OUR DIRECTORS, OFFICERS AND EMPLOYEES WILL HAVE ADDITIONAL COMPENSATION AND
BENEFIT PROGRAMS AFTER THE REORGANIZATION
We are adding a new benefit plan for our officers and employees at no cost
to them:
- EMPLOYEE STOCK OWNERSHIP PLAN. This retirement plan will cover most of our
employees. We will lend it money to buy up to 8% of the shares we sell in
the offering. It will buy them either in the offering or in the open
market. The plan will allocate the stock to employees over a period of at
least ten years as additional compensation for their services.
We are also adding the following termination pay arrangements:
- EMPLOYMENT AGREEMENTS. We are entering into employment agreements with Mr.
Joseph F. MacDonough, our President and Chief Executive Officer, and Mr.
John L. Casagrande, our Vice President and Treasurer. If we discharge one
of them without cause, if one of them resigns because we do not meet our
obligations under these agreements or following a change in control of
Westborough Financial Services, Inc., we must make a termination payment.
7
We also plan to add the following stock-based benefit plans for our
directors, officers and employees:
- STOCK OPTION PLAN. Under this plan, we may grant our officers, directors
and employees options to purchase our stock at a price that is set on the
date we grant the option. The price that we set cannot be less than our
stock's trading price when we grant the options, so the options will have
value only if our stock price increases. Recipients of options will have
up to ten years to exercise their options.
- MANAGEMENT RECOGNITION PLAN. This plan will allow selected officers,
directors and employees to receive shares of our stock, without making any
payment at all, if they work for us until the end of a specified service
period.
We will not implement a stock option plan or management recognition plan
unless our stockholders approve them. We do not expect to ask our stockholders
to approve these plans until at least six months after we complete the offering.
We expect to obtain the shares we would need for these plans through open market
stock purchases or from authorized but unissued shares.
The following table presents the dollar value of the shares that we expect
to grant under the employee stock ownership plan and the contemplated management
recognition plan and of those to be granted under the stock option plan, and the
percentage of Westborough Financial Services' outstanding common stock that will
be represented by these shares. We based the value of the shares for the
employee stock ownership plan and management recognition plan on a price of
$10.00 per share and the issuance of 805,000 shares of common stock.
VALUE OF PERCENTAGE OF
SHARES COMMON STOCK SOLD
BENEFIT PLAN GRANTED IN THE OFFERING
----------------------------------------------------------- ------------- -------------------
(IN THOUSANDS)
Employee stock ownership plan.............................. $ 644,000 8%
Stock option plan.......................................... -- 10%
Management recognition plan................................ $ 322,000 4%
POSSIBLE CONVERSION OF WESTBOROUGH BANCORP, MHC TO STOCK FORM
In the future, Westborough Bancorp, MHC will have authority to convert from
the mutual to capital stock form, in a transaction commonly known as a
"second-step conversion." If Westborough Bancorp, MHC were to undertake a
second-step conversion, Westborough Financial Services' public stockholders
would own approximately the same percentage of the resulting entity as they
owned prior to the second-step conversion. This percentage would be adjusted to
reflect the assets owned by Westborough Bancorp, MHC and any dividends waived by
Westborough Bancorp, MHC. The Board of Trustees has no current plan to undertake
a "second-step conversion" transaction and, under current regulatory
restrictions, may not do so for a period of three years following the
reorganization absent compelling and valid business reasons established to the
satisfaction of the Commissioner of the Massachusetts Division of Banks. For a
description of this possible second-step conversion, see "The Reorganization and
The Offering--Possible Conversion of Westborough Bancorp, MHC to Stock Form."
HOW YOU MAY OBTAIN ADDITIONAL INFORMATION REGARDING THE OFFERING
If you have any questions regarding the offering or the reorganization,
please call the Stock Information Center at (508) .
8
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE DECIDING
WHETHER TO INVEST IN OUR COMMON STOCK.
AFTER THE REORGANIZATION OUR RETURN ON AVERAGE EQUITY WILL BE LOW COMPARED TO
OTHER COMPANIES.
THIS COULD HURT THE PRICE OF OUR COMMON STOCK.
We will not be able to deploy the increased capital from this offering into
earning assets immediately. Our ability to profitably leverage our new capital
will be significantly affected by industry competition for loans and deposits.
Also, we intend to make significant investments in non-earning assets such as
facilities and technology. Initially, we intend to invest the net proceeds in
short-term investments which generally have lower yields than loans. This will
reduce our return on average equity to a level that will be lower than our
historical ratios. For the six months ended March 31, 1999, our return on
average equity was 8.43%. Until we can leverage our increased capital and grow
interest earning assets, we expect our return on equity to be below the industry
average, which may negatively impact the value of your stock.
OUR LOANS ARE CONCENTRATED IN A SMALL GEOGRAPHIC AREA.
Our loan portfolio is primarily secured by real estate located in the towns
of Westborough, Northborough, Shrewsbury and Grafton, Massachusetts.
Accordingly, the asset quality of our loan portfolio is largely dependent upon
the economy and unemployment rate in this area. A downturn in the economy in our
primary lending area would likely adversely affect our operations and
profitability.
WE MAY NOT SUCCESSFULLY EXPAND AND GROW.
Our future will depend on the success of increasing our loan portfolio,
developing a commercial loan expertise, developing new product lines and opening
new branches. Our ability to originate small business loans and expand product
lines will depend on market conditions in our primary market area. Small
business loans, however, are new to us and involve a higher degree of risk than
one-to four-family residential mortgage loans. As the volume of small business
loans in our loan portfolio increases, the corresponding risks and potential for
losses from these activities will also increase. The success of the branching
opportunities will, in turn, depend on our ability to integrate new branches
into our current operations and our success in attracting customers and a
sufficient amount of deposits to make the new branches profitable.
RISING INTEREST RATES MAY HURT OUR PROFITS.
To be profitable, we have to earn more money in interest and fees than we
pay as interest and other expenses. Of our total loan portfolio, 61.15% are
residential mortgage loans that have interest rates fixed for the term of the
loan. We originate loans with terms of up to 30 years, while 27.45% of our
deposit accounts consist of certificate of deposit accounts with remaining terms
to maturity of one year or less. If interest rates rise, the amount of interest
we pay on deposits is likely to increase more quickly than the amount of
interest we receive on our loans, mortgage-backed securities and investment
securities. This would cause our profits to decrease. Rising interest rates may
also reduce the value of our mortgage-backed securities and investment
securities. For additional information on our exposure to interest rates, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Interest Rate Risk."
THE MARKET FOR COMMON STOCK WILL BE LIMITED.
Due to the small size of the offering, it is highly unlikely that an active
trading market for our stock will develop and be maintained. If an active market
does not develop, you may not be able to sell
9
your shares promptly or perhaps at all, or sell your shares at a price equal to
or above the price you paid for them. The common stock may not be appropriate as
a short-term investment.
WESTBOROUGH BANCORP, MHC'S VOTING CONTROL OVER WESTBOROUGH FINANCIAL SERVICES
MAY PREVENT TRANSACTIONS YOU WOULD LIKE.
Westborough Bancorp, MHC will own a majority of Westborough Financial
Services' common stock after the reorganization. Westborough Bancorp, MHC will
be managed by the same trustees/ directors and officers who manage Westborough
Savings. The Board of Trustees of Westborough Bancorp, MHC will control the
outcome of most matters put to a vote of stockholders of Westborough Financial
Services. We cannot assure you that the votes cast by Westborough Bancorp, MHC
will be in your personal best interests as a stockholder. For more information
regarding your lack of voting control over Westborough Financial Services, see
"Westborough Bancorp, MHC" and "Restrictions on Acquisition of Westborough
Financial Services and The Westborough Bank."
OUR INTENT TO REMAIN INDEPENDENT MAY NOT SUIT YOUR INVESTMENT OBJECTIVES.
Westborough Savings has operated as an independent community-oriented
savings institution since 1869. We intend to continue to operate as an
independent community-oriented savings institution following the reorganization.
Westborough Bank and Westborough Financial Services will be controlled by
Westborough Bancorp, MHC, and we have no current plans to alter this mutual
holding company structure in the future. ACCORDINGLY, YOU ARE URGED NOT TO
SUBSCRIBE FOR SHARES OF COMMON STOCK IF YOU ARE ANTICIPATING A SALE OF
WESTBOROUGH BANK OR WESTBOROUGH FINANCIAL SERVICES.
THE IMPLEMENTATION OF STOCK-BASED BENEFITS WILL INCREASE OUR FUTURE COMPENSATION
EXPENSE AND REDUCE OUR EARNINGS.
We intend to adopt a stock option plan that will provide for the granting of
options to purchase common stock, to adopt a management recognition plan that
will provide for awards of common stock to our eligible officers, employees and
directors and to have an employee stock ownership plan which will purchase
shares in the reorganization. These plans will increase our future costs of
compensating our directors and employees and reduce our earnings. The cost of
these plans will vary based on our stock price.
STRONG COMPETITION WITHIN OUR MARKET AREA MAY REDUCE OUR CUSTOMER BASE.
Competition in the banking and financial services industry is intense. We
have competed for customers by offering excellent service and competitive rates
on our loans and deposit products. We compete with commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies, mutual
funds, insurance companies, and brokerage and investment banking firms. Some of
these competitors have greater resources than we do and may offer services that
we do not provide. Our profitability depends upon our continued ability to
successfully compete in our market area.
THE YEAR 2000 PROBLEM COULD HURT OUR OPERATIONS AND OUR PROFITS AND COULD LOWER
THE VALUE OF YOUR STOCK.
We rely upon computers to conduct our daily business. Failure of any of our
computer systems, those of the parties we do business with or the public
infrastructure, including the electric and telephone companies, to process in
the new year may disrupt our ability to do routine business and to service our
customers. For example, we may not be able to process withdrawals or deposits,
prepare account statements or engage in any of the transactions that constitute
our normal operations. This could hurt our profits. For additional information
regarding the "Year 2000 Problem," see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Issues for the Year 2000."
10
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The summary information presented below at or for each of the years
presented is derived in part from the consolidated financial statements of
Westborough Savings. The following information is only a summary, and you should
read it in conjunction with our consolidated financial statements and notes
beginning on page F-1.
AT SEPTEMBER 30,
AT MARCH 31, ----------------------------------
1999 1998 1997 1996
------------ ---------- ---------- ----------
(IN THOUSANDS)
SELECTED FINANCIAL DATA:
Total assets................................................... $ 167,531 $ 158,523 $ 143,896 $ 140,218
Loans, net(1).................................................. 86,352 82,348 70,580 65,243
Investment securities (2)...................................... 63,967 60,107 61,654 62,743
Total deposits................................................. 142,971 135,962 125,170 120,282
Federal Home Loan Bank advances................................ 4,000 2,000 -- 3,000
Total surplus.................................................. 19,611 19,367 17,447 15,789
Allowance for loan losses...................................... 857 827 786 690
Non-accrual loans.............................................. -- -- -- --
Non-performing assets.......................................... -- 74 19 144
FOR THE SIX MONTHS
FOR THE YEAR ENDED
ENDED MARCH 31, SEPTEMBER 30,
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
SELECTED OPERATING DATA:
Interest and dividend income..................................... $ 5,179 $ 4,952 $ 9,933 $ 9,461 $ 8,711
Total interest expense........................................... 2,429 2,272 4,557 4,426 4,037
--------- --------- --------- --------- ---------
Net interest and dividend income................................. 2,750 2,680 5,376 5,035 4,674
Provision for loan losses........................................ 25 20 39 96 105
--------- --------- --------- --------- ---------
Net interest and dividend income after provision for loan
losses......................................................... 2,725 2,660 5,337 4,939 4,569
Total other income............................................... 630 195 383 608 454
Total operating expense.......................................... 2,118 1,728 3,657 3,563 3,145
--------- --------- --------- --------- ---------
Income before income taxes....................................... 1,237 1,127 2,063 1,984 1,878
Provision for income taxes....................................... 413 413 750 676 695
--------- --------- --------- --------- ---------
Net income....................................................... $ 824 $ 714 $ 1,313 $ 1,308 $ 1,183
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
(FOOTNOTES ON NEXT PAGE)
11
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE YEAR ENDED
MARCH 31, SEPTEMBER 30,
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
SELECTED FINANCIAL RATIOS AND OTHER DATA(3)
PERFORMANCE RATIOS:
Return on average assets..................................... 1.02% 0.97% 0.88% 0.93% 0.91%
Return on average equity..................................... 8.43 8.07 7.25 8.06 7.81
Average equity to average assets............................. 12.16 12.04 12.16 11.58 11.62
Equity to total assets at end of period...................... 11.71 12.20 12.22 12.12 11.26
Average interest rate spread................................. 2.97 3.24 3.20 3.24 3.25
Net interest margin(4)....................................... 3.55 3.80 3.76 3.74 3.74
Average interest earning assets to average interest bearing
liabilities................................................ 118.23 117.33 117.84 115.60 115.12
Total operating expense to average assets.................... 2.63 2.35 2.46 2.54 2.41
Efficiency ratio(5).......................................... 62.66 60.10 63.50 63.14 61.33
REGULATORY CAPITAL RATIOS:
Regulatory tier 1 leverage capital........................... 11.70 11.90 12.00 11.90 11.60
Tier 1 risk-based capital.................................... 21.50 24.00 21.80 22.90 26.10
Total risk-based capital..................................... 22.50 25.01 22.70 24.00 27.20
ASSET QUALITY RATIOS:
Non-performing loans as a percent of loans................... -- -- -- -- --
Non-performing assets as a percent of total assets........... -- -- 0.05 0.01 0.10
Allowance for loan losses as a percent of total loans before
the allowance for loan losses.............................. 0.98 1.06 0.99 1.10 1.05
NUMBER OF:
Full-service offices(6)...................................... 4 4 4 4 3
Full-time equivalent employees............................... 56 51 53 51 50
(1) Loans are shown net of deferred loan costs (fees), allowance for loan loss
and unadvanced loan funds.
(2) Includes Federal Home Loan Bank of Boston stock.
(3) Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.
Ratios for the period at or for the six months ended March 31 are
annualized.
(4) Net interest margin represents net interest income as a percentage of
average interest earning assets.
(5) The efficiency ratio represents the ratio of operating expenses divided by
the sum of net interest and dividend income and other income.
(6) The number of full-service offices shown at March 1999 does not include our
branch at the Willows or our new branch which opened in May 1999 and is
located in the Shaw's supermarket in Shrewsbury, Massachusetts.
12
WESTBOROUGH SAVINGS BANK
Westborough Savings is a Massachusetts-chartered mutual savings bank,
chartered in 1869. Westborough Savings is headquartered in Westborough,
Massachusetts, which is located 12 miles east of Worcester and 29 miles west of
Boston, Massachusetts. Our deposits are insured by the FDIC and the Depositors
Insurance Fund. We are examined and regulated by the Division of Banks of the
Commonwealth of Massachusetts and the FDIC. Westborough Savings Bank's executive
offices are located at 100 E. Main Street, Westborough, Massachusetts 01581 and
its telephone number is (508) 366-4111. Westborough Savings also maintains an
Internet web site located at www.westborosavings.com.
Westborough Savings is a community and customer-oriented retail bank
offering traditional deposit products, residential and commercial real estate
mortgage loans and, to a lesser extent, consumer and commercial loans. We
operate five full service banking offices located in the towns of Westborough,
Northborough and Shrewsbury, Massachusetts. We also operate a non-public
self-contained office at the "Willows," a retirement community located in
Westborough. Together, our offices serve our "primary market area" consisting of
Westborough, Northborough, Shrewsbury, Grafton, Southborough and Hopkinton,
Massachusetts.
At March 31, 1999, we had total loans of $88.6 million, of which $78.6
million, or 88.6%, were residential first mortgage loans. Of the residential
first mortgage loans outstanding at that date, 31.0% were adjustable-rate
mortgage loans and 69.0% were fixed-rate loans. We retain substantially all of
the loans that we originate. We also invest in mortgage-backed and investment
securities, consisting primarily of U.S. government, government agency and
corporate securities. Our investment portfolio equaled $64.0 million, or 38.2%
of our total assets at March 31, 1999. For further information on our operations
and financial condition, see "Business of Westborough Savings Bank."
WESTBOROUGH FINANCIAL SERVICES, INC.
Westborough Financial Services is a newly organized Massachusetts
corporation organized on , 1999. Westborough Financial Services has not
engaged in any business to date and will serve as a holding company of The
Westborough Bank (formerly known as Westborough Savings Bank) following the
reorganization. A majority of the outstanding shares of Westborough Financial
Services' common stock will be owned by Westborough Bancorp, MHC. Westborough
Financial Services' executive offices are located at 100 East Main Street,
Westborough, Massachusetts and its telephone number is (508) 366-4111.
WESTBOROUGH BANCORP, MHC
As part of our reorganization, Westborough Savings will organize Westborough
Bancorp, MHC as a Massachusetts-chartered mutual holding company which will be
registered as a bank holding company with the Federal Reserve Board. Persons who
had liquidation rights with respect to Westborough Savings as of the date of the
reorganization will continue to have liquidation rights solely with respect to
Westborough Bancorp, MHC. Their liquidation rights in Westborough Bancorp, MHC
will exist as long as they maintain a deposit account at Westborough Bank.
Westborough Bancorp, MHC's executive offices are located at 100 East Main
Street, Westborough, Massachusetts 01581 and its telephone number is (508)
366-4111.
Westborough Bancorp, MHC's principal assets will be the shares of common
stock of Westborough Financial Services that it receives in the reorganization
and approximately $100,000 that it receives as its initial capitalization. At
the present time, we expect that Westborough Bancorp, MHC will not engage in any
business activity other than its investment in a majority of the common stock of
Westborough Financial Services and the management of any cash dividends received
from Westborough Financial Services. Federal and state law and regulations
require that as long as Westborough Bancorp, MHC is in existence it must own a
majority of Westborough Financial Services' common stock.
13
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
The net proceeds will depend on the total number of shares of common stock
sold in the offering, which in turn will depend on RP Financial's appraisal,
regulatory and market considerations, and the expenses incurred in connection
with the offering. Although we will not be able to determine the actual net
proceeds from the sale of the common stock until we complete the offering, we
estimate the net proceeds to be between $5.4 million and $7.5 million.
WESTBOROUGH FINANCIAL SERVICES INTENDS TO DISTRIBUTE THE NET PROCEEDS FROM
THE OFFERING AS FOLLOWS:
NUMBER OF SHARES SOLD
--------------------------
595,000 805,000
------------ ------------
Offering proceeds................................................. $ 5,950,000 $ 8,050,000
Less: offering expenses........................................... 504,010 542,650
------------ ------------
Net offering proceeds............................................. 5,445,990 7,507,350
Less:
Proceeds contributed to Westborough Bank........................ 2,722,995 3,753,675
Proceeds used for loan to employee stock ownership plan......... 476,000 644,000
------------ ------------
Proceeds remaining for Westborough Financial Services............. $ 2,246,995 $ 3,109,675
------------ ------------
------------ ------------
If regulatory or market conditions change and we are required to sell
925,750 shares of stock, then we estimate the net offering proceeds to be
$8,692,632. If we sell 925,750 shares of stock, then our loan to the employee
stock ownership plan would be $741,000.
The net proceeds may vary because total expenses relating to the
reorganization may be more or less than our estimates. For example, our expenses
would increase if a syndicated community offering is used to sell shares not
purchased in the subscription offering and community offering. The net proceeds
will also vary if the number of shares to be sold in the offering are adjusted
to reflect a change in the estimated pro forma market value of Westborough
Financial Services and Westborough Bank. Payments for shares made through
withdrawals from existing deposit accounts will not result in the receipt of new
funds for investment by Westborough Bank but will result in a reduction of
Westborough Bank's deposits and interest expense as funds are transferred from
interest bearing certificates of deposit or other deposit accounts.
WESTBOROUGH FINANCIAL SERVICES MAY USE THE PROCEEDS IT RETAINS FROM THE
OFFERING:
(1) to invest in securities;
(2) to finance the possible acquisition of financial institutions or other
businesses that are related to banking;
(3) to repurchase shares of common stock issued in the offering; and
(4) for general corporate purposes.
WESTBOROUGH BANK MAY USE THE PROCEEDS IT RECEIVES FROM THE OFFERING:
(1) to fund new loans;
(2) to finance the possible establishment or acquisition of one or more
branch offices in its market area;
(3) to finance the expansion and renovation of its main office; and
(4) for general corporate purposes.
14
OUR POLICY REGARDING DIVIDENDS
We will have the authority to declare and pay dividends on our common stock
upon completion of the offering. However, initially, we do not intend to do so.
Any decision by our Board of Directors to pay dividends in the future, including
with respect to the amount and timing of such dividends, will depend on a number
of factors, including our financial condition, results of operations, tax
considerations, industry standards, economic conditions, regulatory restrictions
that affect the payment of dividends by Westborough Bank to Westborough
Financial Services and any other relevant factors. We cannot guarantee that we
will pay dividends, or that, if paid, we will not reduce or eliminate dividends
in the future.
If Westborough Financial Services pays dividends to its stockholders, it
will be required to pay dividends to Westborough Bancorp, MHC, unless
Westborough Bancorp, MHC elects to waive dividends. We do not currently
anticipate that Westborough Bancorp, MHC will waive dividends paid by
Westborough Financial Services. Any decision to waive dividends will be subject
to regulatory approval. See "Regulation of Westborough Savings Bank and
Westborough Financial Services, Inc.-- Dividend Waivers by Westborough Bancorp,
MHC."
As the principal asset of Westborough Financial Services, Westborough Bank
will provide the primary source of funds for the payment of dividends by
Westborough Financial Services. Westborough Bank, however, will not be permitted
to pay dividends on its common stock if its stockholders' equity would be
reduced below the amount required for the liquidation account. See "The
Reorganization and The Offering--Effects of the Reorganization--Depositors'
Rights If We Liquidate; Liquidation Account." Under FDIC regulations,
Westborough Bank is prohibited from paying dividends if, among other things, it
was not in compliance with applicable regulatory capital requirements. In
addition, Massachusetts law provides that dividends may be paid by Westborough
Bank only out of net profits and only to the extent that it does not impair its
capital stock and surplus accounts. Provided that Westborough Bank can meet the
above requirements, the net profits of Westborough Bank may be distributed as a
dividend so long as, after the distribution, either the capital stock and
surplus accounts of Westborough Bank equal at least 10% of its deposit
liabilities, or the surplus account of Westborough Bank equals 100% of its
capital stock account, subject to certain statutory exceptions.
Any payment of dividends by Westborough Bank to Westborough Financial
Services that would be deemed to be drawn out of Westborough Bank's bad debt
reserves, would require a payment of taxes at the then-current tax rate by
Westborough Bank on the amount of earnings deemed to be removed from bad debt
reserves for such distribution. Westborough Bank does not intend to make any
distribution to Westborough Financial Services that would create this type of a
tax liability. See "Taxation."
MARKET FOR THE COMMON STOCK
We have not previously issued common stock, and there is currently no
established market for the common stock. We expect the common stock to trade
under the symbol "WFSI" on the over-the-counter market with quotations available
through the OTC Bulletin Board after completion of the offering. Trident
Securities has advised us that it intends to make a market in the common stock
following the reorganization, but is under no obligation to do so. We will seek
to encourage and assist additional market makers to make a market for our common
stock.
The development of an active trading market depends on the existence of
willing buyers and sellers, the presence of which is not within our control, or
any market maker. The number of active buyers and sellers of the common stock at
any particular time may be limited. Under such circumstances, you could have
difficulty selling your shares on short notice, and, therefore, you should not
view the common stock as a short-term investment. We cannot assure you that an
active trading market for the common stock will develop or that, if it develops,
it will continue, nor can we assure you that if you purchase shares you will be
able to sell them at or above $10.00 per share.
15
REGULATORY CAPITAL COMPLIANCE
At March 31, 1999, we exceeded all regulatory capital requirements. Set
forth below is a summary of our capital computed under generally accepted
accounting principles ("GAAP") and our compliance with regulatory capital
standards at March 31, 1999, on a historical and pro forma basis. We have
assumed that the indicated number of shares were sold as of March 31, 1999 and
that Westborough Bank received 50% of the net proceeds from the offering. For
purposes of the table below, the amount expected to be loaned to the employee
stock ownership plan and the cost of the shares expected to be acquired by the
management recognition plan are deducted from pro forma regulatory capital. For
a discussion of the capital requirements applicable to Westborough Savings and
Westborough Bank, see "Regulation of Westborough Savings Bank and Westborough
Financial Services, Inc.--Federal Banking Regulation--Capital Requirements."
PRO FORMA AT MARCH 31, 1999 BASED UPON THE SALE AT $10.00 PER SHARE
-------------------------------------------------------------------------------------------------
925,750
SHARES
(15%
ABOVE
595,000 SHARES 700,000 SHARES 805,000 SHARES MAXIMUM
HISTORICAL AT (MINIMUM OF THE (MIDPOINT OF THE (MAXIMUM OF THE OF THE
MARCH 31, 1999 RANGE) RANGE) RANGE) RANGE)(1)
-------------------- -------------------- -------------------- -------------------- ---------
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS AMOUNT
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
Capital and Retained
Earnings under Generally
Accepted Accounting
Principles............... $ 19,611 11.71% $ 21,520 12.70% $ 21,910 12.90% $ 22,299 13.10% $ 22,747
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Leverage Capital:
Leverage Capital
level(3)................. $ 19,031 11.67% $ 20,940 12.69% $ 21,330 12.90% $ 21,719 13.10% $ 22,167
Requirement(4)............. 4,892 3.00 4,949 3.00 4,961 3.00 4,973 3.00 4,987
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Excess..................... $ 14,139 8.67% $ 15,991 9.69% $ 16,369 9.90% $ 16,746 10.10% $ 17,180
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Tier I Risk-Based Capital:
Capital level(3)(5)........ $ 19,031 21.52% $ 20,940 23.57% $ 21,330 23.99% $ 21,719 24.41% $ 22,166
Requirement................ 3,538 4.00 3,553 4.00 3,556 4.00 3,560 4.00 3,563
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Excess..................... $ 15,493 17.52% $ 17,387 19.57% $ 17,773 19.99% $ 18,159 20.41% $ 18,603
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Risk-Based Capital:
Capital level(3)(4)........ $ 19,888 22.48% $ 21,797 24.54% $ 22,187 24.95% $ 22,576 25.37% $ 23,024
Requirement(4)............. 7,076 8.00 7,107 8.00 7,113 8.00 7,119 8.00 7,127
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Excess..................... $ 12,812 14.98% $ 14,690 16.54% $ 15,074 16.95% $ 15,457 17.37% $ 15,897
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
PERCENT
OF
ASSETS(2)
---------
Capital and Retained
Earnings under Generally
Accepted Accounting
Principles............... 13.33%
---------
---------
Leverage Capital:
Leverage Capital
level(3)................. 13.34%
Requirement(4)............. 3.00
---------
Excess..................... 10.34%
---------
---------
Tier I Risk-Based Capital:
Capital level(3)(5)........ 24.88%
Requirement................ 4.00
---------
Excess..................... 20.88%
---------
---------
Total Risk-Based Capital:
Capital level(3)(4)........ 25.85%
Requirement(4)............. 8.00
---------
Excess..................... 17.85%
---------
---------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the estimated price range of up to 15% as
a result of changes in market conditions or general financial and economic
conditions following the commencement of the offering.
(2) Leverage capital levels are shown as a percentage of "total assets," and
risk-based capital levels are calculated on the basis of a percentage of
"risk-weighted assets," each as defined in the FDIC regulations.
(3) Pro forma capital levels assume receipt by Westborough Bank of 50% of the
net proceeds from the shares of common stock sold at the minimum, midpoint
and maximum of the offering range. These levels assume funding by
Westborough Bank of the management recognition plan equal to 4% of the
common stock issued, including repayment of Westborough Financial Services'
loan to the employee stock ownership plan to enable the plan to purchase 8%
of the common stock issued.
(4) The current leverage capital requirement for savings banks is 3% of total
adjusted assets for savings banks that receive the highest supervisory
ratings for safety and soundness and that are not experiencing or
anticipating significant growth. The current leverage capital ratio
applicable to all other savings banks is 4% to 5%.
(5) Assumes net proceeds are invested in assets that carry risk-weighting equal
to the actual risk weighting of Westborough Savings' assets as of March 31,
1999.
16
CAPITALIZATION
The following table presents the historical deposits and capitalization of
Westborough Savings at March 31, 1999, and the pro forma capitalization of
Westborough Financial Services after giving effect to the reorganization, based
upon the sale of the number of shares shown below and the other assumptions set
forth under "Pro Forma Data." A change in the number of shares to be sold in the
offering may affect materially the capitalization.
COMPANY PRO FORMA BASED UPON SALE
AT $10.00 PER SHARE
------------------------------------------------------
925,750
595,00 700,000 805,000 SHARES
HISTORICAL SHARES SHARES SHARES (15% ABOVE
AS OF (MINIMUM (MIDPOINT (MAXIMUM MAXIMUM OF
MARCH 31, 1999 OF RANGE) OF RANGE) OF RANGE) RANGE) (1)
--------------- ----------- ----------- ----------- ---------------
(IN THOUSANDS)
Deposits(2)................................. $ 142,971 $ 142,971 $ 142,971 $ 142,971 $ 142,971
Borrowings.................................. 4,000 4,000 4,000 4,000 4,000
--------------- ----------- ----------- ----------- ---------------
Total deposits and borrowed funds........... $ 146,971 $ 146,971 $ 146,971 $ 146,971 $ 146,971
--------------- ----------- ----------- ----------- ---------------
--------------- ----------- ----------- ----------- ---------------
Stockholders' equity:
Preferred stock, $0.01 par value,
1,000,000 shares authorized; none to be
issued.................................. $ -- $ -- $ -- $ -- $ --
Common stock, $0.01 par value, 5,000,000
shares authorized; shares to be issued
as reflected(3)(4)...................... -- 17 20 23 26
Additional paid-in capital)(4)............ -- 5,429 6,457 7,484 8,667
Retained earnings(5)...................... 19,031 18,931 18,931 18,931 18,931
Accumulated other comprehensive income.... 580 580 580 580 580
Less:
Common stock acquired by the employee
stock ownership plan(6)................. -- (476) (560) (644) (741)
Common stock acquired by the management
recognition plan(7)..................... -- (238) (280) (322) (370)
--------------- ----------- ----------- ----------- ---------------
Total stockholders' equity.................. $ 19,611 $ 24,243 $ 25,148 $ 26,052 $ 27,093
--------------- ----------- ----------- ----------- ---------------
--------------- ----------- ----------- ----------- ---------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering of up to 15% as a result of
regulatory considerations or changes in market or general financial and
economic conditions following the commencement of the offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects share to be issued to Westborough Bancorp, MHC as follows:
1,105,000 shares at the minimum, 1,300,000 shares at the midpoint, 1,495,000
shares at the maximum and 1,719,250 shares at 15% above the maximum.
(4) Reflects the issuance of shares sold in the offering at a value of $10.00
per share. No effect has been given to the issuance of additional shares of
common stock pursuant to Westborough Financial Services' proposed stock
option plan intended to be adopted by Westborough Financial Services and
presented for approval of stockholders at a meeting of the stockholders to
be held at least six months following completion of the offering.
(5) The retained earnings of Westborough Bank will be substantially restricted
after the offering. The reduction in historical retained earnings reflects
the $100,000 initial capitalization of Westborough Bancorp, MHC by
Westborough Bank.
(6) Assumes that 8% of the shares issued in connection with the offering will be
purchased by the employee stock ownership plan and that the funds used to
acquire such shares will be borrowed from Westborough Financial Services.
The common stock acquired by the employee stock ownership plan is reflected
as a reduction of stockholders' equity.
(7) Assumes that, subsequent to the offering, an amount equal to 4% of the
shares of common stock issued in the offering is purchased by a management
recognition plan through open market purchases. The proposed management
recognition plan is intended to be adopted by Westborough Financial Services
and presented for approval of stockholders at a meeting of stockholders to
be held at least six months following completion of the offering. The common
stock purchased by the management recognition plan is reflected as a
reduction of stockholders' equity.
17
PRO FORMA DATA
We can not determine the actual net proceeds from the sale of the common
stock until the offering is completed. However, we estimate that net proceeds
will be between $4.7 million and $6.5 million, or $7.6 million if the offering
range is increased by 15%, based upon the following assumptions:
- we will sell all shares of common stock in the subscription offering;
- we will pay Trident Securities a fee equal to 2.0% of the aggregate
purchase price for sales in the subscription offerings except for shares
sold to the employee stock ownership plan, and officers, trustees and
their immediate families; and
- total expenses, excluding the marketing fees paid to Trident Securities
will be approximately $405,780.
We calculated the pro forma consolidated net income and stockholders' equity
of Westborough Financial Services for the six months ended March 31, 1999 and
the year ended September 30, 1998, as if the common stock had been sold at the
beginning of the year and the net proceeds had been invested at 4.70% and 4.39%,
respectively. We chose these yields because they represent the yield on one-year
U.S. Government securities at the corresponding period. In light of changes in
interest rates in recent periods, we believe this rate more accurately reflects
pro forma reinvestment rates than the arithmetic average method. We assumed a
tax rate of 36% for both periods. This results in an after-tax yield of 3.01%
for the six months ended March 31, 1999 and 2.81% for the year ended September
30, 1998.
We calculated historical and pro forma per share amounts by dividing
historical and pro forma amounts of pro forma consolidated net income and
stockholders' equity by the indicated number of shares of common stock. We
adjusted these figures to give effect to the shares purchased by the employee
stock ownership plan. We computed per share amounts for each period as if the
common stock was outstanding at the beginning of the periods, but we did not
adjust per share historical or pro forma stockholders' equity to reflect the
earnings on the estimated net proceeds. As discussed under "How We Intend to Use
the Proceeds from the Offering," Westborough Financial Services intends to
retain 50% of the net proceeds from the offering and intends to make a loan to
the employee stock ownership plan to fund the employee stock ownership plan's
purchase of 8% of the common stock.
The following tables give effect to the management recognition plan, which
we expect to adopt following the reorganization and present, along with the
stock option plan, to stockholders for approval at an annual or special meeting
of stockholders to be held at least six months following the completion of the
reorganization. If the management recognition plan is approved by stockholders,
the management recognition plan will acquire an amount of common stock equal to
4% of the shares of common stock sold in the offering, either through open
market purchases or from authorized but unissued shares of common stock. On
preparing the following tables we assumed that stockholder approval has been
obtained and that the shares acquired by the management recognition plan are
purchased in the open market at the purchase price.
The following tables do not give effect to:
(1) the shares to be reserved for issuance under the stock option plan, which
requires stockholder approval at a meeting following the reorganization;
(2) withdrawals from deposit accounts for the purpose of purchasing common stock
in the reorganization;
(3) Westborough Financial Services' results of operations after the
reorganization; or
(4) the market price of the common stock after the reorganization.
18
The following pro forma information may not represent the financial effects
of the reorganization at the date on which the reorganization actually occurs
and you should not use the table to indicate future results of operations. Pro
forma stockholders' equity represents the difference between the stated amount
of assets and liabilities of Westborough Financial Services computed in
accordance with generally accepted accounting principles. We did not increase or
decrease stockholders' equity to reflect the difference between the carrying
value of loans and other assets and market value. Pro forma stockholders' equity
is not intended to represent the fair market value of the common stock and may
be different than amounts that would be available for distribution to
stockholders if we liquidated.
19
AT OR FOR THE SIX MONTHS ENDED MARCH 31, 1999
----------------------------------------------------
MAXIMUM AS
MINIMUM MIDPOINT MAXIMUM ADJUSTED
595,000 700,000 805,000 925,750
SHARES SHARES SHARES SHARES
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE(1)
----------- ----------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds(2)................................................. $ 5,950 $ 7,000 $ 8,050 $ 9,258
Less: Expenses.................................................. (504) (523) (543) (565)
----------- ----------- ----------- -------------
Estimated net proceeds............................................ 5,446 6,477 7,507 8,693
Less: Common stock purchased by employee stock ownership
plan(3)....................................................... (476) (560) (644) (741)
Less: Common stock purchased by management recognition
plan(4)....................................................... (238) (280) (322) (370)
----------- ----------- ----------- -------------
Estimated net proceeds, as adjusted............................. $ 4,732 $ 5,637 $ 6,541 $ 7,582
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
FOR THE 6 MONTHS ENDED MARCH 31, 1999:
Consolidated net income:
Historical income............................................... $ 824 $ 824 $ 824 $ 824
Pro forma income on net proceeds(5)............................. 31 44 58 73
Pro forma employee stock ownership plan adjustment(3)........... (15) (18) (21) (24)
Pro forma management recognition plan adjustment(4)............. (15) (18) (21) (24)
----------- ----------- ----------- -------------
Pro forma net income........................................ $ 825 $ 832 $ 840 $ 849
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Per share net income:
Historical income............................................... $ 0.50 $ 0.42 $ 0.37 $ 0.32
Pro forma income on net proceeds(5)............................. 0.02 0.02 0.03 0.03
Pro forma employee stock ownership plan adjustment(3)(6)........ (0.01) (0.01) (0.01) (0.01)
Pro forma management recognition plan adjustment(4)............. (0.01) (0.01) (0.01) (0.01)
----------- ----------- ----------- -------------
Pro forma net income per share.............................. $ 0.50 $ 0.42 $ 0.38 $ 0.33
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
AT MARCH 31, 1999
Stockholders' equity:
Historical...................................................... $ 19,511 $ 19,511 $ 19,511 $ 19,511
Estimated net proceeds.......................................... 5,446 6,477 7,507 8,693
Less: Common stock acquired by employee stock ownership
plan(3)....................................................... (476) (560) (644) (741)
Less: Common stock acquired by management recognition plan(4)... (238) (280) (322) (370)
----------- ----------- ----------- -------------
Pro forma stockholders' equity.............................. $ 24,243 $ 25,148 $ 26,052 $ 27,093
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Stockholders' equity per share(7):
Historical...................................................... $ 11.48 $ 9.76 $ 8.48 $ 7.38
Estimated net proceeds.......................................... 3.20 3.24 3.26 3.29
Less: Common stock acquired by employee......... stock ownership
plan(3) (0.28) (0.28) (0.28) (0.28)
Less: Common stock acquired by management recognition plan(4)... (0.14) (0.14) (0.14) (0.14)
----------- ----------- ----------- -------------
Pro forma stockholders' equity per share.................... $ 14.26 $ 12.58 $ 11.32 $ 10.25
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Ratio of offering price to pro forma net income per share
(annualized)(8)................................................. 15.00x 17.86x 19.74x 22.73x
----------- ----------- ----------- -------------
Offering price as a percentage of pro forma stockholders' equity
per share(8).................................................... 70.13% 79.49% 88.34% 97.56%
----------- ----------- ----------- -------------
20
(1) We reserve the right to issue up to a total of 925,750 shares at $10.00 per
share, or 15% above the maximum of the offering range. Unless otherwise
required by the regulators, subscribers will not be given the right to
modify their subscriptions unless the aggregate purchase price of the common
stock is increased to exceed $9.3 million (i.e., 15% above the maximum of
the offering range.)
(2) Withdrawals from deposit accounts for the purchase of stock have not been
reflected in these adjustments. We estimate that approximately 20% of all
subscription orders may utilize funds currently on deposit at Westborough
Savings.
(3) Assumes 8% of the shares to be sold in the offering are purchased by the
employee stock ownership plan under all circumstances, and that the funds
used to purchase such shares are borrowed from Westborough Financial
Services. The approximate amount expected to be borrowed by the employee
stock ownership plan is reflected in this table as a reduction of capital.
Although repayment of such debt will be secured solely by the shares
purchased by the employee stock ownership plan, we expect to make
discretionary contributions to the employee stock ownership plan in an
amount at least equal to the principal and interest payments on the employee
stock ownership plan debt. Pro forma net income has been adjusted to give
effect to such contributions, based upon a fully amortizing debt with a
ten-year term. Since Westborough Financial Services will be providing the
employee stock ownership plan loan, only principal payments on the employee
stock ownership plan loan are reflected as employee compensation and
benefits expense. The provisions of SOP 93-6 have been applied for shares to
be acquired by the employee stock ownership plan and for purposes of
computing earnings per share.
(4) Assumes a number of issued and outstanding shares of common stock equal to
4% of the common stock to be sold in the offering will be purchased by the
management recognition plan. Before the management recognition plan is
implemented, it must be approved by the stockholders. The dollar amount of
the common stock possibly to be purchased by the management recognition plan
is based on $10.00 per share and represents unearned compensation and is
reflected as a reduction of capital. Such amount does not reflect possible
increases or decreases in the price per share after the offering. As we
accrue compensation expenses to reflect the vesting of such shares pursuant
to the management recognition plan, the charge against capital will be
reduced accordingly. In the event the shares issued under the management
recognition plan consist of shares of common stock newly issued and the
price per share in the offering, the per share financial condition and
result of operations of Westborough Financial Services would be
proportionately reduced and to the extent the interest of existing
stockholders would be diluted by approximately 4.0%.
(5) Pro forma income reflects planned capital expenditures of $2.5 million
expected to be made in the first half of 2000 for the expansion and
renovation of our executive office.
(6) Westborough Bank intends to record compensation expense related to the
employee stock option plan in accordance with SOP 93-6. As a result, to the
extent the value of the common stock appreciates over time, compensation
expense related to the employee stock ownership plan will increase. SOP 93-6
also changes the earnings per share computations for leveraged employee
stock ownership plans to include as outstanding only shares that have been
committed to be released to participants. For purposes of the preceding
table, it was assumed that the number of employee stock ownership plan
shares were committed to be released at March 31, 1999 was 42,380, 52,800,
63,220 and 73,703 for the minimum, midpoint, maximum and 15% above the
maximum of the offering range, respectively.
(7) Stockholders' equity per share data is based upon 1,700,000, 2,000,000,
2,300,000 and 2,645,000 shares outstanding representing shares sold in the
offering, and shares purchased by the employee stock ownership plan and
management recognition plan.
(8) Assuming 100% of the outstanding common stock of Westborough Financial
Services is issued to the public rather than 35%, the offering price as a
percentage of pro forma stockholders' equity per share would be 50.20% at
the minimum of the offering range, 54.87% at the midpoint of the offering
range, 58.92% at the maximum of the offering range and 62.97% at 15% above
the maximum of the offering range, and the ratio of the offering price to
pro forma net income per share would be 10.61x at the minimum of the
offering range, 12.13x at the midpoint of the offering range, 13.56x at the
maximum of the offering range and 15.11x at 15% above the maximum of the
offering range.
21
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 1998
-------------------------------------------------
MAXIMUM AS
MINIMUM MIDPOINT MAXIMUM ADJUSTED
595,000 700,000 805,000 925,750
SHARES SHARES SHARES SHARES
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE(1)
----------- --------- ----------- ------------
(IN THOUSAND EXCEPT PER SHARE AMOUNTS)
Gross proceeds(2)................................................. $ 5,950 $ 7,000 $ 8,050 $ 9,258
Less: Expenses.................................................. (504) (523) (543) (565)
----------- --------- ----------- ------------
Estimated net proceeds............................................ 5,446 6,477 7,507 8,693
Less: Common stock purchased by employee stock ownership
plan(3)....................................................... (476) (560) (644) (741)
Less: Common stock purchased by management recognition
plan(4)....................................................... (238) (280) (322) (370)
----------- --------- ----------- ------------
Estimated net proceeds, as adjusted............................. $ 4,732 $ 5,637 $ 6,541 $ 7,582
----------- --------- ----------- ------------
----------- --------- ----------- ------------
FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1998:
Consolidated net income:
Historical income............................................... $ 1,313 $ 1,313 $ 1,313 $ 1,313
Pro forma income on net proceeds(5)............................. 57 83 108 137
Pro forma employee stock ownership plan adjustment(3)........... (30) (36) (41) (47)
Pro forma management recognition plan adjustment(4)............. (30) (36) (41) (47)
----------- --------- ----------- ------------
Pro forma net income........................................ $ 1,310 $ 1,324 $ 1,339 $ 1,356
----------- --------- ----------- ------------
----------- --------- ----------- ------------
Per share net income:
Historical income............................................... $ 0.79 $ 0.67 $ 0.59 $ 0.51
Pro forma income on net proceeds................................ 0.03 0.04 0.05 0.05
Pro forma employee stock ownership plan adjustment(3)(6)........ (0.02) (0.02) (0.02) (0.02)
Pro forma management recognition plan adjustment(4)............. (0.02) (0.02) (0.02) (0.02)
----------- --------- ----------- ------------
Pro forma net income per share.............................. $ 0.78 $ 0.67 $ 0.60 $ 0.52
----------- --------- ----------- ------------
----------- --------- ----------- ------------
AT SEPTEMBER 30, 1998
Stockholders' equity:
Historical...................................................... $ 19,267 $ 19,267 $ 19,267 $ 19,267
Estimated net proceeds.......................................... 5,446 6,477 7,507 8,693
Less: Common stock acquired by employee stock ownership
plan(3)....................................................... (476) (560) (644) (741)
Less: Common stock acquired by management recognition plan(4)... (238) (280) (322) (370)
----------- --------- ----------- ------------
Pro forma stockholders' equity.............................. $ 23,999 $ 24,904 $ 25,808 $ 26,849
----------- --------- ----------- ------------
----------- --------- ----------- ------------
Stockholders' equity per share (7):
Historical...................................................... $ 11.33 $ 9.63 $ 8.38 $ 7.28
Estimated net proceeds.......................................... 3.20 3.24 3.26 3.29
Less: Common stock acquired by employee stock ownership
plan(3)....................................................... (0.28) (0.28) (0.28) (0.28)
Less: Common stock acquired by management recognition plan(4)... (0.14) (0.14) (0.14) (0.14)
----------- --------- ----------- ------------
Pro forma stockholders' equity per share.................... $ 14.11 $ 12.45 $ 11.22 $ 10.15
----------- --------- ----------- ------------
----------- --------- ----------- ------------
Ratio of offering price to pro forma net income per share
(annualized)(8)................................................. 12.82x 14.93x 16.67x 19.23x
----------- --------- ----------- ------------
Offering price as a percentage of pro forma stockholders' equity
per share(8).................................................... 70.87% 80.32% 89.13% 98.52%
----------- --------- ----------- ------------
22
(1) We reserve the right to issue up to a total of 925,750 shares at $10.00 per
share, or 15% above the maximum of the Independent Valuation. Unless
otherwise required by the regulators, subscribers will not be given the
right to modify their subscriptions unless the aggregate purchase price of
the common stock is increased to exceed $9.3 million (i.e., 15% above the
maximum of the Independent Valuation.)
(2) Withdrawals from deposit accounts for the purchase of stock have not been
reflected in these adjustments. We estimate that approximately 20% of all
subscription orders may utilize funds currently on deposit at Westborough
Savings.
(3) Assumes 8% of the shares to be sold in the offering are purchased by the
employee stock ownership plan under all circumstances, and that the funds
used to purchase such shares are borrowed from Westborough Financial
Services. The approximate amount expected to be borrowed by the employee
stock ownership plan is reflected in this table as a reduction of capital.
Although repayment of such debt will be secured solely by the shares
purchased by the employee stock ownership plan, we expect to make
discretionary contributions to the employee stock ownership plan in an
amount at least equal to the principal and interest payments on the employee
stock ownership plan debt. Pro forma net income has been adjusted to give
effect to such contributions, based upon a fully amortizing debt with a
ten-year term. Since Westborough Financial Services will be providing the
employee stock ownership plan loan, only principal payments on the employee
stock ownership plan loan are reflected as employee compensation and
benefits expense. The provisions of SOP 93-6 have been applied for shares to
be acquired by the employee stock ownership plan and for purposes of
computing earnings per share.
(4) Assumes a number of issued and outstanding shares of common stock equal to
4% of the common stock to be sold in the offering will be purchased by the
management recognition plan. Before the management recognition plan is
implemented, it must be approved by the stockholders. The dollar amount of
the common stock possibly to be purchased by the management recognition plan
is based on $10.00 per share and represents unearned compensation and is
reflected as a reduction of capital. Such amount does not reflect possible
increases or decreases in the price per share after the offering. As we
accrue compensation expenses to reflect the vesting of such shares pursuant
to the management recognition plan, the charge against capital will be
reduced accordingly. In the event the shares issued under the management
recognition plan consist of shares of common stock newly issued and the
price per share in the offering, the per share financial condition and
result of operations of Westborough Financial Services would be
proportionately reduced and to the extent the interest of existing
stockholders would be diluted by approximately 4.0%.
(5) Pro forma income reflects planned capital expenditures of $2.5 million
expected to be made in the first half of 2000 for the expansion and
renovation of our executive office.
(6) Westborough Bank intends to record compensation expense related to the
employee stock ownership plan in accordance with SOP 93-6. As a result, to
the extent the value of the common stock appreciates over time, compensation
expense related to the employee stock ownership plan will increase. SOP 93-6
also changes the earnings per share computations for leveraged employee
stock ownership plans to include as outstanding only shares that have been
committed to be released to participants. For purposes of the preceding
table, it was assumed that the number of employee stock ownership plan
shares were committed to be released at March 31, 1999 was 44,760, 55,600,
56,440 and 67,406 for the minimum, midpoint, maximum and 15% above the
maximum of the offering range, respectively.
(7) Stockholders' equity per share data is based upon 1,700,000, 2,000,000,
2,300,000 and 2,645,000 shares outstanding representing shares sold in the
offering, and shares purchased by the employee stock ownership plan and
management recognition plan.
23
(8) Assuming 100% of the outstanding common stock of Westborough Financial
Services is issued to the public rather than 35%, the offering price as a
percentage of pro forma stockholders' equity per share would be 50.20% at
the minimum of the offering range, 54.87% at the midpoint of the offering
range, 58.92% at the maximum of the offering range and 62.97% at 15% above
the maximum of the offering range, and the ratio of the offering price to
pro forma net income per share would be 10.61x at the minimum of the
offering range, 12.13x at the midpoint of the offering range, 13.56x at the
maximum of the offering range and 15.11x at 15% above the maximum of the
offering range.
24
WESTBOROUGH SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
These Consolidated Statements of Income of Westborough Savings for the years
ended September 30, 1998, 1997 and 1996 have been audited by Wolf & Company,
P.C., independent certified public accountants. The Independent Auditors' Report
thereon appears on page F-2 of this prospectus. These consolidated statements of
income should be read in conjunction with the Consolidated Financial Statements
and accompanying Notes to Consolidated Financial Statements in this prospectus
and "Management's Discussion and Analysis of the Financial Condition and Results
of Operations" beginning on page 29 of this prospectus. The consolidated
statements of income for the six month periods ended March 31, 1999 and 1998 are
unaudited, but in the opinion of management, reflect all adjustments necessary
for a fair presentation of the results for such periods. The results for the six
month period ended March 31, 1999 are not necessarily indicative of the results
of Westborough Savings for the entire year.
FOR THE SIX MONTHS
FOR THE YEAR ENDED
ENDED MARCH 31, SEPTEMBER 30,
-------------------- -------------------------------------
1999 1998 1998 1997 1996
--------- --------- --------------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
Interest and dividend income:
Interest and fees on loans............................... $ 3,124 $ 2,827 $ 5,884 $ 5,242 $ 4,868
Interest and dividends on investment securities:
Taxable interest......................................... 1,658 1,889 3,580 3,822 3,475
Non-taxable interest..................................... 27 -- 11 -- --
Dividends................................................ 168 74 152 131 103
Interest on federal funds sold........................... 126 118 228 219 181
Interest on short-term investments....................... 76 44 78 47 84
--------- --------- ------ --------- ---------
Total interest and dividend income................... 5,179 4,952 9,933 9,461 8,711
--------- --------- ------ --------- ---------
Interest expense:
Interest on deposits..................................... 2,374 2,272 4,555 4,285 4,037
Interest on borrowings................................... 55 -- 2 141 --
--------- --------- ------ --------- ---------
Total interest expense............................... 2,429 2,272 4,557 4,426 4,037
--------- --------- ------ --------- ---------
Net interest and dividend income..................... 2,750 2,680 5,376 5,035 4,674
Provision for loan losses.................................. 25 20 39 96 105
--------- --------- ------ --------- ---------
Net interest and dividend income, after provision for
loan losses........................................ 2,725 2,660 5,337 4,939 4,569
--------- --------- ------ --------- ---------
Other income:
Customer service fees.................................... 135 117 259 242 271
Loan fees................................................ 11 11 20 14 19
Income from covered call options......................... 187 -- -- -- --
Gain on sales and dispositions of securities, net........ 290 64 90 337 119
Miscellaneous............................................ 7 3 14 15 45
--------- --------- ------ --------- ---------
Total other income................................... 630 195 383 608 454
--------- --------- ------ --------- ---------
Operating expenses:
Salaries and employee benefits........................... 1,180 964 1,995 1,963 1,756
Occupancy and equipment expenses......................... 298 247 519 431 401
Data processing expenses................................. 109 83 183 153 169
Marketing expenses....................................... 73 63 144 162 110
Contributions............................................ 16 3 19 124 6
Professional fees........................................ 44 39 89 86 91
Other general and administrative expenses................ 398 329 708 644 612
--------- --------- ------ --------- ---------
Total operating expenses............................. 2,118 1,728 3,657 3,563 3,145
--------- --------- ------ --------- ---------
Income before income taxes........................... 1,237 1,127 2,063 1,984 1,878
Provision for income taxes................................. 413 413 750 676 695
--------- --------- ------ --------- ---------
Net income........................................... $ 824 $ 714 $ 1,313 $ 1,308 $ 1,183
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS DISCUSSION AND ANALYSIS REFLECTS WESTBOROUGH SAVINGS' FINANCIAL STATEMENTS
AND OTHER RELEVANT STATISTICAL DATA AND IS INTENDED TO ENHANCE YOUR
UNDERSTANDING OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD
READ THE INFORMATION IN THIS SECTION IN CONJUNCTION WITH WESTBOROUGH SAVINGS'
CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS IN THIS PROSPECTUS, AND THE OTHER STATISTICAL DATA PROVIDED
ELSEWHERE IN THIS PROSPECTUS.
GENERAL
Westborough Savings' results of operations depend primarily on net interest
income. Net interest income is the difference between the interest income we
earn on our interest-earning assets, primarily mortgage loans, mortgage-backed
securities and investment securities, and the interest we pay on our
interest-bearing liabilities, primarily certificates of deposit and savings
accounts. Our results of operations are also affected by our provision for loan
losses, other income, and operating expense. Operating expense consists
primarily of salaries and employee benefits, occupancy expenses and other
general and administrative expenses. Other income consists mainly of service
fees and charges, income from writing covered call options and gains on sales of
securities.
Our results of operations may also be affected significantly by general and
local economic and competitive conditions, particularly those with respect to
changes in market interest rates, government policies and actions of regulatory
authorities. Future changes in applicable law, regulations or government
policies may materially impact us. Additionally, our lending activity is
concentrated in loans secured by real estate located in Westborough,
Northborough, Shrewsbury and Grafton, Massachusetts. Accordingly, our results of
operations are affected by regional market and economic conditions.
FORWARD LOOKING STATEMENTS
This prospectus contains certain "forward-looking statements" which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general and local
economic conditions, changes in interest rates, deposit flows, demand for
mortgage and other loans, real estate values, and competition; changes in
accounting principles, policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products and services.
MANAGEMENT STRATEGY
Historically, Westborough Savings' primary management strategy has been to
offer savings and certificate of deposit accounts and residential mortgage loans
in the market area of Westborough, Massachusetts and surrounding communities. At
March 31, 1999, 88.7% of our loan portfolio consisted of one- to four-family
residential mortgage loans, with relatively few commercial real estate or
commercial loans in our portfolio. In recent years, we have adopted a
growth-oriented strategy that has focused on expanding our product lines and
services, providing expanded delivery systems for our customers and extending
our branch network. We believe that this business strategy is best for our long
26
term success and viability, and complements our existing commitment to high
quality customer service. In connection with our overall growth strategy, we
seek to:
(1) continue to focus on expanding our residential lending and retail banking
franchise, and increasing the number of households served within our market
area;
(2) expand our commercial banking products and services for small and medium
sized business, as a means to increase the yield on our loan portfolio and
to attract lower cost transaction deposit accounts;
(3) expand our branch network to increase our market share;
(4) increase the use of alternative delivery channels, such as on-line and
telephonic banking; and
(5) offer a variety of uninsured products and services as a means to compete for
an increased share of our customers' financial service business.
In order to create a platform for the accomplishment of our goals, we have
begun to make significant investments in Westborough Savings' physical
infrastructure and human and technological resources. Such investments have been
and, in the future, will be necessary to ensure that adequate resources are in
place to offer increased products and services. As a result, for a period of
time, we expect operating expenses to increase and net income to be adversely
impacted. We believe, however, that Westborough Bank's long-term profitability
should improve as we realize the benefits of diversified product lines and
market share growth.
Following the reorganization, we intend to apply proceeds from the offering
to further the objectives of our growth-oriented strategy. We may also use
proceeds from the offering to acquire branch offices and make other
acquisitions. See "How We Intend to Use the Proceeds from the Offering."
MANAGEMENT OF INTEREST RATE RISK
As a financial institution, a primary component of market risk is interest
rate volatility. Fluctuations in interest rates will ultimately impact both our
level of income and expense recorded on a large portion of our assets and
liabilities. Fluctuations in interest rates will also affect the market value of
all interest earning assets, other than those which possess a short term to
maturity.
