As filed with the Securities and Exchange Commission on June 5, 1998
Registration No. -
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Form SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
Merrill Merchants Bancshares, Inc.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
Maine 6712 01-0471507
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
Edwin N. Clift
Merrill Merchants Bancshares, Inc.
201 Main Street
Bangor, ME 04401
207-942-4800
(Address and Telephone Number of Principal Place of Business and
Executive Offices and Name, Address and Telephone Number for Agent for Service)
COPIES TO:
<TABLE>
<S> <C>
Harry A. Hanson, III, Esq. William W. Bouton, III, Esq.
Hutchins, Wheeler & Dittmar Tyler Cooper & Alcorn, LLP
A Professional Corporation City Place, 35th Floor
101 Federal Street Hartford, CT 06103
Boston, MA 02110 860-725-6210
617-951-6600
</TABLE>
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of Registration.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================
Title of Each Dollar Proposed Proposed
Class of Amount Maximum Maximum Amount of
Securities to Be To Be Offering Price Aggregate Registration
Registered Registered Per Share(1) Offering Price Fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $9,660,000(2) $14 $9,660,000(2) $ 2,849.70
- --------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(2) Includes an aggregate of $1,260,000 to cover overallotments, if any,
pursuant to the overallotment option granted to the Underwriters.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
AS SHOWN, SUBJECT TO COMPLETION, DATED _______, 1998
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitations of an offer to buy nor shall there by any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to the registration or qualification under the securities laws
of any such State.
[/RED HERRING]
600,000 Shares
---------------
Merrill Merchants Bancshares, Inc.
---------------
Common Stock
---------------
Merrill Merchants Bancshares, Inc. (the "Company"), a Maine corporation
and a one-bank holding company for Merrill Merchants Bank, a Maine chartered
bank, hereby offers (the "Offering") for sale 600,000 shares of its Common
Stock, par value $1.00 per share (the "Common Stock"). Prior to this Offering,
there has been no public market for the Common Stock of the Company. It is
currently anticipated that the initial public offering price will be between
$12.00 and $14.00 per share of Common Stock. See "Underwriting" for a
discussion of the factors considered in determining the Offering price.
Shares of Common Stock may be reserved for sale at the initial public
offering price to the Company's employees, directors and other persons with
direct business relationships with the Company. Such employees, directors and
other persons may purchase, in the aggregate, not more than 10% of the Common
Stock offered hereby. See "Underwriting".
Prior to this Offering, there has been no public market for the Common
Stock and no assurance can be given that any such market will develop or, if
developed, that it will be sustained. The Company has applied for listing of
the Common Stock offered hereby on the National Association of Securities
Dealers Automated Quotation System National Market System ("NASDAQ-NMS"), under
the symbol "MERB."
See "Risk Factors" beginning on page 6 for certain considerations relevant
to an investment in the Common Stock.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Underwriting Discounts and Proceeds to
Price to Public Commissions (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ......... $ $ $
Total (3) ......... $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$475,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
90,000 additional shares of Common Stock, on the same terms and conditions
set forth above, solely to cover overallotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts
and Commissions, and Proceeds to the Company will be $ , $ , and
$ , respectively. The managing underwriter will receive a
supplemental financial advisory fee of $25,000, payable upon consummation
of the Offering. See "Underwriting."
---------------
The shares of Common Stock are being offered by the several Underwriters
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters. The Underwriters reserve the right to withdraw, cancel, or modify
this Offering without notice and to reject any order in whole or in part. It is
expected that delivery of certificates representing the shares of Common Stock
will be made against payment therefore on or about , 1998 at the offices
of Advest, Inc., New York, New York.
---------------
Advest, Inc.
The Date of this Prospectus is _________, 1998.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
----------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission" or the "SEC"), Washington, D.C., a Registration Statement on Form
SB-2 ("Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock offered hereby. This
prospectus (the "Prospectus") does not contain all the information set forth in
the Registration Statement and the schedules and exhibits thereto, certain
parts of which have been omitted pursuant to the rules of the Commission.
Statements herein concerning the contents of any contract or other document are
summaries thereof, and each statement is qualified in its entirety by reference
to the copy of such contract or other document filed with the Commission as an
exhibit to the Registration Statement or otherwise. For further information
about the Company and such securities, reference is made to the Registration
Statement and the schedules and exhibits filed as part thereof. Upon the
completion of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated thereunder, and
in accordance therewith, intends to file reports and other information with the
Commission. The Registration Statement, together with schedules and exhibits,
and such reports and other information filed by the Company with the Commission
may be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and its
regional offices may be inspected without charge, and copied at the principal
or regional offices of the Commission at the addresses indicated above. Copies
also may be obtained at prescribed rates from the public reference facilities
maintained by the Commission at its Washington, D.C. address. The Commission
also maintains an Internet web site that contains information, including
registration statements, of issuers who file electronically with the
Commission. The address of the web site is http:// www.sec.gov.
The Company will furnish annual reports to its shareholders which will
contain audited financial statements certified by its independent public
accountants. The Company may distribute unaudited quarterly reports and other
interim reports to its shareholders as it deems appropriate.
ii
<PAGE>
Merrill Merchants Bancshares, Inc.
Service Area Map
- --------------------------------------------------------------------------------
Merrill Merchants Bancshares, Inc. |
|
MAIN OFFICE |
| [ILLUSTRATION]
Bangor o 201 Main Street | Map of Maine highlighting
(04401) | Service Areas, with an
| exploded view showing
BRANCH OFFICES | main and branch offices
| within surrounding state
Bangor o 920 Stillwater Avenue | counties.
(04401) o 992 Union Street |
|
Brewer o 366 Wilson Street |
(04412) |
|
Orono o 69 Main Street |
(04473) |
|
Pittsfield o 27 Main Street |
(04967) |
|
Newport o Newport Plaza |
(04953)
iii
<PAGE>
This Page Is Intentionally Left Blank
iv
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in Risk Factors and elsewhere in this Prospectus. The
following summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements and the notes thereto appearing elsewhere
in this Prospectus.
Unless otherwise indicated, the information in this Prospectus (i)
reflects, following receipt of the requisite shareholder approvals and upon the
closing of the Offering, the filing of the Restated Articles of Incorporation
of the Company which, among other things, will authorize 4,000,000 shares of
Common Stock, 50,000 shares of Series A Preferred Stock, $1.00 par value per
share ("Series A Preferred Stock"), and 950,000 shares of Serial Preferred
Stock, $.01 par value per share ("Serial Preferred Stock"), and a 9:1 stock
split, effected as a stock dividend, to be completed prior to the closing of
the Offering (the "9:1 Stock Split") and (ii) assumes no exercise of the
Underwriters' overallotment option to purchase 90,000 shares of Common Stock.
The Company
Merrill Merchants Bancshares, Inc. (the "Company"), a Maine corporation
organized in March 1992, is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended ("BHCA"). In October 1992, the Company
became the bank holding company for Merrill Merchants Bank (the "Bank") and
holds 100% of the Bank's outstanding common stock (the "Bank Stock"). The
Company, through its ownership of the Bank, is engaged in a general commercial
and retail banking business, along with trust and investment services.
The Company is an entity legally separate and distinct from the Bank. The
only sources of the Company's income and cash flow are any dividends paid on
the Bank Stock, tax benefits received by the Company and earnings from amounts
deposited by the Company in interest bearing accounts or investments. The
payment of dividends by the Bank, the payment of dividends by the Company and
many other aspects of the operations of the Company and the Bank are subject to
regulation and control by various regulatory agencies.
The Company has its principal executive offices at 201 Main Street,
Bangor, Maine 04401, telephone (207) 942-4800.
Merrill Merchants Bank
The Bank was established in 1992 to purchase certain assets and assume
certain liabilities of certain branch banking offices formerly held by a large
out of state bank. Merrill Merchants Bank is headquartered in Bangor, Maine,
which is located 76 miles north of Augusta, Maine, the State Capital.
Presently, the Bank maintains seven branch banking offices (collectively, the
"Branch Banks") in five area communities. The three Bangor offices provide
city-wide convenience and are complemented by: (i) an office in Brewer,
Bangor's sister city located on the eastern shore of the Penobscot River; (ii)
a branch in Orono, home of the University of Maine, the State's flagship
campus; (iii) a branch in Pittsfield, a small rural town of 4,000 people
located about 30 miles southwest of Bangor; and (iv) a new supermarket branch
in Newport, a small town neighboring Pittsfield, approximately 25 miles
southwest of Bangor. The Newport Branch is located at the juncture of
Interstate 95 and Route 2, which is the main travel route to the winter and
summer tourist area of the Moosehead Lake Region. In addition to the Branch
Banks, the Bank has seven ATM locations in its primary market area.
The Bank conducts a general commercial and retail banking business that
includes the acceptance of deposits from the general public and the application
of those funds to the origination of a variety of commercial loans, commercial
and residential real estate loans and consumer loans. The Bank also provides
trust and investment services. As of March 31, 1998, the Company had total
assets of $175.8 million, loans net of allowances of $118 million, total
deposits of $140.4 million and shareholders' equity of $11.5 million. Unless
the context otherwise requires, references herein to the Company shall include
the Company and the Bank, on a consolidated basis after October, 1992.
The Bank's loan portfolio has grown over the last two years, while
nonperforming loans as a percentage of total loans were at .20% and .15% at
March 31, 1998 and December 31, 1997, respectively, both percentages being
1
<PAGE>
below the Bank's national peer group average of .68%. The Bank has also
established a Trust and Investment Services Department, which has grown since
inception in April 1994 to $98.5 million in assets under management as of March
31, 1998. The Bank offers its customers the option of conducting many of their
transactions via an automated telephone banking system and through the use of
the customer's personal computer.
The Bank's income is derived principally from interest and fees earned in
connection with its lending and trust department activities, interest and
dividends on investment securities, short-term investments and other services.
Its main expenses are the interest paid on deposits and operating expenses. The
Bank's deposits are insured up to the applicable limits by the Federal Deposit
Insurance Corporation ("FDIC").
Market Area
The Bank's primary market area, Greater Bangor, is at the center of
commercial activity for the northeastern and central region of the State of
Maine. Nearly 100,000 people live in the Bank's primary market area. The Bank
is part of a strategic link to Canada as Bangor is the closest U.S.
metropolitan area to Eastern Quebec and the Canadian Maritime Provinces. Many
regional and national companies site their operations in the Bangor area.
Services, trades, manufacturing and government are the four largest categories
of employment in the metropolitan Bangor region. Bangor is also a health care
center for central, eastern and northern Maine. The City is a regional
financial center and is also serviced by several statewide and regional
accounting firms, law firms, insurance companies and security and investment
firms. Bangor is also a hub for government services, with many local, State and
Federal offices located within the City. Bangor is accessible by multiple exits
from Interstate 95, a major interstate highway which transits the Eastern
Seaboard of the United States. Major routes to all regions of the State bisect
Bangor from various directions. Bangor International Airport provides domestic
and international passenger and cargo service for a significant portion of the
State.
Strategy
The Bank was formed by a group of local business people who, after
observing a series of large bank acquisitions in the region, believed that the
remaining banks were no longer effectively servicing the needs of the
community. The Bank founders identified the need for a customer-service
oriented, independent community bank serving Bangor and central Maine. To serve
this need, the Bank has worked to position itself as a service-oriented,
community bank. The Bank is staffed by experienced management personnel, most
of whom reside in the area, know the Bank's customers and are able to provide
personalized service for these customers. The Bank's strategy has been
deliberately developed and implemented at a time when consolidation within the
industry and in the region has resulted in an increasing depersonalization
among the larger institutions. The Bank has focused on fostering banking
relationships with customers which include providing multiple financial
services that range from basic checking to investment management accounts.
The Bank has also attracted local business people to serve on its Board of
Directors, each of whom promote the Bank in the community. In addition, the
Bank has obtained additional investments in and support for the Bank from local
investors in an effort to broaden the community's awareness of the Bank and
attract new business. By continuing to follow the original goal to have a
customer-service oriented, independent community bank, the Bank has experienced
growth since inception. Management intends to continue the Bank's community
banking strategy while at the same time attempting to increase its market
share.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock Offered ................................ 600,000 shares (l)
Common Stock Outstanding after the Offering ......... 2,255,640 shares (1)(2)(3)
Estimated Net Proceeds .............................. $6,740,000(1)(4)(5)
Use of Proceeds ..................................... Working capital and general corporate purposes,
including investments in the Bank, possible market
expansion in banking and businesses closely related
to banking and possible repayment of borrowings.
See "Use of Proceeds."
Risk Factors ........................................ Prospective investors in the Common Stock should
consider the information discussed under the
heading "Risk Factors."
Proposed NASDAQ-NMS Symbol .......................... "MERB"
</TABLE>
- ----------
(1) Assumes no exercise of the Underwriters' overallotment option to purchase
90,000 shares of Common Stock. See "Underwriting."
(2) Based on the number of shares of Common Stock outstanding on March 31,
1998. Excludes 540,027 shares of Common Stock issuable upon exercise of
stock options outstanding at March 31, 1998 with a weighted average
exercise price of $5.15 per share. See "Capitalization",
"Management -- Stock Option Plan", "Description of Securities" and Note 19
of Notes to Consolidated Financial Statements.
(3) Does not include 66,654 shares of Common Stock issuable upon conversion of
the Company's outstanding Mandatory Convertible Debentures ("Debentures")
and 199,935 shares of Common Stock issuable upon conversion of the
outstanding Series A Preferred Stock. See "Capitalization", "Description
of Securities," and Notes 11 and 15 of Notes to Consolidated Financial
Statements.
(4) After deducting the underwriting commission and expenses of this Offering
payable by the Company, which expenses are estimated at $475,000.
(5) Assumes an offering price of $13 per share (the midpoint of the price range
set forth on the cover page of this Prospectus).
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
MERRILL MERCHANTS BANCSHARES, INC.
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
At or for the
Three Months Ended At or for the
March 31, Year Ended December 31,
--------------------------- ---------------------------
1998 1997 1997 1996
------------- ------------- ------------- -------------
(Unaudited)
Selected Financial Condition Data:
<S> <C> <C> <C> <C>
Total assets .............................................. $ 175,753 $ 160,034 $ 178,619 $ 158,425
Cash and cash equivalents ................................. 6,775 11,427 10,659 8,591
Investment securities ..................................... 45,579 37,411 44,826 41,014
Loans receivable, net (1) ................................. 118,036 106,416 117,679 104,320
Deposits .................................................. 140,398 126,856 146,312 126,704
Repurchase agreements ..................................... 13,554 12,268 11,897 12,164
Other borrowed funds ...................................... 5,856 6,000 5,144 2,832
Long-term debt ............................................ 2,745 3,695 2,895 3,695
Mandatory convertible debentures .......................... 300 300 300 300
Shareholders' equity ...................................... 11,506 9,809 10,967 9,671
Income Statement Data:
Interest and dividend income .............................. $ 3,510 $ 3,074 $ 13,215 $ 11,826
Interest expense .......................................... 1,613 1,409 6,060 5,383
Net interest income ....................................... 1,897 1,665 7,155 6,443
Provision for loan losses ................................. 90 75 355 360
Net interest income after provision for loan losses ....... 1,807 1,590 6,800 6,083
Non-interest income ....................................... 481 404 1,724 1,489
Non-interest expense ...................................... 1,695 1,553 6,357 5,813
Income before income taxes ................................ 593 441 2,167 1,759
Income tax expense ........................................ 213 161 765 639
Net income ................................................ 380 280 1,402 1,120
Per Share Data:
Earnings per share-basic (2) .............................. .22 .16 .82 .65
Earnings per share-diluted (2) ............................ .19 .14 .71 .58
Cash dividends on Common Stock (2) ........................ .03 -- .03 --
Book value (2)(3) ......................................... 6.92 6.14 6.77 5.98
Weighted average shares outstanding (2) ................... 1,641,969 1,619,226 1,619,226 1,619,226
Selected Financial Ratios and Other Data:
Return on average assets (4) .............................. 0.89% 0.74% 0.86% 0.78%
Return on average equity (3)(4) ........................... 13.69% 11.57% 13.63% 12.28%
Net interest margin (4)(5) ................................ 4.59% 4.59% 4.67% 4.72%
Net interest spread (4) ................................... 3.87% 3.90% 3.97% 3.97%
Non-performing assets to total assets (6) ................. 0.13% 0.37% 0.13% 0.45%
Non-performing loans to total loans (6) ................... 0.20% 0.21% 0.15% 0.36%
Allowance for loan losses to total loans .................. 1.50% 1.41% 1.44% 1.37%
Allowance for loan losses to non-performing loans (6) ..... 768.80% 674.67% 933.15% 384.62%
Net loan charge-offs to average loans (4) ................. .03% .03% 0.08% 0.04%
Efficiency ratio (7) ...................................... 71.28% 75.06% 71.60% 73.29%
Capital Ratios:
Tier 1 risk-based capital (8) ............................. 10.25% 9.66% 9.77% 9.53%
Total risk-based capital (8) .............................. 11.78% 11.22% 11.30% 11.10%
Leverage ratio (8)(9) ..................................... 6.38% 6.19% 6.06% 5.98%
</TABLE>
4
<PAGE>
- ----------
(1) Includes loans held for sale.
(2) Adjusted to reflect the 9:1 Stock Split, 5% stock dividends in each of 1998
and 1997 and a 3% stock dividend in 1996.
(3) Excludes unrealized gain or loss on securities available for sale net of
taxes.
(4) Information is annualized for the periods ended March 31, 1998 and 1997.
(5) Represents net interest income as a percentage of average interest earning
assets. Calculation is shown tax-affected for tax exempt interest income.
(6) Non-performing assets consist of non-performing loans and other real estate
owned. Non-performing loans consist of non-accrual loans and accruing
loans 90 days or more past due while other real estate owned consists of
real estate acquired through foreclosure and real estate acquired by
acceptance of a deed-in-lieu of foreclosure.
(7) Non-interest expense divided by the sum of net interest income plus
non-interest income.
(8) The minimum regulatory capital ratios in order for the Company to be
adequately capitalized are: Tier 1 capital -- 4.00%; total risk-based
capital -- 8.00%; and leverage ratio -- 4.00%.
(9) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets.
5
<PAGE>
RISK FACTORS
A prospective investor should review and consider carefully the following
factors, together with the other information contained in this Prospectus, in
evaluating an investment in the Common Stock. This discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those Risk Factors set forth below.
Competition
The banking business is highly competitive. The Bank, including its
branches, competes with other banks, savings banks, credit unions, and other
financial institutions in their local communities for loans and deposits. The
Bank also competes directly with regional and national financial institutions.
While the Company cannot predict the impact of interstate banking, it
anticipates that competition could intensify as local institutions increasingly
merge and become part of larger national organizations. In addition, the Bank
presently competes with non-bank institutions such as mortgage companies,
securities brokerage companies and insurance companies. Legislation pending in
the United States Congress would allow more competition from such sources. As
these changes occur, the banking environment will become more competitive with
the largest market shares going to the lowest cost provider that has an
efficient product delivery system. The Bank hopes to take advantage of the
opportunity currently being created by the large commercial banks as they
de-emphasize personalized service, move loan and credit decisions from the
local areas, and move to consolidate trust services out of state, resulting in
less personalized service. If the Company and the Bank are unable to
successfully compete, however, the business and operations of the Company and
the Bank could be adversely affected. See "Business -- Competition."
Dependence on Economic Conditions
Every bank is affected by the economic conditions beyond its control in the
area in which it operates. The main facility of the Bank and two of its branches
are located in Bangor, Maine, and the remaining four branches are located in
Newport, Orono, Pittsfield and Brewer, Maine. A depressed economy in the early
1990's in the United States, and in particular, in New England, caused financial
hardship in the Bank's primary market area. However, the central region of Maine
has achieved modest growth over the past several years as part of a general
recovery of the whole Northeast region after such recession. In addition, the
Company believes that property values in the Bank's market area have generally
been more stable than in southern Maine and the New England states as a whole.
While management believes that the composition of business in these communities
is sufficiently diversified and not unduly concentrated in any particular
industry, there can be no assurance that future adverse economic conditions will
not have a negative impact upon the quality of the Bank's loan portfolio and the
Company's earnings. Therefore, the Bank and the Company remain vulnerable to
downturns in the economy of the areas in which the Bank operates and
particularly to downturns in the forestry, pulp, paper and healthcare
industries. See "Business -- Economic Environment."
Impact of Changes in Real Estate Values
A significant portion of the Bank's loan portfolio consists of residential
mortgage loans and commercial real estate loans. At December 31, 1997, 39.5% of
the Bank's loans were secured by one-to-four family residential real estate,
34.3% were secured by commercial real estate and multifamily residential and
2.5% were real estate-secured construction loans. Further, a substantial
portion of the properties securing the Bank's loans are located in Maine,
primarily in Greater Bangor. Real estate values and real estate markets
generally are affected by, among other things, changes in national, regional or
local economic conditions, fluctuations in interest rates and the availability
of loans to potential purchasers, changes in the tax laws and other
governmental statutes, regulations and policies, demographic trends and acts of
nature. Any decline in real estate prices, particularly in Maine, could
significantly reduce the value of the real estate collateral securing the
Bank's loans, increase the level of the Bank's non-performing loans and have a
material adverse effect on the Bank's regulatory capital, business, financial
condition and results of operations. See "Management Discussion and Analysis of
Financial Condition and Results of Operations -- Lending Activities" and
"Business -- Lending Activities."
Foreclosure on Bank Stock
The Company pledged all of the Bank Stock as security for a $4 million
loan from Marshall & Ilsley Bank, ("M&I Bank"), pursuant to a loan agreement
dated October 16, 1992, as amended, ("M&I Loan"). As of March 31, 1998, the
principal amount outstanding thereunder was approximately $2.7 million. If the
Company were to default
6
<PAGE>
under the M&I Loan and such default were not cured, M&I Bank would have the
right to foreclose on and obtain ownership of the Bank Stock. The Bank Stock is
the Company's principal asset and thus if the M&I Bank were to foreclose on the
Bank Stock, investors could lose their entire investment in the Company. In
addition, there are certain operating restrictions imposed by M&I Bank
concerning the operations of the Company. See "Business --Loan from Marshall &
Ilsley Bank."
Asset/Liability Management
The operations and profitability of the Company and the Bank are largely
impacted by changes in interest rates and management's ability to control
interest rate sensitivity of the Bank's assets and liabilities. Since its
inception, the Bank has experienced a positive gap position which suggests that
the Bank's net yield on interest earning assets may decrease during periods of
declining interest rates. Management believes that its asset/liability strategy
reduces the Bank's risk exposure due to fluctuations in interest rates.
However, there can be no assurance that the Bank's asset/liability strategy
will be successful. Despite the implementation of strategies to achieve such
matching objectives and to reduce the Bank's exposure to fluctuating interest
rates during this period, the Bank's results of operations will remain subject
to the level and movement of interest rates. Decreases in interest rates may
continue to be reflected more quickly in decreases in the Bank's interest
income than in its cost of funds. In periods of declining interest rates, the
Bank may experience significant prepayment or refinancing of the mortgage loan
portfolio which would result in the investment of these funds at lower yields.
In addition, it is possible that net interest income could have been higher had
the Bank originated and retained fixed-rate mortgages preceding any decline in
market interest rates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Interest Rate Risk."
Adequacy of Allowance for Loan Losses
The success of a bank depends to a significant extent upon the quality of
its assets, particularly loans. In the case of the Company, this is highlighted
by the fact that, as of March 31, 1998, net loans represented approximately 67%
of the Company's total assets. In originating loans, there is a substantial
likelihood that loan losses will be experienced. The risk of loss will vary
with, among other things, general economic conditions, the type of loan being
made, the creditworthiness of the borrower over the term of the loan and, in
the case of a collateralized loan, the quality of the collateral for the loan.
Management maintains an allowance for loan losses based on, among other things,
industry standards, management's experience, historical experience, an
evaluation of economic conditions and regular reviews of delinquencies and loan
portfolio quality. Based upon such factors, management makes various
assumptions and judgments about the ultimate collectability of the loan
portfolio and provides an allowance for loan losses based upon a percentage of
the outstanding balances and for specific loans when their ultimate
collectability is considered questionable. Since certain lending activities
involve greater risks, the percentage applied to specific loan types may vary.
As of December 31, 1997, the allowance for loan losses was $1.7 million,
which represented 1.44% of total loans and non-performing loans as a percentage
of total loans were at .15%. As of March 31, 1998, the allowance for loan
losses was $1.8 million, which represented 1.50% of total loans, and
nonperforming loans as a percentage of total loans were at .20%. The Bank
reviews its allowance for loan losses on a quarterly basis and provides
increases in the allowance, if necessary, based on the results of this review.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Allowance for Loan Losses."
The Bank actively manages its past due and non-performing loans in an
effort to minimize loan losses and monitors its asset quality to maintain an
adequate loan loss allowance. Although management believes that its allowance
for loan losses should be adequate, there can be no assurance that the
allowance will prove sufficient to cover future loan losses. Further, although
management believes that it uses the best information available to make
determinations with respect to the allowance for loan losses, future
adjustments may be necessary if economic conditions differ substantially from
the assumptions used or adverse developments arise with respect to the Bank's
non-performing or performing loans. Accordingly, there can be no assurance that
the allowance for loan losses will be adequate to cover loan losses or that
significant increases to the allowance will not be required in the future if
economic conditions should worsen. Material additions to the Bank's allowance
for loan losses would result in a decrease of the Bank's net income and capital
of the Company and the Bank and could result in the inability to pay dividends,
among other adverse consequences. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Allowance for Loan Losses."
7
<PAGE>
Dependence on Key Personnel
The success of the business of the Company and the Bank is substantially
dependent upon the continuing services of William C. Bullock, Jr., Edwin N.
Clift, Deborah A. Jordan, William P. Lucy and George H. Moore, all of whom are
executive officers and/or directors of the Company and the Bank. The loss of
the services of any of these individuals could be detrimental to the business
and financial results of the Company and the Bank. See "Management."
Use of Name; Trademarks
On January 5, 1993, the Bank filed a trademark application with the United
States Patent and Trademark Office (the "Trademark Office") for the use of the
Merrill "Pine Tree" symbol, both used alone and in combination with the name
"Merrill Merchants Bank." On April 29, 1993, the Trademark Office preliminarily
refused registration of the application because, in the opinion of the
Trademark Office, the Bank's application for federal trademark protection of
the name "Merrill Merchants Bank" was confusingly similar to certain other
previously filed registrations. The Bank chose not to appeal this decision. The
Bank did, however, previously register the logo and the name "Merrill Merchants
Bank" with the State of Maine, which registration was filed October 15, 1992.
The Bank has established goodwill in its name and its logo. In the event that
the Bank's use of the Merrill Merchants name and logo in the State of Maine is
successfully challenged, the Bank would be forced to explore other
alternatives, such as using a similar name or changing the name, each of which
could have a material adverse impact on the Company and the Bank. See
"Business -- Service Marks and Trade Names."
Absence of Trading Market
Prior to this Offering, there has been no public market for the Company's
Common Stock. The Offering price of the Common Stock has been determined by
negotiations between the Company and the Underwriters based upon several
factors and does not necessarily bear any relationship to the Company's assets,
book value, results of operations, net worth, or any other generally accepted
criteria of value and should not be considered as indicative of the actual
value of the Company. See "Underwriting."
Although the Company has applied for quotation of the Common Stock on the
NASDAQ-NMS, there can be no assurance that it will be approved, and if
approved, that any market will develop. Further, if a market does develop, it
may be limited and there can be no assurance that it will be sustained. To the
extent that a public market does develop, factors such as quarterly variations
in the Company's financial results, announcements by the Company or others or
certain regulatory pronouncements may cause the market price of the Common
Stock to fluctuate substantially. See "Market for Common Stock."
Supervision and Regulation
Bank holding companies and banks operate in a highly regulated environment
and are subject to the supervision and examination by several federal and state
regulatory agencies. The Company is subject to the BHCA and to regulation and
supervision by the Federal Reserve Board (the "Federal Reserve") and the Maine
Bureau of Banking (the "Bureau"). The Bank, as a state chartered member bank of
the Federal Reserve System, is subject to the regulation and supervision of the
Federal Reserve, the Bureau, and the FDIC. These laws and regulations govern
matters ranging from the regulation of certain debt obligations, changes in the
control of bank holding companies and the maintenance of adequate capital to
the general business operations and financial condition of the Bank, including
permissible types, amounts and terms of loans and investments, the amount of
reserves against deposits, restrictions on dividends, establishment of branch
offices and the maximum rate of interest that may be charged by law. The
Federal Reserve, the Bureau and the FDIC also possess cease and desist powers
over bank holding companies and banks to prevent or remedy unsafe or unsound
practices or violations of law. These and other restrictions limit the manner
in which the Company and the Bank may conduct their business and obtain
financing. Furthermore, the commercial banking business is affected not only by
general economic conditions, but also by the monetary policies of the Federal
Reserve. These monetary policies have had and are expected to continue to have
significant effects on the operating results of commercial banks. Changes in
monetary or legislative policies may affect the ability of the Bank to attract
deposits and make loans. See "Supervision and Regulation."
8
<PAGE>
Restrictions on Payment of Dividends by the Bank to the Company
The only sources of income and cash flow to the Company are any dividends
paid on the Bank Stock, the tax benefits received by the Company resulting from
the Company filing consolidated federal income and state franchise tax returns
with the Bank and the interest received from any amounts deposited by the
Company in interest bearing accounts or investments. Therefore, the ability of
the Company to pay cash dividends on the Common Stock depends to a large degree
upon the amount of cash dividends paid by the Bank to the Company. The payment
of dividends by the Bank is subject to certain financial and regulatory
requirements. In some cases, the appropriate federal or state banking agency
could take the position that it has the power to prohibit the Bank from paying
dividends if, in its view, such payments will constitute unsafe or unsound
banking practices. In addition, whether dividends are paid and their frequency
and amount will depend on the financial condition and performance, and the
discretion of management, of the Bank. These restrictions on dividends paid by
the Bank may limit the Company's ability to obtain funds from such dividends
for its cash needs, including funds for payment of operating expenses, cash
dividends on shares of Common Stock and Series A Preferred Stock, M&I Loan
repayment and interest on the Debentures. Even if the Bank is successful, if it
is unable to pay dividends for any reason, the success of the Company and any
returns received from an investment in the Company could be adversely affected.
See "Dividends" and "Supervision and Regulation."
Restrictions on Payment of Dividends by the Company
The only sources of income and cash flow to the Company are any dividends
paid on the Bank Stock, the tax benefits received by the Company resulting from
the Company filing consolidated federal income and state franchise tax returns
with the Bank, and the interest received from any amounts deposited by the
Company in interest bearing accounts or investments. Even if funds become
available to the Company, the Company must first satisfy the obligations under
the M&I Loan, the Debentures and the accumulated dividends due to holders of
the Series A Preferred Stock. See "Certain Transactions" and "Descriptions of
Securities." Moreover, the payment of dividends by the Company to the holders
of the Common Stock is restricted by the requirement imposed on the Company to
maintain adequate capital pursuant to the capital adequacy guidelines issued by
the Federal Reserve Board and also will be subject to the discretion of the
Company's Board of Directors. These limitations could adversely affect the
ability of the Company to pay dividends to holders of Common Stock. See
"Dividends," "Business -- Loan from Marshall & Ilsley Bank" and
"Supervision and Regulation."
No Assurance of Acquisitions
The net proceeds from this Offering will be used for general corporate
purposes, which may include the possible funding of future acquisitions.
Acquisitions of financial institutions such as bank holding companies, banks,
thrifts or companies conducting businesses deemed closely related to banking or
managing or controlling banks or thrifts are subject to a number of conditions
including availability, price and regulatory approvals. There can be no
assurance that potential acquisitions that meet the Company's investment
criteria will be available or that the required regulatory approvals of any
such acquisitions will be obtained. The Company currently has no plans,
understandings, arrangements or agreements, written or oral, with respect to
any specific acquisition prospect, and is not presently negotiating with any
party with respect thereto. See "Supervision and Regulation."
Deregulation
There have been significant changes in the banking industry in recent
years. Many of the changes have resulted from federal legislation intended to
deregulate the banking industry. This legislation has, among other things,
eliminated interest rate restrictions on deposits and increased the power of
non-banks to expand into traditional banking services. Future changes in the
banking industry may include some modification of prohibitions on the type of
businesses in which bank holding companies may engage. In addition, other types
of financial institutions, including securities brokerage companies, insurance
companies, and investment banking firms, have been given and may continue to be
given powers to engage in activities which traditionally have been engaged in
only by commercial banks. Such changes would tend to place the Company and the
Bank in more direct competition with other non-bank financial institutions. See
"Supervision and Regulation."
9
<PAGE>
Interest Rates and Usury Laws
Except to the extent that interest rates may be limited by common law
principles, Maine has no usury laws which would limit the rate of interest that
may be charged by the Bank, except for limitations imposed by the Maine Uniform
Consumer Credit Code with respect to certain consumer loans. It is not
anticipated that these limitations will have a material effect on the Bank's
operations. However, such limitations could affect its operations in the future
if market interest rates exceed those permissible under Maine law or if new
interest rate limitations are enacted.
Lack of Diversification
The sole business activity of the Company consists of its ownership of the
capital stock of the Bank Stock. As a result, the Company lacks diversification
as to business activities and market area, and any event affecting the Bank
will have a direct impact on the Company. See "Business."
Shares Eligible for Future Sale
As of March 31, 1998, the executive officers, directors, shareholders of
the Company and the Bank owning 5% or more of the Common Stock and their
affiliates collectively hold 802,593 shares of Common Stock, plus 266,589
shares of Common Stock issuable upon the conversion of Series A Preferred Stock
and Debentures, for an aggregate total of 1,069,182 shares of Common Stock on a
fully converted basis. The directors and executive officers are expected to
agree not to sell, contract to sell or otherwise dispose of any Common Stock
for a period of 180 days after the consummation of this Offering without the
prior consent of the Underwriters. In addition, approximately 853,047 shares of
Common Stock held by existing shareholders of the Company as of March 31, 1998,
who are not executive officers or directors of the Company or the Bank, will be
immediately eligible for sale in the public market, without restriction,
provided such persons are not otherwise affiliates of the Company at such time.
The sale of a substantial number of shares could adversely affect the market
price of the Common Stock. See "Description of Securities", "Market for Common
Stock" and "Shares Eligible for Future Sale."
Common Stock of the Company held by shareholders who may be deemed to
control, to be controlled by or to be under common control with the Company,
including the Company's executive officers and directors, cannot be resold by
such persons unless such shares are registered for resale under the Securities
Act or an exemption from the registration requirements of that Act is
available.
Dilution
Purchasers of Common Stock pursuant to this Offering will incur immediate
and substantial dilution in the net tangible book value of the Common Stock of
$5.85 per share ($5.69 per share if the Underwriter's overallotment option is
exercised in full), in each case, including Common Stock equivalents, based on
an estimated offering price of $13 per share, which is the midpoint of the
price range set forth on the cover page of this Prospectus. Dilution represents
the difference between the public offering price and the net tangible book
value per share after the Offering. See "Dilution."
Control by Principal Shareholders, Officers and Directors
Upon the closing of the Offering, the executive officers, directors,
shareholders of the Company owning 5% or more of the Common Stock and their
affiliates will beneficially own approximately 50.1% of the outstanding Common
Stock (48.6% if the Underwriters' overallotment option is exercised in full),
assuming the conversion of all the Series A Preferred Stock and Debentures and
the exercise of all options to purchase Common Stock held by such officers,
directors and shareholders. As a result, these shareholders will be able to
exercise control over most matters requiring shareholder approval, including
the election of directors. This concentration of ownership may have the effect
of delaying or preventing a change in control of the Company. See "Securities
Ownership of Certain Beneficial Owners and Management."
Year 2000 Compliance
The Company and the Bank use a significant number of computer software
programs to conduct their businesses. Most all of such programs and systems
were purchased and are maintained by outside vendors. It is anticipated that
some level of modification or replacement will be necessary to ensure that the
systems of the Company and the Bank are "Year 2000 Compliant." The Company does
not believe that the costs associated with Year 2000 compliance efforts will
have a significant impact on ongoing results of operations, although there can
10
<PAGE>
be no assurance in this regard. To the extent the Company and the Bank rely on
software vendors, Year 2000 compliance matters will not be under its direct
control. Moreover, the Company and the Bank have relationships with vendors,
customers and third parties that rely on computer software that may not be Year
2000 Compliant. There can be no assurance that Year 2000 compliance failures by
such third parties will not have a material adverse effect on the Company's
consolidated results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000 Risk Assessment and
Action Plan."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of the Common
Stock offered hereby are estimated to be approximately $6,740,000 ($7,822,250
if the Underwriters' overallotment option is exercised in full), after
deducting the underwriting commission and estimated offering expenses to be
paid by the Company, assuming an estimated offering price of $13 per share,
which is the midpoint of the price range set forth on the cover page of this
Prospectus.
The net proceeds of the Offering will be used for working capital and
general corporate purposes, including capital contributions to the Bank, the
financing of acquisitions of banks and businesses closely related to banking
and possible repayment of borrowings. The Company currently has no plans,
understandings, arrangements or agreements, written or oral, with respect to
any specific acquisition prospect, and is not presently negotiating with any
party with respect thereto. As of March 31, 1998, there is $2,745,000 in
principal outstanding under the M&I Loan, which the Company may determine to
repay in whole or in part with the proceeds of this Offering. See "Risk
Factors -- No Assurance of Acquisitions."
After the consummation of this Offering and pending the application of
proceeds in the manner set forth above, the net proceeds may be invested by the
Company in short-term interest-bearing securities or certificates of deposits.
Although the Company does not currently anticipate significant changes in the
allocation of net proceeds described above, the allocation may vary as
necessary to respond to changing circumstances. Accordingly, the Company's
management will have broad discretion in the application of the net proceeds.
MARKET FOR COMMON STOCK
Prior to this Offering, there has been no public market for the Common
Stock. The Company has, however, applied to have its Common Stock listed for
quotation on the NASDAQ-NMS under the proposed symbol "MERB." See "Risk Factors
- -- Absence of Trading Market." As of March 31, 1998, there were outstanding
1,655,640 shares of Common Stock which were held by approximately 55
shareholders of record.
12
<PAGE>
DIVIDENDS
Holders of the shares of the Company's Common Stock are entitled to
receive cash dividends when and if declared by the Company's Board of Directors
out of funds legally available therefor. The Company paid cash dividends on its
Common Stock in March 1998 of $.02778 per share and in December 1997 of $.02778
per share (each adjusted to reflect the 9:1 Stock Split). The Company also
issued stock dividends as follows: a 3% stock dividend, a 5% stock dividend and
a 5% stock dividend on its Common Stock during 1996, 1997 and 1998,
respectively.
The source of dividends to the Company's shareholders in the future, if
any, will depend primarily upon the earnings of the Bank and its ability to pay
dividends to the Company, as to which there can be no assurance. The payment of
dividends by the Bank is subject to a determination by the Bank's Board of
Directors and will depend upon a number of factors, including capital
requirements, regulatory limitations, the Bank's results of operations and
financial condition, tax considerations and general economic conditions. Maine
state laws and Bureau regulations regulate and restrict the ability of the Bank
to pay dividends to the Company. The Federal Reserve and the Bureau, which
regulate the Bank, not only have established certain financial and capital
requirements that affect the ability of the Bank to pay dividends, but they
also have the general authority to prohibit the Bank from engaging in an unsafe
or unsound practice in conducting its business. Depending upon the financial
condition of the Bank, the payment of cash dividends could be deemed to
constitute such an unsafe or unsound practice. See "Supervision and
Regulation -- Payment of Dividends."
Before any dividends may be paid to the holders of the shares of the
Common Stock, the Company must first satisfy its interest and principal payment
obligations under the Debentures and the accumulated dividends due to holders
of the Series A Preferred Stock. See "Certain Transactions" and "Description of
Securities." As such, even if the Company is profitable, there can be no
assurance that the Company will be able to declare or pay dividends to holders
of Common Stock. Under Federal law and Federal Reserve policy, a bank holding
company such as the Company is required to serve as a source of financial
strength to each of its subsidiary banks and to commit resources to support
each such bank. Consistent with this requirement, the Federal Reserve has
stated that, as a matter of prudent banking, a bank holding company generally
should not maintain a rate of cash dividends unless the available net income of
the bank holding company is sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears to be consistent with the
company's capital needs, asset quality, and overall financial condition. See
"Risk Factors -- Restrictions on Payment of Dividends by the Company" and
"Supervision and Regulation -- Payment of Dividends."
The ability of the Bank and the Company to pay cash dividends in the future
could be further influenced by bank regulatory policies or agreements and
capital guidelines. See "Risk Factors -- Restrictions on Payment of Dividends by
the Bank to the Company."
13
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1998, after giving effect
to the 9:1 Stock Split, the actual capitalization of the Company as adjusted to
reflect receipt of the estimated net proceeds from the sale by the Company of
600,000 shares of Common Stock at an assumed initial public offering price of
$13 per share (the midpoint of the price range set forth on the cover page of
this Prospectus), net of estimated expenses of this Offering. This information
should be read in conjunction with the Company's Consolidated Financial
Statements and the related notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
March 31, 1998
------------------------------
Actual(1) As Adjusted(1)(2)
----------- ------------------
(Dollars in thousands except
per share data)
<S> <C> <C>
Capitalization and Shareholders' Equity:
Debentures, includes 66,654 shares of Common Stock issuable upon
the conversion of such Debentures; no shares issued and outstanding
on an actual or adjusted basis .......................................... $ 300 $ 300
Shareholders' Equity:
Series A Preferred Stock, $1.00 par value, 50,000 authorized shares;
issued and outstanding 19,566 shares, on an actual and adjusted
basis ................................................................... 20 20
Serial Preferred Stock, $0.01 par value, 950,000 shares authorized;
no shares issued and outstanding on an actual or adjusted basis ......... -- --
Common Stock, $1.00 par value, 4,000,000 shares authorized;
1,655,640 shares issued and outstanding on an actual basis;
2,255,640 shares issued and outstanding on an adjusted basis (3) ........ 1,656 2,256
Additional paid-in capital ............................................... 8,387 14,527
Retained earnings ........................................................ 1,394 1,394
Net unrealized gain on securities designated as available for sale ....... 49 49
------- -------
Total shareholders' equity ............................................. $11,506 $18,246
======= =======
Total capitalization ................................................... $11,806 $18,546
======= =======
</TABLE>
- ----------
(1) Adjusted for 9:1 Stock Split.
(2) Assumes no exercise of the Underwriter's overallotment option to purchase
90,000 shares. See "Underwriting."
(3) Does not include (a) 540,027 shares of Common Stock issuable upon exercise
of stock options outstanding at March 31, 1998 with a weighted average
exercise price of $5.15 per share, of which options to purchase 540,027
shares were then exercisable and (b) 9,288 shares that are reserved and
available for issuance under the Company's Stock Option Plan. See
"Management -- Stock Option Plan", "Description of Securities" and Note 19
to Consolidated Financial Statements.
The following table sets forth capital ratios required by the Federal
Reserve to be maintained by the Company in order for the Company to be
adequately capitalized, and the Company's actual and pro forma ratios of
capital to total regulatory or risk-weighted assets, as applicable, at March
31, 1998.
<TABLE>
<CAPTION>
Company Company Company
Regulatory Actual at Adjusted at
Minimum March 31, 1998 March 31, 1998(1)(2)(3)
------------ ---------------- ------------------------
<S> <C> <C> <C>
Tier 1 capital ................... 4.00% 10.25% 16.32%
Total risk-based capital ......... 8.00% 11.78% 17.85%
</TABLE>
- ----------
(1) Assumes that the net proceeds of this Offering were invested in assets that
have a risk-weight equivalent to investment securities, assigned to the
20% category at March 31, 1998.
(2) Assumes that the net proceeds of this Offering were received on March 31,
1998.
(3) Assumes no exercise of the Underwriters' overallotment option to purchase
90,000 shares.
14
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998,
after giving effect to the 9:1 Stock Split and the conversion of the Company's
Series A Preferred Stock and the Debentures into 266,589 shares of Common
Stock, was $11.8 million or $5.87 per share of Common Stock. Giving effect to
the sale by the Company of 600,000 shares of Common Stock, and assuming that
the underwriting commission and expenses of the Offering to be paid by the
Company aggregate approximately 13.6% of gross proceeds, the pro forma net
tangible book value of the Company at March 31, 1998 would have been $18.5
million or $7.15 per share of Common Stock, representing an immediate increase
in net tangible book value of $1.28 per share to present shareholders and an
immediate dilution of $5.85 per share to new investors purchasing shares at the
public offering price of $13 per share (the midpoint of the price range set
forth on the cover page of this Prospectus). The following table illustrates
this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share(l) ......................... $ 13.00
Net tangible book value before the Offering(2) (3) ......................... 5.87
Increase attributable to payment for shares purchased by new investors ..... 1.28
Pro forma net tangible book value after the Offering(2) (3) (4) ............ 7.15
Dilution to new investors(4) ............................................... 5.85
</TABLE>
- ----------
(1) Does not take into account the underwriting commission and offering
expenses to be paid by the Company.
(2) Pro forma net tangible book value per share is determined by dividing the
number of outstanding shares of Common Stock, including shares of Common
Stock issuable upon conversion of the Series A Preferred Stock and the
Debentures, into the net tangible book value of the Company.
(3) Excludes (a) 540,027 shares of Common Stock issuable upon the exercise of
stock options outstanding at March 31, 1998, with a weighted average
exercise price of $5.15 per share, of which options to purchase 540,027
shares were then exercisable, and (b) 9,288 shares that are reserved and
available for issuance under the Company's Stock Option Plan. See
"Management -- Stock Option Plan", "Description of Securities" and Note 19
of Notes to Consolidated Financial Statements.
(4) Assumes no exercise of the Underwriters' overallotment option to purchase
90,000 shares.
The following table summarizes, on a pro forma basis as of March 31, 1998 after
giving effect to the 9:1 Stock Split and the conversion of the Series A
Preferred Stock and Debentures, the difference between the number of shares
purchased from the Company, the total consideration paid, and the average price
per share paid by existing shareholders over the past five years and by the new
investors purchasing Common Stock from the Company pursuant to this Offering:
<TABLE>
<CAPTION>
Average
Shares Percent of Total Percent Price
Purchased Total Shares Consideration of Total Consideration Per Share
----------- -------------- --------------- ------------------------ ----------
<S> <C> <C> <C> <C> <C>
Existing Shareholders (1) .... 1,922,229 76.2% $ 9,204,879 54.1% $ 4.79
New Investors (2) ............ 600,000 23.8% $ 7,800,000 45.9% $ 13.00
--------- ----- ------------ -----
Total ...................... 2,522,229 100.0% $ 17,004,879 100.0%
========= ===== ============ =====
</TABLE>
- ----------
(1) Excludes (a) 540,027 shares of Common Stock issuable upon the exercise of
stock options outstanding at March 31, 1998, with a weighted average
exercise price of $5.15 per share, of which options to purchase 540,027
shares were then exercisable, and (b) 9,288 shares that are reserved and
available for issuance under the Company's Stock Option Plan. See
"Management -- Stock Option Plan", "Description of Securities" and Note 19
of Notes to Consolidated Financial Statements.
(2) Assumes no exercise of the Underwriter's overallotment option to purchase
90,000 shares and assumes the Offering price of $13 per share (the
midpoint of the price range set forth on the cover page of this
Prospectus).
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
The following table presents selected consolidated financial data for the
Company. The data for the fiscal years ended December 31, 1997, 1996, 1995,
1994 and 1993 are derived from audited consolidated financial statements of the
Company. The data for the three month periods ended March 31, 1998 and 1997 are
derived from unaudited financial statements of the Company which, in the
opinion of management, contain normal, recurring adjustments necessary for the
fair presentation of the results of such periods. Operating results for the
three months ended March 31, 1998 are not necessarily indicative of results
that may be expected for the full fiscal year ending December 31, 1998. The
selected financial data should be read in conjunction with, and is qualified in
its entirety by, the Consolidated Financial Statements and Notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
<TABLE>
<CAPTION>
At or for the
Three Months Ended
March 31, At or for the Year Ended December 31,
----------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Condition Data:
Total assets ................................ $ 175,753 $ 160,034 $ 178,619 $ 158,425 $ 135,744 $ 113,231 $ 91,090
Cash and cash equivalents ................... 6,775 11,427 10,659 8,591 6,723 6,683 6,104
Investment securities ....................... 45,579 37,411 44,826 41,014 30,257 21,692 25,876
Loans receivable, net (1) ................... 118,036 106,416 117,679 104,320 95,256 81,137 55,805
Deposits .................................... 140,398 126,856 146,312 126,704 111,340 91,812 72,108
Repurchase agreements ....................... 13,554 12,268 11,897 12,164 10,173 7,827 4,703
Other borrowed funds ........................ 5,856 6,000 5,144 2,832 192 1,000 1,990
Long-term debt .............................. 2,745 3,695 2,895 3,695 4,000 4,000 4,000
Mandatory convertible debentures ............ 300 300 300 300 300 300 300
Shareholders' equity ........................ 11,506 9,809 10,967 9,671 8,761 7,675 7,439
Income Statement Data:
Interest and dividend income ................ $ 3,510 $ 3,074 $ 13,215 $ 11,826 $ 10,349 $ 7,445 $ 5,164
Interest expense ............................ 1,613 1,409 6,060 5,383 4,371 2,774 2,124
Net interest income ......................... 1,897 1,665 7,155 6,443 5,978 4,671 3,040
Provision for loan losses ................... 90 75 355 360 355 150 385
Net interest income after provision for
loan losses ................................ 1,807 1,590 6,800 6,083 5,623 4,521 2,655
Non-interest income ......................... 481 404 1,724 1,489 1,302 911 1,015
Non-interest expense ........................ 1,695 1,553 6,357 5,813 5,407 4,840 4,667
Income (loss) before income taxes ........... 593 441 2,167 1,759 1,518 592 (997)
Income tax expense (benefit) ................ 213 161 765 639 551 219 (332)
Net income (loss) ........................... 380 280 1,402 1,120 967 373 (665)
Per Share Data:
Earnings per share-basic (2) ................ .22 .16 .82 .65 .55 .19 (.57)
Earnings per share-diluted (2) .............. .19 .14 .71 .58 .52 .19 (.57)
Cash dividends on Common Stock (2) .......... .03 -- .03 -- -- -- --
Book value (2)(3) ........................... 6.92 6.14 6.77 5.98 5.33 4.79 4.59
Weighted average shares outstanding (2) ..... 1,641,969 1,619,226 1,619,226 1,619,226 1,619,226 1,619,226 1,261,620
Selected Financial Ratios and Other Data:
Return on average assets (4) ................ 0.89% 0.74% 0.86% 0.78% 0.80% 0.37% -0.80%
Return on average equity (3)(4) ............. 13.69% 11.57% 13.63% 12.28% 11.83% 4.95% -11.67%
Net interest margin (4)(5) .................. 4.59% 4.59% 4.67% 4.72% 5.25% 4.99% 3.94%
Net interest spread (4) ..................... 3.87% 3.90% 3.97% 3.97% 4.48% 4.34% 3.32%
Non-performing assets to total assets (6) ... 0.13% 0.37% 0.13% 0.45% 0.33% 0.63% 0.07%
Non-performing loans to total loans (6) ..... 0.20% 0.21% 0.15% 0.36% 0.15% 0.87% 0.07%
Allowance for loan losses to total loans .... 1.50% 1.41% 1.44% 1.37% 1.18% 1.17% 1.45%
Allowance for loan losses to non-performing
loans (6) .................................. 768.80% 674.67% 933.15% 384.62% 760.40% 133.80% 2002.44%
Net loan charge-offs to average loans (4) ... .03% .03% 0.08% 0.04% 0.21% 0.02% 0.05%
Efficiency ratio (7) ........................ 71.28% 75.06% 71.60% 73.29% 74.27% 86.71% 115.09%
Capital Ratios:
Tier 1 risk-based capital (8) ............... 10.25% 9.66% 9.77% 9.53% 9.03% 8.83% 10.79%
Total risk-based capital (8) ................ 11.78% 11.22% 11.30% 11.10% 10.63% 10.46% 12.57%
Leverage ratio (8)(9) ....................... 6.38% 6.19% 6.06% 5.98% 5.84% 6.31% 7.07%
</TABLE>
16
<PAGE>
- ----------
(1) Includes loans held for sale.
(2) Adjusted to reflect the 9:1 Stock Split, 5% stock dividends in 1998 and
1997 and a 3% stock dividend in 1996.
(3) Excludes unrealized gain or loss on securities available for sale net of
taxes.
(4) Information is annualized for the periods ended March 31, 1998 and 1997.
(5) Represents net interest income as a percentage of average interest earning
assets. Calculation is shown tax-effected for tax exempt interest income.
(6) Non-performing assets consist of non-performing loans and other real estate
owned. Non-performing loans consist of non-accrual loans and accruing loans
90 days or more past due while other real estate owned consists of real
estate acquired through foreclosure and real estate acquired by acceptance
of a deed-in-lieu of foreclosure.
(7) Non-interest expense divided by the sum of net interest income plus
non-interest income.
(8) The minimum regulatory capital ratios in order for the Company to be
adequately capitalized are: Tier 1 capital -- 4.00%; total risk-based
capital -- 8.00%; and leverage ratio -- 4.00%
(9) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this Prospectus.
General
Per share information has been adjusted to reflect the 9:1 Stock Split and
assumes the conversion of the Series A Preferred Stock and Debentures into
266,589 shares of Common Stock.
The Company's principal asset is its ownership of the Bank. Accordingly,
the Company's results of operations are primarily dependent upon the results of
operations of the Bank. The Bank conducts a general commercial and retail
banking business which consists of attracting deposits from the general public
and applying those funds to the origination of commercial loans, commercial and
residential real estate loans and consumer loans. The Bank also provides trust
and investment services. The Bank's profitability depends primarily on net
interest income, which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) less the interest expense
incurred on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest
rates earned and paid on these balances. Net interest income is dependent upon
the Bank's interest rate spread, which is the difference between the average
yield earned on its interest-bearing assets and the average rate paid on its
interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. The interest rate spread is impacted by interest
rates, deposit flows, and loan demand. See "Risk Factors -- Asset/Liability
Management" and "Management's Discussion and Analysis -- Interest Rate Risk."
The Bank enjoys a positive reputation in its market and strives for
quality customer service. The Bank operates seven banking locations, including
the headquarters office at 201 Main Street in Bangor. The remaining offices
include two other full service branches in Bangor plus full service offices in
Brewer, Orono and Pittsfield, and a full service supermarket office in Newport.
The Bank began offering trust and investment services in 1994 and, as of
March 31, 1998, had $98.5 million in assets under management. The Trust and
Investment Services Department provides a variety of services to assist
individuals, businesses, municipalities and non-profit organizations in
achieving their investment goals. Among the services offered are: investment
management accounts; custody of assets; personal trusts; retirement plans;
individual retirement accounts; estate and tax planning assistance; estate
settlement services and financial planning.
In addition to the Trust and Investment Services Department, the Bank
pursues commercial, commercial and residential real estate, and consumer
lending within its local market. See "Business -- Lending Activities" and
"Management's Discussion and Analysis -- Loan Portfolio Composition."
This Management's Discussion and Analysis of Financial Condition and
Results of Operations discusses material changes in the financial condition of
the Company from January 1, 1996 to December 31, 1997, and material changes in
the results of operations with respect to the three month period ending March
31, 1997 compared to the three month period ending March 31, 1998, and the year
ending December 31, 1997 compared to the year ending December 31, 1996. Results
of operations for the three month period ending March 31, 1998 may not be
indicative of the results for the entire year ending December 31, 1998. This
discussion and analysis is intended to assist the reader in understanding the
financial condition and results of operations of the Company. This commentary
should be read in conjunction with the financial statements and the related
notes and the other statistical information contained herein.
18
<PAGE>
Results of Operations
Comparison of Three Months Ended March 31, 1998 and 1997
The Company's net income was $380,000 for the three months ended March 31,
1998, compared to net income of $280,000 for the three months ended March 31,
1997, yielding an annualized return on average assets ("ROA") of .89% compared
to .74% for those same periods. Return on average shareholders' equity ("ROE")
on an annualized basis for the same 1998 and 1997 three month periods were
13.69% and 11.57%, respectively. The increase in earnings between the periods
is due to an increase in net interest income resulting from growth in loans and
securities and a 19% increase in non-interest income.
Total assets were $175.8 million at March 31, 1998, an increase of $15.8
million or 9.9% from $160 million at March 31, 1997. Total average earning
assets were $164.9 million for the three months ended March 31, 1998, compared
to $144.3 million for the three months ended March 31, 1997. The increase in
average loans of $12.2 million and the increase in average investment
securities of $8.2 million during the three month period in 1998 compared to
the same period in 1997 were funded through an increase in average
interest-bearing liabilities of $16.6 million and an increase in average
non-interest bearing liabilities of $3.2 million.
Comparison of Years Ended December 31, 1997 and 1996
For the year ended December 31, 1997, the Company reported net income of
$1.4 million or $.82 per share, as compared to net income of $1.1 million or
$.65 per share for 1996. From 1996 to 1997, net interest income before
provision for loan losses increased by $712,000, an 11% increase, and
non-interest income increased by $235,000 or 15.8% . Other expenses increased
$544,000 or 9.4% from 1996 to 1997 which includes the impact of the start-up
costs associated with the new branch office established in Newport during 1997.
The Company's total assets at December 31, 1997 were $178.6 million, an
increase of $20.2 million from December 31, 1996. The Bank's loans net of
allowances at December 31, 1997 totaled $117.7 million, up from $104 million or
12.8% at December 31, 1996. Deposits increased 15.5% from $126.7 million to
$146.3 million for the years ended December 31, 1996 and 1997, respectively.
Net Interest Income
Net interest income is interest earned on interest-earning assets less
interest accrued on interest-bearing liabilities. Interest-earning assets are
categorized as loans, investment securities and other earning assets, which
include Federal Funds sold and certificates of deposit issued from other
financial institutions. Interest-bearing liabilities are categorized as
customer deposits, time and savings deposits and borrowings including
repurchase agreements, short-term borrowings and long-term debt. Net interest
income depends on the volume of average interest-earning assets and average
interest-bearing liabilities and the interest rates earned or paid on them.
The growth in the loan and investment portfolios resulted in an increase
in net interest income during the first three months of 1998 compared with the
same period in 1997. Interest income for the three month periods ended March
31, 1998 and 1997 was $3.5 million and $3.1 million, respectively, on a $164.9
million and $144.3 million average balance of interest-earning assets. The
average yield on interest-earning assets, on an annualized basis, remained
stable at 8.56% and 8.55% for the periods ended March 31, 1998 and 1997,
respectively. Total interest expense for the three month period in 1998 was
$1.6 million on average outstanding balances of interest-bearing liabilities of
$139.4 million, compared to an expense of $1.4 million on average outstanding
balances of interest-bearing liabilities of $122.9 million for the same period
in 1997. The average cost of interest-bearing liabilities for the three months
of 1998 and 1997 was 4.69% and 4.65%, respectively, on an annualized basis. The
increase in average cost of interest-bearing liabilities is primarily due to a
savings deposit campaign launched in 1997. See "-- Deposit Activities." The
Company maintained a constant net interest margin of 4.59% for the three months
ended March 31, 1998 and 1997.
Net interest income before provision for loans losses for the period
December 31, 1997 amounted to $7.2 million on a $153.2 million average
outstanding balance of interest-earning assets, an increase of $712,000 over
the $6.4 million recorded in 1996 on an average outstanding balance of
interest-earning assets of $136.4 million. The average yield on interest
earning assets decreased from 8.67% in 1996 to 8.63% in 1997 resulting in a
decrease in the net interest margin from 4.72% to 4.67% for 1996 and 1997,
respectively.
19
<PAGE>
Comparative Average Balances, Yields and Rates
The following table presents the Company's average balances, interest
earned or accrued, and the related yields and rates on major categories of the
Company's interest-earning assets and interest-bearing liabilities for the
periods indicated:
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid (1) Balance Expense Paid (1)
----------- ---------- ---------- ----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans (2) .................... $118,562 $ 2,827 9.57% $106,355 $ 2,497 9.42%
Investment securities (3)..... 44,858 662 5.98% 36,661 560 6.16%
Other earning assets ......... 1,492 21 5.63% 1,290 17 5.27%
-------- ------- ------ -------- ------- ------
Total interest-earning
assets ...................... 164,912 3,510 8.56% 144,306 3,074 8.55%
Non-interest-earning
assets ...................... 9,081 8,410
-------- --------
Total assets ................. $173,993 $152,716
======== ========
Liabilities and
Shareholders' Equity:
Interest-bearing
liabilities:
Savings deposits and
interest-bearing
checking .................... 63,749 580 3.69% 51,681 440 3.45%
Certificates of deposit ...... 55,997 784 5.68% 53,647 750 5.67%
Securities sold under
agreement to
repurchase .................. 13,033 141 4.39% 11,013 116 4.27%
Short-term borrowings ........ 2,291 31 5.49% 2,525 30 4.82%
Long-term
borrowings (4) .............. 4,368 77 7.15% 4,012 73 7.38%
-------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities ................. 139,438 1,613 4.69% 122,878 1,409 4.65%
Non-interest-bearing
liabilities ................. 23,243 20,071
Shareholders' equity ......... 11,312 9,767
-------- --------
Total liabilities and
shareholders' equity ........ $173,993 $152,716
======== ========
Net interest income .......... $ 1,897 $ 1,665
======= =======
Net interest spread (5) ...... 3.87% 3.90%
====== ======
Net interest margin (6) ...... 4.59% 4.59%
====== ======
Ratio of interest-earning
assets to interest-
bearing liabilities ......... 118.27% 117.44%
====== ======
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996
---------------------------------- ---------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
----------- ---------- ----------- ----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans (2) .................... $111,006 $ 10,669 9.61% $100,677 $ 9,683 9.62%
Investment securities (3)..... 39,050 2,375 6.09% 32,663 1,983 6.07%
Other earning assets ......... 3,187 171 5.37% 3,093 160 5.17%
-------- -------- ------ -------- ------- ------
Total interest-earning
assets ...................... 153,243 13,215 8.63% 136,433 11,826 8.67%
Non-interest-earning
assets ...................... 9,062 7,595
-------- --------
Total assets ................. $162,305 $144,028
======== ========
Liabilities and
Shareholders' Equity:
Interest-bearing
liabilities:
Savings deposits and
interest-bearing
checking .................... 56,511 1,983 3.51% 43,886 1,358 3.09%
Certificates of deposit ...... 55,306 3,143 5.68% 53,094 3,070 5.78%
Securities sold under
agreement to
repurchase .................. 11,931 511 4.28% 11,770 520 4.42%
Short-term borrowings ........ 2,364 124 5.25% 1,773 89 5.02%
Long-term
borrowings (4) .............. 4,109 299 7.28% 4,083 346 8.47%
-------- -------- ------ -------- ------- ------
Total interest-bearing
liabilities ................. 130,221 6,060 4.65% 114,606 5,383 4.70%
Non-interest-bearing
liabilities ................. 21,836 20,285
Shareholders' equity ......... 10,28 9,137
-------- --------
Total liabilities and
shareholders' equity ........ $162,305 $144,028
======== ========
Net interest income .......... $ 7,155 $ 6,443
======== =======
Net interest spread (5) ...... 3.97% 3.97%
====== ======
Net interest margin (6) ...... 4.67% 4.72%
====== ======
Ratio of interest-earning
assets to interest-
bearing liabilities ......... 117.68% 119.05%
====== ======
</TABLE>
- ----------
(1) Annualized for comparability with full year data.
(2) Non-accruing loans included in computation of average balance.
(3) Yield is adjusted for the tax effect of tax exempt securities.
(4) Includes M&I Loan, FHLB borrowings and Debentures.
(5) Net interest spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin is the net interest income divided by average
interest-earning assets.
20
<PAGE>
Rate/Volume Interest Analysis
The following table presents the components of the Company's net interest
income as attributed to volume and rate on a tax-equivalent basis. The net
change attributable to the combined impact of volume and rate has been solely
allocated to the change in volume:
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
March 31, 1998 December 31, 1997 December 31, 1996
Compared to 1997 Compared to 1996 Compared to 1995
increase (decrease) increase (decrease) increase (decrease)
due to change in: due to change in: due to change in:
------------------------------ ------------------------------ ------------------------------
Average Average Total Average Average Total Average Average Total
Volume Rate Change Volume Rate Change Volume Rate Change
-------- ------------ -------- --------- --------- ---------- --------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans (1) ........................... $291 $ 40 $ 330 $ 993 $ (7) $ 986 $1,249 $ (319) $ 930
Investment securities ............... 118 (16) 102 386 6 392 556 (16) 540
Other earning assets ................ 3 1 4 5 6 11 21 (14) 7
----- ----- ----- ------ ------ ----- ------ ------- ------
Total interest income .............. 412 25 436 1,384 5 1,389 1,826 (349) 1,477
----- ----- ----- ------ ------ ----- ------ ------- ------
Interest expense:
Savings deposits and
interest-bearing liabilities ...... 110 31 140 443 182 625 272 182 454
Certificates of deposit ............. 33 1 34 126 (53) 73 495 48 543
Securities sold under agreement to
repurchase ......................... 22 3 25 7 (16) (9) 139 (29) 110
Short-term borrowings ............... (3) 4 1 31 4 35 (26) (19) (45)
Long-term borrowings ................ 6 (2) 4 2 (49) (47) (18) (32) (50)
----- -------- ----- ------ ------ ------- ------ ------- ------
Total interest expense ............. 167 37 204 609 68 677 862 150 1,012
----- ------- ----- ------ ------ ------- ------ ------- ------
Change in net interest income ........ $244 $ (12) $ 232 $ 775 $ (63) $ 712 $ 964 $ (499) $ 465
===== ======= ===== ====== ====== ======= ====== ======= ======
</TABLE>
- ----------
(1) Non-accruing loans included in the computation of average balance.
Provision for Loan Losses
The targeted level of loan loss allowance is based on management's review
of the loan portfolio. Management reviews the loans by type and nature of
collateral and establishes an appropriate provision for loan losses based upon
industry standards, management's experience, historical charge-off experience,
the present and prospective financial condition of specific borrowers, industry
concentrations within the loan portfolio, size of credit, existence and quality
of any collateral, profitability and general economic conditions. The Bank has
experienced relatively low delinquency and default rates in its portfolio, due
in part to adherence to established underwriting guidelines. Management reviews
the allowance for loan losses on a quarterly basis and increases the allowance,
if necessary, based on the results of this review. Management believes the
allowance for loan losses should be adequate based on management's assessment
of the risks of loan defaults.
The ratio of non-performing loans to total assets was .20%, .15% and .36%
as of March 31, 1998 and December 31, 1997 and 1996, respectively. For the
three months ended March 31, 1998, the Bank had net charge-offs of $9,000 or
.03% (annualized) of total average loans outstanding. For the years ended
December 31, 1997 and 1996, net charge-offs were $88,000 and $43,000,
respectively, representing .08% and .04% of average loans outstanding,
respectively.
Although management believes that it uses the best information available
to make determinations with respect to the allowance for loan losses, future
adjustments may be necessary if economic conditions differ substantially from
the assumptions used or adverse developments arise with respect to the Bank's
loan portfolio. See "Management's Discussion and Analysis -- Allowance for Loan
Losses."
Non-Interest Income
Non-interest income for the three months ended March 31, 1998 and 1997
totaled $481,000 and $404,000, respectively, an increase of approximately 19%.
The increase is primarily due to an increase in trust fees of $32,000 and an
increase in gain on sale of mortgage loans of $29,000.
21
<PAGE>
Non-interest income was $1.7 million and $1.5 million in 1997 and 1996,
respectively, an increase of approximately 16%. The growth of non-interest
income is primarily due to an increase in (i) other service charges and fees,
(ii) trust fees and (iii) increases in net gain on sale of mortgage loans. The
increase in other service charges and fees is attributable to (i) instituting
an ATM fee to non-customers of the Bank and (ii) increases in merchant credit
card processing fees, which are due to an increase in volume. The increase in
trust fees is attributable to the growth in trust assets under management from
$66 million in 1996 to $90 million at the end of 1997, a 36% increase.
The following table presents the components of the Company's non-interest
income for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
----------------------- -------------------------
1998 1997 1997 1996
---------- ---------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Service charges on deposit accounts ......... $ 120 $ 118 $ 476 $ 486
Other service charges and fees .............. 115 111 485 381
Trust fees .................................. 151 119 534 439
Net gain on sale of mortgage loans .......... 50 21 91 69
Other non-interest income ................... 45 35 138 114
------- ------- ------- -------
Total non-interest income .................. $ 481 $ 404 $ 1,724 $ 1,489
======= ======= ======= =======
Non-interest income as a percentage of
average total assets (interim periods
annualized) ................................ 1.12% 1.07% 1.06% 1.03%
======= ======= ======= =======
</TABLE>
Non-Interest Expense
Non-interest expense increased by $142,000, an increase of 9.1%, for the
three months ended March 31, 1998, as compared to the same period in 1997. This
increase is primarily due to the addition of employees at the Newport Branch
established in April 1997. In addition, data processing fees increased as a
result of increases in both loan and deposit volume.
Non-interest expense for 1997 increased $544,000 or 9.4% over the year
ended December 31, 1996. The increase is a result of several factors. Salaries
and employee benefits expenses increased $216,000 primarily due to the addition
of employees at the Newport Branch. Occupancy and equipment expenses increased
from a total of $988,000 in 1996 to $1.2 million due to the Newport Branch and
the renovation and relocation of the Bank's headquarters. See "Business -- Bank
Premises."
The following table presents the components of the Company's non-interest
expense for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
------------------------- -------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Salary and employee benefits ......................... $ 852 $ 760 $ 3,121 $ 2,905
Occupancy expense .................................... 166 163 626 526
Equipment expense .................................... 123 118 524 462
Data processing expense .............................. 160 149 605 577
Professional fees .................................... 50 51 215 217
Printing, postage, stationery and supplies ........... 58 54 189 180
Advertising and promotion ............................ 50 39 191 155
Merchants and credit card processing expense ......... 55 39 191 145
Other ................................................ 181 180 695 646
-------- -------- -------- --------
Total non-interest expense .......................... $ 1,695 $ 1,553 $ 6,357 $ 5,813
======== ======== ======== ========
Efficiency Ratio(1) .................................. 71.28% 75.06% 71.60% 73.29%
======== ======== ======== ========
</TABLE>
- ----------
(1) Non-interest expense divided by the sum of net interest income plus
non-interest income.
22
<PAGE>
Income Tax Expense
For the three month period ended March 31, 1998, an income tax provision
totaling $213,000 was recorded, compared to $161,000 for the same three months
of 1997 as a result of increased earnings during the 1998 period.
For the year ended December 31, 1997, the Company recorded an income tax
provision totaling $765,000, compared to $639,000 for the year ended 1996.
Market Risk
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates/prices such as interest rates, foreign currency
exchange rates, commodity prices and equity prices. The Company's primary
market risk exposure is interest rate risk. The ongoing monitoring and
management of this risk is an important component of the Company's
asset/liability management process which is governed by policies established by
its Board of Directors that are reviewed and approved annually. The Board of
Directors delegates responsibility for carrying out the asset/liability
management policies to its Asset/Liability Committee ("ALCO"). In this
capacity, ALCO develops guidelines and strategies impacting the Company's
asset/liability management process based upon estimated market risk
sensitivity, policy limits and overall market interest rate levels/trends.
Interest Rate Risk
Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change, the interest income and
expense streams associated with the Company's financial instruments also change
thereby impacting net interest income ("NII"), the primary component of the
Company's earnings. ALCO utilizes the results of a detailed and dynamic
simulation model to quantify the estimated exposure of NII to sustained
interest rate changes. While ALCO routinely monitors simulated NII sensitivity
over a rolling two-year horizon, it also utilizes additional tools to monitor
potential longer-term interest rate risk.
The simulation model captures the impact of changing interest rates on the
interest income received and interest expense paid on all assets and
liabilities reflected on the Company's balance sheet. This sensitivity analysis
is compared to ALCO policy limits which specify a maximum tolerance level for
NII exposure over a one year horizon, assuming no balance sheet growth, given
both a 200 basis point (bp) upward and downward shift in interest rates. A
parallel and pro rata shift in rates over a 12 month period is assumed. The
following reflects the Company's NII sensitivity analysis as of December 31,
1997.
<TABLE>
<CAPTION>
Rate Change Estimated NII Sensitivity
- ------------- --------------------------
<S> <C>
+ 200 bp 2.17%
- 200 bp (1.03%)
</TABLE>
The preceding sensitivity analysis does not represent a Company forecast
and should not be relied upon as being indicative of expected operating
results. These hypothetical estimates are based upon numerous assumptions
including: the nature and timing of interest rate levels including yield curve
shape, prepayments on loans and securities, deposit decay rates, pricing
decisions on loans and deposits, reinvestment/replacement of asset and
liability cashflows and others. While assumptions are developed based upon
current economic and local market conditions, the Company cannot make any
assurances as to the predictive nature of these assumptions including how
customer preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity
analysis, actual results will also differ due to prepayment/refinancing levels
likely deviating from those assumed the varying impact of interest rate change
caps or floors on adjustable rate assets, the potential effect of changing debt
service levels on customers with adjustable rate loans, depositor early
withdrawals and product preference changes and other internal/external
variables. Furthermore, the sensitivity analysis does not reflect actions that
ALCO might make in responding to or anticipating changes in interest rates.
Financial Condition
Lending Activities
The Bank offers a broad range of personal and business loans and products.
Total loans, including loans held for sale, were at $119.8 million at March 31,
1998 compared to $119.4 million, at December 31, 1997. With interest rates at
attractive levels nationally, secondary market mortgage lending for refinancing
and purchase money
23
<PAGE>
transactions has been exceptionally strong during the first quarter of 1998.
This has resulted in an increase in non-interest income and a growing mortgage
servicing portfolio. It has also resulted in a decline in portfolio residential
and home equity loan balances of $2.2 million since December 31, 1997, as
seasoned loans are refinanced and being sold on the secondary market. Loans
held for sale have increased to $2.1 million at March 31, 1998 compared to
$508,000 at December 31, 1997. Commercial real estate loan balances increased
to $42.7 or 4.3% at March 31, 1998 compared to a December 31, 1997 balance of
$41 million.
Total loans, including loans held for sale, increased to $119.4 million at
December 31, 1997, compared to $105.8 million at December 31, 1996, representing
a growth rate of 12.9%. The loan portfolio composition experienced a slight
shift into the real estate portfolio with real estate loans representing 76% of
the total loan portfolio at December 31, 1997 compared to 72% at December 31,
1996. See "Risk Factors -- Impact of Changes in Real Estate Values." The loan
mix change is the result of net loan growth of $14.4 million in the real estate
portfolio for 1997 compared with a decline in commercial loan balances of $1.3
million in 1997. As of March 31, 1998 and December 31, 1997, the Bank did not
have any concentration of loans in one particular industry that exceeded 10% of
the total loan portfolio.
The following table summarizes the composition of the Bank's loan
portfolio by type of loan at the dates indicated:
Loan Portfolio Composition
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------
At March 31, 1998 1997 1996
------------------------ ------------------------ ----------------------
Amount % Amount % Amount %
------------- -------- ------------- -------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
Commercial ............................ $ 42,746 36% $ 40,984 34% $ 34,908 33%
Construction .......................... 2,735 2% 3,012 3% 1,941 2%
Residential ........................... 24,827 21% 26,638 22% 23,827 22%
Home equity ........................... 19,685 16% 20,036 17% 15,726 15%
Loans held for sale ................... 2,127 2% 508 0% 341 0%
--------- -- --------- -- -------- --
Total real estate .................... 92,120 77% 91,178 76% 76,743 72%
Commercial ............................. 20,505 17% 20,757 18% 22,049 21%
Consumer ............................... 7,210 6% 7,461 6% 6,978 7%
--------- -- --------- -- -------- --
Total loans .......................... 119,835 100% 119,396 100% 105,770 100%
=== === ===
Less allowance for loan losses ......... (1,799) (1,717) (1,450)
--------- --------- --------
Total .................................. $ 118,036 $ 117,679 $104,320
========= ========= ========
</TABLE>
The following table sets forth as of December 31, 1997, loans by scheduled
due date for the periods indicated. Loans maturing after one year are further
distinguished between those with predetermined interest rates and loans which
have floating or adjustable interest rates.
Loan Maturity Schedule
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------------------------
Due in Due after 1 year Due
1 year or less but before 5 years after 5 years Total
---------------- -------------------- --------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate .................................... $ 24,288 $ 28,391 $ 37,991 $ 90,670
Loans held for sale ............................ 508 -- -- 508
Commercial ..................................... 10,459 8,320 1,977 20,756
Consumer ....................................... 2,712 3,116 1,634 7,462
-------- -------- -------- --------
Total loans .................................... $ 37,967 $ 39,827 $ 41,602 $119,396
======== ======== ======== ========
Loans maturing after one year:
Predetermined interest rates .................. $ 42,953
Floating or adjustable interest rates ......... 38,476
--------
Total ......................................... $ 81,429
========
</TABLE>
24
<PAGE>
Asset Quality
Management seeks to maintain a high quality of assets through conservative
underwriting and sound lending practices. Approximately 30% of the Bank's loan
portfolio is collateralized by first liens on primarily owner-occupied
residential homes which have historically carried a relatively low credit risk.
The Bank also maintains a commercial real estate portfolio comprised primarily
of owner-occupied commercial businesses. The Bank has experienced low
delinquency and default rates since opening in 1992. As of March 31, 1998,
non-accrual loans amounted to $234,000 or .20% of total loans. In addition, the
Bank has no real estate owned by means of foreclosure.
The Bank participates in government guaranteed loan programs including the
Small Business Administration ("SBA"), Rural Development ("RD") and the Finance
Authority of Maine ("FAME"). At March 31, 1998, total loans under these
programs totaled $10.7 million of which $8.3 million, or 7% of the total loan
portfolio outstanding, is guaranteed by the various federal and state
government entities.
While there is no assurance that the Bank will not suffer losses on its
construction loans or its commercial real estate loans, management believes
that it has reduced the risks associated therewith because, among other things,
primarily all such loans relate to owner-occupied projects where the borrower
has demonstrated to the Bank's management that its business will generate
sufficient income to repay the loan. The Bank primarily enters into agreements
with individuals who are familiar to Bank personnel, are residents of the
Bank's primary market area and are believed by management to be good credit
risks.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending. To the extent risks are
identified, additional precautions are taken in order to reduce the Bank's risk
of loss. Commercial loans entail certain additional risks because repayment of
such loans is usually dependent upon the successful operation of the commercial
enterprise, which in turn is subject to adverse conditions in the economy.
Commercial loans are generally riskier than residential loans because they are
typically underwritten on the basis of the ability to repay from the cash flow
of a business rather than on the ability of the borrower or guarantor to repay.
Further, the collateral underlying commercial loans may be subject to greater
fluctuations in market value over time than residential real estate, and may
fluctuate in value based on the success of the business.
The Board of Directors of the Bank and senior management have placed
emphasis on loan review and underwriting procedures. The Bank utilizes the
services of a consultant, M&M Consulting, LLC, to perform periodic loan review
and documentation review. See "Business -- M&M Joint Venture." Management has
established a risk rating and review process with the objective of quickly
identifying, evaluating and initiating necessary corrective action for all
commercial and commercial real estate loans. The goal of the risk rating
process is to address the watch list, substandard and non-performing loans as
early as possible. These components of risk management are integral elements of
the Bank's loan program which have contributed to the loan portfolio
performance to date. Nonetheless, management maintains a cautious outlook in
attempting to anticipate the potential effects of uncertain economic conditions
(both locally and nationally).
Loans are placed on non-accrual status when, in the judgment of
management, principal repayment is doubtful, whether current or past due. When
a loan is placed on non-accrual status, previously accrued but unpaid interest
is deducted from interest income. As a matter of policy, interest is generally
not accrued on loans past due 90 days or more. The Bank considers
non-performing assets to include all non-accrual loans, other loans past due 90
days or more as to principal and interest, restructured loans and other real
estate owned ("OREO"). The Bank does not return a loan to accrual status until
it is brought current with respect to both principal and interest, future
payments are no longer in doubt and the loan has been performing for at least
six months.
25
<PAGE>
The following is a summary of non-performing assets at March 31, 1998 and
December 31, 1997 and 1996:
Non-Performing Assets
<TABLE>
<CAPTION>
At At December 31,
March 31, --------------------------
1998 1997 1996
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Loans:
Non-accrual loans ............................................ $ 234 $ 181 $ 250
Loans 90 days or more past due but still accruing ............ -- 3 127
Restructured loans ........................................... -- -- --
------- ------- -------
Non-performing loans ......................................... 234 184 377
OREO .......................................................... -- 43 340
------- -------
Non-performing assets ........................................ $ 234 $ 227 $ 717
======= ======= =======
Non-performing loans as a percentage of total loans ........... 0.20% 0.15% 0.36%
Non-performing assets as a percentage of total assets ......... 0.13% 0.13% 0.45%
Non-performing assets as a percentage of total loans and
OREO ......................................................... 0.20% 0.19% 0.68%
</TABLE>
At December 31, 1997, loans on non-accrual status totaled $181,000.
Interest income not recognized on non-accrual loans was $18,000 in 1997.
Adversely Classified Assets
The Bank's management adversely classifies certain assets as
"substandard," "doubtful" or "loss" based on criteria established under banking
regulations. An asset is considered substandard if inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. Substandard assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss" if
existing deficiencies are not corrected. Assets classified as doubtful have all
the weaknesses inherent in those classified substandard with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values,
"highly questionable and improbable." Assets classified as loss are those
considered "uncollectible" and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted.
At March 31, 1998, the Bank had $2.6 million of loans that were classified
as substandard and $438,000 classified as doubtful. This compares to $2.2
million and $307,000 of loans that were classified as substandard and doubtful
at December 31, 1997. The Bank had no loans which were classified as loss at
either date. Delinquent loans may or may not be adversely classified depending
upon management's judgment with respect to each individual loan. As of March
31, 1998 and December 31, 1997, the portion of loans guaranteed by either the
SBA, RD or FAME amounted to approximately 48% and 44% of the total loan
balances adversely classified, respectively. At March 31, 1998, included in the
$3 million of loans that were classified as substandard and doubtful were $2.8
million of performing loans. This compares to $2.3 million of adversely
classified performing loans as of December 31, 1997. These amounts constitute
loans that, in the opinion of management, could potentially migrate to
non-performing or loss status.
Allowance for Loan Losses
In originating loans, the Bank recognizes that loan losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of collateralized loans, the quality of the
collateral for the loan as well as general economic conditions. It is
management's policy to attempt to maintain an adequate allowance for loan
losses based on, among other things, industry standards, management's
experience, the Bank's historical loan loss experience, evaluation of economic
conditions and regular reviews of delinquencies and loan portfolio quality.
Management continues to actively monitor the Bank's asset quality and to
charge off loans against the allowance for loan losses when appropriate or to
provide specific loan allowances when necessary. Although management believes it
uses the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in making
the final determinations. See "Risk Factors -- Adequacy of Allowance for Loan
Losses."
26
<PAGE>
The Bank's allowance for loan losses amounted to $1.8 million at March 31,
1998 (1.50% of total loans), an increase of $82,000 over the Bank's $1.7
million allowance for loan losses at December 31, 1997.
The following table sets forth activity in the Bank's allowance for loan
losses during the periods indicated:
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Three Months
Ended Year Ended December 31,
March 31, -------------------------------
1998 1997 1996
------------- -------------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Total net loans outstanding at the end of period (1) ........... $118,036 $117,679 $104,320
Average net loans outstanding during the period (1) ............ $116,806 $109,427 $ 99,381
Allowance for loan losses, beginning of period ................. $ 1,717 $ 1,450 $ 1,133
Loans charged off during the period:
Real estate:
Commercial ................................................... 0 (6) 0
Residential .................................................. 0 (16) 0
Home equity .................................................. 0 0 0
Loans held for sale .......................................... 0 0 0
Commercial ................................................... (7) (23) (16)
Consumer ..................................................... (7) (55) (32)
---------- --------- --------
Total ...................................................... (14) (100) (48)
========= ========= ========
Recoveries of loans previously charged off:
Real estate:
Commercial ................................................... 0 0 0
Residential .................................................. 6 12 0
Home equity .................................................. 0 0 0
Loans held for sale .......................................... 0 0 0
Commercial ................................................... 0 0 2
Consumer ..................................................... 0 0 3
--------- --------- --------
Total ...................................................... 6 12 5
--------- --------- --------
Net loans charged off during the period ........................ (9) (88) (43)
---------- --------- --------
Provision charged to operations ................................ 90 355 360
--------- --------- --------
Allowance for loan losses, end of period ....................... $ 1,799 $ 1,717 $ 1,450
========= ========= ========
Ratios:
Net charge-offs to average loans outstanding (2) ............... .03% 0.08% 0.04%
Net charge-offs to loans, end of period (2) .................... .03% 0.07% 0.04%
Allowance for loan losses to average loans outstanding ......... 1.54% 1.57% 1.46%
Allowance for loan losses to loans, end of period .............. 1.50% 1.44% 1.37%
Allowance for loan losses to non-performing loans .............. 768.80% 933.15% 384.62%
</TABLE>
- ----------
(1) Includes loans held for sale.
(2) Information is annualized for the period ended March 31, 1998.
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of an allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses
in any other category.
27
<PAGE>
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
At March 31, 1998 1997 1996
------------------------ ------------------------ -----------------------
% of Loans to % of Loans to % of Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
-------- --------------- -------- --------------- -------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and Commercial
Real Estate (1) ..................... $1,111 53% $ 989 52% $ 696 54%
Construction ......................... 14 2% 15 3% 10 1%
Residential .......................... 132 21% 134 22% 123 23%
Home equity .......................... 200 16% 199 17% 157 15%
Loans held for sale (2) .............. -- 2% -- 0% -- 0%
Consumer ............................. 162 6% 200 6% 161 7%
Unallocated .......................... 180 -- 180 -- 303 --
------ -- ------ -- ------ --
Total allowance for loan losses ... $1,799 100% $1,717 100% $1,450 100%
====== === ====== === ====== ===
</TABLE>
- ----------
(1) Commercial and commercial real estate loans have been combined in
allocating the allowance for loan losses as the Bank utilizes an internal
risk rating system for these loans on a consolidated basis.
(2) No allowance has been allocated to loans held for sale as these loans are
sold without recourse within approximately ten days after the loan closing
resulting in minimal loan loss risk to the Bank.
Investment Activities
The Company's investment portfolio serves three important functions:
first, it enables the adjustment of the balance sheet's sensitivity to changes
in interest rate movements; second, it provides an outlet for investing excess
funds; and third, it provides liquidity. The investment portfolio is structured
to maximize the return on invested funds within conservative risk guidelines.
The composition of the investment portfolio as of March 31, 1998 was 54.3%
U.S. Treasury notes and U.S. Government agencies and corporations, 40.1%
mortgage-backed securities and collateralized mortgage obligations and 5.6%
other securities. The comparable distributions for December 31, 1997 and 1996
were 54.9% and 47.5% U.S. Treasury notes and U.S. Government agencies and
corporations, 39.7% and 34.6% mortgage-backed securities and collateralized
mortgage obligations and 5.4% and 17.9% other securities, for the respective
periods.
The following table sets forth the composition of the Company's investment
portfolio at the dates indicated:
Investment Securities Portfolio Composition
<TABLE>
<CAPTION>
At December 31,
-------------------------
At March 31,
1998 1997 1996
------------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Securities held to maturity (1):
Mortgage-backed securities and collateralized mortgage obligations ...... $ 1,740 $ 1,962 $ 3,123
======== ======== ========
Securities available for sale (2):
U.S. Treasury securities ................................................ $ 22,134 $ 21,043 $ 18,991
U.S. Government agencies and corporations ............................... 2,606 3,579 497
Mortgage-backed securities and collateralized mortgage obligations ...... 16,522 15,851 11,088
State and local government debt securities .............................. 1,402 1,402 --
U.S. Government and agency money market funds ........................... 285 166 6,548
Other securities (3) .................................................... 890 823 767
-------- -------- --------
Total ................................................................. $ 43,839 $ 42,864 $ 37,891
======== ======== ========
</TABLE>
- ----------
(1) Carried at amortized cost.
(2) Carried at estimated market value.
(3) Includes FHLB stock, Federal Reserve stock and FNMA stock.
28
<PAGE>
Maturity Schedule of Securities Available for Sale
At December 31, 1997
(At Market Value)
<TABLE>
<CAPTION>
One year Over one year Over 5 years
or less through 5 years through 10 years Over 10 years Total
--------------------- -------------------- -------------------- ------------------- ------------------
Weighted Weighted Weighted Weighted Weighted
Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1)
--------- ----------- -------- ----------- -------- ----------- -------- ---------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities ... $ 9,985 5.93% $11,058 6.04% -- -- -- -- $21,043 5.99%
U.S. Government agencies
and corporations .......... 2,573 5.75% 1,006 5.89% -- -- -- -- 3,579 5.79%
Mortgage-backed securities
and collateralized
mortgage obligations ...... -- -- 1,213 6.01% 5,670 6.30% 8,968 6.32% 15,851 6.29%
States and local
government debt
securities ................ 1,300 5.50% -- -- 102 5.50% -- -- 1,402 5.50%
U.S. Government and
agency money market
funds ..................... 166 5.47% -- -- -- -- -- -- 166 5.47%
Other securities ........... 823 6.29% -- -- -- -- -- -- 823 6.29%
------- ---- ------- ---- ----- ---- ----- ---- ------- ----
Total .................... $14,847 5.87% $13,277 6.03% $5,772 6.28% $8,968 6.32% $42,864 6.07%
======= ==== ======= ==== ====== ==== ====== ==== ======= ====
</TABLE>
- ----------
(1) Yield is adjusted for the effect of tax-exempt securities.
Maturity Schedule of Securities Held to Maturity
At December 31, 1997
(At Amortized Cost)
<TABLE>
<CAPTION>
One year Over one year Over 5 years
or less through 5 years through 10 years Over 10 years Total
-------------------- -------------------- ------------------- -------------------- -------------------
Weighted Weighted Weighted Weighted Weighted
Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1)
-------- ----------- -------- ----------- -------- ---------- -------- ----------- -------- ----------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
and collateralized
mortgage obligations ...... $866 6.00% -- -- $1,000 5.91% $96 6.00% $1,962 5.94%
</TABLE>
Deposit Activities
Deposits are the major source of the Bank's funds for lending, investing
and for other general business purposes. In addition to deposits, the Bank
derives funds from interest payments, loan principal payments, loan sales and
funds from operations. Scheduled loan repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general market interest rates and economic
conditions. Borrowings are also used on a short-term basis to compensate for
reductions in the availability of other sources of funds, or borrowings may be
used on a longer term basis to support expanded lending or investment
activities.
Deposits are attracted principally from within the Bank's primary market
area through the offering of a broad variety of deposit products, including
checking accounts, money market accounts, savings accounts, certificates of
deposit (including jumbo certificates in denominations of $100,000 or more) and
retirement savings plans. The Company has not sought brokered deposits and does
not intend to do so in the future.
Maturity terms, service fees and withdrawal penalties are established by
the Bank and reviewed on a periodic basis. The determination of rates and terms
is predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals and federal regulations.
Total average deposits were $141.7 million for the three months ended
March 31, 1998, compared to $132.4 million for December 31, 1997 and $116.3
million in December 31, 1996, representing increases of $9.3 million or 7% in
1998
29
<PAGE>
and $16.1 million or 13.8% in 1997. The increase in deposits is primarily due
to the growth in savings accounts. Savings accounts represent 28%, 25% and 18%
of the total deposits for the periods ended March 31, 1998, December 31, 1997
and 1996, respectively. The Bank introduced a passbook savings product at a
premium interest rate in 1997. The Bank continues to market this product
aggressively. The introduction of new products and the continued focus on
quality customer service contributed to strong deposit growth. The Bank
continues to develop consumer and commercial deposit relationships through
referrals and additional contacts within its market area.
The following table sets forth the average balances and weighted average
rates for the Bank's categories of deposits for the periods indicated:
Average Deposit Balances and Rates
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
Three Months Ended ---------------------------- -------------------------------
March 31, 1998 1997 1996
------------------------------ ---------------------------- -------------------------------
% of % of % of
Average Average Total Average Average Total Average Average Total
Balance Rate Deposits Balance Rate Deposits Balance Rate Deposits
--------- --------- ---------- ---------- -------- -------- ----------- --------- ---------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest checking ............... $ 21,974 -- 16% $ 20,631 -- 15% $ 19,274 -- 16%
Interest checking and money market .. 23,346 2.29% 16% 23,794 2.29% 18% 22,796 2.18% 20%
Savings ............................. 40,403 4.51% 28% 32,717 4.40% 25% 21,090 4.08% 18%
Certificates of deposit ............. 55,997 5.68% 40% 55,306 5.68% 42% 53,094 5.78% 46%
-------- -- -------- -- -------- --
Total ............................. $141,720 100% $132,448 100% $116,254 100%
======== === ======== === ======== ===
</TABLE>
The Bank does not have a concentration of deposits from any one source,
the loss of which would have a material adverse effect on the business of the
Bank. Management believes that substantially all the Bank's depositors are
residents in its primary market area.
