to undergo any medical examination or
tests (at the Corporation's expense) which may be necessary, and
generally cooperate with the Corporation in securing such policy.
(d) To the extent the Executive acquires a right to receive benefits under
this Agreement, such right shall be equivalent to the right of an
unsecured general creditor of the Corporation.
ARTICLE TEN
-----------
10.01 REORGANIZATION. The Corporation shall not merge or consolidate into or
--------------
with another corporation if such merger or consolidation shall result in the
other corporation being the survivor corporation, nor shall it sell
substantially all of its assets to another corporation, firm or person, unless
and until:
(a) The Executive and such other corporation, firm or person agree that the
Executive shall continue in the employ of the succeeding, continuing or
acquiring corporation, firm or person and such other corporation, firm or
person agrees in writing without further qualification to assume and
discharge the obligations of the Corporation under this Agreement, or,
(b) If the Executive and such corporation, firm or person do not agree that
the Executive shall continue in the employ of such corporation, firm or
person, or such corporation, firm or person does not so agree to assume
and discharge such obligations, the Corporation shall pay to the
Executive, in one lump sum, his Accrued Benefit as of the date of such
merger, consolidation or sale. AR calculations of the Accrued Benefit for
purposes of this Section 10.1(b), shall further be discounted to present
value in accordance with the actuarial tables used in the Corporation's
defined benefit pension plan.
10
<PAGE>
Upon the occurrence of any such event and the written unqualified assumption of
the obligations of the Corporation by such successor corporation, firm or
person, the term "Corporation" as used in this Agreement shall be deemed to
refer to such successor or survivor corporation, firm or person,
ARTICLE ELEVEN
--------------
11.01 BENEFITS AND BURDENS. This Agreement shall be binding upon and inure to
--------------------
the benefit of the Executive and his personal representatives, the Corporation,
and any successor organization which shall succeed to substantially all of the
Corporation's assets and business without regard to the form of such succession.
11.02 CORPORATION. As used in this Agreement, Corporation shall mean the
-----------
Sandwich Cooperative Bank, a Massachusetts Corporation, and any affiliated
entity, successor organization, parent, subsidiary or holding company.
ARTICLE TWELVE
--------------
12.01 COMMUNICATIONS. Any notice or communication required of either party
--------------
with respect to this Agreement shall be made in writing and may either be
delivered personally or sent by First Class mail, as the case may be:
To the Corporation:
c/o Chairman of the Board
Sandwich Cooperative Bank
100 Old King's Highway
P.O. Box 959
Sandwich, MA 02563
11
<PAGE>
To the Executive:
David A. Parsons
11 Steamboat Drive
Marshfield, MA 02050
Each party shall have the right by written notice to change the place to which
any notice may be addressed.
ARTICLE THIRTEEN
----------------
13.01 CLAIMS PROCEDURE. In the event that benefits under this Agreement are
----------------
not paid to the Executive (or his beneficiary in the case of the Executive's
death), and such person feels entitled to receive them, a claim shall be made in
writing to the Corporation within sixty (60) days after written notice from the
Corporation to the Executive or his beneficiary or personal representative that
payments are not being made or are not to be made under this Agreement. Such
claim shall be reviewed by the Corporation. If the claim is approved or denied,
in full or in part, the Corporation shall provide a written notice of approval
or denial within sixty (60) days from the date of receipt of the claim setting
forth the specific reason for denial, specific reference to the provision of
this Agreement upon which the denial is based, and any additional material or
information necessary to perfect the claim if any. Also, such written notice
shall indicate the steps to be taken if a review of the denial is desired. If a
claim is denied (a claim shall be deemed denied if the Corporation does not take
action within the aforesaid sixty (60) day period) and a review is desired, the
Executive (or beneficiary in the case of the Executive's death), shall notify
the Corporation in writing within twenty (20) days. In requesting a review, the
Executive or his beneficiary may review this Agreement or any document relating
to it and submit any written issues and comments he or she may feel appropriate.
In its sole discretion the Corporation shall then review the claim and provide a
written decision within sixty (60) days. This decision likewise shall state the
12
<PAGE>
specific reasons for the decision and shall include reference to specific
provisions of this Agreement on which the decision is based.
Any decision of the Corporation shall not be binding on the Executive, his
personal representative, or any beneficiary without consent, nor shall it
preclude further action by the Executive, his personal representatives or
beneficiary.
13.02 ARBITRATION. All claims, disputes and other matters in question between
-----------
the parties hereto arising out of or relating to this Agreement or the breach
thereof may be decided by arbitration with the express mutual consent of the
Executive and the Corporation in accordance with the Rules of the American
Arbitration Association then obtaining, subject to the notations and
restrictions stated below. This Agreement to arbitrate and any other agreement
or consent to arbitrate entered into in accordance herewith will be specifically
enforceable under the prevailing arbitration law of any court having
jurisdiction.
Notice of demand for arbitration must be filed in writing with the other parties
to this Agreement and with the American Arbitration Association. The demand must
be made within a reasonable time after the claim, dispute or other matter in
question has arisen. In no event may the demand for arbitration be made after
institution of legal or equitable proceedings based on such claim, dispute or
other matter in question would be barred by the applicable statute of
limitations.
The award rendered by the arbitrators will be final, not subject to appeal and
judgment may be entered upon it in any court having jurisdiction thereof.
13
<PAGE>
ARTICLE FOURTEEN
----------------
14.01 ENTIRE AGREEMENT. This instrument may be altered or amended only by
----------------
written agreement signed by the parties hereto.
14.02 JURISDICTION. The parties, terms and conditions of this Agreement
------------
are subject to and shall be governed by the laws of the Commonwealth of
Massachusetts.
14.03 GENDER. Any reference in this Agreement to the masculine shall be deemed
------
to include the feminine where the context so requires.
14.04 OPERATION OF LAW ON CORPORATION'S OBLIGATIONS. In the event that any
---------------------------------------------
governmental entity promulgates any statute, rule, regulation, policy or order
which restricts or prohibits the Corporation from making payments to the
Executive under this Agreement, then the Corporation's obligations to make
payments to the Executive (or his beneficiary) hereunder shall terminate or be
restricted or suspended (consistent with such law or binding regulation, policy
or order) for so long as such restriction or prohibition applies to the
Corporation. Nothing in this Agreement is intended to require or shall be
construed as requiring the Corporation to do or fail to do any act in violation
of any applicable law or binding regulation, policy or order.
14
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its duly authorized officer and its Corporate Seal affixed at
Sandwich, Massachusetts the day and year first above written.
- --------
SANDWICH COOPERATIVE BANK
/s/ Pamela J. Buttrick By /s/ Gary A. Nickerson
- ---------------------------------- ---------------------------------
Witness Chairman of the Personnel Committee
/s/ Pamela J. Buttrick By /s/ David A. Parsons
- ---------------------------------- ---------------------------------
Witness David A. Parsons, Senior Vice
President
15
<PAGE>
EXHIBIT 10.8
THE SANDWICH CO-OPERATIVE BANK
MANAGEMENT INCENTIVE PLAN
-------------------------
PREAMBLE
The purpose of this Management Incentive Plan is to advance the interests
of the Bank and its Affiliates through providing select key Employees with the
opportunity to acquire Units having a cash redemption value derived from the
Book Value of the Bank's Shares. By encouraging and granting such equity-
related interests, the Bank seeks to attract, retain and motivate the best
available personnel for positions of substantial responsibility and to provide
additional incentive to key Employees to promote the success of the Bank and its
Affiliates.
ARTICLE I
Definitions
-----------
"Affiliate" means any "parent corporation" or "subsidiary corporation" of
the Bank, as such terms are defined in Section 424(e) and (f), respectively, of
the Code.
"Agreement" means a written agreement granting an MIP Award, and containing
such provisions as may be approved by the Committee. Each such Agreement shall
constitute a binding contract between the Bank and the Participant, and each
Participant, upon acceptance of such Agreement, shall be bound by the terms and
restrictions of the Plan and of such Agreement. The terms of each Agreement
shall be in accordance with the Plan, but each Agreement may include additional
provisions and restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan. The Chairman of the Committee and such other
directors or officers as shall be designated by the Committee may execute
Agreements on behalf of the Bank and cause them to be delivered to Participants.
"Bank" means The Sandwich Co-operative Bank.
"Beneficiary" means the personal representative(s) of a deceased
Participant's estate or the person or persons to whom his or her rights have
passed by will or by the laws of descent and distribution.
"Board" means the Board of Directors of the Bank.
"Book Value" shall be determined by the Committee in accordance with
generally accepted accounting principles consistently applied. Notwithstanding
the foregoing, the Committee shall have the discretion, with respect to any
extraordinary corporate transaction or change in generally accepted accounting
-1-
<PAGE>
principles occurring after the Effective Date, to make no allowance, or a
partial allowance, for changes attributable to or arising from such transaction
or change.
"Change in Control" has the meaning set forth in Paragraph 2(f) of The
Sandwich Co-operative Bank 1994 Stock Option and Incentive Plan, as said
Paragraph may be amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended (the "Code").
"Committee" means the committee appointed pursuant to Article III hereof.
"Director" means a member of the Board.
"Effective Date" means January 1, 1994.
"Employee" means any person employed by the Bank, or an Affiliate of the
Bank.
"MIP Award" means an award granted pursuant to Article III hereof.
"Participant" means a key Employee who is granted an MIP Award.
"Plan" means The Sandwich Co-operative Bank Management Incentive Plan.
"Rule 16b-311 means Rule 16b-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended.
"Shares" mean shares of common stock, par value $1.00 per share, of the
Bank.
"Unit" means a unit that may be awarded pursuant to an MIP Award.
ARTICLE II
Effective Date and Term of the Plan
-----------------------------------
The Plan shall become effective on the Effective Date, and shall continue
in effect for six years from the Effective Date, unless sooner terminated
pursuant to Paragraph VIII hereof. No MIP Award shall be granted under the Plan
after six years from the Effective Date.
-2-
<PAGE>
ARTICLE III
Plan Administration
-------------------
The Plan shall be administered by the Committee, which shall consist of not
less than three (3) non-Employee Directors who are appointed by the Board, and
who have not been granted an MIP Award within the 12-month period preceding
their appointment to the Committee. All persons designated as members of the
Committee shall be "disinterested persons" within the meaning of Rule 16b-3.
Members of the Committee shall serve at the pleasure of the Board. In the
absence at any time of a duly appointed Committee, the Plan shall be
administered by those Directors who are "disinterested persons" within the
meaning of Rule 16b-3.
The Committee shall have discretionary authority (but only to the extent
not contrary to the express provisions of the Plan or to resolutions adopted by
the Board) to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the form and content of MIP
Awards to be issued in the form of Agreements under the Plan, and to make other
deter minations necessary or advisable for the administration of the Plan, and
shall have and may exercise such other power and authority as may be delegated
to it by the Board from time to time. A majority of the entire Committee shall
constitute a quorum and the action of a majority of the members present at any
meeting at which a quorum is present shall be deemed the action of the
Committee.
All decisions, determinations and interpretations made by the Committee in
accordance with the Plan shall be final and conclusive on all persons affected
thereby. In addition to such other rights of indemnification as they may have,
the members of the Committee shall be indemnified by the Bank in connection with
any claim, action, suit or proceeding relating to any action taken or failure to
act under or in connection with the Plan or any Agreement to the full extent
provided for under the Bank's governing instruments and applicable law.
ARTICLE IV
MIP Awards
----------
Subject to the terms of the Plan, the Committee may, but shall not be
obligated to, from time to time grant MIP Awards to key Employees. Any MIP
Awards that the Committee may grant to key Employees shall be subject to the
following terms and conditions, and to such other terms and conditions as are
prescribed by the Committee in the applicable Agreement.
(a) Nature of MIP Awards. Each MIP Award shall be made in the form of a
designated number of Units that shall be redeemed by the Bank, in exchange for
cash, at such times and under such conditions as shall be permissible under the
terms of the Plan and of the Agreement provided to the Participant.
-3-
<PAGE>
(b) Aggregate Limit. Except as otherwise required by the provisions of
Paragraph (f) hereof, the aggregate number of Units that may be subject to MIP
Awards shall be 90,000 Units. If Units subject to an MIP Award should expire or
be forfeited for any reason without having been redeemed, said Units shall,
unless the Plan shall have been terminated, be available for the grant of
additional MIP Awards under the Plan.
(c) Vesting. The Committee may, in its discretion, impose vesting
conditions on a Participant's right to receive cash upon the redemption of
Units, including, but not limited to, requirements of continuous employment for
a specified term, or the attainment of specific corporate, divisional or
individual performance standards or goals, which conditions may differ with
respect to each Participant. The Agreement shall provide for forfeiture of the
right to redeem Units if the specified conditions are not met during the
specified vesting period.
(d) Redemption of Units. In each Agreement effecting an MIP Award, the
Committee shall identify a future date or dates of redemption for the Units
subject to the MIP Award, with said date or dates of redemption being either (I)
fixed by reference to a specific date or dates at least six months after the
date of the MIP Award, or (ii) a date or dates incident to the employee's
termination of employment for any reason, or for particular reasons such as
death or retirement at or after a specified age, or (iii) the earlier or later
to occur of a combination of dates described in (I) or (ii) hereof. Within 10
business days following each redemption date, the Bank shall pay to the
Participant, without payment of any consideration to the Bank, an amount in cash
equal to the excess of --
(x) the Book Value, on the date of redemption, of a number of Shares equal
to the number of Units which are being redeemed and as to which the
Participant has a vested interest, over
(y) the Book Value of such Units on the date of the MIP Award.
The amount payable to the Participant hereunder shall be subject to
reduction for applicable federal withholding taxes.
(e) Term of MIP Awards; Effect of Termination of Employment. Unless the
Committee provides f or a shorter term pursuant to an Agreement, a Participant's
MIP Award shall automatically expire, and thereupon cease to be subject to
future redemption, on the earlier to occur of (I) the close of the 6th year
following the date of the MIP Award, and (ii) the date on which the
Participant's
-4-
<PAGE>
employment terminates. Notwithstanding the foregoing, if a Participant's
employment terminates by reason of his death, disability, or retirement at or
after age 60, then, to the extent that the Participant had earned a vested
interest in his MIP Award immediately prior to such death, disability, or
retirement, as the case may be, any outstanding Units subject to the
Participant's MIP Award shall be redeemed for cash, with such payment being made
as soon as administratively practicable. For purposes hereof, the date of an MIP
Award to a Participant shall be the date on which the Committee provides the
Participant with an executed Agreement effecting the MIP Award.
(f) Effect of Changes in Common Stock Subject to the Plan. The number of
Units reserved for award under the Plan, and the number of Units subject to
outstanding MIP Awards, shall be proportionately adjusted for any increase,
decrease, change or exchange of Shares for a different number or kind of shares
or other securities of the Bank which results from a merger, consolidation,
recapitalization, reorganization, reclassification, stock dividend, split-up,
combination of shares, or similar event in which the number of Shares is changed
without the receipt or payment of consideration by the Bank.
Subject to Paragraph (g) hereof, in the event of (I) the liquidation or
dissolution of the Bank, (ii) a merger or consolidation in which the Bank is not
the surviving entity, or (iii) the sale or disposition of all or substantially
all of the Bank's assets (any of the foregoing to be referred to herein as a
"Transaction") , all outstanding Units shall be redeemed in exchange for cash in
an amount determined in accordance with Paragraph (d) hereof.
(g) Effect of a Change in Control. Notwithstanding the provisions of any
MIP Award that provides for its vesting in installments or over a future period,
all outstanding Units shall become fully vested upon a Change in Control, and
shall thereupon be redeemed in exchange f or a cash payment by the Bank in an
amount determined in accordance with Paragraph (d) hereof.
ARTICLE V
Source of Payments
------------------
The Bank's obligation to make cash payments pursuant to the Plan shall
constitute an unfunded, unsecured promise by the Bank to provide such payments,
as and to the extent such payments become due. Payments shall be made from the
general assets of the Bank, and no person shall, by virtue of this Plan, have
any interest in such assets (other than as an unsecured creditor of the Bank).
-5-
<PAGE>
ARTICLE VI
Assignment
----------
Except as otherwise is provided by this Plan, it is agreed that neither the
Participant nor his Beneficiary nor any other person or persons shall have any
right to sell, assign, transfer, encumber and pledge or otherwise convey any MIP
Award, which MIP Awards are expressly declared to be nonassignable and
nontransferable.
ARTICLE VII
No Retention of Services
------------------------
This Plan shall not be deemed to constitute a contract of employment
between the Bank and any Participant, and no Employee or Participant shall have
a right to be granted an MIP Award or, having received such a grant, the right
to again be granted an MIP Award.
ARTICLE VIII
Amendment and Termination; modification of Awards
-------------------------------------------------
The Board may amend or terminate the Plan at any time, provided that no
such amendment or termination shall, without the written consent of an affected
Participant, alter or impair any rights of the Participant under the Plan.
At any time, and from time to time, the Board may authorize the Committee
to direct execution of an instrument providing for the modification of any
outstanding MIP Award, provided that no such modification shall confer on the
holder of said MIP Award any right or benefit which could not be conferred on
him by the grant of a new MIP Award at such time, or impair an MIP Award without
the consent of the holder of the MIP Award.
ARTICLE IX
State Law
---------
This Plan shall be construed and governed in all respects under and by the
laws of the Commonwealth of Massachusetts, to the extent not preempted by
federal law. If any provision of this Plan shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
ARTICLE X
Headings
--------
Heading and subheadings in this Plan are inserted for convenience and
reference only and constitute no part of this Plan.