During fiscal year 1998 through the date of this prospectus, we have
operated under a "flat yield curve" in a declining interest rate environment. A
flat yield curve environment features little difference in interest rates
offered on short-term and long-term investments. In that environment, we
experienced both increased interest rate competition related to loan
originations and above-average prepayment rates related to mortgage loans and
mortgage-backed securities, both of which adversely impact long-term
profitability. The flat yield curve environment and modest declines in market
interest rates experienced during fiscal year 1998 kept our interest rate spread
static compared to the prior year. This spread, however, has narrowed slightly
during the six months ended March 31, 1999. In addition, recent troubled
economic conditions in several nations throughout Europe, Asia, and South and
Central America have contributed to interest rate volatility for U.S. government
and agency obligations. We cannot predict at this time what, if any, effect
these conditions will have on the local and regional economy, and real estate
market.
Due to the nature of our operations, we are not subject to foreign currency
exchange or commodity price risk. On the other hand, our real estate loan
portfolio concentrated in the towns of Westborough, Northborough, Shrewsbury and
Grafton, Massachusetts, is subject to risks associated with the local economy.
27
The primary objective of our interest rate management strategy is to
optimize Westborough Savings' economic value and net income under likely market
rate scenarios. To achieve this objective we have developed policies and
procedures to assist senior management in evaluating and maintaining acceptable
levels of interest rate risk, liquidity risk and capital. In particular, we seek
to coordinate asset and liability decisions so that, under changing interest
rate scenarios, earnings will remain within an acceptable range.
Under our Asset/Liability Policy Statement, the Board of Investment is
charged with the responsibility to monitor senior management's compliance with
Westborough Savings' interest rate risk policies and procedures. Responsibility
for review, approval and establishment of, and exceptions to, interest rate risk
policies and procedures rests with the Asset/Liability Management Committee
("ALCO"). This committee is appointed by our President, subject to approval of
the Board of Investment. The committee generally consists of two members of the
Board of Trustees, the President, the Treasurer and the Senior Lending Officer.
The ALCO meets on a quarterly basis to discuss and monitor the market interest
rate environment as compared to interest rates that are offered on our products.
The ALCO presents periodic reports to the Board of Trustees at its regular
meetings, as well as a comprehensive quarterly report to the Board of
Investment. The quarterly reports address the results of activities and
strategies and the effect that changes in interest rates will have on our
results of operations and the value of our equity.
Historically, our lending activities have emphasized one- to four-family
residential mortgage loans, and our primary source of funds has been deposits.
In recent years, we have attempted to employ certain strategies to manage the
interest rate risk inherent in this asset/liability mix, including:
(1) investing in securities with relatively short maturities or call dates;
(2) maintaining through tiered-rate savings accounts and other programs a
concentration of less interest-rate-sensitive "core deposits;"
(3) emphasizing the origination and retention of adjustable-rate one- to
four-family loans;
(4) emphasizing commercial with short-term maturities; and
(5) borrowing funds from the Federal Home Loan Bank of Boston, which may be used
to originate fixed-rate loans with matching maturities.
We believe that the frequent repricing of our adjustable-rate mortgage loans
and adjustable-rate securities, which reduces the exposure to interest rate
fluctuations, will stabilize our net interest margin. Although we have
emphasized the origination of variable-rate mortgage products, the prevailing
low interest rate environment has resulted in the increased demand for
fixed-rate first mortgage loans. The result has been an increase in the
proportion of fixed-rate loans in our portfolio. This may have an adverse impact
on our net interest income, particularly in a rising interest rate environment.
In addition, the actual amount of time before mortgage loans and
mortgage-backed securities are repaid can be significantly impacted by changes
in mortgage prepayment rates and market interest rates. Mortgage prepayment
rates will vary due to a number of factors, including the regional economy in
the area where the underlying mortgages were originated, seasonal factors,
demographic variables and the assumability of the underlying mortgages. However,
the major factors affecting prepayment rates are prevailing interest rates,
related mortgage refinancing opportunities and competition. We monitor interest
rate sensitivity so that we can make adjustments to our asset and liability mix
on a timely basis.
GAP ANALYSIS. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is deemed to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as
28
the difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of interest
bearing-liabilities maturing or repricing within that same time period. At March
31, 1999, Westborough Savings' cumulative one year gap position, the difference
between the amount of interest-earning assets maturing or repricing within one
year, and interest-bearing liabilities maturing or repricing within one year,
was a negative -26.37% of total assets. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
Accordingly, during a period of rising interest rates, an institution with a
negative gap position generally would not be in as favorable a position,
compared to an institution with a positive gap, to invest in higher yielding
assets. The resulting yield on the institution's assets generally would increase
at a slower rate than the increase in its cost of interest-bearing liabilities.
Conversely, during a period of falling interest rates, an institution with a
negative gap would tend to experience a repricing of its assets at a slower rate
than its interest-bearing liabilities which, consequently, would generally
result in its net interest income growing at a faster rate than an institution
with a positive gap position.
The following table sets forth the amortized cost of interest-earning assets
and interest-bearing liabilities outstanding at March 31, 1999, which are
anticipated by Westborough Savings, based upon certain assumptions, to reprice
or mature in each of the future time periods shown. Except as stated below, the
amount of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
March 31, 1999, on the basis of contractual maturities, anticipated prepayments
and scheduled rate adjustments within in a three month period and subsequent
projected time intervals. The loan amounts in the table reflect principal
balances expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated prepayments of adjustable-rate and fixed rate
loans, and as a result of contractual rate adjustments on adjustable-rate loans.
The annual prepayment rate for loans (other than consumer loans) and
mortgage-backed securities is assumed to range between 8% and 12% depending upon
the type of loan, and the annual prepayment rate for consumer loans is assumed
to be 25%.
29
GAP TABLE
AMOUNTS MATURING OR REPRICING AS OF MARCH 31, 1999
-----------------------------------------------------------------------
LESS THAN 3 6 MONTHS TO
MONTHS 3-6 MONTHS 1 YEAR 1 TO 3 YEARS 3 TO 5 YEARS 5 TO 10 YEARS > 10 YRS.
------------- ----------- ------------- ------------- ------------- ------------- -----------
INTEREST EARNING ASSETS(1)
Short term investments
(2)...................... $ 9,880 $ -- $ -- $ -- $ -- $ -- $ --
Investment securities(3)... 11,042 504 3,052 20,546 7,077 5,391 1,864
Mortgage and assets backed
securities............... 96 0 998 317 1,127 11,953
Loans(4)................... 8,930 2,887 4,732 11,013 4,308 10,634 44,705
------ ----------- ------------- ------------- ------ ------------- -----------
Total interest earning
assets................... 29,852 3,487 7,784 32,557 11,702 17,152 58,522
------ ----------- ------------- ------------- ------ ------------- -----------
INTEREST-BEARING
LIABILITIES
NOW accounts(5)............ 1,353 1,353 1,353 1,353 -- -- 8,115
Regular and other savings
accounts(5).............. 6,374 6,374 6,374 6,374 -- -- 38,247
Money market deposit
accounts(5).............. 692 692 692 692 -- -- 4,148
Certificate of deposit
accounts................. 16,327 7,246 15,677 9,262 12 -- --
Federal Home Loan Bank
borrowings(6)............ -- -- -- 2,000 -- 2,000 --
Mortgage escrow deposits... 199 -- -- -- -- -- --
------ ----------- ------------- ------------- ------ ------------- -----------
Total interest bearing
liabilities.............. 24,945 15,665 24,096 19,681 12 2,000 50,510
------ ----------- ------------- ------------- ------ ------------- -----------
Interest sensitivity gap... (4,907) (12,178) (16,312) 12,876 11,690 15,152 8,012
Cumulative interest
sensitivity gap.......... (4,907) (7,271) (23,583) (10,707) (983) (16,135) 24,147
Cumulative interest
sensitivity gap as a
percent of total
assets................... 2.93% (4.34)% (14.08)% (6.39)% 0.59% 9.63% 14.41%
Cumulative interest
sensitivity gap as a
percent of total interest
earning assets........... 3.05% (4.51)% (14.64)% (6.65)% 0.61% 10.02% 14.99%
Cumulative interest
sensitivity gap as a
percent of total interest
bearing liabilities...... 3.58% (5.31)% (17.23)% (7.82)% 0.72% 11.79% 17.64%
TOTAL
---------
INTEREST EARNING ASSETS(1)
Short term investments
(2)...................... $ 9,880
Investment securities(3)... 49,476
Mortgage and assets backed
securities............... 14,491
Loans(4)................... 87,209
---------
Total interest earning
assets................... 161,056
---------
INTEREST-BEARING
LIABILITIES
NOW accounts(5)............ 13,527
Regular and other savings
accounts(5).............. 63,743
Money market deposit
accounts(5).............. 6,916
Certificate of deposit
accounts................. 48,524
Federal Home Loan Bank
borrowings(6)............ 4,000
Mortgage escrow deposits... 199
---------
Total interest bearing
liabilities.............. 136,909
---------
Interest sensitivity gap... 24,148
Cumulative interest
sensitivity gap..........
Cumulative interest
sensitivity gap as a
percent of total
assets...................
Cumulative interest
sensitivity gap as a
percent of total interest
earning assets...........
Cumulative interest
sensitivity gap as a
percent of total interest
bearing liabilities......
(1) Interest earning assets are included in the period in which the balances are
expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustment and contractual maturities.
(2) Short Term investments include Fed Funds, Bank Investment Fund and interest
earning amounts in the Federal Home Loan Bank of Boston.
(3) Investment securities are at market value. Common stock and stock in the
Federal Home Loan Bank are included in the less than 3 month column.
(4) Loans are principal balances, net of deferred loan costs and unadvanced
funds.
(5) 60% of NOW, regular and other savings and money market deposit accounts are
included in the over ten year period and the remaining allocated evenly
within the four intervals up to and including one to six years.
(6) Federal Home Loan Bank borrowings are categorized by contractual maturity
date.
Certain shortcomings are inherent in the method of analysis presented in the
gap table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets such as
30
adjustable-rate loans, have features which restrict changes in interest rates
both on a short-term basis and over the life of the asset. Further, in the event
of changes in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in calculating the table.
Finally, the ability of many borrowers to service their adjustable-rate loans
may decrease in the event of an interest rate increase.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between the interest income we
earn on our interest-earning assets, such as mortgage loans, mortgage-backed
securities and investment securities, and the expense we pay on our
interest-bearing liabilities, such as deposits and borrowings. Net interest
income depends on our volume of interest-earning assets and interest-bearing
liabilities and the interest rates we earned or paid on them.
31
AVERAGE BALANCE SHEET
The following tables set forth certain information relating Westborough
Savings' financial condition and net interest income at and for the six months
ended March 31, 1999 and 1998 and for the years ended September 30, 1998, 1997
and 1996, and reflects the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived from average
daily balances. The yields include fees which are considered adjustments to
yields.
AT MARCH 31, FOR THE SIX MONTHS ENDED MARCH 31,
---------------------- -----------------------------------------------------------
1999 1999 1998
---------------------- ----------------------------------- ----------------------
AVERAGE AVERAGE
ACTUAL YIELD/ AVERAGE YIELD/ AVERAGE
BALANCE COST BALANCE INTEREST COST BALANCE INTEREST
--------- ----------- --------- ----------- ----------- --------- -----------
(IN THOUSANDS)
ASSETS:
INTEREST EARNING ASSETS:
Short term investments(1)............... $ 9,880 4.50% $ 8,900 $ 202 4.54% $ 5,427 $ 162
Investment securities(2)................ 63,967 6.01 61,981 1,853 5.98 63,370 1,963
Loans(3)................................ 86,352 7.30 84,136 3,124 7.43 72,298 2,827
--------- ----------- --------- ----------- ----------- --------- -----------
Total interest earning assets......... 160,199 6.61 155,017 5,179 6.68 141,095 4,952
Noninterest earning assets.............. 7,332 5,819 5,812
--------- --------- ---------
Total assets.......................... $ 167,531 $ 160,836 $ 146,907
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND EQUITY:
INTEREST BEARING LIABILITIES:
NOW accounts............................ $ 13,527 0.50% $ 13,123 $ 33 0.50% $ 11,095 $ 43
Savings accounts(4)..................... 63,942 3.44 61,114 1,033 3.38 54,171 891
Money market deposit accounts........... 6,916 2.95 6,827 101 2.96 8,811 129
Certificate of deposit accounts......... 48,524 5.14 47,659 1,207 5.07 46,180 1,209
--------- ----------- --------- ----------- ----------- --------- -----------
Total interest bearing deposits....... 132,909 3.74 128,723 2,374 3.69 120,257 2,272
Borrowed funds............................ 4,000 5.09 2,395 55 4.59 -- --
--------- ----------- --------- ----------- ----------- --------- -----------
Total interest bearing liabilities.... 136,909 3.78 131,118 2,429 3.71 120,257 2,272
Noninterest bearing deposits............ 10,261 9,317 7,935
Other noninterest bearing liabilities... 750 841 1,023
--------- --------- ---------
Total noninterest bearing
liabilities......................... 11,011 10,158 8,958
--------- --------- ---------
Total liabilities....................... 147,920 141,276 129,215
Total surplus........................... 19,611 19,560 17,692
--------- --------- ---------
Total liabilities and surplus........... $ 167,531 $ 160,836 $ 146,907
--------- --------- ---------
--------- --------- ---------
Net interest income....................... $ 2,750 $ 2,680
----------- -----------
----------- -----------
Net interest rate spread(5)............... 2.83% 2.97%
----------- -----------
----------- -----------
Net interest margin(6).................... 3.55%
-----------
-----------
Ratio of interest earning assets to
interest bearing liabilities............ 117.01% 118.23%
----------- -----------
----------- -----------
AVERAGE
YIELD/
COST
-----------
ASSETS:
INTEREST EARNING ASSETS:
Short term investments(1)............... 5.97%
Investment securities(2)................ 6.20
Loans(3)................................ 7.82
-----------
Total interest earning assets......... 7.02
Noninterest earning assets..............
Total assets..........................
LIABILITIES AND EQUITY:
INTEREST BEARING LIABILITIES:
NOW accounts............................ 0.78%
Savings accounts(4)..................... 3.29
Money market deposit accounts........... 2.93
Certificate of deposit accounts......... 5.24
-----------
Total interest bearing deposits....... 3.78
Borrowed funds............................ --
-----------
Total interest bearing liabilities.... 3.78
Noninterest bearing deposits............
Other noninterest bearing liabilities...
Total noninterest bearing
liabilities.........................
Total liabilities.......................
Total surplus...........................
Total liabilities and surplus...........
Net interest income.......................
Net interest rate spread(5)............... 3.24%
-----------
-----------
Net interest margin(6).................... 3.80%
-----------
-----------
Ratio of interest earning assets to
interest bearing liabilities............ 117.33%
-----------
-----------
(FOOTNOTES ON FOLLOWING PAGE)
32
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------------- ----------------------------------- ----------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
(IN THOUSANDS)
ASSETS:
INTEREST EARNING ASSETS:
Short term investments(1)....... $ 5,358 $ 306 5.71% $ 4,762 $ 266 5.59% $ 4,650 $ 265
Investment securities(2)........ 61,307 3,743 6.11 62,091 3,953 6.37 58,709 3,578
Loans(3)........................ 76,357 5,884 7.71 67,618 5,242 7.75 61,544 4,868
--------- ----------- --------- ----------- --------- -----------
Total interest earning
assets...................... 143,022 9,933 6.95 134,471 9,461 7.04 124,903 8,711
--------- ----------- --------- ----------- --------- -----------
Noninterest earning assets...... 5,857 5,701 5,541
--------- --------- ---------
Total assets.................. $ 148,879 $ 140,172 $ 130,444
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND EQUITY:
INTEREST BEARING LIABILITIES:
NOW accounts.................... $ 11,743 $ 73 0.62% $ 10,575 $ 108 1.02% $ 10,540 $ 119
Savings accounts(4)............. 55,403 1,848 3.34 46,959 1,457 3.10 37,265 1,006
Money market deposit accounts... 8,082 238 2.94 9,973 294 2.95 12,921 363
Certificate of deposit
accounts...................... 46,105 2,396 5.20 46,484 2,426 5.22 47,726 2,549
--------- ----------- --------- ----------- ---------
Total interest bearing
deposits.................... 121,333 4,555 3.75 113,991 4,285 3.76 108,452 4,037
Borrowed funds.................. 33 2 6.06 2,330 141 6.05 42 0
--------- ----------- --------- ----------- ---------
Total interest bearing
liabilities................. 121,366 4,557 3.75 116,321 4,426 3.80 108,494 4,037
Noninterest bearing deposits.... 8,480 6,590 5,613
Other noninterest bearing
liabilities................... 923 1,027 1,183
--------- --------- ---------
Total noninterest bearing
liabilities................. 9,403 7,617 6,796
Total liabilities............... 130,769 123,938 115,290
Total surplus................... 18,110 16,234 15,154
--------- --------- ---------
Total liabilities and surplus... $ 148,879 $ 140,172 $ 130,444
--------- --------- ---------
--------- --------- ---------
Net interest income............... $ 5,376 $ 5,035 $ 4,674
----------- ----------- -----------
----------- ----------- -----------
Net interest rate spread(5)....... 3.20% 3.24%
----------- -----------
----------- -----------
Net interest margin(6)............ 3.76% 3.74%
----------- -----------
----------- -----------
Ratio of interest earning assets
to interest bearing
liabilities..................... 117.84% 115.60%
----------- -----------
----------- -----------
AVERAGE
YIELD/
COST
-----------
ASSETS:
INTEREST EARNING ASSETS:
Short term investments(1)....... 5.70%
Investment securities(2)........ 6.09
Loans(3)........................ 7.91
-----------
Total interest earning
assets...................... 6.97
Noninterest earning assets......
Total assets..................
LIABILITIES AND EQUITY:
INTEREST BEARING LIABILITIES:
NOW accounts.................... 1.13%
Savings accounts(4)............. 2.70
Money market deposit accounts... 2.81
Certificate of deposit
accounts...................... 5.34
-----------
Total interest bearing
deposits.................... 3.72
Borrowed funds.................. 0.00
-----------
Total interest bearing
liabilities................. 3.72
Noninterest bearing deposits....
Other noninterest bearing
liabilities...................
Total noninterest bearing
liabilities.................
Total liabilities...............
Total surplus...................
Total liabilities and surplus...
Net interest income...............
Net interest rate spread(5)....... 3.25%
-----------
-----------
Net interest margin(6)............ 3.74%
-----------
-----------
Ratio of interest earning assets
to interest bearing
liabilities..................... 115.12%
-----------
-----------
(1) Short term investments includes federal funds sold.
(2) All investment securities are considered available for sale.
(3) Loans are net of deferred loan origination costs (fees), allowance for loan
losses and unadvanced funds.
(4) Savings accounts include the balance in mortgagors' escrow accounts.
(5) Net interest rate spread represents the difference between the weighted
average yield on interest earning assets and the weighted average cost of
interest bearing liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest earning assets.
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected our interest income and interest
expense during the periods indicated. Information is provided in each category
with respect to:
(1) changes attributable to changes in volume (changes in volume multiplied
by prior rate);
(2) changes attributable to changes in rate (changes in rate multiplied by
prior volume); and
(3) the net change.
33
The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
FOR THE SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, 1998
MARCH 31, 1999 COMPARED TO
COMPARED TO YEAR ENDED
SIX MONTHS ENDED MARCH 31, 1998
SEPTEMBER 30, 1997
INCREASE/(DECREASE) INCREASE/(DECREASE)
----------------------------------- ---------------------------------
DUE TO DUE TO
------------------------ ----------------------
VOLUME RATE NET VOLUME RATE NET
----------- ----------- --------- ----------- --------- ---------
(IN THOUSANDS)
Interest earning assets:
Short term investments(1)............................ $ 86 $ (46) $ 40 $ 34 $ 6 $ 40
Investment securities(2)............................. (42) (68) (110) (50) (160) (210)
Loans(3)............................................. 444 (147) 297 669 (27) 642
----- ----- --------- ----- --------- ---------
Total interest earning assets...................... 488 (261) 227 653 (181) 472
----- ----- --------- ----- --------- ---------
Interest bearing liabilities:
NOW accounts......................................... 7 (17) (10) 11 (46) (35)
Savings accounts(4).................................. 117 25 142 273 118 391
Money market deposit accounts........................ (29) 1 (28) (55) (1) (56)
Certificate of deposit accounts...................... 38 (40) (2) (21) (9) (30)
----- ----- --------- ----- --------- ---------
Total interest bearing deposits.................... 133 (31) 102 208 62 270
Borrowed funds....................................... 55 -- 55 (139) -- (139)
----- ----- --------- ----- --------- ---------
Total interest bearing liabilities................. 188 (31) 157 69 62 131
----- ----- --------- ----- --------- ---------
Net change in net interest income.................... $ 300 $ (230) $ 70 $ 584 $ (243) $ 341
----- ----- --------- ----- --------- ---------
----- ----- --------- ----- --------- ---------
YEAR ENDED SEPTEMBER 30, 1997
COMPARED TO YEAR ENDED
SEPTEMBER 30, 1996
INCREASE/(DECREASE)
---------------------------------
DUE TO
----------------------
VOLUME RATE NET
----------- --------- ---------
Interest earning assets:
Short term investments(1)............................ $ 6 $ (5) $ 1
Investment securities(2)............................. 209 166 375
Loans(3)............................................. 473 (99) 374
----- --------- ---------
Total interest earning assets...................... 688 62 750
----- --------- ---------
Interest bearing liabilities:
NOW accounts......................................... 1 (12) (11)
Savings accounts(4).................................. 287 164 451
Money market deposit accounts........................ (86) 17 (69)
Certificate of deposit accounts...................... (66) (57) (123)
----- --------- ---------
Total interest bearing deposits.................... 136 112 248
Borrowed funds....................................... 141 -- 141
----- --------- ---------
Total interest bearing liabilities................. 277 112 389
----- --------- ---------
Net change in net interest income.................... $ 411 $ (50) $ 361
----- --------- ---------
----- --------- ---------
(1) Short term investments includes federal funds sold.
(2) All investment securities are considered available for sale.
(3) Loans are net of deferred loan origination costs (fees), allowance for loan
losses and unadvanced loan funds.
(4) Savings accounts include the balance in mortgagors' escrow accounts.
34
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND SEPTEMBER 30, 1998
During this six month period, Westborough Savings' total assets increased by
$9.0 million, or 5.7%, to $167.5 million at March 31, 1999 from $158.5 million
at September 30, 1998. Our asset growth reflected a $4.0 million increase in net
loans, primarily consisting of originations of fixed rate loans on residential
real estate. Net loans were $86.4 million, or 51.6% of total assets, at March
31, 1999 as compared to $82.3 million, or 51.9%, at September 30, 1998. Our
asset growth also reflected a $3.9 million net increase in securities available
for sale. Within the securities available for sale category, marketable equity
securities at March 31, 1999 were $8.0 million compared to $5.1 million at
September 30, 1998. The increase in loans and securities was funded through an
increase in deposits and Federal Home Loan Bank advances. Total deposits
increased by $7.0 million to $143.0 million at March 31, 1999 compared to $136.0
million at September 30, 1998. The increase in deposits was predominantly
attributable to Westborough Savings' tiered rate savings accounts and to
noninterest bearing commercial and demand deposit accounts. Total advances
outstanding from the Federal Home Loan Bank of Boston were $4.0 million at March
31, 1999 compared to $2.0 million at September 30, 1998. Total surplus increased
$244 thousand, or 1.3% to $19.6 million at March 31, 1999 compared to $19.4
million at September 30, 1998 as a result of net income of $824 thousand and a
decline in the net unrealized gain on securities available for sale of $580
thousand.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Westborough Savings' total assets increased by $14.6 million, or 10.2%, to
$158.5 million at September 30, 1998 from $143.9 million at September 30, 1997.
Our asset growth reflected a $11.8 million increase in net loans due to
increased origination of fixed rate loans and commencement of our emphasis on
commercial and commercial real estate lending during 1998. Net loans were $82.3
million, or 51.9% of total assets, at September 30, 1998 as compared to $70.6
million, or 49.1% of total assets, at September 30, 1997. The increase in loans
was funded through an increase in deposits. Securities held by Westborough
Savings decreased by $1.6 million, or 2.6%, to $59.3 million at September 30,
1998 from $60.9 million at September 30, 1997. Total deposits increased by $10.8
million, or 8.6%, to $136.0 million at September 30, 1998 from $125.2 million at
September 30, 1997. Deposits increased due to increases in NOW, demand deposit
and tiered rate savings accounts. Total advances from the Federal Home Loan Bank
of Boston were $2.0 million at September 30, 1998 compared to none at September
30, 1997. Total equity increased by $1.9 million, or 11.0%, to $19.4 million at
September 30, 1998 from $17.5 million at September 30, 1997 as a result of net
income of $1.3 million and an increase in the net unrealized gain on securities
available for sale of $0.6 million.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
NET INCOME
Westborough Savings' net income depends primarily on its net interest
income, which is the difference between interest earned on interest earning
assets, consisting primarily of loans and securities, and the interest paid on
interest bearing liabilities, consisting primarily of deposits and borrowing.
Net interest income is the function of Westborough Savings' interest rate
spread, which is the difference between the average yield earned on interest
earning assets and the average rate paid on interest bearing liabilities, as
well as a function of the average volumes of interest earning assets as compared
to interest bearing liabilities. Westborough Savings' earnings were also
affected by its level of banking service fees, investment activity, and other
income, as well as its level of operating expenses, including salaries and
employee benefits, occupancy and equipment expenses, data processing, marketing
and other expenses.
Net income for the six months ended March 31, 1999 was $824 thousand
compared to $714 thousand for the six months ended March 31, 1998. The increase
was primarily due to an increase
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in net gains on the sales and disposition of securities, income from options
written on equity securities held in our portfolio as part of our "covered call"
program and increased net interest income, offset by increases in the level of
operating expenses.
Our "covered call" program involves the sale of options which convey the
right, but not the obligation, to buyers to buy a particular stock held by
Westborough Savings at a particular price up to a certain expiration date. It is
"covered" because Westborough Savings holds the security in its portfolio.
Westborough Savings writes call options only on stock it desires to own, and
such sales represent an income enhancement to a stock purchased on its own
merit. However, Westborough Savings is willing to have the stock called if an
option is written and exercised. We expect to continue writing options on equity
securities which are held in our investment portfolio as a way to secure a gain
on appreciated securities.
INTEREST AND DIVIDEND INCOME
Total interest and dividend income increased by $227 thousand, or 4.6%, to
$5.2 million for the six months ended March 31, 1999 from $5.0 million for the
six months ended March 31, 1998. The increase was primarily due to an increase
in the average volume of interest earning assets offset by a decline in the
average rate earned on interest earning assets. Average loan balances increased
$11.8 million during this period and average short-term investments and
investment security balances increased by $2.1 million. However, the average
rate earned on investment securities and loans declined during this period and
reflected the effects on a generally declining interest rate environment for new
loans and investments. The average yield for the investment portfolio declined
to 5.98% for the six months ended March 31, 1999, from 6.20% for the six months
ended March 31, 1998. The average yield on loans declined to 7.43% for the six
months ended March 31, 1999 as compared to 7.82% for the six months ended March
31, 1998, reflecting the origination of loans at less than the yield on the
existing loan portfolio. The increase in average loan balances resulted
primarily from the origination and refinancing of one-to-four family fixed-rate
mortgage loans in a continuing low interest rate environment. We also
experienced an increase in the average volume of investments in equity
investments. The average balance of equity investments increased to $8.1 million
for the six months ended March 31, 1999 from $2.8 million for the six months
ended March 31, 1998. The additional investments were comprised of rated trust
preferred securities and equity securities.
INTEREST EXPENSE
Total interest expense increased by $157 thousand or 6.9%, to $2.4 million
for the six months ended March 31, 1999 from $2.3 million for the six months
ended March 31, 1998. The increase was primarily due to an increase in the
average volume of interest bearing liabilities offset by a decline in the
average rate paid on interest bearing liabilities. The average balance of
interest bearing liabilities increased by $10.9 million during the most recent
period and such increases occurred mostly in the savings account category. The
average balance of savings accounts for the six months ended March 31, 1999 was
$61.1 million as compared to an average balance for the six months ended March
31, 1998 of $54.2 million. Westborough Savings offers a tiered rate savings
account which has a rate that increases based upon rising balances. The
relatively low interest rate environment makes this type of deposit very
popular. Also during this period, the average balance of NOW and interest
bearing accounts for the six months ended March 31, 1999 was $13.1 million as
compared to an average balance for the six months ended March 31, 1998 of $11.1
million. Alternatively, during this period, the average balance of money market
deposit accounts for the six months ended March 31, 1999 was $6.8 million as
compared to an average balance for the six months ended March 31, 1998 of $8.8
million. Westborough Savings experienced a shift to tiered rate savings accounts
from money market deposit accounts, as customers searched for higher yielding
accounts. Borrowings from the Federal Home Loan Bank of Boston also increased
during this period to fund prospective loans. The average borrowing from the
Federal Home
36
Loan Bank for the six months ended March 31, 1999 was $2.4 million as compared
to $0 for the six months ended March 31, 1998. The average cost of all interest
bearing liabilities was 3.71% for the six months ended March 31, 1999, down from
3.78% for the period ended March 31, 1998. Due to a declining interest rate
market during the six month period ended March 31, 1999, as certificates of
deposit matured, they were generally reinvested at lower rates of interest.
Also, during this most recent period, we reduced the rate paid on NOW and
interest bearing checking accounts to 0.50% from 1.00%.
NET INTEREST INCOME
For the six months ended March 31, 1999 and 1998, net interest income was
$2.8 million and $2.7 million, respectively. The $70 thousand increase in net
interest income was primarily attributable to a $3.1 million increase in average
net earning assets (interest earning assets less interest bearing liabilities),
coupled with a 0.27% decline in the net interest rate spread to 2.97% from
3.24%.
PROVISION FOR LOAN LOSSES
Westborough Savings records a provision for loan losses, which is charged to
earnings, in order to maintain the allowance for loan losses at a level which is
considered appropriate to absorb loan losses inherent in the existing portfolio.
In determining the appropriate level of the allowance for loan losses,
management considers past and anticipated loss experience, evaluations of real
estate collateral, current and anticipated economic conditions, volume and type
of lending and the levels of non-performing and other classified loans. The
amount of the allowance is based on estimates and the ultimate losses may vary
from such estimates. Management of Westborough Savings assesses the allowance
for loan losses on a quarterly basis and makes provisions for loan losses in
order to maintain the adequacy of the allowance.
Westborough Savings' provision increased by $5 thousand to $25 thousand for
the six months ended March 31, 1999 from $20 thousand for the six months ended
March 31, 1998. This moderate increase reflects our continued loan portfolio
growth, including commercial real estate loans. Westborough Savings has
historically had an extremely low level of non-performing loans. At March 31,
1999, we had no non-performing loans. As we expand our commercial lending,
however, increases in the provision are likely.
OTHER INCOME
Other income consists primarily of fee income for Westborough Savings'
services, gains and losses from the sale of securities and income from the sale
of options to buy common stock held in our portfolio at a certain price. Total
other income increased by $435 thousand to $630 thousand for the six months
ended March 31, 1999 from $195 thousand for the six month period ended March 31,
1998. Gains on the sale of securities, primarily common stocks, accounted for
approximately $226 thousand of the increase. Income from the sale of "covered
call" options accounted for $187 thousand of the increase in other income. To a
lesser extent, customer service fees increased $18 thousand during the period
due to higher volume of checking accounts.
OPERATING EXPENSE
For the six months ended March 31, 1999, operating expenses increased $390
thousand, to $2.1 million, from $1.7 million for the six month period ended
March 31, 1998. The increase was primarily due to a $216 thousand increase in
salaries and benefits, a $51 thousand increase in occupancy and equipment, a $26
thousand increase in data processing and a $65 thousand increase in other
general expenses.
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Salary and benefits expenses increased mainly due to senior management
bonuses of $48 thousand, additional staff in marketing and commercial services,
retail staff incentive commissions and general increases in salary based upon
merit. Occupancy and equipment expenses increased due to occupancy expenses
associated with Westborough Savings' lease of space for its operations center
and also increased depreciation on equipment. Data processing expenses increased
due to a higher level of transaction-based activity and increases in expenses
associated with Westborough Savings' data processing service, NCR. Other general
expenses have increased primarily due to an increase in the frequency of board
meetings, mostly associated with strategic planning issues and meetings
concerning the formation of a mutual holding company. Operating expenses are
also expected to increase in future periods due to future branch, products and
service expansion, and the increased cost of operating as a mutual holding
company.
INCOME TAXES
Income tax expense was $413 thousand for the six months ended March 31,
1999, unchanged from the six month period ended March 31, 1998, representing an
effective income tax rate of 33.4% and 36.6% respectively. The lower effective
tax rate reflected, in part, the tax benefits associated with a higher level of
dividend received deductions on our increased level of investment securities.
The effective tax rate also reflects the utilization of two securities
investment subsidiaries to substantially reduce state income taxes.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME
Westborough Savings' net income remained stable at $1.3 million for the
years ended September 30, 1998 and 1997. The return on average assets and the
return on average equity for the year ended September 30, 1998 were 0.88% and
7.25%, respectively, compared to 0.93% and 8.06% for the year ended September
30, 1997.
INTEREST AND DIVIDEND INCOME
Total interest and dividend income increased by $472 thousand or 5.0% to
$9.9 million for the year ended September 30, 1998 from $9.5 million for the
year ended September 30, 1997. The increase in interest and dividend income was
primarily a result of a higher volume of loan originations. While the average
balance of loans increased $8.7 million during this period, the average rate for
those loans declined to 7.71%, from 7.75%.
INTEREST EXPENSE
Total interest expense increased by $131 thousand, or 3.0%, to $4.6 million
for the year ended September 30, 1998 from $4.4 million for the year ended
September 30, 1997. Interest expense on deposits increased $270 thousand, or
6.3%, from $4.3 million for the year ended September 30, 1997 to $4.6 million
for the year ended September 30, 1998. Interest expense on advances from the
Federal Home Loan Bank declined by $139 thousand for the year ended September
30, 1998 from $141 thousand for year ended September 30, 1997 compared to $2
thousand for year ended September 30, 1998 based on a lower average balance
during the period. The overall increase in interest expenses of $131 thousand
was primarily due to a higher average balance of interest bearing liabilities.
Average balances of savings accounts increased by $8.4 million for the year
ended September 30, 1998 compared to the year ended September 30, 1997.
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NET INTEREST INCOME
Net interest income for the year ended September 30, 1998 was $5.4 million
as compared to $5.0 million for the year ended September 30, 1997. The $341
thousand, or 6.8%, increase can be attributed mainly to an increased balance of
interest earning assets, resulting from a greater volume of loan originations,
offset by an increased balance of interest bearing deposits. The average yield
on interest earning assets decreased 9 basis points to 6.95% for the year ended
September 30, 1998 from 7.04% for the year ended September 30, 1997, while the
average cost of interest bearing liabilities decreased by 5 basis points to
3.75% for the year ended September 30, 1998 from 3.80% for the year ended
September 30, 1997.
Westborough Savings' net interest rate spread, which reflects the difference
between the weighted average yield on interest earning assets and the weighted
average cost of interest bearing liabilities, declined 4 basis points to 3.20%
for the year ended September 30, 1998 compared to 3.24% for the year ended
September 30, 1997. The average balance of loans on real estate increased by
$8.1 million for the year ended September 30, 1998 compared to the year ended
September 30, 1997. The average balance of commercial loans increased by $733
thousand for the year ended September 30, 1998 compared to the year ended
September 30, 1997. However, due to customer refinancing of existing adjustable
and fixed rate loans from higher rates to lower rates, coupled with a declining
interest rate environment for new loans, the overall rate earned on our loan
portfolio declined to 7.71% for the year ended September 30, 1998 compared to
7.75% for the year ended September 30, 1997. The average balance of savings
accounts increased by $8.4 million for the year ended September 30, 1998
compared to the year ended September 30, 1997.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is maintained through the provision for loan
losses which is a charge to operations. The provision for loan losses was $39
thousand for the year ended September 30, 1998 as compared to $96 thousand for
the year ended September 30, 1997. The higher provision in 1997 was established
to accommodate a higher level of commercial lending in the future. At September
30, 1998, the balance of the allowance for loan losses was $827 thousand, or
0.99% of total loans before the allowance for loan losses. During the year ended
September 30, 1998, there were no charge-offs against the allowance for loan
losses. At September 30, 1997, the balance of the allowance for loan losses was
$786 thousand, or 1.10% of total loans before the allowance for loan losses.
During the year ended September 30, 1997, there was $2 thousand in charge-offs
against the allowance for loan losses and $2 thousand in recoveries of
previously charged-off loans.
OTHER INCOME
Other income was $383 thousand for the year ended September 30, 1998
compared to $608 thousand for the year ended September 30, 1997. The $225
thousand, or 37.0% decrease, was primarily the result of a $247 thousand
decrease in the net gain on sale and disposition of securities offset by
moderate increases in customer service fees and loan fees due to higher volume.
This decrease is attributable, in part, to the establishment by Westborough
Savings of a private charitable foundation which we funded by a donation of
marketable equity securities with a fair value of $110 thousand at the date of
transfer. We anticipate increases to other income as we continue to expand the
volume of our deposit and lending relationships. It is also our goal to increase
its level of other income by continually considering additional sources of
revenue, including expanding the offering of various uninsured investment
products, including fixed-rate and variable annuities and mutual funds, through
relationships with third party broker-dealers and/or money managers and
affiliations with insurance agencies.
39
OPERATING EXPENSE
Operating expense for the year ended September 30, 1998 remained relatively
stable at $3.7 million when compared to the year ended September 30, 1997 in
which operating expense totaled $3.6 million. While the amounts of operating
expense were comparable, the 1998 period includes increased occupancy and
equipment expenses of $88 thousand associated with our leased operations
department space and equipment depreciation. Annual operating expenses are also
expected to increase in future periods due to future branch, product and service
expansion, and the increased cost of operating as a mutual holding company.
INCOME TAXES
Income tax expense was $750 thousand for the year ended September 30, 1998
as compared to $676 thousand for the year ended September 30, 1997, resulting in
an effective tax rate at September 30, 1998 of 36.4% compared to 34.1% for the
prior period. The effective tax rate reflects the utilization of two securities
investment subsidiaries to substantially reduce state income taxes and the
establishment of Westborough Savings' charitable foundation.
LIQUIDITY AND CAPITAL RESOURCES
The term "liquidity" refers to our ability to generate adequate amounts of
cash to fund loan originations, deposit withdrawals and operating expenses. Our
primary sources of funds are deposits, scheduled amortization and prepayments of
loan principal and mortgage-backed securities, maturities and calls of
investment securities and funds provided by our operations. We also have
expanded our use of borrowings from the Federal Home Loan Bank of Boston as part
of our management of interest rate risk. At March 31, 1999, we had $4.0 million
in outstanding borrowings.
Loan repayments and maturing investment securities are a relatively
predictable source of funds. However, deposit flows, calls of investment
securities and prepayments of loans and mortgage-backed securities are strongly
influenced by interest rates, general and local economic conditions and
competition in the marketplace. These factors reduce the predictability of the
timing of these sources of funds.
Our primary investing activities are the origination of one- to four-family
real estate and other loans, the purchase of mortgage-backed securities and the
purchase of investment securities. During the six months ended March 31, 1999
and the years ended September 30, 1998 and 1997, we originated loans of $22.0
million, $38.9 million and $34.1 million, respectively. Purchases of
mortgage-backed securities were $4.4 million for the six months ended March 31,
1999, and $6.4 million and $1.4 million for the years ended September 30, 1998
and 1997, respectively. Purchases of investment securities were $9.9 million for
the six months ended March 31, 1999, and $14.5 million and $11.1 million for the
years ended September 30, 1998 and 1997, respectively.
These investing activities were funded by deposit growth, principal payments
on mortgage loans and mortgage-backed securities, calls and maturities on
investment securities, Federal Home Loan Bank borrowings and funds provided by
our operating activities. Principal repayments on loans and mortgage-backed
securities totaled $20.1 million for the six months ended March 31, 1999 and
$30.9 million and $30.9 million for the years ended September 30, 1998 and 1997,
respectively. Maturities of investment securities totaled $4.0 million during
the six months ended March 31, 1999 and $1.3 million and $3.5 million during the
years ended September 30, 1998 and 1997, respectively. Sales and calls of
investment securities provided cash flows of $3.6 million, $18.0 million and
$8.0 million during the six months ended March 31, 1999 and the years ended
September 30, 1998 and 1997, respectively.
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At March 31, 1999, Westborough Savings had loan commitments to borrowers of
$4.0 million, and available home equity lines of credit of $5.2 million. We had
no commitments to purchase mortgage-backed securities at March 31, 1999. Total
deposits increased $7.0 million, $10.8 million and $4.9 million during the six
months ended March 31, 1999 and the years ended September 30, 1998 and 1997,
respectively. Deposit flows are affected by the level of interest rates, the
interest rates and products offered by competitors and other factors.
Certificate of deposit accounts scheduled to mature within one year were $39.3
million at March 31, 1999. Based on our deposit retention experience and current
pricing strategy, we anticipate that a significant portion of these certificates
of deposit will remain with Westborough Savings. We are committed to maintaining
a strong liquidity position; therefore, we monitor our liquidity position on a
daily basis. We also periodically review liquidity information prepared by the
Depositors Insurance Fund and other available reports that compare our liquidity
with banks in our peer group. We anticipate that we will have sufficient funds
to meet our current funding commitments.
In May 1999, we expanded our retail banking franchise by opening an
additional branch location in the town of Shrewsbury. This branch is located in
the Shaws supermarket and start-up costs were approximately $300 thousand. In
the first half of 2000, we also plan to begin to expand our facilities by
constructing an addition to our existing executive office. The construction
expenses for this addition are expected to total approximately $2.5 million. We
anticipate that Westborough Bank will have sufficient funds to meet these
planned capital expenditures throughout 2000.
At March 31, 1999, we exceeded each of the applicable regulatory capital
requirements. Our leverage (tier 1) capital was approximately $19.0 million, or
11.7%. In order to be classified as "well-capitalized" by the FDIC we were
required to have leverage (tier 1) capital of $8.2 million, or 5.0%. To be
classified as a well-capitalized bank by the FDIC, we must also have a
risk-based total capital ratio of 10.0%. At March 31, 1999, we had a risk-based
total capital ratio of 22.5%. See "Regulation of Westborough Savings Bank and
Westborough Financial Services, Inc." for a discussion of the regulatory capital
requirements applicable to Westborough Savings, and see "Regulatory Capital
Compliance" for information regarding the impact of the offering on our capital
position.
Other than with respect to the capital expenditures that are to be made in
connection with our executive office as noted above, we do not anticipate any
material capital expenditures. Further, we do not have any balloon or other
payments due on any long-term obligations or any off-balance sheet items other
than the commitments and unused lines of credit noted above.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued a
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." This Statement encourages all entities to adopt a
fair value based method of accounting for employee stock compensation plans,
whereby compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issued to Employees," whereby compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date (or other measurement
date) over the amount an employee must pay to acquire the stock. Entities
electing to remain with the accounting in Opinion No. 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value based
method of accounting had been applied.
The accounting requirements of this Statement are generally effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The disclosure requirements of this Statement are generally effective for
financial statements for fiscal years beginning after December 15, 1995. It is
41
anticipated that we will adopt Opinion No. 25 for accounting treatment of stock
options and make the pro forma disclosures required by this Statement.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
statement establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential common
stock. This Statement simplifies the standards for computing earnings per share
previously found in Accounting Principles Board Opinion No. 14, "Earnings per
Share," and makes them comparable to international earnings per share standards.
It replaces the presentation of primary earnings per share with a presentation
of basic earnings per share. It also requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation. This Statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure" which establishes standards for disclosing information
about an entity's capital structure. This Statement continues the previous
disclosure requirements found in Accounting Principle Board Opinions. No. 10,
"Omnibus Opinion--1996," and No. 15, "Earnings Per Share," and FASB Statement
No. 47, "Disclosure of Long-Term Obligations" and eliminates the exemption of
nonpublic entities from certain disclosure requirements of Opinion No. 15.
Additionally, this Statement consolidates capital disclosure requirements for
east of retrieval and greater visibility to nonpublic entities. This Statement
consolidates capital disclosure requirements for ease of retrieval and greater
visibility to nonpublic entities. This Statement is effective for financial
statements for periods ending after December 15, 1997 and is not expected to
have a material impact on us.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which establishes standards for the way
that public business enterprises report selected information about operating
segments in annual financial statements. This Statement requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. This Statement supersedes FASB
Statement No. 14, "Financial Reporting for Segments of a Business Enterprise."
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This Statement is effective for financial statements for periods
beginning after December 15, 1997 and is not expected to have a material impact
on us.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. The Statement revises employers' disclosures
about pension and other postretirement plans. It does not change the measurement
or recognition of those plans. The Statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practical, requires additional information on changes in the benefits
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that were previously required by
generally accepted accounting principles. We will adopt these disclosure
requirements beginning in the year ending September 30, 1999, and it is not
expected to have a material impact on us.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. This Statement standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the balance sheet and measure them at fair value. If
certain conditions are met, an entity
42
may elect to designate a derivative as follows: a hedge of the exposure or
changes in the fair value of a recognized asset or liability, or of an
unrecognized firm commitment that are attributable to a particular risk. A hedge
of the exposure to variability in the cash flows of a recognized asset or
liability, or of a forecasted transaction, that is attributable to a particular
risk. Or, a hedge of the foreign currency exposure of an unrecognized firm
commitment, an available-for-sale security, a forecasted transaction, or a net
investment in a foreign operation. This Statement generally provides for
matching the timing of the recognition of the gain or loss of the hedging
instrument with the recognition of the changes in the fair value of the item
being hedged. Depending on the type of hedge, such recognition will be in either
net income or other comprehensive income. For a derivative not designated as a
hedging instrument, changes in fair value are recognized in net income in the
period of change. Adoption of this Statement by us will require that changes in
fair value of covered call options be recognized in net income. Currently, such
changes are included in a separate component of surplus. We will adopt SFAS No.
133 commencing October 1, 1999, and it is not expected to have a material impact
on us.
YEAR 2000 READINESS DISCLOSURE
BACKGROUND. A significant challenge that is confronting the business
community, including Westborough Savings and its competitors, centers on the
inability of many computer systems and software applications to recognize the
Year 2000 (referred to as the "Y2K issue"). Many existing computer systems and
software applications originally were programmed to provide only two digits to
identify the calendar year. With the Year 2000 approaching, these systems and
applications may recognize "00" as 1900 rather than 2000. If the Y2K issue is
not resolved, our operations could be adversely affected due to the
date-sensitive nature of much of our financial information.
Financial institution regulators have focused on Y2K compliance in recent
years and have issued guidance concerning the responsibilities of our management
and our Board of Trustees. The Federal Financial Institutions Examination
Council ("FFIEC"), a group comprised of representatives from the various
financial institution regulators, has issued several interagency statements on
Y2K issues. These statements have required financial institutions to evaluate
their Y2K exposure, measure their risk of Y2K issues and prepare a plan to
remedy the Y2K issue. Financial institutions also are required to examine the
Y2K implications of their reliance on third-party vendors and the potential
impact of Y2K issues on customers, borrowers and suppliers.
RISK. Similar to other financial institutions and companies that utilize
computer technology, our operations may be significantly affected by the Y2K
issue because of our reliance on electronic data processing technology and
date-sensitive information. The Y2K issue also impacts other aspects of our
non-technical business processes. If the Y2K issue is not adequately addressed,
and systems are not modified to properly identify the Year 2000, computer
systems and software applications may fail or create erroneous information.
If we are affected by the Y2K issue, information that relies on dates, such
as interest calculations, loan payment schedules and other operating functions,
could be significantly incorrect. We may not be able to process withdrawals or
deposits, prepare account statements, or engage in any of the many transactions
that constitute our normal operations. Our inability to adequately address the
Y2K issue could also have a significant adverse effect on our suppliers and
service providers. Should we experience a Y2K failure that cannot readily be
fixed, it may result in a significant adverse impact on our financial condition
and results of operations.
STATE OF READINESS. We believe that technology plays a critical role in our
overall business strategy. We have attempted to stay current with technological
advances in the industry. In this regard, the Board of Trustees and senior
management have consistently supported investment in established and proven
technologies. Because of this philosophy, the Board of Trustees and senior
management have
43
been actively engaged in managing our Y2K project. Management has consistently
allocated both human and financial resources to this project to achieve the
objectives and time frames mandated by the FFIEC. As discussed below, we believe
that we have considered all material Y2K issues and that we are taking the
proper action to correct them.
We have identified the following mission critical systems: core account
processing, our internal general ledger system, automatic teller services,
electronic funds transfer and our internal network operating system. They are
provided or serviced by NCR, Interactive Planning Systems, Mellon, the Federal
Reserve Bank of Boston, and Novell, respectively. Each of the above listed
services or systems providers have provided Y2K remediated products which have
been tested internally and are being validated by management for Y2K compliance.
Based on testing to date, we believe that many of our applications critical to
daily operations are Y2K compliant.
Our Action Plan for the Year 2000, in accordance with regulatory guidance,
outlines our plans to achieve a successful transition to the Year 2000. The
following summarizes the various phases of our Y2K plan:
AWARENESS PHASE--This initial phase of the Y2K project involved the
appointment of a Y2K review team in June, 1997 lead by Westborough Savings'
Operations Officer, and the subsequent development of a formal Action Plan in
April, 1998. The review team, through the development of the Action Plan,
identified the issues to be resolved, defined objectives to be achieved and
outlined an approach to implement the objectives set forth in the Action Plan.
ASSESSMENT PHASE--During this phase, the review team developed an inventory
listing of all internal computer systems and software applications, as well as
third-party vendors and suppliers upon whom we rely for goods and services. We
also obtained copies of all computer-related licensing agreements and
maintenance contracts, which we reviewed to determine whether they addressed the
issue of Y2K compliance. Based upon this information, we corresponded with each
computer hardware manufacturer, software vendor, and other third party vendors
and suppliers requesting information regarding their Y2K readiness. The review
team evaluated each response received and, based upon such responses, determined
which computer systems and software applications were Y2K compliant. For those
that were not, the review team determined the appropriate corrective action
required and developed a plan for its implementation.
We also have reviewed our customer base to determine whether they pose any
significant Y2K risks. Our customer base consists primarily of individual
depositors and residential mortgage loan borrowers. Individually, these
customers are not likely to pose significant Y2K risks to our operations.
However, it is not possible at this time to evaluate the indirect risks that
could be faced if employers of our individual customers encounter unresolved Y2K
issues.
With respect to our commercial customers, we have corresponded with them
regarding Y2K risks, the nature and scope of the problem and remedial options
available to them. Further, we have asked them to complete a worksheet and
questionnaire regarding their Y2K readiness. Based upon our review of these
worksheets and questionnaires, we have concluded that these borrowers do not
represent a significant risk to our commercial loan portfolio. Nonetheless, we
intend to continue to monitor commercial customers throughout 1999 and early
2000 to mitigate any adverse impact to Westborough Savings' financial stability.
We also carefully consider the Y2K readiness of potential commercial borrowers
in the lending process.
RENOVATION PHASE--Our Operations Officer continues to work closely with the
providers of our mission-critical systems. These, as well as other significant
systems, have been upgraded to Y2K compliant versions of vendor-supported
software. In certain situations, we replaced or upgraded existing non-compliant
systems with new Y2K compliant hardware and software. We have relatively few
data transmission interfaces with third party servicers and substantially all of
these systems have been
44
renovated for Year 2000 compliance. We have no mission-critical systems that we
developed on our own.
The review team continues to monitor the Y2K progress of those third parties
who provide us with services or products to ensure that they are taking adequate
measures in addressing the Y2K issue. We are seeking written assurances from
these third parties as to their current Year 2000 compliance or that they are in
the process of addressing the Y2K issue. However, we can not assure you that
these third parties will be prepared for the Y2K issue. The failure of these
third parties to achieve Y2K compliance may have an adverse impact on our
operations.
VALIDATION/IMPLEMENTATION PHASES--The validation phase is considered to be
the most critical stage of the Y2K readiness process. It is designed to test the
ability of the renovated systems to accurately process date sensitive data. All
systems and software that have been tested are currently Y2K compliant. The
validation phase is being conducted in accordance with our Year 2000 Testing
Plan and has an estimated completion date of June 30, 1999.
USE OF RESOURCES. Managing theY2K project has resulted in additional direct
and indirect costs. Direct costs include charges by third-party software vendors
for product replacements, upgrades and enhancements, costs involved in testing
for Y2K compliance, costs for customer awareness programs, etc. Indirect costs
consist primarily of time devoted to the project by existing employees for
project development and implementation, the testing of systems, monitoring
third-party vendor and service provider progress, and the development of
contingency plans. The costs of the Y2K project have not been significant to
date, and we believe that the total cost of the project will not be material to
our results of operations or financial condition in any one year. Although we
currently estimate that the total cost of the Y2K project, excluding the
reallocation of internal resources, will be approximately $65 thousand, of which
we have already incurred $56 thousand, we cannot guarantee that such costs would
not become material in the future.
CONTINGENCY PLANNING. Regulatory guidance requires that we consider two
types of contingency planning:
(1) remediation contingency planning, which addresses the failure of an
institution to successfully fix, test or implement its Y2K readiness plan;
and
(2) business resumption contingency planning, which addresses the risks
associated with the failure of systems at critical dates, such as January 1,
2000.
The regulatory guidance provides that if a mission critical application or
system has been remediated, tested and implemented, a remediation contingency
plan is not required. Based on the overall progress of our Y2K project,
specifically the testing and implementation results relative to our mission
critical applications, our review team has concluded that a remediation
contingency plan is not required for such applications.
While we expect to complete our Y2K project in a timely manner, we cannot
guarantee that the systems of companies with whom we conduct business, will also
be completed in a timely manner. The failure of these entities to adequately
address the Y2K issue could adversely affect our ability to conduct business.
To address the risks associated with the failure of mission critical systems
at critical dates, we have developed a business resumption contingency plan to
augment our existing disaster recovery plan. This plan identifies our operating
systems, their criticality, and suggests alternative processing methods if
mission critical systems are adversely affected by the century date change.
We understand that certain events beyond our control may diminish our
ability to provide minimum levels of service. Management considers the
worst-case scenario to be extended power outages and loss of telecommunications.
Failure of these services will affect companies, individuals and
45
the government, and cannot be remedied by anyone other than the responsible
party. We are preparing to provide minimum levels of service during sporadic
power outages and temporary loss of communications. However, during extensive
losses of power and/or telecommunications, we may temporarily close our
operations.
For some systems, contingency plans will consist of using or reverting to
manual systems until the problems can be corrected. We, however, do not
anticipate any adverse material impact on our operations as a result of the Y2K
issue.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and accompanying Notes of Westborough Savings have
been prepared in accordance with GAAP. GAAP generally requires the measurement
of financial position and operating results in terms of historical dollars
without consideration for changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of our operations. Unlike industrial companies, our assets and liabilities
are primarily monetary in nature. As a result, changes in market interest rates
have a greater impact on performance than do the effects of inflation.
46
BUSINESS OF WESTBOROUGH SAVINGS BANK
GENERAL
Westborough Savings is a community- and customer-oriented retail savings
bank offering traditional deposit products, residential real estate mortgage
loans and, to a lesser extent, consumer and commercial loans. In addition,
Westborough Savings purchases mortgage-backed securities, securities issued by
the U.S. Government and agencies and other investments permitted by applicable
laws and regulations. We retain substantially all of the loans we originate.
Our revenues are derived principally from interest on our mortgage loans and
mortgage-backed securities and interest and dividends on our investment
securities. Our primary sources of funds are deposits, scheduled amortization
and prepayments of loan principal and mortgage-backed securities, maturities and
calls of investment securities, funds provided by operations and borrowings. See
"--Source of Funds."
MARKET AREA
We conduct our operations out of our main office in Westborough,
Massachusetts. We also operate four other full service branches in the towns of
Westborough, Northborough and Shrewsbury, and a non-public, self-contained
office at the "Willows," a retirement community in Westborough. Our deposits are
gathered from the general public in these towns and the surrounding communities.
Our lending activities are concentrated primarily in the towns where we have
offices, as well as the town of Grafton. These towns are located in east central
Massachusetts, near the central Route 495 belt.
Our market area has grown steadily to achieve a blend of industry, office
parks and residences. The town of Westborough is approximately 12 miles east of
Worcester and 29 miles west of Boston, located at the junction of major
interstate highways constructed in the 1950s and 1960s. The convenient access
provided by Routes 20, 9, I-90 and I-495 has contributed to the diverse economic
base consisting of a retail and commercial section, and a high-tech
manufacturing section.
Among the largest employers in our market area are Data General Corporation,
New England Electric Systems, Massachusetts Electric Company, First Data
Investors and ASTRA Pharmaceutical. The Tufts University School of Veterinary
Medicine also is located in our market area. The unemployment rate for
Westborough was 2.2% as of September 1998, compared to the state unemployment
rate of 3.3% at that time.
Public transportation within our market area is expanding with the addition
of two new mass transit stations. The Massachusetts Bay Transportation Authority
is currently constructing a station in Grafton and has plans to construct a
station in Westborough in late 2000. These stations will provide direct access
to Worcester and Boston for residents in our market area.
Since 1980,our primary market area has experienced increases in both
population and households as individuals and families moved from urban areas
surrounding Boston to more outlying areas with lower cost and newer housing
stock. Estimated 1998 per capita annual income for residents of Westborough was
over $24 thousand, 34% above the Worcester County average and 21% above the
state average. Median household income in Westborough also exceeded the
county-wide average by 23%.
Our future growth opportunities will be influenced by the growth and
stability of the statewide and regional economies, other demographic population
trends and the competitive environment. We believe that we have developed
lending products and marketing strategies to address the diverse credit-related
needs of the residents in our market area.
47
COMPETITION
We face intense competition both in making loans and attracting deposits.
