Filed Pursuant to Rule 424(b)(3)
File No. 333-85396
IPSWICH BANCSHARES, INC.
23 MARKET STREET
IPSWICH, MASSACHUSETTS 01938
(978) 356-7777
May 14, 2002
Dear fellow Ipswich shareholders:
You are cordially invited to attend the annual meeting of stockholders of
Ipswich Bancshares, Inc. to be held at 4:00 p.m., local time, on June 27, 2002
at the Ipswich Country Club, 148 Country Club Way, Ipswich, Massachusetts. At
the annual meeting you will be asked to consider and vote upon a proposal to
approve an agreement and plan of merger pursuant to which Ipswich will be merged
with and into Banknorth Group, Inc., among other matters, including the election
of two directors to our board of directors.
If the merger agreement is approved and the merger is subsequently
completed, each outstanding share of Ipswich common stock will be converted into
the right to receive $20.50 in cash or a number of whole shares of common stock
of Banknorth determined by dividing $20.50 by the average closing price of the
Banknorth common stock during a specified period preceding the merger, plus cash
in lieu of any fractional share interest. You will have the opportunity to elect
the form of consideration to be received for all shares held by you, subject to
allocation procedures set forth in the merger agreement which are intended to
ensure that 51% of the outstanding shares of Ipswich common stock will be
converted into the right to receive Banknorth common stock and 49% of the
outstanding shares of Ipswich common stock will be converted into the right to
receive cash.
The merger cannot be completed unless the holders of two thirds of the
outstanding shares of Ipswich common stock, voting in person or by proxy, vote
in favor of approval of the merger agreement at the annual meeting.
Based on our reasons for the merger described herein, including the
fairness opinion issued by Keefe, Bruyette & Woods, Inc., our financial advisor,
our board of directors believes that the merger is fair to you and in your best
interests. ACCORDINGLY OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
Following this letter you will find a formal notice of the annual meeting
and a document providing you with detailed information concerning the merger
agreement, the merger, Ipswich, Banknorth and, as discussed under "The
Merger -- Dissenters' Rights," statutory appraisal rights that you may exercise
in connection with the merger if you follow certain procedures. You also may
obtain more information about Banknorth and Ipswich from documents that each has
filed with the Securities and Exchange Commission.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the annual
meeting, please take the time to vote by completing and mailing the enclosed
proxy card. If you do not vote in person or by proxy the effect will be a vote
against the merger agreement. As discussed in the accompanying document,
directors of Ipswich, who can cast approximately 21% of the votes entitled to be
cast at the annual meeting, have agreed to vote all of their shares in favor of
the merger agreement.
Thank you for your cooperation.
Sincerely,
/s/ DAVID L. GREY
David L. Grey
President and Chief Executive
Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE BANKNORTH COMMON STOCK TO BE
ISSUED IN THE MERGER OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF BANKNORTH
COMMON STOCK ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK
OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENTAL
AGENCY.
This prospectus/proxy statement is dated May 14, 2002 and was first mailed
to shareholders of Ipswich on or about May 22, 2002
IPSWICH BANCSHARES, INC.
23 MARKET STREET
IPSWICH, MASSACHUSETTS 01938
(978) 356-7777
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 27, 2002
---------------------
To the shareholders of Ipswich Bancshares, Inc.:
We will hold an annual meeting of shareholders of Ipswich Bancshares, Inc.
at 4:00 p.m., local time, on Thursday, June 27, 2002, at the Ipswich Country
Club, 148 Country Club Way, Ipswich, Massachusetts, for the following purposes:
1. to consider and vote upon a proposal to approve an agreement and
plan of merger, dated as of February 26, 2002, between Banknorth Group,
Inc. and Ipswich Bancshares, Inc., as described in the attached document;
2. to consider and vote upon the election of two directors for terms
of three years and until their successors are elected and qualified;
3. to consider and vote upon a proposal to adjourn the annual meeting
to a later date or dates, if necessary, to permit further solicitation of
proxies in the event there are not sufficient votes at the time of the
annual meeting to approve the merger agreement; and
4. to transact such other business as may properly come before the
annual meeting or any adjournment or postponement of the annual meeting.
We have fixed the close of business on May 14, 2002 as the record date for
the determination of shareholders entitled to notice of and to vote at the
annual meeting. Only holders of Ipswich common stock of record at the close of
business on that date will be entitled to notice of and to vote at the annual
meeting or any adjournment or postponement of the annual meeting.
If the merger agreement is approved by shareholders at the annual meeting
and the merger is consummated, any shareholder of record as of the record date
for the annual meeting (i) who delivers to Ipswich, before the shareholder vote
on the merger agreement, a written objection to the merger stating that he or
she intends to demand payment for his or her shares through the exercise of his
or her statutory appraisal rights; (ii) whose shares are not voted in favor of
approving the merger agreement; and (iii) who demands in writing payment for his
or her shares within 20 days after the date of the notice that the merger has
become effective is mailed to the shareholders, shall be entitled to receive
payment for his or her shares and an appraisal of the value thereof. Ipswich,
its successor and any such shareholder shall in such case have the rights and
duties and shall follow the procedures set forth in Sections 85 through 98 of
Chapter 156B of the Massachusetts Business Corporation Law, which are described
under "The Merger -- Dissenters' Rights" in the accompanying document and a copy
of which are attached as Annex V to such document.
OUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT IS IN THE
BEST INTERESTS OF IPSWICH AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
YOUR VOTE IS VERY IMPORTANT. Even if you plan to be present at the annual
meeting, please promptly complete, sign, date and return your proxy card in the
enclosed envelope. Failure to vote your shares will have the same effect as a
vote against the merger agreement.
By Order of the Board of Directors
/s/ MARIELL LYONS
Mariell Lyons
Clerk
Ipswich, Massachusetts
May 14, 2002
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Banknorth and Ipswich from documents that may not be included in or
delivered with this document. You can obtain documents incorporated by reference
in this document but not otherwise accompanying this document by requesting them
in writing or by telephone from the appropriate company at the following
addresses:
Banknorth Group, Inc. Ipswich Bancshares, Inc.
P.O. Box 9540 23 Market Street
Two Portland Square Ipswich, Massachusetts 01938
Portland, Maine 04112-9540 Attention: Mariell Lyons
Attention: Brian S. Arsenault (978) 356-7777
(207) 761-8517
You will not be charged for any of these documents that you request. If you
would like to request documents, please do so by June 17, 2002 in order to
receive them before the annual meeting.
Accompanying this document are Ipswich's Annual Report to Stockholders,
which includes the audited consolidated balance sheets of Ipswich as of December
31, 2001 and 2000 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2001, and Ipswich's Quarterly Report on Form 10-Q for the
three months ended March 31, 2002. Ipswich's Annual Report to Stockholders
includes Ipswich's Annual Report on Form 10-K for the year ended December 31,
2001 (excluding exhibits), as filed with the SEC.
For additional information regarding where you can find information about
Banknorth and Ipswich, please see "Where You Can Find More Information"
beginning on page 91.
(i)
TABLE OF CONTENTS
PAGE
----
REFERENCES TO ADDITIONAL INFORMATION........................ (i)
QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES FOR THE ANNUAL
MEETING................................................... 1
SUMMARY..................................................... 2
RISK FACTORS................................................ 13
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 14
GENERAL INFORMATION......................................... 15
THE ANNUAL MEETING.......................................... 16
Time and Place............................................ 16
Matters to be Considered.................................. 16
Shares Outstanding and Entitled to Vote; Record Date...... 16
How to Vote Your Shares................................... 16
Votes Required............................................ 17
Solicitation of Proxies................................... 17
Recommendations of the Ipswich Board of Directors......... 18
THE MERGER (Proposal 1)..................................... 19
General................................................... 19
Background of the Merger.................................. 19
Ipswich's Reasons for the Merger.......................... 21
Recommendation of Ipswich's Board of Directors............ 23
Banknorth's Reasons for the Merger........................ 24
Opinion of Ipswich's Financial Advisor.................... 24
Merger Consideration and Election and Exchange
Procedures............................................. 32
Procedures for Exchanging Ipswich Common Stock
Certificates........................................... 35
Ipswich Stock Options and Stock Units..................... 36
Conditions to the Merger.................................. 37
Regulatory Approvals...................................... 38
Business Pending the Merger............................... 40
Board of Directors' Covenant to Recommend the Merger
Agreement.............................................. 41
No Solicitation........................................... 42
Representations and Warranties of the Parties............. 42
Effective Time of the Merger.............................. 42
Termination and Amendment................................. 43
Interests of Certain Persons in the Merger................ 43
Certain Employee Matters.................................. 45
Bank Merger............................................... 46
Resale of Banknorth Common Stock.......................... 46
Federal Income Tax Consequences........................... 47
Accounting Treatment of the Merger........................ 50
Expenses of the Merger.................................... 50
Listing of the Banknorth Common Stock..................... 50
Stock Option Agreement.................................... 50
Shareholder Agreements.................................... 53
Dissenters' Rights........................................ 54
Operations of Banknorth After the Merger.................. 56
MARKET FOR COMMON STOCK AND DIVIDENDS....................... 56
(ii)
PAGE
----
INFORMATION ABOUT BANKNORTH................................. 58
General................................................... 58
Acquisitions.............................................. 58
Pending Acquisition....................................... 59
Management and Additional Information..................... 59
INFORMATION ABOUT IPSWICH................................... 59
General................................................... 59
Management and Additional Information..................... 59
SUPERVISION AND REGULATION OF BANKNORTH AND IPSWICH......... 60
General................................................... 60
Capital and Operational Requirements...................... 60
Distributions............................................. 62
"Source of Strength" Policy............................... 62
Financial Modernization................................... 62
DESCRIPTION OF BANKNORTH CAPITAL STOCK...................... 63
Banknorth Common Stock.................................... 63
Banknorth Preferred Stock................................. 63
Banknorth Rights.......................................... 64
Other Provisions.......................................... 65
Transfer Agent............................................ 65
COMPARISON OF THE RIGHTS OF SHAREHOLDERS.................... 66
Authorized Capital Stock.................................. 66
Issuance of Capital Stock................................. 66
Voting Rights............................................. 67
Classification and Size of Board of Directors............. 67
Director Vacancies and Removal of Directors............... 67
Director Duties........................................... 68
Conflict of Interest Transactions......................... 68
Exculpation of Directors and Officers..................... 69
Indemnification of Directors and Officers................. 69
Special Meetings of Shareholders.......................... 70
Shareholder Nominations................................... 70
Shareholder Proposals..................................... 71
Shareholder Action without a Meeting...................... 72
Shareholder's Right to Examine Books and Records.......... 72
Amendment of Governing Instruments........................ 72
Mergers, Consolidations and Sales of Assets............... 73
State Anti-takeover Statutes.............................. 73
Dissenters' Rights of Appraisal........................... 74
Shareholder Rights Plans.................................. 75
ELECTION OF DIRECTORS OF IPSWICH (Proposal Two)............. 75
General................................................... 75
Information Regarding Directors and Nominees.............. 75
Committees and Meetings of the Board of Directors......... 77
Compensation of Directors................................. 77
MANAGEMENT OF IPSWICH....................................... 78
Executive Officers........................................ 78
Executive Compensation.................................... 79
Compensation Committee Report............................. 81
Compensation Committee Interlocks and Insider
Participation.......................................... 82
(iii)
PAGE
----
Audit Committee Report.................................... 83
Performance Graph......................................... 84
Employment and Severance Agreements with Named Executive
Officers............................................... 84
Retirement Benefits....................................... 85
Retirement Plan........................................... 86
Certain Transactions with Management of Ipswich and
Others................................................. 87
Compliance with Section 16(a) of the Exchange Act......... 87
ADJOURNMENT OF THE ANNUAL MEETING (Proposal Three).......... 87
INFORMATION CONCERNING AUDITORS OF IPSWICH.................. 87
CERTAIN BENEFICIAL OWNERS OF IPSWICH COMMON STOCK........... 89
LEGAL OPINION............................................... 90
EXPERTS..................................................... 90
PROPOSALS FOR THE 2003 ANNUAL MEETING....................... 90
WHERE YOU CAN FIND MORE INFORMATION......................... 91
Annexes:
Annex I Agreement and Plan of Merger, dated as of February 26, 2002,
between Banknorth and Ipswich, including Amendment No. 1
thereto..................................................... I
Annex II Stock Option Agreement, dated as of February 26, 2002,
between Ipswich and Banknorth............................... II-1
Annex III Termination Agreement and Employment and Noncompetition
Agreement relating to Mr. Grey.............................. III-1
Annex IV Opinion of Keefe, Bruyette & Woods, Inc..................... IV-1
Annex V Sections 85-98 of the Massachusetts Business Corporation
Law......................................................... V-1
(iv)
QUESTIONS AND ANSWERS
ABOUT VOTING PROCEDURES FOR THE ANNUAL MEETING
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document,
indicate on your proxy card how you want your shares to be voted. Then
sign, date and mail your proxy card in the enclosed prepaid return envelope
as soon as possible. This will enable your shares to be represented and
voted at the annual meeting.
Q: WHY IS MY VOTE IMPORTANT?
A: The merger agreement must be approved by
holders of at least two thirds of the outstanding shares of Ipswich common
stock. If you do not vote it will have the same effect as a vote against
the merger agreement.
Q: IF MY SHARES ARE HELD IN STREET NAME BY MY
BROKER OR BANK, WILL MY BROKER OR BANK AUTOMATICALLY VOTE MY SHARES FOR ME?
A: No. Your broker, bank or other nominee will
not be able to vote shares held by it in "street name" on your behalf
without instructions from you. You should instruct your broker, bank or
other nominee to vote your shares, following the directions your broker,
bank or other nominee provides.
Q: WHAT IF I FAIL TO INSTRUCT MY BROKER OR BANK?
A: If you fail to instruct your broker, bank or other
nominee to vote your shares, it will have the same effect as a vote against
the merger agreement.
Q: CAN I ATTEND THE MEETING AND VOTE MY SHARES
IN PERSON?
A: Yes. All shareholders are invited to attend the
annual meeting. Shareholders of record can vote in person at the annual
meeting. If your shares are held in street name, then you are not the
shareholder of record and you must ask your broker, bank or other nominee
how you can vote at the annual meeting.
Q: CAN I CHANGE MY VOTE?
A: Yes. If you have not voted through your
broker, bank or other nominee, there are three ways you can change your
vote after you have sent in your proxy card.
- First, you may send a written notice to the Clerk of Ipswich stating that
you would like to revoke your proxy before the annual meeting.
- Second, you may complete and submit a new proxy card. Any earlier proxies
will be revoked automatically.
- Third, you may attend the annual meeting and vote in person. Any earlier
proxy will be revoked. However, simply attending the annual meeting
without voting will not revoke your proxy.
If you have instructed a broker, bank or other nominee to vote your shares,
you must follow directions you receive from your broker, bank or other
nominee to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. You should not send in your stock
certificates at this time. Instructions for surrendering your Ipswich
common stock certificates in exchange for the merger consideration will
be sent to you after we complete the merger.
Q: WHO SHOULD I CALL WITH QUESTIONS?
A: You should call our proxy solicitor, Morrow &
Co., Inc. at 1-800-607-0088. You also may contact the persons listed under
"References to Additional Information" herein on page i.
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document, including the merger
agreement and the other documents to which we have referred you. See "Where You
Can Find More Information" beginning on page 91. Page references are included in
this summary to direct you to a more complete description of the topics.
PARTIES TO THE PROPOSED MERGER (PAGES 58 AND 59)
Banknorth. Banknorth is a Maine corporation and a registered bank holding
company and financial holding company under the Bank Holding Company Act of
1956, as amended. Banknorth conducts business from its executive offices in
Portland, Maine and, as of December 31, 2001, 308 banking offices located in
Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut.
Banknorth's principal asset is all of the capital stock of Banknorth, NA, a
national bank which was initially formed as a Maine-chartered savings bank in
the mid-19th century. Through Banknorth, NA, Banknorth offers a full range of
banking services and products to individuals, businesses and governments
throughout its market areas, including commercial, consumer and trust investment
services. At March 31, 2002, Banknorth had consolidated assets of $20.9 billion
and consolidated shareholders' equity of $1.7 billion. Banknorth's executive
offices are located at Two Portland Square, Portland, Maine 04112-9540, and its
telephone number is (207) 761-8500.
Ipswich. Ipswich is a Massachusetts corporation and a registered bank
holding company under the Bank Holding Company Act of 1956, as amended. Ipswich
conducts business from its executive offices and main office in Ipswich,
Massachusetts and seven full-service branch offices located in Beverly, Essex,
Marblehead, North Andover, Rowley, Reading and Salem, Massachusetts. Ipswich's
principal asset is all of the capital stock of Ipswich Savings Bank, a
Massachusetts-chartered savings bank which operates under the name Ipswich Bank.
The principal business of Ipswich is attracting deposits from the general public
and using these deposits to fund the origination of single-family residential
loans and, to a lesser extent, home equity loans and commercial real estate
loans. At March 31, 2002, Ipswich had consolidated assets of $324.5 million and
consolidated shareholders' equity of $15.4 million. Ipswich's executive offices
are located at 23 Market Street, Ipswich, Massachusetts 01938, and its telephone
number is (978) 356-7777.
IPSWICH SHAREHOLDERS WILL RECEIVE WHOLE SHARES OF BANKNORTH COMMON STOCK AND/OR
CASH FOR EACH SHARE OF IPSWICH COMMON STOCK EXCHANGED PURSUANT TO THE MERGER
(PAGE 32)
Banknorth and Ipswich propose a merger in which Ipswich will merge with and
into Banknorth. If the merger is completed, each outstanding share of Ipswich
common stock (subject to certain exceptions) will be converted into the right to
receive $20.50 in cash or a number of whole shares of Banknorth common stock
determined by dividing $20.50 by the average closing price of the Banknorth
common stock during the 20 trading-day period preceding the effective date of
the merger, plus cash in lieu of any fractional share interest. Ipswich
shareholders will have the opportunity to elect the form of consideration to be
received for all shares of Ipswich common stock held by them, subject to
allocation procedures set forth in the merger agreement which are intended to
ensure that 51% of the outstanding shares of Ipswich common stock will be
converted into the right to receive Banknorth common stock and 49% of the
outstanding shares of Ipswich common stock will be converted into the right to
receive cash.
WHEN AND HOW TO CHOOSE THE METHOD OF PAYMENT FOR YOUR SHARES (PAGE 32)
Shares of Ipswich common stock will be exchanged for either Banknorth
common stock or cash as chosen by you, subject to election and allocation
procedures discussed herein and described in detail in the merger agreement.
After the closing of the merger, you will be sent an election form on which you
may specify whether you wish to receive cash in exchange for all shares of
Ipswich common stock held by you
2
or Banknorth common stock in exchange for all shares of Ipswich common stock
held by you, or that you make "no-election" as to whether you receive cash or
Banknorth common stock in payment for your Ipswich shares. Your choice will be
honored to the extent possible, but because of the overall limitation on the
amount of cash and shares of Banknorth common stock available, whether you
receive the amount of cash or stock you request will depend in part on how many
other Ipswich shareholders submit elections and how many choose to receive cash
and how many choose to receive stock. Because the total consideration to all
shareholders is payable 51% in Banknorth common stock and 49% in cash, Ipswich
shareholders may not receive exactly the form of consideration that they elect
and may receive a pro rata amount of cash and Banknorth common stock.
Banknorth will not issue fractional shares. Instead, Ipswich shareholders
who receive Banknorth common stock will receive the value of any fractional
share interest in cash based on the average closing sales price of a share of
Banknorth common stock during the 20 trading-day period preceding consummation
of the merger.
An election form and detailed instructions on how to choose your preferred
method of payment will be sent to you shortly after the effective time of the
merger. You will then have 20 days in which to complete the election form and
return it as instructed with your stock certificates. After the forms have been
received and processed, you will be sent the cash and/or Banknorth common stock
to which you are entitled.
You will need to surrender your Ipswich common stock certificates to
receive the appropriate merger consideration, but you should not send us any
certificates now. Shortly after the merger is completed, you will receive
detailed instructions on how to exchange your shares.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 56)
Shares of Banknorth and Ipswich trade on the Nasdaq Stock Market Inc.'s
National Market under the symbol "BKNG" and "IPSW," respectively. On February
26, 2002, the last trading day preceding public announcement of the proposed
merger, the Banknorth common stock closed at $24.12 per share, and on February
22, 2002, the last day on which the Ipswich common stock traded prior to public
announcement of the merger agreement, the Ipswich common stock closed at $13.25
per share. On May 14, 2002, the Banknorth common stock closed at $27.05 per
share and the Ipswich common stock closed at $20.40 per share.
We will determine the exact number of shares of Banknorth common stock
which Ipswich shareholders who receive Banknorth common stock in the merger will
be entitled to receive based on the average closing prices of the Banknorth
common stock during a 20 trading-day period ending on the business day prior to
the effective date of the merger. Based on the average closing prices of the
Banknorth common stock during the 20 trading-day period ended on April 29, 2002,
the exchange ratio would be 0.7727 of a share of Banknorth common stock for each
share of Ipswich common stock held by shareholders who receive Banknorth common
stock in the merger.
Banknorth cannot assure you that its stock price will continue to trade at
or above the prices shown above. You should obtain current stock price
quotations for the Banknorth common stock from a newspaper, via the Internet or
by calling your broker.
Banknorth and Ipswich currently pay a quarterly cash dividend to their
shareholders. For the first quarter of 2002, Banknorth declared a cash dividend
of $0.135 per share of Banknorth common stock and Ipswich declared a cash
dividend of $0.12 per share of Ipswich common stock. Banknorth intends to
continue to pay a quarterly cash dividend to its shareholders. Pursuant to the
merger agreement, Ipswich may continue to declare and pay regular quarterly
dividends at a rate not in excess of $0.12 per share on the Ipswich common stock
during the period prior to consummation of the merger but may not declare
special dividends such as the $0.05 special per share dividend on the Ipswich
common stock declared and paid in the fourth quarter of 2001.
3
THE TAX CONSEQUENCES OF THE MERGER FOR IPSWICH SHAREHOLDERS WILL BE DEPENDENT ON
THE MERGER CONSIDERATION RECEIVED (PAGE 47)
Banknorth and Ipswich have received an opinion of counsel to the effect
that, based on certain facts, representations and assumptions, the merger will
be treated as a "reorganization" for federal income tax purposes and,
accordingly, you generally will not recognize any gain or loss on the conversion
of shares of Ipswich common stock solely into shares of Banknorth common stock.
However, you generally will be taxed if you receive cash in exchange for your
shares of Ipswich common stock or instead of any fractional share of Banknorth
common stock that you would otherwise be entitled to receive. The parties'
obligation to complete the merger is conditioned on their receipt of the same
opinion, dated as of the effective date, regarding the federal income tax
treatment of the merger to them and shareholders of Ipswich.
Tax matters are complicated, and the tax consequences of the merger to you
will depend upon the facts of your particular situation. In addition, you may be
subject to state, local or foreign tax laws that are not discussed herein.
Accordingly, we strongly urge you to consult your own tax advisor for a full
understanding of the tax consequences to you of the merger.
IPSWICH'S FINANCIAL ADVISOR BELIEVES THAT THE MERGER CONSIDERATION IS FAIR TO
IPSWICH SHAREHOLDERS (PAGE 24)
Among other factors considered in deciding to approve the merger, the
Ipswich board of directors received the opinion of its financial advisor, Keefe,
Bruyette & Woods, Inc., that, as of February 26, 2002 (the date on which the
Ipswich board of directors approved the merger agreement), the merger
consideration was fair to the holders of Ipswich common stock from a financial
point of view. This opinion was subsequently confirmed in writing as of the date
of this document. The opinion dated as of the date of this document is included
as Annex IV. You should read this opinion completely to understand the
assumptions made, matters considered and limitations of the review undertaken by
KBW in providing its opinion. KBW's opinion is directed to the Ipswich board of
directors and does not constitute a recommendation to any shareholder as to any
matters relating to the merger. Ipswich has agreed to pay KBW a cash fee equal
to 0.90% of the market value of the aggregate merger consideration as of the
effective date of the merger, net of $50,000 and $100,000 payments made by
Ipswich to KBW at the time of the execution of the merger agreement and the
mailing of this document, respectively. Based on the $20.50 per share merger
consideration, the aggregate fee payable to KBW would be approximately $378,000,
of which $150,000 has been paid and the balance of which is contingent upon
closing of the merger.
OUR BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE MERGER (PAGE 23)
Based on Ipswich's reasons for the merger described herein, including the
fairness opinion of KBW, the Ipswich board of directors believes that the merger
is fair to you and in your best interests and unanimously recommends that you
vote "FOR" approval of the merger agreement.
DATE, TIME AND LOCATION OF THE ANNUAL MEETING (PAGE 16)
The annual meeting will be held at 4:00 p.m., local time, on Thursday, June
27, 2002, at the Ipswich Country Club, 148 Country Club Way, Ipswich,
Massachusetts. At the annual meeting, Ipswich shareholders will be asked to
approve the merger agreement, to elect two directors, to approve a proposal to
adjourn the annual meeting if necessary to permit further solicitation of
proxies in the event there are not sufficient votes at the time of the annual
meeting to approve the merger agreement and to act on any other matters that may
properly come before the annual meeting.
RECORD DATE AND VOTING RIGHTS FOR THE ANNUAL MEETING (PAGE 16)
You are entitled to vote at the annual meeting if you owned shares of
Ipswich common stock as of the close of business on May 14, 2002. You will have
one vote at the annual meeting for each share of Ipswich common stock that you
owned on that date.
4
Shareholders of record may vote by proxy or by attending the annual meeting
and voting in person. Each proxy returned to Ipswich (and not revoked) by a
holder of Ipswich common stock will be voted in accordance with the instructions
indicated thereon. If no instructions are indicated, the proxy will be voted
"FOR" approval of the merger agreement, "FOR" the election of the nominees for
director described herein and "FOR" the proposal to adjourn the annual meeting
if necessary to permit further solicitation of proxies on the proposal to
approve the merger agreement.
APPROVAL OF THE MERGER AGREEMENT REQUIRES A TWO-THIRDS VOTE BY IPSWICH
SHAREHOLDERS (PAGE 17)
The affirmative vote of the holders of two-thirds of the outstanding shares
of Ipswich common stock is necessary to approve the merger agreement on behalf
of Ipswich. Not voting, or failing to instruct a broker, bank or other nominee
how to vote shares held in their name for you, will have the same effect as
voting against the merger agreement.
MANAGEMENT OF IPSWICH OWNS SHARES WHICH MAY BE VOTED AT THE ANNUAL MEETING
(PAGES 53 AND 89)
The directors and executive officers of Ipswich and their respective
affiliates collectively owned approximately 22% of the outstanding shares of
Ipswich common stock as of the record date for the annual meeting. The directors
of Ipswich, who can cast approximately 21% of the votes entitled to be cast at
the annual meeting, have entered into shareholder agreements with Banknorth
pursuant to which they have agreed to vote all of their shares in favor of the
merger agreement.
BANKNORTH AND IPSWICH MUST MEET SEVERAL CONDITIONS TO COMPLETE THE MERGER (PAGE
37)
Completion of the merger depends on meeting a number of conditions,
including the following:
- shareholders of Ipswich must approve the merger agreement;
- Banknorth and Ipswich must receive all required regulatory approvals for
the merger and for the merger of Ipswich Bank into Banknorth, NA, and any
waiting periods required by law must have passed;
- there must be no law, injunction or order enacted or issued preventing
completion of the merger or the bank merger;
- Banknorth and Ipswich must receive a legal opinion confirming the
tax-free nature of the merger;
- the Banknorth common stock to be issued in the merger must have been
approved for trading on the Nasdaq Stock Market's National Market;
- the representations and warranties of each of Banknorth and Ipswich in
the merger agreement must be accurate, subject to exceptions that would
not have a material adverse effect on Banknorth or Ipswich, respectively;
and
- Banknorth and Ipswich must have complied in all material respects with
their respective covenants in the merger agreement.
Unless prohibited by law, either Banknorth or Ipswich could elect to waive
a condition that has not been satisfied and complete the merger anyway. The
parties cannot be certain whether or when any of the conditions to the merger
will be satisfied, or waived where permissible, or that the merger will be
completed.
BANKNORTH AND IPSWICH MUST OBTAIN REGULATORY APPROVALS TO COMPLETE THE MERGER
(PAGE 38)
To complete the merger we need the prior approval of or waiver from the
Federal Reserve Board, the Office of the Comptroller of the Currency of the
United States and certain state regulatory authorities of the merger and the
bank merger. The U.S. Department of Justice is able to provide input into the
approval process of federal banking agencies and will have no less than 15 and
up to 30 days following any approval of a federal banking agency to challenge
the approval on antitrust grounds. Banknorth and
5
Ipswich have filed all necessary applications and notices with the applicable
regulatory agencies, and Banknorth has received the requisite approval or waiver
from the Federal Reserve Board and the Comptroller of the Currency of the United
States. Banknorth and Ipswich cannot predict, however, whether other required
regulatory approvals will be obtained or whether any such approvals will have
conditions which would be detrimental to Banknorth following completion of the
merger.
BANKNORTH AND IPSWICH MAY TERMINATE THE MERGER AGREEMENT (PAGE 43)
Banknorth and Ipswich can agree at any time to terminate the merger
agreement before completing the merger, even if shareholders of Banknorth and
Ipswich have already voted to approve it.
Either company also can terminate the merger agreement:
- if any required regulatory approvals for consummation of the merger or
the bank merger is not obtained;
- if the merger is not completed by December 31, 2002;
- if the shareholders of Ipswich do not approve the merger agreement; or
- if the other company breaches any of its representations, warranties or
obligations under the merger agreement in a manner which would be
reasonably expected to have a material adverse effect on it and the
breach cannot be or has not been cured within 30 days of notice of the
breach.
In addition, Banknorth may terminate the merger agreement at any time prior
to the annual meeting if the board of directors withdraws or modifies its
recommendation to the Ipswich shareholders that the merger agreement be approved
in any way which is adverse to Banknorth, or breaches its covenants requiring
the calling and holding of a meeting of shareholders to consider the merger
agreement and prohibiting the solicitation of other offers. Banknorth also may
terminate the merger agreement if a third party commences a tender offer or
exchange offer for 10% or more of the outstanding Ipswich common stock and the
board of directors of Ipswich recommends that Ipswich shareholders tender their
shares in the offer or otherwise fails to recommend that they reject the offer
within a specified period.
BANKNORTH AND IPSWICH MAY AMEND AND EXTEND THE MERGER AGREEMENT (PAGE 43)
The parties may amend the merger agreement at any time before the merger
actually takes place, and may agree to extend the time within which any action
required by the merger agreement is to take place. No amendment may be made
after the annual meeting which by law requires further approval by the
shareholders of Ipswich without obtaining such approval.
IPSWICH'S DIRECTORS AND EXECUTIVE OFFICERS HAVE SOME INTERESTS IN THE MERGER
THAT DIFFER FROM YOUR INTERESTS (PAGE 43)
Some of Ipswich's directors and executive officers have agreements, stock
options, stock units and other benefit plans that provide them with interests in
the merger that are different from, or in addition to, your interests.
In connection with the execution of the merger agreement, the following
agreements were entered into relating to Mr. Grey, President and Chief Executive
Officer of Ipswich:
- a termination agreement among Banknorth, Ipswich, Ipswich Bank and Mr.
Grey, which provides, among other things, for the termination of Mr.
Grey's current employment agreement with Ipswich Bank upon consummation
of the merger in exchange for a cash payment at that time in the amount
of $876,189, as well as for the termination of the obligations of Ipswich
Bank to make further contributions to the trust established pursuant to a
split dollar insurance agreement between Mr. Grey and Ipswich Bank and of
any right of Ipswich Bank to receive reimbursement of premiums paid by it
on the related insurance policy (except in the case of insolvency of
Ipswich Bank), and
6
- an employment and noncompetition agreement between Banknorth and Mr.
Grey, pursuant to which Banknorth will employ Mr. Grey as a senior vice
president for the one-year period following the merger and Mr. Grey will
not compete with Banknorth in Massachusetts and southern New Hampshire
for a three-year period following the merger in return for $250,000 of
compensation for the year of employment and $280,000, $350,000 and
$100,000 of compensation for the noncompetition obligations in the first,
second and third years following the merger, respectively.
Ipswich Bank also has entered into an employment agreement with Francis
Kenney, Senior Vice President, which generally provides for the payment of a
lump sum severance payment and the provision of certain other benefits to him in
the event that his employment by Ipswich Bank is terminated following a
change-in-control of Ipswich. The amount of the lump sum payment to be made to
Mr. Kenney in the event of a termination of his employment under these
circumstances is approximately $203,900. In addition, pursuant to the split
dollar agreement between Ipswich Bank and Mr. Kenney, the right of Ipswich Bank
to recover a portion of the premiums paid by it on the related insurance policy
in the event of a termination of Mr. Kenney's employment (but not its right to
receive a portion of the death benefit) terminates upon a change-in-control of
Ipswich Bank, which would include the merger.
Banknorth also has agreed to honor indemnification obligations of Ipswich
and to purchase liability insurance for Ipswich's directors and officers for a
six-year period following the merger, subject to the terms of the merger
agreement.
The board of directors of Ipswich was aware of the foregoing interests and
other interests of executive officers of Ipswich in the merger and considered
them, among other matters, in approving the merger agreement and the merger.
IPSWICH IS PROHIBITED FROM SOLICITING OTHER OFFERS (PAGE 42)
Ipswich has agreed that, while the merger is pending, it will not initiate
or, subject to some limited exceptions, engage in discussions with any third
party other than Banknorth regarding extraordinary transactions such as a
merger, business combination or sale of a material amount of assets or capital
stock.
THE MERGER WILL BE ACCOUNTED FOR UNDER THE PURCHASE METHOD (PAGE 50)
Banknorth will use the purchase method of accounting to account for the
merger. The total purchase price will be allocated to the assets acquired and
liabilities assumed, based on their fair values. To the extent that this
purchase price exceeds the fair value of the net tangible assets acquired at the
effective time of the merger, Banknorth will allocate the excess purchase price
to intangible assets, including goodwill. In accordance with Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
issued in July 2001, the goodwill resulting from the merger will not be
amortized to expense; however, core deposit and other intangibles with definite
useful lives recorded by Banknorth in connection with the merger will be
amortized to expense in accordance with the new rules.
SHAREHOLDERS OF BANKNORTH AND IPSWICH HAVE DIFFERENT RIGHTS (PAGE 66)
Banknorth is a Maine corporation subject to the provisions of the Maine
Business Corporation Act, and Ipswich is a Massachusetts corporation subject to
the provisions of the Massachusetts Business Corporation Law. Upon consummation
of the merger, shareholders of Ipswich who receive shares of Banknorth common
stock in exchange for their shares of Ipswich common stock will become
shareholders of Banknorth and their rights as shareholders of Banknorth will be
governed by Banknorth's articles of incorporation and bylaws and the Maine
Business Corporation Act. The rights of shareholders of Banknorth differ in
certain respects from the rights of shareholders of Ipswich. Some of the more
significant differences in this regard relate to special meetings of
shareholders, shareholder nominations and proposals, approval of mergers,
consolidations and sales of assets, state anti-takeover statutes and shareholder
rights plans.
7
IPSWICH HAS GRANTED A STOCK OPTION TO BANKNORTH WHICH COULD SIGNIFICANTLY
INCREASE THE COST TO A POTENTIAL ACQUIROR OF ACQUIRING IPSWICH (PAGE 50)
As a material inducement to Banknorth's willingness to enter into the
merger agreement, Ipswich granted to Banknorth a stock option which allows
Banknorth to purchase up to 384,438 shares of Ipswich common stock, representing
19.9% of the outstanding shares of Ipswich common stock, at a price of $15.35
per share, subject to adjustment in certain circumstances and termination within
certain periods. The option will become exercisable only if certain triggering
events occur, including Ipswich entering into a merger or other similar
transaction with a third party other than Banknorth and Ipswich's board of
directors withdrawing its recommendation of the merger in anticipation of
engaging in an acquisition transaction with a party other than Banknorth. Under
certain circumstances involving a competing acquisition transaction, the holder
of the option may require Ipswich to repurchase the option and any shares
purchased under the option agreement for a price not to exceed this amount.
The stock option agreement is intended to increase the likelihood that the
merger will be completed in accordance with the terms of the merger agreement
and to compensate Banknorth if the merger is not completed. The existence of the
stock option agreement could significantly increase the cost to a potential
acquiror of acquiring Ipswich. Consequently, the stock option agreement may
discourage persons who otherwise might be interested in making a competing
proposal to acquire Ipswich, even if those persons were prepared to pay
consideration which had more value than the merger consideration to be received
under the merger agreement. The stock option agreement is attached as Annex II.
IPSWICH'S SHAREHOLDERS HAVE DISSENTERS' RIGHTS (PAGE 54)
Under Massachusetts law, holders of Ipswich common stock have the right to
dissent from the merger and, if the merger is consummated and all requirements
of Massachusetts law are satisfied by holders seeking to exercise dissenters'
rights, to receive payment equal to the fair value of their shares of Ipswich
common stock, determined in the manner set forth in Massachusetts law. The
procedures which must be followed in connection with the exercise of dissenters'
rights by dissenting shareholders are described herein under "The
Merger -- Dissenters' Rights" and in Sections 85 through 98 of Chapter 156B of
the Massachusetts Business Corporation Law, a copy of which is attached as Annex
V to this document. A shareholder seeking to exercise dissenters' rights must
deliver to Ipswich, before the shareholder vote on the merger agreement at the
annual meeting, a written objection to the merger stating that he or she intends
to demand payment for his or her shares through the exercise of his or her
statutory appraisal rights and must not vote his or her shares in favor of
approval of the merger agreement. Failure to take any required step in
connection with the exercise of such rights may result in termination or waiver
thereof.
UNAUDITED COMPARATIVE PER SHARE AND SELECTED FINANCIAL DATA
The following tables show per share financial information reflecting the
merger of Banknorth and Ipswich (which is referred to as "pro forma"
information) and summary historical data for each of Banknorth and Ipswich. The
pro forma information assumes that the acquisition of Ipswich had been completed
on the dates and at the beginning of the periods indicated.
Banknorth expects that the merger will result in certain one-time
reorganization and restructuring expenses. The pro forma income and dividends
data do not reflect any anticipated reorganization and restructuring expenses
resulting from the merger. It is also anticipated that the merger will provide
the combined company with certain financial benefits that include reduced
operating expenses and opportunities to earn more revenue. The pro forma
information does not reflect any of these anticipated cost savings or benefits.
Therefore, the pro forma information, while helpful in illustrating the
financial characteristics of the merger under one set of assumptions, does not
attempt to predict or suggest future results. The pro forma information also
does not attempt to show how the combined company actually would have performed
had Banknorth and Ipswich been combined throughout the indicated periods.
8
The summary historical financial data of Banknorth and Ipswich has been
derived from historical financial information that Banknorth and Ipswich have
included in prior filings with the Securities and Exchange Commission. Certain
amounts in the historical financial data of Ipswich have been reclassified to
conform with the historical financial statement presentation of Banknorth.
When you read the summary financial information provided in the following
tables, you also should read the more detailed financial information included in
the historical financial information in the other documents of Banknorth and
Ipswich to which we refer. See "Where You Can Find More Information" beginning
on page 91.
UNAUDITED COMPARATIVE PER SHARE DATA
BANKNORTH IPSWICH
COMMON STOCK COMMON STOCK
------------------------ --------------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED(1) HISTORICAL EQUIVALENT(2)
---------- ----------- ---------- -------------
Net income before extraordinary item and
cumulative effect of change in accounting
principle per basic share:
Three months ended March 31, 2002............. $ 0.45 $ 0.45 $ 0.27 $ 0.35
Year ended December 31, 2001.................. 1.73 1.73 1.40 1.34
Net income before extraordinary item and
cumulative effect of change in accounting
principle per diluted share:
Three months ended March 31, 2002............. 0.45 0.44 0.26 0.34
Year ended December 31, 2001.................. 1.71 1.72 1.37 1.33
Dividends declared per share:
Three months ended March 31, 2002............. 0.135 0.135(3) 0.12 0.10
Year ended December 31, 2001.................. 0.53 0.53(3) 0.50(4) 0.41
Book value per share:
March 31, 2002................................ 11.55 11.64 7.95 8.99
December 31, 2001............................. 11.83 11.91 7.85 9.21
Tangible book value per share:
March 31, 2002................................ 8.41 8.30 7.95 6.41
December 31, 2001............................. 8.75 8.63 7.85 6.67
---------------
(1) Pro forma combined amounts are calculated by adding together the historical
amounts reported by Banknorth and Ipswich, as adjusted for: (i) the
estimated purchase accounting adjustments to be recorded (consisting of
mark-to-market valuation adjustments for assets acquired and liabilities
assumed and adjustments for intangible assets established, and the resultant
amortization/accretion of certain of such adjustments over appropriate
future periods), (ii) increased borrowings and interest expense to fund the
cash portion of the purchase price and (iii) the estimated number of
additional shares of Banknorth common stock to be issued in connection with
the merger. The number of shares used in the calculations assumes that 51%
of the weighted average number of Ipswich shares outstanding (including the
dilutive effect of outstanding Ipswich stock options) during the respective
period, or in the case of book value calculations the actual number of
shares outstanding at the respective date, are converted into Banknorth
shares at an assumed exchange ratio of 0.7727.
(2) Pro forma equivalent amounts are calculated by multiplying the pro forma
combined amounts by an assumed exchange ratio of 0.7727, which is based on
the average closing price of the Banknorth common stock during the 20
trading-day period ended on April 29, 2002. This information is presented to
reflect the fact that Ipswich shareholders who receive shares of Banknorth
common stock in the merger will, based on the assumed exchange ratio,
receive less than one share of Banknorth common stock for each share of
Ipswich common stock they own before the merger.
(3) It is anticipated that the initial dividend rate will be equal to the
current dividend rate of Banknorth. Accordingly, pro forma combined
dividends per share of Banknorth common stock represent the historical
dividends per common share paid by Banknorth.
(4) Includes a special dividend of $0.05 per share paid in the fourth quarter of
2001.
9
SELECTED CONSOLIDATED FINANCIAL DATA OF BANKNORTH
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
MARCH 31, -------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Total assets......................... $20,855,138 $21,076,586 $18,233,810 $18,508,264 $16,453,120 $15,332,821
Debt and equity securities........... 6,289,879 6,156,861 5,880,658 6,873,182 4,379,774 3,617,236
Total loans and leases, net(1)....... 12,576,850 12,525,493 10,692,112 9,699,608 9,770,039 9,862,103
Goodwill and other intangibles....... 461,535 466,633 185,520 184,381 204,587 158,535
Deposits............................. 14,131,427 14,221,049 12,107,256 11,710,501 12,016,212 11,088,410
Borrowings........................... 4,608,142 4,602,388 4,659,390 5,466,253 3,040,173 2,904,286
Shareholders' equity................. 1,696,889 1,789,115 1,330,857 1,192,274 1,222,390 1,164,383
Nonperforming assets................. 76,782 81,227 67,132 69,192 89,021 98,125
Book value per share................. 11.55 11.83 9.42 8.22 8.37 7.97
Tangible book value per share........ 8.41 8.75 8.11 6.95 6.97 6.88
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- ---------- ---------- ---------- ---------- ----------
OPERATIONS DATA:
Interest and dividend income...... $306,006 $326,545 $1,263,789 $1,330,287 $1,227,519 $1,146,160 $1,056,027
Interest expense.................. 109,483 170,578 583,825 726,663 613,124 567,860 500,136
-------- -------- ---------- ---------- ---------- ---------- ----------
Net interest income............... 196,523 155,967 679,964 603,624 614,395 578,300 555,891
Provision for loan and lease
losses.......................... 11,828 7,138 41,889 23,819 23,575 23,775 15,763
-------- -------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan and lease
losses.......................... 184,695 148,829 638,075 579,805 590,820 554,525 540,128
Net securities gains
(losses)(2)..................... 19 759 1,329 (15,456) 655 6,423 2,837
Other noninterest income.......... 61,557 57,997 239,176 226,644 191,140 161,124 134,144
Noninterest expense (excluding
special charges)................ 136,482 119,251 501,782 459,459 460,306 446,110 429,874
Special charges(3)................ 8,204 5,608 7,614 43,007 28,002 61,140 23,559
-------- -------- ---------- ---------- ---------- ---------- ----------
Income before income tax
expense......................... 101,585 82,726 369,184 288,527 294,307 214,822 223,676
Income tax expense................ 34,256 27,343 126,202 96,793 97,349 73,078 78,188
Net income before extraordinary
item and cumulative effect of
change in accounting
principle....................... 67,329 55,383 242,982 191,734 196,958 141,744 145,488
Extraordinary item, net of tax.... -- -- (3,897) -- -- -- --
Cumulative effect of change in
accounting principle, net of
tax............................. -- (290) (290) -- -- -- --
-------- -------- ---------- ---------- ---------- ---------- ----------
Net income........................ $ 67,329 $ 55,093 $ 238,795 $ 191,734 $ 196,958 $ 141,744 $ 145,488
======== ======== ========== ========== ========== ========== ==========
Net income per share before
extraordinary item and
cumulative effect of change in
accounting principle:
Basic........................... $ 0.45 $ 0.39 $ 1.73 $ 1.33 $ 1.35 $ 0.97 $ 1.00
Diluted......................... 0.45 0.39 1.71 1.32 1.34 0.95 0.98
Net income per share:
Basic........................... 0.45 0.39 1.70 1.33 1.35 0.97 1.00
Diluted......................... 0.45 0.39 1.68 1.32 1.34 0.95 0.98
Dividends per share............... 0.135 0.130 0.53 0.50 0.47 0.44 0.38
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------- ---------------------------------------------
2002 2001 2001 2000 1999 1998 1997
----- ----- ----- ----- ----- ----- -----
OTHER DATA:
Return on average assets........................... 1.33% 1.24% 1.29% 1.05% 1.12% 0.90% 1.05%
Return on average equity........................... 15.46 16.59 16.48 15.69 16.42 11.96 13.01
Average equity to average assets................... 8.63 7.45 7.82 6.66 6.81 7.55 8.07
Interest rate spread(4)............................ 3.84 3.17 3.42 3.05 3.33 3.46 3.75
Net interest margin(4)............................. 4.24 3.78 3.99 3.60 3.80 4.02 4.33
Tier 1 leverage capital ratio at end of period..... 7.63 7.07 7.14 7.02 6.75 7.22 7.65
Dividend payout ratio.............................. 30.09 33.09 30.27 36.91 33.19 40.38 39.60
Efficiency ratio(5)................................ 52.88 55.73 54.59 55.34 57.14 60.33 62.30
Nonperforming assets as a percent of total assets
at end of period................................. 0.37 0.37 0.39 0.37 0.37 0.54 0.64
(notes on the following page.)
10
(1) Does not include loans held for sale.
(2) In 2000, includes a $15.9 million pre-tax loss incurred in connection with
the restructuring of the portfolio of investment securities.
(3) Special charges consist of merger-related expenses and, in 1997, a $7.2
million pre-tax charge relating to an acquired subsidiary, in 1999, a $7.4
million pre-tax charge relating to Banknorth's exit from the correspondent
mortgage banking business, in 2000, $1.4 million of pre-tax expenses related
to the closing of 11 branch offices, a $3.1 million pre-tax charge related
to the termination of a marketing contract for merchant processing and a
$3.7 million pre-tax charge related to asset write-downs, and in 2001, $2.0
million of pre-tax expenses related to branch closings, a $1.0 million
pre-tax charge related to subsidiary bank charter consolidations and a $900
thousand pre-tax charge related to asset write-downs. In the three months
ended March 31, 2002 and 2001, special charges included merger-related
expenses and, in 2001, a $2.4 million pre-tax charge related to branch
closings and a $900 thousand pre-tax charge related to asset write-downs
and, in 2002, a $2.3 million pre-tax charge related to subsidiary bank
charter consolidations.
(4) Ratios are on a fully-tax equivalent basis.
(5) The efficiency ratio represents operating expenses as a percentage of net
interest income and noninterest income, excluding securities transactions.
11
SELECTED CONSOLIDATED FINANCIAL DATA OF IPSWICH
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
DECEMBER 31,
MARCH 31, ----------------------------------------------------
2002 2001 2000 1999 1998 1997
--------- -------- -------- -------- -------- --------
BALANCE SHEET DATA:
Total assets...................................... $324,498 $321,115 $287,834 $276,298 $271,328 $227,244
Total loans, net(1)............................... 194,770 201,589 201,334 191,529 187,249 163,780
Allowance for loan losses......................... 2,144 2,121 1,803 1,798 1,742 1,673
Investments(2).................................... 107,957 85,748 64,510 67,571 39,281 40,681
Deposits.......................................... 252,277 249,513 237,237 210,082 199,757 171,241
Borrowed funds.................................... 48,000 47,859 32,108 45,000 53,000 40,360
Shareholders' equity.............................. 15,386 15,119 15,119 16,975 14,223 11,833
Nonperforming assets.............................. 180 181 229 142 1,186 2,164
Book value per share.............................. 7.95 7.85 7.30 6.72 5.95 4.96
Tangible book value per share..................... 7.95 7.85 7.30 6.72 5.95 4.96
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------- ------- ------- ------- ------- ------- -------
OPERATIONS DATA:
Interest and dividend income..................... $ 4,603 $ 5,013 $19,604 $19,929 $17,955 $16,458 $13,442
Interest expense................................. 1,900 2,767 9,820 10,994 9,257 8,997 7,007
------- ------- ------- ------- ------- ------- -------
Net interest and dividend income................. 2,703 2,246 9,784 8,935 8,698 7,461 6,435
Provision for loan losses........................ 30 25 100 60 100 180 120
------- ------- ------- ------- ------- ------- -------
Net interest income after provision for loan
losses......................................... 2,673 2,221 9,684 8,875 8,598 7,281 6,315
Net gains (losses) from sales of assets held for
sale and investment(2)......................... (27) -- 182 33 78 93 (5)
Gains (losses) on real estate operations, net.... 330 104 397 (134) 1,114 929 598
Other income..................................... 596 463 2,376 1,837 1,733 1,415 1,107
Noninterest expense.............................. 2,528(3) 1,792 8,320 6,819 6,910 5,596 4,476
------- ------- ------- ------- ------- ------- -------
Income before income tax expense................. 1,044 996 4,319 3,792 4,613 4,122 3,539
Income tax expense............................... 523 349 1,511 1,137 1,324 1,484 1,327
------- ------- ------- ------- ------- ------- -------
Net income....................................... $ 521 $ 647 $ 2,808 $ 2,655 $ 3,289 $ 2,638 $ 2,212
======= ======= ======= ======= ======= ======= =======
Net income per share:
Basic.......................................... $ 0.27 $ 0.32 $ 1.40 $ 1.12 $ 1.33 $ 1.10 $ 0.93
Diluted........................................ 0.26 0.31 1.37 1.10 1.29 1.03 0.88
Dividends per share.............................. 0.12 0.11 0.50 0.41 0.25 0.17 0.13
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------- ------- ------- ------- ------- ------- -------
OTHER DATA:
Return on average assets.......................... 0.65% 0.90% 0.94% 0.93% 1.22% 1.09% 1.18%
Return on average equity.......................... 13.43 17.02 18.38 15.79 21.04 20.09 20.38
Average equity to average assets.................. 4.85 5.28 5.95 5.99 5.74 5.37 5.71
Interest rate spread.............................. 3.20 2.77 2.95 2.77 2.96 2.79 3.18
Net interest margin............................... 3.48 3.21 3.40 3.24 3.36 3.23 3.60
Tier 1 leverage capital ratio at end of period.... 5.82 6.32 5.76 5.04 6.33 5.55 5.50
Dividend payout ratio............................. 46.07 34.93 35.33 35.97 19.12 15.43 13.43
Efficiency ratio(4)............................... 70.25 62.95 66.26 64.10 59.85 57.07 54.99
Nonperforming assets as a percent of total assets
at end of period................................ 0.06 0.08 0.06 0.08 0.05 0.44 0.95
---------------
(1) Does not include loans held for sale.
(2) Includes investment securities, mortgage-backed securities and short-term
investments, both available for sale and held to maturity.
(3) Includes $409 thousand of merger expense.
(4) The efficiency ratio represents operating expenses as a percentage of net
interest income and noninterest income, excluding securities transactions.
12
RISK FACTORS
Upon completion of the merger, Ipswich shareholders will receive shares of
Banknorth common stock and/or cash in exchange for their shares of Ipswich
common stock. Prior to deciding whether or not to approve the transaction and
which type of consideration to elect, Ipswich shareholders should be aware of
and consider the following risks and uncertainties that are applicable to the
merger, in addition to the other information contained in or incorporated by
reference into this document, including the matters addressed under the caption
"Cautionary Statement Concerning Forward-Looking Statements" beginning on page
14.
IPSWICH SHAREHOLDERS MAY NOT RECEIVE THE FORM OF CONSIDERATION THEY ELECT
If the merger is completed, each outstanding share of Ipswich common stock
(subject to certain exceptions) will be converted into the right to receive
$20.50 in cash or a number of whole shares of Banknorth common stock determined
by dividing $20.50 by the average closing price of the Banknorth common stock
during the 20 trading-day period preceding the effective date of the merger,
plus cash in lieu of any fractional share interest. Ipswich shareholders will
have the opportunity to elect the form of consideration to be received for all
shares of Ipswich common stock held by them; however, the right of an Ipswich
shareholder to elect all stock or all cash for his or her shares is limited
because of allocation procedures set forth in the merger agreement which are
intended to ensure that 51% of the outstanding shares of Ipswich common stock
will be converted into the right to receive Banknorth common stock and 49% of
the outstanding shares of Ipswich common stock will be converted into the right
to receive cash. If the total cash elections by Ipswich shareholders are
greater, or less, than the aggregate cash consideration to be paid in the merger
(which shall equal the product of the number of shares of Ipswich common stock
and Ipswich stock units outstanding immediately prior to the effective time of
the merger times .49 times $20.50), the elections will be reallocated so that
the resultant exchange for cash is as close as practicable to the aggregate cash
consideration. Therefore, Ipswich shareholders may not receive exactly the form
of consideration that they elect and may receive a pro rata amount of cash and
Banknorth common stock. A detailed discussion of the consideration provisions of
the merger agreement is set forth under "The Merger -- Merger Consideration and
Election and Exchange Procedures," beginning on page 32. We recommend that
shareholders carefully read it and the merger agreement attached hereto as Annex
A.
THE VALUE OF THE STOCK CONSIDERATION WILL VARY WITH FLUCTUATIONS IN BANKNORTH'S
STOCK PRICE
Each share of Ipswich common stock owned by Ipswich shareholders will be
converted into the right to receive either cash, shares of Banknorth common
stock or a mixture of cash and shares of Banknorth common stock. The market
price of the Banknorth common stock at the effective time of the merger or at
the time former shareholders of Ipswich receive certificates evidencing shares
of Banknorth common stock following the election period to be conducted after
the merger is completed may be higher or lower than the market price at the date
of this document or on the date of the annual meeting. Changes in the price of
the Banknorth common stock may result from a variety of factors, including
general market and economic conditions, changes in the business, operations or
prospects of Banknorth and regulatory considerations. Accordingly, at the time
of the annual meeting, you will not know the exact value of the stock
consideration to be received or the exchange ratio used to determine the number
of any shares of Banknorth common stock to be received when the merger is
completed. In addition, there will be a time period between the completion of
the merger and the time at which former Ipswich shareholders receiving stock
consideration actually receive certificates evidencing Banknorth common stock,
which will include the 20 business-day period during which Ipswich shareholders
will be able to make cash/stock elections. Until stock certificates are
received, Ipswich shareholders will not be able to sell their Banknorth shares
in the open market and, thus, will not be able to avoid losses resulting from
any decline in the trading price of the Banknorth common stock during this
period.
13
THE TAX CONSEQUENCES OF THE MERGER FOR IPSWICH SHAREHOLDERS WILL BE DEPENDENT ON
THE MERGER CONSIDERATION RECEIVED
The tax consequences of the merger to you will be dependent on the merger
consideration received by you. You generally will not recognize any gain or loss
on the conversion of shares of Ipswich common stock solely into shares of
Banknorth common stock; however, you generally will be taxed if you receive cash
in exchange for your shares of Ipswich common stock or instead of any fractional
share of Banknorth common stock that you would otherwise be entitled to receive.
For a detailed discussion of the tax consequences to you of the merger, see "The
Merger -- Federal Income Tax Consequences" beginning on page 47.
DIRECTORS AND OFFICERS OF IPSWICH HAVE INTERESTS IN THE MERGER THAT DIFFER FROM
THE INTERESTS OF SHAREHOLDERS
When considering the recommendation of Ipswich's board of directors, you
should be aware that some executive officers and directors of Ipswich have
interests in the merger that are somewhat different from your interests. For
example, certain executive officers have entered into employment agreements with
Ipswich, and in connection with the merger agreement the president and chief
executive officer of Ipswich entered into an employment agreement with Banknorth
covering the one-year period following consummation of the merger. These
employment agreements may create potential conflicts of interest. These and
certain other additional interests of Ipswich's directors and executive officers
may cause some of these persons to view the proposed transaction differently
than you view it, as a shareholder. See "The Merger -- Interests of Certain
Persons in the Merger" beginning on page 43.
BANKNORTH MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGER
The success of the merger will depend on, among other things, Banknorth's
ability to realize anticipated cost savings and to combine the businesses of
Banknorth and Ipswich in a manner that does not materially disrupt the existing
customer relationships of Ipswich or result in decreased revenues resulting from
any loss of customers and that permits growth opportunities to occur. If
Banknorth is not able to successfully achieve these objectives, the anticipated
benefits of the merger may not be realized fully or at all or may take longer to
realize than expected.
THE MARKET PRICE OF SHARES OF BANKNORTH COMMON STOCK MAY BE AFFECTED BY FACTORS
WHICH ARE DIFFERENT FROM THOSE AFFECTING SHARES OF IPSWICH COMMON STOCK
You may acquire shares of Banknorth common stock in connection with the
merger. Some of Banknorth's current businesses and markets differ from those of
Ipswich and, accordingly, the results of operations of Banknorth after the
merger may be affected by factors different from those currently affecting the
results of operations of Ipswich. For a discussion of the businesses of
Banknorth and Ipswich and of certain factors to consider in connection with
those businesses, see the documents incorporated by reference into this document
and referred to under "Where You Can Find More Information" beginning on page
91.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This document and the documents incorporated herein by reference contain
forward-looking statements by Banknorth and Ipswich within the meaning of the
Federal securities laws. These forward-looking statements include information
about the financial condition, results of operations and business of Banknorth
upon completion of the merger, including statements relating to the estimated
cost savings that will be realized from the merger, the estimated impact on
Banknorth's earnings per share of the merger and the restructuring charges
expected to be incurred in connection with the merger. This document also
includes forward-looking statements about the consummation and anticipated
timing of the merger, the actual exchange ratio and the tax-free nature of the
merger. In addition, any of the words "believes," "expects," "anticipates,"
"estimates," "plans," "projects," "predicts" and similar expressions indicate
14
forward-looking statements. These forward-looking statement involve certain
risks and uncertainties. Actual results may differ materially from those
contemplated by the forward-looking statements due to, among others, the
following factors:
- estimated cost savings from the merger or other proposed mergers may not
be fully realized within the expected time frame;
- deposit attrition, customer loss or revenue loss following the merger or
other proposed mergers may be greater than expected;
- competitive pressure among depository and other financial institutions
may increase significantly;
- costs or difficulties related to the integration of the businesses of
Banknorth and its merger partners, including Ipswich, may be greater than
expected;
- changes in the interest rate environment may reduce interest margins;
- general economic or business conditions, either nationally or in the
states or regions in which Banknorth does business, may be less favorable
than expected, resulting in, among other things, a deterioration in
credit quality or a reduced demand for credit;
- legislation or changes in regulatory requirements, including changes in
accounting standards, may adversely affect the businesses in which
Banknorth is engaged;
- adverse changes may occur in the securities markets; and
- competitors of Banknorth may have greater financial resources and develop
products and technology that enable those competitors to compete more
successfully than Banknorth.
Management of Banknorth and Ipswich each believes that the forward-looking
statements about their respective company are reasonable; however, you should
not place undue reliance on them. Forward-looking statements are not guarantees
of performance. They involve risks, uncertainties and assumptions. The future
results and shareholder values of Banknorth following completion of the merger
may differ materially from those expressed in these forward-looking statements.
Many of the factors that will determine these results and values are beyond
Banknorth's and Ipswich's ability to control or predict.
GENERAL INFORMATION
This document constitutes a proxy statement and is being furnished to all
record holders of Ipswich common stock in connection with the solicitation of
proxies by the board of directors of Ipswich to be used at an annual meeting of
shareholders of Ipswich to be held on Thursday, June 27, 2002 and any
adjournment or postponement of the annual meeting.