-6-
<PAGE>
EXHIBIT 10.9
THE SANDWICH CO-OPERATIVE BANK
MANAGEMENT INCENTIVE COMPENSATION PLAN
JANUARY 1990
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
MANAGEMENT INCENTIVE COMPENSATION PLAN
- --------------------------------------
Plan Objectives 1
Eligibility for Participation 2
PLAN ADMINISTRATION
- -------------------
Procedures and Bonus Determination 5
Bonus Plan Contingencies 9
BONUS FORMULAS 12
- --------------
PERFORMANCE MULTIPLIER 20
- ----------------------
PERFORMANCE MANAGEMENT SYSTEM 21
- -----------------------------
</TABLE>
<PAGE>
1
THE SANDWICH CO-OPERATIVE BANK
MANAGEMENT INCENTIVE COMPENSATION PLAN
December 1989
The objective of the Management Incentive Compensation Plan I-s to provide a
reasonable and effective means of recognizing, rewarding and encouraging
outstanding achievement on the part of management as a whole and the individual
officers of the Sandwich Co-operative Bank.
The principal measure of achievement utilized by the Plan focuses on corporate
performance - both short - and long-term - and the relationship of the
individual officers' performance to that of the Bank. It is a fundamental
expectation of the Plan that +.-he performance objectives of its management
will, at all times, give principal consideration to the provision of share
holder value. Short-term gains which in any way compromise this requisite value,
the Bank's operating philosophy or understanding of purpose should be seen as
contrary to its interests and unworthy of consideration within the context of
the Management Incentive Compensation Plan.
The Management Incentive Compensation Plan is based on the following precepts:
A. Overall corporate performance cannot be fully appreciated without a
thorough understanding of corporate purpose and explicit definition of
long-range objectives. Once formulated, this understanding, in the form of
a corporate plan, should be subject to ratification by the Directors and
reviewed annually for purposes of modification and reratification.
<PAGE>
2
B. Under almost all circumstances, tire most accessible and consistently
reliable yardstick for the measurement of corporate performance is
profitability. In this regard "Return on Assets" and "Return on Equity"
will provide objective means of assessing profitability.
C. Other measures of corporate performance may also be suitable, depending
upon the circumstances and needs of the organization. In the instance of
the Sandwich Co-operative Bank, Asset Growth, Operating Expense, and Asset
Quality will constitute reasonable additional measurement criteria for the
assessment of organizational and senior management performance. Interest
rate spread, earnings per employee and deposit growth will provide
reasonable measurement criteria for the assessment of the remaining
management group.
D. Eligibility for participation in the Plan should be limited to those who
may be in a position to significantly contribute to the Bank's
profitability, e.g., its officers and designated managers. (This
delineation will serve as an incentive for nonparticipants to aspire to and
achieve participant status.) It should be clearly understood, however, that
eligibility alone does not assure an officer actual participation in any
incentive compensation distribution.
E. Actual distribution of incentive compensation should bear a direct
relationship to individual performance and contribution to profitability.
-----------------------------
i. Those who contribute little or nothing should be rewarded with
little or nothing.
<PAGE>
3
ii. Extraordinary contributions should be rewarded in an
extraordinary fashion. The effort, skill, risk and/or personal sacrifice
required to produce superlative achievement cannot be effectively rewarded
with token incentive awards. Therefore, the higher the financial
performance of the Bank and its officers, the greater the potential
rewards.
iii. Definition of both i and ii requires a mutual understanding
relative to expected performance goals. Individual performance goals
should be explicitly defined at the beginning of each year, reviewed
quarterly (for progress and/or need for modification) and used as a means
of assessing performance at year-end. The relative importance of various
goals, as well as major unforseen changes in operating conditions must be
considered in the final evaluation of performance levels.
iv. The magnitude of individual incentive compensation awards should
be determined by the Chief Executive Officer, with the benefit of
supporting assessment information provided in writing by senior officers
relative to their subordinates.
v. Incentive awards should be subject to ratification by the Salary
Committee of the Board of Directors -which will, in addition, determine the
Incentive Compensation award of the Chief Executive Officer.
<PAGE>
4
F. Particular effort will be required to ensure the relevancy of the
incentive compensation awards, i.e., the sensitivity of the plan in
recognizing and responding to variations in performance over time, and in
relation to the expectations as well as the performance of members of the
management group. If distribution becomes unvarying, nondiscriminatory, or
taken for granted, then the Plan's purpose will have been compromised.
G. No incentive compensation plan is without flaw, nor immune to ultimate
obsolescence. For this reason, the Plan, its purpose and actual impact
should be reassessed annually, and modifications adopted where necessary.
It should be expected that the Plan will be substantially modified at the
end of three years.
<PAGE>
5
PLAN ADMINISTRATION
Procedures and Bonus Determination
----------------------------------
The Management incentive Compensation Plan will be carried out in accordance
with the following procedure:
1. Senior management will formulate a Corporate Plan for the Bank -
stating its understanding of purpose, operating philosophy, and
general objectives. The Corporate Plan will be presented to the Board
for review and ratification.
2. Eligibility of those to be included in the Plan will be recommended
annually by the Chief Executive Officer to the Personnel Committee
based on level of responsibility in the corporation. Any new employee
occupying a level which would qualify for plan participation as
determined by the Chief Executive Officer will be eligible for
participation in their first year as designated in the Bonus Plan
Contingency section on Page 9.
3. The Board of Directors will establish a Corporation Performance Review
Committee which will consist of the members of the Finance and
Personnel Committees.
4. Incentive Compensation will be based on both the financial performance
of the corporation and individual performance:
<PAGE>
6
a. The Performance Review Committee will be charged with assessing
overall Bank financial performance on an ongoing basis in
conformance with the Corporation Plan. An analysis of peer group
data will also be used in assessing the financial performance of
the Bank where appropriate.
b. An objectives system will be established whereby each
participating officer annually formulates, in conjunction with
his or her direct superior, explicitly defined objectives for the
year ahead.
5. At the close of each fiscal year, a determination of both Bank and
individual performance will be made, subject to review and
confirmation by the appropriate Bank officers and committees.
6. A bank performance based "incentive bonus pool" will be established as
a percent of eligible plan participants' total salaries. Distributions
from the pool will be made pro rata on the basis of the individual's
salary level and performance against established objectives.
a. The financial performance criteria which will determine the
amount of the senior management incentive bonus pool are
-----------------
Profitability; Return on Assets; Return on Equity; Asset Growth;
------------------------------- ---------------- ------------
Operating Expense; and, Asset Quality. The criteria used for
----------------- -------------
determining the management incentive bonus pool are: Interest
--------
Rate Spread; Earnings per Employee;
----------- ---------------------
<PAGE>
7
and, Deposit Growth (see pp. 12 - 19). The criteria ranges were
--------------
determined based on peer group comparisons and an analysis of the
Bank's historic, current and projected financial performance. It
is recommended that the criteria ranges be adjusted every two or
three years to accommodate changes in operating and economic
conditions.
b. The individual plan participant's percent share of the "incentive
bonus pool" will be determined by calculating his or her
performance weighted pro rata share of total participant
salaries.
<PAGE>
8
HYPOTHETICAL EXAMPLE
--------------------
* The total salaries of all plan participants is $400,000.
* The Bank's results against plan criteria warrant an Incentive Bonus Pool of
------
10.0% - resulting in an Incentive Bonus Pool of $40,000 ($400,000 x 10% =
$40,000).
* Participant X was paid a base salary of $40,000 during the plan year. His
pro forma share of total salaries was 10.0%.
* Participant X's performance "exceeded" his objectives established at the
beginning of the year - resulting in a performance multiplier of 1.5 (see
page 20). His "gross performance weighted share" is therefore 15.0% (10.0%
x 1.5).
* The sum of the "gross performance weighted shares" of all of the
participants equals 122.2%. Participant X's "net performance weighted pro
rata share" is therefore 12.2% (15.0% divided by 122.2% = 12.2%). His
actual bonus will be $4,880 (12.2% of $40,000 Incentive Bonus Pool).
<TABLE>
<CAPTION>
Pro Rata% Performance Perf.Wtd. Perf. Wtd.
Participant Salary of Total Multiplier Share Share
- ----------- ------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
A $120,000 30% 1.0 30.0% 24.5%
B $100,000 25% 1.5 37.5% 30.6%
C $ 80,000 20% .5 10.0% 8.2%
D $ 60,000 15% 2.0 30.0% 24.5%
x $ 40,000 10% 1.5 15.0% 12.2%
------ ------
122.5% 100.0%
</TABLE>
<PAGE>
9
PLAN ADMINISTRATION
-------------------
Bonus Plan Contingencies
------------------------
1. The Corporate Performance Review Committee will convene to assess the
degree to which the Bank's performance for the year conformed with the
standards established in the corporate plan. An unwarranted variance from
the plan could result in adjustment to the "incentive bonus pool" - either
upward or downward - by whatever amount is deemed appropriate by the
Corporate Performance Review Committee. For example, if the Committee
determined management risk-taking unduly jeopardized "soundness", the
"incentive bonus pool" would be reduced and, if considered necessary,
incentive awards for the year might be eliminated. On the other hand, if
extraordinary mitigating circumstances beyond the control of management
were to negatively impact profitability, an upward adjustment might be
considered. The Corporate Performance Review Committee should give due
consideration to the performance of the Bank relative to its peer group and
existing economic and competitive conditions when reviewing corporate
performance with respect to the incentive plan. The Corporate Performance
Review Committee may also elect to make exceptions to the plan in order to
recognize the truly extraordinary contributions of individuals - separate
from the Bank and the management group as whole.
<PAGE>
10
2. The amount of the "incentive bonus pool" will under no circumstances
exceed ten percent of the Bank's net income. The net income base for this
calculation should be net of the effect of the annual accrual for the
incentive plan for that year (i.e., the accrual, net of associated tax
benefits, should be added back to net income). Net income is considered to
be bottom line net income, including the net effect of investment
securities gains/losses and other nonrecurring items, but exclusive of
extraordinary one-time events, e.g., Co-operative Central Bank dividends,
the sale of physical assets, etc.
3. Under no circumstances will an incentive bonus be paid in any year for
which a cash dividend on the Bank's stock has not been paid, or in any year
in which cash dividends have been reduced.
4. Bonus Eligibility Determination: active full-time employees are eligible
for 100% participation in the Management Incentive Compensation Plan if
they have been designated as a participant by the Chief Executive Officer
in conjunction with the Salary Committee and have been working under a set
of individual performance goals for 12 months prior to the effective date
of the bonus. Otherwise eligible employees having less than 12 months but
more than six months of employment working under a set of individual
performance goals may be designated participants by the chief executive
officer.
Their level of participation will be limited by the amount of base salary
received during the bonus period. Officers must be on the payroll at the
time of the bonus disbursement to receive their bonus.
<PAGE>
11
5. The salary base to be used in the calculation is based upon earned salary
for the period less any bonus payment included in that salary from a prior
year.
6. It should be fully understood that the described plan is not intended to
interface, complement or otherwise relate with the Bank's regular Salary
Administration Program. The two are and should remain totally separate
entities.
7. The Management Incentive Compensation Plan will be administered and
established at the discretion of the Bank's Board of Directors and can be
discontinued or modified at any time at their discretion. Furthermore,
such bonus plan is not to be construed as a contract between employer and
employee/officer. Any and all right to participate in this Plan will cease
upon the officer's termination.
<PAGE>
12
SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
---------------------------------------------
A. PROFITABILITY: The Bank's relative profitability will be determined by
contrasting its Return on Assets (Net Income/Average Total Assets) against
that of its peer group. Net Income will be calculated exclusive of
extraordinary, one time events, e.g., Cooperative Central Bank
distributions, the sale of physical assets, etc.
<TABLE>
<CAPTION>
Bonus
Return on Assets Percentage
Variance over the Peer Group Allocation
---------------------------- ----------
<S> <C> <C> <C>
0.10 or less 0.00%
0.11 to 0.15 0.50%
0.16 to 0.21 1.00%
0.22 to 0.26 1.50%
0.27 to 0.31 2.00%
0.32 to 0.36 2.50%
0.37 to 0.42 3.00%
0.43 to 0.47 3.50%
0.48 to 0.52 4.00%
0.53 to 0.57 4.50%
0.58 to 0.63 5.00%
0.64 to 0.68 5.50%
0.69 to 0.73 6.00%
0.74 to 0.78 6.50%
0.79 to 0.84 7.00%
0.85 to 0.89 7.50%
0.90 to 0.94 8.00%
0.95 to 0.99 8.50%
1.00 or more 9.00%
</TABLE>
<PAGE>
13
B. RETURN ON EQUITY: The Bank's Return on Equity (net Income divided by
average total shareholders' equity). Net Income will be calculated
exclusive of extraordinary, one time events, e.g., Cooperative Central
Bank distributions, the sale of physical assets, etc.
<TABLE>
<CAPTION>
Bonus
Percentage
Return on Equity Allocation
--------------------------- -----------
<S> <C> <C> <C>
5.50 or less 0.00%
5.51 to 5.96% 0.50%
5.97 to 6.43% 1.00%
6.44 to 6.89% 1.50%
6.90 to 7.36% 2.00%
7.37 to 7.82% 2.50%
7.83 to 8.28% 3.00%
8.29 to 8.75% 3.50%
8.76 to 9.21% 4.00%
9.22 to 9.68% 4.50%
9.69 to 10.14% 5.00%
10.15 to 10.60% 5.50%
10.61 to 11.07% 6.00%
11.08 to 11.53% 6.50%
11.54 to 11.99% 7.00%
12.00 to more 7.50%
</TABLE>
<PAGE>
14
C. ASSET GROWTH: The Bank's asset growth as calculated be comparing the
difference between average assets for the fiscal year on which the
incentive is based to the average assets of the prior year.
<TABLE>
<CAPTION>
Bonus
Percentage
Asset Growth Allocation
-------------------------- -----------
<S> <C> <C> <C>
7.00 or less 0.00%
7.01 to 8.37% 0.50%
8.38 to 9.75% 1.00%
9.76 to 11.12% 1.50%
11.13 to 12.50% 2.00%
12.51 to 13.87% 2.50%
13.88 to 15.24% 3.00%
15.25 to 16.62% 3.50%
16.63 to 17.99% 4.00%
18.00 to more 4.50%
</TABLE>
<PAGE>
15
D. OPERATING EXPENSE/AVERAGE TOTAL ASSETS: The Bank's relative Operating
Expense will be determined by contrasting it Operating Expense against that
of its peer group.
<TABLE>
<CAPTION>
Operating Expense/ Bonus
Average Total Assets Percentage
Variance below Peer Group Allocation
----------------------------- -----------
<S> <C> <C> <C>
0.05 or less 0.00%
0.06 to 0.11 0.50%
0.12 to 0.16 1.00%
0.17 to 0.22 1.50%
0.23 to 0.27 2.00%
0.28 to 0.33 2.50%
0.34 to 0.38 3.00%
0.39 to 0.44 3.50%
0.45 to 0.49 4.00%
0.50 to more 4.50%
</TABLE>
<PAGE>
16
E. ASSET QUALITY: Asset quality as measured by net loan charge offs (charge
offs less recoveries realized from the previous year) stated as a percent
of average total loans.
<TABLE>
<CAPTION>
Bonus
Percentage
Asset Quality Allocation
-------------------------- ----------
<S> <C> <C> <C>
0.040 or less 0.00%
0.039 to 0.036% 0.50%
0.035 to 0.033% 1.00%
0.032 to 0.029% 1.50%
0.028 to 0.026% 2.00%
0.025 to 0.022% 2.50%
0.021 to 0.018% 3.00%
0.017 to 0.015% 3.50%
0.014 to 0.011% 4.00%
0.010 to more 4.50%
</TABLE>
<PAGE>
17
MANAGEMENT INCENTIVE COMPENSATION PLAN
--------------------------------------
A. INTEREST RATE SPREAD: The Bank's Interest Rate Spread for the fiscal
year contrasted against that of its peer group. Interest rate spread is
defined as total income on interest earning assets, stated as a percent of
average interest earning assets, less the total expense of interest bearing
liabilities, stated as a percent of average interest bearing liabilities.
<TABLE>
<CAPTION>
Percent
Interest Rate Spread Bonus
Variance over Peer Group Allocation
--------------------------- ----------
<S> <C> <C> <C>
0.05 or less 0.00%
0.06 to 0.10 0.50%
0.11 to 0.16 1.00%
0.17 to 0.21 1.50%
0.22 to 0.26 2.00%
0.27 to 0.31 2.50%
0.33 to 0.37 3.00%
0.38 to 0.42 3.50%
0.43 to 0.47 4.00%
0.48 to 0.53 4.50%
0.54 to 0.58 5.00%
0.59 to 0.63 5.50%
0.64 to 0.69 6.00%
0.70 to 0.74 6.50%
0.75 to more 7.00%
</TABLE>
<PAGE>
18
B. EARNINGS PER EMPLOYEE: The Bank's earnings (interest income plus
noninterest income) divided by the average number of full-time equivalent
employees for the fiscal year.
<TABLE>
<CAPTION>
Percent
Bonus
Earnings Per Employee Allocation
---------------------------------- ----------
<S> <C> <C> <C>
$225,000 or less 0.00%
$225,001 to $235,714 0.50%
$235,715 to $246,428 1.00%
$246,429 to $257,143 1.50%
$257,144 to $267,857 2.00%
$267,858 to $278,571 2.50%
$278,572 to $289,285 3.00%
$289,286 to $299,999 3.50%
$300,000 or more 4.00%
</TABLE>
<PAGE>
19
C. DEPOSIT GROWTH: The Bank's retail deposit growth as calculated by
comparing the difference between the average total deposits for the year on
which the incentive is based to the average total deposits of the prior
year.
<TABLE>
<CAPTION>
Bonus
Percentage
Deposit Growth Allocation
-------------------------- -----------
<S> <C> <C> <C>
7.50 or less 0.00%
7.51 to 8.57% 0.50%
8.58 to 9.64% 1.00%
9.65 to 10.71% 1.50%
10.72 to 11.78% 2.00%
11.79 to 12.85% 2.50%
12.86 to 13.92% 3.00%
13.93 to 14.99% 3.50%
15.00 to more 4.00%
</TABLE>
<PAGE>
20
SANDWICH CO-OPERATIVE BANK
Performance Multiplier
----------------------
Attainment Level
----------------
Objectives Attainment Level Performance Multiplier
- --------------------------- ----------------------
FAILED TO Participant substantially 0.0
ACHIEVE OBJECTIVES failed to meet all objectives;
no mitigating circumstances.