The following table summarizes at March 31, 1998 and December 31, 1997 the
Bank's certificates of deposit of $100,000 or more by time remaining until
maturity:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
---------------- ------------------
(Dollars in thousands)
<S> <C> <C>
Maturity Period:
Less than three months ........................ $2,796 $ 3,447
Over three months through six months .......... 1,665 2,454
Over six months through twelve months ......... 2,844 1,738
Over twelve months ............................ 2,427 2,883
------ -------
Total ....................................... $9,732 $10,522
====== =======
</TABLE>
Return on Equity and Assets
The following table sets forth the Company's performance ratios for the
periods indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------
At March 31,
1998 (1) 1997 1996
------------- ---------- ----------
<S> <C> <C> <C>
Return on average assets ..................... 0.89% 0.86% 0.78%
Return on average equity (2) ................. 13.69% 13.63% 12.28%
Dividend payout ratio (Common Stock) ......... 12.73% 3.23% --
Average equity to average assets (2) ......... 6.47% 6.34% 6.33%
</TABLE>
- ----------
(1) Annualized.
(2) Excludes unrealized gain or loss on securities available for sale net of
taxes.
Short-Term Borrowings
The borrowings utilized by the Bank primarily have been securities sold
under agreements to repurchase. Other short-term borrowings generally include
federal funds purchased, FHLB advances, treasury, tax and loan deposits and
interest-bearing demand notes due to the U.S. Treasury, which are repaid upon
notification by the U.S. Treasury.
30
<PAGE>
The following table sets forth certain information regarding securities
sold under agreement to repurchase for the dates indicated:
<TABLE>
<CAPTION>
At or for the
At or for the Year Ended December 31,
Three Months Ended ----------------------------
March 31, 1998 1997 1996
------------------- ------------ -------------
<S> <C> <C> <C>
Average balances outstanding .................... $13,033 $11,931 $11,770
Maximum amount outstanding at any month-end
during the period .............................. $13,554 $12,991 $14,070
Balance outstanding at end of period ............ $13,554 $11,897 $12,164
Weighted average rate during the period ......... 4.39% 4.28% 4.42%
Weighted average rate at end of period .......... 4.46% 4.30% 4.29%
</TABLE>
Capital and Liquidity
The Company and the Bank actively monitor their compliance with regulatory
capital requirements. The elements of capital adequacy standards include strict
definitions of core capital and total assets, which include off-balance sheet
items such as commitments to extend credit. Under the risk-based capital method
of capital measurement, the ratio computed is dependent on the amount and
composition of assets recorded on the balance sheet and the amount and
composition of off-balance sheet items, in addition to the level of capital.
Shareholders' equity was $11.5 million at March 31, 1998 or 6.55% of total
assets compared to $11 million or 6.14% of total assets at December 31, 1997.
At March 31, 1998, the Tier 1 leverage ratio was 6.38%, the Tier 1 risk-based
capital ratio was 10.25% and the total risk-based capital ratio was 11.78%, all
in excess of regulatory guidelines for a "well capitalized" financial
institution.
Liquidity defines the ability of the Company and the Bank to generate
funds to support asset growth, meet deposit withdrawals and other funds
reductions. The Bank's liquidity needs are met primarily by Federal Funds sold,
short-term investments, deposits and the generally predictable cash (primarily
loan amortization and prepayments) from the Bank's assets. The Bank also has
the ability to borrow from the FHLB and correspondent banks to supplement its
liquidity needs. The Company's liquidity needs and funding are provided through
cash dividends and tax payments from the Bank. The Company has agreed not to
increase its borrowings without approval from the Federal Reserve.
Accounting and Financial Reporting Issues
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities." The SOP requires costs of start-up activities to be expensed as
incurred. The SOP is effective for years beginning after December 15, 1998.
Adoption of the SOP is expected to have no effect on net income for 1999.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for years beginning after December 31, 1997. This
statement requires a company to disclose certain income statement and balance
sheet information by operating segment. Since the Company's operations include
only its banking activities, no additional disclosure standards will be imposed
on the Company.
Year 2000 Risk Assessment and Action Plan
It is anticipated that many computer applications will not operate as
intended beyond the year 1999 without modifications. This is due to the
practice of using only two digits instead of four digits to identify a year in
the date field, for example: "97" instead of "1997." On January 1, 2000, it is
possible that some systems with time sensitive software programs will recognize
the year as "00" and incorrectly interpret it as "1900."
The Federal Reserve Board has identified six risk categories of particular
concern to financial institutions. Of these six, emphasis is given to the areas
of operational risk, legal risk, and reputation risk. The Company has adopted a
plan to minimize the Year 2000 risk. The plan includes the formation of a Year
2000 Committee, which has been formed and charged with implementing a five
phase plan of awareness, assessment, renovation, validation and implementation
for all systems and equipment used in the day to day operations of the Company
and the Bank. The timeline for the Committee calls for completion of the
awareness, assessment and renovation phases by December 31, 1998; testing and
validation should be in process by that time as well.
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Most of the data processing for the Company and the Bank is outsourced
pursuant to an agreement with M&I Data Services, a Division of Marshall & Ilsley
Corporation ("M&I Data"), a provider of data processing services to the banking
industry. In addition, item processing by the Company and the Bank is performed
by Financial Institution Services Corporation ("FISC"), a provider of item
processing to numerous Maine financial institutions. The Northern Trust Company
also processes data for the Bank's Trust and Investment Services Department. M&I
Data, FISC and the Northern Trust Company have each informed the Company that
each is implementing changes to accommodate systems for the Year 2000. Although
the Company will continue to monitor the progress of M&I Data, the Northern
Trust Company and FISC in addressing Year 2000 compliance issues, there can be
no assurance that these companies will be successful in addressing such issues.
Therefore, the potential liabilities and costs associated with Year 2000
compliance cannot be estimated with certainty at this time.
Regardless of the Company's systems, there can be no assurance that the
Company will not be adversely affected by the failure of others to become Year
2000 compliant. Such risks may include potential losses related to loans made
to third parties whose businesses are adversely affected by the Year 2000
issue, the contamination or inaccuracy of data provided by non-Year 2000
compliant third parties and business disruption caused by the failure of
service providers, such as security and data processing companies, to become
Year 2000 compliant. Because of these uncertainties, there can be no assurance
that the Year 2000 issue will not have a material financial impact in any
future period. See "Risk Factors -- Year 2000 Compliance"
Impact of Inflation and Changing Prices
The financial statements and related financial data concerning the Company
presented in this Prospectus have been prepared in accordance with generally
accepted accounting principles, with the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. The primary
impact of inflation on the operations of the Company is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result,
changes in interest rates have a more significant impact on the performance of
a financial institution than do the effects of changes in the general rate of
inflation and changes in prices. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
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BUSINESS
Organization and Operations
The Company
The Company, a Maine corporation organized in 1992, is a registered bank
holding company under the BHCA and is headquartered in Bangor, Maine. In
October 1992, the Company became the bank holding company for the Bank and
holds 100% of the outstanding Bank stock. The Company, through its ownership of
the Bank, is engaged in a general commercial and retail banking business, along
with trust and investment services.
The Company is an entity legally separate and distinct from the Bank. The
only sources of the Company's income and cash flow are any dividends paid on
the Bank Stock, tax benefits received by the Company and earnings from amounts
deposited by the Company in interest bearing accounts or investments. The
payment of dividends by the Bank, the payment of dividends by the Company and
many other aspects of the operations of the Company and the Bank are subject to
regulation and control by various regulatory agencies.
Merrill Merchants Bank
The Bank was established in 1992 to purchase certain assets and assume
certain liabilities of certain branch banking offices formerly held by a large
out-of-state bank. The Bank is headquartered in Bangor, Maine, which is located
76 miles north of Augusta, Maine, the State Capital. Presently, the Bank
maintains seven Branch Banks in five area communities. The three Bangor offices
provide citywide convenience and are complemented by: (i) an office in Brewer,
Bangor's sister city located on the eastern shore of the Penobscot River; (ii)
a branch in Orono, home of the University of Maine, the State's flagship
campus; (iii) a branch in Pittsfield, a small rural town of 4,000 people
located about 30 miles southwest of Bangor; and (iv) a new supermarket branch
in Newport, a small town neighboring Pittsfield, located at the juncture of
Interstate 95 and Route 2 approximately 25 miles southwest of Bangor. In
addition to the Branch Banks, the Bank has seven ATM locations in its primary
market area.
From its seven banking office locations, the Bank conducts a general
commercial and retail banking business which includes the acceptance of
deposits from the general public and the application of those funds to the
origination of a variety of commercial loans, commercial and residential real
estate loans, and consumer loans. The Bank also provides trust and investment
services. As of March 31, 1998, the Company had total assets of $175.8 million,
loans net of allowances of $118 million, total deposits of $140.4 million and
shareholders' equity of $11.5 million. Unless the context otherwise requires,
references herein to the Company shall include the Company and the Bank, on a
consolidated basis after October, 1992.
The Bank's loan portfolio has grown over the last two years, while non
performing loans as a percentage of total loans were at .20% and .15% at March
31, 1998 and December 31, 1997, respectively, both percentages being below the
Bank's national peer group average of .68%. The Bank has also established a
Trust and Investment Services Department, which has grown since inception in
April 1994 to $98.5 million in assets as of March 31, 1998. The Bank offers its
customers the option of conducting many of their banking transactions via an
automated telephone banking system and through the use of the customer's
personal computer.
The Bank's income is derived principally from interest and fees earned in
connection with its lending activities, interest and dividends on investment
securities, short-term investments, and other services. Its main expenses are
the interest paid on deposits and operating expenses. The Bank's deposits are
insured up to the applicable limits by the FDIC.
History
Merrill Merchants Bank was established in 1992 by a group of area business
people who recognized the need for a community bank in the Greater Bangor area.
Acquisitions and consolidations within the banking industry over the preceding
15 years had resulted in two very large out of state banks, a large Maine-based
stock savings bank, and a local, well established mutual savings bank, all
competing for market share in the Greater Bangor area. Management believed that
changes in management, the loss of local boards of directors, and the loss of
local decision-making had resulted in increased customer dissatisfaction and
limited local banking options.
When one of the large out of state banks was forced by banking regulators
to divest certain assets and liabilities in the Bangor market, the organizers
of Merrill Merchants Bank set a plan in motion to form a community bank. The
Bank drew its management team from among the ranks of local bankers formerly
associated with The Merrill
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Trust Company and Merchants National Bank. These individuals had significant
banking experience, and shared a common vision with investors who wanted to
offer local decision-making and personal banking services. After acquiring the
divested assets and related liabilities, the Bank opened for business offering
consumer and commercial banking services on October 19, 1992.
Community Banking Strategy
The Bank was formed by a group of local business people who after
observing a series of large bank acquisitions in the region, believed that the
remaining banks were no longer servicing the needs of the Bangor and central
Maine area. To fill this need, the Bank has worked to position itself as a
service-oriented community bank. The Bank is staffed by experienced management
personnel, most of whom reside in the area and who know the Bank's customers
and are able to provide personalized service for these customers. This strategy
has been deliberately developed and implemented at a time when consolidation
within the industry has resulted in an increasing depersonalization among the
larger institutions. The Bank has focused on fostering banking relationships
with customers which include multiple financial services that range from basic
checking to investment management accounts.
As part of this strategy, each of the Company and the Bank has attracted
local business people to serve on its Board of Directors, each of whom actively
promote the Bank in the community. In addition, the Company has obtained
additional investments in and support for the Bank from local investors, in an
effort to broaden the community's awareness of the Bank and attract new
business. By continuing to follow the original goal to have a consumer service
oriented, locally based bank, the Bank has experienced growth since its
inception. Management intends to continue the Bank's community banking strategy
while at the same time attempting to increase its market share.
The Bank is active in small business lending and has earned the
designation "Preferred Lender" by the Small Business Administration. The Bank
is the only community bank in the State to have been awarded this distinction.
The Bank is also active in residential mortgage lending, and a number of
products, including government insured loan programs, are available to meet the
demands of both the consumer and the commercial market. The Company's
affiliations with M&I Data and FISC have enabled the Bank to deliver high
technology products such as banking by personal computer and check imaging
while maintaining a local, friendly flavor in its Branch Banks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Risk Assessment and Action Plan." This same strategy
has been implemented by the Trust and Investment Services Department which is
also serving many clients who appreciate the personal attention and custom
service provided locally and the depository custody services and investment
advisory services provided by the Bank through its affiliation with The
Northern Trust Company, which supports those activities.
Market Area
The Bank's primary market area, Greater Bangor, is at the center of
commercial activity for the northeastern and central region of the State of
Maine. Nearly 100,000 people live in the Bank's primary market area. The Bank
is part of a strategic link to Canada as Bangor is the closest U.S.
metropolitan area to Eastern Quebec and the Canadian Maritime Provinces. Many
regional and national companies site their operations in the Bangor area.
Services, trades, manufacturing, and government are the four largest categories
of employment in the metropolitan Bangor region. Bangor is also a healthcare
center for central, eastern and northern Maine. The City is a regional
financial center and is also serviced by several statewide and regional
accounting firms, law firms, insurance companies and security and investment
firms. Bangor is also a hub for government services, with many local, State and
Federal offices located within the City. Bangor is accessible by multiple exits
from Interstate 95, a major interstate highway which transits the Eastern
Seaboard of the United States. Major routes to all regions of the State bisect
Bangor from various directions. Bangor International Airport provides domestic
and international passenger and cargo service for a significant portion of the
State. The Bank has targeted this same area as its focus for possible expansion
of the franchise. Any such expansion would occur with carefully selected de
novo branching or taking advantage of opportunities created as the large
regional banks consolidate and sell or close branches.
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Lending Activities
The Bank has experienced loan growth since it was established in October
1992. One of the primary factors has been an experienced local lending group.
Many commercial lending relationships have been developed by the Bank as a
result of long standing business associations over many years. Many of the
Bank's officers have held lending positions with Bangor area banks for in
excess of fifteen years. Management believes that these relationships have been
not only instrumental in loan growth but in developing quality customers.
The Company strives to provide a full range of financial products and
services to small and medium-sized businesses and consumers. The Bank has an
established Officer Loan Committee which meets weekly to review and approve
credits and a Director Loan Committee which meets monthly, or as necessary, to
approve credits in excess of $250,000. The Bank's loan mix is subject to the
discretion of its Board of Directors and the demands of the local marketplace.
Management has established relationships with local area legal and accounting
professionals to cultivate referrals by hosting informational meetings at the
Bank. Asset quality is a top priority for the Bank and a significant
consideration in business development efforts.
Commercial and Commercial Real Estate Lending
Loans in this category principally include loans to service, retail,
medical, wholesale and light manufacturing businesses. Commercial loans are made
based on the management, financial strength and repayment ability of the
borrower. As of March 31, 1998, commercial and commercial real estate loans
represented the largest class of loans at $63.3 million or 53% of total loans.
See "Risk Factors -- Impact of Changes in Real Estate Values." The Bank
participates in government guaranteed lending including programs with FAME and
RD, and as of March 31, 1998, had originated the second highest number of SBA
loans in the State of Maine for their current fiscal year. The Bank was
recognized by the Coleman Report as being one of the top 500 SBA 7(a) lenders in
the country for 1997. The Bank is the only community bank in the state to have
been awarded designation as a Preferred Lender by the SBA.
The Bank's commercial real estate loans are ordinarily made at variable
rates of interest, and amortized up to fifteen years, although some loans are
originated for terms of five years or less at fixed rates of interest. A broad
range of short-to-medium term commercial loans, both collateralized and
uncollateralized are made available to businesses for working capital
(including inventory and receivables), business expansion (including
acquisition and development of real estate and improvements) and the purchase
of equipment and machinery. The purpose of a particular loan generally
determines its structure. The commercial real estate loans are secured by a
variety of properties, including buildings occupied by small-to-medium sized
businesses, apartment complexes and non-owner/user office and retail business.
The Bank's commercial loans primarily are underwritten in the Bank's
primary market area on the basis of the borrowers' ability to service such debt
from income. Many of these loans involve lines of credit written at variable
rates of interest on a demand basis or for terms not exceeding one year, while
others are written on a term basis typically for up to five years, generally at
variable rates of interest. As a general practice, the Bank takes as collateral
a security interest in any available real estate, equipment or other chattel
although such loans may also be made on an uncollateralized basis.
Collateralized working capital loans are primarily collateralized by short term
assets whereas term loans are primarily collateralized by long term assets. As
additional security for commercial loans, the Bank normally requires the
personal guarantee of the principals and may require financial performance
covenants.
Commercial loans generally present a higher level of risk than one to four
family residences due to the concentration of principal in a limited number of
loans and borrowers, the effect of general economic considerations in
commercial properties and the increased difficulty of evaluating and monitoring
these types of loans. In addition, the repayment of loans secured by commercial
real estate is typically dependent on the successful operation of the related
business activities.
Residential Mortgage Lending
The Bank endeavors to meet the needs of its individual customers by making
residential mortgage loans. Residential loans include the origination of
conventional mortgages, residential lot loans and residential acquisition,
development and construction loans for the purchase of construction of
single-family housing or lots. The Bank offers fixed and adjustable rate
mortgages ("ARMs"). With these loans, the real estate normally constitutes the
primary collateral.
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Loans in this category include both portfolio loans which are held by the
Bank until maturity and loans which are sold on the secondary market. In the
case of secondary market loans, all servicing rights are retained by the Bank
which maintains the service connection to the customer. The Bank participates
in government guaranteed programs and has also helped coordinate several
innovative programs including a partnership with Penquis Community Action
Program in their "Own Me" program which assists low income women in the
purchase of a home, and housing workshops for the hearing impaired.
As of March 31, 1998, residential loans accounted for a total of $27
million representing 22% of total loans. See "Risk Factors -- Concentration in
Real Estate Lending and Related Risks." The Bank's secondary market servicing
portfolio stands at $40 million.
The Bank offers one-year ARMs with rate adjustments tied to the weekly
average rate of U.S. Treasury securities adjusted to a constant one-year
maturity with specified minimum and maximum interest rate adjustments. The
interest rates on a majority of these mortgages are adjusted yearly with
limitations on upward adjustments of 2% per adjustment period and 6% over the
life of the loan. The Bank generally charges a higher interest rate if the
property is not owner-occupied. It has been the Bank's experience that the
proportion of fixed-rate and adjustable-rate loan originations depends in large
part on the level of interest rates. As interest rates fall, there is generally
a reduced demand for ARMs and, as interest rates rise, there is generally an
increased demand for ARMs.
Fixed and adjustable rate mortgage loans collateralized by single family
residential real estate generally have been originated in amounts of no more
than 80% of appraised value. The Bank may, however, lend up to 95% of the value
of the property collateralizing the loan. In the case of certain mortgage
loans, the Bank will procure private mortgage insurance to reduce credit risk.
The Bank in most cases requires title, fire and extended casualty insurance to
be obtained by the borrower, and, where required by applicable regulations,
flood insurance. The Bank maintains its own errors and omissions insurance
policy to protect against loss in the event of failure of a mortgagor to pay
premiums on fire and other hazard insurance policies. Although the contractual
loan payment period for single family residential real estate loans is
generally for a 15 to 30 year period, such loans often remain outstanding for
significantly shorter periods than their contractual terms. The Bank charges no
penalty for prepayment of mortgage loans. Mortgage loans originated by the Bank
customarily include a "due on sale" clause giving the Bank the right to declare
a loan immediately due and payable in the event, among other matters, that the
borrower sells or otherwise disposes of the real property subject to a
mortgage. In general, the Bank enforces due on sale clauses.
Home Equity Lending
The Bank originates home equity loans on a fixed and variable interest
rate basis. At March 31, 1998, fixed rate loans totaled $10 million and
variable rate loans amounted to $9.7 million. Fixed rate loans are for terms of
5 to 10 years with monthly amortization required and interest rates ranging
from 8.5% to 12.5%. Interest rates on variable rate loans are 1.50% to 2.00%
over the prime interest rate. These home equity loans are generally secured by
a second mortgage on the principal residential property.
Consumer and Other Lending Activities
Consumer loans made by the Bank have included home improvement,
automobile, boat and recreation vehicle loans, credit cards and overdraft
protection accounts. The Bank's consumer loan portfolio consists primarily of
loans to individuals for various consumer purposes. A majority of these loans
are for terms of less than 60 months and although generally collateralized by
liens on various personal assets of the borrower may be made uncollateralized.
Consumer loans are made at fixed and variable interest rates.
Consumer loans are attractive to the Bank because they typically have a
shorter term and carry higher interest rates than that charged on other types
of loans. Consumer loans, however, do pose additional risks of collectability
when compared to traditional types of loans granted by commercial banks such as
residential mortgage loans. In many instances, the Bank is required to rely on
the borrower's ability to repay since the collateral may be of reduced value at
the time of collection. Accordingly, the initial determination of the
borrower's ability to repay is of primary importance in the underwriting of
consumer loans.
Consumer loans totaled approximately $7.2 million and represented 6% of
the Bank's loan portfolio at March 31, 1998. Such loans bear interest at fixed
rates ranging from 5.5% to 18%.
M&M Joint Venture
In 1996, the Bank and MSB Leasing, Inc. (a subsidiary of Machias Savings
Bank, a state chartered mutual savings bank) formed M&M Consulting Limited
Liability Company ("M&M"), a jointly owned subsidiary. M&M
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was established to provide a review of various internal bank risk control
functions. M&M, which has a former FDIC examiner as one of its principals,
provides the Bank, Machias Savings Bank and approximately 19 other financial
institutions in Maine access to experienced individuals who are highly trained
in loan review, regulatory compliance, training and internal auditing in a
cost-efficient and timely manner.
Loan From Marshall & Ilsley Bank
In October 1992, the Company obtained the M&I Loan from M&I Bank. As of
March 31, 1998, the principal amount outstanding thereunder was approximately
$2.7 million. The Company has the option of selecting one of the following
annual interest rates: (i) Prime Rate, (ii) the Treasury Rate plus 1.75% or
(iii) the adjusted interest rate plus 1.5%. Interest payments on the unpaid
principal are due quarterly. The Company pledged all of the Bank Stock as
collateral for the M&I Loan. See "Risk Factors -- Foreclosure on Bank Stock."
The M&I Loan documentation imposes significant restrictions on the
operations of the Company and the Bank. The Company may not engage in the
following actions without the written approval of M&I Bank:
[bullet] pay the principal of its Debentures (M&I Bank has also reserved the
right to prohibit interest payments on the Debentures);
[bullet] repurchase or redeem any of its Common Stock from its directors,
executives or other control group members;
[bullet] incur additional debt;
[bullet] make a guarantee or incur contingent liabilities;
[bullet] execute a merger or acquisition or a transfer of substantially all of
the assets of the Company or the Bank; or
[bullet] sell the Bank (or any interest therein) or acquire any banks or other
subsidiaries.
Economic Environment
General
The monetary policies of regulatory authorities, including the Federal
Reserve Board, have a significant effect on the operating results of bank
holding companies and their subsidiary banks, including the Company and the
Bank. The Federal Reserve Board regulates the national supply of bank credit.
Among the means available to the Federal Reserve Board to regulate such supply
are open market operations in U.S. government securities, changes in the
discount rate on depository institution borrowings and changes in reserve
requirements against depository institution deposits. These means are used in
varying combinations to influence growth and the distribution of bank loans,
investments and deposits, and their use may affect interest rates charged on
loans or paid for deposits.
Effect of Regional Economies
Every bank is affected by general economic conditions beyond its control,
such as inflation, recession, unemployment and other factors. A depressed
economy in the early 1990's in the United States, and in the northeastern
United States in particular, caused financial hardship in the region in which
the Bank's branches operate. However, this same region has achieved modest
growth over the past four years as part of the general recovery of the whole
Northeast region from its recession. In addition, the Company believes that
property values in the Bank's market area have generally been more stable than
in southern Maine and the New England states as a whole. Should an unfavorable
trend in real estate values reappear, the Company believes that the Bank's loan
portfolio should be sufficiently mature to provide adequate loan to value
margins and cash flow coverage. The Company and the Bank endeavor to service
the Bank's customers in a prudent and sound manner in light of regional and
national economic conditions. See "Risk Factors -- Dependence on Economic
Conditions."
Competition
The financial services landscape has changed considerably over the past
five years in the Bank's primary market area, Greater Bangor. Two large out of
state banks have continued to experience local change as a result of mergers
and acquisitions at the regional and national level. The State's largest
Maine-based bank, with a strong presence in the local market, has also
experienced considerable change as it has acquired greater market share through
acquisitions in-state and out-of-state. A large locally-based bank has recently
announced plans to expand its line
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of financial services and to acquire an extensive branch network beyond the
local market. Credit unions have continued to expand their membership and the
scope of banking services offered. Non-banking entities such as brokerage
houses, mortgage companies and insurance companies are offering very
competitive products. Many of these entities and institutions have resources
substantially greater than those available to the Bank and are not subject to
the same regulatory restrictions as the Company and the Bank. Interstate
banking also could intensify competition if out of state institutions
increasingly take advantage of recent legislation liberalizing interstate
banking and branching opportunities in Maine. See "Risk
Factors -- Competition."
Competitive Strategy
The Bank's primary geographic market area is Northeastern and Central
Maine. In recent years, due to more liberal interstate banking laws, this area
has seen an increase in acquisitions of locally-owned Maine-based banks,
including Maine-based banks in the Bank's primary market area, by non-local
entities. It has been the observation of the Company's management that these
acquisitions often result in customer dissatisfaction as the decision-making on
loans, marketing, and other aspects of the acquired banks' businesses are
shifted from local bank management possessing independent decision-making power
to management operating under policies and guidelines from corporate
headquarters in other states. The Company believes that this shift often
results in delayed decision-making by management which is not familiar with the
needs of the acquired bank's customers or the communities they serve.
Individuals and small businesses are particularly sensitive to these changes
since they may not fit the product parameters established by the larger banks.
Thus, the Company believes that there will continue to be a need for a
bank in the Bank's primary market area with local management having
decision-making power and emphasizing loans to small and medium-sized
businesses and to individuals. The Bank has concentrated on extending business
loans to such customers in the Bank's primary market area and to extending
trust services to clients with accounts of all sizes. The Bank's management
also makes decisions based upon, among other things, the knowledge of the
Bank's employees regarding the communities and customers in the Bank's primary
market area. The individuals employed by the Bank, to a large extent, reside
near the Branch Banks and thus are generally familiar with the Branch Banks'
communities and customers, which is important in local decision-making and
allows the Bank to respond to customer questions and concerns on a timely basis
and fosters quality customer service.
The Trust and Investment Services Department of the Bank has taken
advantage of opportunities created as the larger banks have altered their
personal service commitment to clients not meeting established account
criteria. The Bank is able to offer a comprehensive array of trust and
investments services to individuals, businesses, non-profit and municipalities
of varying assets size and to provide the highest level of personal service.
The staff includes attorneys as well as investment and employee benefits
professionals with trust and banking experience.
The Bank has worked and will continue to work to position itself to be
competitive in its market area. The Bank's ability to make decisions close to
the marketplace, management's commitment to providing quality banking products,
the caliber of the professional staff, and the community involvement of the
Bank's employees are all factors affecting the Bank's ability to be
competitive. If the Company and the Bank are unable to compete successfully,
however, the business and operations could be adversely affected. See "Risk
Factors -- Competition."
Employees
As of March 31, 1998, the Bank had a total of 86 full-time equivalent
employees. None of the employees of the Bank are covered by a collective
bargaining agreement. The Bank believes that its employee relations are good
and has undertaken several programs to ensure staff development, including
education programs at various schools of banking. Other options available to
employees include tuition reimbursement for college and graduate school
programs, a college scholarship program for the children of employees and a
variety of programs designed to promote good health and overall well being.
The Bank believes that stock ownership by employees is important in
focusing the attention of employees on the enhancement of shareholder value. In
the past, the Company granted options to purchase a total of 451,350 shares of
Common Stock (adjusted to reflect the 9:1 Stock Split, the 3% stock dividend,
the 5% stock dividend and the 5% stock dividend in 1996, 1997 and 1998,
respectively) to its officers and branch managers. On March 31, 1998, the
Company granted options under the Company's stock option plan to all Bank
employees (excluding officers and branch managers). For employees who had
achieved two (2) years of employment with the Bank by March 1, 1998, these
options vest on March 2, 1999 and may not be exercised after May 26, 2003. For
the remaining
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employees, the options vest on March 2, 2000 and may not be exercised after May
26, 2003. Each employee received an option to purchase 900 shares, for a total
of 55,800 shares, each adjusted to reflect the 9:1 Stock Split.
All of these grants complement the 401(k) Plan which was instituted in
1994. See "Management -- Stock Option Plan."
Bank Premises
Over the past five and a half years, the Company has made improvements to
or relocated from nearly all of the properties it acquired in connection with
the Bank's formation. The most significant project being the 1997 two-story
expansion and renovation of its headquarters building at 201 Main Street. This
increased the size of the structure from 8,000 to a total of 17,000 square
feet, and includes a large branch, commercial, trust and administrative offices
as well as a board room and two conference rooms. The property is located at
the gateway to downtown Bangor and the enhancements to the site have
significantly improved the area. The site suits the Company's present needs
and further expansion is available on the premises if the needs of the Company
change in the future.
992 Union Street Branch, Bangor
The Bank's most recent project, completed in late 1997, was the relocation
of this office from a small, outdated facility at 559 Union Street to a new
branch at the Airport Plaza Mall located at 992 Union Street. This branch
includes a spacious lobby, three comfortable offices, a conference room and
kitchen. Adequate parking and convenient access to the multi-lane drive up and
ATM are added benefits.
920 Stillwater Avenue, Bangor
In 1994, the Bank relocated from an office within the Bangor Mall to a
spacious facility located in the CrossRoads Plaza. This office includes the
branch and the Residential Mortgage Department and its operational staff. This
location features a multi-lane drive up and ATM and provides service to another
ATM located inside the Bangor Mall.
366 Wilson Street, Brewer
In 1995, the Company sold the original Brewer branch building on North
Main Street and relocated to the present location. This is a leased facility
which had been recently renovated by another bank. It features a multi-lane
drive-up and ATM and is conveniently located at the center of the Brewer
business district.
69 Main Street, Orono
The Orono branch is also located near the center of town on the first
floor of a former bank building. The Company assumed this lease in 1992 and has
made some cosmetic improvements to the facility since that time. In 1998 an ATM
was installed at the site to complement the existing drive-up services.
27 Main Street, Pittsfield
The Pittsfield branch, which was acquired by the Bank as part of the
start-up, is a historic two story Main Street building with approximately
12,600 square feet of space.
Newport Plaza, Newport
In 1997, the Company opened its first branch in a locally owned
supermarket in Newport. This facility is unlike most supermarket banks in that
it includes a drive-up as well as in-store tellers and loan and customer
service personnel.
Legal Proceedings
The Company and the Bank are periodically parties to or otherwise involved
in legal proceedings arising in the normal course of business, such as claims
to enforce liens, claims involving the making and servicing of real property
loans and other issues incident to their business. Management does not believe
that there is any proceeding threatened or pending against the Company or the
Bank which, if determined adversely, would have a material effect on the
business or financial position of the Company or the Bank. As of March 31,
1998, the Bank is not involved in any legal proceeding as a defendant other
than as a garnishee or secured creditor.
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Service Marks & Trade Names
The Company and the Bank submitted an application to register with the
Trademark Office, the Merrill "Pine Tree" symbol, both used alone and in
combination with the name "Merrill Merchants Bank" on January 5, 1993. On April
29, 1993, the Trademark Office preliminarily refused registration of the
application because, in the opinion of the Trademark Office, the Bank's
application for federal trademark protection of the name "Merrill Merchants
Bank" was confusingly similar to certain registrations. The Company chose not
to appeal this decision. The Bank did, however, previously register the logo
and the name "Merrill Merchants Bank" with the State of Maine, which
registration was filed October 15, 1992.
The Bank has established goodwill in its name and logo. In the event that
the Bank's use of its name and logo in the State of Maine were successfully
challenged, the Bank would be forced to pursue other alternatives, such as
using a similar name or changing the name altogether, each of which could have
a material adverse impact on the Company and the Bank. See "Risk Factors -- Use
of Name; Trademark."
Federal and State Taxation
General
The Company and the Bank file a consolidated federal income tax return on
a fiscal year basis. Consolidated returns have the effect of eliminating
intercompany distributions, including dividends, from the computation of
consolidated taxable income for the taxable year in which the distributions
occur. Banks and bank holding companies are subject to federal income taxes in
the same manner as other corporations. In accordance with an income tax sharing
agreement, income tax charges or credits will be allocated to the Company and
the Bank on the basis of their respective taxable income or loss included in
the consolidated income tax return.
Federal Income Taxation
Although the Bank's income tax liability is determined under provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), which is applicable
to all taxpayers or corporations, Sections 581 through 597 of the Code apply
specifically to financial institutions.
The two primary areas in which the treatment of financial institutions
differ from the treatment of other corporations under the Code are in the areas
of bond gains and losses and bad debt deductions. Bond gains and losses
generated from the sale or exchange of portfolio instruments are generally
treated for financial institutions as ordinary gains and losses as opposed to
capital gains and losses for other corporations, as the Code considers bond
portfolios held by banks to be inventory in a trade or business rather than
capital assets. Banks are allowed a statutory method for calculating a reserve
for bad debt deductions. Based on the asset size of the Bank, it is permitted
to maintain a bad debt reserve calculated on an experience method, based on
charge-offs for the current and preceding five years or a "grandfathered" base
year reserve, if larger.
State and Local Taxation
The Company on a consolidated basis is subject to a separate state
franchise tax in lieu of state corporate income tax. The amount of the tax is
the sum of 1% of Maine net income and $.08 per $1,000 of Maine assets as
defined in Maine law. Maine assets are the corporation's total end of the year
assets as reported on the federal income tax return. Maine net income is the
corporation's net income or loss as reported on the federal income tax return
which is apportioned to Maine under Maine law.
40
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company and Bank, their ages,
and positions with the Company and Bank are set forth below.
<TABLE>
<CAPTION>
Name Age Position with Company Position with Bank
- --------------------------------------- ----- ------------------------- -----------------------------------
<S> <C> <C> <C>
William C. Bullock, Jr. ............... 61 Chairman Chairman
Edwin N. Clift ........................ 58 Director, President, Director, President,
Chief Executive Officer Chief Executive Officer
John S. Bacon ......................... 67 None Director
Sara E. Carr .......................... 56 None Vice President,
Compliance Officer
Joseph H. Cyr ......................... 57 Director Director
John R. Graham III .................... 60 None Director
Perry B. Hansen ....................... 50 Director, Secretary Director
Charles W. Hart ....................... 57 None Secretary,
Senior Vice President
Joseph P. Irish ....................... 38 None Director
Deborah A. Jordan ..................... 32 Treasurer Senior Vice President,
Chief Financial Officer, Treasurer
Robert E. Knowles ..................... 64 None Director
William P. Lucy ....................... 39 None Senior Vice President
J. Donald Mackintosh .................. 67 None Director
Jane H. Madigan ....................... 51 None Senior Vice President
Leonard E. Minsky ..................... 70 Director Director
Norman Minsky ......................... 67 Clerk Director, Clerk
George H. Moore, Jr. .................. 52 None Senior Vice President
Frederick A. Oldenburg, Jr., M.D....... 50 None Director
Lloyd D. Robinson ..................... 62 None Director
Susan L. Rush ......................... 41 None Vice President
Joseph Sewall ......................... 76 Director None
Dennis L. Shubert, M.D. ............... 50 Director Director
Susan B. Singer ....................... 48 Director Director
Lynne A. Spooner ...................... 41 None Senior Vice President
Reginald C. Williams, Jr. ............. 53 None Senior Vice President
Harold S. Wright ...................... 74 Director Vice Chairman and Director
</TABLE>
William C. Bullock, Jr. has served as Chairman of the Company and the Bank
since its inception. From 1988 to 1989, he was formerly chairman of
Merrill/Norstar Bank, which was a predecessor to Fleet Bank. Prior to the merger
of The Merrill Trust Company ("Merrill Bank") and Norstar Bank of Maine in 1988,
he served as chairman of the board and president of Merrill Bank, Bangor, and
was associated with that company in various capacities from 1969. Mr. Bullock
was also an executive vice president and director of Fleet/Norstar Financial
Group of Providence, Rhode Island, the holding company for Merrill/Norstar Bank,
from 1986 until 1988. Before joining Merrill Bank, Mr. Bullock served in a
number of officer positions for Morgan Guaranty Trust Company of New York. He is
a graduate of Yale University and attended the graduate school of business at
New York University. From 1987 to 1989, Mr. Bullock was a Class A director of
the Federal Reserve Bank of Boston. He currently serves as a director of a
number of Maine businesses including Bangor Hydro-Electric Company, Bangor,
Maine and Eastern Maine Healthcare, Bangor, Maine.
41
<PAGE>
Edwin N. Clift has served as President and Chief Executive Officer of the
Company and the Bank since its inception and he has been involved in
organizational activities for the Company and the Bank on a full-time basis
since April 1992. From 1991 to 1992, he was executive vice president of Machias
Savings Bank, a mutual savings bank in Machias, Maine, where he was responsible
for all functions within the bank as directed by the president and the board of
directors. He has also served as senior vice president and senior divisional
commercial officer at Key Bank, a publicly traded company, where he was
responsible for commercial lending and business development activities. Mr.
Clift began his banking career at The Merrill Trust Company where he was
employed for 24 years with various titles and responsibilities including,
senior vice president and senior administrative officer, responsible for the
overall administration of the bank's branch system. Mr. Clift is a graduate of
Strayer College in Washington, D.C. and the Williams College School of Banking,
and attended the University of Maine. He was recently elected to a three year
term as a Class A director of the Federal Reserve Bank of Boston. He serves as
president of the Independent Community Bankers Association of Maine and is a
director and second vice president of the Maine Bankers Association. Mr. Clift
is chairman of the St. Joseph Healthcare Foundation board of trustees and
public affairs officer for the Maine Committee for Employer Support for the
Guard and Reserve. He is a past president of the Bangor Area Breakfast Rotary
and has served many other economic, civic, and charitable organizations. He is
also a director of Seven Islands Land Company, a privately held company that
manages one million acres of certified forest in Maine.
John S. Bacon has served as a Director of the Bank since 1996. He is
President of Bacon Printing Company, a Bangor-based, family-owned printing
business with which he has been associated since 1948. Mr. Bacon was previously
a director of The Merrill Trust Company. He is a member of Bangor Rotary.
Sara E. Carr has served as Vice President and Compliance Officer of the
Bank since 1992. She was previously employed as the main office manager of
Maine National Bank and its predecessor Merchants National Bank, where she
worked for 26 years. She is a graduate of Williams College School of Banking.
Ms. Carr serves on the Family Self-Sufficiency Committee of the Bangor Housing
Authority.
Joseph H. Cyr has served as a Director of the Company and the Bank since
1992. He has been the owner of John T. Cyr & Sons, Inc., Old Town, Maine, a
privately held charter bus service, since 1967. Mr Cyr has been involved in
that business since 1962 and became the owner in 1967. He was formerly a
director of Norstar Bank in Bangor. He has been active in a number of civic and
charitable organizations including: trustee of Husson College; president of the
Bangor Area Chamber of Commerce; director of St. Joseph Hospital; and director
of the Maine Community Foundation.
John R. Graham III has served as a Director of the Bank since 1992. He has
been the owner and operator of Automatic Distributors, a privately held
wholesale distributor of recreation vehicle parts and accessories and JRG
Properties, which consists of various commercial and residential rental
projects, since 1967.
Perry B. Hansen has been a Director of the Company and the Bank since
1992. He is Chairman and Chief Executive Officer of The Rock Island Bank, Rock
Island, Illinois, and has held those positions since 1985. Prior to that time,
he was the Chief Operating Officer and a director of Brenton First National
Bank, Davenport, Iowa, which was a member of the sixteen bank Brenton Bank
Holding Company.
Charles W. Hart has served as a Senior Vice President and Head of Branch
Administration of the Bank since its inception. He has been involved with the
Company and the Bank since February 1992. From 1989 to 1991, he was vice
president and chief financial officer of Bean & Conquest, Motor Truck & Trailer
and Automotive Realty in Hermon, Maine, privately held related companies
engaged in the sales and service of heavy duty trucks and accessories. From May
1984 through June 1989, he was vice president of Merrill Bank, where he was in
charge of consumer loans at the Merrill Center branch. Mr Hart began his 30
year banking career with Merchants National Bank, which was a predecessor to
Maine National Bank. Mr. Hart is a graduate of St. Anselm College. He is a
former member of the Dedham School Board.
Joseph P. Irish has served as a Director of the Bank since 1992. He is the
owner and operator of the Troy General Store and Waldo County Oil, privately
held companies located in Troy, Maine. He has been associated with those
companies since 1987. Mr. Irish is a past president of Unity Rotary and a Boy
Scouts of America volunteer. He formerly served as a director of Border Trust
Company located in Jackman, Maine.
42
<PAGE>
Deborah A. Jordan has served as Senior Vice President and Chief Financial
Officer of the Bank and Treasurer of the Company since 1993. From 1987 to 1992,
she was employed as an audit manager at Arthur Andersen LLP in Boston. She is a
graduate of Husson College and is a Certified Public Accountant. Ms. Jordan
serves as a director of Eastern Maine Technical College Foundation and OHI
(Opportunity Housing, Inc.).
Robert E. Knowles has served as a Director of the Bank since 1992. He has
been retired since 1984. From 1971 to 1984, he was the owner and president of
Maine X-Ray Equipment, Pittsfield, Maine, one of the largest distributors of
X-ray film and chemicals in New England. Mr. Knowles is a member of the Unity
Rotary.
William P. Lucy has served as Senior Vice President and Senior Loan
Officer of the Bank since 1992. Mr. Lucy began his banking career at Merrill
Trust Company in 1981, and he has both commercial lending and branch
administration experience. He is a graduate of the University of Maine and
Williams College School of Banking. Mr. Lucy is incoming president of the board
of the Y.M.C.A., a member of the pension committee of St. Joseph Healthcare
Foundation, on the board of New Hope Hospice, and the Action Committee of 50,
as well as an advisory board member for Beal College.
J. Donald Mackintosh has served as a Director of the Bank since 1992. He
is retired from the automobile industry where he worked for over 40 years, most
recently as the owner, president and general manager of Dow Motors, Inc., a
privately held automobile dealership in Ellsworth, Maine. Mr. Macintosh is a
graduate of General Motors Institute where he received a B.A. degree. He is
currently a member of the Aircraft Owners and Pilots Association.
Jane H. Madigan has served as Senior Vice President and Director of
Marketing and Human Resources for the Bank since 1992. She is a former educator
who began her banking career at Merrill Bank in 1986. She is a graduate of
Manhattanville College, has a master's degree from the University of Maine, and
is a graduate of the ABA School of Bank Marketing. She is a director of the New
England School of Banking, the Maine Human Resource Management Association, a
member of Bangor Rotary, a member of the steering committee of Bangor Region
Leadership, a former board member of the United Way of Eastern Maine, and
former president of the Abnaki Girl Scout Council.
Leonard E. Minsky has served as a Director of the Company and the Bank
since 1992. He is the retired president of Superior Paper Products, Inc., a
wholesale distributor of institutional and commercial paper and maintenance
products, with which he was associated for 42 years. Mr. Minsky is a graduate
of the University of Maine and is a former director of Northeast Bank of
Bangor. He is active in a number of community organizations including: member
of the Board of Visitors for the University of Maine; chairman of the
President's Council for University Development; chairman of the University of
Maine Patrons of the Arts, a director of Acadia Hospital, and a director of the
Maine Community Foundation. He and Norman Minsky are brothers.
Norman Minsky has been a Clerk of the Company and Director and Clerk of
the Bank since 1992. He was admitted to the Maine Bar in 1953 and is now of
counsel to the law firm of Gross, Minsky, Mogul & Singal, Bangor, Maine, with
which he was previously senior partner. Gross, Minsky, Mogul & Singal, P.A.
serves as general counsel to the Company and the Bank. Mr. Minsky received his
undergraduate and law degrees from Boston University. He has been active in a
number of charitable and professional organizations including: president of the
board of trustees of the Bangor Public Library; and president of the board of
the Bangor Symphony Orchestra. He and Leonard Minsky are brothers.
George H. Moore, Jr. serves as Senior Vice President and Senior Trust and
Investment Officer for the Bank. Mr. Moore, who has sixteen years of financial
planning, investment management and administrative experience, joined the Bank
in 1993 to organize the department. From 1992 to 1993, Mr. Moore served as
Trust and Investment Services Officer for Union Trust Company of Ellsworth,
Maine. Mr. Moore's other trust and investment banking experience includes
several years with The Merrill Trust Company. Mr. Moore is a graduate of the
University of Maine and the ABA's National Trust School. He serves on the
Planned Giving Committee of St. Joseph Healthcare; was a steering committee
member for the Heroes Breakfast, Pine Tree Chapter/American Red Cross; and is a
past board member of the Good Samaritan Agency.
Frederick A. Oldenburg, Jr., M.D. has served as a Director of the Bank
since 1996. Since 1973, he has been a practicing physician, and since 1993,
President and part owner of Penobscot Respiratory and also Director of
Respiratory Care at St. Joseph Hospital in Bangor. He is a graduate of
Dartmouth College and Case Western Reserve
43
<PAGE>
University Medical School. Dr. Oldenburg is president of the National
Association for the Medical Direction of Respiratory Care.
Lloyd D. Robinson has served as a Director of the Bank since 1992. He has
been retired since 1985. From 1977 to 1985, he was the owner/operator of
McKay's R.V. Center, a privately held recreational equipment business. He also
has investments in real estate in the Bangor area. Mr. Robinson is a U.S. Air
Force veteran.
Susan L. Rush has served as Vice President of the Bank since 1992.
Formerly the internal auditor of the Bank, she has served as Systems
Administrator for the Bank since 1997. She has 18 years of banking experience
beginning at The Merrill Trust Company and including various responsibilities
in the areas of commercial loan, branch management and internal audit. Ms. Rush
is a graduate of the University of Maine and the Cannon Bank Audit School.
Joseph Sewall has served as a Director of the Company since 1992 and also
served as a Director of the Bank from 1992 to 1996. He is Chairman of James W.
Sewall Company, a forest management, surveying and aerial mapping company with
which he has been associated since 1945. He is a graduate of Bowdoin College.
Mr. Sewall served five terms as president of the Maine Senate. He is a former
director of Merchants National Bank and Merrill Bancshares, Inc. Mr. Sewall
serves as a trustee of the Maine Maritime Academy.
Dennis L. Shubert, M.D. has served as a Director of the Company since May
1998 and a Director of the Bank since 1992. He is a neurosurgeon and President
of Maine Neurosurgery of Bangor and Portland Maine. Dr. Shubert is a Bangor
native who graduated from Tufts University, received an M.D. from George
Washington University and a Ph.D. from the University of Minnesota. Dr. Shubert
has been active in a number of professional organizations including: president
of the Penobscot County Medical Association and president of the Maine
Neurosurgical Society.
Susan B. Singer has served as a Director of the Company since May 1998 and
as a Director of the Bank since 1992. She presently serves as Comptroller and
Vice President of Maine Trailer, a family-owned sales, rental and leasing
company located in Bangor, with which she has been associated for 18 years. Ms.
Singer is a current member of Congregational Beth Israel and a past board
member and treasurer. She serves on the board of directors of Eastern Maine
Medical Center Auxiliary. She was recently elected to the Y.W.C.A. board of
directors.
Lynne A. Spooner has served as Senior Vice President and Head of the
Residential Mortgage Department of the Bank since 1992. Ms. Spooner began her
banking career at Savings and Loan Association of Bangor in 1977 and brings
nearly 21 years of banking experience to her position. She is a graduate of
Eastern Maine Technical College. Ms. Spooner serves as first vice president of
St. Joseph Hospital Auxiliary, vice president of the board of the Warren Center
for Communication & Learning, on the loan review board of Penquis Community
Action Program, and is a member of the Zonta Club in Bangor.
Reginald C. Williams, Jr. has served as a Senior Vice President and Head
of Operations for the Bank since 1992. Mr. Williams began his banking career at
The Merrill Trust Company in 1968 and has experience in bank operations and
branch management. He is a graduate of the University of Maine, where he also
earned an M.B.A., and he is a graduate of the New England School of Banking. He
is actively involved with his church and the Penobscot/Piscataquis Jail
Ministry.
Harold S. Wright has served as a Director of the Company and Director and
Vice Chairman of the Bank since 1992. He retired as executive vice president of
The Merrill Trust Company in 1987 after a 35 year banking career. He is a
former Potentate of Anah Temple Shrine, and has served as a director of a
number of privately held Maine companies, including Sawyer Management Co.,
Sherman Lumber Company and Ward Log Homes.
Classes of Directors
As of May 7, 1998, the Board of Directors of the Company is divided into
three classes, each of whose members serves for a staggered three-year term.
Upon the expiration of the term of a class of directors, directors in such
class will be elected for three-year terms at the annual meeting of
shareholders in the year in which such term expires.
44
<PAGE>
Executive Officers
Each of the executive officers of the Company is elected by the Board of
Directors on an annual basis and serves until the next annual meeting of the
Board of Directors or until his or her successor has been duly elected and
qualified.
Board Committees
The Bank has maintained an audit committee since October 1992. The
functions of the Bank's audit committee were shifted to the Company's audit
committee of its Board of Directors (the "Audit Committee") upon the formation
of the Audit Committee in June 1998. The Audit Committee reviews, acts on and
reports to the Board of Directors with respect to various auditing and
accounting matters, including the selection of the Company's auditors, the
scope of the annual audits, fees to be paid to the auditors, the performance of
the Company's independent auditors and the accounting practices of the Company.
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") was established in October 1992 and determines the
salaries and incentive compensation of the officers of the Bank and provides
recommendations for the salaries and incentive compensation of the other
employees and the consultants of the Bank. The Compensation Committee also
administers the Company's various incentive compensation, stock and benefit
plans.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee consists of Messrs. L. Minsky, Cyr
and Hansen, Dr. Shubert and Ms. Singer, none of whom has been an officer or
employee of the Company or the Bank at any time since the Company's inception.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. Mr. Clift, the Company's Chief Executive Officer,
participated in all such discussions and decisions concerning the compensation
of executive officers of the Company, except that Mr. Clift was excluded from
discussions regarding his own compensation.
Director Compensation
Non-employee directors of the Company and the Bank receive $100 per month
for their attendance at monthly and any special meetings of the Board of
Directors. Non-employee committee members also receive $50 for each committee
meeting that is not held on the same day as the Board of Directors meetings. In
lieu of increasing director fees payable to non-employee directors, the Company
has granted stock options under the Company's Stock Option Plan to such
non-employee directors as follows (in each case after giving effect to the 9:1
Stock Split but without giving effect to the issuance of stock dividends): In
1993, the Company granted each non-employee director an option to purchase
1,800 shares of Common Stock (except that Perry Hansen received an option for
the purchase of 9,000 shares of Common Stock in recognition of additional
services) at an exercise price of $5.22 per share; in 1995, the Company granted
each non-employee director an option to purchase 900 shares of Common Stock at
an exercise price of $6.05 per share; and in 1997, the Company granted each
non-employee director an option to purchase 1,800 shares of Common Stock, at an
exercise price of $6.59 per share. The Company may grant additional stock
options in the future in lieu of an increase in the payment of director fees.
Director Deferred Compensation Plan
The Company has established a deferred compensation plan ("Director Plan")
for non-employee directors of the Company and Bank. A participating director
may defer up to 100% of his or her monthly board and committee fees. Amounts
deferred earn interest at the one year treasury rate. At retirement,
termination or death, the benefit under the Director Plan is payable in a lump
sum distribution.
45
<PAGE>
Executive Compensation
The following table sets forth as of December 31, 1997, all cash
compensation paid during the Bank's last three fiscal years to the chief
executive officer who was the only executive officer whose aggregate cash
compensation exceeded $100,000 per year.
<TABLE>
<CAPTION>
Long Term All Other
Compensation Compensation
Awards ($)
-------------- -----------------
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options (2) Compensation (3)
- ------------------------------ ------ ---------- --------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Edwin N. Clift (1)............ 1997 $110,000 $20,000 -- $1,279
President and Chief Executive 1996 105,000 15,000 -- --
Officer 1995 95,000 10,000 10,755 --
</TABLE>
- ----------
(1) No other officer of the Company or the Bank received aggregate cash
compensation that exceeded $100,000 per year for the last three fiscal
years.
(2) Options are vested and exercisable at $5.33 per share adjusted to reflect
the 9:1 Stock Split and the 3% stock dividend, the 5% stock dividend and
the 5% stock dividend declared in 1996, 1997 and 1998, respectively.
(3) Includes benefits received as part of the Supplemental Executive Retirement
Plan.
Supplemental Executive Retirement Plan
The Bank has adopted a non-tax qualified retirement plan for certain of
its executives ("SERP") to supplement the benefit such executives can receive
under the Bank's 401(k) Plan. This plan was designed to provide the following
executives with annual retirement benefits initially equal to a minimum percent
of each executive's respective salary the year prior to retirement, payable for
life. The amount of each annual benefit is indexed to the financial performance
of an insurance policy owned by the Bank over the Bank's cost of funds expense.
<TABLE>
<CAPTION>
Name of Executive Position with Bank
- ------------------------------------------------ -----------------------------------
<S> <C>
Edwin N. Clift ..................... President, Chief Executive Officer
Sara E. Carr ....................... Vice President
Charles W. Hart .................... Senior Vice President
Deborah A. Jordan .................. Senior Vice President
William P. Lucy .................... Senior Vice President
Jane H. Madigan .................... Senior Vice President
George H. Moore, Jr. ............... Senior Vice President
Susan L. Rush ...................... Vice President
Lynne A. Spooner ................... Senior Vice President
Reginald C. Williams, Jr. .......... Senior Vice President
</TABLE>
The plan is vested at the rate of 20% for each year of employment. The
Bank's obligations under this plan are unfunded; however the Bank has purchased
split-dollar life insurance policies on each insurable individual that are
actuarially designed to offset the annual expenses associated with the plan and
will, given reasonable actuarial assumptions, provide a complete recovery of
all plan cost.
The death benefit for each executive is an endorsement of 80% of the
net-at-risk life insurance portion of each of the life insurance policies
purchased to recover the retirement plan's costs.
The SERP had one participant at December 31, 1997, Edwin N. Clift. Under
this plan, the Bank paid $604,000 in premiums in 1997. The entire premium is
reflected in the consolidated statement of condition at December 31, 1997 as
cash surrender value of life insurance and is included with other assets.
Additional participants were added to the SERP in May 1998 requiring a premium
payment by the Bank totaling $1.8 million, which also is treated as cash
surrender value of life insurance and included with other assets.
Deferred Compensation Plan
The Bank has established a deferred compensation plan ("DC Plan") for
certain officers who are selected to participate in the DC Plan. The Bank
determines the amount deferred on an annual basis. Amounts deferred earn
interest at the rate equal to the one-year treasury rate plus one percent per
annum. At retirement, the benefit under
46
<PAGE>
the DC Plan is payable in a lump sum distribution. The Bank's obligations under
this plan are unfunded. Presently, Mr. Charles Hart, Mr. Thomas Tilley and Ms.
Jane Madigan are participants in the DC Plan. At December 31, 1997, the
deferred compensation totaled $56,000 into the DC Plan.
Option Grants in Last Year
The Company did not grant any options to Mr. Clift during the year ended
December 31, 1997. The Company did grant Mr. Clift options to purchase 6,615
shares of Common Stock in January 1998 adjusted to reflect a 9:1 stock split
and a 5% stock dividend in 1998, at an exercise price of $6.77. The Company has
not granted any stock appreciation rights.
Aggregated Option Exercises and Year-End Values
The following table sets forth certain information concerning options to
purchase Common Stock exercised by Mr. Clift during 1997 and the number and
value of unexercised options held by him at December 31, 1997.
Aggregated Option Exercises in the Year Ended December 31, 1997
and Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Shares December 31, 1997 (1) at December 31,1997 (2)
Acquired Value ----------------------------- -----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Edwin N. Clift ......... 0 0 68,859 0 $569,622 0
</TABLE>
- ----------
(1) The figures above reflect the 9:1 Stock Split, a 3% stock dividend in 1996
and a 5% stock dividend in each of 1997 and 1998 which apply to options
granted before the dividend is declared. The numbers in this table include
such increase in the underlying shares on account of these dividends.
(2) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated on the basis of the
assumed public offering price of $13 per share (the midpoint of the price
range set forth on the cover page of this Prospectus), less the applicable
exercise price per share, multiplied by the number of shares underlying
such options (subject to the proportionate adjustments in the exercise
price and the number of shares underlying the options on account of the
9:1 Stock Split).
Stock Option Plan
The Company created a stock option plan in 1993 (the "Plan") and
subsequently amended the Plan on April 25, 1995 and April 24, 1997. The Plan
permits the granting of options to the Company's directors and employees. The
Plan's purpose is (i) to further the Company's interests by increasing the
personal involvement of the directors and employees; (ii) to enable the Company
to obtain and retain the services of employees; and (iii) to enable the Company
to attract and retain the services of qualified individuals to serve on the
Board of Directors.
A total of 585,900 shares of Common Stock has been authorized for issuance
under the Plan. This figure reflects the 9:1 Stock Split, and a 3% stock
dividend, a 5% stock dividend and a 5% stock dividend declared and issued by
the Company during 1996, 1997 and 1998, respectively.
The Compensation Committee administers the Plan. Subject to the Plan's
express terms and conditions, the Compensation Committee has full power (i) to
construe the Plan; (ii) to prescribe, amend and rescind rules and regulations
relating to the Plan; and (iii) to make all other determinations necessary or
advisable for the Plan's administration.
As part of these powers, the Compensation Committee determines which
individuals are eligible to participate under the Plan and how many shares of
Common Stock a particular option covers. The Compensation Committee also
determines whether a particular grant of options to an employee satisfies all
of the qualifications of Section 422 of the Internal Revenue Code of 1986 with
respect to incentive stock options ("Qualified Stock Options"). The Plan
prohibits non-employee directors from receiving Qualified Stock Options. In
addition, the Compensation Committee determines the exercise price for the
shares of Common Stock underlying a particular option grant, provided that (i)
the exercise price of a Qualified Stock Option is the fair market value of the
underlying Common Stock which must be at least 100% of the book value of the
Company's Common Stock on the date the Qualified
47
<PAGE>
Stock Option is granted; and (ii) the exercise price of any option granted to
an employee or director who owns at least 10% of the Company's stock must be
equal to 110% of the fair market value of the underlying Common Stock.
The terms and conditions of each option granted is evidenced by a Stock
Option Agreement executed by the Company. Upon vesting, the options granted
under the Plan become exercisable in such amounts prior to the expiration date
as determined by the Compensation Committee and as set forth in each stock
option agreement. If an option holder's employment with the Company or its
subsidiary terminates for any reason other than permanent and total disability
or death, the employee may exercise any vested options within the three (3)
months after termination. If termination is the result of permanent and total
disability, the holder has one (1) year to exercise any vested options. If the
holder dies while employed or serving on the Company's board or within three
(3) months after employment or board service, the successor in interest has one
(1) year after the date of death to exercise any vested options.
Subject to any provisions in the Company's Articles of Incorporation,
proportionate adjustments are made to the number of authorized shares which may
be granted under the Plan as a result of increases or decreases in the
Company's outstanding shares of Common Stock due to stock dividends, stock
splits, reverse stock splits, reclassifications or other types of
recapitalization. The Plan also adjusts the number of shares underlying any
unexercised option provided that a corresponding adjustment in the exercise
price also occurs so that the aggregate purchase price of the option remains
unchanged.
The Plan and options granted under the Plan will automatically terminate
upon (i) the dissolution or liquidation of the Company, (ii) a reorganization,
merger or consolidation of the Company with another corporation whereby the
Company does not survive or (iii) a sale of substantially all of the Company's
property or eighty percent (80%) of the Company's outstanding stock to another
corporation; unless such a transaction includes a written provision providing
for the continuation of the Plan or the options granted. If options are
terminated because of an event described in item (ii) or (iii), the Company
will pay the option holders an amount equal to the number of unvested,
underlying shares times the difference between the exercise price per share and
the fair market value of each share on the date of termination. This pay out is
subject to any restrictions in the Company's Articles of Incorporation or in
any financing agreement, indenture or other agreement which binds the Company.
The Board of Directors, upon the recommendation of the Compensation
Committee, may at any time, amend, suspend or terminate the Plan, however, such
action may not impair or alter the rights of any option holder under any
outstanding Stock Option Agreement. If no earlier termination occurs, the Plan
will expire on May 26, 2003. The term of any option granted under the Plan may
not exceed that date.
Employment Agreements
The Company has not entered into any employment agreements with its
executive officers.
48
<PAGE>
CERTAIN TRANSACTIONS
Loan Transactions
The Bank has had, and expects to have in the future, various loan and
other banking transactions in the ordinary course of business with the
directors, executive officers, and principal shareholders of the Bank and the
Company (or an associate of such person). All such transactions: (i) have been
and will be made in the ordinary course of business; (ii) have been and will be
made on substantially the same terms, including interest rates and collateral
on loans, as those more prevailing at the time for comparable transactions with
unrelated persons; and (iii) in the opinion of management do not and will not
involve more than the normal risk of collectability or present other
unfavorable features. At March 31, 1998, the total dollar amount of extensions
of credit to directors, and executive officers identified in
"Management -- Directors and Executive Officers", and any of their associates
was approximately $8 million, which represented approximately 69.7% of total
shareholders' equity at March 31, 1998, and which is below the percentage
generally permitted under applicable Federal banking regulations.
Debentures
Messrs. William C. Bullock and Perry B. Hansen each own Debentures issued
by the Company in the original principal amount of $150,000, for a total
aggregate original principal amount of $300,000. The debt evidenced by the
Debentures is unsecured. Upon the liquidation, dissolution or winding up of the
Company, the debt evidenced by the Debentures, including interest earned
thereon, will be paid prior to any payments made to holders of Common Stock and
Series A Preferred Stock. See "Risk Factors -- Restrictions on Payments of
Dividends by the Company." Interest on the principal amount of debt evidenced
by the Debentures accrues at the rate of 1% per annum in excess of the prime
rate of interest of BankBoston, N.A., (prime rate was 8.5% as of March 31,
1998). Accrued interest is payable on March 31, June 30, September 30, and
December 31 of each year until the Debentures are paid in full or converted
into shares of Common Stock. On or prior to September 30, 2002, the holders of
the Debentures must convert the entire principal amount thereof into shares of
Common Stock of the Company at a conversion rate equal to $4.50 of principal
amount of the Debentures for one share of Common Stock (after giving effect to
the 9:1 Stock Split and a 3% stock dividend, a 5% stock dividend and a 5% stock
dividend in 1996, 1997 and 1998 respectively), subject to adjustment for any
further recapitalization of the Common Stock (such as a split or reverse split
of Common Stock). The payment of interest and any principal amount under the
Debentures is subordinated to the prior payment of the principal and interest
on all existing and future obligations of the Company for money borrowed from
any bank, trust company, insurance company, or other financial institution
engaged in the business of lending money, whether such senior indebtedness is
secured or unsecured or collateralized or not collateralized.
Other Transactions with Affiliates
The Company's general counsel is the law firm of Gross, Minsky, Mogul and
Singal, P.A. Norman Minsky, the clerk of the Company, a director of the Bank
and a shareholder of the Company, is of counsel within this firm. The firm also
represents the Bank in real estate and commercial loan closings, wherein the
Bank's borrower typically pays the legal fees and expenses.
The Company and the Bank have utilized Bacon Printing Company for certain
printing services and to purchase office supplies. John S. Bacon, a Director of
the Bank, is President of Bacon Printing Company. During the fiscal years ended
December 31, 1996 and December 31, 1997, the Company and the Bank paid to Bacon
Printing Company for services and office supplies a total of $76,000 and
$86,000, respectively.
49
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1998, the ownership of the
Common Stock by (i) each person who is known by the Company to own of record or
beneficially own more than five percent (5%) of the Common Stock, (ii) each of
the directors and Named Executive Officers of the Company and the Bank named
under "Management -- Executive Compensation -- Summary Compensation Table", and
(iii) all directors and executive officers of the Company and the Bank as a
group. Except as otherwise indicated, to the Company's knowledge, the
shareholders listed in the table have sole voting and investment power with
respect to the shares indicated.
<TABLE>
<CAPTION>
Percentage of Class (1)
-----------------------
Number of
Shares Before After
Name and Address of Beneficial Owner Beneficially Owned Offering Offering
- ------------------------------------------ -------------------- ---------- ---------
<S> <C> <C> <C>
The Bullock Family Trust (2) (3) ......... 226,044 12.6% 9.4%
c/o William C. Bullock, Jr.
RR2, Box 121
Orrington, Maine 04474
William C. Bullock, Jr. (2) (3) .......... 226,044 12.6% 9.4%
RR2, Box 121
Orrington, Maine 04474
Perry B. Hansen (4) ...................... 181,224 10.2% 7.7%
4521 Shadowbrook Court
Bettendorf, Iowa 52922
Edwin N. Clift (5) ....................... 119,889 6.8% 5.1%
RR 3, Box 800
Holden, Maine 04429
Joseph P. Irish (6) ...................... 84,069 5.1% 3.7%
P.O. Box 2
Troy, Maine 04987
Leonard E. Minsky ........................ 71,370 4.3% 3.2%
114 Linden Street
Bangor, Maine 04401
Joseph H. Cyr (7) ........................ 70,200 4.2% 3.1%
25 South Brunswick Street
Old Town, Maine 04468
John S. Bacon (8) ........................ 69,417 4.2% 3.1%
1846 Ohio Street
Bangor, Maine 04401
Joseph Sewall (9) ........................ 58,401 3.5% 2.6%
c/o James W. Sewall Co.
147 Center Street
Old Town, Maine 04468
Dennis L. Shubert, M. D. (10) ............ 46,269 2.8% 2.1%
137 Balsam Drive
Bangor, Maine 04401
Harold S. Wright (11) .................... 44,811 2.7% 2.0%
43J Longrale Park
Bangor, Maine 04401
J. Donald Mackintosh (12) ................ 44,730 2.7% 2.0%
RFD #2, Box 266
Ellsworth, Maine 04605
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Percentage of Class (1)
-----------------------
Number of
Shares Before After
Name and Address of Beneficial Owner Beneficially Owned Offering Offering
- ------------------------------------------ -------------------- ---------- ---------
<S> <C> <C> <C>
Norman Minsky (13) ....................... 40,734 2.5% 1.8%
272 Kenduskeag Avenue
Bangor, ME 04401
Susan B. Singer (14) ..................... 38,853 2.3% 1.7%
109 Judson Boulevard
Bangor, Maine 04401
Robert E. Knowles (15) ................... 37,151 2.2% 1.6%
P.O. Box 164
Unity, Maine 04988
Lloyd D. Robinson (16) ................... 35,604 2.1% 1.6%
RR #2 Box 6935
Carmel, Maine 04419
John R. Graham, III (17) ................. 33,651 2.0% 1.5%
20 Dunning Boulevard
Bangor, Maine 04401
Frederick A. Oldenburg, Jr. (18) ......... 18,918 1.1% *
2487 Ohio Street
Bangor, Maine 04401
All Officers and Directors
as a Group (25 persons) (19) ............ 426,913 63.1% 50.1%
</TABLE>
- ----------
* Denotes ownership of less than 1% of outstanding Common Stock.
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days of the date of this Prospectus pursuant to the exercise of options or
warrants are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person shown in the table.
(2) Includes 33,327 shares of Common Stock issuable upon the conversion of the
Debentures, 77,760 shares of Common Stock issuable upon the conversion of
the Series A Preferred Stock and 27,306 shares of Common Stock issuable
upon the exercise of stock options.
(3) Mr. Bullock is the trustee of The Bullock Family Trust. Mr. Bullock
disclaims any beneficial interest in the 17,154 shares of Common held by
the Scrooge and Marley Family Trust, of which Martha D. Bullock, the
daughter of Mr. Bullock, is the Trustee.
(4) Includes 33,327 shares of Common Stock issuable upon the conversion of the
Debentures, 66,645 shares of Common Stock issuable upon the conversion of
the Series A Preferred Stock and 13,122 shares of Common Stock issuable
upon the exercise of stock options.
(5) Includes 22,212 shares of Common Stock issued upon the conversion of the
Series A Preferred Stock and 75,474 shares of Common Stock issuable upon
the exercise of stock options.
(6) Includes 4,950 shares of Common Stock issuable upon the exercise of stock
options.
(7) Includes 4,950 shares of Common Stock issuable upon the exercise of stock
options. These shares are jointly owned with his spouse, Suzanne Cyr.
(8) Includes 1,890 shares of Common Stock issuable upon the exercise of stock
options.
(9) Includes 55,341 shares of Common Stock held in the name of James W. Sewall
Co., of which Mr. Sewall holds an ownership interest. Also includes 3,060
shares of Common Stock issuable to Mr. Sewall upon the exercise of stock
options.
(10) Includes 41,319 shares of Common Stock held by Walden Partnership, of
which Dr. Shubert holds a controlling interest. Also includes 4,950 shares
of Common Stock held in the name of Dr. Shubert.
51
<PAGE>
(11) Includes 11,106 shares of Common Stock issuable upon the conversion of the
Series A Preferred Stock and 16,983 shares of Common Stock issuable upon
the exercise of stock options.
(12) Includes 30,897 shares of Common Stock held jointly with his spouse, Janet
Mackintosh, and 4,950 shares of Common Stock issuable to Mr. Mackintosh
upon the exercise of stock options.
(13) Includes 4,950 shares of Common Stock issuable upon the exercise of stock
options and 35,784 shares issuable to GMM&S Associates, of which Norman
Minsky owns a controlling interest.
(14) Includes 4,950 shares of Common Stock issuable upon the exercise of stock
options.
(15) Includes 32,211 shares of Common Stock held jointly with his spouse, Rae
Jean Knowles and 4,950 shares of Common Stock issuable upon the exercise
of stock options.
(16) Includes 30,654 shares of Common Stock held jointly with his spouse,
Carlene Robinson and 4,950 shares issuable upon the exercise of stock
options.
(17) Includes 4,950 shares of Common Stock issuable upon the exercise of stock
options.
(18) Includes 17,028 shares of Common Stock held under the name Penobscot
Respiratory PA FBO Frederick A. Oldenburg, Jr. and 1,890 shares of Common
Stock issuable upon the exercise of stock options.
(19) Includes 22,212 shares of Common Stock issuable upon the conversion of
Series A Preferred Stock held by, and 215,010 shares of Common Stock
issuable upon the exercise of stock options granted to, the executive
officers of the Bank. See Notes (1) through (18).
52
<PAGE>
DESCRIPTION OF SECURITIES
The following description of the securities of the Company and certain
provisions of the Company's Articles of Incorporation (the "Articles"), and the
Bylaws, are summaries thereof and are qualified by reference to the Articles
and Bylaws, copies of which have been filed with the Commission as exhibits to
the Company's Registration Statement, of which this Prospectus forms a part.
The authorized capital stock of the Company consists of 4,000,000 shares of
Common Stock par value $1.00 per share, 50,000 shares of Series A Preferred
Stock, $1.00 par value per share and 950,000 shares of undesignated Serial
Preferred Stock, par value $.01 per share.
Common Stock
As of March 31, 1998 there were 1,655,640 shares of Common Stock
outstanding and held of record by 55 shareholders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
600,000 shares of Common Stock offered by the Company hereby, there will be
2,255,640 shares of Common Stock outstanding upon the closing of the Offering.
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of shareholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of the Series A Preferred Stock and any other outstanding Serial Preferred
Stock. Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after the payment of all debts and other liabilities and
subject to the prior rights of the Series A Preferred Stock and any other
outstanding Preferred Stock. Holders of the Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of Common
Stock are, and the shares offered by the Company in the Offering will be, when
issued in consideration for payment thereof, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of the
Series A Preferred Stock and any other Serial Preferred Stock which the Company
may designate and issue in the future. See "Risk Factors -- Restrictions on
Payment of Dividends by the Company." Upon the closing of the Offering, there
will be no shares of Serial Preferred Stock outstanding.
Serial Preferred Stock
The Board of Directors is authorized, without further shareholder
approval, to issue from time to time up to an aggregate of 950,000 shares of
Serial Preferred Stock in one or more series and to fix or alter the
designations, preferences, rights and qualifications, limitations or
restrictions of the shares of each such series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
such series. The Company has no present plans to issue any such shares of
Serial Preferred Stock. See "--Anti-Takeover Effects of Certain Provisions of
Maine Law and the Company's Articles of Incorporation and Bylaws."
Series A Preferred Stock
The total number of shares of Series A Preferred Stock issued and
outstanding is 19,566 shares. The shares of Series A Preferred Stock are owned
by the following individuals or entities in the following amounts: The Bullock
Family Trust (7,609 shares), Perry B. Hansen (6,522 shares), Edwin N. Clift
(2,174 shares), Charles W. Hart (2,174 shares), and Harold S. Wright (1,087
shares).
Holders of Series A Preferred Stock are entitled to dividends calculated
on a per annum basis equal to the total stated value of the Series A Preferred
Stock held multiplied by the prime reference rate in effect from time to time
as announced by BankBoston, N.A. Dividends are to be declared quarterly on
March 31, June 30, September 30, and December 31 of each year. The dividends
payable on the Series A Preferred Stock will be cumulative, meaning that if
dividends are not paid when declared, they will accumulate and be payable in
full before any dividends are paid on the Common Stock. However, the payment of
any dividends on the redemption of the Series A Preferred Stock is subordinate
to the payment of any debt by the Company, including debt evidenced by the
Debentures and the M&I Loan. See "Risk Factors -- Restriction on Payment of
Dividends by the Company." The Series A Preferred Stock is non-voting.
53
<PAGE>
Each share of Series A Preferred Stock is convertible into approximately
10.2 shares of Common Stock based upon a conversion price of approximately
$4.50 in stated value of Series A Preferred Stock for each share of Common
Stock, after giving effect to the 9:1 Stock Split and subject to further
adjustments to reflect other stock splits, stock dividends, recapitalizations
and other similar grants. Holders of Series A Preferred Stock have the right to
convert the Series A Preferred Stock into Common Stock at any time after
issuance of the Series A Preferred Stock and until October 1, 2002. If there
are cumulative dividends outstanding with respect to Series A Preferred Stock
to be converted into Common Stock, the Company is obligated to pay such
dividends before paying any dividends on the Common Stock. After October 1,
2002, and to the extent not previously converted into Common Stock, the Series
A Preferred Stock may be redeemed by the Company for a price equal to the sum
of its stated value plus unpaid and accrued dividends. However, the Series A
Preferred Stock may not be called or redeemed by the Company unless such
redemption is approved in advance by the Federal Reserve Bank of Boston.
In the event of a merger or the sale of a majority of the shares of Common
Stock of the Company, the holders of the Series A Preferred Stock are required
to have their Series A Preferred Stock redeemed or, at the option of the
holder, converted into shares of Common Stock at the rate described above.
Subject to the conversion and redemption rights described above, the Series A
Preferred Stock will remain outstanding indefinitely.
The holders of Series A Preferred Stock are not entitled to the benefits
of any sinking fund provision. Except as described above, shares of Series A
Preferred Stock are not convertible into any other security or other property
of the Company. No share of Series A Preferred Stock is subject to any further
call or assessment and all shares are fully paid and nonassessable.
Options
As of March 31, 1998, options to purchase a total of 540,027 shares
("Option Shares") of Common Stock were outstanding, approximately 389,385 of
which are subject to lock-up agreements entered into with the Underwriters.
Beginning 90 days after the date of this Prospectus, approximately 150,642
Options Shares which are not subject to lock-up agreements will be eligible for
sale in reliance on Rule 701 promulgated under the Securities Act, subject to
the vesting requirements for each option grant. The Company has 9,288 shares
remaining and available to grant as options in the future under the Stock
Option Plan. In addition, the Company may reallocate the number of shares with
respect to options previously granted under the Stock Option Plan that
terminate without being exercised, expire, are forfeited or canceled and the
number of shares of Common Stock that are surrendered in payment of any options
or any tax withholding requirements. See "Management -- Stock Option Plan" and
"Shares Eligible for Future Sale."
Mandatory Convertible Debentures
The Company has issued the Debentures in the original principal amount of
$150,000, for a total aggregate original principal amount of $300,000. The debt
evidenced by the Debentures is unsecured. Upon the liquidation, dissolution, or
winding up of the Company, the debt evidenced by the Debentures, including
interest earned thereon, will be paid prior to any payments made to holders of
Common Stock and Series A Preferred Stock. The Debentures are convertible into
approximately 66,654 shares of Common Stock. See "Certain
Transactions -- Debentures."
Restrictions on Changes in Control
Under the Federal Change in Bank Control Act (the "Control Act"), a notice
must be submitted to the Federal Reserve if any person, or group acting in
concert, seeks to acquire 10% or more of any class of outstanding voting
securities of the Company, unless the Federal Reserve determines that the
acquisition will not result in a change of control of the Company. Under the
Control Act, the Federal Reserve has sixty (60) days within which to act on
such notice, taking into consideration certain factors, including the financial
and managerial resources of the acquiror, the convenience and needs of the
community served by the bank holding company and its subsidiary banks, and the
antitrust effects of the acquisition. Under the BHCA, a company is generally
required to obtain prior approval of the Federal Reserve before it may obtain
control of a bank holding company. Control is generally described to mean the
beneficial ownership of 25% or more of all outstanding voting securities of a
company. Likewise, under Maine law, the prior approval of the Superintendent of
the Bureau of Banking is required for the acquisition of control of the Company
by any person or company. Control is defined under Maine law by reference to
the BHCA and regulations issued thereunder.
54
<PAGE>
Anti-Takeover Effects of Certain Provisions of Maine Law and the Company's
Articles of Incorporation and Bylaws
The Company is subject to several provisions under Maine law which may
deter or frustrate unsolicited attempts to acquire certain Maine corporations.
These provisions, commonly referred to as the "Fair Price Provisions", apply to
all public corporations organized in Maine. The Fair Price Provisions generally
require that certain change of control transactions between a public
corporation and an affiliate must be approved by at least a majority of the
disinterested directors or shareholders (not including those shares
beneficially owned by an "interested shareholder"). The Fair Price Provisions
are also included in the Articles of Incorporation but approval of 80%, rather
than a majority, of the disinterested directors and shareholders, is required
in connection with a change of control transaction. These anti-takeover
provisions of Maine law and the Articles of Incorporation could result in the
Company's being less attractive to a potential acquiror and/or result in
shareholders receiving less for their shares than otherwise might be available
in the event of an unsolicited takeover attempt.
In addition, certain of these provisions of the Articles of Incorporation
and Bylaws, which provisions are summarized in the following paragraphs, may be
deemed to have an anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt that a shareholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by shareholders.
Classified Board of Directors
The Company has nine (9) directors. The Board of Directors may increase or
decrease the number of directors by affirmative vote of 67% of the directors in
office at the time of the vote. The minimum number of directors is three (3)
and the maximim number of directors is twenty-five (25). The Company's Board of
Directors is divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year. These provisions, when coupled with the
provision of the Articles of Incorporation authorizing the Board of Directors
to fill vacant directorships, may deter a shareholder from removing incumbent
directors and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with its own nominees.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations
The Bylaws provide that shareholders seeking to bring business before an
annual meeting of shareholders, or to nominate candidates for election as
directors at an annual meeting of shareholders, must provide timely notice
thereof in writing. To be timely, a shareholder's notice must be delivered to
or mailed and received at the principal executive offices of the Company not
less than 10 days nor more than 60 days prior to the Company's notice of annual
meeting of shareholders. The Bylaws also specify certain requirements as to the
form and content of a shareholder's notice. These provisions may preclude
shareholders from bringing matters before an annual meeting of shareholders or
from making nominations for directors at an annual meeting of shareholders.
Authorized But Unissued Shares
The authorized but unissued shares of Common Stock and Serial Preferred
Stock are available for future issuance without shareholder approval. These
additional shares may be utilized for a variety of corporate purposes,
including future public offerings to raise additional capital. The issuance of
additional shares of Common Stock and Serial Preferred Stock could render more
difficult or discourage an attempt to obtain control of the Company by means of
a proxy contest, tender offer, merger or otherwise.
The Maine Business Corporation Act ("MBCA") provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's articles of incorporation or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage.
Limitation of Liability and Indemnification Matters
The Articles of Incorporation provide that, except to the extent
prohibited by MBCA, the Company's directors shall not be personally liable to
the Company or its shareholders for monetary damages for any breach of
fiduciary duty as directors of the Company.
Section 19 of the MBCA empowers a corporation to purchase and maintain
insurance and indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact that such person is or was
55
<PAGE>
a director or officer of the Company, or is or was serving at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding; provided however, that this provision shall not eliminate or
limit liability in the case where such person is found (i) not to have acted
honestly or on the reasonable belief that such person's action was in or not
opposed to the best interests of the corporation or its shareholders, or (ii)
with respect to criminal action, to have had reasonable cause to believe that
such person's conduct was unlawful. The MBCA provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of shareholders or otherwise. The
Articles of Incorporation eliminate the personal liability and provide
indemnification to the fullest extent permitted by Section 19 of the MBCA.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Articles of Incorporation. The Company is not
aware of any threatened litigation or proceeding that may result in a claim for
such indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
Transfer Agent and Registrar
The Bank shall be the transfer agent and registrar for the Common Stock.
56
<PAGE>
SUPERVISION AND REGULATION
Bank holding companies and state banks are extensively regulated under
both federal and state law. These laws and regulations are intended to protect
depositors, not shareholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable law or regulation may have a material effect on the business
and prospects of the Company and the Bank. See "Risk Factors -- Supervision and
Regulation."
General
As a bank holding company, the Company is subject to the regulation and
supervision of the Federal Reserve under the BHCA. The Company is also subject
to the regulation and supervision of the Bureau by virtue of provisions of
Maine law which govern financial institution holding companies such as the
Company. Under applicable federal law, the Company must obtain the approval of
the Federal Reserve Board before it acquires all or substantially all of the
assets of a bank or another bank holding company, merges or consolidates with
another bank holding company, or acquires direct or indirect ownership or
control of any voting shares of a bank or bank holding company if, after such
acquisition, it would own or control more than 5% of any class of voting shares
of such bank or bank holding company (unless it already owns or controls a
majority of such shares). Similarly, under applicable Maine law, the Company
must obtain the prior approval of the Maine Superintendent of the Bureau of
Banking before acquiring more than 5% of the voting shares of a Maine financial
institution or of any financial institution holding company which directly or
indirectly controls a Maine financial institution. Under certain circumstances,
the Company may be required to obtain Federal Reserve Board approval before
redeeming any of its equity securities in an amount in excess of 10% of its net
worth in any twelve-month period. Furthermore, under certain circumstances, any
redemptions, dividends, or distributions with respect to the Company's Common
Stock and Preferred Stock may be considered an unsafe or unsound practice by
the Federal Reserve Board.
Before any "company," as defined in the BHCA, may acquire "control," as
defined in the BHCA, over the Company, the prior approval of the Federal
Reserve Board generally is required. In addition, before any individual or
entity which is not required to seek prior approval from the Federal Reserve
Board may acquire control of the Company, prior notice to the Federal Reserve
Board generally is required. Similarly, notice to and approval by the Maine
Superintendent of the Bureau of Banking is required before any "financial
institution holding company," as defined in the Maine Banking Code, may acquire
more than 5% of a Maine financial institution or Maine financial institution
holding company.
Under the BHCA and the Maine Banking Code, the Company is permitted,
directly or through subsidiaries, to engage in a variety of financial
activities deemed by the Federal Reserve Board to be so closely related to
banking, or managing or controlling banks, as to be a proper incident thereto.
A bank holding company normally is not permitted, however, to acquire direct or
indirect control of any company which is not a bank or not engaged in
activities determined by the Federal Reserve Board to be closely related to
banking. Certain exemptions are available with respect to subsidiaries engaged
in activities that have been determined by regulation to be closely related to
banking such as making or servicing loans, underwriting credit life insurance,
performing certain data processing services, acting as an investment or
financial advisor, and providing securities brokerage services.
As a condition to the approval by the Federal Reserve of the Company's
application to become a bank holding company, the Federal Reserve imposed
additional requirements on the Company, including the following: (i) the
Company may not incur any debt in addition to that evidenced by the Debentures
and the M&I Loan without the prior approval of the Federal Reserve Bank of
Boston; and (ii) except with the prior approval of the Federal Reserve Bank of
Boston, the Company cannot repurchase any outstanding Common Stock while its
debt to equity ratio exceeds 30% or the proposed stock repurchase would cause
its debt to equity ratio to exceed 30%. The Federal Reserve Board possesses
cease and desist powers over bank holding companies to prevent or remedy unsafe
or unsound practices or violations of law. These and other restrictions limit
how the Company may conduct its business and obtain financing.
The Bank is also subject to continued regular supervision and examination
by applicable federal and state banking agencies. The Bank is a Maine
state-chartered bank that is a member of the Federal Reserve System. The
Federal Reserve exercises primary supervision over the Bank through periodic
examination. The Bank is also subject to regulation by the FDIC as well as the
Bureau. The FDIC has authority to terminate insurance for accounts pursuant to
procedures established for that purpose. The Bank must comply with various
requirements and
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<PAGE>
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be granted and the interest that may be charged thereon and limitations on
the types of investments that may be made and the types of services that may be
offered. Various consumer laws and regulations also affect the operations of
the Bank. In addition to the impact of regulation, commercial banks are
affected significantly by the actions of the Federal Reserve Board as it
attempts to control the money supply and credit availability in order to
influence the economy.
Payment of Dividends
The Company is a legal entity separate and distinct from the Bank. The
principal source of cash flow of the Company, including cash flow to pay
dividends on its stock or principal and interest on debt, if any, is dividends
from the Bank. There are statutory and regulatory limitations on the payment of
dividends by the Bank to the Company, as well as by the Company to its
shareholders. See "Risk Factors -- Restrictions on Payments of Dividends by the
Bank to the Company" and "Risk Factors -- Restrictions on Payment of Dividends
by the Company."
In addition to the statutory prohibition against the withdrawal of any
portion of the Bank's capital and certain statutory limitations on the payment
of dividends, under Maine law the Bank may not pay dividends if it is insolvent
or if the payment of such dividends would render the Bank insolvent. In
addition, Maine law generally requires that dividends may be paid only out of
either unreserved and unrestricted earned surplus or out of the unreserved and
unrestricted net earnings of the then current and preceding fiscal years. If
the dividends are to be paid only out of net earnings, shareholders must be
notified of the source of the dividend and of the fact that there was no earned
surplus from which to pay the dividend.
The payment of dividends by any state bank that is a member of the Federal
Reserve System is affected by the requirement to maintain adequate capital
pursuant to the capital adequacy guidelines issued by the Federal Reserve
Board. The objective of the guidelines is to place a constraint on the extent
to which a bank can leverage its equity capital base. The guidelines provide
for a minimum ratio of Tier 1 capital to total assets of 4% and for a minimum
ratio of total capital to risk-weighted assets of 8% using the Year-End 1992
standard, of which at least 4% should be in the form of Tier 1 capital. For
purposes of calculating these ratios, Tier 1 capital must represent at least
50% of qualifying total capital and generally consists of the sum of common
shareholders' equity, qualifying noncumulative perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, minus
goodwill, other specified intangible assets that the Federal Reserve Board
deems appropriate, specified investments in unconsolidated banking or finance
subsidiaries, and certain other subsidiaries, determined on a case-by-case
basis ("Tier 1 Capital"). The Company's Common Stock and Series A Preferred
Stock qualify as Tier 1 Capital for those purposes. The Debentures do not
qualify as Tier 1 capital, but qualify as Tier 2 supplementary capital, as
described below.
The guidelines and regulations further provide that capital adequacy is to
be considered on a case-by-case basis in view of various qualitative factors
that affect a bank's overall financial condition. In the assessment of capital
adequacy of banks, total assets consist of the average of total assets required
to be included in a bank's Report of Condition and Income ("Call Report"),
minus goodwill, intangible assets and any other assets deducted in determining
Tier 1 capital. Total capital is determined by adding the sum of Tier 1 and
qualifying Tier 2 supplementary capital elements, such as allowance for loan
and lease losses, perpetual preferred stock, hybrid capital instruments, term
subordinated debt and intermediate-term preferred stock, less the same
deductions from capital as set forth above. Risk-weighted assets are also
calculated in accordance with applicable rules and regulations.
The above regulations and restrictions on dividends paid by the Bank may
limit the Company's ability to obtain funds from such dividends for its cash
needs, including funds for payment of operating expenses, and dividends on the
Common Stock.
If, in the opinion of the applicable federal bank regulatory authority, a
depository institution or holding company is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition
of the depository institution or holding company, could include the payment of
dividends), such authority may require, after notice and hearing (except in the
case of an emergency proceeding where there is no notice or hearing), that such
institution or holding company cease and desist from such practice. The federal
banking agencies have indicated that paying dividends that deplete a depository
institution's or holding company's capital base to an inadequate level would be
such an unsafe and unsound banking practice. Moreover, the Federal Reserve and
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the FDIC have issued policy statements which provide that bank holding
companies and insured depository institutions generally should only pay
dividends out of current operating earnings. In addition, under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a
FDIC-insured depository institution may not pay any dividend if payment would
cause it to become undercapitalized or once it is undercapitalized. See
"FDICIA."
The payment of dividends by the Company and the Bank also may be affected
or limited by other factors, such as the requirement to maintain adequate
capital above regulatory guidelines.
Transactions With Affiliates and Insiders
The Bank is subject to Section 23A of the Federal Reserve Act, which
places limits on the amount of loans or extensions of credit to, or investments
in, or certain other transactions with, affiliates, including the Company. In
addition, limits are placed on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. Most of these
loans and certain other transactions must be secured in prescribed amounts. The
Bank is also subject to Section 23B of the Federal Reserve Act, which, among
other things, prohibits an institution from engaging in transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with non-affiliated
companies.
Capital Adequacy
The federal banking agencies have adopted risk-based capital guidelines
for banks and bank holding companies. The minimum guideline for the ratio of
total capital to risk-weighted assets ("Total Risk Based Capital" ratio) for
"adequately capitalized" institutions is 8%. The minimum adequate
capitalization guideline for the ratio of Tier 1 Capital to risk-weighted
assets ("Tier 1 Risk Based Capital" ratio) is 4%. At March 31, 1998, the
Company's Tier 1 Risk Based Capital and Total Risk Based Capital ratios were
10.25% and 11.78%, respectively.
In addition, the federal banking agencies have established minimum
leverage ratio guidelines for banks and bank holding companies. Their
guidelines provide for a minimum ratio of Tier 1 Capital to average assets,
less goodwill and certain other intangible assets (the "Leverage Ratio"), of 3%
for banks that meet certain specific criteria and 40% for other institutions.
The Company's Leverage Ratio at March 31, 1998 was 6.38%. Failure to meet
capital guidelines could subject a bank to a variety of enforcement remedies,
including the termination of deposit insurance by the FDIC, and to certain
restrictions on its business. See "FDICIA."
Holding Company Structure and Support of the Bank
Because the Company is the parent holding company of the Bank, its right
to participate in the assets of any subsidiary upon the Bank's liquidation or
reorganization will be subject to the prior claims of the subsidiary's
creditors (including depositors in the case of bank subsidiaries) except to the
extent that the Company may itself be a creditor with recognized claims against
the subsidiary.
Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by the FDIC in connection with (i) the
default of a commonly-controlled FDIC-insured depository institution or (ii)
any assistance provided by the FDIC to any commonly-controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally
as the appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of depositors, secured creditors and
holders of subordinated debt (other than affiliates) of the commonly controlled
insured depository institution. The Bank is subject to these cross-guarantee
provisions.
FDICIA
The FDICIA requires the federal banking regulators to take "prompt
corrective action" in respect of FDIC-insured depository institutions that do
not meet minimum capital requirements. FDICIA established five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." An FDIC-insured depository
institution is well capitalized if it maintains a Leverage Ratio of at least
5%, a risk adjusted Tier 1 Capital Ratio of at least 6% and a Total Capital
Ratio of at least 10% and is not
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subject to a directive, order or written agreement to meet and maintain
specific capital levels. An insured depository institution is defined to be
adequately capitalized if it meets all of its minimum capital requirements as
described above. In addition, an insured depository institution will be
considered undercapitalized if it fails to meet any minimum required measure,
significantly undercapitalized if it is significantly below any such measure
and critically undercapitalized if it fails to maintain a level of tangible
equity equal to not less than 2% of total assets. An insured depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives an unsatisfactory
examination rating.
The capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions and are
not directly applicable to holding companies which control such institution.
However, the Federal Reserve Board has indicated that, in regulating bank
holding companies, it will take appropriate action at the holding company level
based on an assessment of the effectiveness of supervisory actions imposed upon
subsidiary depository institutions pursuant to such provisions and regulations.
FDICIA generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized.