This document also constitutes a prospectus of Banknorth relating to the
Banknorth common stock issuable to holders of Ipswich common stock upon
completion of the merger. Based on (i) the number of shares of Ipswich common
stock outstanding on the record date for the annual meeting, (ii) the number of
shares of Ipswich common stock issuable upon the exercise of employee stock
options and the number of Ipswich stock units outstanding on such date, (iii) an
assumed exchange ratio of 0.7727 and (iv) the provisions of the merger agreement
which are intended to ensure that 51% of the outstanding shares of Ipswich
common stock are converted into shares of Banknorth common stock, a maximum of
approximately 883,490 shares of Banknorth common stock will be issuable upon
completion of the merger. The actual total number of shares of Banknorth common
stock to be issued, as well as the actual amount of cash to be paid, in the
merger will depend on the number of shares of Ipswich common stock and Ipswich
stock units outstanding at the time of the merger and the actual exchange ratio.
Banknorth has supplied all information contained or incorporated by
reference herein relating to Banknorth, and Ipswich has supplied all such
information relating to Ipswich.
15
THE ANNUAL MEETING
TIME AND PLACE
An annual meeting of shareholders of Ipswich will be held at 4:00 p.m.,
local time, on Thursday, June 27, 2002 at the Ipswich Country Club, 148 Country
Club Way, Ipswich, Massachusetts.
MATTERS TO BE CONSIDERED
The purposes of the Ipswich annual meeting are to consider and approve the
merger agreement, to elect two directors, to consider and approve a proposal to
adjourn the annual meeting if necessary to permit further solicitation of
proxies in the event there are not sufficient votes at the time of the annual
meeting to approve the merger agreement and to consider any other matters that
may be properly submitted to a vote at the annual meeting. At this time, the
Ipswich board of directors is unaware of any matters, other than set forth in
the preceding sentence, that may be presented for action at the annual meeting.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
The close of business on May 14, 2002 has been fixed by Ipswich as the
record date for the determination of holders of Ipswich common stock entitled to
notice of and to vote at the annual meeting and any adjournment or postponement
of the annual meeting. At the close of business on the record date, there were
1,965,786 shares of Ipswich common stock outstanding and entitled to vote. Each
share of Ipswich common stock entitles the holder to one vote at the annual
meeting on all matters properly presented at the meeting.
HOW TO VOTE YOUR SHARES
Shareholders of record may vote by mail or by attending the annual meeting
and voting in person. If you choose to vote by mail, simply mark the enclosed
proxy card, date and sign it, and return it in the postage-paid envelope
provided.
If your shares are held in the name of a bank, broker or other holder of
record, you will receive instructions from the holder of record that you must
follow in order for your shares to be voted. Also, please note that if the
holder of record of your shares is a broker, bank or other nominee and you wish
to vote at the annual meeting, you must bring a letter from the broker, bank or
other nominee confirming that you are the beneficial owner of the shares.
Any shareholder executing a proxy may revoke it at any time before it is
voted by:
- delivering to the Clerk of Ipswich prior to the annual meeting a written
notice of revocation addressed to Mariell Lyons, Clerk, Ipswich
Bancshares, Inc., 23 Market Street, Ipswich, Massachusetts 01938;
- delivering to Ipswich prior to the annual meeting a properly executed
proxy with a later date; or
- attending the annual meeting and giving notice of such revocation in
person.
Attendance at the annual meeting will not, in and of itself, constitute
revocation of a proxy.
Each proxy returned to Ipswich (and not revoked) by a holder of Ipswich
common stock will be voted in accordance with the instructions indicated
thereon. If no instructions are indicated, the proxy will be voted "FOR"
approval of the merger agreement, "FOR" the election of the nominees for
director described herein and "FOR" the proposal to adjourn the annual meeting
if necessary to permit further solicitation of proxies on the proposal to
approve the merger agreement.
At this time, the Ipswich board of directors is unaware of any matters,
other than set forth above, that may be presented for action at the annual
meeting. If other matters are properly presented, however, the persons named as
proxies will vote in accordance with their judgment with respect to such
matters.
16
VOTES REQUIRED
A quorum, consisting of the holders of a majority of the issued and
outstanding shares of Ipswich common stock, must be present in person or by
proxy before any action may be taken at the annual meeting. Abstentions will be
treated as shares that are present for purposes of determining the presence of a
quorum but will not be counted in the voting on a proposal.
The affirmative vote of the holders of two-thirds of the outstanding shares
of Ipswich common stock, voting in person or by proxy, is necessary to approve
the merger agreement on behalf of Ipswich, and the affirmative vote of a
plurality of the shares present and voting on the election of directors at the
annual meeting is necessary to elect each nominee for director. The affirmative
vote of a majority of the votes cast on the matter at the annual meeting is
required to approve the proposal to adjourn the annual meeting if necessary to
permit further solicitation of proxies on the proposal to approve the merger
agreement and any other matter properly submitted to shareholders for their
consideration at the annual meeting.
With regard to the election of directors, you may vote in favor of or
withhold authority to vote for one or more nominees for director. Votes that are
withheld in connection with the election of one or more nominees for director
will not be counted as votes cast for such individuals and accordingly will have
no effect.
Any "broker non-votes" submitted by brokers or nominees in connection with
the annual meeting will not be counted for purposes of determining the number of
votes cast on a proposal but will be treated as present for quorum purposes.
"Broker non-votes" are shares held by brokers or nominees as to which voting
instructions have not been received from the beneficial owners or the persons
entitled to vote those shares and the broker or nominee does not have
discretionary voting power under the applicable New York Stock Exchange rules.
Under these rules, the proposal to approve the merger agreement is not a
discretionary item on which brokerage firms may vote in their discretion on
behalf of their clients if such clients have not furnished voting instructions
within ten days of the annual meeting. Because the proposal to approve the
merger agreement is required to be approved by the holders of two-thirds of the
outstanding shares of Ipswich common stock, abstentions and broker "non-votes"
will have the same effect as a vote against the proposal to approve the merger
agreement at the annual meeting. And for the same reason, the failure of an
Ipswich shareholder to vote by proxy or in person at the annual meeting will
have the effect of a vote against this proposal.
The directors and executive officers of Ipswich and their respective
affiliates collectively owned approximately 22% of the outstanding shares of
Ipswich common stock as of the record date for the annual meeting. The directors
of Ipswich, who can cast approximately 21% of the votes entitled to be cast at
the annual meeting, have entered into shareholder agreements with Banknorth
pursuant to which they have agreed to vote all of their shares in favor of the
merger agreement. See "Certain Beneficial Owners of Ipswich Common Stock"
beginning on page 89 and "The Merger -- Shareholder Agreements" beginning on
page 53.
As of the close of business on the record date for the annual meeting,
neither Banknorth nor, to the knowledge of Banknorth, any of its directors and
executive officers, beneficially owned any shares of Ipswich common stock.
SOLICITATION OF PROXIES
Ipswich will bear its costs of mailing this document to its shareholders,
as well as all other costs incurred by it in connection with the solicitation of
proxies from its shareholders on behalf of its board of directors, except that
Banknorth and Ipswich will share equally the cost of printing this document. In
addition to solicitation by mail, the directors, officers and employees of
Ipswich and its subsidiaries may solicit proxies from shareholders of Ipswich in
person or by telephone, telegram, facsimile or other electronic methods without
compensation other than reimbursement for their actual expenses. Arrangements
also will be made with brokerage firms and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial owners
of stock held of record by such persons, and
17
Ipswich will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
Ipswich has retained Morrow & Co, Inc., a professional proxy solicitation
firm, to assist it in the solicitation of proxies. The fee payable to such firm
in connection with the merger is $6,500, plus reimbursement for reasonable
out-of-pocket expenses.
RECOMMENDATIONS OF THE IPSWICH BOARD OF DIRECTORS
The Ipswich board of directors has unanimously approved the merger
agreement and the transactions contemplated by the merger agreement. Based on
Ipswich's reasons for the merger described in this document, including KBW's
fairness opinion, the board of directors of Ipswich believes that the merger is
in the best interests of Ipswich's shareholders and recommends that you vote
"FOR" approval of the merger agreement. See "The Merger -- Ipswich's Reasons for
the Merger" beginning on page 21 and "-- Recommendation of Ipswich's Board of
Directors" beginning on page 23. The Ipswich board also recommends that you vote
"FOR" the directors named herein and "FOR" the proposal to adjourn the annual
meeting if necessary to permit further solicitation of proxies to approve the
merger agreement.
18
THE MERGER
(PROPOSAL 1)
The following information describes the material aspects of the merger
agreement and the merger. This description does not purport to be complete and
is qualified in its entirety by reference to the annexes to this document,
including the merger agreement and the stock option agreement. All shareholders
are urged to carefully read the annexes in their entirety.
GENERAL
Under the terms and conditions set forth in the merger agreement, Ipswich
will be merged with and into Banknorth. At the effective time of the merger each
share of common stock of Ipswich, par value $0.10 per share, outstanding
immediately before the effective time of the merger (except as provided below)
will, by virtue of the merger and without any action on the part of the
shareholder, be converted into the right to receive $20.50 in cash or a number
of whole shares of common stock of Banknorth determined by dividing $20.50 by
the average closing price of the Banknorth common stock during the 20
trading-day period preceding consummation of the merger, plus cash in lieu of
any fractional share interest. Ipswich shareholders will have the opportunity to
elect the form of consideration to be received for all shares of Ipswich common
stock held by them, subject to allocation procedures set forth in the merger
agreement which are intended to ensure that 51% of the outstanding shares of
Ipswich common stock will be converted into the right to receive Banknorth
common stock and 49% of the outstanding shares of Ipswich common stock will be
converted into the right to receive cash. Shares of Ipswich common stock held by
Banknorth or Ipswich, other than in a fiduciary capacity or in satisfaction of a
debt previously contracted, or by Ipswich shareholders who have elected
dissenters' rights will not be converted into the right to receive the merger
consideration upon consummation of the merger.
BACKGROUND OF THE MERGER
In the fall of 1999, Ipswich's board of directors engaged a financial
advisor to conduct a focused survey of the acquisition market to determine
whether shareholder value might best be served by a possible combination with a
larger financial institution. Although this process resulted in expressions of
interest from several financial institutions, the Ipswich board determined that
none of these expressions would result in a value to Ipswich's shareholders that
reflected Ipswich's inherent value. The Ipswich board believed that long-term
shareholder value could be better enhanced by remaining independent and
continuing to implement the strategic plan that had established a track record
of outstanding earnings growth for Ipswich's shareholders.
Over the next two years, Ipswich's management had informal conversations
from time to time with a number of financial institutions about possible
strategic combinations. These conversations were preliminary and inconclusive,
and did not impact Ipswich's continued belief that long-term shareholder value
could best be enhanced by remaining independent and implementing its strategic
plan for internal growth.
In December 2001, David Grey, President and Chief Executive Officer of
Ipswich, struck up an acquaintance with the Chief Executive Officer of a larger,
out-of-market institution (Company A) that appeared to have an internal growth
strategy and marketing approach that is similar to Ipswich's. In January 2002,
Mr. Grey visited Company A and compared notes on growth strategies with his
counterpart as they toured the larger institution's facilities. The two bankers
made arrangements for a reciprocal tour of Ipswich's banking offices to take
place in February 2002. They did not discuss the possibility of a combination
between the two institutions, then or at any other time.
On January 10, 2002, Mr. Grey had lunch with Irene Schmitt, the former
President of MetroWest Bank. MetroWest had recently been acquired by Banknorth
and Ms. Schmitt has been serving as a consultant to Banknorth since the closing
of the MetroWest transaction. Mr. Grey mentioned his visit to Company A, because
he knew that Ms. Schmitt was also acquainted with Company A's Chief Executive
19
Officer. Ms. Schmitt then suggested that Banknorth might well be interested in
talking to Mr. Grey about a possible combination.
After Mr. Grey's meeting with Ms. Schmitt, Mr. Grey received a phone call
from William J. Ryan, Chairman, President and Chief Executive Officer of
Banknorth, who asked if he could meet with Mr. Grey. On February 5, 2002, Messr.
Ryan and Grey met in Mr. Grey's office. At that meeting, Mr. Ryan expressed
Banknorth's interest in acquiring Ipswich and gave a preliminary oral indication
of his assessment of Ipswich's value at $20 per share. At the end of the
meeting, Mr. Grey told Mr. Ryan that he would have to talk to his Chairman
before proceeding further. He then contacted Lawrence Pszenny, Chairman of the
Board, Peter Coogan of Foley, Hoag & Eliot LLP ("FH&E"), counsel to Ipswich, and
Robert Stapleton, of KBW.
On February 9, Mr. Grey left for a long-scheduled trip to a bankers
conference in Arizona. While he was away, he remained in touch with Banknorth
officials, who indicated that their proposal was conditioned on a number of
factors, including Mr. Grey's willingness to waive certain of the contractual
benefits he would otherwise be entitled to receive under his employment
contract. Mr. Ryan also indicated that Banknorth might be willing to increase
the proposed consideration payable to Ipswich's stockholders, depending upon the
results of Banknorth's due diligence review of Ipswich.
When Mr. Grey returned from Arizona, he met with the Chairman of the
Ipswich board and one other member of the Ipswich board on the evening of
February 14 to discuss the recent developments with Banknorth and to seek their
guidance. After hearing Mr. Grey's summary of the Banknorth proposal (as well as
input Mr. Grey had received from KBW), the Ipswich directors concluded that the
Banknorth proposal was worth pursuing further, and decided that a special
meeting of the full Ipswich board of directors should be called for the
following Monday, February 18 (which was a holiday), to brief the Ipswich board
on the Banknorth situation and to seek approval to allow Banknorth to perform
due diligence and to begin serious negotiations as to price and other terms.
They also agreed that it was appropriate for Mr. Grey to ask Mr. Stapleton of
KBW to attend the meeting and to present a financial analysis of the proposed
transaction to the Ipswich board.
On February 18, the full board of directors of Ipswich met and Mr. Grey
reported to the board the substance of his discussions with Banknorth.
Representatives of Banknorth's financial advisor, KBW, and legal counsel, FH& E,
attended the meeting and led the Ipswich board in a discussion of the factors to
be considered in determining whether to pursue the proposed transaction with
Banknorth. The KBW representatives made a detailed presentation to the Ipswich
board, analyzing the Banknorth proposal from a financial point of view,
including a pro forma merger analysis, a discussion of comparable transactions,
a discounted cash flow analysis, a discussion of the form of consideration and
structure of the proposed Banknorth transaction and other potential purchasers.
The Ipswich board held a lengthy discussion of the opportunities presented by
the Banknorth transaction, including the willingness of Banknorth to permit
shareholders to receive either stock or cash consideration, within certain
limits. The Ipswich board requested KBW to prepare certain additional
information for its consideration at their next meeting, and also directed KBW
and Mr. Grey to negotiate further with respect to the value to be received by
Ipswich shareholders. The Ipswich board authorized Mr. Grey to permit Banknorth
to conduct due diligence at the offices of FH&E, with the protection of a
confidentiality agreement. Mr. Grey indicated that Banknorth was prepared to
begin its diligence the following day, including reviewing Ipswich documents and
conducting management interviews.
Over the next two days, officers of Banknorth and Ipswich met in the
offices of FH&E for the purpose of conducting due diligence reviews of each
other. On Wednesday, February 20, 2002, Mr. Grey discussed with Peter J.
Verrill, Senior Executive Vice President and Chief Operating Officer of
Banknorth, the consideration to be received by the Ipswich stockholders. Mr.
Verrill agreed to increase the price to $20.50 per share, with 51% of the
consideration to be paid in stock and 49% to be paid in cash. That afternoon,
Banknorth's counsel circulated an initial draft of the merger agreement, the
stock option agreement and related documents.
20
On the evening of Wednesday, February 20, the board of directors of Ipswich
met again, with KBW and FH&E representatives in attendance. At that meeting, the
Ipswich board had a lengthy discussion in which it assessed Ipswich's prospects
on a stand-alone basis, and reviewed the opportunities that would arise from
combining with Banknorth. KBW made a further financial presentation, including
responding to the questions that the Ipswich board had posed at the February 18
meeting. The KBW representative also reviewed other potential acquirors
(including Company A), including their financial ability to purchase Ipswich and
their potential interest in such an acquisition. He advised the Ipswich board
that, based upon his knowledge of the market and the institutions involved, he
believed that none of such other potential acquirors would likely have an
interest in and/or an ability to consummate a transaction with Ipswich,
particularly on terms as attractive as those proposed by Banknorth. In response
to a question from a board member about Company A, the KBW representative
indicated that, while Company A might be interested in entering the
Massachusetts market, he did not believe that it was likely to choose a small
bank in the far northeastern corner as its first foray into the state. The FH&E
representative briefly described the terms contained in the merger agreement and
other agreements that had been received that afternoon. At the end of the
meeting, following an analysis led by Ipswich's legal counsel, the Ipswich board
authorized management to proceed toward negotiation of a definitive agreement
with Banknorth.
Over the following five days, the parties and their advisors negotiated the
terms of the various agreements. On Tuesday, February 26, the Ipswich board of
directors met again. At that meeting, the Ipswich board reviewed with counsel
the detailed terms of the merger agreement and the stock option agreement, and
representatives of KBW presented a detailed analysis of the transaction from a
financial point of view (see "-- Opinion of Ipswich's Financial Advisor"). At
that meeting, a representative of KBW advised the Ipswich board that, in the
opinion of KBW, and based on facts known to KBW at that date, the consideration
to be received in the merger was fair, from a financial point of view, to the
Ipswich shareholders as of that date and delivered a written opinion to that
effect. He also stated that, absent significant change in the two companies'
financial condition or in the market for their stock, KBW would be prepared to
issue a similar written opinion as of the date of the prospectus/proxy statement
to be mailed to shareholders of Ipswich. The Ipswich board discussed the
transaction at some length, including the consideration to be paid by Banknorth,
the unlikelihood that there are any other natural potential acquirors who would
be able to pay a similar amount, the difficulty and the risk that would be
entailed in trying to obtain a similar rate of return for the shareholders as an
independent company, and the arrangements that Banknorth had agreed to make with
Mr. Grey. At that meeting, the board of directors of Ipswich unanimously voted
to approve the merger agreement, the stock option agreement and the related
agreements and to recommend that the Ipswich shareholders approve the merger
agreement and the merger.
The parties executed the merger agreement and related documents that
evening and publicly announced the merger on the morning of February 27, 2002.
IPSWICH'S REASONS FOR THE MERGER
Ipswich's board of directors consulted with senior management and Ipswich's
financial and legal advisors and considered a number of factors, including those
set forth below, in reaching its decision to approve the merger agreement and
the transactions contemplated by the merger agreement and to recommend that
Ipswich's shareholders vote "FOR" adoption and approval of the merger agreement
and approval of the merger.
The following discussion of Ipswich's reasons for the merger contains a
number of forward-looking statements that reflect the current views of Ipswich
with respect to future events that may have an effect on its future financial
performance. Forward-looking statements are subject to risks and uncertainties.
Actual results and outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Cautionary statements that identify
important factors that could cause or contribute to differences in results and
outcomes include those discussed under "Cautionary Statements Regarding
Forward-Looking Statements" beginning on page 14.
21
Review of Historical Performances. The Ipswich board of directors reviewed
and considered the respective businesses, operations, asset quality, financial
condition, earnings, strategic business plans, histories of successful
acquisitions, competitive positions and stock price performance of Ipswich and
Banknorth.
Compatibility of Cultures. The Ipswich board of directors considered the
similar community banking cultures and business philosophies of the two
companies, particularly with respect to customer service, efficiency, credit
quality, and meeting local banking needs and the companies' compatible
management teams. The Ipswich board was particularly cognizant of Banknorth's
focus on providing community banking services to its customers.
Projected Strength of Combined Entity. The Ipswich board of directors
considered the projected market capitalization and market position of the
combined entity (and in particular the access to greater financial resources to
capitalize on opportunities in the banking and financial services markets), the
diversification of the combined company's asset and deposit bases, the
introduction of several new products and services not presently offered by
Ipswich, and the ability of the combined company to compete more effectively in
New England (and in particular, Eastern Massachusetts).
Geographic Fit of Branch Networks. The Ipswich board considered the
geographic gap in Banknorth's branch network that is neatly filled by Ipswich's
branch network, and the effect that such complementary geographic coverage would
have on the combined enterprise's ability to prosper in its banking market.
Effect on Employees and Customers. The Ipswich board considered the likely
impact of the proposed merger on the employees and customers of Ipswich and its
subsidiaries, on the communities in which Ipswich presently conducts its
business and on Ipswich's other constituencies. Considered especially were the
expanded range of financial services and banking offices the combined company
would be well situated to offer Ipswich's customers. In addition, the Ipswich
board considered that the merger would likely provide most of Ipswich's
employees with continued employment, greater career advancement opportunities
and enhanced benefits.
Merger Consideration. Ipswich's board considered the amount and form of
the consideration offered by Banknorth in relation to the estimated value of
Ipswich's common stock. In particular the Ipswich board of directors looked at
the premium represented by the consideration to be offered to the holders of
Ipswich common stock in the merger. The Ipswich board also considered that the
structure of the merger consideration would provide Ipswich shareholders with
the flexibility of choosing to receive either cash or stock consideration,
within certain limits; and that those who chose to receive cash would be able to
obtain immediate liquidity and those who chose to receive stock would not only
have the ability to continue to participate in the growth of the combined
company on a tax-deferred basis but also would benefit from the significantly
greater liquidity of the trading market for Banknorth common stock.
Advice from Ipswich's Financial Advisor. Among other factors considered,
Ipswich's board of directors also considered the presentations made by KBW with
respect to the proposed consideration to be offered to the holders of Ipswich's
common stock in the merger. The Ipswich board also considered KBW's opinion that
as of the date thereof the merger consideration was fair, from a financial point
of view, to the holders of Ipswich common stock. The full text of this opinion
is attached to this document as Annex IV.
Certain Terms of the Merger Agreement and the Stock Option Agreement. In
evaluating the adequacy of the consideration to be received, the Ipswich board
considered the terms of the merger agreement, including the following:
- the provisions providing each Ipswich stockholder with the flexibility to
choose the form of merger consideration (stock or cash) received;
22
- the provisions providing for a fixed value of the stock consideration
payable to the Ipswich stockholders who elect to receive stock,
regardless of changes in the Banknorth stock price prior to the merger;
- the provisions providing salary and benefits continuation for Ipswich
employees whose employment is terminated following the merger;
- the provisions providing protection of employee and executive termination
benefits;
- the provisions providing for the reduction in the benefits Mr. Grey
otherwise would be entitled to receive under his existing employment and
benefit arrangements; and
- the provisions pertaining to Ipswich's ability to withdraw its
recommendation of the merger to the Ipswich shareholders and Ipswich's
ability to recommend another transaction to the Ipswich shareholders.
The Ipswich Board noted that the stock option granted pursuant to the stock
option agreement, and the terms of that agreement, could have the effect of
discouraging alternative proposals for a business combination between Ipswich
and a third party. However, the board of directors concluded that the number of
shares that Ipswich would be required to issue (or the amount of the fee that
Ipswich would be obligated to pay), and the circumstances under which it may be
issuable (or payable), are typical for transactions of this size and type, are
not likely to discourage any such proposals and were necessary to induce
Banknorth to enter into the merger agreement.
Limited Closing Conditions and Likelihood of Obtaining Approvals. The
Ipswich board considered the limited nature of the closing conditions included
in the merger agreement and the likelihood of obtaining the regulatory and
shareholder approvals that would be required in order to consummate the merger
within a reasonable timeframe.
Tax Treatment of Merger. The Ipswich board considered the treatment of the
merger as a reorganization for federal income tax purposes. The Ipswich board
also noted that generally Ipswich shareholders who elect to receive Banknorth
common stock in exchange for their shares of Ipswich common stock are not
expected to recognize gain or loss for United States federal income tax purposes
in connection with the merger, except for taxes payable in respect of cash
received instead of fractional share interests.
Review of Prospects in Remaining Independent. Ipswich's board considered
Ipswich's financial condition, results of operations and business and earnings
prospects if it were to remain an independent entity.
In considering the opinion of KBW that the merger consideration is fair to
Ipswich shareholders from a financial point of view, the Ipswich board took into
account that the various types of financial analyses ordinarily used to support
this type of opinion inevitably have limitations. These limitations were
explained to the Ipswich board by KBW at the time the board considered and
approved the merger and the merger agreement.
The foregoing discussion of the information and factors considered by
Ipswich's board, while not exhaustive, includes the material factors considered
by the board of directors. In view of the variety of factors considered in
connection with its evaluation of the merger, Ipswich's board did not find it
practicable to, and did not, quantify or otherwise assign relative or specific
weight or values to any of these factors, and individual directors may have
given different weights to different factors.
RECOMMENDATION OF IPSWICH'S BOARD OF DIRECTORS
After careful consideration, Ipswich's board of directors has unanimously
determined that the merger agreement is advisable, in the best interests of
Ipswich's shareholders and on terms that are fair to the shareholders of
Ipswich. Accordingly, the board of directors of Ipswich has unanimously approved
the
23
merger agreement and recommends that Ipswich shareholders vote "FOR" approval of
the merger agreement.
BANKNORTH'S REASONS FOR THE MERGER
Banknorth entered into the merger agreement with Ipswich because, among
other things, Banknorth believes the merger is consistent with its expansion
strategy within the northeastern United States. The Ipswich franchise is a
natural extension of Banknorth's current operations in Massachusetts, and
Banknorth believes the merger will enhance its competitive position in the
markets currently served.
OPINION OF IPSWICH'S FINANCIAL ADVISOR
Ipswich retained Keefe, Bruyette & Woods, Inc. to act as its financial
advisor in connection with the merger. On February 26, 2002, the board of
directors of Ipswich held a meeting to evaluate the proposed merger. At this
meeting, KBW rendered its opinion that, as of that date and based upon and
subject to the factors and assumptions set forth in its opinion, the merger
consideration was fair, from a financial point of view, to the Ipswich
shareholders. KBW subsequently confirmed and updated its opinion by delivering
to the board of directors of Ipswich a written opinion dated as of the date of
this document. In connection with its updated opinion, KBW confirmed the
appropriateness of its reliance on the analyses used to render its earlier
opinion. KBW also performed procedures to update certain of its analyses and
reviewed the assumptions used in its analyses and the factors considered in
connection with its earlier opinion.
Ipswich did not provide specific instructions to, or place any limitation
on, KBW with respect to the procedures to be followed or factors to be
considered by KBW in performing its analyses or providing its opinion.
The full text of the KBW opinion, which describes, among other things, the
assumptions made, matters considered, and qualifications and limitations on the
review undertaken by KBW is attached as Annex IV to this document and is
incorporated in this document by reference. Ipswich shareholders are urged to
read KBW's opinion carefully and in its entirety.
KBW's opinion is directed to the board of directors of Ipswich and
addresses only the fairness, from a financial point of view, of the merger
consideration to be paid to Ipswich shareholders. The opinion does not address
any other aspect of the merger or any related transaction, nor does it
constitute a recommendation to any shareholder as to how to vote at the special
meeting. The summary of the fairness opinion set forth in this document is
qualified in its entirety by reference to the full text of the opinion.
In arriving at its opinion, KBW, among other things:
- reviewed certain publicly available business and financial information
relating to Ipswich and Banknorth that KBW deemed to be relevant;
- reviewed certain information relating to the respective businesses,
earnings, assets, liabilities and prospects of Ipswich and Banknorth
furnished to KBW by the senior management of Ipswich and Banknorth, as
well as the amount of cost savings expected to result from the merger by
senior management of Banknorth;
- reviewed the market prices and valuation multiples for Ipswich common
stock and Banknorth common stock and compared them with those of certain
publicly traded companies that KBW deemed to be relevant;
- reviewed the respective publicly reported financial condition and results
of operations of Ipswich and Banknorth and compared them with those of
certain publicly traded companies that KBW deemed to be relevant;
- compared the proposed financial terms of the merger with the financial
terms of certain other transactions that KBW deemed to be relevant;
24
- participated in certain discussions among representatives of Ipswich and
Banknorth and their financial and legal advisors with respect to the
merger;
- reviewed the potential pro forma impact of the merger;
- reviewed the most recent draft of the merger agreement and the related
stock option agreements provided to KBW; and
- reviewed other financial studies and analyses and took into account other
matters that KBW deemed necessary.
In rendering its opinion, KBW assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to KBW, or
that was discussed with, or reviewed by or for KBW, or that was publicly
available. KBW also did not assume any responsibility for independently
verifying this information or undertake an independent evaluation or appraisal
of the assets or liabilities of Ipswich or Banknorth, and KBW has not been
furnished any evaluation or appraisal on these matters.
KBW is not an expert in the evaluation of allowances for loan losses, and
neither made an independent evaluation of the adequacy of the allowances for
loan losses of Ipswich or Banknorth, nor reviewed any individual credit files of
Ipswich or Banknorth or been requested to conduct such a review. As a result,
KBW has assumed that the aggregate allowances for loan losses for both Ipswich
and Banknorth are adequate to cover such losses and will be adequate on a pro
forma basis for the combined company. In addition, KBW did not assume any
obligation to conduct, and KBW did not conduct, any physical inspection of the
properties or facilities of Ipswich or Banknorth. With respect to the financial
and operating forecast information furnished to or discussed with KBW by Ipswich
or Banknorth, including without limitation, financial forecasts, valuations of
contingencies and projections regarding under-performing and non-performing
assets, net charge-offs, adequacy of reserves, future economic conditions and
information on the cost savings, revenue enhancements and related expenses
expected to result from the merger, KBW assumed that the information was
reasonably prepared and reflects the best currently available estimates and
judgments of the senior management of Ipswich and Banknorth as to the future
financial and operating performance of Ipswich, Banknorth, or the combined
entity, as the case may be, and the expected cost savings, revenue enhancements,
and related expenses. KBW's opinion is based upon market, economic and other
conditions as in effect on, and on the information made available to KBW as of,
the date of its opinion.
For purposes of rendering its opinion, KBW assumed that, in all respects
material to its analyses:
- the merger will be completed substantially in accordance with the terms
set forth in the merger agreement;
- the representations and warranties of each party in the merger agreement
and in all related documents and instruments referred to in the merger
agreement are true and correct;
- Ipswich and Banknorth will perform all of the covenants and agreements
required to be performed by them under the merger agreement and any
related documents;
- all conditions to completing the merger will be satisfied without any
waivers; and
- in the course of obtaining any necessary regulatory, contractual, or
other consents or approvals for the merger, no restrictions, including
any divestiture requirements or amendments or modifications, will be
imposed that will have a material adverse effect on the future results of
operations or financial condition of Ipswich, Banknorth, or the combined
entity, or the contemplated benefits of the merger, including the cost
savings, revenue enhancements and related expenses expected to result
from the merger.
25
- KBW's opinion is not an expression of an opinion as to the prices at
which shares of Ipswich common stock or shares of Banknorth common stock
will or may trade following the announcement of the merger, or the actual
value of the shares of common stock of Banknorth when issued pursuant to
the merger, or the prices at which the shares of common stock of the
combined entity will trade following the completion of the merger.
Analyses of KBW. In performing its analyses, KBW made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
KBW, Ipswich and Banknorth. Any estimates contained in the analyses performed by
KBW are not necessarily indicative of actual values or future results which may
be significantly more or less favorable than suggested by these analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, these analyses and estimates are inherently
subject to substantial uncertainty. The KBW opinion was among several factors
taken into consideration by Ipswich's board of directors in making its
determination to approve the merger agreement and the merger. In addition,
Ipswich's board did not rely on single analysis in making its determination.
Consequently, the analyses described below should not be viewed as determinative
of the decision of Ipswich's board of directors or management with respect to
the fairness of the merger consideration.
The following is a summary of the material financial analyses presented by
KBW to the board of directors of Ipswich on February 26, 2002 in connection with
the rendering of its opinion on that date. The summary is not a complete
description of the analyses underlying the KBW opinion or the presentation made
by KBW to Ipswich's board of directors, but summarizes the material analyses
performed and presented in connection with its opinion. The preparation of a
fairness opinion is a complex analytic process involving various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances. Therefore, a
fairness opinion is not readily susceptible to partial analysis or summary
description.
In arriving at its opinion, KBW did not attribute any particular weight to
any analysis or factor that it considered, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor. The financial
analyses summarized below include information presented in tabular format.
Accordingly, KBW believes that its analyses and the summary of its analyses must
be considered as a whole and that selecting portions of its analyses and factors
or focusing on the information presented below in tabular format, without
considering all analyses and factors or the full narrative description of the
financial analyses, including the methodologies and assumptions underlying the
analyses, could create a misleading or incomplete view of the process underlying
its analyses and opinion. The tables alone do not constitute a complete
description of the financial analyses.
Summary of Analyses. The following table summarizes and compares the
transaction value and pricing multiples associated with Banknorth's acquisition
of Ipswich with the values and relevant multiples developed from each of the
valuation methodologies employed by KBW. Each of the valuation methodologies and
comparisons are described in greater detail in the paragraphs that follow.
26
DISCOUNTED KBW KBW
DISCOUNTED CASH FLOW SELECTED SELECTED
IPSWICH BANKNORTH CASH FLOW ANALYSIS NEW ENGLAND NEW ENGLAND
PEER PEER ANALYSIS WITH BANK THRIFT
BANKNORTH/ GROUP GROUP STAND FUTURE TRANSACTION TRANSACTION
IPSWICH MEDIANS MEDIANS ALONE SALE MEDIANS MEDIANS
---------- ------- --------- ---------- ----------- ----------- -----------
Value per share.............. $20.50 NA NA $11.80 $17.40 NA NA
to to
$16.80 $22.71
Value per share as a multiple
of:
Last twelve months diluted
earnings per share....... 15.0x NA NA NA NA 16.0x 15.1x
Estimated earnings per
share.................... 12.6x 12.9x 13.7x NA NA 13.2x 13.9x
Book value per share....... 2.61x 1.21x 2.20x NA NA 193% 188%
Tangible book value per
share.................... 2.61x 1.30x 3.03x NA NA 193% 212%
Market value............... 1.55x NA NA NA NA 50% 36%
Transaction value as a
premium to core deposits... 11.4% NA NA NA NA 17.8% 12.9%
Calculation of Transaction Value. KBW reviewed the terms of the merger and
noted that pursuant to the merger agreement, each issued and outstanding share
of Ipswich common stock, shall be converted into, following the election of the
holder and subject to the limitations set forth in the merger agreement, the
right to receive (i) $20.50 in cash, or (ii) the number of Banknorth shares,
which is equal to the quotient determined by dividing (x) $20.50 by (y) the
average share price of Banknorth common stock over a twenty day period as more
fully described in the merger agreement. Holders of Ipswich common stock may
elect to receive the cash consideration, or the stock consideration (as elected,
the "merger consideration"), provided that 51% of the aggregate consideration to
be received by holders of Ipswich common stock shall consist of the stock
consideration and 49% of the aggregate consideration shall consist of cash
consideration.
KBW noted that the most recent closing price of Ipswich common stock
preceding the Ipswich board meeting on February 26, 2002 was $13.25. KBW also
noted that, based on the per share merger consideration, the transaction had an
implied aggregate value of approximately $42 million as of February 26, 2002.
Transaction Pricing Multiple Analysis. Based on the per share merger
consideration to be paid to Ipswich of $20.50 as of February 26, 2002, KBW
calculated the per share merger consideration value as a multiple of Ipswich's
last twelve months diluted earnings per share, Ipswich's estimated earnings per
share for the year 2002 (based on Ipswich management estimate as of February 26,
2002 of $1.63), and Ipswich's stated book value and its stated tangible book
value per share (based on financial data for the period ended December 31, 2001
per share). KBW also calculated the premium to the per share closing price of
Ipswich's common stock on that date and to its core deposits.
Per share merger consideration as a multiple of Ipswich's:
Last twelve months diluted earnings per share............. 15.0x
Estimated 2002 earnings per share......................... 12.6x
Book value per share...................................... 2.61x
Tangible book value per share............................. 2.61x
Market value.............................................. 1.55x
Transaction value as a premium to core deposits............. 11.4%
27
Peer Group Stock Trading Analysis -- Ipswich. KBW compared selected
operating and stock market results of Ipswich to the publicly available
corresponding data for the following companies, which are New England based
savings banks, that KBW determined were comparable to Ipswich:
- Abington Bancorp, Inc.
- Alliance Bancorp of New England,
Inc.
- Bay State Bancorp, Inc.
- Central Bancorp, Inc.
- Falmouth Bancorp, Inc.
- Hingham Institution for Savings
- LSB Corporation
- Massachusetts Fincorp, Inc.
- Mayflower Co-operative Bank
- Mystic Financial, Inc.
- New Hampshire Thrift Bancshares,
Inc.
- NewMil Bancorp, Inc.
- Northeast Bancorp
- Warren Bancorp, Inc.
- Woronoco Bancorp Inc.
The following table compares selected financial data of Ipswich with
corresponding mean and median data for the companies selected by KBW which data
is based on financial data at or for the three months ended December 31, 2001,
earnings estimates from I/B/E/S as of February 2002, and market prices as of
February 25, 2002. The calculations of price-to-2002 I/B/E/S estimated earnings
per share are based on estimated earnings per share calculated in accordance
with accounting principles generally accepted in the United States of America.
PEER PEER
GROUP GROUP
IPSWICH MEAN MEDIAN
------- ------ ------
Core Return on Assets (%).................................. 1.06 0.89 0.91
Core Return on Equity (%).................................. 22.25 10.52 9.91
Net Interest Margin (%).................................... 3.54 3.58 3.44
Efficiency Ratio (%)....................................... 63.06 64.70 64.39
Equity/Assets (%).......................................... 4.71 8.59 8.68
Tangible Equity/Tangible Assets (%)........................ 4.71 8.24 8.56
Loan Loss Reserve/Non-Performing Loans (%)................. NM 288 262
Non-Performing Assets/(Loans + OREO) (%)................... 0.09 0.23 0.05
Net Charge-offs/Average Loans (%).......................... -0.08 -0.01 0.00
% Price Change Since 12/31/00 (%).......................... 45 41 43
Market/Book Value (x)...................................... 1.69 1.21 1.16
Market/Tangible Book Value (x)............................. 1.69 1.30 1.25
Price/2002 Estimated Earnings Per Share (x)................ 8.1 12.9 13.2
Dividend Yield (%)......................................... 3.6 2.6 2.4
Peer Group Analysis -- Banknorth. KBW also compared selected operating and
stock market results of Banknorth to the publicly available corresponding data
for the following companies, which are commercial banking institutions, that KBW
determined were comparable to Banknorth:
- Associated Banc-Corp. - Huntington Bancshares Inc.
- BOK Financial Corporation - Marshall & Ilsley Corporation
- Colonial BancGroup, Inc. - M & T Bank Corporation
- Compass Bancshares, Inc. - National Commerce Financial Corp
- FirstMerit Corporation - North Fork Bancorporation, Inc.
- First Tennessee National Corp. - TCF Financial Corporation
- First Virginia Banks, Inc. - Union Planters Corporation
- Hibernia Corporation - Zions Bancorporation
28
The following table compares selected financial data of Banknorth with
corresponding mean and median data for the companies selected by KBW, which data
is based on financial data at or for the three months ended December 31, 2001,
earnings estimates from I/B/E/S as of February 2002, and market prices as of
February 25, 2002. The calculations of price-to-2002 and 2003 I/B/E/S estimated
earnings per share are based on estimated earnings per share calculated in
accordance with accounting principles generally accepted in the United States of
America.
PEER PEER
GROUP GROUP
BANKNORTH MEAN MEDIAN
--------- ------ ------
Core Return on Assets (%)................................ 1.33 1.40 1.34
Core Return on Equity (%)................................ 15.67 15.98 14.20
Cash Return on Tangible Assets (%)....................... 1.46 1.66 1.72
Cash Return on Tangible Equity (%)....................... 21.55 24.69 24.22
Net Interest Margin (%).................................. 4.13 4.39 4.44
Efficiency Ratio (%)..................................... 54.0 53.5 54.0
Equity/Assets (%)........................................ 8.49 8.78 8.70
Tangible Equity/Tangible Assets (%)...................... 6.42 6.83 6.80
Loan/Deposit Ratio (%)................................... 89.4 99.5 98.4
Loan Loss Reserve/Loans (%).............................. 1.49 1.43 1.45
Non-Performing Assets/(Loans + OREO) (%)................. 0.64 0.71 0.76
Net Charge-offs/Average Loans (%)........................ 0.44 0.49 0.36
Market/Book Value (x).................................... 2.03 2.45 2.20
Market/Tangible Book Value (x)........................... 2.75 3.31 3.03
Price/2002 Estimated Earnings Per Share (x).............. 11.8 14.0 13.7
Price/2003 Estimated Earnings Per Share (x).............. 10.7 12.7 12.7
Dividend Yield (%)....................................... 2.3 2.6 3.0
Comparable Transaction Analysis. KBW also compared the foregoing analyses
to comparable data from selected New England merger transactions in the banking
and thrift industry that have occurred since December 31, 1999. The following
transactions were reviewed by KBW in this process (in each case, the first named
company is the acquiror and the second named company is the acquired company in
the transaction):
Bank Transactions: Washington Trust Bancorp, Inc./First Financial Corp.; GBC
Bancorp/Liberty Bank & Trust Company; Chittenden Corporation/Ocean National
Corporation; Chittenden Corporation/Maine Bank Corp.; United Parcel Service
Incorporated/First International Bancorp, Inc.; Andover Bancorp, Inc./ GBT
Bancorp;
Thrift Transactions: Firstfed America Bancorp, Inc./People's Bancshares, Inc.;
American Financial Holdings, Inc./American Bank of Connecticut; Banknorth Group,
Inc./Andover Bancorp, Inc.; Banknorth Group, Inc./MetroWest Bank; Danvers
Bancorp, Inc./RFS Bancorp, Inc. (MHC); Norway Bancorp, MHC/First Coastal
Corporation; Connecticut Bancshares, Inc./First Federal Savings & Loan of East
Hartford; Liberty Bank/Hometown Bank; Seacoast Financial Services Corp./Home
Port Bancorp, Inc.; NewMil Bancorp, Inc./Nutmeg Federal Savings & Loan
Association; and Union Bankshares Company/ Mid-Coast Bancorp, Inc.
KBW considered these transactions to be reasonably similar to the merger,
but none of the transactions are identical to the merger. For the transactions
selected by KBW, the comparable data used was taken as of the announcement date
of those transactions. The results of KBW's analysis are set forth in the
following table.
29
KBW SELECTED
TRANSACTIONS
NEW ENGLAND
-----------------
BANKNORTH/ BANK THRIFT
IPSWICH MEDIANS MEDIANS
---------- ------- -------
Per share Merger Consideration as a multiple of:
Last twelve months diluted earnings per share......... 15.0x 16.0x 15.1x
Estimated earnings per share.......................... 12.6x 13.2x 13.9x
Book value per share.................................. 2.61x 1.93x 1.88x
Tangible book value per share......................... 2.61x 1.93x 2.12x
Market value.......................................... 1.55x 1.50x 1.36x
Transaction value as a premium to core deposits......... 11.4% 17.8% 12.9%
An analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the merger, public trading or other values
of the companies to which they are being compared. In addition, mathematical
analyses, such as determining the mean or median, are not of themselves
meaningful methods of using comparable transaction data or comparable company
data.
Discounted Cash Flow Analysis -- Ipswich. KBW performed a discounted cash
flow/dividend analysis to estimate a range of present values per share of
Ipswich common stock under two scenarios: (1) assuming Ipswich continued to
operate as a stand-alone entity, and (2) assuming Ipswich operated as a
stand-alone entity for a period of five years and then sold the institution.
This range was determined by adding (1) the present value of the estimated
future dividends that Ipswich could generate through December 31, 2006, and (2)
the present value of the terminal value, which is a representation of the value
the entity at a specified time in the future, of Ipswich common stock.
In calculating a terminal value of Ipswich common stock, KBW applied
multiples of 7.0x to 10.0x to year 2007 projected earnings per share assuming
Ipswich continued to operate as a stand-alone entity. These multiples were used
to approximate current stock market trading multiples for Ipswich. KBW also
applied multiples of 11.0x to 14.0x to year 2007 projected earnings per share
which assumed Ipswich operated as a stand-alone entity for five years and then
sold the institution in a change of control transaction. The dividend stream and
terminal values were then discounted back using discount rates of 12.0%, 13.0%
and 14.0%. KBW viewed these rates as the appropriate range of discount rates for
a company with Ipswich's risk characteristics.
In performing this analysis, KBW used Ipswich management earnings per share
estimates for 2002 ($1.63), 2003 ($1.78), and 2004 ($1.99). For periods after
2004, earnings per share were assumed to increase at a growth rate of 9.0% to
11.0%. KBW determined that the stand-alone present value of the Ipswich common
stock ranged from $11.80 to $16.80 per share. KBW also determined that the
present value of the Ipswich common stock assuming independent operation for a
period of five years and then a change of control sale ranged from $17.40 to
$22.71 per share.
The results of KBW's discounted cash flow analysis are set forth in the
following tables.
STAND ALONE WITH
STAND ALONE (1) SALE (2)
----------------- -----------------
Multiple Applied Multiple Applied
7.0 X 10.0 X 11.0 X 14.0 X
------- ------- ------- -------
EPS Growth Rate = 9.0%............................. $11.80 $16.00 $17.40 $21.59
EPS Growth Rate = 10.0%............................ $12.08 $16.40 $17.84 $22.15
EPS Growth Rate = 11.0%............................ $12.37 $16.80 $18.28 $22.71
(notes on the following page)
30
---------------
(1) Present value (assuming a 13% discount rate) of the Ipswich common stock
after five years of independent operation and continued independent
operation thereafter.
(2) Present value (assuming a 13% discount rate) of the Ipswich common stock
after five years of independent operation and sale of Ipswich at the end of
the fifth year.
STAND ALONE WITH
STAND ALONE (1) SALE(2)
----------------- -----------------
Multiple Applied Multiple Applied
7.0 X 10.0 X 11.0 X 14.0 X
------- ------- ------- -------
Discount Rate = 12.0%...................................... $12.60 $17.10 $18.61 $23.12
Discount Rate = 13.0%...................................... $12.08 $16.40 $17.84 $22.15
Discount Rate = 14.0%...................................... $11.60 $15.73 $17.10 $21.23
---------------
(1) Present value (assuming a 10% per year growth rate in Ipswich's earnings per
share) of the Ipswich common stock after five years of independent operation
and continued independent operation thereafter.
(2) Present value (assuming a 10% per year growth rate in Ipswich's earnings per
share) of the Ipswich common stock after five years of independent operation
and sale of Ipswich at the end of the fifth year.
The analyses set forth in the discounted cash flow analysis discussion do
not necessarily indicate actual values or actual future results and do not
purport to reflect the prices at which any securities may trade at the present
or at any time in the future. The discount rates applied to Ipswich referred to
in the paragraphs above were based on several factors including KBW's knowledge
of Ipswich and the industry in which they operate, the business risk of the
company and the overall interest rate environment. Dividend discount analysis is
a widely used valuation methodology, but the results of this methodology are
highly dependent upon the numerous assumptions that must be made including
earnings growth rates, dividend payout rates, terminal values and discount
rates.
Pro Forma Financial Impact. Based on the per share merger consideration,
KBW also analyzed the pro forma per share financial impact of the merger on
Banknorth's GAAP earnings per share and cash earnings per share for 2002 and
2003. KBW also analyzed the pro forma financial impact of the merger on
Banknorth's book value per share, tangible book value per share and leverage
ratio. This analysis was based on I/B/E/S earnings estimates and estimated
after-tax synergies of $0.7 million in 2002 and $1.5 million in 2003. The
analysis also included the impact of an estimated restructuring charge equal to
$3.4 million after tax. The analysis indicated that the impact of the merger
would be accretive, or additive, to Banknorth on a GAAP and cash earnings per
share basis for both 2002 and 2003. The analysis further indicated that the
merger would be accretive to Banknorth's book value per share, dilutive to, or
decrease, Banknorth's tangible book value per share, and dilutive to Banknorth's
leverage ratio. The following table sets forth the results of KBW's analyses.
The actual operating and financial results achieved by the pro forma
combined company may vary from projected results and variations may be material
as a result of business and operational risks, the timing, amount and costs
associated with achieving cost savings and revenue enhancements, as well as
other factors.
31
ACCRETION/(DILUTION)
--------------------
Banknorth GAAP EPS Impact
2002............................................. 0.2%
2003............................................. 0.4%
Banknorth Cash EPS Impact
2002............................................. 0.3%
2003............................................. 0.6%
Banknorth Book Value per share..................... 0.4%
Banknorth Tangible Book Value per share............ (1.5)%
Banknorth Leverage Ratio........................... (0.1)%
Ipswich retained KBW based upon its experience and expertise. KBW is a
nationally- recognized investment banking and advisory firm. As part of its
investment banking business, KBW is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In addition, in the ordinary course of its business, KBW may actively trade
the equity securities of Ipswich or the debt and equity securities of Banknorth
for their own account and/or the accounts of their respective customers, and,
accordingly, may at any time hold long or short positions in these securities.
In the past two years, KBW has provided to both Ipswich and Banknorth financial
advisory, investment banking and other services unrelated to the proposed
merger. KBW may provide these types of services to the combined company in the
future and receive fees for those services.
Pursuant to a letter agreement between Ipswich and KBW, dated as of
February 26, 2002, Ipswich agreed to pay KBW for financial advisory services
rendered through the closing of the merger a fee of 0.90% of the aggregate
merger consideration. Based on the per share merger consideration, the aggregate
fee payable to KBW is approximately $378,000, of which $50,000 has been paid,
$100,000 will be paid upon the mailing of this document, and the balance of
which is contingent upon closing of the merger. Ipswich also agreed, among other
things, to indemnify KBW and its affiliates from and against certain liabilities
and expenses, which may include certain liabilities under federal securities
laws, in connection with its engagement.
MERGER CONSIDERATION AND ELECTION AND EXCHANGE PROCEDURES
Upon consummation of the merger, each outstanding share of Ipswich common
stock will be converted into the right to receive $20.50 in cash or shares of
Banknorth common stock, at the election of each Ipswich shareholder and subject
to the election, allocation and proration procedures set forth in the merger
agreement and described below. See "-- Merger Consideration," "-- Election
Procedures" and "-- Allocation Procedures" below. No fractional shares of
Banknorth common stock will be issued in connection with the merger. Instead,
Banknorth will make a cash payment to each Ipswich shareholder who would
otherwise receive a fractional share.
THE FORM OF THE CONSIDERATION ULTIMATELY RECEIVED BY YOU WILL DEPEND UPON
THE ELECTION, ALLOCATION AND PRORATION PROCEDURES DESCRIBED BELOW AND THE
CHOICES OF OTHER IPSWICH SHAREHOLDERS. ACCORDINGLY, NO GUARANTEE CAN BE GIVEN
THAT THE CHOICE OF ANY GIVEN SHAREHOLDER OF IPSWICH WILL BE HONORED.
In addition, because the tax consequences will be dependent on the form of
consideration received, Ipswich shareholders are urged to read carefully the
information set forth below under "-- Federal Income Tax Consequences" beginning
on page 47.
32
Merger Consideration. The merger agreement provides that each share of
Ipswich common stock outstanding immediately prior to the effective time of the
merger (except for any (i) shares held by Banknorth or Ipswich, other than in a
fiduciary capacity or in satisfaction of a debt previously contracted, and (ii)
dissenting shares) shall be converted into, and shall be cancelled in exchange
for, the right to receive either:
- the number of shares of Banknorth common stock which is equal to the
quotient (which is known as the exchange ratio) determined by dividing
$20.50 by the average share price of the Banknorth common stock (which
is referred to as the per share stock consideration), except that cash
will be paid for any remaining fractional shares, or
- cash in an amount equal to $20.50 (which is referred to as the per share
cash consideration).
As described under "-- Elections" below, Ipswich shareholders will have the
opportunity to elect the form of consideration to be received for all shares of
Ipswich common stock held by them, subject to allocation and proration
procedures set forth in the merger agreement which are intended to ensure that
51% of the outstanding shares of Ipswich common stock will be converted into the
right to receive Banknorth common stock and 49% of the outstanding shares of
Ipswich common stock will be converted into the right to receive cash.
For purposes of the merger agreement, the "average share price" of the
Banknorth common stock shall mean the average of the closing sales prices of a
share of Banknorth common stock, as reported on the Nasdaq Stock Market's
National Market, for the 20 trading-day period ending with the close of business
on the business day preceding the effective time of the merger.
The value of the Banknorth common stock to be received by you will depend
on the market price of the Banknorth common stock at the effective time of the
merger. The market price of Banknorth common stock is subject to change at all
times based on the future financial condition and operating results of
Banknorth, future market conditions and other factors. The market price of the
Banknorth common stock at the effective time of the merger or at the time that
Ipswich shareholders who receive Banknorth common stock in the merger actually
receive stock certificates evidencing those shares may be higher or lower than
recent prices. For information concerning the historical prices of the Banknorth
common stock, see "Market for Common Stock and Dividends" beginning on page 56.
You are urged to obtain current market prices for the Banknorth common stock in
connection with voting your shares on the merger agreement at the annual meeting
and making your election decision.
Elections. No later than five business days after the effective time of
the merger, you will be sent an election form which will permit you
- to elect to receive Banknorth common stock in exchange for all shares of
Ipswich common stock held by you, plus cash in lieu of any fractional
share interest,
- to elect to receive cash in exchange for all shares of Ipswich common
stock held by you or
- to indicate that you make no election with respect to the consideration
to be received by you in exchange for your shares of Ipswich common
stock.
The Ipswich shares in these three categories are referred to below as stock
election shares, cash election shares and no-election shares.
If you either
- do not submit a properly completed election form in a timely fashion or
- revoke your election form prior to the deadline for the submission of the
election form and do not resubmit a properly completed election form by
the election form deadline,
the shares of Ipswich common stock held by you will be designated no-election
shares.
Any dissenting shares under Massachusetts law shall be deemed to have made
cash elections for all of such shares and under no circumstances will such
shares be reallocated as stock election shares pursuant to the allocation
procedures described below.
33
Election Procedures. All elections will be required to be made on an
election form. To make an effective election with respect to your shares of
Ipswich common stock, you must, in accordance with the election form,
- properly complete and return the transmittal and election forms to be
provided to you to the exchange agent designated by Banknorth to receive
these materials,
- deliver the transmittal and election forms with your stock certificates
representing such shares (or an appropriate guarantee of delivery of such
certificates) and
- deliver with the transmittal and election forms any other required
documents prior to the deadline for returning these documents.
It is currently anticipated that the transmittal and election forms will be
mailed to you within five days after the merger is completed.
The deadline for surrendering all documentation required for an effective
election (the "election deadline date") will be set forth in the election
instructions and will be 20 business days following the mailing of the letter of
transmittal and election form (approximately four weeks), although the date may
be extended by mutual agreement of Banknorth and Ipswich.
YOU SHOULD NOT RETURN YOUR IPSWICH STOCK CERTIFICATES WITH THE ENCLOSED
PROXY, AND STOCK CERTIFICATES SHOULD NOT BE FORWARDED TO BANKNORTH, IPSWICH OR
ANY OTHER PARTY UNTIL YOU HAVE RECEIVED THE TRANSMITTAL AND ELECTION FORMS.
IF YOU HAVE A PARTICULAR PREFERENCE AS TO THE FORM OF CONSIDERATION TO BE
RECEIVED FOR YOUR SHARES OF IPSWICH COMMON STOCK, YOU SHOULD MAKE AN ELECTION
BECAUSE SHARES AS TO WHICH AN ELECTION HAS BEEN MADE WILL BE GIVEN PRIORITY IN
ALLOCATING SUCH CONSIDERATION OVER SHARES AS TO WHICH AN ELECTION HAS NOT BEEN
MADE. NEITHER THE IPSWICH BOARD NOR ITS FINANCIAL ADVISOR MAKES ANY
RECOMMENDATION AS TO WHETHER SHAREHOLDERS SHOULD ELECT TO RECEIVE THE CASH
CONSIDERATION OR THE STOCK CONSIDERATION IN THE MERGER. YOU MUST MAKE YOUR OWN
DECISION WITH RESPECT TO SUCH ELECTION, BEARING IN MIND THE TAX CONSEQUENCES OF
THE ELECTION YOU CHOOSE. SEE "-- FEDERAL INCOME TAX CONSEQUENCES" BEGINNING ON
PAGE 47.
EVEN IF YOU HAVE NO PREFERENCE, IT IS SUGGESTED THAT YOU RETURN YOUR
TRANSMITTAL AND ELECTION FORMS, TOGETHER WITH YOUR STOCK CERTIFICATE(S), BY THE
ELECTION DEADLINE DATE INDICATING THAT YOU HAVE NO PREFERENCE, SO THAT YOU MAY
RECEIVE THE MERGER CONSIDERATION ALLOCABLE TO YOU PROMPTLY FOLLOWING COMPLETION
OF THE EXCHANGE PROCEDURES AFTER THE MERGER IS CONSUMMATED. SEE " -- PROCEDURES
FOR EXCHANGING IPSWICH COMMON STOCK CERTIFICATES" BEGINNING ON PAGE 35.
Allocation Procedures. Your ability to receive all cash or all shares of
Banknorth common stock in exchange for your shares of Ipswich common stock in
the merger is subject to allocation procedures which are designed to ensure that
the total consideration to all Ipswich shareholders is payable 51% in Banknorth
common stock and 49% in cash. Pursuant to the merger agreement, the aggregate
cash consideration shall amount to the product of the number of shares of
Ipswich common stock and Ipswich stock units outstanding immediately prior to
the effective time of the merger times .49 times $20.50. The aggregate cash
consideration would amount to $21.5 million based on the number of shares of
Ipswich common stock and Ipswich stock units outstanding on the record date for
the annual meeting and $21.6 million assuming the exercise of all outstanding
options to purchase shares of Ipswich common stock under Ipswich's stock option
plans.
If the total cash elections by Ipswich shareholders are greater, or less,
than the aggregate cash consideration, the elections will be reallocated as
follows so that the resultant exchange for cash is as close as practicable to
the aggregate cash consideration:
- If the cash elections total more than the aggregate cash consideration,
all no-election shares will be converted to stock election shares and a
sufficient number of shares from among the holders of cash election
shares (excluding shares of Ipswich common stock held by dissenting
shareholders) will be converted on a pro rata basis into stock election
shares, so that the total cash paid equals as closely
34
as practicable the aggregate cash consideration. This proration will
reflect the proportion that the number of cash election shares of each
holder of cash election shares bears to the total number of cash election
shares.
- If the cash elections total less than the aggregate cash consideration, a
sufficient number of shares will be converted into cash election shares,
first from among the holders of no-election shares and then, if
necessary, from among the holders of stock election shares on a pro rata
basis, so that the total cash paid equals as closely as practicable the
aggregate cash consideration. This proration will reflect the proportion
that the number of stock election shares of each holder of stock election
shares bears to the total number of stock election shares.
Upon consummation of the merger, any shares of Ipswich common stock that
are owned by Ipswich as treasury stock or that are held directly or indirectly
by Banknorth, other than in a fiduciary capacity or in satisfaction of a debt
previously contracted, will be canceled and retired and no payment will be made
with respect to those shares and such shares will not be considered for purposes
of the foregoing allocation procedures.
PROCEDURES FOR EXCHANGING OF IPSWICH COMMON STOCK CERTIFICATES
Ipswich shareholders who surrender their stock certificates and complete
transmittal and election forms prior to the election deadline date, or any
extension of such time period, will automatically receive the merger
consideration allocated to them as the result of the merger promptly following
completion of the allocation procedures. The exchange agent will complete the
allocation within 10 business days after the election deadline date. Other
shareholders will receive the merger consideration allocated to them as soon as
practicable after their stock certificates have been surrendered with
appropriate documentation to the exchange agent or other steps have been taken
to surrender the evidence of their stock interest in Ipswich in accordance with
the instructions accompanying the letter of transmittal form.
Within five business days after the completion of the merger, the exchange
agent (which will be a bank or trust company selected by Banknorth), will mail
to each holder of record of Ipswich common stock a letter of transmittal and
instructions for use in effecting the surrender of the certificates in exchange
for the merger consideration allocated to them. Upon surrender of a stock
certificate for Ipswich common stock for exchange and cancellation to the
exchange agent, together with a duly executed letter of transmittal, the holder
of such certificate will be entitled to receive such merger consideration
allocated to them and the certificate for Ipswich common stock so surrendered
will be canceled. No interest will be paid or accrued on any cash constituting
merger consideration (including cash in lieu of fractional shares).