Central Massachusetts has a high concentration of financial institutions, many
of which are branches of large money center and regional banks which have
resulted from the consolidation of the banking industry in Massachusetts and
surrounding states. Some of these competitors have greater resources than we do
and may offer services that we do not provide.
Our competition for loans comes principally from commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies, mutual
funds, insurance companies and brokerage and investment banking firms. Our most
direct competition for deposits has historically come from commercial banks,
savings banks, savings and loan associations and credit unions. We face
additional competition for deposits from short-term money market funds and other
corporate and government securities funds and from brokerage firms and insurance
companies. As of June 30, 1998, our market share of deposits in Westborough was
26.3%.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. Our loan portfolio primarily consists of one-
to four-family residential first mortgage loans. To a lesser degree, the loan
portfolio includes commercial real estate loans, consumer loans and commercial
loans.
At March 31, 1999, we had total loans of $88.6 million, of which $78.6
million, or 88.7%, were residential first mortgage loans. Of residential first
mortgage loans outstanding at that date, 31.0% were adjustable-rate mortgage, or
ARM loans, and 69.0% were fixed-rate loans. The remainder of our loans at March
31, 1999, amounting to $10.0 million, or 11.3% of total loans, consisted
primarily of commercial real estate and consumer loans, including home equity
credit lines. Commercial real estate loans outstanding at March 31, 1999 totaled
approximately $3.1 million, or 3.5% of total loans. Commercial loans outstanding
at March 31, 1999 totaled $2.1 million, or 2.4% of total loans. Consumer loans
outstanding at March 31, 1999 totaled approximately $1.4 million, or 1.6% of
total loans.
Our loans are subject to federal and state law and regulations. The interest
rates we charge on loans are affected principally by the demand for loans, the
supply of money available for lending purposes and the interest rates offered by
our competitors. These factors are, in turn, affected by general and local
economic conditions, monetary policies of the federal government, including the
Federal Reserve Board, legislative tax policies and governmental budgetary
matters.
48
The following table presents the composition of our loan portfolio in dollar
amounts and in percentages of the total portfolio at the dates indicated.
AT MARCH 31, AT SEPTEMBER 30,
------------------------ --------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ------------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
REAL ESTATE LOANS:
Fixed rate mortgage............................ $ 54,207 61.15% $ 47,239 55.81% $ 29,450 40.64%
Variable rate mortgage......................... 24,354 27.48 27,384 32.36 33,812 46.66
Commercial..................................... 3,084 3.48 2,743 3.24 2,915 4.02
Home equity lines of credit.................... 3,503 3.95 3,918 4.63 3,859 5.33
----------- ----------- ----------- ----------- ----------- -----------
Total real estate loans.................... 85,148 96.06 81,284 96.04 70,036 96.65
----------- ----------- ----------- ----------- ----------- -----------
CONSUMER LOANS:
Personal....................................... 666 0.75 858 1.01 1,069 1.48
Deposit secured................................ 586 0.66 676 0.80 557 0.77
Home improvement............................... 129 0.15 132 0.16 73 0.10
----------- ----------- ----------- ----------- ----------- -----------
Total consumer loans....................... 1,381 1.56 1,666 1.97 1,699 2.35
----------- ----------- ----------- ----------- ----------- -----------
COMMERCIAL LOANS:
Commercial lines of credit..................... 705 0.80 599 0.71 293 0.40
Commercial installment......................... 1,401 1.58 1,087 1.28 437 0.60
----------- ----------- ----------- ----------- ----------- -----------
Total commercial loans..................... 2,106 2.38 1,686 1.99 730 1.00
----------- ----------- ----------- ----------- ----------- -----------
Total loans...................................... 88,635 100.00% 84,636 100.00% 72,465 100.00%
----------- ----------- -----------
----------- ----------- -----------
ADJUSTED BY:
Unadvanced loan funds.......................... (1,538) (1,570) (1,177)
Net deferred loan origination costs (fees)..... 112 109 78
----------- ----------- -----------
Total loans before allowance for loan loss..... 87,209 83,175 71,366
LESS:
Allowance for loan loss........................ (857) (827) (786)
----------- ----------- -----------
Net loans.................................... $ 86,352 $ 82,348 $ 70,580
----------- ----------- -----------
----------- ----------- -----------
1996
------------------------
PERCENT
OF
AMOUNT TOTAL
----------- -----------
REAL ESTATE LOANS:
Fixed rate mortgage............................ $ 27,599 41.35%
Variable rate mortgage......................... 30,674 45.96
Commercial..................................... 3,071 4.60
Home equity lines of credit.................... 3,221 4.83
----------- -----------
Total real estate loans.................... 64,565 96.74
----------- -----------
CONSUMER LOANS:
Personal....................................... 986 1.48
Deposit secured................................ 724 1.08
Home improvement............................... 83 0.12
----------- -----------
Total consumer loans....................... 1,793 2.68
----------- -----------
COMMERCIAL LOANS:
Commercial lines of credit..................... 227 0.34
Commercial installment......................... 160 0.24
----------- -----------
Total commercial loans..................... 387 0.58
----------- -----------
Total loans...................................... 66,745 100.00%
-----------
-----------
ADJUSTED BY:
Unadvanced loan funds.......................... (878)
Net deferred loan origination costs (fees)..... 66
-----------
Total loans before allowance for loan loss..... 65,933
LESS:
Allowance for loan loss........................ (690)
-----------
Net loans.................................... $ 65,243
-----------
-----------
LOAN MATURITY AND REPRICING. The following table sets forth certain
information as of March 31, 1999, regarding the dollar amount of loans maturing
in our portfolio based on their contractual terms to maturity. Demand loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less. Adjustable and floating rate loans are
included in the period in which interest rates are next scheduled to adjust
rather than the period in which they
49
contractually mature, and fixed-rate loans are included in the period in which
the final contractual repayment is due. This table does not include prepayments
on scheduled principal amortization.
AT MARCH 31, 1999
---------------------------------------------------------------
FIRST HOME EQUITY
MORTGAGE LINES OF COMMERCIAL CONSUMER TOTAL
LOANS CREDIT LOANS LOANS LOANS
----------- ------------- ----------- ----------- ---------
(IN THOUSANDS)
AMOUNTS DUE:
Within one year..................................... $ 10,568 $ 3,336 $ 2,094 $ 738 $ 16,736
After one year:
One to three years................................ 9,733 40 765 428 10,966
Three to five years............................... 3,284 -- 810 196 4,290
Five to ten years................................. 9,399 127 1,044 19 10,589
Ten to twenty years............................... 42,988 -- 477 -- 43,465
Over twenty years................................. 1,051 -- -- -- 1,051
----------- ------ ----------- ----------- ---------
Total amount due................................ $ 77,023 $ 3,503 $ 5,190 $ 1,381 $ 87,097
----------- ------ ----------- ----------- ---------
----------- ------ ----------- ----------- ---------
LESS:
Net deferred loan origination costs............... 112
Allowance for loan losses......................... (857)
---------
---------
Loans, net...................................... $ 86,352
---------
---------
The following table presents, as of March 31, 1999, the dollar amount of all
loans due after March 31, 2000, and whether these loans have fixed interest
rates or adjustable interest rates.
DUE AFTER MARCH 31, 2000
---------------------------------
FIXED ADJUSTABLE TOTAL
--------- ----------- ---------
(IN THOUSANDS)
First mortgage loans............................................................ $ 52,430 $ 14,025 $ 66,455
Home equity lines of credit..................................................... 167 -- 167
Commercial...................................................................... 2,063 1,033 3,096
Consumer........................................................................ 643 -- 643
--------- ----------- ---------
Total loans................................................................. $ 55,303 $ 15,058 $ 70,361
--------- ----------- ---------
--------- ----------- ---------
50
The following table presents our loan originations, sales and principal
payments for the periods indicated.
FOR THE SIX MONTHS FOR THE YEAR ENDED SEPTEMBER
ENDED MARCH 31, 30,
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
LOANS, NET:
Balance outstanding at beginning of period............... $ 82,348 $ 70,580 $ 70,580 $ 65,243 $ 57,779
ORIGINATIONS:
Mortgage loans:
Residential............................................ 18,245 11,785 32,346 25,928 19,630
Commercial............................................. 755 326 476 3,217 --
Home equity lines of credit............................ 1,554 1,382 3,397 3,187 2,173
--------- --------- --------- --------- ---------
Total mortgage originations.......................... 20,554 13,493 36,219 32,332 21,803
Commercial loans......................................... 940 526 1,438 865 334
Consumer loans........................................... 496 599 1,275 904 1,820
--------- --------- --------- --------- ---------
Total originations................................... 21,990 14,618 38,932 34,101 23,957
--------- --------- --------- --------- ---------
LESS:
Principal repayments, unadvanced funds and other, net:... (17,956) (9,775) (26,780) (28,548) (16,388)
Sale of mortgage loans, principal balance................ -- (87) (269) (120) --
Provision for loan losses................................ (25) (20) (39) (96) (105)
Net loan charge-offs..................................... (5) (1) (2) -- --
Transfers to foreclosed real estate...................... -- -- (74) -- --
--------- --------- --------- --------- ---------
Total deductions..................................... (17,986) (9,883) (27,164) (28,764) (16,493)
--------- --------- --------- --------- ---------
Net loan activity........................................ 4,004 4,735 11,768 5,337 7,464
--------- --------- --------- --------- ---------
Loans, net, end of period.............................. $ 86,352 $ 75,315 $ 82,348 $ 70,580 $ 65,243
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RESIDENTIAL MORTGAGE LOANS. Our primary lending emphasis is the origination
of first mortgage loans secured by one- to four-family properties that serve as
the primary or secondary residence of the owner. As of March 31, 1999, loans on
one- to four-family residential properties accounted for 88.7% our total loan
portfolio.
Most of our loan originations are from existing or past customers, members
of our local communities or referrals from local real estate agents, attorneys
and builders. We believe that our branch network, particularly as it expands, is
a significant source of new loan generation. We also have a call program to real
estate agents in our market area to develop referral relationships between
agents and Westborough Savings.
We currently offer loans that conform to underwriting standards specified by
FannieMae ("conforming loans") and also originate non-conforming loans, as
described below. These loans may be fixed-rate one- to four- family mortgage
loans or adjustable-rate one- to four-family mortgage loans with maturities of
between 5 and 30 years. The non-conforming loans generally follow FannieMae
guidelines except that the loan amount exceeds FannieMae guidelines' maximum
limit of $240 thousand. The average size of our first mortgage loans originated
during the six months ended March 31, 1999 and the year ended September 30, 1998
was $151 thousand and $163 thousand, respectively. The average size of our first
mortgage loans was $103 thousand at March 31, 1999. We are an approved
seller/servicer for FannieMae. From time to time, we have sold loans in the
secondary
51
market although such sales have been infrequent. The loans that we sell are all
fixed-rate mortgage loans with terms of 30 years. Such loans, however, continue
to be serviced by Westborough Savings.
Our originations of first mortgage loans amounted to $18.2 million in the
six months ended March 31, 1999, $32.3 million in fiscal year 1998, $25.9
million in fiscal year 1997 and $19.6 million in fiscal year 1996. A significant
number of our first mortgage loan originations have been the result of
refinancing of our existing loans due to the relatively low interest rate levels
over the past three years.
We offer a variety of ARMs and fixed-rate one- to four-family mortgage loans
with maximum loan-to-value ratios that depend on the type of property and the
size of loan involved. The loan-to-value ratio is the loan amount divided by the
appraised value of the property. The loan-to-value ratio is a measure commonly
used by financial institutions to determine exposure to risk. The majority of
our loans on owner-occupied one- to four-family homes are originated with a
loan-to-value ratio of 80% or less. On occasion, under limited circumstances, we
have made loans on owner-occupied one- to four-family homes with a loan-to-value
ratio of up to 95%. In such cases, the borrower is required to obtain mortgage
insurance.
We currently offer fixed-rate mortgage loans with terms of 15, 20, 25 and 30
years secured by one- to four-family residences. We price our interest rates on
fixed rate loans to be competitive in light of market conditions.
We currently offer a variety of ARM loans secured by one- to four-family
residential properties that initially adjust after one year, three years, five
years or seven years. After the initial adjustment period, ARM loans adjust on
an annual basis. The ARM loans that we currently originate have a maximum 30
year amortization period and are subject to the same loan-to-value ratios
applicable to fixed-rate mortgage loans described above. The interest rates on
ARM loans fluctuate based upon a fixed spread above the average yield on United
States treasury securities and generally are subject to a maximum increase of 2%
per adjustment period and a limitation on the aggregate adjustment of 6% over
the life of the loan. We originated $6.1 million and $11.7 million of one- to
four-family ARM loans in the six months ended March 31, 1999 and the year ended
September 30, 1998, respectively. At March 31, 1999, 27.5% of our total loans
consisted of ARM loans.
The volume and types of ARM loans we originate have been affected by the
level of market interest rates, competition, consumer preferences and the
availability of funds. During 1998, we experienced a decreased demand for ARM
loans due to the continued low interest rate environment. Although we will
continue to offer ARM loans, we cannot guarantee that we will be able to
originate a sufficient volume of ARM loans to increase or maintain the
proportion that these loans bear to our total loans.
The retention of ARM loans in our loan portfolio helps reduce our exposure
to increases in interest rates. However, ARM loans can pose credit risks
different from the risks inherent in fixed-rate loans, primarily because as
interest rates rise, the underlying payments of the borrower may rise. This
increases the potential for default.
Our home equity credit line loans, which totaled $3.5 million, or 4.0% of
total loans at March 31, 1999, are fixed and adjustable-rate loans secured by a
first or second mortgage on owner-occupied one- to four-family residences
located in our market area. Interest rates on home equity credit lines are based
upon the "prime rate" as published in the "Money Rates" section of the WALL
STREET JOURNAL (the "index") with a minimum monthly principal payment of
one-half of 1% of the outstanding principal balance of the loan. The maximum
credit line available is equal to the lesser of $100 thousand and 80% of
Westborough Savings' appraisal of the property or 50% of the tax assessment on
the property, in each case less the first mortgage balance. Such loans also have
a maximum term of 15 years. The underwriting standards applicable to these loans
generally are the same as one- to four-family first
52
mortgage loans, except that the combined loan-to-value ratio, including the
balance of the first mortgage, cannot exceed 80% of the appraised value of the
property.
In conjunction with our residential mortgage lending, we offer construction
loans to the future occupants of single family homes. At March 31, 1999, $2.0
million, or 2.3% of our total loan portfolio consisted of gross residential
construction loans. Unadvanced funds on these loans amounted to $479 thousand at
March 31, 1999, resulting in a net balance of $1.5 million. These loans
typically have a term of twelve months and are structured to become permanent
loans upon the completion of construction. All such loans are secured by first
liens on the property and are subject to a maximum loan-to-value ratio of 80%,
which is based upon the anticipated value of the property. During the
construction period, the interest rate for construction loans to individuals is
50 basis points below the index. Loans involving construction financing present
a greater risk than loans for the purchase of existing homes since collateral
values and construction costs can only be estimated at the time the loan is
approved.
COMMERCIAL REAL ESTATE LOANS. Origination of loans secured by commercial
real estate is a growing area of lending for Westborough Savings. At March 31,
1999, commercial real estate mortgage loans totaled $3.1 million, or 3.5% of
total loans. These loans are generally secured by office buildings,
condominiums, retail establishments and churches located within our market area.
Our commercial real estate loans are offered on a fixed- and adjustable-rate
basis. Typical terms for such loans provide for a maximum seven-year repricing
term with a 20 year amortization and a balloon payment in five to seven years,
and an interest rate based upon the index. Loans on commercial properties are
also subject to a maximum loan-to-value ratio of 80% for the acquisition of the
property and 75% for refinancing of the property.
Pursuant to our underwriting standards, a number of factors are considered
before a commercial real estate loan is made. We evaluate qualifications and
financial condition of the borrower, including credit history, profitability and
expertise, as well as the value and condition of the underlying property.
Factors that we consider in evaluating the underlying property include the net
operating income of the mortgaged property before debt service and depreciation,
the debt service coverage ratio (the ratio of operating income to debt service)
and, as noted above, the ratio of the loan amount to the appraised value of the
property.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of credit risk than one- to four-family residential
mortgage loans. Such loans typically involve large balances to single borrowers
or groups of related borrowers. Because payments on loans secured by commercial
real estate properties are often dependent on the successful operation or
management of the properties, repayment of such loans may be subject to adverse
conditions in the real estate market or the economy. If the cash flow from the
project decreases, or if leases are not obtained or renewed, the borrower's
ability to repay the loan may be impaired.
Our real estate loan portfolio also includes construction loans to builders
and developers of residential properties within our market area. At March 31,
1999, $2.1 million, or 2.4% of our total loan portfolio, consisted of gross
commercial construction loans. Unadvanced funds on these loans amounted to $1.1
million at March 31, 1999, resulting in a net balance of $1.0 million.
Construction loans to builders typically are in amounts equal to 70% of the
value of the property upon completion. Construction loans generally have twelve
month terms with a floating interest rate based upon the index. In addition to
securing the loan with the property under construction, we generally obtain
personal guarantees from the borrower. The proceeds of such loans are disbursed
after certification by in-house personnel that specified stages of construction
have been completed.
Construction lending is generally considered to carry a higher level of risk
than permanent mortgage financing because of the uncertainty of the value of the
collateral upon completion.
53
Repayment of such loans are also dependent upon the successful completion of the
project and can be adversely affected by market conditions and other factors not
within the control of Westborough Savings or the borrower. We seek to control
such risks by tying the amount of the loan advanced to the completion of
construction and monitoring subcontractors to ensure that loan proceeds are
applied appropriately.
CONSUMER LOANS. At March 31, 1999, $1.4 million, or 1.6% of our total
loans, consisted of consumer loans such as personal, deposit secured and
fixed-rate home improvement loans. Consumer loans generally have shorter terms
to maturity, which reduces our exposure to changes in interest rates. Consumer
loans also carry higher rates of interest than do one- to four-family
residential mortgage loans. In addition, we believe that offering consumer loan
products helps to expand and create stronger ties to our existing customer base
by increasing the number of customer relationships and providing cross-marketing
opportunities.
Our personal loans consist of unsecured loans to individuals and secured
loans for the purchase of new and used automobiles. Our unsecured loans have a
maximum term of 48 months. The terms of our automobile loans generally are
determined by the age and condition of the vehicle. At March 31, 1999, our
personal loans totaled $666 thousand, or 0.75% of total loans.
We also make loans secured by deposit accounts up to 90% of the amount of
the depositor's savings account balance. The rate for such loans is 2.0% higher
than the rate paid on regular savings accounts and 3.0% higher than the rate
paid on term deposits. Deposit secured loans totaled $586 thousand, or 0.66% of
total loans at March 31, 1999.
We offer fixed-rate home improvement loans in amounts equal to that
available for home equity credit line loans as discussed above. These loans are
secured by owner-occupied one- to four-family residences for terms of up to 10
years. At March 31, 1999, these loans totaled $129 thousand, or 0.15% of total
loans. Interest rates on fixed-rate home improvement loans are periodically set
by our Loan Committee, consisting of our President, Treasurer and Senior Loan
Officer, after consultation with the Board of Investment and are based on market
conditions. The underwriting terms and procedures applicable to these loans are
substantially the same as for our home equity credit line loans.
COMMERCIAL LOANS. Westborough Savings recently has made a commitment to
small business lending by developing certain products and services for the small
and medium sized businesses located in our market area. Such services are
designed to give business owners borrowing opportunities for, among other
things, modernization, inventory, equipment, consolidation and working capital.
In addition, we have tailored certain products and services, such as our
business checking accounts and treasury and tax loan service, to better serve
the needs of local businesses. We have also become an approved lender of the
Small Business Administration. At March 31, 1999, $2.1 million, or 2.4%, of our
total loans consisted of commercial loans. We expect that commercial loans will
comprise a growing portion of our total loan portfolio in the future.
Commercial loans generally are limited to terms of five years or less.
Substantially all commercial loans have variable interest rates tied to the
prime rate. Whenever possible, we collateralize these loans with a lien on
commercial real estate or alternatively, with a lien on business assets and
equipment and the personal guarantees of the borrower's principal officers.
Our commercial services are administered by our loan department. Recently,
we hired an experienced commercial loan officer with considerable commercial
lending expertise, including 13 years of banking experience in Massachusetts and
personal ties to Westborough. We also intend to add additional qualified
employees as market conditions warrant.
Commercial loans generally are considered to involve a higher degree of risk
than residential mortgage loans because the primary collateral may be in the
form of intangible assets and/or inventory subject to market obsolescence.
Commercial loans also may involve relatively large loan balances to
54
single borrowers or groups of related borrowers, with the repayment of such
loans typically dependent on the successful operation and income stream of the
borrower. Such risks can be significantly affected by economic conditions. In
addition, commercial lending ordinarily requires substantially greater oversight
efforts compared to residential real estate lending. To minimize these risks, we
conduct periodic reviews of the commercial loan portfolio to ensure adherence to
underwriting standards and policy requirements.
LOAN APPROVAL PROCEDURES AND AUTHORITY. Our lending policies provide that
our Loan Committee has authority to approve one- to four-family mortgage loans
in amounts up to $250 thousand. One- to four-family mortgage loans in excess of
$250 thousand require the approval of our Board of Investment. Commercial real
estate loans in amounts up to $300 thousand must be approved by the Loan
Committee. All other commercial real estate loans must be approved by the Board
of Investment. Commercial and consumer loans in amounts up to $100 thousand may
be approved by our President, Treasurer or Senior Loan Officer. Together, these
individuals also may approve commercial and consumer loans in amounts up to $300
thousand.
The following generally describes our current lending procedures. Upon
receipt of a completed loan application from a prospective borrower, we order a
credit report and verify certain other information. If necessary, we obtain
additional financial or credit related information. We require an appraisal for
all mortgage loans, except for some loans made to refinance existing mortgage
loans. Appraisals are performed by a licensed or certified third-party appraisal
firms and are reviewed by our lending department. We require title insurance on
all mortgage loans, except for home equity credit lines and fixed-rate home
improvement loans. For these loans, we require evidence of previous title
insurance. We require borrowers to obtain hazard insurance and we may require
borrowers to obtain flood insurance prior to closing. For properties with a
private sewage disposal system, we also require evidence of compliance with
applicable law. Further, we require borrowers to advance funds on a monthly
basis together with each payment of principal and interest to a mortgage escrow
account from which we make disbursements for items such as real estate taxes,
flood insurance and private mortgage insurance premiums, if required.
ASSET QUALITY
One of our key operating objectives has been and continues to be to maintain
a high level of asset quality. Our concentration on one- to four-family mortgage
lending, our maintenance of sound credit standards for new loan originations and
relatively favorable economic and real estate market conditions have resulted in
historically low delinquency ratios and, in recent years, a low level of
non-performing assets. These factors have helped strengthen our financial
condition.
DELINQUENT LOANS AND FORECLOSED ASSETS. Management and the Loan Committee
perform a monthly review of all delinquent loans. One of the primary tools we
use to manage and control problem loans is our "Watch List." This list
identifies all of the loans or commitments that are considered to have
characteristics that could result in loss to us if not properly supervised. The
list is managed by the Loan Committee which, together with the Board of
Investment, meets periodically to discuss the status of the loans on the Watch
List and to add or delete loans from the list. At March 31, 1999, we had no
loans more than 90 days past due and had $279 thousand and $431 thousand in
assets classified as pass and substandard, respectively. No assets were
classified as special mention, doubtful or loss.
Westborough Savings had no non-performing assets at March 31, 1999 and 1998.
55
The following table presents information regarding non-accrual mortgage and
consumer and other loans, accruing loans delinquent 90 days or more, and
foreclosed real estate as of the dates indicated. At March 31, 1999 and
September 30, 1998, 1997, and 1996, we have no non-accrual loans.
AT MARCH 31, AT SEPTEMBER 30,
------------- -------------------------------
1999 1998 1997 1996
------------- --------- --------- ---------
(IN THOUSANDS)
Non-accrual first mortgage loans............................................. $ -- $ -- $ -- $ --
Non-accrual consumer and other loans......................................... -- -- -- --
Accruing loans delinquent 90 days or more.................................... -- 55 -- 9
------------- --------- --- ---------
Total non-performing and delinquent loans.................................... -- 55 -- 9
Foreclosed real estate, net.................................................. -- 74 19 144
------------- --------- --- ---------
Total non-performing assets and delinquent loans............................. $ -0- $ 129 $ 19 $ 153
------------- --------- --- ---------
------------- --------- --- ---------
Non-performing and delinquent loans to total loans........................... -- 0.06% -- 0.01%
Non-performing assets and delinquent loans to total assets................... -- 0.08% 0.01% 0.11%
At March 31, 1999, we were aware of seven loans in an aggregate amount of
$710 thousand that are not currently classified as nonaccrual or 90 days past
due but which may be so classified in the near future because of concerns over
the borrowers' ability to comply with repayment terms.
Loans are placed on nonaccrual status when they are 90 days past due or, in
the opinion of management, the collection of principal and interest is doubtful.
When we designate loans as non-accrual loans, we reverse outstanding interest
that we previously credited. We may recognize income in the period that we
collect it when the ultimate collectibility of principal is no longer in doubt.
We return a non-accrual loan to accrual status when none of its principal or
interest is due and unpaid or when it otherwise becomes well secured and in the
process of collection.
Impaired loans generally are individually assessed to determine whether a
loan's carrying value is not in excess of the fair value of the collateral or
the present value of the loan's cash flows. Groups of smaller balance loans,
however, are collectively evaluated for impairment. Accordingly, Westborough
Savings does not separately identify individual consumer loans for impairment
disclosures. We had no loans classified as impaired at March 31, 1999 and $269
thousand and $352 thousand loans classified as impaired at September 30, 1998
and September 30 1997, respectively. In addition at September 30, 1998 and 1997,
we had no loans classified as troubled debt restructurings, as defined in SFAS
No. 15.
Foreclosed real estate consists of property we acquired through foreclosure
or deed in lieu of foreclosure. Foreclosed real estate properties are initially
recorded at the lower of the investment in the loan or fair value. Thereafter,
we carry foreclosed real estate at fair value less estimated selling costs, net
of a valuation allowance account established through provisions charged to
income, which result from the ongoing periodic valuations of foreclosed real
estate properties.
56
ALLOWANCE FOR LOAN LOSSES. The following table presents the activity in our
allowance for loan losses at or for the periods indicated.
AT OR FOR THE SIX
MONTHS AT OR FOR
ENDED MARCH 31, THE YEAR ENDED SEPTEMBER 30,
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Balance at beginning of period............................... $ 827 $ 786 $ 786 $ 690 $ 585
--------- --------- --------- --------- ---------
Provision for loan losses.................................... 25 20 39 96 105
--------- --------- --------- --------- ---------
Charge-offs:
Mortgage loans............................................. -- -- -- -- --
Commercial loans........................................... -- -- -- -- --
Consumer loans............................................. (6) -- -- (2) (8)
--------- --------- --------- --------- ---------
Total charge-offs........................................ (6) -- -- (2) (8)
Recoveries................................................... 11 1 2 2 8
--------- --------- --------- --------- ---------
Balance at end of period..................................... $ 857 $ 807 $ 827 $ 786 $ 690
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of net charge-offs to average loans outstanding during
the period(1).............................................. (0.012)% (0.003)% (0.003)% 0.000% 0.000%
Allowance for loan losses as a percent of total loans before
the allowance for loan losses.............................. 0.98% 1.06% 0.99% 1.10% 1.05%
Allowance for loan losses as a percent of non-performing
loans...................................................... -- -- -- -- --
(1) Ratio is annualized for the six month periods.
The allowance for loan losses is a valuation account that reflects our
evaluation of the losses inherent in our loan portfolio. We maintain the
allowance through provisions for loan losses that we charge to income. We charge
losses on loans against the allowance for loan losses when we believe the
collection of loan principal is unlikely.
We establish the provision for loan losses after considering the results of
our review of delinquency and charge-off trends, the amount of the allowance for
loan losses in relation to the total loan balance, loan portfolio growth by type
of loan, generally accepted accounting principles and regulatory guidance. We
have applied this process consistently, and we have made minimal changes in the
assumptions used.
As part of our analysis, each month we prepare an allowance for loan loss
worksheet. This worksheet categorizes the entire loan portfolio by certain risk
characteristics such as loan type, guarantees associated with a group of loans
and payment status. Loans with known potential losses are categorized
separately. We assign potential loss factors to the categories on the basis of
our assessment of each category's status and the potential risk inherent in that
type of lending. We use this worksheet, together with loan portfolio balances
and delinquency reports, to evaluate the adequacy of the allowance for loan
losses. Other key factors we consider in this process are national, state and
local economic considerations, history of loan loss experience for major
credits, trends in charge-off recovery, past and current trends in delinquency,
trends in watch list activity, and trends in loan concentration.
Although we believe that we have established and maintained the allowance
for loan losses at adequate levels, future additions may be necessary if
economic and other conditions in the future differ substantially from the
current operating environment.
57
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our loan and foreclosed real estate
portfolios and the related allowance for loan losses and valuation allowance for
foreclosed real estate. These agencies, including the FDIC and the Massachusetts
Division of Banks, may require us to increase the allowance for loan losses or
the valuation allowance for foreclosed real estate based on their judgments of
information available to them at the time of their examination, thereby
adversely affecting our results of operations.
The following table presents our allocation of the allowance for loan losses
by loan category and the percentage of loans in each category to total loans at
the dates indicated.
AT
MARCH 31, AT SEPTEMBER 30,
------------------------------------------------------ ------------------------------------------------------
1999 1998 1998 1997
-------------------------- -------------------------- -------------------------- --------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN
CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO
LOAN CATEGORY AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
(IN THOUSANDS)
Real estate--
mortgage:
Residential(1).... $ 279 92.58% $ 281 92.40% $ 309 92.80% $ 253 92.63%
Commercial........ 208 3.48 190 4.00 184 3.24 289 4.02
Commercial loans
(2)............... 124 2.38 52 1.27 103 1.99 39 1.00
Consumer............ 17 1.56 25 2.33 24 1.97 27 2.35
Unallocated......... 229 -- 259 -- 207 -- 178 --
----- ------ ----- ------ ----- ------ ----- ------
Total allowance
for loan
losses........ $ 857 100.00% $ 807 100.00% $ 827 100.00% $ 786 100.00%
----- ------ ----- ------ ----- ------ ----- ------
----- ------ ----- ------ ----- ------ ----- ------
1996
--------------------------
PERCENT OF
LOANS IN
CATEGORY TO
LOAN CATEGORY AMOUNT TOTAL LOANS
-------------------- ----------- -------------
Real estate--
mortgage:
Residential(1).... $ 265 92.14%
Commercial........ 272 4.60
Commercial loans
(2)............... -- 0.58
Consumer............ 50 2.68
Unallocated......... 103 --
----- ------
Total allowance
for loan
losses........ $ 690 100.00%
----- ------
----- ------
(1) Includes home equity lines of credit and construction loans.
(2) Prior to September 30, 1997, the allowance for loan losses for commercial
loans was included in consumer loans.
58
INVESTMENT ACTIVITIES
The Board of Trustees reviews and approves our investment policy on an
annual basis. The President and Treasurer, as authorized by the Board, implement
this policy. Management reports securities transactions to the Board of
Investment for review and approval on a monthly basis.
Our investment policy is designed primarily to manage the interest rate
sensitivity of our assets and liabilities, to generate a favorable return
without incurring undue interest rate and credit risk, to complement our lending
activities and to provide and maintain liquidity within established guidelines.
In establishing our investment strategies, we consider our interest rate
sensitivity, the types of securities to be held, liquidity and other factors.
Massachusetts chartered savings banks have authority to invest in various types
of assets, including U.S. Treasury obligations, securities of various federal
agencies, mortgage-backed securities, certain certificates of deposit of insured
banks and savings institutions, certain bankers' acceptances, repurchase
agreements, loans of federal funds, and, subject to certain limits, corporate
debt and equity securities, commercial paper and mutual funds.
As part of our investment strategy, we also engage in a "covered call"
program in which we write options on securities we hold. The sale of a covered
call conveys the right, but not the obligation, to the buyer to buy a particular
security held by us at a particular price up to a certain expiration date. The
sale is "covered" because we hold the security in our portfolio. Under this
program, we write options only on publicly traded securities we own. However, we
are willing to have the securities called if an option is written and exercised.
At March 31, 1999 and September 30, 1998, our liquidity ratio was 78.13% and
90.05%, respectively. For information regarding the carrying values, yields and
maturities of our investment securities and mortgage-backed securities, see
"--Carrying Values, Yields and Maturities."
At March 31, 1999, our U.S. Government and federal agency securities
portfolio totaled $20.9 million. This portfolio consists primarily of securities
with maturities of one to five years. Our agency debentures are callable on a
semi-annual basis following a holding period of twelve months. We generally do
not purchase structured notes, and at March 31, 1999, there were no structured
notes in our portfolio.
At March 31, 1999, our portfolio of other debt obligations totaled $19.8
million. Our policy generally requires that investment in corporate debt
obligations be limited to corporate bonds with an "A" rating or better by at
least one nationally recognized rating service at the time of purchase.
The fair market value of our marketable equity securities portfolio totaled
$8.0 million at March 31, 1999. These securities consisted of $4.6 million of
common stock, $208 thousand of preferred stock and $3.2 million of rated trust
preferred securities issued by financial institutions. Under our investment
policy, the aggregate amount of marketable equitable securities that we may
purchase may not exceed 10% of our total investment portfolio. Our policy also
has limitations against acquiring concentrations of such securities in any one
issuer or industry. We purchase marketable equity securities as growth
investments that can provide the opportunity for capital appreciation that is
taxed on a more favorable basis than operating income. There can be no assurance
that investment in marketable equity securities will appreciate in value and,
therefore, such investments involve higher risk than U.S. Government or federal
agency securities. Aggregate purchases of marketable equity securities totaled
$5.1 million for the six months ended March 31, 1999 and $3.9 million and $276
thousand for the years ended September 30, 1998 and 1997. At March 31, 1999,
pre-tax net unrealized gains on marketable equity securities amounted to $654
thousand.
Unless otherwise noted with respect to certain securities or required by
regulators or accounting standards, we classify securities available for sale at
the date of purchase. Available for sale securities are reported at fair market
value. We currently have no securities classified as trading. During fiscal
59
year 1998 and during the six months ended March 31, 1999, we sold investment
securities in the aggregate amounts of $17.9 million and $3.3 million,
respectively.
At March 31, 1999, our mortgage-backed securities, all of which were
classified as available for sale, totaled $13.6 million, or 8.1% of total
assets. We generally purchase mortgage-backed securities as a means to deploy
excess liquidity at more favorable yields than other investment alternatives. In
addition, mortgage-backed securities generate positive interest rate spreads
with minimal administrative expense and lower our overall credit risk due to the
fact that they are directly or indirectly insured or guaranteed.
At March 31, 1999, the mortgage-backed securities portfolio had a weighted
average yield of 6.29% and a market value of $13.6 million. Purchases of
mortgage-backed securities may decline in the future if we experience an
increase in demand for one- to four-family mortgage loans. We did not sell any
of our mortgage-backed securities during fiscal year 1998 or during the six
months ended March 31, 1999.
Mortgage-backed securities generally yield less than the loans that underlie
such securities because of the cost of payment guarantees or credit enhancements
that reduce credit risk. However, mortgage-backed securities are more liquid
than individual mortgage loans and may be used to collateralize our borrowings.
In general, mortgage-backed securities issued or guaranteed by GNMA, FannieMae
and FreddieMac are weighted at no more than 20% for risk-based capital purposes,
compared to the 50% risk weighting assigned to most non-securitized residential
mortgage loans.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, they remain subject to the risk of a fluctuating interest rate
environment. Along with other factors, such as the geographic distribution of
the underlying mortgage loans, changes in interest rates may alter the
prepayment rate of those mortgage loans and affect both the prepayment rates and
value of mortgage-backed securities.
During the year ended September 30, 1997, we established a private
charitable foundation to provide grants to charitable organizations in the
Westborough area. The foundation is not a subsidiary of Westborough Savings, but
was funded by a donation from Westborough Savings of marketable equity
securities. These securities had a cost basis and fair value of $21 thousand and
$110 thousand, respectively, at the date of transfer. Such securities had been
classified as available for sale and, accordingly the transfer resulted in
Westborough Savings recognizing the unrealized appreciation of the securities of
$89 thousand in its consolidated statement of income.
The following table presents activity in our investment securities portfolio
(including Federal Home Loan Bank stock) for the periods indicated:
FOR THE SIX FOR THE YEAR ENDED SEPTEMBER
MONTHS ENDED 30,
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Beginning balance....................................................... $ 60,107 $ 61,654 $ 61,654 $ 62,743 $ 57,371
Purchases............................................................. 14,302 10,407 20,880 12,517 28,705
Maturities............................................................ (4,000) (1,549) (1,250) (3,520) (3,550)
Sales and calls....................................................... (3,348) (5,275) (17,886) (7,653) (16,118)
Principal repayments.................................................. (2,305) (1,781) (4,214) (2,777) (3,300)
Premium and discount amortization, net................................ (47) (51) (88) (93) (200)
Charitable contributions in the form of equity securities............. -- -- -- (110) --
Recognition of expired options........................................ 187 -- -- -- --
Change in net unrealized gains........................................ (929) 211 1,011 547 (165)
--------- --------- --------- --------- ---------
Ending balance.......................................................... $ 63,967 $ 63,616 $ 60,107 $ 61,654 $ 62,743
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
60
The following table sets forth certain information regarding the amortized
cost and fair value of our securities at the dates indicated.
AT MARCH 31, AT SEPTEMBER 30,
---------------------- ----------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
----------- --------- ----------- --------- ----------- ---------
(IN THOUSANDS)
Debt securities:
U. S. Government obligations...................... $ 12,089 $ 12,347 $ 13,091 $ 13,579 $ 22,661 $ 22,867
Federal agency obligations........................ 8,506 8,513 9,504 9,660 10,428 10,427
Banking and finance obligations................... 5,531 5,525 5,534 5,624 4,539 4,564
Other bonds and obligations....................... 14,224 14,306 13,412 13,762 10,518 10,588
----------- --------- ----------- --------- ----------- ---------
Total debt securities......................... 40,350 40,691 41,541 42,625 48,146 48,446
----------- --------- ----------- --------- ----------- ---------
Mortgage-backed and mortgage-related securities:
FHLMC............................................. 1,582 1,598 2,079 2,139 3,233 3,234
FNMA.............................................. 5,781 5,773 4,021 4,063 2,912 2,889
GNMA.............................................. 3,292 3,277 4,185 4,192 4,044 4,077
Other............................................. 3,013 2,990 1,190 1,219 306 307
----------- --------- ----------- --------- ----------- ---------
Total mortgage-backed and mortgage-related
securities.................................. 13,668 13,638 11,475 11,613 10,495 10,507
----------- --------- ----------- --------- ----------- ---------
Asset-backed securities........................... 851 853 -- -- 243 330
Marketable equity securities...................... 7,369 8,023 4,433 5,107 1,168 1,654
Federal Home Loan Bank stock...................... 762 762 762 762 717 717
----------- --------- ----------- --------- ----------- ---------
Total securities.............................. $ 63,000 $ 63,967 $ 58,211 $ 60,107 $ 60,769 $ 61,654
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
1996
----------------------
AMORTIZED FAIR
COST VALUE
----------- ---------
Debt securities:
U. S. Government obligations...................... $ 22,211 $ 22,196
Federal agency obligations........................ 10,407 10,335
Banking and finance obligations................... 3,289 3,293
Other bonds and obligations....................... 12,362 12,278
----------- ---------
Total debt securities......................... 48,269 48,102
----------- ---------
Mortgage-backed and mortgage-related securities:
FHLMC............................................. 3,916 3,843
FNMA.............................................. 3,697 3,661
GNMA.............................................. 3,477 3,462
Other............................................. 353 359
----------- ---------
Total mortgage-backed and mortgage-related
securities.................................. 11,443 11,325
----------- ---------
Asset-backed securities........................... 911 1,012
Marketable equity securities...................... 1,139 1,661
Federal Home Loan Bank stock...................... 643 643
----------- ---------
Total securities.............................. $ 62,405 $ 62,743
----------- ---------
----------- ---------
The following table sets forth the amortized cost and fair value of our
mortgage-backed and mortgage-related securities, all of which were classified as
available for sale at the dates indicated.
AT MARCH 31, AT SEPTEMBER 30,
----------------------------------- -------------------------------------------------------------
1999 1998 1997
----------------------------------- ----------------------------------- ------------------------
PERCENT PERCENT PERCENT
AMORTIZED OF FAIR AMORTIZED OF FAIR AMORTIZED OF
COST TOTAL(1) VALUE COST TOTAL(1) VALUE COST TOTAL(1)
----------- ----------- --------- ----------- ----------- --------- ----------- -----------
(IN THOUSANDS)
Mortgage-backed and
mortgage-related
securities:
FHLMC............... $ 1,582 11.57% $ 1,598 $ 2,079 18.12% $ 2,139 $ 3,233 30.80%
FNMA................ 5,781 42.30 5,773 4,021 35.04 4,063 2,912 27.75
GNMA................ 3,292 24.09 3,277 4,185 36.47 4,192 4,044 38.53
Other............... 3,013 22.04 2,990 1,190 10.37 1,219 306 2.92
----------- ----------- --------- ----------- ----------- --------- ----------- -----------
Total mortgage-backed
and mortgage related
securities.......... $ 13,668 100.00% $ 13,638 $ 11,475 100.00% $ 11,613 $ 10,495 100.00%
----------- ----------- --------- ----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- ----------- --------- ----------- -----------
1996
-----------------------------------
PERCENT
FAIR AMORTIZED OF FAIR
VALUE COST TOTAL(1) VALUE
--------- ----------- ----------- ---------
Mortgage-backed and
mortgage-related
securities:
FHLMC............... $ 3,234 $ 3,916 34.22% $ 3,843
FNMA................ 2,889 3,697 32.31 3,661
GNMA................ 4,077 3,477 30.39 3,462
Other............... 307 353 3.08 359
--------- ----------- ----------- ---------
Total mortgage-backed
and mortgage related
securities.......... $ 10,507 $ 11,443 100.00% $ 11,325
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
(1) Based on amortized cost.
CARRYING VALUES, YIELDS AND MATURITIES. The table below presents
information regarding the carrying values, weighted average yields and
contractual maturities of our investment securities and
61
mortgage-backed securities at March 31, 1999. Mortgage-backed securities are
presented by issuer. Yields on tax exempt obligations were not computed on a tax
equivalent basis.
AT MARCH 31, 1999
-----------------------------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN FIVE YEARS
MORE THAN
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS TEN YEARS
------------------------ ------------------------ ------------------------ -----------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
Debt securities:
U.S. Government obligations........ $ 2,041 6.59% $ 10,306 6.29% $ -- --% $ --
Federal agency obligations......... -- -- 4,544 6.62 3,969 6.21 --
Banking and finance obligations.... 1,509 6.24 3,531 6.30 485 6.01 --
Other bonds and obligations........ 2,263 6.35 9,242 6.49 937 4.95 1,864
----------- ----------- ----------- -----------
Total debt securities.............. 5,813 6.41 27,623 6.41 5,391 5.97 1,864
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Mortgage-backed and mortgage related
securities:
FHLMC.............................. 96 7.62 480 6.34 -- -- 1,022
FNMA............................... -- -- 835 6.45 274 6 4,664
GNMA............................... -- -- -- -- -- -- 3,277
Other.............................. -- -- -- -- -- -- 2,990
----------- ----------- ----------- -----------
Total mortgage backed and
mortgage related
securities:.................. 96 7.62 1,315 6.41 274 6 11,953
----------- ----------- ----------- -----------
Asset-backed securities............ -- -- -- -- 853 5.47 --
Marketable equity securities....... 8,023 -- -- -- -- -- --
Federal Home Loan Bank stock....... 762 -- -- -- -- -- --
----------- ----------- ----------- -----------
Total securities............... $ 14,694 6.43% $ 28,938 6.41% $ 6,518 5.91% $ 13,817
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL
------------------------
WEIGHTED WEIGHTED
AVERAGE CARRYING AVERAGE
YIELD AMOUNT YIELD
----------- ----------- -----------
Debt securities:
U.S. Government obligations........ --% $ 12,347 6.34%
Federal agency obligations......... -- 8,513 6.43
Banking and finance obligations.... -- 5,525 6.26
Other bonds and obligations........ 5.86 14,306 6.28
-----------
Total debt securities.............. 5.86 40,691 6.33
-----------
-----------
Mortgage-backed and mortgage related
securities:
FHLMC.............................. 6.56 1,598 6.56
FNMA............................... 6.32 5,773 6.32
GNMA............................... 5.96 3,277 5.96
Other.............................. 6.45 2,990 6.45
-----------
Total mortgage backed and
mortgage related
securities:.................. 6.27 13,638 6.29
-----------
Asset-backed securities............ -- 853 5.47
Marketable equity securities....... -- 8,023 4.23
Federal Home Loan Bank stock....... -- 762 3.15
-----------
Total securities............... 6.22% $ 63,967 6.01%
-----------
-----------
62
SOURCES OF FUNDS
GENERAL. Deposits, scheduled amortization and prepayments of loan principal
and mortgage-backed securities, maturities and calls of investments securities
and funds provided by operations are our primary sources of funds for use in
lending, investing and for other general purposes. We also utilize borrowed
funds from the Federal Home Loan Bank of Boston to fund certain loans in
connection with our management of the interest rate sensitivity of our assets
and liabilities, as well as for other general purposes.
DEPOSITS. We offer a variety of deposit accounts having a range of interest
rates and terms. We currently offer regular savings deposits, NOW accounts,
personal and business demand accounts, money market accounts and certificates of
deposit. We also offer Individual Retirement Accounts ("IRAs"), which at March
31, 1999 totaled $9.8 million.
Deposit flows are influenced significantly by general and local economic
conditions, changes in prevailing interest rates, pricing of deposits and
competition. Our deposits are primarily obtained from areas surrounding our
offices, and we rely primarily on paying competitive rates, service and
long-standing relationships with customers to attract and retain these deposits.
We also have developed deposit products to attract and retain individual and
commercial depositors. One such product is a tiered-rate savings account in
which deposits over certain amounts earn interest at higher rates. Other
programs involve the introduction of commercial deposit products tailored to
small and medium sized businesses, such as our business and commercial checking
accounts. We do not use brokers to obtain deposits.
When we determine our deposit rates, we consider local competition, U.S.
Treasury securities offerings and the rates charged on other sources of funds.
Core deposits (defined as regular savings deposits, NOW accounts, money market
accounts and demand accounts) represented 66.06% of total deposits on March 31,
1999. At March 31, 1999, certificates of deposit with remaining terms to
maturity of less than one year amounted to $39.3 million. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Analysis of Net Interest Income" for information relating to the
average balances and costs of our deposit accounts for the six months ended
March 31, 1999 and 1998 and for the years ended September 30, 1998 and 1997.
The following table presents our deposit activity for the periods indicated.
FOR THE SIX
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED SEPTEMBER 30,
---------------------- ----------------------------------
1999 1998 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Beginning balance.................................... $ 135,962 $ 125,170 $ 125,170 $ 120,282 $ 109,549
Net deposits......................................... 4,679 2,926 6,321 710 6,824
Interest credited on deposit accounts................ 2,330 2,230 4,471 4,178 3,909
---------- ---------- ---------- ---------- ----------
Ending balance....................................... $ 142,971 $ 130,326 $ 135,962 $ 125,170 $ 120,282
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total increase in deposit accounts................... $ 7,009 $ 5,156 $ 10,792 $ 4,888 $ 10,733
Percentage increase.................................. 5.16% 4.12% 8.62% 4.06% 9.80%
63
At March 31, 1999, we had $9.8 million in certificates of deposit with
balances of $100,000 and over maturing as follows:
WEIGHTED
AVERAGE
AMOUNT RATE
--------- -----------
(IN THOUSANDS)
Maturity Period:
Three months or less.................................................... $ 2,228 4.87%
Over three months through six months.................................... 3,184 5.06
Over six months through 12 months....................................... 2,686 5.08
Over 12 months.......................................................... 1,749 5.51
--------- ---
Total..................................................................... $ 9,847 5.10%
--------- ---
--------- ---
64
The following table presents the distribution of our deposit accounts at the
dates indicated by dollar amount and percent of portfolio, and the weighted
average interest rate on each category of deposits.
AT MARCH 31, AT SEPTEMBER 30,
------------------------------------- ------------------------------------------------
1999 1998 1997
------------------------------------- ------------------------------------- ---------
WEIGHTED WEIGHTED
PERCENT AVERAGE PERCENT AVERAGE
OF TOTAL NOMINAL OF TOTAL NOMINAL
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT
--------- ----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS)
Non-interest bearing accounts.... $ 10,261 7.18% --% $ 8,592 6.32% --% $ 6,910
Now accounts..................... 13,527 9.46 0.50 15,221 11.19 0.50 11,310
Savings accounts:
Regular........................ 28,128 19.67 2.60 28,239 20.77 2.60 31,001
Tiered rate.................... 35,615 24.91 4.11 29,733 21.87 4.33 20,729
--------- ----------- --- --------- ----------- --- ---------
Total savings accounts....... 63,743 44.58 3.44 57,972 42.64 3.49 51,730
Money market deposit accounts.... 6,916 4.84 2.95 7,218 5.31 2.95 9,003
--------- ----------- --- --------- ----------- --- ---------
Total non-certificate
accounts................... 94,447 66.06 2.61 89,003 65.46 2.60 78,953
--------- ----------- --- --------- ----------- --- ---------
Certificates of deposit
Due within 1 year.............. 39,250 27.45% 4.96 37,005 27.22 5.06 37,119
Over 1 year through 3 years.... 9,262 6.48 5.31 9,954 7.32 5.45 9,094
Over 3 years................... 12 0.01 5.12 -- -- -- 4
--------- ----------- --- --------- ----------- --- ---------
Total certificate accounts... 48,524 33.94 5.03 46,959 34.54 5.14 46,217
--------- ----------- --- --------- ----------- --- ---------
Total deposits............... $ 142,971 100.00% 3.43% $ 135,962 100.00% 3.48% $ 125,170
--------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- ---------
1996
-------------------------------------
WEIGHTED WEIGHTED
PERCENT OF AVERAGE PERCENT AVERAGE
TOTAL NOMINAL OF TOTAL NOMINAL
DEPOSITS RATE AMOUNT DEPOSITS RATE
----------- ------------- --------- ----------- -------------
Non-interest bearing accounts.... 5.52% --% $ 6,941 5.77% --%
Now accounts..................... 9.04 1.01 11,604 9.65 1.10
Savings accounts:
Regular........................ 24.77 2.60 34,423 28.62 2.60
Tiered rate.................... 16.56 4.47 8,126 6.75 4.56
----------- --- --------- ----------- ---
Total savings accounts....... 41.33 3.35 42.549 35.37 2.97
Money market deposit accounts.... 7.19 2.95 11,140 9.26 2.95
----------- --- --------- ----------- ---
Total non-certificate
accounts................... 63.08 2.68 72,234 60.05 2.38
----------- --- --------- ----------- ---
Certificates of deposit
Due within 1 year.............. 29.65 5.24 39,811 33.10 5.11
Over 1 year through 3 years.... 7.27 5.40 8,192 6.81 5.88
Over 3 years................... -- 5.50 45 0.04 5.35
----------- --- --------- ----------- ---
Total certificate accounts... 36.92 5.27 48,048 39.95 5.24
----------- --- --------- ----------- ---
Total deposits............... 100.00% 3.63% $ 120,282 100.00% 3.52%
----------- --------- -----------
----------- --------- -----------
65
BORROWINGS. We borrow funds from the Federal Home Loan Bank of Boston for
use in connection with our management of the interest rate sensitivity of our
assets and liabilities, as well as for other general purposes. These advances
are collateralized by certain of our mortgage loans and by our investment in the
stock of the Federal Home Loan Bank. The maximum amount that the Federal Home
Loan Bank will advance to its members, including Westborough Savings, fluctuates
from time to time in accordance with the Federal Home Loan Bank's policies. At
March 31, 1999, Westborough Savings had $4.0 million in outstanding advances
from the Federal Home Loan Bank and had the capacity to increase that amount to
$81.3 million based on the Westborough Savings' available qualified collateral.
We expect to continue to borrow from the Federal Home Loan Bank of Boston.
The following table presents certain information regarding our borrowed
funds at or for the periods ended on the dates indicated.
AT OR FOR THE SIX
MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED SEPTEMBER 30,
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Federal Home Loan Bank advances:
Average balance outstanding.................................... $ 2,395 -- $ 33 $ 2,330 $ 42
Maximum amount outstanding at any month-end during the
period....................................................... 4,000 -- 2,000 3,000 3,000
Balance outstanding at end of period........................... 4,000 -- 2,000 -- 3,000
Weighted average interest rate during the period............... 4.59% -- 6.06% 6.05% --
Weighted average interest rate at end of period................ 5.09% -- 5.29% -- 5.50%
SUBSIDIARY ACTIVITIES
ELI WHITNEY SECURITY CORPORATION. Eli Whitney Security Corporation is a
wholly-owned subsidiary of Westborough Savings. Eli Whitney was established in
1995 as a Massachusetts security corporation for the purpose of buying, selling
and holding investment securities on its own behalf and not as a broker. The
income earned on Eli Whitney's investment securities is subject to a
significantly lower rate of state tax than that assessed on income earned on
investment securities maintained by us. At March 31, 1999, Eli Whitney had total
assets of $12.1 million, virtually all of which were in investment securities.
ONE HUNDREDTH SECURITY CORPORATION. One Hundredth Security Corporation is a
wholly-owned subsidiary of Westborough Savings established in 1993. One
Hundredth is also a Massachusetts security corporation that was formed for the
purpose of buying, selling and holding investment securities on its own behalf
and not as a broker. The income earned on One Hundredth investment securities is
subject to a significantly lower rate of state tax than that assessed on income
earned on investment securities maintained by us. At March 31, 1999, One
Hundredth had total assets of $19.3 million, virtually all of which were in
investment securities.
THE HUNDREDTH CORPORATION. The Hundredth Corporation is a wholly-owned
subsidiary of Westborough Savings. The Hundredth Corporation was established in
1991 for the disposal of interests in real or personal property acquired by
Westborough Savings through foreclosure, deed in lieu of foreclosure or
otherwise. At March 31, 1999, The Hundredth Corporation had total assets of $75
thousand.
66
PROPERTIES
We currently conduct our business through our executive and administrative
offices and our six retail banking offices, five of which are full service
branches. As of March 31, 1999, the properties and leasehold improvements owned
by us had an aggregate net book value of $1.5 million.
ORIGINAL DATE
LEASED OR LEASED OR DATE OF LEASE
LOCATION OWNED ACQUIRED EXPIRATION DEPOSITS
--------------------------------------------------------- --------- ------------- ------------- --------------
(IN THOUSANDS)
EXECUTIVE OFFICE:
100 E. Main Street..................................... Owned 06/10/75 -- $ 55,756
Westborough, MA
BRANCH OFFICES:(1)
33 W. Main Street...................................... Owned 05/01/54 -- $ 31,052
Westborough, MA
53 W. Main Street...................................... Owned 07/01/81 -- $ 39,533
Northborough, MA
19 Maple Avenue........................................ Leased 12/01/95 11/30/00 $ 10,616
Shrewsbury, MA
OTHER OFFICES:
The Willows(2)......................................... Leased 08/01/87 07/31/00 $ 6,014
One Lyman Street
Westborough, MA
Operations Center...................................... Leased 01/01/98 12/31/99 --
176 E. Main Street
Westborough, MA
(1) This listing does not include our new Shrewsbury branch which opened in May
1999 at Shaw's supermarket. The property in which this branch is located is
leased for a term beginning on May 1, 1999 and ending on April 30, 2004. The
aggregate amount of deposits held by this branch totaled $236 thousand at
June 1, 1999.
(2) This office provides limited retail banking services to the residents of the
Willows. It is not open to the general public and maintains restricted
operating hours.
LEGAL PROCEEDINGS
We are not involved in any pending legal proceeding other than routine legal
proceedings occurring in the ordinary course of business. We believe that these
routine legal proceedings, in the aggregate, are immaterial to our financial
condition and results of operation.
PERSONNEL
As of March 31, 1999, we had 45 full-time employees and 26 part-time
employees. The employees are not represented by a collective bargaining unit,
and we consider our relationship with our employees to be excellent.
67
BUSINESS OF WESTBOROUGH FINANCIAL SERVICES, INC.
Westborough Financial Services has not engaged in any business to date. Upon
completion of the reorganization, Westborough Financial Services will own The
Westborough Bank. Westborough Financial Services will retain up to 50% of the
net proceeds from the offering. We will invest our initial capital as discussed
in "How We Intend to Use the Proceeds from the Offering."
In the future, Westborough Financial Services may pursue other business
activities, including the acquisition of other financial institutions or other
entities, borrowing funds for investment in Westborough Bank and diversification
of Westborough Financial Services' operations. Westborough Financial Services
has no current plans for such activities. Our cash flow will depend upon
earnings from the investment of the portion of net proceeds we retain and any
dividends Westborough Financial Services receives from Westborough Bank.
Initially, Westborough Financial Services will neither own nor lease any
property, but will instead use the premises, equipment and furniture of
Westborough Bank. At the present time, we intend to employ only persons who are
officers of Westborough Bank to serve as officers of Westborough Financial
Services. However, we will use the support staff of Westborough Bank from time
to time. These persons will not be separately compensated by Westborough
Financial Services. Westborough Financial Services will hire additional
employees, as appropriate, to the extent it expands its business in the future.
See "How We Intend to Use the Proceeds from the Offering."
REGULATION OF WESTBOROUGH SAVINGS AND
WESTBOROUGH FINANCIAL SERVICES, INC.