Undercapitalized depository institutions are subject to restrictions on
borrowing from the Federal Reserve. In addition, undercapitalized depository
institutions are subject to growth limitations and are required to submit
capital restoration plans. A depository institution's holding company must
guarantee the capital plan, up to an amount equal to the lesser of 5% of the
depository institution's assets at the time it becomes undercapitalized or the
amount of the capital deficiency when the institution fails to comply with the
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository institution's
capital. If a depository institution fails to submit an acceptable plan, it is
treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
The Company and the Bank, at December 31, 1997 and March 31, 1998, were
"well capitalized" under the criteria discussed above.
FDIC Insurance Premiums
The Bank is required to pay semiannual FDIC deposit insurance assessments.
Each financial institution is assigned to one of three capital groups -- well
capitalized, adequately capitalized or undercapitalized -- and further assigned
to one of three subgroups within a capital group, on the basis of supervisory
evaluations by the institution's primary federal and, if applicable, state
supervisors and other information relevant to the institution's financial
condition and the risk posed to the FDIC deposit insurance fund. The actual
assessment rate applicable to a particular institution (and any applicable
refund) will, therefore, depend in part upon the risk assessment classification
so assigned to the institution by the FDIC. The FDIC is authorized by federal
law to raise insurance premiums in certain circumstances. Any increase in
premiums would have an adverse effect on the Bank and the Company's earnings.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
Interstate Banking
The acquisition by the Company of more than 5% of the outstanding voting
securities or substantially all of the assets of a bank located outside of the
State of Maine is regulated by the BHCA. Such acquisition is also subject to
the law of the state in which the bank to be acquired is located. Under certain
circumstances, the Company might not be permitted to acquire an interest in
another bank located outside Maine. Further, any company attempting to acquire
control of the Company or the Bank also may be subject to certain limitations
on interstate banking. Even assuming that the law of the state in which the
bank is located permits acquisition, the Maine Banking Code requires prior
approval of the Superintendent of the Bureau of Banking for certain
acquisitions of more than 5% of a financial institution having operations
conducted outside of Maine.
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The status of interstate banking legislation adopted by individual states
has been in a constant state of change in recent years. While federal law has
substantially liberalized interstate banking, a number of states have adopted
some form of legislation which limits interstate banking by bank holding
companies.
Interstate Act
Subject to certain conditions and exceptions, the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 ("Interstate Act"), (i) permits
bank holding company acquisitions of banks of a minimum age of up to five years
as established by state law in any state, (ii) permits mergers of national and
state banks across state lines unless the state has opted out of the interstate
bank merger provisions, (iii) permits branching de novo by national and state
banks into other states and (iv) permits certain interstate bank agency
activities one year after enactment. Subject to certain limitations, Maine law
permits out of state financial institutions, federal associations and national
banks to establish de novo branches or to acquire branches in Maine.
Monetary Policy And Economic Control
The commercial banking business in which the Bank engages is affected not
only by general economic conditions, but also by the monetary policies of the
Federal Reserve. Changes in the discount rate on member bank borrowing,
availability of borrowing at the "discount window," open market operations, the
imposition of changes in reserve requirements against members banks' deposits
and assets of foreign branches and the imposition of and change in reserve
requirements against certain borrowings by banks and their affiliates are some
of the instruments of monetary policy available to the Federal Reserve. These
monetary policies are used in varying combinations to influence overall growth
and distributions of bank loans, investments and deposits, and this use may
affect interest rates charged on loans or paid on deposits. The monetary
policies of the Federal Reserve have had a significant effect on the operating
results of commercial banks and are expected to do so in the future.
Deregulation
There have been significant changes in the banking industry in past years.
Many of these changes have been effected by federal legislation intended to
deregulate the banking industry. This legislation has, among other things,
eliminated interest rate restrictions on time deposit accounts and increased
the power of nonbanks to expand into traditional banking services. Future
changes in the banking industry may include some modification of prohibitions
on the types of businesses in which bank holding companies may engage. In
addition, other types of financial institutions, including mutual funds,
securities brokerage companies, insurance companies and investment banking
firms, have been given, and may continue to be given, powers to engage in
activities which traditionally have been engaged in only by banks. Such changes
may place the Company and the Bank in more direct competition with other
financial institutions. See "Risk Factors -- Deregulation."
Community Reinvestment Act
The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, the Federal
Reserve, the FDIC, the Office of the Comptroller of the Currency and the Office
of Thrift Supervision evaluate the record of such financial institutions in
meeting the credit needs of their local communities, including low and moderate
income neighborhoods, consistent with the safe and sound operation of those
institutions. These factors are also considered in evaluating mergers,
acquisitions and applications to open a branch or facility.
Other Regulations
Interest and certain other charges collected or contracted for by banks
are subject to state usury laws and certain federal laws concerning interest
rates. The Bank's loan operations are also subject to certain federal laws
applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Home Mortgage
Disclosure Act of 1975 requiring financial institutions to provide information
to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting
discrimination on the basis of race, creed or other prohibited factors in
extending credit, the Fair Credit Reporting Act of 1978 governing the use and
provision of information to credit reporting agencies, the Fair Debt Collection
Act governing the manner in which consumer debts may be collected by collection
agencies and the rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws. The deposit
operations
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of the Bank also are subject to the Right to Financial Privacy Act, which
imposes a duty to maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative subpoenas of financial
records, and the Electronic Funds Transfer Act and Regulation E issued by the
Federal Reserve Board to implement that act, which govern automatic deposits to
and withdrawals from deposit accounts and customers' rights and liabilities
arising from the use of automated teller machines and other electronic banking
services.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among
the Company and the several Underwriters named below, each of the Underwriters
has severally and not jointly agreed to purchase from the Company, and the
Company has agreed to sell to the Underwriters, the respective numbers of
shares set forth opposite their names below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ----------
<S> <C>
Advest, Inc. .........................................
Total Underwriters .................................
</TABLE>
The Underwriters are committed to purchase and pay for all such shares if
any are purchased. The Underwriting Agreement provides that the obligations of
the several Underwriters are subject to approval of certain matters by their
counsel and to various other conditions.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock directly to the public at the Offering price set forth
on the cover page of this Prospectus and to certain selected dealers at such
price less a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of per share to certain
other dealers. After the initial public offering of the shares, the public
offering price, concession and reallowance to dealers may be changed by the
Underwriters. In addition, the Company has agreed to pay a supplemental
financial advisory fee of $25,000 to the managing underwriter, Advest, Inc.,
payable upon consummation of the public offering.
The Company has granted to the Underwriters an option exercisable during
the thirty (30) day period beginning on the effective date of the Registration
Statement, to purchase up to 90,000 additional shares of Common Stock, solely
to cover overallotments, if any, at the public offering price less the
underwriting discount, as set forth on the cover page of this Prospectus. If
the Underwriters exercise such option, the Underwriters have severally and not
jointly, agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the table above, bears to the 600,000 shares of Common Stock.
If purchased, such additional shares will be sold by the Underwriters on the
same terms as those on which the 600,000 shares are being sold.
The executive officers and directors of the Company and the Bank have
agreed that they will not publicly sell, contract to publicly sell, or
otherwise publicly dispose of, any shares of Common Stock for a period of 180
days from the date of this Prospectus, without the written consent of the
Underwriters.
Up to 10% of the shares of Common Stock offered hereby may be reserved for
sale to the Company's employees, directors and other persons with direct
business relationships with the Company. Sales of shares to such persons will
be at the initial public offering price. The number of shares available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares not so purchased will be offered by
the Underwriters to the general public on the same terms as the other shares
offered hereby.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities including liabilities under the Securities Act, or
to contribute to payments that the Underwriters or the Company may be required
to make in respect thereof.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to a copy of
the Underwriting Agreement which is on file as an exhibit to the Registration
Statement.
The Underwriters have informed the Company that the Underwriters may make
sales to accounts over which they exercise discretionary authority.
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Prior to this Offering there has been no public market for the Common
Stock. The Offering price of the Common Stock was determined by negotiations
between the Company and the Underwriters. The factors considered in determining
such prices and terms, in addition to prevailing market conditions, included the
history of and the prospects for the industry in which the Company competes, an
assessment of the Company's management, the prospects of the Company, an
assessment of the Company's results of operations, its capital structure and
such other factors as were deemed relevant. See "Risk Factors -- Absence of
Trading Market."
In connection with the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock; and syndicate
short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of shares of Common Stock than they are
required to purchase from the Company in the Offering. The Underwriters also
may impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the securities sold in the
Offering for their account may be reclaimed by the syndicate if such shares of
Common Stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, which may be higher than the price that might
otherwise prevail in the open market. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise, and these
activities, if commenced, may be discontinued at any time.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have an aggregate of
2,255,640 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option of 90,000 shares, no conversion of the
Debentures or Series A Preferred Stock and no exercise of outstanding options
to purchase Common Stock. Of these shares, the 600,000 shares of Common Stock
sold in the Offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by
"affiliates" of the Company, as that term is defined in Rule 144 promulgated
under the Securities Act, may generally only be sold in compliance with the
limitation described below.
The remaining 1,655,640 shares of outstanding Common Stock will be deemed
"restricted securities" as defined under Rule 144. Restricted securities may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under
the Securities Act, which rules are summarized below. Subject to the lock-up
agreements described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market (subject in
the case of shares held by affiliates to compliance with certain volume
restrictions) as follows: (i) 853,047 shares will be eligible for sale 90 to
180 days after the date of this Prospectus, and (ii) 802,593 shares will be
eligible for sale upon the expiration of lock-up agreements 180 days after the
date of this Prospectus. In addition, there are approximately 266,589 shares of
Common Stock issuable upon conversion of the outstanding Series A Preferred
Stock and Debentures, which may be eligible for future sale, subject to the
above restrictions. There are also outstanding options to purchase 540,027
shares of Common Stock which will be eligible for sale in the public market
from time to time subject to vesting and, in the case of certain options, to
the expiration of lock-up agreements.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 22,600 shares immediately after the Offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale is filed, subject to
certain restrictions. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two
years would be entitled to sell such shares under Rule 144(k) without regard to
the requirements described above. To the extent that shares were acquired from
an affiliate of the Company, such affiliate's holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate.
Rule 701 promulgated under the Securities Act provides that shares of
Common Stock acquired pursuant to written plans such as the Stock Option Plan
may be resold by persons other than affiliates, beginning 90 days after the
date of this Prospectus, subject only to the manner of sale provisions of Rule
144, and by affiliates, beginning 90 days after the date of this Prospectus,
subject to all provisions of Rule 144 except its one-year minimum holding
period.
After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of
Common Stock issuable under the Stock Option Plan. Such registration statement
is expected to become effective immediately upon filing, and shares covered by
that registration statement will thereupon be eligible for sale in the public
markets, subject to certain lock-up agreements and Rule 144 limitations
applicable to affiliates. See "Management -- Director Compensation" and
"Management -- Stock Option Plan."
Prior to the Offering, there has not been any public market for the Common
Stock of the Company, and no prediction can be made as to the effect, if any,
that market sales of shares of Common Stock or the availability of shares for
sale will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through the sale of its
equity securities.
All directors and executive officers and certain shareholders of the
Company (holding an aggregate of approximately 802,593 shares of Common Stock)
have agreed that they will not, without the prior written consent of the
representatives of the Underwriters, sell or otherwise dispose of any shares of
Common Stock or options to acquire shares of Common Stock during the 180-day
period following the date of this Prospectus. See "Underwriting."
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<PAGE>
The Company has agreed not to sell or otherwise dispose of any shares of
Common Stock during the 180-day period following the date of the Prospectus,
except the Company may issue and grant options to purchase shares of Common
Stock under the Stock Option Plan. In addition, the Company may issue shares of
Common Stock in connection with any acquisition of another company if the terms
of such issuance provide that such Common Stock shall not be resold prior to
the expiration of the 180-day period referenced in the preceding sentence. See
"Risk Factors -- Shares Eligible for Future Sale."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hutchins, Wheeler & Dittmar, A Professional
Corporation, Boston, Massachusetts. Certain legal matters will be passed upon
for the Underwriters by Tyler Cooper & Alcorn, LLP, Hartford, Connecticut.
EXPERTS
The balance sheets as of December 31, 1997 and 1996 and the statements of
income, shareholders' equity, and cash flows for each of the two years in the
period ended December 31, 1997, included in this Prospectus, have been included
herein in reliance on the report of Berry, Dunn, McNeil & Parker, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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MERRILL MERCHANTS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
WITH INDEPENDENT AUDITORS' REPORT
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Independent Auditors' Report .......................................................... F-2
Consolidated Statements of Financial Condition at
December 31, 1997 and 1996 ........................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1997 and 1996 ...... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1997 and 1996 ........................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996 ........................................................... F-6
Notes to Consolidated Financial Statements ............................................ F-7 - F-21
Consolidated Statements of Financial Condition at March 31, 1998 (Unaudited) .......... F-22
Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997
(Unaudited) .......................................................................... F-23
Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended
March 31, 1998 and 1997 (Unaudited) .................................................. F-24
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and
1997 (Unaudited) ..................................................................... F-25
Notes to Condensed Unaudited Consolidated Financial Statements ........................ F-26
</TABLE>
F-1
<PAGE>
After the stock split discussed in Note 22 to Merrill Merchants Bancshares,
Inc.'s consolidated financial statements is effected, we expect to be in a
position to render the following audit report:
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Merrill Merchants Bancshares, Inc.
We have audited the consolidated statements of financial condition of
Merrill Merchants Bancshares, Inc. and Subsidiary as of December 31, 1997 and
1996 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of 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 accepted 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 consolidated 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 Merrill
Merchants Bancshares, Inc. and Subsidiary at December 31, 1997 and 1996 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Bangor, Maine
January 16, 1998 (except for Note 22,
as to which date is __________, 1998)
F-2
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
(In Thousands, Except Number of Shares and per Share Data)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks ................................................... $ 7,486 $ 6,567
Interest-bearing deposits with banks ...................................... 523 24
Federal funds sold ........................................................ 2,650 2,000
-------- --------
Total cash and cash equivalents ....................................... 10,659 8,591
Investment securities
Available for sale ....................................................... 42,864 37,891
To be held to maturity ................................................... 1,962 3,123
Loans held for sale ....................................................... 508 341
Loans receivable .......................................................... 118,888 105,429
Less allowance for loan losses ........................................... 1,717 1,450
-------- --------
Net loans receivable .................................................. 117,171 103,979
Other real estate owned ................................................... 43 340
Properties and equipment, net ............................................. 2,806 2,267
Deferred income tax benefit ............................................... 129 146
Accrued income and other assets ........................................... 2,477 1,747
-------- --------
Total assets .......................................................... $178,619 $158,425
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits ........................................................... $ 25,018 $ 21,543
Savings and NOW deposits .................................................. 64,513 51,942
Certificates of deposit ................................................... 56,781 53,219
-------- --------
Total deposits ........................................................ 146,312 126,704
Securities sold under agreements to repurchase
(term and demand) ....................................................... 11,897 12,164
Other borrowed funds ...................................................... 5,144 2,832
Accrued expenses and other liabilities .................................... 1,104 3,059
Long-term debt ............................................................ 2,895 3,695
Mandatory convertible debentures .......................................... 300 300
-------- --------
Total liabilities ..................................................... 167,652 148,754
-------- --------
Commitments (Notes 6, 7, 14, 15, 17 and 19)
Shareholders' equity
Convertible cumulative preferred stock, par value
$1; authorized 50,000 shares, issued and outstanding
19,566 shares .......................................................... 20 20
Common stock, par value $1; authorized 4,000,000 shares,
issued and outstanding 1,542,123 and 1,468,953 shares in
1997 and 1996, respectively ............................................ 1,542 1,469
Capital surplus .......................................................... 7,754 7,331
Retained earnings ........................................................ 1,647 861
Unrealized gain (loss) on securities available for sale,
net of tax of $2 and $(5) in 1997 and 1996, respectively................ 4 (10)
-------- --------
Total shareholders' equity ............................................ 10,967 9,671
-------- --------
Total liabilities and shareholders' equity ............................ $178,619 $158,425
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
(In Thousands, Except Number of Shares and per Share Data)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Interest and dividend income
Interest and fees on loans .................................... $ 10,669 $ 9,683
Interest on investment securities ............................. 2,184 1,788
Dividends on investment securities ............................ 191 197
Interest on federal funds sold ................................ 171 158
-------- --------
Total interest and dividend income .......................... 13,215 11,826
-------- --------
Interest expense
Interest on deposits .......................................... 5,126 4,428
Interest on borrowed funds .................................... 934 955
-------- --------
Total interest expense ...................................... 6,060 5,383
-------- --------
Net interest income ......................................... 7,155 6,443
Provision for loan losses ...................................... 355 360
-------- --------
Net interest income after provision for loan losses ......... 6,800 6,083
-------- --------
Other income
Service charges on deposit accounts ........................... 476 486
Other service charges and fees ................................ 485 381
Trust fees .................................................... 534 439
Other ......................................................... 138 114
Net gain on sale of mortgage loans ............................ 91 69
-------- --------
Total other income .......................................... 1,724 1,489
-------- --------
Other expense
Salaries and employee benefits ................................ 3,121 2,905
Occupancy expense ............................................. 626 526
Equipment expense ............................................. 524 462
Data processing ............................................... 605 577
Other ......................................................... 1,481 1,343
-------- --------
Total other expense ......................................... 6,357 5,813
-------- --------
Income before income taxes ..................................... 2,167 1,759
Income tax expense ............................................. 765 639
-------- --------
Net income .................................................. $ 1,402 $ 1,120
======== ========
Per share data
Basic earnings per common share ............................... $ 0.82 $ 0.65
======== ========
Diluted earnings per common share ............................. $ 0.71 $ 0.58
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
(In Thousands, Except Number of Shares and per Share Data)
<TABLE>
<CAPTION>
Unrealized
Convertible Gain (Loss)
Cumulative on Securities Total
Preferred Common Capital Retained Available Shareholders'
Stock Stock Surplus Earnings for Sale Equity
------------- -------- --------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 .............. $20 $1,426 $7,108 $ 82 $ 125 $ 8,761
Net income ................................ -- -- -- 1,120 -- 1,120
3% common stock dividend declared ......... -- 43 223 (267) -- (1)
Convertible cumulative preferred stock
dividends declared, $3.80 per share...... -- -- -- (74) -- (74)
Change in unrealized gain (loss) on
securities available for sale, net of
deferred income taxes of $69 ............ -- -- -- -- (135) (135)
--- ------ ------ ------ ------ --------
Balance at December 31, 1996 .............. 20 1,469 7,331 861 (10) 9,671
Net income ................................ -- -- -- 1,402 -- 1,402
5% common stock dividend declared ......... -- 73 423 (497) -- (1)
Common stock cash dividend declared,
$.03 per share........................... -- -- -- (43) -- (43)
Convertible cumulative preferred stock
dividends declared, $3.88 per share...... -- -- -- (76) -- (76)
Change in unrealized gain (loss) on
securities available for sale, net of
deferred income taxes of $7 ............. -- -- -- -- 14 14
--- ------ ------ ------ ------ --------
Balance at December 31, 1997 .............. $20 $1,542 $7,754 $1,647 $ 4 $10,967
=== ====== ====== ====== ====== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income ............................................................ $ 1,402 $ 1,120
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation ......................................................... 379 290
Amortization ......................................................... 83 107
Net accretion of discounts on investment securities .................. (69) (28)
Deferred income taxes ................................................ 18 (266)
Originations of loans held for sale .................................. (7,173) (5,521)
Proceeds from sale of loans held for sale ............................ 7,026 6,955
(Increase) decrease in accrued income and other assets ............... (154) 64
Increase (decrease) in accrued expenses and other liabilities ........ 140 (14)
Decrease in deferred loan fees, net .................................. (33) (19)
Provision for loan losses ............................................ 355 360
Net gain on sale of mortgage loans, investment securities,
property and equipment ............................................. (83) (51)
-------- --------
Net cash provided by operating activities ........................... 1,891 2,997
-------- --------
Cash flows from investing activities
Net loans made to customers ........................................... (13,405) (10,893)
Acquisition of premises and equipment ................................. (927) (1,012)
Purchase of investment securities available for sale .................. (39,510) (31,165)
Proceeds from sales and maturities of investment securities
Sales and maturities of available for sale securities ................ 32,538 18,248
Maturities of held to maturity securities ............................ 1,157 4,078
Proceeds from sale of other real estate owned ......................... 190 --
Acquisition of life insurance policy .................................. (599) --
-------- --------
Net cash used in investing activities ............................... (20,556) (20,744)
-------- --------
Cash flows from financing activities
Net increase in demand, savings and NOW deposits ...................... 16,046 15,667
Net increase (decrease) in certificates of deposit .................... 3,562 (303)
Net increase (decrease) in securities sold under
agreement to repurchase .............................................. (267) 1,991
Net increase in other borrowed funds .................................. 2,312 2,640
Payment of long-term debt ............................................. (800) (305)
Dividends paid on convertible cumulative preferred
stock and common stock ............................................... (120) (75)
-------- --------
Net cash provided by financing activities ........................... 20,733 19,615
-------- --------
Net increase in cash and cash equivalents .............................. 2,068 1,868
Cash and cash equivalents, beginning of period ......................... 8,591 6,723
-------- --------
Cash and cash equivalents, end of period ............................... $ 10,659 $ 8,591
======== ========
Supplemental disclosures of cash flow information
Cash paid for interest ................................................ $ 6,058 $ 5,429
Transfers to other real estate owned .................................. 70 49
Income tax paid ....................................................... 773 855
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Presented in Thousands, Except As Noted)
1. Summary of Significant Accounting Policies
The accounting and reporting policies conform to generally accepted
accounting principles and to general practice within the banking industry. The
following is a summary of the significant accounting and reporting policies.
Nature of Business
Merrill Merchants Bancshares, Inc. is a one-bank holding company that owns
all of the common stock of Merrill Merchants Bank ("Bank"). The Bank operates
branches in Bangor (three offices), Orono, Pittsfield, and Brewer, Maine.
The Bank's lending activities are conducted principally in central Maine.
The Bank grants single family and multi-family residential loans, commercial
real estate loans, commercial loans, and a variety of consumer loans. In
addition, the Bank grants loans for the construction of residential homes,
multi-family properties and commercial real estate properties. Most loans
granted by the Bank are either collateralized by real estate or guaranteed by
federal and local governmental authorities. The ability and willingness of the
single family residential and consumer borrowers to honor their repayment
commitments is generally dependent on the level of overall economic activity
within the borrowers' geographic areas and real estate values. The ability and
willingness of commercial real estate, commercial and construction loan
borrowers to honor their repayment commitments is generally dependent on the
health of the real estate economic sector in the borrowers' geographic areas
and the general economy.
The Bank is under the supervision of the Board of Governors of the Federal
Reserve System and the Maine Bureau of Banking, and its deposits are insured by
the Federal Deposit Insurance Corporation (FDIC).
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for loan losses and the carrying value of real estate owned, management obtains
independent appraisals for significant properties.
Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of
Merrill Merchants Bancshares, Inc. and its wholly-owned subsidiary, Merrill
Merchants Bank, a state-chartered bank. All intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Investment Securities
Investment debt securities that management has the ability and intent to
hold to maturity are classified as held to maturity and carried at amortized
cost. Other marketable securities are classified as available for sale and are
carried at fair value. Unrealized gains and losses on securities available for
sale, net of income taxes, are recognized as direct increases or decreases in
shareholders' equity. Cost of securities sold is recognized using the specific
identification method.
Premiums are amortized and discounts are accreted using methods
approximating the interest method.
Loans Held for Sale
Residential mortgage loans originated and intended for sale in the
secondary market are carried at the lower of aggregate cost or estimated market
value. Gains or losses on sales of loans are recognized at the time of sale and
are based upon the difference between the selling price and the carrying amount
of loans sold.
F-7
<PAGE>
Other Real Estate Owned
Other real estate owned (OREO) includes real estate and repossessed
personal property held for sale which have been acquired principally through
foreclosure or a similar conveyance of title. Real estate may be considered to
be in-substance foreclosed and included in OREO, prior to the conveyance of
title when specific criteria are met. Both foreclosed and in-substance
foreclosed real estate, as well as repossessed personal property, are carried
at the lower of their recorded amounts or fair value less estimated costs of
disposal. Any write-downs at, or prior to, the dates of acquisition are charged
to the allowance for loan losses. Subsequent write-downs are recorded in
noninterest expense. Expenses incurred in connection with holding such assets
and gains and losses upon sale are included in other expenses or other income.
Loans Receivable
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs.
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when, in
the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due. Upon such discontinuance, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received.
The allowance for loan losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based upon
reviews of individual credits, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. Loans deemed uncollectible are charged to the
allowance. Provisions for loan losses and recoveries on loans previously
charged off are added to the allowance.
Loans considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral, by allocating a
portion of the allowance for loan losses to such loans. If these allocations
cause the allowance for loan losses to require an increase, such increase is
included in the provision for loan losses.
Loan Servicing
The cost of mortgage servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows based on a current market
interest rate. No rights were impaired at December 31, 1997 or 1996.
Properties and Equipment
Properties and equipment are stated at cost, less accumulated
depreciation. The provision for depreciation is computed principally by
accelerated methods.
Organization Costs and Goodwill
Organization costs and goodwill are being amortized using the
straight-line method over seven and fifteen years, respectively.
Loan Origination Fees and Costs
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield on the related loan.
Income Taxes
The Company records deferred tax assets and liabilities for future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit and unadvanced commitments under commercial and home equity lines of
credit and overdraft protection accounts. Such financial instruments are
recorded in the consolidated financial statements when they become payable.
F-8
<PAGE>
Cash and Cash Equivalents
For the purpose of presentation in the consolidated statements of cash
flows, cash and cash equivalents are defined as cash and due from banks,
interest-bearing deposits with banks and federal funds sold.
Earnings Per Share
The Company has adopted SFAS No. 128, "Earnings Per Share." SFAS 128
specifies the computation and disclosure requirements for earnings per share
for entities with publicly held common stock or potential common stock. The
effect of SFAS No. 128 on the Company's financial statements is to
retroactively present basic and diluted earnings per share.
The basic earnings per share computation is based upon the
weighted-average number of shares of stock outstanding during the period.
Potential common stock is considered in the calculation of weighted-average
shares outstanding for diluted earnings per share.
The Company declared 5% and 3% stock dividends in 1997 and 1996. Earnings
and cash dividends per share and weighted-average shares outstanding have been
retroactively restated to reflect the stock dividends, as well as the stock
dividends in 1998 described in Note 22.
The Company adopted SFAS No. 129, "Disclosure of Information about Capital
Structure" in 1997. This statement has no effect on the Company's financial
statements as the capital disclosures meet the requirements of SFAS No. 129.
2. Cash and Due from Banks
The Federal Reserve Board requires the Company to maintain a rolling
average compensating balance of $400 in amounts on deposit.
3. Investment Securities
The carrying amounts of investment securities as shown in the consolidated
statements of financial condition and their approximate fair values at December
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Securities available for sale
------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------- ---------------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
- -----------------
U.S. Treasury securities ............................. $20,973 $ 79 $ (9) $21,043
U.S. Government agencies and corporations ............ 3,581 2 (4) 3,579
Mortgage-backed securities and collateralized
mortgage obligations ............................... 15,912 20 (81) 15,851
State and local government debt securities ........... 1,402 -- -- 1,402
U.S. Government and agency money market funds ........ 166 -- -- 166
Other securities ..................................... 823 -- -- 823
------- ---- ----- -------
$42,857 $101 $(94) $42,864
======= ==== ===== =======
<CAPTION>
Securitiesheld to maturity
------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ------------ -------
<S> <C> <C> <C> <C>
December 31, 1997
- -----------------
Mortgage-backed securities and
collateralized mortgage obligations ................. $ 1,962 $ -- $ (4) $ 1,958
======= ===== ===== =======
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Securities available for sale
--------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ --------
<S> <C> <C> <C> <C>
December 31, 1996
- -----------------
U.S. Treasury securities .......................... $18,907 $113 $ (29) $18,991
U.S. Government agencies and corporations ......... 496 1 -- 497
Mortgage-backed securities and collateralized
mortgage obligations ............................. 11,188 10 (110) 11,088
U.S. Government and agency money
market funds ..................................... 6,548 -- -- 6,548
Other securities .................................. 767 -- -- 767
------- ---- ----- -------
$37,906 $124 $(139) $37,891
======= ==== ===== =======
<CAPTION>
Securities held to maturity
--------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------------- ---------- --------
<S> <C> <C> <C> <C>
December 31, 1996
- -----------------
Mortgage-backed securities and collateralized
mortgage obligations ............................. $ 3,123 $ 3 $ (21) $ 3,105
======= ==== ===== =======
</TABLE>
Investment securities with amortized cost and fair value of approximately
$30,629 and $21,780 at December 31, 1997 and 1996, respectively, were pledged
to secure public deposits, treasury tax and loan deposits and borrowings and
for other purposes required or permitted by law.
The amortized cost and fair value of debt securities at December 31, 1997
by contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities available Securities held to
for sale maturity
------------------------ ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Due in one year or less ............ $13,852 $13,858 $ 866 $ 864
Due from one to five years ......... 13,220 13,277 -- --
Due from five to ten years ......... 5,804 5,772 1,000 999
Due after ten years ................ 8,991 8,968 96 95
------- ------- ------ ------
$41,867 $41,875 $1,962 $1,958
======= ======= ====== ======
</TABLE>
Mortgage-backed securities and collateralized mortgage obligations are
allocated among the above maturity groupings based on their final maturity
dates.
No securities were sold in 1997 or 1996.
4. Loans Receivable
The components of loans receivable were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commercial ....................... $ 20,819 $ 22,134
Commercial real estate ........... 40,984 34,908
Construction ..................... 3,012 1,941
Residential real estate .......... 26,638 23,827
Home equity ...................... 20,036 15,726
Consumer ......................... 7,461 6,978
Less deferred loan fees .......... (62) (85)
-------- --------
Total .......................... $118,888 $105,429
======== ========
</TABLE>
F-10
<PAGE>
The Bank services residential mortgage loans sold to investors under
nonrecourse agreements amounting to $38,301 and $36,425 at December 31, 1997
and 1996, respectively. Mortgage loan sales resulted in a net gain on loan
sales of $91 and $69 in 1997 and 1996, respectively.
Mortgage servicing rights of $69 and $74 were capitalized in 1997 and
1996, respectively. Amortization of mortgage servicing rights was $24 and $4 in
1997 and 1996, respectively.
Impaired loans recorded in conformity with SFAS No. 114, as amended by
SFAS No. 118, totaled $2,499 and $599 at December 31, 1997 and 1996,
respectively. The total allowance for loan losses related to these loans was
$486 and $165 at December 31, 1997 and 1996, respectively. Interest income
recognized for cash payments on impaired loans during 1997 and 1996 was not
material to the consolidated financial statements.
5. Allowance for Loan Losses
An analysis of the allowance for loan losses at December 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Balance at beginning of year ................... $1,450 $1,133
Add: Provision for loan losses ................. 355 360
Recoveries of previous charge-offs ........ 12 5
Less: Loans charged off ........................ (100) (48)
------ ------
Balance at end of year ......................... $1,717 $1,450
====== ======
</TABLE>
6. Properties and Equipment
Properties and equipment are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Land ....................................... $ 245 $ 198
Bank premises .............................. 1,862 695
Furniture and equipment .................... 2,029 1,524
Leasehold improvements ..................... 195 103
Construction in progress ................... -- 897
------ ------
Total cost ............................. 4,331 3,417
Less accumulated depreciation .......... 1,525 1,150
------ ------
Net properties and equipment ........... $2,806 $2,267
====== ======
</TABLE>
Certain Bank facilities and equipment are leased under various operating
leases. Rental expense was approximately $217 and $188 for 1997 and 1996,
respectively. Future minimum rental commitments under noncancelable leases at
December 31, 1997 are:
<TABLE>
<S> <C>
1998 .................................................... $ 434
1999 .................................................... 234
2000 .................................................... 244
2001 .................................................... 242
2002 .................................................... 187
Thereafter .............................................. 402
------
$1,743
======
</TABLE>
The Bank has entered into an agreement to purchase a parcel of land for
$200.
F-11
<PAGE>
7. Employee Benefit Plans
The Company has established a defined contribution pension plan under
Section 401(k) of the Internal Revenue Code. Plan participants, who consist of
all employees meeting minimum age and service requirements who elect to
participate, are permitted to contribute a percentage of their wages to the
plan on a pre-tax basis. The Company matches a portion of each employee's
contribution, resulting in an expense of $39 and $32 for 1997 and 1996,
respectively.
The Company has established nonqualified deferred compensation
arrangements for certain officers. Expense under these arrangements totaled $8
and $17 for 1997 and 1996, respectively.
Effective June 26, 1997, the Company adopted a nonqualified supplemental
executive retirement plan for the benefit of the key employees. A life
insurance policy was acquired for the purpose of serving as the primary funding
source. As of December 31, 1997, the cash value of this policy was $599.
8. Deposits
The aggregate amount of certificates of deposit with a minimum
denomination of $100 was $10,522 and $9,097 at December 31, 1997 and 1996,
respectively.
At December 31, 1997, the scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<S> <C>
1998 ...................................................... $36,235
1999 ...................................................... 11,592
2000 ...................................................... 3,425
2001 ...................................................... 545
2002 and thereafter ....................................... 4,984
-------
$56,781
=======
</TABLE>
9. Borrowed Funds
Securities sold under agreements to repurchase generally mature within one
to four days from the transaction date. Other borrowed funds consist of Federal
Home Loan Bank (FHLB) advances and treasury, tax and loan deposits. Treasury
tax and loan deposits are repaid upon notification by the U.S. Treasury.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Average balance during the year .................... $ 11,931 $ 11,770
Average interest rate during the year .............. 4.28% 4.42%
Maximum month-end balance during the year .......... 12,991 14,070
</TABLE>
The Bank is required to own stock of the FHLB in order to borrow from the
FHLB. FHLB advances are collateralized by a pledge of certain mortgage loans
and by a lien on the Bank's FHLB stock of $491 at December 31, 1997, which is
included in investment securities available for sale in the consolidated
statements of financial condition.
A summary of borrowing from the FHLB at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Final Maturity Interest Rate
- ---------------------------- --------------
<S> <C> <C>
September 1999 .......... 5.79% $ 264
September 2002 .......... 6.18 287
September 2007 .......... 6.47 688
------
$1,239
======
</TABLE>
F-12
<PAGE>
10. Long-Term Debt
The Company has a $2,895 note payable collateralized by all of the stock
of the Bank. Annual principal payments of $362 and $396 are due in 1998 and
1999, respectively, with a remaining unpaid note balance due on October 16,
2000. Payments of interest are due quarterly at the six-month Treasury rate
plus 1.75% (7.10% at December 31, 1997). Prior to 1997, the interest rate was
equal to the lender's base rate; thereafter, the interest rate is reset every
six months. The note agreement contains certain restrictive covenants including
maintenance of certain net worth and equity levels, prior approval of dividend
payments, certain investments, fixed asset expenditures, debenture principal
reductions, stock issuance or redemption, debt incurrence, mergers or
management changes. The Company and Bank were in compliance with such covenants
at December 31, 1997 and 1996.
Maturities on long-term debt and FHLB borrowings (Note 9) are as follows:
<TABLE>
<CAPTION>
Long-Term
FHLB Debt Total
--------- ---------- --------
<S> <C> <C> <C>
1998 ............... $ 253 $ 362 $ 615
1999 ............... 229 396 625
2000 ............... 120 2,137 2,257
2001 ............... 128 -- 128
2002 ............... 119 -- 119
Thereafter ......... 390 -- 390
------ ------ ------
Total .......... $1,239 $2,895 $4,134
====== ====== ======
</TABLE>
11. Mandatory Convertible Debentures
The Company issued $300 of mandatory convertible debentures which bear
interest at 1% per annum in excess of the prime rate of interest of the Bank of
Boston N.A. Interest is payable on March 31, June 30, September 30, and
December 31 of each year until the debentures are paid in full or converted
into shares of common stock. On or prior to September 30, 2002, the holders of
the debentures must convert the entire principal amount into shares of common
stock of Merrill Merchants Bancshares, Inc. at a conversion rate equal to $4.73
of principal amount of debentures for one share of common stock, subject to
adjustment for any recapitalization of common stock, such as a split or reverse
split of common stock.
The debentures are unsecured and any payment of interest or principal will
be subordinated to the timely payment of principal and interest on all existing
and future obligations of the Company for borrowed money from any bank trust
company, insurance company or other financial institution engaged in the
business of lending money.
12. Income Taxes
Income tax expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
--------- ---------- ------
1997
- ----
<S> <C> <C> <C>
Federal ........................ $722 $ 18 $740
State .......................... 25 -- 25
---- ------ ----
$747 $ 18 $765
==== ====== ====
1996
- ----
Federal ........................ $880 $ (266) $614
State .......................... 25 -- 25
---- ------ ----
$905 $ (266) $639
==== ====== ====
</TABLE>
F-13
<PAGE>
The actual tax expense differs from the expected tax expense computed by
applying the applicable U.S. federal corporate income tax rate to income before
income taxes as follows:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Computed tax expense .......................... $737 $598
Increase in income tax expense resulting from:
State taxes, net of federal benefit .......... 16 16
Other ........................................ 12 25
---- ----
$765 $639
==== ====
</TABLE>
The tax effects of temporary differences that give rise to deferred income
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- --------------------
Asset Liability Asset Liability
------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Allowance for loan losses ......... $153 $-- $124 $--
Start-up costs .................... -- 49 -- 33
Mortgage servicing rights ......... -- 39 -- 24
Deferred compensation ............. 29 -- 31 --
Other ............................. 35 -- 49 --
---- --- ---- ---
$217 $88 $204 $57
==== === ==== ===
</TABLE>
Management expects the Company will realize all deferred income tax
benefits to offset the income tax liabilities arising from the reversal of
taxable temporary differences and taxable income generated in future years.
Accordingly, the Company has not established a valuation allowance for deferred
income tax benefits.
13. Related Parties
The Bank has entered into loan transactions with its directors, executive
officers, significant shareholders and their affiliates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features. The aggregate amounts of loans
outstanding to such related parties which exceed $60 in the aggregate at
December 31, 1997 and 1996 were $2,562 and $3,190, respectively. New loans to
such related parties totaled $77 in 1997 and $1,554 in 1996, and repayments
totaled $705 in 1997 and $556 in 1996. Commitments, as described in Note 14, to
related parties totaled $4,240 and $3,655 at December 31, 1997 and 1996,
respectively.
14. Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
which involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the consolidated statements of financial condition. The
Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Bank
follows the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments, including requiring
collateral or other security to support financial instruments with credit risk.
F-14
<PAGE>
The Bank's commitments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Commitments to extend credit ............ $ 4,392 $ 5,334
Letters of credit ....................... 804 522
Unadvanced commitments
Commercial lines of credit ............. 14,741 12,488
Construction lines of credit ........... 893 718
Home equity lines of credit ............ 10,421 9,464
Overdraft protection accounts .......... 1,397 1,353
Credit card lines ...................... 2,157 1,916
</TABLE>
15. Shareholders' Equity
The Company is prohibited from repurchasing any of its outstanding common
stock while its debt-to-equity ratio exceeds 30% or the proposed stock
repurchase would cause its debt-to-equity ratio to exceed 30%. The Company's
debt-to-equity ratio at December 31, 1997 and 1996 was 29.1% and 41.3%,
respectively.
The shareholders of the Company have entered into an agreement whereby all
stock becoming available for sale or other transfer must first be offered to
the other shareholders and then to the Company under the same terms and
conditions. Shareholders who are officers also have the option under the
agreement to require the Company to purchase all of their stock at book value
(excluding goodwill) in certain circumstances.
Holders of preferred stock are entitled to dividends equal to the total
stated value of $42.53 per share multiplied by the prime rate in effect from
time to time as announced by Bank of Boston. The dividends payable on the
preferred stock are cumulative, meaning that if dividends are not paid when
declared, they will accumulate and be payable in full before any dividends are
paid on common stock. However, the payment of any dividends on or the
redemption of the preferred stock is subordinate to the payment of any debt by
the Company. The preferred stock is non-voting.
Each share of preferred stock is convertible into one share of common
stock, subject to appropriate adjustment upon a recapitalization of the common
stock (such as a split or reverse split). After October 1, 2002, and to the
extent not previously converted into common stock, the preferred stock may be
redeemed by the Company for a price equal to the sum of its stated value plus
unpaid and accrued dividends. However, the preferred stock may not be called or
redeemed by the Company unless approved in advance by the Federal Reserve Bank
of Boston.
16. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except for number of shares and per-share
data):
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Basic earnings per share
Net income, as reported ................................................. $ 1,402 $ 1,120
Preferred stock dividends declared ...................................... (76) (74)
---------- ----------
Income available to common shareholders ............................... $ 1,326 $ 1,046
========== ==========
Weighted-average shares outstanding ..................................... 1,542,123 1,542,123
Effect of subsequent stock dividend (Note 22) ........................... 77,103 77,103
---------- ----------
Restated weighted-average shares outstanding .......................... 1,619,226 1,619,226
========== ==========
Basic earnings per share ................................................ $ 0.82 $ 0.65
========== ==========
Diluted earnings per share
Net income, as reported ................................................. $ 1,402 $ 1,120
Interest on mandatory convertible debentures, net of tax ................ 19 19
---------- ----------
Income available to common shareholders ............................... $ 1,421 $ 1,139
========== ==========
Weighted-average shares outstanding ..................................... 1,542,123 1,542,123
Effect of stock options, net of assumed treasury stock purchases ........ 99,801 59,832
Effect of convertible preferred stock ................................... 199,971 199,971
Effect of mandatory convertible debentures .............................. 66,663 66,663
Effect of subsequent stock dividend (Note 22) ........................... 95,427 93,429
---------- ----------
Adjusted and restated weighted-average shares outstanding ............. 2,003,985 1,962,018
========== ==========
Diluted earnings per share .............................................. $ 0.71 $ 0.58
========== ==========
</TABLE>
F-15
<PAGE>
17. Regulatory Matters
The Company and Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Company and Bank's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Bank must meet specific capital
guidelines that involve quantitative measures of the Company's and Bank's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's and 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 Company and Bank to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes as of December 31, 1997, that
the Company and Bank meet all capital adequacy requirements to which they are
subject.
As of December 31, 1997 and 1996, the most recent notification from the
Federal Reserve Bank categorized the Company and Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized well
capitalized, the Company and Bank must maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes have
changed this category.
The Company's and Bank's actual capital amounts and ratios are also
presented in the table. No deduction was made from capital for interest-rate
risk in 1997 and 1996.
<TABLE>
<CAPTION>
To be well
capitalized under
prompt
For capital corrective action
Actual adequacy purposes provisions
---------------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total capital (to risk weighted assets)
Consolidated .......................... $12,201 11.30% $8,635 8.00% N/A
Bank .................................. 14,974 13.88 8,632 8.00 $10,790 10.00%
Tier I capital (to risk weighted assets)
Consolidated .......................... 10,547 9.77 4,318 4.00 N/A
Bank .................................. 13,621 12.62 4,316 4.00 6,474 6.00
Tier I capital (to average assets)
Consolidated .......................... 10,547 6.06 6,981 4.00 N/A
Bank .................................. 13,621 7.85 6,960 4.00 8,700 5.00
As of December 31, 1996
Total capital (to risk weighted assets)
Consolidated .......................... 10,667 11.10 7,690 8.00 N/A
Bank .................................. 13,848 14.42 7,693 8.00 9,617 10.00
Tier I capital (to risk weighted assets)
Consolidated .......................... 9,162 9.53 3,845 4.00 N/A
Bank .................................. 12,645 13.17 3,832 4.00 5,748 6.00
Tier I capital (to average assets)
Consolidated .......................... 9,162 5.98 6,135 4.00 N/A
Bank .................................. 12,645 8.29 6,094 4.00 7,617 5.00
</TABLE>
F-16
<PAGE>
18. Other Expense
Other expense amounts are summarized as follows for 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Professional fees ............................................. $ 215 $ 217
Other ......................................................... 211 198
Printing, postage, stationery and supplies .................... 189 180
Advertising and promotion ..................................... 191 155
Bankcard processing ........................................... 191 145
Amortization .................................................. 107 107
Travel, meetings, conventions and employee education .......... 101 102
Trust expense ................................................. 106 96
Telephone ..................................................... 86 73
Insurance ..................................................... 84 70
------ ------
Total ..................................................... $1,481 $1,343
====== ======
</TABLE>
19. Stock Options
Under the Employee and Director Stock Option Plan, the incentive stock
option plan (ISO) for officers and key employees and the nonstatutory stock
option plan (Non-ISO) for directors provide for the issuance of up to 558,000
shares of common stock. The purchase price of the stock covered by each option
shall be its fair market value, which must be equal to at least 100% of the
book value of common stock, on the date such option is granted. All options are
granted subject to an initial vesting period which ended on December 31, 1997
after which options become exercisable until May 26, 2003.
The Company accounts for these options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
The exercise price of each option equals the market price of the Company's
stock on the date of grant, no compensation cost has been recognized for the
plan. Had compensation cost for the plan been determined based on the fair
value of the options at the grant dates consistent with the method described in
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's 1997 net
income and earnings per share would have been reduced to the pro forma amounts
indicated below. In 1996, no options were granted; thus, pro forma amounts are
the same as reported.
<TABLE>
<CAPTION>
Earnings per Share
-----------------------
(In thousands except for per-share data) Net Income Basic Diluted
- ------------------------------------------ ------------ ---------- ----------
<S> <C> <C> <C>
1997
- ----
As reported ........................... $1,402 $ 0.82 $ 0.71
Pro forma ............................. 1,392 0.81 0.70
1996
- ----
As reported ........................... $1,120 $ 0.65 $ 0.58
Pro forma ............................. 1,120 0.65 0.58
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for all grants in 1997: dividend yield of 0%, risk-free
interest rate of 6%, and expected lives of five years.
F-17
<PAGE>
A summary of the status of the plan as of December 31, 1997 and 1996, and
changes during the years then ended, is presented below.
<TABLE>
<CAPTION>
1997 1996
------------------------------ -----------------------------
Weighted Weighted
Number Average Number Average
of Shares Exercise Price of Shares Exercise Price
----------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ............ 421,218 $ 5.24 409,851 $ 5.36
Granted during the year ..................... 27,900 6.59 -- --
Expired during the year ..................... -- -- (927) --
Additional shares for which options are
exercisable due to stock dividends ......... 20,799 -- 12,294 --
------- ------- ------- ------
Outstanding at end of year .................. 469,917 $ 5.09 421,218 $ 5.24
======= =======
</TABLE>
The following information applies to options outstanding at December 31,
1997:
<TABLE>
<S> <C>
Number outstanding .................................. 469,917
Range of exercise prices ............................ $4.82 - $6.59
Weighted-average exercise price ..................... $ 5.09
Weighted-average remaining contractual life ......... 6 years
</TABLE>
20. Fair Value of Financial Instruments
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments.
Cash and Due from Banks, Interest-Bearing Deposits with Banks and Federal
Funds Sold. The fair value of cash and due from banks, interest-bearing
deposits with banks and federal funds sold approximates their relative book
values at December 31, 1997, as these financial instruments have short
maturities.
Investment Securities. The fair values of investment securities are
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers.
Loans Receivable. Fair values are estimated for portfolios of loans
receivable with similar financial characteristics. The fair values approximate
carrying value for all loans with variable interest rates.
The fair values of fixed rate loans are calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the risk inherent in the loan. The estimates of
maturity are based on the Bank's historical experience with repayments for each
loan classification, modified, as required, by an estimate of the effect of
current economic and lending conditions, and the effects of estimated
prepayments.
Management has made estimates of fair value using discount rates that it
believes to be reasonable. However, because there is no market for many of
these financial instruments, management has no basis to determine whether the
fair value presented below would be indicative of the value negotiated in the
actual sale.
Accrued Interest Receivable. The fair value approximates the carrying
value as this financial instrument has a short maturity. It is the Bank's
policy to stop accruing interest on loans for which it is probable that the
interest is not collectible. Therefore, the fair value of this financial
instrument has been adjusted to reflect credit risk.
Deposits. The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, NOW accounts and money market
accounts, is equal to the amount payable on demand. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
The fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposits compared to the cost of borrowing
funds in the market. If that value were considered, the fair value of the
Bank's net assets could increase.
Borrowed Funds. The fair value approximates the carrying value as these
financial instruments have short maturities, variable interest rates, or both.
F-18
<PAGE>
Accrued Interest Payable. The fair value approximates the book value as
this financial instrument has a short maturity.
The Company's off-balance sheet instruments consist of loan commitments.
Fair values for loan commitments have not been presented as the future revenue
derived from such financial instruments is not significant.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These values do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company'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. Other significant assets and liabilities that are not
considered financial instruments include property and equipment and other real
estate owned. 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 in any of the estimates.
Summary
A summary of the estimated fair values for the Company's significant
financial instruments at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Estimate of
December 31, 1997 Carrying Value Fair Value
- ----------------- ---------------- ------------
<S> <C> <C>
Financial Assets
Cash and cash equivalents ................. $ 10,659 $ 10,659
Securities available for sale ............. 42,864 42,864
Securities to be held to maturity ......... 1,962 1,958
Loans held for sale ....................... 508 511
Loans receivable, net ..................... 117,171 117,372
Accrued interest receivable ............... 1,109 1,109
Financial Liabilities
Deposits .................................. 146,312 146,842
Accrued interest payable .................. 227 227
Borrowed funds ............................ 20,236 20,236
December 31, 1996
- ------------------
Financial Assets
Cash and cash equivalents ................. $ 8,591 $ 8,591
Securities available for sale ............. 37,891 37,891
Securities to be held to maturity ......... 3,123 3,105
Loans held for sale ....................... 341 341
Loans receivable, net ..................... 103,979 104,240
Accrued interest receivable ............... 947 947
Financial Liabilities
Deposits .................................. 126,704 127,394
Accrued interest payable .................. 160 160
Borrowed funds ............................ 18,991 18,991
</TABLE>
F-19
<PAGE>
21. Parent Company Financial Information
The following is summarized financial statement information for Merrill
Merchants Bancshares, Inc. as of December 31, 1997 and 1996 and for the years
then ended:
SUMMARIZED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................ $ 1 $ 27
Investment securities (fair value of $166,000 and $548,000 at
December 31, 1997 and 1996, respectively) ........................... 166 548
Investment in Merrill Merchants Bank ................................. 14,041 13,154
Accrued income and other assets ...................................... 1 2
Deferred income tax benefit .......................................... 498 406
------- -------
Total assets ...................................................... $14,707 $14,137
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accrued expenses and other liabilities .............................. $ 545 $ 471
Long-term debt ...................................................... 2,895 3,695
Mandatory convertible debentures .................................... 300 300
------- -------
Total liabilities ................................................. 3,740 4,466
------- -------
Shareholders' equity
Convertible cumulative preferred stock .............................. 20 20
Common stock ........................................................ 1,542 1,469
Capital surplus ..................................................... 7,754 7,331
Retained earnings ................................................... 1,647 861
Unrealized gain (loss) on securities available for sale ............. 4 (10)
------- -------
Total shareholders' equity ........................................ 10,967 9,671
------- -------
Total liabilities and shareholders' equity ........................ $14,707 $14,137
======= =======
SUMMARIZED STATEMENTS OF INCOME INFORMATION
Dividends from bank subsidiary ....................................... $ 701 $ --
Interest income on investments ....................................... 12 36
------- -------
Total income ...................................................... 713 36
------- -------
Interest expense on borrowed funds ................................... 270 346
Operating expenses ................................................... 5 2
------- -------
Total expenses .................................................... 275 348
------- -------
Income (loss) before income tax benefit .............................. 438 (312)
Income tax benefit ................................................... 91 96
------- -------
Income (loss) before equity in undistributed net income
of subsidiary ....................................................... 529 (216)
Equity in undistributed net income of subsidiary ..................... 873 1,336
------- -------
Net income ........................................................ $ 1,402 $ 1,120
======= =======
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
SUMMARIZED STATEMENTS OF CASH FLOWS INFORMATION
Cash flows from operating activities
Net income ....................................................... $1,402 $ 1,120
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Deferred income tax benefit ...................................... (91) (96)
Equity in undistributed net income of subsidiary ................. (873) (1,336)
Decrease in accrued income and other assets ...................... 1 36
Increase in accrued expenses and other liabilities ............... 73 397
------ -------
Net cash provided by operating activities ...................... 512 121
------ -------
Cash flows from investing activities
Proceeds from sale of investment securities ...................... 602 654
Purchase of investment securities ................................ (220) (370)
------ -------
Net cash provided by investing activities ...................... 382 284
------ -------
Cash flows from financing activities
Dividends paid on convertible cumulative preferred stock ......... (76) (74)
Dividends paid on common stock ................................... (44) (1)
Payment of long-term debt ........................................ (800) (305)
------ -------
Net cash used by financing activities .......................... (920) (380)
------ -------
Net increase (decrease) in cash and cash equivalents .............. (26) 25
Cash and cash equivalents, beginning of year ...................... 27 2
------ -------
Cash and cash equivalents, end of year ............................ $ 1 $ 27
====== =======
</TABLE>
22. Subsequent Events
Common Stock Dividends
On February 28, 1998, the Company declared a 5% stock dividend on its
common stock. Earnings per share for 1997 and 1996 have been restated to
reflect this stock dividend.
In 1998, the Company increased the number of authorized shares of common
stock and declared a stock split effected in the form of a 900% stock dividend,
with an effective date concurrent with that of a Form SB-2 registration
statement with the Securities and Exchange Commission on , 1998. All
share and per share information presented in the accompanying consolidated
financial statements has been retroactively adjusted for the stock split.
Impact of Recently Issued Accounting Standards
SFAS No. 130, "Reporting Comprehensive Income," is effective for years
beginning after December 15, 1997. The Statement contains certain presentation
and disclosure requirements concerning the components of comprehensive income
and the changes therein. Adoption of the Statement will require certain changes
in the format of the consolidated statement of changes in shareholders' equity.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities." The SOP requires costs of start-up activities to be expensed as
incurred. The SOP is effective for years beginning after December 15, 1998.
Adoption of the SOP is expected to have no effect on net income for 1999.
F-21
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1998
(Unaudited)
(In Thousands, Except Number of Shares and per Share Data)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks .................................................................. $ 5,959
Interest-bearing deposits with banks ..................................................... 816
--------
Total cash and cash equivalents ....................................................... 6,775
Investment securities
Available for sale ...................................................................... 43,839
To be held to maturity .................................................................. 1,740
Loans held for sale ...................................................................... 2,127
Loans receivable ......................................................................... 117,708
Less allowance for loan losses .......................................................... 1,799
--------
Net loans receivable .................................................................. 115,909
Properties and equipment, net ............................................................ 2,751
Deferred income tax benefit .............................................................. 128
Accrued income and other assets .......................................................... 2,484
--------
Total assets .......................................................................... $175,753
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits .......................................................................... $ 20,229
Savings and NOW deposits ................................................................. 64,214
Certificates of deposit .................................................................. 55,955
--------
Total deposits ........................................................................ 140,398
Securities sold under agreements to repurchase (term and demand) ......................... 13,554
Other borrowed funds ..................................................................... 5,856
Accrued expenses and other liabilities ................................................... 1,394
Long-term debt ........................................................................... 2,745
Mandatory convertible debentures ......................................................... 300
--------
Total liabilities ..................................................................... 164,247
--------
Shareholders' equity
Convertible cumulative preferred stock, par value $1; authorized
50,000 shares, issued and outstanding 19,566 shares ..................................... 20
Common stock, par value $1; authorized 4,000,000 shares, issued and outstanding
1,655,640 shares ........................................................................ 1,656
Capital surplus .......................................................................... 8,387
Retained earnings ........................................................................ 1,394
Unrealized gain on securities available for sale ......................................... 49
--------
Total shareholders' equity ............................................................ 11,506
--------
Total liabilities and shareholders' equity ............................................ $175,753
========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-22
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
(In Thousands, Except Number of Shares and per Share Data)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Interest income
Interest and fees on loans ........................................... $ 2,827 $ 2,497
Interest on investment securities .................................... 645 531
Dividends on investment securities ................................... 17 29
Interest on federal funds sold and interest-bearing deposits ......... 21 17
------- -------
Total interest income .............................................. 3,510 3,074
Interest expense
Interest on deposits ................................................. 1,364 1,190
Interest on borrowed funds ........................................... 249 219
------- -------
Total interest expense ............................................. 1,613 1,409
------- -------
Net interest income ................................................ 1,897 1,665
Provision for loan losses ............................................. 90 75
------- -------
Net interest income after provision for loan losses ................ 1,807 1,590
------- -------
Other income
Service charges on deposit accounts .................................. 120 118
Other service charges and fees ....................................... 115 111
Trust fees ........................................................... 151 119
Other ................................................................ 45 35
Net gain on sale of mortgage loans ................................... 50 21
------- -------
Total other income ................................................. 481 404
------- -------
Other expense
Salaries and employee benefits ....................................... 852 760
Occupancy expense .................................................... 166 163
Equipment expense .................................................... 123 118
Data processing ...................................................... 160 149
Other ................................................................ 394 363
------- -------
Total other expense ................................................ 1,695 1,553
------- -------
Income before income taxes ............................................ 593 441
Income tax expense .................................................... 213 161
------- -------
Net income ......................................................... $ 380 $ 280
======= =======
Basic earnings per common share ....................................... $ 0.22 $ 0.16
======= =======
Diluted earnings per common share ..................................... $ 0.19 $ 0.14
======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-23
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
(In Thousands, Except Number of Shares and per Share Data)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Convertible on Securities Total
Cumulative Common Capital Retained Available Shareholders'
Preferred Stock Stock Surplus Earnings for Sale Equity
----------------- -------- --------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ................ $20 $1,469 $7,331 $ 861 $ (10) $ 9,671
Net income .................................. -- -- -- 280 -- 280
Change in unrealized gain (loss) on
securities available for sale, net of
deferred income taxes of $63................ -- -- -- (123) (123)
--- ------ ------ ------ -------
Total comprehensive income ................ -- -- -- 280 (123) 157
Convertible cumulative preferred stock
dividends declared, $0.97 per share......... -- -- -- (19) -- (19)
--- ------ ------ ------ ------ -------
Balance at March 31, 1997 ................... $20 $1,469 $7,331 $1,122 $ (133) $ 9,809
=== ====== ====== ====== ====== =======
Balance at December 31, 1997 ................ $20 $1,542 $7,754 $1,647 $ 4 $10,967
Net income .................................. -- -- -- 380 -- 380
Change in unrealized gain (loss) on
securities available for sale, net of
deferred income taxes of $23................ -- -- -- -- 45 45
--- ------ ------ ------ ------ -------
Total comprehensive income .................. -- -- -- 380 45 425
Common stock options exercised .............. -- 35 145 -- -- 180
5% common stock dividend declared ........... -- 79 488 (568) -- (1)
Common stock cash dividend Declared,
$.03 per share.............................. -- -- -- (46) -- (46)
Convertible cumulative preferred stock
dividends declared, $0.97 per share......... -- -- -- (19) -- (19)
--- ------ ------ ------ ------ --------
Balance at March 31, 1998 ................... $20 $1,656 $8,387 $1,394 $ 49 $11,506
=== ====== ====== ====== ====== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-24
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income ....................................................................... $ 380 $ 280
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation .................................................................... 86 72
Amortization .................................................................... 34 30
Net accretion of discounts on investment securities ............................. (24) (14)
Deferred income taxes ........................................................... 5 4
Originations of loans held for sale ............................................. (6,447) (1,915)
Proceeds from sale of loans held for sale ....................................... 4,839 2,181
(Increase) decrease in accrued income and other assets .......................... (12) 22
Increase in accrued expenses and other liabilities .............................. 265 205
Decrease in deferred loan fees, net ............................................. (5) (4)
Provision for loan losses ....................................................... 90 75
Provision for losses on other real estate owned ................................. 5 --
Net gain on sale of mortgage loans .............................................. (50) (21)
Net loss on property and equipment .............................................. 1 9
--------- ---------
Net cash (used) provided by operating activities .............................. (833) 924
--------- ---------
Cash flows from investing activities
Net (increase) decrease in loans to customers .................................... 1,177 (2,458)
Acquisition of premises and equipment ............................................ (32) (356)
Purchase of investment securities available for sale ............................. (4,614) (6,211)
Proceeds from sales and maturities of investment securities ......................
Sales and maturities of available for sale securities ........................... 3,739 7,279
Maturities of held to maturity securities ....................................... 222 253
Proceeds from sale of other real estate owned .................................... 38 --
--------- ---------
Net cash provided (used) in investing activities .............................. 530 (1,493)
--------- ---------
Cash flows from financing activities
Net decrease in demand, savings and NOW deposits ................................. (5,088) (933)
Net increase (decrease) in certificates of deposit ............................... (826) 1,085
Net increase in securities sold under agreement to repurchase .................... 1,657 104
Net increase in other borrowed funds ............................................. 712 3,168
Payment of long-term debt ........................................................ (150) --
Dividends paid on convertible cumulative preferred stock and common stock ........ (66) (19)
Proceeds from stock issuance ..................................................... 180 --
--------- ---------
Net cash (used) provided by financing activities .............................. (3,581) 3,405
--------- ---------
Net (decrease) increase in cash and cash equivalents .............................. (3,884) 2,836
Cash and cash equivalents, beginning of period .................................... 10,659 8,591
--------- ---------
Cash and cash equivalents, end of period .......................................... $ 6,775 $11,427
========= =========
Supplemental disclosures of cash flow information
Cash paid for interest ........................................................... $ 1,602 $ 1,412
Transfers to other real estate owned ............................................. -- 28
Income tax paid .................................................................. 71 56
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-25
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY
Notes to Condensed Unaudited Consolidated Financial Statements
March 31, 1998 and 1997
1. Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of
Merrill Merchants Bancshares, Inc. and its wholly-owned subsidiary, Merrill
Merchants Bank, a state-chartered bank. All intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary (consisting
of only normal recurring adjustments) to present fairly the Company's
consolidated financial position as of March 31, 1998, and the consolidated
results of their operations and their consolidated cash flows for the three
months ended March 31, 1998 and 1997. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. Impact of Recently Issued Accounting Standards
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," in 1998. The Statement contains certain
presentation and disclosure requirements concerning the components of
comprehensive income and the changes therein. The consolidated statement of
changes in shareholders' equity has been presented in accordance with the
requirements of the Statement.
The statement requires comprehensive income to be reported for all periods
presented. Comprehensive income includes both net income and other
comprehensive income. Other comprehensive income consists of the change in
unrealized gains and losses on securities available for sale.
The Company has presented earnings per share data in accordance with SFAS
No. 128, "Earnings per Share." The Statement requires publicly traded entities
to present basic and diluted earnings per common share.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities." The SOP requires costs of start-up activities to be expensed as
incurred. The SOP is effective for years beginning after December 15, 1998.
Adoption of the SOP is expected to have no effect on net income for 1999.
3. Stock Options
A summary of the status of the Employee and Director Stock Option Plan as
of March 31, 1998, and changes during the three months then ended, is presented
below.
<TABLE>
<CAPTION>
Weighted
Number Average
of Shares Exercise Price
----------- ---------------
<S> <C> <C>
Outstanding at beginning of period ........................ 469,917 $ 5.09
Granted during the period ................................. 81,900 6.84
Exercised during the period ............................... (34,848) 5.16
Additional shares for which options are exercisable
due to stock dividends ................................... 23,058 --
------- ------
Outstanding at end of period .............................. 540,027 $ 5.15
=======
</TABLE>
4. Common Stock Dividends
On February 28, 1998, the Company declared a 5% stock dividend on its
common stock. Earnings per share have been restated to reflect this stock
dividend.
In 1998, the Company increased the number of authorized shares of common
stock and declared a stock split effected in the form of a 900% stock dividend,
with an effective date concurrent with that of a Form SB-2 registration
statement with the Securities and Exchange Commission on , 1998. All
share and per share information presented in the accompanying consolidated
financial statements has been retroactively adjusted for the stock split.
F-26
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representations not contained in this Prospectus and,
if given or made, such information or representations must not be relied upon
as having been authorized by the Company or the Underwriters. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy to
any person in any jurisdiction in which such offer or solicitation is unlawful
or to any person to whom it is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to the date hereof.
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information .................... ii
Prospectus Summary ....................... 1
The Company and the Bank ................. 1
Risk Factors ............................. 6
Use of Proceeds .......................... 12
Market for Common Stock .................. 12
Dividends ................................ 13
Capitalization ........................... 14
Dilution ................................. 15
Selected Financial Data .................. 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 18
Business ................................. 33
Management ............................... 41
Certain Transactions ..................... 49
Security Ownership of Certain Beneficial
Owners and Management ................. 50
Description of Securities ................ 53
Supervision and Regulation ............... 57
Underwriting ............................. 63
Shares Eligible for Future Sale .......... 65
Legal Matters ............................ 66
Experts .................................. 66
Financial Statements ..................... F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus), all
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
600,000 Shares
Merrill Merchants
Bancshares, Inc.
Common Stock
----------------------------------
PROSPECTUS
----------------------------------
Advest, Inc.
, 1998
================================================================================
<PAGE>
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated Articles of Incorporation of the Company and the
Amended and Restated Bylaws of the Company require it to indemnify its
directors and officers against liabilities, fines, penalties, settlements,
claims and reasonable expenses incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those capacities to the fullest extent permitted by the MBCA. The MBCA permits
a corporation to indemnify its present and former directors and officers if
ordered to do so by a court or after a determination by its independent
counsel, shareholders or a majority of its disinterested directors that the
person to be indemnified acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses, other than underwriting discounts and commissions,
in connection with the Offering are as follows:
<TABLE>
<S> <C>
SEC Registration Fee* ............................................. $ 3,000
NASD Filing Fee* .................................................. 1,500
Nasdaq Fees* ...................................................... 48,750
Blue Sky Fees and Expenses* ....................................... 7,500
Printing Expenses* ................................................ 70,000
Legal Fees and Expenses* .......................................... 225,000
Auditing and Accounting Service* .................................. 50,000
Transfer Agent Fees and Expenses* ................................. 3,000
Miscellaneous* .................................................... 66,250
--------
Total .......................................................... $475,000
========
</TABLE>
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 27. EXHIBITS
<TABLE>
<S> <C>
1. Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Company presently in effect, as amended to date.
3.2 Form of Restated Articles of Incorporation to be effective upon the closing of the Offering.
3.3 By-laws of the Company presently in effect.
3.4 Form of Restated By-laws of the Company to be effective upon the closing of the Offering.
4.1 Form of Common Stock Certificate.
5. Form of Opinion of Hutchins, Wheeler & Dittmar, re: legality.
10.1 Loan Agreements between the Company and M&I Bank.
10.2 Operating Agreement between the Company and M&M Consulting Limited Liability Company.
10.3* Services Agreements between the Company and M&M Consulting Limited Liability Company.
10.4* Data Processing Services Agreement between the Company and M&I Data Services, a Division
of Marshall & Ilsley Corporation.
10.5* Financial Services Agreement with Financial Institutions Service Corporation.
10.6 Life Insurance Endorsement Method Split Dollar Plan Agreement between Merrill Merchants Bank
and Edwin Clift.
10.7 Form of Unfunded Deferred Compensation Agreement.
10.8 Executive Supplemental Retirement Plan.
10.9 Form of Mandatory Convertible Debentures.
10.10* Correspondent Trust Services Agreement with Northern Trust Company.
10.11 Stock Option Plan, as amended.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
10.12 Form of Stock Option Agreement.
10.13 1998 Directors' Deferred Compensation Plan.
21. Subsidiaries of the Company.
23.1 Consent of Berry Dunn McNeil & Parker.
23.2 Consent of Hutchins, Wheeler & Dittmar (included in Exhibit 5).
24. Power of Attorney (contained in signature section of Registration Statement).
27 Financial Data Schedule
</TABLE>
* Confidential treatment requested
ITEM 28. UNDERTAKINGS
(a) The undersigned Company hereby undertakes to provide to the Underwriters at
the Closing Date specified in the Underwriting Agreement certificates in
such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Company hereby undertakes to, for purposes of determining
any liability under the Securities Act, treat the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Company under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as
part of this registration statement as of the time the Commission declared
it effective.
(d) The undersigned Company hereby undertakes to, for purposes of determining
any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement, and
that offering of the securities at that time as the initial bona fide
offering of those securities.
II-2
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF BANGOR,
STATE OF MAINE ON JUNE 5, 1998.
Merrill Merchants Bancshares, Inc.
/s/ Edwin N. Clift
---------------------------------------
By Edwin N. Clift
President and Chief Executive Officer
POWER OF ATTORNEY
WE, THE UNDERSIGNED DIRECTORS AND OFFICERS OF MERRILL MERCHANTS
BANCSHARES, INC., DO HEREBY CONSTITUTE AND APPOINT WILLIAM C. BULLOCK, JR.,
EDWIN N. CLIFT AND DEBORAH A. JORDAN, AND EACH OF THEM, OUR TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR US AND IN OUR NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THIS REGISTRATION STATEMENT, AND
ANY ADDITIONAL REGISTRATION STATEMENTS FILED PURSUANT TO RULE 462(B) UNDER THE
SECURITIES ACT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION,
AND WE DO HEREBY RATIFY AND CONFIRM ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS,
OR THEIR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
Name Capacity Date
- -------------------------------------- ------------------------------------- -------------
<S> <C> <C>
/s/ Edwin N. Clift Chief Executive Officer, President, June 5, 1998
- ------------------------------------ Director (principal executive
Edwin N. Clift officer)
/s/ Deborah A. Jordan Treasurer (principal financial and June 5, 1998
- ------------------------------------ accounting officer)
Deborah A. Jordan
/s/ William C. Bullock, Jr. Chairman, Director June 5, 1998
- ------------------------------------
William C. Bullock, Jr.
/s/ Joseph H. Cyr Director June 5, 1998
- ------------------------------------
Joseph H. Cyr
/s/ Perry B. Hansen Director, Secretary June 5, 1998
- ------------------------------------
Perry B. Hansen
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Leonard E. Minsky Director June 5, 1998
- ------------------------------------
Leonard E. Minsky
/s/ Joseph Sewall Director June 5, 1998
- ------------------------------------
Joseph Sewall
/s/ Dennis L. Shubert, M.D. Director June 5, 1998
- ------------------------------------
Dennis L. Shubert, M.D.
/s/ Susan B. Singer Director June 5, 1998
- ------------------------------------
Susan B. Singer
/s/ Harold S. Wright Director June 5, 1998
- ------------------------------------
Harold S. Wright
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
<S> <C>
1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Company presently in effect
and as amended, to date.
3.2 Form of Restated Articles of Incorporation of the Company to be
effective upon the closing of the Offering.
3.3 By-laws of the Company presently in effect.
3.4 Form of Restated By-laws of the Company to be effective upon the
closing of the Offering.
4.1 Form of Common Stock Certificate.
5 Form of Opinion of Hutchins, Wheeler & Dittmar.
10.1 Loan Agreements between the Company and M&I Bank.
10.2 Operating Agreement between the Company and M&M Consulting
Limited Liability Company.
10.3* Services Agreements between the Company and M&M Consulting Limited
Liability Company.
10.4* Data Processing Services Agreement between the Company and M&I Data
Services, a Division of Marshall & Ilsley Corporation.
10.5* Financial Services Agreements with Financial Institutions Service
Corporation.
10.6 Life Insurance Endorsement Method Split Dollar Plan Agreement
between Merrill Merchants Bank and Edwin Clift.
10.7 Form of Unfunded Deferred Compensation
Agreement.
10.8 Executive Supplemental Retirement Plan.
10.9 Form of Mandatory Convertible Debenture.
10.10* Correspondent Trust Services Agreement with Northern
Trust Company.
10.11 Stock Option Plan, as amended.
10.12 Form of Stock Option Agreement.
1
<PAGE>
10.13 1998 Directors' Deferred Compensation Plan.
21. Subsidiaries of the Company.
23.1 Consent of Berry Dunn McNeil & Parker.
23.2 Consent of Hutchins, Wheeler & Dittmar (included in Exhibit 5).
24. Power of Attorney (contained in signature section of Registration
Statement).
27. Financial Data Schedule.
- ----------------------
* Confidential treatment requested
</TABLE>
2
600,000 Shares
(plus 90,000 Shares to cover over-allotments, if any)
MERRILL MERCHANTS BANCSHARES, INC.
Common Stock, $1.00 Par Value
UNDERWRITING AGREEMENT
ADVEST, INC.
As Representative (the "Representative")
of the Several Underwriters
Named in Schedule I hereto
One Rockefeller Center
20th Floor
New York, New York 10281-1013
Dear Sirs and Madames:
Merrill Merchants Bancshares, Inc., a Maine corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to sell
to the several Underwriters named in Schedule I hereto (the "Underwriters"), an
aggregate of 600,000 shares (the "Firm Shares") of the Company's Common Stock,
par value $1.00 per share (the "Common Stock").
In addition, in order to cover over-allotments in the sale of the Firm
Shares, the Underwriters may, at the Underwriters' election and subject to the
terms and conditions stated herein, purchase ratably in proportion to the
amounts set forth opposite their respective names in Schedule I hereto, up to
90,000 additional shares of Common Stock from the Company (such additional
shares of Common Stock, the "Optional Shares"). The Firm Shares and the Optional
Shares are referred to collectively as the "Shares."
[As part of the offering of [ ] Firm Shares contemplated by this
Agreement, Advest, Inc. ("Advest") has agreed to reserve out of the Firm Shares
set forth opposite its name on Schedule I hereto, up to [ ] Shares, for sale to
the Company's employees, officers and directors [and other parties associated
with the Company] (collectively, the "Participants"), as set forth in the
Prospectus in the section entitled "Underwriting" (the "Directed Share
Program"). The Shares to be sold by Advest pursuant to the Directed Share
Program (the "Directed Shares") will be sold by Advest pursuant to this
Agreement at the public offering price. Any Directed Shares not orally confirmed
for purchase by any Participants by the end of the first business day after the
date on which this Agreement is executed will be offered to the public by Advest
as set forth in the Prospectus.]
The Company, intending to be legally bound, hereby confirms its
agreement with the Underwriters as follows:
<PAGE>
1. Representations and Warranties of the Company and the Bank. Each of
the Company and Merrill Merchants Bank, a wholly-owned subsidiary of the Company
(the "Bank"), jointly and severally represents and warrants to, and agrees with,
each of the Underwriters that:
(a) A registration statement on Form SB-2 (File No. [ ]) with respect
to the Shares, including a prospectus subject to completion, has been filed by
the Company with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), and one or more amendments
to such registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has become effective under
the Act and information has been omitted therefrom in accordance with Rule 430A
under the Act, a prospectus in the form most recently included in an amendment
to such registration statement (or, if no such amendment shall have been filed,
in such registration statement) with such changes or insertions as are required
by Rule 430A or permitted by Rule 424(b) under the Act and as have been provided
to and approved by the Representative, or (ii) if such registration statement,
as it may have been amended, has not become effective under the Act, an
amendment to such registration statement, including a form of prospectus, a copy
of which amendment has been provided to and approved by the Representative prior
to the execution of this Agreement. As used in this Agreement, the term
"Registration Statement" means such registration statement, as amended at the
time when it was or is declared effective, including (A) all financial
statements, schedules and exhibits thereto, (B) all documents (or portions
thereof) incorporated by reference therein, and (C) any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each prospectus
subject to completion included in such registration statement or any amendment
or post-effective amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement at the time it was or
is declared effective), including all documents (or portions thereof)
incorporated by reference therein; and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b) under the Act
or, if no prospectus is required to be so filed, such term means the prospectus
included in the Registration Statement, in either case, including all documents
(or portions thereof) incorporated by reference therein. As used herein, any
reference to any statement or information as being "made," "included,"
"contained," "disclosed" or "set forth" in any Preliminary Prospectus, a
Prospectus or any amendment or supplement thereto, or the Registration Statement
or any amendment thereto (or other similar references) shall refer both to
information and statements actually appearing in such document as well as
information and statements incorporated by reference therein.
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued and no proceeding for that purpose has been
instituted or threatened by the Commission or the securities authority of any
state or other jurisdiction. If the Registration Statement has become effective
under the Act, no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and no proceeding for that purpose
has been instituted or threatened or, to the knowledge of the Company,
contemplated by the Commission or the securities authority of any state or other
jurisdiction.
(c) When any Preliminary Prospectus was filed with the Commission it
contained all statements required to be stated therein in accordance with, and
complied in all material respects with the requirements of, the Act and the
rules and regulations of the Commission thereunder. Each
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document, if any, filed or to be filed pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and incorporated by reference in the
Prospectus complied or will comply when so filed in all material respects with
the Exchange Act and the applicable rules and regulations of the Commission
thereunder. When the Registration Statement or any amendment thereto was or is
declared effective, and at each Time of Delivery (as hereinafter defined), it
(i) contained and will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not and will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to Rule 424(b) (or, if
the Prospectus or such amendment or supplement is not required to be so filed,
when the Registration Statement or the amendment thereto containing such
amendment or supplement to the Prospectus was or is declared effective) and at
each Time of Delivery, the Prospectus, as amended or supplemented at any such
time, (i) contained and will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not and will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (c) do not
apply to statements or omissions made in the Registration Statement or any
amendment thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through you specifically for use therein. It is
understood that the statements set forth in the Registration Statement or any
amendment thereto or the Prospectus or any amendment or supplement thereto (W)
in the last paragraph of the cover page of the Prospectus, (X) on the inside
cover page with respect to stabilization and passive market making, and (Y) in
the third, eighth and tenth paragraphs and the list of Underwriters under the
section entitled "Underwriting," constitute the only written information
furnished to the Company by or on behalf of any Underwriter through you
specifically for use in the Registration Statement or any amendment thereto or
the Prospectus and any amendment or supplement thereto, as the case may be.
(d) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries listed on Exhibit A
hereto is a party or to which any of the properties of the Company or any
subsidiary is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(e) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has full power and authority
(corporate and other) to own or lease its properties and conduct its business as
described in the Prospectus. Each of the Company and the Bank has full power and
authority (corporate and other) to enter into this Agreement and to perform its
obligations hereunder. Each of the Company and its subsidiaries is duly
qualified to transact business as a foreign corporation and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification, except where the
failure to so qualify would not have a material adverse
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effect on the financial position, results of operations or business of the
Company and its subsidiaries taken as a whole.
(f) The Company's authorized, issued and outstanding capital stock is
as disclosed in the Prospectus. All of the issued shares of capital stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable and conform to the descriptions of the Common Stock contained in
the Prospectus. None of the issued shares of capital stock of the Company or any
of its subsidiaries has been issued or is owned or held in violation of any
statutory (or to the knowledge of the Company, any other) preemptive rights of
shareholders, and no person or entity (including any holder of outstanding
shares of capital stock of the Company or its subsidiaries) has any statutory
(or to the knowledge of the Company, any other) preemptive or other rights to
subscribe for any of the Shares. None of the capital stock of the Company has
been issued in violation of applicable federal or state securities laws.
(g) All of the issued shares of capital stock of each subsidiary have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned beneficially by the Company or one of its subsidiaries, free and clear
of all liens, security interests, pledges, charges, encumbrances, defects,
shareholders' agreements, voting agreements, proxies, voting trusts, equities or
claims of any nature whatsoever. Other than the subsidiaries listed on Exhibit
21 to the Registration Statement and on Exhibit A hereto and the equity
securities held in the investment portfolios of the Company and such
subsidiaries (the composition of which is not materially different than the
disclosures in the Prospectus as of specific dates) and except as otherwise
disclosed in the Prospectus, the Company does not own, directly or indirectly,
any capital stock or other equity securities of any other corporation or any
ownership interest in any partnership, joint venture or other association.
(h) Except as disclosed in the Prospectus, there are no outstanding (i)
securities or obligations of the Company or any of its subsidiaries convertible
into or exchangeable for any capital stock of the Company or any of its
subsidiaries, (ii) warrants, rights or options to subscribe for or purchase from
the Company or any of its subsidiaries any such capital stock or any such
convertible or exchangeable securities or obligations or (iii) obligations of
the Company or any of its subsidiaries to issue any shares of capital stock, any
such convertible or exchangeable securities or obligations, or any such
warrants, rights or options.
(i) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) neither the Company nor any of
its subsidiaries has incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, that are material to the Company and its subsidiaries, (ii) the
Company has not purchased any of its outstanding capital stock or declared, paid
or otherwise made any dividend or distribution of any kind on its capital stock,
(iii) there has not been any change in the capital stock, long-term debt or
short-term debt of the Company or any of its subsidiaries, and (iv) there has
not been any material adverse change, or any development involving a prospective
material adverse change, in or affecting the financial position, results of
operations or business of the Company and its subsidiaries, in each case other
than as disclosed in or contemplated by the Prospectus.
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(j) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or requiring the Company to
include such securities in the securities registered pursuant to the
Registration Statement (or any such right has been effectively waived) or
requiring the registration of any securities pursuant to any other registration
statement filed by the Company under the Act. Neither the filing of the
Registration Statement nor the offering or sale of Shares as contemplated by
this Agreement gives any security holder of the Company any rights for or
relating to the registration of any shares of Common Stock or any other capital
stock of the Company, except such as have been satisfied or waived.
(k) Neither the Company nor any of its subsidiaries is, or with the
giving of notice or passage of time or both would be, in violation of its
Articles of Incorporation or Bylaws or in default under any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument to which
the Company or any of its subsidiaries is a party or to which any of their
respective properties or assets are subject.
(l) The Company and its subsidiaries have good and marketable title in
fee simple to all real property, if any, and good title to all personal property
owned by them, in each case free and clear of all liens, security interests,
pledges, charges, encumbrances, mortgages and defects, except such as are
disclosed in the Prospectus or such as would not have a material adverse effect
on the financial position, results of operations or business of the Company and
its subsidiaries taken as a whole and do not interfere with the use made or
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company or any of its
subsidiaries are held under valid, subsisting and enforceable leases, with such
exceptions as are disclosed in the Prospectus or are not material and do not
interfere with the use made or proposed to be made of such property and
buildings by the Company or any subsidiary.
(m) The Company does not require any consent, approval, authorization,
order or declaration of or from, or registration, qualification or filing with,
any court or governmental agency or body in connection with the sale of the
Shares or the consummation of the transactions contemplated by this Agreement,
except the registration of the Shares under the Act (which, if the Registration
Statement is not effective as of the time of execution hereof, shall be obtained
as provided in this Agreement) and of the Common Stock under the Exchange Act
and such as may be required by the National Association of Securities Dealers,
Inc. (the "NASD") or under state securities or blue sky laws in connection with
the offer, sale and distribution of the Shares by the Underwriters.
(n) Other than as disclosed in the Prospectus, there is no litigation,
arbitration, claim, proceeding (formal or informal) or investigation (including
without limitation, any bank or bank holding company regulatory proceeding)
pending or, to the Company's knowledge, threatened in which the Company or any
of its subsidiaries is a party or of which any of their respective properties or
assets are the subject which, if determined adversely to the Company or any
subsidiary, would individually or in the aggregate have a material adverse
effect on the financial position, results of operations or business of the
Company and its subsidiaries taken as a whole. Neither the Company nor any
subsidiary is in violation of, or in default with respect to, any law, statute,
rule, regulation, order, judgment or decree, except as described in the
Prospectus or such as do not and will not individually or in the aggregate have
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a material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole, and neither the
Company nor any subsidiary is required to take any action in order to avoid any
such violation or default.
(o) Berry, Dunn, McNeil & Parker, which has certified certain financial
statements of the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus, are independent public accountants as
required by the Act, the Exchange Act and the respective rules and regulations
of the Commission thereunder.
(p) The consolidated financial statements and schedules (including the
related notes) of the Company and its consolidated subsidiaries included or
incorporated by reference in the Registration Statement, the Prospectus and/or
any Preliminary Prospectus were prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved and
fairly present the financial position and results of operations of the Company
and its subsidiaries, on a consolidated basis, at the dates and for the periods
presented. The selected financial data set forth under the captions "Summary
Consolidated Financial Data," "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Prospectus fairly present, on the basis stated in the
Prospectus, the information included therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement. The supporting notes and schedules included in the
Registration Statement, the Prospectus and/or any Preliminary Prospectus fairly
state in all material respects the information required to be stated therein in
relation to the financial statements taken as a whole. The unaudited interim
consolidated financial statements included or incorporated by reference in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of Rule 10-01 of Regulation S-X under the
Act.
(q) This Agreement has been duly authorized, executed and delivered by
each of the Company and the Bank and, assuming due execution by the
Representative of the Underwriters, constitutes the valid and binding agreement
of each of the Company and the Bank, enforceable against the Company and the
Bank in accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
relating to or affecting the enforcement of creditors' rights generally and to
general equitable principles and except as the enforceability of rights to
indemnity and contribution under this Agreement may be limited under applicable
securities laws or the public policy underlying such laws.
(r) The sale of the Shares and the performance of this Agreement and
the consummation of the transactions herein contemplated will not (with or
without the giving of notice or the passage of time or both) (i) conflict with
or violate any term or provision of the articles of incorporation or bylaws or
other organizational documents of the Company or any subsidiary, (ii) result in
a breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which the Company or any subsidiary is a party
or to which any of their respective properties or assets is subject, (iii)
conflict with or violate any law, statute, rule or regulation or any order,
judgment or decree of any court or governmental agency or body having
jurisdiction over the Company or any subsidiary or any of their respective
properties or assets or (iv) result in a breach, termination or lapse of the
corporate power and authority of the
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Company or any subsidiary to own or lease and operate their respective assets
and properties and conduct their respective business as described in the
Prospectus.
(s) When the Shares to be sold by the Company hereunder have been duly
delivered against payment therefor as contemplated by this Agreement, the Shares
will be validly issued, fully paid and nonassessable, and the holders thereof
will not be subject to personal liability solely by reason of being such
holders. The certificates representing the Shares are in proper legal form
under, and conform in all respects to the requirements of, the Maine Business
Corporation Act and the requirements of the NASDAQ-National Market System.
(t) The Company has not distributed and will not distribute any
offering material in connection with the offering and sale of the Shares other
than the Registration Statement, a Preliminary Prospectus, the Prospectus and
other material, if any, permitted by the Act.
(u) Neither the Company nor any of its officers, directors or
affiliates has (i) taken, directly or indirectly, any action designed to cause
or result in, or that has constituted or might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares or (ii) since the
filing of the Registration Statement (A) sold, bid for, purchased or paid anyone
any compensation for soliciting purchases of, the Shares or (B) paid or agreed
to pay to any person any compensation for soliciting another to purchase any
other securities of the Company.
(v) The operations of the Company and its subsidiaries with respect to
any real property currently leased or owned or by any means controlled by the
Company or any subsidiary (the "Real Property") are in compliance in all
material respects with all federal, state, and local laws, ordinances, rules,
and regulations relating to occupational health and safety and the environment
(collectively, "Laws"), and the Company and its subsidiaries have not violated
any Laws in a way which would have a material adverse effect on the financial
position, results of operations or business of the Company and its subsidiaries
taken as a whole. Except as disclosed in the Prospectus, there is no pending or,
to the Company's knowledge, threatened claim, litigation or any administrative
agency proceeding, nor has the Company or any subsidiary received any written or
oral notice from any governmental entity or third party, that: (i) alleges a
violation of any Laws by the Company or any subsidiary or (ii) alleges the
Company or any subsidiary is a liable party under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et
seq. or any state superfund law.
(w) Neither the Company nor any subsidiary owns or has the right to use
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets (collectively,
"Intangibles"), the loss of any of which would have a material adverse effect on
the financial position, results of operations or business of the Company and its
subsidiaries taken as a whole; and, to the best knowledge of the Company,
neither the Company nor any subsidiary has infringed or is infringing, and
neither the Company nor any subsidiary has received notice of infringement with
respect to, asserted Intangibles of others.
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(x) Each of the Company and its subsidiaries makes and keeps accurate
books and records reflecting its assets and maintains internal accounting
controls which provide reasonable assurance that (i) transactions are executed
in accordance with management's authorization, (ii) transactions are recorded as
necessary to permit preparation of the Company's consolidated financial
statements in accordance with generally accepted accounting principles and to
maintain accountability for the assets of the Company, (iii) access to the
assets of the Company and each of its subsidiaries is permitted only in
accordance with management's authorization and (iv) the recorded accountability
for assets of the Company and each of its subsidiaries is compared with existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
(y) The Company and its subsidiaries have filed all foreign, federal,
state and local tax returns that are required to be filed by them and have paid
all taxes shown as due on such returns as well as all other taxes, assessments
and governmental charges that are due and payable; and no material deficiency
with respect to any such return has been assessed or proposed.
(z) Except for such plans that are expressly disclosed in the
Prospectus, the Company and its subsidiaries do not maintain, contribute to or
have any material liability with respect to any employee benefit plan, profit
sharing plan, employee pension benefit plan, employee welfare benefit plan,
equity- based plan or deferred compensation plan or arrangement ("Plans") that
are subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended, or the rules and regulations thereunder ("ERISA"). All Plans
are in compliance in all material respects with all applicable laws, including
but not limited to ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), and have been operated and administered in all material respects in
accordance with their terms. No Plan is a defined benefit plan or multi employer
plan. The Company does not provide retiree life and/or retiree health benefits
or coverage for any employee or any beneficiary of any employee after such
employee's termination of employment, except as required by Section 4980B of the
Code or under a Plan which is intended to be "qualified" under Section 401(a) of
the Code. No material liability has been, or could reasonably be expected to be,
incurred under Title IV of ERISA or Section 412 of the Code by any entity
required to be aggregated with the Company or any of the Subsidiaries pursuant
to Section 4001(b) of ERISA and/or Section 414(b) or (c) of the Code (and the
regulations promulgated thereunder) with respect to any "employee pension
benefit plan" which is not a Plan. As used in this subsection, the terms
"defined benefit plan," "employee benefit plan," "employee pension benefit
plan," "employee welfare benefit plan" and "multiemployer plan" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.
(aa) No material labor dispute exists with the Company's or any
subsidiary's employees, and no such labor dispute is threatened. The Company has
no knowledge of any existing or threatened labor disturbance by the employees of
any of its principal agents, suppliers, contractors or customers that would have
a material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole.
(bb) The Company and its subsidiaries have received all permits,
licenses, franchises, authorizations, registrations, qualifications and
approvals (collectively, "Permits") of governmental or regulatory authorities
(including, without limitation, all state and federal bank and bank holding
company regulatory authorities) as may be required of them to own their
properties and conduct their
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businesses in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus; and the Company and its
subsidiaries have fulfilled and performed all of their material obligations with
respect to such Permits, and no event has occurred which allows or, after notice
or lapse of time or both, would allow revocation or termination thereof or
result in any other material impairment of the rights of the holder of any such
Permit, subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, such Permits contain no
restrictions that materially affect the ability of the Company and its
subsidiaries to conduct their businesses and no bank or bank holding company
regulatory agency or body has issued any order or decree impairing, restricting
or prohibiting the payment of dividends by any of its subsidiaries to the
Company.
(cc) The Company and each of its subsidiaries has filed, or has had
filed on its behalf, on a timely basis, all materials, reports, documents and
information, including but not limited to annual reports and reports of
examination with each applicable bank and bank holding company regulatory
authority, board or agency, which are required to be filed by it, except where
the failure to have timely filed such materials, reports, documents and
information would not have a material adverse effect on the financial position,
results of operations or business of the Company and its subsidiaries taken as a
whole.
(dd) Neither the Company, nor any subsidiary is an "investment company"
or a company "controlled" by an investment company as such terms are defined in
Sections 3(a) and 2(a)(9), respectively, of the Investment Company Act of 1940,
as amended (the "Investment Company Act"), and, if the Company or any subsidiary
conducts its business as set forth in the Registration Statement and the
Prospectus, will not become an "investment company" and will not be required to
register under the Investment Company Act.
[(ee) The Company has not offered, or caused the Underwriters to offer,
Shares to any person pursuant to the Directed Share Program with the specific
intent to unlawfully influence (i) a customer or supplier of the Company to
alter the customer's or supplier's level or type of business with the Company,
or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.]
2. Purchase and Sale of Shares.
(a) Subject to the terms and conditions herein set forth, the Company
agrees to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
[ ] Dollars and [ ] cents ($[ ]) per share (the "Per Share Price"), the
number of Firm Shares (to be adjusted by you so as to eliminate fractional
shares) determined by multiplying the aggregate number of Firm Shares to be sold
by the Company as set forth in the first paragraph of this Agreement by a
fraction, the numerator of which is the aggregate number of Firm Shares to be
purchased by such Underwriter as set forth opposite the name of such Underwriter
in Schedule I hereto, and the denominator of which is the aggregate number of
Firm Shares to be purchased by the several Underwriters hereunder.
(b) The Company hereby grants to the Underwriters the right to purchase
at their election in whole or in part from time to time up to 90,000 Optional
Shares, at the Per Share Price, for the sole
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purpose of covering over-allotments in the sale of the Firm Shares. Any such
election to purchase Optional Shares may be exercised by written notice from the
Representative to the Company, given from time to time within a period of 30
calendar days after the date of this Agreement and setting forth the aggregate
number of Optional Shares to be purchased and the date on which such Optional
Shares are to be delivered, as determined by you but in no event earlier than
the First Time of Delivery (as hereinafter defined) or, unless the
Representative otherwise agrees in writing, earlier than two or later than ten
business days after the date of such notice. In the event the Underwriters elect
to purchase all or a portion of the Optional Shares, the Company agrees to
furnish or cause to be furnished to the Representative the certificates, letters
and opinions, and to satisfy all conditions, set forth in Section 7 hereof at
each Subsequent Time of Delivery (as hereinafter defined).