No stock certificates representing fractional shares of Banknorth common
stock will be issued upon the surrender for exchange of Ipswich stock
certificates. In lieu of the issuance of any such fractional share, Banknorth
will pay to each former shareholder of Ipswich who otherwise would be entitled
to receive a fractional share of Banknorth common stock an amount in cash
determined by multiplying the fraction of a share of Banknorth common stock
which such holder would otherwise be entitled to receive pursuant to the merger
agreement by the average closing sales prices of a share of Banknorth common
stock for the 20 trading-day period ending with the close of business on the
business day preceding the effective time.
If you receive shares of Banknorth common stock in the merger, you will
receive dividends on Banknorth common stock or other distributions declared
after the completion of the merger only if you have surrendered your Ipswich
stock certificates. Only then will you be entitled to receive all previously
withheld dividends and distributions, without interest.
After completion of the merger, no transfers of Ipswich common stock issued
and outstanding immediately prior to the completion of the merger will be
allowed. Ipswich stock certificates that are presented for transfer after the
completion of the merger will be canceled and exchanged for the appropriate
merger consideration.
35
Banknorth will only issue a Banknorth stock certificate in a name other
than the name in which a surrendered Ipswich stock certificate is registered if
you present the exchange agent with all documents required to show and effect
the unrecorded transfer of ownership of the shares of Ipswich common stock
formerly represented by such Ipswich stock certificate, and show that you paid
any applicable stock transfer taxes.
If your Ipswich stock certificate has been lost, stolen or destroyed, you
may be required to deliver an affidavit and a lost certificate bond as a
condition to receiving any Banknorth stock certificate to which you may be
entitled.
IPSWICH STOCK OPTIONS AND STOCK UNITS
At the effective time of the merger, and except as provided in the next
paragraph, each option to purchase shares of Ipswich common stock granted under
Ipswich's stock option plans which is outstanding and unexercised immediately
prior thereto, whether or not then vested and exercisable, shall be terminated
and each grantee thereof shall be entitled to receive, in lieu of each share of
Ipswich common stock that would otherwise have been issuable upon the exercise
thereof, an amount of cash computed by multiplying (i) the difference between
the per share cash consideration ($20.50) and the per share exercise price
applicable to such option by (ii) the number of shares of Ipswich common stock
subject to the option.
Notwithstanding the provisions described in the preceding paragraph, in the
event that a holder of options to purchase shares of Ipswich common stock so
elects pursuant to a written election submitted to Ipswich prior to the fifth
business day preceding the effective time of the merger, each such option which
is outstanding and unexercised immediately prior to the effective time of the
merger, whether or not then vested and exercisable, will cease to represent a
right to acquire shares of Ipswich common stock and will be converted
automatically into an option to purchase shares of Banknorth common stock, and
Banknorth will assume each Ipswich stock option, in accordance with the terms of
the Ipswich stock option plan and stock option agreement by which it is
evidenced, including without limitation all terms pertaining to the acceleration
and vesting of the holder's option exercise rights, except that from and after
the effective time of the merger:
- Banknorth and the board of directors of Banknorth or a duly authorized
board committee shall be substituted for Ipswich and the Ipswich board of
directors or duly authorized board committee administering the Ipswich
stock option plans;
- each Ipswich stock option assumed by Banknorth will be exercisable solely
for shares of Banknorth common stock;
- the number of shares of Banknorth common stock subject to such Ipswich
stock option will be equal to the number of shares of Ipswich common
stock subject to such Ipswich stock option immediately before the
effective time of the merger multiplied by the exchange ratio, rounded
down to the nearest share; and
- the per share exercise price under each such Ipswich stock option will be
adjusted by dividing the per share exercise price under each such Ipswich
stock option by the exchange ratio, rounded up to the nearest cent.
Pursuant to the merger agreement, Banknorth agreed to register under the
Securities Act of 1933 the shares of Banknorth common stock issuable upon
exercise of the substitute stock options to be issued pursuant to the merger
agreement within five business days after consummation of the merger.
Because the terms of the Ipswich deferred compensation plan for directors
provides that in the event of a change-in-control of Ipswich outstanding stock
units thereunder shall be cancelled in exchange for such securities, cash or
property as the holders of shares of Ipswich common stock received in such
change-in-control, the merger agreement provides that each such Ipswich stock
unit which is outstanding immediately prior to the effective time of the merger
shall be treated as an outstanding share of Ipswich common stock for purposes of
the election and allocation procedures contained therein. At the time that
36
the exchange agent provides an election form to holders of Ipswich common stock,
Ipswich will provide a comparable form to the holders of Ipswich stock units in
order to permit them to make an election to receive shares of Banknorth common
stock or cash upon cancellation of all stock units held by them under the terms
of the Ipswich deferred compensation plan.
CONDITIONS TO THE MERGER
Completion of the merger is subject to the satisfaction of certain
conditions set forth in the merger agreement, or the waiver of such conditions
by the party entitled to do so, at or before the closing date of the merger.
Each of the parties' obligation to consummate the merger under the merger
agreement is subject to the following conditions:
- the holders of two-thirds of the outstanding Ipswich common stock must
have approved the merger agreement and the merger;
- all required regulatory approvals required to consummate the merger and
the bank merger by any governmental authority must have been obtained and
shall remain in full force and effect and all statutory waiting periods
in respect thereof must have expired, and no required approval can
contain any condition, restriction or requirement which Banknorth's board
of directors reasonably determines in good faith would, individually or
in the aggregate, materially reduce the benefits of the merger and the
bank merger to such a degree that Banknorth would not have entered into
the merger agreement had such conditions, restrictions or requirements
been known as of the date of the merger agreement;
- no statute, rule, regulation, judgment, decree, injunction or other order
may have been enacted, issued, promulgated, enforced or entered which
prohibits, restricts or makes illegal the consummation of the merger or
the bank merger;
- the registration statement of Banknorth of which this document is a part
must have become effective under the Securities Act of 1933, and no stop
order suspending the effectiveness of such registration statement shall
have been issued and no proceedings for that purpose shall have been
initiated by the Securities and Exchange Commission and not withdrawn;
- the shares of Banknorth common stock to be issued in connection with the
merger must have been approved for listing on the Nasdaq Stock Market's
National Market; and
- each of Banknorth and Ipswich must have received an opinion of Elias,
Matz, Tiernan & Herrick L.L.P. to the effect that the merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and with respect to certain related federal income
tax considerations.
In addition to the foregoing conditions, the obligation of Banknorth to
consummate the merger under the merger agreement is subject to the following
conditions, which may be waived by Banknorth:
- the representations and warranties of Ipswich in the merger agreement
must be true and correct as of the date of the merger agreement and as of
the effective time of the merger, except as to any representation or
warranty which specifically relates to an earlier date and except that
the representations and warranties of Ipswich will be deemed true and
correct unless the failure or failures of those representations and
warranties to be true and correct has had or is reasonably likely to have
a material adverse effect on Ipswich;
- Ipswich must have performed in all material respects all obligations
required to be performed by it at or prior to consummation of the merger;
- Banknorth must have received a certificate from specified officers of
Ipswich with respect to compliance with the foregoing conditions to the
obligations of Banknorth; and
37
- Banknorth shall have received such certificates of Ipswich's officers or
others and such other documents to evidence fulfillment of the conditions
to its obligations as Banknorth may reasonably request.
In addition to the other conditions set forth above, the obligation of
Ipswich to consummate the merger under the merger agreement is subject to the
following conditions, which may be waived by Ipswich:
- the representations and warranties of Banknorth in the merger agreement
must be true and correct as of the date of the merger agreement and as of
the effective time of the merger, except as to any representation or
warranty which specifically relates to an earlier date and except that
the representations and warranties of Banknorth will be deemed true and
correct unless the failure or failures of those representations and
warranties to be true and correct has had or is reasonably likely to have
a material adverse effect on Banknorth;
- Banknorth must have performed in all material respects all obligations
required to be performed by it at or prior to consummation of the merger;
- Ipswich must have received a certificate from specified officers of
Banknorth with respect to compliance with the foregoing conditions to the
obligations of Ipswich;
- the time period during which Ipswich may be entitled to terminate the
merger agreement under certain circumstances involving a decline in the
market price of the Banknorth common stock must have expired without
exercise by Ipswich of its termination rights (see "-- Termination and
Amendment" beginning on page 43); and
- Ipswich shall have received such certificates of Banknorth's officers or
others and such other documents to evidence fulfillment of the conditions
to its obligations as Ipswich may reasonably request.
Under the terms of the merger agreement, a material adverse effect on
either Banknorth or Ipswich is defined to mean any effect that (1) is material
and adverse to the financial position, results of operations or business of such
entity and its subsidiaries taken as a whole or (2) would materially impair the
ability of such entity and its subsidiaries to perform their respective
obligations under the merger agreement or the bank merger agreement or otherwise
materially impede the consummation of the transactions contemplated by the
merger agreement. However, under the terms of the merger agreement, none of the
following would be deemed to constitute a material adverse effect on any entity:
- changes in banking and similar laws of general applicability or
interpretations of them by governmental authorities;
- changes in United States generally accepted accounting principles or
regulatory accounting requirements applicable to banks or their holding
companies generally;
- changes in general economic conditions affecting banks and their holding
companies generally;
- modifications or changes to valuation policies and practices, or expenses
incurred, in connection with the transactions contemplated by the merger
agreement or restructuring charges taken in connection with them; and
- with respect to Ipswich only, the effects of any action or omission taken
with the prior consent of Banknorth or as otherwise contemplated by the
merger agreement.
REGULATORY APPROVALS
Consummation of the merger is subject to prior receipt of all required
approvals and consents of the merger and the bank merger by all applicable
federal and state regulatory authorities.
38
Federal Reserve Board. The merger is subject to the prior approval of or
waiver from the Federal Reserve Board under Section 3 of the Bank Holding
Company Act of 1956, as amended. Pursuant to the Bank Holding Company Act, the
Federal Reserve Board may not approve the merger if:
- such transaction would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any part of the United States; or
- the effect of such transaction, in any section of the country, may be to
substantially lessen competition, or tend to create a monopoly, or in any
manner restrain trade,
unless in each case the Federal Reserve Board finds that the anticompetitive
effects of the proposed transaction are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served. In every case, the Federal Reserve
Board is required to consider the financial and managerial resources and future
prospects of the bank holding company or companies and the banks concerned and
the convenience and needs of the communities to be served. Under the Community
Reinvestment Act of 1977, the Federal Reserve Board also must take into account
the record of performance of each participating bank holding company in meeting
the credit needs of the entire community, including low and moderate-income
neighborhoods, served by each bank holding company and its subsidiaries. In
addition, the Bank Holding Company Act requires that the Federal Reserve Board
take into account the record of compliance of each bank holding company with
applicable state community reinvestment laws. Applicable regulations require
publication of notice of an application for approval of the merger and an
opportunity for the public to comment on the application in writing and to
request a hearing.
Any transaction approved by the Federal Reserve Board may not be completed
until 30 days after such approval, during which time the U.S. Department of
Justice may challenge such transaction on antitrust grounds and seek divesture
of certain assets and liabilities. With the approval of the Federal Reserve
Board and the U.S. Department of Justice, the waiting period may be reduced to
no less than 15 days.
Section 225.12(d)(2) of the Federal Reserve Board's Regulation Y provides
that the approval of the Federal Reserve Board is not required for certain
acquisitions by bank holding companies if the acquisition has a component that
will be approved by a federal supervisory agency under the Bank Merger Act and
certain other requirements are met. Under this regulation, the acquiring bank
holding company must submit a notice to the Federal Reserve Board at least ten
days prior to the transaction and no application for approval of the proposed
acquisition under the Bank Holding Company Act will be required unless the
Federal Reserve Board informs the proposed acquiror to the contrary prior to
expiration of this period. Banknorth submitted a notice to the Federal Reserve
Board under this regulation and received a favorable response by letter dated
April 10, 2002.
Banknorth's exercise of the option granted to it by Ipswich under the stock
option agreement is subject to the prior approval of the Federal Reserve Board
to the extent that the exercise of the option would result in Banknorth owning
more than 5% of the outstanding shares of Ipswich common stock. In considering
whether to approve Banknorth's right to exercise this option, including its
right to purchase more than 5% of the outstanding shares of Ipswich common
stock, the Federal Reserve Board generally would apply the same statutory
criteria as it is required to apply in considering the merger. See "-- Stock
Option Agreement" beginning on page 50.
OCC. The parties currently intend to merge Ipswich's banking subsidiary,
Ipswich Bank, into Banknorth, NA as soon as practicable after the merger of
Ipswich into Banknorth. The bank merger is subject to the prior approval of the
Office of the Comptroller of the Currency of the United States under the Bank
Merger Act. Under this law, the OCC is required to review the bank merger under
criteria which is substantially the same as that required to be considered by
the Federal Reserve Board in evaluating transactions for approval under Section
3 of the Bank Holding Company Act, as discussed above, except that the OCC will
not conduct an independent antitrust analysis of the bank merger if the
39
Federal Reserve Board does so. Applicable regulations require publication of
notice of the applications for approval of the bank merger and an opportunity
for the public to comment on the applications in writing and to request a
hearing.
Any transaction approved by the OCC may not be completed until 30 days
after such approval, during which time the U.S. Department of Justice may
challenge such transaction on antitrust grounds and seek divestiture of certain
assets and liabilities. With the approval of the OCC and the U.S. Department of
Justice, the waiting period may be reduced to no less than 15 days.
By letter dated May 13, 2002, the OCC approved the bank merger under the
Bank Merger Act.
State Approvals and Notices. The prior approval of the Superintendent of
the Bureau of Banking of the State of Maine is required under Section 1015 of
Title 9-B of the Maine Revised Statutes for the acquisition by a Maine financial
institution holding company such as Banknorth of more than 5% of the voting
shares of a financial institution located outside of Maine. Under Maine law, the
Maine Superintendent shall not approve an application for such a transaction
unless he determines, after a consideration of all relevant evidence, that it
would contribute to the financial strength and success of the applicant and
promote the convenience and advantage of the public. Banknorth has been advised
by a representative of the Maine Superintendent that no approval of the merger
by the Maine Superintendent will be required if the proposed merger of Ipswich
Bank with and into Banknorth, NA is consummated immediately following the merger
of Ipswich and Banknorth, as intended.
The merger is subject to the prior approval of the Massachusetts Board of
Bank Incorporation under Sections 2 and 4 of Chapter 167A of the Massachusetts
General Laws. Massachusetts law requires that the Massachusetts Board find that
the merger would not unreasonably affect competition among banking institutions
and that it would promote public convenience and advantage. In making such a
determination, the Massachusetts Board must consider, among other things, a
showing of net new benefits, including initial capital investments, job creation
plans, consumer and business services, commitments to maintain and open branch
offices within the statutorily delineated local communities of Banknorth in
Massachusetts and such other matters as the Massachusetts Board may deem
necessary or advisable.
In addition, Massachusetts law provides that the Massachusetts Board cannot
approve the merger until it has received notice from the Massachusetts Housing
Partnership Fund that arrangements satisfactory to the Fund have been made for
the proposed acquiror to make 0.9 percent of its assets located in Massachusetts
available for call by the Fund for a period of ten years for purposes of funding
various affordable housing programs. Massachusetts law provides that such funds
shall bear interest at rates approved by the Massachusetts Commissioner of
Banks, which shall be based upon the cost (not to include lost opportunity
costs) incurred in making funds available to the Fund.
Pursuant to Section 39B of Chapter 167 of the Massachusetts General Laws,
the bank merger is required to be approved by the Massachusetts Commissioner of
Banks.
Status of Applications and Notices. Banknorth and Ipswich have filed all
required applications and notices with applicable regulatory authorities in
connection with the merger and the bank merger. There can be no assurance that
all requisite approvals will be obtained, that such approvals will be received
on a timely basis or that such approvals will not impose conditions or
requirements which, individually or in the aggregate, would so materially reduce
the economic or business benefits of the transactions contemplated by the merger
agreement to Banknorth that had such condition or requirement been known
Banknorth, in its reasonable judgment, would not have entered into the merger
agreement. If any such condition or requirement is imposed, Banknorth may elect
not to consummate the merger. See "-- Conditions to the Merger" beginning on
page 37.
BUSINESS PENDING THE MERGER
The merger agreement contains certain covenants of the parties regarding
the conduct of their respective businesses pending consummation of the merger.
These covenants, which are contained in Article IV of the merger agreement
included as Annex I hereto, are briefly described below.
40
Pending consummation of the merger, Ipswich may not, and will cause each
Ipswich subsidiary not to, among other things, take the following actions
without the prior written consent of Banknorth:
- conduct its business other than in the ordinary and usual course
consistent with past practice or fail to use reasonable best efforts to
preserve its business organization, keep available the present services
of its employees and preserve for itself and Banknorth the goodwill of
the customers of Ipswich and its subsidiaries and others with whom
business relations exist;
- issue or authorize the creation of any additional shares of capital stock
or rights to acquire such stock, other than pursuant to stock options and
other rights to acquire Ipswich common stock outstanding on the date of
the merger agreement and disclosed to Banknorth or pursuant to the stock
option agreement;
- declare any dividend on its capital stock, other than regular quarterly
cash dividends on the Ipswich common stock at a rate not in excess of
$0.12 per share;
- amend its articles of organization and bylaws (or equivalent documents);
- take specified actions with respect to its business, including without
limitation enter into or amend an employment, consulting or severance
agreement with, or increase the rate of compensation of, its directors,
officers or employees; enter into, establish, adopt or amend any employee
benefit plan; purchase or sell assets or deposits; make capital
expenditures; change its methods of accounting; enter into, amend or
modify material contracts; settle litigation claims; enter into new
businesses; change its principal policies; enter into derivatives
contracts; and incur indebtedness, except in the case of each of the
foregoing as permitted by the merger agreement;
- take any action that would prevent or impede the merger from qualifying
as a reorganization under the Internal Revenue Code;
- take any action that would result in (1) any of the representations and
warranties of Ipswich not being true and correct in any material respect
at or prior to the effective time of the merger, (2) any of the
conditions to the merger set forth in the merger agreement not being
satisfied or (3) a material violation of the merger agreement, the bank
merger agreement or the stock option agreement, except in each case as
may be required by applicable law and regulation; or
- agree to do any of the foregoing.
The merger agreement also provides that pending consummation of the merger
Banknorth may not, and will cause each subsidiary of Banknorth not to, take the
following actions without the prior written consent of Ipswich:
- take any action that would result in (1) any of the representations and
warranties of Banknorth not being true and correct in any material
respect at or prior to the effective time of the merger, (2) any of the
conditions to the merger set forth in the merger agreement not being
satisfied or (3) a material violation of the merger agreement, the bank
merger agreement or the stock option agreement, except in each case as
may be required by applicable law and regulation; or
- agree to do any of the foregoing.
BOARD OF DIRECTORS' COVENANT TO RECOMMEND THE MERGER AGREEMENT
Pursuant to the merger agreement, the Ipswich board of directors is
required to recommend that Ipswich shareholders approve the merger agreement at
all times prior to and during the meeting of Ipswich shareholders at which the
merger agreement is to be considered by them. However, nothing in the merger
agreement prevents the Ipswich board of directors from withholding, withdrawing,
amending or modifying its recommendation if it determines, after consultation
with its outside counsel, that such action is legally required in order for the
directors of Ipswich to comply with their fiduciary duties to the Ipswich
shareholders under applicable law, provided that any such action in connection
with an "acquisition proposal" must comply with the requirements described under
"-- No Solicitation" below.
41
NO SOLICITATION
The merger agreement provides that neither Ipswich nor any of its
subsidiaries nor any of their respective officers or directors may, and that
Ipswich must direct and use its reasonable best efforts to cause its and each
such subsidiary's employees, agents and representatives not to, directly or
indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation or similar transaction involving, or any purchase
of all or substantially all of the assets of, Ipswich or more than 10% of the
outstanding equity securities of Ipswich or any of its subsidiaries (any such
proposal or offer is hereinafter referred to as an "acquisition proposal").
Ipswich also agreed that neither it nor any of its subsidiaries nor any of their
respective officers and directors may, and that Ipswich must direct and use its
reasonable best efforts to cause its and each such subsidiary's employees,
agents and representatives not to, directly or indirectly, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an acquisition proposal, or
otherwise facilitate any effort or attempt to make or implement an acquisition
proposal. However, nothing in the merger agreement prevents Ipswich or its board
of directors from:
- complying with its disclosure obligations under federal or state law;
- providing information in response to a request therefor by a person who
has made an unsolicited bona fide written acquisition proposal if the
Ipswich board of directors receives from the person so requesting such
information an executed confidentiality agreement;
- engaging in any negotiations or discussions with any person who has made
an unsolicited bona fide written acquisition proposal; or
- recommending such an acquisition proposal to the shareholders of Ipswich,
if and only to the extent that (1) in each of the last three cases referred to
above, the Ipswich board of directors determines in good faith after
consultation with outside legal counsel that such action would be required in
order for its directors to comply with their respective fiduciary duties under
applicable law and (2) with respect to the last case referred to above, the
Ipswich board of directors determines in good faith after consultation with its
financial advisor that such acquisition proposal, if accepted, is reasonably
likely to be consummated, taking into account all legal, financial and
regulatory aspects of the proposal and the person making the proposal and would,
if consummated, result in a transaction more favorable to Ipswich's shareholders
from a financial point of view than the merger. Ipswich is required to notify
Banknorth immediately if any such inquiries, proposals or offers are received
by, any such information is requested from, or any such discussions or
negotiations are sought to be initiated or continued with, any of its
representatives.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Pursuant to the merger agreement, Banknorth and Ipswich made certain
customary representations and warranties relating to their respective companies,
subsidiaries, businesses and matters related to the merger. For detailed
information concerning these representations and warranties, reference is made
to Article V of the merger agreement included as Annex I hereto. Such
representations and warranties generally must remain accurate through the
completion of the merger unless the fact or facts that caused a breach of a
representation and warranty has not had or is not reasonably likely to have a
material adverse effect on the party making the representation and warranty. See
"-- Conditions to the Merger" beginning on page 37.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of articles of merger with
the Secretary of State of the State of Maine pursuant to the Maine Business
Corporation Act and with the Secretary of State of the Commonwealth of
Massachusetts pursuant to the Massachusetts Business Corporation Law, unless a
different date and time is specified as the effective time in such documents.
Articles of merger will be filed
42
only after the satisfaction or waiver of all conditions to the merger set forth
in the merger agreement on a date selected by Banknorth after such satisfaction
or waiver which is no later than the later of (A) five business days after such
satisfaction or waiver or (B) the first month end following such satisfaction or
waiver, or on such other date as Banknorth and Ipswich may mutually agree upon.
A closing will take place immediately prior to the effective time of the
merger or on such other date as Banknorth and Ipswich may mutually agree upon.
TERMINATION AND AMENDMENT
The merger agreement may be terminated:
- by mutual consent of the boards of directors of the parties;
- by a non-breaching party if the other party (1) breaches any covenants or
undertakings contained in the merger agreement or (2) breaches any
representations or warranties contained in the merger agreement, in each
case if such breach has not been cured within thirty days after notice
thereof from the terminating party and which breach would be reasonably
expected, individually or in the aggregate with other breaches, to result
in a material adverse effect with respect to the breaching party;
- by either Banknorth or Ipswich if the merger is not consummated by
December 31, 2002, unless the failure to consummate the merger is due to
a breach by the party seeking such termination of its obligations under
the merger agreement or, if Ipswich is seeking to terminate, by any
director of Ipswich through such director's breach of his or her
respective shareholder agreement;
- by either party if any required regulatory approvals for consummation of
the merger or the bank mergers is not obtained;
- by either party if the shareholders of Ipswich do not approve the merger
agreement at a meeting of the shareholders of Ipswich duly called for
such purpose;
- by Banknorth, prior to the annual meeting, if Ipswich shall have breached
the covenants described under "-- No Solicitation" on page 42, the
Ipswich board of directors shall have failed to recommend that the
shareholders of Ipswich approve the merger agreement or has withdrawn,
modified or changed such recommendation in a manner which is adverse to
Banknorth, or Ipswich breaches its covenants requiring the calling and
holding of a meeting of shareholders to consider the merger agreement;
and
- by Banknorth if a third party commences a tender offer or exchange offer
for 10% or more of the outstanding Ipswich common stock and the board of
directors of Ipswich recommends that Ipswich shareholders tender their
shares in the offer or otherwise fails to recommend that they reject the
offer within a specified period.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When you are considering the recommendation of Ipswich's board of directors
with respect to approving the merger agreement and the merger, you should be
aware that some directors and executive officers of Ipswich may be deemed to
have interests in the merger in addition to their interests as shareholders
generally. The Ipswich board of directors was aware of these factors and
considered them, among other matters, in approving the merger agreement and the
merger. These interests are described below.
Stock Options. The merger agreement provides that at the effective time of
the merger each outstanding and unexercised option to purchase shares of Ipswich
common stock granted pursuant to the Ipswich stock option plans will cease to
represent the right to acquire shares of Ipswich common stock and will be
converted into a specified cash amount or, at the election of an option holder,
a right to acquire shares of Banknorth common stock, with the same terms as
previously in effect, except that the number of
43
shares subject to such converted options and the exercise price will be adjusted
to reflect the exchange ratio. See "-- Ipswich Stock Options and Stock Units"
beginning on page 36. All outstanding options to purchase Ipswich common stock
that are presently unvested shall become fully vested and exercisable in the
event the shareholders of Ipswich approve the merger agreement. At the record
date for the annual meeting, the executive officers of Ipswich held options to
purchase an aggregate of 107,375 shares of Ipswich common stock, including
options to purchase 100,000, 2,500, 1,675 and 3,200 shares held by Messrs. Grey,
Kenney, Foley and Bryan, respectively.
Stock Units. Ipswich maintains a deferred compensation plan for directors
of Ipswich and Ipswich Bank pursuant to which directors may defer compensation
paid to them. Pursuant to this plan, directors may elect to have deferred
compensation credited to a cash deferral account or converted into stock units
which are equivalent in value to shares of Ipswich common stock. Pursuant to
provisions of the Ipswich deferred compensation plan dealing with a
change-in-control of Ipswich, these stock units are being treated as outstanding
shares of Ipswich common stock for purposes of the merger agreement. See
"-- Ipswich Stock Option and Stock Units" beginning on page 36. At the record
date for the annual meeting, the directors of Ipswich held an aggregate of
10,292 stock units under the Ipswich deferred compensation plan.
Agreements with Executive Officers of Ipswich. In connection with the
execution of the merger agreement, the following agreements were entered into
relating to Mr. Grey:
- a termination agreement among Banknorth, Ipswich, Ipswich Bank and Mr.
Grey, which provides, among other things, for the termination of Mr.
Grey's current employment agreement with Ipswich Bank upon consummation
of the merger in exchange for a cash payment at that time in the amount
of $876,189, as well as for the termination of the obligations of Ipswich
Bank to make further contributions to the trust established pursuant to a
split dollar insurance agreement between Mr. Grey and Ipswich Bank and of
any right of Ipswich Bank to receive reimbursement of premiums paid by it
on the related insurance policy (except in the case of insolvency of
Ipswich Bank), and
- an employment and noncompetition agreement between Banknorth and Mr.
Grey, pursuant to which Banknorth will employ Mr. Grey as a senior vice
president for the one-year period following the merger and Mr. Grey will
not compete with Banknorth in Massachusetts and southern New Hampshire
for a three-year period following the merger in return for $250,000 of
compensation for the year of employment and $280,000, $350,000 and
$100,000 of compensation for the noncompetition obligations in the first,
second and third years following the merger, respectively.
A copy of the termination agreement and the employment and noncompetition
agreement is included in Annex I to this document. For additional information
concerning Mr. Grey's existing employment agreement and split dollar agreement
with Ipswich Bank, see "Management of Ipswich -- Employment and Severance
Agreements with Named Executive Officers" and "-- Retirement Benefits" beginning
on page 84.
Ipswich Bank has entered into an employment agreement with Mr. Kenney,
which generally provides for the payment of a lump sum severance payment and the
provision of certain other benefits to him in the event that his employment by
Ipswich Bank is terminated following a change-in-control of Ipswich Bank. The
amount of the lump sum payment to be made to Mr. Kenney in the event of a
termination of his employment under these circumstances is approximately
$203,900. In addition, pursuant to the split dollar agreement between Ipswich
Bank and Mr. Kenney, the right of Ipswich Bank to recover a portion of the
premiums paid by it on the related insurance policy in the event of a
termination of Mr. Kenney's employment (but not its right to receive a portion
of the death benefit) terminates upon a change-in-control of Ipswich Bank, which
would include the merger.
Ipswich Bank has entered into severance agreements with two of its
executive officers, Mark E. Foley and Philip J. Bryan. The agreements provide
that if the officer terminates his employment following a reduction in
compensation within three months after a change in control or the officer's
employment is terminated without cause by his employer within six months after a
change in control, the officer would be
44
entitled to a severance benefit. In the case of Mr. Foley, the benefit would be
nine months' salary; in the case of Mr. Bryan, the benefit would be 12 months'
salary. The merger would constitute a change in control under the agreements.
The amount of the lump sum payment to be made to Messrs. Foley and Bryan under
these circumstances is approximately $56,550 and $97,500, respectively.
Indemnification and Insurance. Ipswich's directors and officers are
entitled to continuing indemnification against certain liabilities by virtue of
provisions contained in Ipswich's certificate of incorporation, bylaws and the
merger agreement. Pursuant to the merger agreement, Banknorth agreed to
indemnify and hold harmless each present and former director, officer and
employee of Ipswich or an Ipswich subsidiary determined as of the effective time
of the merger against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages or liabilities incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the effective time of the merger, whether
asserted or claimed prior to, at or after the effective time of the merger,
arising in whole or in part out of or pertaining to the fact that he or she was
a director, officer, employee, fiduciary or agent of Ipswich or a subsidiary of
Ipswich or is or was serving at the request of Ipswich or a subsidiary of
Ipswich as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
without limitation matters related to the negotiation, execution and performance
of the merger agreement, the stock option agreement or any of the transactions
contemplated by either of such agreements, to the fullest extent to which such
indemnified parties would be entitled under the articles of organization and
bylaws of Ipswich or the equivalent documents of any Ipswich subsidiary, as
applicable, or any agreement, arrangement or understanding disclosed by Ipswich
to Banknorth pursuant to the merger agreement, in each case as in effect on the
date of the merger agreement. Pursuant to the merger agreement, Banknorth also
generally agreed to honor all limitations on liability existing in favor of
these indemnified parties as provided in the articles of organization, bylaws or
similar governing instruments of Ipswich and its subsidiaries as in effect as of
the date of the merger agreement with respect to matters occurring prior to the
effective time of the merger.
Pursuant to the merger agreement, Banknorth agreed to use its reasonable
best efforts to purchase an extended reporting period endorsement under
Ipswich's existing directors' and officers' liability insurance coverage for
Ipswich's directors and officers in a form reasonably acceptable to Ipswich
which shall provide such directors and officers with coverage for six years
following the effective time of the merger of not less than the existing
coverage under, and have other terms no materially less favorable on the whole
to, the insured persons than the directors' and officers' liability insurance
coverage presently maintained by Ipswich, provided that in no event shall
Banknorth be required to expend in any one year an amount in excess of 150% of
the annual premiums currently paid by Ipswich for such insurance (the "Insurance
Amount"), and further provided that if Banknorth is unable to maintain or obtain
the insurance specified above as a result of the preceding provision, Banknorth
shall use its reasonable best efforts to obtain as much comparable insurance as
is available for the Insurance Amount with respect to acts or omissions
occurring prior to the effective time of the merger by such directors and
officers in their capacities as such.
Other than as set forth above, no director or executive officer of Ipswich
has any direct or indirect material interest in the merger, except insofar as
ownership of Ipswich common stock might be deemed such an interest. See "Certain
Beneficial Owners of Ipswich Common Stock" beginning on page 89.
CERTAIN EMPLOYEE MATTERS
The merger agreement contains certain agreements of the parties with
respect to various employee matters, which are briefly described below.
As soon as administratively practicable after the effective time of the
merger, Banknorth will take all reasonable action so that employees of Ipswich
and its subsidiaries will be entitled to participate in the Banknorth employee
benefit plans of general applicability to the same extent as similarly-situated
employees of Banknorth and its subsidiaries. For purposes of determining
eligibility to participate in, the vesting of benefits and for all other
purposes, other than for accrual of pension benefits, under the
45
Banknorth employee benefit plans, Banknorth will recognize years of service with
Ipswich and its subsidiaries to the same extent as such service was credited for
such purpose by Ipswich.
If employees of Ipswich or any of its subsidiaries become eligible to
participate in a medical, dental or health plan of Banknorth, Banknorth will
cause each such plan to
- waive any preexisting condition limitations to the extent such conditions
covered under the applicable medical, health or dental plans of
Banknorth,
- provide full credit under such plans for any deductibles, co-payment and
out-of-pocket expenses incurred by the employees and their beneficiaries
during the portion of the calendar year prior to such participation and
- waive any waiting period limitation or evidence of insurability
requirement which would otherwise be applicable to such employee on or
after the effective time of the merger to the extent such employee had
satisfied any similar limitation or requirement under an analogous plan
prior to the effective time of the merger.
All employees of Ipswich or an Ipswich subsidiary as of the effective time
of the merger will become employees of Banknorth or a Banknorth subsidiary as of
such time, and Banknorth or a Banknorth subsidiary will use its best efforts to
give such persons (other than any person who is party to an employment
agreement, a severance agreement or a special termination agreement) at least
four weeks prior written notice of any job elimination during the 90-day period
after the effective time of the merger. Subject to such four-week notice
requirement, Banknorth or a Banknorth subsidiary will have no obligation to
continue the employment of any employee of Ipswich or an Ipswich subsidiary and
nothing contained in the merger agreement will be deemed to give any employee of
Ipswich or any Ipswich subsidiary a right to continuing employment with
Banknorth or a Banknorth subsidiary after the effective time of the merger. An
employee of Ipswich or an Ipswich subsidiary (other than an employee who is
party to an employment agreement, a severance agreement or a special termination
agreement) who is involuntarily terminated other than for cause or
constructively terminated within six months following the effective time of the
merger will be entitled to receive severance payments in accordance with, and to
the extent provided in, the Ipswich employee severance plan.
For a period of six months following the effective time of the merger,
Banknorth will provide job counseling and outplacement services to all employees
of Ipswich and its subsidiaries whose employment was terminated other than for
cause, disability or retirement at or following the effective time of the
merger. During that period, Banknorth also will notify those former employees
who wish to continue to be so notified of opportunities for positions with
Banknorth or a Banknorth subsidiary for which Banknorth reasonably believes such
persons are qualified and to consider any application for such positions
submitted by such persons. However, any decision to offer employment to any such
person will be made in the sole discretion of Banknorth.
BANK MERGER
Pursuant to the merger agreement, Ipswich Bank will be merged with and into
Banknorth, NA, a wholly-owned subsidiary of Banknorth, as soon as practicable
following consummation of the merger.
RESALE OF BANKNORTH COMMON STOCK
The Banknorth common stock issued pursuant to the merger will be freely
transferable under the Securities Act of 1933, except for shares issued to any
Ipswich shareholder who may be deemed to be an affiliate of Banknorth for
purposes of Rule 144 promulgated under the Securities Act of 1933 or an
affiliate of Ipswich for purposes of Rule 145 promulgated under the Securities
Act of 1933. Affiliates will include persons (generally executive officers,
directors and 10% shareholders) who control, are controlled by or are under
common control with (1) Banknorth or Ipswich at the time of the annual meeting
or (2) Banknorth at or after the effective time of the merger.
46
Rule 145 will restrict the sale of Banknorth common stock received in the
merger by affiliates and certain of their family members and related interests.
Generally speaking, during the year following the effective time of the merger,
those persons who are affiliates of Ipswich at the time of the annual meeting,
provided they are not affiliates of Banknorth at or following the effective time
of the merger, may publicly resell any Banknorth common stock received by them
in the merger, subject to certain limitations as to, among other things, the
amount of Banknorth common stock sold by them in any three-month period and as
to the manner of sale. After the one-year period, such affiliates may resell
their shares without such restrictions so long as there is adequate current
public information with respect to Banknorth as required by Rule 144. Persons
who are affiliates of Banknorth after the effective time of the merger may
publicly resell the Banknorth common stock received by them in the merger
subject to similar limitations and subject to certain filing requirements
specified in Rule 144. At the present time, it is not anticipated that any
affiliates of Ipswich will become affiliates of Banknorth after the merger.
The ability of affiliates to resell shares of Banknorth common stock
received in the merger under Rules 144 or 145 as summarized herein generally
will be subject to Banknorth's having satisfied its reporting requirements under
the Securities Exchange Act of 1934 for specified periods prior to the time of
sale. Affiliates also would be permitted to resell Banknorth common stock
received in the merger pursuant to an effective registration statement under the
Securities Act of 1933 or another available exemption from the Securities Act of
1933 registration requirements. Neither the registration statement of which this
prospectus/proxy statement is a part nor this prospectus/proxy statement cover
any resales of Banknorth common stock received by persons who may be deemed to
be affiliates of Banknorth or Ipswich in the merger.
Ipswich has agreed in the merger agreement to use its reasonable best
efforts to cause each person who may be deemed to be an affiliate of it for
purposes of Rule 145 to deliver to Banknorth a letter agreement intended to
ensure compliance with the Securities Act of 1933.
FEDERAL INCOME TAX CONSEQUENCES
General. The following is a description of the material federal income tax
consequences of the merger to shareholders of Ipswich, which is based upon the
opinion of Elias, Matz, Tiernan & Herrick L.L.P., special counsel to Banknorth.
The federal income tax laws are complex and the tax consequences of the merger
may vary depending upon each shareholder's individual circumstances or tax
status. Accordingly, this description is not a complete description of all of
the consequences of the merger and, in particular, may not address federal
income tax considerations that may affect the treatment of shareholders subject
to special treatment under United States federal income tax law (including, for
example, foreign persons, financial institutions, dealers in securities, traders
in securities who elect to apply a mark-to-market method of accounting,
insurance companies, tax-exempt entities, holders who acquired their shares of
Ipswich common stock pursuant to the exercise of an employee stock option or
right or otherwise as compensation and holders who hold Ipswich common stock as
part of a "hedge," "straddle" or "conversion transaction"). In addition, no
opinion is expressed with respect to the tax consequences of the merger under
applicable foreign, state or local laws or under any federal tax laws other than
those pertaining to the income tax. This description is based on laws,
regulations, rulings and judicial decisions as in effect on the date of this
prospectus/proxy statement, without consideration of the particular facts or
circumstances of any holder of Ipswich common stock. These authorities are all
subject to change and any such change may be made with retroactive effect. No
assurance can be given that, after any such change, this description would not
be different.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND UPON THE FACTS OF YOUR PARTICULAR SITUATION. ACCORDINGLY, WE
STRONGLY URGE YOU TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE PARTICULAR
FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO YOU OF THE
MERGER.
The Merger. Based on facts and representations and assumptions regarding
factual matters that were provided by Ipswich and Banknorth and that are
consistent with the state of facts that Ipswich and
47
Banknorth believe will be existing as of the effective time of the merger, the
opinion of Elias, Matz, Tiernan & Herrick L.L.P. with respect to the material
federal income tax consequences of the merger is as follows.
- The merger, when consummated in accordance with the terms of the merger
agreement, will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code and, accordingly, neither
Banknorth nor Ipswich will recognize any taxable gain or loss as a result
of the merger.
The federal income tax consequences of the merger to an Ipswich shareholder
generally will depend on whether the shareholder receives cash, Banknorth common
stock or a combination thereof in exchange for the shareholder's shares of
Ipswich common stock.
- An Ipswich shareholder who receives solely Banknorth common stock in
exchange for all of such shareholder's shares of Ipswich common stock
pursuant to the merger will not recognize gain or loss on the exchange,
except to the extent the shareholder receives cash in lieu of a
fractional share interest in Banknorth common stock. The shareholder's
tax basis in the Banknorth common stock received pursuant to the merger
will equal such shareholder's tax basis in the shares of Ipswich common
stock being exchanged, reduced by any amount allocable to a fractional
share interest of Banknorth common stock for which cash is received. The
holding period of Banknorth common stock received will include the
holding period of the shares of Ipswich common stock being exchanged.
- An Ipswich shareholder who receives solely cash in exchange for all of
such shareholder's shares of Ipswich common stock pursuant to the merger
generally will recognize capital gain or loss in an amount equal to the
difference between the amount of cash received and the shareholder's
aggregate tax basis for such shares of Ipswich common stock, which gain
or loss will be long-term capital gain or loss if such shares of Ipswich
common stock were held for more than one year. If, however, any such
Ipswich shareholder constructively owns shares of Ipswich common stock
that are exchanged for shares of Banknorth common stock in the merger or
owns shares of Banknorth common stock actually or constructively after
the merger, the attribution to the shareholder of stock owned by a
related party may prevent the transaction from qualifying for capital
gain rates and instead result in any gain being treated as the
distribution of a dividend, which is taxed at ordinary income rates.
Under the constructive ownership rules under the Internal Revenue Code, a
shareholder may be treated as owning stock that is actually owned by
another person or entity. Ipswich stockholders should consult their tax
advisors as to the possibility that all or a portion of any cash received
in exchange for their shares of Ipswich common stock will be treated as a
dividend.
- An Ipswich shareholder who receives both Banknorth common stock and cash
consideration in exchange for all of his or her shares of Ipswich common
stock generally will recognize gain, but not loss, to the extent of the
lesser of:
- the excess, if any, of (a) the sum of the aggregate fair market value of
the Banknorth common stock received (including any fractional share of
Banknorth common stock deemed to be received and exchanged for cash) and
the amount of cash received (excluding any cash received in lieu of a
fractional share of Banknorth common stock) over (b) the shareholder's
aggregate tax basis in the shares of Ipswich common stock exchanged in
the merger; and
- the amount of cash received by such shareholder.
For this purpose, gain or loss must be calculated separately for each
identifiable block of shares surrendered in the exchange, and a loss realized on
one block of shares may not be used to offset gain realized on another block of
shares. Any such gain will be long-term capital gain if the shares of Ipswich
common stock exchanged were held for more than one year, unless the receipt of
cash has the effect of a distribution of a dividend under the provisions of the
Internal Revenue Code, in which case such gain will be treated as a dividend to
the extent of such shareholder's ratable share of the undistributed accumulated
48
earnings and profits of Ipswich. Ipswich shareholders should consult their tax
advisors as to the possibility that all or a portion of any cash received in
exchange for their Ipswich common stock will be treated as a dividend.
Such shareholder's aggregate tax basis in the Banknorth common stock
received pursuant to the merger will equal such shareholder's aggregate tax
basis in the shares of Ipswich common stock being exchanged, reduced by any
amount allocable to a fractional share interest of Banknorth common stock for
which cash is received and by the amount of any cash consideration received, and
increased by the amount of taxable gain, if any, recognized by such shareholder
in the merger (including any portion of such gain that is treated as a
dividend).
Cash in Lieu of Fractional Shares. No fractional shares of Banknorth
common stock will be issued in the merger. An Ipswich shareholder who receives
cash in lieu of such a fractional share will be treated as having received such
fractional share pursuant to the merger and then as having exchanged such
fractional share for cash in a redemption by Banknorth. An Ipswich shareholder
will generally recognize capital gain or loss on such a deemed redemption of the
fractional share in an amount determined by the excess of the amount of cash
received and the shareholder's tax basis in the fractional share. Any capital
gain or loss will be long-term capital gain or loss if the Ipswich common stock
exchanged was held for more than one year.
Dissenting Shareholders. Holders of Ipswich common stock who dissent with
respect to the merger, as discussed under "-- Dissenters' Rights" beginning on
page 54, and who receive cash in respect of their shares of Ipswich common stock
generally will be treated in the same manner as a holder who exchanges his or
her shares of Ipswich common stock solely for cash in accordance with the above
discussion.
Closing Opinion. It is a condition precedent to the obligations of
Banknorth and Ipswich to effect the merger that they receive an opinion from
Elias, Matz, Tiernan & Herrick L.L.P., dated as of the effective time of the
merger, with respect to the federal income tax consequences of the merger
described under the subheading "-- The Merger" above. Such opinion will be based
upon facts existing at the effective time of the merger, and in rendering such
opinion counsel will require and rely upon facts, representations and
assumptions that will be provided by Banknorth, Ipswich and others.
Banknorth and Ipswich have not and will not seek any ruling from the
Internal Revenue Service regarding any matters relating to the merger, and as a
result there can be no assurance that the Internal Revenue Service will not
disagree with or challenge any of the conclusions described herein.
Backup Withholding. Non-corporate holders of Ipswich common stock may be
subject to information reporting and backup withholding on any cash payments
they receive. Ipswich shareholders will not be subject to backup withholding,
however, if they:
- furnish a correct taxpayer identification number and certify that they
are not subject to backup withholding on the substitute Form W-9 or
successor form included in the election form/letter of transmittal you
will receive; or
- are otherwise exempt from backup withholding.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against an Ipswich shareholder's United States federal income
tax liability, provided they furnish the required information to the Internal
Revenue Service.
Reporting Requirements. Ipswich shareholders who receive Banknorth common
stock as a result of the merger will be required to retain records pertaining to
the merger and will be required to file with their United States federal income
tax return for the year in which the merger takes place a statement setting
forth certain facts relating to the merger.
49
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for under the purchase method of accounting
under accounting principles generally accepted in the United States of America.
Under this method, Ipswich's assets and liabilities as of the date of the merger
will be recorded at their respective fair values and added to those of
Banknorth. Any difference between the purchase price for Ipswich and the fair
value of the identifiable net assets acquired (including core deposit
intangibles) will be recorded as goodwill. In accordance with Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
issued in July 2001, the goodwill resulting from the merger will not be
amortized to expense; however, core deposit and other intangibles with definite
useful lives recorded by Banknorth in connection with the merger will be
amortized to expense in accordance with the new rules. The financial statements
of Banknorth issued after the merger will reflect the results attributable to
the acquired operations of Ipswich beginning on the date of completion of the
merger. The unaudited per share pro forma financial information contained herein
has been prepared using the purchase method of accounting. See
"Summary -- Unaudited Comparative Per Share and Selected Financial Data"
beginning on page 8.
EXPENSES OF THE MERGER
The merger agreement provides that each of Ipswich and Banknorth will bear
and pay all costs and expenses incurred by it in connection with the
transactions contemplated by the merger agreement, including fees and expenses
of its own financial consultants, accountants and counsel, except that expenses
of printing the registration statement of which this document is a part will be
shared equally between Banknorth and Ipswich.
LISTING OF THE BANKNORTH COMMON STOCK
Banknorth has agreed to use its reasonable best efforts to cause the shares
of Banknorth common stock to be issued in the merger to be approved for listing
on the Nasdaq National Market before the completion of the merger, subject to
official notice of issuance.
STOCK OPTION AGREEMENT
As an inducement and a condition to Banknorth's entering into the merger
agreement, Banknorth and Ipswich also entered into a stock option agreement,
pursuant to which Ipswich, as issuer, granted Banknorth, as grantee, an option,
upon the occurrence of certain events (none of which has occurred as of the date
hereof to the knowledge of Banknorth and Ipswich), to purchase up to 384,438
shares of Ipswich common stock, representing 19.9% of the outstanding shares of
Ipswich common stock, at a price of $15.35 per share, subject to adjustment in
certain circumstances and termination within certain periods.
Subject to applicable law and regulatory restrictions, Banknorth may
exercise the option, in whole or in part, if, but only if, both an initial
triggering event (as hereinafter defined) and a subsequent triggering event (as
hereinafter defined) have occurred prior to the occurrence of an exercise
termination event (as hereinafter defined), provided that written notice of such
exercise is given within 90 days following the first subsequent triggering event
to occur (or such later period as is provided in the stock option agreement).
Notwithstanding the foregoing, Banknorth may not exercise the option if it is in
willful material breach of the merger agreement such that Ipswich shall be
entitled to terminate the merger agreement therefor in accordance with its
terms.
As defined in the stock option agreement, the term "initial triggering
event" means any of the following events or transactions occurring on or after
the date of execution of the stock option agreement:
- Ipswich or any subsidiary of Ipswich, without having received Banknorth's
prior written consent, shall have entered into an agreement to engage in
an acquisition transaction with any person (the term "person" for
purposes of the stock option agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934 and the rules and regulations thereunder), other than Banknorth
or any subsidiary of Banknorth, or the board of
50
directors of Ipswich shall have recommended that the shareholders of
Ipswich approve or accept any acquisition transaction with any person
other than Banknorth or a Banknorth subsidiary. For purposes of the stock
option agreement, the term "acquisition transaction" shall mean
- a merger or consolidation, or any similar transaction, involving
Ipswich or any Ipswich subsidiary,
- a purchase, lease or other acquisition or assumption of all or any
substantial part of the assets or deposits of Ipswich or any Ipswich
subsidiary,
- a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Ipswich or any Ipswich subsidiary
or
- any substantially similar transaction, provided that in no event shall
-- any merger, consolidation, purchase or similar transaction
involving only Ipswich and one or more of its subsidiaries, or
involving only any two or more of such subsidiaries, be deemed to
be an acquisition transaction, provided that any such transaction
is not entered into in violation of the terms of the merger
agreement, or
-- the transactions contemplated by the merger agreement or the
entering into of the merger agreement be deemed to be an
acquisition transaction;
- any person, other than Banknorth or a Banknorth subsidiary, shall have
acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Ipswich common
stock (the term "beneficial ownership" for purposes of the stock option
agreement having the meaning assigned thereto in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder);
- the shareholders of Ipswich shall have voted and failed to adopt the
merger agreement at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not have been
held in violation of the merger agreement or shall have been cancelled
prior to termination of the merger agreement if, prior to such meeting
(or if such meeting shall not have been held or shall have been
cancelled, prior to such termination), it shall have been publicly
announced that any person (other than Banknorth or a Banknorth
subsidiary) shall have made, or publicly disclosed an intention to make,
a proposal to engage in an acquisition transaction;
- the board of directors of Ipswich, without having received Banknorth's
prior written consent, shall have withdrawn or modified, or publicly
announced its intention to withdraw or modify in any manner adverse in
any respect to Banknorth, its recommendation that the shareholders of
Banknorth approve the transactions contemplated by the merger agreement
in anticipation of engaging in an acquisition transaction, or Ipswich or
any Ipswich subsidiary shall have authorized, recommended or proposed, or
publicly announced its intention to authorize, recommend or propose, an
agreement to engage in an acquisition transaction with any person other
than Banknorth or a Banknorth subsidiary;
- any person, other than Banknorth or a Banknorth subsidiary, shall have
filed with the Securities and Exchange Commission a registration
statement or tender offer materials with respect to a potential exchange
or tender offer that would constitute an acquisition transaction (or
filed a preliminary proxy statement with the Securities and Exchange
Commission with respect to a potential vote by its shareholders to
approve the issuance of shares to be offered in such an exchange offer);
- Ipswich shall have breached any covenant or obligation contained in the
merger agreement after a proposal is made by any third party, other than
Banknorth or a Banknorth subsidiary, to engage in an acquisition
transaction and following such breach
- Banknorth would be entitled to terminate the merger agreement (whether
immediately or after the giving of notice or passage of time or both)
and
51
- such breach shall not have been cured prior to the date the holder of
the option sends issuer a written notice to exercise the option in
whole or in part; or
- any person, other than Banknorth or a Banknorth subsidiary, shall have
filed an application or notice with the Federal Reserve Board or other
federal or state bank regulatory or antitrust authority, which
application or notice has been accepted for processing, for approval to
engage in an acquisition transaction.
As defined in the stock option agreement, the term "subsequent triggering
event" means any of the following events or transactions occurring after the
date of execution of the stock option agreement:
- the acquisition by any person, other than Banknorth or any Banknorth
subsidiary, of beneficial ownership of 25% or more of the then
outstanding Ipswich common stock; or
- the occurrence of the initial triggering event described in the first
paragraph of the definition of initial triggering event above, except
that the percentage referred to in clause (iii) of such paragraph shall
be 25%.
As defined in the stock option agreement, "exercise termination event"
means each of the following:
- the effective time of the merger;
- termination of the merger agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of an initial
triggering event, except a termination by Banknorth due to a breach of
the merger agreement (unless the breach by Ipswich giving rise to such
right of termination was non-volitional); or
- the passage of 12 months after termination of the merger agreement if
such termination follows the occurrence of an initial triggering event or
is a termination by Banknorth due to a breach of the merger agreement
(unless the breach by Ipswich giving rise to such right of termination is
non-volitional), provided that if an initial triggering event continues
or occurs beyond such termination and prior to the passage of such
12-month-period, the exercise termination event shall be 12 months from
the expiration of the last triggering event but in no event more than 18
months after such termination. As defined in the stock option agreement,
the term "last triggering event" means the last initial triggering event
to be in effect.
Under applicable law, Banknorth would be required to obtain the prior
approval of the Federal Reserve Board prior to acquiring 5% or more of the
outstanding shares of Ipswich common stock. See "-- Regulatory Approvals"
beginning on page 38. In addition, certain other regulatory approvals also may
be required before such an acquisition could be consummated.
Upon the occurrence of a repurchase event,
- at the request of any holder of the option delivered prior to an
exercise termination event (or such later period as is provided in the
stock option agreement), Ipswich (or any successor thereto) is
required to repurchase the option from the holder of the option at a
price equal to the amount by which
-- the market/offer price (as defined in each stock option agreement)
exceeds
-- the option exercise price, multiplied by the number of shares for
which the option may then be exercised, and
- at the request of the owner of option shares from time to time (the
"owner"), delivered within 90 days following such occurrence (or such
later period as is provided in each stock option agreement), Ipswich
(or any successor thereto) is required to repurchase such number of
the shares of Ipswich common stock acquired upon exercise of an option
from the owner as the owner designates at a price equal to the greater
of
-- the market/offer price and
52
-- the average exercise price per share paid by the owner for the
option shares so designated.
As defined in the stock option agreement, a "repurchase event" shall be
deemed to have occurred upon the occurrence of any of the following events or
transactions after the date of the stock option agreement:
- the acquisition by any person, other than Banknorth or a Banknorth
subsidiary, of beneficial ownership of 50% or more of the then
outstanding Ipswich common stock; or
- the consummation of any acquisition transaction, as defined in the first
paragraph of the definition of initial triggering event above, except
that the percentage referred to in clause (2) thereof shall be 50%,
provided that no such event shall constitute a repurchase event unless a
subsequent triggering event shall have occurred prior to an exercise termination
event.
The stock option agreement provides that in no event shall Banknorth's
total profit (as defined in the stock option agreement, which definitions are
incorporated herein by reference) exceed $2.4 million and, if it otherwise would
exceed such amount, Banknorth, at its sole election, shall either
- reduce the number of shares of Ipswich common stock subject to the
option,
- deliver to Ipswich for cancellation shares of Ipswich common stock
previously purchased by Banknorth pursuant to the option,
- pay cash to Ipswich or
- any combination thereof, so that Banknorth's actually realized total
profit shall not exceed $2.4 million after taking into account the
foregoing actions.
The stock option agreement also provides that the option may not be exercised
for a number of shares as would, as of the date of exercise, result in a
notional total profit (as defined in the stock option agreement, which
definitions are incorporated herein by reference) of more than $2.4 million,
provided that this provision shall not restrict any exercise of the option
permitted on any subsequent date.
The stock option agreement is intended to increase the likelihood that the
merger will be consummated in accordance with the terms of the merger agreement.
The existence of the option could significantly increase the cost to a potential
acquiror of acquiring Ipswich compared to the cost of acquiring Ipswich had the
stock option agreement and the merger agreement not been entered into. Such
increased cost might discourage a potential acquiror from considering or
proposing an acquisition or might result in a potential acquiror proposing to
pay a lower per share price to acquire Ipswich than it might otherwise have
proposed to pay. In light of the foregoing, the stock option agreement may have
the effect of discouraging persons who might now or at any other time prior to
the effective time of the merger be interested in acquiring all or a significant
interest in Ipswich from considering or proposing such an acquisition, even if
any such person was prepared to offer to pay consideration which had a higher
current market price than the shares of Banknorth common stock to be received
under the merger agreement.
A copy of the stock option agreement is included as Annex II hereto, and
reference is made thereto for the complete terms thereof. The foregoing
discussion is qualified in its entirety by reference to the stock option
agreement.
SHAREHOLDER AGREEMENTS
In connection with the execution of the merger agreement, each director of
Ipswich entered into a shareholder agreement with Banknorth pursuant to which
each director agreed that at any meeting of the
53
shareholders of Ipswich, or in connection with any written consent of the
shareholders of Ipswich, the director shall:
- appear at such meeting or otherwise cause all shares of Ipswich common
stock owned by him or her to be counted as present thereat for purposes
of calculating a quorum; and
- vote (or cause to be voted), in person or by proxy, or deliver a written
consent (or cause a consent to be delivered) covering, all shares of
Ipswich common stock owned by him or her or as to which he or she has,
directly or indirectly, the right to direct the voting
-- in favor of adoption and approval of the merger agreement and the
merger,
-- against any action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or
agreement of Ipswich contained in the merger agreement or of the
director contained in the shareholder agreement and
-- against any acquisition proposal (as defined in the merger agreement)
or any other action or transaction that is intended, or could
reasonably be expected, to materially impede, interfere or be
inconsistent with, delay, postpone, discourage or materially and
adversely affect consummation of the merger or the shareholder
agreement.
Pursuant to the shareholder agreement, each director also agreed not to,
directly or indirectly, sell, transfer, pledge, assign or otherwise dispose of,
or enter into any contract, option, commitment or other arrangement or
understanding with respect to the sale, transfer, pledge, assignment or other
disposition of, any of the shares of Ipswich common stock owned by him or her
prior to the meeting at which shareholders of Ipswich will consider the merger
agreement.
The shareholder agreements will remain in effect until the earlier of the
effective time of the merger or the termination of the merger agreement in
accordance with its terms.
Ipswich also agreed to use its reasonable best efforts to cause those
persons who may be deemed to be affiliates of Ipswich pursuant to Rule 145 under
the Securities Act of 1933 to deliver to Banknorth prior to the date of the
annual meeting a written agreement containing certain restrictions on the
transfer of shares of Banknorth common stock acquired in the merger which are
intended to ensure compliance with applicable federal securities laws in
connection with the transfer of such shares. See "-- Resale of Banknorth Common
Stock" beginning on page 46.
DISSENTERS' RIGHTS
The following is a summary of Sections 85 through 98 of the Massachusetts
Business Corporation Law, which set forth the procedures that Ipswich
shareholders must follow in order to object to the proposal to approve and adopt
the merger agreement and demand statutory appraisal rights. The full text of
Sections 85 through 98 is included as Annex V to this document. Failure to
follow those provisions exactly could result in the loss of your appraisal
rights. See "-- Federal Income Tax Consequences" beginning on page 47 for a
discussion of the tax consequences of exercising appraisal rights.
Ipswich shareholders who desire to exercise their appraisal rights must
satisfy each of the applicable conditions of Sections 85 through 98. The
shareholder must file with Ipswich, before the vote on the proposal relating to
the merger agreement is taken, a written objection to the proposed merger
agreement that states that the shareholder intends to demand payment for his,
her or its shares. The written objection should be filed with Ms. Mariell Lyons,
Clerk, Ipswich Bancshares, Inc., 23 Market Street, Ipswich, Massachusetts 01938.
The written objection must specify the shareholder's name and mailing address,
that the shareholder objects to the proposal regarding the merger agreement and
that he, she or it is demanding appraisal of his, her or its shares of Ipswich
common stock.
Ipswich shareholders electing to exercise their appraisal rights must not
vote for approval of the merger agreement. If a shareholder returns a signed
proxy but does not specify a vote against approval of the merger agreement or a
direction to abstain, the proxy will be voted "FOR" approval of the merger
54
agreement, which will have the effect of waiving that shareholder's appraisal
rights. Also, voting against, abstaining from voting, or failing to vote with
respect to the merger agreement alone will not constitute a demand for appraisal
for purposes of Massachusetts law.
Within 10 days after the merger becomes effective, Ipswich must notify by
registered or certified mail each shareholder who has satisfied the requirements
for demanding appraisal that the merger has become effective. The notice from
Ipswich will not create any rights in its recipient to demand payment for his,
her or its shares of Ipswich common stock.
If, within 20 days after the date Ipswich mails the notice, any shareholder
to whom Ipswich was required to give notice demands in writing payment from
Ipswich for his, her or its shares of Ipswich common stock, Ipswich, within 50
days after the date it mailed the notice, must contact such objecting
shareholder regarding the fair value of such objecting shareholder's shares.
These written demands may be filed with Ms. Mariell Lyons, Clerk, Ipswich
Bancshares, Inc., 23 Market Street, Ipswich, Massachusetts 01938. If Ipswich and
the objecting shareholder are unable to agree upon the value of the Ipswich
common stock Ipswich or to the expiration of the 50 day period, either party
may, within four months after the expiration of the 50 day period, demand a
determination of the value of the shares of Ipswich common stock of all such
objecting shareholders by filing a bill in equity in the superior court in Essex
County.