GENERAL
Westborough Savings is a Massachusetts-chartered savings bank, and its
deposit accounts are insured up to applicable limits by the Federal Deposit
Insurance Corporation by the Bank Insurance Fund. Westborough Savings is subject
to extensive regulation, examination and supervision by the Commonwealth of
Massachusetts Division of Banks (the "Division") as its primary corporate
regulator, and by the FDIC as the deposit insurer. Westborough Savings must file
reports with the Division and the FDIC concerning its activities and financial
condition, and it must obtain regulatory approval prior to entering into certain
transactions, such as mergers with, or acquisitions of, other depository
institutions and opening or acquiring branch offices. The Division and the FDIC
conduct periodic examinations to assess our compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings bank can engage and is intended
primarily for the protection of the deposit insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes.
Westborough Bancorp, MHC and Westborough Financial Services, as bank holding
companies controlling Westborough Bank, will be subject to the Bank Holding
Company Act of 1956, as amended, (the "BHCA") and the rules and regulations of
the Federal Reserve Board (the "FRB") under the BHCA and to the provisions of
the Massachusetts General Laws applicable to savings banks and other depository
institutions and their holding companies (the "Massachusetts banking laws") and
the regulations of the Division under the Massachusetts banking laws applicable
to bank holding companies. Westborough Bancorp, MHC and Westborough Financial
Services will be required to file reports with, and otherwise comply with the
rules and regulations of the FRB and the Division. Westborough Financial
Services will be required to file certain reports with, and otherwise comply
with, the rules and regulations of the Securities and Exchange Commission under
the federal securities laws.
68
Any change in such laws and regulations, whether by the Division, the FDIC,
or the FRB, or through legislation, could have a material adverse impact on
Westborough Bancorp, MHC, Westborough Financial Services and Westborough Savings
and their operations and stockholders.
CERTAIN OF THE LAWS AND REGULATIONS APPLICABLE TO WESTBOROUGH BANCORP, MHC,
WESTBOROUGH FINANCIAL SERVICES AND WESTBOROUGH SAVINGS ARE SUMMARIZED BELOW OR
ELSEWHERE IN THIS PROSPECTUS. THESE SUMMARIES DO NOT PURPORT TO BE COMPLETE AND
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH LAWS AND REGULATIONS.
MASSACHUSETTS BANKING REGULATION
ACTIVITY POWERS. The Bank derives its lending, investment and other
activity powers primarily from the applicable provisions of the Massachusetts
banking laws and its related regulations. Under these laws and regulations,
savings banks, including Westborough Savings, generally may, invest in:
(1) real estate mortgages;
(2) consumer and commercial loans;
(3) specific types of debt securities, including certain corporate debt
securities and obligations of federal, state and local governments and
agencies;
(4) certain types of corporate equity securities; and
(5) certain other assets.
A savings bank may also invest pursuant to a "leeway" power that permits
investments not otherwise permitted by the Massachusetts banking laws. "Leeway"
investments must comply with a number of limitations on the individual and
aggregate amounts of "leeway" investments. A savings bank may also exercise
trust powers upon approval of the Division. Massachusetts savings banks may also
exercise any power and engage in any activity permissible for national banks in
accordance with regulations adopted by the Division with respect to such power
or activity. The exercise of these lending, investment and activity powers are
limited by federal law and the related regulations. See "--Federal Banking
Regulation--Activity Restrictions on State-Chartered Banks" below.
COMMUNITY REINVESTMENT ACT. Westborough Savings is also subject to
provisions of the Massachusetts banking laws that, like the provisions of the
federal Community Reinvestment Act ("CRA"), impose continuing and affirmative
obligations upon a banking institution organized in Massachusetts to serve the
credit needs of its local communities ("Massachusetts CRA"). The obligations of
the Massachusetts CRA are similar to those imposed by the CRA, and the Division
has adopted regulations to implement the Massachusetts CRA that are based on the
CRA. See "Federal Banking Regulation--Community Reinvestment Act." The Division
is required to consider a bank's Massachusetts CRA rating when reviewing the
bank's application to engage in certain transactions, including mergers, asset
purchases and the establishment of branch offices or automated teller machines,
and provides that such assessment may serve as a basis for the denial of any
such application. The Massachusetts CRA requires the Division to assess a bank's
compliance with the Massachusetts CRA and to make such assessment available to
the public. The latest Massachusetts CRA rating, received by letter, dated March
22, 1999, from the Division was a rating of "Satisfactory."
LOANS-TO-ONE-BORROWER LIMITATIONS. With specified exceptions, the total
obligations of a single borrower to a Massachusetts chartered savings bank may
not exceed 20% of the savings bank's surplus account. A savings bank may lend
additional amounts up to 100% of the bank's surplus account if secured by
collateral meeting the requirements of the Massachusetts banking laws.
Westborough Savings currently complies with applicable loans-to-one-borrower
limitations.
LOANS TO A BANK'S INSIDERS. Provisions of the Massachusetts banking laws
prohibit a savings bank from making a loan or otherwise extending credit to any
of its officers and directors or trustees and
69
prohibits any such officer, director or trustee from borrowing, otherwise
becoming indebted, or becoming liable for a loan or other extension of credit by
such bank to any other person except for any of the following loans after
approval by a majority of the all of the members of the bank's board of
investment, excluding any member involved in such loan or extension of credit:
(a) loan or extension of credit, secured or unsecured, to an officer of the
bank in an amount not exceeding $20,000;
(b) loan or extension of credit intended or secured for educational purposes
to an officer of the bank in an amount not exceeding $75,000;
(c) loan or extension of credit secured by a mortgage on residential real
estate to be occupied in whole or in part by the officer to whom the loan
or extension of credit is made, in an amount not exceeding $275,000;
(d) loan or extension of credit to a director or trustee of the bank who is
not also an officer of the bank in an amount permissible under the bank's
loan-to-one borrower limit. See "Massachusetts Banking
Regulation--Loans-to-One Borrower Limitations" above.
No such loan may be granted on with an interest rate or other terms that are
preferential in comparison to loans granted to persons not affiliated with the
savings bank.
DIVIDENDS. Under the Massachusetts banking laws, a stock savings bank may,
subject to several limitations, declare and pay a dividend on its capital stock,
which is the bank's common stock and any preferred stock, out of the bank's net
profits. A dividend may not be declared if the payment of the dividend would
impair the capital stock and surplus account of the savings bank. No dividend on
the bank's common stock may be paid unless dividends and any required payment
with respect to any preferred stock have been paid. No dividend may be paid from
net profits that are required to be added to the surplus account of the stock
savings bank. A stock savings bank is required to transfer net profits to its
surplus account to the extent necessary to
(a) increase the total of the capital stock and surplus account of the bank
to an amount equal to 10% of its deposit liabilities;
(b) increase the amount of the surplus account to an amount to equal to 50%
of the bank's common stock; and
(c) if the surplus account already amounts to 50% of the bank's common
stock, such amount of the net profits, not exceeding 50% of such net
profits, as necessary to increase the amount of the surplus account to an
amount equal to 50% of the bank's capital stock.
In addition, Federal law may also limit the amount of dividends that may be
paid by Westborough Savings. See "--Federal Banking Regulation--Prompt
Corrective Action" below.
EXAMINATION AND ENFORCEMENT. The Division is required to periodically
examine savings banks at least once every calendar year or at least one each 18
month period if the savings bank qualifies as well capitalized under the prompt
corrective action provisions of the Federal Deposit Insurance Act. See
"--Federal Banking Regulation--Prompt Corrective Action" below. The Division may
also examine a savings bank whenever the Division deems an examination
expedient. If the Division finds, after an inquiry, that any trustee, director
or officer of a savings bank has, among other things, violated any law related
to such bank or has conducted the business of such bank in an unsafe or unsound
manner, the Division may take various actions that could result in the
suspension or removal of such person as an officer, director or trustee of the
savings bank. If the Division determines that, among other things, a savings
bank has violated its charter or any Massachusetts law or is conducting its
business in an unsafe or unsound manner or is in an unsafe or unsound condition
to transact is banking business, the
70
Division may take possession of the property and business of the savings bank
and may, if the facts warrant, initiate the liquidation of the bank.
FEDERAL BANKING REGULATION
CAPITAL REQUIREMENTS. FDIC regulations require BIF-insured banks, such as
Westborough Savings, to maintain minimum levels of capital. The FDIC regulations
define two tiers, or classes, of capital.
Tier 1 capital is comprised of the sum of common stockholders' equity
(excluding the unrealized appreciation or depreciation, net of tax, from
available-for-sale securities), non-cumulative perpetual preferred stock
(including any related surplus) and minority interests in consolidated
subsidiaries, minus all intangible assets (other than qualifying servicing
rights), and any net unrealized loss on marketable equity securities.
The components of Tier 2 capital currently include cumulative perpetual
preferred stock, certain perpetual preferred stock for which the dividend rate
may be reset periodically, mandatory convertible securities, subordinated debt,
intermediate preferred stock and allowance for possible loan losses. Allowance
for possible loan losses includible in Tier 2 capital is limited to a maximum of
1.25% of risk-weighted assets. Overall, the amount of Tier 2 capital that may be
included in total capital can not exceed 100% of Tier 1 capital.
The FDIC regulations establish a minimum leverage capital requirement for
banks in the strongest financial and managerial condition, with a rating of 1
(the highest examination rating of the FDIC for banks) under the Uniform
Financial Institutions Rating System, of not less than a ratio of 3.0% of Tier 1
capital to total assets. For all other banks, the minimum leverage capital
requirement is 4.0%, unless a higher leverage capital ratio is warranted by the
particular circumstances or risk profile of the depository institution.
The FDIC regulations also require that savings banks meet a risk-based
capital standard. The risk-based capital standard requires the maintenance of a
ratio of total capital (which is defined as the sum of Tier 1 capital and Tier 2
capital) to risk-weighted assets of at least 8% and a ratio of Tier 1 capital to
risk-weighted assets of at least 4%. In determining the amount of risk-weighted
assets, all assets, plus certain off balance sheet items, are multiplied by a
risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in
the type of asset or item.
The federal banking agencies, including the FDIC, have also adopted
regulations to require an assessment of an institution's exposure to declines in
the economic value of a bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. Under such a risk assessment, examiners
will evaluate a bank's capital for interest rate risk on a case-by-case basis,
with consideration of both quantitative and qualitative factors. According to
the agencies, applicable considerations include the quality of the bank's
interest rate risk management process, the overall financial condition of the
bank and the level of other risks at the bank for which capital is needed.
Institutions with significant interest rate risk may be required to hold
additional capital. The agencies also issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy.
71
The following table shows Westborough Savings' leverage ratio, its Tier 1
risk-based capital ratio, and its total risk-based capital ratio, at March 31,
1999:
AS OF MARCH 31, 1999
-----------------------------------------------------------------------------------
HISTORICAL PRO PRO FORMA
CAPITAL PERCENT OF FORMA PERCENT OF CAPITAL PERCENT OF
(IN THOUSANDS) ASSETS(2) CAPITA1(1) ASSETS(2) REQUIREMENTS ASSETS(2)
-------------- ----------- ----------- ----------- ------------- -------------
Regulatory Tier 1 leverage capital............ $ 19,031 11.67% $ 21,330 12.90% $ 4,961 3.00%
Tier 1 risk-based capital..................... $ 19,031 21.52% $ 21,330 23.99% $ 3,556 4.00%
Total risk-based capital...................... $ 19,888 22.48% $ 22,187 24.95% $ 7,113 8.00%
(1) Based on the midpoint of the Current Valuation Range.
(2) For purposes of calculating Regulatory Tier 1 leverage capital, assets are
based on adjusted total leverage assets. In calculating Tier 1 risk based
capital and total risk-based capital, assets are based on total
risk-weighted assets.
As the table shows, Westborough Savings exceeded the minimum capital
adequacy requirements at the date indicated.
ACTIVITY RESTRICTIONS ON STATE-CHARTERED BANKS. Section 24 of the Federal
Deposit Insurance Act, as amended (the "FDIA"), which was added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), generally
limits the activities and investments of state-chartered FDIC insured banks and
their subsidiaries to those permissible for federally chartered national banks
and their subsidiaries, unless such activities and investments are specifically
exempted by Section 24 or consented to by the FDIC.
Section 24 provides an exception for investments by a bank in common and
preferred stocks listed on a national securities exchange or the shares of
registered investment companies if
(1) the bank held such types of investments during the 14-month period from
September 30, 1990 through November 26, 1991;
(2) the state in which the bank is chartered permitted such investments as of
September 30, 1991; and
(3) the bank notifies the FDIC and obtains approval from the FDIC to make or
retain such investments. Upon receiving such FDIC approval, an institution's
investment in such equity securities will be subject to an aggregate limit
up to the amount of its Tier 1 capital.
Westborough Savings received approval from the FDIC to retain and acquire such
equity investments subject to a maximum permissible investment equal to the
lesser of 100% of Westborough Savings' Tier 1 capital or the maximum permissible
amount specified by the Massachusetts banking laws. Section 24 also provides an
exception for majority owned subsidiaries of a bank, but Section 24 limits the
activities of such subsidiaries are limited to those permissible for a national
bank, permissible under Section 24 of the FDIA and the FDIC regulations issued
pursuant thereto, or as approved by the FDIC.
Before making a new investment or engaging in a new activity not permissible
for a national bank or otherwise permissible under Section 24 of the FDIC
regulations thereunder, an insured bank must seek approval from the FDIC to make
such investment or engage in such activity. The FDIC will not approve the
activity unless the bank meets its minimum capital requirements and the FDIC
determines that the activity does not present a significant risk to the FDIC
insurance funds.
ENFORCEMENT. The FDIC has extensive enforcement authority over insured
savings banks, including Westborough Savings. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease and desist orders and to remove directors and officers. In
72
general, these enforcement actions may be initiated in response to violations of
laws and regulations and to unsafe or unsound practices.
The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible capital to total assets of less than 2%. The FDIC may also
appoint a conservator or receiver for a state bank on the basis of the
institution's financial condition or upon the occurrence of certain events,
including:
(1) insolvency (whereby the assets of the bank are less than its liabilities to
depositors and others);
(2) substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices;
(3) existence of an unsafe or unsound condition to transact business;
(4) likelihood that the bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business; and
(5) insufficient capital, or the incurring or likely incurring of losses that
will deplete substantially all of the institution's capital with no
reasonable prospect of replenishment of capital without federal assistance.
DEPOSIT INSURANCE. Pursuant to FDICIA, the FDIC established a system for
setting deposit insurance premiums based upon the risks a particular bank or
savings association posed to its deposit insurance funds. Under the risk-based
deposit insurance assessment system, the FDIC assigns an institution to one of
three capital categories based on the institution's financial information, as of
the reporting period ending six months before the assessment period. The three
capital categories are (1) well capitalized, (2) adequately capitalized and (3)
undercapitalized. The FDIC also assigns an institution to one of three
supervisory subcategories within each capital group. With respect to the capital
ratios, institutions are classified as well capitalized, adequately capitalized
or under capitalization using ratios that are substantially similar to the
prompt corrective action capital ratios discussed below. The FDIC also assigns
an institution to supervisory subgroup based on a supervisory evaluation
provided to the FDIC by the institution's primary federal regulator and
information that the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds (which may
include, if applicable, information provided by the institution's state
supervisor).
An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (I.E.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for deposit insurance currently
range from 0 basis points to 27 basis points. The capital and supervisory
subgroup to which an institution is assigned by the FDIC is confidential and may
not be disclosed. A bank's rate of deposit insurance assessments will depend
upon the category and subcategory to which the bank is assigned by the FDIC. Any
increase in insurance assessments could have an adverse effect on the earnings
of insured institutions, including Westborough Savings.
Under the Deposit Insurance Funds Act of 1996 (the "Funds Act"), the
assessment base for the payments on the bonds (the "FICO bonds") issued in the
late 1980's by the Financing Corporation to recapitalize the now defunct Federal
Savings and Loan Insurance Corporation was expanded to include, beginning
January 1, 1997, the deposits of BIF-insured institutions, such as Westborough
Savings. Until December 31, 1999, or such earlier date on which the last savings
association ceases to exist, the rate of assessment for BIF-assessable deposits
will be one-fifth of the rate imposed on deposits insured by the Savings
Association Insurance Fund (the "SAIF"). The annual rate of assessments for the
payments on
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the FICO bonds for the quarterly period beginning on January 1, 1999 was 0.0122%
for BIF-assessable deposits and 0.0610% for SAIF-assessable deposits.
Under the FDIA, the FDIC may terminate the insurance of an institution's
deposits upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC. The management of Westborough Savings does not know of any practice,
condition or violation that might lead to termination of deposit insurance.
TRANSACTIONS WITH AFFILIATES OF WESTBOROUGH SAVINGS. Transactions between
an insured bank, such as Westborough Savings, and any of its affiliates is
governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a
bank is any company or entity that controls, is controlled by or is under common
control with the bank. Currently, a subsidiary of a bank that is not also a
depository institution is not treated as an affiliate of the bank for purposes
of Sections 23A and 23B, but the FRB has proposed treating any subsidiary of a
bank that is engaged in activities not permissible for bank holding companies
under the Bank Holding Company Act of 1956, as amended, as an affiliate for
purposes of Sections 23A and 23B. Sections 23A and 23B (1) limit the extent to
which the bank or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of such bank's capital stock and
surplus, and limit on all such transactions with all affiliates to an amount
equal to 20% of such capital stock and surplus and (2) require that all such
transactions be on terms that are consistent with safe and sound banking
practices. The term "covered transaction" includes the making of loans, purchase
of assets, issuance of guarantees and other similar types of transactions.
Further, most loans by a bank to any of its affiliates must be secured by
collateral in amounts ranging from 100 to 130 percent of the loan amounts. In
addition, any covered transaction by a bank with an affiliate and any purchase
of assets or services by a bank from an affiliate must be on terms that are
substantially the same, or at least as favorable, to the bank as those that
would be provided to a non-affiliate.
PROHIBITIONS AGAINST TYING ARRANGEMENTS. Banks are subject to the
prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements. A
depository institution is prohibited, subject to certain exceptions, from
extending credit to or offering any other service, or fixing or varying the
consideration for such extension of credit or service, on the condition that the
customer obtain some additional service from the institution or certain of its
affiliates or not obtain services of a competitor of the institution.
UNIFORM REAL ESTATE LENDING STANDARDS. Pursuant to FDICIA, the federal
banking agencies adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the federal
banking agencies, all insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or interests in real estate or are made for
the purpose of financing permanent improvements to real estate. These policies
must establish loan portfolio diversification standards, prudent underwriting
standards (including loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies that have been adopted
by the federal bank regulators.
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The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits:
(1) for loans secured by raw land, the supervisory loan-to-value limit is 65% of
the value of the collateral;
(2) for land development loans (I.E., loans for the purpose of improving
unimproved property prior to the erection of structures), the supervisory
limit is 75%;
(3) for loans for the construction of commercial, multi-family or other
non-residential property, the supervisory limit is 80%;
(4) for loans for the construction of one- to four-family properties, the
supervisory limit is 85%; and
(5) for loans secured by other improved property (E.G., farmland, completed
commercial property and other income-producing property including non-owner
occupied, one- to four-family property), the limit is 85%.
Although no supervisory loan-to-value limit has been established for
owner-occupied, one to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act (the
"CRA"), any insured depository institution, including Westborough Savings, has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community. The CRA requires the FDIC,
in connection with its examination of a savings bank, to assess the depository
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution, including applications for additional branches and acquisitions.
Among other things, the current CRA regulations replace the prior
process-based assessment factors with a new evaluation system that rates an
institution based on its actual performance in meeting community needs. In
particular, the current evaluation system focuses on three tests:
(1) a lending test, to evaluate the institution's record of making loans in its
service areas;
(2) an investment test, to evaluate the institution's record of investing in
community development projects, affordable housing, and programs benefitting
low or moderate income individuals and businesses; and
(3) a service test, to evaluate the institution's delivery of services through
its branches, ATMs and other offices.
For a small bank, which is a bank with less than $250 million in assets in
the year prior to the CRA examination, such as Westborough Savings, the CRA
assessment will be based on
(1) the bank's loan-to-deposit ratio;
(2) the percentage of the bank's loans and any other appropriate lending related
activities located in the bank's assessment areas;
(3) the bank's record of lending to, and other appropriate lending related
activities for borrowers of different income levels and businesses and farms
of different sizes;
75
(4) the geographic distribution of the bank's loans; and
(5) the bank's record in acting in response to written complaints about the
bank's performance in helping to meet the credit needs of its assessment
areas.
The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
and requires public disclosure of an institution's CRA rating. Westborough
Savings received a "satisfactory" rating in its CRA examination conducted by the
FDIC on March 1, 1999
SAFETY AND SOUNDNESS STANDARDS. Pursuant to the requirements of FDICIA, as
amended by the Riegle Community Development and Regulatory Improvement Act of
1994, each federal banking agency, including the FDIC, has adopted guidelines
establishing general standards relating to internal controls, information and
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, asset quality, earnings, and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director, or principal stockholder.
In addition, the FDIC adopted regulations to require a bank that is given
notice by the FDIC that it is not satisfying any of such safety and soundness
standards to submit a compliance plan to the FDIC. If, after being so notified,
a bank fails to submit an acceptable compliance plan or fails in any material
respect to implement an accepted compliance plan, the FDIC may issue an order
directing corrective and other actions of the types to which a significantly
undercapitalized institution is subject under the "prompt corrective action"
provisions of FDICIA. If a bank fails to comply with such an order, the FDIC may
seek to enforce such an order in judicial proceedings and to impose civil
monetary penalties.
PROMPT CORRECTIVE ACTION. FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions. The
FDIC, as well as the other federal banking regulators, adopted regulations
governing the supervisory actions that may be taken against undercapitalized
institutions. The regulations establish five categories, consisting of "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." The FDIC's regulations
defines the five capital categories as follows: Generally, an institution will
be treated as "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier 1 capital to risk-weighted assets is
at least 6%, its ratio of Tier 1 capital to total assets is at least 5%, and it
is not subject to any order or directive by the FDIC to meet a specific capital
level. An institution will be treated as "adequately capitalized" if its ratio
of total capital to risk-weighted assets is at least 8%, its ratio of Tier 1
capital to risk-weighted assets is at least 4%, and its ratio of Tier 1 capital
to total assets is at least 4% (3% if the bank receives the highest rating under
the Uniform Financial Institutions Rating System) and it is not a
well-capitalized institution. An institution that has total risk-based capital
of less than 8%, Tier 1 risk-based-capital of less than 4% or a leverage ratio
that is less than 4% (or less than 3% if the institution is rated a composite
"1" under the Uniform Financial Institutions Rating System) would be considered
to be "undercapitalized." An institution that has total risk-based capital of
less than 6%, Tier 1 capital of less than 3% or a leverage ratio that is less
than 3% would be considered to be "significantly undercapitalized," and an
institution that has a tangible capital to assets ratio equal to or less than 2%
would be deemed to be "critically undercapitalized."
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a bank's capital decreases
within the three undercapitalized categories. All banks are prohibited from
paying dividends or other capital distributions or paying management fees to
76
any controlling person if, following such distribution, the bank would be
undercapitalized. The FDIC is required to monitor closely the condition of an
undercapitalized bank and to restrict the growth of its assets. An
undercapitalized bank is required to file a capital restoration plan within 45
days of the date the bank receives notice that it is within any of the three
undercapitalized categories, and the plan must be guaranteed by any parent
holding company. The aggregate liability of a parent holding company is limited
to the lesser of:
(1) an amount equal to the five percent of the bank's total assets at the time
it became "undercapitalized," and
(2) the amount that is necessary (or would have been necessary) to bring the
bank into compliance with all capital standards applicable with respect to
such bank as of the time it fails to comply with the plan.
If a bank fails to submit an acceptable plan, it is treated as if it were
"significantly undercapitalized." Banks that are significantly or critically
undercapitalized are subject to a wider range of regulatory requirements and
restrictions.
The FDIC has a broad range of grounds under which it may appoint a receiver
or conservator for an insured depositary bank. If one or more grounds exist for
appointing a conservator or receiver for a bank, the FDIC may require the bank
to issue additional debt or stock, sell assets, be acquired by a depository bank
holding company or combine with another depository bank. Under FDICIA, the FDIC
is required to appoint a receiver or a conservator for a critically
undercapitalized bank within 90 days after the bank becomes critically
undercapitalized or to take such other action that would better achieve the
purposes of the prompt corrective action provisions. Such alternative action can
be renewed for successive 90-day periods. However, if the bank continues to be
critically undercapitalized on average during the quarter that begins 270 days
after it first became critically undercapitalized, a receiver must be appointed,
unless the FDIC makes certain findings that the bank is viable.
LOANS TO A BANK'S INSIDERS. A bank's loans to its executive officers,
directors, any owner of 10% or more of its stock (each, an "insider") and any of
certain entities affiliated to any such person (an insider's related interest)
are subject to the conditions and limitations imposed by Section 22(h) of the
Federal Reserve Act and the FRB's Regulation O thereunder. Under these
restrictions, the aggregate amount of the loans to any insider and the insider's
related interests may not exceed the loans-to-one-borrower limit applicable to
national banks, which is comparable to the loans-to-one-borrower limit
applicable to Westborough Savings' loans. See "Massachusetts Banking
Regulation--Loans-to-One Borrower Limitations." All loans by a bank to all
insiders and insiders' related interests in the aggregate may not exceed the
bank's unimpaired capital and unimpaired surplus. With certain exceptions, loans
to an executive officer, other than loans for the education of the officer's
children and certain loans secured by the officer's residence, may not exceed
the lesser of (1) $100,000 or (2) the greater of $25,000 or 2.5% of the bank's
capital and unimpaired surplus. Regulation O also requires that any proposed
loan to an insider or a related interest of that insider be approved in advance
by a majority of the Board of Trustees of the bank, with any interested director
not participating in the voting, if such loan, when aggregated with any existing
loans to that insider and the insider's related interests, would exceed either
(1) $500,000 or (2) the greater of $25,000 or 5% of the bank's unimpaired
capital and surplus. Generally, such loans must be made on substantially the
same terms as, and follow credit underwriting procedures that are not less
stringent than, those that are prevailing at the time for comparable
transactions with other persons. An exception is made for extensions of credit
made pursuant to a benefit or compensation plan of a bank that is widely
available to employees of the bank and that does not give any preference to
insiders of the bank over other employees of the bank.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank,
77
unless such extension of credit is on substantially the same terms as those
prevailing at the time for comparable transactions with other persons and does
not involve more than the normal risk of repayment or present other unfavorable
features.
FEDERAL RESERVE SYSTEM
Under FRB regulations, Westborough Savings is required to maintain
non-interest-earning reserves against its transaction accounts (primarily NOW
and regular checking accounts). The FRB regulations generally require that
reserves of 3% must be maintained against aggregate transaction accounts of
$46.5 million or less (subject to adjustment by the FRB) and an initial reserve
of $1.4 million plus 10% (subject to adjustment by the FRB between 8% and 14%)
against that portion of total transaction accounts in excess of $46.5 million.
The first $4.9 million of otherwise reservable balances (subject to adjustments
by the FRB) are exempted from the reserve requirements. Westborough Savings is
in compliance with the foregoing requirements. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the FRB, the effect
of this reserve requirement is to reduce Westborough Savings' interest-earning
assets.
HOLDING COMPANY REGULATION
FEDERAL REGULATION. After the reorganization, Westborough Bancorp, MHC and
Westborough Financial Services will be governed as bank holding companies. Bank
holding companies are subject to examination, regulation and periodic reporting
under the BHCA, as administered by the FRB. The FRB has adopted capital adequacy
guidelines for bank holding companies on a consolidated basis substantially
similar to those of the FDIC for Westborough Savings. As of December 31, 1998,
Westborough Financial Services' total capital and Tier 1 capital ratios for
Westborough Bancorp, MHC and Westborough Financial Services would, on a pro
forma basis, exceed these minimum capital requirements. See "Regulatory Capital
Compliance."
Regulations of the FRB provide that a bank holding company must serve as a
source of strength to any of its subsidiary banks and must not conduct its
activities in an unsafe or unsound manner. Under the prompt corrective action
provisions of FDICIA, a bank holding company parent of an undercapitalized
subsidiary bank would be directed to guarantee, within limitations, the capital
restoration plan that is required of such an undercapitalized bank. See
"--Federal Banking Regulation--Prompt Corrective Action" above. If the
undercapitalized bank fails to file an acceptable capital restoration plan or
fails to implement an accepted plan, the Federal Reserve Board may prohibit the
bank holding company parent of the undercapitalized bank from paying any
dividend or making any other form of capital distribution without the prior
approval of the FRB.
As bank holding companies, Westborough Bancorp, MHC and Westborough
Financial Services will be required to obtain the prior approval of the FRB to
acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior FRB approval will be required for Westborough Bancorp, MHC or
Westborough Financial Services to acquire direct or indirect ownership or
control of any voting securities of any bank or bank holding company if, after
giving effect to such acquisition, it would, directly or indirectly, own or
control more than 5% of any class of voting shares of such bank or bank holding
company.
A bank holding company is required to give the FRB prior written notice of
any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, will be equal to 10% or more of the company's consolidated net worth.
The FRB may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe and unsound practice, or would violate any
law, regulation, FRB order or
78
directive, or any condition imposed by, or written agreement with, the FRB. Such
notice and approval is not required for a bank holding company that would be
treated as "well capitalized" under applicable regulations of the FRB, that has
received a composite "1" or "2" rating at its most recent bank holding company
inspection by the FRB, and that is not the subject of any unresolved supervisory
issues.
In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of any company engaged in,
non-banking activities. One of the principal exceptions to this prohibition is
for activities found by the FRB to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. Some of the principal
activities that the FRB has determined by regulation to be so closely related to
banking as to be a proper incident thereto are:
(1) making or servicing loans;
(2) performing certain data processing services;
(3) providing discount brokerage services;
(4) acting as fiduciary, investment or financial advisor;
(5) leasing personal or real property;
(6) making investments in corporations or projects designed primarily to promote
community welfare; and
(7) acquiring a savings and loan association.
Under the Federal Deposit Insurance Act, depository institutions are liable
to the FDIC for losses suffered or anticipated by the FDIC in connection with
the default of a commonly controlled depository institution or any assistance
provided by the FDIC to such an institution in danger of default. This law would
have potential applicability if Westborough Bancorp, MHC or Westborough
Financial Services ever acquired as a separate subsidiary a depository
institution in addition to Westborough Bank.
MASSACHUSETTS REGULATION. Under the Massachusetts banking laws, a company
owning or controlling two or more banking institutions, including a savings
bank, is regulated as a bank holding company. The term "company" is defined by
the Massachusetts banking laws similarly to the definition of "company" under
the BHCA. Each Massachusetts bank holding company must:
(a) Obtain the approval of the Massachusetts Board of Bank Incorporation
before engaging in certain transactions, such as the acquisition of more
than 5% of the voting stock of another banking institution; and
(b) Must register, and file certain reports, with the Division and is
subject to examination by the Division.
Westborough Bancorp, MHC or Westborough Financial Services will become a
Massachusetts bank holding company if they acquire a second banking institution
and hold and operate it separately from Westborough Bank.
ACQUISITION OF WESTBOROUGH FINANCIAL SERVICES, INC.
Under federal law, no person may acquire control of Westborough Financial
Services or Westborough Bank without first obtaining, as summarized below,
approval of such acquisition of control by the FRB.
FEDERAL RESTRICTIONS. Under the federal Change in Bank Control Act (the
"CBCA"), any person (including a company), or group acting in concert, seeking
to acquire 10% or more of the outstanding
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shares of Westborough Financial Services' common stock will be required to
submit prior notice to the FRB, unless the FRB has found that the acquisition of
such shares will not result in a change in control of Westborough Financial
Services. Under the BHCA, the FRB has 60 days within which to act on such
notices, taking into consideration certain factors, including the financial and
managerial resources of the acquiror, the convenience and needs of the
communities served by Westborough Financial Services and Westborough Bank, and
the anti-trust effects of the acquisition. Under the BHCA, any company would be
required to obtain prior approval from the FRB before it may obtain "control,"
within the meaning of the BHCA, of Westborough Financial Services. The term
"control" is defined generally under the BHCA to mean the ownership or power to
vote 25% more of any class of voting securities of an institution or the ability
to control in any manner the election of a majority of the institution's
directors.
MASSACHUSETTS RESTRICTIONS. Under the Massachusetts banking laws, the prior
approval of the Division is required before any person may acquire a
Massachusetts bank holding company, such as Westborough Financial Services. For
this purpose, the term "person" is defined broadly to mean a natural person or a
corporation, company, partnership, or other forms of organized entities. The
term "acquire" is defined differently for an existing bank holding company and
for other companies or persons. A bank holding company will be treated as
"acquiring" a Massachusetts bank holding company if the bank holding company
acquires more than 5% of any class of the voting shares of the bank holding
company. Any other person will be treated as "acquiring" a Massachusetts bank
holding company if it acquires ownership or control of more than 25% of any
class of the voting shares of the bank holding company.
DIVIDEND WAIVERS BY WESTBOROUGH BANCORP, MHC
Certain mutual holding companies have waived the receipt of dividends
declared by its savings institution subsidiary. Any such dividend waiver by
Westborough Bancorp, MHC will be subject to the following restrictions:
MASSACHUSETTS RESTRICTIONS. Under applicable Massachusetts regulations, a
mutual holding company may not waive any dividends to be paid by any of its
subsidiary institutions if any shares of the stock to which the waiver would
apply is held by an insider (any officer, director, or corporator of the mutual
holding company or a subsidiary banking institution) or a stock benefit plan of
the mutual holding company unless prior written notice of the waiver has been
given to the Division and the Division does not object to the waiver. The
Division may not object to a dividend waiver notice if:
(a) The waiver would not be detrimental to the safe and sound operation of
the subsidiary banking institution, and
(b) The board of directors of the mutual holding company expressly
determines, as evidenced by a resolution of the board of directors, that
such waiver is consistent with the directors' fiduciary duties to the
mutual members of the mutual holding company.
FEDERAL RESTRICTIONS. In connection with its approval of the
reorganization, however, it is expected that the Federal Reserve Board will
impose certain conditions on the waiver by Westborough Bancorp, MHC of dividends
paid on the common stock by Westborough Financial Services. In particular, the
Federal Reserve Board is expected to require that Westborough Bancorp, MHC
obtain the prior approval of the Federal Reserve Board before Westborough
Bancorp, MHC may waive any dividends from Westborough Financial Services. As of
the date hereof, we are not aware that the Federal Reserve Board has given its
approval to any waiver of dividends by any mutual holding company that has
requested such approval.
We also expect that the terms of the Federal Reserve Board approval of the
reorganization will require that the amount of any dividends waived by
Westborough Bancorp, MHC will not be available
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for payment to its public stockholders of Westborough Financial Services (i.e.,
stockholders except for Westborough Bancorp, MHC) and that such amount will be
excluded from Westborough Financial Services' capital for purposes of
calculating dividends payable to the public stockholders. Moreover, Westborough
Savings is required to maintain the cumulative amount of dividends waived by
Westborough Bancorp, MHC in a restricted capital account that would be added to
the liquidation account established in the reorganization. This amount would not
be available for distribution to public stockholders. See "The Reorganization
and The Offering--Effects of the Reorganization--Depositors' Rights If We
Liquidate; Liquidation Account." The restricted capital account and liquidation
account amounts would not be reflected in Westborough Bank's financial
statements, but would be considered as a notational or memorandum account of
Westborough Bank. These accounts would be maintained in accordance with the
laws, rules, regulations and policies of the Division of Banks and the plan of
reorganization. The plan of reorganization also provides that if Westborough
Bancorp, MHC converts to stock form in the future, (commonly referred to as a
second step conversion), any waived dividends would reduce the percentage of the
converted company's shares of common stock issued to public stockholders in
connection with any such transaction. For additional information regarding the
possible second step conversion of Westborough Bancorp, MHC, see "The
Reorganization and The Offering-- Possible Conversion of Westborough Bancorp,
MHC to Stock Form."
Westborough Bancorp, MHC does not expect initially to waive dividends
declared by Westborough Financial Services. If Westborough Bancorp, MHC decides
that it is in its best interest to waive a particular dividend to be paid by
Westborough Financial Services and the Federal Reserve Board approves such
waiver, then Westborough Financial Services would pay such dividend only to its
public stockholders. The amount of the dividend waived by Westborough Bancorp,
MHC would be treated in the manner described above. Westborough Bancorp, MHC's
decision as to whether or not to waive a particular dividend will depend on a
number of factors, including Westborough Bancorp, MHC's capital needs, the
investment alternatives available to Westborough Bancorp, MHC as compared to
those available to Westborough Financial Services, and the possibility of
regulatory approvals. We can not guarantee:
- that after the reorganization, Westborough Bancorp, MHC will waive
dividends paid by Westborough Financial Services;
- that if the application is made to waive a dividend, that the Federal
Reserve Board will approve such dividend waiver request; or
- what conditions might be imposed by the Federal Reserve Board on any
dividend waiver.
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TAXATION
FEDERAL
GENERAL. The following discussion is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to
Westborough Bank, Westborough Bancorp, MHC or Westborough Financial Services.
For federal income tax purposes, we report income on the basis of a taxable year
ending September 30, using the accrual method of accounting, and we are
generally subject to federal income taxation in the same manner as other
corporations. Following the reorganization, Westborough Bank and Westborough
Financial Services will constitute an affiliated group of corporations and,
therefore, will be eligible to report their income on a consolidated basis.
Because MHC will own less than 80% of the common stock, it will not be a member
of such affiliated group and will report its income on a separate return.
Westborough Savings is not currently under audit by the Internal Revenue Service
("IRS"), but its September 30, 1994 return was audited in 1996.
BAD DEBT RESERVES. Pursuant to the Small Business Job Protection Act of
1996, we are no longer permitted to use the percentage of income method of
accounting for bad debts, and is now recapturing (taking into income) over a
multi-year period a portion of the balance of its tax bad debt reserve as of
September 30, 1996. Since we have already provided a deferred tax liability
equal to the amount of such recapture, the recapture will not adversely impact
Westborough Bank's financial condition or results of operations.
DISTRIBUTIONS. To the extent that Westborough Bank makes "non-dividend
distributions" to stockholders, such distributions will be considered to result
in distributions from our unrecaptured tax bad debt reserve "base year reserve,"
I.E., its reserve as of September 30, 1987, to the extent thereof and then from
its supplemental reserve for losses on loans, and an amount based on the amount
distributed will be included in Westborough Bank's taxable income. Non-dividend
distributions include distributions in excess of our current and accumulated
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation. However, distributions paid out of our current
or accumulated earnings and profits, as calculated for federal income tax
purposes, will not constitute non-dividend distributions and, therefore, will
not be included in our income.
The amount of additional taxable income created from a non-dividend
distribution is equal to the lesser of our base year reserve and supplemental
reserve for losses on loans or an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus, in
certain situations, approximately one and one-half times the non-dividend
distribution would be includible in gross income for federal income tax
purposes, assuming a 34% federal corporate income tax rate. We do not intend to
pay dividends that would result in the recapture of any portion of its bad debt
reserves.
CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986, as
amended, imposes a tax ("AMT") on alternative minimum taxable income ("AMTI") at
a rate of 20%. Only 90% of AMTI can be offset by net operating loss carryovers
of which we currently have none. AMTI is also adjusted by determining the tax
treatment of certain items in a manner that negates the deferral of income
resulting from the regular tax treatment of those items. We have not been
subject to AMT during the past five years.
ELIMINATION OF DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION. Westborough
Financial Services may exclude from its income 100% of dividends received from
Westborough Bank as a member of the same affiliated group of corporations.
Because, following the reorganization, Westborough Bancorp, MHC will not be a
member of such affiliated group, it will not qualify for such 100% dividends
exclusion, but will be entitled to deduct 80% of the dividends it receives from
Westborough Financial Services so long as it owns more than 20% of the common
stock.
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STATE
We file Massachusetts Savings Institution income tax returns. Generally, the
income of savings institutions in Massachusetts, which is calculated based on
federal taxable income, subject to certain adjustments, is subject to
Massachusetts tax. We are not currently under audit with respect to its
Massachusetts income tax returns and our state tax returns have not been audited
for the past five years.
Westborough Financial Services will be required to file a Massachusetts
income tax return and will generally be subject to a state income tax rate that
is the same tax rate as the tax rate for savings institutions in Massachusetts.
However, if Westborough Financial Services meets certain requirements, it may be
eligible to elect to be taxed as a Massachusetts Security Corporation, which
would allow Westborough Financial Services to be taxed at a rate that is
currently lower than income tax rates for savings institutions in Massachusetts.
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MANAGEMENT
SHARED MANAGEMENT STRUCTURE
Westborough Financial Services' has the same directors and executive
officers as the current trustees and executive officers of Westborough Savings.
We expect that Westborough Financial Services and Westborough Bank will continue
to have common directors and common executive officers until there is a business
reason to establish separate management structures.
To date, Westborough Savings has compensated its trustees and executive
officers for their services. Westborough Financial Services does not pay any
additional compensation. We expect to continue this practice after the
reorganization until we have a business reason to establish separate
compensation programs. Until then, we expect Westborough Financial Services to
reimburse Westborough Savings and, following the reorganization, Westborough
Bank for a part of the compensation paid to each director and executive officer
that is proportionate to the amount of time which he or she devotes to
performing services for Westborough Financial Services.
DIRECTORS
COMPOSITION OF OUR BOARDS. We have 16 directors. Each director belongs to
one of three groups with staggered 3-year terms of office. Six directors are in
Group One and have terms expiring in 2000. Five directors are in Group Two and
have terms expiring in 2001. Five directors are in Group Three and have terms
expiring in 2002. At each of Westborough Financial Services' annual stockholder
meetings, the stockholders will elect directors to fill the seats of the
directors whose terms are expiring in that year and any vacant seats.
Westborough Financial Services, as Westborough Bank's sole stockholder, will
elect Westborough Bank's directors.
WHO OUR DIRECTORS ARE. The following table states our directors' names,
their ages, their positions, the years when they began serving as directors
(including time spent on the Board of Trustees of Westborough Savings in mutual
form before the reorganization) and the years when their current terms of office
as directors will expire:
BANK
TRUSTEE TERM
NAME AGE POSITIONS SINCE EXPIRES
----------------------------- --- ---------------------------------------------------------- ----------- -----------
Nelson P. Ball............... 68 Director of the Bank and WFSI 1980 2001
Edward S. Bilzerian.......... 66 Director of the Bank and WFSI 1993 2002
David E. Carlstrom........... 65 Director of the Bank and WFSI 1976 2000
John L. Casagrande........... 52 Vice President, Treasurer and Director of the Bank and 1994 2000
WFSI
William W. Cotting, Jr....... 52 Director of the Bank and WFSI 1988 2000
Robert G. Daniel............. 70 Director of the Bank and WFSI 1969 2001
Earl W. Hutt................. 72 Director of the Bank and WFSI 1988 2001
Walter A. Kinell, Jr......... 70 Chairman of the Bank and WFSI 1967 2000
Robert A. Klugman............ 48 Director of the Bank and WFSI 1991 2000
Roger B. Leland.............. 69 Director of the Bank and WFSI 1974 2001
Joseph F. MacDonough......... 53 President, Chief Executive Officer and Director of the 1982 2001
Bank and WFSI
Paul F. McGrath.............. 52 Director of the Bank and WFSI 1993 2002
Charlotte C. Spinney......... 63 Director of the Bank and WFSI 1991 2002
Phyllis A. Stone............. 56 Director of the Bank and WFSI 1999 2002
James E. Tashjian............ 58 Director of the Bank and WFSI 1973 2002
Daniel G. Tear............... 72 Director of the Bank and WFSI 1985 2000
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OUR DIRECTORS' BACKGROUNDS. The business experience of each of our
directors is as follows:
NELSON P. BALL is the owner of Ball Financial Services, Co., located in
Westborough, Massachusetts. He has served as a financial services advisor for
over 20 years and is a member of the National Association of Securities Dealers,
Inc.
EDWARD S. BILZERIAN is President of Bilzerian Consulting Group, Inc., a
privately held company located in Worcester, Massachusetts, specializing in
small business turnarounds. He has been self-employed for over ten years.
DAVID E. CARLSTROM has served as President of Carlstrom Pressed Metal Co.,
Inc. for over 25 years. Carlstrom Pressed Metal is located in Westborough,
Massachusetts.
JOHN L. CASAGRANDE has served as the Vice President and Treasurer of
Westborough Savings since 1993. He joined Westborough Savings after having been
employed as a senior bank officer and certified public accountant for over 15
years at various times by several financial institutions (including mutual and
stock institutions) and the accounting firm of Peat Marwick.
WILLIAM W. COTTING JR. has been an attorney in private practice for over 20
years. His practice is located in Northborough, Massachusetts.
ROBERT G. DANIEL was employed in various capacities, including President and
Treasurer, at Carlson Daniel Insurance Agency, Inc., located in Westborough,
Massachusetts from 1958 to 1994. Mr. Daniel sold insurance from 1994 to 1996 for
Allied American Agency following its acquisition of Carlson Daniel. Mr. Daniel
currently serves as President and Treasurer of Westborough Insurance Agency,
Inc., a non-active corporation used as a vehicle for payments from Allied
American as negotiated in connection with the acquisition of Carlson Daniel.
EARL H. HUTT has served as an investment advisor and portfolio manager for
private industry for over 20 years.
WALTER A. KINELL, JR. has been Chairman of the Board since 1994. Mr. Kinell
joined Westborough Savings in 1949 as an assistant treasurer, became President
and Chief Executive Officer in 1969 and retired from this position in 1994.
ROBERT A. KLUGMAN, M.D. has practiced general medicine in Westborough,
Massachusetts for over 20 years.
ROBERT B. LELAND has practiced estate, tax and real estate law at Leland Law
Associates for over 30 years. During that time, he also served as an insurance
broker, selling life and casualty insurance products, through Leland Insurance
Agency, Inc. Leland Law Associates and Leland Insurance Agency are located in
Northborough, Massachusetts.
JOSEPH F. MACDONOUGH has served as President and Chief Executive Officer of
Westborough Savings since 1994. He joined Westborough Savings in 1981 and served
as Vice President and Treasurer until his appointment as President. Mr.
MacDonough serves on the Board of Trustees of the Savings Bank Employees'
Retirement Association and is a certified public accountant.
PAUL F. MCGRATH is a certified public accountant and has served as President
of Mottle McGrath Braney & Flynn, P.C. for over five years. Mottle McGrath is a
certified public accounting firm, located in Worcester, Massachusetts, that
provides accounting, tax and business advisory services throughout central New
England.
CHARLOTTE C. SPINNEY has been a social studies teacher at Westborough High
School for 41 years. During that time, she created the curriculum for the
community service component of the school's Sociology course.
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PHYLLIS A. STONE has served as Vice President and Treasurer of Comey Oil
Co., Inc., located in Westborough, Massachusetts, for the past three years.
Prior to her appointment as Vice President, she served in various other
capacities within Comey Oil for over 30 years. She is past Treasurer of the
Regatta Point Community Sailing Inc. of Worcester, Massachusetts.
JAMES E. TASHJIAN is a partner in the law firm of Tashjian, Simsarian &
Wickstrom, located in Westborough, Massachusetts. He has engaged in the general
practice of law for over 30 years.
DANIEL G. TEAR has served as a consultant to businesses in the area of
management psychology for the past 30 years.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
Our Boards of Directors meet on a quarterly basis and may hold additional
special meetings. During 1998, Westborough Savings' Board of Trustees held five
regular meetings and no special meetings.
The Boards of Directors of Westborough Bank and Westborough Financial
Services maintain Executive (which in the case of Westborough Savings was known
as the Board of Investment), Auditing, Compensation, and Long Range Planning
Committees with identical compositions. Westborough Bank's Board of Directors
also maintains an Asset/Liability Management Committee. No committee of
Westborough Financial Services' Board of Directors held any meetings in 1998.
The Executive Committee (formerly known as the Board of Investment) consists
of Messrs. Carlstrom, Daniel, Klugman, Leland, MacDonough and Tashjian, with Mr.
MacDonough serving as Chairman. The Executive Committee exercises the powers of
the Board of Directors in between its meetings. The Board of Investment met 52
times during 1998.
The Auditing Committee consists of Messrs. Bilzerian, Hutt and McGrath, with
Mr. Hutt serving as Chairman. This committee reviews the annual audit prepared
by the independent accountants, recommends the appointment of accountants and
receives reports from the firm of Healy and Healy, independent auditors. It met
four times during 1998.
The Compensation Committee consists of Messrs. Carlstrom, Daniel and Leland,
with Mr. Daniel serving as Chairman. This committee provides advice and
recommendations to the Board of Directors in the areas of employee salaries and
benefit programs. It met three times during 1998.
The Long Range Planning Committee consists of Mr. Leland who is Chairman and
Messrs. Carlstrom, Daniel, Kinell, Klugman, MacDonough, Tashjian and Tear. This
Committee sets long range goals and objectives and develops plans for their
achievement. It met seven times during 1998.
Westborough Savings' Asset/Liability Management Committee consists of
Messrs. Casagrande, Daniel, Kinell, Tautkas and MacDonough, who serves as the
Chairman. This committee has general oversight of Westborough Savings
investments and the management of its interest rate risk. It met three times
during 1998.
DIRECTOR COMPENSATION
MEETING FEES. Westborough Savings pays a fee of $200 to each of its
non-management trustees for attendance at each board meeting and each meeting of
a committee of which they are members, with the Chairman of each committee
receiving a fee of $225. Westborough Savings paid fees totaling approximately
$92,000 to its non-employee trustees for the year ended September 30, 1998.
We anticipate that the directors will be eligible to participate in the
stock option and management recognition plans expected to be implemented
following the completion of the reorganization.
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EXECUTIVE OFFICERS
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS. In addition to Messrs. Casagrande
and MacDonough, Westborough Financial Services and Westborough Savings have the
following executive officers:
VICKIE A. BOUVIER has worked for Westborough Savings since 1976 and has been
the Vice President, Operations Officer since 1994.
ALEXANDER P. TAUTKAS is currently the Vice President and Senior Loan Officer
of Westborough Savings, an office which he has held since 1997. He is
responsible in this capacity for Westborough Savings' loan portfolio. He has
been employed by Westborough Savings in various positions since 1977.
MARGARET I. DUQUETTE has worked for Westborough Savings as its Director of
Human Resources since 1997. Prior to 1997, she held the position of Director of
Human Resources at Bay State Savings Bank in Worcester, Massachusetts where she
worked for 19 years.
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides information about
the compensation paid for 1998 to our Chief Executive Officer and any other
executive officers whose total annual salary and bonus for 1998 was at least
$100,000.
ANNUAL COMPENSATION
------------------------------------------------------ LONG TERM
NAME AND OTHER ANNUAL COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) (1) LTIP PAYOUTS ($)
--------------------------------- --------- ---------- --------------- ------------------------- ---------------------
Joseph F. MacDonough President
and Chief Executive Officer.... 1998 $ 156,846 -- -- --
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION (2)
--------------------------------- ----------------
Joseph F. MacDonough President
and Chief Executive Officer.... $ 48,485
(1) Westborough Savings provides Mr. MacDonough with certain non-cash benefits
and perquisites, such as the use of an automobile, club membership dues and
certain other personal benefits, the aggregate value of which did not exceed
the lesser of $50,000 or 10% of the total annual salary and annual bonus
reported for him in the Summary Compensation Table.
(2) Includes the dollar value of the benefit to Mr. MacDonough of the premiums
paid by Westborough Savings under his split dollar life insurance
arrangement and Westborough Savings' contributions on behalf of Mr.
MacDonough to its 401(k) plan. The full amount of the premiums paid by
Westborough Savings under the split dollar life insurance arrangement will
be refunded to it from the proceeds of the split dollar life insurance
policy.
EMPLOYMENT AGREEMENTS
Effective upon the reorganization, Westborough Financial Services intends to
enter into separate employment agreements with Messrs. MacDonough and Casagrande
to secure their services as President and Chief Executive Officer, and Vice
President and Treasurer, respectively. The employment agreements will provide
for an initial term of three years in the case of Mr. MacDonough, and two years
in the case of Mr. Casagrande. Commencing on the first anniversary of the
effective date of each agreement, and continuing on each anniversary date
thereafter, the employment agreements may be extended, after review by the
Compensation Committee of the Board of the executive's performance, for an
additional one-year period, so that the remaining term will be three years in
the case of Mr. MacDonough, and two years in the case of Mr. Casagrande. The
current base salaries for Mr. MacDonough and Mr. Casagrande are $ and
$ , respectively. The employment agreements provide for each executive's
base salary to be reviewed annually by the Board, and it is anticipated that
each executive's base salary will be adjusted based on his job performance and
the overall performance of Westborough Financial Services and Westborough Bank.
In addition to base
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salary, each employment agreement provides for participation in stock,
retirement, and welfare benefit plans and eligibility for fringe benefits
applicable to executive personnel.
Westborough Financial Services may terminate each executive's employment at
any time with or without cause, and each executive may resign at any time
provided he provides 30 days prior written notice and fully cooperates in the
transition of his duties. In the event an executive's employment is terminated
without cause during the term of the employment agreement, the executive will be
entitled to severance benefits. These severance benefits include a lump sum
payment equal to the present value of the base salary and bonus payments that
would have been made to the executive for the remaining term of his employment
agreement, assuming the executive would have been awarded a bonus for each year
remaining in the agreement term equal to the highest annual bonus paid to him in
the preceding three year period and paid his base salary during the remaining
agreement term at the annual rate in effect as of the termination. In addition,
the executive will be entitled to continue his participation in the group life,
health, dental, accidental death and long-term disability plans sponsored by
Westborough Bank for the remaining term of his employment agreement. The same
severance benefits will be payable if the executive resigns during the term of
the employment agreement following: failure of the Board to reappoint the
executive to the position provided for in his employment agreement; failure of
Westborough Financial Services to vest in the executive the duties set forth in
the agreement, if not cured; and Westborough Financial Services' material breach
of the agreement. The employment agreements also provide certain uninsured
benefits in the event the executive's employment terminates because of death or
disability.
In the event executive resigns for any reason or is terminated without cause
following a change in control of Westborough Financial Services or Westborough
Bank, he will be entitled to the severance benefits described above except that
in the event of a change in control the lump sum benefit payable to the
executive will not be less than 2.99 multiplied by the executive's average
annual compensation for the preceding five years.
If Westborough Financial Services or Westborough Bank experiences a change
in ownership, a change in effective ownership or control or a change in the
ownership of a substantial portion of their assets as contemplated by section
280G of the Internal Revenue Code, a portion of any severance payments under the
employment agreements might constitute an "excess parachute payment" under
current federal tax laws. Any excess parachute payment would be subject to a 20%
federal excise tax payable by the executive. Neither Westborough Bank nor
Westborough Financial Services could claim a federal income tax deduction for an
excess parachute payment. The employment agreements require Westborough
Financial Services to indemnify each executive against the financial effects of
the excise tax.
BENEFIT PLANS
PENSION PLANS. Westborough Savings maintains a tax-qualified pension plan
that covers substantially all employees who are age 21 and have at least one
year of service. The following table
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shows the estimated aggregate benefits payable under the pension plan upon
retirement at age 65 with various years of service and average compensation
combinations.
The benefits shown in the preceding table are annual benefits payable in the
form of a single life annuity and are not subject to any deduction for Social
Security benefits or other offset amounts. At September 30, 1998, Mr.
MacDonough's average compensation and estimated years of service were $142,525
and 20.9 years of service.
Mr. MacDonough and Mr. Casagrande are entitled to supplemental retirement
benefits under an Executive Supplemental Compensation Agreement each has entered
into with Westborough Savings. Under each agreement, the executive is entitled
to an annual retirement benefit, payable at age 65 in the form of a single life
annuity, equal to 70% of his benefit computation base in the case of Mr.
MacDonough and 50.4% of his benefit computation base in the case of Mr.
Casagrande, but REDUCED by the sum of: 2% multiplied by the executive's annual
primary Social Security benefit multiplied by his years of service, PLUS his
annual retirement benefit under any tax-qualified pension plan, PLUS the annual
annuity payable to the executive under his Split Dollar Agreement. Under the
agreements, the executive's benefit computation base is his average annual
compensation during the 12 consecutive calendar quarters in which his
compensation is the highest.
401(K) PLAN. Westborough Savings maintains a tax-qualified 401(k) defined
contribution plan for employees who have attained age 21 and have at least one
year of service. Eligible employees may take pre-tax contributions to the plan
through salary reduction elections from 1% to 15% of annual compensation,
subject to limitations of the Internal Revenue Code (for 1998, the annual limit
was $10,000). Westborough Savings makes a matching contribution to the plan
equal to 25% of the first four percent of annual compensation contributed to the
plan on a pre-tax basis by the eligible employee.
This plan has an individual account for each participant's contributions and
allows each participant to direct the investment of his or her account. As of
the completion of the reorganization, one permitted investment will be
Westborough Financial Services' common stock. The plan itself is not an eligible
account holder. However, participants who are eligible account holders may use
their subscription rights to purchase stock for their plan accounts in the
initial offering. This plan will purchase common stock for other participants
from Westborough Financial Services in the initial offering, to the extent that
shares are available to investors who are not eligible account holders, and in
open market transactions. Participants will direct the voting of shares
purchased for their plan accounts.
EMPLOYEE STOCK OWNERSHIP PLAN. This plan is a tax-qualified plan that
covers substantially all employees of Westborough Bank and Westborough Financial
Services who have at least one year of service and have attained age 21 and will
take effect at the completion of the reorganization.