(c) In making this Agreement, each Underwriter is contracting
severally, and not jointly, and except as provided in Section 2(b) and 9 hereof,
the agreement of each Underwriter is to purchase only that number of shares
specified with respect to that Underwriter in Schedule I hereto. No Underwriter
shall be under any obligation to purchase any Optional Shares prior to an
exercise of the option with respect to such Shares granted pursuant to Section
2(b) hereof.(33)
3. Offering by the Underwriters. Upon the authorization by the
Representative of the release of the Shares, the several Underwriters propose to
offer the Shares for sale upon the terms and conditions disclosed in the
Prospectus.
4. Delivery of Shares; Closing. Certificates in definitive form for the
Shares to be purchased by each Underwriter hereunder, and in such denominations
and registered in such names as the Representative may request upon at least 48
hours' prior notice to the Company, shall be delivered by or on behalf of the
Company, to the Representative for the account of such Underwriter, against
payment by such Underwriter on its behalf of the purchase price therefor by wire
transfer of immediately available funds to such accounts as the Company shall
designate in writing. The closing of the sale and purchase of the Shares shall
be held at the offices of Tyler Cooper & Alcorn, LLP, CityPlace - 35th Floor,
Hartford, Connecticut 06103-3488, except that physical delivery of such
certificates shall be made at the office of The Depository Trust Company, 55
North Water Street, New York, New York 10041. The time and date of such delivery
and payment shall be, with respect to the Firm Shares, at 10:00 a.m., New York,
New York time, on the third (3rd) full business day after this Agreement is
executed or at such other time and date as the Representative and the Company
may agree upon in writing, and, with respect to the Optional Shares, at 10:00
a.m., New York, New York time, on the date specified by the Representative in
the written notice given by the Representative of the Underwriters' election to
purchase all or part of such Optional Shares, or at such other time and date as
the Representative and the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First Time of Delivery,"
such time and date for delivery of any Optional Shares, if not the First Time of
Delivery, is herein called a "Subsequent Time of Delivery," and each such time
and date for delivery is herein called a "Time of Delivery." The Company will
make such certificates available for checking and packaging at least 24 hours
prior to each Time of Delivery at the office of The Depository Trust Company, 55
North Water Street, New York, New York 10041 or at such other location specified
by you in writing at least 48 hours prior to such Time of Delivery.
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5. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective prior to the execution and delivery of this
Agreement, to become effective. If the Registration Statement has been declared
effective prior to the execution and delivery of this Agreement, the Company
will file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by you, subparagraph
(4)) of Rule 424(b) within the time period required under Rule 424(b) under the
Act. The Company will advise you promptly of any such filing pursuant to Rule
424(b). The Company will file timely all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act.
(b) The Company will not file with the Commission the prospectus or the
amendment referred to in Section 1(a) hereof, any amendment or supplement to the
Prospectus or any amendment to the Registration Statement unless you have
received a reasonable period of time to review any such proposed amendment or
supplement and consented to the filing thereof and will use its best efforts to
cause any such amendment to the Registration Statement to be declared effective
as promptly as possible. Upon the request of the Representative or counsel for
the Underwriters, the Company will promptly prepare and file with the
Commission, in accordance with the rules and regulations of the Commission, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Shares by the several Underwriters and will use its best
efforts to cause any such amendment to the Registration Statement to be declared
effective as promptly as possible. If required, the Company will file any
amendment or supplement to the Prospectus with the Commission in the manner and
within the time period required by Rule 424(b) under the Act. The Company will
advise the Representative, promptly after receiving notice thereof, of the time
when the Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus or any amendment or supplement thereto has
been filed and will provide evidence to the Representative of each such filing
or effectiveness.
(c) The Company will advise the Representative promptly after receiving
notice or obtaining knowledge of (i) when any post-effective amendment to the
Registration Statement is filed with the Commission, (ii) the receipt of any
comments from the Commission concerning the Registration Statement, (iii) when
any post-effective amendment to the Registration Statement becomes effective, or
when any supplement to the Prospectus or any amended Prospectus has been filed,
(iv) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any part thereof or any order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, (v) the suspension of the qualification
of the Shares for offer or sale in any jurisdiction or of the initiation or
threatening of any proceeding for any such purpose, (vi) any request made by the
Commission or any securities authority of any other jurisdiction for amending
the Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent the
issuance of any such stop order or suspension and, if any such stop order or
suspension is issued, to obtain the withdrawal thereof as promptly as possible.
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(d) If the delivery of a prospectus relating to the Shares is required
under the Act at any time prior to the expiration of nine months after the date
of the Prospectus and if at such time any events have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if for any reason it is necessary
during such same period to amend or supplement the Prospectus, the Company will
promptly notify the Representative and upon its request (but at the Company's
expense) prepare and file with the Commission an amendment or supplement to the
Prospectus that corrects such statement or omission or effects such compliance
and will furnish without charge to each Underwriter and to any dealer in
securities as many copies of such amended or supplemented Prospectus as the
Representative may from time to time reasonably request.
(e) The Company promptly from time to time will take such action as the
Representative may reasonably request to qualify the Shares for offering and
sale under the securities or blue sky laws of such jurisdictions as the
Representative may request and will continue such qualifications in effect for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction. The Company will file such statements and reports as may be
required by the laws of each jurisdiction in which the Shares have been
qualified as above provided.
(f) The Company will promptly provide the Representative, without
charge, (i) two manually executed copies of the Registration Statement as
originally filed with the Commission and of each amendment thereto, including
all exhibits and all documents or information incorporated by reference therein,
(ii) for each other Underwriter, a conformed copy of the Registration Statement
as originally filed and of each amendment thereto, without exhibits but
including all documents or information incorporated by reference therein and
(iii) so long as a prospectus relating to the Shares is required to be delivered
under the Act, as many copies of each Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto as the Representative may reasonably
request. The terms "amendment" and "supplement" as used in this Agreement, shall
include all documents subsequently filed by the Company with the Commission
pursuant to the Exchange Act that are deemed to be incorporated by reference in
the Prospectus.
(g) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its security
holders an earnings statement of the Company and its subsidiaries, if any,
covering a period of at least 12 months beginning after the effective date of
the Registration Statement (which need not be audited) complying with Section
11(a) of the Act and the rules and regulations thereunder. "Availability Date"
means the forty-fifth (45th) day after the end of the fourth fiscal quarter
following the fiscal quarter in which the Registration Statement went effective,
except that if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the ninetieth (90th) day after the end of
such fourth fiscal quarter.
(h) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, the Company
will not, and will cause its officers and directors not to, without the prior
written consent of Advest, Inc., as representative of the Underwriters,
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directly or indirectly (i) offer, sell, contract to sell or otherwise dispose
of, any shares of Common Stock or securities convertible into or exercisable or
exchangeable for shares of Common Stock or (ii) enter into any swap or other
agreement or any transaction that transfers, in whole or in part, the economic
consequences of ownership of shares of Common Stock whether any such swap or
other agreement is to be settled by delivery of shares of Common Stock, other
securities, cash or otherwise; except for the sale of the Shares hereunder and
except for the issuance of Common Stock upon the exercise of stock options or
warrants or the conversion of convertible securities outstanding on the date of
this Agreement to the extent that such stock options, warrants and convertible
securities are disclosed in the Prospectus or except for the grant to employees
of stock options to purchase Common Stock which are not exercisable within such
180 days.
(i) During the period of three years after the effective date of the
Registration Statement, the Company will furnish to the Representative and, upon
request, to each of the other Underwriters, without charge, (i) copies of all
reports or other communications (financial or other) furnished to shareholders
and (ii) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission, the NASD or any national
securities exchange.
(j) Prior to the termination of the underwriting syndicate contemplated
by this Agreement, neither the Company nor any of its officers, directors or
affiliates will (i) take, directly or indirectly, any action designed to cause
or to result in, or that might reasonably be expected to cause or result in, the
stabilization or manipulation of the price of any security of the Company or
(ii) sell, bid for, purchase or pay anyone any compensation for soliciting
purchases of, the Shares.
(k) In case of any event, at any time within the period during which a
prospectus is required to be delivered under the Act, as a result of which any
Preliminary Prospectus or the Prospectus, as then amended or supplemented, would
contain an untrue statement of a material fact, or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, if it is necessary
at any time to amend any Preliminary Prospectus or the Prospectus to comply with
the Act or any applicable securities or blue sky laws, the Company promptly will
prepare and file with the Commission, and any applicable state securities
commission, an amendment, supplement or document that will correct such
statement or omission or effect such compliance and will furnish to the several
Underwriters such number of copies of such amendment(s), supplement(s) or
document(s) as the Representative may reasonably request. For purposes of this
subsection (k), the Company will provide such information to the Representative,
the Underwriters' counsel and counsel to the Company as shall be necessary to
enable such persons to consult with the Company with respect to the need to
amend or supplement the Registration Statement, any Preliminary Prospectus or
the Prospectus or file any document, and shall furnish to the Representative and
the Underwriters' counsel such further information as each may from time to time
reasonably request.
(l) The Company will use its best efforts to obtain, and thereafter
maintain, the qualification or listing of the shares of Common Stock (including,
without limitation, the Shares) on NASDAQ-National Market System.
[(m) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted, to the extent required by
the NASD or the NASD rules and
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regulations, including but not limited to, the "Free-Riding and Withholding"
Interpretation, from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. Advest will notify the Company as to which Participants
will need to be so restricted. At the request of Advest, the Company will direct
the transfer agent to place stop transfer restrictions upon such securities for
such period of time.]
[(n) The Company will pay (i) all fees and disbursements incurred by
counsel for the Underwriters and (ii) all stamp duties, similar taxes or duties
or other taxes, if any, incurred by the Underwriters in connection with the
Directed Share Program.]
6. Expenses. The Company will pay all costs and expenses incident to
the performance of the obligations of the Company under this Agreement, whether
or not the transactions contemplated hereby are consummated or this Agreement is
terminated pursuant to Section 10 hereof, including, without limitation, all
costs and expenses incident to (i) the printing of and mailing expenses
associated with the Registration Statement, the Preliminary Prospectus and the
Prospectus and any amendments or supplements thereto, this Agreement, the
Agreement among Underwriters, the Underwriters' Questionnaire submitted to each
of the Underwriters by the Representative(s) in connection herewith, the power
of attorney executed by each of the Underwriters in favor of Advest, Inc. in
connection herewith, the Dealer Agreement and related documents (collectively,
the "Underwriting Documents") and the preliminary Blue Sky memorandum relating
to the offering prepared by Tyler Cooper & Alcorn, LLP, counsel to the
Underwriters (collectively with any supplement thereto, the "Preliminary Blue
Sky Memorandum"); (ii) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Act and all other expenses in connection with the preparation and, if
applicable, filing of the Registration Statement (including all amendments
thereto), any Preliminary Prospectus, the Prospectus and any amendments and
supplements thereto, the Underwriting Documents and the Preliminary Blue Sky
Memorandum; (iii) the delivery of copies of the foregoing documents to the
Underwriters; (iv) the filing fees of the Commission and the NASD relating to
the Shares; (v) the preparation, issuance and delivery to the Underwriters of
any certificates evidencing the Shares, including transfer agent's and
registrar's fees; (vi) the qualification of the Shares for offering and sale
under state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Underwriters (and local counsel therefor)
relating thereto; (vii) any listing of the Shares on the NASDAQ-National Market
System; (viii) any expenses for travel, lodging and meals incurred by the
Company and any of its officers, directors and employees in connection with any
meetings with prospective investors in the Shares; (ix) the costs of advertising
the offering, including, without limitation, with respect to the placement of
"tombstone" advertisements in publications selected by the Representative; (x)
all other costs and expenses reasonably incident to the performance of the
Company's obligations hereunder that are not otherwise specifically provided for
in this Section 6; [and (xi) any fees and disbursements incurred by counsel for
the Underwriters and all stamp duties, similar tax or duties or other taxes, if
any, incurred by the Underwriters in connection with the Directed Share
Program.]
7. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy of
the representations and warranties of each of the Company and the Bank contained
herein as of the date hereof and as of such Time of Delivery, to the accuracy of
the
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<PAGE>
statements of the Company's officers made pursuant to the provisions hereof, to
the performance by the Company of its covenants and agreements hereunder, and to
the following additional conditions precedent:
(a) If the registration statement as amended to date has not become
effective prior to the execution of this Agreement, such registration statement
shall have been declared effective not later than 11:00 a.m., Hartford,
Connecticut time, on the date of this Agreement or such later date and/or time
as shall have been consented to by you in writing. If required, the Prospectus
and any amendment or supplement thereto shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period prescribed
for such filing and in accordance with Section 5(a) of this Agreement; no stop
order suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceedings for that purpose shall have
been instituted, threatened or, to the knowledge of the Company and the
Representative, contemplated by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with to your
reasonable satisfaction.
(b) The Representative shall have received a copy of an executed
lock-up agreement from the Company and each of the Company's officers and
directors and certain shareholders of Common Stock.
(c) You shall have received an opinion, dated such Time of Delivery, of
Hutchins, Wheeler & Dittmar, counsel for the Company, in form and substance
satisfactory to you and your counsel, to the effect that:
(1) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
the State of Maine and has the corporate power and authority
to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus and
to enter into this Agreement and perform its obligations
hereunder. The Company is duly qualified to transact business
as a foreign corporation and is in good standing under the
laws of each other jurisdiction in which it owns or leases
property, or conducts any business, so as to require such
qualification, except where the failure to so qualify would
not have a material adverse effect on the financial position,
results of operations or business of the Company and its
subsidiaries taken as a whole.
(2) Each of the Company's subsidiaries is validly existing as
a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and
authority to own or lease its properties and conduct its
business as described in the Registration Statement and the
Prospectus. Each subsidiary is duly qualified to transact
business as a foreign corporation and is in good standing
under the laws of each other jurisdiction in which it owns or
leases property, or conducts any business, so as to require
such qualification, except where the failure to so qualify
would not have a material adverse effect on the financial
position, results of operations or business of the Company and
its subsidiaries taken as a whole.
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(3) The Company's authorized, issued and outstanding capital
stock is as disclosed in the Prospectus. All of the issued
shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable and conform to the description of the Common
Stock contained in the Prospectus. None of the issued shares
of Common Stock of the Company or capital stock of any of its
subsidiaries has been issued or is owned or held in violation
of any statutory (or, to the knowledge of such counsel, any
other) preemptive rights of shareholders, and no person or
entity (including any holder of outstanding shares of Common
Stock of the Company or capital stock of its subsidiaries) has
any statutory (or, to the knowledge of such counsel, any
other) preemptive or other rights to subscribe for any of the
Shares.
(4) All of the issued shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable, and, to such
counsel's knowledge, are owned beneficially by the Company or
its subsidiaries, free and clear of all liens, security
interests, pledges, charges, encumbrances, shareholders'
agreements, voting agreements, proxies, voting trusts,
defects, equities or claims of any nature whatsoever
(collectively, "Encumbrances"), including, without limitation,
any Encumbrance arising or resulting from any indenture,
mortgage, deed of trust, loan agreement, lease or other
agreement of or entered into by the Company or its
subsidiaries. To such counsel's knowledge, other than the
subsidiaries listed on Exhibit 21 to the Registration
Statement and on Exhibit A hereto and the equity securities
held in the investment portfolios of the Company and such
subsidiaries and except as otherwise disclosed in the
Prospectus, the Company does not own, directly or indirectly,
any capital stock or other equity securities of any other
corporation or any ownership interest in any partnership,
joint venture or other association.
(5) Except as disclosed in the Prospectus, there are, to such
counsel's knowledge, no outstanding (A) securities or
obligations of the Company or any of its subsidiaries
convertible into or exchangeable for any capital stock of the
Company or any subsidiary, (B) warrants, rights or options to
subscribe for or purchase from the Company or any of its
subsidiaries any such capital stock or any such convertible or
exchangeable securities or obligations or (C) obligations of
the Company or any of its subsidiaries to issue any shares of
capital stock, any such convertible or exchangeable securities
or obligations, or any such warrants, rights or options.
(6) When the Shares to be sold by the Company have been duly
delivered against payment therefor as contemplated by this
Agreement, the Shares will be duly authorized, validly issued
and fully paid and nonassessable, the holders thereof will not
be subject to personal liability solely by reason of being
such holders and the Shares will conform to the description of
the Common Stock contained in the Prospectus; the certificates
evidencing the Shares will comply with all applicable
requirements of Maine law.
(7) There are no contracts, agreements or understandings known
to such counsel between the Company and any person granting
such person the right to require the Company to file a
registration statement under the Act with respect to any
securities of
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the Company owned or to be owned by such person or, requiring
the Company to include such securities in the securities
registered pursuant to the Registration Statement (or any such
right has been effectively waived) or requiring the
registration of any securities pursuant to any other
registration statement filed by the Company under the Act.
(8) To such counsel's knowledge, neither the Company nor any
of its subsidiaries is, or with the giving of notice or
passage of time or both, would be, in violation of its
articles of incorporation or bylaws, in each case as amended
to date, or, in default in any material respect under any
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or to which
any of their respective properties or assets is subject.
(9) The sale of the Shares being sold at such Time of Delivery
and the performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or
violate any provision of the articles of incorporation or
bylaws of the Company or any of its subsidiaries, in each case
as amended to date, or to such counsel's knowledge, any
existing law, statute, rule or regulation, or in any material
respect, conflict with, or (with or without the giving of
notice or the passage of time or both) result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to
such counsel to which the Company or any of its subsidiaries
is a party or to which any of their respective properties or
assets is subject, or, conflict with or violate any order,
judgment or decree known to such counsel, of any court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective
properties or assets.
(10) To such counsel's knowledge, no consent, approval,
authorization, order or declaration of or from, or
registration, qualification or filing with, any court or
governmental agency or body is required for the sale of the
Shares or the consummation of the transactions contemplated by
this Agreement, except such as have been or will have been
obtained and are or will be in effect, and except the
registration of the Shares under the Act, of Common Stock
under the Exchange Act and such as may be required by the NASD
or under state securities or blue sky laws in connection with
the offer, sale and distribution of the Shares by the
Underwriters.
(11) To such counsel's knowledge and other than as disclosed
in or contemplated by the Prospectus, there is no litigation,
arbitration, claim, proceeding (formal or informal) or
investigation pending or threatened, in which the Company or
any of its subsidiaries is a party or of which any of their
respective properties or assets is the subject which, if
determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a
material adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries
taken as a whole; and, to such counsel's knowledge, neither
the Company nor any of its subsidiaries is in violation of,
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or in default with respect to, any law, statute, rule,
regulation, order, judgment or decree, except as described in
the Prospectus or such as do not and will not individually or
in the aggregate have a material adverse effect on the
financial position, results of operations or business of the
Company and its subsidiaries taken as a whole, nor is the
Company or any of its subsidiaries required to take any action
in order to avoid any such violation or default.
(12) The statements in the Prospectus under "Business -- Legal
Proceedings," "Description of Securities", "Supervision and
Regulation" and "Shares Eligible for Future Sale" have been
reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules
or regulations, or legal conclusions, are correct in all
material respects.
(13) This Agreement has been duly authorized, executed and
delivered by each of the Company and the Bank and, assuming
due execution by the Representative of the Underwriters,
constitutes the valid and binding agreement of each of the
Company and the Bank, enforceable against each of the Company
and the Bank in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to
or affecting the enforcement of creditors' rights generally
and to general equitable principles and except as the
enforceability of rights to indemnity and contribution under
this Agreement may be limited under applicable securities laws
or the public policy underlying such laws.
(14) Neither the Company nor any of its subsidiaries is an
"investment company" or a company "controlled" by an
investment company as such terms are defined in Sections 3(a)
and 2(a)(9), respectively, of the Investment Company Act.
(15) To such counsel's knowledge, the Company and its
subsidiaries have received all permits, licenses, franchises,
authorizations, registrations, qualifications and approvals
(collectively, "permits") of governmental or regulatory
authorities (including, without limitation, state and federal
bank and bank holding company regulatory authorities) as may
be required of them to own their properties and to conduct
their businesses in the manner described in the Prospectus,
subject to such qualification as may be set forth in the
Prospectus; to such counsel's knowledge, the Company and its
subsidiaries have fulfilled and performed all of their
material obligations with respect to such permits and no event
has occurred which allows, or after notice or lapse of time or
both would allow, revocation or termination thereof or result
in any other material impairment of the rights of the holder
of any such permits, subject in each case to such
qualifications as may be set forth in the Prospectus; and
other than as described in the Prospectus, such permits
contain no restrictions that materially affect the ability of
the Company and its subsidiaries to conduct their businesses.
(16) The Registration Statement and the Prospectus and each
amendment or supplement thereto (other than the financial
statements, the notes and schedules thereto and other
financial data included therein, to which such counsel need
express no
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opinion), as of their respective effective or issue dates,
complied as to form in all material respects with the
requirements of the Act and the respective rules and
regulations thereunder. The descriptions in the Registration
Statement and the Prospectus of contracts and other documents
are accurate and fairly present the information required to be
shown; and such counsel do not know of any contracts or
documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not described
and filed as required.
Such counsel shall also state that they have participated in the
preparation of the Registration Statement and the Prospectus and in conferences
with officers and other representatives of the Company, representatives of the
independent public accountants for the Company, and representatives of and
counsel to the Underwriters at which the contents of the Registration Statement,
the Prospectus and related matters were discussed and, although such counsel has
not passed upon or assumed any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus, and although such counsel has not undertaken to verify independently
the accuracy or completeness of the statements in the Registration Statement or
the Prospectus, nothing has come to such counsel's attention to lead them to
believe that the Registration Statement, or any further amendment thereto made
prior to such Time of Delivery, on its effective date and as of such Time of
Delivery, contained or contains any untrue statement of a material fact or
omitted or omits to state any material fact required to be stated therein or
necessary to make the statements therein, not misleading, or that the
Prospectus, or any amendment or supplement thereto made prior to such Time of
Delivery, as of its issue date and as of such Time of Delivery, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading (provided that such
counsel need express no belief regarding the financial statements, the notes and
schedules thereto and other financial data contained in the Registration
Statement, any amendment thereto, or the Prospectus, or any amendment or
supplement thereto).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of officers of
the Company, public officials and letters from officials of the NASD and such
counsel may rely as to matters governed by the laws of Maine on the opinion of
Rudman & Winchell, LLC, counsel to the Company. Copies of such certificates of
officers of the Company and other opinions shall be addressed and furnished to
the Underwriters and furnished to counsel for the Underwriters.
(d) Tyler Cooper & Alcorn, LLP, counsel for the Underwriters, shall
have furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the incorporation of the Company, the validity of the Shares
being delivered at such Time of Delivery, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request, and the
Company shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters. Such opinion or opinions
may be rendered in reliance upon the opinion of Rudman & Winchell, LLC as to
matters governed by Maine law.
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(e) The Representative shall have received, on each of the date hereof
and the Closing Date, as the case may be, in form and substance satisfactory to
the Representative, from Berry, Dunn, McNeil & Parker, independent public
accountants, a letter or letters, as the case may be, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and Prospectus; provided
that the letter or letters, as the case may be, delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(f) Since the date of the latest audited financial statements included
in the Prospectus, neither the Company nor any of the Subsidiaries shall have
sustained any change, or any development involving a prospective change
(including, without limitation, a change in management or control of the
Company), in or affecting the position (financial or otherwise), results of
operations, net worth or business prospects of the Company and its subsidiaries,
otherwise than as disclosed in or contemplated by the Prospectus, the effect of
which, in either such case, in your sole judgment makes it impracticable or
inadvisable to proceed with the purchase, sale and delivery of the Shares being
delivered at such Time of Delivery as contemplated by the Registration
Statement, as amended as of the date hereof.
(g) Subsequent to the date hereof, there shall not have occurred any of
the following: (i) any suspension or limitation in trading in securities
generally on the New York Stock Exchange, and/or the American Stock Exchange or
any setting of minimum prices for trading on such exchange, or in the Common
Stock of the Company by the Commission or; (ii) a moratorium on commercial
banking activities in New York, Maine or Connecticut declared by either federal
or state authorities; or (iii) any outbreak or escalation of hostilities
involving the United States, declaration by the United States of a national
emergency or war or any other national or international calamity or emergency if
the effect of any such event specified in this clause (iii) in your sole
judgment makes it impracticable or inadvisable to proceed with the purchase,
sale and delivery of the Shares being delivered at such Time of Delivery as
contemplated by the Registration Statement, as amended as of the date hereof.
(h) The Company shall have furnished to you at such Time of Delivery
certificates of the chief executive and chief financial officers of the Company
satisfactory to you, as to the accuracy of the respective representations and
warranties of the Company herein at and as of such Time of Delivery with the
same effect as if made at such Time of Delivery, as to the performance by the
Company of all of its respective obligations hereunder to be performed at or
prior to such Time of Delivery, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to be
furnished certificates of such officers as to such matters as you may reasonably
request.
(i) The representations and warranties of each of the Company and the
Bank in this Agreement and in the certificates delivered by the Company pursuant
to this Agreement shall be true and correct in all material respects when made
and on and as of each Time of Delivery as if made at such time, and each of the
Company and the Bank shall have performed all covenants and agreements and
satisfied all conditions contained in this Agreement required to be performed or
satisfied by each of the Company and the Bank at or before such Time of
Delivery.
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8. Indemnification and Contribution.
(a) Each of the Company and the Bank agrees to indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement made by the Company or the Bank in Section 1 of this
Agreement; (ii) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or (B) any application or other document, or amendment or supplement thereto,
executed by the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the Shares
under the securities or blue sky laws thereof or filed with the Commission or
any securities association or securities exchange (each an "Application"); or
(iii) the omission of or alleged omission to state in the Registration Statement
or any amendment thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or any Application of a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that neither the Company nor the
Bank shall be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Application in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through you expressly for use therein (which information is solely
as set forth in Section 1(c) hereof). Neither the Company nor the Bank will,
without the prior written consent of the Representative, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding (or related cause of action or portion thereof) in respect of
which indemnification may be sought hereunder (whether or not any Underwriter is
a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of each Underwriter from
all liability arising out of such claim, action, suit or proceeding (or related
cause of action or portion thereof).
[(b) The Company agrees to indemnify and hold harmless Advest and each
person, if any, who controls Advest within the meaning of either Section 15 of
the Act or Section 20 of the Exchange Act ("Advest Entities"), against any and
all losses, claims, damages or liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim): (i) that arises out of or is based upon
any untrue statement or alleged untrue statement of any material fact contained
in the prospectus wrapper material prepared by or with the consent of the
Company for distribution in foreign jurisdictions in connection with the
Directed Share Program attached to the Prospectus or Preliminary Prospectus or
any amendment or supplement thereto or caused by any omission of or alleged
omission to state in the Prospectus or Preliminary Prospectus or any amendment
or supplement thereto, a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by the
failure of any Participant to pay for and accept delivery of the Shares which,
immediately following the effectiveness of the Registration Statement, were
subject to a properly confirmed agreement to purchase; or (iii) related to,
arising out of, or in connection with the Directed Share Program, provided that
the Company shall not be
21
<PAGE>
responsible under this subsection 8(b) for any losses, claims, damages or
liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of Advest
Entities.]
(c) Each Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company and the Bank against any losses, claims, damages
or liabilities to which the Company and/or the Bank may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, or any Application or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company and/or the Bank by such Underwriter through you expressly for use
therein (which information is solely as set forth in Section 1(c) hereof); and
will reimburse the Company and the Bank for any legal or other expenses
reasonably incurred by the Company and/or the Bank in connection with
investigating or defending any such loss, claim, damage, liability or action.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
which it may have to any indemnified party otherwise than under such subsection
(a), (b) or (c). In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party); provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action on behalf of such indemnified party and such
indemnified party shall have the right to select separate counsel to defend such
action on behalf of such indemnified party. After such notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof. Nothing in this
Section 8(c) shall preclude an indemnified party from participating at its own
expense in the defense of any such action so assumed by the indemnifying party.
[Notwithstanding anything contained herein to the contrary, if indemnity may be
sought pursuant to section 8(b) hereof in respect of such action or proceeding,
then in addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses of
counsel for Advest for the defense of any losses,
22
<PAGE>
claims, damages and liabilities arising out of the Directed Share Program, and
all persons, if any, who control Advest within the meaning of either Section 15
of the Act or Section 20 of the Exchange Act.]
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (d) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (e) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and employee of
the Underwriters and to each person, if any, who controls any Underwriter within
the meaning of the Act or the Exchange Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise
23
<PAGE>
have and shall extend, upon the same terms and conditions, to each officer,
trustee and director of the Company and to each person, if any, who controls the
Company within the meaning of the Act or the Exchange Act.
9. Default of Underwriters.
(a) If any Underwriter defaults in its obligation to purchase Shares at
a Time of Delivery, you may in your discretion arrange for you or another party
or other parties to purchase such Shares on the terms contained herein within
thirty-six (36) hours after such default by any Underwriter. In the event that,
within the respective prescribed period, you notify the Company that you have so
arranged for the purchase of such Shares, you shall have the right to postpone a
Time of Delivery for a period of not more than seven (7) days in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus that in your opinion may thereby be made necessary. The cost of
preparing, printing and filing any such amendments shall be paid for by the
Underwriters. The term "Underwriter" as used in this Agreement shall include any
person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you as provided in
subsection (a) above, if any, the aggregate number of such Shares which remains
unpurchased does not exceed one-eleventh (1/11) of the aggregate number of
Shares to be purchased at such Time of Delivery, then the Company shall have the
right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made.
10. Termination.
(a) This Agreement may be terminated in the sole discretion of the
Representative by notice to the Company given prior to the First Time of
Delivery or any Subsequent Time of Delivery, respectively, in the event that (i)
any condition to the obligations of the Underwriters set forth in Section 7
hereof has not been satisfied, or (ii) the Company shall have failed, refused or
been unable to deliver the Shares or the Company shall have failed, refused or
been unable to perform all obligations and satisfy all conditions on its part to
be performed or satisfied hereunder at or prior to such Time of Delivery, in
either case other than by reason of a default by any of the Underwriters. If
this Agreement is terminated pursuant to this Section 10(a), the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including counsel fees and disbursements) that shall have been incurred by them
in connection with the proposed purchase and sale of the Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you as provided in Section
9(a), the aggregate number of such Shares
24
<PAGE>
which remains unpurchased exceeds one-eleventh (1/11) of the aggregate number of
Shares to be purchased at such Time of Delivery, then this Agreement (or, with
respect to a Subsequent Time of Delivery, the obligations of the Underwriters to
purchase and of the Company to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter or
the Company, except for the expenses to be borne by the Company, and the
Underwriters as provided in Section 6 hereof and the indemnity and contribution
agreements in Section 8 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
11. Survival. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, the Bank and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person
referred to in Section 8(f) or the Company, or any officer, trustee or director
or controlling person of the Company referred to in Section 8(f), and shall
survive delivery of and payment for the Shares. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6 and 8 hereof
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
12. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed, delivered or telegraphed and
confirmed in writing to you in care of Advest, Inc., One Rockefeller Center,
20th Floor, New York, New York 10281-1013, Attention: Thomas G. Rudkin (with a
copy to Tyler Cooper & Alcorn, LLP, CityPlace I - 35th Floor, Hartford,
Connecticut 06103-3488, Attention: William W. Bouton, III, Esq.; if to the
Company, shall be sufficient in all respects if mailed, delivered or telegraphed
and confirmed in writing to Merrill Merchants Bancshares, Inc., 201 Main Street,
Bangor, Maine 04401, Attention: Edwin N. Clift (with a copy to Hutchins, Wheeler
& Dittmar, 101 Federal Street, Boston, Massachusetts 02110, Attention: Harry A.
Hanson, III, Esq.).
13. Binding Effect. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and the Bank and to the
extent provided in Sections 8 and 10 hereof, the officers, trustees, directors
and employees and controlling persons referred to therein and their respective
heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Shares from any Underwriter shall be deemed a successor
or assign by reason merely of such purchase.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to any
provisions regarding conflicts of laws.
15. Counterparts. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
25
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and upon
the acceptance hereof by Advest, Inc., on behalf of each of the Underwriters,
this letter will constitute a binding agreement among the Underwriters, the
Company and the Bank. It is understood that your acceptance of this letter on
behalf of each of the Underwriters is pursuant to the authority set forth in the
Agreement among Underwriters, a copy of which shall be submitted to the Company
and the Bank for examination, upon request, but without warranty on your part as
to the authority of the signers thereof.
Very truly yours,
MERRILL MERCHANTS BANCSHARES, INC.
By: ______________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above at
New York, New York.
ADVEST, INC.
By: _____________________________________
Name:
Title:
On behalf of each of the Undewriters.
26
<PAGE>
SCHEDULE I
Underwriter Total Number of Firm Shares Number of Optional
- ----------- to be Purchased Shares to be Purchased if
--------------------------- Maximum Option
Exercised
-------------------------
Advest, Inc.
27
<PAGE>
EXHIBIT A
SUBSIDIARIES
------------
1. Merrill Merchants Bank
28
EXHIBIT 3.1
[top left corner of page]
Filing Fee $85.00 BASED ON
MINIMUM AMOUNT OF STOCK
- ---------------------------
For Use By The Secretary
of State
File No. 199214499D
Fee Paid $30 - $75
C.B. ....................
Date: March 5, 1992
3
- ---------------------------
[top right corner of page]
- ---------------------------------------
For Use By The Secretary of State
FILED
March 3, 1992
__/s/ Gary Cooper______
Deputy Secretary of State
A True Copy When Attested By
Signature
/s/ Pamela A. French
Deputy Secretary of State
- ----------------------------------------
[center of page]
STATE OF MAINE
ARTICLES OF INCORPORATION
(CHECK ONLY IF APPLICABLE)
[ ] This is a professional service corporation
formed pursuant to 13 MRSA C. 22.
Pursuant to 13-A MRSA ss.403, the undersigned, acting as incorporators(s)
of a corporation, adopt(s) the following Articles of Incorporation:
FIRST: The name of the corporation is Merrill Merchants Bancshares, Inc.
----------------------------------
and it is located in Maine, at Bangor, Maine
----------------------------------
SECOND: The name of its Clerk, who must be a Maine resident, and the
address of its registered office shall be:
Name Norman Minsky
----------------------------------------------------
Street & Number P.O. Box 917, 23 Water Street
-----------------------------------------------
City Bangor , Maine 04402-0917
---------------------------- ----------
(zip code)
THIRD: ("x" one box only)
|X| a. The number of directors constituting the initial board of directors of
the corporation is Four
------------------------------------------------
(See ss.703, 1.A.)
b. If the initial directors have been selected, the names and addresses of
the persons who are to serve as directors until the first annual meeting of the
shareholders or until their successors are elected and shall qualify are:
<TABLE>
<CAPTION>
NAME ADDRESS
<S> <C>
See Schedule A attached
----------------------------------------------- ------------------------------------------------
------------------------------------------------
----------------------------------------------- ------------------------------------------------
------------------------------------------------
----------------------------------------------- ------------------------------------------------
</TABLE>
[ ] There shall be no directors initially; the shares of the corporation will
not be sold to more than twenty (20) persons; the business of the
corporation will be managed by the shareholders. (See ss. 703,1.B.)
FOURTH: ("X" one box only)
The board of directors is |X| is not [ ] authorized to increase or
decrease the number of directors.
If the board is so authorized, the minimum number, if any, shall be
3 directors.
(See ss.703,1.A.) and the maximum number, if any, shall be 25
directors.
<PAGE>
FIFTH: ("X" one box only)
[ ] There shall be only one class of shares, viz, common
-------------
(title of class)
Par value of each share (if none, so state) ten cents (10(cent))
--------------------
Number of shares authorized 1,000,000
----------
[ ] There shall be two or more classes of shares.
The information required by ss.403 concerning each such class is
set out in Exhibit _____ attached hereto and made a part hereof.
SUMMARY
The aggregate par value of all authorized shares (of all
classes) having a par value is $100,000.00.
------------------ -----------
The total number of authorized shares (of all classes)
without par value is n/a shares.
----------------- ---
SIXTH: ("X" one box only)
Meetings of the shareholders may |X| may not | | be held outside
the State of Maine.
SEVENTH: ("X" if applicable) There are no preemptive rights. |X|
EIGHTH: Other provisions of these articles, if any, including provisions
for the regulation of the internal affairs of the corporation,
are set out in Exhibit _____ attached hereto and made a part
hereof.
- --------------------------------------------------------------------------------
DATED: February 28, 1992
-----------------
INCORPORATORS RESIDENCE ADDRESS
- ------------------------------ Street 272 Kenduskeag Avenue
------------------------------
/s/ Norman Minsky Bangor, ME 04401
- ------------------------------ -------------------------------------
(type or print name) (city, state and zip code)
- ------------------------------ Street ______________________________
(signature)
- ------------------------------ -------------------------------------
(type or print name) (city, state and zip code)
For Corporate Incorporators
- ------------------------------- Street ______________________________
By ____________________________ -------------------------------------
(signature) (city, state and zip code)
- --------------------------------
(type or print name and capacity)
- ----------------------------
Articles are to be executed as follows:
If a corporation is an incorporator (ss.402), the name of the corporation should
be typed and signed on its behalf by an officer of the corporation. The address
of the principal place of business of the incorporator corporation should be
given. The articles of incorporation must be accompanied by a certificate of an
appropriate officer of the corporation certifying that the person executing the
articles on behalf of the corporation was duly authorized to do so.
<PAGE>
FORM NO. MBCA-6 Rev. 88
SUBMIT COMPLETED FORMS TO: Secretary of State, Station 101, Augusta, ME 04333
<PAGE>
SCHEDULE A
William C. Bullock, Jr.
R.R. #2, Box 121
Orrington, ME 04484
Edwin N. Clift
R.R. #3, Box 800
East Holden, ME 04429
Harold S. Wright
2075 Isle Royale Ct. #160
Winter Haven, FL 33880
Perry B. Hansen
5620 Crow Creek Road
Bettendorf, IA 52722
<PAGE>
[top left corner of page]
Filing Fee (See Sec. 1401)
MINIMUM AMOUNT OF STOCK
- ---------------------------
For Use By The Secretary of
State
File No. 199214499D
Fee Paid $30-$35
C.B. ....................
Date: ...................
2
- ---------------------------
[top right corner of page]
- ---------------------------------------
For Use By The Secretary of State
FILED
October 1, 1992
__/s/ Gary Cooper______
Deputy Secretary of State
A True Copy When Attested By
Signature
/s/ Pamela A. French
Deputy Secretary of State
- ----------------------------------------
[center of page]
STATE OF MAINE
ARTICLES OF AMENDMENT
Amendment by Shareholders
Voting as One Class)
803
Pursuant to 13-A MRSA ss.ss.805 and 807, the under-
signed corporation adopts these Articles of
Amendment:
FIRST:
SECOND: The amendment set out in Exhibit A attached was adopted by the
sole incorporator (Circle one)
A. at a meeting legally called and held on, OR _________________,
19_____.
---
B. by unanimous written consent on September 22, 1992.
--- -------------------
THIRD: No shares outstanding -- unanimous consent of incorporator prior
to organizational meeting of Directors named in Articles of
Incorporation. All subscribers consent to amendment.
FOURTH: The information required by 13-A M.R.S.A. Section 403 is set forth
in Exhibit A.
FIFTH: If the amount changes the number or par values of authorized
shares, the number of shares the corporation has authority to
issue thereafter, is as follows:
<TABLE>
<CAPTION>
Class Series (If Any) Number of Shares Par Value (If Any)
--------------------- ---------------- ------------------
<S> <C> <C>
common 1,000,000 $1.00
preferred A 50,000 $1.00
</TABLE>
The aggregate par value of all such shares (of all classes and
series) having par value is $1,050,000.
The total number of all such shares (of all classes and series)
without par value is 0 shares.
SIXTH: Address of the registered office in Maine: P.O. Box 917, 23 Water
St., Bangor, Maine, 04402-0917
(street, city and zip code)
<TABLE>
<S> <C>
- ----------------------------------------------------- Merrill Merchants Bancshares, Inc.
MUST BE COMPLETED FOR VOTE ----------------------------------
OF SHAREHOLDERS By* /s/ Norman Minsky
------------------
- ----------------------------------------- Norman Minsky
I certify that I have custody of the minutes show- (type or print name and capacity)
ing the above action by the incorporator.
/s/ Norman Minsky By* __________________________
(signature of clerk) (signature)
- -----------------------------------------------------
Dated: September 23, 1992
----------------------------
(type or print name and capacity)
</TABLE>
*In addition to any certification of custody of minutes this document MUST be
signed by (1) the Clerk OR (2) the President or a vice-president AND the
Secretary, an assistant secretary or other officer the bylaws designate as
second certifying officer OR (3) if no such officers, a majority of the
directors or such directors designated by a majority of directors then in office
OR (4) if no directors, the holders, or such of them designated by the holders,
of record of a majority of all outstanding shares entitled to vote thereon OR
(5) the holders of all outstanding shares.
NOTE: This form should not be used if any class of shares is entitled to vote as
a separate class for any of the reasons set out in ss.806, or because the
articles so provide. For vote necessary for adoption see ss.805.
FORM NO. MBCA-9 Rev. 88 SUBMIT COMPLETED FORMS TO: Secretary of State, Station
101, Augusta, Maine, 04333
<PAGE>
EXHIBIT A
The Board of Directors of the Corporation shall have the authority to
establish and designate series within the preferred stock and determine the
relative rights, preferences and limitations thereon.
Such preferred stock shall be one dollar ($1.00) par value with fifty
thousand (50,000) shares authorized, series A.
The common stock of the corporation shall be one dollar ($1.00) par
value with one million (1,000,000) shares authorized.
<PAGE>
[top left corner of page]
- ---------------------------
For Use By The Secretary
of State
File No. 199214499D
Fee Paid $20.00
C.B. ....................
Date: ...................
5
- ---------------------------
[top right corner of page]
- ---------------------------------------
For Use By The Secretary of State
FILED
October 29, 1992
__/s/ Gary Cooper______
Deputy Secretary of State
A True Copy When Attested By
Signature
/s/ Pamela A. French
Deputy Secretary of State
- ----------------------------------------
[center of page]
STATE OF MAINE
STATEMENT OF
RESOLUTION ESTABLISHING SERIES
OF SHARES
OF
Merrill Merchants Bancshares, Inc.
(CHECK ONLY IF APPLICABLE)
Pursuant to 13-A MRSA ss.503, the undersigned corporation submits the following
for the purpose of establishing and designating a series of shares and fixing
and determining the relative rights and preferences thereof:
FIRST: The attached resolution establishing and designating the series
and fixing and determining the relative rights and preferences
thereof was duly adopted by the board of directors on September
30, 1992.
SECOND: The Articles expressly grant to the Board of Directors the
authority to make such a resolution.
THIRD: The address of the registered office of the corporation is: P.O.
Box 917 23 Water Street, Bangor, ME 04402-0917
Dated: October 26, 1992
Merrill Merchants Bancshares, Inc.
----------------------------------
(Name of Corporation)
By /s/ Norman Minsky
-------------------------------
(signature)
Norman Minsky, Clerk
----------------------------------
(type or print name and capacity)
By
--------------------------------
(signature)
----------------------------------
(type or print name and capacity)
- -----------------------------
This document MUST be signed by (1) the Clerk OR (2) the President or a
vice-president AND the Secretary, an assistant secretary or other officer
the bylaws designate as second certifying officer OR (3) if no such
officers, a majority of the directors or such directors designated by a
majority of directors then in office OR (4) if no directors, the holders,
or such of them designated by the holders, of record of a majority of all
outstanding shares entitled to vote thereon OR (5) the holders of all
outstanding shares.
FORM NO. MBCA-7 Rev. 90 SUBMIT COMPLETED FORMS TO: Secretary of State,
Station 101, Augusta, Maine, 04333
<PAGE>
RESOLVED, that the proper officers of this Corporation be, and hereby are,
authorized and directed to take all steps necessary or desirable to issue up to
Nineteen Thousand Five Hundred Sixty-Six (19,566) shares of preferred stock,
with a stated value of Forty-Six and 00/100 Dollars ($46.00) per share. The
rights and preferences of the preferred stock shall be as follows:
1. Cumulative Dividend Rate. The shares of preferred stock shall be entitled
to receive, when and if declared by the Board of Directors of the
Corporation out of assets of the Corporation legally available for payment
thereof, cumulative cash dividends on the stated value of the preferred
stock at the per annum rate, computed on the basis of a 365-day year, equal
to the prime lending rate of Bank of Boston, N.A., as the same may change
from time to time as hereinafter provided for. The dividend rate shall
initially be determined as of October 1, 1992 and shall be adjusted on the
same day of each month thereafter (each such day hereinafter referred to as
an "Adjustment Date"). All such adjustments to said dividend rate shall be
made and shall become effective on the corresponding Adjustment Date and
said dividend rate as adjusted shall remain in effect until the next
Adjustment Date.
2. Dividend Payments. Dividends shall be payable quarterly on March 31, June
30, September 30 and December 31 of each year. Dividends shall be payable
to holders of record of the preferred stock as they appear on the
Corporation's shareholder records on such payment dates. Dividends payable
for the initial dividend period shall be based on the amount of dividends
accrued since the date of issuance of the preferred stock.
3. Dividend Priorities. No dividend payment shall be paid or declared and set
apart for payment on any other shares of stock of the Corporation, whether
common or preferred, for any period unless cumulative dividends have been
paid or contemporaneously are declared or paid or set apart for payment on
the preferred stock for such period. Holders of preferred stock shall not
be entitled to any dividends, whether payable in cash, property or stock,
in excess of full dividends for any period. No interest or sum of money in
lieu of interest shall be payable in respect of a dividend payment or
payments which may be in arrears.
4. Voting Rights. The preferred stock shall be non-voting.
5. Conversion Feature.
a. Timing. At the option of the holders, on or prior to September 30,
2002, each share of preferred stock may be converted into shares of
the voting common stock of the Corporation (the "Common Stock").
b. Conversion Ratio. The number of shares of Common Stock to be received
for each share of preferred stock shall be equal to the quotient
resulting from dividing the $46.00 stated value of the preferred stock
by $46.00 (the per share price at which the Common Stock is to be sold
pursuant to its 1992 private placement). The conversion ratio shall be
adjusted as appropriate to account for any subdivision or combination
of the outstanding shares of Common Stock occurring after closing on
the 1992 private placement, whether resulting from a recapitalization,
stock dividend, stock split or otherwise. For example, if the
Corporation effected a two-for-one split of its Common Stock, rather
than receiving one share of common Stock for each share of preferred
stock converted, a holder would receive two shares of Common Stock for
each share of preferred stock converted.
c. Conversion Exercise. To exercise conversion rights, a holder of
preferred stock must provide the Corporation with written notice
specifying (i) the intent by the holder to exercise its conversion
rights, (ii) the number of shares of preferred stock to be converted
and a calculation of the number of shares of Common Stock to be
received and (iii) the effective date of such conversion, to be not
<PAGE>
less than ten (10) days nor greater than sixty (60) days from the date
of such notice (the "Conversion Date").
d. Payment of Dividends. Cumulative dividends accrued but unpaid on the
preferred stock to be converted as provided above shall be paid by the
Corporation to the holder as paid to other holders of the preferred
stock, with the payment priority specified in Paragraph 3 above, it
being understood that the Corporation shall be under no obligation to
pay any such accrued dividends on or prior to the Conversion Date.
e. Shareholder Agreement. As a condition to any conversion of preferred
stock as set forth above, the holder must agree in writing that the
Common Stock to be received upon conversion and the holder's rights
therein shall be subject to the terms, conditions, rights and
obligations as set forth in that certain shareholder agreement, dated
October 1 1992 (the "Shareholder Agreement"), a copy of which is
available for review and inspection at the registered office of the
Corporation.
6. Redemption. Shares of the preferred stock may be redeemed, in whole or in
part, by the Corporation at any time on or after October 1, 2002, at a
redemption price equal to the stated value of the shares to be redeemed,
plus accrued and unpaid dividends thereon, if any. Notwithstanding the
foregoing: (i) any such redemption of the preferred stock must be
pre-approved by the Federal Reserve Bank of Boston; and (ii) these
redemption rights shall not apply to any shares of Common Stock received
upon conversion of the preferred stock as set forth above.
7. Merger of Stock Sale. If the Corporation proposes to engage in a
transaction whereby its Common Stock is to be transferred or exchanged for
stock or securities of another entity or assets other than securities,
whether pursuant to merger, consolidation or otherwise, or if there is a
proposed sale of a majority of the then outstanding shares of Common Stock,
the Corporation shall provide each holder of preferred stock with at least
thirty (30) day's written notice of such transaction. Such notice shall
include a summary of all material terms and conditions of the proposed
transaction as relevant to holders of the preferred stock.
a. Conversion Option. If such transaction occurs on or prior to September
30, 2002, each holder may convert its preferred stock into Common
Stock as provided above, subject to the following:
(i) Conversion notice must be given to the Corporation within fifteen
(15) days of the date of the notice received from the
Corporation.
(ii) If the transaction involves a merger, consolidation or similar
transaction or the sale of all of the Common Stock, shares of
Common Stock received by the holder upon conversion shall
participate in such transaction in the same manner as other
shares of Common Stock.
(iii) If the transaction does not involve a merger, consolidation or
similar transaction and does not involve the sale of all of the
Common Stock, shares of Common Stock received by the holder upon
conversion may participate in such transaction only to the extent
and in the manner provided pursuant to the negotiated terms and
conditions for such transaction, it being expressly understood
that the parties shall be under no obligation to negotiate
participation for the holder.
(iv) The rights and obligations of the holder under the Shareholder
Agreement shall only apply to transactions subsequent to the
merger, consolidation or stock sale. Thus, for example, holders
of preferred stock converting into Common Stock shall have no
rights of first
<PAGE>
refusal under the Shareholder Agreement with respect to the
merger, consolidation or stock sale.
(v) If the transaction involves a merger, consolidation or similar
transaction whereby the Common Stock is transferred or exchanged
for stock or securities of another entity or assets other than
securities, to the extent the preferred stock is not converted
into Common Stock as provided above, holders shall have no
further rights to convert any remaining shares of preferred stock
into Common Stock and all rights to convert the preferred stock
into Common stock shall terminate and be extinguished.
b. Redemption Option. If the above conversion option is not or cannot be
exercised, the Corporation may redeem all or any part of the
outstanding preferred stock at the price and subject to the other
terms and conditions provided in Paragraph 6 above, except that such
redemption may be effected without regard to whether the transaction
occurs before, on or after October 1, 2002. This redemption option
must be exercised by the Corporation prior to consummation of the
merger, consolidation or stock sale and will only be effective
provided such merger, consolidation or stock sale is consummated.
8. Dissolution and Payment Priority. In the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
shares of preferred stock are entitled to receive, out of assets of the
Corporation legally available for distribution to shareholders, before any
distribution is made to holders of any other stock of the Corporation,
whether common or preferred, liquidation distribution in the amount of
$46.00 per share plus accrued and unpaid dividends, if any. If the amounts
payable with respect to the preferred stock are not paid in full, holders
of the preferred stock shall share ratably on a per share basis. Upon
payment of a full amount of the stated value plus accrued and unpaid
dividends, holders of the preferred stock will not be entitled to any
further participation in any distributions or payments by the Corporation.
9. Preemptive Rights. Holders of the preferred stock will not have preemptive
rights, and the preferred stock will be fully paid and non-assessable.
<PAGE>
Minimum Fee $35 (See ss.1401 sub-ss.15)
<TABLE>
<S> <C>
------------------------------------------------------
DOMESTIC File No. 19921499 0 Pages 10
BUSINESS CORPORATION Fee Paid $ 755.00
STATE OF MAINE DCN 1981321800072 STCK
-------FILED------
ARTICLES OF AMENDMENT 5/11/1998
(Shareholders Voting as One Class) s/s Nancy B. Kelleher
----------------------
Deputy Secretary of State
-------------------------------------
-
Merrill Merchants Bancshares, Inc. A True Copy When Attested By Signature
(Name of Corporation)
Deputy Secretary of State
-------------------------
------------------------------------------------------
</TABLE>
Pursuant to 13-A MRSA ss.ss. 805 and 807, the undersigned corporation adopts
these Articles of Amendment:
FIRST: All outstanding shares were entitled to vote on the following
amendment as one class.
SECOND: The amendment set out in Exhibit A attached was adopted by the
shareholders on (date) May 7, 1998
("X" one box only)
|X| at a meeting legally called OR [ ] unanimous written consent
and held
THIRD: Shares outstanding and entitled to vote and shares voted for and
against said amendment were:
Number of Shares Outstanding NUMBER NUMBER
and Entitled to Vote Voted For Voted Against
-------------------- --------- -------------
184,510 184,510 0
FOURTH: If such amendment provides for exchange, reclassification or
cancellation of issued shares, the manner in which this shall be
effected is contained in Exhibit B attached if it is not set forth
in the amendment itself.
FIFTH: If the amendment changes the number or par values of authorized
shares, the number of shares the corporation has authority to
issue thereafter, is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class Series (If Any) Number of Shares Par Value (If Any)
----- --------------- ---------------- ------------------
Common N/A 4,000,000 $1.00
Preferred Series A 50,000 $1.00
Serial Preferred -- 950,000 $0.01
</TABLE>
The aggregate par value of all such shares (of all classes and series)
having par value is $4,059,500
The total number of all such shares (of all classes and series) without
par value is -0- shares
<PAGE>
SIXTH: The address of the registered office of the corporation in the
State of Maine is P.O. Box 917, 23 Water Street, Bangor, Maine,
04402-0917
(street, city, state and zip code)
DATED May 7, 1998
- ------------------------------------------------------
<TABLE>
<S> <C>
*By /s/ Norman Minsky
--------------------------
MUST BE COMPLETED FOR VOTE (signature)
OF SHAREHOLDERS
____________________________________________ Norman Minsky, Clerk
---------------------------
_ (type or print name and capacity)
I certify that I have custody of the minutes showing
the above action by the shareholders.
*By
---------------------------
(signature)
/s/ Norman Minsky (type or print name and capacity)
(signature of clerk, secretary or asst. secretary)
Norman Minsky
- -------------------------------------------------------
</TABLE>
NOTE: This form should not be used if any class of shares is entitled to
vote as a separate class for any of the reasons set out in ss.806, or because
the articles so provide. For vote necessary for adoption see ss.805.
------------------------------------------------------------
*This document MUST be signed by (1) the Clerk OR (2) the President or a
Vice-President and the Secretary or an assistant secretary, or such other
officer as the bylaws may designate as a 2nd certifying officer OR (3) if there
are no such officers, then a majority of the directors or such directors as may
be designated by a majority of directors then in office OR (4) if there are no
such directors, then the Holders, or such of them as may be designated by the
holders, of record of a majority of all outstanding shares entitled to vote
thereon OR (5) the Holders of all of the outstanding shares of the corporation.
SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION, SECRETARY OF STATE,
101 STATE HOUSE STATION, AUGUSTA, ME 04333-0101
TEL. (207) 287-4195
FORM NO. MBCA-9 Rev. 96
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC.
EXHIBIT A
TO
ARTICLES OF AMENDMENT
1. ARTICLE FOURTH of the Articles of Incorporation of Merrill Merchants
Bancshares, Inc. is hereby amended to provide as follows:
FOURTH: a. There shall be nine (9) directors. The directors may increase or
decrease the number of directors by the affirmative vote of at least sixty-seven
percent (67%) of the directors in office at the time of such vote. The minimum
number shall be three (3) directors, and the maximum number shall be twenty-five
(25) directors.
b. The Board of Directors of the Corporation shall be divided into
three classes, initially consisting of three directors each: Class I, Class II
and Class III. Each class shall consist, as nearly as may be practicable, of
one-third of the whole number of the Board of Directors. If the number of
directors is not evenly divisible by three, the Board of Directors shall
determine the number of directors to be elected initially into each class. The
initial members of Class I shall hold office for a term to expire at the annual
meeting of the stockholders to be held in 1999; the initial members of Class II
shall hold office for a term to expire at the annual meeting of the stockholders
to be held in 2000; and the initial members of Class III shall hold office for a
term to expire at the annual meeting of the stockholders to be held in 2001, and
in the case of each class, until their respective successors are duly elected
and qualified. At each annual election held commencing with the annual election
in 1999, the directors elected to succeed those whose terms expire shall be
identified as being of the same class as the directors they succeed and shall be
elected to hold office for a term to expire at the third annual meeting of the
stockholders after their election, and until their respective successors are
duly elected and qualified. If the number of directors changes, any increase or
decrease in directors shall be apportioned among the classes so as to maintain
all classes as equal in number as possible, and any additional director elected
to any class shall hold office for a term which shall coincide with the terms of
the other directors in such class and until his successor is duly elected and
qualified.
c. Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation or the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
Bylaws of the Corporation, the affirmative vote of the holders of at least
eighty (80%) percent of the combined voting power of the outstanding stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend, alter, adopt any
provision inconsistent with or to repeal this Article FOURTH.
2. ARTICLE FIFTH of the Articles of Incorporation of Merrill Merchants
Bancshares, Inc. is hereby amended to provide as follows:
FIFTH: The total number of shares of stock which the Corporation shall be
authorized to issue is 5,000,000 shares, consisting of (i) 50,000 shares of
Series A Preferred Stock with a par value of one dollar ($1.00) per share (the
"Series A Preferred Stock"), 950,000 shares of Serial Preferred Stock with a par
value of one cent ($0.01) per share, issuable in series as hereinafter provided
for (hereinafter the "Serial Preferred Stock"), and (ii) 4,000,000 shares of
common stock (herein called the "Common Stock") with a par value of $1.00 per
share.
<PAGE>
The preferences and voting powers of the Series A Preferred Stock, the
Serial Preferred Stock and the Common Stock, the restrictions and qualifications
thereof and the limits (if any) of the variations in each series of the Serial
Preferred Stock are set forth below. For the purposes of this Article, the term
"junior stock" shall mean Common Stock and shares of stock of the Corporation of
any other class ranking junior to shares of Series A Preferred Stock and Serial
Preferred Stock either in respect of the payment of dividends or in respect of
any payment upon liquidation, dissolution or winding up of the Corporation.
A. Series A Preferred Stock
(1) Cumulative Dividend Rate. The shares of Series A Preferred Stock, of
which 19,566 shares having a stated value of $46.00 per share were authorized
for issuance by resolution of the Board of Directors on September 30, 1992 as
evidenced by a Statement of Resolution Establishing Series of Shares of the
Corporation filed with the Secretary of State of the State of Maine on October
29, 1992, shall be entitled to receive, when and if declared by the Board of
Directors of the Corporation out of assets of the Corporation legally available
for payment thereof, cumulative cash dividends on the stated value of the Series
A Preferred Stock at the per annum rate, computed on the basis of a 365-day
year, equal to the prime lending rate of BankBoston, N.A., as the same may
change from time to time as hereinafter provided for. The dividend rate shall
initially be determined as of October 1, 1992 and shall be adjusted on the same
day of each month thereafter (each such day hereinafter referred to as an
("Adjustment Date"). All such adjustments to said dividend rate shall be made
and shall become effective on the corresponding Adjustment Date and said
dividend rate as adjusted shall remain in effect until the next Adjustment Date.
(2) Dividend Payments. Dividends shall be payable quarterly on March 31,
June 30, September 30 and December 31 of each year. Dividends shall be payable
to holders of record of the Series A Preferred Stock as they appear on the
Corporation's shareholder records on such payment dates. Dividends payable for
the initial dividend period shall be based on the amount of dividends accrued
since the date of issuance of the Series A Preferred Stock.
(3) Dividend Priorities. No dividend payment shall be paid or declared and
set apart for payment on any other shares of stock of the Corporation, whether
common or preferred, for any period unless cumulative dividends have been paid
or contemporaneously are declared or paid or set apart for payment on the Series
A Preferred Stock for such period. Holders of Series A Preferred Stock shall not
be entitled to any dividends, whether payable in cash, property or stock, in
excess of full dividends for any period. No interest or sum of money in lieu of
interest shall be payable in respect of a dividend payment or payments which may
be in arrears.
(4) Voting Rights. The Series A Preferred Stock shall be non-voting.
(5) Conversion Feature.
(a) Timing. At the option of the holders, on or prior to September
30, 2002, each share of Series A Preferred Stock may be converted
into shares of the voting common stock of the Corporation (the
"Common Stock").
(b) Conversion Ratio. The number of shares of Common Stock to be
received for each share of Series A Preferred Stock shall be
equal to the quotient resulting from dividing the $46.00 stated
value of the Series A Preferred Stock by $46.00 (the per share
price at which the Common Stock is to be sold pursuant to its
1992 private placement). The conversion ratio shall be adjusted
as appropriate to account for any subdivision or combination of
the outstanding shares of Common Stock occurring after closing on
the 1992 private placement, whether resulting from a
<PAGE>
recapitalization, stock dividend, stock split or otherwise. For
example, if the Corporation effected a two-for-one split of its
Common Stock, rather than receiving one share of Common Stock for
each share of Series A Preferred Stock converted, a holder would
receive two shares of Common Stock for each share of Series A
Preferred Stock converted.
(c) Conversion Exercise. To exercise conversion rights, a holder of
Series A Preferred Stock must provide the Corporation with
written notice specifying (i) the intent by the holder to
exercise its conversion rights, (ii) the number of shares of
Series A Preferred Stock to be converted and a calculation of the
number of shares of Common Stock to be received and (iii) the
effective date of such conversion, to be not less than ten (10)
days nor greater than sixty (60) days from the date of such
notice (the "Conversion Date").
(d) Payment of Dividends. Cumulative dividends accrued but unpaid on
the Series A Preferred Stock to be converted as provided above
shall be paid by the Corporation to the holder as paid to other
holders of the Series A Preferred Stock, with the payment
priority specified in Paragraph 3 above, it being understood that
the Corporation shall be under no obligation to pay any such
accrued dividends on or prior to the Conversion Date.
(e) Shareholder Agreement. As a condition to any conversion of Series
A Preferred Stock as set forth above, the holder must agree in
writing that the Common Stock to be received upon conversion and
the holder's rights therein shall be subject to the terms,
conditions, rights and obligations as set forth in that certain
shareholder agreement, dated October 30, 1992 (the "Shareholder
Agreement), a copy of which is available for review and
inspection at the registered office of the corporation.
(6) Redemption. Shares of the Series A Preferred Stock may be redeemed, in
whole or in part, by the Corporation at any time on or after October 1, 2002, at
a redemption price equal to the stated value of the shares to be redeemed, plus
accrued and unpaid dividends thereon, if any. Notwithstanding the foregoing: (i)
any such redemption of the Series A Preferred Stock must be pre-approved by the
Federal Reserve Bank of Boston; and (ii) these redemption rights shall not apply
to any shares of Common Stock received upon conversion of the Series A Preferred
Stock as set forth above.
(7) Merger or Stock Sale. If the Corporation proposes to engage in a
transaction whereby its Common Stock is to be transferred or exchanged for stock
or securities of another entity or assets other than securities, whether
pursuant to merger, consolidation or otherwise, or if there is a proposed sale
of a majority of the then outstanding shares of Common Stock, the Corporation
shall provide each holder of Series A Preferred Stock with at least thirty (30)
days written notice of such transaction. Such notice shall include a summary of
all materials terms and conditions of the proposed transaction as relevant to
holders of the Series A Preferred Stock.
(a) Conversion Option. If such transaction occurs on or prior to
September 30, 2002, each holder may convert its Series A
Preferred Stock into Common Stock as provided above, subject to
the following:
(i) Conversion notice must be given to the Corporation within
fifteen (15) days of the date of the notice received from
the Corporation.
(ii) If the transaction involves a merger, consolidation or
similar transaction or the sale of all of the Common Stock,
shares of Common Stock received by the holder upon
<PAGE>
conversion shall participate in such transaction in the same
manner as other shares of Common Stock.
(iii) If the transaction does not involve a merger, consolidation
or similar transaction and does not involve the sale of all
of the Common Stock, shares of Common Stock received by the
holder upon conversion may participate in such transaction
only to the extent and in the manner provided pursuant to
the negotiated terms and conditions for such transaction, it
being expressly understood that the parties shall be under
no obligation to negotiate participation for the holder.
(iv) The rights and obligations of the holder under the
Shareholder Agreement shall only apply to transactions
subsequent to the merger, consolidation or stock sale. Thus,
for example, holders of Series A Preferred Stock converting
into Common Stock shall have no rights of first refusal
under the Shareholder Agreement with respect to the merger,
consolidation or stock sale.
(v) If the transaction involves a merger, consolidation or
similar transaction whereby the Common Stock is transferred
or exchanged for stock or securities of another entity or
assets other than securities, to the extent the Series A
Preferred Stock is not converted into Common Stock as
provided above, holders shall have no further rights to
convert any remaining shares of Series A Preferred Stock
into Common Stock and all rights to convert the Series A
Preferred Stock into Common stock shall terminate and be
extinguished.
(b) Redemption Option. If the above conversion option is not or
cannot be exercised, the Corporation may redeem all or any part
of the outstanding Series A Preferred Stock at the price and
subject to the other terms and conditions provided in Paragraph 6
above, except that such redemption may be effected without regard
to whether the transaction occurs before, on or after October 1,
2002. This redemption option must be exercised by the Corporation
prior to consummation of the merger, consolidation or stock sale
and will only be effective provided such merger, consolidation or
stock sale is consummated.
(8) Dissolution and Payment Priority. In the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, shares of
Series A Preferred Stock are entitled to receive, out of assets of the
Corporation legally available for distribution to shareholders, before any
distribution is made to holders of any other stock of the Corporation, whether
common or preferred, liquidation distribution in the amount of $46.00 per share
plus accrued and unpaid dividends, if any. If the amounts payable with respect
to the Series A Preferred Stock are not paid in full, holders of the Series A
Preferred Stock shall share ratably on a per share basis. Upon payment of a full
amount of the stated value plus accrued and unpaid dividends, holders of the
Series A Preferred Stock will not be entitled to any further participation in
any distributions or payments by the Corporation.
(9) Preemptive Rights. Holders of the Series A Preferred Stock will not
have preemptive rights, and the Series A Preferred Stock will be fully paid and
non-assessable.
B. Serial Preferred Stock
(1) General - The shares of Serial Preferred Stock may be divided and
issued in one or more series from time to time as determined by resolution of
the Board of Directors. Each series shall be so designated as to distinguish the
shares thereof from the shares of all other series and classes. All shares of
the Serial Preferred Stock, regardless of series, shall be identical except that
the Board of Directors, prior
<PAGE>
to the issuance of any shares of a particular series of Serial Preferred Stock,
may fix and determine the following relative rights and preferences as between
different series:
(a) The number of shares to constitute such series and the distinctive
serial designation thereof;
(b) The rate or rates of dividend, which may be subject to adjustment,
whether dividends are to be cumulative, and the terms and conditions
thereof;
(c) Whether shares may be redeemed and, if so, the redemption price or
prices and the terms and conditions of redemption;
(d) The amounts payable upon shares in the event of voluntary and
involuntary liquidation;
(e) Sinking fund provisions, if any, for the redemption or purchase of
shares;
(f) The terms and conditions, if any, on which shares may be converted;
and
(g) The voting rights, if any, in addition to those set forth in Section D
of this Article FIFTH.
The Board of Directors may create and issue shares of any series of the
Serial Preferred Stock convertible, exchangeable or redeemable, at the option of
either the Corporation or the holder or upon the happening of a specified event
or events, into or for cash, property or rights, including bonds, debentures,
notes, or other securities of the Corporation or another corporation, at such
time or times, price or prices, or rate or rates, and with such adjustments, as
shall be stated in the resolution of the Board of Directors for the issue of
such shares. With respect to fixing and determining the relative rights and
preferences as between different series of Serial Preferred Stock, it is the
purpose of these Articles of Incorporation to vest in the Board of Directors the
maximum flexibility to fix and determine such rights and preferences as is
permissible under the Maine Business Corporation Act as may be amended from time
to time. In order to effectuate this purpose, subparagraphs (a) through (g)
above shall be broadly construed.
(2) Dividends - The holders of outstanding shares of Serial Preferred Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of any funds legally available for the purpose, dividends at the dividend rate
or rates fixed for the particular series, and no more, payable in such manner as
the Board of Directors may determine for such series.
So long as any shares of Serial Preferred Stock shall be outstanding, the
Corporation shall not declare any dividends on the Common Stock of the
Corporation or any other class of stock of the Corporation ranking as to
dividends or distribution of assets junior to the shares of Serial Preferred
Stock, or make any payment on account of or set apart money for, a sinking or
other analogous fund for the purchase, redemption or other retirement of any
share of a class of junior stock, or make any distribution in respect thereof,
whether in cash or property or in obligations or stock of the Corporation,
unless all senior dividend rights and preferences with respect to dividends for
outstanding shares of Serial Preferred Stock have been fully satisfied.
In addition, as long as any shares of Serial Preferred Stock shall be
outstanding, the Corporation or any of its subsidiaries shall not purchase,
redeem or otherwise acquire any shares of any class of junior stock (except in
connection with a reclassification or exchange of any junior stock or the
purchase, redemption or other acquisition of junior stock with proceeds of a
reasonably contemporaneous sale of junior stock) nor shall any funds be set
aside or made available for any sinking fund for the purchase or
<PAGE>
redemption of any share of any class of junior stock unless there shall be no
arrearages in dividends on the shares of Serial Preferred Stock for any past
dividend period, and the Corporation shall not be in default of any of its
obligations to redeem any shares of Serial Preferred Stock.
(3) Liquidation - In the event of the liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holders of shares
of Serial Preferred Stock shall be entitled to be paid out of the assets of the
Corporation, before any distribution or payment is made to or set apart for the
holders of any shares of any class of junior stock, the amount fixed for the
particular series, plus, in each case, any amount equal to all unpaid dividends
accrued thereon, if any, and that portion of the dividend accrued thereon, if
any, up to the date of final payment or distribution to such holders. In case
the net assets of the Corporation are not sufficient to pay the holders of all
outstanding shares of Serial Preferred Stock the full amounts to which they are
respectively entitled as aforesaid, the entire net assets of the Corporation
shall be distributed ratably to the holders of all the outstanding shares of
Serial Preferred Stock in proportion to the full amounts to which they are
respectively entitled. Neither the merger or consolidation of the Corporation
into or with any one or more other corporations nor the sale, conveyance,
exchange or transfer of all or substantially all of the property or assets of
the Corporation shall be deemed a liquidation, dissolution or winding up of the
Corporation, voluntary or involuntary.
C. Common Stock
(1) Dividends - The holders of Common Stock shall be entitled to such
dividends as may be declared from time to time by the Board of Directors,
subject to the restrictions set forth in paragraph (2) of Section A of this
Article FIFTH.
(2) Liquidation - In the event of the liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holders of Common
Stock shall be entitled to participate pro rata in the net assets of the
Corporation remaining after distributions to holders of the Serial Preferred
Stock as provided for in paragraph (3) of Section A hereof.
D. General
(1) Voting Rights - At each meeting of stockholders of the Corporation each
holder of Common Stock shall be entitled to one vote for each share held.
The holders of shares of each series of Serial Preferred Stock shall have
no voting rights, unless otherwise fixed and determined by the Board of
Directors prior to the issuance of any shares of a particular series of Serial
Preferred Stock.
There shall be no cumulative voting in elections for directors.
(2) Preemptive Rights - No holder of any shares of Common Stock and no
holder of any shares of Serial Preferred Stock shall be entitled as such, as a
matter of right, to subscribe for or to purchase any shares of stock of the
Corporation of any class, whether now or hereafter authorized or whether issued
for cash, property or services, or as a dividend or otherwise, or any
obligations, bonds, notes, debentures, stocks, warrants, options or other
securities into shares of stock of the Corporation or carrying or evidencing any
right to purchase shares of stock of any class.
(3) Issuance of Stock - The authorized but unissued shares of capital stock
of the Corporation may be issued from time to time in such amounts and upon such
terms and conditions, not inconsistent with the
<PAGE>
laws of Maine or this Article, and for such consideration in cash, property,
including stock or securities of other corporations, or services as the Board of
Directors may determine.
(4) Securities Convertible Into Stock - The Board of Directors may at any
time create and issue bonds, debentures, notes and other securities convertible
into shares of capital stock of the Corporation, and may also create and issue
stock options and warrants entitling the holders thereof to purchase shares of
capital stock of the Corporation on such terms and conditions, but not
inconsistent with the laws of Maine or this Article, as the Board of Directors
may from time to time determine.
Minimum Fee $80 (See ss. 1401 sub-ss. 16)
DOMESTIC -----------------------------------------
BUSINESS CORPORATION
STATE OF MAINE
RESTATED
ARTICLES OF INCORPORATION
(Shareholders Voting as One Class) ------------------------------
Deputy Secretary of State
-----------------------------------------
Merrill Merchants Bancshares, Inc.
- ---------------------------------- A True Copy When Attested By
(Name of Corporation) Signature
---------------------------
Deputy Secretary of State
-----------------------------------------
Pursuant to 13-A MRSA ss. 809, the undersigned corporation adopts these Restated
Articles of Incorporation:
FIRST: All outstanding shares were entitled to vote on the following
restatement as one class.
SECOND: The restatement set out in Exhibit A attached contains the same
information and provisions as are required for original articles.
Statements as to the incorporator or incorporators and the initial
directors may be omitted. This restatement was adopted by the
shareholders on (date) June 18, 1998 ("X" one box only)
[X] at a meeting legally OR [ ] by unanimous written consent
called and held
THIRD: Shares outstanding and entitled to vote and shares voted for and
against said restatement were:
Number of Shares Outstanding NUMBER NUMBER
and Entitled to Vote Voted For Voted Against
-------------------- --------- -------------
185,060
FOURTH: If such restatement provides for exchange, reclassification or
cancellation of issued shares, the manner in which this shall be
effected is contained in Exhibit B attached if it is not set forth in
the restatement itself.
FIFTH: If the restatement changes the number or par values of authorized
shares, the number of shares the corporation has authority to issue
thereafter is as follows:
Class Series (If Any) Number of Shares Par Value (If Any)
----- --------------- ---------------- ------------------
The aggregate par value of all such shares (of all classes and series)
having par value is $______________
The total number of all such shares (of all classes and series) without
par value is _____________ shares
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P.O. Box 917, 23 Water Street, Bangor, Maine, 04402-0917
--------------------------------------------------------
(street, city, state and zip code)
DATED ________________________________ *By ________________________________
(signature)
Norman Minsky, Clerk
________________________________
(type or print name and capacity)
*By _______________________________
(signature)
*By _______________________________
(type or print name and capacity)
______________________________________________________________
MUST BE COMPLETED FOR VOTE
OF SHAREHOLDERS
______________________________________________________________
I certify that I have custody of the minutes showing
the above action by the shareholders.
______________________________________________________________
(signature of clerk, secretary or asst. secretary)
NOTE: This form should not be used if any class of shares is entitled to vote
as a separate class for any of the reasons set out in ss. 806, or
because the articles so provide. For vote necessary for adoption see
ss. 805.
- --------------------------------------------------------------------------------
*This document MUST be signed by (1) the Clerk OR (2) the President or a
vice-president and the Secretary or an assistant secretary, or such other
officer as the bylaws may designate as a 2nd certifying officer OR (3) if there
are no such officers, then a majority of the Directors or such directors as may
be designated by a majority of directors then in office OR (4) if there are no
such directors, then the Holders, or such of them as may be designated by the
holders, of record of a majority of all outstanding shares entitled to vote
thereon OR (5) the Holders of all of the outstanding shares of the corporation.
SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION, SECRETARY OF STATE,
101 STATE HOUSE STATION, AUGUSTA, ME 04333-0101
TEL. (207) 287-4195
M NO. MBCA-6A Rev. 96
<PAGE>
EXHIBIT A
TO
RESTATED ARTICLES OF INCORPORATION
OF
MERRILL MERCHANTS BANCSHARES, INC.
I. Name of Corporation. The name of the Corporation is Merrill Merchants
Bancshares, Inc. and its principal business location in Maine is 201 Main
Street, Bangor, Maine 04401.
II. Clerk. The name of its Clerk, who must be a Maine resident, and the
registered office shall be Norman Minsky, 23 Water Street, P.O. Box 917, Bangor,
Maine 04402-0917.
III. Directors. There shall be nine (9) directors. The directors may increase or
decrease the number of directors by the affirmative vote of at least sixty-seven
percent (67%) of the directors in office at the time of such vote. The Board of
Directors is authorized to increase or decrease the number of directors. The
minimum number shall be three (3) directors, and the maximum number shall be
twenty-five (25) directors. The Board of Directors shall be divided into three
classes of directors as specified in Article VI below.
IV. Capital Stock Provisions. The total number of shares of stock which the
Corporation shall be authorized to issue is 5,000,000 shares, consisting of (i)
50,000 shares of Series A Preferred Stock with a par value of one dollar ($1.00)
per share (the "Series A Preferred Stock"), 950,000 shares of Serial Preferred
Stock with a par value of one cent ($0.01) per share, issuable in series as
hereinafter provided for (hereinafter the "Serial Preferred Stock"), and (ii)
4,000,000 shares of common stock (herein called the "Common Stock") with a par
value of one dollar ($1.00) per share.
The preferences and voting powers of the Series A Preferred Stock, the
Serial Preferred Stock and the Common Stock, the restrictions and qualifications
thereof and the limits (if any) of the variations in each series of the Serial
Preferred Stock are set forth below. For the purposes of this Article, the term
"junior stock" shall mean Common Stock and shares of stock of the Corporation of
any other class ranking junior to shares of Series A Preferred Stock and Serial
Preferred Stock either in respect of the payment of dividends or in respect of
any payment upon liquidation, dissolution or winding up of the Corporation.
A. Series A Preferred Stock
(1) Cumulative Dividend Rate. The shares of Series A Preferred Stock,
of which 19,566 shares having a stated value of $46.00 per share were authorized
for issuance by resolution of the Board of Directors on September 30, 1992 as
evidenced by a Statement of Resolution Establishing Series of Shares of the
Corporation filed with the Secretary of State of the State of Maine on October
29, 1992, shall be entitled to receive, when and if declared by the Board of
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Directors of the Corporation out of assets of the Corporation legally available
for payment thereof, cumulative cash dividends on the stated value of the Series
A Preferred Stock at the per annum rate, computed on the basis of a 365-day
year, equal to the prime lending rate of BankBoston, N.A., as the same may
change from time to time as hereinafter provided for. The dividend rate shall
initially be determined a of October 1, 1992 and shall be adjusted on the same
day of each month thereafter (each such day hereinafter referred to as an
"Adjustment Date"). All such adjustments to said dividend rate shall be made and
shall become effective on the corresponding Adjustment Date and said dividend
rate as adjusted shall remain in effect until the next Adjustment Date.
(2) Dividend Payments. Dividends shall be payable quarterly on March
31, June 30, September 30 and December 31 of each year. Dividends shall be
payable to holders of record of the Series A Preferred Stock as they appear on
the Corporation's shareholder records on such payment dates. Dividends payable
for the initial dividend period shall be based on the amount of dividends
accrued since the date of issuance of the Series A Preferred Stock.
(3) Dividend Priorities. No dividend payment shall be paid or declared
and set apart for payment on any other shares of stock of the Corporation,
whether common or preferred, for any period unless cumulative dividends have
been paid or contemporaneously are declared or paid or set apart for payment on
the Series A Preferred Stock for such period. Holders of Series A Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of full dividends for any period. No interest or sum of
money in lieu of interest shall be payable in respect of a dividend payment or
payments which may be in arrears.
(4) Voting Rights. The Series A Preferred Stock shall be non-voting.
(5) Conversion Feature.
(a) Timing. At the option of the holders, on or prior to September
30, 2002, each share of Series A Preferred Stock may be converted into
shares of the voting common stock of the Corporation (the "Common
Stock").
(b) Conversion Ratio. The number of shares of Common Stock to
be received for each share of Series A Preferred Stock shall be equal
to the quotient resulting from dividing the $46.00 stated value of the
Series A Preferred Stock by $46.00 (the per share price at which the
Common Stock is to be sold pursuant to its 1992 private placement). The
conversion ratio shall be adjusted as appropriate to account for any
subdivision or combination of the outstanding shares of Common Stock
occurring after closing on the 1992 private placement, whether
resulting from a recapitalization, stock dividend, stock split or
otherwise. For example, if the Corporation effected a two-for-one split
of its Common Stock, rather than receiving one share of Common Stock
for each share of Series A Preferred Stock converted, a holder would
receive two shares of Common Stock for each share of Series A Preferred
Stock converted.
2
<PAGE>
(c) Conversion Exercise. To exercise conversion rights, a
holder of Series A Preferred Stock must provide the Corporation with
written notice specifying (i) the intent by the holder to exercise its
conversion rights, (ii) the number of shares of Series A Preferred
Stock to be converted and a calculation of the number of shares of
Common Stock to be received and (iii) the effective date of such
conversion, to be not less than ten (10) days nor greater than sixty
(60) days from the date of such notice (the "Conversion Date").
(d) Payment of Dividends. Cumulative dividends accrued but unpaid
on the Series A Preferred Stock to be converted as provided above
shall be paid by the Corporation to the holder as paid to other
holders of the Series A Preferred Stock, with the payment priority
specified in Paragraph 3 above, it being understood that the
Corporation shall be under no obligation to pay any such accrued
dividends on or prior to the Conversion Date.
(e) Shareholder Agreement. As a condition to any conversion of
Series A Preferred Stock as set forth above, the holder must agree in
writing that the Common Stock to be received upon conversion and the
holder's rights therein shall be subject to the terms, conditions,
rights and obligations as set forth in that certain shareholder
agreement, dated October 30, 1992 (the "Shareholder Agreement), a copy
of which is available for review and inspection at the registered
office of the corporation.
(6) Redemption. Shares of the Series A Preferred Stock may be redeemed,
in whole or in part, by the Corporation at any time on or after October 1, 2002,
at a redemption price equal to the stated value of the shares to be redeemed,
plus accrued and unpaid dividends thereon, if any. Notwithstanding the
foregoing: (i) any such redemption of the Series A Preferred Stock must be
pre-approved by the Federal Reserve Bank of Boston; and (ii) these redemption
rights shall not apply to any shares of Common Stock received upon conversion of
the Series A Preferred Stock as set forth above.
(7) Merger or Stock Sale. If the Corporation proposes to engage in a
transaction whereby its Common Stock is to be transferred or exchanged for
stock or securities of another entity or assets other than securities, whether
pursuant to merger, consolidation or otherwise, or if there is a proposed sale
of a majority of the then outstanding shares of Common Stock, the Corporation
shall provide each holder of Series A Preferred Stock with at least thirty (30)
days written notice of such transaction Such notice shall include a summary of
all materials terms and conditions of the proposed transaction as relevant to
holders of the Series A Preferred Stock.
(a) Conversion Option. If such transaction occurs on or prior to
September 30, 2002, each holder may convert its Series A Preferred
Stock into Common Stock as provided above, subject to the following:
(i) Conversion notice must be given to the Corporation
within fifteen (15) days of the date of the notice received
from the Corporation.
3
<PAGE>
(ii) If the transaction involves a merger, consolidation or
similar transaction or the sale of all of the Common Stock,
shares of Common Stock received by the holder upon
conversion shall participate in such transaction in the same
manner as other shares of Common Stock.
(iii) If the transaction does not involve a merger,
consolidation or similar transaction and does not involve
the sale of all of the Common Stock, shares of Common Stock
received by the holder upon conversion may participate in
such transaction only to the extent and in the manner
provided pursuant to the negotiated terms and conditions for
such transaction, it being expressly understood that the
parties shall be under no obligation to negotiate
participation for the holder.
(iv) The rights and obligations of the holder under the
Shareholder Agreement shall only apply to transactions
subsequent to the merger, consolidation or stock sale. Thus,
for example, holders of Series A Preferred Stock converting
into Common Stock shall have no rights of first refusal
under the Shareholder Agreement with respect to the merger,
consolidation or stock sale.
(v) If the transaction involves a merger, consolidation or
similar transaction whereby the Common Stock is transferred
or exchanged for stock or securities of another entity or
assets other than securities, to the extent the Series A
Preferred Stock is not converted into Common Stock as
provided above, holders shall have no further rights to
convert any remaining shares of Series A Preferred Stock
into Common Stock and all rights to convert the Series A
Preferred Stock into Common stock shall terminate and be
extinguished.
(b) Redemption Option. If the above conversion option is not
or cannot be exercised, the Corporation may redeem all or any part of
the outstanding Series A Preferred Stock at the price and subject to
the other terms and conditions provided in Paragraph 6 above, except
that such redemption may be effected without regard to whether the
transaction occurs before, on or after October 1, 2002. This redemption
option must be exercised by the Corporation prior to consummation of
the merger, consolidation or stock sale and will only be effective
provided such merger, consolidation or stock sale is consummated.
(8) Dissolution and Payment Priority. In the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, shares of
Series A Preferred Stock are entitled to receive, out of assets of the
Corporation legally available for distribution to shareholders, before any
distribution is made to holders of any other stock of the Corporation, whether
common or preferred, liquidation distribution in the amount of $46.00 per share
plus accrued and unpaid dividends, if any. If the amounts payable with respect
to the Series A Preferred Stock are not paid in full, holders of the Series A
Preferred Stock shall share ratably on a per share basis. Upon payment of a full
amount of the stated value plus accrued and unpaid
4
<PAGE>
dividends, holders of the Series A Preferred Stock will not be entitled to any
further participation in any distributions or payments by the Corporation.
(9) Preemptive Rights. Holders of the Series A Preferred Stock will not
have preemptive rights, and the Series A Preferred Stock will be fully paid and
non-assessable.
B. Serial Preferred Stock
(1) General - The shares of Serial Preferred Stock may be divided and
issued in one or more series from time to time as determined by resolution of
the Board of Directors. Each series shall be so designated as to distinguish the
shares thereof from the shares of all other series and classes. All shares of
the Serial Preferred Stock, regardless of series, shall be identical except that
the Board of Directors, prior to the issuance of any shares of a particular
series of Serial Preferred Stock, may fix and determine the following relative
rights and preferences as between different series:
(a) The number of shares to constitute such series and the
distinctive serial designation thereof;
(b) The rate or rates of dividend, which may be subject to
adjustment, whether dividends are to be cumulative, and the terms and
conditions thereof;
(c) Whether shares may be redeemed and, if so, the redemption
price or prices and the terms and conditions of redemption;
(d) The amounts payable upon shares in the event of voluntary
and involuntary liquidation;
(e) Sinking fund provisions, if any, for the redemption or
purchase of shares;
(f) The terms and conditions, if any, on which shares may be
converted; and
(g) The voting rights, if any, in addition to those set forth
in Section D of this Article IV.
The Board of Directors may create and issue shares of any series of the
Serial Preferred Stock convertible, exchangeable or redeemable, at the option of
either the Corporation or the holder or upon the happening of a specified event
or events, into or for cash, property or rights, including bonds, debentures,
notes, or other securities of the Corporation or another corporation, at such
time or times, price or prices, or rate or rates, and with such adjustments, as
shall be stated in the resolutio of the Board of Directors for the issue of such
shares. With respect to fixing and determining the relative rights and
preferences as between different series of Serial Preferred Stock, it is the
purpose of these Articles of Incorporation to vest in the Board of
5
<PAGE>
Directors the maximum flexibility to fix and determine such rights and
preferences as is permissible under the Maine Business Corporation Act as may be
amended from time to time. In order to effectuate this purpose, subparagraphs
(a) through (g) above shall be broadly construed.
(2) Dividends - The holders of outstanding shares of Serial Preferred
Stock shall be entitled to receive, as and when declared by the Board of
Directors out of any funds legally available for the purpose, dividends at the
dividend rate or rates fixed for the particular series, and no more, payable in
such manner as the Board of Directors may determine for such series.
So long as any shares of Serial Preferred Stock shall be outstanding,
the Corporation shall not declare any dividends on the Common Stock of the
Corporation or any other class of stock of the Corporation ranking as to
dividends or distribution of assets junior to the shares of Serial Preferred
Stock, or make any payment on account of or set apart money for, a sinking or
other analogous fund for the purchase, redemption or other retirement of any
share of a class of junior stock, or make any distribution in respect thereof,
whether in cash or property or in obligations or stock of the Corporation,
unless all senior dividend rights and preferences with respect to dividends for
outstanding shares of Serial Preferred Stock have been fully satisfied.
In addition, as long as any shares of Serial Preferred Stock shall be
outstanding, the Corporation or any of its subsidiaries shall not purchase,
redeem or otherwise acquire any shares of any class of junior stock (except in
connection with a reclassification or exchange of any junior stock or the
purchase, redemption or other acquisition of junior stock with proceeds of a
reasonably contemporaneous sale of junior stock) nor shall any funds be set
aside or made available for any sinking fund for the purchase or redemption of
any share of any class of junior stock unless there shall be no arrearages in
dividends on the shares of Serial Preferred Stock for any past dividend period,
and the Corporation shall not be in default of any of its obligations to redeem
any shares of Serial Preferred Stock.
(3) Liquidation - In the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
shares of Serial Preferred Stock shall be entitled to be paid out of the assets
of the Corporation, before any distribution or payment is made to or set apart
for the holders of any shares of any class of junior stock, the amount fixed for
the particular series, plus, in each case, any amount equal to all unpaid
dividends accrued thereon, if any, and that portion of the dividend accrued
thereon, if any, up to the date of final payment or distribution to such
holders. In case the net assets of the Corporation are not sufficient to pay the
holders of all outstanding shares of Serial Preferred Stock the full amounts to
which they are respectively entitled as aforesaid, the entire net assets of the
Corporation shall be distributed ratably to the holders of all the outstanding
shares of Serial Preferred Stock in proportion to the full amounts to which the
are respectively entitled. Neither the merger or consolidation of the
Corporation into or with any one or more other corporations nor the sale,
conveyance, exchange or transfer of all or substantially all of the property or
assets of the Corporation shall be deemed a liquidation, dissolution or winding
up of the Corporation, voluntary or involuntary.
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<PAGE>
C. Common Stock
(1) Dividends - The holders of Common Stock shall be entitled to such
dividends as may be declared from time to time by the Board of Directors,
subject to the restrictions set forth in paragraph (2) of Section A of this
Article IV.
(2) Liquidation - In the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Common Stock shall be entitled to participate pro rata in the net assets of the
Corporation remaining after distributions to holders of the Serial Preferred
Stock as provided for in paragraph (3) of Section A hereof.
D. General
(1) Voting Rights - At each meeting of stockholders of the Corporation
each holder of Common Stock shall be entitled to one vote for each share held.
The holders of shares of each series of Serial Preferred Stock
shall have no voting rights, unless otherwise fixed and determined by the Board
of Directors prior to the issuance of any shares of a particular series of
Serial Preferred Stock.
There shall be no cumulative voting in elections for directors.
(2) Preemptive Rights - No holder of any shares of Common Stock and no
holder of any shares of Serial Preferred Stock shall be entitled as such, as a
matter of right, to subscribe for or to purchase any shares of stock of the
Corporation of any class, whether now or hereafter authorized or whether issued
for cash, property or services, or as a dividend or otherwise, or any
obligations, bonds, notes, debentures, stocks, warrants, options or other
securities into shares of stock of the Corporation or carrying or evidencing any
right to purchase shares of stock of any class.
(3) Issuance of Stock - The authorized but unissued shares of capital
stock of the Corporation may be issued from time to time in such amounts and
upon such terms and conditions, not inconsistent with the laws of Maine or this
Article, and for such consideration in cash, property, including stock or
securities of other corporations, or services as the Board of Directors may
determine.
(4) Securities Convertible Into Stock - The Board of Directors may at
any time create and issue bonds, debentures, notes and other securities
convertible into shares of capital stock of the Corporation, and may also create
and issue stock options and warrants entitling the holders thereof to purchase
shares of capital stock of the Corporation on such terms and conditions, but not
inconsistent with the laws of Maine or this Article, as the Board of Directors
may from time to time determine.
V. General Provisions.
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<PAGE>
1. The Board of Directors is authorized and empowered from time to
time, in its discretion, to make, amend or repeal the Bylaws, in part or in
whole, except with respect to any provision thereof which by law, the Articles
of Incorporation or the Bylaws requires action by the stockholders.
2. The Board of Directors shall have full power and authority to
determine the terms and manner of issue, including, but not limited to, the
consideration therefor, (in a manner consistent with applicable law) and to
issue or cause the issue of all shares of capital stock of the Corporation now
or from time to time hereafter authorized.
3. Meetings of stockholders may be held inside or outside the State of
Maine at such location within the United States as the Board of Directors may
determine. The books of this Corporation may be kept (subject to any provision
of Maine law) at such place or places within the State of Maine as may be
designated from time to time by the Board of Directors or in the Bylaws of this
Corporation. Election of directors need not be by ballot unless so requested by
any stockholder entitled to vot thereon.