Any objecting shareholder who decides to file a bill in equity must do so
on his, her or its own behalf and on behalf of all other objecting shareholders
who have demanded payment for their shares and with whom Ipswich has not reached
an agreement as to the value of the shares. Service of the bill must be made
upon Ipswich by subpoena with a copy of the bill included. Ipswich must file
with its answer a duly verified list of all other objecting shareholders, and
the objecting shareholders will then be deemed to have been added as parties to
the bill. Ipswich will then give notice in the form, and returnable on the date,
ordered by the court to each objecting shareholder by registered or certified
mail to the last known address as shown in the records of Ipswich and by
publication or otherwise as the court may order.
After a hearing, the court will enter a decree determining the fair value
of the Ipswich common stock owned by the objecting shareholders who have become
entitled to the valuation of and payment for their shares and will order Ipswich
to make payment, together with interest, if any, to the objecting shareholders
entitled thereto upon the transfer by them of the certificates representing
their shares of Ipswich common stock if certificated or, if uncertificated, upon
receipt of an instruction to transfer such stock to Ipswich. The value of the
shares will be determined as of the day preceding the date of the shareholder
vote approving and adopting the merger agreement and will exclude any element of
value arising from the expectation or accomplishment of the merger.
The costs associated with the bill in equity, exclusive of fees of counsel
and experts retained by any party, will be taxed upon the parties to the bill as
the court deems equitable. All costs associated with giving notice to
shareholders, however, will be borne by Ipswich. Interest will be paid on any
award from the date of the vote approving the merger agreement and the court
may, upon application of any party, determine the amount of interest to be paid.
Any objecting shareholder who has demanded payment for his, her or its
shares of Ipswich common stock will not thereafter be entitled to notice of any
shareholders' meeting, to vote such shares for any purpose or to receive any
dividends or distributions on the stock (except dividends or distributions
payable to shareholders of record as of a date before the date of the vote
approving the merger agreement) unless:
- a bill in equity to determine the fair value of the Ipswich common stock
is not filed within the statutory time period;
- a bill in equity, if filed, has been dismissed as to such shareholder; or
- such shareholder has, with the written approval of Ipswich, delivered a
written withdrawal of his, her or its objections and an acceptance of the
merger.
55
The enforcement by an objecting shareholder of his, her or its right to
receive payment for his, her or its shares in this manner will be an exclusive
remedy, except that the shareholder may still bring or maintain an appropriate
proceeding to obtain relief on the ground that the merger will be or is illegal
or fraudulent, or that the merger involved a breach of fiduciary duty.
OPERATIONS OF BANKNORTH AFTER THE MERGER
Banknorth expects to achieve significant cost savings, revenue enhancements
and other operating synergies subsequent to the merger. The cost savings and
operating synergies are expected to amount to approximately 25% of Ipswich's
current level of operating expenses and are to be derived primarily from
reductions in personnel and the integration of other facilities and back-office
operations. In addition, because Ipswich will be merged with and into Banknorth,
the costs associated with Ipswich operating as a publicly-held entity also will
be eliminated. The after-tax cost savings and other operating synergies for 2002
and 2003 are estimated to amount to approximately $500,000 and $1.2 million,
respectively. The estimated amounts are larger in 2003 because system
consolidation is not anticipated to occur until sometime in the third quarter of
2002. Banknorth also anticipates that it will be able to increase revenues from
the Ipswich franchise by selling products and services to Ipswich customers that
are currently not offered by Ipswich (e.g., insurance, securities brokerage,
asset management and cash management). Banknorth has not estimated these revenue
enhancements, however, and did not include them in its financial analysis of the
merger.
Because of the uncertainties inherent in merging two financial
institutions, changes in the regulatory environment and changes in economic
conditions, no assurances can be given that any particular level of cost
savings, revenue enhancements and other operating synergies will be realized,
that any such cost savings, revenue enhancements and other operating synergies
will be realized over the time period currently anticipated or that such cost
savings, revenue enhancements and other operating synergies will not be offset
to some degree by increases in other expenses, including expenses related to
integrating the two companies.
Banknorth anticipates that the acquisition of Ipswich will be accretive to
its earnings upon operational integration, but that because of the small
relative size of Ipswich to Banknorth its earnings in 2002 will not be
materially affected. Banknorth anticipates that the acquisition of Ipswich will
increase its earnings by one cent per diluted share in 2003.
Although management of Banknorth has performed substantial financial
analysis of the proposed merger, identification of all cost savings and
potential revenue enhancements associated with the merger has not been
completed. Moreover, no assurances can be given that cost savings or any revenue
enhancements will be realized at any given time in the future.
The estimated cost savings which are expected to be realized by the
combined company do not reflect an estimated $4.2 million of after-tax
transaction costs which will be incurred in connection with the merger, a
portion of which will be charged to earnings as a special charge and the balance
of which will increase Banknorth's goodwill. These costs relate primarily to
terminations of employment contracts, change-in-control contracts and severance
obligations, professional fees, conversion and integration expenses, exit costs
associated with contract terminations and other operating expenses required to
be accrued in accordance with accounting principles generally accepted in the
United States of America, less estimated tax benefits. In evaluating the cost
savings and other potential benefits of the merger, the Banknorth board of
directors considered the amount of the transaction costs which are necessary to
realize future annual savings resulting from consolidation of support functions
and economies of scale.
MARKET FOR COMMON STOCK AND DIVIDENDS
The Banknorth common stock is traded on the Nasdaq Stock Market Inc.'s
National Market under the symbol "BKNG," and the Ipswich common stock also is
traded on the Nasdaq Stock Market Inc.'s National Market under the symbol
"IPSW." As of March 31, 2002, there were 146,916,272 shares of
56
Banknorth common stock outstanding, which were held by approximately 15,000
holders of record; and as of the record date for the annual meeting, there were
1,965,786 shares of Ipswich common stock outstanding, which were held by
approximately 238 holders of record. Such numbers of shareholders do not reflect
the number of individuals or institutional investors holding stock in nominee
name through banks, brokerage firms and others.
The following table sets forth during the periods indicated the high and
low sales prices of the Banknorth common stock and the Ipswich common stock as
reported on the Nasdaq Stock Market Inc.'s National Market and the dividends
declared per share of Banknorth common stock and Ipswich common stock.
BANKNORTH IPSWICH
--------------------------- ---------------------------
MARKET PRICE DIVIDENDS MARKET PRICE DIVIDENDS
--------------- DECLARED --------------- DECLARED
HIGH LOW PER SHARE HIGH LOW PER SHARE
------ ------ --------- ------ ------ ---------
2002
First Quarter........................ $26.80 $22.25 $0.135 $20.40 $12.70 $ 0.12
Second Quarter (through May 14)...... 27.35 25.81 0.145 20.60 20.31 0.12
2001
First Quarter........................ 21.06 18.13 0.130 10.63 9.13 0.11
Second Quarter....................... 22.93 19.38 0.130 12.09 9.25 0.11
Third Quarter........................ 24.39 18.93 0.130 13.50 11.30 0.11
Fourth Quarter....................... 22.92 19.78 0.135 13.04 11.75 0.17(1)
2000
First Quarter........................ 16.13 10.38 0.125 10.00 5.88 0.10
Second Quarter....................... 18.00 11.94 0.125 10.00 7.50 0.10
Third Quarter........................ 18.50 14.88 0.125 9.88 7.75 0.10
Fourth Quarter....................... 21.13 15.56 0.125 9.63 8.00 0.11
---------------
(1) Includes a special dividend of $0.05 per share.
The following table shows the closing price per share of the Banknorth
common stock and the Ipswich common stock on (1) February 26, 2002, the last
trading day preceding public announcement of the merger agreement, in the case
of the Banknorth common stock, and on February 22, 2002, the last day on which
the Ipswich common stock traded prior to public announcement of the merger
agreement, in the case of the Ipswich common stock, and (2) May 14, 2002, the
last full trading day for which closing prices were available at the time of the
printing of this document. The historical prices are as reported on the Nasdaq
Stock Market Inc.'s National Market. The following table also includes the
equivalent price per share of Ipswich common stock on those dates. The
equivalent per share price reflects the value of the Banknorth common stock
which would be received by Ipswich shareholders who receive shares of Banknorth
common stock in the merger based on an assumed exchange ratio of 0.7727 of a
share of Banknorth common stock for each share of Ipswich common stock.
HISTORICAL MARKET
VALUE PER SHARE
------------------- EQUIVALENT MARKET VALUE
DATE BANKNORTH IPSWICH PER SHARE OF IPSWICH(1)
---- --------- ------- -----------------------
February 26 and 22, 2002, respectively....... $24.12 $13.25 $18.64
May 14, 2002................................. 27.05 20.40 20.90
---------------
(1) The equivalent prices per share of Ipswich common stock on the indicated
dates were determined by multiplying an assumed exchange ratio of 0.7727 by
the closing price per share of the Banknorth common stock on the indicated
date. The actual exchange ratio will be determined by dividing $20.50 by the
average closing prices of the Banknorth common stock during the 20
trading-day period preceding the effective time of the merger.
57
Shareholders are advised to obtain current market quotations for the
Banknorth common stock and the Ipswich common stock. The market price of the
Banknorth common stock at the effective time of the merger or at the time
shareholders of Ipswich who receive Banknorth common stock in the merger receive
certificates evidencing such shares following the election period to be
conducted after the merger is consummated may be higher or lower than the market
price at the time the merger agreement was executed, at the date of mailing of
this document or at the time of the annual meeting.
INFORMATION ABOUT BANKNORTH
GENERAL
Banknorth Group, Inc., is a Maine corporation and a registered bank holding
company and financial holding company under the Bank Holding Company Act of
1956, as amended. Banknorth conducts business from its headquarters in Portland,
Maine and, as of December 31, 2001, 308 banking offices located in Maine, New
Hampshire, Massachusetts, Vermont, New York and Connecticut. At March 31, 2002,
Banknorth had consolidated assets of $20.9 billion and consolidated
shareholders' equity of $1.7 billion. Based on total assets at that date,
Banknorth is one of the 35 largest commercial banking organizations in the
United States.
Banknorth's principal asset is all of the capital stock of Banknorth, NA, a
national bank which was initially formed as a Maine-chartered savings bank in
the mid-19th century. Effective January 1, 2002, Banknorth consolidated all
eight of its other banking subsidiaries and its trust company subsidiary into
Banknorth, NA, which was known as "Peoples Heritage Bank" prior to these
consolidations. Banknorth, NA operates under the trade name "Peoples Heritage
Bank" in Maine, "Bank of New Hampshire" in New Hampshire and "Evergreen Bank" in
New York to take advantage of the goodwill associated with the names of these
predecessor banks. Banknorth, NA operates under its name elsewhere in its market
areas. Through Banknorth, NA Banknorth offers a full range of banking services
and products to individuals, businesses and governments throughout its market
areas, including commercial, consumer and trust and investment services.
The executive offices of Banknorth are located at Two Portland Square,
Portland, Maine 04112-9540, and its telephone number is (207) 761-8500.
ACQUISITIONS
Banknorth's profitability and market share have been enhanced in recent
years through internal growth and acquisitions of both financial and
nonfinancial institutions. In 2001, Banknorth completed the acquisition of
Andover Bancorp, Inc. ("Andover"), a multi-bank holding company headquartered in
Andover, Massachusetts, and MetroWest Bank ("MetroWest"), a
Massachusetts-chartered savings bank headquartered in Framingham, Massachusetts.
At October 31, 2001, Andover had total assets of $1.8 billion and total
shareholders' equity of $162 million and MetroWest had total assets of $907
million and total shareholders' equity of $62 million. Banknorth issued a total
of 16.5 million shares of Banknorth common stock (including shares issuable upon
exercise of Banknorth stock options issued in exchange for Andover stock
options) in connection with the acquisition of Andover and paid $164.8 million
(including amounts paid in consideration for the cancellation of MetroWest stock
options) in connection with the acquisition of MetroWest.
Banknorth continually evaluates acquisition opportunities and frequently
conducts due diligence in connection with possible acquisitions. As a result,
acquisition discussions and, in some cases, negotiations frequently take place
and future acquisitions involving cash, debt or equity securities can be
expected. Acquisitions typically involve the payment of a premium over book and
market values, and therefore, some dilution of Banknorth's book value and net
income per common share may occur in connection with any future transactions.
Moreover, acquisitions commonly result in significant one-time charges against
earnings, although cost-savings, annually incident to in-market acquisitions,
frequently are anticipated.
58
PENDING ACQUISITION
In addition to the proposed acquisition of Ipswich, on April 10, 2002
Banknorth announced that it had entered into an agreement to acquire Bancorp
Connecticut, Inc.
Bancorp is a Delaware-chartered bank holding company headquartered in
Southington, Connecticut which owns all of the outstanding capital stock of
Southington Savings Bank, a Connecticut-chartered bank and trust company.
Southington Savings Bank has seven banking offices: four in Southington and one
each in Kensington, Wallingford and Cheshire, Connecticut. At March 31, 2002,
Bancorp had $676.2 million of consolidated assets, including $330.5 million of
net loans; $617.7 million of consolidated liabilities, including $421.7 million
of deposits, and $58.5 million of shareholders' equity. Bancorp's net income
amounted to $2.5 million and $2.3 million during the three months ended March
31, 2002 and 2001, respectively, and $9.1 million, $8.9 million and $7.6 million
during the years ended December 31, 2001, 2000 and 1999, respectively.
The agreement between Banknorth and Bancorp sets forth the terms and
conditions pursuant to which a newly-formed subsidiary of Banknorth would be
merged with and into Bancorp and Southington Savings Bank subsequently would be
merged with and into Banknorth, NA. The agreement provides, among other things,
that as a result of the combination, each outstanding share of common stock of
Bancorp (subject to certain exceptions) will be converted into the right to
receive $28.00, without interest. Based on the fully-diluted number of shares of
Bancorp common stock outstanding, the aggregate purchase price for this
acquisition is approximately $157.0 million. Consummation of the acquisition of
Bancorp is subject to a number of customary conditions, including (1) the
approval of the merger agreement between Banknorth and Bancorp by the
shareholders of Bancorp and (2) the receipt of requisite regulatory approvals.
Banknorth's acquisition of Bancorp is expected to be completed in the third
quarter of this year.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to executive compensation, benefit plans,
voting securities and the principal holders thereof, certain relationships and
related transactions and other related matters as to Banknorth is incorporated
by reference or set forth in Banknorth's annual report on Form 10-K for the year
ended December 31, 2001, and is incorporated herein by reference. Shareholders
desiring copies of such document may contact Banknorth at its address or
telephone number indicated under "Where You Can Find More Information" beginning
on page 91.
INFORMATION ABOUT IPSWICH
GENERAL
Ipswich is a Massachusetts corporation and a registered bank holding
company under the Bank Holding Company Act of 1956, as amended. Ipswich conducts
business from its executive offices and main office in Ipswich, Massachusetts
and seven full-service branch offices located in Beverly, Essex, Marblehead,
North Andover, Rowley, Reading and Salem, Massachusetts. Ipswich's principal
asset is all of the capital stock of Ipswich Savings Bank, a
Massachusetts-chartered savings bank which operates under the name Ipswich Bank.
The principal business of Ipswich is attracting deposits from the general public
and using these deposits to fund the origination of single-family residential
loans and, to a lesser extent, home equity loans and commercial real estate
loans. At March 31, 2002, Ipswich had consolidated assets of $324.5 million and
consolidated shareholders' equity of $15.4 million. Ipswich's executive offices
are located at 23 Market Street, Ipswich, Massachusetts 01938, and its telephone
number is (978) 356-7777.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to executive compensation, benefit plans,
voting securities and the principal holders thereof, certain relationships and
related transactions and other related matters as to Ipswich is set forth herein
or is incorporated by reference from Ipswich's annual report on Form 10-K for
the year ended December 31, 2001 and its quarterly report on Form 10-Q for the
three months ended March 31, 2002, copies of which accompany this document.
59
SUPERVISION AND REGULATION OF BANKNORTH AND IPSWICH
GENERAL
Banknorth, as a registered bank holding company and financial holding
company, and Ipswich, as a registered bank holding company, under the Bank
Holding Company Act of 1956, as amended, are subject to the supervision of, and
to regular inspection by, the Federal Reserve Board. Banknorth, NA, Banknorth's
wholly-owned banking subsidiary, is a national bank subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency
("OCC"), and Ipswich Bank, Ipswich's wholly-owned banking subsidiary, is a
Massachusetts-chartered bank subject to regulation, supervision and examination
by the Commissioner of Banks of the Commonwealth of Massachusetts and the
Federal Deposit Insurance Corporation ("FDIC"). The following discussion
summarizes certain aspects of those federal banking laws and regulations that
affect Banknorth, Ipswich and their subsidiaries.
As a bank holding company, the activities of Ipswich and those of companies
that it controls or in which it holds more than 5% of the voting stock are
limited to banking, managing or controlling banks, furnishing services to or
performing services for their subsidiaries or any other activity that the
Federal Reserve Board had determined to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto as of November
11, 1999, the day before the date of enactment of the Gramm-Leach-Bliley Act,
discussed under "-- Financial Modernization" on page 62. In making such
determinations, the Federal Reserve Board is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. Generally, bank
holding companies such as Ipswich are required to obtain prior approval of the
Federal Reserve Board to engage in any new activity or to acquire more than 5%
of any class of voting stock of any company. As discussed under "Financial
Modernization," the above-discussed limitations are not applicable to bank
holding companies which elect to become financial holding companies, such as
Banknorth.
Bank holding companies such as Ipswich and Banknorth are also required to
obtain the prior approval of the Federal Reserve Board before acquiring more
than 5% of any class of voting stock of any bank that is not already majority
owned by the bank holding company. Pursuant to the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Banking and
Branching Act"), a bank holding company became able to acquire banks in states
other than its home state beginning September 29, 1995, without regard to the
permissibility of such acquisitions under state law, but subject to any state
requirement that the bank has been organized and operating for a minimum period
of time, not to exceed five years, and the requirement that the bank holding
company, prior to or following the proposed acquisition, controls no more than
10% of the total amount of deposits of insured depository institutions in the
United States and less than 30% of such deposits in that state (or such lesser
or greater amount set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, subject to certain restrictions, thereby creating interstate
branches. Pursuant to the Interstate Banking and Branching Act, a bank also may
open new branches in a state in which it does not already have banking
operations if the state enacts a law permitting such de novo branching.
CAPITAL AND OPERATIONAL REQUIREMENTS
The Federal Reserve Board, the OCC and the FDIC have issued substantially
similar risk-based and leverage capital guidelines applicable to U.S. banking
organizations. In addition, those regulatory agencies may from time to time
require that a banking organization maintain capital above the minimum levels,
whether because of its financial condition or actual or anticipated growth. The
Federal Reserve Board risk-based guidelines define a three-tier capital
framework. "Tier 1 capital" generally consists of common and qualifying
preferred shareholders' equity, less certain intangibles and other adjustments.
"Tier 2 capital"
60
and "Tier 3 capital" generally consist of subordinated and other qualifying
debt, preferred stock that does not qualify as Tier 1 capital and the allowance
for credit losses up to 1.25% of risk-weighted assets.
The sum of Tier 1, Tier 2 and Tier 3 capital, less investments in
unconsolidated subsidiaries, represents qualifying "total capital," at least 50%
of which must consist of Tier 1 capital. Risk-based capital ratios are
calculated by dividing Tier 1 capital and total capital by risk-weighted assets.
Assets and off-balance sheet exposures are assigned to one of four categories of
risk weights, based primarily on relative credit risk. The minimum Tier 1
capital ratio is 4% and the minimum total capital ratio is 8%. At March 31,
2002, Banknorth's Tier 1 capital and total risk-based capital ratios under these
guidelines were 10.54% and 13.18%, respectively, and Ipswich's were 11.15% and
12.40%, respectively.
The "leverage ratio" requirement is determined by dividing Tier 1 capital
by adjusted average total assets. Although the stated minimum ratio is 3%, most
banking organizations are required to maintain ratios of at least 100 to 200
basis points above 3%. At March 31, 2002, Banknorth's and Ipswich's leverage
ratios were 7.63% and 5.82%, respectively.
Federal bank regulatory agencies require banking organizations that engage
in significant trading activity to calculate a capital charge for market risk.
Significant trading activity means trading activity of at least 10% of total
assets or $1 billion, whichever is smaller, calculated on a consolidated basis
for bank holding companies. Federal bank regulators may apply the market risk
measure to other banks and bank holding companies as the agency deems necessary
or appropriate for safe and sound banking practices. Each agency may exclude
organizations that it supervises that otherwise meet the criteria under certain
circumstances. The market risk charge will be included in the calculation of an
organization's risk-based capital ratios. Neither Banknorth nor Ipswich is
currently subject to this annual capital charge.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective U.S. federal regulatory agencies
to implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became undercapitalized or
the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness related generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
The various federal bank regulatory agencies have adopted substantially
similar regulations that define the five capital categories identified by
FDICIA, using the total risk-based capital, Tier 1 risk-based capital and
leverage capital ratios as the relevant capital measures. Such regulations
establish various degrees of corrective action to be taken when an institution
is considered undercapitalized. Under the regulations, a "well capitalized"
institution must have a Tier 1 capital ratio of at least 6%, a total risk-based
capital ratio of at least 10% and a leverage ratio of at least 5% and not be
subject to a capital directive order. An "adequately capitalized" institution
must have a Tier 1 capital ratio of at least 4%, a total risk-based capital
ratio of at least 8% and a leverage ratio of at least 4%, or 3% in some cases.
Under these guidelines, each of the banking subsidiaries of Banknorth and
Ipswich is considered "well capitalized."
The Federal bank regulatory agencies also have adopted regulations which
mandate that regulators take into consideration concentrations of credit risk
and risks from non-traditional activities, as well as an institution's ability
to manage those risks, when determining the adequacy of an institution's
capital. That evaluation will be made as part of the institution's regular
safety and soundness examination. Banking
61
agencies also have adopted final regulations requiring regulators to consider
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its off-balance
sheet position) in the determination of a bank's capital adequacy. Concurrently,
banking agencies have proposed a methodology for evaluating interest rate risk.
The banking agencies do not intend to establish an explicit risk-based capital
charge for interest rate risk but will continue to assess capital adequacy for
interest rate risk under a risk assessment approach based on a combination of
quantitative and qualitative factors and have provided guidance on prudent
interest rate risk management practices.
DISTRIBUTIONS
Banknorth and Ipswich both derive funds for cash distributions to their
respective shareholders primarily from dividends received from their respective
banking subsidiaries. Each of their banking subsidiaries is subject to various
general regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain capital above regulatory minimums.
The appropriate U.S. federal regulatory authority is authorized to determine
under certain circumstances relating to the financial condition of the bank or
bank holding company that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof.
In addition to the foregoing, the ability of Banknorth, Ipswich and their
respective banking subsidiaries to pay dividends may be affected by the various
minimum capital requirements and the capital and non-capital standards
established under FDICIA, as described above. The right of Banknorth, Ipswich
and their respective shareholders and creditors to participate in any
distribution of the assets or earnings of the respective subsidiaries of
Banknorth and Ipswich is further subject to the prior claims of creditors of
such subsidiaries.
"SOURCE OF STRENGTH" POLICY
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support.
Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance
Act, in the event of a loss suffered or anticipated by the FDIC -- either as a
result of default of a banking or thrift subsidiary of a bank holding company
such as Banknorth or Ipswich or related to FDIC assistance provided to a
subsidiary in danger of default -- the other banking subsidiaries of such bank
holding company may be assessed for the FDIC's loss, subject to certain
exceptions.
FINANCIAL MODERNIZATION
Effective March 11, 2000, the Gramm-Leach-Bliley Act permits bank holding
companies to become financial holding companies and thereby affiliate with
securities firms and insurance companies and engage in other activities that are
financial in nature. A bank holding company may become a financial holding
company if each of its subsidiary banks is well capitalized under the FDICIA
prompt corrective action provisions, is well managed and has at least a
satisfactory rating under the Community Reinvestment Act by filing a declaration
with the Federal Reserve Board that the bank holding company seeks to become a
financial holding company. No regulatory approval is required for a financial
holding company to acquire a company, other than a bank or savings association,
engaged in activities that are financial in nature or incidental to activities
that are financial in nature, as determined by the Federal Reserve Board.
The Gramm-Leach-Bliley Act defines "financial in nature" to include
securities underwriting, dealing and market making; sponsoring mutual funds and
investment companies; insurance underwriting and agency; merchant banking
activities; and activities that the Federal Reserve Board has determined to be
closely related to banking. A national bank also may engage, subject to
limitations on investment, in activities that are financial in nature, other
than insurance underwriting, insurance company portfolio investment, real estate
development and real estate investment, through a financial subsidiary of the
bank, if the bank is well capitalized, well managed and has at least a
satisfactory Community Reinvestment Act
62
rating. Subsidiary banks of a financial holding company or national banks with
financial subsidiaries must continue to be well capitalized and well managed in
order to continue to engage in activities that are financial in nature without
regulatory actions or restrictions, which could include divestiture of the
financial in nature subsidiary or subsidiaries. In addition, a financial holding
company or a bank may not acquire a company that is engaged in activities that
are financial in nature unless each of the subsidiary banks of the financial
holding company or the bank has a Community Reinvestment Act rating of
satisfactory or better.
Banknorth become a financial holding company under the Bank Holding Company
Act effective January 25, 2002, and Banknorth, NA owns financial subsidiaries
engaged in insurance brokerage activities throughout Banknorth's market area.
DESCRIPTION OF BANKNORTH CAPITAL STOCK
Banknorth is authorized to issue up to 400,000,000 shares of Banknorth
common stock and up to 5,000,000 shares of preferred stock. The capital stock of
Banknorth does not represent or constitute a deposit account and is not insured
by the FDIC.
The following description of the Banknorth capital stock does not purport
to be complete and is qualified in all respects by reference to Banknorth's
articles of incorporation, as amended, and bylaws, the Banknorth shareholder
rights plan and the Maine Business Corporation Act.
BANKNORTH COMMON STOCK
General. Each share of Banknorth common stock has the same relative rights
and is identical in all respects with each other share of Banknorth common
stock. The Banknorth common stock is not subject to call for redemption and,
upon receipt by Banknorth of the shares of Ipswich common stock surrendered in
exchange for Banknorth common stock, each share of Banknorth common stock
offered hereby will be fully paid and non-assessable.
Voting Rights. Except as provided in any resolution or resolutions adopted
by the Banknorth board of directors establishing any series of Banknorth
preferred stock, the holders of Banknorth common stock possess exclusive voting
rights in Banknorth. Each holder of Banknorth common stock is entitled to one
vote for each share held on all matters voted upon by shareholders, and
shareholders are not permitted to cumulate votes in elections of directors.
Dividends. Subject to the rights of the holders of any series of Banknorth
preferred stock, the holders of the Banknorth common stock are entitled to such
dividends as may be declared from time to time by the Banknorth board of
directors out of funds legally available therefor.
Preemptive Rights. Holders of Banknorth common stock do not have any
preemptive rights with respect to any shares which may be issued by Banknorth in
the future; thus, Banknorth may sell shares of Banknorth common stock without
first offering them to the then holders of the Banknorth common stock.
Liquidation. In the event of any liquidation, dissolution or winding up of
Banknorth, the holders of the Banknorth common stock would be entitled to
receive, after payment of all debts and liabilities of Banknorth, all assets of
Banknorth available for distribution, subject to the rights of the holders of
any Banknorth preferred stock which may be issued with a priority in liquidation
or dissolution over the holders of the Banknorth common stock.
BANKNORTH PREFERRED STOCK
The Banknorth board of directors is authorized to issue Banknorth preferred
stock and to fix and state voting powers, designations, preferences or other
annual rights and the qualifications, limitations and restrictions of these
shares. The Banknorth preferred stock may be issued in distinctly designated
series, may be convertible into Banknorth common stock and may rank prior to the
Banknorth common stock as to dividend rights, liquidation preferences, or both.
63
The authorized but unissued shares of Banknorth preferred stock, as well as
the authorized but unissued and unreserved shares of Banknorth common stock, are
available for issuance in future mergers or acquisitions, in a future public
offering or private placement or for other general corporate purposes. Except as
otherwise required to approve the transaction in which the additional authorized
shares of Banknorth preferred stock, as well as Banknorth common stock, would be
issued, shareholder approval generally would not be required for the issuance of
these shares. Depending on the circumstances, however, shareholder approval may
be required pursuant to the requirements for continued listing of the Banknorth
common stock on the Nasdaq Stock Market's National Market or the requirements of
any exchange on which the Banknorth common stock may then be listed.
BANKNORTH RIGHTS
Banknorth is party to an amended and restated rights agreement, dated as of
July 25, 2000, with American Stock Transfer & Trust Company, as rights agent.
The following description of the terms of the Banknorth rights agreement does
not purport to be complete and is qualified in its entirety by reference
thereto, a copy of which is attached as an exhibit to the Form 8-A/A filed by
Banknorth with the Securities and Exchange Commission on July 25, 2000.
Pursuant to the Banknorth rights agreement, each share of Banknorth common
stock has attached to it one preferred stock purchase right (a "Banknorth
right"). Each Banknorth right entitles the registered holder to purchase from
Banknorth a unit consisting of one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share, of Banknorth at a
purchase price of $80, subject to adjustment.
The Banknorth rights will not separate from the Banknorth common stock, be
distributed and become exercisable until a date (the "distribution date") which
will occur upon the earlier of:
- 10 days following a public announcement that a person or group of
affiliated or associated persons, other than employee benefit plans of
Banknorth (an "acquiring person"), has acquired beneficial ownership of
15% or more of the outstanding shares of Banknorth common stock (the
"stock acquisition date"); or
- 10 business days (or such later date as may be determined by action of
the Banknorth board of directors prior to such time as any person becomes
an acquiring person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer that would result in
a person or group beneficially owning 15% or more of the outstanding
shares of Banknorth common stock.
Until a distribution date, the Banknorth rights will be evidenced by the
Banknorth common stock certificates and will be transferred with and only with
such Banknorth common stock certificates, and the surrender for transfer of any
certificates for Banknorth common stock outstanding also will constitute the
transfer of the Banknorth rights associated with the Banknorth common stock
represented by such certificate. The Banknorth rights are not exercisable until
a distribution date and will expire at the close of business on September 25,
2009, unless earlier redeemed by Banknorth, as described below.
Unless the Banknorth rights are earlier redeemed or expire in accordance
with their terms, in the event that any person or group of affiliated or
associated persons, other than employee benefit plans of Banknorth, acquires
beneficial ownership of 15% or more of the outstanding shares of Banknorth
common stock, each holder of a Banknorth right, other than rights beneficially
owned by an acquiring person (which will thereafter be null and void), will
thereafter have the right to receive upon exercise that number of shares of
Banknorth common stock having a market value of two times the exercise price of
the Banknorth right. In addition, unless the Banknorth rights are earlier
redeemed or expire in accordance with their terms, in the event that Banknorth
is acquired in a merger or other business combination transaction or 50% or more
of its consolidated assets or earning power are sold after a person or group
acquires beneficial ownership of 15% or more of the outstanding shares of
Banknorth common stock, each holder of a Banknorth right, other than rights
beneficially owned by an acquiring person (which will be null and
64
void), will thereafter have the right to receive that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Banknorth right.
At any time after a person becomes an acquiring person, Banknorth may
exchange all or part of the Banknorth rights (other than Banknorth rights which
previously have been voided as set forth above) for shares of Banknorth common
stock at an exchange ratio of one share per Banknorth right, as such may be
appropriately adjusted to reflect any stock split or similar transaction.
At any time until 10 days following the stock acquisition date, Banknorth
may redeem the Banknorth rights in whole, but not in part, at a price of $.01
per Banknorth right. Immediately upon the action of the Banknorth board of
directors ordering redemption of the Banknorth rights, the Banknorth rights will
terminate and the only right of the holders of Banknorth rights will be to
receive the redemption price.
The Banknorth rights may have certain anti-takeover effects. The Banknorth
rights would cause substantial dilution to a person or group that acquires 15%
or more of the outstanding shares of Banknorth common stock if a triggering
event thereafter occurs without the Banknorth rights having been redeemed.
However, the Banknorth rights should not interfere with any merger or other
business combination approved by the Banknorth board of directors because the
Banknorth rights are redeemable under certain circumstances.
OTHER PROVISIONS
The articles of incorporation and bylaws of Banknorth contain a number of
provisions that may have the effect of discouraging or delaying attempts to gain
control of Banknorth, including provisions:
- classifying the Banknorth board of directors into three classes to serve
for three years with one class being elected annually;
- authorizing the Banknorth board of directors to fix the size of the
Banknorth board of directors between three and 25 directors;
- authorizing directors to fill vacancies in the Banknorth board of
directors;
- increasing the vote for removal of directors by shareholders;
- increasing the amount of stock required to be held by shareholders
seeking to call a annual meeting of shareholders; and
- requiring an increased vote of shareholders to approve specified business
combinations unless certain price and procedural requirements are met or
the Banknorth board of directors approves the business combination in the
manner provided therein.
The provisions in the bylaws of Banknorth include specific conditions under
which
- persons may be nominated for election as directors of Banknorth at an
annual meeting of shareholders and
- business may be transacted at an annual meeting of shareholders.
In addition to the foregoing, in certain instances the issuance of
authorized but unissued shares of Banknorth common stock or Banknorth preferred
stock may have an anti-takeover effect by making it more difficult and/or
expensive to acquire Banknorth. Sections 611-A and 910 of the Maine Business
Corporation Act also may have the same anti-takeover effects. See "Comparison of
the Rights of Shareholders -- State Anti-takeover Statutes" beginning on page 73
below.
TRANSFER AGENT
The transfer agent and registrar for the Banknorth common stock is American
Stock Transfer & Trust Company.
65
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
Banknorth is a Maine corporation subject to the provisions of the Maine
Business Corporation Act and Ipswich is a Massachusetts corporation subject to
the provisions of the Massachusetts Business Corporation Law. When the merger is
completed, shareholders of Ipswich who receive shares of Banknorth common stock
in exchange for their shares of Ipswich common stock will become shareholders of
Banknorth and their rights as shareholders of Banknorth will be governed by the
articles of incorporation and bylaws of Banknorth and the Maine Business
Corporation Act.
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE A COMPLETE STATEMENT OF THE
DIFFERENCES AFFECTING THE RIGHTS OF IPSWICH SHAREHOLDERS WHO BECOME BANKNORTH
SHAREHOLDERS, BUT RATHER SUMMARIZES THE MORE SIGNIFICANT DIFFERENCES AFFECTING
THE RIGHTS OF SUCH SHAREHOLDERS AND CERTAIN IMPORTANT SIMILARITIES; THE SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ARTICLES OF ORGANIZATION AND
BYLAWS OF IPSWICH, THE ARTICLES OF INCORPORATION AND BYLAWS OF BANKNORTH AND
APPLICABLE LAWS AND REGULATIONS.
AUTHORIZED CAPITAL STOCK
Ipswich. Ipswich's articles of organization authorize the issuance of up
to 12,000,000 shares of Ipswich common stock, $0.10 par value per share, of
which 1,965,786 shares were outstanding as of the record date for the annual
meeting, and up to 1,000,000 shares of preferred stock, $0.10 par value per
share, of which no shares are issued and outstanding. The Ipswich preferred
stock is issuable in series, each series having such rights and preferences as
the Ipswich board of directors may fix and determine by resolution.
Banknorth. Banknorth's articles of incorporation authorize the issuance of
up to 400,000,000 shares of Banknorth common stock, $0.01 par value per share,
of which 146,916,272 shares were outstanding as of March 31, 2002, and up to
5,000,000 shares of Banknorth preferred stock, $0.01 par value per share, of
which no shares are issued and outstanding. The Banknorth preferred stock is
issuable in series, each series having such rights and preferences as the
Banknorth board of directors may fix and determine by resolution.
ISSUANCE OF CAPITAL STOCK
Ipswich. Under the articles of organization of Ipswich and the
Massachusetts Business Corporation Law, Ipswich may issue shares of Ipswich
capital stock and rights or options for the purchase of shares of capital stock
of Ipswich on such terms and for such consideration as may be determined by the
Ipswich board of directors. Neither the Massachusetts Business Corporation Law
nor Ipswich's articles of organization and bylaws require shareholder approval
of any such actions. However, Ipswich is subject to the requirements of the
National Association of Securities Dealers, Inc., which generally require
corporations, such as Ipswich, with securities which are traded on the Nasdaq
National Market to obtain shareholder approval of certain issuances of common
stock and most stock compensation plans for directors, officers and key
employees. Ipswich also may elect to seek shareholder approval of stock-related
compensation plans in certain instances in order to qualify such plans for
favorable federal income tax and securities law treatment under current laws and
regulations. Holders of Ipswich capital stock do not have preemptive rights with
respect to any shares of Ipswich capital stock which may be issued.
Banknorth. Under the Maine Business Corporation Act, Banknorth may issue
shares of Banknorth capital stock and rights or options for the purchase of
shares of capital stock of Banknorth on such terms and for such consideration as
may be determined by the Banknorth board of directors. Neither the Maine
Business Corporation Act nor Banknorth's articles of incorporation and bylaws
require shareholder approval of any such actions, except that pursuant to the
Maine Business Corporation Act such rights or options to purchase Banknorth
capital stock may be issued to directors, officers or employees of Banknorth or
its subsidiaries only if the issuance or plan pursuant to which they are issued
is approved by the holders of a majority of the outstanding shares of Banknorth
capital stock entitled to vote thereon. Banknorth also is subject to the
requirements of the National Association of Securities Dealers, Inc., which as
noted above generally require corporations, such as Banknorth, with securities
which are listed on the Nasdaq Stock
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Market Inc.'s National Market to obtain shareholder approval of certain
issuances of common stock and most stock compensation plans for directors,
officers and key employees. Banknorth also may elect to seek shareholder
approval of stock-related compensation plans in certain instances in order to
qualify such plans for favorable federal income tax and securities laws
treatment under current laws and regulations. Holders of Banknorth capital stock
do not have preemptive rights with respect to any shares of Banknorth capital
stock which may be issued.
VOTING RIGHTS
Ipswich. Each share of Ipswich common stock is entitled to one vote per
share on all matters properly presented at meetings of shareholders of Ipswich,
and shareholders of Ipswich do not have the right to cumulate votes in an
election of directors.
Banknorth. Each share of Banknorth common stock is entitled to one vote
per share on all matters properly presented at meetings of shareholders of
Banknorth, and shareholders of Banknorth do not have the right to cumulate votes
in an election of directors.
CLASSIFICATION AND SIZE OF BOARD OF DIRECTORS
Ipswich. The articles of organization of Ipswich provide that, subject to
the rights of the holders of any class or series of Ipswich preferred stock, the
number of directors of Ipswich may be fixed by resolution duly adopted from time
to time by a vote of two-thirds of the members of the board of directors of
Ipswich, provided, however, that if at the time of such action there is an
"interested stockholder," such action shall instead require a majority of the
"continuing directors" then in office (in each case as such terms are defined in
the articles of organization of Ipswich). See "-- Mergers, Consolidations and
Sales of Assets" on page 73. Currently the number of directors of Ipswich is
seven.
Pursuant to the articles of organization and bylaws of Ipswich, the Ipswich
board of directors, other than those who may be elected by the holders of any
class or series of preferred stock, is divided into three classes as nearly
equal in number as possible and approximately one-third of the directors are
elected annually to serve staggered, three-year terms.
Banknorth. The articles of incorporation of Banknorth provide that the
Banknorth board of directors may increase or decrease the number of directors of
Banknorth by resolution, and that the shareholders of Banknorth may increase or
decrease the number of directors by the affirmative vote of the holders of at
least 67% of the shares entitled to vote generally in an election of directors,
provided in each case that the minimum number of directors shall be three and
the maximum number of directors shall be 25, and further provided that no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director. Currently the number of directors of Banknorth is 15.
Pursuant to the articles of incorporation and bylaws of Banknorth, the
Banknorth board of directors is divided into three classes as nearly equal in
number as possible and approximately one-third of the directors are elected
annually to serve three-year terms.
DIRECTOR VACANCIES AND REMOVAL OF DIRECTORS
Ipswich. Any vacancy occurring in the board of directors of Ipswich,
including any newly-created directorships resulting from an increase in the
number of directors or any vacancy resulting from resignation, removal, death or
other cause, may be filled by the affirmative vote of a majority of the
remaining directors then in office, even if less than a quorum, provided,
however, that if at the time of such action there is an "interested
stockholder," such action shall require a majority of the "continuing directors"
then in office. A director elected to fill such a vacancy shall hold office for
the remainder of the full term of the class in which the vacancy occurred or the
new directorship was created and until such director's successor has been
elected and qualified.
Pursuant to Ipswich's articles of organization, any director of Ipswich
(including persons elected by directors to fill vacancies in the board of
directors) may be removed from office, with or without cause, by
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the affirmative vote of not less than (1) two-thirds of the total votes eligible
to be cast by shareholders at a duly constituted meeting of shareholders called
expressly for such purpose, or (2) two-thirds of the directors then in office,
unless at the time of such removal there shall be an "interested stockholder,"
in which case the affirmative vote of a majority of the "continuing directors"
then in office shall be required for removal of a director by vote of the board
of directors. A director is entitled to a 30-day notice prior to any such
meeting of shareholders or directors, and if the removal is for cause, the
director shall be provided an opportunity to be heard before the shareholders or
the board of directors, as applicable.
Banknorth. Any vacancy occurring in the Banknorth board of directors by
reason of an increase in the number of directors may be filled by the Banknorth
board of directors, and any directors so chosen shall hold office until the next
election of directors by the shareholders of Banknorth. Any other vacancy in the
Banknorth board of directors, whether by reason of death, resignation, removal
or otherwise, may be filled by the remaining directors of Banknorth, or by a
sole remaining director, and any directors so chosen shall hold office until the
next election of the class for which such directors shall have been chosen and
until their successors are elected and qualified.
Pursuant to Banknorth's articles of incorporation, directors of Banknorth
may be removed, with or without cause, by the holders of two thirds of the votes
entitled to vote for directors at a meeting of shareholders called expressly for
such purpose. Directors of Banknorth also can be removed by Banknorth for cause
in the manner specified in the Maine Business Corporation Act.
DIRECTOR DUTIES
Ipswich. The board of directors of Ipswich, when evaluating any offer or
proposal of any person to
- make a tender offer or an exchange offer for any equity security of
Ipswich,
- merge or consolidate Ipswich with another person or
- purchase or otherwise acquire all or substantially all of the properties
and assets of Ipswich,
may in connection with the exercise of its judgment in determining what is in
the best interests of Ipswich and its shareholders, consider the interests of
Ipswich's employees, supplies, creditors and customers, the economy of
Massachusetts, the regional area and the nation, community and societal
considerations and the long-term and short-term interests of Ipswich and its
shareholders, including the possibility that these interests may be best served
by the continued independence of Ipswich.
Banknorth. Under the Maine Business Corporation Act, directors and
officers may, in considering the best interests of the corporation and its
shareholders, consider the effects of any action upon employees, suppliers and
customers of the corporation, communities in which offices or other
establishments of the corporation are located and all other pertinent factors.
CONFLICT OF INTEREST TRANSACTIONS
Ipswich. The articles of organization of Ipswich provide that no contract
or transaction by Ipswich shall be void, voidable or in any way affected by
reason of the fact that it is with a person who is in any way interested in
Ipswich, whether as a director, officer, shareholder, employee or otherwise, or
an entity in which such a person is in any way interested, unless the contract
or transaction is entered into in bad faith or in violation of Ipswich's
articles of organization.
Banknorth. The Maine Business Corporation Act generally provides that
transactions involving a Maine corporation and an interested director or officer
of that corporation are not void or voidable solely because of such director's
or officer's interest if:
- the material facts are disclosed and noted in the minutes and a majority
of disinterested directors on the board of directors or a committee
thereof authorize, approve or ratify the transaction,
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- the material facts are disclosed and a majority of shares entitled to
vote thereon authorize, approve or ratify the transaction, inclusive of
any shares owned by or voted under the control of the benefitted
director, or
- the transaction was fair and equitable to the corporation at the time it
is authorized or approved and the party asserting the fairness of the
transaction establishes fairness.
EXCULPATION OF DIRECTORS AND OFFICERS
Ipswich. Ipswich's articles of organization provide that no director of
Ipswich shall be personally liable to Ipswich or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability
- for any breach of the director's duty of loyalty to Ipswich or its
shareholders,
- for acts or omissions which are not in good faith or which involve
intentional misconduct or a knowing violation of law,
- under certain provisions of the Massachusetts Business Corporation Law
dealing with illegal distributions and loans to directors and officers,
or
- with respect to any transaction from which the director derived an
improper personal benefit.
Ipswich's articles of organization also provide that if the Massachusetts
Business Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of each director of Ipswich shall be eliminated or limited to the extent
permitted by the Massachusetts Business Corporation Law, as so amended.
Banknorth. The Maine Business Corporation Act provides that a director of
a Maine corporation shall not be held personally liable for monetary damages for
failure to discharge any duty as a director unless the director is found not to
have acted honestly or in the reasonable belief that the action was in or not
opposed to the best interests of the corporation or its shareholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Ipswich. The Massachusetts Business Corporation Law generally permits a
corporation to indemnify directors, officers, employees and other agents of the
corporation to the extent specified in or authorized by the articles of
organization or a bylaw adopted by shareholders or otherwise authorized by the
directors, provided that no indemnification shall be provided for any person
with respect to any matter as to which he or she shall have been adjudicated in
any proceeding not to have acted in good faith in the reasonable belief that his
or her action was in the best interest of the corporation.
Ipswich's bylaws generally provide that, to the extent permitted by law,
Ipswich shall indemnify directors and officers of Ipswich against all
liabilities incurred by such persons in connection with any brought or
threatened proceeding in which such person is involved by reason of the fact
that he or she is or was a director or officer of Ipswich, provided that no
indemnification shall be provided to any indemnified person to the extent that
such person shall have been adjudicated in any proceeding not to have acted in
good faith in the reasonable belief that the action of such person was in the
best interest of Ipswich.
Ipswich's bylaws provide that the right to indemnification also includes
the right to be paid by Ipswich for expenses the indemnified person incurs in
defending the proceeding in advance of its final disposition, provided that the
indemnified party delivers to Ipswich an undertaking to repay all amounts
advanced if it is adjudicated or determined that he or she is not entitled to be
indemnified under the bylaws or otherwise.
Banknorth. Under the Maine Business Corporation Act, a corporation may
indemnify its directors, officers, employees and agents against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred in their capacities as such, provided that no
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indemnification may be provided with respect to any matter where such person
shall have been finally adjudicated (i) not to have acted honestly or in the
reasonable belief that such action was in or not opposed to the best interests
of the corporation or its shareholders, or (ii) with respect to any criminal
action, to have had reasonable cause to believe such conduct was unlawful. A
corporation may not indemnify a person with respect to any action or matter 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
was brought determines that, in view of all the circumstances, that person is
fairly and reasonably entitled to indemnity for such amounts as the court deems
reasonable. To the extent such person has been successful on the merits or
otherwise in defense of such action, that person shall be entitled to
indemnification.
Banknorth's bylaws provide that Banknorth shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or proceeding by reason of the fact that he or she is or was
a director, officer, employee or agent of Banknorth to the fullest extent
provided by the Maine Business Corporation Act, provided that Banknorth shall
not be liable for any amount which may be due to any person in connection with a
settlement of any action or proceeding effected without its prior written
consent or any action or proceeding initiated by an indemnified person without
its prior written consent, other than an action or proceeding seeking
indemnification from Banknorth.
Banknorth's bylaws provide that Banknorth shall pay the expenses incurred
by an indemnified person in advance of a final disposition of an action or
proceeding upon receipt by Banknorth of (1) a written undertaking by or on
behalf of the indemnified person to repay such amount if the indemnified person
is ultimately determined not to have acted in the manner required under the
Maine Business Corporation Act in order to permit indemnification and (2) a
written affirmation by the indemnified person that the person has met the
requisite standard of conduct for indemnification.
SPECIAL MEETINGS OF SHAREHOLDERS
Ipswich. Pursuant to the articles of organization of Ipswich, special
meetings of the shareholders of Ipswich may be called only by (1) the board of
directors of Ipswich pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office, (2) the chairman of the board,
(3) the president or (4) if there is an "interested stockholder," by the
affirmative vote of a majority of the "continuing directors" then in office.
Banknorth. Special meetings of shareholders of Banknorth may be called by
the chairman, the president or a majority of the Banknorth board of directors,
and shall be called by the chairman, the president or the clerk upon the written
request of the holders of not less than 50% of the issued and outstanding
capital stock of Banknorth entitled to vote on the matter for which the meeting
is called, voting together as a single class, provided, however, that special
meetings of shareholders of Banknorth also may be called by the Superior Court
of the State of Maine upon the petition of the holders of not less than 10% of
the shares entitled to vote at the meeting.
SHAREHOLDER NOMINATIONS
Ipswich. Ipswich's bylaws generally provide that nominations by
shareholders of candidates for election as directors must be made in writing and
delivered to or received by the secretary of Ipswich not less than 60 days nor
more than 150 days prior to the date of the scheduled annual meeting, provided,
however, that if less than 70 days' notice or prior public disclosure of the
date of the scheduled annual meeting is given or made, notice by the shareholder
must be delivered or received not later than the close of business on the tenth
day following the earlier of (a) the day on which such notice of the date of the
scheduled annual meeting was mailed or (b) the day on which such public
disclosure was made. Each such notice shall set forth (a) as to each person whom
the shareholder proposes to nominate for election or re-election as a director,
(1) the name, age, business address and residence address of such person, (2)
the principal occupation or employment of such person, (3) the class and number
of shares of Ipswich's capital stock which are beneficially owned by such person
on the date of such shareholder notice
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and (4) any other information relating to such person that would be required to
be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission and (b) as to the shareholder giving the
notice, (1) the name and address, as they appear on Ipswich's stock transfer
books, of such shareholder and of the beneficial owners (if any) of the stock
registered in such shareholder's name and the name and address of any other
shareholders known by such shareholder to be supporting such nominees and (2)
the class and number of shares of Ipswich's capital stock which are beneficially
owned by such shareholder and beneficial owners (if any) on the date of such
shareholder notice and by any other shareholders known by such shareholder to be
supporting such nominees.
Banknorth. Banknorth's bylaws provide that nominations by shareholders for
election as a director must be made in writing and delivered or mailed to the
clerk of Banknorth not later than (1) 90 days prior to the anniversary date of
the immediately preceding annual meeting, and (2) with respect to an election of
directors to be held at a annual 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 (1) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (2) a representation
that the shareholder is a holder of record of stock of Banknorth 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; (3) a description of
all arrangements or understandings between the shareholder and each nominee and
any other person or person (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (4) 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 (5) the consent of each nominee
to serve as a director of Banknorth if so elected.
SHAREHOLDER PROPOSALS
Ipswich. Ipswich's bylaws provide that a proposal by shareholders for
submission to a vote of shareholders at an annual meeting must be delivered to
or received by the secretary of Ipswich not less than 60 days nor more than 150
days prior to the scheduled annual meeting, provided, however, that if less than
70 days' notice or prior public disclosure of the date of the scheduled annual
meeting is given or made, notice by the shareholder must be delivered or
received not later than the close of business on the tenth day following the
earlier of (a) the day on which such notice of the date of the scheduled annual
meeting was mailed or (b) the day on which public disclosure was made. Each such
notice shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (a) a brief description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on Ipswich's
stock transfer books, of the shareholder proposing such business and of the
beneficial owners (if any) of the stock registered in such shareholder's name
and the name and address of any other shareholders known by such shareholder to
be supporting such proposal, (c) the class and number of shares of Ipswich's
capital stock which are beneficially owned by the shareholder and beneficial
owners (if any) on the date of such shareholder's notice and by any other
shareholders known by such shareholder to be supporting such proposal and (d)
any financial interest of the shareholder in such proposal.
Banknorth. Banknorth's bylaws provide that a proposal by shareholders for
submission to a vote of shareholders at an annual meeting must be made in
writing and delivered or mailed to the clerk of Banknorth not less than 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 on Banknorth's books, of the shareholder proposing
such business; (c) the class and number of shares of Banknorth which are
beneficially owned by the shareholder; and (d) any material interest of the
shareholder in such business. Shareholder proposals which are proposed to be
included in the proxy statement and form of proxy of Banknorth relating to an
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annual meeting must be submitted in accordance with the notice and other
requirements of Rule 14a-8 under the Securities Exchange Act of 1934.
SHAREHOLDER ACTION WITHOUT A MEETING
Ipswich. Pursuant to the Massachusetts Business Corporation Law, any
action required or permitted to be taken at a meeting of shareholders may be
taken without a meeting if all shareholders entitled to vote on the matter
consent to the action in writing and the written consents are filed with the
records of the meetings of shareholders.
Banknorth. The bylaws of Banknorth provide that any action to be taken or
which may be taken at any annual or annual meeting of shareholders may be taken
without a meeting if a consent in writing, setting forth the actions so taken,
is given by the holders of all outstanding shares of capital stock of Banknorth
entitled to vote thereon.
SHAREHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS
Ipswich. Pursuant to the Massachusetts Business Corporation Law, Ipswich's
articles of organization, bylaws, records of meetings of shareholders and stock
and transfer records shall be kept in Massachusetts for inspection by
shareholders at Ipswich's principal office and/or at an office of its transfer
agent, its clerk or its resident agent. Under the statute, Ipswich may refuse to
make such books and records available for inspection if the purpose is to secure
a list of shareholders or other information for the purpose of selling such list
or information or other than in the interest of the shareholder relative to the
affairs of Ipswich.
Banknorth. The bylaws of Banknorth provide that a list of shareholders
will be available for inspection by any shareholder entitled to vote for a
period of not less than 10 days before and during each meeting of shareholders.
The Maine Business Corporation Act provides that a record shareholder of a Maine
corporation such as Banknorth who has been such for at least six months or owns
of record 10% or more of the corporation's outstanding shares may, for any
proper purpose, and subject to the provision, if requested, of specified
affidavits, inspect the corporation's books and records of account, minutes of
meetings and list or record of shareholders. The Maine Business Corporation Act
authorizes a shareholder of a Maine corporation which refuses to permit an
authorized inspection to bring a legal action for an order directing the
corporation to permit such inspection and, if successful, to be awarded costs
and in certain circumstances specified punitive damages.
AMENDMENT OF GOVERNING INSTRUMENTS
Ipswich. No amendment to the articles of organization of Ipswich generally
may be made unless it is first adopted by the affirmative vote of a majority of
the board of directors of Ipswich then in office and thereafter approved by the
holders of not less than two-thirds of the total votes eligible to be cast at a
duly constituted meeting of shareholders, or in the case of the provisions of
the articles of organization dealing with name, purpose and capitalization, not
less than a majority of the total votes eligible to be cast at a duly
constituted meeting of shareholders, provided that if there is an "interested
stockholder" at any time within the 60-day period preceding the meeting of
shareholders at which the vote thereon is to be taken, any such amendment also
must be approved by a majority of the "continuing directors" then in office
prior to approval by shareholders.
The articles of organization of Ipswich provide that the bylaws of Ipswich
may be adopted, amended or repealed by (1) the affirmative vote of at least
two-thirds of the board of directors of Ipswich, provided that if at the time of
such action there is an "interested stockholder," the affirmative vote of a
majority of the "continuing directors" also shall be required, or (2) the
affirmative vote of the holders of at least two-thirds of the total votes
eligible to be cast by shareholders at a meeting of shareholders called
expressly for such purpose.
Banknorth. No amendment to the articles of incorporation of Banknorth
generally may be made unless it is first adopted by the affirmative vote of a
majority of the board of directors of Banknorth then
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in office and thereafter approved by the holders of at least a majority of all
outstanding shares entitled to vote thereon, provided that the affirmative vote
of the holders of at least 75% of the shares of Banknorth entitled to vote
generally in an election of directors, voting together as a single class, is
required to approve any amendment to the provisions in the Banknorth articles of
incorporation dealing with preemptive rights, convertible debt securities,
actions by shareholders, bylaws, the required vote for business combinations
involving a "related person" and amendments to the articles of incorporation
unless the amendment is approved by the affirmative vote of at least two thirds
of the whole Banknorth board of directors (the total number of directors that
Banknorth would have if there were no vacancies) and a majority of the Banknorth
directors who are not affiliated with a "related person" (which generally is
defined in the articles of incorporation to mean any person which holds 10% or
more of the voting shares of Banknorth). In addition, the "fair price" provision
in the articles of incorporation of Banknorth may not be amended except in the
manner set forth therein. See "-- Mergers, Consolidations and Sales of Assets"
below.
The articles of incorporation of Banknorth provide that the Banknorth board
of directors shall have the exclusive power to adopt, amend or repeal the bylaws
of Banknorth.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
Ipswich. The Massachusetts Business Corporation Law generally provides
that an agreement of merger or consolidation or a sale, lease or exchange of all
or substantially all of the property and assets of a Massachusetts corporation
such as Ipswich must be approved by the holders of two-thirds of the shares of
each class of stock outstanding and entitled to vote thereon, unless a
corporation's articles of organization designate a lower percentage (but not
less than a majority). The articles of organization and bylaws of Ipswich do not
contain provisions which require a specific lower or, except as described below,
higher shareholder vote for such transactions.
Banknorth. The Maine Business Corporation Act generally requires the
approval of the Banknorth board of directors and the holders of at least a
majority of the outstanding Banknorth common stock for mergers and
consolidations in which Banknorth is a participating corporation and for sales
of all or substantially all of Banknorth's property and assets.
The articles of incorporation of Banknorth contain a provision which
requires that mergers and certain other business combinations with a "related
person," as defined, be approved by the holders of not less than 80% of the
outstanding voting stock of Banknorth and an "independent majority of
stockholders," as defined, unless certain price and procedural requirements are
met or the Banknorth board, including a majority of the "continuing directors,"
as defined, approves the merger or other business combination in the manner
provided therein. A "related person" generally is defined to include any person,
firm or entity which is the beneficial owner of 10% or more of the voting shares
of Banknorth, and a "continuing director" generally is defined as any director
who was a director of Banknorth prior to the time the "related person" became
such and who is not an affiliate or associate of a "related person."
STATE ANTI-TAKEOVER STATUTES
Ipswich. Under Chapter 110F of the Massachusetts Business Corporation Law,
a Massachusetts corporation such as Ipswich is prohibited from engaging in
certain business combinations (defined by the statute to include certain mergers
and consolidations, dispositions of assets and issuances of securities, as well
as certain other transactions) with an interested shareholder (defined by the
statute to include holders of 5% or more of the outstanding stock of the
corporation) for a period of three years following the date that such
shareholder became an interested shareholder, except under certain
circumstances, which include prior approval by the board of directors of the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder, or subsequent approval of the business
combination by the board of directors and by a vote of at least two thirds of
the outstanding voting stock which is not owned by the interested shareholder.
The statute includes an exception to the prohibitions of the statute if, upon
consummation of the transaction which resulted in the shareholder becoming an
interested shareholder, the shareholder owned at least 90% of the voting stock
of the corporation.
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Under Chapter 110D of the Massachusetts Business Corporation Law, any
person (hereinafter, the "acquiror") who makes a bona fide offer to acquire, or
acquires, shares of stock of a Massachusetts corporation that, when combined
with shares already owned, would increase the acquiror's ownership to at least
20%, 33.33% or a majority of the voting stock of such corporation, must obtain
the approval of a majority of shares held by all shareholders except the
acquiror and the officers and inside directors of the corporation in order to
vote the shares acquired. The statute permits a Massachusetts corporation to
elect not to be governed by its provisions by including in its articles of
organization or bylaws a provision pursuant to which the corporation "opts out"
of the statute. Ipswich has not included such a provision in either its articles
of organization or bylaws.
Banknorth. Section 910 of the Maine Business Corporation Act generally
provides shareholders of a Maine corporation which has a class of voting shares
registered or traded on a national securities exchange or registered under the
Securities Exchange Act of 1934, such as Banknorth, with the right to demand
payment of an amount equal to the fair value of each voting share in the
corporation held by the shareholder from a person or group of persons which
become a "controlling person," which generally is defined to mean an individual,
firm or entity (or group thereof) which has voting power over at least 25% of
the outstanding voting shares of the corporation. Such a demand must be
submitted to the "controlling person" within 30 days after the "controlling
person" provides required notice to the shareholders of the acquisition or
transactions which resulted in such person or group becoming a "controlling
person." Section 910 could be interpreted to provide that a person or group of
persons could become a "controlling person" for purposes of such section by
soliciting and acquiring revocable proxies to vote at least 25% of the voting
shares of a corporation.