Westborough Financial Services intends to lend this plan enough money to
purchase 8% of the shares issued to investors other than Westborough Bancorp,
MHC. The plan will purchase these shares
89
from Westborough Financial Services to the extent that shares are available
after filling the subscriptions of eligible account holders. Otherwise, the plan
will purchase these shares in private transactions or on the open market after
completion of the reorganization to the extent that shares are available for
purchase on reasonable terms. If this plan cannot purchase the shares that it
wants directly from Westborough Financial Services in the offering, there is no
assurance that it will purchase shares after the reorganization, or that such
purchases will occur during any particular time period or at any particular
price.
Although contributions to this plan will be discretionary, Westborough Bank
intends to contribute enough money each year to make the required principal and
interest payments on the loan from Westborough Financial Services. It is
expected that this loan will be for a term of 10 years and will call for level
annual payments of principal and interest. The plan will initially pledge the
shares it purchases as collateral for the loan and hold them in a suspense
account.
The plan will not distribute the pledged shares right away. Instead, it will
release a portion of the pledged shares annually. The plan will allocate the
shares released each year among the accounts of participants in proportion to
their base salary for the year. For example, if a participant's base salary for
a year represents 1% of the total base salaries of all participants for the
year, the plan would allocate to that participant 1% of the shares released for
the year. Participants direct the voting of shares allocated to their accounts.
Shares in the suspense account will usually be voted in a way that mirrors the
votes which participants cast for shares in their individual accounts.
This plan may purchase additional shares in the future, and may do so using
borrowed funds, cash dividends, periodic employer contributions or other cash
flow.
BENEFIT RESTORATION PLAN. Effective as of the reorganization, Westborough
Financial Services intends to adopt a Benefit Restoration Plan for Mr.
MacDonough. This plan will provide Mr. MacDonough with the benefits that would
otherwise be due to him as a participant in the pension plan, the 401(k) plan
and the employee stock ownership plan if such benefits were not limited by
certain provisions of the Internal Revenue Code.
FUTURE STOCK BENEFIT PLANS
STOCK OPTION PLAN. We intend to implement a stock option plan for our
directors and officers after the reorganization. Applicable regulations prohibit
us from implementing this plan until six months after the reorganization. If we
implement this plan within one year after the reorganization, applicable
regulations require that we first obtain the approval of the holders of a
majority of the outstanding shares of Westborough Financial Services that are
not owned by Westborough Bancorp, MHC. We have not decided whether we will
implement this plan before or after the one-year anniversary of the
reorganization.
We expect to adopt a stock option plan that will authorize the Compensation
Committee to grant options to purchase up to 10% of the shares issued to
investors other than Westborough Bancorp, MHC over a period of 10 years. The
Compensation Committee will decide which directors and officers will receive
options and what the terms of those options will be. However, no stock option
will permit its recipient to purchase shares at a price that is less than the
fair market value of a share on the date the option is granted, and no option
will have a term that is longer than 10 years. If we implement a stock option
plan before the first anniversary of the reorganization, applicable regulations
will require that we observe the following restrictions:
- We must limit the total number of shares that are optioned to outside
directors to 30% of the shares authorized for the plan.
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- We must also limit the number of shares that are optioned to any one
outside director to 5% of the shares authorized for the plan and the
number of shares that are optioned to any executive officer to 25% of the
shares that are authorized for the plan.
- We must not permit the options to become vested at a more rapid rate than
20% per year beginning on the first anniversary of stockholder approval of
the plan.
- We must not permit accelerated vesting for any reason other than death or
disability.
After the first anniversary of the reorganization, we may amend the plan to
change or remove these restrictions. If we adopt a stock option plan within one
year after the reorganization, we expect to amend the plan later to remove these
restrictions and to provide for accelerated vesting in cases of retirement and
change of control.
We may obtain the shares needed for this plan by issuing additional shares
or through stock repurchases. Because we cannot issue new shares that would
reduce Westborough Bancorp, MHC's ownership position to less than a majority of
Westborough Financial Services' outstanding shares, we expect to obtain most or
all of the shares for this plan through stock repurchases.
We expect the stock option plan will permit the Compensation Committee to
grant either incentive stock options that qualify for special federal income tax
treatment or non-qualified stock options that do not qualify for special
treatment. Incentive stock options may be granted only to employees and will not
create federal income tax consequences when they are granted. If they are
exercised during employment or within three months after termination of
employment, the exercise will not create federal income tax consequences either.
When the shares acquired on exercise of an incentive stock option are resold,
the seller must pay federal income taxes on the amount by which the sales price
exceeds the purchase price. This amount will be taxed at capital gains rates if
the sale occurs at least two years after the option was granted and at least one
year after the option was exercised. Otherwise, it is taxed as ordinary income.
Non-qualified stock options may be granted to either employees or
non-employees such as directors, consultants and other service providers.
Incentive stock options that are exercised more than three months after
termination of employment are treated as non-qualified stock options.
Non-qualified stock options will not create federal income tax consequences when
they are granted. When they are exercised, federal income taxes must be paid on
the amount by which the fair market value of the shares acquired by exercising
the option exceeds the exercise price. When the shares acquired on exercise of a
non-qualified stock option are resold, the seller must pay federal income taxes
on the amount by which the sales price exceeds the purchase price plus the
amount included in ordinary income when the option was exercised. This amount
will be taxed at capital gains rates, which will vary depending upon the time
that has elapsed since the exercise of the option.
Westborough Financial Services and Westborough Bank will recognize
compensation expense for accounting purposes when stock options are exercised.
The measurement of this expense will depend on whether treasury shares or newly
issued shares are used to complete the option exercise. When a non-qualified
stock option is exercised, Westborough Financial Services and Westborough
Savings may be allowed a federal income tax deduction for the same amount that
the option holder includes in his or her ordinary income. This amount may be the
same as the related compensation expense or it may be different. When an
incentive stock option is exercised, there is no tax deduction unless the shares
acquired are resold sooner than two years after the option was granted or one
year after the option was exercised.
MANAGEMENT RECOGNITION PLAN. We intend to implement a management
recognition plan for our directors and officers after the reorganization.
Applicable regulations prohibit us from implementing this plan until 6 months
after the reorganization. If we implement this plan within one year after the
reorganization, the regulations require that we first obtain the approval of the
holders of a majority of
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the outstanding shares of Westborough Financial Services that are not held by
Westborough Bancorp, MHC. We have not decided whether we will implement this
plan before or after the one-year anniversary of the reorganization.
We expect to adopt a management recognition plan that will authorize the
Compensation Committee to make restricted stock awards of up to 4% of the shares
issued to investors other than Westborough Bancorp, MHC. The Compensation
Committee will decide which directors and officers will receive restricted stock
and what the terms of those awards will be. If we implement a management
recognition plan before the first anniversary of the reorganization, applicable
regulations will require that we observe the following restrictions:
- We must limit the total number of shares that are awarded to outside
directors to 30% of the shares authorized for the plan.
- We must also limit the number of shares that are awarded to any one
outside director to 5% of the shares authorized for the plan and the
number of shares that are awarded to any executive officer to 25% of the
shares that are authorized for the plan.
- We must not permit the awards to become vested at a more rapid rate than
20% per year beginning on the first anniversary of stockholder approval of
the plan.
- We must not permit accelerated vesting for any reason other than death or
disability.
After the first anniversary of the reorganization, we may amend the plan to
change or remove these restrictions. If we adopt a management recognition plan
within one year after the reorganization, we expect to amend the plan later to
remove these restrictions and to provide for accelerated vesting in cases of
retirement and change of control.
We may obtain the shares needed for this plan by issuing additional shares
or through stock repurchases. Because we cannot issue new shares that would
reduce Westborough Bancorp, MHC's ownership position to less than a majority of
Westborough Financial Services' outstanding shares, we expect to obtain most or
all of the shares for this plan through stock repurchases.
Restricted stock awards under this plan may feature employment restrictions
that require continued employment for a period of time for the award to be
vested. They may feature restrictions that require the achievement of specified
corporate or individual performance goals for the award to be vested. Or, they
may feature a combination of employment and performance restrictions. Awards are
not vested unless the specified employment restrictions and performance goals
are met. However, pending vesting, the award recipient may have voting and
dividend rights. When an award becomes vested, the recipient must include the
current fair market value of the vested shares in his income for federal income
tax purposes. Westborough Financial Services and Westborough Bank may be allowed
a federal income tax deduction in the same amount. Depending on the nature of
the restrictions attached to the restricted stock award, Westborough Financial
Services and Westborough Bank may have to recognize a compensation expense for
accounting purposes ratably over the vesting period or in a single charge when
the performance conditions are satisfied.
CERTAIN TRANSACTIONS WITH DIRECTORS/TRUSTEES AND EXECUTIVE OFFICERS
We do not make loans to our executive officers or employees. However, we do
make loans to our trustees/directors. These loans bear interest at the same rate
as loans offered to non-trustee/director borrowers and have the same
underwriting terms that apply to non-trustee/director borrowers.
We retain the law firm of Tashjian, Simsarian & Wickstrom. Mr. James
Tashjian, a director of Westborough Financial Services and Westborough Bank, and
a trustee of Westborough Bancorp, MHC, has been a partner of Tashjian, Simsarian
& Wickstrom since 1995. For 1998, the firm received approximately $75 thousand
from borrowers of Westborough Savings to review loan documentation.
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PROPOSED PURCHASES OF COMMON STOCK BY MANAGEMENT
The following table presents, for each of our trustees and executive
officers, the amount of stock they wish to purchase in the offering. We have
assumed that a sufficient number of shares will be available to satisfy their
subscriptions. The amounts include shares that may be purchased through
individual retirement accounts and by associates of the trustees and executive
officers. Collectively our trustees and executive officers expect to purchase a
total of shares, or % of shares we sell in the offering (assuming the
sale of 700,000 shares of common stock).
NUMBER
NAME AMOUNT OF SHARES
------------------------------------------------------------------------ --------- -----------
Directors:
Walter A. Kinell, Jr.
Nelson P. Ball
Edward S. Bilzerian
David E. Carlstrom
John L. Casagrande
William W. Cotting, Jr.
Robert G. Daniel
Earl H. Hutt
Robert A. Klugman
Roger B. Leland
Joseph F. MacDonough $ 50,000 5,000
Paul F. McGrath
Charlotte C. Spinney
Phyliss A. Stone
James E. Tashjian
Daniel G. Tear
Executive Officers who are not Directors:
Vickie A. Bouvier
Alexander P. Tautkas
Margaret I. Duquette
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THE REORGANIZATION AND THE OFFERING
THE BOARD OF TRUSTEES OF WESTBOROUGH SAVINGS HAS ADOPTED AND THE
COMMISSIONER OF THE DIVISION OF BANKS OF THE COMMONWEALTH OF MASSACHUSETTS HAS
APPROVED THE PLAN OF REORGANIZATION, SUBJECT TO APPROVAL BY WESTBOROUGH SAVINGS'
CORPORATORS OF THE PLAN AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
APPROVAL BY THE COMMISSIONER DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE REORGANIZATION BY THE COMMISSIONER.
GENERAL
On March 15, 1999, Westborough Savings' Board of Trustees unanimously
adopted the plan of reorganization pursuant to which Westborough Savings Bank
will reorganize into a mutual holding company structure. This reorganization
includes the formation of an intermediate stock holding company, Westborough
Financial Services and the offering by Westborough Financial Services of a
minority of its shares to depositors of Westborough Savings and certain other
persons. Under the terms of the plan of reorganization, Westborough Financial
Services will own The Westborough Bank, and Westborough Bancorp, MHC will own
more than half of Westborough Financial Services. The reorganization will be
effected as described under "--Tax Aspects" or in any other manner that is
permitted by the Division and the FDIC and is consistent with the intent of the
plan of reorganization. See "Description of Our Structure after the
Reorganization" in the Summary section of this prospectus for a chart which
reflects our structure after the reorganization.
Westborough Financial Services and Westborough Bancorp, MHC have requested
approval from the Federal Reserve Bank of Boston to become bank holding
companies and to acquire Westborough Bank. The plan of reorganization was
approved by the Division, and Westborough Savings has received a notice of
intent not to object to the plan of reorganization from the FDIC, subject to,
among other things, approval of the plan of reorganization by the corporators of
Westborough Savings.
Westborough Savings has called a special meeting for this purpose which will
be held on , 1999. The plan of reorganization must be approved by an
affirmative vote of at least a majority of Westborough Savings' corporators and
a majority of Westborough Savings' independent corporators, who must constitute
not less than 60% of all corporators. An independent corporator is one who is
not an employee, officer, trustee or significant borrower of Westborough
Savings. We will complete the reorganization only upon completion of the sale of
the shares of common stock offered in this prospectus and approval of the plan
of reorganization by the voting corporators.
The aggregate price of the shares of common stock to be issued in the
reorganization will be within the offering range. The offering range has been
established by the Board of Trustees to be between $5,950,000 and $8,050,000 and
is based upon an independent appraisal of the estimated pro forma market value
of the common stock of Westborough Financial Services. The appraisal was
prepared by RP Financial, a consulting firm experienced in the valuation and
appraisal of savings institutions. All shares of common stock to be issued and
sold in the reorganization will be sold at the same price ($10.00) per share.
The independent appraisal will be affirmed or, if necessary, updated at the
completion of the offering. See "--How We Determined the Offering Range and the
$10.00 Price Per Share" for additional information as to the determination of
the estimated pro forma market value of the common stock.
THE FOLLOWING IS A BRIEF SUMMARY OF PERTINENT ASPECTS OF THE REORGANIZATION.
THE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS OF THE
PLAN OF REORGANIZATION. A COPY OF THE PLAN IS AVAILABLE FROM WESTBOROUGH SAVINGS
UPON REQUEST AND IS AVAILABLE FOR INSPECTION AT THE OFFICES OF WESTBOROUGH
SAVINGS AND AT THE DIVISION OF BANKS. THE PLAN IS ALSO FILED AS AN EXHIBIT TO
THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART, COPIES OF WHICH
MAY BE OBTAINED FROM THE SEC. SEE "WHERE YOU CAN FIND ADDITIONAL INFORMATION."
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REASONS FOR THE REORGANIZATION
Formation of The Westborough Bank as a capital stock savings bank subsidiary
of Westborough Financial Services will permit Westborough Financial Services to
issue common stock, which is a source of capital not available to mutual savings
banks.
Westborough Savings' mutual form of ownership will be preserved in
Westborough Bancorp, MHC. Westborough Bancorp, MHC, as a mutual savings bank
holding company, will own at least a majority of the common stock of Westborough
Financial Services as long as Westborough Bancorp, MHC remains in existence. The
reorganization will allow Westborough Savings to achieve certain benefits of a
stock company without a loss of control that is possible in a full savings
institution conversion from mutual to stock form. In a standard conversion, a
newly converted savings institution or its newly formed holding company sells
100% of its common stock in a single stock offering. The mutual holding company
structure also will give Westborough Financial Services flexibility to issue its
common stock at various times and in varying amounts as market conditions
permit, rather than in a single stock offering. This makes the deployment of the
capital that we raise more manageable.
The proceeds from the sale of common stock of Westborough Financial Services
will provide Westborough Bank with new capital, which will support future
diversification of its product lines and market share growth. In particular,
such proceeds will enhance Westborough Bank's ability to expand its franchise
through increased lending, make necessary capital investments in facilities and
technology, diversify products offered to its customers and establish additional
branch locations. The reorganization also will enable Westborough Financial
Services and Westborough Bank to better manage its capital by providing broader
investment opportunities through the holding company structure, and by enabling
Westborough Bank to distribute capital to stockholders of Westborough Financial
Services in the form of dividends.
The ability of Westborough Financial Services to sell additional common
stock also will enable Westborough Financial Services and Westborough Bank to
increase their capital in response to any future regulatory capital requirement
levels. While Westborough Savings currently exceeds all regulatory capital
requirements, the sale of common stock in connection with the reorganization
will assist Westborough Bank with the orderly preservation and expansion of its
capital base and will provide flexibility to respond to sudden and unanticipated
capital needs.
After completion of the reorganization, the unissued common and preferred
stock authorized by Westborough Financial Services' Articles of Organization
will permit Westborough Financial Services to raise additional equity capital
through further sales of securities and to issue securities in connection with
possible acquisitions, subject to market conditions and any required regulatory
approval of an offering. Westborough Financial Services, however, currently has
no plans with respect to additional offerings of securities. Following the
reorganization, we intend to use stock-related incentive programs to attract and
retain executive and other personnel for itself and its subsidiaries. See
"Management."
The mutual holding company form of organization will provide additional
flexibility to diversify our business activities through acquisitions of or
mergers with both mutual and stock savings institutions, as well as other
companies. Although there are no current arrangements, understandings or
agreements, written or oral, regarding any such opportunities, Westborough
Financial Services will be in a position after the reorganization to take
advantage of any such favorable opportunities that may arise. See "How We Intend
to Use the Proceeds from the Offering" for a description of our intended use of
proceeds.
While there are benefits associated with the mutual holding company form of
organization, this form of organization involves additional costs associated
with its maintenance and regulation, including additional administrative
expenses, taxes, regulatory filings and examination fees.
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After considering the advantages and disadvantages of the reorganization, as
well as applicable fiduciary duties, the Board of Trustees of Westborough
Savings unanimously approved the reorganization as being in the best interests
of Westborough Savings, its depositors and the communities it serves.
EFFECTS OF THE REORGANIZATION
GENERAL. Each depositor in a mutual savings bank has both a deposit account
in the institution and a pro rata ownership interest in the equity of the
savings institution based upon the balance in the depositor's account. This
interest may only be realized in the event of a liquidation of the savings
institution. However, this ownership interest is tied to the depositor's account
and has no tangible market value separate from such deposit account. Any
depositor who opens a deposit account obtains a pro rata ownership interest in
the equity of the institution without any additional payment beyond the amount
of the deposit. A depositor who reduces or closes such depositor's account
receives the balance in the account but receives nothing for such depositor's
ownership interest in the equity of the institution, which is lost to the extent
that the balance in the account is reduced. Consequently, depositors of a mutual
savings bank have no way to realize the value of their ownership interest,
except in the unlikely event that the mutual savings bank is liquidated. In such
event, the depositors of record at that time would share pro rata in any
residual surplus and reserves after other claims, including claims of depositors
to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, permanent
non-withdrawable capital stock is created to represent the ownership of the
institution's equity and the former pro rata ownership of depositors is
thereafter represented exclusively by their liquidation rights. SUCH CAPITAL
STOCK IS SEPARATE AND APART FROM DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. Certificates are issued to
evidence ownership of the capital stock. The stock certificates are
transferable, and, therefore, the stock may be sold or traded with no effect on
any deposit account the seller may hold in the institution.
CONTINUITY. While the reorganization is being accomplished, and after
completion of the reorganization, the routine business of Westborough Bank of
accepting deposits and making loans will continue without interruption.
Westborough Bank will continue to be subject to regulation by the Division and
the FDIC. After the reorganization, Westborough Bank will continue to provide
services for depositors and borrowers under current policies by its management
and staff.
The Board of Trustees and corporators serving Westborough Savings
immediately before the reorganization will serve as the Board of Directors of
Westborough Bank and the corporators of Westborough Bancorp, MHC, respectively,
after the reorganization. The directors of Westborough Financial Services and
the trustees of Westborough Bancorp, MHC will consist of all of the individuals
currently serving on the Board of Trustees of Westborough Savings. We anticipate
that all officers of Westborough Savings serving immediately before the
reorganization will retain their positions after the reorganization. See
"Management."
DEPOSIT ACCOUNTS AND LOANS. Under the plan of reorganization, each
depositor in Westborough Savings at the time of the reorganization will
automatically continue as a depositor of Westborough Bank after the
reorganization. Each deposit account will remain the same with respect to
deposit balance, interest rate and other terms, except to the extent affected by
withdrawals made to purchase common stock in the offering. See "--Procedure for
Purchasing Shares in Subscription and Community Offerings." Each deposit account
will be insured by the FDIC and the Depositors Insurance Fund to the same extent
as before the reorganization. Depositors will continue to hold their existing
certificates of deposit, passbooks and other evidences of their accounts.
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Furthermore, no loan outstanding from Westborough Savings will be affected
by the reorganization, and the amount, interest rate, maturity and security for
each loan will remain as they were contractually fixed prior to the
reorganization.
VOTING RIGHTS OF DEPOSITORS. Voting rights and control of Westborough
Savings, as a mutual savings bank, are vested in the Board of Trustees. After
the reorganization, direction of Westborough Bank will be under the control of
the Board of Directors of Westborough Bank. Westborough Financial Services, as
the holder of all of the outstanding common stock of Westborough Bank, will have
exclusive voting rights with respect to any matters concerning Westborough Bank
requiring stockholder approval, including the election of directors of
Westborough Bank.
After the reorganization, the holders of the common stock of Westborough
Financial Services will have exclusive voting rights with respect to any matters
concerning Westborough Financial Services. These voting rights will be exclusive
except to the extent Westborough Financial Services in the future issues
preferred stock with voting rights. Each holder of common stock will be entitled
to vote on any matters to be considered by Westborough Financial Services'
stockholders, including the election of directors of Westborough Financial
Services, subject to the restrictions and limitations set forth in Westborough
Financial Services' Articles of Organization discussed below.
By virtue of its ownership of a majority of the outstanding shares of common
stock, Westborough Bancorp, MHC will be able to elect all members of the Board
of Directors of Westborough Financial Services and generally will be able to
control the outcome of most matters presented to the stockholders of Westborough
Financial Services for resolution by vote. However, current regulations and
regulatory policies require that adoption of a stock option plan, management
recognition plan or second step conversion of Westborough Bancorp, MHC be
approved by a majority vote of the shares held by the public stockholders (I.E.,
all stockholders except Westborough Bancorp, MHC).
Westborough Bancorp, MHC will be controlled by its Board of Trustees, which
will initially consist of the current trustees of Westborough Savings. Following
the reorganization, approximately one-third of the trustees of Westborough
Bancorp, MHC will be elected annually by the corporators of Westborough Bancorp,
MHC. The initial corporators of Westborough Bancorp, MHC will consist of all of
the corporators of Westborough Savings at the time of the reorganization.
Thereafter, corporators of Westborough Bancorp, MHC will be nominated by the
Board of Trustees and elected by the corporators pursuant to the Bylaws of
Westborough Bancorp, MHC.
DEPOSITORS' RIGHTS IF WE LIQUIDATE; LIQUIDATION ACCOUNT. In the unlikely
event of a complete liquidation of Westborough Savings in its current mutual
form, each depositor would receive a pro rata share of any assets of Westborough
Savings remaining after payment of claims of all creditors (including the claims
of all depositors to the withdrawable value of their accounts). Each depositor's
pro rata share of such liquidating distribution would be in the same proportion
as the value of such depositor's deposit account was to the total value of all
deposit accounts in Westborough Savings at the time of liquidation.
Upon a complete liquidation of Westborough Bank after the reorganization,
each depositor would have a claim as a creditor of the same general priority as
the claims of all other general creditors of Westborough Bank. However, except
as described below, a depositor's claim would be solely for the amount of the
balance in such depositor's deposit account plus accrued interest. Such
depositor would not have an interest in the value or assets of Westborough Bank
above that amount. Instead, the holder of Westborough Bank's common stock (I.E.,
Westborough Financial Services) would be entitled to any assets remaining upon a
liquidation of Westborough Bank.
The plan of reorganization provides for the establishment, upon the
completion of the reorganization, of a special "liquidation account" for the
benefit of eligible account holders and supplemental eligible account holders in
an amount equal to the net worth of Westborough Savings as
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of the date of its latest balance sheet contained in this prospectus. Upon a
complete liquidation of Westborough Bank after the reorganization, each eligible
account holder and supplemental eligible account holder, who continues to
maintain such account holder's deposit account at Westborough Bank, would be
entitled to an interest in the liquidation account prior to any payment to the
holders of Westborough Bank's capital stock. Each eligible account holder and
supplemental eligible account holder will have a pro rata interest in the total
liquidation account for the account holder's deposit accounts based on the
proportion that the aggregate balance of such person's qualifying deposit
accounts on December 31, 1997 (the eligibility record date) and December 31,
1998 (the supplemental eligibility record date), as applicable, bore to the
aggregate balance of all qualifying deposit accounts of all eligible account
holders and supplemental eligible account holders. For this purpose, qualifying
deposit accounts include all savings, certificate of deposit, demand, negotiable
orders of withdrawal (NOW), money market and passbook accounts maintained at
Westborough Bank (excluding any escrow accounts).
If, however, on any annual closing date (I.E., the anniversary of the
eligibility record date or supplemental eligibility record date, as applicable)
of Westborough Savings, commencing on or after the effective date of the
reorganization, the amount in any deposit account is less than the amount in
such deposit account on December 31, 1997 (with respect to an eligible account
holder), or December 31, 1998 (with respect to a supplemental eligible account
holder) or any other annual closing date, then the interest in the liquidation
account relating to the deposit account would be reduced from time to time by
the proportion of any such reduction, and such interest will cease to exist if
such deposit account is closed. For purposes of the liquidation account,
certificates of deposit will be deemed to be closed upon maturity regardless of
renewal. In addition, no interest in the liquidation account would ever be
increased despite any subsequent increase in the related deposit account.
Any assets remaining after the above liquidation rights of eligible account
holders and supplemental eligible account holders are satisfied would be
distributed to Westborough Financial Services as the sole stockholder of
Westborough Bank.
Upon a complete liquidation of Westborough Financial Services, each holder
of shares of the common stock of Westborough Financial Services, including
Westborough Bancorp, MHC, would be entitled to receive a pro rata share of
Westborough Financial Services' assets, following payment of all debts,
liabilities and claims of greater priority of or against Westborough Financial
Services including the rights of depositors in the liquidation account of
Westborough Bank, if any.
If liquidation of Westborough Bancorp, MHC occurs following completion of
the reorganization, all depositors of Westborough Bank at that time will be
entitled, pro rata to the value of their deposit accounts, to a distribution of
any assets of Westborough Bancorp, MHC remaining after payment of all debts and
claims of creditors.
TAX ASPECTS. The reorganization may be effected in any manner approved by
the Division that is consistent with the purposes of the plan of reorganization
and applicable law, regulations and policies. However, Westborough Savings
intends to consummate the reorganization using a series of transactions as
described below. This structure enables Westborough Savings to retain all of its
historical tax attributes and produces significant savings to Westborough
Savings because it simplifies regulatory approvals and conditions associated
with the completion of the reorganization.
The merger structure will be accomplished as follows:
(1) Corporators of Westborough Savings will organize a Massachusetts chartered
de novo mutual savings bank, known as Westborough De Novo Savings Bank;
(2) De Novo Savings Bank will reorganize into a Massachusetts chartered mutual
holding company and will form a de novo stock savings bank subsidiary
("Interim"), and all of the assets and liabilities of De Novo Savings Bank
will be transferred to Westborough Bank;
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(3) Westborough Savings will merge with and into Interim with Westborough Bank
as the resulting entity;
(4) Westborough Bancorp, MHC will organize Westborough Financial Services as a
separate wholly-owned subsidiary of Westborough Bancorp, MHC;
(5) Westborough Bancorp, MHC will contribute all of the shares of the common
stock of Westborough Bank to Westborough Financial Services, which will
result in Westborough Bancorp, MHC owning 100% of the common stock of
Westborough Financial Services and Westborough Financial Services owning
100% of the common stock of Westborough Bank; and
(6) Westborough Financial Services will offer to sell up to 49% of its common
stock pursuant to the plan of reorganization.
The transactions described in steps two through five will occur
simultaneously, and the transaction described in step 6 will occur as soon as
practicable thereafter and as part of the reorganization. As a result of the
reorganization, Westborough Financial Services will be a majority-owned
subsidiary of Westborough Bancorp, MHC and Westborough Bank will be a
wholly-owned subsidiary of Westborough Financial Services. Pursuant to the
reorganization, the holders of deposit accounts in Westborough Savings will
become holders of deposit accounts in Westborough Bank in the same amount and on
the same terms and conditions, and will hold liquidation interests in
Westborough Bancorp, MHC substantially similar to the liquidation interests in
Westborough Savings.
Under this structure: (i) the conversion is intended to be a tax-free
reorganization under Code section 368(a)(1)(F); and (ii) the exchange of the
shares of Westborough Bank's initial common stock deemed constructively received
by depositors for liquidation interests in Westborough Bancorp, MHC (the
"Exchange") is intended to be a tax-free exchange under Code section 351.
Under the plan of reorganization, consummation of the reorganization is
conditioned upon, among other things, the prior receipt by Westborough Savings
of either a private letter ruling from the IRS and from the Massachusetts taxing
authorities or an opinion of Thacher Proffitt & Wood as to the federal income
tax consequences and from Wolf & Co., P.C. as to the Massachusetts income tax
consequences of the reorganization to Westborough Savings (in both its mutual
and stock form), Westborough Financial Services and the eligible account holders
and supplemental account holders. In Revenue Procedure 96-3, 1996-1 I.R.B. 82,
the IRS announced that it will not rule on whether a transaction qualifies as a
tax-free reorganization under Code section 368(a)(1)(F) or as a tax-free
exchange of stock for stock in the formation of a holding company under Code
section 351, but that it will rule on significant sub-issues that must be
resolved to determine whether the transaction qualifies under either of these
Code sections.
Westborough Savings has requested a private letter ruling from the IRS
regarding certain significant sub-issues associated with the reorganization.
Based in part upon this private letter ruling and certain representations of
Westborough Savings or its officers. Thacher Proffitt & Wood will issue its
opinion regarding certain federal income tax consequences of the reorganization.
We can not assure you that we will obtain a private letter ruling.
In the following discussion, "Mutual Bank" refers to Westborough Savings
before the reorganization and "Stock Bank" refers to Westborough Savings after
the reorganization.
With regard to the reorganization, Thacher Proffitt & Wood intends to issue
an opinion that:
(1) the conversion will constitute a "reorganization" under Code section
368(a)(1)(F), and Westborough Savings (in either its status as Mutual Bank
or Stock Bank) will recognize no gain or loss as a result of the conversion;
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(2) the basis of each asset of Mutual Bank received by Stock Bank in the
conversion will be the same as Mutual Bank's basis for such asset
immediately prior to the conversion;
(3) the holding period of each asset of Mutual Bank received by Stock Bank in
the reorganization will include the period during which such asset was held
by Mutual Bank prior to the conversion;
(4) For purposes of Code section 381(b), Stock Bank will be treated as if there
had been no conversion and, accordingly, the taxable year of the Mutual Bank
will not end on the effective date and the tax attributes of Mutual Bank
(subject to application of Code sections 381, 382, and 384), including
Mutual Bank's tax bad debt reserves and earnings and profits, will be taken
into account by Stock Bank as if there had been no conversion;
(5) Mutual Bank's qualifying depositors will recognize no gain or loss upon
their constructive receipt of shares of Stock Bank common stock solely in
exchange for their interest (I.E., liquidation rights) in Mutual Bank;
(6) no gain or loss will be recognized by the depositors of Westborough Savings
(formerly Mutual Bank) upon the transfer to Westborough Bancorp, MHC of
shares of Stock Bank common stock they constructively received in the
conversion in exchange for interests (I.E., liquidation rights) in
Westborough Bancorp, MHC; and
(7) no gain or loss will be recognized by depositors of Mutual Bank upon the
issuance to them of deposits in Stock Bank in the same dollar amount as
their deposits in the Mutual Bank.
Unlike private rulings of the IRS, an opinion of counsel is not binding on
the IRS and the IRS could disagree with conclusions reached in the opinion. If
there is a disagreement, we can not guarantee that the IRS would not prevail in
a judicial or administrative proceeding.
Wolf & Co., P.C. intends to opine, subject to the limitations and
qualifications in its opinion, that, for purposes of the Massachusetts corporate
income tax, the reorganization will not become a taxable transaction to
Westborough Savings (in either its status as Mutual Bank or Stock Bank),
Westborough Bancorp, MHC, Westborough Financial Services, the stockholders of
Westborough Financial Services or the depositors of Westborough Savings.
ACCOUNTING CONSEQUENCES. The reorganization will be accounted for in a
manner similar to a pooling-of-interests under generally accepted accounting
principles. Accordingly, the carrying value of our assets, liabilities, and
capital will be unaffected by the reorganization and will be reflected in the
Westborough Financial Services' and Westborough Bank's consolidated financial
statements based on their historical amounts.
HOW WE DETERMINED THE OFFERING RANGE AND THE $10.00 PRICE PER SHARE
The plan of reorganization requires that the purchase price of the common
stock must be based on the appraised pro forma market value of the common stock,
as determined on the basis of an independent valuation. Westborough Savings and
Westborough Financial Services have retained RP Financial to make the
independent valuation. RP Financial's fees for its services in making such
appraisal are estimated to be $27,500. Westborough Savings and Westborough
Financial Services will indemnify RP Financial and its employees and affiliates
against losses (including any losses in connection with claims under the federal
securities laws) arising out of its services as appraiser, except where RP
Financial's liability results from its negligence or bad faith.
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An appraisal has been made by RP Financial in reliance upon the information
contained in this prospectus, including the financial statements. RP Financial
also considered the following factors, among others:
- the present and projected operating results and financial condition of
Westborough Financial Services and Westborough Savings, and the economic
and demographic conditions in Westborough Savings' existing market area;
- historical, financial and other information relating to Westborough
Savings;
- a comparative evaluation of the operating and financial statistics of
Westborough Savings with those of other similarly situated publicly traded
mutual holding companies, savings associations and savings institutions
located in New England;
- the aggregate size of the offering of the common stock;
- the impact of the reorganization on Westborough Savings' equity and
earnings potential;
- the proposed dividend policy of Westborough Financial Services and
Westborough Bank; and
- the trading market for securities of comparable institutions and general
conditions in the market for such securities.
Two of the factors that RP Financial considered in determining our market
value were the price-to-book ratio and the price-to-earnings ratio or P/E ratio.
The price-to-book ratio represents the price per share of stock divided by its
book value per share. After completion of the reorganization, each share of
Westborough Financial Services common stock, including the shares we issue to
Westborough Bancorp, MHC, will have a book value of $12.58, assuming we sell 700
thousand shares in the minority offering. This means that the price you pay for
each share in this offering will be 79.49% of the book value.
The P/E ratio represents the price per share of stock divided by earnings or
net income per share. In our case, for 1998, our P/E ratio as adjusted to
reflect the issuance of our stock in the offering, would have been 14.9x,
assuming we sold 700 thousand shares of stock.
On the basis of the foregoing, RP Financial has advised Westborough
Financial Services and Westborough Savings that, in its opinion, dated May 21,
1999, the estimated pro forma market value of the common stock on a fully
converted basis ranged from a minimum of $17.0 million to a maximum of $23.0
million with a midpoint of $20.0 million (the "estimated valuation range").
The Board of Trustees of Westborough Savings held a meeting to review and
discuss the original appraisal report prepared by RP Financial. Representatives
of RP Financial participated in the meeting to explain the contents of the
appraisal report. The Board of Trustees reviewed the methods that RP Financial
used to determine the pro forma market value of the common stock and the
appropriateness of the assumptions that RP Financial used in determining this
value. The Board of Trustees determined that 35% of the shares to be issued by
Westborough Financial Services will be offered to public stockholders. In
addition the Board of Trustees determined that the common stock will be sold at
$10.00 per share, which is the price most commonly used in stock offerings
involving converting savings institutions.
The Board of Trustees established an offering range of $5.95 million to $8.1
million, with a midpoint of $7.0 million. Westborough Financial Services expects
to issue between 595,000 and 805,000 shares of common stock. The offering range
takes into account that Westborough Bank must be a majority-owned subsidiary of
Westborough Financial Services or Westborough Bancorp, MHC as long as
Westborough Bancorp, MHC is in existence. The estimated valuation range and the
offering range may be amended with the approval of the Division and FDIC (if
required), due to subsequent
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developments in the financial condition of Westborough Financial Services or
Westborough Savings or market conditions generally.
THE VALUATION PREPARED BY RP FINANCIAL IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SUCH SHARES. RP FINANCIAL DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS
AND OTHER INFORMATION PROVIDED BY WESTBOROUGH SAVINGS, NOR DID RP FINANCIAL
VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF WESTBOROUGH SAVINGS. THE
VALUATION CONSIDERS WESTBOROUGH SAVINGS AS A GOING CONCERN AND SHOULD NOT BE
CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF WESTBOROUGH SAVINGS.
MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND
PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME
TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SUCH SHARES IN THE
REORGANIZATION WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE
THE PURCHASE PRICE.
The maximum of the estimated valuation range may be increased up to 15% and
the number of shares of common stock to be issued in the reorganization may be
increased to 925,750 shares due to regulatory considerations, changes in the
market and general financial and economic conditions without the resolicitation
of subscribers. See "--Limitations on Common Stock Purchases" as to the method
of distribution and allocation of additional shares that may be issued in the
event of an increase in the estimated valuation range to fill unfilled orders in
the subscription and community offerings.
We may not sell any shares of common stock unless RP Financial confirms to
Westborough Savings, Westborough Financial Services, the Division and the FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, would cause RP Financial to
conclude that the aggregate value of the common stock is incompatible with its
estimate of the pro forma market value of the common stock at the conclusion of
the offering.
If RP Financial confirms at the conclusion of the offering that the pro
forma market value of the common stock is not more than the maximum and not less
than the minimum of the estimated valuation range then, with the approval of the
Division and the FDIC, the number of shares of common stock to be issued in the
offering will be not more than 805,000 shares and not less than 595,000 shares.
If RP Financial concludes that the pro forma market value of the common stock is
greater than the maximum of the estimated valuation range but not more than 15%
above the maximum of the estimated valuation range, then the number of shares of
common stock to be issued may be increased to not more than 925,750 shares. In
addition, all shares purchased in the offering will be purchased for the
purchase price of $10.00 per share. If the number of shares issued in the
reorganization is increased due to an increase of up to 15% in the estimated
valuation range to reflect changes in market or financial conditions, persons
who subscribed for the maximum number of shares will not be given the
opportunity to subscribe for any additional shares. See "--Limitations on Common
Stock Purchases."
If RP Financial concludes that the pro forma market value of the common
stock is either more than 15% above the maximum of the estimated valuation range
or less than the minimum of the estimated valuation range, Westborough Savings
and Westborough Financial Services, after consulting with the Division and the
FDIC, may:
(1) terminate the Plan and return all funds promptly with interest at
Westborough Savings' passbook rate of interest on payments made by check,
bank check or money order;
(2) establish a new estimated valuation range and either;
(a) hold new subscription and community offerings; or
(b) provide subscribers the opportunity to change or cancel their orders (a
"resolicitation"); or
(3) take such other actions as permitted by the Division and the FDIC in order
to complete the reorganization.
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If a resolicitation is commenced, unless an affirmative response is received
from a subscriber within a designated period of time, all funds will be promptly
returned to the subscriber as described above.
An increase in the number of shares to be issued in the reorganization as a
result of an increase in the estimated pro forma market value of common stock
would decrease both a subscriber's ownership interest and Westborough Financial
Services' pro forma net earnings and stockholders' equity on a per share basis
while increasing pro forma net earnings and stockholders' equity on an aggregate
basis. A decrease in the number of shares to be issued in the reorganization
would increase both a subscriber's ownership interest and Westborough Financial
Services, Inc' pro forma net earnings and stockholders' equity on a per share
basis while decreasing pro forma net earnings and stockholders' equity on an
aggregate basis. For a presentation of the effects of such changes see "Pro
Forma Data."
If all shares of common stock are not sold through the subscription and
community offerings, then Westborough Savings and Westborough Financial Services
expect to offer the remaining shares in a syndicated community offering, which
would commence during or just after the subscription offering. See "--Syndicated
Community Offering."
Copies of the appraisal report of RP Financial, including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of Westborough Savings and the other locations specified under "Where You
Can Find Additional Information."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the plan of reorganization, rights to subscribe for the
purchase of common stock have been granted under the plan of reorganization to
the following persons in the following order of priority:
(1) depositors with deposits in Westborough Savings with balances aggregating
$50 or more ("qualifying deposits") as of December 31, 1997 ("eligible
account holders"); for this purpose, deposit accounts include any
withdrawable deposits offered by Westborough Savings, including negotiable
orders of withdrawal (NOW), certificates of deposit, demand deposits and IRA
and Keogh plans for which Westborough Savings acts as custodian or trustee;
(2) tax-qualified employee benefit plans of Westborough Financial Services,
Westborough Savings or Westborough Bancorp, MHC, including the employee
stock ownership plan;
(3) depositors with qualifying deposits in Westborough Savings on December 31,
1998, other than those depositors who would otherwise qualify as eligible
account holders ("supplemental eligible account holders").
All subscriptions received will be subject to the availability of common
stock after satisfaction of all subscriptions of all persons having prior rights
in the subscription offering and to the maximum and minimum purchase limitations
set forth in the plan of reorganization and as described below under
"--Limitations on Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each eligible account holder will
receive, as first priority and without payment therefor, non-transferable rights
to subscribe for shares of common stock in the subscription offering.
Subscriptions by eligible account holders are subject to maximum and minimum
purchase limitations. See "--Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares first will be allocated so as to permit each subscribing eligible account
holder to purchase a number of shares sufficient to make such eligible account
holder's total allocation equal to the lesser of 100 shares or the number of
shares subscribed for. Thereafter, unallocated shares will be allocated among
the remaining subscribing
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eligible account holders whose subscriptions remain unfilled in the proportion
that the amounts of their respective aggregate qualifying deposits bear to the
total amount of qualifying deposits of all remaining eligible account holders
whose subscriptions remain unfilled. However, no fractional shares shall be
issued.
To ensure a proper allocation of stock, each eligible account holder must
list on his or her stock order form all deposit accounts in which such eligible
account holder had an ownership interest at December 31, 1997. Failure to list
an account could result in fewer shares being allocated than if all accounts had
been disclosed. The subscription rights of eligible account holders who are also
trustees or executive officers of Westborough Savings or their associates will
be subordinated to the subscription rights of other eligible account holders to
the extent attributable to increased deposits in the one-year period preceding
December 31, 1997.
PRIORITY 2: THE TAX-QUALIFIED EMPLOYEE BENEFIT PLANS. To the extent that
there are sufficient shares remaining after satisfaction of the subscriptions by
eligible account holders, the tax-qualified employee benefit plans, including
the employee stock ownership plan, will receive, as a second priority and
without payment therefor, non-transferable subscription rights to purchase up to
10% of the common stock to be issued in the offering. As a tax-qualified
employee benefit plan, the employee stock ownership plan intends to purchase 8%
of the shares to be issued in the offering, or 47,600 shares, based on the
issuance of 595,000 shares at the minimum of the offering range or 64,400 shares
based on the issuance of 805,000 at the maximum of the offering range.
Subscriptions by the employee stock ownership plan will not be aggregated with
shares of common stock purchased directly by or which are otherwise attributable
to any other participants in the subscription and community offerings, including
subscriptions of any of Westborough Savings' trustees, officers, employees or
associates thereof. To the extent shares are not available in the offering to
fill all or part of the purchase order of the employee stock ownership plan,
this plan intends to purchase shares in private transactions or on the open
market after completion of the offering.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each supplemental
eligible account holder will receive, as a third priority and without payment
therefor, non-transferable rights to subscribe for shares of common stock in the
subscription offering. Subscriptions by supplemental eligible account holders
are subject to maximum and minimum purchase limitations. See "--Limitations on
Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions of
all supplemental eligible account holders, after purchases by eligible account
holders and the tax-qualified employee benefit plans, available shares first
will be allocated among subscribing supplemental eligible account holders so as
to permit each supplemental eligible account holder to purchase a number of
shares sufficient to make such supplemental eligible account holder's total
allocation equal to the lesser of 100 shares or the number of shares subscribed
for. Thereafter, unallocated shares will be allocated among the remaining
subscribing supplemental eligible account holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective aggregate
qualifying deposits bear to the total amount of qualifying deposits of all
remaining supplemental eligible account holders whose subscriptions remain
unfilled. However, no fractional shares shall be issued.
To ensure a proper allocation of stock, each supplemental eligible account
holder must list on his or her stock order form all deposit accounts in which
such supplemental eligible account holder had an ownership interest at December
31, 1998. Failure to list an account could result in fewer shares being
allocated than if all accounts had been disclosed.
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The subscription offering
will expire at 12:00 noon, Eastern Time, on , 1999, unless we extend this
period for an initial period of up to 45 days. We may further extend this period
for additional 60 day periods with the approval of the Division and, if
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necessary, the FDIC. Subscription rights which have not been exercised prior to
the expiration date, as extended, will become void.
If all shares have not been subscribed for or sold by the expiration date,
as extended, all funds delivered to Westborough Savings will be returned with
interest promptly to the subscribers and all withdrawal authorizations will be
canceled. If an extension beyond the 45-day period following the expiration date
is granted, Westborough Savings will notify subscribers of the extension of time
and of any rights of subscribers to change or cancel their orders. Each
extension may not exceed 60 days, and all extensions, in the aggregate, may not
last beyond .
PERSONS IN NON-QUALIFIED STATES OR FOREIGN COUNTRIES. Westborough Financial
Services and Westborough Savings will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the plan or reorganization reside. However,
Westborough Savings and Westborough Financial Services are not required to offer
stock in the subscription offering to any person who resides in a foreign
country.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after satisfaction
of all subscriptions received in the subscription offering, Westborough Savings
may offer shares pursuant to the plan of reorganization in the community
offering to residents in the towns of Grafton, Hopkinton, Northborough,
Shrewsbury, Southborough and Westborough (the "Community"). The term "residents"
includes persons who occupy a dwelling within the Community and establish an
ongoing physical presence within it, together with an indication that such
presence is not merely transitory in nature (the determination of resident
status will be made by Westborough Savings, in its sole discretion).
Orders received in the community offering are subject to maximum and minimum
purchase limitations. See "--Limitations on Common Stock Purchases." The
community offering, if any, shall commence concurrently with or subsequent to
the commencement of the subscription offering and shall terminate no later than
45 days after the expiration of the subscription offering unless extended by
Westborough Savings and Westborough Financial Services, with the approval of the
Division and the FDIC, if necessary.
THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY
OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF WESTBOROUGH SAVINGS AND WESTBOROUGH
FINANCIAL SERVICES, IN THEIR DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN
WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS
PRACTICABLE FOLLOWING THE EXPIRATION DATE. IF WESTBOROUGH FINANCIAL SERVICES
REJECTS A SUBSCRIPTION IN PART, THE SUBSCRIBER WILL NOT HAVE THE RIGHT TO CANCEL
THE REMAINDER OF HIS OR HER SUBSCRIPTION.
If there is an oversubscription for shares in the community offering, shares
will be allocated on a priority basis in the following order: natural persons
residing in the Community, any other person subscribing for shares in the
community offering such that each person may receive 1,000 shares, and on a pro
rata basis to such persons based on the amount of their respective
subscriptions. If an oversubscription occurs in the other depositors category,
shares will be allocated first to each subscriber whose order is accepted by
Westborough Savings in an amount equal to the lesser of 100 shares or the number
of shares subscribed for by each such subscriber, if possible. Thereafter, we
will allocate the unallocated shares among such subscribers whose order remains
unsatisfied in the same proportion that each such subscriber's qualifying
deposit bears to the total amount of qualifying deposits of all subscribers
whose subscriptions remain unfilled.
MARKETING ARRANGEMENTS
TRIDENT SECURITIES, INC. Westborough Savings, Westborough Financial
Services and Westborough Bancorp, MHC have engaged Trident Securities as a
financial and sales agent in connection with the
105
offering of the common stock. Trident Securities has agreed to use its best
efforts to assist Westborough Financial Services with the solicitation of
subscriptions and orders for shares of common stock in the offering.
Trident Securities will receive fees for services provided in connection
with the offering equal to 2.0% of the aggregate purchase price of common stock
sold in the offering. No fees will be paid to Trident Securities with respect to
any shares of common stock purchased by any trustee, executive officer, employee
or employee benefit plan of Westborough Savings or Westborough Financial
Services. Additionally, no fees will be paid to Trident Securities with respect
to any shares of common stock purchased by associates of Westborough Savings'
trustees or executive officers. If there is a syndicated community offering, we
will pay Trident Securities a fee equal to % of the aggregate purchase price
of common stock sold in the syndicated community offering. However, the
aggregate fees payable to Trident Securities and any selected dealers in
connection with any syndicated community offering will not exceed 4.5% of the
aggregate purchase price of the common stock sold in the syndicated community
offering. Total fees to Trident Securities, Inc. are estimated to be $98,230 and
$136,870 at the minimum and the maximum of the offering range, respectively. See
"Pro Forma Data" for the assumptions used to arrive at these estimates. Trident
Securities will also be reimbursed for its reasonable out-of-pocket expenses,
including legal fees of up to $30 thousand and non-legal expenses up to a
maximum of $15 thousand.
DIRECTORS/TRUSTEES AND EMPLOYEES. Directors and executive officers of
Westborough Financial Services and trustees and executive officers Westborough
Savings may participate in the solicitation of offers to purchase common stock.
Other employees of Westborough Savings may participate in the offering in
ministerial capacities or provide clerical work in effecting a sales
transaction. Such other employees have been instructed not to solicit offers to
purchase common stock or provide advice regarding the purchase of common stock.
Westborough Financial Services will rely on Rule 3a4-1 under the Exchange Act,
and sales of common stock will be conducted within the requirements of Rule
3a4-1, so as to permit directors, trustees and employees to participate in the
sale of common stock. No director or trustee, as the case may be, or employee of
Westborough Financial Services or Westborough Savings will be compensated in
connection with his or her participation by the payment of commissions or other
remuneration based either directly or indirectly on transactions in common
stock.
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
USE OF ORDER FORMS. To purchase shares in the subscription offering and the
community offering, an executed order form with the required payment for each
share subscribed for, or with appropriate authorization for withdrawal from a
subscriber's deposit account at Westborough Savings (which may be given by
completing the appropriate blanks in the stock order form), must be received by
Westborough Savings by 12:00 noon, Eastern Time, on the expiration date. You
must submit your order form by mail or overnight courier, or may drop off your
order forms at any of our branch offices. Stock order forms which are not
received by such time or are executed defectively or are received without full
payment (or correct withdrawal instructions) are not required to be accepted. In
addition, we are not obligated to accept orders submitted on photocopied or
facsimiled order forms. We have the power to waive or permit the correction of
incomplete or improperly executed forms, but do not represent that we will do
so. Once received, an executed order form may not be modified, amended or
rescinded without our consent unless subscribers are resolicited or the
reorganization has not been completed within 45 days after the end of the
subscription offering, unless such 45 day period has been extended.
In order to ensure that eligible account holders and supplemental eligible
account holders are properly identified as to their stock purchase eligibility
and priority, depositors must list on the stock order form all deposit accounts
as of the applicable eligibility record date giving all names in each account
and the account numbers.
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To ensure that each purchaser receives a prospectus at least 48 hours prior
to the expiration date for the offering, in accordance with Rule 15c2-8 of the
Exchange Act, no prospectus will be mailed later than five days prior to such
date or hand delivered any later than two days prior to such date. Execution of
the stock order form will confirm receipt or delivery in accordance with Rule
15c2-8. Order forms will only be distributed when preceded or accompanied by a
prospectus.
PAYMENT FOR SHARES. Payment for subscriptions may be made by cash, if hand
delivered, check, bank check, money order or by authorization of withdrawal from
deposit accounts maintained with Westborough Savings. Interest will be paid on
payments made by cash, check, bank check or money order at Westborough Savings'
passbook rate (as opposed to tiered rate) of interest from the date payment is
received until the completion or termination of the reorganization. If payment
is made by authorization of withdrawal from deposit accounts, the funds
authorized to be withdrawn will continue to accrue interest at the contractual
rates until completion or termination of the reorganization, but a hold
immediately will be placed on such funds, thereby making them unavailable to the
depositor.
If a subscriber validly authorizes Westborough Savings to withdraw the
amount of the purchase price from a deposit account at Westborough Savings, the
withdrawal will be made as of the completion of the reorganization. Westborough
Savings will waive any applicable penalties for early withdrawal from
certificates of deposit. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that the
funds actually are transferred under the authorization, the certificate will be
canceled at the time of the withdrawal, without penalty, and the remaining
balance will be converted into a statement savings account and will earn
interest at the passbook rate.
The employee stock ownership plan will not be required to pay for the shares
subscribed for at the time it subscribes. Rather, the employee stock ownership
plan may pay for such shares of common stock subscribed for at the purchase
price upon completion of the offering; PROVIDED, that there is in force from the
time of its subscription until such time, a loan commitment acceptable to
Westborough Financial Services from an unrelated financial institution or
Westborough Financial Services to lend to the employee stock ownership plan the
aggregate purchase price of the shares for which it subscribed. Westborough
Financial Services intends to provide such a loan to the employee stock
ownership plan.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of common stock in the subscription and community offerings, provided
that such IRAs are not maintained at Westborough Savings. Persons with IRAs
maintained at Westborough Savings must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of common stock in the
subscription and community offerings. In addition, the provisions of ERISA and
IRS regulations require that officers, trustees and ten percent stockholders who
use self-directed IRA funds to purchase shares of common stock in the
subscription and community offerings make such purchases for the exclusive
benefit of the IRAs. Instructions on how to transfer IRAs maintained at
Westborough Savings can be obtained from the stock information center.
Depositors interested in using funds in an IRA to purchase common stock should
contact the stock information center as soon as possible.
Certificates representing shares of common stock purchased will be mailed to
purchasers to the addresses specified in properly completed order forms, as soon
as practicable following completion of the sale of all shares of common stock.
Any certificates returned as undeliverable will be disposed of in accordance
with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES OF COMMON STOCK
Prior to the completion of the reorganization, regulations prohibit any
person with subscription rights from transferring or entering into any agreement
or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the plan of reorganization or the shares of
common stock to be issued upon their exercise. Such rights may be exercised only
by the person to
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whom they are granted and only for such person's account. Each person exercising
such subscription rights will be required to certify that such person is
purchasing shares solely for such person's own account and that such person has
no agreement or understanding regarding the sale or transfer of such shares. The
regulations also prohibit any person from offering or making an announcement of
an offer or an intent to make an offer to purchase such subscription rights or
shares of common stock prior to the completion of the reorganization.
WESTBOROUGH SAVINGS AND WESTBOROUGH FINANCIAL SERVICES WILL PURSUE ANY AND
ALL LEGAL AND EQUITABLE REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME
AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY
THEM TO INVOLVE THE TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
The plan of reorganization provides that all shares of common stock not
purchased in the subscription offering or the community offering may be offered
for sale to the general public in a syndicated community offering on a best
efforts basis through a selling group of broker-dealers to be arranged by
Trident Securities acting as agent of Westborough Financial Services. Trident
Securities has not selected any particular broker-dealers to participate in a
syndicated community offering. Westborough Financial Services and Westborough
Savings have reserved the right to reject orders in whole or in part in their
sole discretion in the syndicated community offering. If Westborough Financial
Services or Westborough Savings rejects an order in part, the subscriber will
not have the right to cancel the remainder of his or her subscription. Neither
Trident Securities nor any registered broker-dealer shall have any obligation to
take or purchase any shares of the common stock in the syndicated community
offering. However, Trident Securities has agreed to use its best efforts in the
sale of shares in any syndicated community offering.
The syndicated community offering will terminate no more than 45 days
following the expiration date, unless extended by Westborough Financial Services
with the approval of the Division and FDIC. Such extensions may not be beyond
. See "--How We Determined the Offering Range and the $10.00 Price Per
Share" above for a discussion of rights of subscribers, if any, in the event an
extension is granted.
LIMITATIONS ON COMMON STOCK PURCHASES
The plan of reorganization includes the following limitations on the number
of shares of common stock which may be purchased during the reorganization:
(1) The aggregate amount of outstanding common stock of Westborough Financial
Services owned or controlled by persons other than Westborough Bancorp, MHC,
at the close of the offering will be less than 50% of Westborough Financial
Services' total outstanding common stock;
(2) No subscription for fewer than 25 shares will be accepted;
(3) Except for the tax qualified employee benefit plans, the maximum amount of
shares of common stock subscribed for or purchased in all categories of the
reorganization by any person, together with associates of, and groups of
persons acting in concert with, such persons, shall not exceed $100,000;
(4) Each eligible account holder may subscribe for and purchase common stock in
the subscription offering in an amount up to $100,000, subject to increase
as described below;
(5) The tax-qualified employee benefit plans are permitted to purchase up to 10%
of the shares of common stock issued in the offering and, as a tax-qualified
employee benefit plan, the employee stock ownership plan intends to purchase
8% of the shares of common stock issued in the offering;
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(6) Each supplemental eligible account holder may subscribe for and purchase
common stock in the subscription offering in an amount up to $100,000,
subject to increase as described below;
(7) Persons purchasing shares of common stock in the community offering,
together with associates of and groups of persons acting in concert with
such persons, may purchase common stock in the community offering in an
amount up to $100,000, subject to increase as described below;
(8) The trustees, officers and corporators of Westborough Savings and their
associates in the aggregate, excluding purchases by the tax-qualified
employee benefit plans, may purchase up to 32% of the outstanding shares
held by persons other than Westborough Bancorp, MHC at the close of the
offering;
(9) The trustees, officers and corporators of Westborough Savings and their
associates in the aggregate, excluding purchases by the tax-qualified
employee benefit plans, may purchase up to 32% of the stockholders' equity
of Westborough Financial Services held by persons other than Westborough
Bancorp, MHC.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the corporators
of Westborough Savings, the $100,000 individual amount permitted to be
subscribed for may be increased up to a maximum of 5% of the shares offered for
sale in the offering, exclusive of an increase in the total number of shares
issued due to an increase in the offering range of up to 15% (I.E., up to
925,750 shares), at the sole discretion of Westborough Financial Services and
Westborough Savings. It is currently anticipated that the individual and overall
maximum purchase limitations may be increased if, after a community offering,
Westborough Financial Services has not received subscriptions for an aggregate
amount equal to at least the minimum of the offering range. If the maximum
purchase limitations are increased, subscribers for the maximum amount will be
given the opportunity to increase their subscriptions up to the then applicable
limit. Requests to purchase additional shares of common stock under this
provision will be determined by the Board of Directors of Westborough Financial
Services and the Board of Trustees of Westborough Savings and, if approved,
allocated on a pro rata basis giving priority in accordance with the priorities
set forth in the plan of reorganization and described herein.