4. The Board of Directors shall have the power to fix from time to time
their compensation. No person shall be disqualified from holding any office by
reason of any interest. In the absence of fraud, any director, officer or
stockholder of this Corporation individually, or any individual having any
interest in any concern which is a stockholder of this Corporation, or any
concern in which any of such directors, officers, stockholders or individuals
has any interest, may be a party to, or may be pecuniarily or otherwise
interested in, any contract, transaction or other act of this Corporation, and
(1) such contract, transaction or act shall not be in any way
invalidated or otherwise affected by that fact;
(2) no such director, officer, stockholder or individual shall be
liable to account to this Corporation for any profit or benefit
realized through any such contract, transaction or act; and
(3) any such director of this Corporation may be counted in
determining the existence of a quorum at any meeting of the
directors or of any committee thereof which shall authorize any
such contract, transaction or act, and may vote to authorize the
same;
provided, however, that any contract, transaction or act in which any
director or officer of this Corporation is so interested individually
or as a director, officer, trustee or member of any concern which is
not a subsidiary or affiliate of this Corporation, or in which any
directors or officers are so interested as holders, collectively, of a
majority of shares of capital stock or other beneficial interest at the
time outstanding in any concern which is not a subsidiary or affiliate
of this Corporation, shall be duly authorized or ratified by a
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majority of the directors who are not so interested, to whom the nature
of such interest has been disclosed and who have made any findings
required by law;
the term "interest" as used herein shall include any personal
interest and interest as a director, officer, stockholder,
shareholder, trustee, member or beneficiary of any concern;
the term "concern" as used herein shall mean any Corporation,
association, trust, partnership, limited liability company, firm,
person or other entity other than this Corporation; and
the phrase "subsidiary or affiliate" as used herein shall mean a
concern in which a majority of the directors, trustees, partners
or controlling persons is elected or appointed by the directors
of this Corporation, or is constituted of the directors or
officers of this Corporation.
To the extent permitted by law, the authorizing or ratifying vote of
the holders of a majority of the shares of each class of the capital
stock of this Corporation outstanding and entitled to vote for
directors at any annual meeting or a special meeting duly called for
the purpose (whether such vote is passed before or after judgment
rendered in a suit with respect to such contract, transaction or act)
shall validate any contract, transaction or act of this Corporation, or
of the Board of Directors or any committee thereof, with regard to all
stockholders of this Corporation, whether or not of record at the time
of such vote, and with regard to all creditors and other claimants
under this Corporation; provided, however, that
A. with respect to the authorization or ratification of
contracts, transactions or acts in which any of the
directors, officers or stockholders of this Corporation have
an interest, the nature of such contracts, transactions or
acts and the interest of any director, officer or
stockholder therein shall be summarized in the notice of any
such annual or special meeting, or in a statement or letter
accompanying such notice, and shall be fully disclosed at
any such meeting;
B. the stockholders so voting shall have made any findings
required by law;
C. stockholders so interested may vote at any such meeting
except to the extent otherwise provided by law; and
D. any failure of the stockholders to authorize or ratify such
contract, transaction or act shall not be deemed in any way
to invalidate the same or to deprive this Corporation, its
directors, officers or employees of its or their right to
proceed with such contract, transaction or act.
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<PAGE>
No contract, transaction or act shall be avoided by reason of any provision of
this paragraph 4 which would be valid but for such provision or provisions.
5. Each director or officer of the Corporation shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account of the Corporation, reports made to the Corporation by any of
its officers or employees or by counsel, accountants, appraisers or other
experts or consultants selected by the directors or officers of the Corporation
or upon other records of the Corporation.
6. The Corporation shall have all the powers conferred by the laws of
the State of Maine, provided that no such power shall be exercised in a manner
inconsistent with the Maine Business Corporation Act, the provisions of Title
9-B of the Maine Revised Statutes governing financial institution holding
companies, the United States Bank Holding Company Act of 1956, as amended, or
any other applicable provision of Maine or federal law.
7. Except as may be otherwise provided herein, this Corporation
reserves the right to amend, alter, change or repeal any provision contained in
these Articles of Incorporation in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
8. No stockholder shall have any right to examine any property or any
books, accounts or other writings of the Corporation if there is reasonable
ground for belief that such examination will for any reason be adverse to the
interests of the Corporation, and a vote of the directors refusing permission to
make such examination and setting forth that in the opinion of the directors
such examination would be adverse to the interests of the Corporation shall be
prima facie evidence that such examination would be adverse to the interests of
the Corporation. Every such examination shall be subject to such reasonable
regulations as the directors may establish in regard thereto.
9. The Board of Directors may specify the manner in which the accounts
of the Corporation shall be kept and may determine what constitutes net
earnings, profits and surplus, what amounts, if any, shall be reserved for any
corporate purpose, and what amounts, if any, shall be declared as dividends.
Unless the Board of Directors otherwise specifies, the excess of the
consideration for any share of its capital stock with par value issued by it
over such par value shall be paid-in surplus. The Board of Directors may
allocate to capital stock less than all of the consideration for any share of
its capital stock without par value issued by it, in which case the balance of
such consideration shall be paid-in surplus. All surplus shall be available for
any corporate purpose, including the payment of dividends.
10. The purchase or other acquisition or retention by the Corporation
of shares of its own capital stock shall not be deemed a reduction of its
capital stock. Upon any reduction of capital or capital stock, no stockholder
shall have any right to demand any distribution from the Corporation, except as
and to the extent that the stockholders shall have provided at the time of
authorizing such reduction.
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<PAGE>
11. Subject to the provisions of Title 9-B of the Maine Revised
Statutes governing financial institution holding companies, the United States
Bank Holding Company Act of 1956, as amended, or any other applicable provision
of Maine or federal law, the Corporation may carry on any business operation or
activity through a wholly or partly owned subsidiary and may be a partner in any
business enterprise which it would have power to conduct by itself.
12. Except as otherwise provided in these Articles of Incorporation,
the Articles of Incorporation of this Corporation may be amended at a meeting
duly called for the purpose, by the vote of a majority of each class of stock
outstanding and entitled to vote thereon provided that any provision added to or
changes made in the Articles of Incorporation by such amendment could have been
included in, and any provision deleted thereby could have been omitted from, the
original Articles of Incorporation filed at the time of such meeting.
13. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
notwithstanding any provision of law imposing such liability, except for any
matter in respect of which such director shall be liable under Section 720 of
the Maine Business Corporation Act or any amendment thereto or successor
provision thereto or shall be liable by reason that, in addition to any and all
other requirements for such liability, he (i) shall have breached his duty of
loyalty to the Corporation or its stockholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law or (iv) shall have derived
an improper personal benefit. Neither the amendment nor repeal of this paragraph
13, nor the adoption of any provision of the Articles of Incorporation
inconsistent with this paragraph 13, shall eliminate or reduce the effect of
this paragraph 13 in respect of any matter occurring, or any cause of action,
suit or claim that, but for this paragraph 13 would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
VI. Classified Board of Directors.
1. The Board of Directors of the Corporation shall be divided into
three classes, initially consisting of three directors each: Class I, Class II
and Class III. Each class shall consist, as nearly as may be practicable, of
one-third of the whole number of the Board of Directors. If the number of
directors is not evenly divisible by three, the Board of Directors shall
determine the number of directors to be elected initially into each class. The
initial members of Class I shall hold office for a term to expire at the annual
meeting of the stockholders to be held in 1999; the initial members of Class II
shall hold office for a term to expire at the annual meeting of the stockholders
to be held in 2000; and the initial members of Class III shall hold office for a
term to expire at the annual meeting of the stockholders to be held in 2001, and
in the case of each class, until their respective successors are duly elected
and qualified. At each annual election held commencing with the annual election
in 1999, the directors elected to succeed those whose terms expire shall be
identified as being of the same class as the directors they succeed and shall be
elected to hold office for a term to expire at the third annual meeting of the
stockholders after
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their election, and until their respective successors are duly elected and
qualified. If the number of directors changes, any increase or decrease in
directors shall be apportioned among the classes so as to maintain all classes
as equal in number as possible, and any additional director elected to any class
shall hold office for a term which shall coincide with the terms of the other
directors in such class and until his successor is duly elected and qualified.
2. Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation or the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
Bylaws of the Corporation, the affirmative vote of the holders of at least
eighty (80%) percent of the combined voting power of the outstanding stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend, alter, adopt any
provision inconsistent with or to repeal this Article VI.
VII. Indemnification of Officers, Directors, Employees and Agents, Etc.;
Insurance
1. General. The Corporation shall in all cases indemnify any person who
is or was a director or officer of the Corporation, and may (subject to Section
4 of this Article) indemnify any other person, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, partner, fiduciary, employee or agent of
another corporation, partnership, joint venture, trust, pension or other
employee benefit plan or other enterprise, against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement to the extent
actually and reasonably incurred by that person in connection with such action,
suit or proceeding; provided that no indemnification may be provided for any
person with respect to any matter as to which that person shall have been
finally adjudicated:
A. Not to have acted honestly or in the reasonable belief that
such person's action was in or not opposed to the best interests of
the Corporation or its shareholders or, in the case of a person
serving as a fiduciary of an employee benefit plan or trust, in or not
opposed to the best interests of that plan or trust, or its
participants or beneficiaries; or
B. With respect to any criminal action or proceeding, to have
had reasonable cause to believe that such person's conduct was
unlawful.
The termination of any action, suit or proceeding by judgment, order or
conviction adverse to that person, or by settlement or plea of nolo contendere
or its equivalent, shall not of itself create a presumption that such person did
not act honestly or in the reasonable belief that such person's action was in or
not opposed to the best interests of the Corporation or its shareholders or, in
the case of a person serving as a fiduciary of an employee benefit plan or
trust, in or not opposed to the best interests of that plan or trust or its
participants or beneficiaries and, with respect to any
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criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
2. Derivative Actions. Notwithstanding any provision of Section 1 or 4,
the Corporation shall not indemnify any person with respect to any claim, issue
or matter asserted by or in the right of the Corporation as to which that person
is finally adjudicated to be liable to the Corporation unless the court in which
the action, suit or proceeding was brought shall determine that, in view of all
the circumstances of the case, that person is fairly and reasonably entitled to
indemnity for such amounts as the court shall deem reasonable.
3. Special Right to Indemnification in Certain Cases. Any provisions of
Sections 1, 2 or 4 to the contrary notwithstanding, to the extent that a
director, officer, employee or agent of the Corporation, or any other person
whom the Corporation has authority to indemnify under Section 1, has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 or 2, or in defense of any claim, issue or
matter therein, that person shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred in connection therewith. The
right to indemnification granted by this section may be enforced by a separate
action against the Corporation, if an order for indemnification is not entered
by a court in the action, suit or proceeding wherein that director, officer,
employee, agent or other person was successful on the merits or otherwise.
4. Mandatory Indemnification for Directors and Officers; Determinations
in Specific Cases for Others. Any indemnification under Section 1, unless
ordered by a court or required by these Articles of Incorporation or the Bylaws
of the Corporation, shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of any employee, agent
or other person is proper in the circumstances and in the best interests of the
Corporation; provided that no such determination shall be required with respect
to any person who is or was a director or officer of the Corporation and
indemnification of any such person under Section 1 shall be required in all
cases, regardless of the capacity in which such director or officer is or was
made or threatened to be made a party to the action, suit or proceeding. Where
such a case specific determination is required, that determination shall be made
by the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to that action, suit or proceeding, or if such a quorum is
not obtainable, or even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or by the
shareholders. Such a determination once made may not be revoked and, upon the
making of that determination, the officer, employee, agent or other person may
enforce the indemnification against the Corporation by a separate action
notwithstanding any attempted or actua subsequent action by the Board of
Directors.
5. Advancement of Expenses. Except in the case of any person who is or
was a director or officer of the Corporation, expenses incurred in defending a
civil, criminal, administrative or investigative action, suit or proceeding may
be authorized and paid by the Corporation in advance of the final disposition of
that action, suit or proceeding upon a determination made in accordance with the
procedure established in Section 4 that, based solely
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on the facts then known to those making the determination and without further
investigation, the person seeking indemnification satisfied the standard of
conduct prescribed by Section 1, and upon receipt by the Corporation of:
A. A written undertaking by or on behalf of the person to
repay that amount if that person is finally adjudicated:
(1) Not to have acted honestly or in the reasonable belief
that such person's action was in or not opposed to the best
interests of the Corporation or its shareholders or, in the case
of a person serving as a fiduciary of an employee benefit plan or
trust, in or not opposed to the best interests of such plan or
trust or its participants or beneficiaries;
(2) With respect to any criminal action or proceeding, to have
had reasonable cause to believe that the person's conduct was
unlawful; or
(3) With respect to any claim, issue or matter asserted in any
action, suit or proceeding brought by or in the right of the
Corporation, to be liable to the Corporation, unless the court in
which that action, suit or proceeding was brought permits
indemnification in accordance with Section 2; and
B. A written affirmation by the person that such person has met
the standard of conduct necessary for indemnification by the
Corporation as authorized in this Section.
The undertaking required by Paragraph A shall be an unlimited general obligation
of the person seeking the advance, but need not be secured and may be accepted
without reference to financial ability to make the repayment. With respect to
any person who is or was a director or officer of the Corporation, such expenses
shall in all cases be advanced by the Corporation, as reasonably requested from
time to time, upon receipt by the Corporation, at the time of the initial
advance of the undertaking described in clause (A) and the affirmation described
in clause (B) above.
6. Indemnification Rights Not Exclusive; Enforceable by Separate
Action. The indemnification and entitlement to advances of expenses provided by
this Article shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in that person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, agent, trustee, partner or fiduciary and shall inure to the
benefit of the heirs, executors and administrators of such a person. A right to
indemnification required by this Article may be enforced by a separate action
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against the Corporation, if an order for indemnification has not been entered by
a court in any action, suit or proceeding in respect to which indemnification is
sought.
7. Insurance. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, partner, fiduciary, employee or agent of
another corporation, partnership, joint venture, trust, pension or other
employee benefit plan or other enterprise against any liability asserted against
that person and incurred by that person in any such capacity, or arising out of
that person's status as such, whether or not the Corporation would have the
power to indemnify that person against such liability under this Article.
8. Miscellaneous. For purposes of this Article, references to the
"Corporation" shall include, in addition to the surviving corporation or new
corporation, any participating corporation in a consolidation or merger. For
purposes of this Article, the Corporation shall be deemed to have requested a
person to serve an employee benefit plan whenever the performance of such
person's duties to the Corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person seeking indemnification with respect to
an employee benefit plan in the performance of such person's duties for a
purpose reasonably believed by such person to be in the interests of the
participants or beneficiaries of the plan shall be deemed to be for a purpose
which is in the best interests of the Corporation.
9. Amendment. Any amendment, modification or repeal of this Article VII
shall not deny, diminish or otherwise limit the rights of any person to
indemnification or advance hereunder with respect to any action, suit or
proceeding arising out of any conduct, action or omission occurring or allegedly
occurring at any time prior to the date of such amendment, modification or
repeal.
VIII. Required Vote of Shareholders in Certain Business Combinations
1. Notwithstanding anything to the contrary in these Articles of
Incorporation, the Corporation shall not engage in any business combination for
a period of 5 years following an interested stockholder's stock acquisition date
unless that business combination is:
A. Approved by the board of directors of the Corporation prior to
that interested stockholder's stock acquisition date; or
B. Approved, subsequent to that interested stockholder's stock
acquisition date, by the Board of Directors of the Corporation and
authorized by the affirmative vote, at a meeting called for that
purpose, of at least eighty percent (80%) of the outstanding voting
stock not beneficially owned by that interested stockholder or any
affiliate or associate of that interested stockholder or by persons who
are either directors or officers and also employees of the Corporation.
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2. This Article shall not apply to business combinations involving an
interested stockholder which became an interested stockholder inadvertently if
that interested stockholder:
A. As soon as practicable, divests itself of a sufficient amount
of the voting stock of the Corporation so that the interested
stockholder no longer is the beneficial owner, directly or indirectly,
of 25% or more of the outstanding voting stock of the Corporation; and
B. Has not been at any time within the 5-year period preceding the
announcement date with respect to that business combination, an
interested stockholder of the Corporation but for that inadvertent
acquisition.
3. As used in this Article, unless the context indicates otherwise, the
following terms have the following meanings.
A. "Affiliate" means a person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is
under common control with a specified person.
B. "Announcement date," when used in reference to any business
combination, means the date of the first public announcement of the
final, definitive proposal for that business combination.
C. "Associate," when used to indicate a relationship with any
person means:
(1) Any corporation or organization of which that person is a
director, officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of voting stock;
(2) Any trust or other estate in which that person has a
substantial beneficial interest or to which that person serves as
trustee or in a similar fiduciary capacity; and
(3) Any relative or spouse of that person, or any relative of
that spouse, who has the same home as that person.
D. "Beneficial owner," when used with respect to any stock, means
a person:
(1) That, individually or with or through any affiliate or
associate, beneficially owns that stock, directly or indirectly;
(2) That, individually or with or through any affiliate or
associate, has the right to acquire that stock, whether that
right is exercisable immediately or only after the passage of
time, pursuant to any agreement, arrangement or
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understanding, whether or not in writing, or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise; provided that a person is not deemed the beneficial
owner of stock tendered pursuant to a tender or exchange offer
made by that person or any of that person's affiliates or
associates until that tendered stock is accepted for purchase or
exchange; or the right to vote that stock pursuant to any
agreement, arrangement or understanding, whether or not in
writing; provided that a person is not deemed the beneficial
owner of any stock under this subparagraph if the agreement,
arrangement or understanding to vote that stock arises solely
from a revocable proxy given in response to a proxy solicitation
made in accordance with the applicable rules and regulations
under the Exchange Act, and is not then reportable on a Schedule
13D under the Exchange Act, or any comparable or successor
report; or
(3) That has any agreement, arrangement or understanding,
whether or not in writing, for the purpose of acquiring, holding,
voting, except voting pursuant to a revocable proxy as described
in subparagraph (2), or disposing of that stock with any other
person that beneficially owns, or whose affiliates or associates
beneficially own, directly or indirectly, that stock.
E. "Business combination," when used in reference to the
Corporation and any interested stockholder of the Corporation, means:
(1) Any merger or consolidation of the Corporation or any
subsidiary of the Corporation with that interested stockholder,
any other corporation, whether or not it is an interested
stockholder of the Corporation, which is, or after a merger or
consolidation would be, an affiliate or associate of that
interested stockholder, or any other corporation if the merger or
consolidation is caused by that interested stockholder and as a
result of that merger or consolidation this section is not
applicable to the surviving corporation;
(2) Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition, in one transaction or a series of
transactions, of assets of the Corporation or any subsidiary of
the Corporation having an aggregate market value equal to 10% or
more of the aggregate market value, or book value determined in
accordance with good accounting practices, of all the assets,
determined on a consolidated basis, of the Corporation, having an
aggregate market value equal to 10% or more of the aggregate
market value of all the outstanding stock of the Corporation, or
representing 10% or more of the earning power or income,
determined on a consolidated basis, of the Corporation proposed
by, on behalf of or pursuant to any agreement, arrangement or
understanding, whether or not in writing, with that interested
stockholder or any affiliate or associate of that interested
stockholder;
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(3) The issuance or transfer by the Corporation or any
subsidiary of the Corporation, in one transaction or a series of
transactions, of any stock of the Corporation or any subsidiary
of the Corporation which has an aggregate market value equal to
5% or more of the aggregate market value of all the outstanding
stock of the Corporation to that interested stockholder or any
affiliate or associate of that interested stockholder, except
pursuant to the exercise of warrants or rights to purchase stock
offered, or a dividend or distribution paid or made, pro rata to
all stockholders of the Corporation;
(4) The adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by, on behalf of or
pursuant to any agreement, arrangement or understanding, whether
or not in writing, with that interested stockholder or any
affiliate or associate of that interested stockholder;
(5) Any reclassification of securities, including, without
limitation, any stock split, stock dividend or other distribution
of stock in respect of stock, or any reverse stock split, or
recapitalization of the Corporation, or any merger or
consolidation of the Corporation, with any subsidiary of the
Corporation, or any other transaction, whether or not with, or
into, or otherwise involving that interested stockholder,
proposed by, on behalf of or pursuant to any agreement,
arrangement or understanding, whether or not in writing, with
that interested stockholder or any affiliate or associate of that
interested stockholder, any of which has the effect, directly or
indirectly, of increasing the proportionate share of the
outstanding shares of any class or series of voting stock or
securities convertible into voting stock of the Corporation or
any subsidiary of the Corporation which is directly or indirectly
owned by that interested stockholder or any affiliat or associate
of that interested stockholder, except as a result of immaterial
changes due to fractional share adjustments; or
(6) Any receipt by that interested stockholder or any
affiliate or associate of that interested stockholder of the
benefit, directly or indirectly, except proportionately as a
stockholder of the Corporation, of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by or through the
Corporation.
F. "Control," including the terms "controlling," "controlled
by" and "under common control with," means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting stock, by contract or otherwise. A person's beneficial ownership
of 10% or more of the outstanding voting stock of a corporation shall
create a presumption that such person has control of that corporation.
Notwithstanding this paragraph, a person is not deemed to have control
of a corporation if that person holds voting power, in good faith and
not for the purpose of circumventing this paragraph, as an agent, bank,
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broker, nominee, custodian or trustee for one or more beneficial owners
who do not individually or as a group have control of that corporation.
G. "Interested stockholder," when used in reference to the
Corporation, means any person, other than this Corporation or any
subsidiary of this Corporation, that:
(1) Is the beneficial owner, directly or indirectly, of 25% or
more of the outstanding voting stock of the Corporation; or
(2) Is an affiliate or associate of this Corporation and at
any time within the 5-year period immediately prior to the date
in question was the beneficial owner, directly or indirectly, of
25% or more of the outstanding voting stock of the Corporation.
For the purpose of determining whether a person is an interested
stockholder pursuant to this paragraph, the number of shares of
voting stock of the Corporation deemed to be outstanding shall
include shares deemed to be beneficially owned by the person
through application of paragraph D, but shall not include any
other unissued shares of voting stock of the Corporation which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise; provided that the term "interested
stockholder" does not include any person whose ownership of
voting stock in excess of the 25% limitation set forth in this
section is the result of action taken solely by the Corporation
and not caused directly or indirectly by that person, provided
that such person is an interested stockholder if thereafter that
person acquires additional shares of voting stock of the
Corporation, except as a result of further corporate action not
caused, directly or indirectly, by that person.
H. "Market value," when used in reference to property of the
Corporation, means:
(1) In the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in
question of a share of the stock on the composite tape for New
York Stock Exchange listed stocks, or, if the stock is not quoted
on that composite tape or, if the stock is not listed on that
exchange, on the principal United States Securities Exchange
registered under the Exchange Act on which the stock is listed,
or, if the stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of the stock during
the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations
System, or any system then in use, or, if no such quotations are
available, the fair market value on the date in question of a
share of the stock as determined in good faith by the Board of
Directors of the Corporation; and
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(2) In the case of property other than cash or stock, the fair
market value of that property on the date in question as
determined in good faith by the Board of Directors of the
Corporation.
I. "Stock" means:
(1) Any of the Corporation's stock or similar security, any
certificate of interest, any participation in any profit-sharing
agreement, any voting trust certificate or any certificate of
deposit for stock; and
(2) Any security convertible of the Corporation, with or
without consideration, into stock or any warrant, call or other
option or privilege of buying stock without being bound to do so,
or any other security of the Corporation carrying any right to
acquire, subscribe to or purchase stock.
J. "Stock acquisition date," with respect to any person and the
Corporation, means the date that such person first becomes an
interested stockholder of the Corporation.
K. "Subsidiary" of the Corporation means any other corporation of
which voting stock having 50% or more of the votes entitled to be cast
is owned, directly or indirectly, by the Corporation.
L. "Voting stock" means shares of stock of a corporation
entitled to vote generally in the election of directors.
4. The requirements of this Article shall be in addition to the
requirements of applicable law, and any additional requirements contained in
these Articles of Incorporation or Bylaws of the Corporation with respect to
business combinations as defined in this Article.
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EXHIBIT 3.3
ARTICLE I
Articles of Incorporation, Office, Location,
Seal and Section Headings
Section 1. Articles of Incorporation. The name of this corporation shall be
Merrill Merchants Bancshares, Inc. Reference in these bylaws to the Articles of
Incorporation shall mean this corporation's Articles of Incorporation as from
time to time in effect. References in these bylaws to the Maine Business
Corporation Act and to particular sections of said Act are to said Act and said
sections as from time to time in effect.
Section 2. Office and Location. The registered office shall be located at
201 Main Street, Bangor, Maine. This corporation shall be located in Bangor,
County of Penobscot, State of Maine. The principal office and place of business
of this corporation shall be at such place as the Board of Directors shall fix,
and the corporation may have such other offices and places of business, within
the State of Maine as the Board of Directors may from time to time fix, or as
the business of the corporation may from time to time require.
Section 3. Seal. The seal of this corporation shall be circular in form
with the name of the corporation, the word "Maine" and the year of its
incorporation so engraved on its face that it may be embossed on paper by
pressure, provided that the Board of Directors may adopt a wafer seal in any
form in respect of any particular document or instrument, in which case such
wafer seal affixed to such document or instrument shal1 be the corporate seal of
this corporation thereon for all purposes provided by law.
Section 4. Section Headings. The headings of Articles and Sections in these
bylaws are for convenience only, and shall not be taken into account in
construing these bylaws.
<PAGE>
ARTICLE II
Annual Meeting of Shareholders
Section 1. Place. All meetings of shareholders for the election of
Directors shall be held at the registered office of the corporation unless the
Board of Directors shall fix some other place within the State of Maine, or
outside of the State of Maine, for such meetings.
Section 2. Date. Annual meetings of shareholders shall be held during the
months of April or May in each year, or in such other month as the Board of
Directors may determine, at such hour as may be fixed by the President or Board
of Directors. At such meeting the shareholders shall elect a Board of Directors,
and transact such other business as may be brought before the meeting. If for
any reason such annual meeting is not held on the date specified herein, a
substitute annual meeting may be held at any time following such date in lieu
thereof, and any business transacted or elections held at such substitute annual
meeting shall be as valid as if transacted or held at the annual meeting. Such
substitute annual meeting may be called in the same manner and by the person or
persons prescribed for calling special meetings of shareholders.
Section 3. Notice. Unless waived in the manner prescribed by the Maine
Business Corporation Act, written notice of the annual meeting or substitute
annual meeting stating the place, day and hour thereof, shall be given in the
manner prescribed by the Maine Business Corporation Act, including without
limitation Section 604 thereof.
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ARTICLE III
Special Meetings of Shareholders
Section 1. Place and Date. Special meetings of shareholders for any purpose
or purposes may be held at such time and place, within the State of Maine or
outside the State of Maine as shall be stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
Section 2. Call. Special meetings of the shareholders, for any purpose or
purposes may be called by the Chairman of the Board, the President, the Clerk, a
majority of the Board of Directors or by the holders of at least thirty percent
(30%) in amount of capital stock of the bank issued and outstanding, subject to
the requirements of ss. 603 of the Maine Business Corporation Act.
Section 3. Shareholder Requested Meetings. In requesting a special meeting,
a shareholder's notice to the Clerk shall set forth as to each matter the
shareholder proposes to bring before the meeting (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of the
bank which are beneficially owned by the shareholder and (iv) any material
interest of the shareholder in such business. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that such business
was not properly brought before the meeting in accordance with these provisions,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Section 4. Notice. Unless waived in the manner prescribed by the Maine
Business Corporation Act, written notice of a special meeting of shareholders,
stating the place, day and
<PAGE>
hour thereof, and the purpose or purposes for which the meeting is called, shall
be delivered in the manner prescribed by the Maine Business Corporation Act,
including without limitation Sections 604, 805, 902 and 1003 thereof.
ARTICLE IV
Quorum and Voting of Shares
Section 1. Quorum. Except as otherwise provided by the laws of Maine, at
each meeting of shareholders of the Corporation the holders of shares sufficient
to cast a majority of the votes represented by all voting shares of the
corporation issued and outstanding and entitled to vote at such meeting, present
in person or by proxy, shall constitute a quorum.
Section 2. Adjournments. Whether or not a quorum is present at any annual
or special meeting of shareholders, a majority in interest of those present in
person or by proxy and entitled to vote may adjourn the meeting from time to
time to another time or place, at which time, if a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called. Notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken, unless the adjournment is for more than thirty (30) days or a new record
date is fixed for the adjourned meeting, in which event a notice of the
adjourned meeting shall be given to each shareholder of record entitled to vote
at the meeting.
Section 3. Organization. Each meeting of the shareholders shall be presided
over by the Chairman of the Board, or in his or her absence by the President, or
if neither the Chairman nor the President is present, by the Executive Vice
President. The Clerk, or in his or her absence the Secretary or a temporary
Clerk, shall act as secretary of each meeting of the shareholders. In
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the absence of the Clerk and the Secretary, the presiding officer of the meeting
may appoint any person present to act as temporary Clerk of the meeting. The
presiding officer of any meeting of the shareholders, unless prescribed by law
or regulation or unless the Chairman of the Board has otherwise determined,
shall determine the order of the business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussions
as seem to him or her to be in order.
Section 4. Proposals. At an annual meeting of the shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting by
or at the direction of the Board, or (c) otherwise properly brought before the
meeting by a shareholder. For business to be properly brought before an annual
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Clerk of the Corporation. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation not less than ninety (90) days prior to the anniversary date
of the immediately preceding annual meeting. A shareholder's notice to the Clerk
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (a) a brief description of the business desired to be brought
before the annual meeting, (b) the name and address, as they appear in the
Corporation's books of the shareholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder, and (d) any material interest of the shareholder in such business.
Notwithstanding anything herein to the contrary, no business shall be conducted
at an annual meeting except in accordance with the procedures set forth in this
Article
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IV, Section 4. The presiding officer of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Article IV,
Section 4, and if he or she should so determine, he or she shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted. This provision is not a limitation on any other applicable
laws or regulations.
Section 5. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of the shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each, which list shall be kept on
file at the registered office of the Corporation. It shall be subject to
inspection by any shareholder at anytime during usual business hours, a period
of not less than ten (10) days prior to such meeting. The original stock
transfer books shall be prima facie evidence as to who are the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
Section 6. Voting. At each meeting of the shareholders, every shareholder
of record of the Corporation entitled to vote at such meeting shall be entitled
to vote the common or other shares of voting stock standing in his or her name
on the books of the Corporation and entitled to be voted at such meeting:
(i) At the close of business on the next day preceding the day on which
notice of such meeting is given; or
(ii) If notice of such meeting shall have been waived, then at the close of
business on the day next preceding the day on which such meeting is
held.
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Each share of common stock shall be entitled to one vote per share, and
there shall be no cumulative voting in elections of directors. Except as
permitted by law, shares of its own stock belonging to the Corporation shall not
be voted directly or indirectly. Every shareholder entitled to vote at any
meeting of shareholders may cast such vote in person or by proxy appointed by an
instrument in writing, signed by such shareholder or his or her duly authorized
attorney delivered to the secretary of the meeting; provided, however, that no
proxy shall be voted after eleven (11) months from its date, unless the proxy
expressly provides for a longer duration. At all meetings of the shareholders
all matters (except where other provision is made by law or by the Articles of
Incorporation or these Bylaws) shall be decided by a majority of the votes cast
by the shareholders present in person or by proxy and entitled to vote thereon,
provided that a quorum is present, and further provided that in elections of
directors, those candidates who receive the greatest number of votes cast at the
meeting by the holders of shares entitled to vote to elect directors, even
though not receiving a majority of the votes cast, shall be deemed elected.
Section 7. Action by Consent. Any action required or permitted by law to be
taken at any annual or special meeting of shareholders may be taken without a
meeting if written consents, setting forth the action so taken, are signed by
the holders of all outstanding shares entitled to vote on such action and are
filed with the Clerk of the corporation as part of the corporate records. Such
written consents may contain statements in the form of, and in any case shall
have the same effect as, unanimous vote or votes of the shareholders and may be
stated as such in any certificate or document required or permitted to be filed
with the Secretary of the State of Maine, and in any certificate or document
prepared or certified by any officer of the corporation for any purposes.
<PAGE>
ARTICLE V
Capital Stock Provisions
The number of shares of stock which the Corporation shall be authorized to
issue shall be (i) 50,000 shares of preferred stock (herein called the serial
preferred stock), issuable in series as hereinafter provided for, and (ii)
1,000,000 shares of common stock (herein called the common stock) having a par
value of One Dollar ($1.00) per share.
The preferences and voting powers of the serial preferred stock and the
common stock, the restrictions and qualifications thereof and the limits (if
any) of the variations in each series of the serial preferred stock are set
forth below. For the purposes of this Article, the term "junior stock" shall
mean common stock and shares of stock of the Corporation of any other class
ranking junior to shares of serial preferred stock either in respect of the
payment of dividends or in respect of any payment upon liquidation, dissolution
or winding up of the Corporation.
A. COMMON STOCK
Section 1. Dividends. Whenever cash dividends upon the preferred stock at
the time outstanding, to the extent of the preference to which such stock is
entitled, shall have been paid in full for all past dividend periods or declared
and set apart for payment, such dividends, payable in cash, stock, or otherwise,
as may be determined by the Board of Directors, may be declared by the Board of
Directors and paid from time to time to the holders of the common stock out of
the remaining net profits or surplus of the Corporation.
Section 2. Liquidation. In the event of any liquidation, dissolution, or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
all assets and funds of the Corporation remaining after the payment to the
holders of the preferred stock of the full amounts
<PAGE>
to which they shall be entitled, as hereinbefore provided, shall be divided and
distributed among the holders of the common stock according to their respective
shares.
B. SERIAL PREFERRED STOCK
Section 1. General. The serial preferred stock shall consist of 50,000
shares. The shares of serial preferred stock may be divided and issued in one or
more series from time to time as determined by resolution of the Board of
Directors. Each series shall be so designated as to distinguish the shares
thereof from the shares of all other series and classes. The first of such
series shall be designated series "A". All shares of the serial preferred stock,
regardless of series, shall be identical except that the Board of Directors,
prior to the issuance of any shares of a particular series of serial preferred
stock may fix and determine the following relative rights and preferences as
between different series:
(a) The number of shares to constitute such series and the distinctive
serial designation thereof;
(b) The rate or rates of dividend, which may be subject to adjustment,
whether dividends are to be cumulative, and the terms and conditions
thereof;
(c) Whether shares may be redeemed and, if so, the redemption price or
prices and the terms and conditions of redemption of such shares;
(d) The amounts payable upon shares in the event of voluntary and
involuntary liquidation;
(e) Sinking fund provisions, if any, for the redemption or purchase of
shares;
(f) The terms and conditions, if any, on which shares may be converted;
and
(g) The voting rights of such shares, if any.
The Board of Directors may create and issue shares of any series of the
serial preferred stock convertible, exchangeable or redeemable, at the option of
either the Corporation or the holder or upon the happening of a specified event
or events, into or for cash, property or rights,
<PAGE>
including bonds, debentures, notes, or other securities of the Corporation or
another corporation, at such time or times, price or prices, or rate or rates,
and with such adjustments as shall be stated in the resolution of the Board of
Directors for the issue of such shares.
Section 2. Dividends. The holders of outstanding shares of serial preferred
stock shall be entitled to receive, as and when declared by the Board of
Directors out of any funds legally available for the purpose, cash dividends at
the dividend rate or rates fixed for the particular series, and no more, payable
in cash quarterly on the last day of March, June, September and December of each
year.
So long as any shares of serial preferred stock shall be outstanding, the
Corporation shall not declare any dividends on the common stock of the
Corporation or any other stock of the Corporation ranking as to dividends or
distribution of assets junior to the shares of serial preferred stock, or make
any payment on account of or set apart money for, a sinking or other analogous
fund for the purchase, redemption or other retirement of any share of junior
stock, or make any distribution in respect thereof, whether in cash or property
or in obligations or stock of the Corporation, other than junior stock, unless
full cumulative dividends shall have been paid or declared and set apart for
payment upon all outstanding shares of serial preferred stock other than junior
stock, at the date of such declaration in the case of any such dividend, or the
date of such setting apart in the case of any such fund, or the date of such
payment or distribution in the case of any other junior stock payment.
No dividends shall be declared on shares of serial preferred stock of any
series in respect of any dividend payment date, unless there shall likewise be
or have been paid or declared, and a sum set apart sufficient for the payment
thereof on all outstanding shares of serial preferred stock of each series for
all of the dividend periods terminating on the same date, dividends in
<PAGE>
proportion to the respective dividend rates fixed therefor as hereinabove
provided. If dividends on any shares of serial preferred stock shall be in
arrears, the holders thereof shall not be entitled to any interest, or sum of
money in lieu of interest, on such dividends.
In addition, as long as any shares of serial preferred stock shall be
outstanding, the Corporation or any of its subsidiaries shall not purchase,
redeem or otherwise acquire any shares of any junior stock (except in connection
with a reclassification or exchange of any junior stock or the purchase,
redemption or other acquisition of junior stock with proceeds of a reasonably
contemporaneous sale of junior stock) nor shall any funds be set aside or made
available for any sinking fund for the purchase or redemption of any junior
stock unless there shall be no arrearages in dividends on the shares of serial
preferred stock for any past quarterly dividend period, and the Corporation
shall not be in default of any of its obligations to redeem any shares of serial
preferred stock.
Section 3. Liquidation. In the event of the liquidation, dissolution or
winding up of the corporation, whether voluntary or involuntary, the holders of
shares of serial preferred stock shall be entitled to be paid out of the assets
of the Corporation, before any distribution or payment is made to, or set apart
for the holders of any shares of junior stock, the amount fixed for the
particular series, plus, in each case, an amount equal to all unpaid dividends
accrued thereon, if any, and that portion of the quarterly dividend accrued
thereon, if any, up to the date of final payment or distribution to such
holders. In case the net assets of the Corporation are not sufficient to pay the
holders of all outstanding shares of serial preferred stock the full amounts to
which they are respectively entitled as aforesaid, the entire net assets of the
Corporation shall be distributed ratably to the holders of all the outstanding
shares of serial preferred stock in proportion to the full amounts to which they
are respectively entitled. Neither the merger or
<PAGE>
consolidation of the Corporation into or with any one or more other corporations
nor the sale, conveyance, exchange or transfer of all or substantially all the
property or assets of the Corporation shall be deemed a liquidation, dissolution
or winding up of the Corporation, voluntary or involuntary.
Section 4. Voting. The holders of the outstanding serial preferred stock of
the Corporation shall not be entitled to vote at meetings of the shareholders of
the Corporation, unless otherwise determined pursuant to paragraph B., section
1. of this Article V. Subject to the preferences, qualifications, limitations,
voting rights, and restrictions with respect to each class of the authorized
shares of the corporation having any preference or priority over the common
shares, the holders of the common shares shall have and possess all rights
appertaining to authorized shares of the Corporation.
Section 5. Preemptive Rights. No holder of shares of any class of stock of
the Corporation shall be entitled as of right to subscribe for, purchase, or
receive any part of any new or additional shares of any class, whether now or
hereafter authorized, or of bonds, debentures, or other evidences of
indebtedness convertible into or exchangeable for shares, but all such new or
additional shares of any class, or bonds, debentures, or other evidences of
indebtedness convertible into or exchangeable for shares, may be issued and
disposed of by the Board of Directors on such terms and for such consideration,
so far as may be permitted by law, and to such person or persons as the Board of
Directors in their absolute discretion may deem advisable.
Section 6. Issuance of Stock. The authorized but unissued shares of capital
stock of the Corporation may be issued from time to time in such amounts and
upon such terms and conditions, not inconsistent with the laws of Maine or this
Article, and for such consideration in cash, property, including stock or
securities of other corporations, or services as the Board of
<PAGE>
Directors may determine. The Board of Directors may create and issue bonds,
debentures, notes and other securities convertible into shares of capital stock
of the Corporation, and may also create and issue stock options and warrants
entitling the holders thereof to purchase shares of capital stock of the
Corporation on such terms and conditions, but not inconsistent with the laws of
Maine or this Article, as the Board of Directors may from time to time
determine.
ARTICLE VI
Directors
Section 1. Number and Term. The business and affairs of the Corporation
shall be managed by or under the direction of a Board of Directors. The number
of Directors of the Corporation that shall constitute the initial Board of
Directors shall be four (4). The initial members of the Board of Directors
established in the incorporator's meeting shall serve as Directors until the
first meeting of shareholders or until their successors are elected and shall
qualify as such. A majority of Directors may increase or decrease the number of
Directors by the affirmative vote of at least sixty-seven percent (67%) of the
Directors in office at the time of such vote, provided in each case that the
minimum number of Directors shall be four (4) and the maximum number of
Directors shall be twenty (20), and further provided that no decrease in the
number of Directors shall have the effect of shortening the term of any
incumbent Director. The Directors shall be elected at the annual meeting of the
shareholders, and each Director elected shall serve until the next succeeding
annual meeting and until his successor shall have been elected and qualified.
Section 2. Vacancies, Resignation and Removal. Any vacancy in the Board of
Directors, including newly created Directorships created by increase in the
number of Directors,
<PAGE>
may be filled by vote of the majority of the remaining Directors. Any Director
may resign his office by delivering a written resignation to the President or
Clerk. Directors may be removed from office at a special meeting of the
shareholders called expressly for that purpose, in the manner prescribed by the
Maine Business Corporation Act, including without limitation Section 707
thereof, as amended from time to time. Any Director or the entire Board of
Directors of the Corporation may be removed at such meeting with or without
cause by the affirmative vote of the holders of at least sixty-seven percent
(67%) of the shares then entitled to vote in an election of Directors.
Additionally, Directors may be removed in the manner specified in the Maine
Business Corporation Act, as amended from time to time.
Section 4. Powers. The Board of Directors shall manage and control the
business, property and affairs of the corporation. In the management and control
of the business, property and affairs of the corporation, the Board of Directors
is hereby vested with all of the powers and authority of the corporation itself,
so far as not inconsistent with the Maine Business Corporation Act or other laws
of the State of Maine, the Articles of Incorporation or these bylaws.
The Board of Directors shall have the exclusive power to make, alter, amend
and repeal these bylaws. Amendment to these bylaws shall be submitted to the
Superintendent for the State of Maine Bureau of Banking and shall become
effective ten (10) days after such submission unless the Superintendent shall
otherwise indicate.
Section 5. Qualification. At least two-thirds (2/3) of the Directors
comprising the Board of Directors shall be residents of the State of Maine and
any Director removing himself or herself from the State of Maine shall
immediately be replaced if such removal results in a reduction of the number of
resident Directors below two-thirds (2/3) of the total number of Directors then
in office.
<PAGE>
Section 6. Compensation. The Board of Directors, by the affirmative vote of
a majority of the Directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all Directors for services to the corporation as Directors,
officers or otherwise.
Section 7. Nomination of Directors. Subject to the rights of holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for the election of Directors may be
made by the Board of Directors or a committee appointed by the Board or by any
shareholder entitled to vote generally in an election of directors. However, any
shareholder entitled to vote generally in an election of Directors may nominate
one or more persons for election as Directors at a meeting only if written
notice of such shareholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid to the Clerk of the Corporation not later than (i) ninety (90) days
prior to the anniversary date of the immediately preceding annual meeting, and
(ii) with respect to an election to be held at a special meeting of shareholders
for the election of directors, the close of business on the tenth day following
the date on which notice of such meeting is first given to shareholders. Each
such notice shall set forth: (a) the name and address of the shareholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
<PAGE>
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (e)
the consent of each nominee to serve as a director of the Corporation if so
elected. The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedures.
ARTICLE VII
Meetings of the Board of Directors
Section 1. Annual Meeting. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the
shareholders at their meeting electing them, or if no such time and place are so
fixed, said first meeting shall be held at the place of and immediately
following such meeting of shareholders. In either event, no notice of such
meeting shall be necessary. Such meeting of the Directors may also convene at
such place and time as shall be fixed by the consent in writing of all the
Directors.
Section 2. Regular Meetings. Regular meetings of the Board of Directors may
be held upon such notice, or without notice, and at such time and place as shall
from time to time be fixed by the Board. Unless otherwise specified by the
Board, no notice of such regular meetings shall be necessary, except as
otherwise provided by the Maine Business Corporation Act, including without
limitation Section 601 thereof.
Section 3. Special Meetings. Special meetings of the Board of Directors may
be called by the President, Clerk, Secretary or any other person or persons
authorized by the Maine Business Corporation Act to call such meetings. The
person or persons calling the special meeting shall fix the time and place
thereof.
<PAGE>
Unless notice of a special meeting is waived in the manner prescribed by
the Maine Business Corporation Act, notice of each special meeting of the Board
of Directors shall be given by the Clerk, Secretary or the person or persons
calling the special meeting. It shall be sufficient notice to a Director of a
special meeting to send notice by mail at least 48 hours, or by telegram at
least 24 hours, before the meeting addressed to him at his usual or last known
business or residence address, or to give notice to him in person or by
telephone at least 24 hours before the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of the meeting, except as otherwise
required by the Maine Business corporation Act, including without limitation
Section 601 thereof. The giving of notice of a special meeting of the Board of
Directors by the person or persons authorized to call the same shall constitute
the call thereof.
Section 4. Attendance as Waiver of Notice. Attendance of a Director at any
meeting shall constitute a waiver of notice of such meeting, except where a
Director attends for the express purpose, stated at the commencement of the
meeting, of objecting to the transaction of any business because the meeting is
not lawfully called, noticed or convened.
Section 5. Quorum and Vote Required. At any meeting of the Directors, a
majority of the Directors then in office shall constitute a quorum for the
transaction of business. The Directors present at a duly called or held meeting
at which a quorum was once present may continue to do business and take action
at the meeting notwithstanding the withdrawal of enough Directors to leave less
than a quorum. Any meeting may be adjourned from time to time by a majority of
the votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice if the time and place to
which it is adjourned is fixed and announced at such meeting. The vote of a
majority of the Directors present at a
<PAGE>
meeting at which a quorum is present shall be the act of the Board of Directors
unless the vote of a greater number is required by these bylaws or the Maine
Business Corporation Act.
Section 6. Action by Consent. Any action required or permitted to be taken
at a meeting of the Directors, or of a committee of the Directors, may be taken
without a meeting if all of the Directors, or all of the members of the
committee, as the case may be, sign written consents setting forth the action
taken or to be taken, at any time before or after the intended effective date of
such action. Such consents shall be filed with the minutes of Directors'
meetings or committee meetings, as the case may be, and shall have, and may be
stated by any officer of the corporation to have, the same effect as a unanimous
vote or resolution of the Board of Directors at a legal meeting thereof. Any
such action taken by unanimous written consents may, but need not be, set forth
in such consents in the form of resolutions or votes.
Section 7. Telephone Meetings. Members of the Board of Directors or of any
committee designated thereby may participate in a meeting of the Board or of
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participating in a meeting in such manner by any member who does
not object at the beginning of such meeting to the holding thereof in such
manner shall constitute presence in person at such meeting.
ARTICLE VIII
Executive Committee
Section 1. Executive Committee. The Board of Directors by a resolution
adopted by a majority of the full Board of Directors then in office may
designate from among its members an executive committee consisting of two or
more Directors, and may delegate to such executive
<PAGE>
committee all the authority of the Board of Directors in the management of the
Corporation's business and affairs, except as limited by the Maine Business
Corporation Act, including without limitation Section 713 thereof or the
resolution establishing the executive committee or any other resolution
thereafter adopted by the Board of Directors. Vacancies in the membership of the
executive committee shall be filled by resolution adopted by a majority of the
full Board of Directors then in office. The executive committee shall keep
regular minutes of its proceedings and report the same to the Board of
Directors. Members of the executive committee may be removed from office, with
or without cause, by resolution adopted by a majority of the full Board of
Directors then in office. So far as practicable, the provisions of these bylaws
relating to the calling, noticing and conduct of meetings of the Board of
Directors shall govern the calling, noticing and conduct of meetings of the
executive committee.
ARTICLE IX
Officers
Section 1. Number. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, a Clerk who shall be a resident of
Maine, a Secretary and Treasurer. The Board of Directors may also elect one or
more Vice Presidents, (one of whom may be designated by the Board of Directors
as the Executive Vice President), and one or more Assistant Secretaries and
Assistant Treasurers.
Section 2. When Chosen. The Board of Directors at its initial meeting after
the incorporation of the corporation and at each regular meeting held after each
annual meeting of shareholders shall choose such officers, none of whom need be
a member of the Board; but the
<PAGE>
Clerk need not be elected annually and shall hold office until the corporation
changes its Clerk in the manner provided by the Maine Business Corporation Act.
Section 3. Additional Officers. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 4. Compensation of Officers. The salaries of all officers of the
corporation shall be fixed by the Board of Directors.
Section 5. Vacancies, Term and Removal. The officers of the corporation
shall hold office until their successors are chosen and qualify. Any officer
elected or appointed by the Board of Directors may be removed at any time by the
Board of Directors, with or without cause. Any vacancy occurring in any office
of the corporation may be filled by the Board of Directors.
Section 6. President. The President shall be the chief executive officer of
the corporation, shall preside at all meetings of the shareholders and of the
Board of Directors, shall have the general and active management of the business
of the corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 7. Vice President. The Vice President, if any, or if there shall be
more than one, the Vice Presidents in the order determined by the Board of
Directors, shall, in the absence of or in the case of the disability of the
President, perform the duties and exercise the powers of the President and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe. If the Board of Directors shall appoint or
elect an Executive Vice President, it shall be presumed that he is the Vice
President determined by the Board of Directors to act in case of the absence or
disability of the President.
<PAGE>
Section 8. Clerk. The Clerk shall keep, in a book kept for such purpose,
the records of all shareholders' meetings, and shall perform such duties and
have such powers as are prescribed by the Maine Business Corporation Act,
including without limitation Subsection 11 of Section 714 thereof. The Clerk
shall have custody of the corporate seal and may affix the same to documents
requiring it, and attest the same. The Clerk may permit the President or
Secretary to keep a duplicate of the corporate seal.
Section 9. Secretary. The Secretary or the Clerk shall attend all meetings
of the Board of Directors and record all the proceedings of the Board of
Directors in a book kept for that purpose, and shall give notice of special
meetings of the Board of Directors, and shall perform like duties for the
executive committee. The Secretary shall perform such other duties as may be
prescribed by the Board of Directors or President, under whose supervision he
shall be. He, or an Assistant Secretary, shall have authority to affix the
corporate seal to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such Assistant Secretary or by
the Clerk. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the same. The
Secretary shall have such other powers and duties as are prescribed by law or by
the Board of Directors. In case of the absence of or disability of the
Secretary, or if the Corporation shall have no Secretary, all of the powers of
the Secretary may be exercised by the Clerk.
Section 10. Assistant Secretaries. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries, in the order determined by the Board
of Directors, shall, in case of the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
<PAGE>
Section 11. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the corporation.
Section 12. Assistant Treasurers. The Assistant Treasurer, or, if there
shall be more than one, the Assistant Treasurers, in the order determined by the
Board of Directors, shall, in the absence of or in case of the disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
ARTICLE X
Voting Shares of Other Corporations
Section 1. Voting Shares of Other Corporations. The chairman of the board,
if any, President, and Vice President, Secretary and Treasurer of this
corporation, in that order, shall have authority to vote shares of other
corporations standing in the name of this corporation, and the President,
Secretary or Clerk is authorized to execute in the name and on behalf of this
corporation proxies appointing any one or more of the officers first above
named, in the order above named, as the proxy agents.
<PAGE>
ARTICLE XI
Lost Certificates
Section 1. Lost Certificates. The Board of Directors may direct a
replacement or duplicate certificate for shares of this corporation to be issued
in place of any certificate theretofore issued by the corporation alleged to
have been lost, destroyed or mutilated. When authorizing such issue of a new
certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions as it
deems expedient, and may require such indemnities as it deems adequate, to
protect the corporation and its officers and agents from any claim that may be
made against it with respect to any such certificate alleged to have been lost,
destroyed or mutilated. The powers and duties of the Board prescribed in this
ARTICLE XI may be delegated in whole or in part to any registrar or transfer
agent.
ARTICLE XII
Transfers and Registration of Shares
Section 1. Transfers of Shares. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, a new certificate shall be issued to the person entitled
thereto, and the old certificate canceled and the transaction recorded upon the
books of the corporation, provided that the provisions of these bylaws, if any,
respecting restrictions on sales or transfers of shares have been complied with.
Section 2. Registered Shareholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends,
<PAGE>
and to vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not it shall have express or other notice
thereof.
ARTICLE XIII
Indemnification of Officers, Directors, Employees and
Agents, Etc.; Insurance
Section 1. General. The corporation shall in all cases indemnify any person
who is or was a director or officer of the corporation, and may (subject to
Section 4 of this Article) indemnify any other person, who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, trustee, partner, fiduciary, employee or agent of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement to the extent actually and
reasonably incurred by that person in connection with such action, suit or
proceeding; provided that no indemnification may be provided for any person with
respect to any matter as to which that person shall have been finally
adjudicated:
A. Not to have acted honestly or in the reasonable belief that that
person's action was in or not opposed to the best interests of the
corporation or its shareholders or, in the case of a person serving as
a fiduciary of an employee benefit plan or trust, in or not opposed to
the best interests of that plan or trust, or its participants or
beneficiaries; or
<PAGE>
B. With respect to any criminal action or proceeding, to have had
reasonable cause to believe that that person's conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order or
conviction adverse to that person, or by settlement or plea of nolo contendere
or its equivalent, shall not of itself create a presumption that that person did
not act honestly or in the reasonable belief that that person's action was in or
not opposed to the best interests of the corporation or its shareholders or, in
the case of a person serving as a fiduciary of an employee benefit plan or
trust, in or not opposed to the best interests of that plan or trust or its
participants or beneficiaries and, with respect to any criminal action or
proceeding, had reasonable cause to believe that that person's conduct was
unlawful.
Section 2. Derivative Actions. Notwithstanding any provision of Section 1
or 4, the corporation shall not indemnify any person with respect to any claim,
issue or matter asserted by or in the right of the corporation as to which that
person is finally adjudicated to be liable to the corporation unless the court
in which the action, suit or proceeding was brought shall determine that, in
view of all the circumstances of the case, that person is fairly and reasonably
entitled to indemnity for such amounts as the court shall deem reasonable.
Section 3. Special Right to Indemnification in Certain Cases. Any
provisions of Section 1, 2 or 4 to the contrary notwithstanding, to the extent
that a director, officer, employee or agent of the corporation, or any other
person whom the corporation has authority to indemnify under Section 1, has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 or 2, or in defense of any claim, issue or
matter therein, that person shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred in connection therewith. The
right to indemnification granted by this Subsection may
<PAGE>
be enforced by separate action against the corporation, if an order for
indemnification is not entered by a court in the action, suit or proceeding
wherein that director, officer, employee, agent or other person was successful
on the merits or otherwise.
Section 4. Mandatory Indemnification for Directors and Officers;
Determinations in Specific Cases for Others. Any indemnification under Section
1, unless ordered by a court or required by these bylaws, shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of any employee, agent or other person is proper in the
circumstances and in the best interests of the corporation; provided that no
such determination shall be required with respect to any person who is or was a
director or officer of the corporation and indemnification of any such person
under Section 1 shall be required in all cases, regardless of the capacity in
which such director or officer is or was made or threatened to be made a party
to the action, suit or proceeding. Where such a case specific determination is
required, that determination shall be made by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to that
action, suit or proceeding, or if such a quorum is not obtainable, or even if
obtainable, if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or by the shareholders. Such a determination
once made may not be revoked and, upon the making of that determination, the
employee, agent or other person may enforce the indemnification against the
corporation by a separate action notwithstanding any attempted or actual
subsequent action by the Board of Directors.
Section 5. Advancement of Expenses. Except in the case of any person
who is or was a director or officer of the corporation, expenses incurred in
defending a civil, criminal, administrative or investigative action, suit or
proceeding may be authorized and paid by the corporation in advance of the final
disposition of that action, suit or proceeding upon a
<PAGE>
determination made in accordance with the procedure established in Section 4
that, based solely on the facts then known to those making the determination and
without further investigation, the person seeking indemnification satisfied the
standard of conduct prescribed by Section 1, and upon receipt by the corporation
of:
A. A written undertaking by or on behalf of the person to repay that
amount if that person is finally adjudicated:
(1) Not to have acted honestly or in the reasonable belief that that
person's action was in or not opposed to the best interests of
the corporation or its shareholders or, in the case of a person
serving as a fiduciary of an employee benefit plan or trust, in
or not opposed to the best interests of such plan or trust or its
participants or beneficiaries;
(2) With respect to any criminal action or proceeding, to have had
reasonable cause to believe that the person's conduct was
unlawful; or
(3) With respect to any claim, issue or matter asserted in any
action, suit or proceedings brought by or in the right of the
corporation, to be liable to the corporation, unless the court,
in which that action, suit or proceeding was brought permits
indemnification in accordance with Subsection 2; and
B. A written affirmation by the person that he has met the standard of
conduct necessary for indemnification by the corporation as authorized
in this Section.
The undertaking required by Paragraph A shall be an unlimited general obligation
of the person seeking the advance, but need not be secured and may be accepted
without reference to financial ability to make the repayment. With respect to
any person who is or was a director or officer of the corporation, such expenses
shall in all cases be advanced by the corporation, as reasonably requested from
time to time, upon receipt by the corporation, at the time of the initial
advance, of the undertaking described in clause (A) and the affirmation
described in clause (B) above.
<PAGE>
Section 6. Bylaw Indemnification Rights Not Exclusive; Enforceable by
Separate Action. The indemnification and entitlement to advances of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in that
person's official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee, agent, trustee, partner or fiduciary and shall inure to the
benefit of the heirs, executors and administrators of such a person. A right to
indemnification required by this Article may be enforced by a separate action
against the corporation, if an order for indemnification has not been entered by
a court in any action, suit or proceeding in respect to which indemnification is
sought.
Section 7. Insurance. The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, trustee, partner, fiduciary, employee or
agent of another corporation, partnership, joint venture, trust, pension or
other employee benefit plan or other enterprise against any liability asserted
against that person and incurred by that person in any such capacity, or arising
out of that person's status as such whether or not the corporation would have
the power to indemnify that person against such liability under this section.
Section 8. Miscellaneous. For purposes of this Article, references to the
"corporation" shall include, in addition to the surviving corporation or new
corporation, any participating corporation in a consolidation or merger. For
purposes of this Article, the corporation shall be deemed to have requested a
person to serve an employee benefit plan whenever the performance by him of his
duties to the corporation also imposes duties on, or
<PAGE>
otherwise involves services by, him to the plan or participants or beneficiaries
of the plan; excise taxes assessed on a person seeking indemnification with
respect to an employee benefit plan pursuant to applicable law shall be deemed
"fines"; and action taken or omitted by him with respect to an employee benefit
plan in the performance of his duties for a purpose reasonably believed by him
to be in the interests of the participants or beneficiaries of the plan shall be
deemed to be for a purpose which is in the best interests of the corporation.
Section 9. Amendment. Any amendment, modification or repeal of this Article
XIII shall not deny, diminish or otherwise limit the rights of any person to
indemnification or advance hereunder with respect to any action, suit or
proceeding arising out of any conduct, act or omission occurring or allegedly
occurring at any time prior to the date of such amendment, modification or
repeal.
ARTICLE XIV
Fiscal Year
Section 1. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XV
Execution of Documents
Section 1. Execution of Documents. Unless the Board of Directors, executive
committee or shareholders shall otherwise generally or in any specific instance
provide: (a) any bill, note, check, or negotiable instrument may be executed or
endorsed in the name and on behalf of the corporation by the President or
Treasurer, acting singly, and (b) any other instrument, documents, deeds, bills
of sale or other writings of whatever nature shall be executed
<PAGE>
in the name and on behalf of the corporation by the President or the Treasurer,
acting singly, and either officer may seal, acknowledge and deliver the same.
ARTICLE XVI
Restriction on Sales or Transfers of Shares
Section 1. Compliance with Federal and State Law. As a condition to the
transfer of shares in, the stock transfer books of the Corporation, the
Corporation shall have the right to demand from any shareholder requesting a
transfer evidence sufficient to the Corporation that the shareholder requesting
the transfer has complied with all prior notice requirements, if any, imposed by
regulatory agencies which supervise the corporation. In particular, but without
limitation, the corporation may, as a condition to transfer, require sufficient
evidence to assure compliance, if applicable, with the prior notification
requirements of the Change in Bank Control Act of 1978 (12 U.S.C. ss. 1817 (j))
, Title VI of FIRA as set forth in Regulation Y at 12 C.F.R. ss. 225.4, and 9-B
M.R.S.A. ss. 1013, as amended.
Before the Corporation purchases or redeems any shares of its common or
preferred stock, the appropriate officer of the Corporation shall, if
applicable, have the Corporation comply with the prior notice requirements upon
certain purchases or redemptions as set forth in Regulation Y at 12 C.F.R. ss.
225.4 which requires the Corporation to provide sixty (60) days prior notice if,
generally, the consideration paid during any twelve (12) month period for the
purchase or redemption of its equity securities equals or exceeds ten percent
(10%) of the Corporation's consolidated net worth.
Section 2. Other Provisions. Notwithstanding any other provisions of these
bylaws, no shares of the corporation shall be sold, transferred, pledged,
hypothecated or any interest
<PAGE>
therein transferred or otherwise disposed of, nor transferred upon the books of
the corporation, nor shall any purported purchaser, transferee or assignee
thereof have any right to demand and require transfer of any shares of the
corporation attempted to be sold or transferred to him, nor have or exercise any
of the rights of a shareholder of this corporation, until after satisfaction of
all requirements of Section 1 of this ARTICLE XVI.
All certificates for shares issued by the corporation shall have the
following legend conspicuously printed, typewritten or stamped thereon:
"Transfers of the shares represented by this certificate are subject to and may
be made only upon compliance with the provisions of ARTICLE XVI of the bylaws of
the corporation relating to restrictions on sales or transfers of shares."
ARTICLE XVII
Amendments
Section 1. Amendments. The Board of Directors shall have the power to
alter, amend or repeal these bylaws, and to adopt new bylaws, provided that the
notice of any regular or special meeting at which such action is to be taken
shall either set out the text of the proposed new bylaw, amendment or bylaw to
be repealed, or shall summarize the changes to be effected by such adoption,
amendment or repeal, and provided further the affirmative vote of at least
sixty-seven percent (67%) of the Directors in office at the time of such vote
shall be required to effectuate such amendment. In addition, the shareholders
may amend or repeal a bylaw provision adopted by the Board of Directors and in
such case the Board of Directors may not, for two years thereafter, amend or
readopt the bylaw provision thus amended or repealed by the shareholders.
AMENDED AND RESTATED
BYLAWS
OF
MERRILL MERCHANTS BANCSHARES, INC.
[adopted ______________, 1998]
ARTICLE I
Articles of Incorporation, Office, Location,
--------------------------------------------
Seal and Section Headings
-------------------------
Section 1. Articles of Incorporation. The name of this corporation
(hereinafter the "Corporation") shall be Merrill Merchants Bancshares, Inc.
Reference in these Amended and Restated Bylaws (hereinafter the "Bylaws") to the
Articles of Incorporation shall mean the Corporation's Restated Articles of
Incorporation as may be amended from time to time. References in these Bylaws to
the Maine Business Corporation Act and to particular sections of said Act are to
said Act and said sections as from time to time in effect.
Section 2. Office and Location. The registered office shall be located at
23 Water Street, Bangor, Maine. The Corporation shall be located in Bangor,
County of Penobscot, State of Maine. The principal office and place of business
of the Corporation shall be at such place as the Board of Directors shall fix,
and the Corporation may have such other offices and places of business, within
the State of Maine as the Board of Directors may from time to time fix, or as
the business of the Corporation may from time to time require.
Section 3. Seal. The seal of the Corporation shall be circular in form with
the name of the Corporation, the word "Maine" and the year of its incorporation
so engraved on its face that it may be embossed on paper by pressure, provided
that the Board of Directors may adopt a wafer
<PAGE>
seal in any form in respect of any particular document or instrument, in which
case such wafer seal affixed to such document or instrument shall be the
corporate seal of the Corporation thereon for all purposes provided by law.
Section 4. Section Headings. The headings of Articles and Sections in these
Bylaws are for convenience only, and shall not be taken into account in
construing these Bylaws.
ARTICLE II
Annual Meeting of Shareholders
------------------------------
Section 1. Place. All meetings of shareholders for the election of
Directors shall be held at the Corporation's principal office unless the Board
of Directors shall fix some other place within the State of Maine, or outside of
the State of Maine, for such meetings.
Section 2. Date. An annual meeting of shareholders (the "Annual Meeting")
shall be held no earlier than April 1 of each calendar year, on such date as the
Board of Directors may determine, at such hour as may be fixed by the President
or Board of Directors. At such meeting the shareholders shall elect individuals
to fill vacancies on the Board of Directors resulting from expired terms or
resulting from increases in the number of Directors, and transact such other
business as may be brought before the meeting. If for any reason such annual
meeting is not held on the date specified herein, a substitute annual meeting
may be held at any time following such date in lieu thereof, and any business
transacted or elections held at such substitute annual meeting shall be as valid
as if transacted or held at the annual meeting. Such substitute annual meeting
may be called in the same manner and by the person or persons prescribed for
calling special meetings of shareholders.
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<PAGE>
Section 3. Notice. Written notice of the annual meeting or substitute
annual meeting stating the place, day and hour thereof, shall be delivered not
less than 10 nor more than 60 days before the date of the meeting, either
personally or by first-class mail, by or at the direction of the President, the
Secretary, the Clerk, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed delivered when deposited with postage prepaid in the United
States mail, addressed to the shareholder at the address appearing on the stock
transfer books of the Corporation.
Notice of a meeting of shareholders need not be given to any shareholder
who signs a waiver of notice, in person or by proxy, either before or after the
meeting. Such signed waiver of notice shall also constitute a waiver of formal
call of the meeting. Attendance of a shareholder at a meeting, in person or by
proxy, shall of itself constitute waiver of notice and call, and of any defects
therein, except when the shareholder attends a meeting solely for the purpose of
stating his objection, at the beginning of the meeting, to the transaction of
any business on the ground that the meeting is not lawfully called or convened,
or that insufficient notice thereof was given. In the case of specific items of
business which are required to be specifically mentioned in the notice of
meeting, attendance of a shareholder at a meeting shall also constitute a waiver
of such special notice, and of any defect or deficiency therein, unless the
shareholder (1) states his objection to the transaction of that item of
business, on the ground of insufficiency of notice thereof, when the item of
business is first brought before the meeting, and (2) refrains from voting on
such item of business.
Section 4. Manner of Bringing Business Before Annual Meeting. To be
properly brought before the annual meeting, business must be of a nature that is
appropriate for consideration at an
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annual meeting and must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for business to
be properly brought before the annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Clerk of the
Corporation. To be timely, each such notice must be given either by personal
delivery or by United States mail, postage prepaid, to the Clerk of the
Corporation not later than ninety (90) days prior to the date set for the Annual
Meeting. The notice shall set forth (i) information concerning the shareholder,
including his or her name and address, (ii) a representation that the
shareholder is entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to present the matter specified in the notice, and
(iii) such other information as would be required to be included in a proxy
statement soliciting proxies for the presentation of such matter to the meeting.
ARTICLE III
Special Meetings of Shareholders
--------------------------------
Section 1. Place and Date. Special meetings of shareholders for any purpose
or purposes may be held at such time and place, within the State of Maine or
outside the State of Maine as shall be stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
Section 2. Call. Special meetings of the shareholders, for any purpose or
purposes may be called by the Chairman of the Board, the President, the Clerk, a
majority of the Board of Directors or by the holders of at least thirty percent
(30%) of the capital stock of the Corporation issued and outstanding and
entitled to vote at the meeting.
4
<PAGE>
Section 3. Shareholder Requested Meetings. In requesting a special meeting,
shareholders holding at least thirty percent (30%) of the capital stock entitled
to vote at the meeting must give timely notice thereof in writing to the Clerk
of the Corporation. The shareholders' notice to the Clerk shall set forth as to
each matter the shareholders propose to bring before the meeting (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) information concerning
the shareholders, including their names and addresses, (iii) a representation
that the shareholders are entitled to vote at such meeting and intend to appear
in person or by proxy at the meeting to present the matter specified in the
notice; (iv) such other information as would be required to be included in a
proxy statement soliciting proxies for the presentation of such matter to the
meeting and (v) any material interest of any of the shareholders in such
business. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that such business was not properly brought before the
meeting in accordance with these provisions, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
Section 4. Notice. Written notice of a special meeting of shareholders,
stating the place, day, hour of the meeting, and the purpose or purposes for
which the meeting is called, shall be delivered not less than 10 nor more than
60 days before the date of the meeting, either personally or by first-class
mail, by or at the direction of the President, the Secretary, the Clerk, or the
officer or persons calling the meeting, to each shareholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed delivered when
deposited with postage prepaid in the United States mail, addressed to the
shareholder at the address appearing on the stock
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transfer books of the Corporation. If notice of the meeting is not given within
15 days after transmission of a proper request therefor to the President or
Clerk or Secretary, the person or persons calling the meeting may fix the time
of meeting and give or cause to be given notice thereof in the manner set forth
above.
Notice of a meeting of shareholders need not be given to any shareholder
who signs a waiver of notice, in person or by proxy, either before or after the
meeting. Such signed waiver of notice shall also constitute a waiver of formal
call of the meeting. Attendance of a shareholder at a meeting in person or by
proxy, shall of itself constitute waiver of notice and call, and of any defects
therein, except when the shareholder attends a meeting solely for the purpose of
stating his objection, at th beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened, or
that insufficient notice thereof was given. In the case of specific items of
business which are required to be specifically mentioned in the notice of
meeting, attendance of a shareholder at a meeting shall also constitute a waiver
of such special notice, and of any defect or deficiency therein, unless the
shareholder (1) states his objection to the transaction of that item o business,
on the ground of insufficiency of notice thereof, when the item of business is
first brought before the meeting, and (2) refrains from voting on such item of
business.
ARTICLE IV
Quorum and Voting of Shares
---------------------------
Section 1. Quorum. Except as otherwise provided by the Maine Business
Corporation Act, at each meeting of shareholders of the Corporation the holders
of shares sufficient to cast
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<PAGE>
a majority of the votes represented by all voting shares of the Corporation
issued and outstanding and entitled to vote at such meeting, present in person
or by proxy, shall constitute a quorum.
Section 2. Adjournments. Whether or not a quorum is present at any annual
or special meeting of shareholders, a majority in interest of those present in
person or by proxy and entitled to vote may adjourn the meeting from time to
time to another time or place, at which time, if a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called. Notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken, unless the adjournment is for more than thirty (30) days or a new record
date is fixed for the adjourned meeting, in which event a notice of the
adjourned meeting shall be given to each shareholder of record entitled to vote
at the meeting.
Section 3. Organization. Each meeting of the shareholders shall be presided
over by the Chairman of the Board, or in his or her absence by the President, or
if neither the Chairman nor the President is present, by the Executive
Vice-President. The Clerk, or in his or her absence the Secretary or a temporary
Clerk, shall act as secretary of each meeting of the shareholders. In the
absence of the Clerk and the Secretary, the presiding officer of the meeting may
appoint any person present to act as temporary Clerk of the meeting. The
presiding officer of any meeting of the shareholders, unless prescribed by law
or regulation or unless the Chairman of the Board has otherwise determined,
shall determine the order of the business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussions
as seem to him or her to be in order.
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<PAGE>
Section 4. Transfer Agents and Registrars; Further Regulations. The Board
of Directors may appoint one or more banks, trust companies or corporations
doing a corporate trust business, in good standing under the laws of the United
States or any state therein, to act as the Corporation's transfer agent and/or
registrar for shares of capital stock, and the Board may make such other and
further regulations, not inconsistent with applicable law, as it may deem
expedient concerning the issue, transfe and registration of capital stock and
stock certificates of the Corporation.
Section 5. Record Date. The Directors may fix in advance a time, which
shall not be more than sixty (60) days before 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 and any adjournment thereof, or the right to receive such dividend
or distribution, or the right to give such consent or dissent, and 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; provided, however, in the case of a meeting of shareholders, such
record date shall not be less than ten (10) full days prior to the date of the
meeting; or, without fixing such record date, the Directors may, for any such
purposes, close the transfer books for all or any part of such period.
Section 6. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of the shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in
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alphabetical order, with the address of and the number of shares held by each,
which list shall be kept on file at the registered office of the Corporation. It
shall be subject to inspection by any shareholder at any time during usual
business hours, for a period of not less than ten (10) days prior to such
meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or transfer books or to
vote at any meeting of shareholders.
Section 7. Voting. Each share of common stock shall be entitled to one vote
per share, and there shall be no cumulative voting in elections of Directors.
Except as permitted by law, shares of its own stock belonging to the Corporation
shall not be voted directly or indirectly. Every shareholder entitled to vote at
any meeting of shareholders may cast such vote in person or by proxy appointed
by an instrument in writing, signed by such shareholder or his or her duly
authorized attorney delivere to the secretary of the meeting; provided, however,
that no proxy shall be voted after eleven (11) months from its date, unless the
proxy expressly provides for a longer duration. At all meetings of the
shareholders all matters (except where other provision is made by law or by the
Articles of Incorporation or these Bylaws) shall be decided by a majority of the
votes cast by the shareholders present in person or by proxy and entitled to
vote thereon, provided that a quorum is present, and further provide that in
elections of Directors, those candidates who receive the greatest number of
votes cast at the meeting by the holders of shares entitled to vote to elect
Directors, even though not receiving a majority of the votes cast, shall be
deemed elected.
Section 7. Action by Consent. Any action required or permitted by law to be
taken at any annual or special meeting of shareholders may be taken without a
meeting if written consents,
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<PAGE>
setting forth the action so taken, are signed by the holders of all outstanding
shares entitled to vote on such action and are filed with the Clerk of the
Corporation as part of the corporate records. Such written consents may contain
statements in the form of, and in any case shall have the same effect as,
unanimous vote or votes of the shareholders and may be stated as such in any
certificate or document required or permitted to be filed with the Secretary of
the State of Maine, and in any certificate or document prepared or certified by
any officer of the Corporation for any purposes.
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<PAGE>
ARTICLE V
Capital Stock Provisions
------------------------
The authorized amount of the capital stock and the par value, if any, of
the shares shall be as fixed in the Articles of Incorporation. At all times when
there are two or more classes of stock, the several classes of stock shall
conform to the description and terms, and have the respective preferences,
voting powers, restrictions and qualifications set forth in the Articles of
Incorporation.
ARTICLE VI
Directors
---------
Section 1. Number of Directors. There shall be nine (9) Directors. The
Directors may increase or decrease the number of Directors by the affirmative
vote of at least sixty-seven percent (67%) of the Directors in office at the
time of such vote. The Board of Directors is authorized to increase or decrease
the number of Directors. The minimum number shall be three (3) Directors, and
the maximum number shall be twenty-five (25) Directors. The Board of Directors
shall be divided into three classes of Directors as specified in Article VI
below.
Section 2. Classification of Directors. The Board of Directors of the
Corporation shall be divided into three classes, initially consisting of three
Directors each: Class I, Class II and Class III. Each class shall consist, as
nearly as may be practicable, of one-third of the whole number of the Board of
Directors. If the number of Directors is not evenly divisible by three, the
Board of Directors shall determine the number of Directors to be elected
initially into each class. The initial members of Class I shall hold office for
a term to
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expire at the annual meeting of the stockholders to be held in 1999; the initial
members of Class II shall hold office for a term to expire at the annual meeting
of the stockholders to be held in 2000; and the initial members of Class III
shall hold office for a term to expire at the annual meeting of the stockholders
to be held in 2001, and in the case of each class, until their respective
successors are duly elected and qualified. At each annual election held
commencing with the annual election in 1999, the Directors elected to succeed
those whose terms expire shall be identified as being of the same class as the
Directors they succeed and shall be elected to hold office for a term to expire
at the third Annual Meeting of the stockholders after their election, and until
their respective successors are duly elected and qualified. If the number of
Directors changes, any increase or decrease in Directors shall be apportioned
among the classes so as to maintain all classes as equal in number as possible,
and any additional Director elected to any class shall hold office for a term
which shall coincide with the terms of the other Directors in such class and
until his successor is duly elected and qualified.
Section 3. Amendment of Article VI. Notwithstanding any other provisions of
the Articles of Incorporation or the Bylaws of the Corporation or the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least eighty (80%) percent of the combined voting power of the outstanding
stock of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class, shall be required to amend, alter,
or adopt any provision inconsistent with or to repeal this Article VI.
Section 4. Vacancies, Resignation and Removal. Any vacancy in the Board of
Directors, including newly created Directorships created by increase in the
number of Directors, may be filled by vote of the majority of the remaining
Directors. Any Director may resign his office by delivering a written
resignation to the President or Clerk. Directors may be removed from office
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at a special meeting of the shareholders called expressly for that purpose, in
the manner prescribed by these Bylaws and the Maine Business Corporation Act, as
amended from time to time. Any Director or the entire Board of Directors of the
Corporation may be removed at such meeting with or without cause by the
affirmative vote of the holders of at least sixty-seven percent (67%) of the
shares then entitled to vote in an election of Directors. Additionally,
Directors may be removed in the manner specified in the Maine Business
Corporation Act, as amended from time to time.
Section 5. Powers. The Board of Directors shall manage and control the
business, property and affairs of the Corporation. In the management and control
of the business, property and affairs of the Corporation, the Board of Directors
is hereby vested with all of the powers and authority of the Corporation itself,
so far as not inconsistent with the Maine Business Corporation Act or other laws
of the State of Maine, the Articles of Incorporation or these Bylaws.
Section 6. Qualification. At least two-thirds (2/3) of the Directors
comprising the Board of Directors shall be residents of the State of Maine and
any Director removing himself or herself from the State of Maine shall
immediately be replaced if such removal results in a reduction of the number of
resident Directors below two-thirds (2/3) of the total number of Directors then
in office.
Section 7. Compensation. The Board of Directors, by the affirmative vote of
a majority of the Directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all Directors for services to the Corporation as Directors,
officers, committee members or otherwise.
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Section 8. Nomination of Directors. Subject to the rights of holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for the election of Directors shall
be made by the nominating and directors committee appointed by the Board
pursuant to Article VIII of these Bylaws or by any shareholder entitled to vote
generally in an election of Directors. However, any shareholder entitled to vote
generally in an election of Director may nominate one or more persons for
election as Directors at a meeting only if written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid to the Clerk of the
Corporation not later than (i) ninety (90) days prior to the anniversary date of
the immediately preceding annual meeting, and (ii) with respect to an election
to be held at a special meeting of shareholders for the election of Directors,
th close of business on the tenth day following the date on which notice of such
meeting is first given to shareholders. Each such notice shall set forth: (a)
the name and address of the shareholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
shareholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission; and (e) the consent of each nominee
to serve as a Director of the Corporation if so elected The presiding officer of
the meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedures.
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ARTICLE VII
Meetings of the Board of Directors
----------------------------------
Section 1. Annual Meeting. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the
shareholders at their meeting electing them, or if no such time and place are so
fixed, said first meeting shall be held at the place of and immediately
following such meeting of shareholders. In either event, no notice of such
meeting shall be necessary. Such meeting of the Directors may also convene at
such place and time as shall be fixed by the consent in writing of all the
Directors.
Section 2. Regular Meetings. Regular meetings of the Board of Directors may
be held upon such notice, or without notice, and at such time and place as shall
from time to time be fixed by the Board.
Section 3. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board, President, Clerk, Secretary or any other
person or persons authorized by the Maine Business Corporation Act to call such
meetings. The person or persons calling the special meeting shall fix the time
and place thereof.
Notice of each special meeting of the Board of Directors shall be given to
each Director by the Clerk, Secretary or the person or persons calling the
special meeting. It shall be sufficient notice to a Director of a special
meeting to give notice by first-class mail, postage prepaid, addressed to such
Director, or by delivering such notice to an overnight courier service addressed
to such Director, in either case at the Director's address as it appears on the
records of the Corporation, with postage or delivery charges thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail or with said
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overnight courier. Notice to Directors may also be given by facsimile
transmission or by electronic mail, with receipt electronically acknowledged, in
which case such notice shall be deemed to be given at the time when the notice
is transmitted. If notice is given by first-class mail, such notice shall be
given not less than three business days before the meeting; if notice is given
by overnight courier, such notice shall be given not less than three days before
the meeting; if notice is given by facsimile transmission or electronic mail,
such notice shall be given not less than two days before the meeting. Neither
the business to be transacted at nor the purpose of any special meeting of the
Board of Directors need be specified in the notice of the meeting, except that
any notice of a meeting at which these Bylaws are to be amended or repealed
shall include notice of such proposed action and shall either set out the text
of the proposed new bylaw, amendment or bylaw to be repealed, or shall summarize
the changes to be effected by adoption, amendment or repeal. The giving of
notice of a special meeting of the Board of Directors by the person or persons
authorized to call the same shall constitute the call thereof. Notice of a
meeting of directors need not be given to any director who signs a waiver of
notice, either before or after the meeting.
Section 4. Attendance as Waiver of Notice. Attendance of a Director at any
meeting shall constitute a waiver of notice of such meeting, except where a
Director attends for the express purpose, stated at the commencement of the
meeting, of objecting to the transaction of any business because the meeting is
not lawfully called, noticed or convened.
Section 5. Quorum and Vote Required. At any meeting of the Directors, a
majority of the Directors then in office shall constitute a quorum for the
transaction of business. The Directors present at a duly called or held meeting
at which a quorum was once present may continue to do
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business and take action at the meeting notwithstanding the withdrawal of enough
Directors to leave less than a quorum. Any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further notice if
the time and place to which it is adjourned is fixed and announced at such
meeting. The vote of a majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors unless the vote of
a greater number is required by these Bylaws, the Articles of Incorporation, or
the Maine Business Corporation Act.
Section 6. Action by Consent. Any action required or permitted to be taken
at a meeting of the Directors, or of a committee of the Directors, may be taken
without a meeting if all of the Directors, or all of the members of the
committee, as the case may be, sign written consents setting forth the action
taken or to be taken, at any time before or after the intended effective date of
such action. Such consents shall be filed with the minutes of Directors'
meetings or committee meetings, as the case may be, and shall have, and may be
stated by any officer of the Corporation to have, the same effect as a unanimous
vote or resolution of the Board of Directors at a legal meeting thereof. Any
such action taken by unanimous written consents may, but need not be, set forth
in such consents in the form of resolutions or votes.
Section 7. Telephone Meetings. Members of the Board of Directors or of any
committee designated thereby may participate in a meeting of the Board or of
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
communicate with each other, and participating in a meeting in such manner by
any member who does not object at the beginning of such meeting to the holding
thereof in such manner shall constitute presence in person at such meeting.
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ARTICLE VIII
Committees
----------
The Corporation shall have four standing committees: the executive
committee, the nominating and Directors committee, the audit committee and the
compensation committee.
Section 1. Executive Committee. The Board of Directors by a resolution
adopted by a majority of the full Board of Directors then in office may
designate from among its members an executive committee consisting of two or
more Directors, and may delegate to such executive committee all the authority
of the Board of Directors in the management of the Corporation's business and
affairs, except as limited by the Maine Business Corporation Act, including
without limitation Section 713 thereof or the resolution establishing the
executive committee or any other resolution thereafter adopted by the Board of
Directors. Vacancies in the membership of the executive committee shall be
filled by resolution adopted by a majority of the full Board of Directors then
in office. The executive committee shall keep regular minutes of its proceedings
and report the same to the Board of Directors. Members of the executive
committee may be removed from the executive committee, with or without cause, by
resolution adopted by a majority of the full Board of Directors then in office.
So far as practicable, the provisions of these Bylaws relating to the calling,
noticing and conduct of meetings of the Board of Directors shall govern the
calling, noticing and conduct of meetings of the executive committee.
Section 2. Nominating and Directors Committee. The nominating and Directors
committee shall have the following exclusive powers and authority: (i)
evaluating and recommending Director candidates to the Board of Directors, (ii)
assessing Board of Directors performance not less frequently than every three
years, (iii) recommending Director
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compensation and benefits philosophy for the Corporation, (iv) reviewing
individual Director performance as issues arise and (v) periodically reviewing
the Corporation's corporate governance profile. None of the members of the
nominating and Directors committee shall be a member of the executive committee
or an officer or full-time employee of the Corporation or of any subsidiary or
affiliate of the Corporation.
Section 3. Audit Committee. The audit committee shall have the following
powers and authority: (i) employing independent public accountants to audit the
books of account, accounting procedures, and financial statements of the
Corporation and to perform such other duties from time to time as the audit
committee may prescribe, (ii) receiving the reports and comments of the
Corporation's internal auditors and of the independent public accountants
employed by the committee and to take such action with respect thereto as may
seem appropriate, (iii) requesting the Corporation's consolidated subsidiaries
and affiliated companies to employ independent public accountants to audit their
respective books of account, accounting procedures, and financial statements,
(iv) requesting the independent public accountants to furnish to the
compensation committee any certifications required under any present or future
stock option, incentive compensation or employee benefit plan of the
Corporation, (v) reviewing the adequacy of internal financial controls, (vi)
approving the accounting principles employed in financial reporting, (vii)
approving the appointment or removal of the Corporation's general auditor and
any outside internal auditing firm, and (viii) reviewing the accounting
principles employed in financial reporting. None of the members of the audit
committee shall be a member of the executive committee or an officer or
full-time employee of the Corporation or of any subsidiary or affiliate of the
Corporation.
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Section 4. Compensation Committee. The compensation committee shall have
the following powers and authority: (i) determining and fixing the compensation
for all senior officers of the Corporation and those of its subsidiaries that
the compensation committee shall from time to time consider appropriate, as well
as all employees of the Corporation and its subsidiaries compensated at a rate
in excess of such amount per annum as may be fixed or determined from time to
time by the Board of Directors (ii) performing the duties of the committees of
the Board of Directors provided for in any present or future stock option,
incentive compensation or employee benefit plan of the Corporation or, if the
compensation committee shall so determine, any such plan of any Subsidiary and
(iii) reviewing the operations of and policies pertaining to any present or
future stock option, incentive compensation or employee benefit plan of the
Corporation or any subsidiary that the compensation committee shall from time to
time consider appropriate. None of the members of the compensation committee
shall be a member of the executive committee or an officer or full-time employee
of the Corporation or of any subsidiary or affiliate of the Corporation.
Section 5. Additional Committees. In addition, the Board of Directors may,
by resolution passed by a majority vote of the entire Board of Directors,
designate one or more additional committees, with each such committee consisting
of two or more Directors of the Corporation and having such powers and authority
as the Board of Directors shall designate by such resolutions.
Section 6. Powers and Authority. Any modification to the powers and
authority of any committee shall require the adoption of a resolution by a
majority vote of the entire Board of Directors. All acts done by any committee
within the scope of its powers and authority pursuant
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to these Bylaws and the resolutions adopted by the Board of Directors in
accordance with the terms hereof shall be deemed to be, and may be certified as
being, done or conferred under authority of the Board of Directors. The Clerk is
empowered to certify that any resolution duly adopted by any such committee is
binding upon the Corporation and to execute and deliver such certifications from
time to time as may be necessary or proper to the conduct of the business of the
Corporation.
Section 7. Committee Meetings. Regular meetings of committees shall be held
at such times as determined by resolution of the Board of Directors or the
committee in question and no notice shall be required for any regular meeting
other than such resolution. A special meeting of any committee shall be called
by resolution of the Board of Directors, or by the Clerk upon the request of the
Chairman, or a majority of the members of any committee. Notice of special
meetings shall be given to each member of the committee in the same manner as
that provided for in Section 3 of Article VIII of these Bylaws.
Section 8. Committee Members. (a) Each member of any committee of the Board
of Directors shall hold office until such member's successor is elected and has
qualified, unless such member sooner dies, resigns or is removed. The number of
Directors which shall constitute any committee shall be at least 2 and shall be
determined by resolution adopted by a majority vote of the entire Board of
Directors.
(b) The Board of Directors may remove a Director from a committee or change
the chairmanship of a committee only by resolution adopted by a majority vote of
the entire Board of Directors.
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(c) The Board of Directors may designate one or more Directors as alternate
members of any committee to fill any vacancy on a committee and to fill a vacant
chairmanship of a committee, occurring as a result of a member or chairman
leaving the committee, whether through death, resignation, removal or otherwise;
provided that any such designation may only be amended by a majority vote of the
entire Board of Directors.
Section 9. Committee Secretary. The Board of Directors may elect a
secretary of any such committee. If the Board of Directors does not elect such a
secretary, the committee shall do so. The secretary of any committee need not be
a member of the committee, but shall be selected from a member of the staff of
the office of the Secretary of the Corporation, unless otherwise provided by the
Board of Directors or the committee, as applicable.
ARTICLE IX
Officers
--------
Section 1. Number. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, a Chairman of the Board, a Clerk
who shall be a resident of Maine, a Secretary and Treasurer. The Board of
Directors may also elect one or more Vice-Presidents (one of whom may be
designated by the Board of Directors as the Executive Vice-President), and one
or more Assistant Secretaries and Assistant Treasurers.
Section 2. When Chosen. The Board of Directors at its initial meeting after
the incorporation of the Corporation and at each regular meeting held after each
annual meeting of shareholders shall choose such officers, none of whom need be
a member of the Board; but the Clerk need not be elected annually and shall hold
office until the Corporation changes its Clerk in the manner provided by the
Maine Business Corporation Act.
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Section 3. Additional Officers. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 4. Compensation of Officers. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 5. Vacancies, Term and Removal. The officers of the Corporation
shall hold office until their successors are chosen and qualify. Any officer
elected or appointed by the Board of Directors may be removed at any time by the
Board of Directors, with or without cause. Any vacancy occurring in any office
of the Corporation may be filled by the Board of Directors.
Section 6. Chairman of the Board. The Chairman of the Board shall be a
member of the Board of Directors and shall preside at its meetings and at the
meetings of the stockholders. He shall advise and counsel with the President.
Section 7. President. The President shall be the chief executive officer of
the Corporation, shall in the absence of the Chairman of the Board preside at
all meetings of the shareholders and of the Board of Directors, shall have the
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect.
Section 8. Vice-President. The Vice-President, if any, or if there shall be
more than one, the Vice-Presidents in the order determined by the Board of
Directors, shall, in the absence of or in the case of the disability of the
President, perform the duties and exercise the powers of the President and shall
perform such other duties and have such other powers as the Board of
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Directors may from time to time prescribe. If the Board of Directors shall
appoint or elect an Executive Vice-President, i shall be presumed that he is the
Vice-President determined by the Board of Directors to act in case of the
absence or disability of the President.
Section 9. Clerk. The Clerk shall keep, in a book kept for such purpose,
the records of all shareholders' meetings, and shall perform such duties and
have such powers as are prescribed by the Maine Business Corporation Act,
including without limitation Sub-Section 11 of Section 714 thereof. The Clerk
shall have custody of the corporate seal and may affix the same to documents
requiring it, and attest the same. The Clerk may permit the President or
Secretary to keep a duplicate of the corporate seal.
Section 10. Secretary. The Secretary or the Clerk shall attend all meetings
of the Board of Directors and record all the proceedings of the Board of
Directors in a book kept for that purpose, and shall give notice of special
meetings of the Board of Directors, and shall perform like duties for the
executive committee. The Secretary shall perform such other duties as may be
prescribed by the Board of Directors or President, under whose supervision he
shall be. He, or an Assistant Secretary, shall have authority to affix the
corporate seal to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such Assistant Secretary or by
the Clerk. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the same. The
Secretary shall have such other powers and duties as are prescribed by law or by
the Board of Directors. In case of the absence of or disability of the
Secretary, or if the Corporation shall have no Secretary, all of the powers of
the Secretary may be exercised by the Clerk.
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Section 11. Assistant Secretaries. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries, in the order determined by the Board
of Directors, shall, in case of the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Section 12. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation.
Section 13. Assistant Treasurers. The Assistant Treasurer, or, if there
shall be more than one, the Assistant Treasurers, in the order determined by the
Board of Directors, shall, in the absence of or in case of the disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
ARTICLE X
Voting Shares of Other Corporations
-----------------------------------
The Chairman of the Board, if any, President, and Vice-President, Secretary
and Treasurer of this corporation, in that order, shall have authority to vote
shares of other
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corporations standing in the name of this Corporation, and the President,
Secretary or Clerk is authorized to execute in the name and on behalf of this
Corporation proxies appointing any one or more of the officers first above
named, in the order above named, as the proxy agents.
ARTICLE XI
Certificates of Stock and Lost Certificates
-------------------------------------------
Each stockholder shall be entitled to a certificate of the capital stock of
the Corporation owned by him, in such form as shall, in conformity to law, be
prescribed from time to time by the Board of Directors. Such certificate shall
be signed by either the President or a Vice President, and by either the
Treasurer or an Assistant Treasurer, and may, but need not be, sealed with the
corporate seal; but when any such certificate is signed by a transfer agent or
by a registrar other than a Director officer, or employee of the Corporation,
the signature of the President or a Vice President and of the Treasurer or an
Assistant Treasurer of the Corporation, or either or both such signatures and
such seal upon such certificate, may be facsimile. If any officer who has
signed, or whose facsimile signature has been placed on, any such certificate
shall have ceased to be such officer before such certificate is issued, the
certificate may be issued by the Corporation with the same effect as if he were
such officer at the time of issue.