Section 611-A of the Maine Business Corporation Act generally provides that
a Maine corporation which has a class of voting stock registered or traded on a
national securities exchange or under the Securities Exchange Act of 1934 may
not engage in any business combination for five years following an "interested
stockholder's" "stock acquisition date" unless the business combination is (1)
approved by the corporation's board of directors prior to that "interested
stockholder's" "stock acquisition date" or (2) approved, subsequent to that
"interested stockholder's" "stock acquisition date," by the board of directors
of the Maine corporation and authorized by the holders of a majority of the
outstanding voting stock of the corporation not beneficially owned by that
"interested stockholder" or any affiliate or associate thereof or by persons who
are either directors or officers and also employees of the corporation. An
"interested stockholder" is defined to include any person, firm or entity that
is directly or indirectly the beneficial owner of 25% or more of the outstanding
voting stock of the corporation, other than by reason of a revocable proxy given
in response to a proxy solicitation conducted in accordance with the Securities
Exchange Act 1934 which is not then reportable on a Schedule 13D under the
Securities Exchange Act of 1934, and "stock acquisition date" is defined to mean
the date that any person, firm or entity first becomes an "interested
stockholder" of that corporation.
DISSENTERS' RIGHTS OF APPRAISAL
Ipswich. Under the Massachusetts Business Corporation Law, a shareholder
of a Massachusetts corporation such as Ipswich generally has the right to
dissent from, and obtain payment of the fair value of his shares in the event
of, a statutory merger or consolidation, an amendment to the articles of
organization which adversely affects the rights of shareholders or a sale, lease
or exchange of all or substantially all of a corporation's property and assets,
subject in each case to specified procedural requirements. Such appraisal rights
are not available when the corporation is to be the surviving corporation and no
vote of its shareholders is required for the merger. For a detailed description
of the dissenters' rights of shareholders of Ipswich in connection with the
merger, see "The Merger -- Dissenters' Rights" beginning on page 54.
Banknorth. Under the Maine Business Corporation Act, a shareholder of a
Maine corporation such as Banknorth generally has the right to dissent from a
merger or consolidation in which the corporation is participating or sale of all
or substantially all of the assets of the corporation, subject to specified
procedural requirements. The Maine Business Corporation Act generally does not
confer appraisal rights,
74
however, if the corporation's stock is either (1) registered or traded on a
national securities exchange or (2) registered with the Securities and Exchange
Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
is the Banknorth common stock. Even if a corporation's stock meets the foregoing
requirements, however, the Maine Business Corporation Act provides that
appraisal rights generally will be permitted if shareholders of the corporation
are required to accept for their stock in any merger, consolidation or similar
transaction anything other than (1) shares of the surviving or new corporation
resulting from the transaction, or such shares plus cash in lieu of fractional
shares, or (2) shares, or shares plus cash in lieu of fractional shares, of any
other corporation unless such shares are registered or traded on a national
securities exchange or held of record by not less than 2,000 shareholders, or
any combination of the foregoing.
SHAREHOLDER RIGHTS PLANS
Ipswich. Ipswich has not adopted a shareholder rights plan.
Banknorth. Banknorth has adopted a shareholder rights plan, which is
described under "Description of Banknorth Capital Stock -- Banknorth Rights"
beginning on page 64.
ELECTION OF DIRECTORS OF IPSWICH
(PROPOSAL TWO)
GENERAL
Ipswich is governed by a board of directors, currently consisting of seven
members. The board of directors of Ipswich is divided into three classes, as
nearly equal in number as possible, with the directors in each class generally
serving a term of three years and until their successors are elected and
qualified. As the term of one class expires, a successor class is elected by the
shareholders at the annual meeting for that year. In addition, up to two
directors may be elected by vote of a majority of directors then in office.
The board of directors acts as a nominating committee for the selection of
nominees for election as directors. The board of directors has nominated William
E. George and Lawrence J. Pszenny to serve as directors for a three-year term.
Messrs. George and Pszenny currently serve as directors of Ipswich.
Ipswich has no reason to believe that any of the nominees will not be able
to serve. In the event that any nominee is unable to serve at the time of the
election, the shares represented by the proxy will be voted for the other
nominees and may be voted for a substitute for that nominee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE TWO NOMINEES FOR
DIRECTOR SET FORTH ABOVE.
INFORMATION REGARDING DIRECTORS AND NOMINEES
The following table sets forth certain information (as of the record date
for the annual meeting) regarding the current directors of Ipswich and the
nominees for director.
NAME AGE DIRECTOR SINCE* EXPIRATION OF TERM
---- --- --------------- ------------------
William M. Craft.............................. 60 1992 2003
Thomas A. Ellsworth........................... 63 1992 2004
William E. George**........................... 69 1991 2002
David L. Grey................................. 48 1989 2003
John H. Morrow................................ 69 1990 2003
Lawrence J. Pszenny**......................... 58 1991 2002
William J. Tinti.............................. 62 1998 2004
---------------
* Includes service as a trustee of Ipswich Bank prior to its conversion from
the mutual to stock form of ownership on May 25, 1993 (the "Conversion") and
as a director of Ipswich Bank from the date of
75
the Conversion to the establishment of Ipswich as the holding company of
Ipswich Bank on July 1, 1999. All directors of Ipswich are also directors of
Ipswich Bank.
** Nominees.
The principal occupation of each director and nominee for director for at
least the past five years is set forth below.
WILLIAM M. CRAFT is Senior Partner at the Eaton Cummings Group, a strategic
planning and management consulting group. From 1973 until 1998, Dr. Craft was
associated with Bunker Hill Community College (Boston, Massachusetts), where he
served as the Vice President for Planning and Development from 1990 until 1998.
Dr. Craft has been a member of the Town of Ipswich Finance Committee since 1976
and served as Chairman from 1986 to 1992. Since April 1996, Dr. Craft has served
as a consultant to the American Management Association. He is also a former
director of the Ipswich Historical Society.
THOMAS A. ELLSWORTH was with ITT Sheraton Corporation (Boston,
Massachusetts) from 1965 until 1992, serving from 1980 as Senior Vice President
and Director of Real Estate. Currently he is a principal of PKF Hospitality
Investments (Essex, Massachusetts), a consulting and brokerage firm specializing
in hotels and resort real estate. He serves on the Chairman's Committee of the
Trustees of Reservations and the Board of Directors of the Essex County
Greenbelt and is a Trustee of the Massachusetts Land Conservation Trust.
WILLIAM E. GEORGE held executive sales and marketing positions throughout
his 37-year career in the metal distribution industry. The most extensive part
of this service was with the Zurbach Steel Corp. (Salem, New Hampshire), where
he served as President and a member of the Board of Directors from 1985 until
1987, when this company was sold. He then served in an advisory and sales
capacity both for Zurbach Steel and later for Edgcomb Metals (Nashua, New
Hampshire) until his retirement in 1992. Mr. George has been and continues to be
involved in many civic activities, both public and private. In 1997, he chose
not to run for re-election and retired from the Ipswich Board of Selectmen after
15 years of service, including three years as Chairman of the Board.
DAVID L. GREY has served as President and Chief Executive Officer of
Ipswich since its formation on February 12, 1999 and of Ipswich Bank since
November 1989. He joined Ipswich Bank as Executive Vice President and Chief
Financial Officer in April 1986 and held that position until elected to his
current positions. Previously, Mr. Grey had been employed at First Colonial Bank
(Lynn, Massachusetts) from 1982 until 1986, where he served as Vice President,
Treasurer and Chief Financial Officer from 1984 to 1986. Mr. Grey is a
Corporator with the Boy's Club (Lynn, Massachusetts) and President of the
Ipswich Savings Bank Educational Foundation.
JOHN H. MORROW has been Vice President of Hastings-Tapley Insurance Agency
(Cambridge, Massachusetts) since 1984. Mr. Morrow is a past President of the
Rotary Club of Ipswich, and has participated in many community activities
throughout his career.
LAWRENCE J. PSZENNY has been the Senior Vice President -- Finance for
Bickford's Family Restaurants (Boston, Massachusetts) since April 1993. Prior to
that date, he was Vice President -- Finance and Treasurer since 1976. Prior to
1976, Mr. Pszenny practiced as a Certified Public Accountant. Mr. Pszenny's
civic and community activities include President, Board of Trustees, Stephen
Caldwell Memorial Convalescent Home; Secretary, Board of Trustees, Friends of
Caldwell Nursing Home; member, Board of Trustees, Ipswich Public Library; and
former member and Chairman, Town of Ipswich Finance Committee. He was also a
member of the Town of Ipswich Board of Selectmen from 1979 through 1987.
WILLIAM J. TINTI has been President of the law firm of Tinti, Quinn, Grover
& Frey P.C. (Salem, Massachusetts) since 1982. Prior to that date, Mr. Tinti
served as a legislative assistant to Congressman Michael J. Harrington; served
as City Solicitor of the City of Salem for nine years; and served as
Commissioner of the Massachusetts Historical Commission for six years. Mr.
Tinti's civic activities include service on the Board of Overseers of the
Peabody-Essex Museum; as Clerk of the Essex National Heritage
76
Commission, Inc.; as Vice President of the Brookhouse Home; on the Executive
Committee and Board of Directors of the Salem Partnership; on the Board of
Trustees of the North Shore Music Theatre; as Co-Chairman of the North of Boston
Regional Center at Salem State College; and on the Steering Committee for North
Shore Transportation Corridor Major Investment Study.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The business of the board of directors of Ipswich is conducted through
regular meetings as well as through committees. The boards of directors of
Ipswich and Ipswich Bank jointly met 12 times during 2001. Each incumbent
director attended at least 75% of all meetings of Ipswich's board and of Ipswich
Bank's board and any committees of the board of directors of which he was a
member. The board of directors of Ipswich has an Executive Committee, an Audit
Committee, a Compensation Committee, a Strategic Planning Committee and an
Asset/Liability Management Committee. Each of these committees also serves as a
committee of Ipswich Bank. The board of directors acts as Ipswich's nominating
committee. Set forth below is a description of the committees of the board of
directors of Ipswich.
The Executive Committee exercises general control and supervision of all
matters pertaining to Ipswich, subject to the direction of the board of
directors. The Executive Committee, which meets a minimum of twice each month,
consists of directors Pszenny (Chairman), Grey and George. The Executive
Committee met 24 times during 2001.
The Audit Committee reviews internal financial reports prepared by
management and financial and auditing reports of the independent auditor. This
committee consists of directors Morrow (Chairman), Ellsworth and Pszenny. This
committee meets a minimum of four times per year. The Audit Committee met six
times during 2001.
The Compensation Committee reviews compensation issues and also administers
Ipswich's stock option plans and recommends the granting of stock options and
other awards to persons eligible thereunder. The committee consists of directors
Pszenny (Chairman), Grey, Morrow and George. This committee met once during
2001.
The Strategic Planning Committee reviews the strategic direction of
Ipswich, analyzing entry into business lines and branch locations. The committee
assesses the financial impact of strategic decisions and reviews the impact in
the capital markets. The committee consists of directors Craft (Chairman), Grey,
Pszenny and George and Francis Kenney, Senior Vice President, Treasurer and
Chief Financial Officer of Ipswich, and Thomas R. Girard, Senior Vice
President/Mortgage Originations of Ipswich Bank. It met once in 2001.
The Asset/Liability Management Committee directs the overall acquisition
and use of Ipswich's funds, with the goal of maximizing net interest margins
while maintaining reasonable levels of risk. The committee's members are
directors Grey and Craft and Messrs. Kenney (Chairman) and Girard. This
committee met four times during 2001.
The board of directors of Ipswich nominates candidates for election as
directors. In accordance with Ipswich's bylaws, the board will consider nominees
recommended by a shareholder of Ipswich, provided that the shareholder notifies
the clerk of Ipswich of the proposed nominee in writing, setting forth certain
required information regarding the nominee. Such notification must be made in a
timely manner, as set forth in the bylaws. To be timely, such notice must be
received by Ipswich not less than 60 nor more than 150 days prior to the
scheduled date of the annual meeting of shareholders, or, if less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made,
within 10 days of public disclosure of the date of the annual meeting. The board
of directors of Ipswich may reject any shareholder nomination that is not timely
made or does not otherwise satisfy the requirements of Ipswich's bylaws.
COMPENSATION OF DIRECTORS
Each director receives a retainer of $2,400 per year, payable monthly, and
$300 for each board meeting attended. Directors do not receive additional fees
for attendance at meetings of Ipswich's board
77
that are held immediately prior to or after a meeting of the Ipswich Bank board
of directors. The Executive Committee meets a minimum of twice each month and
each member receives a retainer of $11,000 per year (in the case of the
Chairman, $13,750), payable monthly, and $375 for each meeting attended. Members
of the Audit, Compensation, Strategic Planning and Asset/Liability Management
Committees receive $350 for each meeting attended. Ipswich has a deferred
compensation plan pursuant to which directors may defer all or a portion of the
fees that they receive as committee or board members. Directors who are
employees of Ipswich or Ipswich Bank do not receive compensation for their
services as directors.
On January 24, 2001, Ipswich granted options to directors at an exercise
price equal to the fair market value of a share of the Ipswich common stock on
the date of grant, to replace an equal number of previously granted options that
were cancelled by Ipswich on July 21, 2000.
MANAGEMENT OF IPSWICH
EXECUTIVE OFFICERS
The names, ages (as of the record date for the annual meeting) and business
experience during at least the last five years of each of the executive officers
of Ipswich and Ipswich Bank is set forth below.
DAVID L. GREY, age 48, is President and Chief Executive Officer and a
director of both Ipswich and Ipswich Bank. For biographical information
concerning Mr. Grey, see "Election of Directors -- Information Regarding
Directors and Nominees" beginning on page 75.
PHILIP J. BRYAN, age 37, has held the position of Senior Vice President of
Sales and Marketing since joining Ipswich Bank in November of 2001. Prior to
joining Ipswich Bank, Mr. Bryan served as Vice President and Senior Marketing
Manager for MetroWest Bank from 1999 to 2001. Prior to that time, he was Vice
President, Business Development Officer for Citizens Bank in Boston from 1996 to
1999 and Assistant Vice President, Business Development Officer at Bank of
Boston from 1994 to 1996.
MARK E. FOLEY, age 47, has held the position of Senior Vice President of
Commercial Lending of Ipswich Bank since December 2000. He joined Ipswich Bank
in August of 2000 as Vice President and Senior Commercial Lender. Prior to
joining Ipswich Bank, Mr. Foley served as Vice President and regional commercial
lender of Maine Bank & Trust Company from 1998 to 2000. Prior to that time, he
was Vice President/Small Business Specialist with KeyBank National Association
(successor to Casco Northern Bank) from 1992 to 1998. Mr. Foley serves on the
board of the Ipswich Partnership.
FRANCIS KENNEY, age 43, has held the positions of Senior Vice President,
Chief Financial Officer and Treasurer of Ipswich since its formation on February
12, 1999. He has been Senior Vice President and Chief Financial Officer of
Ipswich Bank since February 1995 and Treasurer since December 1994. Prior to the
latter date, he served as Assistant Vice President and Controller from November
1993 to November 1994. Mr. Kenney is a member of the Boston Chapter of the
Institute of Management Accountants. Mr. Kenney currently serves as a director
of the Ipswich Savings Bank Educational Foundation.
All executive officers hold office until the first meeting of the board of
directors following the annual meeting of stockholders or special meeting in
lieu thereof and until their successors are chosen and qualified, unless, with
respect to executive officers other than the President and Treasurer, a shorter
term is specified in the vote appointing them.
78
EXECUTIVE COMPENSATION
Summary Compensation Table. The following Summary Compensation Table sets
forth certain information regarding compensation paid or accrued by Ipswich and
Ipswich Bank with respect to the Chief Executive Officer and Ipswich's and
Ipswich Bank's most highly compensated officers other than the Chief Executive
Officer who served as officers at the end of fiscal 2001 and whose annual
compensation exceeded $100,000 for fiscal 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION(1)
------------------------------------ ------------------ ---------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) UNDERLYING OPTIONS
--------------------------- ---- -------- ------- --------------- ------------------
David L. Grey............ 2001 $239,200 $95,680 -- 30,000 $71,691
President and Chief 2000 230,000 67,620 -- -- 71,564
Executive Officer of 1999 212,000 84,000 -- 50,000 71,564
Ipswich and Ipswich Bank
Francis Kenney........... 2001 98,800 24,700 5,000 13,067
Senior Vice President, 2000 95,000 13,965 -- -- 12,956
Chief Financial Officer 1999 86,500 17,300 -- 10,000 3,075
and Treasurer of Ipswich
and Ipswich Bank
---------------
(1) For Mr. Grey in 2001, includes premium on a variable life insurance policy
on Mr. Grey's life in the amount of $60,000 (see description under
"Retirement Benefit"), payment of life insurance premiums in the amount of
$1,680, Ipswich Bank's contribution to Mr. Grey's 401(k) retirement plan in
the amount of $5,100 and payment of supplemental disability insurance
premiums in the amount of $4,911. For Mr. Kenney in 2001, includes premium
on a variable life insurance policy on Mr. Kenney's life in the amount of
$10,000 (see "-- Retirement Benefits" below) and Ipswich Bank's contribution
to Mr. Kenney's 401(k) retirement plan in the amount of $3,067.
(2) Omitted since amounts are below the threshold required to be disclosed.
Option Grants. As shown in the table set forth below under the caption
"Ten-Year Option/SAR Repricing" and as described under the caption "Compensation
Committee Report -- Report on Repricing of Options," on July 19, 2000, Ipswich
agreed to grant options to the executive officers named in the Summary
Compensation Table at an exercise price equal to the fair market value of the
Ipswich common stock on the date of grant. The grant was conditioned upon the
executive officers' entering into an agreement no later than July 21, 2000 to
cancel the same number of previously granted options. Each such officer entered
into such an agreement and the options were re-granted on January 24, 2001. The
cancellation of existing options and the re-grant of new options was previously
disclosed in Ipswich's proxy statement for its 2001 annual meeting.
The following table sets forth certain information regarding stock options
granted during the fiscal year ended December 31, 2001 by Ipswich to the
executive officers named in the Summary Compensation Table.
79
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
--------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED FISCAL YEAR ($/SH)(1) DATE 5% 10%
---- ---------- ------------- --------- ---------- ------- -------
David L. Grey................. 10,389 20.95% $9.625 1/24/06 $30,389 $67,152
19,611 39.54% 9.625 1/24/11 118,708 300,828
Francis Kenney................ 5,000 10.08% 9.625 1/24/11 30,266 76,699
---------------
(1) Stock options were granted under Ipswich's 1996 Stock Incentive Plan, at an
exercise price equal to the fair market value of Ipswich's common stock on
the date of the grant except that options to purchase 10,389 shares of
Ipswich's common stock were granted to Mr. Grey at an exercise price of 110%
of fair market value.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation of Ipswich's
common stock over the term of the options. These numbers are calculated
based on rules promulgated by the Securities and Exchange Commission and do
not reflect Ipswich's estimates of future stock price growth. Actual gains,
if any, on stock option exercises and common stock holdings are dependent on
the timing of such exercise and sale of the shares and the future
performance of Ipswich's common stock. There can be no assurances that the
rates of appreciation assumed in this table can be achieved or that the
amounts shown will be received by the individuals.
Fiscal Year-End Option Table. The following Fiscal Year-End Option Table
sets forth certain information regarding stock options exercised during the
fiscal year ended December 31, 2001 and stock options held as of December 31,
2001 by the executive officers named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
David L. Grey............... 0 0 100,000 0 $373,751 --
Francis Kenney.............. 0 0 21,000 0 87,875 --
---------------
(1) Value is based on the last sales price of the Ipswich common stock ($13.00)
on December 31, 2001 as reported by the Nasdaq National Market, less the
applicable option exercise price. These values have not been and may never
be realized. Actual gains, if any, on exercise will depend on the value of
the Ipswich common stock on the date of the sale of the shares.
TEN-YEAR OPTION/SAR REPRICING(1)
NUMBER OF LENGTH OF
SECURITIES MARKET EXERCISE ORIGINAL OPTION
UNDERLYING VALUE AT PRICE AT TERM REMAINING
OPTIONS/SARS TIME OF TIME OF NEW AT DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
---- ---- ------------ ------------ ------------ -------- ------------------
David L. Grey........ January 24, 2001 10,389 $10.5875 $12.50 $10.5875 6 years, 10 months
January 24, 2001 19,611 9.625 12.50 9.625 6 years, 10 months
Francis Kenney....... January 24, 2001 5,000 9.625 12.50 9.625 6 years, 10 months
80
---------------
(1) See discussion under captions "Option Grants" and "Compensation Committee
Report -- Report on Repricing of Options." The information set forth in this
table was previously disclosed in Ipswich's proxy statement for its 2001
annual meeting.
COMPENSATION COMMITTEE REPORT
Set forth below is a report that reflects the work of the Compensation
Committee, a committee comprised of members of the board of directors of
Ipswich. Ipswich's Executive Compensation Program and its stock option plans are
administered by the Committee, which is composed of David L. Grey, Lawrence J.
Pszenny (Chairman), John H. Morrow and William E. George.
Executive Compensation Philosophy
The Committee's philosophy of executive compensation is (i) to provide
competitive levels of compensation that integrate pay with the individual
executive's performance and Ipswich's annual and long-term performance goals;
(ii) to motivate key executives to achieve strategic business initiatives and
reward them for their achievement; (iii) to provide compensation opportunities
and benefits which are comparable to those offered by other financial
institutions, thus allowing Ipswich to compete for and retain talented
executives, who are critical to Ipswich's long-term success; and (iv) to align
the interests of key executives with the long-term interests of shareholders in
the enhancement of shareholder value through stock option awards that can result
in the ownership of Ipswich common stock.
At present, compensation of Ipswich's Chief Executive Officer (Mr. Grey)
and its other executive officers is composed of the following elements: annual
base salary, annual performance incentives in the form of cash bonuses and
long-term performance incentives in the form of stock option awards under
Ipswich's stock option plans.
Each year the Committee reviews the performance of the Chief Executive
Officer and each other executive officer in light of the individual's and
Ipswich's overall performance. The specific measure of corporate performance
that was evaluated by the Committee in making compensation awards for fiscal
2001 for Messrs. Grey and Kenney was Ipswich's return on stockholders' equity as
measured against all publicly held Massachusetts thrifts, including thrifts held
in the holding company form of organization (75% of Mr. Grey's cash bonus and
50% of Mr. Kenney's cash bonus is dependent on this measure). Payment of the
remaining amount of the bonus is measured against written performance objectives
established by the Committee for each individual officer at the beginning of
each year.
Annual Salaries
The annual base salaries for executives are intended to be competitive with
other Massachusetts financial institutions. The Committee reviews management's
recommendations regarding annual salary, annual bonuses, and other benefits and
incentives as part of its overall planning. With respect to salaries and awards
for executive officers, the Committee also consults with the Chief Executive
Officer.
Incentive Programs
Ipswich's incentive compensation programs combine short-term incentives in
the form of cash bonuses and stock-based long-term incentives in the form of
awards of stock options. Annual bonuses are intended to recognize and reward
individual contributions. Stock options align the interests of executives and
shareholders by providing value to the executive when Ipswich's stock price
increases. Thus, stock option grants provide an incentive for the executive to
manage Ipswich from the perspective of an owner with an equity stake in the
business. Stock options are intended to reward officers for long-term
appreciation in the value of Ipswich's stock. Individual stock option awards are
primarily based upon the recipient's individual performance.
81
Compensation of the Chief Executive Officer
Mr. Grey's compensation for fiscal year 2001 consisted of his annual base
salary and a cash bonus. Seventy-five percent of Mr. Grey's cash bonus was based
on Ipswich's return on equity as measured against all other publicly-held
Massachusetts thrifts (including those held in the holding company form of
organization). Mr. Grey's overall compensation was also compared to that of the
chief executive officers of similarly sized institutions.
The Committee received assistance in formulating Mr. Grey's compensation
plan by an outside compensation consultant. Based upon a review of compensation
at numerous peer institutions and a recommendation by Ipswich's compensation
consultant, it was determined that it was appropriate that Mr. Grey continue to
be provided with supplemental pension benefits to help replace the defined
pension plan that was terminated during 1991 in order to further the
recapitalization of Ipswich Bank.
Compensation of Other Executive Officers
The 2001 compensation of Ipswich's and Ipswich Bank's other executive
officers was based upon the achievement of both Ipswich and individual
performance goals. As Senior Vice President, Chief Financial Officer and
Treasurer, Mr. Kenney's compensation was based on overall management of the
financial function at Ipswich, including management of Ipswich's interest rate
risk.
Report on Repricing of Options
On July 19, 2000, based on the recommendation of the Compensation
Committee, the board of directors agreed to grant options to the executive
officers named in the Summary Compensation Table (as well as to certain other
employees, officers and directors) at an exercise price equal to the fair market
value of a share of the Ipswich common stock on the date of grant. The grant was
conditioned upon the executive officers' entering into an agreement no later
than July 21, 2000 to cancel the same number of previously granted options
which, on the date of cancellation, had an exercise price in excess of the fair
market value of Ipswich's common stock. Each such officer entered into such an
agreement and the board of directors approved the re-grant of options on January
24, 2001. The Compensation Committee and the board of directors of Ipswich
determined that the cancellation and re-grant would provide a continuing
incentive for employees, including executive officers, to provide service to
Ipswich.
Compensation Committee: Lawrence J. Pszenny, Chairman
David L. Grey
John H. Morrow
William E. George
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William E. George, David L. Grey, John H. Morrow and Lawrence J. Pszenny
served as members of Ipswich's Compensation Committee during 2001. Messrs.
George and Pszenny have no relationships with Ipswich other than their
relationship to Ipswich as Directors entitled to the receipt of standard
compensation as Directors and members of certain committees of the board of
directors and their relationship to Ipswich as shareholders. Mr. Morrow is a
Vice President of an insurance agency through with Ipswich purchases some of its
insurance. See the discussion under "- Certain Transactions with Management and
Others." Mr. Grey is the President and Chief Executive Officer of Ipswich and
Ipswich Bank. He does not participate in deliberations involving his own
compensation, including the grant of options and other benefits. No person
serving on the Compensation Committee or on the board of directors is an
executive officer of another entity for which an executive officer of Ipswich
serves on the board of directors or on that entity's compensation committee.
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AUDIT COMMITTEE REPORT
The Audit Committee's general role is to assist the board of directors in
fulfilling its responsibility of reviewing Ipswich's financial reporting
process. The Audit Committee is governed by a charter which specifies, among
other things, the scope of its responsibilities and how those responsibilities
are performed. The Audit Committee members are "independent" as defined by
Nasdaq, the listing standard applicable to Ipswich.
In the performance of its obligations, the Audit Committee has reviewed and
discussed the audited financial statements with management and its independent
auditors, Baker Newman & Noyes LLC, and discussed with its independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61,
as amended, "Communication with Audit Committees." In addition, the Audit
Committee received from the auditors disclosures regarding the auditors'
independence required by Independence Standard No. 1, "Independence Discussions
with Audit Committees," and discussed with Baker Newman & Noyes LLC its
independence.
Based on the above-mentioned review and discussions, the Audit Committee
recommended to Ipswich's board of directors that the audited financial be
included in Ipswich's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, for filing with the SEC.
Audit Committee: John H. Morrow, Chairman
Thomas A. Ellsworth
Lawrence J. Pszenny
83
PERFORMANCE GRAPH
The following Performance Graph compares the performance of Ipswich's
cumulative shareholder return with that of a broad market index (the S&P 500)
and a published industry index (the SNL Securities Thrift Index) for each of the
most recent five fiscal years. The cumulative shareholder return for shares of
Ipswich common stock and each of the indices is calculated assuming that $100
was invested on January 1, 1997. The performance of the indices is shown on a
total return (dividends reinvested) basis. The graph lines merely connect
three-month end dates and do not reflect fluctuations between those dates.
IPSWICH BANCSHARES, INC.
TOTAL RETURN PERFORMANCE
[PERFORMANCE GRAPH]
Period Ending
---------------------------------------------------------------------------------------------------
Index 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
---------------------------------------------------------------------------------------------------
Ipswich Bancshares, Inc. 100.00 278.73 183.50 174.13 166.48 247.17
S&P 500 100.00 133.37 171.44 207.52 188.62 166.22
SNL Thrift Index 100.00 170.16 149.66 122.25 195.21 208.65
EMPLOYMENT AND SEVERANCE AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
On June 18, 1997, Ipswich Bank entered into a new employment agreement with
David L. Grey, which amended and restated his previous employment and severance
agreement with Ipswich Bank dated November 13, 1989, as amended September 23,
1992. The agreement was amended and restated as of June 17, 1998 to make certain
minor changes and again on May 18, 1999, to reflect the formation of Ipswich as
the holding company of Ipswich Bank, among other things. The initial term of the
agreement is three years, with the term automatically extended by one day for
each day that Mr. Grey is employed by
84
Ipswich and Ipswich Bank. The agreement provides for an annual base salary that
was initially set at $145,000, but is subject to increase from time to time
(which increased amount becomes a floor below which Mr. Grey's annual base
salary may not fall during the term of the agreement), and certain other
benefits, including an automobile allowance and payment of the annual premiums
on certain life insurance and supplemental disability insurance policies
("Additional Benefits"). If Mr. Grey terminates his employment for Good Reason
(as defined below) or if Ipswich or Ipswich Bank terminates his employment
without cause, Mr. Grey will be entitled to a severance benefit equal to three
times the sum of (i) Mr. Grey's then current annual base salary, (ii) the
highest annual bonus paid to him during the three fiscal years preceding the
termination of employment, and (iii) the highest annual payments that Ipswich
Bank made to Mr. Grey for Additional Benefits during the three fiscal years
preceding the termination of employment. Mr. Grey's current annual base salary
is $249,000.
"Good Reason" is defined in Mr. Grey's employment agreement to include
failure of the boards of directors of Ipswich and Ipswich Bank to elect Mr. Grey
to the office of President and Chief Executive Officer of Ipswich and Ipswich
Bank, respectively, diminution of Mr. Grey's annual base salary, a significant
change in the nature or scope of Mr. Grey's responsibilities or an uncured
breach by Ipswich Bank of any of the provisions of the agreement. It also
includes the following events if they occur within two years following a change
in control (as defined in the agreement): failure by Ipswich Bank to continue to
provide Mr. Grey with benefits substantially similar to those available to him
prior to the change in control; a reasonable determination by Mr. Grey that, as
a result of a change in control, he is unable to exercise the responsibilities
exercised by him immediately prior to the change in control or that his working
conditions have significantly worsened; or the failure of Ipswich Bank to obtain
a satisfactory agreement from any successor to assume and agree to perform this
agreement. This agreement will be terminated in connection with the merger.
Ipswich Bank entered into an employment agreement with Francis Kenney on
June 18, 1997, which was amended and restated on June 17, 1998 and again on May
18, 1999, to reflect the formation of Ipswich as the holding company of Ipswich
Bank, among other things. The initial term of the agreement is 18 months, with
the term automatically extended by one day for each day that Mr. Kenney is
employed by Ipswich and Ipswich Bank. The agreement provides for an annual base
salary that was initially set at $65,000, but is subject to increase from time
to time (which increased amount becomes a floor below which Mr. Kenney's annual
base salary may not fall during the term of the agreement), and certain other
benefits in effect for other senior executive officers. If Mr. Kenney terminates
his employment for Good Reason or if Ipswich or Ipswich Bank terminates his
employment without cause, Mr. Kenney will be entitled to a severance benefit
equal to 150% of the sum of (i) the annual bonus paid to him during the fiscal
year preceding the termination of employment and (ii) Mr. Kenney's then current
annual base salary. Good Reason has substantially the same meaning in Mr.
Kenney's agreement as in Mr. Grey's. Mr. Kenney's current annual base salary is
$103,000.
RETIREMENT BENEFITS
Ipswich Bank has entered into a split dollar agreement with David L. Grey
and has established a related insurance trust for the purpose of providing a
retirement benefit to Mr. Grey. The agreement was entered into in light of
Ipswich Bank's discontinuance of its qualified pension plan as part of its
recapitalization efforts in 1991. Pursuant to the agreement, Ipswich Bank has
purchased a variable life insurance policy on the life of Mr. Grey, with Mr.
Grey as the owner and the beneficiary. The agreement generally provides that
Ipswich Bank will contribute $60,000 to the trust each year until 2020, an
amount necessary to permit the trust to pay the premiums due under the policy.
Although Mr. Grey is the owner of the policy, the trust has the right to
receive reimbursement, under certain circumstances, of all or a portion of the
premiums paid under the policy, or, if less, the cash surrender value of the
policy. Mr. Grey has granted to the trust a collateral assignment in the policy
for purposes of such reimbursement. The circumstances under which the Trust
would be entitled to receive all of the premium reimbursement include (i)
termination of Mr. Grey's employment for "cause"; and (ii) appointment of a
conservator or a receiver for Ipswich Bank. "Cause" is defined to include
85
termination only as a result of Mr. Grey's deliberate dishonesty with respect to
Ipswich Bank that results in his conviction of a crime. The trust is obligated
to pay over to Ipswich Bank any premium reimbursement amounts it receives.
In the event of termination of Mr. Grey's employment upon retirement or for
any other reason except for "cause," Ipswich Bank's obligation to pay premiums
shall cease, and the trust is required to release the collateral assignment to
Mr. Grey (subject to the trust's right, if any, to receive a premium
reimbursement payment as described above). Following such release, Mr. Grey will
own the policy free of any lien or encumbrance. In the event of Mr. Grey's
death, his beneficiaries would be entitled to receive a death benefit under the
policy of approximately $1.5 million, subject to the trust's right to receive
the portion of the premium reimbursement, if any, that it would otherwise be
entitled to receive.
In the event of a change-in-control, which would include the merger of
Ipswich with and into Banknorth, Ipswich Bank (or its successor) is obligated to
make an irrevocable contribution to the trust in an amount equal to the
discounted value of future premiums under the policy from the date of the change
in control until December 31, 2020.
For a description of the manner in which the merger would affect the
above-described agreements, see "The Merger-Interests of Certain Persons in the
Merger," beginning on page 43.
Ipswich Bank has also entered into a split dollar agreement with Francis
Kenney for the purpose of providing a retirement benefit to Mr. Kenney. Pursuant
to the agreement, Ipswich Bank has purchased a variable life insurance policy on
the life of Mr. Kenney, with Mr. Kenney as the owner and the beneficiary. The
agreement generally provides for an annual premium payment to be made by Ipswich
Bank during the term of Mr. Kenney's employment and any period during which
Ipswich Bank is obligated to provide Mr. Kenney with fringe benefits. The
premiums paid by Ipswich Bank are allocated between Mr. Kenney and Ipswich Bank.
Mr. Kenney's share is an amount equal to the value of the personal death benefit
as determined under IRS rules and is paid by Ipswich Bank as agent for Mr.
Kenney and charged to Mr. Kenney as cash compensation.
Although Mr. Kenney is the owner of his policy, Ipswich Bank has the right
to receive reimbursement, under certain circumstances, of all or a portion of
the premiums paid under the policy (not including Mr. Kenney's share), or, if
less, the cash surrender value of the policy, and also is entitled to receive a
portion of the death benefit payable upon Mr. Kenney's death. Mr. Kenney has
granted to Ipswich Bank a collateral assignment in the policy for purposes of
such reimbursement. Ipswich Bank would be entitled to receive all of the
premiums (not including Mr. Kenney's share) if Mr. Kenney's employment were
terminated for "cause." "Cause" is defined to include conviction of a crime
associated with Ipswich Bank's business or a determination of a vote of 75% of
the board of directors that Mr. Kenney has willfully failed to perform
reasonably assigned tasks.
If Mr. Kenney's employment is terminated prior to October 2, 2003, Mr.
Kenney is obligated to pay to Ipswich Bank a percentage of the premiums paid by
Ipswich Bank, minus Mr. Kenney's share. Ipswich Bank's right to recover a
portion of the premiums (but not its right to receive a portion of the death
benefit) terminates upon a change-in-control of Ipswich Bank.
RETIREMENT PLAN
Ipswich Bank maintains a 401(k) retirement plan with the Savings Bank
Employees Retirement Association of Massachusetts. Any employee of Ipswich Bank
who has attained the age of 21 and has worked for Ipswich Bank for ninety
continuous days may join the plan. A participant may contribute up to 15% of
salary, subject to an annual dollar limitation which is adjusted yearly.
Contributions by highly compensated employees as defined under the plan are
subject to other limits under Federal law. Ipswich Bank will match 50% of any
participant's contribution to a maximum of 3% of such participant's salary after
one continuous year of service.
86
CERTAIN TRANSACTIONS WITH MANAGEMENT OF IPSWICH AND OTHERS
Some of the directors and principal officers of Ipswich and Ipswich Bank,
as well as members of their immediate families and companies, organizations,
trusts and other entities with which they are associated are, or during 2001
were, customers of Ipswich Bank in the ordinary course of business or had loans
outstanding from Ipswich Bank during 2001, including loans of $60,000 or more.
It is anticipated that such persons and their associates will continue to be
customers of and indebted to Ipswich Bank in the future. All such loans were
made in the ordinary course of business, did not involve more than normal risk
of collectibility or present other unfavorable features, were made on
substantially the same terms, including interest rates and collateral, as
prevailed at the same time for comparable transactions with unaffiliated persons
and, when required by law, were approved by the board of directors prior to
closing. All loans to directors, executive officers or their associates at
December 31, 2001 have performed in accordance with their original terms.
Ipswich Bank employs the law firm of Tinti, Quinn, Grover & Frey P.C. for
real estate conveyancing and other legal work. William Tinti, a director of
Ipswich and Ipswich Bank, is President of the law firm. Mr. Tinti has estimated
that, in 2001, the firm received legal fees of approximately $56,606 in
connection with legal work it handled for Ipswich Bank, including fees paid
directly by Ipswich Bank and fees paid by borrowers in connection with real
estate closings.
Ipswich purchases some of its insurance through Hastings Tapley Insurance
Agency, of which John Morrow, a director of Ipswich, is a Vice President.
Ipswich paid approximately $15,315 to the insurance agency in 2001 for insurance
premiums.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Ipswich's
officers and directors, and persons who own more than 10% of a registered class
of Ipswich's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors, and
greater-than-10% shareholders are required by Commission regulations to furnish
Ipswich with copies of all Section 16(a) forms they file.
Based solely on review of copies of such forms furnished to Ipswich,
Ipswich believes that during 2001 all Section 16(a) filing requirements
applicable to its officers, directors, and greater-than-10% beneficial owners
were complied with.
ADJOURNMENT OF THE ANNUAL MEETING
(PROPOSAL THREE)
In the event that there are not sufficient votes to constitute a quorum or
approve the adoption of the merger agreement at the time of the annual meeting,
the merger agreement could not be approved unless the meeting were adjourned to
a later date or dates in order to permit further solicitation of proxies. In
order to allow proxies that have been received by Ipswich at the time of the
annual meeting to be voted for an adjournment, if necessary, Ipswich has
submitted the question of adjournment to its shareholders as a separate matter
for their consideration. The board of directors of Ipswich unanimously
recommends that shareholders vote "FOR" the adjournment proposal. If it is
necessary to adjourn the annual meeting, no notice of the adjourned meeting is
required to be given to shareholders, other than an announcement at the annual
meeting of the hour, date and place to which the annual meeting is adjourned, if
the annual meeting is adjourned for less than 30 days.
INFORMATION CONCERNING AUDITORS OF IPSWICH
The board of directors has not yet selected an independent accountant to
audit Ipswich's financial statements for the current fiscal year. The Audit
Committee intends to meet in May 2002 to recommend to the board of directors of
Ipswich the selection of Ipswich's independent auditor for the 2002 fiscal year.
87
The firm of Baker Newman & Noyes LLC served as Ipswich's auditors during
the past fiscal year. A representative of Baker Newman & Noyes LLC is expected
to be present at the annual meeting and will have the opportunity to make a
statement if he or she desires to do so and will be available to respond to
appropriate questions.
Audit Fees
The aggregate fees billed by Baker, Newman & Noyes LLC for professional
services rendered for the audit of Ipswich's annual financial statements for the
fiscal year ended December 31, 2001 and for the reviews of the financial
statements included in Ipswich's Quarterly Reports on Form 10-Q for that fiscal
year were $77,190.
Financial Information Systems Design And Implementation Fees
Baker Newman & Noyes LLC did not render any professional services to
Ipswich for information technology services relating to financial information
systems design and implementation for the fiscal year ended December 31, 2001.
All Other Fees
Baker Newman & Noyes LLC did not render any professional for services to
Ipswich during the fiscal year ended December 31, 2001 other than the services
described above under "Audit Fees."
88
CERTAIN BENEFICIAL OWNERS OF IPSWICH COMMON STOCK
The following table sets forth certain information as of the record date
for the annual meeting regarding (i) each person known by Ipswich to own
beneficially more than 5% of Ipswich's common stock, (ii) each director and each
nominee for director, (iii) the executive officers named in the Summary
Compensation Table, and (iv) all directors and executive officers of Ipswich as
a group. Except as otherwise indicated in the footnotes to the table, the
beneficial owners have sole voting and investment power as to all shares
beneficially owned by them.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP(1) OF CLASS
---------------- ----------------- --------
David L. Grey.............................................. 341,558(2) 16.5%
c/o Ipswich Savings Bank
23 Market Street
Ipswich, Massachusetts 01938
Polaris Capital Management, Inc. .......................... 126,500(3) 6.4
125 Summer Street
Boston, Massachusetts 02110
William M. Craft........................................... 29,825(4) 1.5
Thomas A. Ellsworth........................................ 8,000(5) 0.4
William E. George.......................................... 65,300(6) 3.3
Francis Kenney............................................. 34,482(7) 1.8
John H. Morrow............................................. 7,720(8) 0.4
Lawrence J. Pszenny........................................ 72,500(9) 3.7
William J. Tinti........................................... 30,000(10) 1.5
All executive officers and directors as a group (10
persons)................................................. 592,024(11) 27.9
---------------
(1) For purposes of this table, a person is deemed to be the beneficial owner
of any shares of Ipswich common stock if he has or shares voting power or
investment power with respect to such shares, or has the right to acquire
beneficial ownership of such shares at any time within 60 days of the
record date for the annual meeting.
(2) Includes 35,983 shares held by Mr. Grey's IRA, 105,808 shares held jointly
with his wife, 50,740 shares held by his wife, 25,921 shares held by his
wife in her IRA, 1,350 shares held by his wife as custodian for their two
daughters, 21,756 shares held in his 401(k) retirement plan, and 100,000
shares subject to currently exercisable options.
(3) Ipswich has received a Schedule 13G, dated March 4, 1999, which states that
Polaris Capital Management, Inc., a registered investment adviser,
beneficially owns 142,500 shares of Ipswich common stock in its capacity as
investment advisor to certain institutional and individual investors who
have purchased the shares. The Schedule 13G states that Polaris Capital
Management, Inc. has sole voting and dispositive power over these shares.
Ipswich has been advised that Polaris Capital sold 16,000 shares of Ipswich
common stock on January 24, 2001.
(4) Includes 10,325 shares held by Dr. Craft's IRA, 8,500 shares owned jointly
with his wife, and 2,000 shares held jointly with each of two sons (4,000
shares total) and 7,000 shares subject to currently exercisable options.
(5) Includes 7,000 shares subject to currently exercisable options. Does not
include 2,891 stock units allocated to Mr. Ellsworth's account pursuant to
Ipswich's deferred compensation plan for directors.
(6) Includes 50,000 shares held by Mr. George's IRA, 300 shares owned by his
wife and 15,000 shares subject to currently exercisable options.
(7) Includes 11,150 shares owned by Mr. Kenney's wife, 2,332 shares held in Mr.
Kenney's 401(k) retirement plan and 2,500 shares subject to currently
exercisable options.
89
(8) Includes 720 shares owned jointly by Mr. Morrow with his wife and 7,000
shares subject to currently exercisable options. Does not include 2,336
stock units allocated to Mr. Morrow's account pursuant to Ipswich's
deferred compensation plan for directors.
(9) Includes 35,500 shares owned jointly by Mr. Pszenny with his wife, 3,000
shares held by his IRA, 1,000 shares held by his wife, 1,000 shares held as
custodian for his minor child, 2,000 shares owned by his children, as to
which shares Mr. Pszenny disclaims beneficial ownership, and 9,000 shares
subject to currently exercisable options. Does not include 3,044 stock
units allocated to his account pursuant to Ipswich's deferred compensation
plan for directors.
(10) Includes 25,000 shares held by Mr. Tinti's IRA and 5,000 shares subject to
currently exercisable options.
(11) Includes 154,137 shares subject to currently exercisable options held by
all directors and executive officers as a group.
LEGAL OPINION
The validity of the Banknorth common stock to be issued in the merger will
be passed upon for Banknorth by Elias, Matz, Tiernan & Herrick L.L.P.,
Washington, D.C.
EXPERTS
The consolidated financial statements of Banknorth as of December 31, 2001
and 2000, and for each of the years in the three-year period ended December 31,
2001 incorporated by reference herein from Banknorth's annual report on Form
10-K for the year ended December 31, 2001 have been so incorporated in reliance
on the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of Ipswich as of December 31, 2001
and 2000, and for each of the years in the three-year period ended December 31,
2001 incorporated by reference herein from Ipswich's annual report on Form 10-K
for the year ended December 31, 2001 have been so incorporated in reliance upon
the report of Baker Newman & Noyes, LLC, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
PROPOSALS FOR THE 2003 ANNUAL MEETING
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, the
deadline for the submission of proposals by shareholders for inclusion in the
proxy statement and form of proxy to be used by Ipswich in connection with the
next annual meeting of shareholders of Ipswich, which will be held only if the
merger is not consummated before the time of such meeting, is November 28, 2002.
In addition, Ipswich's bylaws provide that any director nominations and new
matters submitted by shareholders must be filed with the Clerk of Ipswich not
less than 60 days nor more than 150 days before the date of such meeting. For
next year's annual meeting, the deadline for submission of notice is February
22, 2003. Any such nominations or proposals should be mailed to: Clerk, Ipswich
Bancshares, Inc., 23 Market Street, Ipswich, Massachusetts 01938.
90
WHERE YOU CAN FIND MORE INFORMATION
Each of Banknorth and Ipswich files annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, proxy statements or other
information filed by Banknorth and Ipswich at the Commission's public reference
rooms at the following locations in Washington, D.C., New York, New York and
Chicago, Illinois.
Public Reference Room Chicago Regional Office Seven World Trade Center
Judiciary Plaza Citicorp Center 13th Floor
Room 1024 500 West Madison Street New York, New York 10048
450 Fifth Street, N.W. Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Commission. Please call the Commission at 1-800-SEC-0330
for further information on the operation of the Commission's public reference
rooms. Banknorth's and Ipswich's Commission filings are also available to the
public from document retrieval services and at the Commission's Internet website
(http://www.sec.gov).
Banknorth has filed with the Commission a registration statement on Form
S-4 under the Securities Act and the rules and regulations thereunder. This
document is a part of that registration statement. As permitted by the
Commission's rules, this document does not contain all of the information you
can find in the registration statement. The registration statement is available
for inspection and copying as set forth above.
The Commission allows Banknorth and Ipswich to "incorporate by reference"
into this document, which means that Banknorth and Ipswich can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered to be part of this document, except for any information superseded by
information contained in later filed documents incorporated by reference in this
document. Each of Banknorth and Ipswich incorporates by reference the respective
documents filed by them with the Commission listed below and any future filings
made by it with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 prior to the election deadline date.
BANKNORTH SEC FILINGS (FILE NO. 000-16947) PERIOD/DATE
------------------------------------------ -----------
Annual Report on Form 10-K............... Year ended December 31, 2001
Quarterly Report on Form 10-Q............ Three months Ended March 31, 2002
Current Reports on Form 8-K.............. Filed on January 22, 2002, February 22
and 28, 2002 and April 11 and 12, 2002
IPSWICH SEC FILINGS (FILE NO. 000-26663) PERIOD/DATE
---------------------------------------- -----------
Annual Report on Form 10-K............... Year ended December 31, 2001, as amended
Quarterly Report on Form 10-Q............ Three Months Ended March 31, 2002
Current Report on Form 8-K............... Filed on February 28, 2002
You may request a copy of documents incorporated by reference in this
document but not otherwise accompanying this document, at no cost, by writing or
telephoning the appropriate company at the following addresses:
Banknorth Group, Inc. Ipswich Bancshares, Inc.
P.O. Box 9540 23 Market Street
Two Portland Square Ipswich, Massachusetts 01938
Portland, Maine 04112-9540 Attention: Mariell Lyons
Attention: Brian S. Arsenault (978) 356-7777
(207) 761-8517
91
To obtain timely delivery, you should request desired information no later
than five business days prior to the date of the annual meeting, or by June 17,
2002.
Accompanying this document are Ipswich's Annual Report to Stockholders for
the year ended December 31, 2001 and its Quarterly Report on Form 10-Q for the
three months ended March 31, 2002. The Annual Report to Stockholders includes
Ipswich's Annual Report on Form 10-K for the year ended December 31, 2001
(excluding exhibits), as filed with the Commission.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT. NEITHER BANKNORTH NOR IPSWICH HAS AUTHORIZED ANYONE
ELSE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM THAT WHICH IS
CONTAINED IN THIS DOCUMENT. MOREOVER, NEITHER BANKNORTH NOR IPSWICH IS MAKING AN
OFFER TO SELL OR SOLICITING AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
BANKNORTH COMMON STOCK TO BE ISSUED BY BANKNORTH IN THE MERGER, AND NEITHER
BANKNORTH NOR IPSWICH IS MAKING AN OFFER OF SUCH SECURITIES IN ANY STATE WHERE
THE OFFER IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS
ONLY AS OF ITS DATE UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER
DATE APPLIES.
92
ANNEX I
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 26, 2002
BETWEEN
BANKNORTH GROUP, INC.,
AND
IPSWICH BANCSHARES, INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
I
TABLE OF CONTENTS
PAGE NO.
--------
RECITALS
ARTICLE I
CERTAIN DEFINITIONS
1.01. Certain Definitions......................................... I-1
ARTICLE II
THE MERGER
2.01. The Merger.................................................. I-5
2.02. Effective Date and Effective Time; Closing.................. I-6
ARTICLE III
CONSIDERATION; ELECTION AND EXCHANGE PROCEDURES
3.01. Conversion of Shares........................................ I-6
3.02. Election Procedures......................................... I-7
3.03. Exchange Procedures......................................... I-9
3.04. Rights as Shareholders; Stock Transfers..................... I-10
3.05. No Fractional Shares........................................ I-11
3.06. Dissenting Shares........................................... I-11
3.07. Anti-Dilution Provisions.................................... I-11
3.08. Withholding Rights.......................................... I-11
3.09. Company Options............................................. I-11
3.10. Stock Units................................................. I-12
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01. Forbearances of the Company................................. I-13
4.02. Forbearances of Parent...................................... I-15
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. Disclosure Schedules........................................ I-15
5.02. Standard.................................................... I-15
5.03. Representations and Warranties of the Company............... I-15
5.04. Representations and Warranties of Parent.................... I-25
ARTICLE VI
COVENANTS
6.01. Reasonable Best Efforts..................................... I-29
6.02. Shareholder Approval........................................ I-29
6.03. Registration Statement...................................... I-29
6.04. Regulatory Filings.......................................... I-30
6.05. Press Releases.............................................. I-31
6.06. Access; Information......................................... I-31
6.07. Affiliates.................................................. I-32
6.08. Acquisition Proposals....................................... I-32
6.09. Certain Policies............................................ I-32
6.10. Nasdaq Listing.............................................. I-33
I-i
PAGE NO.
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6.11. Indemnification............................................. I-33
6.12. Benefit Plans............................................... I-34
6.13. Bank Merger................................................. I-35
Termination Agreement; Employment and Noncompetition
6.14. Agreement................................................... I-35
6.15. Notification of Certain Matters............................. I-35
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligation to Effect the
7.01. Merger...................................................... I-35
7.02. Conditions to Obligation of the Company..................... I-36
7.03. Conditions to Obligations of Parent......................... I-37
ARTICLE VIII
TERMINATION
8.01. Termination................................................. I-37
8.02. Effect of Termination and Abandonment....................... I-38
ARTICLE IX
MISCELLANEOUS
9.01. Survival.................................................... I-38
9.02. Waiver; Amendment........................................... I-38
9.03. Counterparts................................................ I-39
9.04. Governing Law............................................... I-39
9.05. Expenses.................................................... I-39
9.06. Notices..................................................... I-39
9.07. Entire Understanding; No Third Party Beneficiaries.......... I-40
9.08. Severability................................................ I-40
9.09. Enforcement of the Agreement................................ I-40
9.10. Interpretation.............................................. I-40
9.11. Assignment.................................................. I-40
9.12. Alternative Structure....................................... I-40
ANNEX A Form of Shareholder Agreement........................... I-42
ANNEX B Form of Stock Option Agreement.......................... *
ANNEX C Termination Agreement by and among Banknorth, the
Company, the Company Bank, Eastern Bank, as Trustee, and
David L. Grey........................................... *
ANNEX D Employment and Noncompetition Agreement between Banknorth
and David L. Grey........................................ *
---------------
* Form of agreement not included herewith. See Annexes II and III to the
prospectus/proxy statement.
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AGREEMENT AND PLAN OF MERGER, dated as of February 26, 2002 (this
"Agreement"), between Banknorth Group, Inc. ("Parent") and Ipswich Bancshares,
Inc. (the "Company").
RECITALS
A. The Company. The Company is a Massachusetts corporation, having its
principal place of business in Ipswich, Massachusetts.
B. Parent. Parent is a Maine corporation, having its principal place of
business in Portland, Maine.
C. Intention of the Parties. It is the intention of the parties to this
Agreement that the Merger provided for herein be treated as a "reorganization"
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
D. Board Action. The respective Boards of Directors of each of Parent and
the Company have determined that it is in the best interests of their respective
companies and their shareholders to consummate the Merger provided for herein.
E. Shareholder Agreements. As a material inducement to Parent to enter
into this Agreement, and simultaneously with, the execution of this Agreement,
each Shareholder (as defined herein) is entering into an agreement, in the form
of Annex A hereto (collectively, the "Shareholder Agreements") pursuant to which
they have agreed, among other things, to vote their shares of Company Common
Stock in favor of this Agreement.
F. Stock Option Agreement. As a material inducement to the willingness of
Parent to consummate the transactions contemplated by this Agreement, the
Company is simultaneously entering into the Stock Option Agreement,
substantially in the form of Annex B hereto (the "Stock Option Agreement"),
pursuant to which the Company will grant to Parent an option to acquire shares
of Company Common Stock.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01. Certain Definitions. The following terms are used in this Agreement
with the meanings set forth below:
"Acquisition Proposal" has the meaning set forth in Section 6.08.
"Agreement" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
"Articles of Merger" has the meaning set forth in Section 2.02.
"Bank Insurance Fund" means the Bank Insurance Fund maintained by the
FDIC.
"Bank Merger Agreement" has the meaning set forth in Section 6.13.
"Bank Merger" has the meaning set forth in Section 6.13.
"Benefit Plans" has the meaning set forth in Section 5.03(m).
"Business Day" means Monday through Friday of each week, except a
legal holiday recognized as such by the U.S. Government or any day on which
banking institutions in the State of Maine or the Commonwealth of
Massachusetts are authorized or obligated to close.
"Certificate" means any certificate which immediately prior to the
Effective Time represented shares of Company Common Stock.
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"Closing" and "Closing Date" have the meanings set forth in Section
2.02(b).
"Code" has the meaning set forth in the recitals to this Agreement.
"Community Reinvestment Act" means the Community Reinvestment Act of
1977, as amended.
"Company" has the meaning set forth in the preamble to this Agreement.
"Company Affiliates" has the meaning set forth in Section 6.07.
"Company Articles" means the Articles of Organization of the Company.
"Company Bank" means Ipswich Savings Bank.
"Company Board" means the Board of Directors of the Company.
"Company Bylaws" means the Bylaws of the Company.
"Company Common Stock" means the common stock, $0.10 par value per
share, of the Company.
"Company Deferred Compensation Plan" means the Deferred Compensation
Plan for Directors of the Company.
"Company Group" means any "affiliated group" (as defined in Section
1504(a) of the Code without regard to the limitations contained in Section
1504(b) of the Code) that includes the Company and its Subsidiaries or any
predecessor of or any successor to the Company (or to another such
predecessor or successor).
"Company Loan Property" has the meaning set forth in Section 5.03(o).
"Company Meeting" has the meaning set forth in Section 6.02.
"Company Preferred Stock" means the preferred stock, $0.10 par value
per share, of the Company.
"Company Stock" means, collectively, the Company Common Stock and the
Company Preferred Stock.
"Company Options" means the options to acquire Company Common Stock
issued under the Company Stock Option Plans.
"Company Regulatory Authorities" has the meaning set forth in Section
5.03(i).
"Company Stock Option Plans" means (i) the Company 1992 Incentive and
Non-qualified Stock Option Plan, (ii) the Company 1996 Stock Incentive Plan
and (iii) the Company 1998 Stock Incentive Plan.
"Company Units" means stock units which are issued under the Company
Deferred Compensation Plan.
"Depositors Insurance Fund" means the Depositors Insurance of the
Commonwealth of Massachusetts.
"Derivatives Contract" has the meaning set forth in Section 5.03(q).
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"Dissenting Shares" has the meaning set forth in Section 3.06.
"Effective Date" has the meaning set forth in Section 2.02(a).
"Effective Time" has the meaning set forth in Section 2.02(a).
"Election Deadline" has the meaning set forth in Section 3.02(b).
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"Employees" has the meaning set forth in Section 5.03(m).
"Environmental Laws" has the meaning set forth in Section 5.03(o).
"Equal Credit Opportunity Act" means the Equal Credit Opportunity Act,
as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(m)(iii).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.02(a).
"Exchange Ratio" has the meaning set forth in Section 3.01(c)(1)(i),
subject to adjustment pursuant to Sections 3.02(f) and 3.07.
"Fair Housing Act" means the Fair Housing Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve Act" means the Federal Reserve Act, as amended.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"GAAP" means generally accepted accounting principles.
"Governmental Authority" means any federal, state or local court,
administrative agency or commission or other governmental authority or
instrumentality.
"Hazardous Substance" has the meaning set forth in Section 5.03(o).
"Indemnified Party" and "Indemnifying Party" have the meanings set
forth in Section 6.11(a).
"Insurance Amount" has the meaning set forth in Section 6.11(c).
"Insurance Policies" has the meaning set forth in Section 5.03(w).
"Liens" means any charge, mortgage, pledge, security interest,
restriction, claim, lien or encumbrance.
"Loans" has the meaning set forth in Section 5.03(r).
"Maine Superintendent" means the Superintendent of the Bureau of
Banking of the State of Maine.
"Massachusetts Bank Commissioner" means the Commissioner of Banks of
the Commonwealth of Massachusetts.
"Massachusetts Board" means the Massachusetts Board of Bank
Incorporation.
"Material Adverse Effect" means, with respect to Parent or the Company
any effect that (i) is material and adverse to the financial position,
results of operations or business of Parent and its Subsidiaries taken as a
whole or the Company and its Subsidiaries taken as a whole, as the case may
be or (ii) would materially impair the ability of any of Parent and its
Subsidiaries or the Company and its Subsidiaries to perform their
respective obligations under this Agreement or the Bank Merger Agreement or
otherwise materially impede the consummation of the Transactions; provided,
however, that Material Adverse Effect shall not be deemed to include the
impact of (a) changes in banking and similar laws of general applicability
or interpretations thereof by Governmental Authorities, (b) changes in GAAP
or regulatory accounting requirements applicable to banks and their holding
companies generally, (c) changes in general economic conditions affecting
banks and their holding companies generally, (d) any modifications or
changes to valuation policies and practices, or expenses incurred, in
connection with the Transactions or restructuring charges taken in
connection with the
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Transactions, in each case in accordance with GAAP, and (e) with respect to
the Company, the effects of any action or omission taken with the prior
consent of Parent or as otherwise contemplated by the Agreement.
"MBCA" means the Maine Business Corporation Act, as amended.
"MBCL" means the Massachusetts Business Corporation Law, as amended.
"Merger" has the meaning set forth in Section 2.01(a).
"Merger Consideration" means the number of whole shares of Parent
Common Stock, plus cash in lieu of any fractional share interest, and/or
the amount of cash into which shares of Company Common Stock shall be
converted pursuant to the provisions of Article III.
"MHPF" means the Massachusetts Housing Partnership Fund.
"Nasdaq" means The Nasdaq Stock Market, Inc.'s National Market.
"National Bank Act" means the National Bank Act, as amended.
"National Labor Relations Act" means the National Labor Relations Act,
as amended.
"OCC" means the Office of the Comptroller of the Currency.
"OREO" means other real estate owned.
"Parent" has the meaning set forth in the preamble to this Agreement.
"Parent Articles" means the Amended and Restated Articles of
Incorporation of Parent, as amended.
"Parent Benefits Plans" has the meaning set forth in Section 6.12(a).
"Parent Board" means the Board of Directors of Parent.