PARTIALLY Participant met some objectives 0.5
ACHIEVED OBJECTIVES although significant objectives
were not achieved. Performance
in general was below expectation.
FULLY Participant accomplished all 1.0
ACHIEVED OBJECTIVES major objectives. Those that
were not fully accomplished
may have been minor or may have
been passed over due to efforts
exerted to accomplish more
important objectives. Level of
accomplishment in general was
at expectations.
EXCEEDED OBJECTIVES Participant fully accomplished 1.5
objectives according to
expectations, and exceeded
expectations in some areas.
GREATLY Participant greatly exceeded 2.0
EXCEEDED OBJECTIVES expectations in most areas
of performance.
<PAGE>
21
PERFORMANCE MANAGEMENT SYSTEM
-----------------------------
Objectives
- ----------
The purpose of the Performance Management System is to:
Systemize the process of performance management in order to stress its
importance as an integral part of Management Incentive Compensation.
Provide a direct link to the Management Incentive Compensation System
through a scoring system.
Description of the System.
- -------------------------
The system is an objectives-driven approach to evaluating performance. In its
most simplistic form:
1. Officers establish their own objectives in conjunction with their
superiors.
2. Objectives are weighted in terms of overall importance from 0 - 100%
3. Quarterly or semiannual reviews of objectives are conducted with
superiors to ensure relevancy of objectives and weightings.
4. End of the year reviews of the levels of objectives attainment are
conducted and an evaluation of level of achievement based on a scale
of 0.0 - 2.0 is assigned to the overall objective. Definitions of
objectives attainment are presented on Page 20 of the plan.
5. The cumulative total of the objectives attainment ratings (0.0 to 2.0)
becomes the "performance multiplier" applied to determine individual
participant "adjusted total salary."
<PAGE>
EXHIBIT 10.10
FORM OF VOTING AGREEMENT
February , 1998
The 1855 Bancorp
[address]
Ladies and Gentlemen
The undersigned is a director of Sandwich Bancorp ("Sandwich") and is the
beneficial holder of shares of common stock of Sandwich ("Sandwich Common
Stock").
Sandwich and The 1855 Bancorp ("1855 Bancorp") are considering the
execution of an Affiliation and Merger Agreement ("Affiliation Agreement")
contemplating the merger of a newly formed special-purpose subsidiary of
Compass Bank, a Massachusetts stock savings bank and wholly owned subsidiary of
1855 Bancorp, with and into Sandwich, with Sandwich as the surviving corporation
of the merger (the "Merger"), such execution being subject in the case of 1855
Bancorp to the execution and delivery of this letter agreement ("Agreement").
In consideration of the substantial expenses that 1855 Bancorp will incur in
connection with the transactions contemplated by the Affiliation Agreement and
in order to induce 1855 Bancorp to execute the Affiliation Agreement and to
proceed to incur such expenses, the undersigned agrees and undertakes, in his
capacity as a shareholder of Sandwich and not in his capacity as a director of
Sandwich, as follows:
1. The undersigned will vote or cause to be voted for approval of the
Affiliation Agreement all of the shares of Sandwich Common Stock the undersigned
is entitled to vote with respect thereto.
2. The undersigned will not effect any transfer or other disposition of any
of the undersigned's shares of Sandwich Common Stock until Sandwich's
shareholders have voted to approve the Affiliation Agreement or until the
Affiliation Agreement has been terminated pursuant to the terms thereof. In the
case of any transfer by operation of law or otherwise, this Agreement shall be
binding upon and inure to the benefit of the transferee. Any transfer or other
disposition in violation of the terms of this paragraph 2 shall be null and
void.
3. The undersigned agrees that Sandwich's transfer agent shall be given an
appropriate stop transfer order and shall not be required to register any
attempted transfer of shares of Sandwich Common Stock, unless the transfer has
been effected in compliance with the terms of this Agreement.
4. The undersigned acknowledges and agrees that any remedy at law for
breach of the foregoing provisions shall be inadequate and that, in addition to
any other relief which may be available, 1855 Bancorp shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damages.
<PAGE>
5. The foregoing restrictions shall not apply to shares with respect to
which the undersigned may have voting power as a fiduciary for others. In
addition, this agreement shall only apply to actions taken by the undersigned in
his capacity as a shareholder of Sandwich and shall not in any way limit or
affect actions the undersigned may take in his capacity as a director of
Sandwich.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
Very truly yours,
_______________________
Accepted and agreed to as of
the date first above written:
THE 1855 BANCORP
By:__________________________
Its
-2-
<PAGE>
Exhibit 13
1997
ANNUAL
REPORT
[LOGO OF SANDWICH BANCORP, INC. AND PICTURE OF BANK'S MAIN OFFICE APPEARS HERE]
<PAGE>
Financial Highlights
Stockholder Letter
Minding Our Business
Selected Consolidated Financial Data
Management's Discussion and Analysis
Independent Auditors' Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Officers and Directors
Stockholder Information
Profile
Sandwich Bancorp, Inc. is a Massachusetts based single-bank holding
company. Its primary subsidiary is The Sandwich Co-operative Bank, a state
chartered financial institution which converted to stock ownership in July
1986. Organized in 1885, the Bank serves Cape Cod and adjacent communities.
The primary business of the Bank is to acquire funds in the form of
deposits and use the funds to make mortgage loans for the construction,
purchase and refinancing of residential properties, and to make small
business loans in its market area. The Bank is a member of the Federal
Deposit Insurance Corporation (FDIC) and the Federal Home Loan Bank (FHLB).
Sandwich Co-operative Bank has eleven full service banking offices in
Buzzards Bay, Cedarville, Chatham, Falmouth, Hyannis, Orleans, Pocasset,
Sandwich, South Sandwich, South Yarmouth and Wareham, and a loan office in
Plymouth.
Mission Statement
Our Mission Statement is posted in each banking office and in the Board of
Directors Room so that everyone connected with the Bank is aware of what
the organization is striving for:
At Sandwich Co-operative Bank our mission is to remain a viable and profitable
independent community bank providing the highest possible level
of service and value to our customers and stockholders.
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
At December 31,
--------------------------
Balance Sheets 1997 1996 Change
---------- ---------- --------
<S> <C> <C> <C>
Total assets $518,697 $464,555 + 11.7%
Investment securities (short & long-term) 110,673 113,596 - 2.6
Loans, net 366,642 317,103 + 15.6
Real estate acquired by foreclosure 596 465 + 28.2
Core deposit intangible 1,459 1,966 - 25.8
Deposits 423,014 388,249 + 9.0
Borrowed funds 45,601 32,073 + 42.2
Stockholders' equity 42,014 38,633 + 8.8
Shares outstanding 1,942 1,902 + 2.1
Book value per share $21.63 $20.31 + 6.5
Tangible book value per share 21.17 19.67 + 7.6
<CAPTION>
Twelve months ended
December 31,
--------------------------
Operations 1997 1996 Change
---------- ---------- --------
<S> <C> <C> <C>
Net interest and dividend income $17,595 $16,517 + 6.5%
Provision for loan losses 750 265 + 183.0
Net income 4,860 4,137 + 17.5
Per Share Data
Basic earnings per share $2.54 $2.20 + 15.5%
Diluted earnings per share 2.45 2.13 + 15.0
<CAPTION>
At or for the twelve months
ended December 31,
---------------------------
Other Data 1997 1996 Change
----------- ---------- --------
<S> <C> <C> <C>
Interest rate spread 3.12% 3.38% - 7.7%
Net interest margin 3.71 3.94 - 5.8
Return on average assets 0.98 0.94 + 4.3
Return on average stockholders' equity 12.49 11.47 + 8.9
Equity to assets ratio 8.10 8.32 - 2.6
</TABLE>
<PAGE>
STOCKHOLDER LETTER
Dear Stockholder:
Fiscal year 1997 was a record year for the Bank and its newly formed holding
company, Sandwich Bancorp, Inc. The staff did a remarkable job to ensure that we
obtained our share of the business available from a growing economy. By taking
full advantage of what was a strong local market, we were able to exceed our
internal projections for new deposits and loans, as well as for net income.
For the twelve months ended December 31, 1997, net income increased 18% to $4.9
million, or $2.45 per share, compared to $4.1 million, or $2.13 per share, for
the comparable period in 1996. Deposits grew by 9% and net loans by 16%.
The Company's return on equity was a respectable 12.49% and our return on assets
was 0.98%. Book value per share increased from $20.31 to $21.63 at year's end.
During 1997 we also continued our policy of paying out approximately 50% of our
earnings in dividends. Stockholders received $1.25 in cash dividends in 1997,
compared to $1.05 in 1996.
This year's examination by the Banking Department of the Commonwealth of
Massachusetts resulted in our retaining an "Outstanding" Community Reinvestment
Act (CRA) rating once again. We take great pride in earning this excellent
rating. Over the past seven years we have had five CRA examinations - three by
the Commonwealth and two by the Federal Deposit Insurance Corporation (FDIC).
Each review rated the Bank's performance as "Outstanding," the highest
achievable category. Meeting the credit needs of the total community has been
good business, and it has been particularly rewarding to our staff and
Directors.
If you are a long-term stockholder, you are probably aware of the Company's
Mission Statement, which declares our objective of remaining a viable and
profitable independent community bank providing the highest possible level of
service and value to our customers and stockholders. As I write this message and
reflect upon the past 112 years of the Bank's history - including my personal
tenure here over the past two decades - I am convinced that the Company has met
that mission well. It has always been a viable institution and it has been been
profitable (with only one exception) every year in recent history. We have
always been a "Community Bank" in the best sense of anyone's definition,
striving to provide the highest level of service and value to our customers and-
as a public company for the past 12 years - to our stockholders.
<PAGE>
As you may know, on March 23, 1998, the Company entered into an agreement
providing for the merger of the Company with The 1855 Bancorp, the parent
company for CompassBank for Savings of New Bedford, Massachusetts, thereby
ending its long-standing independence. You might wonder why, after completing
such a successful year, the Bancorp's Directors would entertain such a
transaction. The answer to that question can be found in our Mission Statement "
... providing the highest level of value to our stockholders."
The past year was not only a record year for Sandwich Bancorp and Sandwich Co-
operative Bank, it was a record year for the stock market and for the market
value of publicly traded banks, as well. The Directors' recommendation that the
Bank be acquired in 1998 is an expression of their conviction that now is the
optimal time to enter into such a transaction. The recommendation is based on
their strong belief that a merger at this time is in the best interest of the
Bank's stockholders and its stakeholders. They have worked hard to structure an
agreement that will result in an on-going institution that will provide the best
possible opportunities for our employees, our customers, and the communities we
serve, while meeting their fiduciary responsibility to stockholders.
While the name over the door will change, the legacy of Sandwich Co-operative
Bank will hopefully live on in the minds of all of those associated with this
institution over the years--and the spirit of Sandwich Co-operative Bank will be
passed on to become an integral part of a new entity whose mission will be to
continue to provide a high level of value to customers and the community.
I am honored to have been associated with this organization. The Board of
Directors joins me in thanking our employees, customers and stockholders whose
dedication, loyalty and support over the years have made the Bank what it is
today.
Sincerely,
Frederic D. Legate
President and Chief Executive Officer
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------
Balance Sheets 1997 1996 1995 1994 (1) 1993 (1)
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets $518,697 $464,555 $426,515 $408,282 $328,746
Investment securities 110,572 112,960 115,238 121,425 89,793
Loans 370,742 320,844 274,095 253,985 210,618
Allowance for loan losses (4,100) (3,741) (3,674) (3,255) (2,983)
Real estate acquired by foreclosure 596 465 367 969 2,867
Core deposit intangible 1,459 1,966 2,550 3,210 1,963
Deposits 423,014 388,249 377,973 358,009 279,965
Borrowed funds 45,601 32,073 8,148 12,865 14,300
Stockholders' equity 42,014 38,633 35,744 32,819 31,197
Shares outstanding 1,942 1,902 1,840 1,828 1,823
Book value per share $21.63 $20.31 $19.43 $17.95 $17.11
Tangible book value per share 21.17 19.67 18.57 16.90 16.04
<CAPTION>
Years ended December 31,
------------------------------------------------------
Operations 1997 1996 1995 1994 (2) 1993 (2)
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Interest and dividend income $35,917 $32,309 $30,673 $ 24,077 $20,128
Interest expense 18,322 15,792 14,833 10,572 9,245
------- ------- ------- -------- -------
Net interest and dividend income 17,595 16,517 15,840 13,505 10,883
Provision for loan losses (750) (265) (597) (340) (478)
Gain on sale of branch deposits - - 214 - -
Gain on sale of loans 175 250 40 194 458
Gain on sales of investment securities, net 55 - - 6 107
Mortgage loan servicing fees 250 252 248 224 158
Foreclosed property expense (1) (46) (152) (173) (819)
Loss on writedown of real estate held for investment - - (305) (91) -
SAIF special assessment expense - (280) - - -
Other non-interest income 2,241 2,337 2,216 1,807 1,748
Other non-interest expense (12,225) (12,007) (11,899) (11,152) (10,165)
------- ------- ------- -------- -------
Income before income taxes 7,340 6,758 5,605 3,980 1,892
Income tax expense 2,480 2,621 2,169 1,396 241
------- ------- ------- -------- -------
Net income $ 4,860 $ 4,137 $ 3,436 $ 2,584 $ 1,651
======= ======= ======= ======== =======
Per Share Data
Basic earnings per share $2.54 $2.20 $1.87 $1.41 $0.91
======= ======= ======= ======== =======
Diluted earnings per share $2.45 $2.13 $1.82 $1.38 $0.90
======= ======= ======= ======== =======
Average basic shares outstanding 1,913 1,881 1,840 1,828 1,823
Average diluted shares outstanding 1,986 1,940 1,891 1,876 1,840
Cash dividends declared per share $1.25 $1.05 $0.70 $0.29 $0.00
<CAPTION>
At or for the years ended
December 31,
-----------------------------------------------------
Other Data 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest rate spread 3.12% 3.38% 3.51% 3.42% 3.54%
Net interest margin 3.71 3.94 3.98 3.83 3.66
Return on average assets 0.98 0.94 0.81 0.69 0.52
Return on average stockholders' equity 12.49 11.47 10.21 7.92 5.40
Equity to assets ratio 8.10 8.32 8.38 8.04 9.49
Dividend payout ratio (3) 49.24 47.84 37.49 20.51 -
</TABLE>
(1) Includes the assets and liabilities acquired in branch office purchases.
(2) Includes income and expense generated by acquired branch offices.
(3) Dividend payout ratio is calculated by dividing cash dividends declared by
net income.
<PAGE>
At December 31, 1996, the Bank's total assets were $464,555,000 as compared to
$426,515,000 at December 31, 1995. The increase was largely attributable to an
increase in loan production throughout 1996 offset by a decrease in the Bank's
investment portfoliPamela J. ButtrickFinancial Printing GroupAt December 31,
1997, the Company's total assets were $518,697,000 as compared to $464,555,000
at December 31, 1996, an increase of $54,142,000 or 11.7%. The increase is
largely attributable to an increase in loan production throughout 1997 offset by
a decrease in the Company's investment portfolio, including investment
securities held to maturity and available for sale. Total cash and cash
equivalents at December 31, 1997 totaled $15,967,000 compared to $11,718,000 at
December 31, 1996, an increase of $4,249,000. The Company's investment
portfolio, including other short-term investments, investment securities
available for sale and investment securities held to maturity, decreased
approximately $2,923,000 to $110,673,000. Maturities on investment securities
and cash flow from collateralized mortgage obligations (CMOs) were reinvested
into loans. The continuing improvement in the New England and local real estate
markets has had a positive impact on the Company's loan portfolio. As evidence
of this, the Company's loan portfolio, net of allowance for loan losses,
increased approximately $49,539,000 or 15.6% to $366,642,000, through loan
originations and purchases offset by principal amortization and early payoffs.
Deposits totaled $423,014,000 at December 31, 1997 compared to $388,249,000 at
December 31, 1996, an increase of $34,765,000 or 9.0%. Borrowings totaled
$45,601,000 at December 31, 1997 compared to $32,073,000 at December 31, 1996,
an increase of $13,528,000 due to an increase in advances from the Federal Home
Loan Bank of Boston used to finance loan originations, loan purchases and the
purchase of investment securities.
Non-performing assets, which include non-accrual loans and real estate
acquired by foreclosure (OREO) decreased $374,000, from $4,551,000 at December
31, 1996, to $4,177,000 at December 31, 1997. At December 31, 1995, non-
performing assets totaled $5,038,000. Non-accrual loans decreased by $505,000,
from $4,086,000 at December 31, 1996, to $3,581,000 at December 31, 1997. Other
real estate owned, however, increased by $131,000, from $465,000 at December 31,
1996, to $596,000 at December 31, 1997.
The Company's results of operations are affected by interest rate levels, the
amount of non-performing assets, the health of the real estate sector of the
economy, investment securities transactions and seasonal trends. At December 31,
1997, non-performing assets totaled $4,177,000 or 0.81% of total assets, of
which $3,319,000 are residential properties, $560,000 are investment properties,
and the balance reflects other land loans and properties.
Management anticipates continued stability in the economy in 1998. However,
the local real estate market continues to represent a risk to the Company's loan
portfolio and could result in an increase in, and reduced values of, properties
acquired by foreclosure. Accordingly, higher provisions for loan losses and
foreclosed property expense may be required should economic conditions worsen or
the levels of the Company's non-performing assets increase. Management continues
to engage experienced outside consultants to assist in loan reviews in an effort
to minimize risk and control exposure.