Every certificate for shares of stock which are subject to any restriction
on transfer pursuant to law, the Articles of Organization, these By-Laws or any
agreement to which the Corporation is a party shall have the restriction noted
conspicuously on the certificate, and shall also set forth, on the face or back,
either the full text of the restriction or a statement of the existence of such
restriction and (except if such restriction is imposed by law) a statement that
the Corporation will furnish a copy thereof to the holder of such certificate
upon written request
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and without charge. Every certificate issued when the Corporation is authorized
to issue more than one class or series of stock shall set forth on its face or
back either the full text of the preferences, voting powers, qualifications and
special and relative rights of the shares of each class and series authorized to
be issued, or a statement of the existence of such preferences, powers,
qualifications and rights and a statement that the Corporation will furnish a
copy thereof to the holder of such certificate upon written request and without
charge.
The Board of Directors may direct a replacement or duplicate certificate
for shares of this Corporation to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, destroyed or
mutilated. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may prescribe such terms and conditions as it deems expedient, and may
require such indemnities as it deems adequate, to protect the Corporation and
its officers and agents from any claim that may be made against it with respect
to any such certificate alleged to have been lost, destroyed or mutilated. The
powers and duties of the Board prescribed in this ARTICLE XI may be delegated in
whole or in part to any registrar or transfer agent.
ARTICLE XII
Transfers of Shares
-------------------
Subject to the restrictions, if any, stated or noted on the stock
certificates, shares of stock may be transferred on the books of the Corporation
only by the surrender to the Corporation, or its transfer agent, of the
certificate therefor properly endorsed or accompanied by a written assignment or
power of attorney properly executed, with all requisite stock transfer stamps
affixed, and with such proof of the authenticity and effectiveness of the
signature as the
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Corporation or its transfer agen shall reasonably require. Except as may
otherwise be required by law, the Articles of Organization, or these Bylaws, the
Corporation shall have the right to treat the person registered on the stock
transfer books as the owner of any shares of the Corporation's stock as the
owner-in-fact thereof for all purposes, including the payment of dividends,
liability for assessments, the right to vote with respect thereto and otherwise,
and accordingly shall not be bound to recognize any attempted transfer, pledge
or other disposition thereof, or any equitable or other claim with respect
thereto, whether or not it shall have actual or other notice thereof, until such
shares shall have been transferred on the Corporation's books in accordance with
these Bylaws. It shall be the duty of each stockholder to notify the Corporation
of his post office address.
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ARTICLE XIII
Indemnification of Officers, Directors, Employees and Agents, Etc.; Insurance
-----------------------------------------------------------------------------
Section 1. General. The Corporation shall in all cases indemnify any person
who is or was a director or officer of the Corporation, and may (subject to
Section 4 of this Article) indemnify any other person, who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, partner, fiduciary, employee or agent of
another corporation, partnership, joint venture, trust, pension or other
employee benefit plan or other enterprise, against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement to the extent
actually and reasonably incurred by that person in connection with such action,
suit or proceeding; provided that no indemnification may be provided for any
person with respect to any matter as to which that person shall have been
finally adjudicated:
A. Not to have acted honestly or in the reasonable belief that such
person's action was in or not opposed to the best interests of the Corporation
or its shareholders or, in the case of a person serving as a fiduciary of an
employee benefit plan or trust, in or not opposed to the best interests of that
plan or trust, or its participants or beneficiaries; or
B. With respect to any criminal action or proceeding, to have had
reasonable cause to believe that such person's conduct was unlawful.
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The termination of any action, suit or proceeding by judgment, order or
conviction adverse to that person, or by settlement or plea of nolo contendere
or its equivalent, shall not of itself create a presumption that such person did
not act honestly or in the reasonable belief that such person's action was in or
not opposed to the best interests of the Corporation or its shareholders or, in
the case of a person serving as a fiduciary of an employee benefit plan or
trust, in or not opposed to the best interests of that plan or trust or its
participants or beneficiaries and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful.
Section 2. Derivative Actions. Notwithstanding any provision of Section 1
or 4, the Corporation shall not indemnify any person with respect to any claim,
issue or matter asserted by or in the right of the Corporation as to which that
person is finally adjudicated to be liable to the Corporation unless the court
in which the action, suit or proceeding was brought shall determine that, in
view of all the circumstances of the case, that person is fairly and reasonably
entitled to indemnity for suc amounts as the court shall deem reasonable.
Section 3. Special Right to Indemnification in Certain Cases. Any
provisions of Sections 1, 2 or 4 to the contrary notwithstanding, to the extent
that a director, officer, employee or agent of the Corporation, or any other
person whom the Corporation has authority to indemnify under Section 1, has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 or 2, or in defense of any claim, issue or
matter therein, that person shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred in connection therewith. The
right to indemnification granted by this section may be enforced by a separate
action against the Corporation, if an order for indemnification is not entered
by a court in the action, suit or proceeding wherein that director, officer,
employee, agent or other person was successful on the merits or otherwise.
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Section 4. Mandatory Indemnification for Directors and Officers;
Determinations in Specific Cases for Others. Any indemnification under Section
1, unless ordered by a court or required by the Articles of Incorporation or
these Bylaws of the Corporation, shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of any
employee, agent or other person is proper in the circumstances and in the best
interests of the Corporation; provided that no such determination shall be
required with respect to any person who is or was a director or officer of the
Corporation and indemnification of any such person under Section 1 shall be
required in all cases, regardless of the capacity in which such director or
officer is or was made or threatened to be made a party to the action, suit or
proceeding. Where such a case specific determination is required, that
determination shall be made by the Board of Directors by a majority vote of a
quorum consisting o directors who were not parties to that action, suit or
proceeding, or if such a quorum is not obtainable, or even if obtainable, if a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the shareholders. Such a determination once made may not
be revoked and, upon the making of that determination, the officer, employee,
agent or other person may enforce the indemnification against the Corporation by
a separate action notwithstanding any attempted or actua subsequent action by
the Board of Directors.
Section 5. Advancement of Expenses. Except in the case of any person who is
or was a director or officer of the Corporation, expenses incurred in defending
a civil, criminal, administrative or investigative action, suit or proceeding
may be authorized and paid by the
31
<PAGE>
Corporation in advance of the final disposition of that action, suit or
proceeding upon a determination made in accordance with the procedure
established in Section 4 that, based solely on the facts then known to those
making the determination and without further investigation, the person seeking
indemnification satisfied the standard of conduct prescribed by Section 1, and
upon receipt by the Corporation of:
A. A written undertaking by or on behalf of the person to repay that
amount if that person is finally adjudicated:
(1) Not to have acted honestly or in the reasonable belief that
such person's action was in or not opposed to the best interests of
the Corporation or its shareholders or, in the case of a person
serving as a fiduciary of an employee benefit plan or trust, in or not
opposed to the best interests of such plan or trust or its
participants or beneficiaries;
(2) With respect to any criminal action or proceeding, to have
had reasonable cause to believe that the person's conduct was
unlawful; or
(3) With respect to any claim, issue or matter asserted in any
action, suit or proceeding brought by or in the right of the
Corporation, to be liable to the Corporation, unless the court in
which that action, suit or proceeding was brought permits
indemnification in accordance with Section 2; and
32
<PAGE>
B. A written affirmation by the person that such person has met the
standard of conduct necessary for indemnification by the Corporation as
authorized in this Section.
The undertaking required by Paragraph A shall be an unlimited general obligation
of the person seeking the advance, but need not be secured and may be accepted
without reference to financial ability to make the repayment. With respect to
any person who is or was a director or officer of the Corporation, such expenses
shall in all cases be advanced by the Corporation, as reasonably requested from
time to time, upon receipt by the Corporation, at the time of the initial
advance of the undertaking described in clause (A) and the affirmation described
in clause (B) above.
Section 6. Indemnification Rights Not Exclusive; Enforceable by Separate
Action. The indemnification and entitlement to advances of expenses provided by
this Article shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in that person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who ha ceased to be a director,
officer, employee, agent, trustee, partner or fiduciary and shall inure to the
benefit of the heirs, executors and administrators of such a person. A right to
indemnification required by this Article may be enforced by a separate action
against the Corporation, if an order for indemnification has not been entered by
a court in any action, suit or proceeding in respect to which indemnification is
sought.
Section 7. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, trustee,
33
<PAGE>
partner, fiduciary, employee or agent of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or other enterprise
against any liability asserted against that person and incurred by that person
in any such capacity, or arising out of that person's status as such, whether or
not the Corporation would have the power to indemnify that person against such
liability under this Article.
Section 8. Miscellaneous. For purposes of this Article, references to the
"Corporation" shall include, in addition to the surviving corporation or new
corporation, any participating corporation in a consolidation or merger. For
purposes of this Article, the Corporation shall be deemed to have requested a
person to serve an employee benefit plan, but not necessarily as a fiduciary of
that plan, whenever the performance of such person's duties to the Corporation
also imposes duties on, or otherwise involves services by, such person to the
plan or participants or beneficiaries of the plan; excise taxes assessed on a
person seeking indemnification with respect to an employee benefit plan in the
performance of such person's duties for a purpose reasonably believed by such
person to be in the interests of the participants or beneficiaries of the plan
shall be deemed to be for a purpose which is in the best interests of the
Corporation.
Section 9. Amendment. Any amendment, modification or repeal of this Article
XIII shall not deny, diminish or otherwise limit the rights of any person to
indemnification or advance hereunder with respect to any action, suit or
proceeding arising out of any conduct, action or omission occurring or allegedly
occurring at any time prior to the date of such amendment, modification or
repeal.
ARTICLE XIV
Fiscal Year
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
34
<PAGE>
ARTICLE XV
Execution of Documents
----------------------
Unless the Board of Directors, executive committee or shareholders shall
otherwise generally or in any specific instance provide: (a) any bill, note,
check, or negotiable instrument may be executed or endorsed in the name and on
behalf of the Corporation by the President or Treasurer, acting singly, and (b)
any other instrument, document, deed, bill of sale or other writing of whatever
nature shall be executed in the name and on behalf of the Corporation by the
President or the Treasurer, acting singly, and either officer may seal,
acknowledge and deliver the same.
ARTICLE XVI
Amendments
----------
Except as otherwise expressly provided in these Bylaws, the Board of
Directors shall have the power to alter, amend or repeal these Bylaws, and to
adopt new Bylaws, provided that the notice of any regular or special meeting at
which such action is to be taken shall either set out the text of the proposed
new bylaw, amendment or bylaw to be repealed, or shall summarize the changes to
be effected by such adoption, amendment or repeal, and provided further the
affirmative vote of at least sixty-seve percent (67%) of the Directors in office
at the time of such vote shall be required to effectuate such amendment. In
addition, the shareholders may amend or repeal a bylaw provision adopted by the
Board of Directors and in such case the Board of Directors may not, for two
years thereafter, amend or readopt the bylaw provision thus amended or repealed
by the shareholders.
35
EXHIBIT 4.1
FORM OF COMMON STOCK CERTIFICATE
--------------------------------
SEE LEGEND ON REVERSE SIDE
NUMBER [EMBLEM] SHARES
[EMBLEM] [EMBLEM]
INCORPORATED UNDER THE LAWS OF THE STATE OF MAINE
MERRILL MERCHANTS BANCSHARES, INC.
Authorized Capital Stock 4,000,000 Common Shares of $1.00 par value each
This Certifies That _______________________ is the owner of
_________________ fully paid and non-assessable SHARES OF THE CAPITAL STOCK OF
MERRILL MERCHANTS BANCSHARES, INC., transferable on the books of the Corporation
in person or by duly authorized Attorney upon surrender of this Certificate
properly endorsed. In Witness Whereof, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and sealed with the
Seal of the Corporation this ___________ day of _____, A.D. 19___.
/s/ Perry B. Hansen /s/ Edwin N. Clift
--------------- -------------------------
Perry B. Hansen Secretary Edwin N. Clift President
For Value Received, ___________ hereby sell, assign and transfer unto
_____________ _______________ Shares represented by the within Certificate, and
do hereby irrevocably constitute and appoint _____________________ Attorney to
transfer the said Shares on the books of the within named Corporation with full
power of substitution in the premises.
Dated: ________________ 19 ___________
In presence of
----------------------- ----------------------
EXHIBIT 5
____________, 1998
Merrill Merchants Bancshares, Inc.
201 Main Street
Bangor, ME 04401
Ladies and Gentlemen:
We have acted as counsel to Merrill Merchants Bancshares, Inc., a Maine
corporation (the "Company"), in connection with proceedings being taken to
register under the Securities Act of 1933, as amended, up to 690,000 shares of
the Company's Common Stock, $1.00 par value per share (the "Common Stock")
pursuant to a Registration Statement on Form SB-2 (File No. ______) (the
"Registration Statement"), which includes 90,000 shares which may be sold upon
exercise of the underwriters' overallotment option described in the Registration
Statement.
As such counsel, we have examined (i) certain corporate records of the
Company, including its Restated Articles of Incorporation, Restated Bylaws,
stock records and minutes of meetings of its Board of Directors; (ii) a
Certificate of the Secretary of State of the State of Maine as to the legal
existence of the Company; and (iii) such other documents as we have deemed
necessary as a basis for the opinions hereinafter expressed. For purposes of
rendering this opinion, we have assumed that the Restated Articles of
Incorporation of the Company in the form filed as an Exhibit to the Registration
Statement will be filed with the Secretary of the State of the State of Maine
prior to the issuance and sale of its Common Stock under the circumstances
contemplated in the Registration Statement.
Based upon the foregoing, and having regard for such legal considerations
as we deem relevant, we are of the opinion that:
1. The Company is a validly existing corporation under the laws of the
State of Maine.
2. The Company is authorized to issue 4,000,000 shares of Common Stock,
par value $1.00
<PAGE>
Merrill Merchants Bancshares, Inc.
_____________, 1998
Page 2
per share, 50,000 shares of Series A Preferred Stock, par value $1.00
per share and 950,000 shares of Serial Preferred Stock, $.01 par value
per share.
3. When issued and sold under the circumstances contemplated in the
Registration Statement, the 690,000 shares of Common Stock offered by
the Company will be duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Hutchins, Wheeler & Dittmar
HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
EXHIBIT 10.1
October 16, 1992
Mr. William C. Bullock, Jr.
Chairman of the Board
and
Perry B. Hansen
Secretary
Merrill Merchants Bancshares, Inc.
Bangor, Maine 04402-0925
Dear Bill and Perry:
The Credit Accommodations to Merrill Merchants Bancshares, Inc. ("Company") has
been approved by M&I Marshall & Ilsley Bank ("M&I") upon the following
conditions:
1. The $4,000,000 three year term loan ("Loan") to the Company is to be
evidenced by a note. A commitment fee of 1/2 of 1% ($20,000) shall be paid
at the time of funding.
2. All of the securities, including any common, preferred, or debt
instruments, of the subsidiary bank ("Bank"), which is owned by the
Company, shall be pledged as collateral for the Loan. M&I shall have a
first perfected security interest in all such securities and there shall be
no other liens or encumbrances on such securities on the date hereof or at
any time during the term of the Loan. There shall be no restrictions on the
transfer of such securities.
3. The rate of interest for the Loan shall be the Prime Rate ("Prime") plus
1/2% as defined by M&I, floating, on the basis of actual days elapsed over
a 360-day year basis, with interest payable quarterly. The initial rate of
interest for the $4,000,000 Loan shall be 6.5%.
4. The Company and Bank shall retain William C. Bullock, Jr. and Edwin N.
Clift as Executives and Directors. The Company and Bank shall retain Perry
Hansen as a Director.
5. The Company shall pay no dividends on either its common stock or
preferred stock without the written approval of M&I. The Company may pay
interest, but no principal, on its Mandatory Convertible Debentures, which
are subordinate to M&I's Loan, however, M&I reserves the right to prohibit
interest payments by written notice
<PAGE>
to the Company. Regulatory limits shall apply to any dividends paid by the
Bank. Neither the Company nor the Bank shall issue additional stock or
other securities beyond the initial offerings described to M&I without the
express written approval of M&I, except for the additional $750,000
additional cash equity contribution required to be made to the Company by
August 31, 1994 as described in an Agreement Regarding Equity Contribution
(the "Contribution Agreement") among M&I, the Company and certain
shareholders of the Company. An additional $750,000 cash equity
contribution shall be made to the Company by August 31, 1994, as described
in the Contribution Agreement. The Secretary of the Company and the Cashier
of the Bank shall provide an opening certificate of shares of the Company
and the Bank authorized, issued, and outstanding.
6. The Company shall not repurchase or redeem any of its common stock from
its directors, executives, or other members of the control group, as
defined by the regulatory authorities, without prior written approval of
M&I.
7. The Company shall incur no additional debt without prior approval of
M&I. The Bank shall incur debt only in the normal course of business.
8. The Company shall provide M&I with timely copies of signed quarterly
call reports of the Bank and Holding Company statements together with an
annual audited report of the Company, by a Certified Public Accounting firm
acceptable to M&I, within 120 days of the end of its fiscal year. The
Company shall provide M&I with a Certificate stating the Company is not in
default under any provisions herein, and shall provide M&I, upon request,
with such other reports as M&I deems appropriate, as well as allow M&I to
examine such accounts and records as requested during normal business
hours.
9. The Company shall maintain a minimum net worth of $4,500,000, and the
Bank shall maintain a minimum net worth of $8,000,000, less the Loan Loss
Reserve, but in no event less than $7,500,000. The Bank shall not lose more
than $500,000 in its first year of operation through December 1993. The
Bank shall maintain a minimum Return on Average Assets ("ROAA") of 0.25%
and Return on Equity ("ROE") of 4.50% for the second full calendar year,
1994. Thereafter, in 1995, the minimum ROAA shall be 0.40% and ROE shall be
6.00%.
10. The Company and Bank shall comply with all regulatory requirements
applicable to each. The Company and Bank shall maintain minimum capital as
defined by the regulators, but in no event lower than 7.0% tangible equity
capital to assets for the Bank.
11. The Company and Bank shall make no investments or advances, except in
the normal course of business. All investments of the Company shall be
limited to Short
- 2 -
<PAGE>
Term Investment Grade for Cash Management. All investments of the Bank
shall be investment grade consistent with the Bank's Asset/Liability and
Investment Policies as approved by the applicable regulatory authorities.
12. The Company shall make no guarantee or incur contingent liabilities.
The Bank may only make such guarantees or incur contingent liabilities as
would be made under normal banking practices as permitted by applicable law
and regulation.
13. All mergers and acquisitions or transfers of all or substantially all
of the assets of the Company or the Bank are prohibited without M&I's
express written approval.
14. Other than the initial planned asset expenditures, the Company shall
make no additional fixed asset expenditures exceeding $250,000 in any one
year without prior approval of M&I. The Bank shall make only such fixed
asset expenditures as would be made under normal business practices.
15. The Company and the Bank shall maintain appropriate insurance, as is
customary in the industry, including employee bonding and D&O liability and
shall provide a certificate to M&I of such coverage, as requested. A
Certificate of initial coverage shall be provided to M&I.
16. The Company shall not sell the Bank or any interest therein without M&I
approval nor shall the Company acquire any banks or other subsidiaries
without M&I approval.
17. The Company and the Bank shall not dispose of any assets without the
prior written consent of M&I except the Company may dispose of a nominal
amount of assets and the Bank may dispose of assets in the ordinary course
of business.
18. The Company shall provide a current certification of corporate good
standing from the Secretary of State of the state of incorporation.
19. The Company agrees to deliver to M&I such documents as M&I may require
from time to time to perfect a security interest in any collateral related
to the Loan, including without limitation, collateral pledge agreement,
bank stock, stock powers, proper resolutions of its board of directors, and
corporate certification.
20. Failure by Company or Bank in the performance or observance of any term
or condition of this agreement, the note, collateral pledge agreement, or
the Contribution Agreement shall constitute a default permitting M&I to
accelerate all payments under the Loan and exercise all remedies under all
such documents and under law.
21. M&I has no obligation to refinance the Loan at its maturity.
- 3 -
<PAGE>
22. Either the Company or M&I may, upon written notice, require the
execution of formal documents containing covenants and other provisions as
are customary of formal agreements with respect to transactions of this
type during the term of the indebtedness. All Fees and Expenses of M&I
related thereto shall be paid by the Company.
23. This loan and all agreements and documents shall have situs in the
State of Wisconsin and be governed by Wisconsin Law.
Please acknowledge acceptance of the terms and conditions by signing the
appropriate place indicated and retain one copy for your records.
Sincerely yours,
/s/ John A. Leonard
John A. Leonard Attest: ____________________________
Vice President Exec. Vice President
The above terms are accepted, this date, October 16, 1992
Merrill Merchants Bancshares, Inc.
- ----------------------------------
By: /s/ Perry B. Hansen, Sec.
------------------------------
Perry B. Hansen, Secretary
The above terms are acknowledged and agreed to this date:
Merrill Merchants Bank
- ----------------------
By: /s/ Edwin N. Clift Attest:
------------------------------ ----------------------------
Its: President Its: Secretary
----------------------------- -------------------------------
- 4 -
<PAGE>
January 3, 1994
William C. Bullock, Jr.
Chairman of the Board
and
Perry B. Hansen
Secretary
Merrill Merchants Bancshares, Inc.
201 Main Street, PO Box 925
Bangor, ME 04402-0925
Dear Bill and Perry:
The following is an amendment dated as of December 23, 1993 to the Letter
Agreement between M&I Marshall & Ilsley Bank ("M&I") and Merrill Merchants
Bancshares, Inc. ("Company") and acknowledged by Merrill Merchants Bank ("Bank")
dated October 16, 1992:
Paragraph 9 is changed from " . . . shall lose no more than $500,000 in its
first year . . ." to read " . . . shall lose no more than $650,000 in its
first year . . . " with the rest of the paragraph and agreement to remain
unchanged.
Sincerely yours,
/s/ John A. Leonard
John A. Leonard Attest: /s/ Andrew R. Ragatz
Vice President --------------------------------
Andrew R. Ragatz, Vice President
The above terms are accepted as of December 23, 1993.
Merrill Merchants Bancshares, Inc.
- ----------------------------------
By: /s/ Edwin N. Clift
------------------
President
The above terms are acknowledged and agreed to as of December 23 1993.
Merrill Merchants Bank
- ----------------------
By: /s/ Edwin N. Clift Attest: /s/ William C. Bullock
-------------------------------- --------------------------------
Its: President Its: Chairman
------------------------------- ------------------------------------
- 5 -
<PAGE>
Dated as of April 28, 1994
Mr. Edwin N. Clift, President
Merrill Merchants Bancshares, Inc.
201 Main Street
Bangor, Maine 04402
Re: Amendment to Letter Agreement Dated October 16, 1992
Dear Ed:
M&I Marshall & Ilsley Bank ("M&I") has extended certain credit accommodations to
Merrill Merchants bancshares, Inc. ("Company") pursuant to the terms of a letter
agreement dated October 16, 1992 ("Letter Agreement") among M&I, Company and
Merrill Merchants Bank ("Bank"). Company and Bank have requested M&I to amend
the Letter Agreement to authorize Bank's membership in the Federal Home Loan
bank of Boston ("FHLB").
The Letter Agreement is hereby amended to permit Bank to become a member of FHLB
upon the following conditions:
1. Bank shall provide M&I with a business plan for FHLB utilization which is
acceptable to M&I.
2. Bank shall not, without the prior written approval of M&I, incur advances or
indebtedness which would require Bank to submit a "Qualified Collateral
Report" to the FHLB. In the event Bank is required for any reason to submit a
"Qualified Collateral Report" to the FHLB, Bank shall notify M&I of such
requirement within one (1) business day of Bank's knowledge of such
requirement. Upon notice by M&I, Bank shall take appropriate corrective
action to eliminate the need for such report, unless the FHLB requires such
report as part of a broad-based policy change which is not specific to Bank.
3. Bank shall comply with all rules, regulations and policies of the FHLB.
4. Bank shall maintain "Blanket Lien Status" with the FHLB and shall continue to
maintain minimum capital as defined by the regulators and as required by the
Letter Agreement.
5. Bank shall not allow an event of default to occur under Bank's Agreement for
Advances, Collateral, Pledge and Security Agreement with the FHLB.
- 6 -
<PAGE>
6. Bank's "Total Borrowings" shall be less than "Value of Qualified Collateral"
under advance ratios published by the FHLB.
7. At the request of M&I, Bank shall provide M&I with copies of:
(a) Reports submitted by Bank to the FHLB; and
(b) Internal management data and reports with respect to advances
from the FHLB and applications of advances to loans.
Failure of Bank to comply with any of the foregoing conditions shall constitute
an event of default under the Letter Agreement and the note evidencing the Loan
(as defined in the Letter Agreement).
Except as specifically amended hereby, the Letter Agreement and the note
evidencing the Loan shall remain in full force and effect.
Please acknowledge acceptance of the terms and conditions by signing the
appropriate place indicated and retain one copy for your records.
Sincerely yours,
/s/ John A. Leonard
John A. Leonard Attest: /s/ A.R. Ragatz, VP
Vice President -------------------------
President
The above terms are accepted this 30th day of June, 1994 to be effective as of
April 28, 1994.
MERRILL MERCHANTS BANCSHARES, INC.
By: /s/ Edwin N. Clift Attest: /s/ Deborah Bowie
-------------------------------- -------------------------
President and Chief Executive Officer Vice President and Chief
Financial Officer
Its:________________________________ Its:_____________________________
The above terms are acknowledged and agreed to this 30th of June, 1994 to be
effective as of April 28, 1994.
MERRILL MERCHANTS BANK
By: /s/ Edwin N. Clift Attest: /s/ Deborah Bowie
-------------------------------- -------------------------
President and Chief Executive Officer Vice President and Chief
Financial Officer
Its:________________________________ Its:_______________________
- 7 -
<PAGE>
Edwin N. Clift, President
Merrill Merchants Bancshares, Inc.
201 Main Street
Bangor, Maine
Re: Letter Agreement dated October 16, 1992 between M&I Marshall & Ilsley
Bank ("M&I") and Merrill Merchants Bancshares, Inc. ("Company") and
acknowledged by Merrill Merchants Bank, as amended by a Letter
Agreement dated as of December 23, 1993, as amended by a Letter
Agreement dated as of April 28, 1994, as amended by a Letter Agreement
dated September 7, 1994, and as amended by a Letter Agreement dated
October 16, 1995 ("Letter Agreement")
Dear Ed:
M&I and the Company have agreed to amend the Letter Agreement to adjust the
interest rate options for the Loan and to add a line of credit facility as set
forth herein. Unless otherwise defined herein, the capitalized terms used herein
shall have the meanings set forth in the Letter Agreement.
The Letter Agreement is hereby amended as follows:
1. The annual rate of interest (referenced in Paragraph 3 of the Letter
Agreement) for the Loan is amended in its entirety to read as follows:
3. (a) The entire unpaid principal of the Loan shall bear interest,
computed on the basis of a 360-day year, at an annual rate equal to: (i) the
Prime Rate, which rate of interest shall change with each change in the Prime
Rate; (ii) 150 basis points plus LIBOR (as defined below) quoted by M&I for an
interest period of no less than 1 year and no greater than the maturity date of
the Loan; or (iii) 175 basis points plus the Treasury Rate (as defined below)
quoted by M&I for an interest period of no less than 3 months and no greater
than the maturity date of the Loan, as selected by the Company upon written or
telephonic notice to M&I.
"LIBOR" shall mean an annual rate of interest equal to the Adjusted Interbank
Rate (defined immediately below).
"Adjusted Interbank Rate" means an annual rate for any interest period
(rounded upwards, if necessary, to the nearest 1/100 of 1%), determined
pursuant to the following formula:
- 8 -
<PAGE>
Adjusted Interbank Rate = Interbank Rate
--------------
1 - Interbank Reserve
Requirement
"Interbank Rate" means the rate per annum equal to the rate (rounded
upwards, if necessary, to the nearest 1/16 of 1%) quoted to M&I as the
rate at which dollar deposits in immediately available funds are
offered to M&I on the first day of the applicable interest period in
the interbank Eurodollar market on or about 9:00 A.M., Milwaukee time,
for delivery on the first day of such interest period, for the number
of days comprised therein and in an amount equal to or comparable to
the amount of the loan. If the first day of any interest period is not
a business day, the Interbank Rate shall be established on the
preceding business day. Each such determination shall be conclusive and
binding upon the parties hereto in the absence of demonstrable error.
M&I currently uses the Knight Ridder Information Service to provide
information with respect to the interbank Eurodollar market, but M&I
may change the service providing such information at any time.
"Interbank Reserve Requirement" means, with respect to each interest
period for a LIBOR loan, a percentage (expressed as a decimal) equal to
the aggregate reserve requirements in effect on the first day of such
interest period (including all basic, supplemental, marginal and other
reserves and taking into account any transitional adjustments or other
scheduled changes in reserve requirements during such interest period)
specified for "Eurocurrency Liabilities" under Regulation D of the
Board of Governors of the Federal Reserve System, or any other
regulation of the Board of Governors which prescribes reserve
requirements applicable to "Eurocurrency Liabilities" as presently
defined in Regulation D, as then in effect, as applicable to the class
or classes of banks of which M&I is a member. As of the date hereto the
Interbank Reserve Requirement is 0%.
"Treasury Rate" shall mean the "ask yield" for United States Treasury Notes as
of the first day of the applicable interest period for a term of like duration
as such interest period. If the first day of any interest period is not a
business day, the Treasury Rate shall be established on the preceding business
day. Each such determination shall be conclusive and binding upon the parties
hereto in the absence of demonstrable error. M&I currently uses the Knight
Ridder Information Service to provide information with respect to the Treasury
Rate, but M&I may change the service providing such information at any time.
(b) The interest rate on the Loan on the date hereof is the Prime
Rate. The Company may convert the interest rate option on the entire outstanding
principal amount of the Loan upon one business days' prior notice to M&I: (i) at
any time for conversion from the Prime Rate to LIBOR or to the Treasury Rate;
and (ii) at the end of the then-applicable interest period for conversion from
LIBOR or the Treasury Rate to another interest rate option. Absent receipt by
M&I of such notice of interest rate conversion, the Loan shall continue to
- 9 -
<PAGE>
bear interest at the interest rate option (and for an interest period of equal
duration, if applicable) previously selected by the Company. The interest rate
option selected by the Company in accordance with the foregoing shall apply to
the entire outstanding principal amount of the Loan. Each notice of conversion
shall automatically constitute a warranty by the Company to M&I that on the date
of the requested conversion no default under the Letter Agreement shall exist.
(c) Interest on the Loan shall continue to be paid quarterly, on
the 16th day of every third month.
2. The following is hereby added as Paragraph 24 of the Letter Agreement:
24. (a) From time to time prior to April 30, 1997 and subject to all of
the terms and conditions set forth in this Letter Agreement and the separate
note evidencing the Line, M&I will make available to the Company a line of
credit in the maximum aggregate amount of $1,000,000 ("Line"). The Company may
borrow, repay and reborrow under the Line in any increment of $10,000 at any
time prior to the expiration of the Line.
(b) The unpaid principal of the Line shall bear interest at either:
(i) the Prime Rate, which rate of interest shall chancre with each change in the
Prime Rate or (ii) 250 basis points plus LIBOR (as defined above) quoted by M&I
for a 30, 60 or 90 day interest period, as selected by the Company upon written
or telephonic notice to M&I. The Company shall select the initial interest rate
option at the time of the initial draw.
(c) The Company may convert the interest rate option on all
borrowings under the Line upon one business days' prior notice to M&I: (i) at
any time for conversion from the Prime Rate to LIBOR and (ii) at the end of the
then-applicable interest period for conversion from LIBOR to the Prime Rate.
Absent receipt by M&I of such notice of interest rate conversion, the Line shall
continue to bear interest at the interest rate option (and for an interest
period of equal duration, if applicable) previously selected by the Company. The
interest rate option selected by the Company from time to time shall apply to
all borrowings under the Line, whether the principal amount is increased or
decreased. Each borrowing under the Line and each notice of interest rate
selection or conversion shall automatically constitute a warranty by the Company
to M&I that on the date of the requested borrowing or conversion no default
under the Letter Agreement shall exist.
(d) Interest on the Line shall be paid at the earlier to occur of
(i) quarterly or (ii) at the end of the applicable interest period, commencing
on January 1, 1997 and continuing thereafter until the outstanding principal
balance is repaid in full, with all accrued interest paid with the final payment
of principal.
- 10 -
<PAGE>
Except as specifically amended by this letter, the Letter Agreement shall remain
in full force and effect. Please acknowledge acceptance of the foregoing
amendments to the Letter Agreement by signing the appropriate place indicated
and retain one copy for your records.
Dated as of January 1, 1997
Sincerely yours,
/s/ John A. Leonard
John A. Leonard Attest: /s/ A.R. Ragatz
-----------------------
Vice President
The above terms are accepted
as of January 1, 1997
MERRILL MERCHANTS BANCSHARES, INC.
By: /s/ Edwin N. Clift
------------------
Its: President
-----------------
The above terms are acknowledged and agreed to
as of January 1, 1997
MERRILL MERCHANTS BANK
By: /s/ Edwin N. Clift Attest: /s/ Deborah Jordan
---------------------------- -----------------------
Its: President Its: Senior Vice President
--------------------------- --------------------------
- 11 -
<PAGE>
October 16, 1995
Edwin N. Clift
President & CEO
Merrill Merchants Bancshares, Inc.
201 Main Street
Bangor, ME 04402-0925
RE: Letter Agreement dated October 16, 1992 between M&I Marshall & Ilsley
Bank ("M&I") and Merrill Merchants Bancshares, Inc. ("Company") and
acknowledged by Merrill Merchants Bank, as amended by a Letter
Agreement dated as of December 23, 1993, as amended by a Letter
Agreement dated as of April 28, 1994 and as amended by a Letter
Agreement dated September 7, 1994 ("Letter Agreement")
Dear Ed:
The Letter Agreement is hereby amended as follows:
1. The term of the Loan (as defined in Paragraph 1. of the Letter
Agreement) is extended from October 16, 1992 to October 16, 2000.
2. The annual rate of interest referenced in Paragraph 3. of the Letter
Agreement is changed to the "annual rate (computed on the basis of actual days
elapsed over a 360-day year) equal to the rate of interest adopted by M&I from
time to time as its base rate for interest determinations (the "Prime Rate"),
and such rate of interest shall change with each change in such Prime Rate".
Interest shall continue to be payable quarterly.
3. The Company shall execute and deliver to M&I a promissory note in
the original principal amount of Four Million Dollars ($4,000,000) dated October
16, 1992 as amended and restated on October 16, 1995 ("Amended Note"), and
otherwise in form and substance satisfactory to M&I. Such Amended Note shall be
in substitution for the promissory note dated October 16, 1992 issued by the
Company and payable to the order of M&I; which October 16, 1992 promissory note
will be canceled and returned to the Company upon delivery to M&I of the Amended
Note.
4. The Company shall pay the principal of the Amended Note in annual
installments as follows: (a) $303,248 on October 16, 1996; (b) $331,476 on
October 16, 1997; (c) $362,331 on October 16, 1998; (d) $396,057 on October 16,
1999; and (e) $2,606,888 on October 16, 2000.
- 12 -
<PAGE>
Please acknowledge acceptance of the foregoing amendments to the Letter
Agreement by signing the appropriate place indicated and retain one copy for
your records.
Sincerely yours,
/s/ John A. Leonard
John A. Leonard Attest: /s/ A.R. Ragatz, VP
Vice President -----------------------
Vice President
The above terms are accepted as of October 16, 1995.
MERRILL MERCHANTS BANCSHARES, INC.
By: /s/ Edwin N. Clift
------------------
Its: President
-----------------
The above terms are acknowledged and agreed to as of October 16, 1995.
MERRILL MERCHANTS BANK
By: /s/ Edwin N. Clift Attest: /s/ Deborah Jordan
------------------ ----------------------
Its: President Its: Treasurer
------------------ ----------------------
- 13 -
<PAGE>
Form of Amendment to M&I Loan
John A. Leonard, Vice President
M & I Marshall & Ilsley Bank
770 North Water Street
Milwaukee, WI 53202-3593
Re: Letter Agreement dated October 16, 1992 between M & I Marshall & Ilsley
Bank ("M&I") and Merrill Merchants Bancshares, Inc. ("Company") and
acknowledged by Merrill Merchants Bank, as amended by a Letter
Agreement dated as of December 23, 1993, as amended by a Letter
Agreement dated as of April 28, 1994, as amended by a Letter Agreement
dated September 7, 1994, as amended by a Letter Agreement dated October
16, 1995, and as amended by a Letter Agreement dated January 1, 1997
("Letter Agreement")
Dear John:
M&I and the Company have agreed to amend the Letter Agreement to remove certain
Loan and Line stipulations. Unless otherwise defined herein, the capitalized
terms used herein shall have the meanings set forth in the Letter Agreement.
The Letter Agreement is hereby amended as follows:
1. The two sentences of Paragraph 4 of the Letter Agreement (concerning the
retention of certain executives and directors) are deleted in their entirety,
though an empty Paragraph 4 shall remain and read "4. [Reserved]" in order not
to disrupt the numbering of subsequent paragraphs.
2. The first and fourth sentences of Paragraph 5 of the Letter Agreement
(concerning restrictions without M&I approval on the payment of dividends and on
the issuance of additional securities, respectively) are deleted in their
entirety.
- 14 -
<PAGE>
Except as specifically amended by this letter, the Letter Agreement shall remain
in full force and effect. Please acknowledge acceptance of the foregoing
amendments to the Letter Agreement by signing the appropriate place indicated
and retain one copy for your records
Dated as of June 1, 1998
Sincerely yours,
MERRILL MERCHANTS BANCSHARES, INC.
By: Attest:
------------------------------- -----------------------
Edwin N. Clift, President Deborah A. Jordan, Treasurer
The above terms are accepted as of June 1, 1998
MERRILL MERCHANTS BANK
By: Attest:
-------------------------------- -----------------------------
Edwin N. Clift, President Deborah A. Jordan,
Senior Vice President
The above terms are accepted as of June 1, 1998
M & I MARSHALL & ILSLEY BANK
By:_______________________________ Attest:____________________________
Its: _____________________________ Its:_______________________________
- 15 -
<PAGE>
BUSINESS NOTE
M&I Banks
October 16, 1992
as amended and restated
MERRILL MERCHANTS BANCSHARES, INC. Date: on October 16, 1995 $4,000,000.00
- --------------------------------------------------------------------------------
(Borrower)
The undersigned ("Borrower"", whether one or more) promises to pay to the order
of M&I MARSHALL & ILSLEY BANK ("Bank") at Milwaukee, Wisconsin, the principal
sum of $4,000,000.00
[Check (a), (b) or (c); only one shall apply]
|_| (a) in one payment on ______________________________, PLUS interest
payable as set forth below.
|_| (b) in ____________________ equal installments of $__________ payable
____________________, and on the same day of each __________ month
thereafter, PLUS a final payment of unpaid principal and accrued
interest due on __________. All payments include principal and
interest.
|X| (c) in annual installments of principal as set forth in the Letter
Agreement defined below payable October 16, 1996 and on the same day of
each year hereafter, PLUS a final payment of unpaid principal due on
October 16, 2000, PLUS interest payable as set forth below.
This Note bears interest on the unpaid principal balance before
maturity (whether upon demand, acceleration or otherwise) at rate equal
to [check (d) or (e); only shall apply]:
|_| (d) _____% per year.
|X| (e) 0% per year in excess of the prime rate of interest adopted by M&I
Marshall & Ilsley Bank at its base rate for interest rate
determinations from time to time (with the rate changing as and when
that prime rate changes). The initial rate is _____% per year.
Interest is payable on January 16, 1993, and on the same date of each
third month thereafter, and at maturity, or if box (b) is checked, at the times
so indicated. Interest is computed for the actual number of days principal is
unpaid on the basis of a 360 day year. Unpaid principal and interest bear
interest after maturity (whether by acceleration or lapse of time) at a rate
equal to 2.00% greater than the rate which would otherwise be applicable.
If any installment is not paid when due or if the Bank deems itself
insecure* or any default under the Letter Agreement dated October 16, 1992 among
Borrower, Bank and Merrill Merchants Bank, as amended as of 12/23/93, 4/28/94,
9/7/94 and 10/16/95 ("Letter Agreement"), the unpaid balance shall, at the
option of the Bank, and without notice mature and become immediately payable.
The unpaid balance shall automatically mature and become immediately payable in
the event any Borrower, surety, or guarantor becomes the subject of bankruptcy
or other insolvency proceedings.
This Note is secured by all existing and future security agreements,
assignments, mortgages and any other agreements between the Bank and the
Borrower, between the Bank and any indorser or guarantor of this Note, and
between the Bank and any other person providing collateral security for the
Borrower's obligations, and payment may be accelerated according to any of them.
The Borrower grants to the Bank a security interest and lien in any deposit
account the Borrower may at any time have with the Bank (except accounts, the
interest on which is exempt from federal income tax). The Bank may, at any time
after an occurrence of any event of
- 16 -
<PAGE>
default, without notice or demand, set-off against any deposit balances or other
money now or hereafter owed any Borrower by the Bank any amount unpaid under
this Note.
Bank reserves the right to credit payments when the funds are deemed by
Bank to be collected.
|_| If checked here, this Note is secured by a first lien mortgage or
equivalent security interest on a one-to-four family dwelling used as a
Borrower's principal place of residence.
Without affecting the liability of any Borrower, the Bank may, without
notice, accept partial payments, release or impair any collateral security to
the payment of this Note or agree not to sue any party liable on it. All
Borrowers agree to pay all costs of collection, including reasonable attorneys'
fees, and waive presentment, protest, demand and notice of dishonor. Full or
partial payment of this Note is permitted at any time without penalty.
The Bank may apply prepayments to such future installments as it
elects.
|_| If checked here, the Bank is authorized to automatically charge
payments due under this Note against account number
____________________ maintained with the Bank.
* or any default under the Letter Agreement dated October 16, 1992 among
Borrower, Bank and Merrill Merchants Bank, as amended as of 12/23/93, 4/28/94,
9/7/94 and 10/16/95 ("Letter Agreement")
______________________________(SEAL) MERRILL MERCHANTS BANCSHARES, INC. (SEAL)
(Individual Name) (Business Name)
______________________________(SEAL) By: /s/ Edwin N. Clift
(Individual Name) -------------------------------------
______________________________(SEAL) Title: Pres. & CEO
(Individual Name) ----------------------------------
______________________________ By: _____________________________________
(Address)
______________________________ Title:___________________________________
(City) (State) (Zip)
- 17 -
EXHIBIT 10.2
OPERATING AGREEMENT
OF
M & M CONSULTING LIMITED LIABILITY COMPANY
AGREEMENT made as of the 7th day of July, 1996, by and between Merrill
Merchants Bank and MSB Leasing, Inc. (hereinafter individually referred to as
"Member", and collectively referred to as "Members").
WITNESSETH:
WHEREAS, the Members desire to form a limited liability company (the
"Company") pursuant to the provisions of the Maine Limited Liability Company
Act, 31 M.R.S.A. ss. 601 et. seq. (the "Act'); and
WHEREAS, the purpose of the Company is to engage in certain activities
closely related to the business of banking or managing or controlling banks, as
permitted by applicable state and federal law.
NOW, THEREFORE, the Members agree as follows:
ARTICLE 1
Formation, Name, Purpose, Location, Registered Office
-----------------------------------------------------
1.1 Formation. The Members hereby form a limited liability company
pursuant to the Act on the terms and conditions stated herein to take effect
upon the filing of the Company's Articles of Organization with the Secretary of
State of the State of Maine ("Secretary of State").
1.2 Name. The name of the Company shall be "M & M Consulting Limited
Liability Company."
1.3 Purpose. The principal purpose of the Company is to engage in
certain activities closely related to the business of banking or managing or
controlling banks, as permitted by applicable state and federal law.
1.4 Place of Business. The principal office of the Company shall be
located at 201 Main Street, Bangor, Maine, or at such other or additional
locations as may be determined by the Members.
1.5 Registered Office and Registered Agent. The address of the
Company's initial registered office shall be 84 Harlow Street, Bangor, Maine.
The name and address of the
<PAGE>
Company's initial registered agent shall be George F. Eaton. The registered
office and registered agent may be changed from time to time as the Members deem
advisable by filing notice of such changes with the Secretary of State in
accordance with the Act.
ARTICLE 2
Term; Dissolution
-----------------
2.1 Term. The term of the Company shall be thirty (30) years from the
date of filing of Articles of Organization with the Secretary of State, unless
the Company is earlier dissolved in accordance with either the provisions of
this Operating Agreement or the Act.
2.2 Dissolution. The Company shall be dissolved upon the occurrence of
any of the following events:
(a) the expiration of the term set forth in Section 2.1;
(b) the written agreement of the Members holding more than 50% of
interests in the Company;
(c) the sale or other disposition of all or substantially all of
the assets of the Company or the permanent cessation of the
Company's business operations; or
(d) the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member or occurrence of any other event which
terminates the continued membership of a Member in the Company
(a "Withdrawal Event") or any other event which causes a
dissolution under the Act, unless the business of the Company
is continued by the consent of those remaining Members who
collectively own at least a majority of the capital interests
(as measured by the positive balances of their capital
accounts) of the remaining Members within ninety (90) days
after the Withdrawal Event, or such other event, and there are
at least two remaining Members.
Upon the occurrence of any dissolution hereunder, the affairs of the
Company shall be wound up in accordance with Article 8 and immediately
thereafter the Company shall terminate.
ARTICLE 3
Capital
-------
-2-
<PAGE>
3.1 Members' Capital Contributions. Each Member shall contribute such
amount as is set forth in Schedule A hereto as its initial capital contribution.
3.2 Membership Interests. The Members shall have the membership
interests in the Company specified on Schedule A ("Membership Interests").
Schedule A shall be amended from time to time to reflect the withdrawal or
admission of Members, and any changes in the Membership Interest held by a
Member arising from the transfer of a Membership Interest to or by such Member.
3.3 Capital Accounts. A capital account shall be maintained for each
Member, in accordance with tax accounting principles, which shall reflect its
initial capital contribution as set forth in Schedule A, and shall be adjusted
and maintained as follows:
(a) As of the end of each fiscal year of the Company, each Member's
opening capital account for such year shall be increased by an
amount equal to (i) the cash and the agreed fair market value
of property (net of any liabilities assumed by the Company or
to which such property is subject) contributed to the capital
of the Company by such Member for such year; and (ii) such
Member's share of Company taxable income for such year,
including income and gain exempt from tax; and
(b) As of the end of the fiscal year of the Company, each Member's
opening capital account for such year shall be decreased by an
amount equal to (i) the aggregate amount of cash distributions
and the agreed fair market value of any property (net of any
liabilities assumed by such Member or to which such property is
subject) distributed to such Member during such year; (ii) such
Member's share of expenditures of the Company not deductible
and not properly chargeable as a capital expenditure; and (iii)
such Member's share of Company losses for such year, provided,
however, that if it is necessary to determine the capital
account of any Member during the fiscal year, the capital
account of the Member shall be determined after giving effect
to all allocations of taxable income, gain and loss
attributable to transactions effected prior to the time such
determination is made and all distributions of cash theretofore
made for such year.
3.4 Change in Tax Law. Notwithstanding anything to the contrary herein,
it is the intention of the Company that it be classified as a partnership for
federal income tax purposes and that it conform to the requirements of the
Internal Revenue Code with respect to the validity of the allocations of items
including income, gain, loss, and tax credits. In the event of a change in the
Internal Revenue Code or Treasury Regulations, the Members hereby agree to
consult with tax counsel to determine whether an amendment to this Agreement is
required and, if it is, to adopt such amendment.
-3-
<PAGE>
3.5 Interest on Capital; Loans by or to Members. No interest or other
compensation shall be allowed to any Member with respect to its capital account,
except its share of the profits, losses and distributions of the Company as
hereinafter provided. The Company shall not make loans to, or borrow from, any
Member without the consent of all the Members.
3.6 Withdrawal of Capital. Except as may be specifically provided in
this Agreement, no Member shall have the right to withdraw from the Company all
or any part of its capital contribution nor shall such Member have any right to
demand and receive property or cash of the Company in return of its capital
contribution.
3.7 Liability of Members for Repayment of Capital. No Member shall have
any liability for the repayment of any capital contribution of any other Member.
ARTICLE 4
Profits, Losses and Cash Distributions
--------------------------------------
4.1 Company Profits, Losses and Cash Distributions. All profits, losses
and distributions of cash or other property from the Company to the Members
shall be allocated or distributed in accordance with each Member's Membership
Interest, as set forth on Schedule A, provided that upon the dissolution of the
Company all distributions of cash shall be made in accordance with Article 8.
4.2 Priority & Timing. No Member shall have priority over any other
Member with regard to allocations of profits or losses or distributions from the
Company. All distributions of Company funds to the Members shall be made at such
times as the Members may determine.
ARTICLE 5
Management and Administrative Policies
--------------------------------------
5.1 Voting. Unless otherwise expressly provided herein, all actions and
decisions of the Company shall be by majority in Membership Interests. No Member
shall be disqualified from voting or otherwise participating in any decision
because of a conflict in interest.
5.2 Authority; Reliance by Third Parties; Management Committee;
Proprietary Information.
(a) The Members shall have the authority to manage the business of
the Company. Such authority shall include, without limitation,
the authority
-4-
<PAGE>
to purchase, sell, mortgage, lease, and otherwise dispose of
property, both real and personal, to hire employees, to
contract with third parties to render or receive services and
to borrow money and otherwise pledge the credit of the Company.
The signature of a duly authorized officer of any one Member
alone shall be sufficient to bind the Company and every
document executed by a Member shall be conclusive evidence in
favor of every person relying in good faith thereon or claiming
thereunder that at the time of the delivery thereof (i) this
Company was in existence, (ii) this Agreement had not been
amended in any manner so as to restrict such authority and
(iii) the execution and delivery of such documents were duly
authorized under this Article.
(b) The Members may appoint executive officers and/or a management
committee consisting of representatives of each Member to which
the Members may delegate such rights, duties, and
responsibilities as they shall determine from time to time.
Such delegation shall not relieve the Members of their
responsibility for managing the business of the Company or
affect their ability to bind the Company in dealings with third
parties.
(c) Each Member recognizes and acknowledges that the business of
the Company will expose the Company's employees to trade
secrets and proprietary information and processes, as they may
exist from time to time, of each Members' business operations,
as well as trade secrets and proprietary information and
processes, as they may exist from time to time, of other
competitors of the Members or their affiliates. The Members
hereby agree that the Company can be effectively managed
without having such proprietary information disclosed by
Company employees to employees, officers or directors of either
Member or either Member's affiliates. The Members hereby
establish the following policies to assure that such trade
secrets, information or processes will not be disclosed to
either of the Members or their representatives:
(A) Each Member shall designate an executive officer of such
Member to represent the Member in Company management
decisions.
(B) The Company shall employ executive officers and employees
who are capable of managing and carrying out the day to day
business affairs of the Company and who shall be
contractually obligated to refrain from disclosing
confidential client information to the Members or their
representatives.
-5-
<PAGE>
(C) The Company shall not employ any executive officer or
employee who is also an employee, agent, officer or
director of a Member or any affiliate of a Member (other
than the Company itself).
(D) Employees, agents and consultants engaged by the Company
shall refrain from disclosing to the Members (or
representatives of the Members) confidential information of
any client of the Company. Each employee, agent or
consultant engaged by the Company whose position involves
the handling of confidential client information shall sign
a confidentiality agreement for the purpose of effecting
the policies set forth herein.
5.3 Fiduciary Duty; Devotion of Time; Compensation. Each Member shall
exercise its powers and discharge its duties in good faith with a view to the
interests of the Company and its Members with that degree of diligence, care and
skill that ordinarily prudent persons would exercise under similar circumstances
in like positions. No Member shall be compensated for its services to the
Company, except as is expressly provided in the Agreement, but each Member shall
be entitled to charge the Company, or to be reimbursed by the Company, for all
reasonable out of pocket expenses actually incurred by it and paid to third
parties in connection with the Company business.
5.4 Exculpation and Indemnification.
(a) Exculpation. The doing of any act or the failure to do any act
by a Member or such Member's representative, the effect of
which may cause or result in loss or damage to the Company or
its property, shall not subject such Member or such Member's
representative, to any liability to the Company, or to the
other Members, unless the Member's (or its representatives)
acts or omissions constituted bad faith, gross negligence,
willful misconduct, or fraud, or violated Section 5.3.
(b) Indemnification. The Company shall indemnify the Members and
their representatives and make advances for expenses to the
maximum extent permitted under the Act. The Company shall
indemnify its employees and other agents to the fullest extent
permitted by law, provided that such indemnification in any
given situation is first approved by the Members. The right to
indemnification under this Section shall be fully vested with
respect to any matter occurring while this Section was in
effect. No amendment of this Section shall have any retroactive
effect except as to enhance such right for the benefit of the
indemnitee. Any indemnity under this Section 5.4 shall be
provided out of and to the extent of Company assets only and no
Member shall have any liability
-6-
<PAGE>
on account thereof. The Members' rights of contribution under
local law shall not be abrogated by this Section.
5.5 Other Business Ventures. Each of the Members may engage
independently or with others in other business ventures of every nature or
description including competing ventures, and neither the Company nor any Member
shall have any rights in or to such independent ventures or the income or
profits derived therefrom.
5.6 Bank Accounts; Records; Reports.
(a) All funds of the Company shall be deposited in its name in such
checking account or other bank accounts as shall be designated
by the Members. Withdrawals shall be on such signatures as may
be determined by the Members from time to time.
(b) The Members shall keep or cause to be kept true and full books
of account, in which shall be recorded the transactions of the
Company, all of which shall at all times be maintained at the
principal office of the Company, or at such other office as
shall be designated for such purpose by the Members, and shall
be open for inspection and examination of the Members or their
representatives at any reasonable time.
(c) The Members shall cause to be prepared and sent to each Member
each year: (a) annual reports of the Company, including an
annual balance sheet and profit and loss statement, within 90
days after the close of each fiscal year; (b) annual statements
indicating the share of each Member of the net income, net
loss, depreciation, gain, loss and other relevant items of the
Company for each calendar year for federal income tax purposes;
and (c) a copy of the Company's federal information tax return
(Form 1065) and related Schedules K and K-1.
5.7 Fiscal Year. The fiscal year of the Company shall be the calendar
year.
5.8 Accounting Method. For tax and financial accounting purposes, the
Company shall adopt the accrual method of accounting.
ARTICLE 6
Withdrawal; Liquidation of Membership Interest
----------------------------------------------
6.1 Withdrawal. Status as a Member of the Company shall cease upon the
occurrence of bankruptcy or insolvency, dissolution or voluntary or involuntary
withdrawal
-7-
<PAGE>
from the Company of a Member ("Withdrawal"). No Member shall have the power to
withdraw by voluntary act from the Company without the consent of all Members.
In the event of the Withdrawal of a Member, the Membership Interest of
the former Member shall be deemed to have been assigned to the former Member's
successor in interest. In the event of such an assignment, such assignee shall
not become a Member unless accepted as a Member by all remaining Members. Unless
such assignee is accepted as a Member, the assignee shall have no right to
participate in the management and affairs of the Company, but such assignee
shall be entitled to share in the economic attributes of the Company to which
the withdrawing Member was entitled. In the event of an assignment by virtue of
Withdrawal, the former Member shall have no further right to participate in the
management and affairs of the Company. The Company shall not be required to
liquidate the Membership Interest of a former Member.
ARTICLE 7
Restrictions of Transition of Membership Interest
-------------------------------------------------
7.1 No Assignment, Pledge or Encumbrance of Interests. No member may
assign, sell, pledge or encumber all or any part of its Membership Interest, in
any manner, whether voluntarily or involuntarily, by operation of law or
otherwise, without the consent of all the Members.
7.2 Sale or other Transfer of Interests. No Member shall have the right
to dispose of all or any portion of its Membership Interest except; (i) to
another Member, (ii) to an affiliate of such Member, or (iii) with the consent
of all the Members, which consent may be refused for any reason.
ARTICLE 8
Dissolution and Winding Up
--------------------------
8.1 Effect of Dissolution. In the event of dissolution, the Company
shall cease to carry on its business, except insofar as may be necessary for the
winding up of its business, but its separate existence shall continue until a
certificate of cancellation has been filed with the Secretary of State or until
a decree dissolving the Company has been entered by a court of competent
jurisdiction.
8.2 Winding Up, Liquidation and Distribution of Assets.
(a) Upon dissolution, the Members shall immediately proceed to wind
up the affairs of the Company in accordance with the
requirements of the
-8-
<PAGE>
Act and other applicable law. In furtherance of the winding up
of the Company, the Members shall:
(i) sell or otherwise liquidate all of the Company's assets
as promptly as practicable (except to the extent the
Members may determine to distribute any assets to
themselves in kind);
(ii) discharge or make reasonable provision for all
liabilities of the Company, including liabilities to
Members who are also creditors, other than liabilities to
Members for distributions and the return of capital, and
establish such reserves as may be reasonably necessary to
provide for contingent liabilities of the Company (for
purposes of determining the capital accounts of the
Members, the amounts of such reserves shall be deemed to
be an expense of the Company);
(iii) distribute the remaining assets of the Company in the
following order of priority:
(1) To each Member, with respect to the cumulative amount of
all accrued but unpaid pre-dissolution distributions for
which the Company is liable to the Member, the amount of
such liability;
(2) To each Member, with respect to its unreturned capital
contribution, an amount equal to the positive balance (if
any) in its capital account (as determined after taking
in to account all capital adjustments for the Company's
taxable year during which the liquidation occurs), or, if
the assets available to be distributed hereunder are
insufficient to cover the aggregate of all Members'
positive balances, a proportionate amount based upon the
relative positive balances of the Members; and
(3) To each Member, with respect to its Membership Interest,
a proportionate share of the remaining assets equal to
its Membership Interest.
(b) The Members shall cause an accounting to be made by the
Company's independent accountants of the accounts of the
Company and of the Company's assets, liabilities, and
operations, from the date of its previous accounting
until the date of dissolution.
-9-
<PAGE>
(c) If any assets of the Company are distributed in kind, the
net fair market value of such assets as of the date of
dissolution shall be determined by independent appraisal
or by agreement of the Members. Such assets shall be
deemed to have been sold to the Members in proportion to
their Membership Interest as of the date of dissolution
for their market value, and the capital accounts of the
Members shall be adjusted to reflect such deemed sale.
(d) Notwithstanding anything to the contrary in this
Agreement, upon a liquidation, if any Member has a
deficient capital account (after giving effect to all
contributions, distributions, allocations and other
Capital Account adjustments for all taxable years,
including the year during which such liquidation occurs),
such Member shall have no obligation to make any capital
contribution, and the negative balance of such Member's
capital account shall not be considered a debt owed by
such Member to the Company or to any other person for any
purpose whatsoever.
8.3 Certificate of Cancellation. Upon completion of the winding up,
liquidation and distribution of the assets, the Company shall be deemed
terminated and the Members shall forthwith file with the Secretary of State a
certificate of cancellation. Thereafter, the Members, as liquidating trustees,
shall have authority to distribute any Company property discovered after
termination, convey real estate and take such other action as may be necessary
on behalf of and in the name of the Company.
ARTICLE 9
Amendment
---------
This Agreement may be amended at any time by written agreement of
Members holding more than 50% of Membership Interests in the Company.
ARTICLE 10
Miscellaneous
-------------
10.1 Notices. All notices, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given on the date
delivered in person to the party to whom notice is to be given, or on the first
business day after mailing if mailed to the last known address of the party to
whom notice is to be given by registered or certified mail, postage paid, return
receipt requested.
-10-
<PAGE>
10.2 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the Company and there are no agreements,
understandings, warranties or representations between the parties with respect
to the Company except as set forth herein.
10.3 Binding Effect. This Agreement will inure to the benefit of and
bind the respective successors and assigns of the parties.
10.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10.5 Construction. As used in this Agreement, the singular number shall
include the plural, and the plural the singular. Captions are inserted only as a
matter of convenience and in no way limit, define or extend the scope of this
Agreement.
10.6 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maine.
10.7 Severability. If any provision of this Agreement is to be
determined to be invalid or unenforceable, it shall not affect the validity or
enforceability of the remaining provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
WITNESS: Merrill Merchants Bank
/s/ Marilyn M. Harlow By: /s/ Edwin N. Clift
- --------------------------------- ----------------------------------
Its: President
---------------------------------
/s/ Bonnie L. LaBelle By:
- --------------------------------- -----------------------------------
Its: Vice President
-----------------------------------
-11-
<PAGE>
Schedule A to Operating Agreement
of
M & M Consulting Limited Liability Company
July 7, 1996
Member Capital Contribution Membership Interests
- ------ -------------------- --------------------
Merrill Merchants Bank $25,000 50%
MSB Leasing, Inc. $25,000 50%
-12-
EXHIBIT 10.3
[Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
SERVICE AGREEMENT
This SERVICE AGREEMENT ("Agreement"), is made and entered into this 19th
day January, 1998, by and between Merrill Merchants Bank, a Maine corporation,
having a principal place of business in Bangor, Maine (hereinafter "Client"),
and M&M Consulting Limited Liability Company, a Maine limited liability company,
having a principal place of business at 201 Main Street, Bangor, Maine 04401
(hereinafter "Company").
Section 1
SCOPE OF SERVICES
1.1 Consulting Services. Company shall provide certain banking related
services specified in Schedule A attached hereto.
1.2 Conduct of Services. All work shall be performed in a professional
manner by employees of Company having a level of skill commensurate with the
requirements of the bank regulatory authorities having jurisdiction over Client.
Company shall require its employees at all times to observe security policies of
Client.
Section 2
METHOD OF PERFORMING SERVICES
2.1 Method of Performing Services. Company shall have the right to
determine the method, details, and means of performing the work to be done for
Client. Client may, however, require Company's personnel at all times to observe
security policies of Client. In addition, Client shall be entitled to exercise
broad general power of supervision and control over the results of work
performed by Company's personnel to ensure satisfactory performance, including
the right to review the work, the right to stop work, the right to make
suggestions or recommendations as to the details of the work, and the right to
propose modifications to the work.
2.2 Scheduling. Company will try to accommodate work schedule requests to
the extent possible. Should any personnel of Company be unable to perform
scheduled services because of illness, resignation, or other causes beyond
Company's reasonable control, Company will attempt to replace such employee
within a reasonable time, but Company shall not be liable for delays resulting
from factors beyond its control.
2.3 Reporting. Client and Company shall develop appropriate administrative
- 1 -
<PAGE>
procedures for coordinating with Company's personnel. Client shall periodically
prepare an evaluation of the performance of Company's personnel. Should Client
not be satisfied with the performance of one or more of Company's personnel,
Client may request, on reasonable notice, that Company terminate their
assignment to Client's work.
2.4 Place of Work. Company's personnel will perform their work for Client
primarily at Client's premises except when such projects or tasks may be
performed off site. Client agrees to provide working space and facilities, and
any other services and materials Company or its personnel may reasonable request
in order to perform the work assigned to them.
Section 3
TERM AND TERMINATION
3.1 Term. The term of this Agreement shall commence on the date set forth
above and shall continue through the completion of the services set forth in
Schedule A attached hereto, and thereafter for so long as Client seeks or
obtains services from Company.
3.2 Termination. This Agreement may be terminated by either party upon
written notice, if the other party breaches any obligation provided hereunder
and the breaching party fails to cure such breach within a thirty (30) day
period after written notice of such breach; provided that the cure period for
any failure of Client to pay fees and charges due hereunder shall be fifteen
(15) days from the date of receipt by Client of notice of such failure.
3.3 Remaining Payments. Within thirty (30) days of termination of this
Agreement for any reason, Company shall submit to Client an itemized invoice for
any fees or expenses theretofore accrued under this Agreement. Client, upon
payment of accrued amounts so invoiced, shall thereafter have no further
liability or obligation to Company whatsoever for any further fees or expenses
arising hereunder. Notwithstanding any termination of the terms of this
Agreement, the rights and licenses granted under Section 6 hereof shall continue
in effect in accordance with their terms.
Section 4
FEES, EXPENSES, AND PAYMENT
4.1 Fees. In consideration of the services to be performed by Company,
Client shall pay Company the fees set forth in Schedule B attached hereto.
4.2 Reimbursement of Expenses. In addition to the foregoing, Client shall
pay Company its actual out-of-pocket expenses as reasonably incurred by Company
in furtherance of its performance hereunder. Company agrees to provide Client
with access to such receipts, ledgers, and other records as may be reasonably
appropriate for Client or its accountants to verify the amount and nature of any
such expenses.
- 2 -
<PAGE>
4.3 Additional Work. The fees and charges for any follow-on or additional
work not described in Schedule A attached hereto shall be performed at Company's
then-current rates for such work.
4.4 Payment. Client shall pay all fees and expenses owing to the Company
hereunder within fifteen (15) days after Company has submitted to Client an
itemized invoice therefor. A late payment fee equal to the lesser of ***% per
month, or the highest amount allowed by law shall be imposed on amounts overdue
30 or more days. Client hereby agrees to pay all of Company's costs of
collecting overdue amounts, including but not limited to reasonable attorneys
fees.
Section 5
TREATMENT OF PERSONNEL
5.1 Compensation of Company's Personnel. Company shall bear sole
responsibility for payment of compensation to its personnel. Company shall pay
and report, for all personnel assigned to Client's work, federal and state
income tax withholding, social security taxes, and unemployment insurance
applicable to such personnel as employees of Company. Company shall bear sole
responsibility for any health or disability insurance, retirement benefits, or
other welfare or pension benefits, if any, to which such personnel may be
entitled. Company agrees to defend, indemnify, and hold harmless Client,
Client's officers, directors, employees, and agents, and the administrators of
Client's benefit plans from and against any claims, liabilities, or expenses
relating to such compensation, tax, insurance, or benefit matters; provided that
Client shall promptly notify Company of each such claim when and as it comes to
Client's attention, Client shall cooperate with Company in the defense and
resolution of such claim, and Client shall not settle or otherwise dispose of
such claim without Company's prior written consent, such consent not to be
unreasonably withheld.
5.2 Worker's Compensation. Notwithstanding any other workers' compensation
or insurance policies maintained by Client, Company shall procure and maintain
workers' compensation coverage sufficient to meet the statutory requirements of
every state where Company's personnel assigned to Client's work are located.
Section 6
OWNERSHIP RIGHTS
6.1 Ownership. As between Client and Company, except as set forth below in
this Section 6, all right, title, and interest, including copyright interests
and any other intellectual property, in and to any financial information,
programs, systems, data, memoranda, books, papers, letters, formulas, or
materials produced or provided by Company, alone or in combination with Client
and/or its employees, under this Agreement shall be the property of Company.
Client shall have an unlimited license to use such materials exclusively in
- 3 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
connection with its own operations, but may not disclose any aspect of such
materials to third parties except for Bank Regulatory Officials.
Section 7
PROPRIETARY AND CONFIDENTIAL INFORMATION
7.1 Trade Secrets; Confidentiality. a. Company acknowledges that in order
to perform the services called for in this Agreement, it shall be necessary for
Client to disclose to Company certain Trade Secrets. Company further
acknowledges that the work will of necessity incorporate such Trade Secrets.
Company agrees that it shall not disclose, transfer, use, copy, or allow access
to any such Trade Secrets to any employees of the Company or to any third
parties, excepting those who have a need to know such Trade Secrets in order to
perform the services hereunder and who have bound themselves to respect and
protect the confidentiality of such Trade Secrets. Unless Company is compelled
to disclose Trade Secrets by judicial or regulatory process, Company shall not
disclose any such Trade Secrets to any third parties, including but not limited
to the member/owner of Company or their affiliates or their directors, officers
or employees. b. Company also acknowledges, and Client understands, that Company
is a company which has as members banks or affiliates of banks which may be
competitors of Client. Company has therefore adopted internal policies and
procedures, including confidentiality agreements with Company's personnel, which
assure that the Trade Secrets of Client are not communicated or otherwise
transmitted or made available by Company or its personnel to (ii) the
member/owners of Company; (ii) corporate parents, affiliates, or subsidiaries of
the member/owners of Company; or (iii) officers, directors, agents or employees
of the member/owners of Company or of the member/owners' corporate parents,
affiliates, or subsidiaries.
7.2 Scope of Restriction. As used herein, the term "Trade Secrets" shall
mean any Client data, financial and other information, or formulas, including
but not limited to any data or information pertaining to a deposit or loan
customer of Client, that is not generally known in the industry or to the
public.
Section 8
WARRANTIES
8.1 Warranties of Company. Company warrants that Company's performance of
the services called for by this Agreement do not and shall not violate any
applicable law, rule, or regulation; or any contracts with third parties.
Section 9
LIMITATION OF LIABILITY
- 4 -
<PAGE>
9.1 Consulting Services ... Internal Support. The services rendered by
Company consist of consulting services only, with decision making
responsibilities in all instances retained by Client's management. The services
provided by Company are not intended to take the place of legal, accounting and
other professionals, but rather to provide internal support similar to that
which would be provided by Client's own employees.
9.2 No Consequential Damages, etc. In no event shall Company be liable to
Client for any incidental, indirect, or consequential damages or lost profits of
Client.
9.3 Loss of Data. In no event shall Company be liable for loss of data or
records of Client, it being understood that Client shall be responsible for
ensuring proper and adequate back-up and storage procedures.
9.4 Force Majeure. Company shall not be liable to Client for any failure or
delay caused by events beyond Company's control, including, without limitation,
Client's failure to furnish necessary information; sabotage; failure or delays
in transportation or communication; failure or substitutions of equipment; labor
disputes; accidents; shortages of labor, fuel, raw materials or equipment; or
technical failures.
Section 10
HIRING OF COMPANY'S PERSONNEL
10.1 Additional Value From Hiring. Client acknowledges that Company
provides a valuable service by identifying and assigning personnel for Client's
work. Client further acknowledges that Client would receive substantial
additional value, and Company would be deprived of the benefits of its work
force, if Client were to directly hire Company's personnel after they have been
introduced to Client by Company.
10.2 Orderly Transition. In the event that Client hires any personnel of
Company, Client will allow said employee and Company to work out an orderly
transition, up to forty-five (45) days, if necessary.
Section 11
MISCELLANEOUS
11.1 Governing Law. This Agreement shall be governed and construed in all
respects in accordance with the laws of the State of Maine as they apply to a
contract entered into and performed in that State.
11.2 Independent Contractors. The parties are and shall be independent
contractors to one another, and nothing herein shall be deemed to cause this
Agreement to create an agency, partnership, or joint venture between the
parties. Nothing in this Agreement shall be interpreted or construed as creating
or establishing the relationship of employer and
- 5 -
<PAGE>
employee between Client and either Company or any employee or agent of Company.
11.3 Notices. All notices required or permitted hereunder shall be given in
writing addressed to the respective parties as set forth herein, unless another
address shall have been designated, and shall be delivered by hand or by
registered or certified mail, postage prepaid.
11.4 Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto and supersedes all prior representations, proposals,
discussions, and communications, whether oral or in writing. This Agreement may
be modified only in writing and shall be enforceable in accordance with its
terms when signed by the party sought to be bound.
11.5 Parties in Interest. This Agreement is enforceable only by Company and
Client. The terms of this Agreement are not a contract or assurance regarding
compensation, continued employment, or benefit of any kind to any personnel
assigned to Client's work, or any beneficiary of any such personnel, and no such
personnel (or any beneficiary thereof) shall be a third-party beneficiary under
or pursuant to the terms of this Agreement.
11.6 Arbitration of Disputes. All disputes between the parties under this
Agreement shall be submitted to binding arbitration in accordance with the rules
of the American Arbitration Association (the "Association"). The procedure for
arbitration shall be in accordance with the Association's then existing rules,
except that if the parties are unable to agree on a single arbitrator within
five days after arbitration is sought, each party shall select one arbitrator,
and the two selected arbitrators shall choose a third arbitrator. If either
party fails to select an arbitrator within ten days after arbitration is sought,
or the two arbitrators fail to select a third arbitrator within 15 days after
arbitration is sought, the Association shall make the selection.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives, on the date and year first above
written.
COMPANY:
M&M CONSULTING LIMITED LIABILITY COMPANY
By:
(Signature)
/s/ Donald M. George
- ----------------------------------
Donald M. George
Senior Consultant
CLIENT:
By:
(Signature)
/s/ Edwin N. Clift
- ----------------------------------
Edwin N. Clift
President and Chief Executive Officer
SCHEDULES A AND B
SCHEDULE A
o Scope of Services - Per audit plan submitted to Merrill Merchants Audit
Committee on December 18, 1997.
o Term of Contract - January 1, 1998 through December 31, 1999.
SCHEDULE B
o Cost of services - $*** per hour.
- 7 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
[Confidential portions of this agreement have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
SERVICE AGREEMENT
This SERVICE AGREEMENT ("Agreement"), is made and entered into as of this
5th day of December, 1996, by and between Client, Merrill Merchants Bank, a
commercial bank chartered by the State of Maine, having a principal place of
business at 201 Main St., Bangor, ME. (hereinafter "Client"), and M&M Consulting
Limited Liability Company, a Maine limited liability company, having a principal
place of business at 201 Main St., Bangor, (hereinafter "Company").
Section 1
SCOPE OF SERVICES
1.1 Consulting Services. Company shall provide certain banking related
services specified in Schedule A attached hereto.
1.2 Conduct of Services. All work shall be performed in a professional
manner by employees of Company having a level of skill commensurate with the
requirements of the bank regulatory authorities having jurisdiction over Client.
Company shall require its employees at all times to observe security policies of
Client.
Section 2
METHOD OF PERFORMING SERVICES
2.1 Method of Performing Services. Company shall have the right to
determine the method, details, and means of performing the work to be done for
Client. Client may, however, require Company's personnel at all times to observe
security policies of Client. In addition, Client shall be entitled to exercise
broad general power of supervision and control over the results of work
performed by Company's personnel to ensure satisfactory performance, including
the right to review the work, the right to stop work, the right to make
suggestions or recommendations as to the details of the work, and the right to
propose modifications to the work.
2.2 Scheduling. Company will try to accommodate work schedule requests to
the extent possible. Should any personnel of Company be unable to perform
scheduled services because of illness, resignation, or other causes beyond
Company's reasonable control, Company will attempt to replace such employee
within a reasonable time, but Company shall not be liable for delays resulting
from factors beyond its control.
2.3 Reporting. Client and Company shall develop appropriate administrative
- 8 -
<PAGE>
procedures for coordinating with Company's personnel. Client shall periodically
prepare an evaluation of the performance of Company's personnel. Should Client
not be satisfied with the performance of one or more of Company's personnel,
Client may request, on reasonable notice, that Company terminate their
assignment to Client's work.
2.4 Place of Work. Company's personnel will perform their work for Client
primarily at Client's premises except when such projects or tasks may be
performed off site. Client agrees to provide working space and facilities, and
any other services and materials Company or its personnel may reasonable request
in order to perform the work assigned to them.
Section 3
TERM AND TERMINATION
3.1 Term. The term of this Agreement shall commence on the date set forth
above and shall continue through the completion of the services set forth in
Schedule A attached hereto, and thereafter for so long as Client seeks or
obtains services from Company.
3.2 Termination. This Agreement may be terminated by either party upon
written notice, if the other party breaches any obligation provided hereunder
and the breaching party fails to cure such breach within a thirty (30) day
period after written notice of such breach; provided that the cure period for
any failure of Client to pay fees and charges due hereunder shall be fifteen
(15) days from the date of receipt by Client of notice of such failure.
3.3 Remaining Payments. Within thirty (30) days of termination of this
Agreement for any reason, Company shall submit to Client an itemized invoice for
any fees or expenses theretofore accrued under this Agreement. Client, upon
payment of accrued amounts so invoiced, shall thereafter have no further
liability or obligation to Company whatsoever for any further fees or expenses
arising hereunder. Notwithstanding any termination of the terms of this
Agreement, the rights and licenses granted under Section 6 hereof shall continue
in effect in accordance with their terms.
Section 4
FEES, EXPENSES, AND PAYMENT
4.1 Fees. In consideration of the services to be performed by Company,
Client shall pay Company the fees set forth in Schedule B attached hereto.
4.2 Reimbursement of Expenses. In addition to the foregoing, Client shall
pay Company its actual out-of-pocket expenses as reasonably incurred by Company
in
- 9 -
<PAGE>
furtherance of its performance hereunder. Company agrees to provide Client with
access to such receipts, ledgers, and other records as may be reasonably
appropriate for Client or its accountants to verify the amount and nature of any
such expenses.
4.3 Additional Work. The fees and charges for any follow-on or additional
work not described in Schedule A attached hereto shall be performed at Company's
then-current rates for such work.
4.4 Payment. Client shall pay all fees and expenses owing to the Company
hereunder within fifteen (15) days after Company has submitted to Client an
itemized invoice therefor. A late payment fee equal to the lesser of *** per
month, or the highest amount allowed by law shall be imposed on amounts overdue
30 or more days. Client hereby agrees to pay all of Company's costs of
collecting overdue amounts, including but not limited to reasonable attorneys
fees.
Section 5
TREATMENT OF PERSONNEL
5.1 Compensation of Company's Personnel. Company shall bear sole
responsibility for payment of compensation to its personnel. Company shall pay
and report, for all personnel assigned to Client's work, federal and state
income tax withholding, social security taxes, and unemployment insurance
applicable to such personnel as employees of Company. Company shall bear sole
responsibility for any health or disability insurance, retirement benefits, or
other welfare or pension benefits, if any, to which such personnel may be
entitled. Company agrees to defend, indemnify, and hold harmless Client,
Client's officers, directors, employees, and agents, and the administrators of
Client's benefit plans from and against any claims, liabilities, or expenses
relating to such compensation, tax, insurance, or benefit matters; provided that
Client shall promptly notify Company of each such claim when and as it comes to
Client's attention, Client shall cooperate with Company in the defense and
resolution of such claim, and Client shall not settle or otherwise dispose of
such claim without Company's prior written consent, such consent not to be
unreasonably withheld.
5.2 Worker's Compensation. Notwithstanding any other workers' compensation
or insurance policies maintained by Client, Company shall procure and maintain
workers' compensation coverage sufficient to meet the statutory requirements of
every state where Company's personnel assigned to Client's work are located.
Section 6
OWNERSHIP RIGHTS
6.1 Ownership. As between Client and Company, except as set forth below in
- 10 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
this Section 6, all right, title, and interest, including copyright interests
and any other intellectual property, in and to any financial information,
programs, systems, data, memoranda, books, papers, letters, formulas, or
materials produced or provided by Company, alone or in combination with Client
and/or its employees, under this Agreement shall be the property of Company.
Client shall have an unlimited license to use such materials exclusively in
connection with its own operations, but may not disclose any aspect of such
materials to third parties except for Bank Regulatory Officials.
Section 7
PROPRIETARY AND CONFIDENTIAL INFORMATION
7.1 Trade Secrets; Confidentiality. a. Company acknowledges that in order
to perform the services called for in this Agreement, it shall be necessary for
Client to disclose to Company certain Trade Secrets. Company further
acknowledges that the work will of necessity incorporate such Trade Secrets.
Company agrees that it shall not disclose, transfer, use, copy, or allow access
to any such Trade Secrets to any employees of the Company or to any third
parties, excepting those who have a need to know such Trade Secrets in order to
perform the services hereunder and who have bound themselves to respect and
protect the confidentiality of such Trade Secrets. Unless Company is compelled
to disclose Trade Secrets by judicial or regulatory process, Company shall not
disclose any such Trade Secrets to any third parties, including but not limited
to the member/owner of Company or their affiliates or their directors, officers
or employees. b. Company also acknowledges, and Client understands, that Company
is a company which has as members banks or affiliates of banks which may be
competitors of Client. Company has therefore adopted internal policies and
procedures, including confidentiality agreements with Company's personnel, which
assure that the Trade Secrets of Client are not communicated or otherwise
transmitted or made available by Company or its personnel to (i) the
member/owners of Company; (ii) corporate parents, affiliates, or subsidiaries of
the member/owners of Company; or (iii) officers, directors, agents or employees
of the member/owners of Company or of the member/owners' corporate parents,
affiliates, or subsidiaries.
7.2 Scope of Restriction. As used herein, the term "Trade Secrets" shall
mean any Client data, financial and other information, or formulas, including
but not limited to any data or information pertaining to a deposit or loan
customer of Client, that is not generally known in the industry or to the
public.
Section 8
WARRANTIES
8.1 Warranties of Company. Company warrants that Company's performance
- 11 -
<PAGE>
of the services called for by this Agreement do not and shall not violate any
applicable law, rule, or regulation; or any contracts with third parties.
Section 9
LIMITATION OF LIABILITY
9.1 Consulting Services ... Internal Support. The services rendered by
Company consist of consulting services only, with decision making
responsibilities in all instances retained by Client's management. The services
provided by Company are not intended to take the place of legal, accounting and
other professionals, but rather to provide internal support similar to that
which would be provided by Client's own employees.
9.2 No Consequential Damages, etc. In no event shall Company be liable to
Client for any incidental, indirect, or consequential damages or lost profits of
Client.
9.3 Loss of Data. In no event shall Company be liable for loss of data or
records of Client, it being understood that Client shall be responsible for
ensuring proper and adequate back-up and storage procedures.
9.4 Force Majeure. Company shall not be liable to Client for any failure or
delay caused by events beyond Company's control, including, without limitation,
Client's failure to furnish necessary information; sabotage; failure or delays
in transportation or communication; failure or substitutions of equipment; labor
disputes; accidents; shortages of labor, fuel, raw materials or equipment; or
technical failures.
Section 10
HIRING OF COMPANY'S PERSONNEL
10.1 Additional Value From Hiring. Client acknowledges that Company
provides a valuable service by identifying and assigning personnel for Client's
work. Client further acknowledges that Client would receive substantial
additional value, and Company would be deprived of the benefits of its work
force, if Client were to directly hire Company's personnel after they have been
introduced to Client by Company.
10.2 Orderly Transition. In the event that Client hires any personnel of
Company, Client will allow said employee and Company to work out an orderly
transition, up to forty-five (45) days, if necessary.
Section 11
MISCELLANEOUS
- 12 -
<PAGE>
11.1 Governing Law. This Agreement shall be governed and construed in all
respects in accordance with the laws of the State of Maine as they apply to a
contract entered into and performed in that State.
11.2 Independent Contractors. The parties are and shall be independent
contractors to one another, and nothing herein shall be deemed to cause this
Agreement to create an agency, partnership, or joint venture between the
parties. Nothing in this Agreement shall be interpreted or construed as creating
or establishing the relationship of employer and employee between Client and
either Company or any employee or agent of Company.
11.3 Notices. All notices required or permitted hereunder shall be given in
writing addressed to the respective parties as set forth herein, unless another
address shall have been designated, and shall be delivered by hand or by
registered or certified mail, postage prepaid.
11.4 Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto and supersedes all prior representations, proposals,
discussions, and communications, whether oral or in writing. This Agreement may
be modified only in writing and shall be enforceable in accordance with its
terms when signed by the party sought to be bound.
- 13 -
<PAGE>
11.5 Parties in Interest. This Agreement is enforceable only by Company and
Client. The terms of this Agreement are not a contract or assurance regarding
compensation, continued employment, or benefit of any kind to any personnel
assigned to Client's work, or any beneficiary of any such personnel, and no such
personnel (or any beneficiary thereof) shall be a third-party beneficiary under
or pursuant to the terms of this Agreement.
11.6 Arbitration of Disputes. All disputes between the parties under this
Agreement shall be submitted to binding arbitration in accordance with the rules
of the American Arbitration Association (the "Association"). The procedure for
arbitration shall be in accordance with the Association's then existing rules,
except that if the parties are unable to agree on a single arbitrator within
five days after arbitration is sought, each party shall select one arbitrator,
and the two selected arbitrators shall choose a third arbitrator. If either
party fails to select an arbitrator within ten days after arbitration is sought,
or the two arbitrators fail to select a third arbitrator within 15 days after
arbitration is sought, the Association shall make the selection.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives, on the date and year first above
written.
COMPANY:
M&M CONSULTING LIMITED LIABILITY COMPANY
By: /s/ Douglas M. Dimond
--------------------------------
(Signature)
Douglas M. Dimond Senior Consultant
- ------------------------------------- ---------------------------------
Typed Name Title
CLIENT:
Merrill Merchants Bank
By: /s/ William P. Lucy
----------------------------------
(Signature)
William P. Lucy Senior Vice President
- -------------------------------------- ---------------------------------
Typed Name Title
- 14 -
<PAGE>
Appendix A to a Service Agreement between Merrill Merchants Bank and M&M
Consulting, LLC
Services to be Performed:
Loan Review of the Commercial Loan Portfolio.
Scope of the loans to be reviewed will be subject to an ongoing dialogue with
the Audit Committee/Board of Directors and senior management based upon their
needs and occurrences within the portfolio.
At a minimum, it is expected that 50% of the average outstanding commercial
loans will be reviewed in any given twelve-month period. This will be
accomplished in segments over the period and will be coordinated with bank
management.
It is estimated that this process will not exceed seven weeks of on-site work in
any twelve-month period. Preparatory work before the on-site visits and report
preparation after the visits will be accomplished to the maximum extent possible
outside the bank.
The loan reviews will include, at a minimum, appropriateness of risk ratings,
compliance with bank lending policies and loan covenants, and adherence to
relevant laws and regulations. Appropriate written reports will be prepared
after each segment of the loan review process and will be presented to and
discussed with the Audit Committee.
These services will extend for two years from the date set forth in the body of
this agreement.
- 15 -
<PAGE>
Appendix B to a Service Agreement between Merrill Merchants Bank and M&M
Consulting, LLC
Fees:
Services (whether on-site or off-site) will be billed monthly, as performed, at
$*** per day. The estimated cost over the twelve-month period for seven weeks is
estimated to be $*** plus expenses referred to in Section 4 of this agreement.
- 16 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
SERVICE AGREEMENT
This SERVICE AGREEMENT ("Agreement"), is made and entered into as of this
1st day of October, 1996, by and between Client, Merrill Merchants Bank, a
commercial bank chartered by the State of Maine, having a principal place of
business at 201 Main St., Bangor, ME. (hereinafter "Client"), and M&M Consulting
Limited Liability Company, a Maine limited liability company, having a principal
place of business at 201 Main St., Bangor, (hereinafter "Company").
Section 1
SCOPE OF SERVICES
1.1 Consulting Services. Company shall provide certain banking related
services specified in Schedule A attached hereto.
1.2 Conduct of Services. All work shall be performed in a professional
manner by employees of Company having a level of skill commensurate with the
requirements of the bank regulatory authorities having jurisdiction over Client.
Company shall require its employees at all times to observe security policies of
Client.
Section 2
METHOD OF PERFORMING SERVICES
2.1 Method of Performing Services. Company shall have the right to
determine the method, details, and means of performing the work to be done for
Client. Client may, however, require Company's personnel at all times to observe
security policies of Client. In addition, Client shall be entitled to exercise
broad general power of supervision and control over the results of work
performed by Company's personnel to ensure satisfactory performance, including
the right to review the work, the right to stop work, the right to make
suggestions or recommendations as to the details of the work, and the right to
propose modifications to the work.
2.2 Scheduling. Company will try to accommodate work schedule requests to
the extent possible. Should any personnel of Company be unable to perform
scheduled services because of illness, resignation, or other causes beyond
Company's reasonable control, Company will attempt to replace such employee
within a reasonable time, but Company shall not be liable for delays resulting
from factors beyond its control.
2.3 Reporting. Client and Company shall develop appropriate administrative
- 17 -
<PAGE>
procedures for coordinating with Company's personnel. Client shall periodically
prepare an evaluation of the performance of Company's personnel. Should Client
not be satisfied with the performance of one or more of Company's personnel,
Client may request, on reasonable notice, that Company terminate their
assignment to Client's work.
2.4 Place of Work. Company's personnel will perform their work for Client
primarily at Client's premises except when such projects or tasks may be
performed off site. Client agrees to provide working space and facilities, and
any other services and materials Company or its personnel may reasonable request
in order to perform the work assigned to them.
Section 3
TERM AND TERMINATION
3.1 Term. The term of this Agreement shall commence on the date set forth
above and shall continue through the completion of the services set forth in
Schedule A attached hereto, and thereafter for so long as Client seeks or
obtains services from Company.
3.2 Termination. This Agreement may be terminated by either party upon
written notice, if the other party breaches any obligation provided hereunder
and the breaching party fails to cure such breach within a thirty (30) day
period after written notice of such breach; provided that the cure period for
any failure of Client to pay fees and charges due hereunder shall be fifteen
(15) days from the date of receipt by Client of notice of such failure.
3.3 Remaining Payments. Within thirty (30) days of termination of this
Agreement for any reason, Company shall submit to Client an itemized invoice for
any fees or expenses theretofore accrued under this Agreement. Client, upon
payment of accrued amounts so invoiced, shall thereafter have no further
liability or obligation to Company whatsoever for any further fees or expenses
arising hereunder. Notwithstanding any termination of the terms of this
Agreement, the rights and licenses granted under Section 6 hereof shall continue
in effect in accordance with their terms.
Section 4
FEES, EXPENSES, AND PAYMENT
4.1 Fees. In consideration of the services to be performed by Company,
Client shall pay Company the fees set forth in Schedule B attached hereto.
4.2 Reimbursement of Expenses. In addition to the foregoing, Client shall
pay Company its actual out-of-pocket expenses as reasonably incurred by Company
in
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<PAGE>
furtherance of its performance hereunder. Company agrees to provide Client with
access to such receipts, ledgers, and other records as may be reasonably
appropriate for Client or its accountants to verify the amount and nature of any
such expenses.
4.3 Additional Work. The fees and charges for any follow-on or additional
work not described in Schedule A attached hereto shall be performed at Company's
then-current rates for such work.
4.4 Payment. Client shall pay all fees and expenses owing to the Company
hereunder within fifteen (15) days after Company has submitted to Client an
itemized invoice therefor. A late payment fee equal to the lesser of *** per
month, or the highest amount allowed by law shall be imposed on amounts overdue
30 or more days. Client hereby agrees to pay all of Company's costs of
collecting overdue amounts, including but not limited to reasonable attorneys
fees.
Section 5
TREATMENT OF PERSONNEL
5.1 Compensation of Company's Personnel. Company shall bear sole
responsibility for payment of compensation to its personnel. Company shall pay
and report, for all personnel assigned to Client's work, federal and state
income tax withholding, social security taxes, and unemployment insurance
applicable to such personnel as employees of Company. Company shall bear sole
responsibility for any health or disability insurance, retirement benefits, or
other welfare or pension benefits, if any, to which such personnel may be
entitled. Company agrees to defend, indemnify, and hold harmless Client,
Client's officers, directors, employees, and agents, and the administrators of
Client's benefit plans from and against any claims, liabilities, or expenses
relating to such compensation, tax, insurance, or benefit matters; provided that
Client shall promptly notify Company of each such claim when and as it comes to
Client's attention, Client shall cooperate with Company in the defense and
resolution of such claim, and Client shall not settle or otherwise dispose of
such claim without Company's prior written consent, such consent not to be
unreasonably withheld.
5.2 Worker's Compensation. Notwithstanding any other workers' compensation
or insurance policies maintained by Client, Company shall procure and maintain
workers' compensation coverage sufficient to meet the statutory requirements of
every state where Company's personnel assigned to Client's work are located.
Section 6
OWNERSHIP RIGHTS
6.1 Ownership. As between Client and Company, except as set forth below in
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* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
this Section 6, all right, title, and interest, including copyright interests
and any other intellectual property, in and to any financial information,
programs, systems, data, memoranda, books, papers, letters, formulas, or
materials produced or provided by Company, alone or in combination with Client
and/or its employees, under this Agreement shall be the property of Company.
Client shall have an unlimited license to use such materials exclusively in
connection with its own operations, but may not disclose any aspect of such
materials to third parties except for Bank Regulatory Officials.
Section 7
PROPRIETARY AND CONFIDENTIAL INFORMATION
7.1 Trade Secrets; Confidentiality. a. Company acknowledges that in order
to perform the services called for in this Agreement, it shall be necessary for
Client to disclose to Company certain Trade Secrets. Company further
acknowledges that the work will of necessity incorporate such Trade Secrets.
Company agrees that it shall not disclose, transfer, use, copy, or allow access
to any such Trade Secrets to any employees of the Company or to any third
parties, excepting those who have a need to know such Trade Secrets in order to
perform the services hereunder and who have bound themselves to respect and
protect the confidentiality of such Trade Secrets. Unless Company is compelled
to disclose Trade Secrets by judicial or regulatory process, Company shall not
disclose any such Trade Secrets to any third parties, including but not limited
to the member/owner of Company or their affiliates or their directors, officers
or employees. b. Company also acknowledges, and Client understands, that Company
is a company which has as members banks or affiliates of banks which may be
competitors of Client. Company has therefore adopted internal policies and
procedures, including confidentiality agreements with Company's personnel, which
assure that the Trade Secrets of Client are not communicated or otherwise
transmitted or made available by Company or its personnel to (i) the
member/owners of Company; (ii) corporate parents, affiliates, or subsidiaries of
the member/owners of Company; or (iii) officers, directors, agents or employees
of the member/owners of Company or of the member/owners' corporate parents,
affiliates, or subsidiaries.
7.2 Scope of Restriction. As used herein, the term "Trade Secrets" shall
mean any Client data, financial and other information, or formulas, including
but not limited to any data or information pertaining to a deposit or loan
customer of Client, that is not generally known in the industry or to the
public.