"Parent Bylaws" means the Bylaws of Parent.
"Parent Common Stock" means the common stock, $0.01 par value per
share, of Parent and, unless the context otherwise requires, related Parent
Rights.
"Parent Bank" means Banknorth, NA and any successor thereto.
"Parent Preferred Stock" means the preferred stock, $0.01 par value
per share, of Parent.
"Parent Rights" means the rights attached to shares of Parent Common
Stock pursuant to the Parent Rights Agreement.
"Parent Rights Agreement" means the Stockholder Rights Agreement,
dated as of September 12, 1989 and amended and restated as of July 27, 1999
and as of July 25, 2000, between Parent and American Stock Transfer & Trust
Company, as Rights Agent.
"Parent Regulatory Authorities" has the meaning set forth in Section
5.04(k).
"Pension Plan" has the meaning set forth in Section 5.03(m)(ii).
"Person" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust, limited liability company
or unincorporated organization.
"Previously Disclosed" by a party shall mean information set forth in
a section of its Disclosure Schedule corresponding to the section of this
Agreement where such term is used.
"Proxy Statement" has the meaning set forth in Section 6.03(a).
"Registration Statement" has the meaning set forth in Section 6.03(a).
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"Rights" means, with respect to any Person, warrants, options, rights,
convertible securities and other arrangements or commitments which obligate
the Person to issue or dispose of any of its capital stock or other
ownership interests.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Sections 5.03(g) and
5.04(g) in the case of the Company and Parent, respectively.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Shareholder Agreements" has the meaning set forth in the recitals to
this Agreement.
"Shareholders" means each director of the Company.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed
to those terms in Rule 1-02 of Regulation S-X of the SEC.
"Stock Option Agreement" has the meaning set forth in the recitals to
this Agreement.
"Surviving Corporation" has the meaning set forth in Section 2.01(a).
"Tax" and "Taxes" mean all federal, state, local or foreign income,
gross income, gains, gross receipts, sales, use, ad valorem, goods and
services, capital, production, transfer, franchise, windfall profits,
license, withholding, payroll, employment, disability, employer health,
excise, estimated, severance, stamp, occupation, property, environmental,
custom duties, unemployment or other taxes of any kind whatsoever, together
with any interest, additions or penalties thereto and any interest in
respect of such interest and penalties.
"Tax Returns" means any return, declaration or other report (including
elections, declarations, schedules, estimates and information returns) with
respect to any Taxes.
"Transactions" means the Merger and the Bank Merger.
"Treasury Stock" means shares of Company Stock held by the Company or
any of its Subsidiaries or by Parent or any of its Subsidiaries, in each
case other than in a fiduciary (including custodial or agency) capacity or
as a result of debts previously contracted in good faith.
ARTICLE II
THE MERGER
2.01. The Merger.
(a) The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall merge with and into
Parent in accordance with the applicable provisions of the MBCA and the
MBCL (the "Merger"), the separate corporate existence of the Company shall
cease and Parent shall survive and continue to exist as a corporation
incorporated under the MBCA (Parent, as the surviving corporation in the
Merger, sometimes being referred to herein as the "Surviving Corporation").
(b) Name. The name of the Surviving Corporation shall be "Banknorth
Group, Inc."
(c) Articles and Bylaws. The articles of incorporation and bylaws of
Parent immediately after the Merger shall be the Parent Articles and the
Parent Bylaws as in effect immediately prior to the Merger.
(d) Directors and Officers of the Surviving Corporation. The
directors and officers of Parent immediately after the Merger shall be the
directors and officers of Parent immediately prior to the Merger, until
such time as their successors shall be duly elected and qualified.
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(e) Authorized Capital Stock. The authorized capital stock of the
Surviving Corporation upon consummation of the Merger shall be as set forth
in the Parent Articles immediately prior to the Merger.
(f) Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in Section 905 of the MBCA and Section 80 of
the MBCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges,
powers and franchises of the Company shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of the Company shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving
Corporation.
(g) Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider that any further assignments or
assurances in law or any other acts are necessary or desirable to (i) vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation
its right, title or interest in, to or under any of the rights, properties
or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger, or (ii)
otherwise carry out the purposes of this Agreement, the Company, and its
proper officers and directors, shall be deemed to have granted to the
Surviving Corporation an irrevocable power of attorney to execute and
deliver all such proper deeds, assignments and assurances in law and to do
all acts necessary or proper to vest, perfect or confirm title to and
possession of such rights, properties or assets in the Surviving
Corporation and otherwise to carry out the purposes of this Agreement, and
the proper officers and directors of the Surviving Corporation are fully
authorized in the name of the Surviving Corporation or otherwise to take
any and all such action.
2.02 Effective Date and Effective Time; Closing.
(a) Subject to the satisfaction or waiver of the conditions set forth
in Article VII (other than those conditions that by their nature are to be
satisfied at the consummation of the Merger, but subject to the fulfillment
or waiver of those conditions), the parties shall cause articles of merger
relating to the Merger (the "Articles of Merger') to be filed with the
Secretary of State of the State of Maine pursuant to the MBCA and the
Secretary of State of the Commonwealth of Massachusetts pursuant to the
MBCL on (i) a date selected by Parent after such satisfaction or waiver
which is no later than the later of (A) five Business Days after such
satisfaction or waiver or (B) the first month end following such
satisfaction or waiver, or (ii) such other date to which the parties may
agree in writing. The Merger provided for herein shall become effective
upon such filings or on such date as may be specified therein. The date of
such filings or such later effective date is herein called the "Effective
Date." The "Effective Time" of the Merger shall be the time of such filings
or as set forth in such filings.
(b) A closing (the "Closing") shall take place immediately prior to
the Effective Time at 10:00 a.m., Eastern Time, at the principal offices of
Parent in Portland, Maine, or at such other place, at such other time, or
on such other date as the parties may mutually agree upon (such date, the
"Closing Date"). At the Closing, there shall be delivered to Parent and the
Company the opinions, certificates and other documents required to be
delivered under Article VII hereof.
ARTICLE III
CONSIDERATION; ELECTION AND EXCHANGE PROCEDURES
3.01. Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of a holder of shares of Company Common
Stock:
(a) Each share of Parent Common Stock that is issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
and shall be unchanged by the Merger.
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(b) Each share of Company Common Stock held as Treasury Stock
immediately prior to the Effective Time shall be canceled and retired at
the Effective Time and no consideration shall be issued in exchange
therefor.
(c) (1) Subject to Sections 3.02, 3.05, 3.06, 3.07 and 3.10, each
share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares to be canceled in accordance with
Section 3.01(b)) shall be converted into, and shall be canceled in exchange
for, the right to receive, at the election of the holder thereof:
(i) the number of shares of Parent Common Stock which is equal to
the quotient (the "Exchange Ratio") determined by dividing (x) $20.50 by
(y) the Average Share Price of the Parent Common Stock (the "Per Share
Stock Consideration"), or
(ii) a cash amount equal to $20.50 per share of Company Common
Stock (the "Per Share Cash Consideration").
(2) For purposes of this Agreement:
(i) the "Aggregate Cash Consideration" shall amount to the product
of the number of shares of Company Common Stock (other than Treasury
Stock) outstanding immediately prior to the Effective Time times .49
times $20.50; and
(ii) the "Average Share Price" of the Parent Common Stock shall
mean the average of the closing sales price of a share of Parent Common
Stock, as reported on Nasdaq (as reported by an authoritative source),
for the 20 trading-day period ending with the close of business on the
Business Day preceding the Effective Time.
3.02. Election Procedures.
(a) Parent shall designate an exchange agent to act as agent (the
"Exchange Agent") for purposes of conducting the election procedure and the
exchange procedure described in Sections 3.01 and 3.02. Provided that the
Company has delivered, or caused to be delivered, to the Exchange Agent all
information which is necessary for the Exchange Agent to perform its
obligations as specified herein, the Exchange Agent shall, no later than
five (5) Business Days after the Effective Date, mail or make available to
each holder of record of a Certificate or Certificates (i) a notice and
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates theretofore representing
shares of Company Common Stock shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent such Certificate or Certificates in exchange for the
consideration set forth in Section 3.01(c) hereof deliverable in respect
thereof pursuant to this Agreement and (ii) an election form in such form
as Parent and the Company shall mutually agree (the "Election Form"). Each
Election Form shall permit the holder (or in the case of nominee record
holders, the beneficial owner through proper instructions and
documentation) (i) to elect to receive Parent Common Stock with respect to
all of such holder's Company Common Stock as hereinabove provided (the
"Stock Election Shares"), (ii) to elect to receive cash with respect to all
of such holder's Company Common Stock as hereinabove provided (the "Cash
Election Shares"), or (iii) to indicate that such holder makes no such
election with respect to such holder's shares of Company Common Stock (the
"No-Election Shares"). Nominee record holders who hold Company Common Stock
on behalf of multiple beneficial owners shall indicate how many of the
shares held by them are Stock Election Shares, Cash Election Shares and
No-Election Shares. If a shareholder either (i) does not submit a properly
completed Election Form in a timely fashion or (ii) revokes an Election
Form prior to the Election Deadline and does not resubmit a properly
completed Election Form prior to the Election Deadline, the shares of
Company Common Stock held by such shareholder shall be designated
No-Election Shares. Any Dissenting Shares shall be deemed to be Cash
Election Shares, and with respect to such shares the holders thereof shall
in no event be classified as Reallocated Stock Shares (as hereinafter
defined).
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(b) The term "Election Deadline" shall mean 5:00 p.m., Eastern Time,
on the 20th day following but not including the date of mailing of the
Election Form or such other date as Parent and the Company shall mutually
agree upon.
(c) Any election to receive Parent Common Stock or cash shall have
been properly made only if the Exchange Agent shall have actually received
a properly completed Election Form by the Election Deadline. An Election
Form will be properly completed only if accompanied by Certificates
representing all shares of Company Common Stock covered thereby, subject to
the provisions of paragraph (c) of Section 3.03. Any Election Form may be
revoked or changed by the person submitting such Election Form to the
Exchange Agent by written notice to the Exchange Agent only if such written
notice is actually received by the Exchange Agent at or prior to the
Election Deadline. The Certificate or Certificates representing Company
Common Stock relating to any revoked Election Form shall be promptly
returned without charge to the person submitting the Election Form to the
Exchange Agent. The Exchange Agent shall have reasonable discretion to
determine when any election, modification or revocation is received,
whether any such election, modification or revocation has been properly
made and to disregard immaterial defects in any Election Form, and any good
faith decisions of the Exchange Agent regarding such matters shall be
binding and conclusive. Neither Parent nor the Exchange Agent shall be
under any obligation to notify any person of any defect in an Election
Form.
(d) Within ten (10) Business Days after the Election Deadline, the
Exchange Agent shall effect the allocation among holders of Company Common
Stock of rights to receive Parent Common Stock or cash in the Merger in
accordance with the Election Forms as follows:
(i) If the number of Cash Election Shares times the Per Share Cash
Consideration is less than the Aggregate Cash Consideration, then:
(1) all Cash Election Shares (subject to Section 3.06 with
respect to Dissenting Shares) shall be converted into the right to
receive cash,
(2) No-Election Shares shall then be deemed to be Cash Election
Shares to the extent necessary to have the total number of Cash
Election Shares times the Per Share Cash Consideration equal the
Aggregate Cash Consideration. If less than all of the No-Election
Shares need to be treated as Cash Election Shares, then the Exchange
Agent shall select which No-Election Shares shall be treated as Cash
Election Shares in such manner as the Exchange Agent shall determine,
and all remaining No-Election Shares shall thereafter be treated as
Stock Election Shares,
(3) If all of the No-Election Shares are treated as Cash
Election Shares under the preceding subsection and the total number
of Cash Election Shares times the Per Share Cash Consideration is
less than the Aggregate Cash Consideration, then the Exchange Agent
shall convert on a pro rata basis as described below a sufficient
number of Stock Election Shares into Cash Election Shares
("Reallocated Cash Shares") such that the sum of the number of Cash
Election Shares plus the number of Reallocated Cash Shares times the
Per Share Cash Consideration equals the Aggregate Cash Consideration,
and all Reallocated Cash Shares will be converted into the right to
receive cash, and
(4) the Stock Election Shares which are not Reallocated Cash
Shares shall be converted into the right to receive Parent Common
Stock.
(ii) If the number of Cash Election Shares times the Per Share Cash
Consideration is greater than the Aggregate Cash Consideration, then:
(1) all Stock Election Shares and all No-Election Shares shall
be converted into the right to receive Parent Common Stock,
(2) the Exchange Agent shall convert on a pro rata basis as
described below a sufficient number of Cash Election Shares
(excluding any Dissenting Shares)("Reallocated
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Stock Shares") such that the number of remaining Cash Election Shares
(including Dissenting Shares) times the Per Share Cash Consideration
equals the Aggregate Cash Consideration, and all Reallocated Stock
Shares shall be converted into the right to receive Parent Common
Stock, and
(3) the Cash Election Shares (subject to Section 3.06 with
respect to Dissenting Shares) which are not Reallocated Stock Shares
shall be converted into the right to receive cash.
(iii) If the number of Cash Election Shares times the Per Share
Cash Consideration is equal to the Aggregate Cash Consideration, then
subparagraphs (d)(i) and (ii) above shall not apply and all No-Election
Shares and all Stock Election Shares will be converted into the right to
receive Parent Common Stock.
(e) In the event that the Exchange Agent is required pursuant to
Section 3.02(d)(i)(3) to convert some Stock Election Shares into
Reallocated Cash Shares, each holder of Stock Election Shares shall be
allocated a pro rata portion of the total Reallocated Cash Shares. In the
event the Exchange Agent is required pursuant to Section 3.02(d)(ii)(2) to
convert some Cash Election Shares into Reallocated Stock Shares, each
holder of Cash Election Shares shall be allocated a pro rata portion of the
total Reallocated Stock Shares.
(f) If the tax opinion referred to in Section 7.01(f) cannot be
rendered (as reasonably determined by Elias, Matz, Tiernan & Herrick
L.L.P.) as a result of the Merger potentially failing to qualify as a
reorganization under Section 368(a) of the Code, then Parent shall reduce
the Per Share Cash Consideration and correspondingly increase the Per Share
Stock Consideration, based on the Average Share Price, in each case to the
minimum extent necessary to enable such tax opinion to be rendered.
3.03. Exchange Procedures.
(a) At the Effective Time, for the benefit of the holders of
Certificates, (i) Parent shall deliver to the Exchange Agent certificates
evidencing the number of shares of Parent Common Stock issuable and (ii)
Parent shall deliver, or cause Parent Bank to deliver, to the Exchange
Agent the Aggregate Cash Consideration payable, pursuant to this Article
III in exchange for Certificates representing outstanding shares of Company
Common Stock. The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of Parent Common Stock
held by it from time to time hereunder, except that it shall receive and
hold all dividends or other distributions paid or distributed with respect
to such shares for the account of the persons entitled thereto.
(b) After completion of the allocation referred to in paragraph (d) of
Section 3.02, each holder of an outstanding Certificate or Certificates who
has surrendered such Certificate or Certificates to the Exchange Agent
will, upon acceptance thereof by the Exchange Agent, be entitled to a
certificate or certificates representing the number of whole shares of
Parent Common Stock and/or the amount of cash into which the aggregate
number of shares of Company Common Stock previously represented by such
Certificate or Certificates surrendered shall have been converted pursuant
to this Agreement and, if such holder's shares of Company Common Stock have
been converted into Parent Common Stock, any other distribution theretofore
paid with respect to Parent Common Stock issuable in the Merger, in each
case without interest. The Exchange Agent shall accept such Certificates
upon compliance with such reasonable terms and conditions as the Exchange
Agent may impose to effect an orderly exchange thereof in accordance with
normal exchange practices. Each outstanding Certificate which prior to the
Effective Time represented Company Common Stock and which is not
surrendered to the Exchange Agent in accordance with the procedures
provided for herein shall, except as otherwise herein provided, until duly
surrendered to the Exchange Agent be deemed to evidence ownership of the
number of shares of Parent Common Stock or the right to receive the amount
of cash into which such Company Common Stock shall have been converted.
After the Effective Time, there shall be no further transfer on the records
of the Company of Certificates
I-9
representing shares of Company Common Stock and if such Certificates are
presented to the Company for transfer, they shall be cancelled against
delivery of certificates for Parent Common Stock or cash as hereinabove
provided. No dividends which have been declared will be remitted to any
person entitled to receive shares of Parent Common Stock under Section 3.02
until such person surrenders the Certificate or Certificates representing
Company Common Stock, at which time such dividends shall be remitted to
such person, without interest.
(c) Parent shall not be obligated to deliver cash and/or a certificate
or certificates representing shares of Parent Common Stock to which a
holder of Company Common Stock would otherwise be entitled as a result of
the Merger until such holder surrenders the Certificate or Certificates
representing the shares of Company Common Stock for exchange as provided in
this Section 3.03, or, in default thereof, an appropriate affidavit of loss
and indemnity agreement and/or a bond as may be required by Parent. If any
certificates evidencing shares of Parent Common Stock are to be issued in a
name other than that in which the Certificate evidencing Company Common
Stock surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered shall
be properly endorsed or accompanied by an executed form of assignment
separate from the Certificate and otherwise in proper form for transfer and
that the person requesting such exchange pay to the Exchange Agent any
transfer or other tax required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the
registered holder of the Certificate surrendered or otherwise establish to
the satisfaction of the Exchange Agent that such tax has been paid or is
not payable.
(d) Any portion of the shares of Parent Common Stock and cash
delivered to the Exchange Agent by Parent pursuant to Section 3.03(a) that
remains unclaimed by the shareholders of the Company for six months after
the Effective Time (as well as any proceeds from any investment thereof)
shall be delivered by the Exchange Agent to Parent. Any shareholders of
Company who have not theretofore complied with Section 3.03(b) shall
thereafter look only to Parent for the consideration deliverable in respect
of each share of Company Common Stock such shareholder holds as determined
pursuant to this Agreement without any interest thereon. If outstanding
Certificates for shares of Company Common Stock are not surrendered or the
payment for them is not claimed prior to the date on which such shares of
Parent Common Stock or cash would otherwise escheat to or become the
property of any governmental unit or agency, the unclaimed items shall, to
the extent permitted by abandoned property and any other applicable law,
become the property of Parent (and to the extent not in its possession
shall be delivered to it), free and clear of all claims or interest of any
person previously entitled to such property. Neither the Exchange Agent nor
any party to this Agreement shall be liable to any holder of stock
represented by any Certificate for any consideration paid to a public
official pursuant to applicable abandoned property, escheat or similar
laws. Parent and the Exchange Agent shall be entitled to rely upon the
stock transfer books of the Company to establish the identity of those
persons entitled to receive the consideration specified in this Agreement,
which books shall be conclusive with respect thereto. In the event of a
dispute with respect to ownership of stock represented by any Certificate,
Parent and the Exchange Agent shall be entitled to deposit any
consideration represented thereby in escrow with an independent third party
and thereafter be relieved with respect to any claims thereto.
(e) Notwithstanding anything in this Agreement to the contrary,
Certificates surrendered for exchange by any Company Affiliate shall not be
exchanged for certificates representing shares of Parent Common Stock to
which such Company Affiliate may be entitled pursuant to the terms of this
Agreement until Parent has received a written agreement from such person as
specified in Section 6.07.
3.04. Rights as Shareholders; Stock Transfers. At the Effective Time,
holders of Company Stock shall cease to be, and shall have no rights as,
shareholders of the Company other than to receive the consideration provided
under this Article III. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company or the Surviving Corporation of shares
of Company Stock.
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3.05. No Fractional Shares. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of Parent Common
Stock shall be issued in the Merger. Each holder of Company Common Stock who
otherwise would have been entitled to a fraction of a share of Parent Common
Stock shall receive in lieu thereof cash (without interest) in an amount
determined by multiplying the fractional share interest to which such holder
would otherwise be entitled by the Average Share Price. No such holder shall be
entitled to dividends, voting rights or any other rights in respect of any
fractional share.
3.06. Dissenting Shares. Each outstanding share of Company Common Stock
the holder of which has perfected his right to dissent under the MBCL and has
not effectively withdrawn or lost such right as of the Effective Time (the
"Dissenting Shares") shall not be converted into or represent a right to receive
shares of Parent Common Stock or cash hereunder, and the holder thereof shall be
entitled only to such rights as are granted by the MBCL. The Company shall give
Parent prompt notice upon receipt by the Company of any such written demands for
payment of the fair value of such shares of Company Common Stock and of
withdrawals of such demands and any other instruments provided pursuant to the
MBCL. If any holder of Dissenting Shares shall fail to perfect or shall have
effectively withdrawn or lost the right to dissent at or prior to the Effective
Time and shall have delivered a properly completed Election Form to the Exchange
Agent by the Election Deadline, the Dissenting Shares held by such holder shall
be converted into a right to receive Company Common Stock and/or cash in
accordance with the applicable provisions of this Agreement; and if any such
holder of Dissenting Shares shall not have delivered a properly completed
Election Form to the Exchange Agent by the Election Deadline, the Dissenting
Shares held by such holder shall be designated No-Election Shares. If any holder
of Dissenting Shares shall have effectively withdrawn or lost the right to
dissent (through failure to perfect or otherwise) after the Effective Time, the
Dissenting Shares held by such holder shall be converted on a share by share
basis into either the right to receive Parent Common Stock and/or cash in
accordance with the applicable provisions of this Agreement as Parent or the
Exchange Agent shall determine. Any payments made in respect of Dissenting
Shares shall be made by the Surviving Corporation.
3.07. Anti-Dilution Provisions. If, between the date hereof and the
Effective Time, the shares of Parent Common Stock shall be changed into a
different number or class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
a stock dividend thereon shall be declared with a record date within said
period, the Exchange Ratio shall be adjusted accordingly.
3.08. Withholding Rights. Parent (through the Exchange Agent, if
applicable) shall be entitled to deduct and withhold from any amounts otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as Parent is required under the Code or any state, local or
foreign tax law or regulation thereunder to deduct and withhold with respect to
the making of such payment. Any amounts so withheld shall be treated for all
purposes of this Agreement as having been paid to the holder of Company Common
Stock in respect of which such deduction and withholding was made by Parent.
3.09. Company Options.
(a) At the Effective Time, and subject to the provisions of paragraph
(b) of this Section 3.09, each Company Option which is outstanding and
unexercised immediately prior to the Effective Time, whether or not then
vested and exercisable, shall be terminated and each grantee thereof shall
be entitled to receive, in lieu of each share of Company Common Stock that
would otherwise have been issuable upon the exercise thereof, an amount of
cash computed by multiplying (i) the difference between (x) the Per Share
Cash Consideration and (y) the per share exercise price applicable to such
Company Option by (ii) the number of such shares of Company Common Stock
subject to such Company Option. The Company agrees to take or cause to be
taken all action necessary to provide for termination of the Company
Options covered by this Section 3.09(a) and the payment of the amounts
required in connection therewith effective at or before the Effective Time.
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(b) Notwithstanding the provisions of paragraph (a) of this Section
3.09, in the event that a holder of Company Options so elects pursuant to a
written election submitted to the Company prior to the Election Deadline,
which shall be in such form as shall be prescribed by the Company and
reasonably satisfactory to Parent, each Company Option held by such holder
which is outstanding and unexercised immediately prior to the Effective
Time, whether or not then vested and exercisable, shall cease to represent
a right to acquire shares of Company Common Stock and shall be converted
automatically into an option to purchase shares of Parent Common Stock, and
Parent shall assume each Company Option, in accordance with the terms of
the applicable Company Stock Option Plan and stock option or other
agreement by which it is evidenced, except that from and after the
Effective Time, (i) Parent and the Human Resources Committee of its Board
of Directors shall be substituted for the Company and the committee of the
Company's Board of Directors (including, if applicable, the entire Board of
Directors of the Company) administering such Company Stock Option Plan,
(ii) each Company Option assumed by Parent may be exercised solely for
shares of Parent Common Stock, (iii) the number of shares of Parent Common
Stock subject to such Company Option shall be equal to the number of shares
of Company Common Stock subject to such Company Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, provided that any
fractional shares of Parent Common Stock resulting from such multiplication
shall be rounded down to the nearest share, and (iv) the per share exercise
price under each such Company Option shall be adjusted by dividing the per
share exercise price under each such Company Option by the Exchange Ratio,
provided that such exercise price shall be rounded up to the nearest cent.
Notwithstanding clauses (iii) and (iv) of the preceding sentence, each
Company Option which is an "incentive stock option" shall be adjusted as
required by Section 424 of the Code, and the regulations promulgated
thereunder, so as not to constitute a modification, extension or renewal of
the option within the meaning of Section 424(h) of the Code. Parent and the
Company agree to take all necessary steps to effect the foregoing
provisions of this Section 3.09(b).
(c) Prior to the Effective Time, the Company shall take or cause to be
taken all actions required under the Company Stock Option Plans to provide
for the actions set forth in paragraphs (a) and (b) of this Section 3.09,
which actions shall be reasonably satisfactory to Parent.
(d) Within five Business Days after the Effective Time, Parent shall
file a registration statement on Form S-3 or Form S-8, as the case may be
(or any successor or other appropriate forms), with respect to the shares
of Parent Common Stock subject to the options referred to in paragraph (b)
of this Section 3.09 and shall use its reasonable efforts to maintain the
current status of the prospectus or prospectuses contained therein for so
long as such options remain outstanding in the case of a Form S-8 or, in
the case of a Form S-3, until the shares subject to such options may be
sold without a further holding period under Rule 144 under the Securities
Act.
3.10. Company Units. For purposes of Sections 3.01 and 3.02 hereof, each
Company Unit which is outstanding under the Company Deferred Compensation Plan
immediately prior to the Effective Time shall be treated as an outstanding share
of Company Common Stock. At the time that the Exchange Agent provides holders of
Company Common Stock an Election Form pursuant to Section 3.02(a), the Company
agrees to provide a comparable form to the holders of Company Units in order to
permit them to make elections pursuant thereto by the Election Deadline with
respect to the manner of conversion of their Company Units pursuant to the terms
of the Company Deferred Compensation Plan and this Agreement.
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ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01. Forbearances of the Company. From the date hereof until the
Effective Time, except as expressly contemplated or permitted by this Agreement
or as Previously Disclosed, without the prior written consent of Parent, the
Company will not, and will cause each of its Subsidiaries not to:
(a) Ordinary Course. Conduct its business other than in the ordinary
and usual course consistent with past practice or fail to use reasonable
best efforts to preserve its business organization, keep available the
present services of its employees and preserve for itself and Parent the
goodwill of the customers of the Company and its Subsidiaries and others
with whom business relations exist.
(b) Capital Stock. Other than pursuant to the Stock Option Agreement
and Rights set forth on Schedule 4.01(b) of the Company's Disclosure
Schedule and outstanding on the date hereof, (i) issue, sell or otherwise
permit to become outstanding, or authorize the creation of, any additional
shares of stock or any Rights or (ii) permit any additional shares of stock
to become subject to grants of employee or director stock options or other
Rights.
(c) Dividends; Etc. (a) Make, declare, pay or set aside for payment
any dividend on or in respect of, or declare or make any distribution on
any shares of Company Stock, other than (A) regular quarterly cash
dividends at a rate not in excess of $ 0.12 per share on the Company Common
Stock and (B) dividends from wholly-owned Subsidiaries to the Company or
another wholly-owned Subsidiary of the Company or (b) directly or
indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock, provided, however, that
any dividend under the Company's normal quarterly dividend payment schedule
that has been declared by the Company Board but not paid prior to the
Effective Time shall be paid immediately prior to the Effective Time.
(d) Compensation; Employment Agreements; Etc. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of the Company or its
Subsidiaries or grant any salary or wage increase or increase any employee
benefit (including incentive or bonus payments), except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, provided that no such increase
shall result in an annual adjustment of more than 4%, (ii) for other
changes that are required by applicable law, (iii) to satisfy contractual
obligations existing as of the date hereof and set forth in Schedule
4.01(d) of the Company's Disclosure Schedule or (iv) for grants of awards
to newly-hired employees consistent with past practice.
(e) Hiring. Hire any person as an employee of the Company or any of
its Subsidiaries or promote any employee, except (i) to satisfy contractual
obligations existing as of the date hereof and set forth on Schedule
4.01(e) of the Company's Disclosure Schedule and (ii) persons hired to fill
any vacancies arising after the date hereof and whose employment is
terminable at the will of the Company or a Subsidiary of the Company, as
applicable, other than any person to be hired who would have a base salary,
including any guaranteed bonus or any similar bonus, considered on an
annual basis of more than $50,000.
(f) Benefit Plans. Enter into, establish, adopt or amend (except (i)
as may be required by applicable law or (ii) to satisfy contractual
obligations existing as of the date hereof and set forth on Schedule
4.01(f) of the Company's Disclosure Schedule) any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
(or similar arrangement) related thereto, in respect of any director,
officer or employee of the Company or its Subsidiaries or take any action
to accelerate the vesting or exercisability of stock options, restricted
stock or other compensation or benefits payable thereunder.
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(g) Dispositions. Sell, transfer, mortgage, encumber or otherwise
dispose of or discontinue any of its assets, deposits, business or
properties except in the ordinary course of business consistent with past
practice and in a transaction that, together with all other such
transactions, is not material to the Company and its Subsidiaries taken as
a whole.
(h) Acquisitions. Acquire (other than by way of foreclosures or
acquisitions of control in a bona fide fiduciary capacity or in
satisfaction of debts previously contracted in good faith, in each case in
the ordinary and usual course of business consistent with past practice)
all or any portion of the assets, business, deposits or properties of any
other entity.
(i) Capital Expenditures. Make any capital expenditures other than
capital expenditures in the ordinary course of business consistent with
past practice in amounts not exceeding $50,000 individually or $500,000 in
the aggregate.
(j) Governing Documents. Amend the Company Articles or Company Bylaws
or the articles of incorporation or bylaws (or equivalent documents) of any
Subsidiary of the Company.
(k) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by changes in laws or regulations or GAAP.
(l) Contracts. Except in the ordinary course of business consistent
with past practice or as otherwise permitted under this Section 4.01, enter
into or terminate any Material Contract (as defined in Section 5.03(k)) or
amend or modify in any material respect any of its existing Material
Contracts.
(m) Claims. Enter into any settlement or similar agreement with
respect to any action, suit, proceeding, order or investigation to which
the Company or any of its Subsidiaries is or becomes a party after the date
of this Agreement, which settlement, agreement or action involves payment
by the Company and its Subsidiaries of an amount which exceeds $50,000
and/or would impose any material restriction on the business of the Company
or create precedent for claims that are reasonably likely to be material to
the Company and its Subsidiaries taken as a whole.
(n) Banking Operations. Enter into any new material line of business
or change its material lending, investment, underwriting, risk and asset
liability management and other material banking and operating policies,
except as required by applicable law, regulation or policies imposed by any
Governmental Authority.
(o) Derivatives Contracts. Enter into any Derivatives Contract,
except in the ordinary course of business consistent with past practice.
(p) Indebtedness. Incur any indebtedness for borrowed money (other
than deposits, federal funds purchased, cash management accounts,
borrowings from the Federal Home Loan Bank of Boston and securities sold
under agreements to repurchase, in each case in the ordinary course of
business consistent with past practice) or assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of any
other Person, other than in the ordinary course of business consistent with
past practice.
(q) Adverse Actions. (i) Take any action that would, or is reasonably
likely to, prevent or impede the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code or (ii) take any action
that is intended or is reasonably likely to result in (x) any of its
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time at or prior to the
Effective Time, (y) any of the conditions to the Merger set forth in
Article VII not being satisfied or (z) a material violation of any
provision of this Agreement, the Bank Merger Agreement or the Stock Option
Agreement except, in each case, as may be required by applicable law or
regulation.
(r) Commitments. Enter into any contract with respect to, or
otherwise agree or commit to do, any of the foregoing.
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4.02. Forbearances of Parent. From the date hereof until the Effective
Time, except as expressly contemplated or permitted by this Agreement, without
the prior written consent of the Company, Parent will not, and will cause each
of its Subsidiaries not to:
(a) Adverse Actions. (i) Take any action that would, or is reasonably
likely to, prevent or impede the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code, provided, however, that
nothing contained herein shall limit the ability of Parent to exercise its
rights under the Stock Option Agreement, or (ii) take any action that is
intended or is reasonably likely to result in (x) any of its
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time at or prior to the
Effective Time, (y) any of the conditions to the Merger set forth in
Article VII not being satisfied or (z) a material violation of any
provision of this Agreement, the Bank Merger Agreement or the Stock Option
Agreement except, in each case, as may be required by applicable law or
regulation.
(b) Commitments. Enter into any contract with respect to, or
otherwise agree or commit to do, any of the foregoing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. Disclosure Schedules. On or prior to the date hereof, Parent has
delivered to the Company a schedule and the Company has delivered to Parent a
schedule (respectively, its "Disclosure Schedule") setting forth, among other
things, items the disclosure of which is necessary or appropriate either in
response to an express disclosure requirement contained in a provision hereof or
as an exception to one or more representations or warranties contained in
Section 5.03 or 5.04 or to one or more of its covenants contained in Article IV;
provided, however, that (a) no such item is required to be set forth in a
Disclosure Schedule as an exception to a representation or warranty if its
absence would not be reasonably likely to result in the related representation
or warranty being deemed untrue or incorrect under the standard established by
Section 5.02 and (b) the mere inclusion of an item in a Disclosure Schedule as
an exception to a representation or warranty shall not be deemed an admission by
a party that such item represents a material exception or fact, event or
circumstance or that, absent such inclusion in the Disclosure Schedule, such
item is or would be reasonably likely to result in a Material Adverse Effect.
5.02. Standard. No representation or warranty of the Company or Parent
contained in Sections 5.03 or 5.04, respectively, shall be deemed untrue or
incorrect, and no party hereto shall be deemed to have breached a representation
or warranty, as a consequence of the existence of any fact, event or
circumstance unless such fact, circumstance or event, individually or taken
together with all other facts, events or circumstances inconsistent with any
representation or warranty contained in Section 5.03 or 5.04, has had or is
reasonably likely to have a Material Adverse Effect on the party making such
representation or warranty.
5.03. Representations and Warranties of the Company. Subject to Sections
5.01 and 5.02 and except as Previously Disclosed, the Company hereby represents
and warrants to Parent:
(a) Organization, Standing and Authority. The Company is duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. The Company is duly qualified to do business
and is in good standing in each jurisdiction where its ownership or leasing
of property or assets or the conduct of its business requires it to be so
qualified. The Company has in effect all federal, state, local and foreign
governmental authorizations necessary for it to own or lease its properties
and assets and to carry on its business as now conducted.
(b) Company Capital Stock. The authorized capital stock of the
Company consists solely of 12,000,000 shares of Company Common Stock, of
which 1,931,849 shares are outstanding as of the date hereof, and 1,000,000
shares of Company Preferred Stock, of which no shares are outstanding. As
of the date hereof, 604,900 shares of the Company Common Stock were held in
treasury by the
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Company or otherwise directly or indirectly owned by the Company. The
outstanding shares of Company Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable, and none of the
outstanding shares of Company Common Stock have been issued in violation of
the preemptive rights of any Person. Section 5.03(b) of the Company's
Disclosure Schedule sets forth (i) for each Company Stock Option, the name
of the grantee, the date of the grant, the type of grant, the status of the
option grant as qualified or non-qualified under Section 422 of the Code,
the number of shares of Company Common Stock subject to each option, the
number of shares of Company Common Stock subject to options that are
currently exercisable and the exercise price per share and (ii) for each
Company Unit outstanding under the Company Deferred Compensation Plan, the
name of the holder and the number of Company Units held by such holder.
Except as set forth in the preceding sentence and other than pursuant to
the Stock Option Agreement, there are no shares of Company Stock reserved
for issuance, the Company does not have any Rights issued or outstanding
with respect to Company Stock, and the Company does not have any commitment
to authorize, issue or sell any Company Stock or Rights.
(c) Subsidiaries.
(i) (A) The Company has Previously Disclosed a list of all of its
Subsidiaries together with the jurisdiction of organization of each such
Subsidiary, (B) the Company owns, directly or indirectly, all the issued
and outstanding equity securities of each of its Subsidiaries, (C) no
equity securities of any of its Subsidiaries are or may become required
to be issued (other than to the Company) by reason of any Right or
otherwise, (D) there are no contracts, commitments, understandings or
arrangements by which any of its Subsidiaries is or may be bound to sell
or otherwise transfer any of its equity securities (other than to the
Company or any of its wholly-owned Subsidiaries), (E) there are no
contracts, commitments, understandings, or arrangements relating to the
Company's rights to vote or to dispose of such securities and (F) all
the equity securities of the Company's Subsidiaries held by the Company
or its Subsidiaries are fully paid and nonassessable and are owned by
the Company or its Subsidiaries free and clear of any Liens.
(ii) Except for securities and other interests held in a fiduciary
capacity and beneficially owned by third parties or taken in
consideration of debts previously contracted, the Company does not own
beneficially, directly or indirectly, any equity securities or similar
interests of any Person or any interest in a partnership or joint
venture of any kind other than its Subsidiaries and stock in the Federal
Home Loan Bank of Boston.
(iii) Each of the Company's Subsidiaries has been duly organized
and is validly existing in good standing under the laws of the
jurisdiction of its organization and is duly qualified to do business
and in good standing in the jurisdictions where its ownership or leasing
of property or the conduct of its business requires it to be so
qualified.
(iv) The deposit accounts of the Company Bank are insured by the
Bank Insurance Fund and the Depositors Insurance Fund in the manner and
to the maximum extent provided by applicable law, and the Company Bank
has paid all deposit insurance premiums and assessments required by
applicable laws and regulations.
(d) Corporate Power. Each of the Company and its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and the Company has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby, subject to
receipt of all necessary approvals of Governmental Authorities and the
approval of the Company's shareholders of this Agreement.
(e) Corporate Authority. Subject to the approval of this Agreement by
the holders of the outstanding Company Common Stock, this Agreement and the
Stock Option Agreement and the transactions contemplated hereby and thereby
have been authorized by all necessary corporate action of the Company and
the Company Board on or prior to the date hereof. The Company has duly
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executed and delivered this Agreement and the Stock Option Agreement and,
assuming due authorization, execution and delivery by Parent, each of this
Agreement and the Stock Option Agreement is a valid and legally binding
obligation of the Company, enforceable in accordance with its terms (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles).
(f) Regulatory Approvals; No Defaults.
(i) No consents or approvals of, or waivers by, or filings or
registrations with, any Governmental Authority or with any third party
are required to be made or obtained by the Company or any of its
Subsidiaries in connection with the execution, delivery or performance
by the Company or the Company Bank of this Agreement, the Bank Merger
Agreement and the Stock Option Agreement, as applicable, or to
consummate the Transactions and the other transactions contemplated
hereby and thereby, except for (A) filings of applications or notices
with, and approvals or waivers by, the Federal Reserve Board, the OCC,
the Massachusetts Bank Commissioner, the Depositors Insurance Fund, the
Maine Superintendent, the Massachusetts Board and the MHPF, as required,
(B) filings with the SEC and state securities authorities in connection
with the issuance of Parent Common Stock in the Merger, (C) the filing
of Articles of Merger with the Secretary of State of the State of Maine
pursuant to the MBCA and the Secretary of State of the Commonwealth of
Massachusetts pursuant to the MBCL, (D) the approval of this Agreement
by the holders of a majority of the outstanding shares of Company Common
Stock and (E) such corporate approvals and such consents or approvals
of, or waivers by, or filings or registrations with, certain of the
foregoing federal and state banking agencies in connection with the Bank
Merger. As of the date hereof, the Company is not aware of any reason
why the approvals set forth above and referred to in Section 7.01(b)
will not be received in a timely manner and without the imposition of a
condition, restriction or requirement of the type described in Section
7.01(b).
(ii) Subject to receipt of the approvals referred to in the
preceding paragraph, and the expiration of related waiting periods, the
execution, delivery and performance of this Agreement, the Bank Merger
Agreement and the Stock Option Agreement by the Company and the Company
Bank, as applicable, and the consummation of the Transactions and the
other transactions contemplated hereby and thereby do not and will not
(A) constitute a breach or violation of, or a default under, or give
rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or
instrument of the Company or any of its Subsidiaries or to which the
Company or any of its Subsidiaries or any of their respective properties
is subject or bound, (B) constitute a breach or violation of, or a
default under, the articles of association or bylaws (or similar
governing documents) of the Company or any of its Subsidiaries or (C)
require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement,
indenture or instrument.
(g) Financial Reports; Undisclosed Liabilities.
(i) (A) The Company's Annual Reports on Form 10-K for the fiscal
years ended December 31, 2000, December 31, 1999 and December 31, 1998
and all other reports, registration statements, definitive proxy
statements or information statements filed or to be filed by it
subsequent to December 31, 1998 with the SEC (collectively, the
Company's "SEC Documents"), as of the date filed or to be filed and as
amended prior to the date hereof, (A) complied or will comply in all
material respects as to form with the applicable securities regulations
of the SEC as the case may be and (B) did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that information as of a later date shall be
deemed to modify
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information as of an earlier date; and each of the balance sheets
contained in any such SEC Document (including the related notes and
schedules thereto) fairly presents, or will fairly present, the
consolidated financial position of the Company and its Subsidiaries as
of its date, and each of the consolidated statements of income and
changes in shareholders' equity and cash flows or equivalent statements
in such SEC Documents (including any related notes and schedules
thereto) fairly presents, or will fairly present, the consolidated
results of operations, changes in shareholders' equity and changes in
cash flows, as the case may be, of the Company and its Subsidiaries for
the periods to which they relate, in each case in accordance with GAAP
consistently applied during the periods involved.
(i) (B) The draft audited consolidated financial statements of the
Company at December 31, 2001 and 2000 and for each of the years in the
three-year period ended December 31, 2001, delivered by the Company to
Parent prior to the execution of this Agreement, (A) comply in all
material respects as to form with the applicable securities regulations
of the SEC and (B) do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
information as of a later date shall be deemed to modify information as
of an earlier date; and each of the balance sheets contained in such
financial statements (including the related notes and schedules thereto)
fairly presents the consolidated financial position of the Company and
its Subsidiaries as of its date, and each of the consolidated statements
of income and changes in shareholders' equity and cash flows or
equivalent statements in such financial statements (including any
related notes and schedules thereto) fairly presents the consolidated
results of operations, changes in shareholders' equity and changes in
cash flows, as the case may be, of the Company and its Subsidiaries for
the periods to which they relate, in each case in accordance with GAAP
consistently applied during the periods involved.
(ii) Since September 30, 2001, neither the Company nor any of its
Subsidiaries has incurred any liability other than in the ordinary
course of business consistent with past practice (excluding the
incurrence of expenses related to this Agreement and the transactions
contemplated hereby).
(iii) Since September 30, 2001, (A) the Company and its
Subsidiaries have conducted their respective businesses in the ordinary
and usual course consistent with past practice (excluding the incurrence
of expenses related to this Agreement and the transactions contemplated
hereby) and (B) no event has occurred or circumstance arisen that,
individually or taken together with all other facts, circumstances and
events (described in any paragraph of this Section 5.03 or otherwise),
is reasonably likely to have a Material Adverse Effect with respect to
the Company.
(iv) No agreement pursuant to which any loans or other assets have
been or shall be sold by the Company or its Subsidiaries entitled the
buyer of such loans or other assets, unless there is material breach of
a representation or covenant by the Company or its Subsidiaries, to
cause the Company or its Subsidiaries to repurchase such loan or other
asset or the buyer to pursue any other form of recourse against the
Company or its Subsidiaries. Except for regular quarterly cash dividends
at the rate of $0.12 per share on the Company Common Stock, since
December 31, 1999, no cash, stock or other dividend or any other
distribution with respect to the stock of the Company or any of its
Subsidiaries have been declared, set aside or paid. No shares of the
stock of the Company have been purchased, redeemed or otherwise
acquired, directly or indirectly, by the Company since September 30,
2001, and no agreements have been made to do the foregoing.
(h) Litigation. No litigation, claim or other proceeding before any
court or governmental agency is pending against the Company or any of
its Subsidiaries and, to the Company's
I-18
knowledge, no such litigation, claim or other proceeding has been
threatened and there are no facts which could reasonably give rise to
such litigation, claim or other proceeding.
(i) Regulatory Matters.
(i) Neither the Company nor any of its Subsidiaries nor any of any
of their respective properties is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission to, or extraordinary
supervisory letter from, any federal or state governmental agency or
authority charged with the supervision or regulation of financial
institutions or issuers of securities or engaged in the insurance of
deposits or the supervision or regulation of it (collectively, the
"Company Regulatory Authorities"). The Company and its Subsidiaries have
paid all assessments made or imposed by any Company Regulatory
Authority.
(ii) Neither the Company nor any its Subsidiaries has been advised
by, or has any knowledge of facts which could give rise to an advisory
notice by, any Company Regulatory Authority that such Company Regulatory
Authority is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum of understanding, commitment letter, supervisory
letter or similar submission.
(j) Compliance With Laws. Each of the Company and its Subsidiaries:
(i) is in material compliance with all applicable federal, state,
local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto or to the employees
conducting such businesses, including, without limitation, the Equal
Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment
Act, the Home Mortgage Disclosure Act and all other applicable fair
lending laws and other laws relating to discriminatory business
practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to permit
them to own or lease their properties and to conduct their businesses as
presently conducted; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect and, to the
Company's knowledge, no suspension or cancellation of any of them is
threatened; and
(iii) has received, since December 31, 1999, no notification or
communication from any Governmental Authority (A) asserting that the
Company or any of its Subsidiaries is not in compliance with any of the
statutes, regulations or ordinances which such Governmental Authority
enforces or (B) threatening to revoke any license, franchise, permit or
governmental authorization (nor, to the Company's knowledge, do any
grounds for any of the foregoing exist).
(k) Material Contracts; Defaults. Except for documents listed as
exhibits to the SEC Documents, neither the Company nor any of its
Subsidiaries is a party to, bound by or subject to any agreement, contract,
arrangement, commitment or understanding (whether written or oral) (i) that
is a "Material Contract" within the meaning of Item 601(b)(10) of the SEC's
Regulation S-K or (ii) that materially restricts the conduct of business by
the Company or by any of its Subsidiaries. Neither the Company nor any of
its Subsidiaries is in material default under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to
which it is a party, by which its respective assets, business, or
operations may be bound or affected, or under which it or its respective
assets, business, or operations receives benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or
both, would constitute such a default. No power of attorney or similar
authorization given directly or indirectly by the Company or any of its
Subsidiaries is currently outstanding.
(l) No Brokers. No action has been taken by the Company or any of its
Subsidiaries that would give rise to any valid claim against any party
hereto for a brokerage commission, finder's fee or
I-19
other like payment with respect to the transactions contemplated by this
Agreement and the Stock Option Agreement, excluding a Previously Disclosed
fee to be paid to Keefe, Bruyette & Woods, Inc.
(m) Employee Benefit Plans.
(i) All benefit and compensation plans, contracts, policies or
arrangements covering current or former employees of the Company and its
Subsidiaries (the "Employees") and current or former directors of the
Company including, but not limited to, "employee benefit plans" within
the meaning of Section 3(3) of ERISA, and deferred compensation, stock
option, stock purchase, stock appreciation rights, stock based,
incentive and bonus plans (the "Benefits Plans"), are Previously
Disclosed in the Disclosure Schedule. True and complete copies of all
Benefit Plans including, but not limited to, any trust instruments and
insurance contracts forming a part of any Benefit Plans and all
amendments thereto have been provided or made available to Parent.
(ii) All Benefits Plans other than "multiemployer plans" within the
meaning of Section 3(37) of ERISA, covering Employees, to the extent
subject to ERISA, are in substantial compliance with ERISA. Each Benefit
Plan which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan") and which is intended to be
qualified under Section 401(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service, and the Company
is not aware of any circumstances likely to result in revocation of any
such favorable determination letter or the loss of the qualification of
such Pension Plan under Section 401(a) of the Code.
There is no material pending or, to the Company's knowledge,
threatened litigation relating to the Benefits Plans. Neither the
Company nor any of its Subsidiaries has engaged in a transaction with
respect to any Benefit Plan or Pension Plan that, assuming the taxable
period of such transaction expired as of the date hereof, could subject
the Company or any of its Subsidiaries to a tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA in an amount
which would be material.
(iii) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by the Company or any of its
Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one employer with
the Company under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate"). Neither the Company nor any of its Subsidiaries has
incurred, and neither expects to incur, any withdrawal liability with
respect to a multiemployer plan under Subtitle E of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate). No
notice of a "reportable event," within the meaning of Section 4043 of
ERISA for which the 30-day reporting requirement has not been waived,
has been required to be filed for any Pension Plan or by any ERISA
Affiliate within the 12-month period ending on the date hereof or will
be required to be filed in connection with the transactions contemplated
by this Agreement.
(iv) All contributions required to be made under the terms of any
Benefit Plan have been timely made or have been reflected on the
financial statements of the Company included in the Company's SEC
Documents. Neither any Pension Plan nor any single-employer plan of an
ERISA Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA and no ERISA Affiliate has an outstanding funding waiver. Neither
the Company nor any of its Subsidiaries has provided, or is required to
provide, security to any Pension Plan or to any single-employer plan of
an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(v) All Pension Plans subject to Title IV of ERISA have been
terminated prior to the date hereof.
I-20
(vi) Neither the Company nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any Benefit Plan,
other than coverage as may be required under Section 4980B of the Code
or Part 6 of Title I of ERISA, or under the continuation of coverage
provisions of the laws of any state or locality. The Company or any of
its Subsidiaries may amend or terminate any such Benefit Plan at any
time without incurring any liability thereunder.
(vii) None of the execution of this Agreement, shareholder approval
of this Agreement or consummation of the transactions contemplated by
this Agreement will (A) entitle any employees of the Company or any of
its Subsidiaries to severance pay or any increase in severance pay upon
any termination of employment after the date hereof, (B) accelerate the
time of payment or vesting or trigger any payment or funding (through a
grantor trust or otherwise) of compensation or benefits under, increase
the amount payable or trigger any other material obligation pursuant to,
any of the Benefit Plans, (C) result in any breach or violation of, or a
default under, any of the Benefit Plans or (D) result in any payment
that would be a "parachute payment" to a "disqualified individual" as
those terms are defined in Section 280G of the Code, without regard to
whether such payment is reasonable compensation for personal services
performed or to be performed in the future.
(n) Labor Matters. Neither the Company nor any of its Subsidiaries is
a party to or is bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization,
nor is the Company or any of its Subsidiaries the subject of a proceeding
asserting that it has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel the
Company or any of its Subsidiaries to bargain with any labor organization
as to wages or conditions of employment, nor is there any strike or other
labor dispute involving it or any of its Subsidiaries pending or, to the
Company's knowledge, threatened, nor is the Company or any of its
Subsidiaries aware of any activity involving its employees seeking to
certify a collective bargaining unit or engaging in other organizational
activity.
(o) Environmental Matters.
(i) The Company and its Subsidiaries are in compliance with
applicable Environmental Laws; (ii) to the Company's knowledge, no real
property (including buildings or other structures) currently or formerly
owned or operated by the Company or any of its Subsidiaries, or any
property in which the Company or any of its Subsidiaries has held a
security interest, Lien or a fiduciary or management role ("Company Loan
Property"), has been contaminated with, or has had any release of, any
Hazardous Substance except in compliance with Environmental Laws; (iii)
neither the Company nor any of its Subsidiaries could be deemed the
owner or operator of, or has participated in the management regarding
Hazardous Substances of, any Company Loan Property which has been
contaminated with, or has had any release of, any Hazardous Substance
except in compliance with Environmental Laws; (iv) neither the Company
nor any of its Subsidiaries has any liability for any Hazardous
Substance disposal or contamination on any third party property; (v)
neither the Company nor any of its Subsidiaries has received any notice,
demand letter, claim or request for information alleging any violation
of, or liability under, any Environmental Law; (vi) neither the Company
nor any of its Subsidiaries is subject to any order, decree, injunction
or other agreement with any Governmental Authority or any third party
relating to any Environmental Law; (vii) to the Company's knowledge,
there are no circumstances or conditions (including the presence of
asbestos, underground storage tanks, lead products, polychlorinated
biphenyls, prior manufacturing operations, dry-cleaning, or automotive
services) involving the Company or any of its Subsidiaries, any
currently or formerly owned or operated property, or any Company Loan
Property, that could reasonably be expected to result in any claims,
liability or investigations against the Company or any of its
Subsidiaries, result in any restrictions on the ownership, use, or
transfer of any property pursuant to any Environmental Law, or adversely
affect the value of any Company Loan Property; and (viii) the Company
has delivered to Parent copies of all environmental reports, studies,
sampling data, correspondence, filings and other environmental
information in its possession or reasonably
I-21
available to it relating to the Company, its Subsidiaries and any
currently or formerly owned or operated property or any Company Loan
Property.
As used herein, the term "Environmental Laws" means any federal,
state or local law, regulation, order, decree, permit, authorization,
opinion or agency requirement relating to: (A) the protection or
restoration of the environment, health, safety, or natural resources,
(B) the handling, use, presence, disposal, release or threatened release
of any Hazardous Substance or (C) wetlands, indoor air, pollution,
contamination or any injury or threat of injury to persons or property
in connection with any Hazardous Substance; and the term "Hazardous
Substance" means any substance that is: (A) listed, classified or
regulated pursuant to any Environmental Law, (B) any petroleum product
or by-product, asbestos-containing material, lead-containing paint or
plumbing, polychlorinated biphenyls, radioactive materials or radon or
(C) any other substance which is the subject of regulatory action by any
Governmental Authority in connection with any Environmental Law.
(p) Tax Matters.
(i)(A) All Tax Returns that are required to be filed on or before
the Effective Date (taking into account any extensions of time within
which to file which have not expired) by or with respect to the Company
Group have been or will be timely filed on or before the Effective Date,
(B) all such Tax Returns are or will be true and complete in all
material respects, (C) all Taxes shown to be due on the Tax Returns
referred to in clause (A) have been or will be timely paid in full, (D)
the Tax Returns referred to in clause (A) have been examined by the
Internal Revenue Service or the appropriate Tax authority or the period
for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired, (E) all deficiencies asserted or
assessments made as a result of examinations conducted by any taxing
authority have been paid in full, (F) no material issues that have been
raised by the relevant taxing authority in connection with the
examination of any of the Tax Returns referred to in clause (A) are
currently pending and (G) no member of the Company Group has waived any
statutes of limitation with respect to any Taxes of the Company or any
of its Subsidiaries.
(ii) The Company has made available to Parent true and correct
copies of the United States federal income Tax Returns filed by the
Company and its Subsidiaries for each of the three most recent fiscal
years ended on or before December 31, 2000.
(iii) Neither the Company nor any of its Subsidiaries has any
liability with respect to income, franchise or similar Taxes that
accrued on or before the end of the most recent period covered by the
Company's SEC Documents filed prior to the date hereof in excess of the
amounts accrued with respect thereto that are reflected in the financial
statements included in the Company's SEC Documents filed on or prior to
the date hereof.
(iv) Neither the Company nor any of its Subsidiaries is a party to
any Tax allocation or sharing agreement, is or has been a member of an
affiliated group filing consolidated or combined Tax Returns (other than
a group the common parent of which is or was the Company) or otherwise
has any liability for the Taxes of any Person (other than the Company
and its Subsidiaries).
(v) No closing agreements, private letter rulings, technical advice
memoranda or similar agreement or rulings have been entered into or
issued by any taxing authority with respect to the Company and its
Subsidiaries.
(vi) Neither the Company nor any of its Subsidiaries maintains any
compensation plans, programs or arrangements the payments under which
would not reasonably be expected to be deductible as a result of the
limitations under Section 162(m) of the Code and the regulations issued
thereunder.
I-22
(vii) As of the date hereof, the Company has no reason to believe
that any conditions exist that might prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of
the Code.
(viii) (A) No Tax is required to be withheld pursuant to Section
1445 of the Code as a result of the Transactions and (B) all Taxes that
the Company or any of its Subsidiaries is or was required by law to
withhold or collect have been duly withheld or collected and, to the
extent required by applicable law, have been paid to the proper
Governmental Authority or other Person.
(q) Risk Management Instruments. Neither the Company nor any of its
Subsidiaries is a party or has agreed to enter into an exchange traded or
over-the-counter equity, interest rate, foreign exchange or other swap,
forward, future, option, cap, floor or collar or any other contract that is
not included on the balance sheet and is a derivatives contract (including
various combinations thereof) (each, a "Derivatives Contract") or owns
securities that (i) are referred to generically as "structured notes,"
"high risk mortgage derivatives," "capped floating rate notes" or "capped
floating rate mortgage derivatives" or (ii) are likely to have changes in
value as a result of interest or exchange rate changes that significantly
exceed normal changes in value attributable to interest or exchange rate
changes, except for those Derivatives Contracts and other instruments
legally purchased or entered into in the ordinary course of business,
consistent with safe and sound banking practices and regulatory guidance.
All of such Derivatives Contracts or other instruments, are legal, valid
and binding obligations of the Company or any of its Subsidiaries
enforceable in accordance with their terms (except as enforcement may be
limited by general principles of equity whether applied in a court of law
or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally), and are in full force
and effect. The Company and its Subsidiaries have duly performed in all
material respects all of their material obligations thereunder to the
extent that such obligations to perform have accrued; and, to the Company's
knowledge, there are no breaches, violations or defaults or allegations or
assertions of such by any party thereunder which would have or would
reasonably be expected to have a Material Adverse Effect on the Company.
(r) Loans; Nonperforming and Classified Assets.
(i) Each loan agreement, note or borrowing arrangement, including
without limitation portions of outstanding lines of credit and loan
commitments (collectively, "Loans"), on the books and records of the
Company and its Subsidiaries, was made and has been serviced in all
material respects in accordance with customary lending standards in the
ordinary course of business, is evidenced in all material respects by
appropriate and sufficient documentation and, to the knowledge of the
Company, constitutes the legal, valid and binding obligation of the
obligor named therein, subject to bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditor's rights or by
general equity principles.
(ii) The Company has Previously Disclosed as to the Company and
each Company Subsidiary as of the latest practicable date: (i) any
written or, to the Company's knowledge, oral Loan under the terms of
which the obligor is 60 or more days delinquent in payment of principal
or interest, or to the Company's knowledge, in default of any other
material provision thereof; (ii) each Loan which has been classified as
"substandard," "doubtful," "loss" or "special mention" (or words of
similar import) by the Company, a Company Subsidiary or an applicable
regulatory authority (it being understood that no representation is
being made that the FDIC or the Massachusetts Bank Commissioner would
agree with the loan classifications established by the Company); (iii) a
listing of the OREO acquired by foreclosure or by deed-in-lieu thereof,
including the book value thereof; and (iv) each Loan with any director,
executive officer or five percent or greater shareholder of the Company
or a Company Subsidiary, or to the best knowledge of the Company, any
Person controlling, controlled by or under common control with any of
the foregoing.
I-23
(s) Properties. All real and personal property owned by the Company
or a Subsidiary of the Company or presently used by any of them in its
respective business is in an adequate condition (ordinary wear and tear
excepted) and is sufficient to carry on its business in the ordinary course
of business consistent with its past practices. The Company has good and
marketable title free and clear of all Liens to all of the material
properties and assets, real and personal, reflected on the consolidated
statement of financial condition of the Company as of September 30, 2001
included in the Company's SEC Documents or acquired after such date, other
than properties sold by the Company in the ordinary course of business,
except (i) Liens for current taxes and assessments not yet due or payable
(ii) pledges to secure deposits and other Liens incurred in the ordinary
course of its banking business, (iii) such imperfections of title,
easements and encumbrances, if any, as are not material in character,
amount or extent and (iv) as reflected on the consolidated statement of
financial condition of the Company as of September 30, 2001 included in the
Company's SEC Documents. All real and personal property which is material
to the Company's business on a consolidated basis and leased or licensed by
the Company or a Subsidiary of the Company is held pursuant to leases or
licenses which are valid and enforceable in accordance with their
respective terms and such leases will not terminate or lapse prior to the
Effective Time.
(t) Intellectual Property. The Company and each Subsidiary of the
Company owns or possesses valid and binding licenses and other rights to
use without payment of any material amount all material patents,
copyrights, trade secrets, trade names, service marks and trademarks used
in its businesses, all of which have been Previously Disclosed by the
Company, and none of the Company or any of its Subsidiaries has received
any notice of conflict with respect thereto that asserts the right of
others. The Company and each of its Subsidiaries have performed in all
material respects all the obligations required to be performed by them and
are not in default under any contract, agreement, arrangement or commitment
relating to any of the foregoing.