Results of Operations
Comparison of years ended December 31, 1997 and December 31, 1996
General
Net income for the year ended December 31, 1997 amounted to $4,860,000 compared
with net income of $4,137,000 for the year ended December 31, 1996. The
principal reason for the increase was improvement in net interest and dividend
income, resulting from growth in the residential loan portfolio. Additionally,
non-interest expense decreased as no provision for the special, one-time deposit
insurance assessment from the Savings Association Insurance Fund ("SAIF") was
incurred in the 1997 period. Decreases in net gains realized on the sale of
loans in the secondary market and decreases in service charges also occurred for
the year ended December 31, 1997. The Company's operating results depend largely
upon its net interest margin which is the difference between the income earned
on loans and investments, and the interest expense paid on deposits and
borrowings, divided by total interest earning average assets. The net interest
margin is affected by the economic and market factors which influence interest
rates, loan demand and deposit flows. The interest rate margin decreased to
3.71% for the year ended December 31, 1997, from 3.94% for the year ended
December 31, 1996.
Trends in the real estate market locally and in New England impact the Company
because of its real estate loan portfolio. If the local and New England real
estate markets show signs of weakness, additional provisions for loan losses may
be necessary in the future. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance based on information available at the time of their
review.
<PAGE>
Average Balance Sheets and Net Interest and Dividend Income
The following table sets forth certain information relating to the Company's
average balance sheets, including interest-earning assets, interest-bearing
liabilities and net interest income:
<TABLE>
<CAPTION>
(Dollars in thousands) Years ended December 31,
1997 1996 1995
-------- -------- --------
Interest Interest Interest
Average earned/ Yield/ Average earned/ Yield/ Average earned/ Yield/
balance paid Rate balance paid Rate balance paid Rate
--------- -------- ------- --------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earnings assets:
Short-term investments $ 6,467 $ 304 4.70% $ 5,160 $ 234 4.53% $ 12,933 $ 709 5.48%
Investment securities
available for sale 12,995 758 5.83 24,236 1,512 6.24 29,246 1,719 5.88
Investment securities
held to maturity 104,211 6,575 6.31 93,398 5,833 6.25 92,676 6,027 6.50
-------- ------- -------- ------- -------- -------
Total investment
securities (1) 117,206 7,333 6.26 117,634 7,345 6.24 121,922 7,746 6.35
Total loans (2) 349,028 28,205 8.08 295,228 24,680 8.36 262,952 22,218 8.45
Other earning assets 1,988 75 3.77 1,657 50 3.02 0 0 0.00
-------- ------- -------- ------- -------- -------
Total interest-earnings assets 474,689 35,917 7.57 419,679 32,309 7.70 397,807 30,673 7.71
------- ------- -------
Allowance for loan losses (3,839) (3,635) (3,412)
-------- -------- --------
Total interest-earning assets less
allowance for loan losses 470,850 416,044 394,395
Other assets 25,683 25,214 27,369
-------- -------- --------
Total assets $496,533 $441,258 $421,764
======== ======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings accounts $154,856 3,588 2.32 $158,071 3,660 2.32 $171,197 4,338 2.53
Certificates of deposit 205,710 11,754 5.71 186,776 10,973 5.87 171,431 9,940 5.80
-------- ------- -------- ------- -------- -------
Total interest-bearing
deposits 360,566 15,342 4.25 344,847 14,633 4.24 342,628 14,278 4.17
Borrowed funds 51,241 2,980 5.82 20,999 1,159 5.52 10,423 555 5.32
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 411,807 18,322 4.45 365,846 15,792 4.32 353,051 14,833 4.20
------- ------- -------
Non-interest bearing deposits 40,852 36,415 32,450
Other liabilities 4,971 2,929 2,622
-------- -------- --------
Total liabilities 457,630 405,190 388,123
-------- -------- --------
Stockholders' equity 38,923 36,068 33,641
-------- -------- --------
Total liabilities and
stockholders' equity $496,553 $441,258 $421,764
======== ======== ========
Net interest income $17,595 $16,517 $15,840
======= ======= =======
Interest rate spread 3.12% 3.38% 3.51%
==== ==== ====
Net interest margin (3) 3.71% 3.94% 3.98%
==== ==== ====
</TABLE>
(1) Investment securities are shown at average amortized cost.
(2) Loans on non-accrual status are included in the average balance.
(3) Net interest income before provision for loan losses divided by total
interest-earning average assets.
<PAGE>
Interest and Dividend Income
Interest and dividend income increased by $3,608,000 or 11.2% to $35,917,000 for
the year ended December 31, 1997 when compared to the year ended December 31,
1996. Interest on loans increased $3,525,000 or 14.3% as a result of an increase
in the average balance outstanding of $53,800,000, and a decrease in non-accrual
loans, partially offset by a decrease in the average rate earned on the
portfolio from 8.36% in 1996 to 8.08% in 1997. Interest and dividends on
investment securities and other short-term investments increased by $58,000 or
0.8%.
Non-accrual loans decreased $505,000 to $3,581,000 when compared to the year
ended December 31, 1996 balance of $4,086,000. Restructured loans at December
31, 1997 amounted to approximately $105,000 compared to the December 31, 1996
balance of $258,000. Typically, restructured loans are restructured to provide
either a reduction of the interest on the loan principal or an extension of the
loan maturity.
The following table presents changes in interest and dividend income, interest
expense and net interest and dividend income which are attributable to changes
in the average amounts of interest-earning assets and interest-bearing
liabilities outstanding and/or to changes in the rates earned or paid thereon.
<TABLE>
<CAPTION>
(Dollars in thousands) YEARS ENDED DECEMBER 31, Years ended December 31,
-------------------------------- ------------------------------
1997 vs. 1996 1996 vs. 1995
-------------------------------- ------------------------------
CHANGES DUE TO Changes due to
INCREASE/(DECREASE) increase/(decrease)
------------------- -------------------
RATE/ Rate/
TOTAL VOLUME RATE VOLUME Total Volume Rate Volume
------ ------- ------ ------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Total loans $3,525 $4,498 $(827) $(146) $2,462 $2,727 $(237) $ (28)
Investments 58 54 12 (8) (876) (756) (135) 15
Other earning assets 25 10 13 2 50 0 0 50
------ ------ ----- ----- ------ ------ ----- -----
Total interest and
dividend income 3,608 4,562 (802) (152) 1,636 1,971 (372) 37
------ ------ ----- ----- ------ ------ ----- -----
Interest expense:
Deposits 709 666 34 9 355 93 240 22
Borrowed funds 1,821 1,669 63 89 604 555 21 28
------ ------ ----- ----- ------ ------ ----- -----
Total interest expense 2,530 2,335 97 98 959 648 261 50
------ ------ ----- ----- ------ ------ ----- -----
Net interest and
dividend income $1,078 $2,227 $(899) $(250) $ 677 $1,323 $(633) $ (13)
====== ====== ===== ===== ====== ====== ===== =====
</TABLE>
Interest Expense
Total interest expense increased $2,530,000 to $18,322,000 for the year ended
December 31, 1997, from $15,792,000 for the year ended December 31, 1996.
Interest expense from deposits increased by $709,000 or 4.8%. The rise reflects
the increase in average interest-bearing deposits balance outstanding of
$15,719,000. Interest expense from borrowed funds increased $1,821,000 primarily
due to an increase in the average balance outstanding of $30,242,000. Interest
rates on interest-bearing deposits and borrowed funds for the year ended
December 31, 1997 increased to 4.45% from 4.32% when compared to 1996.
<PAGE>
Provision for Loan Losses
The provision for loan losses charged to earnings amounted to $750,000 and
$265,000 for the years ended December 31, 1997 and 1996, respectively. The
Company increased its provision for loan losses for the year ended December 31,
1997 as compared to the year ended December 31, 1996 as a result of the overall
increase in the loan portfolio and an increase in specific loan charge-offs.
Non-accrual loans as a percentage of total loans outstanding were 0.97% at
December 31, 1997 and 1.27% at December 31, 1996. As of December 31, 1997 and
1996, the Company had identified $200,000 and $584,000, respectively, of
potential problem loans. Management's analysis of the loan portfolio considers
risk elements by loan category, and also the prevailing economic climate and
anticipated future uncertainties. Future adjustments to the allowance for loan
losses may be necessary if economic conditions differ substantially from
assumptions used in performing the analysis, or the levels of the Company's non-
performing assets increase significantly.
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31, December 31, December 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Non-accrual loans:
Mortgage loans $3,283 $3,521 $4,238
Other loans 298 565 433
------ ------ ------
Total non-accrual loans 3,581 4,086 4,671
OREO 596 465 367
------ ------ ------
Total non-performing assets $4,177 $4,551 $5,038
====== ====== ======
Non-accrual loans as a percentage of:
Total loans receivable 0.97% 1.27% 1.70%
====== ====== ======
Total assets 0.69% 0.88% 1.10%
====== ====== ======
Non-performing assets as a percentage of:
Total assets 0.81% 0.98% 1.18%
====== ====== ======
</TABLE>
For further information on non-accrual loans and the provision for loan
losses, see notes 4 and 5 of notes to consolidated financial statements.
Non-Interest Income
Non-interest income decreased $118,000 for the year ended December 31, 1997
compared to the 1996 period. The decrease was mainly the result of a decline of
$94,000 in service charges along with a decrease in gain on sale of loans of
$75,000, partially offset by a $55,000 increase in gains on sales of investment
securities, net. The decrease in gain on sale of fixed rate loans in the
secondary market was due to less favorable market interest rates during the year
1997. The decrease in service charges resulted from an overall decrease in fees
received for checking account services the Company provides to its customers.
Non-Interest Expense
Total non-interest expense consists of salaries and employee benefits, occupancy
and equipment, FDIC deposit insurance, advertising, data processing service
fees, foreclosed property expense, amortization of core deposit and other
intangibles, and other expenses. Also included are the costs of carrying and
administering non-performing loans.
Non-interest expense decreased as no provision for the special, one-time
deposit insurance assessment from SAIF was incurred in 1997, while a $280,000
provision was incurred in 1996.
Income Taxes
The Company recognized income tax expense of $2,480,000 for the year ended
December 31, 1997 and $2,621,000 in the comparable period of 1996. Both these
amounts differ from the expected tax expense of 34% of income before income
taxes. The major reasons for these variances relate to state income tax expense
(net of the federal tax benefit), tax exempt income, dividend received deduction
and changes in the valuation allowance for deferred income taxes. Factors such
as the Company's earnings and equity securities gains or losses will affect
income taxes recorded in the financial statements. At December 31, 1997, the
Company had a net deferred income tax asset of $2,948,000, which is net of the
valuation allowance of $56,000. Management establishes a valuation allowance
when it is more likely than not that some portion of the gross deferred income
tax assets will not be realized. The valuation allowance at year end applies
principally to the tax effect of the state income tax benefit attributable to
the gross deductible temporary differences. The primary sources of recovery of
the deferred tax assets are taxes paid that are available for carry back of
$6,100,000 in 1997, 1996 and 1995, and the expectation that the deductible
temporary differences will reverse during periods in which the Company generates
taxable income.
During the fourth quarter of 1997, the Company implemented two tax strategies
in order to recognize the benefit of net, unused capital loss carryforwards that
were due to expire on December 31, 1997. The Company entered into a
sale/leaseback agreement with a third party for three of its offices. In
addition, the Company sold equity securities that were maintained in a Grantors
Trust in order to generate capital gains. The combination of these two
transactions allowed the Company to recognize a $576,000 benefit through a
reduction in the deferred tax asset valuation allowance.
<PAGE>
Comparison of years ended December 31, 1996 and December 31, 1995
General
Net income for the year ended December 31, 1996 amounted to $4,137,000 compared
with net income of $3,436,000 for the year ended December 31, 1995. The
principal reasons for the increase were increased net interest and dividend
income, increased gains realized on the sale of loans and a decrease in
provisions for loan losses and FDIC deposit insurance expense, partially offset
by increases in other non-interest expenses and a special one-time deposit
insurance assessment from the Savings Association Insurance Fund ("SAIF"). The
Bank's operating results depend largely upon its net interest margin which is
the difference between the income earned on loans and investments, and the
interest expense paid on deposits and borrowings, divided by total interest
earning average assets. The net interest margin is affected by the economic and
market factors which influence interest rates, loan demand and deposit flows.
The interest rate margin decreased to 3.94% for the year ended December 31,
1996, from 3.98% for the year ended December 31, 1995.
Interest and Dividend Income
Interest and dividend income increased by $1,636,000 or 5.3% to $32,309,000 for
the year ended December 31, 1996 when compared to the year ended December 31,
1995. Interest on loans increased $2,462,000 or 11.1% as a result of an increase
in the average balance outstanding of $32,276,000, and a decrease in non-accrual
loans, partially offset by a decrease in the average rate earned on the
portfolio from 8.45% in 1995 to 8.36% in 1996. Interest and dividends on
investment securities and other short-term investments decreased by $826,000 or
9.8% as a result of the decrease in the average balance outstanding to
$122,794,000 and a decrease in the yield on investment securities to 6.17% for
the year ended December 31, 1996, as compared to 6.27% for the year ended
December 31, 1995.
Interest Expense
Total interest expense increased $959,000 to $15,792,000 for the year ended
December 31, 1996, from $14,833,000 for the year ended December 31, 1995.
Interest expense from deposits increased by $355,000 or 2.5%. The rise reflects
the increase in average deposits balance outstanding of $2,219,000, along with
an increase in market interest rates over the period. Interest expense from
borrowed funds increased $604,000 primarily due to an increase in the average
balance outstanding of $10,576,000, and an increase in the interest rates over
the period. Interest rates on deposits and borrowed funds for the year ended
December 31, 1996 increased to 4.32% from 4.20% when compared to 1995.
Provision for Loan Losses
The provision for loan losses charged to earnings amounted to $265,000 and
$597,000 for the years ended December 31, 1996 and 1995, respectively. The Bank
decreased its provision for loan losses for the year ended December 31, 1996 as
compared to the year ended December 31, 1995 due to a decline in specific loan
charge-offs. Non-accrual loans as a percentage of total loans outstanding were
1.27% at December 31, 1996 and 1.70% at December 31, 1995. As of December 31,
1996 and 1995, the Bank had identified $584,000 and $349,000, respectively, of
potential problem loans. Management's analysis of the loan portfolio considers
risk elements by loan category, and also the prevailing economic climate and
anticipated future uncertainties. Future adjustments to the allowance for loan
losses may be necessary if economic conditions differ substantially from
assumptions used in performing the analysis, or the levels of the Bank's non-
performing assets increase significantly.
Non-Interest Income
Non-interest income increased $121,000 for the year ended December 31, 1996
compared to the 1995 period. The increase was mainly the result of the increase
in gain on sale of loans of $210,000, along with an increase of $41,000 in
service charges, partially offset by a decrease of $214,000 in gain on sale of
branch deposits. The increase in gain on sale of loans was due to favorable
market interest rates during the year 1996 and the recording of the value of the
mortgage loan servicing rights. The increase in service charges resulted from
the overall increases in fees for services the Bank provides to its customers.
<PAGE>
Non-Interest Expense
Total non-interest expense consists of salaries and employee benefits, occupancy
and equipment, FDIC deposit insurance, advertising, data processing service
fees, foreclosed property expense, amortization of core deposit and other
intangibles and other expenses. Also included are the costs of carrying and
administering non-performing assets.
The slight decrease in non-interest expense for the year when compared to the
prior period is attributed primarily to decreases in FDIC deposit insurance,
foreclosed property expense and amortization of core deposit intangible, offset
partially by increases in salaries and employee benefits and occupancy and
equipment, and the one-time special assessment of $280,000 on SAIF-assessable
deposits.
Income Taxes
The Bank recognized income tax expense of $2,621,000 for the year ended December
31, 1996 and $2,169,000 in the comparable period of 1995. Both these amounts
differ from the expected tax expense of 34% of income before income taxes. The
major reasons for these variances relate to state income tax expense (net of the
federal tax benefit), tax exempt income, dividend received deduction and changes
in the valuation allowance for deferred income taxes. Factors such as the Bank's
earnings and equity securities gains or losses will affect income taxes recorded
in the financial statements. At December 31, 1996, the Bank had a net deferred
income tax asset of $2,469,000, which is net of the valuation reserve of
$632,000. Management establishes a valuation reserve when it is more likely than
not that some portion of the gross deferred income tax asset will not be
realized. The valuation reserve at year end applies principally to the tax
effect of the capital loss carryforward and the state income tax benefit
attributable to the gross deductible temporary differences. The primary sources
of recovery of the deferred tax asset are taxes paid that are available for
carry back of $5,400,000 in 1996, 1995 and 1994, and the expectation that the
deductible temporary differences will reverse during periods in which the Bank
generates taxable income.
Asset and Liability Management and Market Risk
The Company's pre-tax earnings depend primarily on its net interest income, the
difference between the income it receives on its loan portfolio and other
investments and its cost of money, consisting primarily of interest paid on
savings deposits, FHLB advances and other borrowings. Net interest income is
affected by (i) the difference ("interest rate spread") between rates of
interest earned on its interest-earning assets and rates paid on its interest-
bearing liabilities and (ii) the relative amounts of its interest-earning assets
and interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rates spread will
generate net interest income. Thrift institutions have traditionally used
interest rate spreads as a measure of net interest income. Another indicator of
an institution's net interest income is its "net yield on interest-earning
assets" which is net interest income divided by average interest-earning assets.
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending, security investments, and deposit taking activities. To
that end, management actively monitors and manages its interest rate risk
exposure.
The Company's primary objective in managing interest rate risk is to minimize
the adverse impact of changes on the Company's net interest income and capital,
while adjusting the Company's rate-sensitive asset and liability structure to
obtain the maximum net yield on that structure. The Company relies primarily on
this structure to control interest rate risk. However, a sudden and substantial
shift in interest rates may adversely impact the Company's earnings to the
extent that the interest rate earned on interest-earning assets and interest
paid on interest-bearing liabilities do not change at the same frequency, to the
same extent or on the same basis.