If we sell 925,750 shares, the additional shares will be allocated in
accordance with the priorities and procedures described in "--Subscription
Offering and Subscription Rights" and "--Community Offering."
The term "associate" of a person is defined to mean:
(1) any corporation or organization (other than Westborough Financial Services,
Westborough Bancorp, MHC, Westborough Savings or a majority-owned subsidiary
of Westborough Savings) of which such person is a director, officer or
partner or is directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities;
(2) any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and
(3) any relative or spouse of such person, or any relative of such spouse, who
has the same home as such person or who is a director or officer of
Westborough Financial Services, Westborough Bancorp, MHC, Westborough
Savings or any subsidiary of Westborough Bancorp, MHC or Westborough
Financial Services or any affiliate thereof; and
(4) any person "acting in concert" with any of the persons or entities specified
in clauses (1) through (3) above; provide, however, that any tax-qualified
or non-tax-qualified employee plan will not be deemed to be an associate of
any director, trustee or officer of Westborough Bancorp, MHC, Westborough
Financial Services or Westborough Saving, for purposes of aggregating total
shares that may be acquired or held by directors, trustees and officers and
their associates
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We have the sole discretion to determine whether prospective purchasers are
"associates" or "acting in concert."
Trustees, directors and officers are not treated as associates of each other
solely by virtue of holding such positions.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER THE REORGANIZATION
All shares of common stock purchased in connection with the reorganization
by a director, trustee or an executive officer of Westborough Savings,
Westborough Bancorp, MHC or Westborough Financial Services, or their associates,
will be subject to a restriction that the shares not be sold for a period of one
year following the reorganization, except in the event of the death or judicial
declaration of incompetence of such director, trustee or executive officer. Each
certificate for restricted shares will bear a legend giving notice of this
restriction on transfer, and instructions will be issued to the effect that any
transfer within such time period of any certificate or record ownership of such
shares other than as provided above is a violation of the restriction. Any
shares of common stock issued at a later date as a stock dividend, stock split,
or otherwise, with respect to such restricted stock will be subject to the same
restrictions. The directors and executive officers of Westborough Financial
Services and Westborough Savings will also be subject to the federal insider
trading rules and any other applicable requirements of the federal securities
laws.
Purchases of outstanding shares of common stock of Westborough Financial
Services by directors, trustees, corporators or executive officers of
Westborough Financial Services, Westborough Bancorp, MHC or Westborough Bank
(and any person who was a trustee, corporator or executive officer of
Westborough Savings; a trustee, corporator or executive officer of Westborough
Bancorp, MHC or a director or executive officer of Westborough Financial
Services at any time after the date on which the Board of Trustees of
Westborough Savings adopted the plan of reorganization), and their associates
during the three-year period following reorganization may be made only through a
broker or dealer registered with the SEC, except with the prior written approval
of the Division. This restriction does not apply, however, to negotiated
transactions involving more than 1% of the outstanding common stock, or
purchases of common stock made and held by any tax-qualified or
non-tax-qualified employee plan of Westborough Bank or Westborough Financial
Services. In addition, no officer or director of Westborough Bank or their
associates may purchase capital stock from Westborough Bank for a period of
three years following the reorganization.
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the plan of reorganization by the Board of Trustees
of Westborough Savings will be final, subject to the authority of the Division
and FDIC. The plan of reorganization provides that, if deemed necessary or
desirable by the Board of Trustees of Westborough Savings, the plan of
reorganization may be substantively amended by a majority vote of the Board of
Trustees as a result of comments from regulatory authorities or otherwise, at
any time prior to approval of the plan by the corporators. Amendment of the plan
of reorganization thereafter requires a majority vote of the Board of Trustees
and the approval of the Division and the FDIC. The plan of reorganization shall
be terminated if the reorganization is not completed within 24 months from the
date on which the corporators of Westborough Savings approve the plan, and such
time may not be extended by Westborough Savings. The plan of reorganization may
be terminated by a majority vote of the Board of Trustees of Westborough Savings
at any time prior to date of the special meeting of corporators, and thereafter
by such a vote with the approval of the Division and the FDIC.
110
POSSIBLE CONVERSION OF WESTBOROUGH BANCORP, MHC TO STOCK FORM
Federal and state regulations and the plan of reorganization permit
Westborough Bancorp, MHC to convert from mutual to stock form. Such a
transaction is commonly known as a "second-step conversion." There can be no
assurance when, if ever, a second-step conversion will occur, and the Board of
Trustees has no current intention or plan to undertake a second-step conversion.
If a second-step conversion does not occur, Westborough Bancorp, MHC will always
own a majority of the common stock of Westborough Financial Services. The Board
of Trustees of Westborough Bancorp, MHC and the Board of Directors of
Westborough Financial Services will not undertake a second-step conversion for
three years following the offering, unless compelling and valid business reasons
exist to do so.
In a second-step conversion, Westborough Bancorp, MHC would merge with and
into Westborough Bank or Westborough Financial Services, with Westborough Bank
or Westborough Financial Services as the resulting entity. Certain depositors of
Westborough Bank would receive the right to subscribe for additional shares of
Westborough Financial Services. The additional shares of common stock of the
holding company issued in the second step conversion would be sold at their
aggregate pro forma market value.
In a second-step conversion, each share of common stock outstanding
immediately prior to the completion of the second-step conversion held by
persons other than Westborough Bancorp, MHC would be automatically converted
into and become the right to receive a number of shares of common stock of
Westborough Financial Services determined pursuant to an exchange ratio. This
exchange ratio would ensure that after the second-step conversion, subject to
the adjustments described below (if required by the applicable banking
regulators) and any adjustment to reflect the receipt of cash in lieu of
fractional shares, the percentage of the to-be-outstanding shares of the
resulting entity issued to stockholders other than Westborough Bancorp, MHC in
exchange for their common stock would be equal to the percentage of the
outstanding shares of common stock held by public stockholders immediately prior
to the second-step conversion.
As set forth in the plan of reorganization, the percentage of the
to-be-outstanding shares of the resulting entity issued in exchange for public
shares would be adjusted to reflect the aggregate amount of dividends waived by
Westborough Bancorp, MHC, if any, and the market value of the assets of
Westborough Bancorp, MHC, other than common stock of Westborough Financial
Services. Pursuant to this adjustment, the percentage of the to-be outstanding
shares of the resulting entity issued to public stockholders in exchange for
their minority shares (the "Adjusted Minority Ownership Percentage") is equal to
the percentage of the outstanding shares of common stock held by public
stockholders multiplied by the dividend waiver fraction. The dividend waiver
fraction is equal to the product of:
- a fraction, of which the numerator is equal to Westborough Financial
Services' stockholders' equity at the time of the second-step conversion
less the aggregate amount of dividends waived by Westborough Bancorp, MHC,
and the denominator is equal to Westborough Financial Services'
stockholders' equity at the time of the second-step conversion, and
- a fraction, of which the numerator is equal to the appraised pro forma
market value of the resulting entity in the second-step conversion minus
the value of Westborough Bancorp, MHC's assets other than common stock and
the denominator is equal to the appraised pro forma market value of the
resulting entity in the second-step conversion.
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RESTRICTIONS ON ACQUISITION OF WESTBOROUGH FINANCIAL SERVICES
AND WESTBOROUGH SAVINGS
GENERAL
The plan of reorganization provides for the reorganization of Westborough
Savings in which a mutual holding company and stock holding company are formed,
and Westborough Savings is reorganized from the mutual to the stock form of
organization. See "The Reorganization and The Offering--General." Certain
provisions in Westborough Financial Services' Articles of Organization and
Bylaws and in its benefit plans and agreements entered into in connection with
the reorganization, together with provisions of the Massachusetts General Laws
("MGL") and certain governing regulatory restrictions, may have anti-takeover
effects.
MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure will restrict the ability of our
stockholders to effect a change of control of management because, as long as
Westborough Bancorp, MHC remains in existence as a mutual holding company, it
will control a majority of our voting stock. Moreover, the trustees of
Westborough Bancorp, MHC will be the directors of Westborough Financial Services
and Westborough Bank. Westborough Bancorp, MHC will be able to elect all of the
members of the Board of Directors of Westborough Financial Services and, as a
general matter, will be able to control the outcome of most matters presented to
the stockholders of Westborough Financial Services for vote. Therefore, a change
in control of Westborough Financial Services or Westborough Bank cannot occur
unless Westborough Bancorp, MHC, first converts to the stock form of
organization or is dissolved. See "The Reorganization and The Offering--Possible
Conversion of Westborough Bancorp, MHC to Stock Form."
WESTBOROUGH FINANCIAL SERVICES, INC.'S ARTICLES OF ORGANIZATION AND BYLAWS
Westborough Financial Services' Articles of Organization and Bylaws contain
a number of provisions, relating to corporate governance and certain rights of
stockholders, that might discourage future takeover attempts. As a result,
stockholders who might desire to participate in such transactions may not have
an opportunity to do so. In addition, such provisions will also render the
removal of the Board of Directors or management of Westborough Financial
Services more difficult.
THE FOLLOWING DESCRIPTION IS NECESSARILY GENERAL AND QUALIFIED BY REFERENCE
TO THE ARTICLES OF ORGANIZATION AND BYLAWS. SEE "WHERE YOU CAN FIND ADDITIONAL
INFORMATION" AS TO HOW TO OBTAIN A COPY OF THESE DOCUMENTS.
DIRECTORS. Certain provisions of Westborough Financial Services' Articles
of Organization and Bylaws will impede changes in control of the Board of
Directors. Westborough Financial Services' Articles of Organization provide that
the Board of Directors will be divided into three classes, with directors in
each class elected for three-year staggered terms except for the initial
directors. Thus, it would take two annual elections to replace a majority of
Westborough Financial Services' Board. Westborough Financial Services' Articles
of Organization provide that the size of the Board of Directors may be increased
or decreased only by a majority vote of the Board. The Articles of Organization
also provide that any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of directors, shall be filled for
the remainder of the unexpired term by a majority vote of the directors then in
office. Finally, the Articles of Organization and Bylaws impose certain notice
and information requirements in connection with the nomination by stockholders
of candidates for election to the Board of Directors or the proposal by
stockholders of business to be acted upon at an annual meeting of stockholders.
112
The Articles of Organization provide that a director may only be removed for
cause by the affirmative vote of either two-thirds of the authorized Board of
Directors of Westborough Financial Services, or 80% of the shares eligible to
vote. In the absence of these provisions, the vote of the holders of a majority
of the shares of Westborough Financial Services could remove the entire Board,
with or without cause, and replace it with persons of such holders' choice.
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The Articles of Organization
provide that a special meeting of stockholders may be called by a majority of
the authorized Board of Directors of Westborough Financial Services or the
affirmative vote of a majority of the disinterested directors then in office,
or, upon written application, by stockholders holding at least 80% of the
capital stock entitled to vote at the meeting.
VOTES OF STOCKHOLDERS. The Articles of Organization prohibit cumulative
voting for the election of directors. No cumulative voting means that
Westborough Bancorp, MHC, as the holder of a majority of the shares voted at a
meeting of stockholder, may elect all directors of Westborough Financial
Services to be elected at that meeting. This could prevent public stockholder
representation on Westborough Financial Services' Board of Directors. In
addition, the Articles of Organization also provides that any action required or
permitted to be taken by the stockholders of Westborough Financial Services may
be taken only at an annual or special meeting and prohibits stockholder action
by written consent in lieu of a meeting.
AUTHORIZATION OF PREFERRED STOCK. The Articles of Organization authorize
one million shares of serial preferred stock, par value $0.01 per share.
Westborough Financial Services is authorized to issue preferred stock from time
to time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, and relative
preferences, limitations, voting rights, if any, including without limitation,
offering rights of such shares (which could be multiple or as a separate class).
In the event of a proposed merger, tender offer or other attempt to gain control
of Westborough Financial Services that the Board of Directors does not approve,
it might be possible for the Board of Directors to authorize the issuance of a
series of preferred stock with rights and preferences that would impede that
completion of the transaction. An effect of the possible issuance of preferred
stock, therefore may be to deter a future attempt to gain control of Westborough
Financial Services. The Board of Directors has no present plan or understanding
to issue any preferred stock.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Articles of Organization requires the approval of the holders
of at least 80% of Westborough Financial Services' outstanding shares of voting
stock to approve certain "Business Combinations" and related transactions.
The vote of at least 80% of the stockholders is required in connection with
any transaction involving an Interested Stockholder except in cases where the
proposed transaction has been approved in advance by a majority of those members
of Westborough Financial Services' Board of Directors who are unaffiliated with
the Interested Stockholder and were directors prior to the time when the
Interested Stockholder became an Interested Stockholder. However, if the
proposed transaction meets certain conditions set forth in the Articles of
Organization designed to afford the stockholders a fair price in consideration
for their shares, approval of only a majority of the outstanding shares of
voting stock would be sufficient.
The term "Interested Stockholder" is defined to include, among others, any
individual, corporation, partnership or other entity (other than Westborough
Bancorp, MHC, Westborough Financial Services or its subsidiary or any employee
benefit plan maintained by Westborough Financial Services or its subsidiary)
which owns beneficially or controls, directly or indirectly, more than 5% of the
outstanding shares of voting stock of Westborough Financial Services.
113
A "Business Combination" means:
(1) any merger or consolidation of Westborough Financial Services or any
of its subsidiaries with or into any Interested Stockholder or its
affiliate;
(2) any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition to or with any Interested Stockholder or its affiliate of 25% or
more of the assets of Westborough Financial Services or combined assets of
Westborough Financial Services and its subsidiary;
(3) the issuance or transfer to any Interested Stockholder or its
affiliate by Westborough Financial Services (or any subsidiary) of any
securities of Westborough Financial Services in exchange for cash,
securities or other property having an aggregate fair market value equaling
or exceeding 25% of the combined fair market value of the outstanding common
stock of Westborough Financial Services and its subsidiaries, except for any
issuance or transfer pursuant to an employee benefit plan of Westborough
Financial Services or any subsidiary;
(4) the adoption of any plan for the liquidation or dissolution of
Westborough Financial Services proposed by or on behalf of any Interested
Stockholder or its affiliate; and
(5) any reclassification of securities, recapitalization, merger or
consolidation of Westborough Financial Services which has the effect of
increasing the proportionate share of common stock or any class of equity or
convertible securities of Westborough Financial Services owned directly or
indirectly by an Interested Stockholder or its affiliate.
EVALUATION OF OFFERS. The Articles of Organization further provides that
the Board of Directors of Westborough Financial Services shall when evaluating
any offer to Westborough Financial Services from another party to:
- make a tender offer or exchange offer for any outstanding equity security
of Westborough Financial Services;
- merge or consolidate Westborough Financial Services with another
corporation or entity; or
- purchase or otherwise acquire all or substantially all of the properties
and assets of Westborough Financial Services;
in connection with the exercise of its judgment in determining what is in
the best interest of Westborough Financial Services and its stockholders, give
due consideration to the extent permitted by law to all relevant factors,
including, without limitation, Westborough Financial Services' employees,
suppliers, creditors and customers; the economy of the state, region and nation;
community and societal considerations; and the long- and short-term interests of
Westborough Financial Services and its stockholders, including the possibility
that these interests will be best served by the continued independence of
Westborough Financial Services.
By having these standards in the Articles of Organization of Westborough
Financial Services, the Board of Directors may be in a stronger position to
oppose such a transaction if the Board concludes that the transaction would not
be in the best interests of Westborough Financial Services, even if the price
offered is significantly greater than the then market price of any equity
security of Westborough Financial Services.
AMENDMENT TO ARTICLES OF ORGANIZATION AND BYLAWS. The Articles of
Organization may be amended by the affirmative vote of 80% of the total votes
eligible to be cast by stockholders, voting together as a single class;
provided, however, that if at least two-thirds of the Directors recommend
approval of the amendment, then such amendment shall require the affirmative
vote of a majority of the total votes eligible to cast by stockholder, voting
together as a single class.
114
The Bylaws may be amended by the affirmative vote of two-thirds of the Board
of Directors of Westborough Financial Services or the affirmative vote of at
least 80% of the total votes eligible to be cast by stockholders, voting
together as a single class. These provisions could have the effect of
discouraging a tender offer or other takeover attempt where the ability to make
fundamental changes through Bylaw amendments is an important element of the
takeover strategy of the acquiror.
ANTI-TAKEOVER EFFECTS OF WESTBOROUGH FINANCIAL SERVICES, INC.'S ARTICLES OF
ORGANIZATION, BYLAWS AND BENEFIT PLANS ADOPTED IN THE REORGANIZATION
The provisions described above are intended to reduce Westborough Financial
Services' vulnerability to takeover attempts and certain other transactions
which have not been negotiated with and approved by members of its Board of
Directors. The provisions of the employment agreements, the management
recognition plan and the stock option plan to be established may also discourage
takeover attempts by increasing the costs to be incurred by Westborough Bank and
Westborough Financial Services in the event of a takeover. See
"Management--Employment Agreements," and "--Benefits."
Westborough Financial Services' Board of Directors believes that the
provisions of the Articles of Organization, Bylaws and benefit plans to be
established are in the best interests of Westborough Financial Services and its
stockholders. An unsolicited non-negotiated proposal can seriously disrupt the
business and management of a corporation and cause it great expense.
Accordingly, the Board of Directors believes it is in the best interests of
Westborough Financial Services and its stockholders to encourage potential
acquirors to negotiate directly with management and that these provisions will
encourage such negotiations and discourage non-negotiated takeover attempts. It
is also the Board of Directors' view that these provisions should not discourage
persons from proposing a merger or other transaction at a price that reflects
the true value of Westborough Financial Services and that otherwise is in the
best interests of all stockholders.
REGULATORY RESTRICTIONS
FEDERAL CHANGE IN BANK CONTROL ACT. Federal law provides that no person,
acting directly or indirectly or through or in concert with one or more other
persons, may acquire control of a bank unless the FDIC has been given 60 days
prior written notice. For this purpose, the term "control" means the acquisition
of the ownership, control or holding of the power to vote 25% or more of any
class of a bank holding company's voting stock, and the term "company" includes
an individual, corporation, partnership, and various other entities, acting
individually or in concert. In addition, an acquiring person is presumed to
acquire control if the person acquires the ownership, control or holding of the
power to vote of 10% or more of any class of the holding company's voting stock
if (a) Westborough Financial Services' shares are registered pursuant to Section
12 of the Exchange Act or (b) no other person will own, control or hold the
power to vote a greater percentage of that class of voting securities. The
Federal Reserve Board is authorized by the change in bank control act and its
own regulations to disapprove a proposed transaction on certain specified
grounds. Accordingly, the prior approval of the Federal Reserve Bank would be
required before any person could acquire 10% or more of the Common Stock of
Westborough Financial Services.
FEDERAL BANK HOLDING COMPANY ACT. Federal law provides that no company may
acquire control of a bank holding company without the prior approval of the
Federal Reserve. Any company that acquires control becomes a "bank holding
company" subject to registration, examination and regulation by the Federal
Reserve. Pursuant to federal regulations, the term "company" is defined to
include banks, corporations, partnerships, associations, and certain trusts and
other entities, and the term "control" is deemed to exist if a company has
voting control of at least 25% of any class of a bank's voting stock, and may be
found to exist if a company controls in any manner the election of a majority of
the directors of the bank or has the power to exercise a controlling influence
over the management or policies of the bank. In addition, a bank holding company
must obtain Federal Reserve Board approval
115
prior to acquiring voting control of more than 5% of any class of voting stock
of a bank or another bank holding company. The foregoing restrictions do not
apply to the acquisition of stock by one or more tax-qualified employee stock
benefit plans, provided that the plan or plans do not have beneficial ownership
in the aggregate of more than 25 percent of any class of our equity security.
An acquisition of control of a bank that requires the prior approval of the
Federal Reserve Board under the Bank Holding Company Act is not subject to the
notice requirements of the Change in Bank Control Act. Accordingly, the prior
approval of the Federal Reserve Board under the Bank Holding Company Act would
be required (a) before any bank holding company could acquire 5% or more of the
common stock of Westborough Financial Services and (b) before any other company
could acquire 25% or more of the common stock of Westborough Financial Services.
The Federal Reserve may prohibit an acquisition of control if:
(1) it would result in a monopoly or substantially lessen competition;
(2) the financial condition of the acquiring person might jeopardize the
financial stability of the institution; or
(3) the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors or of the
public to permit the acquisition of control by such person.
MASSACHUSETTS BANKING LAW. Massachusetts banking law also prohibits any
"company," defined to include banking institutions as well as corporations, from
directly or indirectly controlling the voting power of 25% or more of the voting
stock of two or more banking institutions without the prior approval of the
Board of Bank Incorporation. Additionally, an out-of-state company which already
directly or indirectly controls voting power of 25% or more of the voting stock
of two or more banking institutions may not also acquire direct or indirect
ownership or control of more than 5% of the voting stock of a Massachusetts
banking institution without the prior approval of the Board of Bank
Incorporation. Finally, for a period of three years following completion of a
conversion to stock form, no person may directly or indirectly offer to acquire
or acquire beneficial ownership of more than 10% of any class of equity security
of a converting mutual savings bank without prior written approval of the Board
of Bank Incorporation.
116
DESCRIPTION OF CAPITAL STOCK OF WESTBOROUGH FINANCIAL SERVICES, INC.
GENERAL
Westborough Financial Services is authorized to issue five million
(5,000,000) shares of common stock having a par value of $.01 per share and one
million (1,000,000) shares of preferred stock having a par value of $.01 per
share. Westborough Financial Services currently expects to sell 805,000 shares
of common stock (or 925,750 in the event of an increase of 15% in the Estimated
Valuation Range) to purchasers of common stock in the offering. In addition,
Westborough Financial Services expects to issue 1,495,000 shares of the common
stock to Westborough Bancorp, MHC (or 1,719,250 in the event of an increase of
15% in the Estimated Valuation Range). Westborough Financial Services will not
issue any shares of preferred stock in the offering. Except as discussed above
in "Restrictions on Acquisition of Westborough Financial Services, Inc. and
Westborough Savings," each share of Westborough Financial Services' common stock
will have the same relative rights as, and will be identical in all respects
with, every other share of common stock. Upon payment of the purchase price for
the common stock in accordance with the plan of reorganization, all such stock
will be duly authorized, fully paid and non-assessable.
The shares of common stock:
- are not deposit accounts and are subject to investment risk;
- are not insured or guaranteed by the FDIC, or any other government agency;
and
- are not guaranteed by Westborough Financial Services, Westborough Bancorp,
MHC or Westborough Savings.
COMMON STOCK
DIVIDENDS. Westborough Financial Services can pay dividends from net
profits if, as and when declared by its Board of Directors. The payment of
dividends by Westborough Financial Services is subject to limitations which are
imposed by law. See "Our Policy Regarding Dividends" and "Regulation of
Westborough Savings Bank and Westborough Financial Services, Inc." Westborough
Bancorp, MHC currently does not intend to waive any dividends paid by
Westborough Financial Services. The owners of common stock of Westborough
Financial Services, including Westborough Bancorp, MHC, will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors out of funds legally available therefor. If Westborough Financial
Services issues preferred stock, the holders of the preferred stock may have a
priority over the holders of the common stock with respect to dividends.
VOTING RIGHTS. Upon the effective date of the reorganization, the holders
of common stock of Westborough Financial Services will possess exclusive voting
rights in Westborough Financial Services. They will elect Westborough Financial
Services' Board of Directors and act on such other matters as are required to be
presented to them under law or Westborough Financial Services' Articles of
Organization or as are otherwise presented to them by the Board of Directors.
Each holder of common stock will be entitled to one vote per share and will not
have any right to cumulate votes in the election of directors. Under certain
circumstances, shares in excess of 10% of Westborough Financial Services' common
stock, exclusive of the shares held by Westborough Bancorp, MHC, may be
considered "Excess Shares" and may therefore not be entitled to vote. See
"Restrictions on Acquisition of Westborough Financial Services, Inc. and
Westborough Savings." If Westborough Financial Services issues preferred stock,
holders of the preferred stock may also possess voting rights. Certain matters,
including the removal of directors, the approval of business combinations and
amending the Articles of Organization or Bylaws, generally requires an 80%
stockholder vote. See "Restrictions on Acquisition of Westborough Financial
Services, Inc. and Westborough Savings."
117
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
Westborough Bank, Westborough Financial Services, as owner of Westborough Bank's
capital stock, would be entitled to receive, after payment or provision for
payment of all debts and liabilities of Westborough Bank (including all deposit
accounts and accrued interest thereon) and after distribution of the balance in
the special liquidation account to eligible account holders and the supplemental
eligible account holders (see "The Reorganization and The Offering--Effects of
the Reorganization--Liquidation Rights"), all assets of Westborough Bank
available for distribution. In the event of liquidation, dissolution or winding
up of Westborough Financial Services, the holders of its common stock would be
entitled to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of Westborough Financial Services available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of the liquidation or
dissolution.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of the common stock of Westborough
Financial Services will not be entitled to preemptive rights with respect to any
shares which may be issued. The common stock is not subject to redemption.
PREFERRED STOCK
Westborough Financial Services will not issue any shares of its authorized
preferred stock in the reorganization. We may issue with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
LEGAL AND TAX OPINIONS
Thacher Proffitt & Wood, Washington, D.C. will issue its opinion to us of
the legality of the issuance of the common stock being offered and certain
matters relating to the reorganization and federal taxation. Certain matters
relating to state taxation will be passed upon for us by Wolf & Company, P.C.,
Boston, Massachusetts. Certain legal matters will be passed upon for Trident
Securities, Inc. by Housley Kantarian & Bronstein, P.C., Washington, D.C.
EXPERTS
The consolidated balance sheets of Westborough Savings as of September 30,
1998 and 1997 and consolidated statements of income, changes in surplus and cash
flows for each of the three years ended September 30, 1998, 1997 and 1996 have
been included in this prospectus in reliance upon the report of Wolf & Company,
P.C., independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of said firm as experts in accounting and
auditing.
RP Financial has consented to the publication in this document of a summary
of its letter to Westborough Savings setting forth its opinion as to the
estimated pro forma market value of Westborough Savings in the reorganized form
and its opinion setting forth the value of subscription rights and to the use of
its name and statements with respect to it appearing in this document.
REGISTRATION REQUIREMENTS
Our common stock is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). We will be subject to the
information, proxy solicitation, insider trading restrictions, tender offer
rules, periodic reporting and other requirements of the SEC under the Exchange
Act. We may not deregister the common stock under the Exchange Act for a period
of at least three years following the reorganization.
118
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act and
must file reports and other information with the SEC.
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, with respect to the common stock offered in
this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. You may examine this information without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain copies of this material from the SEC at prescribed
rates. You may obtain information on the operations of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet address
("web site") that contains reports, proxy and information statements and other
information regarding registrants, including Westborough Financial Services,
that file electronically with the SEC. The address for this web site is
"http://www.sec.gov."
The statements contained in this document as to the contents of any contract
or other document filed as an exhibit to the Form SB-2 are, of necessity, brief
descriptions and are not necessarily complete; each such statement is qualified
by reference to such contract or document.
A copy of Westborough Financial Services' Articles of Organization and
Bylaws, as well as those of Westborough Bank and Westborough Bancorp, MHC, are
available without charge from Westborough Savings. Copies of the plan of
reorganization are also available from Westborough Savings without charge.
Westborough Savings has filed an application for the establishment of a
mutual holding company and associated stock issuance with the Board of Bank
Incorporation and the Division of Banks of the Commonwealth of Massachusetts. In
addition, Westborough Savings has filed copies of that application with the
FDIC. Westborough Financial Services has filed an application with the Federal
Reserve Bank of Boston to become a bank holding company. This prospectus omits
certain information contained in those applications.
119
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
WESTBOROUGH SAVINGS BANK
Independent Auditors' Report........................................................... F-2
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and September 30, 1998 and
1997................................................................................. F-3
Consolidated Statements of Income for the Six Months Ended March 31, 1999 and 1998
(unaudited) and for the Years Ended September 30, 1998, 1997 and 1996................ 28
Consolidated Statements of Changes in Surplus for the Six Months Ended March 31, 1999
(unaudited) and for the Years Ended September 30, 1998, 1997 and 1996................ F-4
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 1999 and 1998
(unaudited) and for the Years Ended September 30, 1998, 1997 and 1996................ F-5
Notes to Consolidated Financial Statements............................................. F-6
OTHER SCHEDULES ARE OMITTED AS THEY ARE NOT REQUIRED OR ARE NOT APPLICABLE
OR THE REQUIRED INFORMATION IS SHOWN IN THE CONSOLIDATED FINANCIAL STATEMENTS OR
RELATED NOTES THERETO.
FINANCIAL STATEMENTS OF WESTBOROUGH BANCORP, MHC AND WESTBOROUGH FINANCIAL
SERVICES, INC. HAVE NOT BEEN PROVIDED BECAUSE THEY HAVE CONDUCTED NO OPERATIONS.
WESTBOROUGH BANCORP, MHC HAS NOT YET BEEN ORGANIZED AND WESTBOROUGH FINANCIAL
SERVICES, INC. HAS NO ASSETS AND NO LIABILITIES.
F-1
INDEPENDENT AUDITORS' REPORT
The Audit Committee
Westborough Savings Bank
Westborough, Massachusetts
We have audited the accompanying consolidated balance sheets of Westborough
Savings Bank and subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of income, changes in surplus and cash flows for each of
the years in the three-year period ended September 30, 1998. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Westborough
Savings Bank and subsidiaries as of September 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1998, in conformity with generally accepted
accounting principles.
WOLF & COMPANY, P.C.
Boston, Massachusetts
November 9, 1998, except for Note 15 as to which the
date is March 15, 1999
F-2
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30,
MARCH 31, ----------------------
1999 1998 1997
----------- ---------- ----------
(UNAUDITED)
ASSETS
Cash and due from banks..................................................... $ 3,701 $ 2,698 $ 2,884
Federal funds sold.......................................................... 6,122 6,659 4,660
Short-term investments...................................................... 3,758 3,084 366
----------- ---------- ----------
Total cash and cash equivalents......................................... 13,581 12,441 7,910
Securities available for sale............................................... 63,205 59,345 60,937
Federal Home Loan Bank stock, at cost....................................... 762 762 717
Loans, net.................................................................. 86,352 82,348 70,580
Foreclosed real estate, net................................................. -- 74 19
Banking premises and equipment, net......................................... 1,546 1,522 1,473
Accrued interest receivable................................................. 1,128 1,116 1,170
Deferred income tax asset................................................... 130 -- 290
Other assets................................................................ 827 915 800
----------- ---------- ----------
$ 167,531 $ 158,523 $ 143,896
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND SURPLUS
Deposits.................................................................... $ 142,971 $ 135,962 $ 125,170
Federal Home Loan Bank advances............................................. 4,000 2,000 --
Mortgagors' escrow accounts................................................. 199 218 180
Accrued taxes and expenses.................................................. 705 960 1,063
Other liabilities........................................................... 45 16 36
----------- ---------- ----------
Total liabilities....................................................... 147,920 139,156 126,449
----------- ---------- ----------
Commitments and contingencies
Surplus..................................................................... 19,031 18,207 16,894
Accumulated other comprehensive income...................................... 580 1,160 553
----------- ---------- ----------
Total surplus........................................................... 19,611 19,367 17,447
----------- ---------- ----------
$ 167,531 $ 158,523 $ 143,896
----------- ---------- ----------
----------- ---------- ----------
See accompanying notes to consolidated financial statements.
F-3
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS
SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND THE
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996.
(IN THOUSANDS)
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
SURPLUS INCOME SURPLUS
--------- --------------- ---------
Balance at September 30, 1995............................................... $ 14,403 $ 292 $ 14,695
---------
Comprehensive income:
Net income................................................................ 1,183 -- 1,183
Change in net unrealized gain on securities available for sale, after
reclassication adjustment and tax effects............................... -- (89) (89)
---------
Total comprehensive income............................................ 1,094
--------- ------ ---------
Balance at September 30, 1996............................................... 15,586 203 15,789
---------
Comprehensive income:
Net income................................................................ 1,308 -- 1,308
Change in net unrealized gain on securities available for sale, after
reclassication adjustment and tax effects............................... -- 350 350
---------
Total comprehensive income............................................ 1,658
--------- ------ ---------
Balance at September 30, 1997............................................... 16,894 553 17,447
---------
Comprehensive income:
Net income................................................................ 1,313 -- 1,313
Change in net unrealized gain on securities available for sale, after
reclassication adjustment and tax effects............................... -- 607 607
---------
Total comprehensive income............................................ 1,920
--------- ------ ---------
Balance at September 30, 1998............................................... 18,207 1,160 19,367
---------
Comprehensive income (unaudited):
Net income................................................................ 824 -- 824
Change in net unrealized gain on securities available for sale, after
reclassication adjustment and tax effects............................... -- (580) (580)
---------
Total comprehensive income............................................ 244
--------- ------ ---------
Balance at March 31, 1999 (unaudited)....................................... $ 19,031 $ 580 $ 19,611
--------- ------ ---------
--------- ------ ---------
See accompanying notes to consolidated financial statements.
F-4
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net income........................................................ $ 824 $ 714 $ 1,313 $ 1,308 $ 1,183
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses....................................... 25 20 39 96 105
Charitable contribution in the form of equity securities........ -- -- -- 110 --
(Credit) provision for losses on foreclosed real estate......... -- (18) (22) -- 44
Amortization of premiums on securities.......................... 47 51 88 93 200
Amortization of net deferred loan (fees) cost................... (3) (12) (31) (9) 10
Depreciation and amortization expense........................... 134 109 228 206 165
Gain on sales and dispositions of securities, net............... (290) (64) (90) (337) (119)
Recognition of expired covered call options..................... (187) -- -- -- --
Loans originated for sale....................................... -- (87) (269) (120) --
Proceeds from loan sales........................................ -- 87 269 120 --
Decrease (increase) in accrued interest receivable.............. (12) (50) 54 (72) (162)
Deferred income tax provision (benefit)......................... 46 70 59 (37) (98)
Other, net...................................................... 35 (92) (411) (54) (401)
--------- --------- --------- --------- ---------
Net cash provided by operating activities..................... 619 728 1,227 1,304 927
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sales and calls of securities available
for sale.......................................................... 3,638 5,339 17,976 7,990 16,237
Proceeds from maturities of securities available for sale......... 4,000 1,549 1,250 3,520 3,550
Purchase of securities available for sale......................... (14,302) (10,362) (20,835) (12,442) (28,661)
Principal payments received on mortgage and
asset-backed securities........................................... 2,305 1,781 4,214 2,777 3,300
Purchase of Federal Home Loan Bank stock.......................... -- (45) (45) (75) (44)
Loans originated, net of principal payments....................... (4,026) (4,743) (11,850) (5,424) (7,579)
Proceeds from sales of foreclosed real estate..................... 74 50 57 164 140
Capitalized costs associated with foreclosed real estate.......... -- (13) (16) (39) (125)
Purchase of banking premises and equipment........................ (158) (112) (277) (285) (386)
--------- --------- --------- --------- ---------
Net cash used by investing activities............................. (8,469) (6,556) (9,526) (3,814) (13,568)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net increase in deposits.......................................... 7,009 5,156 10,792 4,888 10,733
Proceeds from Federal Home Loan Bank advances..................... 2,000 -- 2,000 -- 3,000
Repayment of Federal Home Loan Bank advances...................... -- -- -- (3,000) --
Net increase (decrease) in mortgagors' escrow accounts............ (19) 8 38 43 49
--------- --------- --------- --------- ---------
Net cash provided by financing activities....................... 8,990 5,164 12,830 1,931 13,782
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents............................. 1,140 (664) 4,531 (579) 1,141
Cash and cash equivalents at beginning of period.................... 12,441 7,910 7,910 8,489 7,348
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.......................... $ 13,581 $ 7,246 $ 12,441 $ 7,910 $ 8,489
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow information:
Interest paid on deposits......................................... $ 2,373 $ 2,271 $ 4,556 $ 4,284 $ 4,037
Interest paid on Federal Home Loan Bank advances.................. 38 -- -- 132 --
Income taxes paid................................................. 378 539 835 656 789
Transfer from loans to foreclosed real estate..................... -- -- 74 -- --
Transfer of securities from held to maturity to available for
sale............................................................ -- -- -- -- 17,174
See accompanying notes to consolidated financial statements.
F-5
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Westborough
Savings Bank (the "Bank") and its wholly-owned subsidiaries, The Hundredth
Corporation, which owns foreclosed real estate and the One Hundredth Security
Corporation and Eli Whitney Security Corporation, which are Massachusetts
security corporations. All significant intercompany balances and transactions
have been eliminated in consolidation.
With respect to information for the six months ended March 31, 1999 and
1998, which is unaudited, in the opinion of management, all adjustments
necessary for a fair presentation of such interim periods have been included and
are of a normal recurring nature. Results for the six months ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ended September 30, 1999.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with generally
accepted accounting principles ("GAAP"), management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated balance sheet and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The determination of the allowance for losses
on loans is a material estimate that is particularly susceptible to significant
change in the near term.
BUSINESS
The Bank provides a variety of financial services to individuals and small
businesses through its five offices in Westborough, Northborough and Shrewsbury,
Massachusetts. Its primary deposit products are checking, savings and term
certificate accounts and its primary lending products are residential mortgage
loans.
RECLASSIFICATIONS
Certain amounts have been reclassified in the 1998, 1997 and 1996
consolidated financial statements to conform to the 1999 presentation.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks, federal funds sold on a
daily basis and short-term investments.
SECURITIES AVAILABLE FOR SALE
Investments classified as "available for sale" are reflected on the
consolidated balance sheet at fair value, with unrealized gains and losses
excluded from earnings and reported in accumulated other comprehensive income.
F-6
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Purchase premiums and discounts are amortized to earnings by the interest
method over the terms of the investments. Declines in the value of investments
that are deemed to be other than temporary are reflected in earnings when
identified. Gains and losses on disposition of investments are computed by the
specific identification method.
LOANS
The Bank grants mortgage, commercial and consumer loans to its customers. A
substantial portion of the loan portfolio consists of mortgage loans in
Westborough and the surrounding communities. The ability of the Bank's debtors
to honor their contracts is dependent upon the local economy and the local real
estate market.
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for the allowance for loan losses and
deferred costs on originated loans. Interest income is accrued on the unpaid
principal balance. Net loan origination costs are deferred and recognized as an
adjustment of the related loan yield using the interest method.
The accrual of interest on mortgage and commercial loans is discontinued
when in the judgment of management the collection of principal or interest is
doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest on
these loans is accounted for on the cash-basis until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and future payments are
reasonably assured.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events,
it is probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Impairment is measured on a loan by loan basis by either the present
value of expected future cash flows discounted at the loan's effective interest
rate, the loan's obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.
F-7
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Substantially all of the Bank's loans which have been identified as impaired
have been measured by the fair value of existing collateral.
Large groups of smaller balance homogeneous loans are collectively evaluated
for impairment. Accordingly, the Bank does not separately identify individual
consumer loans for impairment disclosures.
FORECLOSED REAL ESTATE
Assets acquired through, or in lieu of, loan foreclosure are held for sale
and are initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value, less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expenses
from foreclosed assets.
BANKING PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements and equipment are
stated at cost, less accumulated depreciation and amortization, computed on the
straight-line method over the estimated useful lives of the assets.
It is general practice to charge the cost of maintenance and repairs to
earnings when incurred; major expenditures for betterments are capitalized and
amortized.
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales, when control over
the assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Bank, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Bank does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.
RETIREMENT PLAN
The Bank accounts for pension benefits on the net periodic pension cost
method for financial reporting purposes. This method recognizes the compensation
cost of an employee's pension benefit over the employee's approximate service
period. Pension costs are funded in the year of accrual using the aggregate cost
method.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
F-8
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted accordingly
through the provision for income taxes. The Bank's base amount of its federal
income tax reserve for loan losses that arose before 1987 is a permanent
difference for which there is no recognition of a deferred tax liability.
However, the allowance for loan losses maintained for financial reporting
purposes is treated as a temporary difference with allowable recognition of a
related deferred tax asset, if it is deemed realizable.
COMPREHENSIVE INCOME
The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," as of October 1, 1998. Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Although certain changes in assets and liabilities,
such as unrealized gains and losses on securities available for sale are
reported as a separate component of the surplus section of the balance sheet,
such items, along with net income, are components of comprehensive income. The
adoption of SFAS No. 130 had no effect on the Bank's net income or surplus.
The components of the change in accumulated other comprehensive income and
related tax effects are as follows:
SIX MONTHS YEARS ENDED
ENDED SEPTEMBER 30,
MARCH 31, --------------------
1999 1998 1997
------------- --------- ---------
(UNAUDITED)
Unrealized holding gains on securities
available for sale.......................................... $ (639) $ 1,101 $ 884
Reclassification adjustment for gains
realized in income.......................................... (290) (90) (337)
----- --------- ---------
Net unrealized gains.......................................... (929) 1,011 547
Tax effect.................................................... 349 (404) (197)
----- --------- ---------
Net-of-tax amount............................................. $ (580) $ 607 $ 350
----- --------- ---------
----- --------- ---------
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," effective for fiscal years beginning after December 15, 1997. The
Statement revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
The Statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practical, requires additional information
on changes in the benefits obligations and fair values of plan assets that will
facilitate financial analysis, and eliminates certain disclosures that were
F-9
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
previously required by GAAP. The Bank will adopt these disclosure requirements
beginning in the year ending September 30, 1999.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. This Statement standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the balance sheet and measure them at fair value. If
certain conditions are met, an entity may elect to designate a derivative as
follows: a hedge of the exposure to changes in the fair value of a recognized
asset or liability, or of an unrecognized firm commitment that is attributable
to a particular risk; a hedge of the exposure to variability in the cash flows
of a recognized asset or liability, or of a forecasted transaction, that is
attributable to a particular risk; or, a hedge of the foreign currency exposure
of an unrecognized firm commitment, an available-for-sale security, a forecasted
transaction, or a net investment in a foreign operation. This Statement
generally provides for matching the timing of the recognition of the gain or
loss on the hedging instrument with the recognition of the changes in the fair
value of the item being hedged. Depending on the type of hedge, such recognition
will be in either net income or other comprehensive income. For a derivative not
designated as a hedging instrument, changes in fair value are recognized in net
income in the period of change. Adoption of this Statement by the Bank will
require that changes in fair value of covered call options be recognized in net
income. Currently, such changes are included in accumulated other comprehensive
income. The Bank will adopt SFAS No. 133 commencing October 1, 1999.
2. SHORT-TERM INVESTMENTS
Short-term investments consist of funds invested in money market funds. The
fair value at March 31, 1999 and September 30, 1998 and 1997 approximates the
carrying value and the funds are available on a daily basis.
3. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair value of securities available for
sale, with gross unrealized gains and losses, is as follows:
MARCH 31, 1999
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ------------- ---------
(UNAUDITED)
U.S. Government obligations.................. $ 12,089 $ 258 $ -- $ 12,347
Federal agency obligations................... 8,506 47 40 8,513
Banking and finance obligations.............. 5,531 27 33 5,525
Mortgage-backed securities................... 13,668 30 60 13,638
Asset-backed securities...................... 851 2 -- 853
Other bonds and obligations.................. 14,224 131 49 14,306
----------- ----------- ----- ---------
Total debt securities.................... 54,869 495 182 55,182
Marketable equity securities................. 7,369 1,170 516 8,023
----------- ----------- ----- ---------
Total securities available for sale...... $ 62,238 $ 1,665 $ 698 $ 63,205
----------- ----------- ----- ---------
----------- ----------- ----- ---------
F-10
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
3. SECURITIES AVAILABLE FOR SALE (CONTINUED)
SEPTEMBER 30, 1998
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ------------- ---------
U.S. Government obligations.................... $ 13,091 $ 488 $ -- $ 13,579
Federal agency obligations..................... 9,504 156 -- 9,660
Banking and finance obligations................ 5,534 90 -- 5,624
Mortgage-backed securities..................... 11,475 150 12 11,613
Other bonds and obligations.................... 13,412 350 -- 13,762
----------- ----------- ----- ---------
Total debt securities...................... 53,016 1,234 12 54,238
Marketable equity securities................... 4,433 935 261 5,107
----------- ----------- ----- ---------
Total securities available for sale........ $ 57,449 $ 2,169 $ 273 $ 59,345
----------- ----------- ----- ---------
----------- ----------- ----- ---------
SEPTEMBER 30, 1997
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ------------- ---------
U.S. Government obligations.................... $ 22,661 $ 237 $ 31 $ 22,867
Federal agency obligations..................... 10,428 33 34 10,427
Banking and finance obligations................ 4,539 26 1 4,564
Mortgage-backed securities..................... 10,495 55 43 10,507
Asset-backed securities........................ 243 89 2 330
Other bonds and obligations.................... 10,518 77 7 10,588
----------- ----------- ----- ---------
Total debt securities...................... 58,884 517 118 59,283
Marketable equity securities................... 1,168 491 5 1,654
----------- ----------- ----- ---------
Total securities available for sale........ $ 60,052 $ 1,008 $ 123 $ 60,937
----------- ----------- ----- ---------
----------- ----------- ----- ---------
During the year ended September 30, 1997, the Bank established a private
charitable foundation (the "Foundation") to provide grants to charitable
organizations in the Westborough area. The Foundation is not a subsidiary of the
Bank. The Foundation was funded by a donation from the Bank of marketable equity
securities with a cost basis and fair value of $21 and $110, respectively, at
the date of transfer. Such securities had been classified as available for sale
and, accordingly, the transfer resulted in the Bank recognizing the unrealized
appreciation of the securities of $89 in the consolidated statement of income.
Proceeds from sales and calls of investment securities amounted to $3,638
and $5,339 for the six months ended March 31, 1999 and 1998 (unaudited),
respectively. Gross gains of $294 and $65, and gross losses of $4 and $1 were
realized during the six months ended March 31, 1999 and 1998 (unaudited),
respectively.
Proceeds from sales and calls of investment securities amounted to $17,976,
$7,990 and $16,237 for the years ended September 30, 1998, 1997 and 1996,
respectively. Gross realized gains amounted to $122, $252 and $150,
respectively. Gross realized losses amounted to $32, $4 and $31, respectively.
F-11
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
3. SECURITIES AVAILABLE FOR SALE (CONTINUED)
At March 31, 1999 (unaudited) and September 30, 1998, the Bank has pledged
U.S. Government obligations with an amortized cost of $497 and $500 and a fair
value of $500 and $504, respectively, as collateral against the Bank's treasury,
tax and loan account.
The amortized cost and estimated fair value of debt securities by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
MARCH 31, 1999 SEPTEMBER 30, 1998
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- --------- ----------- ---------
(UNAUDITED)
Within 1 year.................................. $ 5,774 $ 5,813 $ 9,520 $ 9,572
Over 1 year through 5 years.................... 27,216 27,623 30,005 30,987
Over 5 years through 10 years.................. 5,494 5,391 2,016 2,066
Over 10 years.................................. 1,866 1,864 -- --
----------- --------- ----------- ---------
40,350 40,691 41,541 42,625
Mortgage and asset-backed securities........... 14,519 14,491 11,475 11,613
----------- --------- ----------- ---------
$ 54,869 $ 55,182 $ 53,016 $ 54,238
----------- --------- ----------- ---------
----------- --------- ----------- ---------
F-12
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
4. LOANS
A summary of the balances of loans follows:
SEPTEMBER 30,
MARCH 31, --------------------
1999 1998 1997
----------- --------- ---------
(UNAUDITED)
Mortgage loans on real estate:
Fixed rate............................................... $ 54,207 $ 47,239 $ 29,450
Variable rate............................................ 24,354 27,384 33,812
Commercial............................................... 3,084 2,743 2,915
Home equity lines-of-credit.............................. 3,503 3,918 3,859
----------- --------- ---------
Total mortgage loans................................... 85,148 81,284 70,036
----------- --------- ---------
Personal loans............................................. 666 858 1,069
Deposit secured loans...................................... 586 676 557
Home improvement loans..................................... 129 132 73
Commercial lines-of-credit................................. 705 599 293
Commercial installment..................................... 1,401 1,087 437
----------- --------- ---------
Total other loans...................................... 3,487 3,352 2,429
----------- --------- ---------
Total loans............................................ 88,635 84,636 72,465
Due to borrowers on incomplete loans....................... (1,538) (1,570) (1,177)
Net deferred loan costs.................................... 112 109 78
Allowance for loan losses.................................. (857) (827) (786)
----------- --------- ---------
Loans, net............................................. $ 86,352 $ 82,348 $ 70,580
----------- --------- ---------
----------- --------- ---------
An analysis of the allowance for loan losses follows:
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
Balance at beginning of period.................. $ 827 $ 786 $ 786 $ 690 $ 585
Provision for loan losses....................... 25 20 39 96 105
Charge-offs..................................... (6) -- -- (2) (8)
Recoveries...................................... 11 1 2 2 8
--------- --------- --------- --------- ---------
Balance at end of period........................ $ 857 $ 807 $ 827 $ 786 $ 690
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
The Bank has sold mortgage loans in the secondary mortgage market and has
retained the servicing responsibility and receives fees for the services
provided. Total loans serviced for others at March 31, 1999 (unaudited) and
September 30, 1998 and 1997 amounted to $1,020 $1,402 and $1,187, respectively.
Total loans sold during the six months ended March 31, 1999 and 1998 (unaudited)
and the years ended September 30, 1998, 1997 and 1996 amounted to $0, $87, $269,
$120 and $0,
F-13
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
4. LOANS (CONTINUED)
respectively. Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets.
The following is a summary of impaired loans:
SEPTEMBER 30,
MARCH 31, --------------------
1999 1998 1997
--------------- --------- ---------
(UNAUDITED)
Total impaired loans (no valuation allowance).................... $ -- $ 269 $ 352
--- --------- ---------
--- --------- ---------
No additional funds are committed to be advanced in connection with impaired
loans.
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30,
MARCH 31,
---------------------- -------------------------------
1999 1998 1998 1997 1996
----- --------- --------- --------- ---------
(UNAUDITED)
Average balance of impaired loans.................. $ -- $ 288 $ 283 $ 423 $ 360
--- --------- --------- --------- ---------
--- --------- --------- --------- ---------
Interest income recognized on impaired
loans on the accrual method...................... $ -- $ 9 $ 19 $ 28 $ 28
--- --------- --------- --------- ---------
--- --------- --------- --------- ---------
5. FORECLOSED REAL ESTATE
Foreclosed real estate consists of real estate acquired in settlement of
loans as follows:
SEPTEMBER 30,
MARCH 31, --------------------
1999 1998 1997
------------- --------- ---------
(UNAUDITED)
Real estate acquired in settlement of loans................... $ -- $ 74 $ --
Participation loan-land development........................... 21 22 227
Less allowance for losses on foreclosed real estate........... (21) (22) (208)
----- --------- ---
Foreclosed real estate, net............................... $ -- $ 74 $ 19
----- --------- ---
----- --------- ---
F-14
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
6. BANKING PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation and amortization of
banking premises and equipment and their estimated useful lives follows:
Depreciation and amortization expense for the six months ended March 31,
1999 and 1998 (unaudited) and the years ended September 30, 1998, 1997 and 1996
amounted to $134, $109, $228, $206 and $165, respectively.
7. DEPOSITS
A summary of deposit balances, by type, is as follows:
SEPTEMBER 30,
MARCH 31, ----------------------
1999 1998 1997
----------- ---------- ----------
(UNAUDITED)
Non-interest bearing accounts........................... $ 10,261 $ 8,592 $ 6,910
NOW accounts............................................ 13,527 15,221 11,310
Regular and other savings accounts...................... 63,743 57,972 51,730
Money market deposit accounts........................... 6,916 7,218 9,003
----------- ---------- ----------
Total non-certificate accounts...................... 94,447 89,003 78,953
----------- ---------- ----------
Six-month money market certificates..................... 9,087 8,624 7,840
Other term deposit certificates......................... 39,437 38,335 38,377
----------- ---------- ----------
Total certificate accounts.......................... 48,524 46,959 46,217
----------- ---------- ----------
Total deposits...................................... $ 142,971 $ 135,962 $ 125,170
----------- ---------- ----------
----------- ---------- ----------
Certificate accounts greater than $100 amounted to approximately $9,847,
$9,535 and $8,071 at March 31, 1999 (unaudited) and September 30, 1998 and 1997,
respectively.
F-15
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
7. DEPOSITS (CONTINUED)
A summary of certificates, by maturity, is as follows:
MARCH 31, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ----------- --------- ----------- --------- -----------
(UNAUDITED)
Within 1 year........................ $ 39,250 4.96% $ 37,005 5.06% $ 37,119 5.24%
Over 1 year through 3 years.......... 9,262 5.31 9,954 5.45 9,094 5.40
Over 3 years......................... 12 5.12 -- -- 4 5.50
--------- --------- ---------
$ 48,524 5.03% $ 46,959 5.14% $ 46,217 5.27%
--------- --------- ---------
--------- --------- ---------
8. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances, secured by a blanket lien on qualified
collateral, are as follows:
WEIGHTED
MATURING DURING AVERAGE
THE YEAR ENDING INTEREST MARCH 31, SEPTEMBER 30,
SEPTEMBER 30, RATE 1999 1998
------------------- ----------- ----------- -------------
(UNAUDITED)
2001 5.29% $ 2,000 $ 2,000
2009 4.88% 2,000 --
----------- ------
$ 4,000 $ 2,000
----------- ------
----------- ------
The Bank also has an available line of credit with the Federal Home Loan
Bank of Boston ("FHLB") at an interest rate the adjusts daily. Borrowings under
the line are limited to 2% of the Bank's total assets. All borrowings from the
Federal Home Loan Bank of Boston are secured by a blanket lien on qualified
collateral, defined principally as 75% of the carrying value of first mortgage
loans on owner-occupied residential property and 90% of the market value of U.S.
Government and federal agency securities. As of March 31, 1999 (unaudited) and
September 30, 1998 and 1997, there were no advances outstanding on the line of
credit.
F-16
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
9. INCOME TAXES
Allocation of federal and state income taxes between current and deferred
portions is as follows:
The tax effects of each type of income and expense item that give rise to
deferred taxes are:
SEPTEMBER 30,
MARCH 31, --------------------
1999 1998 1997
------------- --------- ---------
(UNAUDITED)
Employee benefit plans......................................... $ 280 $ 346 $ 364
Allowance for loan losses...................................... 409 397 386
Net unrealized gain on securities available for sale........... (387) (736) (332)
Depreciation and amortization.................................. (116) (125) (86)
Net deferred loan costs........................................ (46) (45) (32)
Other, net..................................................... (10) (10) (10)
----- --------- ---------
Net deferred tax asset (liability)............................. $ 130 $ (173) $ 290
----- --------- ---------
----- --------- ---------
A summary of the change in the net deferred tax asset (liability) is as
follows:
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
------------------------ -------------------------------
1999 1998 1998 1997 1996
------------- --------- --------- --------- ---------
(UNAUDITED)
Balance at beginning of period.......... $ (173) $ 290 $ 290 $ 450 $ 276
Deferred tax (provision) benefit........ (46) (70) (59) 37 98
Deferred tax effect on net unrealized
gain on securities available for
sale.................................. 349 (84) (404) (197) 76
----- --------- --------- --------- ---------
Balance at end of period................ $ 130 $ 136 $ (173) $ 290 $ 450
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
F-18
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
9. INCOME TAXES (CONTINUED)
There was no valuation reserve as of March 31, 1999 (unaudited) and
September 30, 1998 and 1997.
The federal income tax reserve for loan losses at the Bank's base year
amounted to approximately $2,420. If any portion of the reserve is used for
purposes other than to absorb loan losses, approximately 150% of the amount
actually used (limited to the amount of the reserve) would be subject to
taxation in the fiscal year in which used. As the Bank intends to use the
reserve to only absorb loan losses, a deferred income tax liability of
approximately $990 has not been provided.
10. MINIMUM REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
to follow) of total and Tier 1 capital (as defined) to risk-weighted assets (as
defined). Management believes, as of March 31, 1999 and September 30, 1998 and
1997, that the Bank meets all capital adequacy requirements to which it is
subject.
The most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the following table. There are no conditions or events since
that notification that management believes have changed the Bank's category.
F-19
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
10. MINIMUM REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
The Bank's actual and minimum required capital amounts and ratios as of
March 31, 1999 (unaudited) and September 30, 1998 and 1997 are as follows:
MINIMUM
TO BE WELL
CAPITALIZED UNDER
MINIMUM PROMPT CORRECTIVE
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ----- --------- ----- --------- -----
MARCH 31, 1999:
(UNAUDITED)
Total capital (to risk weighted assets)............. $ 19,888 22.5% $ 7,076 8.0% $ 8,845 10.0%
Tier 1 capital (to risk weighted assets)............ 19,031 21.5 3,538 4.0 5,307 6.0
Tier 1 capital (to average assets).................. 19,031 11.7 4,892- 3.0- 8,154 5.0
8,154 5.0
SEPTEMBER 30, 1998:
Total capital (to risk weighted assets)............. $ 19,034 22.7% $ 6,697 8.0% $ 8,372 10.0%
Tier 1 capital (to risk weighted assets)............ 18,207 21.8 3,349 4.0 5,023 6.0
Tier 1 capital (to average assets).................. 18,207 12.0 4,562- 3.0- 7,603 5.0
7,603 5.0
SEPTEMBER 30, 1997:
Total capital (to risk weighted assets)............. $ 17,680 24.0% $ 5,907 8.0% $ 7,383 10.0%
Tier 1 capital (to risk weighted assets)............ 16,894 22.9 2,953 4.0 4,430 6.0
Tier 1 capital (to average assets).................. 16,894 11.9 4,247- 3.0- 7,078 5.0
7,078 5.0
11. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Bank provides basic and supplemental pension benefits for eligible
employees through the Savings Banks Employees Retirement Association ("SBERA")
Pension Plan. Each employee reaching the age of 21 and having completed at least
1,000 hours of service in one consecutive twelve-month period, beginning with
such employee's date of employment, automatically becomes a participant in the
retirement plan. All participants are fully vested after three years of service.