Section 8
WARRANTIES
8.1 Warranties of Company. Company warrants that Company's performance
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<PAGE>
of the services called for by this Agreement do not and shall not violate any
applicable law, rule, or regulation; or any contracts with third parties.
Section 9
LIMITATION OF LIABILITY
9.1 Consulting Services ... Internal Support. The services rendered by
Company consist of consulting services only, with decision making
responsibilities in all instances retained by Client's management. The services
provided by Company are not intended to take the place of legal, accounting and
other professionals, but rather to provide internal support similar to that
which would be provided by Client's own employees.
9.2 No Consequential Damages, etc. In no event shall Company be liable to
Client for any incidental, indirect, or consequential damages or lost profits of
Client.
9.3 Loss of Data. In no event shall Company be liable for loss of data or
records of Client, it being understood that Client shall be responsible for
ensuring proper and adequate back-up and storage procedures.
9.4 Force Majeure. Company shall not be liable to Client for any failure or
delay caused by events beyond Company's control, including, without limitation,
Client's failure to furnish necessary information; sabotage; failure or delays
in transportation or communication; failure or substitutions of equipment; labor
disputes; accidents; shortages of labor, fuel, raw materials or equipment; or
technical failures.
Section 10
HIRING OF COMPANY'S PERSONNEL
10.1 Additional Value From Hiring. Client acknowledges that Company
provides a valuable service by identifying and assigning personnel for Client's
work. Client further acknowledges that Client would receive substantial
additional value, and Company would be deprived of the benefits of its work
force, if Client were to directly hire Company's personnel after they have been
introduced to Client by Company.
10.2 Orderly Transition. In the event that Client hires any personnel of
Company, Client will allow said employee and Company to work out an orderly
transition, up to forty-five (45) days, if necessary.
Section 11
MISCELLANEOUS
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<PAGE>
11.1 Governing Law. This Agreement shall be governed and construed in all
respects in accordance with the laws of the State of Maine as they apply to a
contract entered into and performed in that State.
11.2 Independent Contractors. The parties are and shall be independent
contractors to one another, and nothing herein shall be deemed to cause this
Agreement to create an agency, partnership, or joint venture between the
parties. Nothing in this Agreement shall be interpreted or construed as creating
or establishing the relationship of employer and employee between Client and
either Company or any employee or agent of Company.
11.3 Notices. All notices required or permitted hereunder shall be given in
writing addressed to the respective parties as set forth herein, unless another
address shall have been designated, and shall be delivered by hand or by
registered or certified mail, postage prepaid.
11.4 Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto and supersedes all prior representations, proposals,
discussions, and communications, whether oral or in writing. This Agreement may
be modified only in writing and shall be enforceable in accordance with its
terms when signed by the party sought to be bound.
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<PAGE>
11.5 Parties in Interest. This Agreement is enforceable only by Company and
Client. The terms of this Agreement are not a contract or assurance regarding
compensation, continued employment, or benefit of any kind to any personnel
assigned to Client's work, or any beneficiary of any such personnel, and no such
personnel (or any beneficiary thereof) shall be a third-party beneficiary under
or pursuant to the terms of this Agreement.
11.6 Arbitration of Disputes. All disputes between the parties under this
Agreement shall be submitted to binding arbitration in accordance with the rules
of the American Arbitration Association (the "Association"). The procedure for
arbitration shall be in accordance with the Association's then existing rules,
except that if the parties are unable to agree on a single arbitrator within
five days after arbitration is sought, each party shall select one arbitrator,
and the two selected arbitrators shall choose a third arbitrator. If either
party fails to select an arbitrator within ten days after arbitration is sought,
or the two arbitrators fail to select a third arbitrator within 15 days after
arbitration is sought, the Association shall make the selection.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives, on the date and year first above
written.
COMPANY:
M&M CONSULTING LIMITED LIABILITY COMPANY
By: /s/ Jay M. Friedland
(Signature)
Jay M. Friedland, CEO
- ---------------------------------------------------------------
Typed Name Title
CLIENT:
MERRILL MERCHANTS BANK
By: /s/ Edwin N. Clift
(Signature)
Edwin N. Clift President
- ---------------------------------------------------------------
Typed Name Title
- 23 -
<PAGE>
(SCHEDULE A)
MERRILL MERCHANTS TRUST COMPANY
PROPOSAL FOR COMPLIANCE AND RISK MANAGEMENT SERVICES
COMPLIANCE RELATED SERVICES
Given the strong existing Compliance capability, M & M's role will be targeted
to specific areas where additional resources are required.
o Cash Management relative to Repos and Sweeps
o Automated Clearing house (ACH) and electronic funds transfer related
o Review of M & I forms relative to Clearing House rules, Federal Reserve
Regs and the Uniform Commercial Code
o Help develop an ACH policy
o Commercial Lender Training
o Regulatory requirements
o Bank Policy
o Responsibility for compliance
o Responsibilities, support functions and communications
o help bridge the gap over ownership/involvement in developing policies and
procedures
Who has responsibility for compliance with laws and policy?
Materiality issue
Technology solutions???
o Support on
o Deposit compliance
o Commercial compliance
o Perform an independent BSA review (including BSA and KYC policy)
o Ongoing Review of Advertisements and Disclosures
o Provide guidance with respect to specific technical questions and issues
o Potentially automate home mortgage application template
o generate ratios
o compare ratios to underwriting standards
o identify critical missing information
RISK MANAGEMENT SERVICES
o Open Issue Tracking
o Managing Change:
o new products
o systems changes
o new marketing approaches
o new forms
o new markets
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<PAGE>
(SCHEDULE B)
MERRILL MERCHANTS TRUST COMPANY
PROPOSAL FOR COMPLIANCE AND RISK MANAGEMENT SERVICES
For the services outlined in schedule A, the client will be charged $***
annually, billed monthly, exclusive of expenses.
The cost of the services provided shall be $*** for the year, billed monthly,
plus expenses.
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* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
EXHIBIT 10.4
[Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
ADDENDUM TO DATA PROCESSING SERVICES AGREEMENT
THIS ADDENDUM,, to the Data Processing Services Agreement (the
"Agreement") dated May 8, 1992 is made as of this 30th day of May 1995, by and
between the undersigned parties, does hereby alter, amend, and modify the
Agreement and supersedes and takes precedence over any conflicting provisions
contained in the Agreement.
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned parties agree as follows
Section 2 (d) of the Agreement is deleted in its entirety and is hereby
replaced with the following:
"d. Terms of Payment. Customer shall pay the Minimum Monthly Fee on the
first day of the month in which the Services are to be performed. Any other
amounts due hereunder shall be paid within thirty (30) days of invoice, unless
otherwise provided herein. To effect the payment, Customer hereby authorizes M&I
to initiate debit entries from and, if necessary, initiate credit entries and
adjustments to Customer's account at the depository designated in the ACH
Authorization Agreement. Debit entries for the Minimum Monthly Fee will be made
on the first day of each month for which Services will be rendered under the
Agreement. In the event that a payment day is a nonbusiness day, entries will be
made on the first preceding business day. Customer shall authorize, on the
attached ACH Authorization Agreement, debits from and credits to its account for
payment for Services received under the Agreement. The Customer shall also pay
any collection fees and reasonable attorneys' fees incurred by M&I in collecting
payment of the charges and any other amounts for which Customer is liable under
the terms and conditions of this Agreement."
All terms and conditions set forth in the underlying Agreement shall
remain in full force and effect under this Amendment.
IN WITNESS WHEREOF, the undersigned parties have duly executed this
Addendum in a manner appropriate to each.
M&I DATA SERVICES, A DIVISION OF THE
MARSHALL & ILSLEY CORPORATION
("M&I")
4900 West Brown Deer Road
Brown Deer, WI 53223-0528
<PAGE>
By: /s/ Patrick C. Foy
-----------------------------------------
Name: Patrick C. Foy
Title: President, Outsourcing Business Group
MERRILL MERCHANTS BANCSHARES,
INC. ("Customer")
201 Main Street
Bangor, ME 04402
By: /s/ R.C. Williams, Jr.
-----------------------------------------
Name: R.C. Williams, Jr.
Title: SVP Operations
- 2 -
<PAGE>
AUTHORIZATION AGREEMENT
The undersigned ("Customer") hereby authorizes M&I Data Services, a
division of the Marshall & Ilsley Corporation ("M&I") to initiate debit entries
and to initiate, if necessary, credit entries and adjustments for any excess
debit entries or debit entries made in error, to Customer's account indicated
below and the depository named below, to debit and/or credit the same such
account.
This authority is to remain in full force and effect for the period
coinciding with the term (and any renewals thereof) of the Data Processing
Services Agreement made the 8th day of May 1992 and any addenda thereto (the
"Agreement"), pursuant to the terms and conditions specified in the Agreement.
DEPOSITORY NAME: _______________________________________________________
ADDRESS: _______________________________________________________
CITY/STATE/ZIP: _______________________________________________________
TELEPHONE NUMBER: _______________________________________________________
ROUTING TRANSIT NUMBER: _______________________________________________________
ACCOUNT NUMBER: _______________________________________________________
M&I DATA SERVICES, A DIVISION OF THE
MARSHALL & ILSLEY CORPORATION
("M&I")
4900 West Brown Deer Road
Brown Deer, WI 53223-0528
By: /s/ Patrick C. Foy
-----------------------------------------
Name: Patrick C. Foy
Title: President, Outsourcing Business Group
MERRILL MERCHANTS BANCSHARES,
INC. ("Customer")
201 Main Street
- 3 -
<PAGE>
Bangor, ME 04402
By: /s/ R.C. Williams, Jr.
-----------------------------------------
Name: R.C. Williams, Jr.
Title: SVP Operations
- 4 -
<PAGE>
ADDENDUM TO DATA PROCESSING SERVICES AGREEMENT
THIS ADDENDUM, to the Data Processing Services Agreement (the
"Agreement") dated May 8, 1992, is made as of this 30th day of June 1992 by and
between the undersigned parties, does hereby alter, amend, and modify the
Agreement and supersedes and takes precedence over any conflicting provisions
contained in the Agreement.
FOR GOOD AND VALUABLE CONSIDERATION,, the receipt and sufficiency of
which are hereby acknowledged, the undersigned parties agree as follows:
The reference to "July 1, 1992" in Section 27(k) of the Agreement is
deleted and replaced with "October 1, 1992."
IN WITNESS WHEREOF, the undersigned parties have duly executed this
Addendum in a manner appropriate to each.
M&I DATA SERVICES, INC. ("M&I")
By: /s/ Michael V. Ruane
-----------------------------------------
Michael V. Ruane, Vice Pres.
MERRILL MERCHANTS BANCSHARES, INC.
("Customer")
By: /s/ Edwin N. Clift
-----------------------------------------
Edwin N. Clift, President & CEO
- 5 -
<PAGE>
DATA PROCESSING SERVICES AGREEMENT
THIS DATA PROCESSING SERVICES AGREEMENT is made as of this 8th day of
May 1992 (the "Agreement") by and between M&I Data Services, Inc., a Wisconsin
corporation ("M&I") and Merrill Merchants Bancshares, Inc., a Maine corporation,
together with its subsidiaries and affiliates (collectively referred to as the
"Customer").
RECITALS
WHEREAS, M&I provides data processing services to customers located
across the country; and
WHEREAS, M&I desires to provide data processing services to Customer,
and Customer desires to have M&I provide it with such services.
NOW, THEREFORE, in consideration of the recitals and for the good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Services. M&I shall provide Customer with the data processing
services requested by Customer utilizing the version of the banking system
software made available from time to time by M&I through the M&I Service Bureau
(the "Services"). A further description of the Services is attached as Exhibit
A, as modified by the User Manuals, copies of which will be provided, or made
available, to Customer. Future affiliates and subsidiaries will be added as
requested by Customer and agreed to by M&I from time to time. Customer agrees to
principally use M&I for Customer's data processing. The Services which will be
provided under this Agreement include, but are not limited to, Deposit
Accounting, Loan Accounting, Financial Control, CIF, PCTeller, ATM, EFT (the
"Core Services"), and others agreed upon. Unless otherwise agreed in writing
between M&I and Customer, and subject to the other provisions of the Agreement,
M&I shall make the On-line Services available to Customer, subject to normal
downtime and maintenance, at times indicated on the M&I On- line Availability
Schedule, as modified from time to time.
2. Fees and Taxes. Customer agrees to pay for the Services received
hereunder as follows:
a. Amount of Fees. Commencing on the Conversion Date (as defined in
Section 3) and on the first day of each month thereafter through the end of the
term of this Agreement, Customer shall pay M&I a minimum monthly fee not less
than $*** per month, (the "Minimum Monthly Fee"). The Minimum Monthly Fee will
be adjusted: (a) as of the date M&I makes effective a price increase; and (b) on
the first day of any month after: (i) the
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* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
Additional Use Fee (as defined below) is greater than *** percent (***%) of the
Minimum Monthly Fee; or (ii) Customer expands the Services used hereunder to
include an additional application. The Minimum Monthly Fee may not be decreased.
Adjustments to the Minimum Monthly Fee shall be based on the Services,
transactions, and volumes used by the Customer during the Adjustment Period (as
defined below), or the period from commencement of services to the date of the
adjustment during the initial three (3) months of the Agreement. The Minimum
Monthly Fee shall not be more than *** percent (***%) of the average monthly
charges during the Adjustment Period. Customer shall also pay M&I an additional
use fee each month where M&I charges for the Services actually used by Customer
during the applicable month are greater than the Minimum Monthly Fee. M&I shall
compute the Customer's actual usage charges based on M&I's then-current standard
published prices, and any amounts due M&I in excess of the Minimum Monthly Fee
shall be paid by Customer (the "Additional Use Fee"). Customer also agrees to
pay all communication costs, telecommunication charges, printline charges and
other output costs, start-up fees, pass-through charges, out-of-pocket expenses,
conversion expenses and fees, workshop fees, training fees, late fees or charges
billed as miscellaneous on Customer's invoice (the "Miscellaneous Fees"). The
M&I standard published prices as of the date of this Agreement are set forth on
the fee schedule attached as Exhibit B.
b. Discount. M&I shall provide Customer with a *** percent (***%)
discount on Services excluding communication costs, telecommunication charges,
printline charges and other output costs, start-up fees, pass-through charges,
out-of-pocket expenses, conversion expenses and fees, workshop fees, training
fees, late fees, or charges billed as Miscellaneous on the Customer's invoice.
The discount shall be in effect for the term of the Agreement.
c. Additional Charges. In addition to the charges described above or
set forth in Exhibit B. Customer agrees to pay for any manufacturers, sales,
use, excise, personal property, or any other tax or charge, or duty or
assessment levied or assessed by any governmental authority upon or as a result
of the execution or performance of any service pursuant to this Agreement or
materials furnished with respect to the Agreement, except those taxes based on
M&I's net income.
d. Terms of Payment. Customer shall pay the Minimum Monthly Fee on
the first day of the month in which the Services are to be performed, and shall
pay the Additional Use Fee and any Miscellaneous Fees within ten (10) days of
the date such amounts are Invoiced to Customer. Any other amounts due hereunder
shall be paid within thirty (30) days of invoice, unless otherwise provided
herein. The Customer shall also pay any collection fees and reasonable
attorney's fees incurred by M&I in collecting payment of the charges and any
other amounts for which Customer is liable under the terms and conditions of
this Agreement.
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* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission.]
<PAGE>
e. Modification of Terms and Pricing. If Customer is in default and
M&I elects to continue to perform the Services, or if the Customer's tangible
capital or reserve requirements computed in accordance with applicable federal
regulations for itself or any of its affiliates receiving Services hereunder are
less than the required regulatory minimums, Customer agrees to pay M&I all
unamortized conversion expenses in advance of M&I performing any additional
Services. In addition, Customer agrees that all charges for Services shall be
computed using M&I's then-current standard published prices, without application
of any credits, other than remote site credits (printline and transaction), paid
in advance as determined by M&I. At M&I's option, such Services shall be
provided on a month-to-month basis.
3. Term.
a. Initial Term. This Agreement shall be effective upon execution by
both parties, and both parties will promptly undertake the conversion activities
necessary to process Customer's data. M&I currently anticipates, subject to
Customer's timely and satisfactory completion of its responsibilities described
in the M&I Conversion Manual and in the Conversion Schedule to be established by
M&I, and agreed to by Customer, that all conversion activities will be completed
on _______________________ (the "Conversion Date"). The term of this
Agreement shall continue for a period of eighty-four (84) months from the
Conversion Date.
b. Renewal Obligations. During any renewal term, or for any Services
provided after the end of the initial term, whether or not the Agreement is
renewed, Customer agrees that the terms of this Agreement shall continue to
apply, except that all charges for Services shall be computed using M&I's
then-current standard published prices, without application of any credits other
than remote site credits (printline and transaction), paid in advance as
determined by M&I. At M&I's option, such Services shall be provided by M&I on a
month-to-month basis.
4. Affiliates. All processing for Customer and Customer's subsidiaries
and affiliates which M&I does shall be included as part of the Services provided
under this Agreement and shall be done in accordance with the terms and
conditions of this Agreement. Customer agrees that it is responsible for
assuring compliance with the Agreement by its affiliates and subsidiaries.
Customer agrees to be responsible for the submission of its affiliates, data to
M&I for processing and for the transmission to Customer's affiliates of such
data processed by and received from M&I. Customer agrees to pay any and all fees
owed under this Agreement for Services hereunder.
5. Confidentiality. Both parties will, to the extent and in accordance
with their policies used to protect their own information of similar Importance,
use their best efforts to refrain from and prevent the use of or disclosure of
any confidential information of the other party, disclosed or obtained by such
party while performing its obligations under this
- 8 -
<PAGE>
Agreement, except when such use or disclosure is for the purpose of providing
the Services. Neither party will have an obligation of confidentiality with
regard to any information insofar as the same: (1) was known to such party prior
to disclosure; (2) is or becomes publicly available other than as a result of a
breach of this Agreement; or (3) is disclosed to such party by a third party not
subject to an obligation of confidentiality. Nor shall the obligation of
confidentiality occur where disclosure is made pursuant to: (1) any law of the
United States or any state thereof; (2) the order of any court or governmental
agency; or (3) the rules and regulations of any governmental agency.
6. Programming. M&I reserves the right to determine the programming
(whether hardware or software) utilized with the equipment used in fulfilling
its duties under this Agreement. All programs (including ideas and know-how and
concepts) developed by M&I are and remain its sole property.
7. Equipment. Customer shall obtain and maintain at its own expense
such data processing and communications equipment as may be necessary or
appropriate to facilitate the proper use and receipt of the Services. Customer
shall pay all installation, monthly, and other charges relating to the
installation and use of communications lines in connection with the Services.
M&I shall not be responsible for the reliability monitoring or continued
availability of the communications lines used by Customer in accessing the
Services.
8. Supplies. Customer shall pay for all supplies used in connection
with the Services. All forms, supplies, or materials used in processing
Customer's items and input data shall meet M&I's specifications.
9. Systems Modification; Amendment of Services. M&I may modify, amend,
enhance, update, or provide the appropriate replacement for any of the Services,
the software used to provide the Services, or any element of its systems at any
time to: (1) improve the Services or (2) facilitate the continued economic
provisions of the Service, M&I may, at any time, withdraw any of the Services
upon providing one hundred eighty (180) days' prior written notice to Customer,
M&I may also terminate any of the Services immediately upon any regulatory,
legislative, or judicial determination that providing such Services is
inconsistent with applicable law or regulation or upon imposition by any such
authority of restrictions or conditions which would detract from the economic or
other benefits to M&I or Customer to any element of the Services.
10. Disaster Recovery. M&I maintains, and shall continue to maintain
throughout the term of this Agreement, off-site disaster recovery capabilities
which permit M&I to recover from a disaster and continue providing Services to
Customers within a commercially reasonable period. An executive summary of the
current disaster recovery plan, which may change from time to time, is available
upon request from M&I at no charge. M&I shall test the operation and
effectiveness of its disaster recovery plan at least annually. M&I maintains,
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<PAGE>
and shall continue to maintain throughout the term of this Agreement, a backup
power supply system to guard against electrical outages.
11. Events of Default. It shall be an Event of Default on the part of
the Customer if: (1) Customer is insolvent, or a receiver or conservator shall
be appointed with respect to the Customer; or (2) Customer shall fail to pay any
sum due M&I within the prescribed time; or (3) if the Customer shall fail to
perform any of its other covenants or obligations under this Agreement. It shall
be an Event of Default on the part of M&I If M&I shall fail to perform any of
its obligations under this Agreement where the failure of M&I to perform has a
material adverse Impact on Customer and is material to the provision of the
Services, except for those obligations under Section 20 of this Agreement as to
which the Agreement provides specific remedies for M&I's failure to perform. The
defaulting party shall have ten (10) days from the date of receipt of notice
from the nondefaulting party of nonpayment or nonperformance to cure such an
Event of Default, before the nondefaulting party may exercise any remedies it
may have as a result of the Event of Default.
12. Remedies Upon Default; Limitation of Liabilities. If an Event of
Default occurs on the part of the Customer, and is not cured within the ten (10)
day period prescribed in Section 11, M&I may: (1) terminate this Agreement; (2)
terminate access to its central processing unit by the Customer; and (3) declare
all amounts payable under this Agreement to be immediately due payable and file
suit for or otherwise obtain payment from the Customer of any fees or other sums
due it pursuant to this Agreement, plus any actual damages to its equipment or
systems caused by the Customer's actions, failures to act, equipment, systems or
communication facilities, plus any profits lost because of the Customer's
default. If an Event of Default occurs on the part of M&I, and is not cured
within the ten (10) day period prescribed in Section 11, the Customer may only:
(1) terminate this Agreement and (2) file suit or otherwise obtain payment of an
aggregate amount of up to the greater of (a) *** dollars ($***) or (b) the
amount of fees paid by the Customer to M&I hereunder during the three (3) months
immediately preceding the Event of Default. Either party may also seek specific
performance, including injunctive relief, for a breach of Section 5 of this
Agreement. M&I and the Customer agree that these damage provisions are
reasonable in light of all present predictable circumstances (including
expectable actual damages in that the fees to be charged by M&I hereunder do not
include amounts sufficient to insure against greater claims). M&I and Customer
expressly waive all claims for additional, incidental, consequential,
compensatory, or punitive damages and agree that the remedies set forth in this
Agreement shall be the sole and exclusive remedies of the parties. No lawsuit or
other action may be brought by either party hereto or on any claim or
controversy based upon or arising in any way out of this Agreement after one (1)
year from the date of the occurrence allegedly giving rise to the action, except
for nonpayment of sums due to M&I by Customer. M&I agrees that except in the
case of an Event of Default relating to a breach by the Customer of its
confidentiality obligations under Section 5 of this Agreement, M&I will not
exercise its remedy to terminate Customer's access to the M&I central processing
unit so long as: (a) Customer is current in the payment of all amounts due M&I
as reflected on M&I's last invoice
- 10 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
to Customer; and (b) only exercise such remedy after providing Customer with
sixty (60) days' prior written notice.
13. Termination.
a. End of Initial Term. This Agreement shall automatically be
extended at the end of the initial eighty-four (84) month term for an additional
eighteen (18) month renewal term, unless the Customer gives M&I at least one
hundred eighty (180) days' prior written notice of its intent to terminate,
which notice may be given during the initial term on the Agreement.
b. Renewal Term. During the renewal term, this Agreement shall be
automatically extended for an additional one (1) month on each monthly
anniversary date so that the term shall always be not less than one (1) month
less than eighteen (18) months, unless either party gives written notice to the
other party of notice to terminate, in which event the automatic monthly
renewals will end and the Agreement will terminate at the end of the unexpired
portion of the term in existence on the date notice to terminate is given.
c. Termination Upon Default. This Agreement may also terminate upon
an Event of Default and failure to cure beyond applicable cure periods at the
option of the nondefaulting party as set forth in Section 12 hereof.
d. Termination by Customer. Customer may terminate this Agreement at
any time, and without cause, by giving M&I at least one hundred eighty (180)
days' prior written notice and paying M&I the then-applicable buyout amount set
forth in Section 21.
14. Regulatory Assurances. M&I and Customer acknowledge and agree that
the performance of these Services will be subject to regulation and examination
by Customer's regulatory agencies to the same extent as if such Services were
being performed by Customer, Upon request, M&I agrees to provide any appropriate
assurances to such agency and agrees to subject itself to any required
examination or regulation. Customer agrees to reimburse M&I for reasonable costs
actually incurred due to any such examination or regulation that is performed
solely for the purpose of examining data processing services used by Customer.
a. Notice Requirements. The Customer shall be responsible for
complying with all regulatory notice provisions to any applicable governmental
agency, which shall include providing timely and adequate notice to the Chief
Examiner of the Federal Home Loan Bank Board, the Office of Thrift Supervision,
the Office of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or their successors, as applicable
(collectively, the "Federal Agency"), as of the effective date of Services under
this Agreement, identifying those records to which this Agreement shall apply
and the location at which such Services are to be performed.
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<PAGE>
b. Examination of Records. The parties agree that the records
maintained and produced under this Agreement shall, at all times, be available
for examination and audit by governmental agencies having jurisdiction over the
Customer's business including (without limitation) the Federal Agency. The
Director of Examinations of the Federal Agency or his designated representative
shall have the right to ask for and to receive directly from M&I any reports,
summaries, or information contained in or derived from data in the possession of
M&I related to the Customer. M&I shall notify Customer as soon as possible of
any formal request by an authorized governmental agency to examine Customer's
records maintained by M&I, if M&I is permitted to make such a disclosure to
Customer under applicable law or regulations. Customer agrees that M&I is
authorized to provide all such described records when formally required to do so
by this authorized governmental agency.
c. Fidelity Bonds. At Customer's request, M&I shall obtain, at
Customer's expense, fidelity bond coverage for M&I and its employees as such
coverage is required by any governmental or regulatory agency.
d. Notice of Changes. Customer shall give to the Director of
Examinations of the Federal Agency at least thirty (30) days' notice of the
termination of this Agreement or of any material changes in the Services to be
provided hereunder.
e. Insurance. Throughout the term of this Agreement, M&I shall
maintain insurance coverage (or shall be self-insured) for losses from fire,
disaster, and other causes contributing to interruption of the Services. The
proceeds of such insurance shall be payable to M&I. Nothing in this Agreement
shall be construed as to permit Customer to receive any of such proceeds, or to
be named as an additional loss payee under any insurance policy.
f. Financial Information. Customer agrees to provide M&I with a copy
of the Call Report filed with the Federal Agency simultaneously with its filing
with the Federal Agency, and to provide such additional financial information as
to its creditors or others as M&I may reasonably request.
15. Transportation and/or Transmission of Data. The responsibility
and expense for transportation and/or transmission of and risk of loss of data
and media to and from M&I's datacenters shall be borne by Customer. M&I will
notify Customer of the time by which Customer's data and media must be delivered
to M&I for processing for M&I to provide Customer's processed data within the
time period indicated by M&I.
16. Responsibility.
a. General. M&I agrees to perform the Services in a commercially
reasonable manner which is similar to the services provided to other M&I
customers, and no other or higher degree of care. Except as otherwise described
herein, M&I assumes no other
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<PAGE>
obligation as to performance or quality of the Services provided, all other
risks of error being expressly assumed by Customer. M&I shall not be responsible
for loss or damage due to delays in processing or in the delivery of processed
data as a result of any of the causes excused by Section 19 hereof. M&I WILL IN
NO EVENT BE LIABLE FOR ANY INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
INCURRED BY CUSTOMER INCLUDING BUT NOT LIMITED TO, LOST PROFITS OR BUSINESS
OPERATION LOSS, REGARDLESS OF WHETHER M&I WAS ADVISED OF THE POSSIBLE OCCURRENCE
OF SUCH DAMAGES,
b. Reliance on Data Supplied. M&I will process items and data and
perform those Services described in this Agreement on the basis of Information
furnished by Customer. M&I shall be entitled to rely upon any such data,
information, or instructions as provided by Customer. If any error results from
incorrect input supplied by Customer, Customer shall be responsible for
discovering and reporting such error and supplying the data necessary to correct
such error to M&I for processing at the earliest possible time. Customer will
indemnify and hold M&I harmless from any cost, claim, damage, or liability
(including attorney's fees) whatsoever arising out of such data, information or
instructions, or any inaccuracy or inadequacy therein. Customer assumes all risk
of loss, delay, and miscommunication in the transportation or transmission by
electronic means of data and information from any terminal or remote unit unless
the same is caused by or attributable to any act or omission on M&I's part,
which act or omission does not meet the standard of care in Section 16(a), or
was caused by or attributable to any gross negligence or willful failure on
M&I's part to comply with its obligations under this Agreement,
c. Data Backup. Customer shall maintain adequate records including
microfilm images of items being transported to M&I, or at least ten (10)
business days' backup on magnetic tape or other electronic media where
transactions are being transmitted to M&I, from which reconstruction of lost or
damaged items or data can be made. Customer assumes all responsibility and
liability for any loss or damage resulting from failure to maintain such
records.
d. Audit. M&I shall cause a third-party review of its data
processing systems and Services to be conducted annually by its independent
auditors. M&I shall provide Customer upon request, at its then-current charge,
one copy of the report resulting from such review.
e. Regulatory Compliance. Customer is responsible for determining
that the Services performed in its behalf, any forms which are used with its
customers, and all records it retains comply with all applicable laws. Should
Customer need information from the Services M&I provides in order to comply with
applicable Federal or State laws and regulations, Customer's sole remedy, and
M&I's sole obligation shall be for M&I to provide the ability to process the
information requested from the Customer as promptly as is commercially
practicable.
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<PAGE>
f. Balancing and Controls. On a daily basis, Customer shall review
all input and output, controls reports, and documentation, to ensure the
integrity of data processed by M&I. In addition, Customer shall, on a daily
basis, check exception reports to verify that all file maintenance entries and
nondollar transactions were correctly entered. Customer is responsible for
initiating timely remedial action to correct any improperly processed data which
these reviews would disclose.
g. Service Deficiencies. If Customer is aware that a defect exists
in a Service, Customer shall be responsible for making whatever appropriate
adjustments may thereafter be necessary until M&I corrects the defect and, if
requested by Customer,' M&I will, at M&I's expense, assist Customer in making
such corrections through the most cost-effective means, whether manual, by
system reruns, or program modifications. M&I will, where reasonable, make every
effort to correct any known material defect as soon as commercially reasonable
at M&I's expense,
17. Ownership of Data. Customer is the owner of all of its data
supplied by Customer to M&I for processing hereunder. Customer acknowledges that
it has no rights in any of the software, systems documentation, guidelines,
procedures, and similar related materials or any modifications thereof except
with respect to M&I's use of the same during the term of this Agreement to
process data. Upon termination of this Agreement, M&I shall provide Customer
with all copies of Customer's data in a format that is being used by M&I at that
time for processing such data. Prior to the release of the Customer's data: (1)
all amounts owed under this Agreement by Customer to M&I shall be current and
paid in full, and (2) Customer shall pay M&I its "Estimated Deconversion
Expenses" as described below. Customer agrees to pay M&I for M&I's work in
providing such data at M&I's rates then in effect for computer and personnel
time, supplies, and other items as required, and Customer further agrees to pay
M&I for any and all charges associated with the deconversion of Customer's data
based on M&I's then-current charges for such Services. M&I shall make a good
faith estimate of all of such costs, expenses, and charges which shall be paid
by Customer in advance (the "Estimated Deconversion Expenses"), The difference,
if any, between the actual expenses and the prepaid Estimated Deconversion
Expenses shall be promptly paid after determination.
18. Warranties. M&I represents and warrants that:
a. Capability of Computer Systems and Software. M&I's computer
systems (hardware and software) are capable of performing the Services in
accordance with the provisions of this Agreement. The software used to provide
the Services will operate substantially in accordance with the specifications
and documentation for the software as modified from time to time to incorporate
enhancements or modifications of the software to provide the Services.
- 14 -
<PAGE>
b. Quality of Service. The reports and Services made available to
Customer shall be in substantial conformity with the User Manuals, as amended
from time to time, copies of which have been, or will be, provided to Customer.
c. Property Rights. M&I has the right to provide the Services
hereunder, using all computer software required for that purpose.
d. Organization and Approvals. M&I is a validly organized corporate
entity with valid authority to enter into this Agreement. This Agreement has
been duly authorized by all necessary corporate action,
e. Disclaimer of Warranties. EXCEPT AS DESCRIBED IN THIS SECTION OF
THIS AGREEMENT M&I DISCLAIMS ALL OTHER WARRANTIES WHETHER WRITTEN, ORAL,
EXPRESSED OR IMPLIED INCLUDING WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
19. Force Majeure. M&I shall not be liable to Customer if M&I's
fulfillment or performance of any terms or provisions of this Agreement is
delayed or prevented by revolution or other civil disorders, wars, acts of
enemies, strikes, electrical equipment or availability failure, labor disputes,
fires, floods, acts of God, federal, state, or municipal action, statute,
ordinance or regulation, or, without limiting the foregoing, any other causes
not within its reasonable control, and which by the exercise of reasonable
diligence it is unable to prevent, whether of the class of causes hereinbefore
enumerated or not.
20. Data Services Reliability and Responsiveness. Subject to the
nonoccurrence for a force majeure and the performance of Customer's obligations
described in this Agreement, M&I agrees that the services will be provided in
accordance with the following standard. M&I will initiate batch processing
transmission to Customer or make the processed items and reports available for
delivery within six (6) hours after receiving all input data from Customer, and
with such performance being achieved a minimum of ninety percent (90%) of the
time measured over a calendar month. M&I will ensure that its on-line network is
available for the processing of Customer's on-line transactions at a minimum of
ninety-five percent (95%) of the time measured over a calendar month at the
point of departure from M&I's communications controller. Upon receipt of data
transmitted by Customer at M&I's communications controller, M&I will process the
transaction within 2.5 seconds for teller transactions and within 4.0 seconds
for CRT transactions at a minimum ninety-seven percent (97%) of the time
measured over a calendar month. Customer will notify M&I in writing if this
level of performance is not achieved, and M&I shall have ninety (90) days to
meet this performance standard. If after ninety (90) days the performance
standard still has not been met, the Customer's sole remedy shall be to either
(i) terminate the agreement without penalty upon giving M&I written notice
within thirty (30) days after the expiration of the ninety (90) day cure period,
or (ii) accept such deficient levels which M&I does achieve. M&I assumes no
other liability, express or implied, with respect to its obligations set forth
in this paragraph.
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<PAGE>
21. Contract Buyout.
a. Customer may terminate this Agreement at any time by giving M&I
at least one hundred eighty (180) days' prior written notice and paying M&I ***
percent (***%) of the total estimated remaining unpaid monthly processing fees.
For the purpose of this computation, total estimated remaining unpaid monthly
processing fees shall be equal to the mean average of the total monthly fees
paid in the three (3) months preceding the termination notice, multiplied by the
number of months remaining in the Agreement.
b. The contract buyout amount set forth above shall be paid prior to
the deconversion of any affected accounts. The contract buyout amount shall be
paid by Customer regardless of the form by which the termination occurs,
including but not limited to, sale of assets or stocks assumption of
liabilities, merger, consolidation, absorption, liquidation, or termination as a
result of an Event of Default on the part of Customer (as described in Section
11 of this Agreement).
22. IRS Filing. Customer has complied with all laws, regulations,
procedures, and requirements in attempting to secure correct Tax Identification
Numbers (TINs) for Customer's payees and agrees to attest to this compliance by
affidavit provided annually. Customer authorizes M&I to act as Customer's agent
and sign on Customer's behalf the Affidavit required by the Internal Revenue
Service on Form 4804, or any successor form.
Customer acknowledges that M&I's execution of the Form 4804 Affidavit
on Customer's behalf does not relieve Customer of responsibility to provide
accurate TINs or liability for any penalties which may be assessed for failure
to comply with TIN requirements. Customer agrees to hold M&I harmless from any
liabilities, claims, expenses, penalties, or damages (including attorneys' fees)
which may be assessed or incurred as a result of the failure to comply with TIN
requirements.
23 Expense Reimbursements. Customer agrees to reimburse M&I for all
out-of-pocket expenses (travel, lodging, meals, long distance telephone calls,
and printing and copying charges) reasonably incurred in connection with the
conversion of Customer's accounts to the M&I system. The reimbursement of such
expenses is in addition to conversion charges which may arise after the
conversion, or with respect to accounts which are not currently customer
accounts which are to be converted to the M&I system. M&I shall estimate such
expenses in advance, and Customer shall pay such expenses in three (3) equal
payments as follows: first, upon execution of this Agreement; second, upon
delivery by M&I of conversion test reports; and final, on the conversion date.
M&I shall provide Customer with a summary invoice of actual expenses, and any
adjustments shall be paid upon delivery of the invoice.
24. Conversion Obligations. Both parties agree to make a good faith
effort to convert Customer's data in a timely fashion and to perform the
conversion in accordance with the
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* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
responsibilities set forth in the M&I Conversion Manual, the Conversion
Schedule, and this Agreement. Customer agrees to maintain an adequate staff of
persons who are knowledgeable with the systems currently used by Customer to
process data, Customer further agrees to provide such Services and perform such
obligations as are contemplated by the M&I Conversion Manual and the Conversion
Schedule, and as necessary for Customer to timely and adequately perform its
obligations herein and therein. Customer shall pay or reimburse M&I for all
out-of-pocket expenses and on a time-and materials basis for any of its
personnel, or any independent contractors who perform conversion or related
services (including items identified as Customer Responsibilities in the
Conversion Manual) for Customer. Customer further agrees to cooperate fully with
all reasonable requests of M&I necessary to effect the conversion in a timely
and efficient manner. Customer agrees to reimburse M&I for all conversion
charges whether for the initial conversion, or for the subsequent conversion of
additional accounts as they are incurred, or for the conversion of products not
identified in the Proposal.
25. Product Support. (This Section of the Agreement shall not apply to
this Agreement if so indicated on Exhibit A). Customer agrees to maintain a
staff of individuals who are trained and understand the system used to provide
the Services required for M&I to provide the ongoing Services. The individuals
will have primary responsibility for assisting and guiding the Customer's user
community in the proper use of the systems, and providing first line of support
to the users after conversion. The primary contact with M&I's technical,
operational, and product support staff will be through these individuals.
26. Use of the Services. (a) Customer assumes exclusive responsibility
for the consequences of any instructions Customer may give M&I, for Customer's
failure to properly access the Services in the manner prescribed by M&I, and for
Customer's failure to supply accurate input information; (b) Customer agrees
that it will use the Services in accordance with such reasonable policies as may
be established by M&I from time to time as set forth in any materials furnished
by M&I to Customer; (c) Customer agrees that, except as otherwise permitted by
M&I, Customer will use the Services only for its own internal business purposes
and will not sell or otherwise provide, directly or indirectly, any of the
Services or any portion thereof to any third party; and (d) Customer agrees and
represents that (i) this Agreement has been approved by its Board of Directors,
or that the officer executing this Agreement has been specifically authorized by
Customer's Board of Directors to execute this Agreement, (ii) the performance of
this Agreement by the Customer will not affect the safety or soundness of the
Customer or any of its affiliates, and (iii) this Agreement, and the obligations
evidenced hereby, will be properly reflected on the books and records of the
Customer, and the Customer will provide evidence of the same to M&I upon
request.
27. Miscellaneous
a. Governing Law. This Agreement shall be construed and governed by
the laws of the state of Wisconsin.
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<PAGE>
b. Amendment. This Agreement, including the Schedules hereto, may be
amended only by an instrument in writing executed by the parties or their
permitted assignees.
c. Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party, which such consent shall
not be unreasonably withheld, provided that M&I may freely assign this Agreement
to any company that is directly or indirectly (1) in control of M&I, (ii) under
the control of M&I, or (iii) under common control with M&I.
d. Section Headings. Section headings are for reference purposes
only and shall not affect the interpretation or meaning of this Agreement.
e. Notices. All communications or notices required or permitted by
this Agreement shall be in writing and shall be deemed to have been given at the
earlier of the date when actually delivered to an officer of a party or when
deposited in the United States mail, certified or registered mail, postage
prepaid, return receipt requested, and addressed as set forth on the signature
page, unless and until any of such parties notifies the others.
f. No Waiver of Performance. Failure by either party at any time to
require performance by the other party to claim a breach of any provision of
this Agreement will not be construed as a waiver of any right accruing under
this Agreement, nor affect any subsequent breach, nor affect the effectiveness
of this Agreement or any part hereof, nor prejudice either party as regards any
subsequent action.
g. Entire Agreement; Conflicting Provisions. This Agreement,
together with the Schedules hereto, constitutes the entire agreement between the
Customer and M&I with respect to the subject matter hereof. There are no
restrictions, promises, warranties, covenants, or undertakings other than those
expressly set forth herein and therein. This Agreement supersedes all prior
negotiations, agreements, and undertakings between the parties with respect to
such subject matter. In the event of any conflict between the terms of the main
body of this Agreement and any of the Schedules hereto, the terms of the main
body of this Agreement shall govern.
h. Execution in Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original but all of which shall together constitute one and the same Agreement.
i. Enforceability. The invalidity or enforceability of any provision
hereof shall not affect or impair any other provisions.
j. Scope of Agreements. If the scope of any of the provisions of the
Agreement is too broad in any respect whatsoever to permit enforcement to its
full extent, then such provisions shall be enforced to the maximum extent
permitted by law and the parties hereto
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<PAGE>
consent and agree that such scope may be judicially modified accordingly and
that the whole of such provisions of this Agreement shall not thereby fail, but
that the scope of such provisions shall be curtailed only to the extent
necessary to conform to law.
k. Miscellaneous. Product support and programming conversion fees
will be waived in connection with the conversion of Customer onto M&I's data
processing systems. However, in the event Customer fails to obtain the
appropriate regulatory approvals necessary for the operation of a Financial
Institution on or before July 1, 1992, this Agreement shall be automatically
null and void ab initio and neither party shall have liability to each other
under this Agreement, except that Customer shall pay for any costs incurred by
M&I as a result of any conversion activities performed by M&I.
l. Computer-Based Training. During the first twelve (12) months of
the Agreement, M&I will provide Customer, at no additional charge, two (2)
copies of any Computer-Based Training (CBT) course relating to the applications
converted onto M&I's data processing systems.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in their names as of the date first above written.
M&I DATA SERVICES,
INC, (M&I) 770 North
Water Street
Milwaukee, WI 53202
By: /s/ Joseph L. Delgadillo
-----------------------------------------
Name: Joseph L. Delgadillo
Senior Vice President
M&I DATA SERVICES INC. ("M&I")
770 North Water Street
Milwaukee, WI 53202
By: /s/ Michael V. Ruane
-----------------------------------------
Name: Michael V. Ruane, Vice Pres.
MERRILL MERCHANTS BANCSHARES,
INC.,
(the "Customer")
201 Main Street
Bangor, ME
By: /s/ Perry B. Hansen
-----------------------------------------
Name: Perry B. Hansen, President
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<PAGE>
AFFIDAVIT
STATE OF Illinois
COUNTY OF Rock Island
I, Perry B. Hansen , being first duly sworn, on oath, depose and say:
1. I am an employee of Merrill Merchants Bancshares, Inc. I have
personal knowledge of my employer's practices with regard to procuring and
reporting Tax Identification Numbers (TINs) and authority to execute this
Affidavit on my employer's behalf.
2. Merrill Merchants Bancshares, Inc. has complied with all laws,
regulations, procedures and requirements in attempting to secure correct TINs
for its payees. This compliance has been pursued with due diligence, and any
failure to secure correct TINs is due to reasonable cause.
/s/ Perry B. Hansen
---------------------------------------------
Customer's Representative
Perry B. Hansen
President
Subscribed and sworn to
before me this 14th day
of May 1992,
/s/ John T. Kustes
- ------------------
Notary Public
My Commission:
"OFFICIAL SEAL"
JOHN T. KUSTES
Notary Public, State of Illinois
My Commission Expires 05/08/96
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<PAGE>
ATTORNEY-IN-FACT APPOINTMENT
Customer hereby appoints M&I Data Services, Inc. ("M&I") as customer's
attorney-in-fact and empowers M&I to authorize the Internal Revenue Service
(IRS) to release information documents supplied to the IRS by M&I to states
which participate in the "Combined Federal/State Program." Customer agrees to
hold M&I harmless from any liabilities, claims, expenses, penalties, or damages
(including attorneys' fees) which may be assessed or incurred as a result of the
release of information.
MERRILL MERCHANTS BANCSHARES,
INC, ("Customer")
By /s/ Perry B. Hansen
-------------------
Customer's Representative
Perry B. Hansen, President
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<PAGE>
SCHEDULE
M&I ON-LINE AVAILABILITY
The following is a list of standard hours of availability by each on-line
service. times are CST/CDT.
o Cardholder
(CRT Maintenance)
Monday-Thursday 7:00 a.m.- 6:45 p.m.
Friday 7:00 a.m.- 9:30 p.m.
Saturday 7:00 a.m.- 4:30 p.m.
o CIS & Deposit System
(Maintenance and Dollar Transactions)
Monday-Thursday 7:00 a.m.- 6:45 p.m.*
Friday 7:00 a.m.- 9:30 p.m.*
Saturday 7:00 a.m.- 4:30 p.m.
o Data Entry
(Account Reconciliation System)
Monday-Friday 7:00 a.m.-10:00 p.m.
o Data Entry
(Financial Control)
Monday-Thursday 7:00 a.m.-11:00 p.m.
Friday 7:00 a.m.-12:00 Midnight
Saturday 7:00 a.m.- 4:30 p.m.
o Decision Management System
Monday-Thursday 7:00 a.m.- 6:45 p.m.
Friday 7:00 a.m.- 9:30 p.m.
Saturday 7:00 a.m.- 4:30 p.m.
o Data Entry
(Trust)
Monday-Friday 7:00 a.m. - 5:00 p.m.
o Financial Control On-line
Monday-Friday 7:00 a.m. - 8:00 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
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<PAGE>
o Loan System
(CRT Maintenance)
Monday-Thursday 7:00 a.m. - 6:15 p.m.
Friday 7:00 a.m. - 8:30 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
o Management Information Service
Monday-Thursday 7:00 a.m. - 6:45 p.m.
Friday 7:00 a.m. - 9:30 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
(Except Money Market Info.)
o Teller Terminals
Monday-Thursday 7:00 a.m. - 7:00 p.m.
Friday 7:00 a.m. - 9:30 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
*CIS access to loan data is based on Loan System hours of availability. West
Coast availability for CIS, Loans, and Deposits for Monday-Friday is 8:00
a.m.-10:00 p.m., CST/CDT.
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<PAGE>
EXHIBIT A
FINANCIAL SERVICE PRODUCTS
- - Deposit Services
- - Loan Services
- - Teller/Platform Services
- - Automated Funds Transfer
- - Automated Clearinghouse
- - Corporate Cash Management Services Customer Information System
- - Financial Control
- - Tickler System
- - Management Information Service
- - IRS Reporting
- - INFO Center
- - EFT Services
- - Safe Deposit System
- - Item Processing
- - Remote Site Support
- - Trust Services
- - Audit Services
- 24 -
<PAGE>
EXHIBIT B
FEE SCHEDULE
[All of the information in this schedule pertains to confidential fee
information found in the Agreement's "1998 Product Price List." It has been
omitted and filed separately with the Commission. This Exhibit totals seventy
eight (78) expurgated pages.]
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EXHIBIT 10.5
[Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
FINANCIAL SERVICES AGREEMENT
This AGREEMENT made and entered into on this 1st day of August, 1992, by
and between FINANCIAL INSTITUTIONS SERVICE CORPORATION, a business corporation
duly organized and existing under the laws of the State of Maine and having its
principal office located in Lewiston (mailing address Po Box 221, 168 Lisbon
St., Lewiston, Maine 04243-0221) (hereinafter referred to as "FISC"), and
MERRILL MERCHANTS BANK a financial institution duly organized and existing under
the laws of the United States, and having its principal office located in
Bangor, Maine (201 Main St., Bangor, Maine, 04401) (hereinafter referred to as
"Client").
WITNESSETH
THAT, WHEREAS, FISC desires to provide certain services which are
described in one or more addenda attached to this Master Agreement and signed by
the parties to this Agreement and the Client desires to purchase those services
from FISC, and WHEREAS, the parties hereto desire to enter into a single Master
Agreement which will form a basis for the providing of specified services by
FISC to the Client as described in the above-referenced addenda attached hereto.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties hereto agree as follows:
1. Services Covered By Agreement. FISC will provide to the client, on the
terms and conditions set forth in this Agreement, the services which are more
particularly described in one or more addenda attached to this Agreement.
Additional financial services may be provided by FISC to the Client under the
terms of this Agreement after the date of this Agreement upon the written
request of the Client or the signing by FISC and the Client of additional
addenda describing those additional services which services and addenda shall be
governed by the terms of this Agreement, unless otherwise provided in the
specific addendum describing the additional service.
2. Term of Agreement and Service Addenda. This Agreement shall become
effective when executed and delivered by Client and executed and accepted by
FISC in writing, and shall apply with respect to all addenda attached hereto
upon execution of the Agreement or from time to time thereafter. Each service to
be provided under the terms of this Agreement and described by a separate
attached addenda shall take effect on the effective date specified in the
addenda describing that service, and shall terminate in accordance with the
provisions of the addenda describing the service. The initial and any subsequent
terms of
<PAGE>
each financial service shall be specified in each addenda, and shall be
terminated in accordance with the terms as set forth in each particular service
addenda to this Agreement.
3. Service Fees and Payment. The Client agrees to pay to FISC the charges
on the initial price schedule for the initial term of each service in accordance
with the provisions of each service addenda, and subject to increase in
accordance with the terms of each addenda. Payment of invoices is due within
Thirty (30) days of the invoice date for each service provided under this
Agreement.
4. Taxes. The Client agrees to pay any applicable local, state, and Federal
taxes, however designated (excluding taxes on FISC's net income), imposed on or
based upon the provision or use of services rendered under this Agreement.
5. Warranties. FISC makes no warranties, expressed or implied, and
specifically disclaims any warranties of merchantability or fitness or
particular purpose with respect to any tangible personal property sold or
provided to the Client with respect to or in connection with services provided
under the terms of this Agreement. FISC does agree to assign or pass on the
benefit of any manufacturer's or dealer's warranties with respect to such
tangible personal property.
6. Exclusive Remedy. THE CLIENT'S SOLE REMEDY AGAINST FISC FOR LOSS OR
DAMAGE CAUSED BY OR ARISING IN CONNECTION WITH PERFORMANCE OR NON-PERFORMANCE
OF THE SERVICES UNDER THE TERMS OF THIS AGREEMENT, REGARDLESS OF THE FORM OF
ACTION, WHETHER IN CONTRACT, TORT, INCLUDING NEGLIGENCE, STRICT LIABILITY OR
OTHERWISE, SHALL BE THE LESS OF THE AMOUNT OF ACTUAL DIRECT DAMAGES WHICH ARE
PROVEN OR AN AMOUNT EQUAL TO THE MOST RECENT THREE (3) MONTHS FEES FOR THE
SERVICE TO WHICH THE CLAIM RELATES THIS LIMITATION SHALL ALSO BE CONSIDERED TO
BE A SINGLE AGGREGATE LIMIT ON FISC'S LIABILITY WHEN MULTIPLE CLAIMS SHOULD
ARISE OUT OF THE SAME TRANSACTION OR EVENT. THIS REMEDY SHALL BE EXCLUSIVE OF
ALL OTHER REMEDIES AT LAW OR IN EQUITY.
7. Indemnification and Waiver of Subrogation. The Client shall indemnify
and hold FISC harmless from and against any and all loss, liability, cost,
damage, or expense, including but not limited to reasonable attorneys' fees,
arising out of, or in any way relating to any third party claims of whatever
nature and by whomsoever made against FISC as a result of this Agreement or of
the performance by FISC of the services contemplated hereby. The Client also
hereby releases FISC from any and all liability or responsibility to anyone
claiming through the Client by way of subrogation or otherwise in any amount
that exceeds the liability limitation provisions in section Six (6) of this
agreement to the extent such release from liability is not precluded by the
provisions of the Client's liability, casualty and property insurance policies
and agreements and its fidelity bond.
- 2 -
<PAGE>
8. Liability Limitations. Notwithstanding any other provision of this
Agreement:
A. FISC shall not be liable for any indirect, incidental or consequential
damages (including lost profits) sustained or incurred in connection
with services supplied under this Agreement regardless of the form of
action, whether or not such damages are foreseen or unforeseen.
B. FISC shall not be liable in any way for delay, failure in performance,
loss or damage due to any of the following force majeure conditions:
fire, strike, embargo, explosion, power blackout, earthquake, volcanic
action, flood, war, water, the elements, labor disputes, civil or
military authority, acts of God, public enemy, inability to secure
materials, inability to secure products, inability to secure fuel,
inability to secure transportation facilities, acts or omissions of
carriers, or other causes beyond its reasonable control, whether or
not similar to the foregoing.
C. FISC shall not be liable f or any delay, loss or damage attributable
to any service of any person other than FISC, its employees and
agents.
D. Any legal action arising from or in connection with services performed
for the Client or any other activity in connection with this Agreement
must be brought within one year after the cause of action arises. For
the purposes of this Agreement a cause of action arises on the date of
actual occurrence of the act or event or on a date when there is an
omission to act.
E. Client shall have sole responsibility for all information it provides
FISC and FISC shall have no obligation to verify, check or inspect
information furnished by Client. Client agrees to indemnify and save
harmless FISC against any and all liability, loss, damage, costs, or
expenses which FISC may incur, suffer or be required to pay by reason
of the content of Client's information or because of any error or
omission in information, including, but not limited to, FISC's
expenses of defense and its reasonable attorney's fees.
9. Assignment and Subcontracting. FISC shall have the right, at its sole
option, to provide any and all services under the terms of this Agreement by and
through one or more third parties. In the event that FISC does elect to exercise
its rights under this fact and further advise the Client as to any procedures to
be followed by or actions to be taken by the Client which may be necessary in
order to enable such third party to perform such services.
The Client shall not, without the prior written consent of FISC, assign its
rights under this Agreement to any other party, provided, however, that the
restrictions contained in this
- 3 -
<PAGE>
paragraph of this section of the Agreement shall not be construed as in any way
restricting the ability of the Client to change its corporate identity by means
of a merger, consolidation for acquisition as permitted under the laws of the
State of Maine.
10. Termination for Cause. The Client will be in default of this Agreement
and FISC may terminate this Agreement if the Client fails to pay any charges
when due or fails to perform or observe any term or condition of this Agreement,
if such failure shall continue not remedied for thirty (30) days after receipt
of written notice thereof from FISC.
The Client may terminate or cancel this Agreement if FISC fails to perform
or observe any material term or condition of this Agreement and such failure
shall continue not remedied for (thirty) 30 days after FISC receives notice
thereof from the Client.
11. Notices. Any notice required to be given under the terms of this
Agreement shall be deemed duly served if sent by certified mail, return receipt
requested, through the United States Postal Service, to the address as set
forth at the beginning of this Agreement, or such different addresses which may
be established from time to time by either party upon giving written notice
thereof to the other party to this Agreement.
12. Miscellaneous
A. Any modification or waiver of any provision of this Agreement must be
in writing and signed by authorizing representatives of both parties.
B. If any term or provision of this Agreement shall be held invalid or
unenforceable, the remainder of this Agreement shall not be affected
thereby and each term or provision thereof shall be valid and enforced
to the fullest extent permitted by law.
C. Waiver by either party of any breach of this Agreement by the other
party in a particular instance shall not operate as a waiver of
subsequent breaches of the same or different kind. The failure of
either party to exercise any rights under this Agreement in a
particular instance shall not operate as a waiver of the party's right
to exercise the same or different rights subsequent.
D. This Agreement shall be construed in accordance with and governed by
the laws of the State of Maine.
E. This is the entire Agreement between the parties with respect to the
financial services to be provided hereunder and described in the
attached addenda and supersedes all prior agreements, proposals, or
understandings whether written or oral.
- 4 -
<PAGE>
FINANCIAL INSTITUTIONS SERVICE
CORPORATION
By
- ------------------------------ ----------------------------------
Witness , its
President Duly Authorized
MERRILL MERCHANTS BANK
By /s/ R.C. Williams, Jr.
- ------------------------------ ----------------------------------
Witness , its
Vice President duly authorized
- 5 -
<PAGE>
[Confidential portions of this exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
FINANCIAL SERVICES AGREEMENT
FOR ITEM PROCESSING SERVICES
This AGREEMENT made and entered into this 1st day of August, 1992, by and
between FINANCIAL INSTITUTIONS SERVICE CORPORATION, a business corporation duly
organized and existing under the laws of the State of Maine and having its
principal office located in Lewiston, in the County of Androscoggin, and State
of Maine (mailing address Po Box 221, 168 Lisbon Street, Lewiston, Maine
04243-0221) (hereinafter referred to as "FISC"), and MERRILL MERCHANTS BANK, a
financial institution duly organized and existing under the laws of the United
States,, and having its principal office located in Bangor, in the County of
Penobscot, and State of Maine (201 Main St., Bangor, Maine, 04401) (hereinafter
referred to as "Client").
It is the intention of FISC and the Client that this Addendum be construed
in all respects as an Addendum to a certain Financial Services Master Agreement
(the "Agreement") between FISC and the Client dated August 1, 1992, and that it
is being entered into by the parties hereto for the purpose of describing one or
more services and their pricing structure. This addendum may describe several
related services. The Client will indicate in Section Five which services it
will initially use. Subsequent services may be provided by a written request
from the Client to FISC.
1. Description of Service:
Inclearing Services: FISC will receive daily incoming Cash
Letters from the Clients' RCPC and will: capture, balance, and
transmit (via phone or magnetic tape) the data to the Clients'
data processing center,
Return Service: Clients' returns will be retrieved from previous
day's Incoming Cash Letter, stamped with return reason, and
qualified Cash Letters will be prepared and returns will be
deposited at Fed.
Large Item Return Notification: The Bank of First Deposit will be
notified electronically of any return item $2,500.00 or more.
Research (Adjustments): FISC will research items or adjustments
as requested by Client. Research could involve obtaining copies
of checks, obtaining cash letter information, or submitting
adjustments to the Federal Reserve.
Serial Sorting: FISC will sort checks for a particular account
into serial check number order.
- 6 -
<PAGE>
On-Other Returns: FISC will send by courier, FAX, or read to the
Client, checks being returned from the drawee institution to the
Client via the Federal Reserve.
Outgoing Fed. Letter Service: FISC will encode, film, sort by
endpoint (when feasible), balance, and deposit to the Federal
Reserve, the Clients' Outgoing Fed. Letter on a daily basis.
Redeemed Bonds Service: FISC will encode, film, and prepare a
separate cash letter to deposit Clients' redeemed savings bonds
to the Federal Reserve.
POD Service: FISC will process all items, sort, and transmit data
to Client's data center daily. Non-check items will be returned
to the Client daily.
Rendering Service: Checks will be fine sorted by FISC, matched
with statements, and mailed to Client's customers. Presorting
will be performed whenever volume and time constraints allow.
2. Service Fees. The initial monthly fees to be charged by FISC to the
Client for the services described above are provided on the attached price
schedule. These prices shall be subject to increase, in the discretion of FISC,
during the term of this Agreement and any extension thereof. Any increase shall
be announced by notice given by FISC to Client annually in an amount which
expressed as a percentage does not exceed the Consumer Price Index (All Cities)
announced by the Bureau of Labor Statistics for the twelve-month period then
ending.
FISC further reserves the right to increase its prices in excess of the
Consumer Price Index, by giving 90-day notice of such change to a Client. Upon
receipt of such notice, Client shall within Sixty (60) days thereof, provide
FISC with notice of its rejection of such price increase for the service
described herein. Failure to reject the proposed increase shall be an expression
of the Client's acceptance of such price increase. If Client rejects such
increase, this Agreement for the service herein described shall terminate on the
181st day after FISC's notice of increase to Client.
3. Commencement Date and Term. The service described above shall commence
on August 1, 1992. The term during which such service shall be provided to the
Client by FISC shall be for a term of two years from the commencement date.
This Agreement shall renew for additional terms of Three (3) years each, unless
either party hereto gives notice to the other no less than Six (6) months prior
to the termination of the then current term of such party's intent not to renew
this Agreement.
4. Applicability of Agreement. All of the terms and conditions of the
previously described Financial Services Master Agreement between FISC and the
Client are hereby
- 7 -
<PAGE>
incorporated by reference and shall govern the providing of the service
described in this addendum.
5. Services Selected. The services selected from those described in
Section 1 previous are listed below:
Inclearing Service Return Service
Serial Sorting On-Other Returns
Research Redeemed Bonds
POD Service (includes outgoing Rendering
Fed Letter Service)
FINANCIAL INSTITUTIONS SERVICE
CORPORATION
BY:
- ------------------------------ ----------------------------------
Witness its
President duly authorized
MERRILL MERCHANTS BANK
BY: /s/ R.C. Williams, Jr.
- ------------------------------ ----------------------------------
Witness its
Vice-President duly authorized
- 8 -
<PAGE>
MERCHANTS BANK
ITEM PROCESSING
INCLEARING/RENDERING SERVICE
Price per item based on monthly volume. Straight pricing, not tiered.
-----------------------------
$*** 0-99,999 items
*** 100,000-124,999 items
*** 125,000-149,999 items
*** 150,000-174,999 items
*** 175,000-199,999 items
*** 200,000-249,999 items
*** 250,000 items and over
Pull, Qualify, and Deliver Returns to Fed....................... $ *** per item
Mailers...................................................$ *** after 1st mailer
OUTGOING FED LETTER SERVICE
Price per item based on monthly volume. Straight pricing, not tiered.
$*** 1-29,999 items
*** 30,000-39,999 items
*** 40,000-49,999 items
*** 50,000-69,999 items
*** 70,000-239,999 items
*** 240,000-299,999 items
*** 300,000-359,999 items
*** 360,000-419,999 items
*** 420,000-479,999 items
*** 480,000 items and over
On-Other Returns...........................................................$ ***
OTHER
Serial Sorting.............................................................$ ***
Statements without Checks .................................................$ ***
Statement Savings.............................................$*** per statement
- 9 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
Postage......................................................................***
Transmissions ...............................................................***
Programming .....................................*** (Maximum cost to be charged
for conversion programming $***)
Research (Fed Adjustments, Non-FISC Errors).......................$*** per item
Redeemed Bonds................................$ Volumes added to POD volumes and
priced accordingly
CONVERSION FEES
FISC Management consultant fees at $***/hour guaranteed maximum $***. Fees
waived as follows.
2 year contract ***% waived
3 year contract ***% waived
4 year contract ***% waived
5 year contract ***% waived
- 10 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
ADDENDUM TO FINANCIAL SERVICES AGREEMENT
FOR CANADIAN ITEMS PROCESSING
THIS ADDENDUM, made and entered into this 1st day of August, 1992, by and
between FINANCIAL INSTITUTIONS SERVICE CORPORATION, a business corporation duly
organized and existing under the laws of the State of Maine (hereinafter
referred to as"FISC") and MERRILL MERCHANTS BANK a financial institution duly
organized and existing under the laws of the United States and having its
principal office located in Bangor, in the County of Penobscot and State of
Maine (hereinafter referred to as "Client").
It is the intention of FISC and the client that this Addendum be construed
in all respects as an Addendum to a certain Financial Services Agreement (the
"Agreement") between FISC and the Client dated August 1, 1992, and that it is
being entered into by the parties hereto for the purpose of describing a
particular service and the fees to be initially charged therefore to be provided
by FISC to the client under the terms of said Agreement.
1. Description of Service. The description of the particular service to
which this Addendum relates which is to be provided by FISC to the Client is as
follows:
FISC will MICRO encode, film, and prepare a separate cash letter for
delivery of your Canadian items to the Federal Reserve Bank in Auburn.
FISC does not assume any liability for any Canadian government checks or
Postal Money Orders which are lost in transit and for which a copy of the film
is not accepted for payment.
2. Service Fees. The initial fees to be charged by FISC for providing the
above-described service to the Client are as follows:
Canadian Item volumes will be added to the POD Item volumes and priced
according to the POD pricing schedule.
3. Commencement Date and Term. Pursuant to section 2 of the agreement, the
date on which the above-described service shall commence and the initial term
during which such service shall be provided to the Client by FISC are as
follows:
Commencement Date: August 1, 1992
Initial Term: 2 Years
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<PAGE>
4. Applicability of Agreement. All of the terms and conditions of the
above-described Financial Services Agreement between FISC and the Client are
hereby incorporated by reference and shall govern the providing of the service
described in this Addendum.
FINANCIAL INSTITUTIONS SERVICE
CORPORATION
BY:
- ------------------------------ ----------------------------------
Witness its
President duly authorized
MERRILL MERCHANTS BANK
BY: /s/ R.C. Williams, Jr.
- ------------------------------ ----------------------------------
Witness its
Vice-President duly authorized
- 12 -
<PAGE>
FINANCIAL INSTITUTIONS SERVICE CORPORATION
One Sixty Eight Lisbon Street, P.O. Box 221. Lewiston, Maine 04243-0221
o (207) 782-6858 o FAX (207) 782-9585
February 25, 1993
Mr. Reggie Williams
Senior Vice President
Merrill Merchants Bank
201 Main St.
Bangor, ME 04401
Dear Mr. Williams:
Thank you for utilizing FISC's Laser Printing Service. Enclosed are two copies
of the Laser Printing addendum. Please sign both copies and return one to me.
If you have any questions concerning the contract please contact me. If you have
questions about the service please contact Bill Perk.
Sincerely,
/s/ Deborah L. Budek
Deborah L. Budek
Administrative Assistant
/db
- 13 -
<PAGE>
This Agreement made and entered into this 19th day of October, 1992, by and
between FINANCIAL INSTITUTIONS SERVICE CORPORATION, a business corporation duly
organized and existing under the laws of the State of Maine and having its
principal office located in Lewiston, (P.O. Box 221, Lewiston, Maine,
04243-0221) (hereinafter referred to as "FISC"), and MERRILL MERCHANTS BANK, a
financial institution duly organized and existing under the laws of the United
States, and having its principal office located in Bangor, (201 Main St.,
Bangor, Maine, 04401) (hereinafter referred to as "Client").
1. Description of Service
Receiving and loading tapes
Laser print statements
Burst Statements
Fold Statements
Stuff and mail statements (pre-sort zip codes)
Generic statement forms provided
Dual window envelopes provided
Includes one advertising enclosure (see Section 2
for fees for additional enclosures)
2. Service Fees
Statements
Price/Page Volume
$ *** 0 - 4,999
$ *** 5,000 - 9,999
$ *** 10,000 - 14,999
$ *** 15,000 and over
Other Laser Printed Forms
Price/Page Volume
$ *** 0 - 4,999
$ *** 5,000 - 9,999
$ *** 10,000 - 14,999
$ *** 15,000 and over
Above fees are not computed on tiered volume.
Deduct $*** per page if client provides statement forms and envelopes.
- 14 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
COM (Computer Output Microfiche)
$*** per original
$*** per duplicate
We will stuff additional enclosures at *** cent per enclosure.
FISC may, in its discretion, increase the above fees on an annual basis in
an amount that reflects an increase no greater than the rate of increase in
the Consumer Price Index (All Cities) prepared by the Bureau of Labor
Statistics for the twelve (12) month period then ending. Further, FISC may
determine to increase its fees in excess of the CPI rate. In such event, at
least ninety (90) days prior to the effective date of increase of such
fees, FISC will provide notification to the Client of the service fees
which it proposes to charge. The Client shall have sixty (60) days from
such notice to reject such increase, which shall otherwise become effective
on the ninety-first (91st) day after such notice. If such increase is
rejected, this agreement shall terminate on the said ninety-first (91st)
day.
At least seventy-five (75) days prior to the commencement of renewed term,
FISC will provide notification to the client of the service fees which it
proposes to charge. These fees to remain in effect for the term of the
contract.
3. Term of Agreement. This Agreement shall become effective when signed by
Client and accepted in writing by FISC for a term of two (2) years. The
term of service shall be automatically renewed for successive three (3)
year terms based upon the changes and on the terms and conditions in effect
at the time of renewal unless either party gives the other written notice
of termination six (6) months in advance of the expiration of the then
current term.
4. Exclusive Remedy. THE CLIENT'S SOLE REMEDY AGAINST FISC FOR LOSS OR DAMAGE
CAUSED BY OR ARISING IN CONNECTION WITH PERFORMANCE OR NON-PERFORMANCE OF
THE FINANCIAL SERVICES UNDER THE TERMS OF THIS AGREEMENT, REGARDLESS OF
THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, INCLUDING NEGLIGENCE,
STRICT LIABILITY OR OTHERWISE, SHALL BE THE LESSER OF THE AMOUNT OF ACTUAL
DIRECT DAMAGES WHICH ARE PROVEN OR AN AMOUNT EQUAL TO THE MOST RECENT THREE
(3) MONTHS FEES FOR THE SERVICE TO WHICH THE CLAIM RELATES. THIS LIMITATION
SHALL ALSO BE CONSIDERED TO BE A SINGLE AGGREGATE LIMIT ON FISCIS LIABILITY
WHEN MULTIPLE CLAIMS SHOULD ARISE OUT OF THE SAME TRANSACTION OR EVENT,
THIS REMEDY SHALL BE EXCLUSIVE OF ALL OTHER REMEDIES AT LAW OR IN EQUITY.
- 15 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
5. Indemnification and Waiver of Subrogation. The Client shall indemnify and
hold FISC harmless from and against any and all loss, liability, cost,
damage, or expense, including but not limited to reasonable attorneys' fees
arising out of, or in any way relating to any third-party claims of
whatever nature and by whomsoever made against FISC as a result of this
Agreement or of the performance by FISC of the services contemplated
hereby. The Client also hereby releases FISC from any and all liability or
responsibility to anyone claiming through the Client by way of subrogation
or otherwise in any amount that exceeds the liability limitation provisions
in section four (4) of this Agreement to the extent such release from
liability is not precluded by the provisions of the Client's liability,
casualty and property insurance polices and agreements and is fidelity
bond.
Clients shall have sole responsibility for all information it provides FISC
and FISC shall have no obligation to verify, check or inspect information
furnished by Client. Client agrees to indemnify and save harmless FISC
against any and all liability, loss, damages, costs and expenses which FISC
may occur, suffer or be required to pay by reason of the content of
Client's information or because of any error or omission in information.
6. Liability Limitations.
Notwithstanding any other provision of this Agreement:
a.) FISC shall not be liable for any indirect, incidental or consequential
damages (including lost profits) sustained or incurred in connection
with financial services supplied under this Agreement regardless of
the form of action, whether in contract, tort, including negligence,
strict liability or otherwise, and whether or not such damages are
foreseen or unforeseen.
b.) FISC shall not be liable in any way for delay, failure in performance,
loss or damage due to any of the following force majeure conditions:
fire, strike, embargo, explosion, power blackout, earthquake, volcanic
action, flood, war, water, the elements, labor disputes, civil or
military authority, acts of God, public enemy, liability to secure
materials, inability to secure products, inability to secure fuel,
transportation facilities, acts or omissions of carriers, or other
causes beyond its reasonable control, whether or not similar to the
foregoing.
c.) FISC shall not be liable for any delay, loss or damage attributable to
any service of any other person other than FISC its employees and
agents.
d.) Any legal action arising from or in connection with services performed
for the Client or any other activity in connection with this
Agreement must be brought within one year after the cause of action
arises. For purposes
- 16 -
<PAGE>
of this Agreement a cause of action arises on the date of actual
occurrence of the act or event or on a date when there is an omission
to act.
7. Payment Terms. FISC will bill Client monthly. Payment of invoices is due
within thirty (30) days of invoice date. Failure to pay the invoice amount
when due shall result in the assessment of a finance charge of ***% of the
invoice amount for each month or portion thereof between the due date and
date of payment. Client warrants and represents that this Agreement is
entered into for commercial purposes only.
8. Confidentiality. All information delivered to FISC shall remain
confidential and will not be released by FISC to any other person, firm, or
corporation without consent of Client.
9. Termination For Cause. The Client will be in default of this Agreement and
FISC may terminate this Agreement if the Client fails to pay any charges
when due or fails to perform or observe any term or condition of this
Agreement, if such failure shall continue unremedied for thirty (30) days
after receipt of written notice thereof from FISC.
The Client may terminate or cancel this Agreement if FISC fails to perform
or observe any material term or condition of this Agreement and such
failure shall continue unremedied from thirty (30) days after FISC receives
notice thereof from the Bank.
10. Notices. Any notice required to be given under the terms of this Agreement
shall be deemed duly served if sent by certified mail, return receipt
requested through the United States Postal Service to the following
addresses of the Client and FISC or such different addresses which may be
established from time to time by either party upon giving notice thereof to
the other party to this Agreement:
FINANCIAL INSTITUTIONS SERVICE CORPORATION
168 Lisbon St., P.O. Box 221, Lewiston, ME
04243-0221
MERRILL MERCHANTS BANK
201 Main St., Bangor, ME 04401
11. General Provisions.
a.) Any modification or waiver of any provision of this Agreement must be
in writing and signed by authorized representatives of both parties.
- 17 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
b.) If any term or provision of this Agreement shall be held invalid or
unenforceable, the remainder of this Agreement shall not be affected
thereby and each term or provision thereof shall be valid and enforced
to the fullest extent permitted by law.
c.) Waiver by either party or any breach of this Agreement by the other
party in a particular instance shall not operate as a waiver of
subsequent breaches of the same or different kind. The failure of
either party to exercise any rights under this Agreement in a
particular instance shall not operate as a waiver of the party's right
to exercise the same or different rights subsequent.
d.) This Agreement shall be construed in accordance with and governed by
the laws of the State of Maine.
e.) This is the entire Agreement between the parties with respect to the
services to be provided hereunder. This Agreement supersedes all prior
agreements, proposals, or understandings whether written or oral.
FINANCIAL INSTITUTIONS SERVICE
CORPORATION
BY: /s/ Charles W. Fox, Jr.
--------------------------------
Its Controller,
Duly Authorized
MERRILL MERCHANTS BANK
BY:____________________________
Its______________________________
Duly Authorized
- ------------------------------
WITNESS
- 18 -
<PAGE>
MAINE CLEARING HOUSE (MeCHA) PARTICIPATION AGREEMENT
FISC has introduced a new service to our item processing clients which will
result in substantial savings in their Federal Reserve Check Collection fees.
This service will be implemented as soon as practical after a signed original
copy of this document is received by FISC.
By signing below the FISC client agrees that:
1. FISC will provide the client cash item clearing services through
MeCHA and in accordance with MeCHA's established rules and regulations
as they (MeCHA) may amend from time to time. See Exhibit A.
2. FISC's liability for any claims, charges, or damages arising from,
out of, or in connection with MeCHA related services shall be the same
as detailed in the Master Financial Services Agreement in effect
between FISC and the client at the date of the signing of this
document.
3. FISC shall provide settlement figures to the client each morning and
the client shall settle with FISC's settlement account by wire
transfer. Client outgoing wire transfers must be completed by 11:30
a.m. Incoming wire transfers will be received by the client by 12:00
noon. Wires are made between Federal Reserve accounts with the Federal
Reserve Bank of Boston.
4. Service fees charged shall be subject to the same terms and
conditions as detailed in the Item Processing Addendum in effect
between FISC and the client at the date of the signing of this
agreement. Fees detailed below are in addition to existing item
processing fees.
<TABLE>
<S> <C>
Set-up fee (one time) $***
Annual membership fee $***
Inclearing ***
Forward Check Collection ***/item
Wire Fees ***
</TABLE>
I have read, understand, and agree to the above items on behalf of Merrill
Merchants Bank as its SVP Operations (financial institution) Title
duly authorized.
/s/ R.C. Williams, Jr. January 24, 1994
- ------------------------------------------ -------------------
Signature Date
- 19 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
February 14, 1994
TO: Maine Clearing House (MeCHA) Participants
FROM: Katherine Dunton
RE: ADDENDUM FOR LATE WIRE PENALTY
****************************************************************************
In order to assure that our clients receive their Maine Clearing House (MeCHA)
wires in a timely manner we have modified item 13 of our Maine Clearing House
Participation Agreement.
Please acknowledge receipt of and agreement to the modification by signing one
copy and returning to me.
FISC shall provide settlement figures to the client each morning and the client
shall settle with FISC's settlement account by wire transfer. Client outgoing
wire transfers must be completed by 11:30 a.m. Incoming wire transfers will be
received by the client by 12:00 noon. Wires are to be received at the designated
FISC settlement account with the Federal Reserve Bank of Boston.
FISC will have available a line of credit in the event that wires are not
received in a timely manner for the wires to the Clearing House. If an incoming
wire has not been received the client will be contacted prior to using the line
of credit. In the event that FISC has to use this line of credit on behalf of
one of our clients, the client will be charged as follows.
*If wire is received same day: $*** plus interest charges.
*If wire is received following day: $*** plus interest charges.
If a client causes FISC to access this line of credit frequently, FISC reserves
the right to increase fees.
- ------------------------------ as its ------------------------------
(financial institution) (title)
duly authorized.
- ------------------------------ ------------------------------
Signature Date
/s/ Katherine Dunton 2/14/94
- ------------------------------ ------------------------------
Katherine Dunton, VP, FISC Date
- 20 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
[Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
ADDENDUM TO FINANCIAL SERVICES AGREEMENT
FOR ITEM PROCESSING SERVICES
This AGREEMENT made and entered into this 1st day of August, 1994, by
and between FINANCIAL INSTITUTIONS SERVICE CORPORATION, a business corporation
duly organized and existing under the laws of the State of Maine and having its
principal office located in Lewiston, in the County of Androscoggin, and State
of Maine (mailing address PO Box 221, 168 Lisbon Street, Lewiston, Maine
04243-0221) (hereinafter referred to as "FISC"), and Merrill Merchants Bank, a
financial institution duly organized and existing under the laws of the United
States, and having its principal office located in Bangor, (210 Main Street,
Bangor, Maine, 04401) Maine (hereinafter referred to as "Client").
It is the intention of FISC and the Client that this Addendum be
construed in all respects as an Addendum to a certain Financial Services Master
Agreement (the "Agreement") between FISC and the Client dated August 1, 1992 and
that it is being entered into by the parties hereto for the purpose of
describing one or more services and their pricing structure. This addendum may
describe several related services. The Client will indicate in Section Five
which services it will initially use. Subsequent services may be provided by a
written request from the Client to FISC.
l. Description of Service:
Inclearing Services: FISC will receive daily incoming Cash
Letters from the Clients' RCPC and will: capture, balance, and
transmit (via phone or magnetic tape) the data to the Clients'
data processing center.
Return Service: Clients' returns will be retrieved from
previous day's Incoming Cash Letter, stamped with return
reason, and qualified Cash Letters will be prepared and
returns will be deposited at Fed.
Large Item Return Notification: The Bank of First Deposit will
be notified electronically of any return item $2,500.00 or
more.
Research (Adjustments): FISC will research items or
adjustments as requested by Client. Research could involve
obtaining copies of checks, obtaining cash letter information,
or submitting adjustments to the Federal Reserve.
Serial Sorting: FISC will sort checks for a particular account
into serial check number order.
On-Other Returns: FISC will send by courier, FAX, or read to
the Client, checks being returned from the drawee institution
to the Client via the Federal Reserve.
Redeemed Bonds Service: FISC will encode, film, and prepare a
separate cash letter to deposit Clients' redeemed savings
bonds to the Federal Reserve.
POD Service: FISC will process all items, sort, and transmit
data to Client's data center daily. Non-check items will be
returned to the Client daily,
- 21 -
<PAGE>
Rendering Service: Checks will be finesorted by FISCI matched
with statements, and mailed to Client's customers. Presorting
will be performed whenever volume and time constraints allow.
Canadian Items Service: FISC will MICR encode, film, and
prepare a separate cash letter for delivery of your Canadian
items to the Federal Reserve Bank in Auburn.
FISC does not assume any liability for any Canadian
government checks or Postal Money Orders which are
lost in transit and for which a copy of the film is
not accepted for payment.
Food Coupon Redemption Certificates: FISC will encode, film
and return to client Food Coupon Redemption certificates.
Statement Savings: FISC will fold, stuff, and mail savings
statements to the financial institution's customer each cycle.
Statement Without Checks (Zeros): FISC will fold, stuff, and
mail statements that do not have any DDA checks clearing the
customers account for each cycle to the financial
institution's customer.
Laser Printing (Non-DDA Statements or Forms): FISC will
receive and load tapes, laser print statements, fold
statements, stuff and mail statements (pre-sort zip codes),
provide generic statement forms and dual window envelopes.
Service includes one advertising enclosure.
Laser Printing (DDA Statements): FISC will receive and load
tapes, laser print statements, fold statements to be included
with DDA Rendering Service.
Computer output Microfiche: FISC will produce microfiche of
statement information from the Laser Printing tape provided by
Client. Duplicates available upon request.
Controlled Disbursement Service: This service provides FAXing
or telephone calls daily with a report on selected individual
accounts. This report will list, for each account requested by
the Client, the number of items and the total dollar amount.
This report should be readily available prior to the
transmission of Inclearing work to the Client's data center.
2. Service Fees. The initial monthly fees to be charged by FISC
to the Client for the services described above are provided on the attached
price schedule.
FISC may, in its discretion, increase the above fees on an annual basis
in an amount that reflects an increase no greater than the rate of increase in
the Consumer Price Index (All Cities) prepared by the Bureau of Labor Statistics
for the twelve (12) month period then ending. Further, FISC may determine to
increase its fees in excess of the CPI rate. In such event, at least ninety (90)
days prior to the effective date of increase of such fees, FISC will provide
notification to the Client of the service fees which it proposes to charge. The
Client shall have sixty (60) days from such notice to reject such increase,
which shall otherwise become effective on the ninety-first (91st) day after such
notice. If such increase is rejected, this agreement shall terminate on the said
ninety-first (91st) day.
- 22 -
<PAGE>
At least seventy-five (75) days prior to the commencement of renewed
term, FISC will provide notification to the client of the service fees which it
proposes to charge. These fees to remain in effect for the term of the contract.
3. Commencement Date and Term. The service described above shall
commence on August 1, 1994. The term during which such service shall be provided
to the Client by FISC shall be for a term of 5 years from the commencement
date. This Agreement shall renew for additional terms of 3 years each, unless
either party hereto gives notice to the other no less than Thirty (30) days
prior to the termination of the then current term of such party's intent not to
renew this Agreement.
4. Applicability of Agreement. All of the terms and conditions of the
previously described Financial Services Master Agreement between FISC and the
Client are hereby incorporated by reference and shall govern the providing of
the service described in this addendum.
5. Services Selected. The services selected from those described in
Section 1 previous are listed below:
<TABLE>
<S> <C>
Inclearing Service Large Item Return Notification
Returns Service Serial Sorting
On-other Returns Research
Redeemed Bonds Service Statements Without Checks
POD Service Rendering
Canadian Items Laser Printing DDA Statements
Laser Printing non-DDA COM
Other: ____________________________________________________________
____________________________________________________________
____________________________________________________________
</TABLE>
FINANCIAL INSTITUTIONS SERVICE
CORPORATION
______________________________ BY:___________________________________
Witness its
President duly authorized
MERRILL MERCHANTS BANK
______________________________ BY: /s/ R.C. Williams, Jr.
Witness its
SVP Operation duly authorized
- 23 -
<PAGE>
Merrill Merchants Bank
ITEM PROCESSING PRICES
1994
INCLEARING/RENDERING SERVICE
<TABLE>
<S> <C>
Inclear and Render Price per item (straight
pricing, not tiered).
Fees waived for Merrill
0 - 99,999 items/month $***
100,000 - 124,999 items/month $***
125,000 - 149,000 items/month $***
150,000 - 175,000 items/month $***
175,000 - 199,999 items/month $***
200,000 @ 249,999 items/month $***
250,000 items and over/month $***
Other Price
Statements w/out checks (non-truncated) $*** per account
Truncated Statements No additional charge
Returns (Qualify and Deposit) $*** per item
On-Other Returns
*by courier No charge
*Phone Call $*** per item
*FAX $*** per item
*Mail *Cost of Postage Fees Waived for
Merrill Merchants Bank
Large Item Return Notification $*** per item
</TABLE>
- 24 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
<TABLE>
<S> <C>
Inclear and Render Price per item (straight
pricing, not tiered).
Fees waived for Merrill
Research - Special Projects $*** per hour
Research (non-FISC errors) $*** per item
Serial Sorting $*** per item
Controlled Disbursement $*** per account per month
Telephone Transmission Charges At Cost
Programming Charges At Cost
Postage At Cost
</TABLE>
Above pricing will be discounted ***% in accordance with the Five (5) year
contract term or ***% in accordance with a Three (3) year contract term.
- 25 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
PROOF OF DEPOSIT (POD) SERVICE
<TABLE>
<S> <C>
Encode A Sort Price per item (straight
pricing, not tiered)
1 - 29,999 items/month $***
30,000 - 39,999 items/month $***
40,000 - 49,999 items/month $***
50,000 - 69,999 items/month $***
70,000 - 239,999 items/month $***
240,000 - 299,999 item's/month $***
300,000 - 359,999 items/month $***
360,000 - 419,999 items/month $***
420,000 - 479,999 items/month $***
480,000 items and over $***
Other Price
Research - Special Projects $*** per hour
Research (non-FISC errors) $*** per item
Canadian Items $*** per item
Food Coupon Redemption
Certificates
*lst ten *$*** total
*11 items and over *$***per item
Savings Bonds Added to total number of POD
items
Telephone Transmission Charges At Cost
Programming charges At Cost
</TABLE>
- 26 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
<TABLE>
<S> <C>
Postage At Cost
</TABLE>
Above pricing will be discounted ***% in accordance with the Five (5) year
contract term or ***% in accordance with a three (3) year contract term.*
- 27 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
LASER PRINTING SERVICE
<TABLE>
<CAPTION>
DDA Statements Price/Page
<S> <C>
0 - 4,999 pages/month $***
5,000 - 9,999 pages/month $***
10,000 - 14,999 pages/month $***
15,000 and over pages/month $***
</TABLE>
As part of the Inclearing/Rendering service Laser Printing of DDA Statements
will be discounted ***% in accordance with the Five (5) year contract term or
***% in accordance with the Three (3) year term.
<TABLE>
<CAPTION>
Non-DDA Statements or Forms Price/Page
<S> <C>
0 - 4,999 pages/month $***
5,000 - 9,999 pages/month $***
10,000 - 14,999 pages/month $***
15,000 and over pages/month $***
</TABLE>
All Laser Printing fees are computed on tiered volume. Deduct $*** per page if
client provides statement forms and envelopes. We will stuff additional
enclosures at *** cent per enclosure.
<TABLE>
<S> <C>
COM (Computer output Management) $*** per original
$*** per duplicate
</TABLE>
*Effective August 1, 1994
- 28 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
ADDENDUM TO FINANCIAL SERVICES AGREEMENT
FOR IMAGE
This AGREEMENT made and entered into this 27th day of March 1995, by
and between FINANCIAL INSTITUTIONS SERVICE CORPORATION, a business corporation
duly organized and existing under the laws of the State of Maine and having its
principal office located in Lewiston, Maine (PO Box 221, 152 Lisbon Street,
Lewiston, Maine 04243-0221) (hereinafter referred to as "FISC"), and MERRILL
MERCHANTS BANK, a financial institution duly organized and existing under the
laws of the United States, and having its principal office located in Bangor,
Maine, 201 Main Street, Bangor, Maine, 04401) (hereinafter referred to as
"Client").
It is the intention of FISC and the Client that this Addendum be
construed in all respects as an Addendum to a certain Financial Services Master
Agreement (the "Agreement") between FISC and the Client dated August 1, 1992 and
that it is being entered into by the parties hereto for the purpose of
describing one or more services and their pricing structure. This addendum may
describe several related services. The Client will indicate in Section Five
which services it will initially use. Subsequent services may be provided by a
written request from the Client to FISC.
1. Description of Service. The description of the particular service to which
this Addendum relates which is to be provided by FISC to the institution is as
follows:
Image Statements: FISC will laser print data on statement forms, print
images of checks and other items as requested, barcode statements, and
drill holes in statements, as requested.
IMAGEVIEW Access: FISC will provide software to Client which allows
on-line dial-up access to images resident on FISC's data base.
Copies of Images: FISC will provide Client with copies of images of
daily work, monthly work, etc. as negotiated on the media negotiated.
2. Service Fees. The initial monthly fees to be charged to FISC to the Client
for the services described above are provided on the attached price schedule.
These prices shall be subject to increase, in the discretion of FISC, during the
term of this Agreement and any extension thereof. Any increase shall be
announced by notice given by FISC to Client annually in an amount which
expressed as a percentage does not exceed the Consumer Price Index (All Cities)
announced by the Bureau of Labor Statistics for the twelve-month period then
ending.
- 29 -
<PAGE>
FISC further reserves the right to increase its prices in excess of the Consumer
Price Index by giving Ninety (90) day notice of such change to a Client. Upon
receipt of such notice, Client shall within Sixty (60) days thereof, provide
FISC with notice of its rejection of such price increase for the service
described herein. Failure to reject the proposed increase shall be an expression
of the Client's acceptance of such price increase. If Client rejects such
increase, this Agreement for the service herein described shall terminate on the
Ninety-first (91st) day after FISC's notice of increase to Client.
3. Commencement Date and Term. The service described above shall commence on
June 1, 1995. The term during which such service shall be provided to the
Client by FISC shall be for a term of 5 years from the commencement date or
until 8/1/99 . This Agreement shall renew for additional terms of 3 years each,
unless either party hereto gives notice to the other no less than ninety (90)
days prior to the termination of the then current term of such party's intent
not to renew this Agreement.
4. Applicability of Agreement. All of the terms and conditions of the
above-described Financial Services Agreement between FISC and the client are
hereby incorporated by reference and shall govern the providing of the service
described in this Addendum.
FINANCIAL INSTITUTIONS SERVICE CORP.
- ------------------------------ -------------------------------------
Witness Its President,
duly authorized
MERRILL MERCHANTS BANK
/s/ Kathleen G. Prescott /s/ R.C. Williams, Jr.
- ------------------------------ -------------------------------------
Witness Its, SVP Operation
duly authorized
- 30 -
<PAGE>
IMAGE STATEMENT PRICING
TIERED PRICING OPTION
<TABLE>
<CAPTION>
NUMBER OF ONE TIME MO. BASE FREE PER ITEM BACK
DDAS CONVER- PRICE DDA FEE AFTER IMAGE PER
SION FEE ITEMS FREE ITEM FEE
(ALL)
<S> <C> <C> <C> <C> <C>
8,000 - ABOVE $*** $*** 30,000 *** ***
6,001 - 8,000 $*** $*** 25,000 *** ***
4,001 - 6,000 $*** $*** 16,000 *** ***
2,001 - 4,000 $*** $*** 10,000 *** ***
0 - 2,000 $*** $ *** 4,500 *** ***
</TABLE>
NEGATIVE CONFIRMATION PRICING
Clients signing contract during the first year and using negative confirmation
will receive the following pricing.
<TABLE>
<CAPTION>
CONVERSION FEE PER ITEM FEE - FRONT PER ITEM FEE - BACK
IMAGE IMAGE
<S> <C> <C>
$*** $*** $***
</TABLE>
Negative confirmation:
Bank sends an image statement with the traditional statement the first
month. After that, the bank customer will receive the image statement unless
they specifically request to continue to receive traditional statement.
- 31 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
IMAGEVIEW PRICING
HARDWARE COSTS
<TABLE>
<S> <C> <C>
PC CONFIGURATION RECOMMENDED
Pentium 90 Processor
Mini Tower w/1 6Mb, 54OMb HD,
3.5" Diskette Drive, #9GXE64 Pro
Video Card, 17" High Resolution
Monitor, Pro Audio Sound Card,
28.8k Modem
CD-ROM Reader, OS/2 WARP $***
HP LaserJet Printer
4PPM, 600 DPI, 2Mb $***
$***
SOFTWARE COSTS
Installed Cost $***
IMAGEVIEW, HARDWARE & SOFTWARE
CONFIGURED AND INSTALLED ................. $***
ON-LINE COSTS
MONTHLY ACCESS FEE....................................... $***
</TABLE>
Access time may be limited by FISC.
COPY OF IMAGES
Price will depend upon media cost and how Client requests images be
selected. To be negotiated with each client as service is defined.
OTHER CONVERSION COSTS
<TABLE>
<S> <C>
Review of items to determine if image friendly $***/hr
Train the Trainer $***/person
Special programming $***/hr
</TABLE>
- 32 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
ADDENDUM TO FINANCIAL SERVICES AGREEMENT
FOR COURIER SERVICES
This AGREEMENT made and entered into on this first day of May 1997, by
and between FINANCIAL INSTITUTIONS SERVICE CORPORATION, a business corporation
duly organized and existing under the laws of the State of Maine and having its
principal office located in Lewiston, Maine, (152 Lisbon Street, PO Box 221,
Lewiston, Maine 04243-0221) (hereinafter referred to as "FISC"), and, MERRILL
MERCHANTS BANK, a business duly organized and existing under I the laws of the
State of Maine, and having its principal office located in Bangor, Maine (201
Main Street, PO Box 925, Bangor, ME 04401) (hereinafter referred to as
"Client").