A method used by the Company to measure the interest rate risk exposure is the
interest rate sensitivity "GAP", which is the difference between assets and
liabilities subject to rate change over specific time periods. There are
limitations to GAP analysis. However, as rates on different assets and
liabilities may not move to the same extent in any given time period,
competition may affect the ability of the Company to change rates on particular
loan or deposit products. The following table discloses the Company's interest-
sensitive financial instruments, categorized by expected maturity and their fair
values at December 31, 1997. Market risk sensitive instruments are generally
defined as on- and off-balance sheet and other financial instruments.
<PAGE>
The following table presents the Company's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities at December 31, 1997.
In addition the table indicates the Company's sensitivity gap at various periods
and the ratio of the Company's interest-earning assets to interest-bearing
liabilities at various periods. Term certificates are based upon contractual
maturities.
<TABLE>
<CAPTION>
Over One Over Three Over Five Over
One Year Through Through Through Ten
or less Three Years Five Years Ten Years Years Total
---------- ------------ ----------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Short-term investments, investment
securities held to maturity and
investment securities available for sale $ 71,379 $ 34,973 $ 32 $ 10,307 $ -- $116,691
Residential 101,623 66,312 68,511 7,193 5,272 248,911
Commercial real estate 44,975 17,286 153 111 54 62,579
Construction and land loans 13,384 6,378 11,850 23 -- 31,635
Other loans 20,230 3,029 2,602 709 1,047 27,617
-------- -------- -------- -------- -------- --------
Total $251,591 $127,978 $ 83,148 $ 18,343 $ 6,373 $487,433
======== ======== ======== ======== ======== ========
Interest-bearing liabilities:
Money market accounts $100,825 $ -- $ -- $ -- $ -- $100,285
NOW and Super NOW (1) -- -- -- -- 44,075 44,075
Regular savings accounts (1) -- -- -- -- 24,345 24,345
Certificates of deposit 134,958 77,230 6,572 17 -- 213,777
Borrowed funds 34,000 11,000 -- -- 601 45,601
-------- -------- -------- -------- -------- --------
Total $269,783 $ 83,230 $ 6,572 $ 17 $ 69,021 $428,623
======== ======== ======== ======== ======== ========
Interest sensitivity gap $(18,192) $ 44,748 $ 76,576 $ 18,326 $(62,648) $ 58,810
======== ======== ======== ======== ========
Cumulative interst sensitivity gap $(18,192) $ 26,556 $103,132 $121,458 $ 58,810 $ 58,810
======== ======== ======== ======== ======== ========
Interest sensitivity gap/total assets (3.51)% 8.63% 14.76% 3.53% (12.08)% 11.34%
======== ======== ======== ======== ======== ========
Cumulative interest sensitivity
gap/total assets (3.51)% 5.12% 19.88% 23.42% 11.34%
======== ======== ======== ======== ========
</TABLE>
(1) Interest rates on these accounts have remained constant or decreased from
March of 1994 through December 31, 1997, although market interest rates have
increased over the same period. It is the current intention of the Company's
management not to increase rates on these accounts in a rising rate
environment.
<PAGE>
The following table shows the company's financial instruments that are sensitive
in interest rates, categorized by expected maturity, and the instruments' fair
values as of December 31, 1997.
Expected Maturity Date at December 31, 1997 (1)
<TABLE>
<CAPTION>
There-
(Dollars in millions) 1998 1999 2000 2001 2002 after Total Fair Value
------ ------ ----- ----- ----- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS:
Loans:
Fixed interest rate
Residential mortgages $ 3 $ 2 $ 2 $ 2 $ 2 $ 4 $ 15 $ 15
Average interest rate 6.99% 7.05% 7.03% 6.96% 6.96% 7.33% 7.10%
Variable interest rate
Residential mortgages 49 37 30 23 23 96 258 260
Average interest rate 7.47% 7.49% 7.49% 7.49% 7.49% 7.51% 7.50%
Fixed interest rate
Consumer loans 4 1 1 -- -- -- 6 6
Average interest rate 10.34% 10.30% 9.89% 0.00% 0.00% 0.00% 10.17%
Variable interest rate
Consumer loans 8 4 2 -- -- -- 14 14
Average interest rate 9.80% 9.84% 9.87% 0.00% 0.00% 0.00% 9.85%
Fixed interest rate
Commercial loans 1 1 -- -- -- -- 2 2
Average interest rate 9.73% 9.71% 0.00% 0.00% 0.00% 0.00% 9.72%
Variable interest rate
Commercial loans 22 10 8 6 5 25 76 75
Average interest rate 9.87% 9.64% 9.63% 9.63% 9.63% 9.68% 9.72%
Fixed interest rate
Investment securities 21 12 5 4 4 13 59 59
Average interest rate 6.18% 6.22% 6.41% 6.40% 6.40% 6.42% 6.29%
Variable interest rate
Investment securities 10 8 6 5 5 18 52 52
Average interest rate 6.36% 6.36% 6.37% 6.38% 6.38% 6.42% 6.39%
------ ------ ----- ----- ----- ----- ------ ----
Total interest
sensitive assets $ 118 $ 75 $ 54 $ 40 $ 39 $ 156 $ 482 $483
====== ====== ===== ===== ===== ===== ====== ====
INTEREST SENSITIVE LIABILITIES:
Deposits:
Checking $ 2 $ 2 $ 2 $ 2 $ 2 $ 74 $ 84 $ 84
Average interest rate 0.58% 0.58% 0.58% 0.58% 0.58% 0.51% 0.52%
Savings 4 3 2 2 2 11 24 24
Average interest rate 1.98% 1.98% 1.98% 1.98% 1.98% 1.98% 1.98%
Money market 10 10 7 6 5 63 101 101
Average interest rate 2.88% 2.99% 2.68% 2.68% 2.68% 3.47% 3.22%
Time deposits 144 51 14 2 2 1 214 214
Average interest rate 5.41% 5.71% 5.92% 5.77% 5.77% 2.90% 5.51%
Borrowings:
FHLB 34 11 -- -- -- 1 46 46
Average interest rate 5.82% 5.71% 0.00% 0.00% 0.00% 5.96% 5.82%
Other -- -- -- -- -- -- -- --
----
Average interest rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
------ ------ ----- ----- ----- ----- ------
Total interest
sensitive liabilities: $ 194 $ 77 $ 25 $ 12 $ 11 $ 150 $ 469 $469
====== ====== ===== ===== ===== ===== ====== ====
</TABLE>
(1) Expected maturities are contractual maturities adjusted for projected
prepayments of principal. The Company uses certain assumptions to estimate fair
values and expected maturities. For assets, expected maturities are based upon
contractual maturities, projected repayments and prepayments of principal. The
prepayment experience reflected herein is based on the Company's historical
experience. The Company's average Constant Prepayment Rate ("CPR") is 13.9% and
18.9% per year of its fixed-rate and adjustable-rate portfolios, respectively,
for interest-earning assets. For deposits, "decay rates" have been applied to
estimate deposit runoff of 14.3% per year based on the Company's own historical
experience. The actual maturities of these instruments could vary substantially
if future prepayments differ from the Company's historical experience. Off-
balance sheet risk includes commitments to extend credit and sell loans. At
December 31, 1997, the contract or notional amount of these commitments is
$46,200,000 and $6,100,000, respectively. Their fair values have been
estimated as $500,000.
<PAGE>
Liquidity and Capital Resources
The Company's primary source of liquidity is dividends from its bank
subsidiary. Dividends from the Bank to the Company totaled $768,000 in 1997.The
Company made payments of dividends to stockholders in the amount of $672,000
during the fourth quarter ended December 31, 1997.
The Bank's primary sources of liquidity are deposits, loan payments and
payoffs, investment income and maturities and principal payments on investments,
mortgage-backed securities and CMOs, advances from the Federal Home Loan Bank of
Boston, and other borrowings. Management believes it is prudent to maintain an
investment portfolio that not only provides a source of income, but additionally
provides a source of liquidity, through its principal paydowns and maturities,
to meet lending demands and fluctuations in deposit flows. These various sources
of funds are utilized to fund withdrawals, new loans and other investments, as
well as to pay on-going expenses of operation. At December 31, 1997, the Bank
had total unused lines of credit and commitments to originate loans of
$38,784,000, unadvanced portions of construction loans of $7,188,000 and
commercial standby letters of credit of $218,000. In addition, the Bank had
commitments to sell loans totaling $6,149,000. Management believes that the
Bank's various sources of funds are sufficient to meet its commitments in the
ordinary course of business. For further information, see notes to consolidated
financial statements.
The Bank is required to maintain certain levels of capital (stockholders'
equity) pursuant to FDIC regulations. At December 31, 1997, the Bank's capital
level was significantly in excess of required minimums. For additional
information on capital ratios of the Company and the Bank, see note 11 of notes
to consolidated financial statements.
Impact of the Year 2000 Issue
The Year 2000 (Y2K) Issue is the result of computer programs being written using
two digits, rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company began addressing the Year 2000 Issue in the Fall of 1996. The
Company formed a Y2K Review Team which is composed of the Company's internal
Management Information Systems Steering Committee and all members of our Senior
Management Group. A Plan was developed by the Y2K Review Team and approved by
the Board of Directors. The Team has completed an assessment, identifying
mission critical systems and has initiated formal communications with all third
party vendors to determine the compliance status of any systems utilized by the
Company. Based upon the results of the assessment, the Company has determined
that there will be a need to replace portions of its existing hardware and
require upgrades to a portion of its software systems. The Company does not
utilize internally written and supported proprietary code. All software is
purchased or licensed through widely recognized providers.
The Company Plan calls for replacement and upgrading to take place with
allowances for extensive testing within time frames established by the Federal
Financial Institutions Examination Council (FFIEC). The Y2K Review Team meets no
less than quarterly and provides quarterly reports to the Board of Directors.
The Company has notified its customers of the Year 2000 Issue in the Fall 1997
issue of the Company newsletter, "Currents". The newsletter outlines the issue
and the Company's Plan to address it. Also, letters have been sent to all
commercial loan customers informing them of the Year 2000 Issue and how it can
impact businesses.
The Company had included approximately $150,000 for the replacement and
upgrade of specific hardware in its 1998 capital budget. An additional IS
Technician position has been planned and included in the budget for the IS
Department in the second quarter of 1998. The new employee will assist in the
deployment of Y2K compliant hardware, upgrade software and facilitate the Y2K
testing of all systems.
The Company will utilize internal and, if necessary, external resources to
upgrade, replace, and test the software and systems for Year 2000 Issue
modifications. The Company plans to complete the Year 2000 Issue project no
later than March 31, 1999.
<PAGE>
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 129, "Disclosure of Information about Capital Structure", which is effective
for 1997 financial statements. The Company's disclosures currently comply with
the provisions of this statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income, which is defined as all changes to equity except investments by and
distributions to shareholders. Net income is a component of comprehensive
income, with all other components referred to in the aggregate as other
comprehensive income. This statement is effective for 1998 financial statements
and is not expected to have a material effect on the financial statements.
Also in June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which establishes standards for
reporting information about operating segments. An operating segment is defined
as a component of a business for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and evaluate performance. This statement
requires a company to disclose certain income statement and balance sheet
information by operating segment, as well as provide a reconciliation of
operating segment information to the company's consolidated balances. This
statement is also effective for 1998 financial statements and is not expected to
have a material effect on the financial statements.
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
The Board of Directors and Stockholders
Sandwich Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Sandwich
Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepting auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sandwich Bancorp,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 26, 1998, except as to note 17,
which is as of March 23, 1998
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, December 31,
1997 1996
------------ ------------
(In thousands, except per share data)
<S> <C> <C>
ASSETS
Cash and due from banks (note 14) $ 9,949 $ 11,543
Federal funds sold 6,018 175
------------ ------------
Total cash and cash equivalents 15,967 11,718
------------ ------------
Other short-term investments (note 2) 101 636
Investment securities (notes 3 and 9):
Available for sale (amortized cost of $10,863 and $13,262,
at December 31, 1997 and 1996, respectively) 10,995 13,312
Held to maturity (fair value of $99,775 and $99,128,
at December 31, 1997 and 1996, respectively) 99,577 99,648
------------ ------------
Total investment securities 110,572 112,960
------------ ------------
Loans, less allowance for loan losses of
$4,100 in 1997 and $3,741 in 1996 (notes 4, 5, 9 and 14) 366,642 317,103
Stock in Federal Home Loan Bank of Boston, at cost (notes 7 and 9) 3,749 2,670
Accrued interest receivable 2,836 2,680
The Co-operative Central Bank Reserve Fund 965 965
Real estate held for sale 457 -
Real estate held for investment - 571
Real estate acquired by foreclosure 596 465
Office properties and equipment (note 6) 4,641 6,015
Leased property under capital lease (note 6) 1,738 -
Core deposit intangible 1,459 1,966
Income taxes receivable, net (note 10) 103 -
Deferred income tax asset, net (note 10) 2,948 2,469
Prepaid expenses and other assets 5,923 4,337
------------ ------------
Total assets $ 518,697 $ 464,555
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits (note 8) $ 423,014 $ 388,249
Borrowed funds (note 9) 45,601 32,073
Capital lease obligation (note 6) 1,738 -
Escrow deposits of borrowers 1,604 915
Income taxes payable, net (note 10) - 282
Accrued expenses and other liabilities 4,726 4,403
------------ ------------
Total liabilities 476,683 425,922
------------ ------------
Commitments and contingencies (note 14)
STOCKHOLDERS' EQUITY (NOTE 11)
Preferred stock, par value $1.00 per share; authorized 5,000,000
shares; none issued or outstanding - -
Common stock, par value $1.00 per share; authorized 15,000,000 shares;
1,942,159 and 1,901,565 issued and outstanding, respectively 1,942 1,902
Additional paid-in capital 20,139 19,323
Retained earnings 19,848 17,381
Net unrealized gain on investment securities available for sale 85 27
------------ ------------
Total stockholders' equity 42,014 38,633
------------ ------------
Total liabilities and stockholders' equity $ 518,697 $ 464,555
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Years ended
December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
(In thousands, except share data)
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest on loans $28,205 $24,680 $22,218
Interest and dividends on investment securities available for sale 772 1,562 1,719
Interest on investment securities held to maturity 6,575 5,833 6,027
Interest on short-term investments 304 166 640
The Co-operative Central Bank Reserve Fund 61 68 69
----------- ----------- -----------
Total interest and dividend income 35,917 32,309 30,673
----------- ----------- -----------
INTEREST EXPENSE
Deposits:
Savings accounts 3,588 3,660 4,338
Certificates of deposit 11,754 10,973 9,940
----------- ----------- -----------
Total deposits 15,342 14,633 14,278
Borrowed funds 2,980 1,159 555
----------- ----------- -----------
Total interest expense 18,322 15,792 14,833
----------- ----------- -----------
Net interest and dividend income 17,595 16,517 15,840
Provision for loan losses (note 5) 750 265 597
----------- ----------- -----------
Net interest and dividend income after provision for loan losses 16,845 16,252 15,243
----------- ----------- -----------
NON-INTEREST INCOME
Service charges 1,687 1,781 1,740
Mortgage loan servicing fees 250 252 248
Gain on sale of branch deposits - - 214
Gain on sale of loans 175 250 40
Gain on sales of investment securities, net 55 - -
Other 554 556 476
----------- ----------- -----------
Total non-interest income 2,721 2,839 2,718
----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits 6,243 5,999 5,757
Occupancy and equipment 1,503 1,587 1,325
FDIC deposit insurance 73 112 469
SAIF special assessment - 280 -
Advertising 385 357 358
Data processing service fees 633 702 665
Foreclosed property expense 1 46 152
Loss on writedown of real estate held for investment - - 305
Amortization of core deposit intangible 507 584 660
Other 2,881 2,666 2,665
----------- ----------- -----------
Total non-interest expense 12,226 12,333 12,356
----------- ----------- -----------
Income before income tax expense 7,340 6,758 5,605
Income tax expense (note 10) 2,480 2,621 2,169
----------- ----------- -----------
Net income $ 4,860 $ 4,137 $ 3,436
=========== =========== ===========
Basic earnings per share $ 2.54 $ 2.20 $ 1.87
=========== =========== ===========
Diluted earnings per share $ 2.45 $ 2.13 $ 1.82
=========== =========== ===========
Average basic shares outstanding 1,913 1,881 1,840
Dilutive effect of outstanding stock options 73 59 51
----------- ----------- -----------
Average diluted shares outstanding 1,986 1,940 1,891
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
unrealized
gain (loss) on
investment
Additional securities
Common paid-in Retained available
stock capital earnings for sale, net Total
--------- ---------- ------------ -------------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $1,833 $18,448 $ 13,075 $ (537) $ 32,819
Net income - - 3,436 - 3,436
Dividends declared ($0.70 per share) - - (1,288) - (1,288)
Stock options exercised 17 184 - - 201
Decrease in net unrealized loss on
investment securities available for sale - - - 576 576
------ ------- -------- -------- --------
Balance at December 31, 1995 1,850 18,632 15,223 39 35,744
Net income - - 4,137 - 4,137
Dividends declared ($1.05 per share) - - (1,979) - (1,979)
Stock options exercised 52 691 - - 743
Decrease in net unrealized gain on
investment securities available for sale - - - (12) (12)
------ ------- -------- -------- --------
Balance at December 31, 1996 1,902 19,323 17,381 27 38,633
Net income - - 4,860 - 4,860
Dividends declared ($1.25 per share) - - (2,393) - (2,393)
Stock options exercised 40 816 - - 856
Increase in net unrealized gain on
investment securities available for sale - - - 58 58
------ ------- -------- -------- --------
Balance at December 31, 1997 $1,942 $20,139 $ 19,848 $ 85 $ 42,014
====== ======= ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------
Years Ended
December 31,
-----------------------------------
1997 1996 1995
----------- ---------- --------
<S> <C> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,860 $ 4,137 $ 3,436
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 750 265 597
Provision for loss and writedowns of real estate acquired by foreclosure 31 48 96
Depreciation and amortization 684 1,422 1,592
(Increase) decrease in:
Accrued interest receivable (156) 61 (47)
Deferred income tax asset, net (503) 9 (528)
Other assets (1,586) 1,029 (3,626)
Income taxes receivable (103) - -
Core deposit intangible 507 - -
Increase(decrease)in:
Escrow deposits of borrowers 689 (664) 914
Income tax payable (282) 32 (455)
Accrued expenses and other liabilities 323 1,582 (398)
Gain on sales of loans, net (175) (250) (40)
Principal balance of loans originated for sale (18,197) (20,827) (14,752)
Principal balance of loans sold 18,238 20,999 14,363
Gain on sales of investment securities, net (55) - -
Gain on sales of real estate acquired by foreclosure (92) (65) (16)
--------- -------- --------
Total adjustments 73 3,641 (2,300)
--------- -------- --------
Net cash provided by operating activities 4,933 7,778 1,136
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for sale (4,086) (145) (8,718)
Purchases of investment securities held to maturity (38,915) (29,948) (6,054)
Proceeds from sales of investment securities available for sale 2,910 - -
Proceeds from maturities and paydowns of investment securities available for sale 3,584 12,495 6,457
Proceeds from maturities and paydowns of investment securities held to maturity 39,031 19,675 15,120
(Increase) decrease in:
Short-term investments 535 274 773
Loans (51,400) (48,276) (20,405)
Real estate acquired by foreclosure - - (52)
Real estate held for sale (457) - -
Stock in Federal Home Loan Bank of Boston (1,079) - -
Investments in real estate 571 14 229
Proceeds from sale of real estate acquired by foreclosure 1,195 1,326 983
Disposal of office properties and equipment, net 1,055 - -
Capitalized expenses on real estate acquired by foreclosure (20) - -
Purchase of office properties and equipment (364) (512) (1,009)
--------- -------- --------
Net cash used by investing activities (47,440) (45,097) (12,676)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 34,765 10,276 11,830
Advances from the Federal Home Loan Bank of Boston 200,054 69,884 11,047
Repayment of Federal Home Loan Bank advances (186,526) (45,959) (15,764)
Cash dividends paid (2,393) (1,979) (1,288)
Net cash paid for deposits sold - - 8,134
Stock options exercised 856 743 201
--------- -------- --------
Net cash provided by financing activities 46,756 32,965 14,160
--------- -------- --------
Net increase (decrease) in cash and federal funds sold 4,249 (4,354) 2,620
Cash and federal funds sold, beginning of year 11,718 16,072 13,452
--------- -------- --------
Cash and federal funds sold, end of year $ 15,967 $ 11,718 $ 16,072
========= ======== ========
CASH PAID FOR
Interest on deposits $ 15,329 $ 14,635 $ 14,606
========= ======== ========
Interest on borrowed funds $ 2,870 $ 615 $ 582
========= ======== ========
Income taxes, net $ 2,983 $ 2,481 $ 3,152
========= ======== ========
OTHER NON-CASH ACTIVITIES
Deferred taxes on change in unrealized (gain) loss on securities available for sale ($24) $ 15 ($296)
========= ======== ========
Additions to real estate acquired by foreclosure $ 1,245 $ 1,407 $ 409
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
(1) Basis of Presentation and Summary of Significant Accounting Policies
General
Sandwich Bancorp, Inc. (the "Company") is a Massachusetts corporation and the
holding company of Sandwich Co-operative Bank (the "Bank"). The Sandwich Co-
operative Bank was organized as a Massachusetts chartered co-operative bank in
1885. The Bank merged with Wareham Co-operative Bank in May 1982. In July 1986,
the Bank converted from mutual to stock form through the sale and issuance of
1,820,833 shares of common stock, par value $1.00 per share (the "Common
Stock"). The Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"), an agency of the federal government, up to $100,000 per
insured depositor, with additional insurance to the total amount of the deposit
provided by the Share Insurance Fund of The Co-operative Central Bank (the
"Central Bank"), a deposit insuring entity chartered by the Commonwealth of
Massachusetts. The Bank is subject to regulation by the Massachusetts
Commissioner of Banks ("Commissioner") and the FDIC.