(u) Fiduciary Accounts. The Company and each of its Subsidiaries has
properly administered all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves as a trustee,
agent, custodian, personal representative, guardian, conservator or
investment advisor, in accordance with the terms of the governing documents
and applicable laws and regulations. Neither the Company nor any of its
Subsidiaries, nor any of their respective directors, officers or employees,
has committed any breach of trust with respect to any fiduciary account and
the records for each such fiduciary account are true and correct and
accurately reflect the assets of such fiduciary account.
(v) Books and Records. The books and records of the Company and its
Subsidiaries are being maintained in material compliance with applicable
legal and accounting requirements, and such books and records accurately
reflect in all material respects all dealings and transactions in respect
of the business, assets, liabilities and affairs of the Company and its
Subsidiaries.
(w) Insurance. The Company has Previously Disclosed all of the
material insurance policies, binders, or bonds currently maintained by the
Company or any of its Subsidiaries ("Insurance Policies"). The Company and
its Subsidiaries are insured with reputable insurers against such risks and
in such amounts as the management of the Company reasonably has determined
to be prudent in accordance with industry practices. All the Insurance
Policies are in full force and effect; the Company and its Subsidiaries are
not in material default thereunder; and all claims thereunder have been
filed in due and timely fashion.
(x) Allowance For Loan Losses. The Company's allowance for loan
losses is, and shall be as of the Effective Date, in compliance with the
Company's existing methodology for determining the adequacy of its
allowance for loan losses as well as the standards established by
applicable Governmental Authorities and the Financial Accounting Standards
Board and is and shall be adequate under all such standards.
(y) Transactions With Affiliates. All "covered transactions" between
a Company Bank and an "affiliate" within the meaning of Sections 23A and
23B of the Federal Reserve Act have been in compliance with such
provisions.
I-24
(z) Required Vote; Antitakeover Provisions.
(i) The affirmative vote of the holders of two-thirds of the
outstanding shares of Company Common Stock is necessary to approve this
Agreement and the Transactions on behalf of the Company.
(ii) Based on the representation and warranty of Parent contained
in Section 5.04(m), no "control share acquisition," "business
combination moratorium," "fair price" or other form of antitakeover
statute or regulation is applicable to this Agreement or the Stock
Option Agreement and the transactions contemplated hereby and thereby.
Without limiting the foregoing, the Board of Directors of the Company
has approved the transactions contemplated by this Agreement and the
Stock Option Agreement and taken all other requisite action such that
the provisions of the Company Articles relating to special voting
requirements for certain business combinations will not apply to this
Agreement or the Stock Option Agreement or any of the transactions
contemplated hereby or thereby.
(aa) Fairness Opinion. The Company Board has received the written
opinion of Keefe, Bruyette & Woods, Inc. to the effect that as of the date
hereof the Merger Consideration is fair to the holders of Company Common
Stock from a financial point of view.
(bb) Transactions in Securities. The Company has questioned its
directors and executive officers concerning known stock transfers since
December 31, 1999 and based upon that investigation the Company has not,
and to the Company's knowledge (a) no director or officer of the Company or
the Company's Subsidiaries, (b) no person related to any such director or
officer by blood, marriage or adoption and residing in the same household
and (c) no person who has been knowingly provided material nonpublic
information by any one or more of these persons, has purchased or sold, or
caused to be purchased or sold, any shares of Company Common Stock or other
securities issued by the Company (i) during any period when the Company was
in possession of material nonpublic information or (ii) in violation of any
applicable provision of the Exchange Act.
(cc) Disclosure. The representations and warranties contained in this
Section 5.03, when considered as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements and information contained in this Section
5.03 not misleading.
5.04. Representations and Warranties of Parent. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed, Parent hereby represents and
warrants to the Company as follows:
(a) Organization, Standing and Authority. Parent is duly organized,
validly existing and in good standing under the laws of the State of Maine.
Parent is duly qualified to do business and is in good standing in each
jurisdiction where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified. Parent has in
effect all federal, state, local and foreign governmental authorizations
necessary for it to own or lease its properties and assets and to carry on
its business as it is now conducted.
(b) Parent Stock.
(i) As of the date hereof, the authorized capital stock of Parent
consists solely of 400,000,000 shares of Parent Common Stock, of which
151,220,600 shares were outstanding as of December 31, 2001, and
5,000,000 shares of Parent Preferred Stock, of which no shares were
outstanding as of the date hereof. The outstanding shares of Parent
Common Stock have been duly authorized and validly issued and are fully
paid and non-assessable, and none of the shares of Parent Common Stock
have been issued in violation of the preemptive rights of any Person. As
of the date hereof, there are no Rights authorized, issued or
outstanding with respect to the capital stock of Parent, except for (i)
shares of Parent Common Stock issuable pursuant to the Parent Benefits
Plans, (ii) shares of Parent Common Stock and/or Parent Preferred Stock
issuable upon the exercise of Parent Rights and (iii) by virtue of this
Agreement.
I-25
(ii) The shares of Parent Common Stock to be issued in exchange for
shares of Company Common Stock in the Merger, when issued in accordance
with the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and the issuance thereof is not
subject to any preemptive right.
(c) Subsidiaries.
(i) As of the date hereof, the only subsidiary of the Company which
constitutes a Significant Subsidiary is the Parent Bank. The Parent Bank
has been duly organized and is validly existing in good standing under
the laws of United States and is duly qualified to do business and in
good standing in the jurisdictions where its ownership or leasing of
property or the conduct of its business requires it to be so qualified.
The Parent Bank is duly licensed by the OCC and its deposits are insured
by the FDIC in the manner and to the maximum extent provided by law.
(ii) As of the date hereof, (A) Parent owns, directly or
indirectly, all the issued and outstanding equity securities of the
Parent Bank, (B) no equity securities of the Parent Bank are or may
become required to be issued (other than to Parent) by reason of any
Right or otherwise, (C) there are no contracts, commitments,
understandings or arrangements by which the Parent Bank is or may be
bound to sell or otherwise transfer any of its equity securities (other
than to Parent or any of its wholly-owned Subsidiaries) and (D) there
are no contracts, commitments, understandings, or arrangements relating
to Parent's rights to vote or to dispose of such securities.
(d) Corporate Power. Each of Parent and the Parent Bank has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets. Parent has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby, subject to the
receipt of all necessary approvals of Governmental Authorities.
(e) Corporate Authority. This Agreement and the Stock Option
Agreement and the transactions contemplated hereby and thereby have been
authorized by all necessary corporate action of Parent and the Parent
Board. This Agreement has been duly executed and delivered by Parent and,
assuming due authorization, execution and delivery by the Company, this
Agreement is a valid and legally binding agreement of Parent enforceable in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles).
(f) Regulatory Approvals; No Defaults
(i) No consents or approvals of, or waivers by, or filings or
registrations with, any Governmental Authority or with any third party
are required to be made or obtained by Parent or any of its Subsidiaries
in connection with the execution, delivery or performance by Parent and
the Parent Bank of this Agreement, the Bank Merger Agreement and the
Stock Option Agreement, as applicable, or to consummate the Transactions
and the other transactions contemplated hereby and thereby, except for
(A) filings of applications or notices with and approvals or waivers by
the Federal Reserve Board, the OCC, the Massachusetts Bank Commissioner,
the Depositors Insurance Fund, the Maine Superintendent, the
Massachusetts Board and the MHPF, as required, (B) filings with the SEC
and state securities authorities in connection with the issuance of
Parent Common Stock in the Merger, (C) the approval of the listing on
Nasdaq of the Parent Common Stock to be issued in the Merger, (D) the
filing of Articles of Merger with the Secretary of State of the State of
Maine pursuant to the MBCA and the Secretary of State of the
Commonwealth of Massachusetts pursuant to the MBCL and (E) such
corporate approvals and such consents or approvals of, or waivers by, or
filings or registrations with, certain of the foregoing federal and
state banking agencies in connection with the Bank Merger. As of the
date hereof, Parent is not aware of any reason why the approvals set
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forth above and referred to in Section 7.01(b) will not be received in a
timely manner and without the imposition of a condition, restriction or
requirement of the type described in Section 7.01(b).
(ii) Subject to receipt, or the making, of the consents, approvals
and filings referred to in the preceding paragraph and expiration of the
related waiting periods, the execution, delivery and performance of this
Agreement, the Bank Merger Agreement and the Stock Option Agreement by
Parent and the Parent Bank, as applicable, and the consummation of the
Transactions and the other transactions contemplated hereby and thereby
do not and will not (A) constitute a breach or violation of, or a
default under, or give rise to any Lien, any acceleration of remedies or
any right of termination under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or Agreement,
indenture or instrument of Parent or of any of its Subsidiaries or to
which Parent or any of its Subsidiaries or properties is subject or
bound, (B) constitute a breach or violation of, or a default under, the
articles of incorporation or bylaws (or similar governing documents) of
Parent or any of its Subsidiaries or (C) require any consent or approval
under any such law, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture or instrument.
(g) Financial Reports and SEC Documents; Material Adverse Effect.
(i)(A) Parent's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 and all other reports, registration statements,
definitive proxy statements or information statements filed or to be
filed by it subsequent to December 31, 1998 under the Securities Act, or
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act in the form
filed or to be filed (collectively, Parent's "SEC Documents") with the
SEC, as of the date filed or to be filed, (A) complied or will comply in
all material respects as to form with the applicable requirements under
the Securities Act or the Exchange Act, as the case may be and (B) did
not and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that information as of a
later date shall be deemed to modify information as of an earlier date;
and each of the balance sheets contained in or incorporated by reference
into any such SEC Document (including the related notes and schedules
thereto) fairly presents, or will fairly present, the financial position
of Parent and its Subsidiaries as of its date, and each of the
statements of income and changes in shareholders' equity and cash flows
or equivalent statements in such SEC Documents (including any related
notes and schedules thereto) fairly presents, or will fairly present,
the results of operations, changes in shareholders' equity and changes
in cash flows, as the case may be, of Parent and its Subsidiaries for
the periods to which they relate, in each case in accordance with GAAP
consistently applied during the periods involved, except in each case as
may be noted therein.
(i)(B) The draft audited consolidated financial statements of
Parent at December 31, 2001 and 2000 and for each of the years in the
three-year period ended December 31, 2001, delivered by Parent to the
Company prior to the execution of this Agreement, (A) comply in all
material respects as to form with the applicable securities regulations
of the SEC and (B) do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
information as of a later date shall be deemed to modify information as
of an earlier date; and each of the balance sheets contained in such
financial statements (including the related notes and schedules thereto)
fairly presents the consolidated financial position of Parent and its
Subsidiaries as of its date, and each of the consolidated statements of
income and changes in shareholders' equity and cash flows or equivalent
statements in such financial statements (including any related notes and
schedules thereto) fairly presents the consolidated results of
operations, changes in shareholders' equity and changes in cash flows,
as the case may be, of Parent and its Subsidiaries for the periods to
which
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they relate, in each case in accordance with GAAP consistently applied
during the periods involved.
(ii) Since September 30, 2001, no event has occurred or
circumstance arisen that, individually or taken together with all other
facts, circumstances and events (described in any paragraph of this
Section 5.04 or otherwise), is reasonably likely to have a Material
Adverse Effect with respect to Parent.
(h) Litigation. No litigation, claim or other proceeding before any
court or governmental agency is pending against Parent or its Subsidiaries
and, to Parent's knowledge, no such litigation, claim or other proceeding
has been threatened and there are no facts which could reasonably give rise
to such litigation, claim or other proceeding.
(i) No Brokers. No action has been taken by Parent or its
Subsidiaries that would give rise to any valid claim against any party
hereto for a brokerage commission, finder's fee or other like payment with
respect to the transactions contemplated by this Agreement and the Stock
Option Agreement.
(j) Tax Matters. As of the date hereof, Parent does not have any
reason to believe that any conditions exist that might prevent or impede
the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(k) Regulatory Matters.
(1)(i) Neither Parent nor any of its Subsidiaries nor any of any of
their respective properties is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with,
or a commitment letter or similar submission to, or extraordinary
supervisory letter from, any federal or state governmental agency or
authority charged with the supervision or regulation of financial
institutions or issuers of securities or engaged in the insurance of
deposits or the supervision or regulation of it (collectively, the "Parent
Regulatory Authorities"). Parent and its Subsidiaries have paid all
assessments made or imposed by any Parent Regulatory Authority.
(ii) Neither Parent nor any its Subsidiaries has been advised by,
and does not have any knowledge of facts which could give rise to an
advisory notice by, any Parent Regulatory Authority that such Parent
Regulatory Authority is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter,
supervisory letter or similar submission.
(l) Compliance With Laws. Each of Parent and its Subsidiaries:
(i) is in material compliance with all applicable federal, state,
local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto or to the employees
conducting such businesses, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the
Home Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to permit
them to own or lease their properties and to conduct their businesses as
presently conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to Parent's
knowledge, no suspension or cancellation of any of them is threatened; and
(iii) has received, since December 31, 1999, no notification or
communication from any Governmental Authority (A) asserting that Parent or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces
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or (B) threatening to revoke any license, franchise, permit or
governmental authorization (nor, to Parent's knowledge, do any grounds
for any of the foregoing exist).
(m) Ownership of Company Common Stock. Except for the Stock Option
Agreement, none of Parent or any of its Subsidiaries, or to Parent's
knowledge, any of its other affiliates or associates (as such terms are
defined under the Exchange Act), owns beneficially or of record, directly
or indirectly, or is a party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, shares of
Company Common Stock (other than shares held in a fiduciary capacity that
are beneficially owned by third parties or as a result of debts previously
contracted) which in the aggregate represent 5% or more of the outstanding
Company Common Stock.
(n) Financial Ability. On the Effective Date, Parent or Parent Bank
will have all funds necessary to consummate the Merger and pay the
Aggregate Cash Consideration to holders of Company Common Stock pursuant to
Section 3.01(c) hereof. Each of Parent and Parent Bank is, and immediately
following completion of the Transactions will be, in compliance with all
capital requirements applicable to it.
(o) Disclosure. The representations and warranties contained in this
Section 5.04, when considered as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements and information contained in this Section
5.04 not misleading.
ARTICLE VI
COVENANTS
6.01. Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of the Company and Parent agrees to use its reasonable best
efforts in good faith to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Transactions as promptly as
practicable and otherwise to enable consummation of the Transactions, including
the satisfaction of the conditions set forth in Article VII hereof, and shall
cooperate fully with the other party hereto to that end.
6.02. Shareholder Approval. The Company agrees to take, in accordance with
applicable law and the Company Articles and Company Bylaws, all action necessary
to convene as soon as reasonably practicable a meeting of its shareholders to
consider and vote upon the approval of this Agreement and any other matters
required to be approved by the Company's shareholders for consummation of the
Transactions (including any adjournment or postponement, the "Company Meeting").
Except with the prior approval of Parent, no other matters shall be submitted
for the approval of the Company shareholders at the Company Meeting, other than
the annual election of directors of the Company. The Company Board shall at all
times prior to and during such meeting recommend such approval and shall take
all reasonable lawful action to solicit such approval by its shareholders;
provided that nothing in this Agreement shall prevent the Company Board from
withholding, withdrawing, amending or modifying its recommendation if the
Company Board determines, after consultation with its outside counsel, that such
action is legally required in order for the directors to comply with their
fiduciary duties to the Company shareholders under applicable law; provided,
further, that Section 6.08 shall govern the withholding, withdrawing, amending
or modifying of such recommendation in the circumstances described therein.
6.03. Registration Statement.
(a) Parent agrees to prepare a registration statement on Form S-4 or
other applicable form (the "Registration Statement") to be filed by Parent
with the SEC in connection with the issuance of Parent Common Stock in the
Merger (including the proxy statement and prospectus and other proxy
solicitation materials of the Company constituting a part thereof (the
"Proxy Statement") and all related documents). The Company shall prepare
and furnish such information relating to it and its directors, officers and
shareholders as may be reasonably required in connection with the above
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referenced documents based on its knowledge of and access to the
information required for said documents, and the Company, and its legal,
financial and accounting advisors, shall have the right to review in
advance such Registration Statement prior to its filing. The Company agrees
to cooperate with Parent and Parent's counsel and accountants in requesting
and obtaining appropriate opinions, consents and letters from its financial
advisor and independent auditor in connection with the Registration
Statement and the Proxy Statement. Provided that the Company has cooperated
as described above, Parent agrees to file, or cause to be filed, the
Registration Statement and the Proxy Statement with the SEC as promptly as
reasonably practicable. Each of the Company and Parent agrees to use its
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as reasonably practicable
after the filing thereof. Parent also agrees to use its reasonable best
efforts to obtain all necessary state securities law or "Blue Sky" permits
and approvals required to carry out the transactions contemplated by this
Agreement. After the Registration Statement is declared effective under the
Securities Act, the Company shall promptly mail at its expense the Proxy
Statement to its shareholders.
(b) Each of the Company and Parent agrees that none of the information
supplied or to be supplied by it for inclusion or incorporation by
reference in (i) the Registration Statement shall, at the time the
Registration Statement and each amendment or supplement thereto, if any,
becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii)
the Proxy Statement and any amendment or supplement thereto shall, at the
date(s) of mailing to shareholders and at the time of the Company Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. Each of the Company and Parent further
agrees that if such party shall become aware prior to the Effective Date of
any information furnished by such party that would cause any of the
statements in the Registration Statement or the Proxy Statement to be false
or misleading with respect to any material fact, or to omit to state any
material fact necessary to make the statements therein not false or
misleading, to promptly inform the other parties thereof and to take the
necessary steps to correct the Registration Statement or the Proxy
Statement.
(c) Parent agrees to advise the Company, promptly after Parent
receives notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of Parent
Common Stock for offering or sale in any jurisdiction, of the initiation
or, to the extent Parent is aware thereof, threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement
of the Registration Statement or for additional information.
6.04. Regulatory Filings.
(a) Each of Parent and the Company and their respective Subsidiaries
shall cooperate and use their respective reasonable best efforts to prepare
all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the Transactions and any
other transactions contemplated by this Agreement (including the
consolidation of any Company branches with Parent Bank branches or the
closure of any Company branches, in each case as Parent in its sole
discretion shall deem necessary; provided, however, that in no event shall
such branch closures or consolidations be deemed a condition to Parent's
obligation hereunder to consummate the Merger), the Bank Merger Agreement
and the Stock Option Agreement; and any initial filings with Governmental
Authorities (other than the Proxy Statement) shall be made by Parent as
soon as reasonably practicable after the execution hereof. Each of Parent
and the Company shall have the right to review in advance, and to the
extent practicable each shall consult with the other, in each case subject
to applicable laws relating to the exchange of information, with respect to
all written information submitted to any third party or any Governmental
Authority in connection with the transactions contemplated by this
Agreement and the Stock Option Agreement. In exercising the foregoing
right, each of such parties agrees to act
I-30
reasonably and as promptly as practicable. Each party hereto agrees that it
shall consult with the other parties hereto with respect to the obtaining
of all permits, consents, approvals and authorizations of all third parties
and Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement, the Bank Merger Agreement and
the Stock Option Agreement and each party shall keep the other parties
apprised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other parties with
all information concerning itself, its Subsidiaries, directors, officers
and shareholders and such other matters as may be reasonably necessary or
advisable in connection with any filing, notice or application made by or
on behalf of such other parties or any of their respective Subsidiaries to
any third party or Governmental Authority.
6.05. Press Releases. The Company and Parent shall consult with each other
before issuing any press release with respect to the Transactions or this
Agreement and shall not issue any such press release or make any such public
statements without the prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party (but after such consultation, to the extent
practicable in the circumstances), issue such press release or make such public
statements as may upon the advice of outside counsel be required by law or the
rules or regulations of Nasdaq. The Company and Parent shall cooperate to
develop all public announcement materials and make appropriate management
available at presentations related to the Transactions as reasonably requested
by the other party.
6.06. Access; Information.
(a) The Company agrees that upon reasonable notice and subject to
applicable laws relating to the exchange of information, it shall afford
Parent and Parent's officers, employees, counsel, accountants and other
authorized representatives such access during normal business hours
throughout the period prior to the Effective Time to the books, records
(including, without limitation, Tax Returns and work papers of independent
auditors), properties and personnel and to such other information as Parent
may reasonably request and, during such period, it shall furnish promptly
to Parent all information concerning its business, properties and personnel
as Parent may reasonably request.
(b) Parent agrees that upon reasonable notice and subject to
applicable laws relating to the exchange of information, it shall afford
the Company and its authorized representatives such access to Parent's
personnel as the Company may reasonably request.
(c) Each party agrees that it will not, and will cause its
representatives not to, use any information obtained pursuant to this
Section 6.06 (as well as any other information obtained prior to the date
hereof in connection with the entering into of this Agreement) for any
purpose unrelated to the consummation of the transactions contemplated by
this Agreement. Subject to the requirements of law, each party shall keep
confidential, and shall cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 6.06 (as well
as any other information obtained prior to the date hereof in connection
with the entering into of this Agreement) unless such information (i) was
already known to such party, (ii) becomes available to such party from
other sources not known by such party to be bound by a confidentiality
obligation, (iii) is disclosed with the prior written approval of the party
to which such information pertains or (iv) is or becomes readily
ascertainable from publicly available sources. In the event that this
Agreement is terminated or the transactions contemplated by this Agreement
shall otherwise fail to be consummated, each party shall promptly cause all
copies of documents or extracts thereof containing information and data as
to another party hereto to be returned to the party which furnished the
same. No investigation by any party of the business and affairs of any
other party shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to any party's obligation to consummate the transactions
contemplated by this Agreement.
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6.07. Affiliates. The Company shall use its reasonable best efforts to
identify those persons who may be deemed to be "affiliates" of the Company
within the meaning of Rule 145 promulgated by the SEC under the Securities Act
(the "Company Affiliates") and to cause each person so identified to deliver to
Parent as soon as practicable, and in any event prior to the date of the Company
Meeting, a written agreement to comply with the requirements of Rule 145 under
the Securities Act in connection with the sale or other transfer of Parent
Common Stock received in the Merger, which agreement shall be in a form
reasonably satisfactory to the Company.
6.08. Acquisition Proposals. The Company agrees that neither it nor any of
its Subsidiaries nor any of their respective officers or directors shall, and
that it shall direct and use its reasonable best efforts to cause its and each
such Subsidiary's employees, agents and representatives not to, directly or
indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation or similar transaction involving, or any purchase
of all or substantially all of the assets of the Company or more than 10% of the
outstanding equity securities of the Company or any of its Subsidiaries (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal"). The Company further agrees that neither the Company nor any of its
Subsidiaries nor any of their respective officers and directors shall, and that
it shall direct and use its reasonable best efforts to cause its and each such
Subsidiary's employees, agents and representatives not to, directly or
indirectly, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any Person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; provided, however, that nothing contained in
this Agreement shall prevent the Company or the Company Board from (A) complying
with its disclosure obligations under federal or state law; (B) providing
information in response to a request therefor by a Person who has made an
unsolicited bona fide written Acquisition Proposal if the Company Board receives
from the Person so requesting such information an executed confidentiality
agreement; (C) engaging in any negotiations or discussions with any Person who
has made an unsolicited bona fide written Acquisition Proposal or (D)
recommending such an Acquisition Proposal to the shareholders of the Company, if
and only to the extent that, (i) in each such case referred to in clause (B),
(C) or (D) above, the Company Board determines in good faith (after consultation
with outside legal counsel) that such action would be required in order for its
directors to comply with their respective fiduciary duties under applicable law
and (ii) in the case referred to in clause (D) above, the Company Board
determines in good faith (after consultation with its financial advisor) that
such Acquisition Proposal, if accepted, is reasonably likely to be consummated,
taking into account all legal, financial and regulatory aspects of the proposal
and the Person making the proposal and would, if consummated, result in a
transaction more favorable to the Company's shareholders from a financial point
of view than the Merger. The Company agrees that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any Acquisition Proposals. The
Company agrees that it will notify Parent immediately if any such inquiries,
proposals or offers are received by, any such information is requested from, or
any such discussions or negotiations are sought to be initiated or continued
with, any of its representatives.
6.09. Certain Policies. Prior to the Effective Date, each of the Company
and its Subsidiaries shall, consistent with GAAP, the rules and regulations of
the SEC and applicable banking laws and regulations, modify or change its loan,
OREO, accrual, reserve, tax, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves) so as to be
applied on a basis that is consistent with that of Parent; provided, however,
that no such modifications or changes need be made prior to the satisfaction of
the conditions set forth in Section 7.01(b); and further provided that in any
event, no accrual or reserve made by the Company or any of its Subsidiaries
pursuant to this Section 6.09 shall constitute or be deemed to be a breach,
violation of or failure to satisfy any representation, warranty, covenant,
agreement, condition or other provision of this Agreement or otherwise be
considered in determining whether any such breach, violation or failure to
satisfy shall have occurred. The recording of any such adjustments shall not be
deemed to imply any misstatement of previously furnished financial statements or
information and shall not be construed as concurrence of the Company or its
management with any such adjustments.
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6.10. Nasdaq Listing. Parent agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the Nasdaq the shares of Parent Common
Stock to be issued in connection with the Merger.
6.11. Indemnification.
(a) From and after the Effective Time, Parent (the "Indemnifying
Party") shall indemnify and hold harmless each present and former director,
officer and employee of the Company or a Company Subsidiary, as applicable,
determined as of the Effective Time (the "Indemnified Parties") against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed
prior to, at or after the Effective Time, arising in whole or in part out
of or pertaining to the fact that he or she was a director, officer,
employee, fiduciary or agent of the Company or any Company Subsidiary or is
or was serving at the request of the Company or any of the Company
Subsidiaries as a director, officer, employee, fiduciary or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including without limitation matters related to the negotiation, execution
and performance of this Agreement, the Stock Option Agreement or any of the
transactions contemplated hereby and thereby, to the fullest extent which
such Indemnified Parties would be entitled under the Company Articles and
Company Bylaws or equivalent documents of any Company Subsidiary, as
applicable, or any agreement, arrangement or understanding which has been
Previously Disclosed by the Company pursuant to this Section, in each case
as in effect on the date hereof. Without limiting the foregoing, Parent
also agrees that limitations on liability existing in favor of the
Indemnified Parties as provided in the Company Articles and Company Bylaws
or similar governing documents of the Company Subsidiaries as in effect on
the date hereof with respect to matters occurring prior to the Effective
Time shall survive the Merger and the Bank Merger and shall continue in
full force and effect from and after the Effective Time.
(b) Any Indemnified Party wishing to claim indemnification under this
Section 6.11, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Indemnifying Party, but the
failure to so notify shall not relieve the Indemnifying Party of any
liability it may have to such Indemnified Party if such failure does not
actually prejudice the Indemnifying Party. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after
the Effective Time), (i) the Indemnifying Party shall have the right to
assume the defense thereof and the Indemnifying Party shall not be liable
to such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if the Indemnifying Party
elects not to assume such defense or counsel for the Indemnified Parties
advises that there are issues which raise conflicts of interest between the
Indemnifying Party and the Indemnified Parties, the Indemnified Parties may
retain counsel which is reasonably satisfactory to the Indemnifying Party,
and the Indemnifying Party shall pay, promptly as statements therefor are
received, the reasonable fees and expenses of such counsel for the
Indemnified Parties (which may not exceed one firm in any jurisdiction),
(ii) the Indemnified Parties will cooperate in the defense of any such
matter, (iii) the Indemnifying Party shall not be liable for any settlement
effected without its prior written consent and (iv) the Indemnifying Party
shall have no obligation hereunder in the event that a federal or state
banking agency or a court of competent jurisdiction shall determine that
indemnification of an Indemnified Party in the manner contemplated hereby
is prohibited by applicable laws and regulations.
(c) Prior the Effective Time, Parent shall use its reasonable best
efforts to purchase an extended reporting period endorsement under the
Company's existing directors' and officers' liability insurance coverage
for the Company's directors and officers in a form reasonably acceptable to
the Company which shall provide such directors and officers with coverage
for six years following the Effective Time of not less than the existing
coverage under, and have other terms no materially less favorable on the
whole to, the insured persons than the directors' and officers' liability
insurance coverage presently maintained by the Company, provided that in no
event shall Parent be required to expend in
I-33
any one year an amount in excess of 150% of the annual premiums currently
paid by the Company for such insurance (the "Insurance Amount"), and
further provided that if Parent is unable to maintain or obtain the
insurance called for by this Section 6.11(c) as a result of the preceding
provision, Parent shall use its reasonable best efforts to obtain as much
comparable insurance as is available for the Insurance Amount with respect
to acts or omissions occurring prior to the Effective Time by such
directors and officers in their capacities as such.
(d) If Parent or any of its successors or assigns shall consolidate
with or merge into any other entity and shall not be the continuing or
surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any other entity, then and in each case,
proper provision shall be made so that the successors and assigns of Parent
shall assume the obligations set forth in this Section 6.11.
6.12. Benefit Plans.
(a) As soon as administratively practicable after the Effective Time,
Parent shall take all reasonable action so that employees of the Company
and its Subsidiaries shall be entitled to participate in each employee
benefit plan, program or arrangement of Parent of general applicability
(the "Parent Benefits Plans") to the same extent as similarly-situated
employees of Parent and its Subsidiaries (it being understood that
inclusion of the employees of the Company and its Subsidiaries in the
Parent Benefits Plans may occur at different times with respect to
different plans.) Parent shall cause each Parent Benefits Plan in which
employees of the Company and its Subsidiaries are eligible to participate
to recognize, for purposes of determining eligibility to participate in,
the vesting of benefits and for all other purposes (but not for accrual of
pension benefits) under the Parent Benefit Plans, the service of such
employees with the Company and its Subsidiaries to the same extent as such
service was credited for such purpose by the Company. Nothing herein shall
limit the ability of Parent to amend or terminate any of the Company's
Benefits Plans in accordance with their terms at any time.
(b) Except as otherwise expressly provided in this Agreement and in
the Termination Agreement to be executed pursuant to Section 6.14 hereof,
Parent shall honor, and the Surviving Corporation shall continue to be
obligated to perform, in accordance with their terms, all benefit
obligations to, and contractual rights of, current and former employees of
the Company existing as of the Effective Date, as well as all employment,
severance, deferred compensation or "change-in-control" agreements, plans
or policies of the Company which are Previously Disclosed. Parent
acknowledges that the consummation of the Merger will constitute a
"change-in-control" of the Company for purposes of any employee benefit
plans, agreements and arrangements of the Company.
(c) If employees of the Company or any of its Subsidiaries become
eligible to participate in a medical, dental or health plan of Parent,
Parent shall cause each such plan to (i) waive any preexisting condition
limitations to the extent such conditions covered under the applicable
medical, health or dental plans of Parent, (ii) provide full credit for
under such plans any deductibles, co-payment and out-of-pocket expenses
incurred by the employees and their beneficiaries during the portion of the
calendar year prior to such participation and (iii) waive any waiting
period limitation or evidence of insurability requirement which would
otherwise be applicable to such employee on or after the Effective Time to
the extent such employee had satisfied any similar limitation or
requirement under an analogous Plan prior to the Effective Time.
(d) For a period of six months following the Effective Time, Parent
shall provide all employees of the Company and its Subsidiaries whose
employment was terminated other than for cause, disability or retirement at
or following the Effective Time, and who so desires, job counseling and
outplacement assistance services in accordance with Parent's employment
policies and practices, shall assist such employees in locating new
employment and shall notify all such employees who want to be so notified
of opportunities for positions with Parent or any of its Subsidiaries for
which Parent reasonably believes such persons are qualified and shall
consider any application for such positions
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submitted by such persons, provided, however, that any decision to offer
employment to any such person shall be made in the sole discretion of
Parent.
(e) All employees of the Company or a Company Subsidiary as of the
Effective Time shall become employees of Parent or a Parent Subsidiary as
of the Effective Time, and Parent or a Parent Subsidiary will use its
reasonable best efforts to give such persons (other than any such person
who is party to an employment agreement, a severance agreement or a special
termination agreement) at least four weeks prior written notice of any job
elimination after the Effective Time for a period of 90 days following the
Effective Time. Subject to such four-week notice requirement, Parent or a
Parent Subsidiary shall have no obligation to continue the employment of
any such person and nothing contained herein shall give any employee of the
Company or a Company Subsidiary the right to continue employment with
Parent or a Parent Subsidiary after the Effective Time. An employee of the
Company or a Company Subsidiary (other than an employee who is party to an
employment agreement, a severance agreement or a special termination
agreement) whose employment is involuntarily terminated other than for
cause following the Effective Time shall be entitled to receive severance
payments in accordance with, and to the extent provided in, the Company
Bank's Merger Severance Benefit Program, as amended, a copy of which Parent
acknowledges has been provided to it by the Company.
6.13. Bank Merger. Parent and the Company agree to take all action
necessary and appropriate, including causing the entering into of an appropriate
merger agreement (the "Bank Merger Agreement"), to cause the Company Bank to
merge with and into the Parent Bank (the "Bank Merger") in accordance with
applicable laws and regulations and the terms of the Bank Merger Agreement and
as soon as practicable after consummation of the Merger.
6.14. Termination Agreement; Employment and Noncompetition Agreement.
Concurrently with the execution of this Agreement by the Company and Parent, (i)
Parent, the Company, the Company Bank, Eastern Bank, as Trustee, and David L.
Grey shall enter into a Termination Agreement in the form of Annex C hereto, and
(ii) Banknorth and David L. Grey shall enter into an Employment and
Noncompetition Agreement in the form of Annex D hereto.
6.15. Notification of Certain Matters. Each of the Company and Parent
shall give prompt notice to the other of any fact, event or circumstance known
to it that (i) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (ii) would cause or constitute a material
breach of any of its representations, warranties, covenants or agreements
contained herein.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of the parties hereto to consummate the Merger is
subject to the fulfillment or written waiver by the parties hereto prior to the
Closing Date of each of the following conditions:
(a) Shareholder Approval. This Agreement shall have been duly
approved by holders of not less than a majority of the outstanding shares
of the Company Common Stock.
(b) Regulatory Approvals. All regulatory approvals required to
consummate the Transactions shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof
shall have expired and no such approvals shall contain any conditions,
restrictions or requirements which the Parent Board reasonably determines
in good faith would, individually or in the aggregate, materially reduce
the benefits of the Transactions to such a degree that Parent would not
have entered into this Agreement had such conditions, restrictions or
requirements been known at the date hereof.
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(c) No Injunction. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and
prohibits consummation of the Transactions.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated by the SEC and not
withdrawn.
(e) Listing. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing on the Nasdaq.
(f) Tax Opinion. Each of Parent and the Company shall have received
the written opinion of Elias, Matz, Tiernan & Herrick L.L.P., in form and
substance reasonably satisfactory to both the Company and Parent, dated as
of the Effective Date, substantially to the effect that, on the basis of
the facts, representations and assumptions set forth in such opinion which
are consistent with the state of facts existing at the Effective Time, the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and Parent and the
Company will each be a party to the reorganization within the meaning of
Section 368(b) of the Code, and that accordingly:
(i) no gain or loss will be recognized by Parent or the Company as
a result of the Merger;
(ii) no gain or loss will be recognized by the shareholders of the
Company who exchange their Company Common Stock solely for Parent Common
Stock pursuant to the Merger (except with respect to cash received in
lieu of a fractional share interest in Parent Common Stock);
(iii) the tax basis of the Parent Common Stock received by the
shareholders of the Company who exchange all of their Company Common
Stock solely for Parent Common Stock in the Merger will be the same as
the tax basis of the Company Common Stock surrendered in exchange
therefor; and
(iv) the holding period of the Parent Common Stock received by a
shareholder of the Company pursuant to the Merger will include the
period during which the Company Common Stock surrendered therefor was
held, provided the Company Common Stock is a capital asset in the hands
of the shareholder of the Company at the time of the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Parent, the Company and others.
7.02. Conditions to Obligation of the Company. The obligation of the
Company to consummate the Merger is also subject to the fulfillment or written
waiver by the Company prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Parent set forth in this Agreement, subject in all cases to
the standard set forth in Section 5.02, shall be true and correct as of the
date of this Agreement and as of the Effective Date as though made on and
as of the Effective Date (except that representations and warranties that
by their terms speak as of the date of this Agreement or some other date
shall be true and correct as of such date), and the Company shall have
received a certificate, dated the Effective Date, signed on behalf of
Parent by the Chief Executive Officer and the Chief Financial Officer of
Parent to such effect.
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by them
under this Agreement at or prior to the Effective Time, and the Company
shall have received a certificate, dated the Effective Date, signed on
behalf of Parent by the Chief Executive Officer and the Chief Financial
Officer of Parent to such effect.
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(c) Other Actions. Parent shall have furnished the Company with such
certificates of its respective officers or others and such other documents
to evidence fulfillment of the conditions set forth in Sections 7.01 and
7.02 as the Company may reasonably request.
7.03. Conditions to Obligations of Parent. The obligations of Parent to
consummate the Merger are also subject to the fulfillment or written waiver by
Parent prior to the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement, subject in all cases
to the standard set forth in Section 5.02, shall be true and correct as of
the date of this Agreement and as of the Effective Date as though made on
and as of the Effective Date (except that representations and warranties
that by their terms speak as of the date of this Agreement or some other
date shall be true and correct as of such date), and Parent shall have
received a certificate, dated the Effective Date, signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer of
the Company to such effect.
(b) Performance of Obligations of Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and Parent
shall have received a certificate, dated the Effective Date, signed on
behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to such effect.
(c) Dissenting Shares. Dissenting Shares shall not represent 10% or
more of the outstanding Company Common Stock.
(d) Other Agreements. The agreements referred to in Section 6.14
shall have been duly executed and delivered by the respective parties
thereto and shall be in full force and effect, and each party thereto other
than Banknorth shall have performed in all material respects all
obligations required to be performed by it thereunder at or prior to the
Effective Time.
(e) Other Actions. The Company shall have furnished Parent with such
certificates of its officers or others and such other documents to evidence
fulfillment of the conditions set forth in Sections 7.01 and 7.03 as Parent
may reasonably request.
ARTICLE VIII
TERMINATION
8.01. Termination. This Agreement may be terminated, and the Transactions
may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Parent and the Company if the Board of Directors of each
so determines by vote of a majority of the members of its entire Board.
(b) Breach. At any time prior to the Effective Time, by Parent or the
Company if its Board of Directors so determines by vote of a majority of
the members of its entire Board, in the event of: (i) a breach by Parent or
the Company, as the case may be, of any representation or warranty
contained herein (subject to the standard set forth in Section 5.02), which
breach cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party or parties of such breach; or (ii) a
breach by Parent or the Company, as the case may be, of any of the
covenants or agreements contained herein, which breach cannot be or has not
been cured within 30 days after the giving of written notice to the
breaching party or parties of such breach, which breach (whether under (i)
or (ii)) would be reasonably expected, individually or in the aggregate
with other breaches, to result in a Material Adverse Effect with respect to
Parent or the Company, as the case may be.
(c) Delay. At any time prior to the Effective Time, by Parent or the
Company if its Board of Directors so determines by vote of a majority of
the members of its entire Board, in the event that the Transactions are not
consummated by December 31, 2002, except to the extent that the failure of
the
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Merger then to be consummated arises out of or results from the knowing
action or inaction of (i) the party seeking to terminate pursuant to this
Section 8.01(c) or (ii) any of the Shareholders (if the Company is the
party seeking to terminate), which action or inaction is in violation of
its obligations under this Agreement or, in the case of the Shareholders,
his, her or its obligations under the relevant Shareholder Agreement.
(d) No Regulatory Approval. By the Company or Parent, if its Board of
Directors so determines by a vote of a majority of the members of its
entire Board, in the event (i) the approval of any Governmental Authority
required for consummation of the Merger and the other transactions
contemplated by this Agreement shall have been denied by final
nonappealable action of such Governmental Authority or an application
therefor shall have been permanently withdrawn at the request of a
Governmental Authority or (ii) the shareholder approval referred to in
Section 7.01(a) herein is not obtained at the Company Meeting.
(e) No Shareholder Approval. By either Parent or the Company if any
approval of the shareholders of the Company contemplated by this Agreement
shall not have been obtained by reason of the failure to obtain the
required vote at the Company Meeting.
(f) Failure to Recommend. At any time prior to the Company Meeting,
by Parent if (i) the Company shall have breached Section 6.08, (ii) the
Company Board shall have failed to make its recommendation referred to in
Section 6.02, withdrawn such recommendation or modified or changed such
recommendation in a manner adverse in any respect to the interests of
Parent or (iii) the Company shall have materially breached its obligations
under Section 6.02 by failing to call, give notice of, convene and hold the
Company Meeting in accordance with Section 6.02.
(g) Certain Tender or Exchange Offers. By Parent if a tender offer or
exchange offer for 10% or more of the outstanding shares of Company Common
Stock is commenced (other than by Parent or a Subsidiary thereof), and the
Company Board recommends that the shareholders of the Company tender their
shares in such tender or exchange offer or otherwise fails to recommend
that such shareholders reject such tender offer or exchange offer within
the 10 business day period specified in Rule 14e-2(a) under the Exchange
Act.
8.02. Effect of Termination and Abandonment. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article
VIII, no party to this Agreement shall have any liability or further obligation
to any other party hereunder except (i) as set forth in Section 9.01 and (ii)
that termination will not relieve a breaching party from liability for any
willful breach of any covenant, agreement, representation or warranty of this
Agreement giving rise to such termination.
ARTICLE IX
MISCELLANEOUS
9.01. Survival. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
agreements or covenants contained herein that by their express terms are to be
performed after the Effective Time, and the Stock Option Agreement, the
Termination Agreement and the Employment and Noncompetition Agreement, which
shall terminate in accordance with the terms thereof) or the termination of this
Agreement if this Agreement is terminated prior to the Effective Time (other
than Sections 6.06(c), 8.02 and, excepting Section 9.12 hereof, this Article IX,
which shall survive any such termination, and the Stock Option Agreement).
Notwithstanding anything in the foregoing to the contrary, no representations,
warranties, agreements and covenants contained in this Agreement shall be deemed
to be terminated or extinguished so as to deprive a party hereto or any of its
affiliates of any defense at law or in equity which otherwise would be available
against the claims of any Person, including without limitation any shareholder
or former shareholder.
9.02. Waiver; Amendment. Prior to the Effective Time, any provision of
this Agreement may be (i) waived by the party benefited by the provision or (ii)
amended or modified at any time, by an
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agreement in writing among the parties hereto executed in the same manner as
this Agreement, except that after the Company Meeting no amendment shall be made
which by law requires further approval by the shareholders of the Company
without obtaining such approval.
9.03. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04. Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of Maine applicable to contracts made
and to be performed entirely within such State.
9.05. Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby,
including fees and expenses of its own financial consultants, accountants and
counsel and, in the case of Parent, the registration fee to be paid to the SEC
in connection with the Registration Statement, except that expenses of printing
the Proxy Statement shall be shared equally between the Company and Parent, and
provided further that nothing contained herein shall limit either party's rights
to recover any liabilities or damages arising out of the other party's willful
breach of any provision of this Agreement.
9.06. Notices. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto.
If to the Company to:
Ipswich Bancshares, Inc.
23 Market Street
Ipswich, Massachusetts 01938
Attention: David L. Grey
President and Chief Executive Officer
Fax: (978) 356-9732
With a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109-2170
Attention: Peter Coogan, Esq. and
Carol Hempfling Pratt, Esq.
Fax: (617) 832-7000
If to Parent to:
Banknorth Group, Inc.
P.O. Box 9540
Two Portland Square
Portland, Maine 04112-9540
Attention: William J. Ryan
Chairman, President
and Chief Executive Officer
Fax: (207) 761-8587
With a copy to:
Elias, Matz, Tiernan & Herrick L.L.P.
12th Floor, The Walker Building
734 15th Street, N.W.
Washington, D.C. 20005
Attention: Gerard L. Hawkins, Esq.
Fax: (202) 347-2172
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9.07. Entire Understanding; No Third Party Beneficiaries. This Agreement,
the Shareholder Agreements, the Stock Option Agreement, the Termination
Agreement and the Employment and Noncompetition Agreement represent the entire
understanding of the parties hereto and thereto with reference to the
transactions contemplated hereby and thereby and this Agreement, the Shareholder
Agreements, the Stock Option Agreement, the Termination Agreement and the
Employment and Noncompetition Agreement supersede any and all other oral or
written agreements heretofore made. Except for the Indemnified Parties' right to
enforce Parent's obligation under Section 6.11, which are expressly intended to
be for the irrevocable benefit of, and shall be enforceable by, each Indemnified
Party and his or her heirs and representatives, nothing in this Agreement,
expressed or implied, is intended to confer upon any Person, other than the
parties hereto or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
9.08. Severability. Except to the extent that application of this Section
9.08 would have a Material Adverse Effect on the Company or Parent, any term or
provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable. In all such cases, the parties shall use their reasonable best
efforts to substitute a valid, legal and enforceable provision which, insofar as
practicable, implements the original purposes and intents of this Agreement.
9.09. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
9.10. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
9.11. Assignment. No party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other party. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
9.12. Alternative Structure. Notwithstanding any provision of this
Agreement to the contrary, Parent may at any time modify the structure of the
acquisition of the Company set forth herein, subject to the prior written
consent of the Company, which consent shall not be unreasonably withheld or
delayed, provided that (i) the Merger Consideration to be paid to the holders of
Company Common Stock is not thereby changed in kind or reduced in amount as a
result of such modification, (ii) such modification will not adversely affect
the tax treatment of the Company's shareholders as a result of receiving the
Merger Consideration and (iii) such modification will not materially delay or
jeopardize receipt of any required approvals of Governmental Authorities.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
BANKNORTH GROUP, INC.
By: /s/ WILLIAM J. RYAN
----------------------------------
Name: William J. Ryan
Title: Chairman, President and
Chief Executive Officer
IPSWICH BANCSHARES, INC.
By: /s/ DAVID L. GREY
----------------------------------
Name: David L. Grey
Title: President and Chief
Executive Officer
By: /s/ FRANCIS KENNEY
----------------------------------
Name: Francis Kenney
Title: Treasurer and
Chief Financial Officer
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ANNEX A
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT (the "Agreement"), dated as of February 26, 2002, by
and between , a shareholder ("Shareholder") of Ipswich
Bancshares, Inc., a Massachusetts corporation (the "Company"), and Banknorth
Group, Inc., a Maine corporation ("Parent"). All terms used herein and not
defined herein shall have the meanings assigned thereto in the Merger Agreement
(defined below).
WHEREAS, Parent and the Company have entered into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which
the Company will merge with and into Parent on the terms and conditions set
forth therein and, in connection therewith, outstanding shares of Company Common
Stock will be converted into shares of Parent Common Stock and/or cash in the
manner set forth therein; and
WHEREAS, Shareholder owns the shares of Company Common Stock identified on
Annex I hereto (such shares, together with all shares of Company Common Stock
subsequently acquired by Shareholder during the term of this Agreement, being
referred to as the "Shares"); and
WHEREAS, in order to induce Parent to enter into the Merger Agreement,
Shareholder, solely in such Shareholder's capacity as a shareholder of the
Company and not in any other capacity, has agreed to enter into and perform this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. Agreement to Vote Shares. Shareholder agrees that at any meeting
of the shareholders of the Company, or in connection with any written
consent of the shareholders of the Company, Shareholder shall:
(i) appear at each such meeting or otherwise cause the Shares to be
counted as present thereat for purposes of calculating a quorum; and
(ii) vote (or cause to be voted), in person or by proxy, or deliver
a written consent (or cause a consent to be delivered) covering, all the
Shares (whether acquired heretofore or hereafter) that are beneficially
owned by Shareholder or as to which Shareholder has, directly or
indirectly, the right to vote or direct the voting, (x) in favor of
adoption and approval of the Merger Agreement and the Merger and any
other action requested by Parent in furtherance thereof; (y) against any
action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the
Company contained in the Merger Agreement or of Shareholder contained in
this Agreement; and (z) against any Acquisition Proposal or any other
action, agreement or transaction that is intended, or could reasonably
be expected, to materially impede, interfere or be inconsistent with,
delay, postpone, discourage or materially and adversely affect
consummation of the Merger or this Agreement.
2. No Transfers Prior to the Company Meeting (as defined in the
Merger Agreement), Shareholder agrees not to, directly or indirectly, sell
transfer, pledge, assign or otherwise dispose of, or enter into any
contract option, commitment or other arrangement or understanding with
respect to the sale, transfer, pledge, assignment or other disposition of,
any of the Shares. In the case of any transfer by operation of law, this
Agreement shall be binding upon and inure to the transferee(s). Any
transfer or other disposition in violation of the terms of this Section 2
shall be null and void.
3. Representations and Warranties of Shareholder. Shareholder
represents and warrants to and agrees with Parent as follows:
A. Capacity. Shareholder has all requisite capacity and authority
to enter into and perform his, her or its obligations under this
Agreement.
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B. Binding Agreement. This Agreement constitutes the valid and
legally binding obligation of Shareholder, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
C. Non-Contravention. The execution and delivery of this Agreement
by Shareholder does not, and the performance by Shareholder of his, her
or its obligations hereunder and the consummation by Shareholder of the
transactions contemplated hereby will not, violate or conflict with, or
constitute a default under, any agreement, instrument, contract or other
obligation or any order, arbitration award, judgment or decree to which
Shareholder is a party or by which Shareholder is bound, or any statute,
rule or regulation to which Shareholder is subject or, in the event that
Shareholder is a corporation, partnership, trust or other entity, any
charter, bylaw or other organizational document of Shareholder.
D. Ownership of Shares. Shareholder has good title to all of the
Shares as of the date hereof, and, except as set forth on Annex I
hereto, the Shares are so owned free and clear of any liens, security
interests, charges or other encumbrances.
4. Specific Performance and Remedies. Shareholder acknowledges that
it will be impossible to measure in money the damage to Parent if
Shareholder fails to comply with the obligations imposed by this Agreement
and that, in the event of any such failure, Parent will not have an
adequate remedy at law or in equity. Accordingly, Shareholder agrees that
injunctive relief or other equitable remedy, in addition to remedies at law
or in damages, is the appropriate remedy for any such failure and will not
oppose the granting of such relief on the basis that Parent has an adequate
remedy at law. Shareholder agrees that Shareholder will not seek, and
agrees to waive any requirement for, the securing or posting of a bond in
connection with Parent's seeking or obtaining such equitable relief. In
addition, after discussing the matter with Shareholder, Parent shall have
the right to inform any third party that Parent reasonably believes to be,
or to be contemplating, participating with Shareholder or receiving from
Shareholder assistance in violation of this Agreement, of the terms of this
Agreement and of the rights of Parent hereunder, and that participation by
any such persons with Shareholder in activities in violation of
Shareholder's agreement with Parent set forth in this Agreement may give
rise to claims by Parent against such third party.
5. Term of Agreement; Termination.
A. The term of this Agreement shall commence on the date hereof.
B. This Agreement shall terminate upon the date, if any, of
termination of the Merger Agreement in accordance with its terms. Upon
such termination, no party shall have any further obligations or
liabilities hereunder; provided, however, such termination shall not
relieve any party from liability for any breach of this Agreement prior
to such termination.
C. If the Merger Agreement is not terminated in accordance with its
terms, this Agreement (except for the provisions of Sections 3, 8 and 9,
which shall survive the Effective Time) shall terminate upon the
Effective Time. Upon such termination, no party shall have any further
obligations or liabilities under this Agreement; provided, however, such
termination shall not relieve any party from liability for any breach of
such Section prior to such termination.
6. Entire Agreement. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject
matter hereof and contains the entire agreement among the parties with
respect to the subject matter hereof. This Agreement may not be amended,
supplemented or modified, and no provisions hereof may be modified or
waived, except by an instrument in writing signed by each party hereto. No
waiver of any provisions hereof by either party shall be deemed a waiver of
any other provisions hereof by any such party, nor shall any such waiver be
deemed a continuing waiver of any provision hereof by such party.
I-43
7. Notices. All notices, requests, claims, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally, upon receipt of a transmission confirmation if sent
by telecopy or like transmission and on the next business day when sent by
a reputable overnight courier service to the parties at the following
addresses (or at such other address for a party as shall be specified by
like notice):
If to Parent:
Banknorth Group, Inc.
P.O. Box 9540
Two Portland Square
Portland, Maine 04112-9540
Attention: William J. Ryan
Chairman, President and Chief Executive Officer
Fax: (207) 761-8587
With a copy to:
Elias, Matz, Tiernan & Herrick, L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
Attn: Gerard L. Hawkins, Esq.
Fax: (202) 347-2172
If to Shareholder:
---------------------
---------------------
---------------------
With a copy to:
Foley Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109-2170
Attention: Peter Coogan, Esq.
Fax: (617) 832-7000
8. Miscellaneous.
A. Severability. If any provision of this Agreement or the
application of such provision to any person or circumstances shall be
held invalid or unenforceable by a court of competent jurisdiction, such
provision or application shall be unenforceable only to the extent of
such invalidity or unenforceability, and the remainder of the provision
held invalid or unenforceable and the application of such provision to
persons or circumstances, other than the party as to which it is held
invalid, and the remainder of this Agreement, shall not be affected.
B. Capacity. The covenants contained herein shall apply to
Shareholder solely in his or her capacity as a shareholder of the
Company, and no covenant contained herein shall apply to Shareholder in
his or her capacity as a director, officer or employee of the Company or
in any other capacity. Nothing contained in this Agreement shall be
deemed to apply to, or limit in any manner, the obligations of the
Shareholder to comply with his or her fiduciary duties as a director of
the Company.
C. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
D. Headings. All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction
or reference shall be derived therefrom.
I-44
E. CHOICE OF LAW. THIS AGREEMENT SHALL BE DEEMED A CONTRACT MADE
UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF MAINE, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PRINCIPLES.
9. Attorney's Fees. The prevailing party or parties in any
litigation, arbitration, mediation, bankruptcy, insolvency or other
proceeding ("Proceeding") relating to the enforcement or interpretation of
this Agreement may recover from the unsuccessful party or parties all fees
and disbursements of counsel (including expert witness and other
consultants' fees and costs) relating to or arising out of (a) the
Proceeding (whether or not the Proceeding proceeds to judgment), and (b)
any post-judgment or post-award proceeding including, without limitation,
one to enforce or collect any judgment or award resulting from the
Proceeding. All such judgments and awards shall contain a specific
provision for the recovery of all such subsequently incurred costs,
expenses, and fees and disbursements of counsel.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
BANKNORTH GROUP, INC.
By:
----------------------------------
Name: William J. Ryan
Title: Chairman, President and
Chief Executive Officer
[SHAREHOLDER]
------------------------------------
(Signature)
I-45
ANNEX I
SHAREHOLDER AGREEMENT
Number of Shares Owned:
I-46
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
Amendment No. 1, dated as of March 27, 2002 (the "Amendment"), to the
Agreement and Plan of Merger, dated as of February 26, 2002, (the "Agreement"),
between Banknorth Group, Inc. ("Parent") and Ipswich Bancshares, Inc. (the
"Company").
WITNESSETH
WHEREAS, pursuant to Section 9.02 of the Agreement, the parties to the
Agreement desire to amend the Agreement;
NOW THEREFORE, in consideration of the premises, the mutual agreements
herein set forth and such other consideration the sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Section 3.09(b). The introductory clause of Section 3.09(b) of the
Agreement is hereby amended to read as follows:
"Notwithstanding the provisions of paragraph (a) of this Section
3.09, in the event that a holder of Company Options so elects
pursuant to a written election submitted to the Company prior to the
fifth Business Day preceding the Effective Time, which shall be..."
2. Section 3.02(f). Section 3.02(f) is hereby amended in its entirety
to read as follows:
"(f) If the tax opinion referred to in Section 7.01(f) cannot be
rendered (as reasonably determined by Elias, Matz, Tiernan & Herrick
L.L.P.) as a result of the Merger potentially failing to qualify as a
reorganization under Section 368(a) of the Code, then Parent shall
direct the Exchange Agent to convert a sufficient number of
No-Election Shares, and to the extent necessary Cash Election Shares,
into Stock Election Shares to enable such tax opinion to be
rendered."
3. Effectiveness. This Amendment shall be deemed effective as of the
date first above written, as if executed on such date. Except as expressly
set forth herein, this Amendment shall not by implication or otherwise
alter, modify, amend or in any way affect any of the terms, conditions,
obligations, covenants or agreements contained in the Agreement, all of
which are ratified and affirmed in all respects and shall continue in full
force and effect and shall be otherwise unaffected.
4. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws the State of Maine applicable to agreements
made and entirely to be performed within such State.
5. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall for all purposes be deemed an original,
and all of which together shall constitute but one and the same instrument.
I-47
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in counterparts by their duly authorized officers as of the day and
year first above written.
BANKNORTH GROUP, INC.
By: /s/ WILLIAM J. RYAN
----------------------------------
Name: William J. Ryan
Title: Chairman, President and
Chief Executive Officer
IPSWICH BANCSHARES, INC.
By: /s/ DAVID L. GREY
----------------------------------
Name: David L. Grey
Title: President and
Chief Executive Officer
By: /s/ FRANCIS KENNEY
----------------------------------
Name: Francis Kenney
Title: Treasurer and
Chief Financial Officer
I-48
ANNEX II
STOCK OPTION AGREEMENT
Stock Option Agreement, dated as of February 26, 2002, between Banknorth
Group, Inc., a Maine corporation ("Grantee"), and Ipswich Bancshares, Inc., a
Massachusetts corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which provides for the
merger of Issuer with and into Grantee on the terms and conditions set forth
therein; and
WHEREAS, as a condition and an inducement to Grantee to enter into the
Merger Agreement, Issuer has agreed to grant Grantee the Option (as hereinafter
defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to an aggregate of
384,438 fully paid and nonassessable shares (the "Option Shares") of common
stock, par value $0.10 per share, of Issuer (the "Common Stock") at a price per
share equal to $15.35 (the "Option Price"); provided, however, that in no event
shall the number of shares for which this Option is exercisable exceed 19.9% of
the issued and outstanding shares of Common Stock. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement and other than pursuant to an event
described in Section 5 hereof), including, without limitation, pursuant to stock
option or other employee plans or as a result of the exercise of conversion
rights, or (ii) redeemed, repurchased, retired or otherwise cease to be
outstanding after the date of this Agreement, the number of shares of Common
Stock subject to the Option shall be increased or decreased, as appropriate, so
that, after such event, such number equals 19.9% of the number of shares of
Common Stock then issued and outstanding without giving effect to any shares
subject to or issued pursuant to the Option. Nothing contained in this Section
l(b) or elsewhere in this Agreement shall be deemed to authorize Issuer or
Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
sent the Exercise Notice (as hereinafter defined) within ninety (90) days
following such Subsequent Triggering Event (or such later period as provided in
Section 10). Each of the following shall be an Exercise Termination Event: (i)
the Effective Time (as defined in the Merger Agreement); (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event, except a
termination by Grantee pursuant to Section 8.01(b) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination was
non-volitional (a "Listed Termination")); or (iii) the passage of 12 months (or
such longer period as provided in Section 10) after termination of the Merger
Agreement if such termination follows the occurrence of an Initial Triggering
Event or is a Listed Termination, provided that if an Initial Triggering Event
continues or occurs beyond such termination and prior to the passage of such
12-month-period, the Exercise Termination Event shall be 12 months from the
expiration of the Last Triggering Event but in no event more than 18 months
after such termination. The term "Last Triggering Event" shall mean the last
Initial Triggering Event to be in effect, and the term "Holder" shall mean the
permitted holder or holders of the Option pursuant to this
II-1
Agreement. Notwithstanding anything to the contrary contained herein, the Option
may not be exercised at any time when Grantee shall be in willful material
breach of any of its covenants or agreements contained in the Merger Agreement
such that Issuer shall be entitled to terminate the Merger Agreement pursuant to
Section 8.01(b) thereof as a result of such a willful material breach.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring on or after the date hereof:
(i) Issuer or any Subsidiary (as hereinafter defined) of Issuer (an
"Issuer Subsidiary"), without having received Grantee's prior written
consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the
term "person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and the rules and regulations
thereunder), other than Grantee or any Subsidiary of Grantee (a "Grantee
Subsidiary") or the Board of Directors of Issuer (the "Issuer Board")
shall have recommended that the stockholders of Issuer approve or accept
any Acquisition Transaction with any person other than Grantee or a
Grantee Subsidiary. For purposes of this Agreement, (a) "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any similar
transaction, involving Issuer or any Issuer Subsidiary, (x) a purchase,
lease or other acquisition or assumption of all or any substantial part
of the consolidated assets or consolidated deposits of Issuer or any
Issuer Subsidiary, (y) a purchase or other acquisition (including by way
of merger, consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of Issuer or any Issuer
Subsidiary or (z) any substantially similar transaction, provided that
in no event shall (i) any merger, consolidation, purchase or similar
transaction involving only Issuer and one or more of its Subsidiaries,
or involving only any two or more of such Subsidiaries, be deemed to be
an Acquisition Transaction, provided that any such transaction is not
entered into in violation of the terms of the Merger Agreement, or (ii)
the transactions contemplated by the Merger Agreement or the entering
into of the Merger Agreement be deemed to be an Acquisition Transaction;
and (b) "Subsidiary" shall have the meaning set forth in Rule 12b-2
under the 1934 Act;
(ii) After the date hereof, any person, other than Grantee or a
Grantee Subsidiary, shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" for purposes of
this Agreement having the meaning assigned thereto in Section 13(d) of
the 1934 Act, and the rules and regulations thereunder);
(iii) The stockholders of Issuer shall have voted and failed to
approve the Merger Agreement at a meeting which has been held for that
purpose or any adjournment or postponement thereof, or such meeting
shall not have been held in violation of the Merger Agreement or shall
have been cancelled prior to termination of the Merger Agreement if, in
each case prior to such meeting (or if such meeting shall not have been
held or shall have been cancelled, prior to such termination), it shall
have been publicly announced that any person (other than Grantee or a
Grantee Subsidiary) shall have made, or publicly disclosed an intention
to make, a proposal to engage in an Acquisition Transaction;
(iv) The Issuer Board, without having received Grantee's prior
written consent, shall have withdrawn or modified, or publicly announced
its intention to withdraw or modify in any manner adverse in any respect
to Grantee, its recommendation that the stockholders of Issuer approve
the transactions contemplated by the Merger Agreement in anticipation of
engaging in an Acquisition Transaction, or Issuer or any Issuer
Subsidiary shall have authorized, recommended or proposed, or publicly
announced its intention to authorize, recommend or propose, an agreement
to engage in an Acquisition Transaction with any person other than
Grantee or a Grantee Subsidiary;
II-2
(v) Any person other than Grantee or a Grantee Subsidiary shall
have filed with the Securities and Exchange Commission ("SEC") a
registration statement or tender offer materials with respect to a
potential exchange offer or tender offer that would constitute an
Acquisition Transaction (or filed a preliminary proxy statement with the
SEC with respect to a potential vote by its stockholders to approve the
issuance of shares to be offered in such an exchange offer);
(vi) Issuer shall have breached any covenant or obligation
contained in the Merger Agreement after a proposal is made by any third
party, other than Grantee or a Grantee Subsidiary, to engage in an
Acquisition Transaction and following such breach (x) Grantee would be
entitled to terminate the Merger Agreement (whether immediately or after
the giving of notice or passage of time or both) and (y) such breach
shall not have been cured prior to the Notice Date (as defined below);
or
(vii) Any person other than Grantee or a Grantee Subsidiary,
without Grantee's prior written consent, shall have filed an application
or notice with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") or other federal or state bank regulatory or
antitrust authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
The acquisition of additional shares of Common Stock by David L. Grey, who
beneficially owns more than 10% of the outstanding Common Stock as of the date
hereof, shall not be deemed to be an Initial Triggering Event within the meaning
of subparagraph (ii) above as long as he is party to and in compliance with the
Shareholder Agreement between him and Grantee dated as of the date hereof.