F-20
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net periodic pension cost consists of the following:
PLAN YEARS ENDED
OCTOBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
Service cost--benefits earned during year........................... $ 136 $ 108 $ 113
Interest cost on projected benefits................................. 125 119 113
Return on plan assets............................................... (127) (115) (100)
Net amortization and deferral....................................... 3 3 3
Amortization of net gain............................................ (20) (20) (2)
--------- --------- ---------
$ 117 $ 95 $ 127
--------- --------- ---------
--------- --------- ---------
Total pension expense for the six months ended March 31, 1999 and 1998
(unaudited) and the years ended September 30, 1998, 1997 and 1996 amounted to
$52, $54, $105, $110 and $109, respectively.
According to SBERA, the funded status of the plan is as follows:
OCTOBER 31,
--------------------
1998 1997
--------- ---------
Plan assets at fair value.................................................. $ 1,808 $ 1,594
Actuarial present value of projected benefit obligation (substantially all
vested).................................................................. (1,951) (1,727)
--------- ---------
Excess of projected benefit obligation over plan assets.................... (143) (133)
Unamortized net obligation since adoption of SFAS No. 87................... 37 40
Unrecognized net gain...................................................... (385) (413)
--------- ---------
Accrued pension cost....................................................... $ (491) $ (506)
--------- ---------
--------- ---------
The accumulated benefit obligation (substantially all vested) at October 31,
1998 (latest available) amounted to $1,081 which was less than the plan assets
at fair value which amounted to $1,808.
Actuarial assumptions used in accounting were:
1998 1997
--------- ---------
Discount rate on benefit obligations........................................... 7.25% 7.50%
Expected long-term rate of return on plan assets............................... 8.00 8.00
Annual salary increases........................................................ 6.00 6.00
INCENTIVE COMPENSATION PLAN
Management and employees of the Bank participate in an annual incentive
compensation plan which is based on a percentage of the Bank's annual net
profits (as defined) and other factors and objectives set forth and administered
by the Board of Investment. Incentive compensation expense for
F-21
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
the six months ended March 31, 1999 and 1998 (unaudited) and the years ended
September 30, 1998, 1997 and 1996 amounted to $83, $44, $113, $128 and $102,
respectively.
401(K) PLAN
The Bank has a 401(k) Plan whereby each employee reaching the age of 21 and
having completed at least 1,000 hours of service in a twelve-month period,
beginning with date of employment, automatically becomes a participant in the
Plan. Employees may contribute up to 15% of their compensation subject to
certain limits based on federal tax laws. The Bank makes matching contributions
equal to 25% of the first 4% of an employee's compensation contributed to the
Plan. All participants are fully vested. For the six months ended March 31, 1999
and 1998 (unaudited) and the years ended September 30, 1998, 1997 and 1996,
expense attributable to the Plan amounted to $7, $6, $12, $10 and $8,
respectively.
SUPPLEMENTAL RETIREMENT PLANS
The Bank provides supplemental retirement benefits to certain executive
officers and trustees. In connection with the supplemental retirement plans, the
Bank has purchased life insurance contracts and has entered into split-dollar
life insurance agreements with certain participants.
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the accompanying consolidated balance
sheets.
LOAN COMMITMENTS
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, which involve
elements of credit and interest rate risk in excess of the amount recognized in
the accompanying consolidated balance sheets. The contract amount of these
instruments reflects the extent of involvement the Bank has in these particular
classes of financial instruments.
The Bank's exposure to credit loss is represented by the contractual amount
of the instruments. The Bank uses the same credit policies in making commitments
as it does for on-balance sheet instruments.
F-22
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
A summary of financial instruments whose contract amounts represent credit
risk consist of:
SEPTEMBER 30,
MARCH 31, --------------------
1999 1998 1997
----------- --------- ---------
(UNAUDITED)
Commitments to grant residential mortgage loans.............. $ 2,847 $ 2,787 $ 1,129
Commitments to grant construction loans...................... 1,081 1,182 405
Commitments to grant commercial mortgage loans............... 140 450 2,900
Unadvanced funds on home equity lines-of-credit.............. 5,180 5,362 3,705
Unadvanced funds on commercial lines-of-credit............... 970 736 581
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Unadvanced
funds on lines-of-credit have fixed expiration dates and may expire without
being drawn upon. Therefore, the total commitment amount does not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. Except for commercial lines-of-credit,
these financial instruments are secured by mortgage liens on real estate.
OPERATING LEASE COMMITMENTS
Pursuant to the terms of noncancelable lease agreements in effect at March
31, 1999 (unaudited) and September 30, 1998, pertaining to banking premises and
equipment, future minimum rent commitments are as follows:
The leases contain options to extend for periods from two to ten years. The
cost of such rentals is not included above. Total rent expense for the six
months ended March 31, 1999 and 1998 (unaudited) and the years ended September
30, 1998, 1997, and 1996 amounted to $47, $26, $73, $44 and $42, respectively.
During February 1999, the Bank entered into a lease agreement for a
supermarket branch office in Shrewsbury, Massachusetts. The office is scheduled
to open in May 1999. (Unaudited)
F-23
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONTINGENCIES
Various legal claims may arise from time to time and, in the opinion of
management, these claims will have no material effect on the Bank's consolidated
financial statements.
13. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to its
Trustees. At March 31, 1999 (unaudited) and September 30, 1998 and 1997, the
amount of such loans, which exceeded $60 in the aggregate to each related party,
was approximately $374, $382 and $384, respectively. Such loans are made in the
ordinary course of business at the Bank's normal credit terms, including
interest rate and collateral requirements, and do not represent more than a
normal risk of collection.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of estimated fair values of
all financial instruments where it is practicable to estimate such values. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accordingly, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating
fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts of cash and due from
banks, federal funds sold and short-term investments approximate fair value.
SECURITIES AVAILABLE FOR SALE: Fair values for securities available for
sale are based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable instruments.
FEDERAL HOME LOAN BANK STOCK: The carrying amount approximates fair
value.
LOANS: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
Fair values for other types of loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for
non-performing loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
DEPOSITS: The fair values for non-certificate accounts are, by
definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). Fair values for certificate accounts are
estimated using a discounted cash flow calculation that applies interest
rates currently
F-24
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
FEDERAL HOME LOAN BANK ADVANCES: The fair value is based upon the Bank's
current incremental borrowing rate for a similar advance.
ACCRUED INTEREST: The carrying amounts of accrued interest approximate
fair value.
OFF-BALANCE SHEET INSTRUMENTS: Fair values for off-balance sheet lending
com-mitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standing. The estimated fair value of off-balance
sheet financial instruments at March 31, 1999 (unaudited) and September 30,
1998 and 1997, was immaterial.
The carrying amounts and related estimated fair values of the Bank's
financial instruments are as follows:
SEPTEMBER 30,
------------------------------------------
MARCH 31, 1999 1998 1997
---------------------- -------------------- --------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
----------- --------- --------- --------- --------- ---------
(UNAUDITED)
Financial assets:
Cash and cash equivalents............................ $ 13,581 $ 13,581 $ 12,441 $ 12,441 $ 7,910 $ 7,910
Securities available for sale........................ 63,205 63,205 59,345 59,345 60,937 60,937
Federal Home Loan Bank stock......................... 762 762 762 762 717 717
Loans, net........................................... 86,352 87,884 82,348 84,714 70,580 71,594
Accrued interest receivable.......................... 1,128 1,128 1,116 1,116 1,170 1,170
Financial liabilities:
Deposits............................................. 142,971 143,078 135,962 135,954 125,170 125,205
Federal Home Loan Bank advances...................... 4,000 3,793 2,000 2,000 -- --
15. PLAN OF REORGANIZATION (UNAUDITED)
On March 15, 1999, the Board of Trustees of Westborough Savings Bank voted
to reorganize from a Massachusetts chartered mutual savings bank into a mutual
holding company. Westborough Bancorp, MHC, will own more than half of an
intermediate stock holding company, Westborough Financial Services, Inc., which
in turn will own 100% of Westborough Savings Bank. The reorganization is subject
to approval by various state and federal regulatory banking agencies and the
Bank's Corporators.
As part of the Reorganization, the Bank will establish a liquidation account
for the benefit of eligible and supplemental eligible account holders. The
liquidation account will be reduced annually to the extent that such account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an account holder's interest in the
liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive balances for accounts held by them.
F-25
WESTBOROUGH SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998 (UNAUDITED) AND SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
15. PLAN OF REORGANIZATION (UNAUDITED) (CONTINUED)
In addition, the Company/Bank intends to establish an Employees' Stock
Ownership Plan, a Stock Option Plan, a Management Recognition Plan, and enter
into employment agreements with certain officers.
Subsequent to the Reorganization, the Company and the Bank may not declare
or pay dividends on, and the Company may not purchase any of its shares of, its
common stock if the effect thereof would cause stockholders' equity to be
reduced below applicable regulatory capital maintenance requirements or if such
declaration, payment or repurchase would otherwise violate regulatory
requirements.
Reorganization costs will be deferred and deducted from the proceeds of the
shares sold. If the Reorganization is not completed, all costs will be expensed.
As of March 31, 1999, no offering costs have been incurred.
F-26
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THE AFFAIRS OF WESTBOROUGH SAVINGS OR WESTBOROUGH FINANCIAL
SERVICES MAY CHANGE AFTER THE DATE OF THIS PROSPECTUS. DELIVERY OF THIS DOCUMENT
AND THE SALES OF SHARES MADE HEREUNDER DOES NOT MEAN OTHERWISE.
TABLE OF CONTENTS
PAGE
----
Summary................................................................... 3
Risk Factors.............................................................. 11
Selected Consolidated Financial and Other Data............................ 14
Westborough Savings Bank.................................................. 16
Westborough Financial Services, Inc....................................... 16
Westborough Bancorp, MHC.................................................. 16
How We Intend to Use the Proceeds from the Offering....................... 17
Our Policy Regarding Dividends............................................ 18
Market for the Common Stock............................................... 19
Regulatory Capital Compliance............................................. 20
Capitalization............................................................ 21
Pro Forma Data............................................................ 22
Westborough Savings Bank Consolidated Statements of Income................ 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 29
Business of Westborough Savings Bank...................................... 53
Business of Westborough Financial Services, Inc........................... 79
Regulation of Westborough Savings and Westborough Financial Services,
Inc...................................................................... 79
Taxation.................................................................. 95
the Reorganization and the Offering....................................... 110
Restrictions on Acquisition of Westborough Financial Services and
Westborough Savings...................................................... 132
Description of Capital Stock of Westborough Financial Services, Inc....... 138
Legal and Tax Opinions.................................................... 139
Experts................................................................... 140
Registration Requirements................................................. 140
Where You Can Find Additional Information................................. 140
Index to Financial Statements............................................. F-1
UNTIL THE LATER OF , 1999 OR 25 DAYS AFTER COMMENCEMENT OF THE
OFFERING, ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
UP TO 925,750 SHARES OF
COMMON STOCK
WESTBOROUGH FINANCIAL SERVICES, INC.
PROPOSED HOLDING COMPANY
FOR THE WESTBOROUGH BANK
PROSPECTUS
TRIDENT SECURITIES, INC.
[ ], 1999
THACHER PROFFITT & WOOD,
WASHINGTON, D.C.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI, Section 6.7 of the Articles of Organization of Westborough
Financial Services, Inc. (the "Company") provides that any person involved in a
proceeding by reason of his or her position as a director, officer, employee or
agent of the Company or another corporation, partnership, joint venture, trust
or other enterprise, will be indemnified and held harmless to the fullest extent
allowed by the Massachusetts Business Corporation Law. Such persons are
indemnified against all expense, liability and loss caused by acts in good faith
and reasonably believed to be in the best interests of the Company. Proceedings
initiated by the indemnitee himself must be authorized by the Board of Directors
of the Company, except for suits brought to enforce a right to indemnification.
Section 6.7 further provides that the Company may maintain insurance to protect
itself and any director, officer, employee or agent against any expense, whether
or not the Company would have the power under the Massachusetts Business
Corporation Law to indemnify such person for the expense. Section 6.7
additionally grants the Company the right to execute independent indemnification
contracts on any terms not prohibited by law.
Article VI, Section 6.8 of the Company's Articles of Organization relieves
directors from personal liability for breaches of their fiduciary duties.
However, Section 6.8 does not eliminate or limit such liability (i) for any
breach of a director's duty of loyalty to the Company or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Sections 61 or 62 of Chapter 156B of
the General Laws of the Commonwealth of Massachusetts, or (iv) with respect to
any transaction from which the director derived an improper personal benefit.
Article XI of The Westborough Bank's (the "Bank") Bylaws provide that it
shall indemnify any person against whom an action is brought or threatened
because that person is or was a legal representative, director, officer,
employee or agent of the Bank, provided that such person acted in good faith in
the reasonable belief that such action was in, or not opposed to, the best
interest of the Bank.
Article VI of the Bylaws of Westborough, MHC (the "Mutual Company") provides
for indemnification of officers, corporators, trustees and employees for actions
taken in good faith and reasonably believed to be in the best interests of the
Mutual Company. Article VI also contains provisions on insurance and independent
indemnification contracts that are similar to the provisions of Section 6.7 of
the Company's Articles of Organization.
The Company is party to an Employment Agreement with each of Messrs. Joseph
F. MacDonough and John L. Casagrande (the "Senior Executives"). These Employment
Agreements provide for the Company to indemnify and insure the Senior Executives
against personal liability for acts or omissions in connection with service to
the Company or the Bank. The insurance coverage provided to the Senior
Executives is required to be of the same scope and on the same terms and
conditions as the coverage (if any) provided to other current or former officers
or directors of the Company and the Bank. The Company must also indemnify the
Senior Executives to the fullest extent and on the most favorable terms and
conditions that similar indemnification is offered to any current or former
director or officer of the Company, the Bank, or any subsidiary or affiliate
thereof.
II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Massachusetts Division of Banks fees.............................. $ 5,000
SEC Registration Fees (1)......................................... 2,574
National Association of Securities Dealers filing fees............ 1,500
Printing, postage and mailing..................................... 40,000
Legal fees and expenses........................................... 200,000
Accounting fees and expenses...................................... 70,000
Appraiser's fees and expenses (including business plan)........... 40,000
Underwriter's fees and expenses (excluding counsel fees).......... 140,000
Underwriter's counsel fees and expenses........................... 30,000
Conversion agent fees and expenses................................ 5,000
Certificate printing.............................................. 1,500
Blue Sky fees and expenses (including fees of counsel)............ 5,000
Miscellaneous..................................................... 4,794
---------
Total....................................................... $ 545,780
---------
---------
(1) Actual expenses based upon the registration and sale of 925,750 shares each
at $10.00 per share. All other expenses are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) LIST OF EXHIBITS. (Filed herewith unless otherwise noted.)
EXHIBIT DESCRIPTION
----------- ---------------------------------------------------------------------------------------------------------
1.1 Engagement Letter, dated March 16, 1999, between Westborough Savings Bank and Trident Securities, Inc.
1.2 Form of Agency Agreement, between Westborough Savings Bank and Trident Securities, Inc.*
2.1 Plan of Reorganization from Mutual Savings Bank to Mutual Holding Company and Stock Issuance Plan of
Westborough Savings Bank
3.1 Articles of Organization of Westborough Financial Services, Inc.
3.2 Bylaws of Westborough Financial Services, Inc.
3.3 Articles of Organization of The Westborough Bank
3.4 Bylaws of The Westborough Bank
3.5 Charter of Westborough Bancorp, MHC
3.6 Bylaws of Westborough Bancorp, MHC
4.1 Articles of Organization of Westborough Financial Services, Inc. (See Exhibit 3.1)
4.2 Bylaws of Westborough Financial Services, Inc. (See Exhibit 3.2)
4.3 Form of Stock Certificate of Westborough Financial Services, Inc.
II-2
EXHIBIT DESCRIPTION
----------- ---------------------------------------------------------------------------------------------------------
5.1 Form of Opinion of Thacher Proffitt & Wood regarding legality of securities to be registered
8.1 Form of Opinion of Thacher Proffitt & Wood regarding federal tax matters*
8.2 Form of Opinion of Wolf & Company, P.C. regarding state and local tax matters*
8.3 Letter from RP Financial, LC. regarding subscription rights
10.1 Form of Employee Stock Ownership Plan of Westborough Financial Services, Inc.
10.2 Form of Benefit Restoration Plan of Westborough Financial Services, Inc.
10.3 Form of Employment Agreement, between Joseph F. MacDonough and Westborough Financial Services, Inc.
10.4 Form of Employment Agreement, between John L. Casagrande and Westborough Financial Services, Inc.
21.1 Subsidiaries of the Registrant
23.1 Consent of Thacher Proffitt & Wood (included in Exhibits 5.1 and 8.1 to this Registration Statement)
23.2 Consent of Wolf & Company, P.C.
23.3 Consent of RP Financial, LC.
24.1 Powers of Attorney (included in Signature Page of this Registration Statement)
27.1 Financial Data Schedule (only filed in electronic format)
99.1 Appraisal Report of RP Financial, LC.*
99.2 Draft marketing materials to be used in connection with the offering*
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
Consolidated financial statements of Westborough Savings Bank as of and
for the years ended September 30, 1997 and 1998 and as of and for the six
months ended March 31, 1999 (included in pp. F-1-F-33 of the Prospectus).
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the agent at the
closing specified in the Agency Agreement, certificates in such denominations
and registered in such names as required by the agent to permit prompt delivery
to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
In accordance with to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the town of Westborough, Commonwealth of Massachusetts, as of
June 4, 1999.
WESTBOROUGH FINANCIAL SERVICES, INC.
BY: /S/ JOSEPH F. MACDONOUGH
-----------------------------------------
Joseph F. MacDonough
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Joseph F. MacDonough and John L. Casagrande as
the true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities to sign the Form SB-2 Registration Statement and any and
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the U.S. Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
II-4
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
as of the dates indicated.
NAME TITLE DATE
------------------------------ --------------------------- -------------------
Director, President and
/s/ JOSEPH F. MACDONOUGH Chief Executive Officer
------------------------------ (principal executive June 4, 1999
Joseph F. Macdonough officer) Joseph F.
MacDonough
/s/ JOHN L. CASAGRANDE Vice President and
------------------------------ Treasurer (principal June 4, 1999
John L. Casagrande accounting officer)
/s/ NELSON P. BALL Director
------------------------------ June 4, 1999
Nelson P. Ball
/s/ EDWARD S. BILZERIAN Director
------------------------------ June 4, 1999
Edward S. Bilzerian
/s/ DAVID E. CARLSTROM Director
------------------------------ June 4, 1999
David E. Carlstrom
/s/ WILLIAM W. COTTING, JR. Director
------------------------------ June 4, 1999
William W. Cotting, Jr.
/s/ ROBERT G. DANIEL Director
------------------------------ June 4, 1999
Robert G. Daniel
/s/ EARL H. HUTT Director
------------------------------ June 4, 1999
Earl H. Hutt
/s/ WALTER A. KINELL, JR. Director
------------------------------ June 4, 1999
Walter A. Kinell, Jr.
/s/ ROBERT A. KLUGMAN Director
------------------------------ June 4, 1999
Robert A. Klugman
/s/ ROGER B. LELAND Director
------------------------------ June 4, 1999
Roger B. Leland
/s/ PAUL F. MCGRATH Director
------------------------------ June 4, 1999
Paul F. Mcgrath
/s/ CHARLOTTE C. SPINNEY Director
------------------------------ June 4, 1999
Charlotte C. Spinney
/s/ PHYLLIS A. STONE Director
------------------------------ June 4, 1999
Phyllis A. Stone
/s/ JAMES E. TASHJIAN Director
------------------------------ June 4, 1999
James E. Tashjian
/s/ DANIEL G. TEAR Director
------------------------------ June 4, 1999
Daniel G. Tear
II-5
Exhibit 1.1
[TRIDENT SECURITIES, INC. LETTERHEAD]
March 16, 1999
Board of Trustees
Westborough Savings Bank
100 East Main Street
Westborough, Massachusetts 01581-0670
RE: MUTUAL HOLDING COMPANY MARKETING SERVICES
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and Westborough Savings Bank, Westborough,
Massachusetts (the "Bank") concerning Trident's investment banking services in
connection with the reorganization ("Reorganization") of the Bank into a mutual
holding company ("MHC") and the issuance of shares of the stock savings bank
subsidiary of the MHC in a community offering (the "Offering").
Trident is prepared to assist the Bank in connection with the offering of shares
of common stock of the MHC's stock holding subsidiary during the Offering as
such term is defined in the Bank's Plan of Mutual Holding Company Reorganization
and Stock Issuance Plan (the "Plan"). It is expected that Trident will assist
the Bank in the Offering as follows: (1) as financial advisor to the Bank,
(2) targeting sales efforts in the Bank's local communities, (3) conducting
information meetings for prospective investors (as directed by the Board of
Trustees), (4) training and educating the Bank's management and employees
regarding the mechanics and regulatory requirements of the process, (5)
providing support for the administration and processing of orders and
establishing a Stock Information Center on site in Westborough, and (6) listing
stock of the Bank on the NASDAQ System and acting as a market maker for the
shares. The specific terms of the services contemplated hereunder shall be set
forth in a definitive Sales Agency Agreement (the "Agreement") between Trident
and the Bank to be executed on the date the Offering Circular is declared
effective by the appropriate regulatory authorities. The price of the shares
during the Offering will be the price established by the Bank's Board of
Trustees, based upon an independent appraisal as approved by appropriate
regulatory authorities, provided such price is mutually acceptable to Trident
and the Bank.
At the appropriate time, Trident, in conjunction with its counsel will conduct
an examination of the relevant documents and records of the Bank as Trident and
its counsel deem necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by Trident or its counsel
available to them upon request.
For its services, Trident will receive the following compensation and
reimbursement from the Bank:
TRIDENT SECURITIES, INC.
Board of Trustees
March 16, 1999
Page 2
1. A commission equal to two percent (2.0%) of the aggregate dollar amount
of stock sold in the subscription and community offerings, excluding
any shares of stock sold to the Bank's trustees, executive officers,
employees and employee benefit plans. Additionally, commissions will be
excluded on those shares sold to "Associates" of the Bank's trustees
and executive officers. The term "Associates" as used herein shall have
the same meaning as that found in the Bank's Plan of Reorganization.
2. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee of 4.5%.
3. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the Bank
and Trident.
4. Trident shall be reimbursed for out-of-pocket expenses incurred by them
and their counsel, whether or not Agreement is consummated. Trident's
out-of-pocket expenses will not exceed $15,000 and its legal fees will
not exceed $30,000. The Bank will forward to Trident a check in the
amount of $10,000 as an advance payment to defray the expenses of
Trident.
It further is understood that the Bank will pay all other expenses of the
offering including but not limited to its attorneys' fees, National Association
of Securities Dealers ("NASD") filing fees, and fees of either Trident's
attorneys or other attorneys relating to any required state securities laws
filings, transfer agent charges, telephone charges, air freight, rental
equipment, supplies, fees relating to auditing and accounting and costs of
printing all documents necessary in connection with the foregoing. These
expenses are go be in addition to those enumerated in Paragraph (4) above.
For the purpose of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the reorganization, the
Bank warrants that: (a) the Bank has not privately placed any securities within
the last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or trustees of the
Bank has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with Trident, the Bank has no financial or management
consulting contracts outstanding with any NASD member or any person related to
or associated with any such member: (e) the Bank has not granted Trident a right
of first refusal with respect to the underwriting of any future offering of the
Bank's stock; and, (f) there has been no intermediary between Trident and the
Bank in connection with the public offering of the Bank's shares, and no NASD
member or any person related to or associated with any such member is being
compensated in any manner for providing such service. The foregoing
representation excludes the Bank's agreement with Fisco to provide third party
marketing services of non-deposit products to the Bank's customers.
The Bank agrees to indemnify and hold harmless Trident and each person, if any,
who controls the firm against all losses, claims, damages or liabilities, joint
or several and all legal or other
TRIDENT SECURITIES, INC.
Board of Trustees
March 16, 1999
Page 3
expense reasonably incurred by them in connection with the investigation or
defense thereof (collectively, "Losses"), to which they may become subject under
securities laws or under the common law, that arise out of or are based upon the
reorganization or the engagement hereunder of Trident. If the foregoing
indemnification is unavailable for any reason, the Bank agrees to contribute to
such Losses in the proportion that its unavailable for any reason, the Bank
agrees to contribute to such Losses in the proportion that its financial
interest in the reorganization bears to that of the indemnified parties. If the
agreement is entered into with respect the common stock to be issued in the
reorganization, the Agreement will provide for indemnification, which will be in
addition to any rights that Trident or any other indemnified party may have at
common law or otherwise. The indemnification provision of this paragraph will be
superseded by the indemnification provisions of the Agreement entered into by
the Bank and Trident.
This letter is merely a statement of intent and not a binding legal agreement
except as to paragraph (4) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and theindemnity described in the preceding paragraph. While Trident
and the Bank agree in principle to the contents hereof and propose to proceed
promptly, and in good faith, to work out the arrangements with respect to the
proposed offering, any legal obligations between Trident and the Bank shall be
only as set forth in the duly executed Agreement. Such Agreement shall be in
form and content satisfactory to trident and among other things, there being in
Trident's opinion no material adverse change in the condition or obligations of
the Bank or no market conditions which might render the sale of the shares by
the Bank hereby contemplated inadvisable. The Bank consents to the assignment of
Trident's rights and obligations under this letter or the Agreement to McDonald
Investments, Inc.
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter along with the advance payment of
$10,000. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
By: /s/ Timothy E. Lavelle
----------------------------
Timothy E. Lavelle
Manageing Director
TEL:cs
Agreed and accepted this
29th day of March, 1999
WESTBOROUGH SAVINGS BANK
By: /s/ Joseph F. MacDonough
-----------------------------
Joseph F. MacDonough
President and CEO
Exhibit 2.1
CONFIDENTIAL
WESTBOROUGH SAVINGS BANK
PLAN OF REORGANIZATION
FROM A MUTUAL SAVINGS BANK
TO A MUTUAL HOLDING COMPANY
AND STOCK ISSUANCE PLAN
AS ADOPTED BY THE BOARD OF TRUSTEES
ON MARCH 15, 1999
AS AMENDED AS OF APRIL 15, 1999
TABLE OF CONTENTS
1. INTRODUCTION - BUSINESS PURPOSE........................................1
2. DEFINITIONS............................................................2
3. THE REORGANIZATION.....................................................8
4. CONDITIONS TO IMPLEMENTATION OF THE REORGANIZATION....................11
5. SPECIAL MEETING OF CORPORATORS AND VOTE REQUIRED TO
APPROVE THE PLAN......................................................12
6. CHARTERS AND BYLAWS...................................................12
7. LIQUIDATION AND VOTING RIGHTS.........................................12
8. CONVERSION OF MHC TO STOCK FORM.......................................13
9. TIMING OF THE REORGANIZATION AND SALE OF CAPITAL STOCK................14
10. NUMBER OF SHARES TO BE OFFERED........................................15
11. INDEPENDENT VALUATION AND PURCHASE PRICE OF SHARES....................15
12. METHOD OF OFFERING SHARES AND RIGHTS TO PURCHASE STOCK................16
13. ADDITIONAL LIMITATIONS ON PURCHASES OF COMMON STOCK...................19
14. PAYMENT FOR STOCK.....................................................21
15. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH
ORDER FORMS...........................................................22
16. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM;
INSUFFICIENT PAYMENT.................................................23
17. COMPLETION OF THE STOCK OFFERING......................................24
18. MARKET FOR COMMON STOCK...............................................24
19. STOCK PURCHASES BY MANAGEMENT PERSONS AFTER
THE STOCK OFFERING....................................................24
20. RESALES OF STOCK BY MANAGEMENT PERSONS................................24
30. AMENDMENT OR TERMINATION OF THE PLAN..................................28
Exhibits
Exhibit A Charter and Bylaws of the Bank
Exhibit B Articles of Organization and Bylaws of the Stock Holding Company
Exhibit C Charter and Bylaws of the Mutual Holding Company
ii
1. INTRODUCTION - BUSINESS PURPOSE
The Board of Trustees of Westborough Savings Bank (the "Bank") has adopted
this Plan of Reorganization From a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan (the "Plan") pursuant to which the Bank proposes
to reorganize from a state-chartered mutual savings bank into the mutual holding
company structure (the "Reorganization") under the laws of the Commonwealth of
Massachusetts and the regulations of the Division of Banks of the Commonwealth
of Massachusetts (the "Division") and the Federal Deposit Insurance Corporation
("FDIC"), and other applicable federal laws and regulations. As part of the
Reorganization and the Plan, the Bank will establish (i) a
Massachusetts-chartered stock savings bank (the "Stock Bank") that will succeed
to all of the rights and obligations of the Bank as set forth in the Plan; (ii)
a Massachusetts-chartered mutual holding company (the "MHC"), and (iii) a
Massachusetts incorporated mid-tier stock holding company (the "Stock Holding
Company"). The Stock Holding Company will be a majority-owned subsidiary of the
MHC at all times so long as the MHC remains in existence, and the
Massachusetts-chartered stock savings bank resulting from the Reorganization
(the Stock Bank) will become a wholly-owned subsidiary of the Stock Holding
Company. Concurrently with the Reorganization, the Stock Holding Company intends
to offer for sale up to 49% of its Common Stock in the Stock Offering on a
priority basis to qualifying depositors and Tax-Qualified Employee Plans of the
Bank, with any remaining shares offered to the public in a Community Offering.
The primary purpose of the Reorganization is to establish a holding
company and to convert the Bank to the stock form of ownership, which will
enable the Bank to compete and expand more effectively in the financial services
marketplace. The Reorganization will permit the Stock Holding Company to issue
Capital Stock, which is a source of capital not available to mutual savings
banks. Since the Stock Holding Company will not be offering all of its common
stock for sale to depositors and the public in the Stock Offering, the
Reorganization will result in less capital raised in comparison to a standard
mutual-to-stock conversion. The Reorganization, however, will offer the Bank the
opportunity to raise additional capital since a majority of the Stock Holding
Company's common stock will be available for sale in the future, subject to
regulatory approval. It will also greatly enhance the Bank's ability to (a)
expand its franchise through increased lending, (b) make necessary capital
investments in facilities and technology, (c) diversify products offered to
customers and (d) establish new branch locations. Lastly, the Reorganization
will enable the Bank to better manage its capital by providing broader
investment opportunities through the holding company structure, and by enabling
the Bank to distribute capital to stockholders of the Stock Holding Company in
the form of dividends. Although the Reorganization and Stock Offering will
create a stock savings bank and stock holding company, only a minority of the
Common Stock will be offered for sale in the Stock Offering. As a result, the
Bank's mutual form of ownership and its ability to remain an independent savings
bank and to provide community-oriented financial services will be preserved
through the mutual holding company structure.
The Reorganization, and certain transactions incidental to the
Reorganization, are subject to the approval of the Division, the Board of Bank
Incorporation (the "BBI"), the Board of Governors of the Federal Reserve System
(the "FRB") and the FDIC, and must be approved by the affirmative vote of at
least (i) a majority of the Bank's corporators, and (ii) a majority of the
Bank's Independent Corporators (who must constitute not less than 60% of all
corporators) at an annual meeting or a
special meeting called for such purpose. By approving the Plan, the corporators
will also be approving all steps necessary and incidental to the formation of
the Stock Bank, the Stock Holding Company, and the MHC, including any merger
necessary to consummate the Reorganization.
Sections 1 through 8 and Sections 28 and 29 of this Plan shall constitute
the Westborough Savings Bank Plan of Reorganization from a Mutual Savings Bank
to a Mutual Holding Company (the "Reorganization Plan"). Section 2 and Sections
9 through 29 of this Plan shall constitute the Westborough Savings Bank Stock
Issuance Plan (the "Stock Issuance Plan").
2. DEFINITIONS
As used in the Plan, the terms set forth below have the following
meanings:
ACTING IN CONCERT: The term "acting in concert" means (a) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal, whether or not pursuant to an express agreement; or (b)
persons seeking to combine or pool their voting or other interests in the
securities of an issuer for a common purpose, pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. When persons act together for such purpose, their group is deemed to
have acquired their stock. The determination of whether a group is acting in
concert shall be made solely by the Board of Trustees of the Bank or the Board
of Investment and may be based on any evidence upon which the Board or such
delegatee chooses to rely, including, without limitation, joint account
relationships or the fact that such Persons have filed joint Schedules 13D with
the SEC with respect to other companies.
ACTUAL SUBSCRIPTION PRICE: The price per share, determined as provided in
the Plan, at which the Common Stock will be sold in the Subscription Offering.
AFFILIATE: An "affiliate" of, or a person "affiliated" with, a specified
person, is a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with the
person specified.
APPLICATION: The application, including a copy of the Plan, submitted by
the Bank to the Commissioner for approval of the Reorganization and Stock
Offering.
ASSOCIATE: The term "Associate," when used to indicate a relationship with
any Person, means: (i) any corporation or organization (other than the Bank, the
Stock Holding Company, the MHC or a majority-owned subsidiary of any thereof) of
which such Person is a director, officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity; (iii) any relative or spouse of such Person or
any relative of such spouse, who has the same home as such Person or who is a
director or officer of the Bank, the MHC, the Stock Holding Company or any
subsidiary of the MHC or the Holding Company or any affiliate thereof; and (iv)
any person Acting in Concert with any of the persons or entities specified in
clauses (i) through (iii) above; provided, however, that any Tax-Qualified or
Non-Tax-Qualified Employee Plan shall not be deemed to be an associate of any
director, trustee or officer of the MHC, the Stock Holding Company or the Bank,
to the extent
2
provided in Sections 11-13. When used to refer to a Person other than an officer
or director of the Bank, the Bank in its sole discretion may determine the
Persons that are Associates of other Persons.
BANK: Westborough Savings Bank in its pre-Reorganization mutual form.
BBI: The Board of Bank Incorporation.
BHCA: The Bank Holding Company Act of 1956, as amended.
BIF: The Bank Insurance Fund.
BMA: The Bank Merger Act.
BOARD OF INVESTMENT: The Bank's Board of Investment.
CAPITAL STOCK: Any and all authorized stock of the Bank or the Stock
Holding Company.
COMMISSIONER: The Office of the Commissioner of Banks of the Commonwealth
of Massachusetts.
COMMUNITY: The Towns of Grafton, Hopkinton, Northborough, Shrewsbury,
Southborough, and Westborough.
COMMUNITY OFFERING: The offering to certain members of the general public
in the community of any unsubscribed shares in the Subscription Offering which
may be effected pursuant to the Plan. The Community Offering may include a
Syndicated Community Offering.
COMMON STOCK: The Common Stock to be issued by the Stock Holding Company
to the MHC and to the public in the Stock Offering in connection with the
Reorganization and Stock Offering.
CORPORATOR: A member of the Bank's Board of Incorporation.
DEPOSIT ACCOUNT(S): Any withdrawable deposit(s) offered by the Bank,
including NOW account deposits, certificates of deposit, demand deposits and IRA
accounts and Keogh plans for which the Bank acts as custodian or trustee.
DIVISION: The Division of Banks of the Commonwealth of Massachusetts.
EFFECTIVE DATE: The date upon which all necessary approvals have been
obtained to consummate the Reorganization, and the transfer of assets and
liabilities of the Bank to the Stock Bank is completed.
ELIGIBLE ACCOUNT HOLDER: Any person holding a Qualifying Deposit on the
Eligibility Record Date.
3
ELIGIBILITY RECORD DATE: December 31, 1997, the date for determining who
qualifies as an Eligible Account Holder.
ESOP: The Bank's employee stock ownership plan.
ESTIMATED VALUATION RANGE: The range of the estimated pro forma market
value of the total number of shares of Common Stock, as determined by the
Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation.
FRB: The Board of Governors of the Federal Reserve System.
HOLDING COMPANY APPLICATION: The holding company application to be
submitted by the MHC and the Stock Holding Company to the FRB to have the MHC
and the Stock Holding Company acquire direct and indirect control of the Bank.
INDEPENDENT APPRAISER: The appraiser retained by the Bank to prepare an
appraisal of the pro forma market value of the Bank and the Stock Holding
Company.
INDEPENDENT CORPORATOR: A Corporator who is not an employee, officer,
trustee or "significant borrower" of the Bank.
INDEPENDENT VALUATION: The estimated pro forma market value of the Stock
Holding Company and the Bank as determined by the Independent Appraiser.
INFORMATION STATEMENT: The Notice and Information Statement on
Reorganization from a Mutual Savings Bank to a Mutual Holding Company to be
mailed to the Corporators of the Bank prior to the Special Meeting of
Corporators.
LIQUIDATION ACCOUNT: The liquidation account established pursuant to the
Plan.
MANAGEMENT PERSON: Any officer, trustee or Corporator of the Bank, the
Stock Holding Company or the MHC.
MARKETING AGENT: The broker-dealer responsible for organizing and managing
the Stock Offering and sale of the Common Stock.
MARKET MAKER: A dealer (i.e., any person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (i) regularly publishes bona fide
competitive bid and offer quotations on request, and (ii) is ready, willing and
able to effect transactions in reasonable quantities at the dealer's quoted
prices with other brokers or dealers.
4
MHC: Westborough Bancorp, MHC, the mutual holding company resulting from
the Reorganization.
MINORITY OWNERSHIP INTEREST: The shares of the Stock Holding Company's
Common Stock owned by persons other than the MHC.
MINORITY STOCKHOLDER: Any owner of the Stock Holding Company's Common
Stock, other than the MHC.
MINORITY STOCK OFFERING: One or more offerings of up to 49% in the
aggregate of the outstanding Common Stock of the Stock Holding Company to
persons other than the MHC.
NON-VOTING STOCK: Any Capital Stock other than Voting Stock.
NOTICE: The Notice of Mutual Holding Company Reorganization to be
submitted by the Bank to the FDIC and the Division to notify the FDIC and the
Division of the Reorganization and the Stock Offering.
OFFERING RANGE: The aggregate purchase price of the Common Stock to be
sold in the Stock Offering based on the Independent Valuation expressed as a
range which may vary within 15% above or 15% below the midpoint of such range,
with a possible adjustment by up to 15% above the maximum of such range. The
Offering Range will be based on the Estimated Valuation Range, but will
represent a Minority Ownership Interest equal to up to 49% of the Common Stock.
OFFICER: The Chairman of the Board, the President, any officer of the
level of vice president or above, the Clerk and the Treasurer of the Bank.
PERSON: An individual, corporation, partnership, association, joint-stock
company, trust (including Individual Retirement Accounts and KEOGH Accounts),
unincorporated organization, government entity or political subdivision thereof
or any other entity.
PLAN: This Plan of Reorganization from Mutual Savings Bank to Mutual
Holding Company and Stock Issuance Plan.
QUALIFYING DEPOSIT: The aggregate balances of all Deposit Accounts of an
Eligible Account Holder as of the close of business on the Eligibility Record
Date or of a Supplemental Eligible Account Holder as of the close of business on
the Supplemental Eligibility Record Date, as the case may be, provided such
aggregate balance is not less than $50.
REGULATIONS: The regulations of the Division regarding mutual holding
companies and conversion to stock form.
REORGANIZATION: The reorganization of the Bank into the mutual holding
company structure including the organization of the MHC, the Stock Holding
Company and the Stock Bank pursuant to the Plan.
5
SEC: The Securities and Exchange Commission.
SPECIAL MEETING: The Special Meeting of Corporators called for the purpose
of voting on the Plan.
STOCK BANK: The Massachusetts chartered stock savings bank resulting from
the Reorganization in accordance with the Plan.
STOCK HOLDING COMPANY: Westborough Financial Services, Inc., the
intermediate stock holding company that will be a Massachusetts corporation
which will be majority-owned by the MHC and which will own 100% of the common
stock of the Bank.
STOCK ISSUANCE PLAN: The portion of this Plan relating to the Stock
Offering including Section 2 and Sections 9 through 29 of this Plan.
STOCK OFFERING: The offering of Common Stock of the Stock Holding Company
to persons other than the MHC, in a Subscription Offering and, to the extent
shares remain available, in a Community Offering and Syndicated Community
Offering.
SUBSCRIPTION OFFERING: The offering of Common Stock of the Stock Holding
Company for subscription and purchase pursuant to the Plan.
SUBSIDIARY: A company that is controlled by another company, either
directly or indirectly through one or more subsidiaries.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER: Any Person holding a Qualifying
Deposit on the Supplemental Eligibility Record Date, who is not an Eligible
Account Holder or a Tax-Qualified Employee Plan of the Bank, or an officer,
director, trustee or Corporator of the Bank, or any Associate thereof.
SUPPLEMENTAL ELIGIBILITY RECORD DATE: The supplemental record date for
determining who qualifies as a Supplemental Eligible Account Holder. The
Supplemental Eligibility Record Date shall be December 31, 1998.
SYNDICATED COMMUNITY OFFERING: At the discretion of the Bank and the Stock
Holding Company, the offering of Common Stock following or contemporaneously
with the Community Offering through a syndicate of broker-dealers.
TAX-QUALIFIED EMPLOYEE PLAN: Any defined benefit plan or defined
contribution plan (including the ESOP, any stock bonus plan, profit-sharing
plan, or other plan) of the Bank, the Stock Holding Company, the MHC or any of
their affiliates, which, with its related trusts, meets the requirements to be
qualified under Section 401 of the Internal Revenue Code. The term
Non-Tax-Qualified Employee Benefit Plan means any defined benefit plan or
defined contribution plan which is not so qualified.
6
VOTING STOCK:
(1) Voting Stock means common stock or preferred stock, or similar
interests if the shares by statute, charter or in any manner, entitle the
holder:
(i) To vote for or to select directors of the Bank or the Stock
Holding Company; and
(ii) To vote on or to direct the conduct of the operations or other
significant policies of the Bank or the Stock Holding Company.
(2) Notwithstanding anything in paragraph (1) above, preferred stock is
not "Voting Stock" if:
(i) Voting rights associated with the preferred stock are limited
solely to the type customarily provided by statute with regard
to matters that would significantly and adversely affect the
rights or preferences of the preferred stock, such as the
issuance of additional amounts or classes of senior
securities, the modification of the terms of the preferred
stock, the dissolution of the Bank or the Stock Holding
Company, or the payment of dividends by the Bank or the Stock
Holding Company when preferred dividends are in arrears;
(ii) The preferred stock represents an essentially passive
investment or financing device and does not otherwise provide
the holder with control over the issuer; and
(iii) The preferred stock does not at the time entitle the holder,
by statute, charter, or otherwise, to select or to vote for
the selection of directors of the Bank or the Stock Holding
Company.
(3) Notwithstanding anything in paragraphs (1) and (2) above, "Voting
Stock" shall be deemed to include preferred stock and other securities that,
upon transfer or otherwise, are convertible into Voting Stock or exercisable to
acquire Voting Stock where the holder of the stock, convertible security or
right to acquire Voting Stock has the preponderant economic risk in the
underlying Voting Stock. Securities immediately convertible into Voting Stock at
the option of the holder without payment of additional consideration shall be
deemed to constitute the Voting Stock into which they are convertible; other
convertible securities and rights to acquire Voting Stock shall not be deemed to
vest the holder with the preponderant economic risk in the underlying Voting
Stock if the holder has paid less than 50% of the consideration required to
directly acquire the Voting Stock and has no other economic interest in the
underlying Voting Stock.
7
3. THE REORGANIZATION
A. ORGANIZATION OF THE HOLDING COMPANIES AND THE BANK
As part of the Reorganization, the Bank will establish the Stock Holding
Company as a Massachusetts corporation and the MHC as a Massachusetts
corporation. The Reorganization will be effected as follows, or in any other
manner approved by the Commissioner that is consistent with the purposes of the
Plan and applicable laws and regulations.
(i) The Bank will cause to be organized a Massachusetts chartered
de novo mutual savings bank (the "De Novo Bank");
(ii) The De Novo Bank will reorganize into the MHC and will form a
de novo stock savings bank subsidiary (the "Stock Bank"), and
all of the assets and liabilities of the De Novo Bank will be
transferred to the Stock Bank;
(iii) The Bank will merge with and into the Stock Bank with the
Stock Bank as the resulting entity;
(iv) The MHC will organize the Stock Holding Company as a separate
wholly-owned subsidiary of the MHC;
(v) The MHC will contribute all of the shares of common stock of
the Stock Bank to the Stock Holding Company, which will result
in the MHC owning 100% of the Common Stock of the Stock
Holding Company and the Stock Holding Company owning 100% of
the common stock of the Stock Bank; and
(vi) The Stock Holding Company will offer to sell up to 49% of its
Common Stock in the Subscription Offering and, if applicable,
the Community Offering.
Contemporaneously with the Reorganization, the Stock Holding Company will
offer for sale in the Stock Offering shares of Common Stock representing up to
49% of the pro forma market value of the Stock Holding Company and the Bank.
Such shares will not be covered by deposit insurance. Upon consummation of the
Reorganization, the legal existence of the Bank will not terminate, but the
Stock Bank will be a continuation of the Bank, and all property of the Bank,
including its right, title, and interest in and to all property of whatsoever
kind and nature, interest and asset of every conceivable value or benefit then
existing or pertaining to the Bank, or which would inure to the Bank immediately
by operation of law and without the necessity of any conveyance or transfer and
without any further act or deed, will vest in the Stock Bank. The Stock Bank
will have, hold, and enjoy the same in its right and fully and to the same
extent as the same was possessed, held, and enjoyed by the Bank. The Stock Bank
will continue to have, succeed to, and be responsible for all the rights,
liabilities and obligations of the Bank and will maintain its headquarters and
operations at the Bank's present locations. The Stock Bank may distribute
additional capital to the Stock
8
Holding Company following the Reorganization, subject to the applicable
regulations governing capital distributions.
Upon completion of the Reorganization and Stock Offering, the MHC, the
Stock Holding Company and the Stock Bank will be structured as follows:
----------------------------------------------------------------
Public
The MHC Stockholders
----------------------------------------------------------------
More than 50% of Less than 50% of
the Common Stock the Common Stock
----------------------------------------------------------------
-------------------------------------------------
The Stock Holding Company
100% of the
Common Stock
The Stock Bank
B. EFFECT ON DEPOSIT ACCOUNTS AND BORROWINGS
Each deposit account in the Bank upon consummation of the Reorganization
will become a deposit account in the Stock Bank in the same amount and on the
same terms and conditions, and such deposit account will continue to be insured
by the FDIC and the Depositors Insurance Fund in the same manner, as the deposit
account existed in the Bank immediately prior to the Reorganization. Upon
consummation of the Reorganization, all loans and other borrowings from the Bank
shall retain the same status with the Stock Bank after the Reorganization as
they had with the Bank immediately prior to the Reorganization.
C. THE BANK
Upon completion of the Reorganization, the Stock Bank will be authorized
to exercise any and all powers, rights and privileges of, and will be subject to
all limitations applicable to, stock savings banks under Massachusetts law. A
copy of the proposed Charter and Bylaws of the Stock Bank is attached hereto as
EXHIBIT A and is made a part of the Plan. The Reorganization will not result in
any reduction of the amount of retained earnings (other than the assets of the
Bank that are transferred to other capital stock accounts or retained by or
distributed to the Stock Holding Company or the Mutual Holding Company),
undivided profits, and general loss reserves that the Bank had prior to the
Reorganization. Such retained earnings and general loss reserves will be
accounted for by the Stock Holding Company and the Stock Bank on a consolidated
basis in accordance with generally accepted accounting principles.
The members of the Board of Directors of the Stock Bank will consist of
persons who are the members of the Board of Trustees of the Bank. The Stock Bank
will be wholly-owned by the Stock Holding Company and the Stock Holding Company,
as the sole holder of the outstanding
9
Capital Stock of the Stock Bank, shall have exclusive voting rights in the Stock
Bank. The Stock Holding Company will be wholly-owned by its stockholders who
will consist of the MHC and the persons who purchase Common Stock in the Stock
Offering and any subsequent Minority Stock Offering. Upon the Effective Date,
any liquidation rights of depositors of the Bank under Massachusetts law will be
transferred to the MHC and/or the Stock Bank and the Stock Holding Company,
subject to the conditions specified below.
D. THE STOCK HOLDING COMPANY
The Stock Holding Company will be chartered as a Massachusetts corporation
and will be authorized to exercise any and all powers, rights and privileges,
and will be subject to all limitations applicable to bank holding companies
under applicable federal and Massachusetts laws and regulations. The initial
members of the Board of Directors of the Stock Holding Company will be the
members of the existing Board of Trustees of the Bank at the time of the
Reorganization. Thereafter, the voting stockholders of the Stock Holding Company
will elect annually approximately one-third of the Stock Holding Company's
directors. A copy of the Articles of Organization and Bylaws of the Stock
Holding Company is attached as EXHIBIT B and is made part of this Plan.
The Stock Holding Company will have the power to issue shares of Capital
Stock to persons other than the MHC. However, so long as the MHC is in
existence, the MHC will be required to own at least a majority of the Voting
Stock of the Stock Holding Company. The Stock Holding Company may issue any
amount of Non-Voting Stock to persons other than the MHC. The Stock Holding
Company will be authorized to undertake one or more Minority Stock Offerings of
up to 49% in the aggregate of the total outstanding Common Stock of the Stock
Holding Company, and, based upon current market conditions and the capital needs
of the Bank, the Stock Holding Company currently intends to offer for sale up to
30% of its Common Stock in the Stock Offering.
E. THE MUTUAL HOLDING COMPANY
As a mutual corporation, the MHC will have no stockholders. The trustees
of the MHC will have exclusive voting authority as to all matters relating to
the MHC except as otherwise provided to Corporators of the MHC under its
chartering instruments and other applicable law. The initial members of the
Board of Trustees of the MHC will consist of all of the members of the Board of
Trustees of the Bank at the time of the Reorganization. Thereafter,
approximately one-third of the trustees of the MHC will be elected annually by
the Corporators of the MHC. The initial members of the Corporators of the MHC
will consist of all of the existing Corporators of the Bank. Thereafter,
Corporators of the MHC will be appointed pursuant to the chartering instruments
of the MHC and applicable law.
Any liquidation rights of depositors that existed under Massachusetts law
prior to the Reorganization shall continue in the MHC following the
Reorganization. The rights and powers of the MHC will be defined by the MHC's
Charter and Bylaws (a copy of which is attached to the Plan as EXHIBIT C and
made a part of the Plan) and by applicable statutory and regulatory provisions
of Massachusetts and federal law.
10
4. CONDITIONS TO IMPLEMENTATION OF THE REORGANIZATION
Consummation of the Reorganization is expressly conditioned upon prior
occurrence of the following:
A. Approval of the Plan by the affirmative vote of a majority of the
Board of Trustees of the Bank.
B. Approval of the Plan by the affirmative vote of a majority of the
Corporators at a regular or special meeting of such Corporators, and
by the affirmative vote of a majority of Independent Corporators
(who shall constitute not less than 60% of all Corporators).
C. Approval by the Commissioner of the Application, including the Plan,
the charter and bylaws of the Stock Bank and the MHC, and all other
transactions contemplated by the Plan for which approval is required
by the Commissioner; and approval by the BBI of the charter of the
DeNovo Bank and the Stock Bank.
D. Submission of the Notice to the FDIC and the Bank either (i)
receives a notice of intent not to object from the FDIC, or (ii) 60
days (subject to extension for an additional 60 days) have passed
following the acceptance of a complete FDIC Notice by the FDIC.
E. Approval by the FRB pursuant to the BHCA for the MHC and the Stock
Holding Company to become bank holding companies by owning or
acquiring, directly or indirectly, the majority of the Stock Bank's
common stock to be issued in connection with the Reorganization.
F. Approval by the FDIC pursuant to the BMA of the transfer of assets
and liabilities of the MHC to the Stock Bank and the merger of the
Bank into the Stock Bank in connection with the Reorganization.
G. Receipt by the Bank of either a private letter ruling from the
Internal Revenue Service or an opinion of the Bank's counsel as to
the federal income tax consequences of the Reorganization to the
MHC, the Stock Bank and the Bank.
H. Receipt by the Bank of either a private letter ruling of the
Massachusetts Department of Revenue or an opinion of counsel or the
Bank's independent public accountants as to the Massachusetts income
tax consequences of the Reorganization to the MHC, the Stock Bank
and Bank.
11
5. SPECIAL MEETING OF CORPORATORS AND VOTE REQUIRED TO APPROVE THE
PLAN
Subsequent to the approval of the Plan by the Commissioner, the Special
Meeting shall be scheduled in accordance with the Bank's Bylaws. Promptly after
receipt of all regulatory approvals necessary to distribute the Information
Statement, the Bank shall distribute the Information Statement to all
Corporators. A copy of the Plan will be provided to all Corporators. Pursuant to
the Regulations, an affirmative vote of at least (i) a majority of the Bank's
total Corporators, and (ii) a majority of the Bank's Independent Corporators
(who shall constitute not less than 60% of all Corporators) voting at the
Special Meeting shall be required for approval of the Plan.
6. CHARTERS AND BYLAWS
Copies of the proposed Charter and Bylaws of the Stock Bank, the proposed
Articles of Organization and Bylaws of the Stock Holding Company and the
proposed Charter and Bylaws of the MHC are attached hereto as EXHIBITS A, B AND
C, respectively, and are made a part of this Plan. By their approval of this
Plan, the Corporators shall have approved and adopted the Charter and Bylaws of
the Bank, the Stock Holding Company and the MHC.
The total shares of Common Stock authorized under the Stock Holding
Company's Articles of Organization will exceed the shares of Common Stock to be
issued to the MHC and the Minority Stockholders in the Reorganization. In
addition, the Articles of Organization of the Stock Holding Company will contain
provisions that prohibit persons other than the Board of Directors of the Stock
Holding Company or committees of the Board of Directors of the Stock Holding
Company from calling special meetings of the stockholders of the Stock Holding
Company and require a supermajority vote by stockholders to call a special
meeting of stockholders.
7. LIQUIDATION AND VOTING RIGHTS
Following the Reorganization, each Eligible Account Holder and each
Supplemental Eligible Account Holder will have an interest in the Liquidation
Account established pursuant to the Plan so long as such person remains a
depositor of the Stock Bank after the Reorganization. In addition, following the
Reorganization, all depositors who had liquidation rights with respect to the
Bank as of the date of the Reorganization will continue to have such rights
solely with respect to the MHC for so long as they remain depositors of the
Stock Bank. In addition, all persons who become depositors of the Stock Bank
subsequent to the Reorganization also will have liquidation rights with respect
to the MHC. In each case, no person who ceases to be the holder of a Deposit
Account with the Bank after the Reorganization shall have any liquidation rights
with respect to the MHC. The MHC shall liquidate under M.G.L. c.167H, upon the
sale or acquisition of the Stock Holding Company or the Stock Bank to a bank
holding company or savings and loan holding company which is not a mutual
holding company, or upon the sale of the Stock Bank to a banking or thrift
institution that is not a subsidiary of a mutual holding company.
12
8. CONVERSION OF MHC TO STOCK FORM
Following the completion of the Reorganization, the MHC may elect to
convert to stock form in accordance with M.G.L.c.167H, ss.9, the Massachusetts
conversion regulations set forth at 209 CMR Sections 33.01 et seq., and
applicable federal laws and regulations (a "Conversion Transaction"). There can
be no assurance when, if ever, a Conversion Transaction will occur, and the
Board of Trustees has no intent or plan to undertake a Conversion Transaction at
this time. If the Conversion Transaction does not occur, the MHC will always own
a majority of the Common Stock of the Stock Holding Company. The Board of
Trustees of the MHC and the Board of Directors of the Stock Holding Company will
not undertake a Conversion Transaction for three years following the Stock
Offering, unless compelling and valid business reasons exist to do so.
In a Conversion Transaction, the MHC would merge with and into the Stock
Bank or the Stock Holding Company at the discretion of the MHC, and qualifying
depositors of the Stock Bank would receive the right to subscribe for a number
of shares of common stock of the Stock Holding Company, as determined by the
formula set forth in the paragraphs below. The additional shares of Common Stock
of the Stock Holding Company issued in the Conversion Transaction would be sold
at their aggregate pro forma market value as determined by an Independent
Appraisal.
Any Conversion Transaction shall be fair and equitable to Minority
Stockholders. In any Conversion Transaction, Minority Stockholders, if any, will
be entitled without additional consideration to maintain the same percentage
ownership interest in the Stock Holding Company after the Conversion Transaction
as their ownership interest in the Stock Holding Company immediately prior to
the Conversion Transaction (i.e., the Minority Ownership Interest), subject only
to the following adjustments (if required by federal law, regulation, or
regulatory policy) to reflect: (i) the cumulative effect of the aggregate amount
of dividends waived by the MHC; and (ii) the market value of assets of the MHC
(other than common stock of the Stock Holding Company).