On January 28, 1997, Sandwich Co-operative Bank announced that its Board of
Directors had approved a plan providing for the formation of a holding company
with the Bank as the principal subsidiary. Under the plan, each existing share
of the Bank's Common Stock was converted into one share of Common Stock in the
new holding company. As a result of this reorganization, the Bank's stockholders
became the owners of the newly formed holding company, which in turn owns all of
the outstanding stock of the Bank. The holding company formation resulted in no
change to the Bank's business, management, office locations or customer service,
and the holding company's corporate documents did not include any additional
anti-takeover provisions. The holding company reorganization was consummated on
September 30, 1997.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Sandwich Bancorp, Inc. (the "Company") and its wholly owned subsidiaries, The
Sandwich Co-operative Bank, The Sextant Corporation, Sandwich Securities
Corporation and Sextant Securities Corporation. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and general practices
within the banking industry. In preparing the financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet and income and
expenses for the period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to change relate to the
determination of the allowance for loan losses. This estimate is dependent on
future economic and overall business conditions.
Certain reclassifications have been made to previously reported balances to
conform with the current period's presentation.
Investment Securities
Debt securities that the Bank has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost; debt
and equity securities that are bought and held principally for the purpose of
selling in the near term are classified as trading and reported at fair value,
with unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held-to-maturity or trading are classified
as available-for-sale and reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
stockholders' equity, net of applicable taxes.
Securities held to maturity, including bonds, mortgage-backed securities &
CMOs are stated at cost, adjusted for amortization of premiums or accretion of
discounts, calculated using a method which approximates the interest method. The
basis for valuation reflects management's intention and ability to hold these
securities to maturity.
Securities available for sale consisting of government bonds, adjustable rate
mortgage-backed securities and marketable equity securities are stated at fair
value, with unrealized gains and losses, net of tax, excluded from earnings and
reported as a separate component of stockholders' equity until realized. Fair
value is based upon quoted market prices or dealer quotes as of the reporting
date.
Gains and losses on the sale of investment securities are recognized at the
time of sale on a specific identification basis. Unrealized losses deemed to be
other than temporary declines in value are charged to operations.
Premiums and discounts on investment and mortgage-backed securities are
amortized or accreted into income by a method that estimates the interest method
adjusted for prepayments. If a decline in fair value below the amortized cost
basis of an investment or mortgage-backed security is judged to be other than
temporary, the cost basis of the investment is written down to fair value as a
new cost basis and the amount of the write-down is included as a charge against
income.
<PAGE>
Notes to Consolidated Financial Statements
Loans
Loans are reported at their principal amount outstanding, net of any unearned
discount and deferred loan fees. Interest income on loans is credited to income
based on loan principal amounts outstanding at appropriate interest rates.
Unearned discount and premium on loans is credited or charged to income on a
basis which approximates the interest method.
Accrual of interest income on loans is discontinued and unpaid accrued
interest is reversed when management determines that borrowers will be unable to
meet contractual obligations and/or when loans are ninety days or more in
arrears, except in certain instances where management believes that collateral
held by the Bank is clearly sufficient for full satisfaction of both principal
and interest. Loans will be removed from non-accrual when the principal and
interest become current and the loan is considered fully collectable.
Loan origination fees and certain direct origination costs are offset and the
resulting net amount is deferred and amortized as an adjustment of the yield on
the related loans.
Loans held for sale are carried at the lower of cost or estimated fair value.
Fair value is determined based on outstanding investor commitments or, in the
absence of such commitments, current investor yield requirements.
Allowance for Loan Losses
The allowance for loan losses is available for probable credit losses inherent
in the loan portfolio. The allowance is increased by provisions charged to
operations on the basis of many factors including the risk characteristics of
the portfolio, current economic conditions and trends in loan delinquencies and
charge-offs. Realized losses, net of recoveries, are charged directly to the
allowance.
The Bank accounts for impaired loans, except loans accounted for at fair value
or at the lower of cost or fair value, at the present value of the expected
future cash flows discounted at the loan's effective interest rate or the fair
value of the collateral if the loan is collateral dependent. Impaired loans
include commercial, commercial real estate and individually significant mortgage
or consumer loans for which it is probable the Bank will not collect all amounts
due according to the terms of the loan agreement. Impairment on troubled debt
restructurings is measured using the premodification rate of interest.
While management uses the information available in establishing the allowance
for loan losses, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluation. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on judgments different from those of management.
Real Estate Acquired by Foreclosure
Real estate acquired by foreclosure is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Real
estate acquired by foreclosure is initially recorded at the lower of the
carrying value of the loan or the fair value of the property minus costs to
sell. Fair value is based upon a market appraisal prepared by a State certified
appraiser not more than 30 days prior to the date of the foreclosure. Losses
arising from the acquisition of such properties are charged against the
allowance for loan losses.
Operating expenses and any subsequent provisions to reduce the carrying value
to fair value minus cost to sell are charged to current period earnings. Gains
upon disposition are reflected in earnings as realized. Realized losses are
charged to the valuation allowance.
Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed on the straight-
line method over the estimated useful lives of the related assets or terms of
leases.
Pension Costs and Employee Benefits
The Bank accounts for pension and postretirement benefits on the net periodic
cost method for financial reporting purposes. This method recognizes the
compensation cost of an employee's benefit over that employee's approximate
service period.
The Company continues to follow APB Opinion No. 25 "Accounting for Stock
Issued to Employees" as permitted by Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). For companies
that elect to continue using APB 25, SFAS 123 requires disclosure of the pro
forma effect of using the fair value method of accounting for stock-based
compensation that is encouraged by SFAS 123. See note 12 of notes to
consolidated financial statements for the expanded disclosures required by SFAS
123 regarding pro forma net income and earnings per share.
Core Deposit Intangible
Core deposit and other intangibles are amortized to expense over a period of ten
years using an accelerated method. The unamortized balance of these intangibles
are evaluated periodically for their recoverability.
<PAGE>
Notes to Consolidated Financial Statements
Income Taxes
The Bank recognizes income taxes under the asset and liability method. Under
this method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of the
Bank's assets and liabilities at enacted tax rates expected to be in effect when
the amounts related to such temporary differences are realized or settled. A
valuation allowance related to deferred tax assets is established when, in
management's judgment, it is more likely than not that all or a portion of such
deferred tax assets will not be realized. Changes in the valuation allowance are
reflected as deferred income tax expense or benefit. The deferred tax asset is
adjusted for changes in the federal and state tax rates.
Earnings Per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
replaces the existing accounting rules for computing earnings per share and
makes the new rules comparable to international standards. Basic earnings per
share excludes common stock equivalents and is computed by dividing net income
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share gives effect to all potential dilutive common shares
using the average market price of the Company's common stock for the period plus
the weighted average number of common shares outstanding for the equivalent
period of time. All prior period earnings per share have been restated to comply
with SFAS 128.
The numerator in the earnings per share calculation is net income, as
reported, for both the basic and dilutive calculations.
(2) Other Short-term Investments
A comparative summary of other short-term investments follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Tax anticipation notes $ -- $ 570
Money market funds 101 66
----- -----
$ 101 $ 636
===== =====
</TABLE>
(3) Investment Securities
A comparative summary of investment securities follows (mortgage-backed
securities and CMOs are shown at their final maturity, but are expected to have
shorter average lives); the Bank does not own callable securities.
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
------------------ -----------------------------
HELD TO MATURITY AVAILABLE FOR SALE Held to maturity Available for sale
------------------ ------------------ ------------------ ------------------
AMORTIZED FAIR AMORTIZED FAIR Amortized Fair Amortized Fair
COST VALUE COST VALUE cost value cost value
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government obligations:
Maturing within 1 year $ 9,992 $10,004 $ -- $ -- $12,015 $12,035 $ 2,000 $ 1,994
Maturing after 1 year
but within 5 years 5,488 5,506 -- -- 10,462 10,492 -- --
------- ------- --------- ------- ------- ------- ------- -------
15,480 15,510 -- -- 22,477 22,527 2,000 1,994
------- ------- --------- ------- ------- ------- ------- -------
Collateralized mortgage obligations (CMOs):
Maturing within 1 year 413 413 -- -- 1,436 1,436 -- --
Maturing after 1 year
but within 5 years 4,598 4,591 -- -- 6,384 6,312 -- --
Maturing after 5 years
but within 10 years 5,036 5,021 -- -- 740 753 -- --
Maturing after 10 years 40,162 40,230 -- -- 56,220 55,708 -- --
------- ------- --------- ------- ------- ------- ------- -------
50,209 50,255 -- -- 64,780 64,209 -- --
------- ------- --------- ------- ------- ------- ------- -------
Mortgage-backed securities:
Maturing within 1 year -- -- 98 98 -- -- -- --
Maturing after 1 year
but within 5 years -- -- -- -- -- -- 147 147
Maturing after 5 years
but within 10 years 217 228 -- -- -- -- -- --
Maturing after 10 years 33,671 33,782 10,763 10,891 12,391 12,392 8,271 8,343
------- ------- --------- ------- ------- ------- ------- -------
33,888 34,010 10,861 10,989 12,391 12,392 8,418 8,490
------- ------- --------- ------- ------- ------- ------- -------
Marketable equity securities:
Mortgage-backed mutual fund -- -- -- -- -- -- 2,520 2,510
Common and preferred stocks -- -- 2 6 -- -- 324 318
------- ------- --------- ------- ------- ------- ------- -------
-- -- 2 6 -- -- 2,844 2,828
------- ------- --------- ------- ------- ------- ------- -------
$99,577 $99,775 $10,863 $10,995 $99,648 $99,128 $13,262 $13,312
======= ======= ========= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
A comparative summary of mortgage-backed securities and CMO's follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
------------------ ------------------
AMORTIZED FAIR Amortized Fair
COST VALUE cost value
--------- ------- --------- -------
<S> <C> <C> <C> <C>
FHLMC $18,086 $18,210 $18,820 $18,720
FNMA 41,643 41,687 24,586 24,408
GNMA 4,398 4,492 3,982 4,068
Non-agency 30,831 30,865 38,201 38,201
------- ------- ------- -------
$94,958 $95,254 $85,589 $85,091
======= ======= ======= =======
</TABLE>
A comparative summary of gross unrealized gains and losses pertaining to
investment securities are summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
DECEMBER 31, 1997 December 31, 1996
----------------- -----------------------
GROSS GROSS Gross Gross
AMORTIZED UNREALIZED UNREALIZED FAIR Amortized unrealized unrealized Fair
COST GAINS losses value cost gains losses value
--------- ----------------- ----------- ------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity
- ----------------
U.S. Government obligations $15,480 $ 36 $ (6) $15,510 $22,477 $ 50 $ -- $22,527
Collateralized mortgage
obligations 50,209 269 (223) 50,255 64,780 209 (780) 64,209
Mortgage-backed securities 33,888 331 (209) 34,010 12,391 88 (87) 12,392
------- ---- ----- ------- ------- ---- ----- -------
$99,577 $636 $(438) $99,775 $99,648 $347 $(867) $99,128
======= ==== ===== ======= ======= ==== ===== =======
<CAPTION>
DECEMBER 31, 1997 December 31, 1996
----------------- -----------------
GROSS GROSS Gross Gross
AMORTIZED UNREALIZED UNREALIZED FAIR Amortized unrealized unrealized Fair
COST GAINS LOSSES VALUE cost gains losses value
--------- ----------------- ----------- ------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale
- ------------------
U.S. Government obligations $ -- $ -- $ -- $ -- $ 2,000 $ -- $ (6) $ 1,994
Mortgage-backed securities 10,861 137 (9) 10,989 8,418 112 (40) 8,490
Marketable equity securities 2 4 -- 6 2,844 20 (36) 2,828
------- ---- ----- ------- ------- ---- ----- -------
$10,863 $141 $ (9) $10,995 $13,262 $132 $ (82) $13,312
======= ==== ===== ======= ======= ==== ===== =======
</TABLE>
The Bank had approximately $2,910,000 in proceeds from sales of securities
available for sale for the year ended December 31, 1997. The Bank realized gross
gains on sales of $66,000 and gross losses of $11,000 during 1997. There were no
sales of securities for the year ended December 31, 1996.
(4) Loans
The Bank's lending activities are conducted principally in the Southeastern and
Cape Cod areas of Massachusetts. The Bank grants single-family and multi-family
residential loans, commercial real estate loans and a variety of consumer loans.
In addition, the Bank grants loans for the construction of residential homes,
multi-family properties, commercial real estate properties and for land
development. Most loans granted by the Bank are either collateralized by real
estate or guaranteed by Federal and local governmental authorities. The loans
are expected to be repaid from borrower's earnings and cash flow or proceeds
from the sale of the related assets.
State banking regulations generally limit the amount of loans that may be
outstanding to one borrower to 20% of stockholders' equity. At December 31,
1997, the Bank had no loans outstanding to one borrower in an aggregate amount
exceeding this limitation.
<PAGE>
Notes to Consolidated Financial Statements
A comparative summary of loans follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Residential mortgage:
Fixed rate $ 14,956 $ 16,020
Adjustable rate 232,925 186,012
Commercial real estate 62,579 61,088
Construction 32,472 34,332
Land 6,351 4,526
Other loans:
Home equity 12,438 12,278
Consumer 4,847 5,393
Secured by deposits 1,182 1,160
Commercial 8,060 7,933
Education 826 1,123
-------- --------
376,636 329,865
Less:
Allowance for loan losses (note 5) (4,100) (3,741)
Unadvanced portion of construction loans (7,188) (9,763)
Deferred loan origination costs 1,294 742
-------- --------
$366,642 $317,103
======== ========
</TABLE>
Non-accrual loans totaled approximately $3,581,000, $4,086,000, and $4,671,000
at December 31, 1997, 1996, and 1995, respectively. Restructured loans totaled
approximately $105,000, $258,000, and $1,062,000 at December 31, 1997, 1996, and
1995, respectively.