(c) The term "Subsequent Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) the acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 25% or more of the then
outstanding Common Stock; or
(ii) the occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) of the second sentence thereof
shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event") of which it has notice, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of
the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice
(an "Exercise Notice," the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of shares of Common Stock it
will purchase pursuant to such exercise and (ii) a place and date not
earlier than three business days nor later than 60 business days from the
Notice Date for the closing of such purchase (the "Closing," the date of
which being herein referred to as the "Closing Date"); provided that if
prior notification to or approval of the Federal Reserve Board or any other
regulatory or antitrust agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application
for approval, shall promptly notify Issuer of such filing and shall
expeditiously process the same and the period of time that otherwise would
run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such
approvals have been obtained and any requisite waiting period or periods
shall have passed. Any exercise of the Option shall be deemed to occur on
the Notice Date relating thereto. The term "business day" for purposes of
this Agreement means any day, excluding Saturdays, Sundays and any other
day that is a legal holiday in the Commonwealth of Massachusetts or a day
on which banking institutions in the Commonwealth of Massachusetts are
authorized by law or executive order to close.
II-3
(f) At a Closing, the Holder shall (i) pay to Issuer the aggregate
purchase price for the Option Shares purchased pursuant to the exercise of
the Option in immediately available funds by wire transfer to a bank
account designated by Issuer and (ii) present and surrender this Agreement
to Issuer at its principal executive offices, provided that the failure or
refusal of the Issuer to designate such a bank account or accept surrender
of this Agreement shall not preclude the Holder from exercising the Option.
(g) At a Closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer
shall deliver to the Holder a certificate or certificates representing the
number of Option Shares purchased by the Holder and, if the Option should
be exercised in part only, a new Option evidencing the rights of the Holder
thereof to purchase the balance of the Option Shares purchasable hereunder,
and the Holder shall deliver to Issuer a copy of this Agreement and a
letter agreeing that the Holder will not offer to sell or otherwise dispose
of such shares in violation of applicable law or the provisions of this
Agreement.
(h) Certificates for Option Shares delivered at a Closing hereunder
may be endorsed (in the sole discretion of Issuer) with a restrictive
legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on
file at the principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a written
request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act") in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy
of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Issuer, to the effect that such
legend is not required for purposes of the 1933 Act; (ii) the reference to
the provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference in the opinion of counsel to the Holder, which shall be set forth
in a written opinion in form and substance reasonably satisfactory to
Issuer; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required
by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under paragraph (e) of this Section 2,
the tender of the applicable purchase price in immediately available funds
and the tender of a copy of this Agreement to Issuer, the Holder shall be
deemed, subject to the receipt of any necessary regulatory approvals, to be
the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of Issuer shall
then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Issuer shall pay
all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation,
issue and delivery of stock certificates under this Section 2 in the name
of the Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including without limitation (x) complying with all applicable premerger
notification,
II-4
reporting and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), or the Change in Bank Control Act
of 1978, as amended, or any state or other federal banking law, prior approval
of or notice to the Federal Reserve Board or to any state or other federal
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in connection with the preparation of such
applications or notices and providing such information to the Federal Reserve
Board or such state or other federal regulatory authority as they may require)
in order to permit the Holder to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto; and (iv) promptly
to take all action provided herein to protect the rights of the Holder against
dilution.
4. This Agreement and the Option granted hereby are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase on
the same terms and subject to the same conditions as are set forth herein in the
aggregate the same number of shares of Common Stock purchasable hereunder. The
terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, subject to the
aforementioned indemnification, if applicable, whether or not the Agreement so
lost, stolen, destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of Option Shares purchasable upon the exercise of the
Option and the Option Price shall be subject to adjustment from time to time as
provided in this Section 5. In the event of any change in, or distributions in
respect of, the Common Stock by reason of stock dividend, stock split, split-up,
merger, recapitalization, stock combination, subdivision, conversion, exchange
of shares, distribution on or in respect of the Common Stock or similar
transaction, the type and number of Option Shares subject to the Option, and the
Option Price therefor, shall be adjusted appropriately, and proper provision
shall be made in the agreements governing such transaction, so that Grantee
shall receive upon exercise of the Option the number and class of Option Shares
or other securities or property that Grantee would have received in respect of
Option Shares if the Option had been exercised immediately prior to such event,
or the record date therefor, as applicable.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within six (6) months (or such later period as provided in Section 10)
following such Subsequent Triggering Event (whether on its own behalf or on
behalf of any subsequent holder of this Option (or part thereof) or any of the
Option Shares issued pursuant hereto), promptly prepare, file and keep current,
with respect to the Option and the Option Shares, a registration statement under
the 1933 Act, to the extent applicable, and qualify such Option and Option
Shares for resale or other disposition under applicable state securities laws,
in each case in accordance with any plan of disposition requested by Grantee.
Issuer will use all reasonable efforts to cause such registration statement
promptly to become effective and then to remain effective for such period not in
excess of 180 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary to effect such
sales or other dispositions. Grantee shall have the right to demand two such
registrations. Issuer shall bear the costs of such registrations (including, but
not limited to, Issuer's attorneys' fees, printing costs and filing fees, except
for underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option or Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering by
II-5
Issuer of shares of Common Stock, and if in the good faith judgment of the
managing underwriter or managing underwriters, or, if none, the sole underwriter
or underwriters, of such offering, the inclusion of the Option and/or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of shares represented by the Option and/or
the number of Option Shares otherwise to be covered in the registration
statement contemplated hereby may be reduced; provided, however, that after any
such required reduction the number of shares represented by the Option and/or
the number of Option Shares to be included in such offering for the account of
the Holder shall constitute at least 25% of the total number of shares to be
sold by the Holder and Issuer in the aggregate; and provided further, however,
that if such reduction occurs, then Issuer shall file a registration statement
for the balance as promptly as practicable thereafter as to which no reduction
pursuant to this Section 6 shall be permitted or occur and Holder shall
thereafter be entitled to one additional registration and the twelve (12) month
period referred to in the first sentence of this section shall be increased to
twenty four (24) months. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any such registration statement
to be filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for Issuer. Upon receiving
any request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies. Notwithstanding anything to the contrary contained herein, in no event
shall the number of registrations that Issuer is obligated to effect be
increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
described below), (i) at the request of any Holder delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase the Option from the Holder at
a price (the "Option Repurchase Price") equal to the amount by which (A) the
Market/Offer Price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which the Option may then be exercised, and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered within 90 days following such occurrence (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price") equal to the greater of (A) the
Market/Offer Price and (B) the average exercise price per share paid by the
Owner for the Option Shares so designated. The term "Market/Offer Price" shall
mean the highest of (i) the price per share of Common Stock at which a tender
offer or exchange offer therefor has been made, (ii) the price per share of
Common Stock to be paid by any person, other than Grantee or a Grantee
Subsidiary, pursuant to an agreement with Issuer of the kind described in
Section 2(b)(i), (iii) the highest closing price for shares of Common Stock
within the six-month period immediately preceding the date of such required
repurchase of the Option or Option Shares, as the case may be, or (iv) in the
event of a sale of all or any substantial part of Issuer's assets or deposits,
the sum of the price paid in such sale for such consolidated assets or
consolidated deposits and the current market value of the remaining assets of
Issuer as determined by a nationally-recognized investment banking firm selected
by a majority in interest of the Holders or the Owners, as the case may be, and
reasonably acceptable to Issuer, divided by the number of shares of Common Stock
of Issuer outstanding at the time of such sale. In determining the Market/Offer
Price, the value of consideration other than cash shall be determined by a
nationally-recognized investment banking firm selected by the Holder or Owner,
as the case may be, and reasonably acceptable to Issuer.
(b) Each Holder and Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating
that such Holder or Owner, as the case may be, elects to require Issuer to
repurchase this Option and/or Option Shares in accordance with the
provisions of this Section 7. As promptly as practicable, and in any event
within five business days
II-6
after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, Issuer
shall deliver or cause to be delivered to the Holder the Option Repurchase
Price and/or to the Owner the Option Share Repurchase Price therefor or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, or as a result of
a written agreement or other binding obligation with a governmental or
regulatory body or agency, from repurchasing the Option and/or the Option
Shares in full, Issuer shall immediately so notify each Holder and/or each
Owner and thereafter deliver or cause to be delivered, from time to time,
to such Holder and/or such Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within two business days after
the date on which Issuer is no longer so prohibited; provided, however,
that if Issuer at any time after delivery of a notice of repurchase
pursuant to paragraph (b) of this Section 7 is prohibited under applicable
law or regulation, or as a consequence of administrative policy, or as a
result of a written agreement or other binding obligation with a
governmental or regulatory body or agency, from delivering to the Holder
and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in part or in full (and Issuer
hereby undertakes to use all reasonable efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly
as practicable in order to accomplish such repurchase), such Holder or
Owner may revoke its notice of repurchase of the Option and/or the Option
Shares either in whole or to the extent of the prohibition, whereupon, in
the latter case, Issuer shall promptly (i) deliver to the Holder and/or the
Owner, as appropriate, that portion of the Option Repurchase Price and/or
the Option Share Repurchase Price that Issuer is not prohibited from
delivering with respect to Options or Option Shares as to which the Holder
or the Owner, as the case may be, has not revoked its repurchase demand;
and (ii) deliver, as appropriate, either (A) to the Holder, a new Agreement
evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock
for which the surrendered Agreement was exercisable at the time of delivery
of the notice of repurchase by a fraction, the numerator of which is the
Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price,
and/or (B) to such Owner, a certificate for the Option Shares it is then so
prohibited from repurchasing.
(d) For purposes of this Agreement, a "Repurchase Event" shall be
deemed to have occurred upon the occurrence of any of the following events
or transactions after the date hereof:
(i) the acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 50% or more of the then
outstanding Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause
(y) of the second sentence thereof shall be 50%;
provided that no such event shall constitute a Repurchase Event unless a
Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event. The parties hereto agree that Issuer's obligations to
repurchase the Option or Option Shares under this Section 7 shall not
terminate upon the occurrence of any Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of
an Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or a Grantee Subsidiary, or engage in a plan of exchange with
any person, other than Grantee or a Grantee Subsidiary, and Issuer shall not be
the continuing or surviving corporation of such consolidation or merger or the
acquiror in such plan of exchange, (ii) to permit any person, other than Grantee
or a Grantee Subsidiary, to merge into Issuer or be acquired by Issuer in a plan
of exchange and Issuer shall be the continuing or surviving or acquiring
corporation, but, in connection with such merger or plan of exchange, the then
outstanding shares of
II-7
Common Stock shall be changed into or exchanged for stock or other securities of
any other person or cash or any other property or the then outstanding shares of
Common Stock shall after such merger or plan of exchange represent less than 50%
of the outstanding shares and share equivalents of the merged or acquiring
company, or (iii) to sell or otherwise transfer all or a substantial part of its
or any Issuer Subsidiary's consolidated assets or consolidated deposits to any
person, other than Grantee or a Grantee Subsidiary, then, and in each such case,
the agreement governing such transaction shall make proper provision so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of any Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that controls
the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving person of a consolidation or merger with Issuer (if other than
Issuer), (ii) the acquiring person in a plan of exchange in which Issuer
is acquired, (iii) Issuer in a merger or plan of exchange in which
Issuer is the continuing or surviving or acquiring person, and (iv) the
transferee of all or a substantial part of Issuer's consolidated assets
or consolidated deposits (or the assets or deposits of an Issuer
Subsidiary).
(ii) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute
Option.
(iii) "Assigned Value" shall mean the Market/Offer Price, as
defined in Section 7.
(iv) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger, share exchange or sale in question,
but in no event higher than the closing price of the shares of
Substitute Common Stock on the day preceding such consolidation, merger,
share exchange or sale; provided that if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by the person merging into Issuer or by any
company which controls or is controlled by such person, as the Holder
may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall, to the extent legally
permissible, be as similar as possible to, and in no event less
advantageous to the Holder than, the terms of the Option. The issuer of the
Substitute Option also shall enter into an agreement with the then Holder
or Holders of the Substitute Option in substantially the same form as this
Agreement (after giving effect for such purpose to the provisions of
Section 9), which agreement shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence
of Section 8(a), divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence
of Section 8(a) and the denominator of which shall be the number of shares
of Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this paragraph (e), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to Holder equal
to the excess of (i) the value of the Substitute Option without giving
effect
II-8
to the limitation in this paragraph (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this paragraph
(e). This difference in value shall be determined by a nationally-
recognized investment banking firm selected by a majority in interest of
the Holders and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in paragraph
(a) of this Section 8 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder") delivered to the Substitute Option Issuer, the
Substitute Option Issuer shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised, and at the request of each owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the greater of (A) the Highest
Closing Price and (B) the average exercise price per share paid by the
Substitute Share Owner for the Substitute Shares so designated, multiplied by
the number of Substitute Shares so designated. The term "Highest Closing Price"
shall mean the highest closing price for shares of Substitute Common Stock
within the six-month period immediately preceding the date the Substitute Option
Holder gives notice of the required repurchase of the Substitute Option or the
Substitute Share Owner gives notice of the required repurchase of the Substitute
Shares, as applicable.
(b) Each Substitute Option Holder and Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and/or certificates for Substitute Shares accompanied by a
written notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9. As
promptly as practicable, and in any event within two business days after
the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating
thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase
Price and/or to the Substitute Share Owner the Substitute Share Repurchase
Price therefor, or the portion(s) thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, or as a result of a written agreement or other binding obligation
with a governmental or regulatory body or agency, from repurchasing the
Substitute Option and/or the Substitute Shares in part or in full, the
Substitute Option Issuer following a request for repurchase pursuant to
this Section 9 shall immediately so notify the Substitute Option Holder
and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute
Option Repurchase Price and/or the Substitute Share Repurchase Price,
respectively, which it is no longer prohibited from delivering, within two
business days after the date on which the Substitute Option Issuer is no
longer so prohibited; provided, however, that if the Substitute Option
Issuer is at any time after delivery of a notice of repurchase pursuant to
subsection (b) of this Section 9 prohibited under applicable law or
regulation, or as a consequence of administrative policy, or as a result of
a written agreement or other binding obligation with a governmental or
regulatory body or agency, from delivering to the Substitute Option Holder
and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively,
in full (and the Substitute Option Issuer shall use all
II-9
reasonable efforts to obtain all required regulatory and legal approvals as
promptly as practicable in order to accomplish such repurchase), the
Substitute Option Holder and/or Substitute Share Owner may revoke its
notice of repurchase of the Substitute Option or the Substitute Shares
either in whole or to the extent of the prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that
portion of the Substitute Option Repurchase Price or the Substitute Share
Repurchase Price that the Substitute Option Issuer is not prohibited from
delivering; and (ii) deliver, as appropriate, either (A) to the Substitute
Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the
Substitute Common Stock obtained by multiplying the number of shares of the
Substitute Common Stock for which the surrendered Substitute Option was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Substitute Option Repurchase Price
less the portion thereof theretofore delivered to the Substitute Option
Holder and the denominator of which is the Substitute Option Repurchase
Price, and/or (B) to the Substitute Share Owner, a certificate for the
Substitute Option Shares it is then so prohibited from repurchasing.
10. The 90-day or six-month periods for exercise of certain rights under
Sections 2, 6, 7 and 9 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights (for so long as the
Holder, Owner, Substitute Option Holder or Substitute Share Owner, as the case
may be, is using its reasonable best efforts to obtain such regulatory
approvals), and for the expiration of all statutory waiting periods; (ii) during
the pendency of any order, injunction or judgment that prohibits or delays
exercise of such rights; and (iii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
11. (a) Issuer hereby represents and warrants to Grantee as follows:
(i) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Issuer Board and no other corporate
proceedings on the part of Issuer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Issuer.
(ii) The execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby and compliance by Issuer with
any of the provisions hereof will not (i) conflict with or result in a
breach of any provision of its Articles of Organization or Bylaws or a
default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any
note, bond, debenture, mortgage, indenture, license, material agreement
or other material instrument or obligation to which Issuer is a party,
or by which it or any of its properties or assets may be bound, or (ii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Issuer or any of its properties or assets.
(iii) Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its
terms will have reserved for issuance upon the exercise of the Option,
that number of shares of Common Stock equal to the maximum number of
shares of Common Stock at any time and from time to time issuable
hereunder, and all such shares, upon issuance pursuant thereto, will be
duly authorized, validly issued, fully paid and nonassessable, and will
be delivered free and clear of all claims, liens, encumbrances and
security interests and not subject to any preemptive rights.
(b) Grantee hereby represents and warrants to Issuer that:
(i) Grantee has full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by Grantee and the performance
of its obligations hereunder by Grantee have been duly and validly
II-10
authorized by all necessary corporate action on the part of Grantee and
no other corporate proceedings on the part of Grantee are necessary to
authorize this Agreement for Grantee to perform its obligations
hereunder. This Agreement has been duly and validly executed and
delivered by Grantee.
(ii) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will
not be, acquired with a view to the public distribution thereof and will
not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the 1933 Act and any
applicable securities offering rules of a federal or state banking
authority.
12. Neither of the parties hereto may assign or otherwise transfer any of
its rights or obligations under this Agreement or the Option created hereunder
to any other person, without the express written consent of the other party,
except that in the event a Subsequent Triggering Event shall have occurred prior
to an Exercise Termination Event, Grantee, subject to the express provisions
hereof, may assign in whole or in part its rights and obligations hereunder,
provided, however, that until the date 15 days following the date on which the
Federal Reserve Board approves an application by Grantee under the BHCA to
acquire the shares of Common Stock subject to the Option, Grantee may not assign
its rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of Issuer, (iii) an assignment
to a single party (e.g., a broker or investment banker) for the sole purpose of
conducting a widely dispersed public distribution on Grantee's behalf or (iv)
any other manner approved by the Federal Reserve Board.
13. Each of Grantee and Issuer will use all reasonable efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including, without limitation, applying to the Federal Reserve
Board under the BHCA for approval to acquire the shares issuable hereunder and
applying for listing or quotation of such shares on any exchange or quotation
system on which the Common Stock is then listed or quoted.
14. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $2,400,000 (the
"Maximum Profit") and, if it otherwise would exceed such amount, the Grantee, at
its sole election, shall either (i) reduce the number of shares of Common Stock
subject to this Option, (ii) deliver to the Issuer for cancellation Option
Shares previously purchased by Grantee, (iii) pay cash to the Issuer or (iv) any
combination thereof, so that Grantee's actually realized Total Profit shall not
exceed the Maximum Profit after taking into account the foregoing actions. As
used herein, the term "Total Profit" shall mean the aggregate amount (before
taxes) of the following: (i) the amount received by Grantee pursuant to Issuer's
repurchase of the Option (or any portion thereof) pursuant to Section 7 hereof,
(ii) (x) the amount received by Grantee pursuant to Issuer's repurchase of the
Option Shares pursuant to Section 7 hereof, less (y) the Grantee's purchase
price for such Option Shares, (iii) (x) the net cash amounts received by Grantee
pursuant to the sale of Option Shares (or any other securities into which such
Option Shares are converted or exchanged) to any unaffiliated party, less (y)
the Grantee's purchase price of such Option Shares, (iv) any amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party and (v) any equivalent amount with respect to the Substitute
Option.
(b) Notwithstanding any other provision of this Agreement, this Option
may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as hereinafter defined) of
more than the Maximum Profit, provided that nothing in this sentence shall
restrict any exercise of the Option permitted hereby on any subsequent
date. As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise this Option
shall be the Total Profit determined as of the date of such proposed
exercise assuming that this Option were exercised on such date for such
number of shares and assuming that such shares, together with all other
Option Shares held by Grantee and its affiliates as of such date,
II-11
were sold for cash at the closing market price for the Common Stock as of
the close of business on the preceding trading day (less customary
brokerage commissions).
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief. In connection therewith, both
parties waive the posting of any bond or similar requirement.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer or Substitute Option
Issuer, as the case may be, is not permitted to repurchase pursuant to Section 7
or Section 9, as the case may be, the full number of shares of Common Stock
provided in Section l(a) hereof (as adjusted pursuant to Section l(b) or Section
5 hereof), it is the express intention of Issuer (which shall be binding on the
Substitute Option Issuer) to allow the Holder to acquire or to require Issuer or
Substitute Option Issuer, as the case may be, to repurchase such lesser number
of shares as may be permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
18. This Agreement shall be governed by and construed in accordance with
the laws of the State of Maine, without regard to the conflict of law principles
thereof.
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
permitted assigns any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
II-12
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
on its behalf by its officers thereunto duly authorized, all as of the date
first above written.
IPSWICH BANCSHARES, INC.
By: /s/ DAVID L. GREY
----------------------------------
Name: David L. Grey
Title: President and Chief
Executive Officer
BANKNORTH GROUP, INC.
By: /s/ WILLIAM J. RYAN
----------------------------------
Name: William J. Ryan
Title: Chairman, President and
Chief Executive Officer
II-13
ANNEX III
TERMINATION AGREEMENT
AGREEMENT, dated as of February 26, 2002, by and among Banknorth Group,
Inc. ("Banknorth"), Ipswich Bancshares, Inc. ( the "Company"), Ipswich Savings
Bank (the "Bank"), a wholly-owned subsidiary of the Company, Eastern Bank, as
Trustee of the Ipswich Irrevocable Insurance Trust (the "Trust"), and David L.
Grey (the "Executive").
WITNESSETH
WHEREAS, the Executive is a director and president and chief executive
officer of the Company and the Bank; and
WHEREAS, the Executive and the Bank have entered into an Amended and
Restated Employment Agreement, dated as of June 18, 1997 and amended and
restated as of May 18, 1999 (the "Employment Agreement"); and
WHEREAS, the Executive, the Bank and Eastern Bank, as Trustee of the Trust,
have entered into an Amended and Restated Split Dollar Agreement, dated as of
February 21, 1996 and amended and restated as of May 18, 1999 (the "Split Dollar
Agreement"), and a related Amended and Restated Assignment of Life Insurance
Policy as Collateral in favor of Eastern Bank, as Trustee of the Trust, dated as
of February 21, 1996 and amended and restated as of May 18, 1999 (the
"Collateral Assignment"), and the Bank and Eastern Bank, as Trustee of the
Trust, have entered into an Amended and Restated Ipswich Irrevocable Insurance
Trust Agreement, dated as of February 21, 1996 and amended and restated as of
May 18, 1999 (the "Trust Agreement"); and
WHEREAS, Banknorth and the Company have entered into an Agreement and Plan
of Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to
which the Company will merge with and into Banknorth on the terms and conditions
set forth therein and, in connection therewith, outstanding shares of Company
Common Stock will be converted into shares of Banknorth Common Stock and/or cash
in the manner set forth therein; and
WHEREAS, as an inducement to Banknorth to enter into the Merger Agreement,
the Employers and the Executive desire to set forth the status of the
Executive's employment relationships with the Company and the Bank
(collectively, the "Employers") as of the Effective Time (as defined in the
Merger Agreement) and the benefits he will be entitled to receive upon
termination of such employment relationships; and
WHEREAS, the Executive's employment relationship with Banknorth as of the
Effective Time is the subject of an Employment and Noncompetition Agreement
between Banknorth and the Executive entered into as of the date hereof and to be
effective as of the Effective Time (the "Employment and Noncompetition
Agreement");
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, the parties hereto agree as follows:
1. Termination of Employment and Directorships; Accrued but Unpaid
Obligations.
(a) At the Effective Time, the Executive shall cease to be a director
and president and chief executive officer of the Company and the Bank and
any other employment and consulting relationships between the Executive and
any of the Company, the Bank and each other direct or indirect subsidiary
of the Company, and his membership on the boards of directors of the
Company, the Bank and each other such subsidiary, shall be terminated.
Without limiting the foregoing, the Employers and the Executive agree that
at the Effective Time the Employment Agreement shall be automatically
terminated without the necessity of any further action on the part of
either party
III-1
thereto, with the result that it shall be null and void and no party
thereto or any heir, successor or assignee thereof shall have any
continuing rights or obligations thereunder.
(b) In connection with the terminations provided in paragraph (a) of
this Section 1, the Company shall pay to the Executive, immediately prior
to the Effective Time, a cash amount equal to the sum of (i) the
Executive's accrued but unpaid annual base salary to the Effective Time and
(ii) an amount in compensation for Executive's accrued but unused vacation
time to the extent permitted under the Employers' vacation policies in
effect as of the date hereof. The calculation and payment of such amounts
shall be subject to the reasonable review and approval of Banknorth.
2. Payments to the Executive. In consideration of the agreements of the
Executive pursuant to Section 1(a), Banknorth agrees to pay to the Executive, or
to cause the Bank to pay to the Executive, at the Effective Time, a cash amount
equal to three times his current "base amount" for purposes of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), less one dollar.
Banknorth, the Employers and the Executive agree that the amount required to be
paid to the Executive pursuant to the preceding sentence is $876,189.
3. Split Dollar Agreement and Related Agreements. The Employers, the
Executive and Eastern Bank, as Trustee of the Trust, as applicable, agree,
within thirty (30) days after the date hereof, to (i) amend the Split Dollar
Agreement and the related Collateral Assignment to eliminate the Bank as a party
thereto effective as of the Effective Time and (ii) amend and restate the Trust
Agreement to reflect the foregoing amendments to the Split Dollar Agreement and
the Collateral Assignment, all with the result that (x) the Employers shall have
no further obligation to make contributions to the Trust, (y) the Employers
shall have no right to receive Premium Reimbursement (as defined in the Split
Dollar Agreement) from the Trust except in the case of the insolvency of the
Bank and (z) all administrative and Trustee's fees and expenses shall be paid
from the Trust. Such amended Split Dollar Agreement, amended Collateral
Assignment and amended and restated Trust Agreement shall be in form and
substance reasonably satisfactory to Banknorth. The Employers agree to make no
further payments of premiums on the insurance policy held by the Trust between
the date hereof and the Effective Time.
4. No Effect on Employee Benefit Plans. Except as expressly provided in
this Agreement, the termination of the Executive's directorships and employment
pursuant to this Agreement shall have no special effect on the rights and
obligations of the Executive and the Employers under the Company's 401(k)
Savings Plan, the Company's stock option plans or any other employee benefit
plan of the Employers pursuant to which the Executive has any accrued rights or
is entitled to any benefits or payments (the "Employee Benefit Plans"), provided
that the Executive shall have no rights under (i) the Merger Severance Benefit
Program maintained by the Employers in connection with the termination of his
employment by the Employers pursuant to this Agreement or (ii) the Bank's
Director Recognition and Retirement Plan in connection with the termination of
his directorships of the Company, the Bank or any other direct or indirect
subsidiary of the Company pursuant to this Agreement.
5. Release.
(a) For, and in consideration of the commitments made herein by
Banknorth, the Executive, for himself and for his heirs and assigns, does
hereby release completely and forever discharge Banknorth and its
subsidiaries, affiliates, stockholders, attorneys, officers, directors,
agents, employees, successors and assigns, and any other party associated
with Banknorth (the "Released Parties"), to the fullest extent permitted by
applicable law, from any and all claims, rights, demands, actions,
liabilities, obligations, causes of action of any and all kind, nature and
character whatsoever, known or unknown, in any way connected with his
employment by the Company or any of its subsidiaries (including in each
case predecessors thereof), either as a director, officer or employee, or
termination of such employment. Notwithstanding the foregoing, the
Executive does not release Banknorth from any obligations of Banknorth to
the Executive under (i) the Employee Benefit Plans, (ii) Section 6.11 of
the Merger Agreement, (iii) this Agreement and (iv) the Employment and
Noncompetition Agreement.
III-2
(b) For and in consideration of the commitments made herein by the
Executive, including without limitation the releases in paragraph (a)
above, Banknorth, for itself, and for its successors and assigns does
hereby release completely and forever discharge the Executive and his heirs
and assigns, to the fullest extent permitted by applicable law, from any
and all claims, rights, demands, actions, liabilities, obligations, causes
of action of any and all kind, nature and character whatsoever, known or
unknown, in any way connected with the Executive's employment by the
Company or any of its subsidiaries (including predecessors thereof), either
as a director, officer or employee. Notwithstanding anything in the
foregoing to the contrary, Banknorth does not release the Executive from
claims arising out of any breach by the Executive of (i) any law or
regulation by the Executive during the term of and related to his
employment by the Company or any of its subsidiaries (including
predecessors thereof), either as a director, officer or employee, (ii) this
Agreement or (iii) the Employment and Noncompetition Agreement.
6. Representations and Warranties. The parties hereto represent and
warrant to each other that they have carefully read this Agreement and consulted
with respect thereto with their respective counsel and that each of them fully
understands the content of this Agreement and its legal effect. Each party
hereto also represents and warrants that this Agreement is a legal, valid and
binding obligation of such party which is enforceable against such party in
accordance with its terms.
7. Successors and Assigns. This Agreement will inure to the benefit of and
be binding upon the Executive and his heirs and assigns, and upon Banknorth,
including any successor to Banknorth by merger or consolidation or any other
change in form or any other person or firm or corporation to which all or
substantially all of the assets and business of Banknorth may be sold or
otherwise transferred. This Agreement may not be assigned by any party hereto
without the consent of the other party.
8. Notices. Any communication to a party required or permitted under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party or
parties, as applicable:
If to the Executive:
David L. Grey
6 Charles Davis Drive
Wenham, Massachusetts 01984
If to Banknorth:
Banknorth Group, Inc.
P.O. Box 9540
Two Portland Square
Portland, Maine 04112-9540
Attention: President
9. Withholding. Banknorth may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
10. Entire Agreement; Severability.
(a) This Agreement contains the entire agreement of the parties
relating to the subject matter hereof and from and after the Effective Time
shall supersede in its entirety any and all prior agreements or
understandings, whether written or oral, between the Employers and the
Executive relating to the subject matter hereof, including without
limitation the Employment Agreement, the Split Dollar Agreement, the
Collateral Assignment, the Bank's Merger Severance Benefit Program and the
Bank's Director Recognition and Retirement Plan. In reaching this
Agreement, no party has
III-3
relied upon any representation or promise except those set forth herein and
in the Employment and Noncompetition Agreement.
(b) Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of
this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable. In
all such cases, the parties shall use their reasonable best efforts to
substitute a valid, legal and enforceable provision which, insofar as
practicable, implements the original purposes and intents of this
Agreement.
11. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
13. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Maine applicable to
agreements made and entirely to be performed within such jurisdiction.
14. Headings. The headings of sections in this Agreement are for
convenience of reference only and are not intended to qualify the meaning of any
section. Any reference to a section number shall refer to a section of this
Agreement, unless otherwise stated.
15. Effectiveness. Notwithstanding anything herein to the contrary, the
effectiveness of this Agreement shall be subject to consummation of the Merger
in accordance with the terms of the Merger Agreement, as the same may be amended
by the parties thereto in accordance with its terms.
III-4
IN WITNESS WHEREOF, each of the undersigned has entered into this Agreement
as of the day and year first above written.
BANKNORTH GROUP, INC.
By: /s/ WILLIAM J. RYAN
----------------------------------
Name: William J. Ryan
Title: Chairman, President and
Chief Executive Officer
/s/ DAVID L. GREY
----------------------------------
David L. Grey
IPSWICH BANCSHARES, INC.
By: /s/ LAWRENCE J. PSZENNY
----------------------------------
Name: Lawrence J. Pszenny
Title: Chairman
IPSWICH SAVINGS BANK
By: /s/ LAWRENCE J. PSZENNY
----------------------------------
Name: Lawrence J. Pszenny
Title: Chairman
EASTERN BANK, Trustee
By: /s/ SUMNER JONES
----------------------------------
Name: Sumner Jones
Title: Executive Vice President
III-5
EMPLOYMENT AND NONCOMPETITION AGREEMENT
AGREEMENT, dated as of February 26, 2002, between Banknorth Group, Inc.
("Banknorth") and David L. Grey (the "Executive").
WITNESSETH
WHEREAS, Banknorth has determined that it is in the best interests of its
shareholders to ensure that Banknorth will have the continued dedication of the
Executive following the merger of Ipswich Bancshares, Inc. (the "Company"), a
Massachusetts corporation, with and into Banknorth (the "Merger") pursuant to an
Agreement and Plan of Merger, dated as of February 26, 2002, between Banknorth
and the Company (the "Merger Agreement"), and to provide Banknorth after the
Merger with continuity of management; and
WHEREAS, in order to accomplish these objectives, the Executive and
Banknorth desire to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, the parties hereto agree as follows:
1. Effective Date. The "Effective Date" shall mean the effective date of
the Merger.
2. Employment Period. Banknorth hereby agrees to employ the Executive, and
the Executive hereby agrees to enter into the employ of Banknorth subject to the
terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the one-year anniversary thereof (the "Employment
Period").
3. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the Executive shall serve as a
Senior Vice President of Banknorth, reporting directly to the Chief
Executive Officer of Banknorth or his designee and with appropriate
authority, duties and responsibilities, as determined from time to time
by the Chief Executive Officer of Banknorth or his designee. It is
contemplated that the employment services will include, without
limitation, assistance in connection with the integration of the
operations of Banknorth and the Company following consummation of the
Merger, regular meetings between the Executive and the Chief Executive
Officer of Banknorth or his designee, attendance at certain public
functions on behalf of Banknorth and its banking subsidiary in
Massachusetts and southern New Hampshire and attendance at certain
functions of Banknorth. Employment services shall be provided by the
Executive in the Company's pre-merger market areas, provided that the
Executive may be required to provide employment services at the
executive offices of Banknorth located in Portland, Maine or the
executive offices of Banknorth, NA located in Worcester, Massachusetts.
Employment services may be provided in person, telephonically,
electronically or by correspondence to the extent appropriate under the
circumstances. The Executive shall not be required to provide employment
services outside of the Company's pre-Merger market areas more often
than four times per month.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote substantially all of his attention and time
during normal business hours to the business and affairs of Banknorth
and its subsidiaries and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities.
(b) Vacation. The Executive shall be entitled to four (4) weeks of
vacation during the Employment Period, which shall be taken in accordance
with Banknorth's vacation policy as in effect from time to time.
III-6
4. Non-Compete. The Executive agrees that during the three-year period
commencing on the Effective Date and ending on the third annual anniversary
thereof (the "Noncompetition Period"), the Executive will not, directly or
indirectly, (i) become a director, officer, employee, principal, agent,
consultant or independent contractor of any insured depository institution,
trust company or parent holding company of any such institution or company which
has an office in Massachusetts or the counties of Rockingham, Hillsborough and
Cheshire in New Hampshire (a "Competing Business"), provided, however, that this
provision shall not prohibit the Executive from (x) owning bonds, non-voting
preferred stock or up to five percent (5%) of the outstanding common stock of
any such entity if such common stock is publicly traded and (y) being employed
outside of Massachusetts and the aforementioned counties in New Hampshire as
long as he is in compliance with the provisions of clauses (ii) and (iii) below,
(ii) solicit or induce, or cause others to solicit or induce, any employee of
Banknorth or any of its subsidiaries to leave the employment of such entities or
(iii) solicit (whether by mail, telephone, personal meeting or any other means)
any customer of Banknorth or any of its subsidiaries to transact business with
any other entity, whether or not a Competing Business, or to reduce or refrain
from doing any business with Banknorth or its subsidiaries, or interfere with or
damage (or attempt to interfere with or damage) any relationship between
Banknorth or its subsidiaries and any such customers.
5. Confidentiality. Except (i) in the course of providing employment
services hereunder or (ii) as required by law or regulation (including without
limitation in connection with any judicial or administrative process or
proceeding), the Executive shall keep secret and confidential and shall not
disclose to any third party (other than Banknorth or its subsidiaries) in any
fashion or for any purpose whatsoever any information regarding Banknorth, the
Company or any of their respective subsidiaries which is not available to the
general public to which he has had or will have access at any time during the
course of his employment by Banknorth, the Company or any of their respective
subsidiaries, including, without limitation, any such information relating to:
business or operations; plans, strategies, prospects or objectives; products,
technology, processes or specifications; research and development operations or
plans; customers and customer lists; distribution, sales, service, support and
marketing practices and operations; financial condition, results of operations
and prospects; operational strengths and weaknesses; and personnel and
compensation policies and procedures. This restriction shall not apply to
information made available to be public by Banknorth and information which is
already in the public domain through no breach of this Agreement by the
Executive.
6. Injunctive Relief.
(a) The Executive agrees that damages at law will be an insufficient
remedy to Banknorth in the event that the Executive violates any of the
provisions of Sections 4 or 5, and that Banknorth may apply for and, upon
the requisite showing, have injunctive relief in any court of competent
jurisdiction to restrain the breach or threatened or attempted breach of or
otherwise to specifically enforce any of the covenants contained in
Sections 4 or 5. The Executive hereby consents to any injunction (temporary
or otherwise) which may be issued against the Executive and to any other
court order which may be issued against the Executive from violating, or
directing the Executive to comply with, any of the covenants in Sections 4
and 5. The Executive also agrees that such remedies shall be in addition to
any and all remedies, including damages, available to Banknorth against the
Executive for such breaches or threatened or attempted breaches.
(b) In addition to Banknorth's rights set forth in paragraph (a) of
this Section 6, in the event that the Executive shall be determined
(pursuant to the procedures described in Section 10) to have been in
material violation of the terms and conditions of Sections 4 or 5 of this
Agreement, Banknorth and its subsidiaries may terminate any payments or
benefits payable by Banknorth to the Executive pursuant to paragraphs (a)
and (c) of Section 7 of this Agreement.
7. Compensation and Other Benefits.
(a) Base Salary and Other Benefits During the Employment Period. In
consideration of the Executive's employment and confidentiality obligations
during the Employment Period, Banknorth agrees to pay to the Executive an
annual base salary of $250,000 during the Employment Period,
III-7
$100,000 of which shall be payable on the Effective Date and the remainder
of which shall be payable to the Executive in accordance with Banknorth's
customary payroll practices. During the Employment Period, except as
otherwise expressly provided herein, the Executive also shall be entitled
to participate in all employee benefit, welfare and retirement plans
generally applicable to full-time employees of Banknorth (collectively, the
"Employee Benefit Plans"), on a basis no less favorable than that provided
to other full-time employees of Banknorth, provided that the Executive
shall not be eligible to participate in short and long-term incentive
plans, stock option and restricted stock plans and supplemental retirement
plans maintained by Banknorth or its subsidiaries, except in the case of
stock option plans as permitted by Section 3.09 of the Merger Agreement. In
addition to the foregoing benefits, Banknorth also agrees to provide the
Executive (i) with a $700 per month car allowance, (ii) the use of a cell
phone in accordance with Banknorth's policies regarding the same in effect
from time to time and (iii) the use of an office located in Ipswich,
Massachusetts together with reasonable secretarial assistance. Banknorth
also agrees to pay, in accordance with the past practices of the Employers,
amounts becoming due during the Employment Period with respect to the
Supplemental Disability Insurance Policy that was, as of the date hereof,
being funded by the Employers.
(b) Expense Reimbursement. Banknorth shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive during the Employment Period at the request of Banknorth in
accordance with the terms of the travel policy of Banknorth in effect from
time to time and subject to such reasonable documentation as may be
requested by Banknorth. If such expenses are paid in the first instance by
the Executive, Banknorth shall reimburse the Executive therefor upon
receipt of such reasonable documentation as may be requested by Banknorth.
(c) Noncompetition Payments. In consideration of the performance of
the Executive's obligations pursuant to Section 4 hereof, Banknorth agrees
to pay to the Executive $280,000, $350,000 and $100,000 during the first,
second and third years of the Noncompetition Period, respectively, which
amounts shall be payable in twelve (12) equal monthly installments
commencing on the first business day in the first, second and third years
of the Noncompetition Period, respectively. The Executive agrees that
during the second and third years of the Noncompetition Period the
Executive shall be treated as an independent contractor and shall not be
deemed to be an employee of Banknorth or any subsidiary or other affiliate
of Banknorth for any purpose.
8. Termination of Employment and Noncompetition Obligations.
(a) Termination for Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during the
Employment Period. If Banknorth determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to
the Executive written notice in accordance with Section 13(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with Banknorth shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the thirty (30) days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with Banknorth on a full-time basis for ninety (90) consecutive
business days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected by
Banknorth or its insurers and reasonably acceptable to the Executive or the
Executive's legal representative.
(b) Termination for Cause. Banknorth may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) conviction of a felony or a guilty or nolo contendere plea by
the Executive with respect thereto; or
III-8
(ii) willful and intentional misconduct, willful neglect or gross
negligence in the performance of the Executive's duties which has caused
a demonstrable injury to Banknorth, monetary or otherwise.
For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith or without reasonable belief that
the Executive's action or omission was in the best interests of Banknorth.
The cessation of employment of the Executive for conduct described in
subparagraph (ii) above shall not be deemed to be for Cause unless and
until the Board of Directors of Banknorth (after reasonable advance notice
is provided to the Executive and the Executive is given an opportunity to
be heard before the Board of Directors) shall have adopted a resolution
finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (ii) above, and specifying
the particulars thereof in detail. Banknorth may suspend the Executive's
authority and employment after the provision of a notice of intention to
terminate the Executive's employment for conduct described in subparagraph
(ii) above and prior to the time the Executive is given an opportunity to
meet with the Board of Directors, and any such suspension shall not
constitute "Good Reason" as defined in Section 8(c) below.
(c) Termination With Good Reason. The Executive's employment during
the Employment Period may be terminated by the Executive for Good Reason.
For purposes of this Agreement, "Good Reason" shall mean in the absence of
a written consent of the Executive:
(i) any failure by Banknorth to make employment of the type
described in Section 3(a)(i) available to the Executive during the
Employment Period or to comply with any of the requirements of Section 7
of this Agreement, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by Banknorth
within thirty (30) days after receipt of notice thereof given by the
Executive; or
(ii) any failure by Banknorth to comply with and satisfy the
requirements of Section 12(c) of this Agreement.
(d) Termination Without Good Reason. The Executive's employment
during the Employment Period may be terminated by Banknorth without Cause
or by the Executive without Good Reason.
(e) Termination of Noncompetition Obligations. Termination of the
Executive's employment during the Employment Period by either Banknorth or
the Executive shall not result in termination of the noncompetition
obligations of the Executive set forth in Section 4 or of the obligations
of Banknorth to make the payments required by Section 7(c). Banknorth shall
not have the right to terminate the noncompetition provisions of this
Agreement. The Executive may voluntarily terminate such noncompetition
obligations at any time during the second and third years of the
Noncompetition Period (in which event Banknorth shall have no further
obligations to make payments pursuant to Section 7(c), as provided in
Section 9(f)), provided that if the Executive terminates the noncompetition
obligations on a date which is within thirty (30) months after the
Effective Date, the Executive shall be required to comply with such
noncompetition obligations, without additional compensation from Banknorth,
for a period of three calendar months following the Date of Termination of
such noncompetition obligations.
(f) Notice of Termination. Any termination of the Executive's
employment during the Employment Period by Banknorth or the Executive, and
any termination by the Executive of the noncompetition obligations of the
Executive set forth in Section 4 hereof during the second or third years of
the Noncompetition Period, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 13(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as
III-9
defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the
giving of such notice). The failure by the Executive or Banknorth to set
forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or Banknorth, respectively, hereunder or preclude the
Executive or Banknorth, respectively, from asserting such fact or
circumstance in enforcing the Executive's or Banknorth's rights hereunder.
(g) Date of Termination. In the case of termination of the
Executive's employment during the Employment Period, "Date of Termination"
means (i) if the Executive's employment is terminated by Banknorth for
Cause, or by the Executive with or without Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein within
thirty (30) days of such notice, as the case may be, (ii) if the
Executive's employment is terminated by Banknorth other than for Cause or
Disability, the Date of Termination shall be the date on which Banknorth
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be. In the case of termination of the
Executive's noncompetition obligations during the second or third years of
the Noncompetition Period, "Date of Termination" means the date of
Banknorth's receipt of a Notice of Termination from the Executive.
9. Obligations of Banknorth upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, Banknorth shall terminate the Executive's
employment other than for Cause, death or Disability or the Executive shall
terminate his employment during the Employment Period for Good Reason:
(i) Banknorth shall:
A. pay to the Executive the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid
(the "Accrued Obligations");
B. subject to Section 13(f) hereof, continue to pay to the
Executive the amount of the Executive's Annual Base Salary from the
Date of Termination through the end of the Employment Period; and
C. continue to pay to the Executive the amounts payable under
Section 7(c) through the end of the Noncompetition Period, subject to
earlier termination as provided in Section 9(f);
(ii) subject to Section 13(f) hereof, for the remainder of the
Employment Period, Banknorth shall continue to provide medical and
dental benefits to the Executive, his spouse and dependents at the level
in effect on, and at the same out-of-pocket costs to the Executive as
of, the Date of Termination; and
(iii) to the extent not theretofore paid or provided, Banknorth
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of Banknorth and its affiliated companies through
the Date of Termination (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of the Accrued
Obligations and the timely payment or provision of Other Benefits. The
Accrued Obligations shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within thirty (30) days of the Date of
Termination.
III-10
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, Banknorth shall
have no further obligations to the Executive under this Agreement, other
than for payment of the Accrued Obligations and the timely payment or
provision of Other Benefits. The Accrued Obligations shall be paid to the
Executive in a lump sum in cash within thirty (30) days of the Date of
Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
during the Employment Period shall be terminated for Cause or the Executive
terminates his employment during the Employment Period without Good Reason,
Banknorth shall have no further obligations to the Executive under this
Agreement, other than for (i) payment of the Accrued Obligations and the
timely payment or provision of Other Benefits and (ii) continued payment of
the amounts payable under Section 7(c) through the end of the
Noncompetition Period, subject to earlier termination as provided in
Section 9(f).
(e) Purchase of Furniture and Furnishings. Notwithstanding any
provision of the preceding paragraphs of this Section 9 to the contrary,
upon termination of the Executive's employment hereunder, the Executive
shall be entitled to purchase his office furniture and furnishings at their
estimated fair market value at the time, as reasonably determined by
Banknorth.
(f) Noncompetition Obligations. Banknorth shall have no obligation to
make any payments to the Executive pursuant to Section 7(c) hereof for
periods after the Date of Termination of the noncompetition provisions
hereof in the event that the Executive voluntarily terminates his
noncompetition obligations at any time during the second and third years of
the Noncompetition Period.
10. Resolution of Disputes. With the exception of proceedings for
equitable relief brought pursuant to Section 6(a), any dispute or controversy
arising under or in connection with this Agreement may, at either Banknorth's or
the Executive's option, be settled exclusively by arbitration in Portland, Maine
in accordance with the rules of the American Arbitration Association then in
effect and at Banknorth's expense. Judgment may be entered on the arbitrator's
award in any court having jurisdiction. The Executive shall be entitled to seek
specific performance in court of his right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement. If a claim for any payments or benefits under
this Agreement or any other provision of this Agreement is disputed by Banknorth
and the Executive, the Executive shall, to the extent and at such time or times
as is not prohibited by applicable law, regulation, regulatory bulletin and/or
any other regulatory requirements, as the same exists or may be hereafter
promulgated or amended, if the Executive is successful in his claim, be
reimbursed for all reasonable attorney's fees and expenses incurred by the
Executive in pursuing such claim.
11. Advisory Director.
Banknorth agrees to cause the Executive to be appointed as a member of the
Massachusetts State Board of Banknorth, NA, Banknorth's wholly-owned banking
subsidiary, effective as of the Effective Date. The Executive shall have the
right, but not the obligation, to serve on such Board for the one-year period
following the Effective Date but shall not receive any compensation from
Banknorth or Banknorth, NA for such service.
12. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of Banknorth shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Banknorth and its successors and assigns.
III-11
(c) Banknorth will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of Banknorth to assume expressly and
agree to perform this Agreement in the same manner and to the same extent
that Banknorth would be required to perform it if no such succession had
taken place. As used in this Agreement, "Banknorth" shall mean Banknorth as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Maine, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by
the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
David L. Grey
6 Charles Davis Drive
Wenham, Massachusetts 01984
If to Banknorth:
Banknorth Group, Inc
P.O. Box 9540
Two Portland Square
Portland, Maine 04112-9540
Attention: President
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Banknorth may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or Banknorth's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert
any right the Executive or Banknorth may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 8(c) of this Agreement, shall not be deemed to
be a waiver of such provision or right or any other provision of, or right
under, this Agreement.
(f) In the event that Banknorth becomes obligated to make payments to
the Executive pursuant to Section 9(a)(i)(B) and Section 9(a) (ii) hereof,
the Executive shall have no obligation to seek other employment and shall
be entitled to continue to receive the payments and benefits provided
thereunder, provided that in the event that the Executive nonetheless
obtains other employment, which shall be consistent with the terms of this
Agreement, prior to the end of the Employment Period, any compensation or
benefits received by the Executive pursuant to such other employment shall
be applied against and reduce any payments or benefits to be paid or
provided to the Executive pursuant to Section 9(a)(i)(B) or Section
9(a)(ii) hereof. The Executive agrees to provide prompt
III-12
notice to Banknorth of the obtainment of any such other employment and the
amount of compensation and other benefits to be received by him in
connection therewith.
(g) This Agreement contains the entire agreement of the parties
relating to the subject matter hereof and supersedes in its entirety any
and all prior agreements or understandings, whether written or oral,
between Banknorth and the Executive relating to the subject matter hereof.
In reaching this Agreement, no party has relied upon any representation or
promise except those set forth herein and in the Termination Agreement,
dated as of the date hereof, by and among Banknorth, the Executive and the
other parties thereto.
(h) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder. In
addition, to the extent required by applicable law, regulation, regulatory
bulletin and/or any other regulatory requirement, the aggregate amount
and/or value of the compensation paid as a result of any termination of the
Executive's employment with Banknorth, regardless of the reason for any
such termination of employment, shall not exceed the limit prescribed by
applicable law, rule or regulation.
14. Effectiveness. Notwithstanding anything herein to the contrary, the
effectiveness of this Agreement shall be subject to consummation of the Merger
in accordance with the terms of the Merger Agreement, as the same may be amended
by the parties thereto in accordance with its terms.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, Banknorth has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ DAVID L. GREY
------------------------------------
David L. Grey
BANKNORTH GROUP, INC.
By: /s/ WILLIAM J. RYAN
----------------------------------
Name: William J. Ryan
Title: Chairman, President and
Chief Executive Officer
III-13
ANNEX IV
[KEEFE, BRUYETTE & WOODS, INC. LETTERHEAD]
May 14, 2002
The Board of Directors
Ipswich Bancshares, Inc.
23 Market Street
Ipswich, Massachusetts 01938
Members of the Board:
Keefe, Bruyette & Woods, Inc. ("KBW") understands that Ipswich Bancshares,
Inc. ("Ipswich") and Banknorth Group, Inc. ("Banknorth") have entered into an
agreement and plan of merger dated as of February 26, 2002 (the "Merger
Agreement"), which provides, among other things, for the merger of Ipswich with
and into Banknorth (the "Merger"). Pursuant to the Merger Agreement and subject
to certain exceptions set forth therein, at the effective time of the Merger,
each issued and outstanding share of common stock, par value $0.10 per share, of
Ipswich ("Ipswich Common Stock") shall be converted into, following the election
of the holder and subject to the limitations set forth in the Merger Agreement,
the right to receive (i) $20.50 in cash without interest (the "Cash
Consideration), or (ii) the number of Banknorth shares, par value $0.01
("Banknorth Common Stock"), which is equal to the quotient (the "Exchange
Ratio") determined by dividing (x) $20.50 by (y) the average share price of
Banknorth Common Stock over a twenty day period as more fully described in the
Merger Agreement (the "Stock Consideration").
Holders of Ipswich Common Stock may elect to receive the Cash
Consideration, or the Stock Consideration (as elected, the "Merger
Consideration"), provided that 51% of the aggregate consideration to be received
by holders of Ipswich Common Stock shall consist of the Stock Consideration and
49% of the aggregate consideration shall consist of Cash Consideration. The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for KBW's opinion as to whether the Merger Consideration is
fair, from a financial point of view, to the holders of Ipswich Common Stock. In
arriving at the opinion set forth below, KBW has, among other things:
a) reviewed and analyzed certain publicly available financial statements
for Ipswich and Banknorth and financial information made available to
us by the management of Ipswich and Banknorth;
b) analyzed certain internal financial statements, including financial
projections, and other financial and operating data prepared by the
management of Ipswich;
c) discussed the past, present and future operations, financial
condition and prospects of Ipswich and Banknorth with the management
of the respective companies;
IV-1
[LETTERHEAD CONTINUED]
d) reviewed the stock price performance and trading activity of Ipswich
Common Stock and Banknorth common stock;
e) compared the financial performance and condition of Ipswich and
Banknorth with that of certain other comparable publicly traded
companies;
f) reviewed the financial terms, to the extent publicly available, of
certain merger and acquisition transactions comparable, in whole or
in part, to the Merger;
g) reviewed and discussed with the management of Ipswich and Banknorth
the strategic objectives of the Merger and certain other benefits of
the Merger;
h) reviewed the Merger Agreement; and
i) performed such other analyses as we have deemed appropriate.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of the assets or liabilities
of Ipswich or Banknorth or been furnished with any such evaluation or appraisal.
We are not experts in the evaluation of allowances for loan losses, and we have
neither made an independent evaluation of the adequacy of the allowances for
loan losses of Ipswich or Banknorth, nor have we reviewed any individual credit
files of Ipswich or Banknorth or been requested to conduct such a review, and,
as a result, we have assumed that the respective allowances for loan losses for
Ipswich and Banknorth are adequate to cover such losses and will be adequate on
a pro forma basis for the combined entity. In addition, we have not assumed any
obligation to conduct, nor have we conducted, any physical inspection of the
properties or facilities of Ipswich or Banknorth. With respect to the financial
and operating information, including without limitation financial forecasts,
valuations of contingencies, projections regarding under-performing or
non-performing assets, net charge-offs, adequacy of reserves, future economic
conditions, and any expected synergies, furnished to or discussed with us by
Ipswich or Banknorth, we have assumed that all such information has been
reasonably prepared and reflect the best currently available estimates and
judgments of the senior management of Ipswich and Banknorth as to the future
financial and operating performance of Ipswich, Banknorth or the combined
entity, as the case may be, and the expected synergies.
Our opinion is necessarily based upon market, economic and other conditions
as in effect on, and on the information made available to us as of, the date
hereof. For the purposes of rendering this opinion, we have assumed that the
Merger will be consummated substantially in accordance with the terms set forth
in the Merger Agreement, including in all respects material to our analysis,
that the representations and warranties of each party in the Merger Agreement
and in all related documents and instruments (collectively, the "Documents")
that are referred to therein are true and correct, that each party to the
Documents will perform all of the covenants and agreements required to be
performed by such party under such Documents and that all conditions to the
consummation of the Merger will be satisfied without waiver thereof. We have
also assumed that, in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
future results of operations or financial condition of Ipswich, Banknorth, or
the combined entity, as the case may be, or on the contemplated benefits of the
Merger. We have further assumed that the Merger will qualify as a tax-free
reorganization for U.S. Federal income tax purposes.
We have been retained by the Board of Directors of Ipswich to act as
financial advisor to Ipswich in connection with the Merger and will receive a
fee from Ipswich for our services, a significant portion of which is contingent
upon the consummation of the Merger. In addition, Ipswich has agreed to
indemnify us for certain liabilities arising out of our engagement. In addition,
in the ordinary course of our business,
IV-2
[LETTERHEAD CONTINUED]
we may trade the Ipswich Common Stock and Banknorth Common Stock and other
securities of Banknorth and its affiliates for our own account and for the
accounts of our customers, and, accordingly, may at any time hold long or short
positions in such securities.
This opinion is for the use and benefit of the Board of Directors of
Ipswich. It is further understood that this opinion will not be reproduced,
summarized, described or referred to or given to any person without KBW's prior
written consent. Our opinion does not address the relative merits of the
underlying decision by Ipswich to engage in the Merger as compared to other
business strategies that may be available or the effort of any other transaction
in which Ipswich might engage, and it does not constitute a recommendation to
any shareholder of Ipswich as to how such shareholder should vote on the
proposed Merger or any other matter related thereto.
We have not considered, nor are we expressing any opinion herein with
respect to, the prices at which Ipswich common stock or Banknorth Common Stock
will trade following the announcement of the Merger or the price at which
Banknorth Common Stock will trade following the consummation of the Merger or at
any time.
Based upon and subject to the foregoing, KBW is of the opinion that, as of
the date hereof, the Merger Consideration is fair, from a financial point of
view, to the holders of Ipswich Common Stock.
Very truly yours,
/s/ KEEFE, BRUYETTE & WOODS, INC.
Keefe, Bruyette & Woods, Inc.
IV-3
ANNEX V
MASSACHUSETTS BUSINESS CORPORATION LAW, SECTIONS 85-98
C. 156B SEC.85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK;
EXCEPTION
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
C. 156B SEC.86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
C. 156B SEC.87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF
MEETING; FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such
action, written objection to the proposed action stating that he intends
to demand payment for his shares if the action is taken and (2) whose
shares are not voted in favor of such action has or may have the right
to demand in writing from the corporation (or, in the case of a
consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of
mailing to him of notice in writing that the corporate action has become
effective, payment for his shares and an appraisal of the value thereof.
Such corporation and any such stockholder shall in such cases have the
rights and duties and shall follow the procedure set forth in sections
88 to 98, inclusive, of chapter 156B of the General Laws of
Massachusetts."
V-1
C. 156B SEC.88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
C. 156B SEC.89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
C. 156B SEC.90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
C. 156B SEC.91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
C. 156B SEC.92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to
V-2
the stockholders entitled thereto upon the transfer by them to the corporation
of the certificates representing such stock if certificated or, if
uncertificated, upon receipt of an instruction transferring such stock to the
corporation. For this purpose, the value of the shares shall be determined as of
the day preceding the date of the vote approving the proposed corporate action
and shall be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
C. 156B SEC.93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
C. 156B SEC.94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill, and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
C. 156B SEC.95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
C. 156B SEC.96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting or
surviving corporation, deliver to it a written withdrawal of his objections
to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
C. 156B SEC.97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
V-3
C. 156B SEC.98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
V-4