It is the intention of FISC and the Client that this Addendum be
construed in all respects as an Addendum to a certain, Financial Services Master
Agreement (the "Agreement") between FISC and the Client dated August 1, 1992 and
that it is being entered into by the parties hereto for the purpose of
describing one or more services and their pricing structure. This addendum may
describe several related services.
1. Description of Service
ATISC courier will pick up at locations designated by the Client for
the delivery to FISC, all items to be MICR encoded and delivered to the
Federal Reserve Bank's Regional Check Processing Center in Auburn, ME
or the MCHA. FISC may also deliver and pick up non-check, items and
packages at said locations if previously agreed to by the Client and
FISC.
Bud's Shop & Save, Newport, Maine
2. Service Fees. The initial daily fees to be charged by FISC to the
Client for the services described above is provided below. You will be
billed from the date that the stop starts.
<TABLE>
<CAPTION>
START DATE LOCATION PRICE PER STOP
<S> <C> <C>
May 27, 1997 BUD'S SHOP & SAVE, $***
NEWPORT, MAINE
</TABLE>
FISC may, in its discretion, increase the above fees on an annual basis in an
amount that reflects an increase no greater than the rate of increase in the
Consumer Price index (All Cities) prepared by the Bureau of Labor Statistics for
the twelve (12) month period then ending. Further, FISC may determine to
increase its fees in excess of the CPI rate. In such
- 33 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
event, at least ninety (90) days prior to the effective date of increase of such
fees, FISC will provide notification to the Client of the service fees which it
proposes to charge. The Client shall have sixty (60) days from such notice to
reject such increase, which shall otherwise become effective on the ninety-first
(91st) day after such notice. If such increase is rejected, this agreement shall
terminate on the said ninety-first (91st) day.
3. Commencement Date and Term. The services described shall commence on May 1,
1997. The term during which such service shall be provided to the Client by FISC
shall be for a term of Three (3) years from the commencement date. This
Agreement shall renew for additional terms of Three (3) years each, unless
either party hereto gives notice to the other no less than Ninety (90) days
prior to the termination of the then current term of such party's intent not to
renew this Agreement.
5. Fuel Surcharge. In addition to all other charges which may be payable under
this Agreement or any addenda hereto, Client shall pay FISC, with its regular
invoices as set forth therein additional fees which, shall compensate FISC for
increases in FISC's gasoline fuel expense due to gasoline price increases,
equal to or in excess of ***% of the price for gasoline, fuel at of the date of
this Agreement. Client and FISC agree that as of this date the price of fuel is
($***) one dollar per gallon. Upon request of Client, FISC shall provide copies
of records or other evidence of fuel purchases and prices thereof relative to
the provision of services under this Agreement.
6. Liability Limitations. FISC shall not be liable for any delay, loss or damage
attributable to any service of any person, other than FISC, its employees and
agents; provided, however, that in with courier services relating to the
delivery of checks, if Client does not film checks prior to turn over to FISC,
for delivery, FISC shall have no liability for the loss of checks en route from.
Clients place of business to FISC for any cause whatsoever and, Client shall
bear all expenses for reconstructing lost items and any incidental or
consequential damages. If Client does film checks and such filming allows checks
to be reconstructed, FISC will reconstruct lost checks at its expense, provided
that checks were lost due to FISC's negligence.
7. Applicability of Agreement. All of the terms and conditions of the previously
described Financial Services Master Agreement between FISC and the Client are
hereby incorporated by reference and shall govern the providing of the service
described in this, Addendum.
FINANCIAL INSTITUTIONS SERVICE CORP.
- 34 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
/s/ Celia Holmes ________________________________________
Witness Its President,
duly authorized
MERRILL MERCHANTS BANK
____________________________ /s/ R.C. Williams, Jr.
----------------------------------------
Its, SVP Operations
duly authorized
- 35 -
<PAGE>
FINANCIAL SERVICES AGREEMENT
FOR COURIER SERVICES
This AGREEMENT made and entered into this 1st day of August 1994, by
and between FINANCIAL INSTITUTIONS SERVICE CORPORATION, a business corporation
duly organized and existing under the laws of the State of Maine and having its
principal office located in Lewiston, in the county of Androscoggin and State of
Maine (hereinafter referred to as "FISC"), and MERRILL MERCHANTS BANK, a
financial institution duly organized and existing under the laws of the United
States, and having its principal office located in Bangor, in the County of
Penobscot and State of Maine (hereinafter referred to as "Client"). It is the
intention of FISC and the Client that this Addendum be construed in all respects
as an Addendum to a certain Financial Services Master Agreement (the
"Agreement") between FISC and the Client dated August 1, 1992 and that it is
being entered into by the parties hereto for the purpose of describing one or
more services and their pricing structure under the terms of said agreement.
1. Description of Service
A FISC courier will pick up at locations designated by the Client, for
the delivery to FISC, all items to be MICR encoded and delivered to the
Federal Reserve Bank's Regional Check Processing Center in Auburn, ME.
FISC may also deliver and pick up non-check items and packages at said
locations if previously agreed to by the Client and FISC.
2. Service Fees:
The initial monthly fees to be charged by FISC for the previously
described service to the client are as follows:
7 stops in Bangor area - $*** per day
3. Commencement Date and Term
Pursuant to Section Two of the Agreement, the date on which the previously
described service shall commence and the initial term during which such service
shall be provided to the client by FISC are as follows:
Commencement Date: August 1, 1994
Initial Term: 5 Year(s)
4. Applicability of Agreement:
- 36 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
All of the terms and conditions of the previously described Financial
Services Master Agreement between FISC and the Client are hereby
incorporated by reference and shall govern the providing of the service
described in this addendum.
FINANCIAL INSTITUTIONS SERVICE
CORPORATION
______________________________ By:_____________________________
Witness , its
President Duly Authorized
MERRILL MERCHANTS BANK
By: /s/ R.C. Williams, Jr.
______________________________ _____________________________
Witness , its
SVP Operations Duly Authorized
- 37 -
EXHIBIT 10.6
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer: Alexander Hamilton Life Insurance
Policy Number: 0010201695
Bank: Merrill Merchants Bank
Insured: Edwin Clift
Relationship of Insured to Bank: Executive
The respective rights and duties of the Bank and the Insured in the subject
policy shall be as defined in the following:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use
of the Insured all in accordance with this Agreement. The Bank alone may,
to the extent of its interest, exercise the right to borrow or withdraw on
the policy cash values. Where the Bank and the Insured (or assignee, with
the consent of the Insured) mutually agree to exercise the right to
increase the coverage under the subject split dollar policy, then, in such
event, the rights, duties and benefits of the parties to such increased
coverage shall continue to be subject to the terms of this Agreement.
<PAGE>
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive his share of the proceeds payable
upon the death of the Insured, and to elect and change a payment option
for such beneficiary, subject to any right or interest the Bank may have
in such proceeds, as provided in this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to keep the policy in force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank
(or its administrator) will report to the Employee the amount of imputed
income received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of the
policy is as follows:
A. The Insured's beneficiary(ies), designated in accordance with Paragraph
III, shall be entitled to an amount equal to eighty percent (80%) of
the net at risk insurance portion of the proceeds. The net at risk
insurance portion is the total proceeds less the cash value of the
policy.
B. The Bank shall be entitled to the remainder of such proceeds.
C. The Bank and the Insured (or assignees) shall share in any interest due
on the death proceeds on a pro rata basis as the proceeds due each
respectively bears to the total proceeds, excluding any such interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times be entitled to an amount equal to the policy's
cash value, as that term is defined in the policy contract, less any
policy loans and unpaid interest or cash withdrawals previously incurred
by the Bank and any applicable surrender charges. Such cash value shall be
determined as of the date of surrender or death as the case may be.
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<PAGE>
VIII. PREMIUM WAIVER
If the policy contains a premium waiver provision, such waived amounts
shall be considered for all purposes of this Agreement as having been paid
by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits,
on expiration of the deferment period, shall be determined under the
provisions of this Agreement by regarding such endowment proceeds or the
commuted value of such annuity benefits as the policy's cash value. Such
endowment proceeds or annuity benefits shall be considered to be like
death proceeds for the purposes of division under this Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following thirty
(30) days written notice to the Insured upon the happening of any one of
the following:
1. The Insured shall be in violation of the terms and conditions of that
certain Executive Supplemental Retirement Plan Agreement dated the 26th
of June, 1997, or
2. The Insured shall be discharged from service with the Bank for cause.
The term "for cause" shall mean the commission of a felony or gross-
misdemeanor involving moral turpitude, fraud, dishonesty or willful
violation of any law that results in an adverse effect on the Bank.
Upon such termination, the Insured (or assignee) shall have a ninety (90)
day option to receive from the Bank an absolute assignment of the policy
in consideration of a cash payment to the Bank, whereupon this Agreement
shall terminate. Such cash payment shall be the greater of:
1. The Bank's share of the cash value of the policy on the date of such
assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior to
the date of such assignment.
Should the Insured (or assignee) fail to exercise this option within the
prescribed ninety (90) day period, the Insured (or assignee) agrees that
all of his rights, interest
3
<PAGE>
and claims in the policy shall terminate as of the date of the termination
of this Agreement.
Except as provided above, this Agreement shall terminate upon distribution
of the death benefit proceeds in accordance with Paragraph VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust or other organization, any right, title or interest
in the subject policy nor any rights, options, privileges or duties
created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
Merrill Merchants Bank is hereby designated the "Named Fiduciary" until
resignation or removal by the board of directors. As Named Fiduciary, the
bank shall be responsible for the management, control, and administration
of this Split Dollar Plan as established herein. The Named Fiduciary may
allocate to others certain aspects of the management and operation
responsibilities of the plan, including the employment of advisors and the
delegation of any ministerial duties to qualified individuals.
XIV. FUNDING POLICY
The funding policy for this Split Dollar Plan shall be to maintain the
subject policy in force by paying, when due, all premiums required.
XV. CLAIM PROCEDURES FOR LIFE INSURANCE POLICY AND SPLIT DOLLAR PLAN
Claim forms or claim information as to the subject policy can be obtained
by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the
Named Fiduciary has a claim which may be covered under the provisions
described in the insurance policy, he should contact the office named
above, and they will either complete a claim form and forward it to an
authorized representative of the Insurer or advise the named Fiduciary
what further requirements are necessary. The Insurer will evaluate and
make a decision as to payment. If the claim is payable, a benefit check
will be issued to the Named Fiduciary.
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<PAGE>
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the requirements
under the terms of the policy. If the Named Fiduciary is dissatisfied with
the denial of the claim and wishes to contest such claim denial, he should
contact the office named above and they will assist in making inquiry to
the Insurer. All objections to the Insurer's actions should be in writing
and submitted to the office named above for transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
Executed at Bangor, Maine this 26th day of June, 1997.
MERRILL MERCHANTS BANK
/s/ Marilyn M. Harlow By: /s/ Deborah Jordan CFO
- ------------------------------ ---------------------------------
Witness Title
/s/ Marilyn M. Harlow By: /s/ Edwin Clift
- ------------------------------ ---------------------------------
Witness Edwin Clift
5
<PAGE>
BENEFICIARY DESIGNATION FORM
PRIMARY DESIGNATION:
Name Relationship
---- ------------
Mary J. Clift Wife
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
CONTINGENT DESIGNATION:
Denise Wood 50% Daughter
- -------------------------------------- --------------------------------------
Shelby Largay 50% Daughter
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
/s/ Edwin Clift 6/26/97
- -------------------------------------- -------------------------------------
Edwin Clift Date
6
EXHIBIT 10.7
MERRILL MERCHANTS BANK
UNFUNDED DEFERRED COMPENSATION AGREEMENT
AGREEMENT made December __, 1994 between Merrill Merchants Bank ("the
Employer") and ____________________ (the "Employee.)" In consideration of the
agreements contained below, the parties agree as follows:
1. EMPLOYMENT. The Employee has heretofore been employed at the
pleasure of the Employer and the Employee agrees to continue to serve Employer
with the understanding that he serves at the pleasure of the Employer.
2. DUTIES. During the term of his employment, the Employee shall devote
all of his time, attention and efforts to the performance of his duties for the
Employer.
3. COMPENSATION. Beginning December 31, 1994 and continuing during the
term of employment, the Employer shall pay the Employee a monthly salary, which
it may determine from time to time, together with deferred compensation payable
as provided in paragraph 4.
4. DEFERRED COMPENSATION ACCOUNT.
(a) CREDITS TO ACCOUNT. A general ledger account, referred to as the
Deferred Compensation Account, shall be established for the purpose of
reflecting deferred compensation. The sum of $5,000.00 (the "deferred amount")
shall be credited to it on December 31, 1994 and on the last day of each
calendar year thereafter during the continuance of the Employee's employment by
the Employer. The amount deferred may be adjusted upwards or downwards effective
each December 31st by notice to the Employee at least ten (10) days prior
thereto.
<PAGE>
(b) INVESTMENT AUTHORITY. All such funds so credited to the Deferred
Compensation Account may be kept in cash or invested and reinvested in mutual
funds, life insurance, stocks, bonds, securities, or any other assets that the
Employer may decide to select. In the exercise of these discretionary investment
powers, the Employer may engage investment counsel and, if it so desires, may
delegate to such counsel full or limited authority to select the assets in which
the funds are to be invested.
(c) INVESTMENT LOSSES. The Employee agrees on behalf of himself and
his designated beneficiary to assume all risk in connection with any decrease in
value of the funds which are invested or which continue to be invested in
accordance with the provisions of this Agreement,
(d) INVESTMENT OWNERSHIP. The Employer shall retain title to and
beneficial ownership of all assets, whether cash or investments, which it may
earmark to pay the Employee's deferred compensation. Neither the Employee nor
his designated beneficiary shall have any property interest in the Employer's
specific assets.
(e) AGREEMENT NOT FUNDED OR QUALIFIED. This Agreement is intended to
be (and shall be construed and administered as) an Employee Benefit Pension Plan
under the provisions of the Employee Retirement Income Security Act of 1974
("ERISA"), which is unfunded for tax purposes and for purposes of Title I of
ERISA and is maintained by the Employer for the purpose of providing deferred
compensation for the Employee. More specifically, the Agreement is intended as
an unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly
- 2 -
<PAGE>
compensated employees. The Agreement is not intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended.
The obligation of the Employer to make payments under this Agreement
constitutes solely an unsecured (but legally enforceable) promise of the
Employer to make such payments in the future, and no person, including the
Employee, shall have any lien, prior claim or other security interest in any
property of the Employer as a result of this Agreement.
5. BENEFITS. The benefits to be paid as deferred compensation are as
follows:
(a) UPON TERMINATION OF EMPLOYMENT. If the Employee's employment is
terminated, for any reason including disability, death or retirement at or after
attaining age 62, the then value in the Deferred Compensation Account shall be
distributed to the Employee in substantially equal annual installments over a
period of ten (10) years. Each annual installment payment shall include earnings
on the remaining balance of the Deferred Compensation Account until the account
shall be paid out in full. The Employer may in its sole discretion accelerate
the distributions or pay benefits in larger or more frequent installments.
(b) UPON TERMINATION PRIOR TO AGE 62. If the Employee's employment
is terminated prior to the attainment of age 62 without the consent of the
Employer for reasons other than death or disability, then no benefits will be
payable hereunder and all of the Employee's rights to any benefits under the
Agreement will be forfeited.
(c) RESTRICTIONS ON EMPLOYEE. Employee covenants and agrees the he
will not, directly or indirectly, while employed by the Employer or during any
period while he is receiving benefits under this agreement, engage in any
competitive activity. If it is
- 3 -
<PAGE>
determined that the Employee has breached this covenant and agreement, then all
benefits otherwise payable by the Employer to or on behalf of the Employee under
this agreement shall be forfeited.
(d) DESIGNATED BENEFICIARY. The beneficiary referred to in this
paragraph may be designated or changed by the Employee (without the consent of
any prior beneficiary) on a form provided by the Employer and delivered to the
Employer. If no such beneficiary shall have been designated, or if the
designated beneficiary does not survive, the then value of the Deferred
Compensation Account shall be paid to the Employee's estate in one lump sum
payment.
(e) DEATH, LUMP-SUM PAYMENT. If the designated beneficiary should
die while receiving payments hereunder, the remaining value of the Deferred
Compensation Account, if any, shall be calculated as of the date of death and
shall be paid as promptly as possible in one lump sum payment to the estate of
the designated beneficiary.
(f) DISABILITY DETERMINATION. The Employee shall be deemed to have
become disabled for purposes of Paragraphs 5(a) and 5(b) if the Employer shall
find on the basis of medical evidence satisfactory to it that the Employee is so
totally mentally or physically disabled as to be unable to engage in further
employment by the Employer and that such disability shall be permanent and
continuous during the remainder of his life.
(g) PAYMENT COMMENCEMENT. The payments shall be made to the Employee
or his designated beneficiary under this Paragraph 5 and shall commence on the
first day of the calendar year following the termination of the Employee's
employment.
- 4 -
<PAGE>
6. NO TRUST. Nothing contained in this Agreement and no action taken
pursuant to the provisions of this Agreement shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Employer and
the Employee, his designated beneficiary or any other person.
7. NO ASSIGNMENT. The right of the Employee or any other person to the
payment of deferred compensation or other benefits under this Agreement shall
not be assigned, transferred, pledged, or encumbered except by Will or by the
laws of descent and distribution.
8. INCAPACITY OF BENEFICIARY. If the Employer shall find that any
person to whom any payment is payable under this Agreement is unable to care for
his affairs because of illness or accident or is a minor, any payment due
(unless a prior claim therefor shall have been made by a duly appointed
guardian, committee, or other legal representative) may be paid to the spouse, a
child, parent, or brother or sister, or to any person deemed by the Employer to
have incurred expense for such person otherwise entitled to payment, in
accordance with the applicable provisions of paragraph 5. Any such payment shall
be a complete discharge of the Employer's liabilities under this Agreement.
9. EMPLOYER'S POWERS AND LIABILITIES. The Employer shall have full
power and authority to interpret and administer this Agreement. The Employer's
interpretations and construction of any provision or action taken under this
Agreement or the amount or recipient of the payment due under it, shall be
binding and conclusive on all persons for all purposes. The Employer shall not
be liable to any person for any action taken or
- 5 -
<PAGE>
omitted in connection with the interpretation and administration of this
Agreement unless attributable to the Employer's willful misconduct or lack of
good faith.
10. AMENDMENT AND TERMINATION. The Agreement may be amended in any and
all respects at any time by the Employer, if agreed to in writing by the
Employee (or, if the Employee is not then living, by the Employee's
beneficiary). Further, the Agreement may be terminated at any time by the
Employer if agreed to in writing by the Employee (or if the Employee is not then
living, by the Employee's Beneficiary).
11. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Employer, its successors and assigns and the Employee and his
heirs, executors, administrators and legal representatives.
12. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the law of the State of Maine.
13. COMPLIANCE WITH THE CODE, ETC. The parties intend that this
Agreement comply with the provisions of the Internal Revenue Code and
Regulations in effect at the time of its execution. If, at a later date, the
laws of the United States or the State of Maine are construed in such a way as
to make this Agreement null and void, it shall be given effect in a manner that
shall best carry out the parties' purposes and intentions.
14. SEVERABILITY. If the Internal Revenue Service shall at any time
interpret this Agreement to be ineffective with regard to deferral of the
Employee's income, and that interpretation becomes final and unappealable, then
only those amounts in the Account which would be treated as taxable income by
the Service at the time of such final interpretation, shall
- 6 -
<PAGE>
be paid over to the Employee, The remaining balance in the Account at the time
of the final interpretation shall be distributed to the Employee according to
paragraph 5.
15. ENTIRE AGREEMENT. This Agreement supersedes all other agreements
previously made between the parties relating to its subject matter. There are no
other understandings or agreements.
16. NOTICE. Any notice to be delivered under this Agreement shall be
given in writing and delivered, personally or by certified mail, postage
prepaid, addressed to the Employer or the Employee at their last known
addresses.
17. NON-WAIVER. No delay or failure by either party to exercise any
right under this Agreement, and no partial or single exercise of that right,
shall constitute a waiver of that or any other right.
18. HEADINGS. Headings in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF the Employer has caused this Agreement to be
executed by its duly authorized officers and the Employee hereunder has set his
hand and seal as of the date first above written.
Merrill Merchants Bank
______________________________ By: _______________________________
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<PAGE>
______________________________ ___________________________________
Employee
- 8 -
EXHIBIT 10.8
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
AGREEMENT
This Agreement, made and entered into this 26th day of June, 1997, by and
between Merrill Merchants Bank, a Bank organized and existing under the laws of
the State of Maine (hereinafter referred to as "the Bank"), and Edwin N. Clift,
a Key Employee and the Executive of the Bank (hereinafter referred to as "the
Executive").
The Executive has been in the employ of the Bank for several years and has
now and for years past faithfully served the Bank. It is the consensus of the
Board of Directors of the Bank (the "Board") that the Executive's services have
been of exceptional merit, in excess of the compensation paid and an invaluable
contribution to the profits and position of the Bank in its field of activity.
The Board further believes that the Executive's experience, knowledge of
corporate affairs, reputation and industry contacts are of such value and his
continued services are so essential to the Bank's future growth and profits that
it would suffer severe financial loss should the Executive terminate his
services.
Accordingly, it is the desire of the Bank and the Executive to enter into
this Agreement under which the Bank will agree to make certain payments to the
Executive upon his retirement and, alternatively, to his beneficiary(ies) in the
event of his premature death while employed by the Bank.
It is the intent of the parties hereto that this Agreement be considered an
arrangement maintained primarily to provide supplemental retirement benefits for
the Executive, as a member of a select group of management or highly-compensated
employees of the Bank for purposes of the Employee Retirement Security Act of
1974 (ERISA). The Executive is fully advised of the Bank's financial status and
has had substantial input in the design and operation of this benefit plan.
Therefore, in consideration of the Executive's services performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Bank and the Executive, agree as follows:
<PAGE>
I. DEFINITIONS
A. Effective Date:
The Effective Date of this Agreement shall be June 26, 1997.
B. Plan Year:
Any reference to "Plan Year" shall mean a calendar year from January 1 to
December 31. In the year of implementation, the term "Plan Year" shall
mean the period from the effective date to December 31 of the year of the
effective date.
C. Retirement Date:
Retirement Date shall mean retirement from service with the Bank which
becomes effective on the first day of the calendar month following the
month in which the Executive reaches his sixty-fifth (65th) birthday or
such later date as the Executive may actually retire.
D. Termination of Service:
Termination of Service shall mean voluntary resignation of service by the
Executive or the Bank's discharge of the Executive without cause ["cause"
defined in subparagraph III (D) hereinafter], prior to the Normal
Retirement Age [described in subparagraph I (J) hereinafter].
E. Pre-Retirement Account:
A Pre-Retirement Account shall be established as a liability reserve
account on the books of the Bank for the benefit of the Executive. Prior
to termination of service or the Executive's retirement, such liability
reserve account shall be increased or decreased each Plan Year (including
the Plan Year in which the Executive ceases to be employed by the Bank) by
an amount equal to the annual earnings or loss for that Plan Year
determined by the Index [described in subparagraph I (G) hereinafter],
less the Cost of Funds Expense for that Plan Year [described in
subparagraph I (H) hereinafter].
F. Index Retirement Benefit:
The Index Retirement Benefit for the Executive for any year shall be equal
to the excess of the annual earnings (if any) determined by the Index
[subparagraph I (G)] for that Plan Year over the Cost of Funds Expense
[subparagraph I (H)] for that Plan Year.
2
<PAGE>
G. Index:
The Index for any Plan Year shall be the aggregate annual after-tax income
from the life insurance contracts described hereinafter as defined by FASB
Technical Bulletin 85-4. This Index shall be applied as if such insurance
contracts were purchased on the effective date hereof.
Insurance Company: Alexander Hamilton Life Insurance
Policy Form: Flexible Premium Adjustable Life
Policy Name: Executive Security Plan III
Insured's Age and Sex: 57, Male
Riders: None
Ratings: None
Option: A
Face Amount: $1,495,000
Premiums Paid: $604,000
Number of Premium Payments: One
Assumed Purchase Date: June 26, 1997
If such contracts of life insurance are actually purchased by the Bank
then the actual policies as of the dates they were purchased shall be used
in calculations under this Agreement. If such contracts of life insurance
are not purchased or are subsequently surrendered or lapsed, then the Bank
shall receive annual policy illustrations that assume the above described
policies were purchased from the above named insurance company(ies) on the
Effective Date from which the increase in policy value will be used to
calculate the amount of the Index.
In either case, references to the life insurance contract are merely for
purposes of calculating a benefit. The Bank has no obligation to purchase
such life insurance and, if purchased, the Executive and his
beneficiary(ies) shall have no ownership interest in such policy and shall
always have no greater interest in the benefits under this Agreement than
that of an unsecured general creditor of the Bank.
H. Cost of Funds Expense:
The Cost of Funds Expense for any Plan Year shall be calculated by taking
the sum of the amount of premiums set forth in the Indexed policies
described above plus the amount of any after-tax benefits paid to the
Executive pursuant to this Agreement (Paragraph III hereinafter) plus the
amount of all previous years after-tax Costs of Funds Expense, and
multiplying that sum by the average after-tax cost of funds of the Bank's
third quarter Call Report for the Plan Year as filed with the Federal
Reserve.
3
<PAGE>
I. Change of Control:
Change of control shall be deemed to be the cumulative transfer of more
than fifty percent (50%) of the voting stock of the Bank Holding Company
from the Effective Date of this Agreement. For the purposes of this
Agreement, transfers on account of deaths or gifts, transfers between
family members or transfers to a qualified retirement plan maintained by
the Bank shall not be considered in determining whether there has been a
change in control.
J. Normal Retirement Age:
Normal Retirement Age shall mean the date on which the Executive attains
age sixty-five (65).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any
existing employment agreement by and between the Bank and the Executive,
nor shall any conditions herein create specific employment rights to the
Executive nor limit the right of the Employer to discharge the Executive
with or without cause. In a similar fashion, no provision shall limit the
Executive's rights to voluntarily sever his employment at any time.
III. INDEX BENEFITS
The following benefits provided by the Bank to the Executive are in the
nature of a fringe benefit and shall in no event be construed to effect
nor limit the Executive's current or prospective salary increases, cash
bonuses or profit-sharing distributions or credits.
A. Retirement Benefits:
Should the Executive continue to be employed by the Bank until his "Normal
Retirement Age" defined in subparagraph I (J), he shall be entitled to
receive the balance in his Pre-Retirement Account [as defined in
subparagraph I (E)] in some number of equal annual installments to be
determined six months prior to his Retirement Date, commencing thirty (30)
days following the Executive's Normal Retirement Date. In addition to
these payments, commencing with the Plan Year in which the Executive
attains his Retirement Date, the Index Retirement Benefit [as defined in
subparagraph I (F) above] for each year shall be paid to the Executive
until his death.
4
<PAGE>
B. Termination of Service:
Subject to subparagraph III (D) hereinafter, should the Executive suffer a
termination of service [defined in subparagraph I (D)], he shall be
entitled to receive twenty percent (20%), times the number of full years
(to a maximum of 100%) the Executive has served from the date of first
employment prior to attaining Normal Retirement Age with the Bank, times
the balance in the Pre-Retirement Account paid over the number of equal
annual installments determined six months prior to his date of termination
commencing at the Retirement Date [subparagraph I (C)]. In addition to
these payments, twenty percent (20%) times full years of service with the
Bank, times the Index Retirement Benefit for each year shall be paid to
the Executive until his death.
C. Death:
Should the Executive die prior to having received the full balance of the
Pre- Retirement Account, the unpaid balance of the Pre-Retirement Account
shall be paid in a lump sum to the beneficiary selected by the Executive
and filed with the Bank. In the absence of or a failure to designate a
beneficiary, the unpaid balance shall be paid in a lump sum to the
personal representative of the Executive's estate.
D. Discharge for Cause:
Should the Executive be discharged for cause at any time prior to his
Retirement Date, all Index Benefits under this Agreement [subparagraphs
III (A), (B) or (C)] shall be forfeited. The term "for cause" shall mean
the conviction of a felony or gross-misdemeanor involving moral turpitude,
fraud, dishonesty or willful violation of any law that results in an
adverse effect on the Bank. If a dispute arises as to discharge "for
cause", such dispute shall be resolved by arbitration as set forth in this
Agreement.
E. Death Benefit:
Except as set forth above, there is no death benefit provided under this
Agreement.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Executive, his beneficiary(ies) or any successor in interest to him shall
be and remain simply a general creditor of the Bank in the same manner as
any other creditor having a
5
<PAGE>
general claim for matured and unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either fund
the obligations undertaken by this Agreement or to refrain from funding
the same and to determine the exact nature and method of such funding.
Should the Bank elect to fund this Agreement, in whole or in part, through
the purchase of life insurance, mutual funds, disability policies or
annuities, the Bank reserves the absolute right, in its sole discretion,
to terminate such funding at any time, in whole or in part. At no time
shall the Executive be deemed to have any lien or right, title or interest
in or to any specific funding investment or to any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Executive, then the Executive shall assist the
Bank by freely submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
V. CHANGE OF CONTROL
Upon a Change of Control [as defined in subparagraph I (I) herein], the
Executive shall immediately become one hundred percent (100%) vested in
all benefits promised in this Agreement. If the Executive's employment is
subsequently terminated then he shall immediately begin to receive the
benefits promised in this Agreement. The Executive will also remain
eligible for all promised death benefits in this Agreement. In addition,
no sale, merger or consolidation of the Bank shall take place unless the
new or surviving entity expressly acknowledges the obligations under this
Agreement and agrees to abide by its terms.
VI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Executive, his/her surviving spouse nor any other 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 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,
nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Executive or any beneficiary
attempts assignment, commutation, hypothecation, transfer or disposal of
the benefits hereunder, the Bank's liabilities shall forthwith cease and
terminate.
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<PAGE>
B. Binding Obligation of Bank and any Successor in Interest:
The Bank expressly agrees that it shall not merge or consolidate into or
with another bank or sell substantially all of its assets to another bank,
firm or person until such bank, firm or person expressly agrees, in
writing, to assume and discharge the duties and obligations of the Bank
under this Agreement. This Agreement shall be binding upon the parties
hereto, their successors, beneficiary(ies), heirs and personal
representatives.
C. Revocation:
It is agreed by and between the parties hereto that, during the lifetime
of the Executive, this Agreement may be amended or revoked at any time or
times, in whole or in part, by the mutual written assent of the Executive
and the Bank.
D. Gender:
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender, whenever they should so apply.
E. Effect on Other Bank Benefit Plans:
Nothing contained in this Agreement shall affect the right of the
Executive to participate in or be covered by any qualified or
non-qualified pension, profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the Bank's
existing or future compensation structure.
F. Headings:
Headings and subheadings in this Agreement are inserted for reference and
convenience only and shall not be deemed a part of this Agreement.
G. Applicable Law:
The validity and interpretation of this Agreement shall be governed by the
laws of the State of Maine.
7
<PAGE>
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this plan shall be
Merrill Merchants Bank until its removal by the Board. As Named
Fiduciary and Administrator, the Bank shall be responsible for the
management, control and administration of the Salary Continuation
Agreement as established herein. The Named Fiduciary may delegate to
others certain aspects of the management and operation responsibilities
of the plan including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
In the event a dispute arises over benefits under this Agreement and
benefits are not paid to the Executive (or to his beneficiary in the
case of the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made to
the Plan Administrator named above within ninety (90) days from the
date payments are refused. The Plan Administrator shall review the
written claim and if the claim is denied, in whole or in part, they
shall provide in writing within ninety (90) days of receipt of such
claim their specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based and any
additional material or information necessary to perfect the claim. Such
written notice shall further indicate the additional steps to be taken
by claimants if a further review of the claim denial is desired. A
claim shall be deemed denied if the Plan Administrator fails to take
any action within the aforesaid ninety-day period.
If claimants desire a second review they shall notify the Plan
Administrator in writing within ninety (90) days of the first claim
denial. Claimants may review this Agreement or any documents relating
thereto and submit any written issues and comments they may feel
appropriate. In its sole discretion, the Plan Administrator shall then
review the second claim and provide a written decision within ninety
(90) days of receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the dispute
to a Board of Arbitration for final arbitration. Said Board shall
consist of one member
8
<PAGE>
selected by the claimant, one member selected by the Bank, and the
third member selected by the first two members. The Board shall operate
under any generally recognized set of arbitration rules. The parties
hereto agree that they and their heirs, personal representatives,
successors and assigns shall be bound by the decision of such Board
with respect to any controversy properly submitted to it for
determination.
Where a dispute arises as to the Bank's discharge of the Executive "for
cause", such dispute shall likewise be submitted to arbitration as
above described and the parties hereto agree to be bound by the
decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 26th day
of June, 1997 and that, upon execution, each has received a conforming copy.
MERRILL MERCHANTS BANK
/s/ Marilyn M. Harlow By: /s/ Deborah Jordan CFO
- ------------------------------------ -------------------------
Witness Title
/s/ Marilyn M. Harlow By: /s/ Edwin N. Clift
- ------------------------------------ -------------------------
Witness Edwin Clift
9
EXHIBIT 10.9
NEITHER THIS NOTE NOR THE ATTACHED STOCK PURCHASE
CONTRACT MAY BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS THE CONDITIONS FOR
TRANSFER AS SET FORTH MORE FULLY HEREIN, SHALL HAVE
BEEN FULLY COMPLIED WITH. THIS NOTE AND THE ATTACHED
STOCK PURCHASE CONTRACT ARE ALSO SUBJECT TO TRANSFER
RESTRICTIONS SET FORTH IN A SUBSCRIPTION AGREEMENT BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER HEREOF AND THEREOF.
UNLESS THE ATTACHED STOCK PURCHASE CONTRACT SHALL HAVE
BEEN DULY REGISTERED IN A NAME OTHER THAN THE
NAME OF THE REGISTERED HOLDER OF THIS NOTE,
THE OBLIGATION TO PURCHASE COMMON STOCK UNDER
SUCH STOCK PURCHASE CONTRACT SHALL REMAIN
THE OBLIGATION OF THE REGISTERED HOLDER OF THIS NOTE,
AND THE CORPORATION SHALL OFFSET ITS OBLIGATION
TO REPAY AT MATURITY THE PRINCIPAL HEREOF AGAINST THE
OBLIGATION OF THE REGISTERED HOLDER OF THIS
NOTE TO PURCHASE COMMON STOCK.
THIS NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR
SOLD IN VIOLATION OF SUCH ACT OR THE RULES AND
REGULATIONS THEREUNDER OR IN VIOLATION OF
ANY APPLICABLE STATE SECURITIES LAWS.
THIS NOTE DOES NOT REPRESENT A BANK DEPOSIT
AND ITS REPAYMENT IS NOT INSURED BY THE
FDIC OR ANY OTHER FEDERAL AGENCY
PROMISSORY NOTE
$150,000.00 DATED: October 19, 1992
DUE: October 19, 2002
Merrill Merchants Bancshares, Inc., a Maine corporation ("Company"), for
value received, hereby promises to pay, subject to Company's right of offset set
forth herein, to ______________ or his registered assigns, the principal sum of
One Hundred Fifty Thousand
<PAGE>
and 00/100 Dollars ($150,000.00) at its principal office in Bangor, Maine, on
October 19, 2002, in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and private
debts, and to pay interest quarterly on March 31, June 30, September 30 and
December 31 of each year, commencing December 31, 1992, on said principal sum at
said office, computed on the basis of a 360 day year, at a rate equal to one
percent (1 %) over the rate of interest announced by Bank of Boston, N.A. (or
its successor) from time to time as its reference rate (the "Reference Rate"),
which interest rate shall change as of the first day of each month based on the
Reference Rate in effect on the last day of the prior month, from the most
recent date to which interest has been paid, or if no interest has been paid on
this Note from the date of issuance of this Note, until payment of said
principal sum has been paid or duly provided for. In no event shall the rate of
interest hereunder exceed the maximum interest rate permitted by applicable law.
The interest so payable on any interest payment date will be paid to the person
in whose name this Note is registered at the close of business on the day
preceding the interest payment date and may, at the option of Company, be paid
by check mailed to such person at his last address as it appears on the registry
books of Company.
This Note was issued pursuant to a subscription agreement dated as of Oct. 15,
1992, between Company and the original holder hereof (the "Subscription
Agreement"). The Subscription Agreement contains terms governing the rights and
obligations of Company and the holder of this Note under this Note, and all
provisions of the Subscription Agreement are incorporated herein in full by
reference.
Mandatory Stock Purchase Contracts, Right of Offset. This Note is being
issued in tandem with a Mandatory Stock Purchase Contract (the "Stock Purchase
Contract"), which is attached hereto, pursuant to which the original purchaser
hereof agrees to purchase, and Company agrees to sell, on or before October 19,
2002 the number of shares of common stock, par value $1.00 per share (the
"Shares"), of Company determined by dividing the principal amount of this Note
by a purchase price per Share equal to $46.00, as such price may be ratably
adjusted from time to time for any recapitalizations, stock splits, stock
dividends, reverse stock splits or similar occurrences of Company. The
registered holder of this Note shall be the registered obligor under such Stock
Purchase Contract until such Stock Purchase Contract shall have been registered
in a name other than the name of the registered holder of this Note pursuant to
the provisions set forth below, whereupon a new Note and a new Stock Purchase
Contract shall be separately issued, and until such Stock Purchase Contract is
so registered, such Stock Purchase Contract shall for all purposes be deemed to
be attached to this Note.
Subject to the terms of the attached Stock Purchase Contract, this Note may
be surrendered by the holder hereof to Company at any time or from time to time
prior to maturity in full or partial satisfaction of the purchase obligation of
such holder pursuant to the Stock Purchase Contract attached hereto. This Note
will be accepted and credited in an
- 2 -
<PAGE>
amount up to the unpaid principal amount hereof, without credit for any accrued
interest hereon.
On October 19, 2002, Company shall offset its obligation to pay the
principal hereof against the obligation of the registered holder hereof under
such Stock Purchase Contract to purchase the Shares of common stock covered
thereby and shall deliver to such holder certificates for such Shares in full
and complete satisfaction of the obligation of Company to pay the principal of
this Note.
Not Redeemable. This Note is not redeemable by Company prior to maturity,
except in accordance with applicable Federal Reserve Board regulations.
Default. There shall be no right of acceleration of the principal of this
Note upon a default in the payment of interest. An "Event of Default" shall only
be deemed to occur if (i) Company makes an assignment for the benefit of
creditors or is unable or admits in writing its inability to pay its debts
generally as they become due, or an order, judgment or decree is entered
adjudicating Company bankrupt or insolvent, or (ii) Company petitions or applies
to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of Company or of any substantial part of the assets of Company or
commences any proceeding relating to Company under any bankruptcy,
reorganization or liquidation law of any jurisdiction, or any such petition or
application is filed, or any such proceeding is commenced, against Company and
Company by any act indicates its approval thereof, consent thereto or
acquiescence therein or such petition or application is not dismissed within 60
days. Upon the occurrence of an Event of Default, the holder hereof shall have
the immediate right to declare the principal of this Note due and payable.
Subordination. This Note is subordinated in right of payment to all "Senior
Indebtedness" of Company and shall not constitute a claim of any kind against
the deposits held by any banking subsidiary of Company. "Senior Indebtedness"
shall be deemed to be all indebtedness for monies borrowed by Company, unless
such indebtedness is expressly by its terms subordinated or to be ranked pari
passu hereto.
Registered Holder. Company may deem and treat the registered holder hereof
as the absolute owner hereof (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon) for the
purpose of receiving payment of the principal hereof and interest hereon and for
all other purposes, including the determination of Company's right to offset
payment of the principal hereof at maturity against any obligations of such
holder pursuant to the Stock Purchase Contract attached hereto, and Company
shall not be affected by any notice to the contrary. All payments (which for
purposes hereof shall include certificates for Shares of common stock issuable
pursuant to Company's right of offset herein set forth) made to or upon the
order of such registered holder shall, to the extent thereof, effectively
satisfy and discharge Company's liability for monies payable on this Note.
- 3 -
<PAGE>
Transfer Conditions. In order to effect a registration of transfer of this
Note and the attached Stock Purchase Contract together as a unit to the same
transferee, such transferee must first execute and deliver to Company an
acceptance of the terms of such Stock Purchase Contract in a written form
satisfactory to Company.
In order to effect registration of transfer of either this Note or the
attached Stock Purchase Contract separately, the resulting holder of such Stock
Purchase Contract must first execute and deliver to Company a collateral
agreement in form satisfactory to Company and must deliver to Company as
collateral security for such obligation under such Stock Purchase Contract one
or more of the following items of collateral ("Collateral") in amount or
principal amount, as the case may be, equal to the aggregate purchase obligation
specified in such Stock Purchase Contract: (i) United States Treasury securities
having a maturity no later than October 19, 2002, (ii) a certificate of deposit
having a maturity no later than October 19, 2002 in a bank (other than a bank
which is an affiliate of Company) whose debt obligations or whose parent
company's debt obligations are rated AA or its equivalent by at least one
national securities rating agency satisfactory to Company, (iii) an irrevocable
letter of credit having a term of at least-one year and providing that Company
may draw on such letter of credit (A) on October 19, 2002, if the holder of such
Stock Purchase Contract has defaulted in its obligation to purchase common stock
on that date and (B) on the date of termination of such letter of credit if such
letter of credit has not previously been extended for at least one year beyond
such date and no Collateral has been substituted therefor, which letter of
credit must also be satisfactory in form and substance to Company and issued by
a bank (other than a bank which is an affiliate of Company) whose debt
obligations or whose parent company's debt obligations are rated AA or its
equivalent by at least one national securities rating agency satisfactory to
Company, (iv) Notes to which the related Stock Purchase Contracts are no longer
attached, or (v) any other obligations of Company or any other issuer from time
to time designated by Company and eligible under applicable Federal Reserve
Board regulations or policies for such purpose. In the case of book entry United
States Treasury securities, such resulting holder shall cause such securities to
be registered in the name of Company as pledgee. All Collateral (other than a
letter of credit or securities issued in bearer form) delivered to Company shall
be endorsed in blank or accompanied by written instruments of transfer,
satisfactory to Company executed in blank. Such resulting holder must also take
such steps as may be necessary to cause all payments of principal and interest
on the Collateral to be paid to Company. Interest payments received by Company
on Collateral will be remitted to the holder which pledged such Collateral
unless such holder has defaulted on its purchase obligation. On the maturity
date of any Collateral, Company will retain, but will not be obligated to
reinvest, the principal payments received thereon. Collateral or the cash
proceeds thereof will be returned to the owner thereof upon receipt by Company
of an equal amount of Collateral in substitution therefor. Notes issued in
exchange herefor upon compliance with the provisions of this paragraph shall be
free of the restrictions on transfer set forth in this paragraph (but shall
remain subject to the restrictions on transfer set forth in the Subscription
Agreement) and shall not include such provisions.
- 4 -
<PAGE>
In addition to the foregoing restrictions on transfer, the transfer of this
Note (whether separately or as a unit with the attached Stock Purchase Contract)
is also subject to the conditions specified in the Subscription Agreement, and
Company reserves the right to refuse the transfer of this Note until such
conditions have been fulfilled. Upon written request, a copy of such conditions
will be furnished by Company to the registered holder hereof without charge.
Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of Maine.
HOLDER: COMPANY:
Merrill Merchants Bancshares, Inc.
______________________________ By:______________________________
Its:______________________________
- 5 -
<PAGE>
THIS STOCK PURCHASE CONTRACT
AND THE ATTACHED NOTE HAVE BEEN ISSUED AS A UNIT AND
MAY NOT BE SEPARATED, SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF UNLESS THE CONDITIONS FOR TRANSFER,
AS SET FORTH MORE FULLY HEREIN AND THEREIN,
SHALL HAVE BEEN COMPLIED WITH.
THIS STOCK PURCHASE CONTRACT AND THE ATTACHED NOTE
ARE ALSO SUBJECT TO TRANSFER RESTRICTIONS SET FORTH
INA SUBSCRIPTION AGREEMENT BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER HEREOF AND THEREOF.
THIS STOCK PURCHASE CONTACT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES LAWS AND MAY NOT BE OFFERED
OR SOLD IN VIOLATION OF SUCH ACT
OR THE RULES AND REGULATIONS THEREUNDER
OR IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS.
MANDATORY STOCK PURCHASE CONTRACT
This Contract between Merrill Merchants Bancshares, Inc., a Maine corporation
("Company"), and the registered holder of the Note attached
hereto,________________, or registered assigns, as obligor hereunder (the
"Obligor") is entered into as of October 19, 1992.
This Contract is being issued as a unit with a Note due October 19, 2002 (the
"Note") in the aggregate principal amount equal to the "Aggregate Purchase
Obligation" of this contract as set forth below.
This Contract was issued pursuant to a subscription agreement, dated as of
October 15, 1992, between Company and the original Obligor (the "Subscription
Agreement"). The Subscription Agreement contains terms governing the rights and
obligations of Company and the Obligor under this Contract, and all provisions
of the Subscription Agreement are incorporated herein in full by reference.
IN CONSIDERATION of the mutual covenants herein set forth and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Purchase and Sale Obligation. Subject to the conditions hereinafter set
forth, the Obligor agrees to purchase, and Company agrees to sell, on October
19, 2002 (the "Purchase Date"), that certain number of shares (the "Shares") of
common stock, par value $1.00 per share (the "Common Stock"), of Company
determined by dividing the aggregate purchase obligation hereunder, which is
equal to the principal amount of the Note (the "Aggregate Purchase Obligation"),
by a purchase price per share equal to $46.00, as ratably adjusted from time to
time for recapitalizations, stock splits, stock dividends, reverse stock
- 6 -
<PAGE>
splits and similar occurrences (the "Exercise Price"). The Obligor must agree in
writing that any Common Stock purchased and acquired pursuant to this Contract
and the Obligor's rights therein shall be subject to the terms, condition,
rights and obligations as set forth in that certain shareholder agreement, dated
October 19, 1992, a copy of which is available for review and inspection at the
registered office of the Company.
At any time prior to the Purchase Date, the Obligor, upon surrender of this
Contract, together with the attached Note, to Company at its principal office in
Bangor, Maine, may purchase all or a portion of the Shares covered by this
Contract at a price per share equal to the Exercise Price. If such a purchase is
for less than all of the Shares covered by this Stock Purchase Contract, and
whether or not the purchase price is to be paid by surrender of the Note
attached hereto or by lawful money of the United States of America, Company and
the Obligor shall execute a Stock Purchase Contract identical in form and
substance to this Contract, which shall contain an aggregate purchase obligation
for only the remaining unpurchased Shares, and to which a Note shall be
attached, in form and substance identical to the Note attached hereto and in
principal amount equal to the aggregate purchase obligation under the newly
executed Stock Purchase Contract.
Notwithstanding the foregoing paragraph, Company shall not be obligated to
issue any Shares under this Stock Purchase Contract prior to the Purchase Date,
unless the Obligor has furnished Company with an opinion of counsel, which
opinion and counsel are satisfactory to Company, to the effect that such
issuance will not require registration or qualification under the Securities Act
of 1933, as amended, or under any applicable state securities law. The foregoing
condition to transfer may be waived by Company in its absolute discretion.
The purchase price for Shares purchased pursuant hereto shall, subject to
the following provision, be payable at the corporate office of Company (i) in
lawful money of the United States of America by certified or cashier's check or
otherwise in immediately available funds or (ii) by surrender of the Note
attached hereto, provided that, on the Purchase Date, Company shall offset
the obligation of Company to pay the principal of the Note to which this Stock
Purchase Contract is attached against the obligations of the Obligor hereunder
to purchase the Shares and shall deliver to the registered holder of such Note a
certificate representing the Shares (together with any cash settlement) in full
and complete satisfaction of the obligation of Company to pay the principal of
such Note and in full and complete satisfaction of the obligation of Company
hereunder.
2. Termination.
a. Event of Default. Notwithstanding anything to the contrary, this
Contract and the obligations and rights of Company and the Obligor
hereunder shall terminate, and neither party shall have any further rights
or obligations under this Contract, if on or prior to the Purchase Date an
"Event of Default" shall have occurred, as such term is defined in the
Note.
- 7 -
<PAGE>
b. Merger. Notwithstanding anything to the contrary, if the Company
proposes to engage in a transaction whereby its Common Stock is to be
transferred or exchanged for stock or securities of another entity or
assets other than securities, whether pursuant to merger, consolidation or
otherwise, the Company shall provide Obligor with at least thirty (30) days
of notice of such transaction. Obligor will then have fifteen (15) days
from the date of such notice to indicate whether or not Obligor will
purchase all or any portion of the Shares authorized for purchase under
this Contract as provided above. To the extent purchased, such Shares of
Common Stock acquired shall participate in the transfer and exchange in the
same manner as other shares of Common Stock. To the extent Shares
authorized for purchase under this Contract are not then acquired and the
proposed transfer and exchange transaction is consummated, this Contract
and the obligations and rights of Company and Obligor hereunder shall
terminate, neither party shall have any further rights or obligations under
this Contract and all purchase and sale rights relating to this Contract
shall be forever extinguished and terminated.
3. Registered Obligor. Company may deem and treat the registered Obligor
hereunder as the absolute Obligor hereunder (notwithstanding any notation or
other writing hereon) for all purposes, and Company shall not be affected by any
notice to the contrary. This Stock Purchase Contract shall be the obligation of
the registered Obligor and such obligation cannot be transferred or assigned
except in compliance with this Stock Purchase Agreement and the Subscription
Agreement. Until this Stock Purchase Agreement shall be registered in a name
other than the name of the registered holder of the Note to which it is
attached, this Stock Purchase Agreement shall be deemed for all purposes to be
attached to such Note and shall continue to be registered in the name of, and to
be the obligation of, the registered holder of the Note to which this Stock
Purchase Agreement is (or is deemed to be) attached.
4. Transfer. A registration of transfer of this Stock Purchase Contract,
whether with the Note attached hereto or separately, may be made only in
accordance with the terms and conditions set forth in the Note attached hereto
and in the Subscription Agreement.
5. Settlement of Fractional Shares. No fractional Shares shall be issued
under this Contract, but, in lieu thereof, Company shall deliver to the Obligor
the cash equivalent of any fractional Share which would otherwise be issuable
upon the Obligor's purchase of Shares pursuant to this Contract.
6. Not a Shareholder. This Contract shall not entitle the Obligor hereunder
to any of the rights or privileges of a shareholder of Company and shall not
constitute a subscription for the Shares for any purpose.
- 8 -
<PAGE>
7. Miscellaneous. This Contract may be amended, modified, superseded,
cancelled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both parties or, in the case of a
waiver, by the party waiving compliance. This Agreement shall be construed in
accordance with the laws of the State of Maine.
IN WITNESS WHEREOF, the parties have executed this Contract as of the date
first above written.
OBLIGOR: COMPANY:
Merrill Merchants Bancshares, Inc.
______________________________ By:_______________________________
Its:______________________________
- 9 -
EXHIBIT 10.10
[Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
CORRESPONDENT TRUST SERVICES
COMPREHENSIVE RENEWAL PROPOSAL
Submitted to
Merrill Merchants Bank
Bangor, Maine
Submitted by
THE NORTHERN TRUST COMPANY
CHICAGO, ILLINOIS
December 19, 1996
<PAGE>
CONTENTS
SECTION
- -------
Overview ............................................................3
Terms and Conditions..........................................................4
Depository Custody, Schedule of Fees..........................................5
How to Proceed................................................................6
- 2 -
<PAGE>
OVERVIEW
Outlined within this renewal proposal is a Comprehensive Servicing arrangement
which takes advantage of relationship pricing for the services used:
o The DEPOSITORY CUSTODY SERVICES (DCS) for your securities processing,
settlement and reporting needs.
o The TRUST/RITE SYSTEM for your trust processing and investment accounting.
o The BENCHMARK FUNDS for your short-term cash, equity and fixed income
investment needs, subject to your due diligence and fiduciary soundness
review.
o The FOCUS INVESTMENT ADVISORY SERVICE for your investment research needs.
Over 400 Correspondent Trust clients have demonstrated that these services
stands on their merits. When used together, additional operational and
managerial benefits can be realized.
Operationally, the Trust/Rite System is linked directly to your Depository
Custody Account. Automated position reconciliation can be run easily. Your daily
processing is streamlined through on-line, real-time information processing.
From a management perspective, you leverage your financial and technical
resources with a fellow fiduciary who shares your business objectives. Our
services offer you the control and flexibility you require to provide quality
service to your clients.
- 3 -
<PAGE>
TERMS AND CONDITIONS
o Full use of the Trust/Rite System for your own trust business processing.
This arrangement is based on a single database configuration with all
equipment at your main processing location and includes all releases of new
software and documentation and full client services support.
License Fee*
Subject to change of MMB
Trust/Rite account Year 1 $***
administrator, satisfactory to Year 2 $***
MMB Year 3 $***
o The Depository Custody Services (DCS) for your securities processing,
settlement and reporting needs.
See Schedule of Fees on Page 5.
o FOCUS Investment Advisory Service (Level 3) - See attached Service
description. Annual fee for level 3/Comprehensive Service shall be $***.
o Use of the Benchmark Funds for your short-term cash, equity and fixed income
investment needs, assuming fiduciary soundness satisfied.
o Training Services- Two days of Trust/Rite and/or DCS training, on an annual
basis, in your office for no fee. Merrill Merchants Bank agrees to reimburse
Northern for Travel and Lodging expenses.
o Speaker- Northern will provide Merrill Merchants Bank with a speaker on an
annual basis, for presentations to various client and prospective client
groups. Northern will not charge a fee for the speaker and Merrill Merchants
agrees to reimburse Northern for reasonable Travel and Lodging expenses. Said
speaker shall be a senior investment or economics group
spokesperson/representative.
The term of this agreement will be for a 3 year period.
This proposal does not include services available through our automated
interfaces.
* License Fee is based on past Basic Fee and Software Services Fee. License Fee
is a flat fee, billed quarterly, regardless of account growth.
- 4 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
SCHEDULE OF FEES
ACCOUNT MAINTENANCE FEE $***
GLOBAL ACCOUNT MAINTENANCE $***
COMMUNICATION CHARGE $***
DEPOSITORY HOLDINGS $***
PHYSICAL HOLDINGS $***
GLOBAL HOLDINGS $***
DEPOSITORY SALES & PURCHASES $***
DEPOSITORY RECEIPTS & DELIVERIES $***
GLOBAL PURCHASES & SALES $***
GLOBAL RECEIPTS & DELIVERIES $***
PHYSICAL SALES & PURCHASES $***
PHYSICAL RECEIPTS & DELIVERIES $***
TRANSFER BETW.ACCTS. $***
GLOBAL TRANSFERS BETWEEN ACCTS. $***
DEPOSITORY MATURITIES $***
PHYSICAL MATURITIES $***
GLOBAL MATURITIES $***
DEPOSITORY REORGANIZATIONS $***
PHYSICAL REORGANIZATIONS $***
GLOBAL REORGANIZATIONS $***
DIVIDEND & INTEREST PAYMENTS $***
DIVIDEND REINVESTMENT SET-UPS $***
GLOBAL DIVIDEND & INTEREST PAYMENT $***
PRINCIPAL PAY DOWN $***
WIRE TRANSFERS $***
CALL OPTIONS WRITTEN $***
- 5 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
<PAGE>
HOW TO PROCEED
If you decide to proceed with this comprehensive renewal proposal, we suggest
doing so as follows:
o Sign both copies of this Proposal and return one executed copy to us.
This Proposal is offered as of December 17, 1996 with new terms to begin March
1,1997. If you wish to proceed as outlined herein, please acknowledge in the
section that follows:
ACCEPTED
MERRILL MERCHANTS BANK THE NORTHERN TRUST COMPANY
BANGOR, MAINE CHICAGO, ILLINOIS
By: /s/ George Moore, SVP By:
---------------------------------- ------------------------------------
Dated: 12/19/96 Its: Vice President
-------------------------------- -------------------------------
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<PAGE>
GENERAL OUTLINE OF INVESTMENT ADVISORY SERVICES
Basic Service
o A complete written equity package that includes strategy, currently
attractive issues, company reports, portfolio guidelines and many other items
o Bond market outlook and strategy
o A comprehensive written economic section that includes outlook, review and
forecast o Direct contact with FOCUS staff
o "Recent Legal Developments," a periodic summary and analysis of recent court
decisions affecting probate and trust administration
o An annual one-and-a-half day Fall Seminar held at the Northern Trust Company
in Chicago
Intermediate Service
o All features of Basic Service
o An in-depth strategy-oriented and fixed-income section
o INSIGHTS - a monthly investment and economic discussion delivered on a
cassette tape
o Direct contact with Northern Trust's research analytical staff
o A two-day Winter/Spring Seminar held in a southern location, hosted by The
Northern Trust Company
Comprehensive Service
o All features of Intermediate Service
o Positive Economic Commentary
o Quantitative Investment Perspective (QIP), market analysis with sector
performance and implied risk-return comparisons
o International research
o Teleconferencing access to research meetings
o Electronic delivery
Costs associated with the services described above are payable either through an
annual fee, charged quarterly, or by maintaining compensating balances. In
addition, arrangements may be made with Northern Trust Securities, Inc. to
partially offset fees through trade commission dollars. Please contact us for
additional information.
- 7 -
<PAGE>
FOCUS: Cost of Service Level Fee
Basic $***
Intermediate $***
Comprehensive $*** annually for 3-year period
Currently, FOCUS is available on a free 60-day trial, with absolutely no
obligation on your part. This is the best way for you to see firsthand what a
valuable investment tool it can be. At the end of the trial period, simply let
us know if you wish to continue your FOCUS subscription.
Please call us at (312) 444-3804. We welcome your inquiry.
- 8 -
* [Confidential portions of this Exhibit have been omitted and filed separately
with the Commission. Omitted terms are indicated by ***.]
EXHIBIT 10.11
Merrill Merchants Bancshares, Inc.
1993 STOCK OPTION PLAN
as amended on April 25, 1995 and April 24, 1997
1. Purpose of Plan. The purposes of the 1993 Stock Option Plan are as follows:
A. To further the interests of MERRILL MERCHANTS BANCSHARES, INC. (MMBI)
and its shareholders by enabling key employees and members of the Board
of Directors of Merrill Merchants Bancshares, Inc. and Merrill
Merchants Bank (MMB) to acquire shares of MMBI common Stock under the
terms and conditions and in the manner contemplated by this Plan
thereby increasing their personal involvement in Merrill Merchants
Bancshares, Inc. and Merrill Merchants Bank; and
B. To enable MMBI & MMB to obtain and retain the services of key employees
by providing such key employees with an opportunity to become owners of
MMBI Common Stock under the terms and conditions and in the manner
contemplated by this Plan; and
C. To enable MMBI and MMB to attract and retain the services of qualified
individuals to serve on its Board of Directors by providing such
individuals with an opportunity to become owners of MMBI Common Stock
under the terms and conditions and in the manner contemplated by the
Plan.
2. Administration of Plan.
A. The Plan shall be administered by the Merrill Merchants Bancshares,
Inc. Compensation Committee (the "Compensation Committee") of the Board
of Directors of MMBI as the same may be constituted from time to time
in accordance with the bylaws of MMBI.
B. Subject to the express terms and conditions of the Plan, the
Compensation Committee shall have full power to construe the Plan, to
prescribe, amend and rescind rules and regulations relating to it and
to make all other determinations necessary or advisable for its
administration. Such power shall include but not be limited to
authorizations to establish appropriate standards for determining
whether to grant any options in any particular year or years.
C. The Compensation Committee may from time to time determine to which
persons eligible for selection as participants in the Plan, if any,
options shall be granted under the Plan, the number of shares which may
be issued upon
<PAGE>
exercise of any such option, and whether such options are to be
designated and treated as ISOs in accordance with Section 3 hereof.
3. ISOs and Non-ISOs. It is intended that this Plan meet all of the
qualifications requirements imposed by Section 422A of the Internal Revenue
Code of 1986 ("Code") with respect to incentive stock options ("ISOs") so
that options granted under the Plan to key employees of Merrill Merchants
Bancshares, Inc. and Merrill Merchants Bank and designated as ISOs at the
time of grant will qualify and be treated as ISOs under the Code. The
preceding sentence notwithstanding, it is also recognized and intended that
options granted under the Plan to directors of Merrill Merchants
Bancshares, Inc. and Merrill Merchants Bank who are not also employees will
not qualify or be treated as ISOs under the Code, and it is further
intended that options which are not designated and to be treated as ISOs
may from time to time be granted to employees of Merrill Merchants
Bancshares, Inc. and Merrill Merchants Bank. The Compensation Committee
shall expressly designate an option as either an ISO or a non-ISO at the
time of the grant thereof, but in the event of a failure to make a
designation with respect to any option or in the event any option is
otherwise disqualified from treatment as an ISO under the terms of this
Plan or Section 422A of the Code, such options shall be, and be treated as,
Non-Statutory Stock Options.
4. Eligible Participants. Key employees of Merrill Merchants Bancshares, Inc.
and Merrill Merchants Bank, shall be eligible for participation under the
plan. Non-employee directors will receive a non-discretionary option
common stock upon the adoption of the Plan or their addition to the board.
Awards will be based on the current value of the stock upon reward.
5. Shares Subject to Plan. The stock to be offered under the Plan shall not
exceed 62,000 shares of the issued and outstanding common stock on a fully
converted basis of MMBI, $1 par value per share, as of December 31, 1996.
Shares issued to participants upon the exercise of options granted under
the Plan may be authorized but heretofore unissued shares.
6. Purchase Price. The purchase price of the stock covered by each option
shall be an amount as determined by the Compensation Committee at the time
of grant, and in the case of any option designated as an ISO, shall be its
fair market value which must be equal to at least 100% of the book value of
the Common stock of Merrill Merchants Bancshares, Inc. on the date such
option is granted. In the case of an employee or director who owns 10% or
more of Merrill Merchants Bancshares, Inc. stock, the exercise price for an
ISO or non-ISO must be equal to 110% of the fair market value of the stock.
The purchase price of any shares purchased will be paid in full at the time
of each such purchase by certified or cashier's check payable to the order
of Merrill Merchants Bancshares, Inc.
2
<PAGE>
7. Vesting and Exercise of Options. All options are granted subject to an
initial vesting period which will end on December 31, 1997. This timeframe
represents a period of continuous employment after which options become
exercisable for cash into shares of Bancshares stock. Subject to the
preceding sentence, an option shall be exercisable in such installments
during the period prior to its expiration date as the compensation
Committee shall determine, or may, if so determined by the Compensation
Committee, be exercisable either in whole or in part at any time prior to
its expiration date. The option holder shall have the right cumulatively to
purchase any shares not so purchased and such right shall continue until
the option period ends. The foregoing notwithstanding, the aggregate fair
market value (determined at the time of grant of the option) of stock for
which an ISO is exercisable by its holder in any calendar year shall not
exceed $100,000.
8. Terms and Conditions of Options. The terms and conditions of each option
granted under the Plan shall be evidenced by a Stock Option Agreement
executed by Merrill Merchants Bancshares, Inc. and the participant and no
option shall be effective for any purpose unless and until the Stock Option
Agreement evidencing same has been executed by all parties thereto. Each
such Stock Option Agreement shall contain the following provisions:
A. The number of shares which may be issued upon exercise of the option,
the purchase price or prices per share and the means of payment for the
shares.
B. The term of the option and the date on which the option and all rights
thereunder shall expire, as determined by the Compensation Committee.
Such expiration date shall not be later than ten (10) years after the
date of Adoption of the Plan and the date on which the Plan was
approved by the shareholders of Merrill Merchants Bancshares, Inc., and
the option shall be subject to earlier termination upon the death,
permanent disability or termination of employment of the option holder,
unless exercised within the periods as provided in Sections 10 and 11
hereof.
C. Such terms and conditions of exercise as may be determined by the
Compensation Committee.
D. Such restrictions on transfer of the options, and such restrictions on
transfer of shares purchased by exercise of the option and forfeiture
provisions, as may be determined by the Compensation Committee,
provided that each option will be exercisable only by the optionee
during his or her lifetime and will not be transferable other than by
will or by the laws of descent and distribution.
E. A statement clearly identifying the status of the option as either an
ISO or a non-ISO.
3
<PAGE>
F. Such other terms and conditions not inconsistent with the Plan as may
be determined by the Compensation Committee, including provisions
required by Section 12 hereof or otherwise relating to or required for
compliance with all applicable federal and state securities laws.
9. Continuance of Employment. Each person to whom an ISO is granted under the
Plan may be required to agree in writing, as a condition to the granting of
the option, to remain in the employ of Merrill Merchants Bancshares, Inc.
or Merrill Merchants Bank following the date of grant of the option for
such period, not less than one (1) year, as may be fixed by the
Compensation Committee. Nothing contained in the Plan or in any option
granted under the Plan shall confer upon any option holder any right with
respect to the continuation of employment by Merrill Merchants Bancshares,
Inc. or Merrill Merchants Bank or interfere in any way with the right of
Merrill Merchants Bancshares, Inc. or Merrill Merchants Bank (subject to
the terms of any separate employment agreement to the contrary) at any time
to terminate such employment or to increase or decrease the compensation of
the option holder from the rate in existence at the time of granting of an
option.
10. Termination of Employment. If an option holder ceases to be employed by
Merrill Merchants Bancshares, Inc. or Merrill Merchants Bank for any reason
other than death or permanent and total disability of such holder, then to
the extent the option could have been exercised on the date of termination,
the option may be exercised at any time within three (3) months after the
termination. To the extent that an option could have been exercised on the
date of termination because of total and permanent disability of the option
holder, such option may be exercised at any time within one (1) year of the
date of such termination.
11. Death of Option Holder. If an option holder dies while employed or while
serving on the Board of Directors of Merrill Merchants Bancshares, Inc. or
Merrill Merchants Bank, or within three (3) months after ceasing to be an
employee or Board member, the options shall expire one (1) year after the
date of death unless by its terms it expires sooner. During such period
after such death, the option may be exercised, to the extent it could have
been exercised on the date of death, by the person or persons to whom the
option holders' rights under the option shall pass by will or by the laws
of descent and distribution.
12. Securities Act Considerations. It is the intention of Merrill Merchants
Bancshares, Inc. that the offering and the sale of shares of Common Stock
obtainable upon the exercise of options granted under this Plan will
qualify for an exemption from the registration requirements of the
Securities Act of 1933 ("Act"). In that regard and for that purpose, it is
hereby provided as follows:
4
<PAGE>
A. The Compensation Committee is authorized and empowered to suspend the
period of exercise of any option outstanding under the Plan or to
terminate any such option altogether, in either case upon written
notice to the holder of the option, if the Compensation Committee
believes or has reason to believe that the existence of the option or
the exercise thereof does or would violate any provisions of the Act or
of the securities law of any state which are or may be applicable.
B. Each Stock Option Agreement evidencing an option granted hereunder may
require that the holder of the option, at the time and as a condition
precedent to each exercise of any portion thereof, provide to Merrill
Merchants Bancshares, Inc. a written statement confirming such holder's
investment intent and other matters with respect to any shares to be
purchased upon exercise of the option. All of the foregoing to be in
such form as the Compensation Committee, upon advice of counsel, shall
determine to be adequate and appropriate.
13. Issuance of Shares. No person entitled to exercise any option granted under
the Plan shall have any of the rights or privileges of shareholders of
Merrill Merchants Bancshares, Inc. in respect of any share of stock
issuable upon exercise of such option until certificates representing such
shares shall have been issued and delivered. No shares shall be issued and
delivered upon exercise of any option unless and until, in the opinion of
counsel for Merrill Merchants Bancshares, Inc. any applicable requirements
of the Securities Act of 1933, any applicable requirements of the "blue
sky" laws of any State, and any other requirements of law, of any national
securities exchange on which stock of the same class is then listed, or of
any regulatory bodies having jurisdiction over such issuance and deliver,
shall have been fully complied with. Each option holder may, by accepting
an option, be required to represent and agree, for the option holder and
transferees by will or the laws of descent and distribution, that if stock
of the same class as that subject to the option holder or such transferees
will advise Merrill Merchants Bancshares, Inc. of any contemplated sale of
shares purchased upon exercise of the option prior to such sale, unless
such contemplated sale is on such an exchange at the price prevailing at
the time of the sale. If an option holder is so required to represent and
agree, the notice of exercise of any portion of an option held by such
option holder shall be accompanied by a signed representation and agreement
in writing to the foregoing effect.
14. Amendment, Suspension or Termination the Plan. The Board of Directors upon
the recommendation of the Compensation Committee may, at any time, amend,
suspend or terminate the Plan. However, no such action by the Board of
Directors may (i) increase the aggregate number of shares which may be
issued upon exercise of options granted under the Plan, except for
adjustments permitted under Section 15 of the Plan, or (ii) change the
designation of the employees or directors eligible to receive options under
the Plan. No amendment, suspension or termination of the Plan shall,
without
5
<PAGE>
the consent of the participant, alter or impair any right or obligations
under any outstanding stock option agreement.
15. Adjustments. Subject to any provisions in the Certificate of Incorporation
of Merrill Merchants Bancshares to the contrary, if the outstanding shares
of Merrill Merchants Bancshares, Inc.'s Common Stock are increased,
decreased or exchanged for a different number or kind of shares or
securities of Merrill Merchants Bancshares, Inc. as a result of a stock
dividend, stock split, reverse stock split, reclassification or other
recapitalization, an appropriate and proportionate adjustment shall be made
in the number and kind of shares for which options may be granted under
this Plan and in the maximum number of shares for which options may be
granted to any one person hereunder. A corresponding adjustment changing
the number or kind of shares allocated to unexercised options or portions
thereof, which shall have been granted prior to any such change, shall
likewise be made. Any such adjustment in the outstanding options shall be
made without change in the aggregate purchase price applicable to the
unexercised portion of the option but with a corresponding adjustment in
the price for each share or other unit of any security covered by the
option.
Adjustments under this Section or under Section 16 hereof shall be made by
the Compensation Committee, whose determinations as to what adjustments
shall be made, and the extent thereof, shall be final, binding and
conclusive. No fractional shares of stock shall be sold or issued under
the Plan or pursuant to any such adjustment.
16. Sale of Holdings. Upon the dissolution or liquidation of Merrill Merchants
Bancshares, Inc., or upon a reorganization, merger or consolidation of
Merrill Merchants Bancshares, Inc. with one or more corporations as a
result of which Merrill Merchants Bancshares, Inc. is not the surviving
corporation, or upon the sale of substantially all of the property or more
than eighty percent (80%) of the then outstanding stock of Merrill
Merchants Bancshares, Inc. to another corporation, the Plan shall
terminate, and any option theretofore granted hereunder shall terminate
unless provision be made in writing in connection with such transaction for
the continuance of the Plan and for the assumption of options theretofore
granted, or the substitution for such options of new options covering the
stock of a successor employer corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to number and kind of shares and
prices, in which event the Plan and options theretofore granted shall
continue in the manner and under the terms so provided. If any outstanding
option is terminated in accordance with the preceding sentence as a result
of a reorganization, merger or consolidation of Merrill Merchants
Bancshares, Inc. or the sale of substantially all of the property or more
than eighty percent (80%) of the then outstanding stock of Merrill
Merchants Bancshares, Inc., Merrill Merchants Bancshares, Inc. shall,
subject to any restrictions contained in its Certificate of Incorporation
or in any financing agreement, indenture or other agreement to which
Merrill Merchants Bancshares, Inc. is now or may then be a party or by
which Merrill Merchants Bancshares, Inc. is or may be
6
<PAGE>
bound, pay to the holder of each outstanding option which is thus
terminated an amount equal to (i) the number of shares as to which such
terminated option had not yet become exercisable on the date of
termination, times (ii) the difference between the exercise price per
share under such option and fair market value of each share of Merrill
Merchants Bancshares, Inc. Common Stock on the date of termination.
17. Effective Date and Termination of Plan.
A. This Plan shall become effective upon (1) its approval by the holders
of a majority of the outstanding shares of Merrill Merchants
Bancshares, Inc. Common Stock, and by the holders of the requisite
percentage of the outstanding shares of any other class or series of
stock of Merrill Merchants Bancshares, Inc. which is entitled to vote
as a class heron, and (2) the taking of any further action which the
approving shareholders may require as a condition to the effectiveness
hereof.
B. Unless sooner terminated by the board of Directors or in accordance
with Section 16 hereof, the Plan shall terminate on the day immediately
preceding the tenth anniversary of the earlier of (i) the date of
adoption of the Plan, and (ii) the date on which the Plan is approved
by the shareholders of Merrill Merchants Bancshares, Inc. Said plan was
approved at the annual meeting of Merrill Merchants Bancshares, Inc. on
May 27, 1993, therefore said plan will terminate on May 26, 2003.
Paragraph 5 of said Plan was amended by the shareholders on April 25,
1995 and again on April 24, 1997.
7
EXHIBIT 10.12
MERRILL MERCHANTS BANCSHARES, INC.
INCENTIVE STOCK OPTION AGREEMENT
UNDER STOCK OPTION PLAN OF THE COMPANY
This agreement made on _______________, between Merrill Merchants
Bancshares, Inc., a Maine corporation having its principal office in Bangor,
Maine, (hereinafter called the "Company") and ____________ , (the "Optionee").
WITNESSETH
WHEREAS, the Company at its Annual Meeting on May 27, 1993, adopted a 1993
Stock Option plan (hereinafter called the "Plan"); and
WHEREAS, the Plan was amended at the Annual Meetings of the Company on
April 25, 1995 and April 24, 1997; and
WHEREAS, the Optionee is now employed by the Company or by a subsidiary
corporation thereof; and
WHEREAS, the Company has sufficient authorized but unissued shares of
Common Stock, par value $1 per share, to satisfy all options which may be
granted pursuant to the Plan, and
WHEREAS, Optionee represents that after the grant of the option herein
evidenced, he/she will not own stock (including the stock subject to such
option) possessing more than ten percent (10%) of the total combined voting
power of the Company (ownership being determined as set forth in Section 424(d)
of the Internal Revenue Code of 1986, as amended, (hereafter the "Code"), and
WHEREAS, the Compensation Committee of the Company has determined that on
the date as of which the option was granted, ________________________, the fair
market value of the Common Stock was $_____ per share.
<PAGE>
NOW THEREFORE, pursuant to the Plan (the terms and conditions of which are
expressly made a part hereof by reference thereto) and as an incentive and to
encourage stock ownership by the Optionee, and in consideration for the Optionee
continuing in the service of the Company or a subsidiary corporation of the
Company through __________________, and for other valuable consideration,
receipt of which is hereby acknowledged:
1. The Company hereby evidences its grant to the Optionee as a matter of
separate agreement and not in lieu of salary or any other compensation for
services, of the right and option (hereinafter called the "Option") to purchase
all or any part of an aggregate of shares of Common Stock on the terms and
conditions herein set forth.
2. The purchase price of the shares of Common Stock subject to the Option
shall be $_____ per share, which is not less than one hundred percent (100%) of
the fair market value of such Stock on the date of this Agreement. The effective
date of granting of the Option is ______________.
3. Subject to the provisions of Paragraphs 4, 5, 6, 9 and 11 hereof, the
Option shall be exercisable as to all or any part of the shares to which it
relates at any time after _________________, and prior to May 26, 2003;
provided, however, that each exercise must be for at least fifty (50) shares and
the aggregate fair market value (determined at the time of grant of this Option)
of stock exercisable by the Optionee shall not in any calendar year exceed One
Hundred Thousand Dollars ($100,000).
4. The Option is not exercisable until ______________, and may not be
exercised after May 26, 2003.
5. The Option is not transferable by the Optionee otherwise than by will or
the laws of descent and distribution, and is exercisable during his/her lifetime
only by him/her.
6. Notwithstanding the provisions of Paragraphs 3 and 4 above, the Option
may not be exercised by the Optionee unless at all times during a period
beginning with the effective date of granting the option, and ending on the day
three (3) months before the date of any proposed exercise, the
<PAGE>
Merrill Merchants Bancshares, Inc.
Incentive Stock Option Agreement Under Stock Option Plan of the Company
- -----------------------------------------------------------------------
Optionee was an employee of either the Company, a parent or subsidiary
corporation of the Company, or of a corporation (or a parent or a subsidiary
corporation thereof) issuing or assuming the Option in a transaction to which
Section 424(a) of the Code applies.
7. Any exercise of this Option by the Optionee shall be effected by
delivering to the office of the Company, Bangor, Maine, written notice stating
the number of shares (not fewer than fifty (50) shares nor totaling more than a
value of One Hundred Thousand Dollars ($100,000) in any calendar year) with
respect to which the Option is being exercised, and by paying or causing to be
paid to the Company the full purchase price of such shares by certified or
cashier's check. The Company shall issue certificates for such shares in such
denominations as the Optionee may direct, and shall deliver such certificates in
accordance with any reasonable instructions contained in the notice.
8. Optionee agrees that each and any exercise by him/her of the Option
hereby granted shall constitute a representation that the shares acquired upon
such exercise are being purchased for investment and not with a view to or for
their sale or in connection with their distribution. Optionee agrees that
certificates representing shares so purchased may bear a legend restricting
transfer thereof.
9. If the Optionee's employment is terminated for reason of disability,
such rights may be exercised within one (1) year from the date of termination.
If Optionee dies while employed or while serving on the Board of Directors of
the Company or Merrill Merchants Bank, or within three (3) months after ceasing
to be an employee or Board member, the Option shall expire one (1) year after
the date of death unless by its terms it expires sooner. During such period
after such death, the Option may be exercised, to the extent it could have been
exercised on the date of death, by the person or persons to whom the Optionee's
rights under the Option shall pass by will or by the laws of descent and
distribution.
<PAGE>
Merrill Merchants Bancshares, Inc.
Incentive Stock Option Agreement Under Stock Option Plan of the Company
- -----------------------------------------------------------------------
10. The Company shall at all times during the term of the Option reserve
and keep available for issue such number of shares of its authorized and
unissued Common Stock as will be sufficient to satisfy the requirements of this
Option Agreement, shall pay all issue taxes (if any) with respect to the issue
of shares pursuant hereto and all other fees and expenses necessarily incurred
by the Company in connection therewith and will from time to time use its best
efforts to comply with all laws and regulations which, in the opinion of counsel
for the Company, shall be applicable thereto. The Optionee shall pay any and all
state and federal income taxes imposed on Optionee by virtue of the exercise of
this Option.
11. A. Subject to any provisions in the Articles of Incorporation of the
Company to the contrary, if the outstanding shares of the Company's Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or securities of the Company as a result of a stock dividend, stock split,
reserve stock split, reclassification or other recapitalization, an appropriate
and proportionate adjustment shall be made in the number and kind of shares for
which options may be granted under this Option. A corresponding adjustment
changing the number or kind of shares allocated to unexercised portions of this
Option granted prior to any such change, shall likewise be made. Any such
adjustment in the outstanding Options shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the Option but
with a corresponding adjustment in the price for each share or other unit of any
security covered by this Option.
Adjustments under this Section 11A or under Section 11B hereof shall be
made by the Compensation Committee, whose determinations as to what adjustments
shall be made, and the extent thereof, shall be final, binding and conclusive.
No fractional shares of stock shall be sold or issued under this Option or
pursuant to any such adjustment.
<PAGE>
Merrill Merchants Bancshares, Inc.
Incentive Stock Option Agreement Under Stock Option Plan of the Company
- -----------------------------------------------------------------------
B. Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all of the property or more than eighty
percent (80%) of the then outstanding stock of the Company to another
corporation, this Option shall terminate unless provision be made in writing in
connection with such transaction for assumption of this Option, or the
substitution for this Option of new Options covering the stock of a successor
employer corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to number and kind of shares and prices, in which event this
Option shall continue in the manner and under the terms so provided. If this
Option is terminated in accordance with the preceding sentence as a result of a
reorganization, merger or consolidation of the Company or the sale of
substantially all of the property or more than eighty percent (80%) of the then
outstanding stock of the Company, the Company shall, subject to any restrictions
contained in its Articles of Incorporation or in any financing agreement,
indenture or other agreement to which the Company is now or may then be a party
or by which the Company is or may be bound, pay to the Optionee an amount equal
to (i) the number of shares as to which this Option had not yet become
exercisable on the date of termination, times (ii) the difference between the
exercise price per share under such Option and fair market value of each share
of the Company's Common Stock on the date of termination.
12. The Optionee agrees that he/she will remain in the employ of the
Company or, at the election of the Company from time to time, of one of its
subsidiaries, for a period of at least one (1) year from the date hereof and
that he/she will, during such employment, serve the Company or such subsidiary
in good faith and use his/her best efforts to promote its interests, subject to
vacations, sick leave and other excused absences in accordance with the
Company's regular policies. Such employment,
<PAGE>
Merrill Merchants Bancshares, Inc.
Incentive Stock Option Agreement Under Stock Option Plan of the Company
- -----------------------------------------------------------------------
unless otherwise agreed in specific cases, shall be at the pleasure of the
Company or such subsidiary and shall be at such rate of base compensation as the
Company or such subsidiary shall reasonably determine from time to time. If,
during such one-year period, the Employee shall terminate his/her employment
without the consent or approval of the Company or such subsidiary, or shall
otherwise violate the provisions of this Paragraph 12, the Option shall, to the
extent not theretofore exercised, forthwith terminate. This Option Agreement
does not confer on the Optionee any right to continue in the employ of the
Company or of any such subsidiary corporation, nor does it interfere in any way
with (a) any right which the Company or any such subsidiary corporation may have
to terminate the employment or alter the duties of the Optionee at any time, or
(b) any right which the Optionee may have to terminate his/her employment at any
time.
13. As used herein the term "subsidiary corporation" shall mean any present
or future subsidiary corporation of the Company coming within the definition of
subsidiary corporation contained in Section 424(f) of the Code.
14. It shall be a condition to the Optionee's right to purchase shares
hereunder that the Company may, in its discretion, require that in the opinion
of counsel for the Company the proposed purchase shall be exempt from
registration under the Securities Act of 1933, as amended, and the Optionee
shall have made such undertakings and agreements with the Company as the Company
may reasonably require, and that such other steps, if any, as counsel for the
Company shall deem necessary to comply with any law, rule or regulation
applicable to the issue of such shares by the Company shall have been taken by
the Company or the Optionee, or both. The certificates representing the shares
purchased under this Option may contain such legends as counsel for the Company
shall deem necessary to comply with the applicable law, rule or regulation.
<PAGE>
Merrill Merchants Bancshares, Inc.
Incentive Stock Option Agreement Under Stock Option Plan of the Company
- -----------------------------------------------------------------------
15. This Option is issued pursuant to the terms of the Plan. This Option
does not set forth all of the terms and conditions of the Plan, which are
incorporated herein by reference. Copies of the Plan may be obtained upon
written request without charge from the Company.
16. This Option is [not] intended to be treated as an Incentive Stock
Option under Section 422 of the Code. The Optionee agrees to notify the Company
in writing within thirty (30) days of the disposition of one (1) or more shares
of Stock which were transferred to him/her pursuant to his/her exercise of this
Option if such disposition occurs within two (2) years from the date of this
Option or within one (1) year after the transfer of such shares to him/her.
17. This Option is effective as of the date granted.
18. This Option Agreement shall be governed by the laws of the State of
Maine.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be duly
executed by its President or by the Chairman of its Board of Directors, each
thereunto duly authorized by the Board of Directors of the Company.
Merrill Merchants Bancshares, Inc.
By
----------------------------------
[President] [Chairman]
----------------------------------
Optionee
MERRILL MERCHANTS
BANCSHARES
and
MERRILL MERCHANTS
BANK
1998 DIRECTORS'
DEFERRED COMPENSATION
PLAN
January, 1998
<PAGE>
MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
Table of Contents
I. PURPOSE..........................................................Page 1
II. ELECTION.........................................................Page 1
III. DEFERRED FEE RESERVE.............................................Page 1
IV. DISTRIBUTION OF DEFERRED COMPENSATION............................Page 2
V. NO TRUST.........................................................Page 3
VI. NO ASSIGNMENT....................................................Page 4
VII. PAYMENTS TO MINORS...............................................Page 4
VIII. NO RIGHT TO CONTINUED EMPLOYMENT.................................Page 4
IX. NATURE OF DEFERRED COMPENSATION..................................Page 4
X. CONSTRUCTION OF DEFERRED COMPENSATION PLAN.......................Page 4
XI. BINDING EFFECT...................................................Page 5
XII. APPLICABLE LAW...................................................Page 5
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MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
January 1, 1998
I. PURPOSE
The purpose of this Directors' Deferred Compensation Plan is to enable the
Directors of Merrill Merchants Bancshares and Merrill Merchants Bank (the
"Bank") to elect annually to have the payment of Directors' fees deferred.
II. ELECTION
Upon assuming office as a Director of Merrill Merchants Bancshares or
Merrill Merchants Bank, an individual may elect annually in writing to have the
payment of his/her Director's fees deferred. The election for each year shall be
irrevocable.
III. DEFERRED FEE RESERVE
For each individual electing to defer his/her Director's fees, the Bank
shall establish a deferred fee reserve, and shall credit to such reserve all
Directors' fees elected to be deferred.
A. Any such funds so credited to the Deferred Compensation Reserve may be
kept in cash or invested and reinvested in certificates of deposit or
in any other assets as may be selected by the Bank in its discretion.
In the exercise of the foregoing discretionary investment powers, the
Bank may engage investment counsel and, if it so desires, may delegate
to such counsel full or limited authority to select the assets in which
the funds may be invested.
B. Interest will be credited on an annual basis at the average one (1)
year Treasury rate.
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MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
C. The Director agrees on behalf of himself/herself and his/her designated
beneficiary to assume all risk in connection with any decrease in value
of the funds which are invested or which continue to be invested in
accordance with the provisions of this Deferred Compensation Plan.
D. Title to and beneficial ownership of any assets, whether cash or
investments which the Bank may earmark to pay the contingent deferred
compensation hereunder, shall at all times remain in the Bank and the
Director and his/her designated beneficiary shall not have any property
interest whatsoever in any specific assets of the Bank.
IV. DISTRIBUTION OF DEFERRED COMPENSATION
The benefits to be paid as deferred compensation shall be paid in the
following manner:
A. The balance in each Director's deferred fee reserve account will be
paid to each Director:
1. in a lump sum; or
2. in the event of the Director's death, to his/her designated beneficiary
in a lump sum; or
3. within thirty (30) days upon his/her termination as a Director; or
4. upon his/her disability; or
5. upon his or her death; or
6. upon his/her statement of hardship approved by the Bank; or
7. at the election of each Director, upon the merger of the Bank with
another financial institution; or
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MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
8. upon a change in the majority control of the Bank.
B. If both the Director and his/her designated beneficiary should die
before complete payment is made by the Bank, then the remaining value
of the deferred fee reserve account will be determined as of the date
of death of the designated beneficiary, and it will be paid as promptly
as possible in one lump sum to the estate of such designated
beneficiary.
C. The beneficiary referred to in this paragraph may be designated or
changed by the Director without the consent of any prior beneficiary on
a form provided by the Bank and delivered to the Bank before his/her
death. If no such beneficiary shall survive the Director, or if no such
beneficiary shall have been designated by the Director, the payments
payable under paragraph 4A above shall be payable to the Director's
estate.
D. The Director shall be deemed to have become disabled for purposes of
paragraph 4A above if the Bank shall find on the basis of medical
evidence satisfactory to the Bank that the Director is totally
disabled, mentally or physically, so as to be prevented from engaging
in further employment by the Bank, and that such disability will be
permanent and continuous during the remainder of his/her life.
V. NO TRUST
Nothing contained in this Deferred Compensation Plan and no action taken
pursuant to the provisions of this Deferred Compensation Plan shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the
Bank and the Director, his/her designated beneficiary, or any other person. Any
funds which may be invested under the provisions of this Deferred Compensation
Plan shall continue for all purposes to be a part of the general funds of the
Bank and
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MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
no person other than the Bank shall, by virtue of the provisions of this
Deferred Compensation Plan, have any interest in such funds. To the extent that
any person acquires a right to receive payments from the Bank under this
Deferred Compensation Plan, such right shall be no greater than the right of any
unsecured general creditor of the Bank.
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MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
VI. NO ASSIGNMENT
The right of the Director or any other person to the payment of deferred
compensation or other benefits under this Deferred Compensation Plan shall not
be assigned, transferred, pledged, or encumbered except by will or by the laws
of descent and distribution.
VII. PAYMENTS TO MINORS
If the Bank shall find that any person to whom any payment is payable under
the Deferred Compensation Plan is unable to care for his/her affairs because of
illness or accident, or is a minor, any payment due may be paid to the spouse,
child, a parent, a brother or a sister, or to any person deemed by the Bank to
have incurred expenses for such person otherwise entitled to payment in such
manner and proportions as the Bank may determine, unless a prior claim therefor
shall have been made by a duly appointed guardian, committee, or other legal
representative. Any such payment shall be a complete discharge of the
liabilities of the Bank under this Deferred Compensation Plan.
VIII.NO RIGHT TO CONTINUED EMPLOYMENT
Nothing contained herein shall be construed as conferring upon the Director
the right to continue in the employ of the Bank as a Director or in any other
capacity.
IX. NATURE OF DEFERRED COMPENSATION
Any deferred compensation payable under this Deferred Compensation Plan
shall not be deemed salary or other compensation to the Director for the purpose
of computing benefits to which he/she may be entitled under any pension plan or
other arrangement of the Bank for the benefit of its employees.
X. CONSTRUCTION OF DEFERRED COMPENSATION PLAN
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MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
The Bank shall have full power and authority to interpret, construe, and
administer this Deferred Compensation Plan, and the Bank's interpretations and
construction thereof, and actions thereunder, including any valuation of the
Deferred Compensation Reserve, or the amount or recipient of the payment to be
made therefrom, shall be binding and conclusive on all persons for all purposes.
No member of the Bank shall be liable to any person for any action taken or
omitted in connection with the interpretation and administration of this
Deferred Compensation Plan unless attributable to his own willful misconduct or
lack of good faith.
XI. BINDING EFFECT
This Deferred Compensation Plan shall be binding upon and inure to the
benefit of the Bank, its successors and assigns, and the Director and his/her
heirs, administrators, and legal representatives.
XII. APPLICABLE LAW
This Deferred Compensation Plan shall be construed in accordance with and
governed by the laws of the State of Maine.
IN WITNESS WHEREOF, the Bank has caused this Deferred Compensation Plan to
be executed by its duly authorized officers as of the date first above written.
MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
By:________________________________________
Edwin N. Clift
President and Chief Executive Officer
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MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
Duly Authorized
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MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
ANNUAL ELECTION TO PARTICIPATE
STATE OF __________________
COUNTY OF ________________ DATE: ____________________
DIRECTOR'S NAME: _________________________________________________
DATE OF BIRTH: _________________________________________________
SOCIAL SECURITY NO.: _________________________________________________
ADDRESS: _________________________________________________
MAILING ADDRESS (if different than above):
_________________________________________________
_________________________________________________
_________________________________________________
As a Director of Merrill Merchants Bancshares/Merrill Merchants Bank, I
hereby elect to participate in the Bank's Deferred Compensation Plan for the
calendar year commencing on January 1, 1998, and ending on December 31, 1998.
This election is irrevocable for the year 1998.
- ------------------------------- -------------------------------------------
Witness Name:
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MERRILL MERCHANTS BANCSHARES
MERRILL MERCHANTS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
-------------------------------------
DESIGNATION OF BENEFICIARY
I hereby direct that in the event of my death any balance in my
Deferred Compensation Reserve is to be paid to the following:
Full Name: _______________________________________
Complete Address: _______________________________________
_______________________________________
_______________________________________
Social Security No.: _______________________________________
I retain the right to revoke this designation of beneficiary and to
designate a new beneficiary, without the consent of any prior beneficiary, at
any time by communicating to the Bank in writing utilizing the form provided by
the Bank and delivered to the Bank before my death. If said beneficiary does not
survive me, or if the Bank cannot locate said beneficiary after reasonable
search, I direct that any balance in my Deferred Compensation Reserve be paid to
my estate as provided under the Bank's Deferred Compensation Plan.
- ------------------------------------ ------------------------------------
Witness Name:
Dated: _____________________________
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Merrill Merchants Bank, a Maine corporation.
EXHIBIT 23.1
CONSENT OF ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form SB-2
(File No._______) of our report dated January 16, 1998, on our audits of the
consolidated financial statements of Merrill Merchants Bancshares, Inc. and
Subsidiary. We also consent to the reference to our firm under the captions
"Experts" and "Financial Information."
June 5, 1998 BERRY DUNN McNEIL & PARKER
/s/ Berry Dunn McNeil & Parker
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRATION STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS IN THE REGISTRATION STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
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<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
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<CASH> 5,959 7,486
<INT-BEARING-DEPOSITS> 816 523
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<INVESTMENTS-HELD-FOR-SALE> 43,839 42,864
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<SHORT-TERM> 19,410 17,041
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0 0
20 20
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<INTEREST-INVEST> 662 2,375
<INTEREST-OTHER> 21 171
<INTEREST-TOTAL> 3,510 13,215
<INTEREST-DEPOSIT> 1,364 5,126
<INTEREST-EXPENSE> 1,613 6,060
<INTEREST-INCOME-NET> 1,897 7,155
<LOAN-LOSSES> 90 355
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,695 6,357
<INCOME-PRETAX> 593 2,167
<INCOME-PRE-EXTRAORDINARY> 593 2,167
<EXTRAORDINARY> 0 0
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<NET-INCOME> 380 1,402
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