The reduction in interest income associated with non-accrual and restructured
loans at the end of the periods was as follows:
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31,
-----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income in accordance with original terms $ 321 $ 403 $ 551
Income recognized 144 203 312
----- ----- -----
Reduction in interest income $ 177 $ 200 $ 239
===== ===== =====
</TABLE>
Included in non-accrual loans are impaired loans totaling $630,000, $1,429,000
and $1,309,000 at December 31, 1997, 1996 and 1995, respectively. The reduction
in interest income associated with impaired loans at the end of the periods was
as follows:
<TABLE>
<CAPTION>
(In thousands) Year ended December 31,
-----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income in accordance with original terms $ 67 $ 148 $ 141
Income recognized 23 84 72
----- ----- -----
Reduction in interest income $ 44 $ 64 $ 69
===== ===== =====
</TABLE>
The Bank granted mortgage loans to executive officers and to Directors and their
related interests in the normal course of business. The outstanding amount of
such loans at December 31, 1997, 1996 and 1995 was approximately $700,000,
$714,000, and $820,000, respectively. No such loans were on non-accrual.
Currently, the Bank grants only loans secured by deposits to executive officers
and Directors.
Mortgage loans serviced by the Bank for others amounted to approximately
$115,478,000, $108,756,000, and $100,902,000, at December 31, 1997, 1996 and
1995, respectively. The Bank had no loans held for sale at December 31, 1997 and
$221,000, and $389,000 at December 31, 1996, 1995, respectively. At December 31,
1997, the Bank had commitments to sell loans totaling approximately $6,149,000.
<PAGE>
Notes to Consolidated Financial Statements
(5) Allowance for Loan Losses
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period $ 3,741 $ 3,674 $3,255
Provision charged to operations 750 265 597
Recoveries on accounts previously
charged off 89 67 183
Loans charged off (480) (265) (361)
------- ------- ------
Balance at end of period $ 4,100 $ 3,741 $3,674
======= ======= ======
</TABLE>
(6) Office Properties and Equipment
A summary of office properties and equipment follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Land $ 712 $ 870
Buildings 2,627 4,395
Furniture, fixtures and equipment 4,282 3,923
Leasehold improvements 400 392
------- -------
8,021 9,580
Less accumulated depreciation and amortization (3,380) (3,565)
$ 4,641 $ 6,015
======= =======
</TABLE>
In 1997, the Bank entered into a sale/leaseback agreement for three of its
offices and deferred the gain on sale of $599,000. The initial lease term is
twenty years followed by four five-year renewal options. Furthermore, the Bank
will have the right to re-purchase the properties at the end of years eight,
fifteen and twenty. The commitment for minimum annual lease payments is as
follows:
<TABLE>
<CAPTION>
(In thousands) Years ending December 31,
1997 1998 1999 2000 2001 Thereafter Total
------ ---- ---- ---- ---- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Lease Payments $ 15 182 182 182 182 995 $1,738
</TABLE>
(7) Stock in Federal Home Loan Bank of Boston
As a member of the Federal Home Loan Bank of Boston ("FHLB of Boston"), the Bank
is required to invest in $100 par value stock of the FHLB of Boston in an amount
equal to 1% of its outstanding home loans or 5% of its outstanding advances from
the FHLB of Boston, or 1% of 30% of total assets, whichever is highest. If such
stock is redeemed, the Bank will receive from the FHLB of Boston an amount equal
to the par value of the stock. As of December 31, 1997, the Bank was required to
have an investment of at least $2,603,000.
(8) Deposits
A summary of deposits follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31,1996
----------------- ----------------
<S> <C> <C>
Non-interest bearing accounts:
Demand $ 39,127 $ 38,459
Official checks 865 1,336
-------- --------
Total non-interest bearing accounts 39,992 39,795
-------- --------
Savings accounts:
Regular 24,345 23,321
NOW, Super NOW and Special Notice 44,075 40,488
Money market 100,825 92,441
-------- --------
Total savings accounts 169,245 156,250
-------- --------
Certificates of deposit:
Term 168,523 147,265
IRA 45,254 44,939
-------- --------
Total certificates of deposit 213,777 192,204
-------- --------
$423,014 $388,249
======== ========
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
A summary of certificates of deposit, by periods of maturity follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Within one year $134,958 $122,255
From one to two years 55,552 42,250
From two to three years 16,678 15,798
From three to five years 6,572 11,844
Over five years 17 57
-------- --------
$213,777 $192,204
======== ========
</TABLE>
Individual certificates of deposit of $100,000 or more, by periods of maturity,
are summarized below:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Within three months $15,133 $ 8,945
From three to six months 6,976 3,675
From six to twelve months 7,897 4,823
Thereafter 15,146 18,391
------- --------
$45,152 $ 35,834
======= ========
</TABLE>
(9) Borrowed Funds
Advances from the Federal Home Loan Bank of Boston are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Maturing in DECEMBER 31, December 31,
Interest rate year ending 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
4.53 - 5.78% 1997 $ -- $26,026
5.60 - 6.47% 1998 34,000 5,000
5.71 - 6.83% 1999 11,000 1,000
8.32% 2015 47 47
6.67% 2017 54 --
5.66% 2018 500 --
-------- -------
$ 45,601 $32,073
======== =======
Weighted average rate 5.82% 5.70%
======== =======
</TABLE>
The advances are secured by the Bank's stock in the FHLB of Boston and certain
qualifying assets of the Bank, which include mortgage loans on residential
property and investments with a market value in excess of 125% of outstanding
advances. The Bank has a line of credit with the FHLB of Boston aggregating
$8,146,000 of which all is available at December 31, 1997.
(10) Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31,
--------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal $2,383 $2,070 $1,928
State 606 539 674
------ ------ ------
2,989 2,609 2,602
------ ------ ------
Deferred tax benefit:
Federal (426) (2) (423)
State (83) 14 (10)
------ ------ ------
(509) 12 (433)
------ ------ ------
Total income tax expense $2,480 $2,621 $2,169
====== ====== ======
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The difference between income tax expense computed by applying the statutory
Federal income tax rate of 34% to income before income taxes and the reported
income tax expense (benefit) is explained as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Year ended December 31,
-------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Expected income tax expense
at statutory rate $2,496 $2,298 $1,906
Increase (decrease) resulting from:
Dividend received deduction and
municipal income (17) (7) (16)
State income taxes, net of
Federal benefit 345 365 436
Change in valuation allowance (576) (142) (100)
Expiration of capital loss carryforward 30 98 --
Other, net 202 9 (57)
------ ------ ------
Total income tax expense $2,480 $2,621 $2,169
====== ====== ======
Effective income tax rate 33.8% 38.8% 38.7%
====== ====== ======
</TABLE>
The Bank had gross deferred tax assets and gross deferred tax liabilities as
follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, At December 31,
1997 1996
------------ ---------------
<S> <C> <C>
Gross deferred tax assets:
Allowance for loan losses $1,470 $1,269
Capital loss carryforward 9 490
Deferred compensation 1,113 966
Non-accrual loan interest 21 21
Losses on foreclosed real estate 56 148
Subsidiary state net operating loss carryforward -- 34
Deferred gain on the sale of office properties 269 --
Purchase accounting 589 498
------ ------
Gross deferred tax assets 3,527 3,426
Valuation allowance (56) (632)
------ ------
Gross deferred tax assets, net 3,471 2,794
------ ------
Gross deferred tax liabilities:
Mortgage servicing rights (143) (80)
Unrealized gains on securities available for sale (47) (17)
Depreciation (178) (112)
Loan origination costs (100) (71)
Miscellaneous (55) (45)
------ ------
Gross deferred tax liabilities (523) (325)
------ ------
Net deferred tax asset $2,948 $2,469
====== ======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the gross deferred tax asset will not be realized. Management has
established a valuation allowance principally for the tax effect of the capital
loss carry forward and the state income tax benefit derived from the gross
deductible temporary differences. The primary sources of recovery of the
deferred tax asset are taxes paid that are available for carryback of $6.1
million in 1997, 1996 and 1995, and the expectation that the deductible
temporary differences will reverse during periods in which the Bank generates
taxable income. As of December 31, 1997, the capital loss carryforward
approximates $25,000 and expires in 1998.
The balance of the pre-1988 bad debt reserves continue to be subject to
provision of present law that require recapture in the case of certain excess
distributions to shareholders. The tax effect of pre-1988 bad debt reserves
subject to recapture in the case of certain excess distributions is
approximately $2,300,000.
<PAGE>
Notes to Consolidated Financial Statements
(11) Retained Earnings
The Bank is subject to various regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional, discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier I capital (as defined in the regulations) to risk
weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes that as of December 31, 1997, the Bank
meets all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the prompt corrective action
provisions. To be categorized as well capitalized, the Bank must maintain Total
capital risk-based, Tier 1 capital risk-based and Tier 1 capital leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes would cause a change in the Bank's
categorization.
The Company's and Bank's actual capital amounts and ratios in addition to the
minimum capital requirements and well capitalized capital requirements at
December 31 follow:
<TABLE>
<CAPTION>
To Be Well
Minimums Capitalized Under
For Capital Prompt Corrective
(In thousands) Actual Adequacy Action Provisions
--------------- ---------------- ------------------
(Dollars in thousands)
Amount Ratio Amount Ratio Amount Ratio
------- ------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
- ------------------------
Risk-based capital ratio:
Total capital
Sandwich Bancorp, Inc. $44,371 14.9% $23,868 8.0% $29,835 10.0%
Sandwich Co-operative Bank 44,050 14.8 23,851 8.0 29,814 10.0
Tier I capital
Sandwich Bancorp, Inc. 40,640 13.6 11,934 4.0 17,901 6.0
Sandwich Co-operative Bank 40,321 13.5 11,926 4.0 17,889 6.0
Leverage capital ratio:
Tier I capital
Sandwich Bancorp, Inc. 40,640 7.9 20,690 4.0 25,863 5.0
Sandwich Co-operative Bank 40,321 7.8 20,686 4.0 25,858 5.0
As of December 31, 1996:
- ------------------------
Risk-based capital ratio:
Total capital:
Sandwich Co-operative Bank 40,112 14.7 21,851 8.0 27,314 10.0
Tier 1 capital
Sandwich Co-operative Bank 36,694 13.4 10,925 4.0 15,147 6.0
Leverage capital ratio:
Tier 1 capital
Sandwich Co-operative Bank 36,694 8.4 17,572 4.0 20,927 5.0
</TABLE>
The Company may not declare or pay cash dividends on its common stock if the
effect thereof would cause its net worth to be reduced below regulatory net
worth requirements or if such declaration and payment would otherwise violate
regulatory requirements.
(12) Employee Benefits
Postretirement Benefits
The Bank provides postretirement medical benefits for employees that were hired
before July 1, 1993. The Bank accrued postretirement benefits other than
pensions (medical benefits) over the periods during which employees render
service. The Bank amortizes the transition obligation from January 31, 1993 into
operations over a 20 year period. Expense for the years ended December 31, 1997,
1996 and 1995 was approximately $54,000, $53,000 and $51,000, respectively.
Pension Plan
The Bank provides pension benefits for its employees through membership in the
Co-operative Banks Employee's Retirement Association. The Plan is a multi-
employer, noncontributory, defined benefit plan. Bank employees become eligible
after attaining age 21 and one year of service. The Plan is funded by the Bank
and benefits become fully vested after six years of eligible service.
Pension expense was approximately $317,000, $309,000 and $224,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
<PAGE>
Notes to Consolidated Financial Statements
Stock Option Plan
During 1986, the Board of Directors adopted a Stock Option Plan for the benefit
of officer and non-officer employees and reserved 182,083 shares of authorized
but unissued common stock. Similarly, in 1994, the Board of Directors instituted
the 1994 Stock Option and Incentive Plan and reserved 90,000 shares of common
stock. Under terms of the Plans, the exercise price of any option granted will
not be less than the fair market value of the common stock on the date of grant
of the option and options may not have a maximum term of more than ten years.
A summary of the activity under the Plan follows:
<TABLE>
<CAPTION>
Number of Average
shares exercise price
----------- ---------------
<S> <C> <C>
Balance outstanding at December 31, 1994 169,005 $10.67
Options granted ($16.75) 28,500 16.75
Options exercised ($7.00 - $12.00) (17,716) 11.37
------- ------
Balance outstanding at December 31, 1995 179,789 11.56
Options granted ($21.1875) 28,600 21.19
Options exercised ($7.00 - $16.75) (51,266) 12.49
Options canceled ($11.55 - $16.75) (450) 16.17
------- ------
Balance outstanding at December 31, 1996 156,673 13.00
Options granted ($30.6875) 31,850 30.69
Options exercised ($7.00 - $21.1875) (40,594) 10.47
Options canceled ($16.75 - $30.6875) (1,050) 24.41
------- ------
Balance outstanding at December 31, 1997 146,879 $17.46
======= ======
</TABLE>
Stock options outstanding and exercisable:
<TABLE>
<CAPTION>
At December 31, 1997
--------------------
Options outstanding Options exercisable
------------------- -------------------
Weighted Weighted Weighted
average average average
Number remaining exercise Number exercise
outstanding contractual life price outstanding price
----------- ---------------- -------------------- ------------------- --------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$7.00 - $14.875 63,475 4.2 years $ 9.60 63,475 $ 9.60
$16.75 - $21.1875 52,004 7.8 years 19.07 24,064 18.29
$30.6875 31,400 9.2 years 30.69 -- --
</TABLE>
There are 3,828 options available for future grant at December 31, 1997.
At December 31, 1997, the per share weighted average fair value of stock
options granted during 1997, 1996 and 1995 was $18.05, $7.39 and $5.20 ,
respectively on the date of grant using the Black Scholes option-pricing model
with the following weighted average assumptions for 1997, 1996 and 1995:
expected dividend yield of 2.42% for 1997 and 3.69% for 1996 and 1995, risk-free
interest rate of 5.92% for 1997 and 6.56% for 1996 and 1995, volatility of the
Company's common stock of 35% for 1997 and 45% for 1996 and 1995 and an expected
life of ten years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
(Dollars in thousands
except per share data) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C> <C>
Net income As reported $4,860 $4,137 $3,436
Pro forma 4,654 4,102 3,406
Earnings per share As reported $ 2.45 $ 2.13 $ 1.82
Pro forma 2.34 2.11 1.80
</TABLE>
Pro forma net income reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of three years and compensation cost for options granted prior to January
1, 1995 is not considered.
<PAGE>
Notes to Consolidated Financial Statements
Employee Bonus Plan
The Bank has an employee bonus and management incentive compensation plan in
which employees are eligible to participate. The Plan provides for awards based
upon a combination of Bank and individual performance measured against
predetermined annual goals, based on specific performance objectives. The Plan
is administered by the Bank's president under the direction of the Board of
Directors.
Incentive compensation expense of $248,000, $188,000 and $235,000 was charged
to expense for the years ended December 31, 1997, 1996 and 1995, respectively.
Employee Stock Ownership Plan
Effective May 1, 1989, the Bank established an Employee Stock Ownership Plan
("ESOP") for the exclusive benefit of participating employees, defined as age 21
or older who have completed one year of service. Under the plan, the Bank
reviews its profitability and determines what contribution, if any, will be made
to the ESOP. ESOP expense of $197,000, $171,000 and $134,000 was charged to
expense for the years ended December 31, 1997, 1996 and 1995, respectively.
Executive Supplemental Retirement Agreements
The Bank entered into executive supplemental retirement agreements with certain
executive officers. These agreements provide retirement benefits designed to
supplement benefits available through the Bank's retirement plan for employees.
Total expense for benefits payable under the agreements amounted to $101,000,
$78,000 and $73,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. At December 31, 1997, the Bank's liability for these arrangements,
included in accrued expenses and other liabilities, was approximately $387,000.
Director Deferred Compensation Arrangements
Starting in 1983, the Bank entered into deferred compensation arrangements with
certain directors whereby in consideration for the deferral of directors' fees,
those directors will receive in the future a fixed amount of cash compensation.
Expensed under these arrangements for the years ended December 31, 1997, 1996
and 1995 was approximately $220,000, $238,000 and $148,000, respectively. At
December 31, 1997, the Bank's liability for these arrangements, included in
accrued expenses and other liabilities, was approximately $1,768,000.
(13) Estimated Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments
have been determined by using available quoted market information or other
appropriate valuation methodologies at year-end, and are not indicative of the
fair value of those instruments at the date this report is published. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bank's entire holdings of a particular financial
instrument. Because no market exists for a portion of the Bank's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include real estate acquired by foreclosure,
the deferred income tax asset, office properties and equipment, and core deposit
and other intangibles. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered.
The estimation methodologies used, book values and estimated fair values for
the Bank's financial instruments follows.
Financial instruments actively traded in a secondary market have been valued
using quoted available market prices as follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
-------------------- --------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE amount fair value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Loans held for sale $ -- $ -- $ 221 $ 216
Investment securities:
Available for sale 6 6 4,822 4,822
Held to maturity 15,480 15,510 22,477 22,527
Mortgage-backed securities and CMOs:
Available for Sale 10,989 10,989 8,490 8,490
Held to maturity 84,097 84,265 77,171 76,601
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The fair value of financial instruments with stated maturities have been
estimated by discounting cash flows with a discount rate approximately equal to
the current market rate for similar instruments as follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
------------------------- --------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE amount fair value
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
Loans, net 366,642 372,455 $317,103 $321,473
Certificates of deposit 213,777 214,369 192,204 193,236
Federal Home Loan Bank advances 45,601 45,613 32,073 32,169
</TABLE>
The fair value of financial instruments with no maturity or short-term
maturities approximates its carrying value as follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
------------------------ ----------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE amount fair value
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 15,967 $ 15,967 $11,718 $11,718
Other short-term investments 101 101 636 636
Accrued interest receivable 2,836 2,836 2,680 2,680
Stock in FHLB of Boston 3,749 3,749 2,670 2,670
Co-operative Central Bank Reserve Fund 965 965 965 965
Demand deposit accounts 39,992 39,992 39,795 39,795
NOW, Super NOW and
Special Notice accounts 44,075 44,075 40,488 40,488
Regular savings accounts 24,345 24,345 23,321 23,321
Money market deposit accounts 100,825 100,825 92,441 92,441
Escrow deposits of borrowers accounts 1,604 1,604 915 915
</TABLE>
The fair value of commitments to extend credit have been estimated using fees
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
The fair value of commitments to sell loans are estimated as the cost to cancel
such agreements. The fair value of financial instruments with off-balance sheet
risk have been estimated as follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
----------------------------- -----------------------------
CONTRACT OR ESTIMATED Contract or Estimated
NOTIONAL AMOUNT FAIR VALUE notional amount fair value
----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Commitments to extend credit $46,190 $490 $51,976 $539
Commitments to sell loans 6,149 20 1,232 0
</TABLE>
(14) Commitments and Contingencies
Legal Proceedings
The Bank has been named a defendant in various legal proceedings arising in the
normal course of business. In the opinion of management, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's or the Bank's consolidated financial
statements.
Off-balance Sheet Risk
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to originate or purchase loans, unadvanced
portions of construction loans, unused lines of credit, standby letters of
credit and forward commitments to sell loans. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
<PAGE>
Notes to Consolidated Financial Statement
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments and standby letters of
credit is represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments. For forward commitments, the
contract or notional amounts do not represent exposure to credit loss. The Bank
controls the credit risk of forward commitments through credit approvals, limits
and monitoring procedures.
Financial instruments with off-balance sheet risk are as follows:
<TABLE>
<CAPTION>
Contract or
notional amount
-----------------------------
(In thousands) DECEMBER 31, December 31,
1997 1996
--------------- ------------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Unused lines of credit and commitments to originate loans $38,784 $41,926
Unadvanced portions of construction loans 7,188 9,764
Standby letters of credit 218 286
Financial instruments whose notional or contract amounts
exceed the amount of credit risk:
Commitments to sell loans 6,149 1,232
</TABLE>
Unused lines of credit, commitments to originate or purchase loans and
unadvanced portions of construction loans are agreements to lend to a customer
provided there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. For all lines of credit and loans, the Bank
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the borrower.
Commitments to sell loans are contracts which the Bank enters into for the
purpose of reducing the market risk associated with originating and selling
residential mortgage loans. In order to fulfill the commitment, the Bank must
deliver loans under contract or must pay a cash penalty as determined by the
investor. The Bank does not sell loans with recourse.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Bank is required to maintain certain reserves of vault cash and/or
deposits with the Federal Reserve Bank of Boston. The amount of this reserve
requirement included in cash and due from banks was $1,927,000 at December 31,
1997.
(15) Condensed Parent Company Financial Statements
Sandwich Bancorp, Inc. was formed on September 30, 1997, therefore the Statement
of Operations and Statement of Cash Flows is for the three months ended December
31, 1997 only. The following are the condensed financial statements for Sandwich
Bancorp, Inc., referred to as the "Parent Company" for purposes of this note
only, as of December 31:
<TABLE>
<CAPTION>
BALANCE SHEET
1997
--------------
(IN THOUSANDS)
--------------
<S> <C>
Assets
Cash and interest-bearing deposits in subsidiaries $ 258
Investments in subsidiaries, at equity 41,695
Other assets 73
-------
Total assets $42,026
=======
Liabilities and Stockholders' Equity
Total liabilities $ 12
Total stockholders' equity 42,014
-------
Total liabilities and stockholders' equity $42,026
=======
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
THREE MONTHS
ENDED
DECEMBER 31, 1997
-----------------
(in thousands)
<S> <C>
Dividends from Company subsidiaries $ 768
Interest income from deposits in Company subsidiaries --
Total operating income --
Non-interest expenses 27
------
Income before income tax expense (benefit) and
equity in net income of subsidiaries 741
Income tax expense (benefit) --
------
Income before equity in net income of subsidiaries 741
Equity in net income of subsidiaries 687
------
Net income $1,428
======
</TABLE>
The Parent Company's statements of changes in stockholders' equity are
identical to the consolidated statements of changes in stockholders' equity and
therefore are not presented here.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
THREE MONTHS
ENDED
DECEMBER 31, 1997
-------------------------
(in thousands)
<S> <C>
Cash flows from operating activities:
Net income $ 1,428
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiaries (687)
Increase in other assets (73)
Increase in other liabilities 12
-------
Net cash provided by operating activities 680
-------
Cash flows from financing activities:
Stock options exercised 250
Dividends paid to stockholders (672)
-------
Net cash used by financing activities (422)
-------
Net cash received by subsidiary 258
-------
Net increase in cash and interest-bearing deposit
in subsidiaries 258
Cash and interest-bearing deposit in subsidiaries at
beginning of year --
-------
Cash and interest-bearing deposit in subsidiaries at
end of year $ 258
=======
</TABLE>
(16) Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1997 QUARTERS 1996 Quarters
THREE MONTHS ENDED Three months ended
------------------------------------------ ------------------------------------------
Periods ended DEC. 31, SEPT. 30, JUNE 30, MAR. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income $ 9,400 $ 9,234 $ 8,958 $ 8,325 $ 8,616 $ 8,233 $ 7,754 $ 7,706
Interest expense 4,896 4,720 4,584 4,122 4,155 4,042 3,805 3,790
------- ------- ------- ------- ------- ------- ------- -------
Net interest and
dividend income 4,504 4,514 4,374 4,203 4,461 4,191 3,949 3,916
Provision for loan losses (328) (181) (132) (109) (180) (50) (35) --
Non-interest income 823 662 620 616 712 719 702 706
Non-interest expense (3,186) (2,989) (3,046) (3,005) (2,915) (3,158) (3,116) (3,144)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 1,813 2,006 1,816 1,705 2,078 1,702 1,500 1,478
Income tax expense 385 768 669 658 831 658 563 569
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 1,428 $ 1,238 $ 1,147 $ 1,047 $ 1,247 $ 1,044 $ 937 $ 909
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per share $0.74 $ 0.65 $ 0.60 $ 0.55 $ 0.66 $ 0.55 $ 0.50 $ 0.49
======= ======= ======= ======= ======= ======= ======= =======
Diluted earnings per share $0.71 $ 0.62 $ 0.58 $ 0.53 $ 0.63 $ 0.54 $ 0.48 $ 0.47
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(17) Subsequent Events
On February 2, 1998, the Company and the Bank entered into a definitive
agreement under which Compass Bank of New Bedford, Massachusetts will acquire
Sandwich Bancorp, Inc. Prior to the Company's consideration and approval of its
definitive agreement with Compass Bank, the Company had contacted and received
expressions of interest from three other parties who had expressed an interest
in an acquisition of the Company.
On February 24, 1998, the Company announced that its Board of Directors,
consistent with the exercise of its fiduciary duties, determined that it was
appropriate to request additional information and clarification of the renewed
expressions of interest that it had received from three other parties subsequent
to February 2.
Following a comprehensive review of the other expressions of interests for
the Company, the Company and Compass Bank jointly announced on March 23, 1998,
that they have signed an amendment to their previously announced agreement of
February 2, 1998 (the "Amended Agreement") by which Compass Bank would acquire
Sandwich Bancorp, Inc. Under the terms of the Amended Agreement, Compass Bank's
parent company, The 1855 Bancorp will convert to a 100% publicly owned stock
holding company and thereafter issue stock having a value of $64.00 per share to
Sandwich Bancorp shareholders in a tax-free exchange of common stock. The value
to be received by Sandwich Bancorp shareholders is subject to adjustment
pursuant to a formula based on the value of the stock of The 1855 Bancorp near
the transaction date. Based on 1855 Bancorp's assumed initial public offering
price of $10.00 per share, each Sandwich Bancorp share will be exchanged for
1855 Bancorp stock having a value of $64.00 per share so long as 1855 Bancorp
stock trades at an average price of between $10.00 and $13.50 per share during a
designated trading period following the initial public offering date. If this
average price exceeds $13.50 per share, the value to be received by Sandwich
Bancorp shareholders will increase proportionately up to a maximum value of
$71.11 until 1855 Bancorp's average price reaches or exceeds $15.00 per share.
If this average price is equal to or less than $10.00 per share, Sandwich
Bancorp shares will be exchanged for 6.4 shares of 1855 Bancorp stock.
Sandwich Bancorp and The 1855 Bancorp also entered into a Stock Option
Agreement, granting to The 1855 Bancorp an option to acquire up to 19.9% of
Sandwich common stock under certain circumstances. The transaction, which is
subject to all necessary regulatory and shareholder approvals, is expected to
close in the fourth quarter of 1998.
3
<PAGE>
Sandwich Bancorp, Inc.
Directors
Leon Davidson
Chairman of the Board
Retired Owner & President
Kobrin & Davidson Furniture Co.
Howard P. Crowell
Owner
Crow Farm
John J. Doran
President
Citizens Medical Corporation
Bradford N. Eames
Owner and President
Eames Insurance Agency
Mary F. Hebditch
Certified Public Accountant
George L. Jackson
Retired Owner and President
Jackson Plumbing & Heating
Richard S. Holway
Retired Sr. Vice President
Loomis Sayles & Company
Barry H. Johnson
Administrative Assistant to
Barnstable County Sheriff
Frederic D. Legate
President & Chief Executive Officer
Sandwich Bancorp, Inc. and
Sandwich Co-operative Bank
Reale J. Lemieux
Owner
Bay Beach Bed & Breakfast
David O. MacKinnon
Retired Superintendent
Wareham Public Schools
Gary A. Nickerson
Attorney at Law
George B. Rockwell
Retired Vice President
Arthur D. Little, Inc.
Honorary Directors
William Bryden
John S. Jillson
Camilla E. Nevius
John A. Ohman
George Sutton
<PAGE>
Sandwich Bancorp, Inc.
Officers
Frederic D. Legate
President & Chief Executive Officer
Dana S. Briggs
Senior Vice President & Secretary
George L. Larson
Senior Vice President & Treasurer
David A. Parsons
Senior Vice President
Sandwich Co-operative Bank
Senior Officers
Frederic D. Legate
President & Chief Executive Officer
Dana S. Briggs
Senior Vice President, Senior
Retail/Operations Officer & Clerk
George L. Larson
Senior Vice President, Chief
Financial Officer & Treasurer
David A. Parsons
Senior Vice President &
Senior Loan Officer
Administration
Susan A. Montie
Vice President &
Director of Human Resources
Frederick W. Underhill, Jr.
Vice President &
Auditor/Compliance Officer
Finance
Michele J. Lino
Assistant Vice President &
Accounting Manager
Deborah S. Fitzpatrick
Assistant Treasurer &
Financial Analysis Manager
Lending
Mary Ann Ahonen
Vice President &
Commercial Loan Officer
John R. Callahan
Vice President &
Commercial Loan Officer
G. Stephen Cody
Vice President &
Senior Commercial Loan Officer
<PAGE>
Jean M. Gilbert
Vice President & Senior Residential
Mortgage Officer
David B. Rowlings
Vice President &
Commercial Loan Officer
William P. Brazil
Assistant Vice President &
Commercial Loan Officer
Karen E. Dawson
Assistant Vice President &
Commercial Loan Officer
Carol C. Elloian
Assistant Vice President &
Credit Officer
Diane K. Johnson
Assistant Vice President &
Loan Operations Officer
Gregory N. Anderson
Assistant Treasurer &
Collections Manager
Barbara G. Meehan
Assistant Treasurer &
Lending Support Analyst
Thomas Russett
Assistant Treasurer &
Mortgage Origination Manager
Retail/Operations
Robert H. Delaive
Vice President &
Director of Information Systems
Daniel K. Trout
Vice President &
Main Office Manager
Glenn Van Wickle
Vice President &
Branch Coordinator
Adelaide M. Drolette
Assistant Vice President &
Falmouth Manager
James M. Galavotti
Assistant Vice President &
Wareham Manager
Ellen T. Holmes
Assistant Vice President &
Operations Officer
Lisa L. Block
Assistant Vice President &
Orleans Manager
Linda L. Mancovsky
Assistant Vice President &
Pocasset Manager
<PAGE>
Joseph W. Mitchell, Jr.
Assistant Vice President &
Director of Marketing & Sales
Marc J. Oliva
Assistant Vice President &
Buzzards Bay Manager
Pamela K. Rideout
Assistant Vice President &
South Yarmouth Manager
Janet T. Crowell
Assistant Treasurer &
Chatham Manager
Jeanne E. Lemire
Assistant Treasurer &
Cedarville Manager
Ruth A. Ouellette
Assistant Treasurer &
Hyannis Manager
Glenn R. Sherman
Assistant Treasurer &
South Sandwich Manager
<PAGE>
Common Stock Information
The Company's common stock is traded over-the-counter on the NASDAQ National
Market System under the symbol SWCB. Stock prices are generally shown in the
NASDAQ National market section of major daily newspapers with the listing SAND
BCP or similar abbreviations.
High and low trading prices of the Company's common stock for each quarter of
1997 and 1996 are shown below, along with the dividend declared:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
October- July- April- January- October- July- April- January-
December September June March December September June March
-------- --------- ------ -------- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $45 1/4 $39 3/4 $32 $34 3/4 $31 1/4 $23 1/4 $21 1/8 $21 1/2
Low 33 3/4 30 1/4 26 1/2 28 21 3/4 19 1/2 18 3/4 17
Dividend $ 0.35 $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.25 $ 0.25 $ 0.25
</TABLE>
As of December 31, 1997, the number of shareholders of record was approximately
900.
Independent Auditors
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
Special Counsel
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, DC 20036
Transfer Agent
Stock certificate changes or changes of address should be directed to:
Registrar & Transfer Company
10 Commerce Drive
Cranford, NJ 07016
(800) 368-5948
Investor Information
In addition to this annual report, Sandwich Bancorp, Inc. will send a copy of
its annual report on
Form 10-K to stockholders and other interested parties upon written request
without charge. Requests
should be addressed to:
Investor Relations
Sandwich Bancorp, Inc.
P. O. Box 959
Sandwich, MA 02563
Analysts, stockholders and investors interested in additional information may
contact Dana S. Briggs,
Senior Vice President, at the address above.
Recent company news releases and financial information are available on the
internet at www.sandwichbank.com.
Annual Meeting
The Annual Meeting of Stockholders will be held at The Ridge Club, Country Club
Road, South Sandwich, Massachusetts on Wednesday, June 3, 1998 at 10:00 a.m.
Directions: From the Sagamore Bridge follow Route 6 East to Exit 4. Take right
off exit and proceed just over 2 miles to first stop sign. Take left and proceed
100 yards; The Ridge Club is on your right.
<PAGE>
Sandwich Bancorp, Inc.
Corporate Offices
100 Old Kings Highway
P. O. Box 959
Sandwich, MA 02563
(508) 888-0026
Ssandwich Co-operative Bank
Banking Offices
108 Cohasset Avenue
Buzzards Bay
2277 Route 3A
Cedarville
895 Main Street
Chatham
310 Gifford Street
Falmouth
North Street & Bassett Lane
Hyannis
51 Main Street
Orleans
30 Barlows Landing Road
Pocasset
100 Old Kings Highway
Sandwich
331 Cotuit Road
South Sandwich
1029 Route 28
South Yarmouth
261 Main Street
Wareham
Loan Office
14 Main Street Ext.
Plymouth
Subsidiaries
The Sextant Corporation
Sandwich Securities Corporation
Sextant Securities Corporation
[LOGO OF SANDWICH BANCORP, INC. APPEARS HERE]
www.sandwichbank.com
<PAGE>
EXHIBIT 21
SUBSIDIARIES
------------
The Sandwich Co-operative Bank 100% owned by the Company, Incorporated under
the laws of the Commonwealth of
Massachusetts.
The Sextant Corporation 100% owned by the Bank, Incorporated under
the laws of the Commonwealth of
Massachusetts.
Sandwich Securities Corporation 100% owned by the Bank, Incorporated under
the laws of the Commonwealth of
Massachusetts.
Sextant Securities Corporation 100% owned by the Bank, Incorporated under
the laws of the Commonwealth of
Massachusetts.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Sandwich Bancorp, Inc.:
We consent to incorporation by reference in Registration Statement NO. 333-39349
on Form S-8 of Sandwich Bancorp, Inc. of our report dated January 26, 1998,
except as to note 17, which is as of March 12,k 1998, relating to the
consolidated balance sheets of Sandwich Bancorp, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1997, which report is included
herein.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,949
<INT-BEARING-DEPOSITS> 383,022
<FED-FUNDS-SOLD> 6,018
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,995
<INVESTMENTS-CARRYING> 99,577
<INVESTMENTS-MARKET> 99,775
<LOANS> 370,742
<ALLOWANCE> 4,100
<TOTAL-ASSETS> 518,697
<DEPOSITS> 423,014
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,068
<LONG-TERM> 45,601
0
0
<COMMON> 1,942
<OTHER-SE> 40,072
<TOTAL-LIABILITIES-AND-EQUITY> 518,697
<INTEREST-LOAN> 28,205
<INTEREST-INVEST> 7,408
<INTEREST-OTHER> 304
<INTEREST-TOTAL> 35,917
<INTEREST-DEPOSIT> 15,342
<INTEREST-EXPENSE> 18,322
<INTEREST-INCOME-NET> 17,595
<LOAN-LOSSES> 750
<SECURITIES-GAINS> 66
<EXPENSE-OTHER> 12,226
<INCOME-PRETAX> 7,340
<INCOME-PRE-EXTRAORDINARY> 4,860
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,860
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.45
<YIELD-ACTUAL> 3.71
<LOANS-NON> 3,581
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,532
<ALLOWANCE-OPEN> 3,741
<CHARGE-OFFS> 480
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 4,100
<ALLOWANCE-DOMESTIC> 4,100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