13
The adjustment referred to in clause (i) of the immediately preceding
paragraph above would require that the Minority Ownership Interest be adjusted
by multiplying the Minority Ownership Interest by the following fraction:
(Stock Holding Company stockholders' equity immediately preceding the
Conversion Transaction) - (aggregate amount of dividends waived by MHC)
Stock Holding Company stockholders' equity immediately preceding the Conversion
Transaction
The adjustment referred to in clause (ii) above would further adjust the
Minority Ownership Interest by multiplying the result obtained in the preceding
paragraph by the following fraction:
(proforma market value of Stock Holding Company) - (market value of
assets of MHC other than Stock Holding Company common stock)
pro forma market value of Stock Holding Company
At the sole discretion of the Board of Trustees of the MHC and the Board
of Directors of the Stock Holding Company, a Conversion Transaction may be
effected in any other manner necessary to qualify the Conversion Transaction as
a tax-free reorganization under applicable federal and state tax laws, provided
such Conversion Transaction does not diminish the rights and ownership interest
of Minority Stockholders as set forth in the preceding paragraphs. If a
Conversion Transaction does not occur, the MHC will always own a majority of the
Voting Stock of the Stock Holding Company.
A Conversion Transaction would require the approval of applicable bank
regulators, and would be presented to a vote of the Corporators of the MHC and
the stockholders of the Stock Holding Company as of a voting record date prior
to the completion of the Conversion Transaction. Federal and state regulatory
policy requires that in any Conversion Transaction the depositors of the Stock
Bank will be accorded the same stock purchase priorities as if the MHC were a
mutual savings bank converting to stock form.
9. TIMING OF THE REORGANIZATION AND SALE OF CAPITAL STOCK
The Bank intends to consummate the Reorganization as soon as feasible
following the receipt of all approvals referred to in Section 4 of the Plan. The
Stock Holding Company may commence the Stock Offering concurrently with or at
any time after the mailing of the Information Statement to the Corporators. The
Stock Offering shall be conducted in compliance with the securities offering
regulations of the FDIC, the SEC and the Division. The Bank will not finance or
loan funds to any person to purchase Common Stock.
14
10. NUMBER OF SHARES TO BE OFFERED
The total number of shares (or range thereof) of Common Stock to be issued
and offered for sale pursuant to the Plan shall be determined initially by the
Board of Trustees of the Bank and the Board of Directors of the Stock Holding
Company in conjunction with the determination of the Independent Appraiser. The
number of shares to be offered may be adjusted prior to completion of the Stock
Offering. The total number of shares of Common Stock that may be issued to
persons other than the MHC at the close of the Stock Offering must be no greater
than 49% of the issued and outstanding shares of Common Stock of the Stock
Holding Company.
11. INDEPENDENT VALUATION AND PURCHASE PRICE OF SHARES
The total number of shares of Common Stock to be issued and offered for
sale in the Stock Offering and the Estimated Valuation Range will be determined
jointly by the Board of Trustees of the Bank and the Board of Directors of the
Stock Holding Company immediately prior to the commencement of the Subscription
and Community Offerings, subject to adjustment thereafter if necessitated by
market or financial conditions, with the approval of the FDIC and the Division,
if necessary. In particular, the total number of shares may be increased by up
to 15% of the number of shares offered in the Subscription and Community
Offerings if the Estimated Valuation Range is increased subsequent to the
commencement of the Subscription and Community Offerings to reflect changes in
market and financial conditions and the aggregate purchase price is not more
than 15% above the maximum of the Estimated Valuation Range.
All shares sold in the Stock Offering will be sold at a uniform price per
share referred to in this Plan as the Actual Subscription Price. The aggregate
purchase price for all shares of Common Stock will not be inconsistent with the
estimated consolidated pro forma market value of the Stock Holding Company and
the Bank. The estimated consolidated pro forma market value of the Stock Holding
Company and the Bank will be determined for such purpose by the Independent
Appraiser. Prior to the commencement of the Subscription and Community
Offerings, an Offering Range will be established, which range will vary within
15% above to 15% below the midpoint of such range. The shares of Common Stock
being sold in the Stock Offering will represent a minority ownership interest in
the outstanding Common Stock of the Stock Holding Company equal to up to 49% of
the estimated pro forma market value of the Common Stock based upon the
Independent Valuation. The percentage of Common Stock offered for sale in the
Stock Offering and the Offering Range shall be determined by the Board of
Directors of the Stock Holding Company and the Board of Trustees of the Bank
prior to commencement of the Subscription Community Offerings, and will be
confirmed upon completion of the Stock Offering.
The number of shares of Common Stock to be issued in the Stock Offering
and the purchase price per share may be increased or decreased by the Stock
Holding Company. In the event that the aggregate purchase price of the Common
Stock is below the minimum of the Estimated Valuation Range, or materially above
the maximum of the Estimated Valuation Range, resolicitation of purchasers may
be required, provided that up to a 15% increase above the maximum of the
Estimated Valuation Range will not be deemed material so as to require a
resolicitation. Any such resolicitation shall be effected in such manner and
within such time as the Bank shall establish, with the approval of the FDIC and
the Division, if required. Up to a 15% increase in the number of
15
shares to be issued which is supported by an appropriate change in the estimated
pro forma market value of the Stock Holding Company will not be deemed to be
material so as to require a resolicitation of subscriptions. Based upon the
Independent Valuation as updated prior to the commencement of the Subscription
and Community Offerings, the Board of Directors of the Stock Holding Company
will fix the Actual Subscription Price. If there is a Syndicated Community
Offering of shares of Common Stock not subscribed for in the Subscription and
Community Offerings, the price per share at which the Common Stock is sold in
such Syndicated Community Offering shall be equal to the Actual Subscription
Price.
Notwithstanding the foregoing, no sale of Common Stock may be consummated
unless, prior to such consummation, the Independent Appraiser confirms to the
Stock Holding Company, the Bank and to the FDIC and the Division that, to the
best knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Common Stock
at the purchase price per share is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Stock Holding Company and
the Bank. An increase in the aggregate value of the Common Stock by up to 15%
would not be deemed to be material. If such confirmation is not received, the
Stock Holding Company may cancel the Stock Offering, extend the Stock Offering
and establish a new Actual Subscription Price and/or Estimated Valuation Range,
extend, reopen or hold a new Stock Offering or take such other action as the
FDIC and the Division may permit. The estimated market value of the Stock
Holding Company and the Bank shall be determined for such purpose by an
Independent Appraiser on the basis of such appropriate factors as are not
inconsistent with FDIC and Division regulations. The Common Stock to be issued
in the Stock Offering shall be fully paid and nonassessable.
12. METHOD OF OFFERING SHARES AND RIGHTS TO PURCHASE STOCK
In descending order of priority, the opportunity to purchase Common Stock
shall be given in the Subscription Offering to: (1) Eligible Account Holders;
(2) Tax-Qualified Employee Plans; and (3) Supplemental Eligible Account Holders.
Any shares of Common Stock that are not subscribed for in the Subscription
Offering at the discretion of the Bank and the Stock Holding Company may be
offered for sale in a Community Offering, or a Syndicated Community Offering on
terms and conditions and procedures satisfactory to the Bank and the Stock
Holding Company. The minimum purchase by any Person shall be 25 shares. The Bank
may use its discretion in determining whether prospective purchasers are
"residents," "associates," or "acting in concert," and in interpreting any and
all other provisions of the Plan. All such determinations are in the sole
discretion of the Bank, and may be based on whatever evidence the Bank chooses
to use in making any such determination.
16
In addition to the priorities set forth below, the Board of Trustees may
establish other priorities for the purchase of Common Stock, subject to the
approval of the Division and the FDIC. The priorities for the purchase of shares
in the Stock Offering are as follows:
A. SUBSCRIPTION OFFERING
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder shall
receive non-transferrable subscription rights to subscribe for shares of Common
Stock offered in the Stock Offering in an amount equal to $100,000. If there are
insufficient shares available to satisfy all subscriptions of Eligible Account
Holders, shares will be allocated to Eligible Account Holders so as to permit
each such subscribing Eligible Account Holder to purchase a number of shares
sufficient to make his or her total allocation equal to the lesser of 100 shares
or the number of shares subscribed for. Thereafter, unallocated shares will be
allocated pro rata to remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the same proportion that each such subscriber's
Qualifying Deposit bears to the total amount of Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unfilled.
Subscription rights to purchase Common Stock received by Officers and trustees
of the Bank including associates of Officers and trustees, based on their
increased deposits in the Bank in the one year preceding the Eligibility Record
Date, shall be subordinated to the subscription rights of other Eligible Account
Holders. To ensure proper allocation of stock, each Eligible Account Holder must
list on his or her subscription order form all Deposit Accounts in which he or
she had an ownership interest as of the Eligibility Record Date.
PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee Plans
shall be given the opportunity to purchase in the aggregate up to 10% of the
Common Stock issued in the Stock Offering. In the event of an oversubscription
in the Stock Offering, subscriptions for shares by the Tax-Qualified Employee
Plans may be satisfied, in whole or in part, out of authorized but unissued
shares of the Stock Holding Company subject to the maximum purchase limitations
applicable to such plans as set forth in Section 13, or may be satisfied, in
whole or in part, through open market purchases by the Tax-Qualified Employee
Plans subsequent to the closing of the Stock Offering.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible
Account Holder shall receive non-transferable subscription rights to subscribe
for shares of Common Stock offered in the Stock Offering in an amount equal to
$100,000. In the event Supplemental Eligible Account Holders subscribe for a
number of shares which, when added to the shares subscribed for by Eligible
Account Holders and the Tax-Qualified Employee Plans, exceed available shares,
the shares of Common Stock will be allocated among subscribing Supplemental
Eligible Account Holders so as to permit each subscribing Supplemental Eligible
Account Holder to purchase a number of shares sufficient to make his total
allocation equal to the lesser of 100 shares or the number of shares subscribed
for. Thereafter, unallocated shares will be allocated to each subscribing
Supplemental Eligible Account Holder whose subscription remains unfilled in the
same proportion that such subscriber's Qualifying Deposits on the Supplemental
Eligibility Record Date bear to the total amount of Qualifying
17
Deposits of all subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled.
B. COMMUNITY OFFERING
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering. This will involve an offering
of all unsubscribed shares directly to the persons residing in the Community.
The Community Offering, if any, shall be for a period of not more than 45 days
unless extended by the Stock Holding Company and the Bank, and shall commence
concurrently with, during or promptly after the Subscription Offering. The Stock
Holding Company and the Bank may use an investment banking firm or firms on a
best efforts basis to sell the unsubscribed shares in the Subscription and
Community Offering. The Stock Holding Company and the Bank may pay a commission
or other fee to such investment banking firm or firms as to the shares sold by
such firm or firms in the Subscription and Community Offering and may also
reimburse such firm or firms for expenses incurred in connection with the sale.
The Community Offering may include a Syndicated Community Offering managed by
such investment banking firm or firms. The Common Stock will be offered and sold
in the Community Offering, in accordance with FDIC and Division regulations, so
as to achieve the widest distribution of the Common Stock. No Person, by
himself, or with an Associate or group of Persons Acting in Concert, may
subscribe for or purchase more than $100,000 of Common Stock offered in the
Community Offering.
In the event of an oversubscription for shares in the Community Offering,
shares may be allocated (to the extent shares remain available) first to cover
orders of natural persons residing in the Bank's Community, then to cover the
orders of any other Person subscribing for shares in the Community Offering so
that each such Person may receive 1,000 shares, and thereafter, on a pro rata
basis to such Persons based on the amount of their respective subscriptions.
The terms "residence," "reside," or "residing" as used herein with respect
to any person shall mean any person who occupies a dwelling within the Bank's
Community, has an intent to remain with the Community for a period of time, and
manifests the genuineness of that intent by establishing an ongoing physical
presence within the Community together with an indication that such presence
within the Community is something other than merely transitory in nature. To the
extent the Person is a corporation or other business entity, the principal place
of business or headquarters shall be in the Community. To the extent a person is
a personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans, the
circumstances of the trustee shall be examined for purposes of this definition.
The Bank may utilize deposit or loan records or such other evidence provided to
it to make a determination as to whether a person is a resident. In all cases,
however, such a determination shall be in the sole discretion of the Bank.
The Bank and the Stock Holding Company, in their sole discretion, may
reject subscriptions, in whole or in part, received from any Person under this
Section 12.
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C. SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in the
Community Offering, if any, may be offered for sale to the general public by a
selling group of broker-dealers in a Syndicated Community Offering, subject to
terms, conditions and procedures as may be determined by the Bank and the Stock
Holding Company in a manner that is intended to achieve the widest distribution
of the Common Stock subject to the rights of the Stock Holding Company to accept
or reject in whole or in part all order in the Syndicated Community Offering. It
is expected that the Syndicated Community Offering will commence as soon as
practicable after termination of the Subscription Offering and the Community
Offering, if any. The Syndicated Community Offering shall be completed within 45
days after the termination of the Subscription Offering, unless such period is
extended as provided herein. The Syndicated Community Offering price and the
underwriting discount in the Syndicated Community Offering shall be determined
by an underwriting agreement between the Stock Holding Company, the Bank and the
underwriters. Such underwriting agreement shall be filed with the FDIC, the
Division and the SEC.
If for any reason a Syndicated Community Offering of unsubscribed shares
of Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the Boards of
Directors of the Stock Holding Company and the Bank will seek to make other
arrangements for the sale of the remaining shares. Such other arrangements will
be subject to the approval of the Division and the FDIC and to compliance with
applicable state and federal securities laws. Depending upon market and
financial conditions, the Board of Directors of the Stock Holding Company and
the Board of Trustees of the Bank, with the approval of the Commissioner and
FDIC, may increase or decrease any of the purchase limitations set forth in this
Section 12.
13. ADDITIONAL LIMITATIONS ON PURCHASES OF COMMON STOCK
Purchases of Common Stock in the Stock Offering will be subject to the
following purchase limitations:
A. The aggregate amount of outstanding Common Stock of the Stock
Holding Company owned or controlled by persons other than the MHC at
the close of the Stock Offering shall not exceed 49% of the Stock
Holding Company's total outstanding Common Stock.
B. No Person or group of persons Acting in Concert, may purchase more
than $100,000 of Common Stock offered in the Stock Offering to
Persons other than the MHC, except that: (i) the Stock Holding
Company may, in its sole discretion and without further notice to or
solicitation of subscribers or other prospective purchasers,
increase such maximum purchase limitation to up to 5% of the number
of shares offered in the Stock Offering; (ii) Tax-Qualified Employee
Plans may purchase up to 10% of the shares offered in the Stock
Offering; and (iii) for purposes of this subsection 13(B), shares to
be held by any Tax-Qualified Employee Plan and attributable to a
person shall not be aggregated with other shares purchased directly
by or otherwise attributable to such person.
19
C. The aggregate amount of Common Stock acquired in the Stock Offering
by all Management Persons and their Associates, exclusive of any
stock acquired by such persons in the secondary market, shall not
exceed 32% of the outstanding shares of Common Stock of the Stock
Holding Company held by persons other than the MHC at the close of
the Stock Offering. In calculating the number of shares held by
Management Persons and their Associates under this paragraph or
under the provisions of paragraph D of this section, shares held by
any Tax-Qualified Employee Benefit Plan or any Non-Tax-Qualified
Employee Benefit Plan of the Bank that are attributable to such
persons shall not be counted.
D. The aggregate amount of Common Stock acquired in the Stock Offering
by all Management Persons and their Associates, exclusive of any
Common Stock acquired by such persons in the secondary market, shall
not exceed 32% of the stockholders' equity of the Stock Holding
Company held by persons other than the MHC. In calculating the
number of shares held by Management Persons and their Associates
under this paragraph or under the provisions of paragraph C of this
section, shares held by any Tax-Qualified Employee Benefit Plan or
any Non-Tax-Qualified Employee Benefit Plan of the Bank that are
attributable to such persons shall not be counted.
E. In the event of an increase in the total number of shares offered in
the Subscription Offering due to an increase in the maximum of the
Offering Range of up to 15% (the "Adjusted Maximum"), the additional
shares will be issued in the following order of priority: (i) to
fill the Employee Plans' subscription to the Adjusted Maximum; (ii)
in the event that there is an oversubscription at the Eligible
Account Holder or Supplemental Eligible Account Holder categories,
to fill unfulfilled subscriptions of such subscribers according to
their respective priorities set forth in this Plan.
F. Notwithstanding any other provision of this Plan, no person shall be
entitled to purchase any Common Stock to the extent such purchase
would be illegal under any federal law or state law or regulation or
would violate regulations or policies of the National Association of
Securities Dealers, Inc., particularly those regarding free riding
and withholding. The Stock Holding Company and/or its agents may ask
for an acceptable legal opinion from any purchaser as to the
legality of such purchase and may refuse to honor any purchase order
if such opinion is not timely furnished.
G. The Board of Directors of the Stock Holding Company has the right in
its sole discretion to reject any order submitted by a person whose
representations the Board of Directors believes to be false or who
it otherwise believes, either alone or acting in concert with
others, is violating, circumventing, or intends to violate, evade or
circumvent the terms and conditions of this Plan.
H. The Stock Holding Company, in its sole discretion, may make
reasonable efforts to comply with the securities laws of any state
in the United States in which its depositors reside, and will only
offer and sell the Common Stock in states in which
20
the offers and sales comply with such states' securities laws.
However, no person will be offered or allowed to purchase any Common
Stock under the Plan if he or she resides in a foreign country or in
a state of the United States with respect to which any of the
following apply: (i) a small number of persons otherwise eligible to
purchase shares under the Plan reside in such state or foreign
county; (ii) the offer or sale of shares of Common Stock to such
persons would require the Bank or its employees to register, under
the securities laws of such state or foreign country, as a broker or
dealer or to register or otherwise qualify its securities for sale
in such state or foreign country; or (iii) such registration or
qualification would be impracticable for reasons of cost or
otherwise.
Prior to the consummation of the Stock Offering, no Person shall offer to
transfer, or enter into any agreement or understanding to transfer the legal or
beneficial ownership of any subscription rights or shares of Common Stock,
except pursuant to this Plan. Each Person purchasing Common Stock shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE DEEMED
TO CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE LIMITATIONS IN
THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE ASSOCIATES OR A
GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH THE PURCHASE
LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF THIS PLAN SHALL
BE DETERMINED BY THE BANK IN ITS SOLE DISCRETION. SUCH DETERMINATION SHALL BE
CONCLUSIVE, FINAL AND BINDING ON ALL PERSONS AND THE BANK MAY TAKE ANY REMEDIAL
ACTION, INCLUDING WITHOUT LIMITATION REJECTING THE PURCHASE OR REFERRING THE
MATTER TO THE COMMISSIONER FOR ACTION, AS IN ITS SOLE DISCRETION THE BANK MAY
DEEM APPROPRIATE.
14. PAYMENT FOR STOCK
All payments for Common Stock subscribed for or ordered in the Stock
Offering must be delivered in full to the Bank, together with a properly
completed and executed order form, or purchase order in the case of the
Syndicated Community Offering, on or prior to the expiration date specified on
the order form or purchase order, as the case may be, unless such date is
extended by the Bank; provided, that if the Employee Plans subscribe for shares
during the Subscription Offering, such plans will not be required to pay for the
shares at the time they subscribe but rather may pay for such shares of Common
Stock subscribed for by such plans at the Actual Subscription Price upon
consummation of the Stock Offering, provided that, in the case of the ESOP there
is in force from the time of its subscription until the consummation of the
Stock Offering, a loan commitment to lend to the ESOP, at such time, the
aggregated Actual Subscription Price of the shares for which it subscribed. The
Stock Holding Company or the Bank may make scheduled discretionary contributions
to an Employee Plan provided such contributions from the Bank, if any, do not
cause the Bank to fail to meet its regulatory capital requirement.
21
Payment for Common Stock shall be made either by check or money order, or
if a purchaser has a Deposit Account in the Bank, such purchaser may pay for the
shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's passbook, money market or certificate account at the Bank in an
amount equal to the purchase price of such shares. Such authorized withdrawal,
whether from a savings passbook or certificate account, shall be without penalty
as to premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirements, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the purchaser's
Deposit Account but may not be used by the purchaser until the Common Stock has
been sold or the 45-day period (or such longer period as may be approved by the
Commissioner) following the Stock Offering has expired, whichever occurs first.
Thereafter, the withdrawal will be given effect only to the extent necessary to
satisfy the subscription (to the extent it can be filled) at the purchase price
per share. Interest will continue to be earned on any amounts authorized for
withdrawal until such withdrawal is given effect. Interest will be paid by the
Bank at a rate established by the Bank on payment for Common Stock received in
cash or by check. Such interest will be paid from the date payment is received
by the Bank until consummation or termination of the Stock Offering. If for any
reason the Stock Offering is not consummated, all payments made by subscribers
in the Stock Offering will be refunded to them with interest. In case of amounts
authorized for withdrawal from Deposit Accounts, refunds will be made by
canceling the authorization for withdrawal.
15. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the prospectus prepared by the Stock Holding
Company and the Bank has been declared effective by the Commissioner and the
SEC, copies of the prospectus and order forms will be distributed to all
Eligible Account Holders, Supplemental Eligible Account Holders and the Employee
Plans at their last known addresses appearing on the records of the Bank for the
purpose of subscribing for shares of Common Stock in the Subscription Offering
and will be made available for use by those Persons entitled to purchase in the
Community Offering.
Each order form will be preceded or accompanied by the prospectus
describing the Stock Holding Company, the Bank, the Common Stock and the
Subscription and Community Offerings.
Each order form will contain, among other things, the following:
A. A specified date by which all order forms must be received by the
Bank, which date shall be not less than 20, nor more than 45 days,
following the date on which the order forms are mailed by the Bank,
and which date will constitute the termination of the Subscription
Offering;
B. The purchase price per share for shares of Common Stock to be sold
in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of Common
Stock that may be subscribed for pursuant to the exercise of
Subscription Rights or otherwise purchased in the Community
Offering;
22
D. Instructions as to how the recipient of the order form is to
indicate thereon the number of shares of Common Stock for which such
Person elects to subscribe and the available alternative methods of
payment therefor;
E. An acknowledgment that the recipient of the order form has received
a final copy of the prospectus prior to execution of the order form;
F. A statement indicating the consequences of failing to properly
complete and return the order form, including a statement to the
effect that all subscription rights are nontransferable, will be
void at the end of the Subscription Offering, and can only be
exercised by delivering to the Bank within the subscription period
such properly completed and executed order form, together with cash
(if delivered in person), check or money order in the full amount of
the purchase price as specified in the order form for the shares of
Common Stock for which the recipient elects to subscribe in the
Subscription Offering (or by authorizing on the order form that the
Bank withdraw said amount from the subscriber's Deposit Account at
the Bank); and
G. A statement to the effect that the executed order form, once
received by the Bank, may not be modified or amended by the
subscriber without the consent of the Bank.
Notwithstanding the above, the Bank and the Stock Holding Company reserve
the right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
16. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT
In the event order forms (a) are not delivered and are returned to the
Bank by the United States Postal Service or the Bank is unable to locate the
addressee, (b) are not received back by the Bank or are received by the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment for the shares of
Common Stock subscribed for (including cases in which Deposit Accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed in
effect by the account holder, the subscription rights of the Person to whom such
rights have been granted will lapse as though such Person failed to return the
contemplated order form within the time period specified thereon; provided, that
the Bank may, but will not be required to, waive any immaterial irregularity on
any order form or require the submission of corrected order forms or the
remittance of full payment for subscribed shares by such date as the Bank may
specify. The interpretation by the Bank of terms and conditions of this Plan and
of the order forms will be final, subject to the authority of the Commissioner
and the FDIC.
17. COMPLETION OF THE STOCK OFFERING
The Stock Offering will be terminated if not completed within 90 days from
the date of approval by the Commissioner, unless an extension is approved by the
Commissioner.
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18. MARKET FOR COMMON STOCK
If at the close of the Stock Offering the Stock Holding Company has more
than 300 shareholders of any class of stock, the Stock Holding Company shall use
its best efforts to:
(i) encourage and assist a market maker to establish and maintain
a market for that class of stock; and
(ii) list that class of stock on a national or regional securities
exchange, or on the Nasdaq system.
19. STOCK PURCHASES BY MANAGEMENT PERSONS AFTER THE STOCK OFFERING
For a period of three years after the proposed Stock Offering, no
Management Person or his or her Associates may purchase, without the prior
written approval of the Commissioner, any Common Stock of the Stock Holding
Company, except from a broker-dealer registered with the SEC. The foregoing
shall not apply to (i) negotiated transactions involving more than 1% of the
outstanding Common Stock, or (ii) purchases of stock made by and held by any
Tax-Qualified or Non-Tax Qualified Employee Plan of the Stock Bank or the Stock
Holding Company even if such stock is attributable to Management Persons or
their Associates. In addition, without the prior written approval of the
Commissioner, no officer or director of the Stock Bank or their Associates shall
purchase capital stock from the Stock Bank for a period of three years following
the Reorganization.
20. RESALES OF STOCK BY MANAGEMENT PERSONS
Common Stock purchased by Management Persons and their Associates in the
Stock Offering may not be resold for a period of at least one year following the
date of purchase, except in the case of death or substantial disability, as
determined by the Commissioner, of the Management Person or Associate.
21. STOCK CERTIFICATES
Each stock certificate shall bear a legend giving appropriate notice of
the restrictions set forth in Sections 19 and 20. Appropriate instructions shall
be issued to the Stock Holding Company's transfer agent with respect to
applicable restrictions on transfers of such stock. Any shares of stock issued
as a stock dividend, stock split or otherwise with respect to such restricted
stock, shall be subject to the same restrictions as apply to the restricted
stock.
22. RESTRICTION ON FINANCING STOCK PURCHASES
The Stock Holding Company will not offer or sell any of the Common Stock
proposed to be issued to any person whose purchase would be financed by funds
loaned to the person by the Stock Holding Company, Bank or any of their
Affiliates.
24
23. STOCK BENEFIT PLANS
The Board of Directors of the Stock Bank and/or the Stock Holding Company
intend to adopt one or more stock benefit plans for the benefit of the
employees, officers and directors of the Stock Bank and Stock Holding Company,
including an ESOP, stock award plans and stock option plans, which will be
authorized to purchase Common Stock and grant options for Common Stock. However,
only the Tax-Qualified Employee Plans will be permitted to purchase Common Stock
in the Stock Offering subject to the purchase priorities set forth in the Plan.
Pursuant to the Regulations, the Bank and the Stock Holding Company may
authorize the ESOP and any other Tax-Qualified Employee Plans to purchase in the
aggregate up to 10% of the Common Stock issued in the Stock Offering. The Stock
Bank or the Stock Holding Company may make scheduled discretionary contributions
to one or more Tax-Qualified Employee Plans to purchase Common Stock issued in
the Stock Offering or to purchase issued and outstanding shares of Common Stock
or authorized but unissued shares of Common Stock subsequent to the completion
of the Stock Offering, provided such contributions do not cause the Stock Bank
to fail to meet any of its regulatory capital requirements. This Plan
specifically authorizes the grant and issuance by the Stock Holding Company of
(i) awards of Common Stock after the Stock Offering pursuant to one or more
stock recognition and award plans (the "Recognition Plans") in an amount equal
to up to 4% of the number of shares of Common Stock issued in the Stock Offering
(and in an amount equal to up to 5% of the Common Stock issued in the Stock
Offering if the Recognition Plans are adopted more than one year after the
completion of the Stock Offering), (ii) options to purchase a number of shares
of the Stock Holding Company's Common Stock in an amount equal to up to 10% of
the number of shares of Common Stock issued in the Stock Offering and shares of
Common Stock issuable upon exercise of such options, and (iii) Common Stock to
one or more Tax Qualified Employee Plans, including the ESOP, at the closing of
the Stock Offering or at any time thereafter, in an amount equal to up to 8% of
the number of shares of Common Stock issued in the Stock Offering if the
Recognition Plans award Common Stock sooner than one year after the completion
of the Stock Offering, and up to 10% of the number of shares of Common Stock
issued in the Stock Offering if the Recognition Plans are adopted more than one
year after the completion of the Stock Offering. Shares awarded to the Tax
Qualified Employee Plans or pursuant to the Recognition Plans, and shares issued
upon exercise of options may be authorized but unissued shares of the Stock
Holding Company's Common Stock, or shares of Common Stock purchased by the Stock
Holding Company or such plans in the open market. The Recognition Plans and the
stock option plans will be subject to stockholder approval.
24. POST-REORGANIZATION FILING AND MARKET MAKING
If the Stock Holding Company has more than 300 stockholders of any class
of stock, the Stock Holding Company shall register its Common Stock with the SEC
pursuant to the Exchange Act, and shall undertake not to deregister such Common
Stock for a period of three years thereafter.
25. LIQUIDATION ACCOUNT
The Stock Bank or the Stock Holding Company shall establish at the
completion of the Reorganization a Liquidation Account in an amount equal to the
product of (i) the percentage of the Stock Holding Company's Common Stock issued
in the Stock Offering, and (ii) the net worth of the
25
Bank (determined in accordance with generally accepted accounting principles) as
set forth in the latest statement of financial condition contained in the
Prospectus used in connection with the Stock Offering. For example, if the Stock
Offering is for 30% of the Stock Holding Company's Common stock, then the
initial liquidation account shall be equal to 30% of the net worth of the Bank
as shown on its latest financial statement used in connection with the Stock
Offering. The Liquidation Account will be maintained by the Stock Bank and/or
the Stock Holding Company for the benefit of the Eligible Account Holders and
Supplemental Eligible Account Holders who continue to maintain Deposit Accounts
with the Stock Bank following the Reorganization. Each Eligible Account Holder
and Supplemental Eligible Account Holder shall, with respect to each Deposit
Account, hold a related inchoate interest in a portion of the Liquidation
Account balance, in relation to each Deposit Account balance at the Eligibility
Record Date or Supplemental Eligibility Record Date, as the case may be, or to
such balance as it may be subsequently reduced, as hereinafter provided. The
initial Liquidation Account balance shall not be increased, and shall be subject
to downward adjustment to the extent of any downward adjustment of any
subaccount balance of any Eligible Account Holder or Supplemental Eligible
Account Holder in accordance with 209 CMR 33.05(12).
In the unlikely event of a complete liquidation of the Stock Bank and the
Stock Holding Company (and only in such event), following all liquidation
payments to creditors (including those to depositors to the extent of their
Deposit Accounts) each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidating distribution from the
Liquidation Account, in the amount of the then-adjusted subaccount balances for
his or her deposit accounts then held, before any liquidating distribution may
be made to any holders of the Stock Holding Company's or Stock Bank's capital
stock. No Conversion Transaction and no merger, consolidation, reorganization,
purchase of bulk assets with assumption of deposit accounts and other
liabilities, or similar transactions with an FDIC-insured institution, in which
the Stock Bank or the Stock Holding Company is not the surviving institution,
shall be deemed to be a complete liquidation for this purpose. In such
transactions, the Liquidation Account shall be assumed by the surviving
institution.
The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder and/or Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the Stock Bank. For Deposit
Accounts in existence on both dates, separate subaccounts shall be determined on
the basis of the Qualifying Deposits in such Deposit Accounts on such record
dates. Such initial subaccount balance shall not be increased by additional
Deposits, but shall be subject to downward adjustment as described below.
If, at the close of business on the last day of any period for which the
Stock Bank or the Stock Holding Company, as the case may be, has prepared
audited financial statements subsequent to the effective date of the
Reorganization, the deposit balance in the Deposit Account of an Eligible
Account Holder or Supplemental Eligible Account Holder is less than the lesser
of: (i) the balance in the Deposit Account at the close of business on the last
day of any period for which the Stock Bank or the Stock Holding Company, as the
case may be, has prepared audited financial statements
26
subsequent to the Eligibility Record Date or Supplemental Eligibility Record
Date, or (ii) the amount in such Deposit Account as of the Eligibility Record
Date or Supplemental Eligibility Record Date, then the subaccount balance for
such Deposit Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in the balance of such Deposit Account. In
the event of such downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase in the deposit
balance of the related Deposit Account. If any such Deposit Account is closed,
the related subaccount shall be reduced to zero. For purposes of this Section, a
time account shall be deemed to be closed upon its maturity date regardless of
any renewal thereof. A distribution of each subaccount balance may be made only
in the event of a complete liquidation of the Stock Bank and the Stock Holding
Company subsequent to the Reorganization and only out of funds available for
such purpose after payment of all creditors.
Neither the Stock Bank nor the Stock Holding Company shall be required to
set aside funds for the purpose of establishing the Liquidation Account, and the
creation and maintenance of the Liquidation Account shall not operate to
restrict the use or application of any of the net worth accounts of the Stock
Bank, except that neither the Stock Bank nor the Stock Holding Company shall
declare or pay a cash dividend on, or repurchase any of, its capital stock if
the effect thereof would cause its net worth to be reduced below the amount
required for the Liquidation Account.
26. EMPLOYMENT AND OTHER SEVERANCE AGREEMENTS
Contemporaneously with the Reorganization, the Stock Bank and/or the Stock
Holding Company may enter into employment and/or severance arrangements with one
or more executive officers of the Stock Bank and/or the Stock Holding Company.
It is anticipated that any employment contracts entered into by the Bank and/or
the Stock Holding Company will be for terms not exceeding three years and that
such contracts will provide for annual renewals of the term of the contracts,
subject to approval by the Board of Directors. The Stock Bank and/or the Stock
Holding Company also may enter into severance arrangements with one or more
executive officers which provide for the payment of severance compensation in
the event of a change in control of the Stock Bank and/or the Stock Holding
Company. The terms of such employment and severance arrangements have not been
determined as of this time, but will be described in any prospectus circulated
in connection with the Stock Offering and will be subject to and comply with all
regulations of the Commissioner.
27. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Stock Holding Company may not declare or pay a cash dividend on, or
repurchase any of, its Common Stock if the effect thereof would cause its
regulatory capital of the Bank to be reduced below the amount required to
maintain the Liquidation Account and under FDIC rules and regulations.
Otherwise, the Stock Holding Company may declare dividends or make other capital
distributions in accordance with applicable laws and regulations. Subject to any
applicable regulatory approvals, the MHC may waive its right to receive
dividends declared by the Stock Holding Company.
27
28. REORGANIZATION AND STOCK OFFERING EXPENSES
The Regulations require that the expenses of the Reorganization must be
reasonable. The Bank will use its best efforts to assure that the expenses
incurred by the Bank and the Stock Holding Company in effecting the
Reorganization and the Stock Offering will be reasonable.
29. INTERPRETATION
All interpretations of the Plan and application of its provisions to
particular circumstances by a majority of the Board of Trustees of the Bank
shall be final, subject to the authority of the Commissioner.
30. AMENDMENT OR TERMINATION OF THE PLAN
If necessary or desirable, the terms of the Plan may be substantively
amended by a majority vote of the Bank's Board of Trustees as a result of
comments from regulatory authorities or otherwise, at any time prior to approval
of the Plan by the Corporators. At any time after approval of the Plan by the
Corporators, the terms of the Plan that relate to the Reorganization may be
amended by a majority vote of the Board of Trustees only with the concurrence of
the Commissioner. The Plan may be terminated by a majority vote of the Board of
Trustees at any time prior to the date of the Special Meeting, and may be
terminated by a majority vote of the Board of Trustees at any time thereafter
with the concurrence of the Commissioner.
The Plan shall be terminated if the Reorganization is not completed within
24 months from the date upon which the Corporators of the Bank approve the Plan,
and may not be extended by the Bank.
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Exhibit 3.1
ARTICLES OF ORGANIZATION
OF
WESTBOROUGH FINANCIAL SERVICES, INC.
ARTICLE I
NAME
The exact name of the corporation is "Westborough Financial Services,
Inc." (the "Corporation").
ARTICLE II
PURPOSE
The purpose of the Corporation is to engage in the following business
activities: To buy, sell, deal in, or hold securities of every kind and
description; and in general to carry on any business permitted to corporations
organized under Chapter 156B of the Massachusetts General Laws as now in force
or hereafter amended.
ARTICLE III
AUTHORIZED CAPITAL STOCK
The total number of shares and par value of each class of stock that the
Corporation is authorized to issue is as follows:
Common: 5,000,000 shares, $.01 par value
Preferred: 1,000,000 shares, $.01 par value
ARTICLE IV
CAPITAL STOCK
A description of the different classes and series of the Corporation's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class and series of capital
stock are as follows:
A. COMMON STOCK. Except as provided by law or in this Article IV (or
in any certificate of establishment of series of preferred stock), holders of
the Common Stock shall exclusively possess all voting power. Each holder of
shares of Common Stock shall be entitled to one vote on all matters for each
share held by such holder. Stockholders shall not be permitted to cumulate their
votes for election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the Common Stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
Common Stock, then dividends may be paid on the Common Stock and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends; but only when and as
declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the holders of
any class having preferences over the Common Stock in the event of liquidation,
dissolution or winding up of the full preferential amounts of which they are
respectively entitled, the holders of the Common Stock, and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets, shall be entitled, after payment or provision for
payment of all debts and liabilities of the Corporation, to receive the
remaining assets of the Corporation available for distribution, in cash or in
kind, in proportion to their holdings.
Each share of Common Stock shall have the same relative rights as, and be
identical in all respects with, all the other shares of Common Stock.
B. PREFERRED STOCK. Subject to any limitations prescribed by law,
the Board of Directors of the Corporation is authorized, by vote or votes from
time to time adopted, to provide for the issuance of one or more classes of
preferred stock, which shall be separately identified. The Board of Directors
shall have the authority to divide any authorized class of preferred stock of
the Corporation into one or more series, to establish or change from time to
time the number of shares to be included in each such series, and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of any series so established and
the qualifications, limitations and restrictions thereof. Each series shall be
separately designated so as to distinguish the shares thereof from the shares of
all other series and classes. The authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
one or more of the following:
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to dividends;
3. The voting powers, full or limited, if any, of shares of such
series;
4. Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
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5. The amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or winding
up of the Corporation;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
7. Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation, and if so convertible or exchangeable, the conversion price
or prices or the rate or rates of exchange, and the adjustments thereof,
if any, at which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
8. The price or other consideration for which the shares of such
series shall be issued;
9. Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of preferred stock
and whether such shares may be reissued as shares of the same or any other
series of stock; and
10. Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as are permitted by law and as the
Board of Directors of the Corporation may deem advisable.
Any such vote shall become effective when the Corporation files with the
Secretary of State of The Commonwealth of Massachusetts a certificate of
establishment of one or more series of preferred stock signed by the President
or any Vice President and by the Clerk, Assistant Clerk, Secretary or Assistant
Secretary of the Corporation, setting forth a copy of the vote of the Board of
Directors establishing and designating the series and fixing and determining the
relative rights and preferences thereof, the date of adoption of such vote and a
certification that such vote was duly adopted by the Board of Directors.
Each share of each series of preferred stock shall have the same relative
rights as and be identical in all respects with all the other shares of the same
series.
Subject to the authority of the Board of Directors as set forth in
Paragraph 9 above, any shares of Preferred Stock shall, upon reacquisition
thereof by the Corporation, be restored to the status of authorized but unissued
Preferred Stock under this Section B.
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Except as specifically provided in these Articles, the holders of
Preferred Stock or Common Stock shall not be entitled to any vote and shall not
have any voting rights concerning the designation or issuance of any shares of
Preferred Stock authorized by and complying with the conditions of these
Articles, and subject to the authority of the Board of Directors or any
authorized committee thereof as set forth above, the right to any such vote is
expressly waived by all present and future holders of the capital stock of the
Corporation.
ARTICLE V
LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK
SECTION 1. APPLICABILITY OF ARTICLE. The provisions of this Article
V shall become effective upon (i) the consummation of the Reorganization and
(ii) the concurrent acquisition by the Corporation of all of the outstanding
capital stock of the Bank (the "Effective Date"). All terms used in this Article
V and not otherwise defined herein shall have the meanings ascribed to such
terms in Article VI below.
SECTION 2. PROHIBITIONS RELATING TO BENEFICIAL OWNERSHIP OF VOTING
STOCK. No Person (other than the Corporation, Westborough Bancorp, MHC, a
Massachusetts chartered mutual savings bank holding company (the "MHC"), any
Subsidiary or any pension, profit-sharing, stock bonus or other compensation
plan maintained by the Corporation, the MHC, or by a member of a controlled
group of corporations or trades or businesses of which the Corporation or the
MHC is a member for the benefit of the employees of the Corporation, the MHC, or
any Subsidiary, or any trust or custodial arrangement established in connection
with any such plan) shall directly or indirectly acquire or hold the beneficial
ownership of more than ten percent (10%) of the issued and outstanding shares of
Voting Stock of the Corporation, exclusive of the shares beneficially owned by
the MHC. Any Person so prohibited who directly or indirectly acquires or holds
the beneficial ownership of more than ten percent (10%) of the issued and
outstanding shares of Voting Stock, exclusive of the shares beneficially owned
by the MHC, in violation of this Section 2 shall be subject to the provisions of
Sections 3 and 4 of this Article V, below. The Corporation is authorized to
refuse to recognize a transfer or attempted transfer of any shares of Voting
Stock to any Person who beneficially owns, or who the Corporation believes would
become by virtue of such transfer the beneficial owner of, more than ten percent
(10%) of shares of the Voting Stock, exclusive of the shares beneficially owned
by the MHC.
SECTION 3. EXCESS SHARES. If, notwithstanding the foregoing
prohibition, a Person subject to the foregoing prohibition shall voluntarily or
involuntarily become or attempt to become the purported beneficial owner (the
"Purported Owner") of shares of Voting Stock in excess of ten percent (10%) of
the issued and outstanding shares of Voting Stock, exclusive of the shares
beneficially owned by the MHC, the number of shares in excess of ten percent
(10%) shall be deemed to be "Excess Shares," and the holder thereof shall be
entitled to cast only one one-hundredth (1/100) of one vote per share for each
Excess Share.
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The restrictions set forth in this Article V shall be noted
conspicuously on all certificates evidencing ownership of shares of Voting
Stock.
SECTION 4. POWERS OF THE BOARD OF DIRECTORS.
(a) The Board of Directors may, to the extent permitted by law, from
time to time establish, modify, amend or rescind, by Bylaw or otherwise,
regulations and procedures not inconsistent with the express provisions of this
Article V for the orderly application, administration and implementation of the
provisions of this Article V. Such procedures and regulations shall be kept on
file with the Corporate Secretary of the Corporation and with the Transfer
Agent, shall be made available for inspection by the public and, upon request,
shall be mailed to any holder of shares of Voting Stock of the Corporation.
(b) When it appears that a particular Person has become a Purported
Owner of Excess Shares in violation of Section 2 of this Article V, or of the
regulations or procedures of the Board of Directors with respect to this Article
V, and that the provisions of this Article V require application, interpretation
or construction, then a majority of the directors of the Corporation shall have
the power and duty to interpret all of the terms and provisions of this Article
V and to determine on the basis of information known to them after reasonable
inquiry all facts necessary to ascertain compliance with this Article V,
including, without limitation, (i) the number of shares of Voting Stock
beneficially owned by any Person or Purported Owner, (ii) whether a Person or
Purported Owner is an Affiliate or Associate of, or is acting in concert with,
any other Person or Purported Owner, (iii) whether a Person or Purported Owner
has an agreement, arrangement or understanding with any other Person or
Purported Owner as to the voting or disposition of any shares of the Voting
Stock, (iv) the application of any other definition or operative provision of
this Article V to the given facts or (v) any other matter relating to the
applicability or effect of this Article V.
The Board of Directors shall have the right to demand that any
Person who is reasonably believed to be a Purported Owner of Excess Shares (or
who holds of record shares of Voting Stock beneficially owned by any Person
reasonably believed to be a Purported Owner in excess of such limit) supply the
Corporation with complete information as to (i) the record owner(s) of all
shares of Voting Stock beneficially owned by such Person or Purported Owner and
(ii) any other factual matter relating to the applicability or effect of this
Article V as may reasonably be requested of such Person or Purported Owner.
Any applications, interpretations, constructions or any other
determinations made by the Board of Directors pursuant to this Article V, in
good faith and on the basis of such information and assistance as was then
reasonably available for such purpose, shall be conclusive and binding upon the
Corporation and its shareholders, and neither the Corporation nor any of its
shareholders shall have the right to challenge any such application,
interpretation, construction or determination.
SECTION 5. SEVERABILITY. In the event any provision (or portion
thereof) of this Article V shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or portions thereof) of
this Article V shall remain in full force and effect, and shall be construed as
if such invalid, prohibited or unenforceable provision had been stricken
herefrom or
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otherwise rendered inapplicable, it being the intent of this Corporation and its
shareholders that each such remaining provision (or portion thereof) of this
Article V remain, to the fullest extent permitted by law, applicable and
enforceable as to all shareholders, including Purported Owners, if any,
notwithstanding any such finding.
SECTION 6. EXCLUSIONS. This Article V shall not apply to (a) any
offer or sale with a view towards public resale made exclusively by the
Corporation to any underwriter or underwriters acting on behalf of the
Corporation, or to the selling group acting on such underwriter's or
underwriters' behalf, in connection with a public offering of the Common Stock;
or (b) any reclassification of securities (including any reverse stock split),
or recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction or
reorganization that does not have the effect, directly or indirectly, of
changing the beneficial ownership interests of the Corporation's shareholders,
other than pursuant to the exercise of any dissenters' appraisal rights, except
as a result of immaterial changes due to fractional share adjustments, which
changes do not exceed, in the aggregate, one percent (1%) of the issued and
outstanding shares of such class of equity or convertible securities exclusive
of the shares beneficially owned by the MHC.
ARTICLE VI
OTHER LAWFUL PROVISIONS
6.1 CORPORATE GOVERNANCE
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its Directors
and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by these Articles or the
Bylaws of the Corporation, the Directors are hereby empowered to exercise all
such powers and do all such acts and things as may be exercised or done by the
Corporation.
B. Any action to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders of
the Corporation and may not be effected by the unanimous consent in writing by
such stockholders.
C. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directorships (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board for adoption) (the "Whole Board"), (provided, however,
that if there is an Interested Stockholder (as defined in Section C of Section
6.4), any such call by the Board of Directors shall also require the affirmative
vote of a majority of the Disinterested Directors (as defined in Section C of
Section 6.4) then in office).
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Special meetings shall be called by the Clerk, or in the case of the death,
absence, incapacity or refusal of the Clerk, by any other officer, upon written
application of one or more stockholders who hold at least 80% in interest of the
capital stock entitled to vote at such meeting. Application to a court pursuant
to Section 34(b) of Chapter 156B (the "Massachusetts Business Corporation Law")
of The General Laws of The Commonwealth of Massachusetts (or successor
provisions) requesting the call of a special meeting of stockholders because
none of the officers is able and willing to call such a meeting may be made only
by stockholders who hold at least 80% in interest of the capital stock entitled
to vote at such meeting. At a special meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been stated in the written notice of the special meeting, unless
otherwise provided by law.
6.2 DIRECTORS
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three classes,
with the term of office of the first class to expire at the first annual meeting
of stockholders, the term of office of the second class to expire at the annual
meeting of stockholders one year thereafter and the term of office of the third
class to expire at the annual meeting of stockholders two years thereafter. At
each annual meeting of stockholders following such initial classification and
election, Directors elected to succeed those Directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election; provided that no director may be elected
to a term which extends beyond his or her 75th birthday.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of Directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum, (provided, however, that if there is
an Interested Stockholder, any such action by the Board of Directors shall also
require the affirmative vote of a majority of the Disinterested Directors then
in office) and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been chosen expires. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any Director may be removed from office at any time, but
only for cause and only by the affirmative vote of either (i) two-thirds of the
Whole Board or (ii) the holders of at least 80% of the voting power of all of
the then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class. At
least 30 days prior to such meeting of the Board of Directors or stockholders,
written notice shall be sent to the Director
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whose removal will be considered at the meeting and, if the removal is for
cause, the Director will be provided an opportunity to be heard before the Board
of Directors or stockholders, as applicable.
6.3 AMENDMENT TO BYLAWS. The Board of Directors is expressly empowered to
adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or
repeal of the Bylaws of the Corporation by the Board of Directors shall require
the approval of a majority of the Whole Board (unless at the time of such action
there shall be an Interested Stockholder, in which case such action shall
require the affirmative vote of a majority of the Disinterested Directors then
in office). The stockholders shall also have power to adopt, amend or repeal the
Bylaws of the Corporation; provided, however, that, in addition to any vote of
the holders of any class or series of stock of the Corporation required by law
or by these Articles, the affirmative vote of the holders of at least 80% of the
voting power of all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of Directors, voting
together as a single class, shall be required to adopt, amend or repeal any
provisions of the Bylaws of the Corporation.
6.4 CERTAIN BUSINESS COMBINATIONS
A. In addition to any affirmative vote required by law or these
Articles, and except as otherwise expressly provided in this Section 6.4:
1. any merger or consolidation of the Corporation or any Subsidiary
(as defined in Section C of this Section 6.4) with (i) any Interested
Stockholder (as defined in Section C of this Section 6.4), or (ii) any
other corporation (whether or not itself an Interested Stockholder) which
is, or after such merger or consolidation would be, an Affiliate (as
defined in Section C of this Section 6.4) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder, or any Affiliate of any Interested
Stockholder, of any assets of the Corporation or any Subsidiary having an
aggregate Fair Market Value (as herein defined in Section C of this
Section 6.4) equaling or exceeding 25% or more of the combined assets of
the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an aggregate Fair
Market Value (as defined in Section C of this Section 6.4) equaling or
exceeding 25% of the combined Fair Market Value of the outstanding Common
Stock of the Corporation and its Subsidiaries, except for any issuance or
transfer pursuant to an employee benefit plan of the Corporation or any
Subsidiary thereof (established with the approval of a majority of the
Disinterested Directors then in office); or
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4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of Directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or by any other provisions of these Articles or any Certificate of
Establishment or in any agreement with any national securities exchange or
otherwise.
The term "Business Combination" as used in this Section 6.4 shall mean any
transaction which is referred to in any one or more of paragraphs 1 through 5 of
Section A of this Section 6.4.
B. The provisions of Section A of this Section 6.4 shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote, or such vote (if any), as is required
by law or by these Articles, if, in the case of any Business Combination that
does not involve any cash or other consideration being received by the
stockholders of the Corporation solely in their capacity as stockholders of the
Corporation, the condition specified in the following paragraph 1 is met or, in
the case of any other Business Combination, all of the conditions specified in
either of the following paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as defined in Section C of this Section
6.4) then in office.
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the
holders of Common Stock in such Business Combination shall at least
be equal to the higher of the following
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder or any of its Affiliates for any shares
of Common Stock acquired by it (i) within the two-year period
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immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement
Date"), or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher.
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date
is referred to in this Section 6.4 as the "Determination
Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the following (it
being intended that the requirements of this subparagraph (b) shall
be required to be met with respect to every such class of
outstanding Voting Stock, whether or not the Interested Stockholder
has previously acquired any shares of a particular class of Voting
Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder for any shares of such class of Voting
Stock acquired by it (i) within the two-year period
immediately prior to the Announcement Date, or (ii) in the
transaction in which it became an Interested Stockholder,
whichever is higher;
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation; and
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the Determination
Date, whichever is higher.
(c) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of Voting
Stock. If the Interested Stockholder has paid for shares of any
class of Voting Stock with varying forms of consideration, the form
of consideration to be received per share by holders of shares of
such class of Voting Stock shall be either cash or the form used to
acquire the largest number of shares of such class of Voting Stock
previously acquired by the Interested Stockholder. The price
determined in accordance with subparagraph B.2 of this Section 6.4
shall be subject to appropriate adjustment in the event of any stock
dividend, stock split, combination of shares or similar event.
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(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as defined in Section C of this Section
6.4) then in office, there shall have been no failure to declare and
pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding stock having
preference over the Common Stock as to dividends or liquidation; (2)
there shall have been (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a
majority of the Disinterested Directors then in office, and (ii) an
increase in such annual rate of dividends as necessary to reflect
any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the
Common Stock, unless the failure to so increase such annual rate is
approved by a majority of the Disinterested Directors then in
office, and (3) neither such Interested Stockholder or any of its
Affiliates shall have become the beneficial owner of any additional
shares of Voting Stock except as part of the transaction which
results in such Interested Stockholder becoming an Interested
Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided, directly or indirectly, by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing such
Act, and the rules or regulations thereunder) shall be mailed to
stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy
or information statement is required to be mailed pursuant to such
Act or subsequent provisions).
C. For the purposes of Section 6.1 and this Section 6.4:
1. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint venture, a
pool, a joint stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other entity.
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2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who or which:
(a) is the beneficial owner, directly or indirectly, of more
than 5% of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 5% or more of the
voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the Securities
Act of 1933, as amended.
3. "Beneficial ownership" shall be determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Securities Exchange Act of
1934 (or any successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor rule or statutory
provision thereto, pursuant to said Rule 13d-3 as in effect on the date of
filing of these Articles; provided, however, that a person shall, in any
event, also be deemed the "beneficial owner" of any Common Stock:
(a) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(b) which such person or any of its affiliates has (i) the
right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of an
agreement, contract, or other arrangement with this Corporation to
effect any transaction which is described in any one or more clauses
of Section A of Section 6.4) or upon the exercise of conversion
rights, exchange rights, warrants, or options or otherwise, or (ii)
sole or shared voting or investment power with respect thereto
pursuant to any agreement, arrangement, understanding, relationship
or otherwise (but shall not be deemed to be the beneficial owner of
any voting shares solely by reason of a revocable proxy granted for
a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to shares of
which neither such person nor any such affiliate is otherwise deemed
the beneficial owner); or
(c) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of
its affiliates acts as a partnership, limited partnership, syndicate
or other group pursuant to any agreement, arrangement
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or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of this Corporation;
and provided further, however, that (1) no Director or Officer of this
Corporation (or any affiliate of any such Director or Officer) shall,
solely by reason of any or all of such Directors or Officers acting in
their capacities as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by another such
Director or Officer (or any affiliate thereof, and (2) neither any
employee stock ownership plan or similar plan of this Corporation or any
subsidiary of this Corporation, nor any trustee with respect thereto or
any affiliate of such trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof, to beneficially own
any Common Stock held under any such plan. For purposes of computing the
percentage beneficial ownership of Common Stock of a person, the
outstanding Common Stock shall include shares deemed owned by such person
through application of this subsection but shall not include any other
Common Stock which may be issuable by this Corporation pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise. For all other purposes, the outstanding Common Stock shall
include only Common Stock then outstanding and shall not include any
Common Stock which may be issuable by this Corporation pursuant to any
agreement, or upon the exercise of conversion rights, warrants or options,
or otherwise.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended, as in effect on the
date of filing of these Articles.
5. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in Paragraph 2 of this Section C, the
term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any Director who is
thereafter chosen to fill any vacancy of the Board of Directors or who is
elected and who, in either event, is unaffiliated with the Interested
Stockholder and in connection with his or her initial assumption of office
is recommended for appointment or election by a majority of Disinterested
Directors then in office.
7. "Fair Market Value" means:
(a) in the case of stock, the highest closing sales price of
the stock during the 30-day period immediately preceding the date in
question of a share of such stock on the National Association of
Securities Dealers Automated Quotation System or any system then in
use, or, if such stock is admitted to trading on a principal United
States securities exchange registered under the Securities Exchange
Act of 1934, as
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amended, Fair Market Value shall be the highest sale price reported
during the 30-day period preceding the date in question, or, if no
such quotations are available, the Fair Market Value on the date in
question of a share of such stock as determined by the Board of
Directors in good faith, in each case with respect to any class of
stock, appropriately adjusted for any dividend or distribution in
shares of such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of shares of
such stock or any combination or reclassification of outstanding
shares of such stock into a smaller number of shares of such stock,
and
(b) in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as determined
by the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number
of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as
used in Subparagraphs (a) and (b) of Paragraph 2 of Section B of this
Section 6.4 shall include the shares of Common Stock and/or the shares of
any other class of outstanding Voting Stock retained by the holders of
such shares.
D. A majority of the Directors of the Corporation then in office
(provided, however, that if there is an Interested Stockholder, any such
determination shall also require the affirmative vote of a majority of the
Disinterested Directors then in office) shall have the power and duty to
determine for the purposes of this Section 6.4, on the basis of information
known to them after reasonable inquiry: (a) whether a person is an Interested
Stockholder; (b) the number of shares of Voting Stock beneficially owned by any
person; (c) whether a person is an Affiliate or Associate of another; and (d)
whether the assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary in any Business Combination has, an aggregate
Fair Market Value equaling or exceeding 25% of the combined Fair Market Value of
the Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors then in office shall have the further power to interpret
all of the terms and provisions of this Section 6.4.
E. Nothing contained in this Section 6.4 shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of these Articles or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, these Articles or any Certificate of
Establishment, the affirmative vote of the holders of at least 80% of the voting
power
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of all of the then-outstanding shares of the Voting Stock, voting together as a
single class, shall be required to alter, amend or repeal this Section 6.4.
6.5 STANDARDS FOR BOARD OF DIRECTORS' EVALUATION OF OFFERS.
The Board of Directors of the Corporation, in determining whether the
interests of the Corporation and its stockholders will be served by any offer of
another Person (as defined in Section 6.4) to (i) make a tender or exchange
offer for any equity security of the Corporation, (ii) merge or consolidate the
Corporation with or into another institution, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the
Corporation, may consider the interests of the Corporation's employees,
suppliers, creditors and customers, the economy of the state, region and nation,
community and societal considerations, and the long-term and short-term
interests of the Corporation and its stockholders, including the possibility
that these interests may be best served by the continued independence of the
Corporation.
6.6 PRE-EMPTIVE RIGHTS
Holders of the capital stock of the Corporation shall not be entitled to
preemptive rights with respect to any shares of the capital stock of the
Corporation which may be issued.
6.7 INDEMNIFICATION
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or an
Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
Director, Officer, employee or agent or in any other capacity while serving as a
Director, Officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Massachusetts Business
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Section 6.7 shall include, in the case of a Director or officer at the level of
Vice President or above, and in the case of any other Officer or any employee
may include (in the discretion of the Board of Directors), the
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right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). Notwithstanding the foregoing, expenses incurred by an indemnitee in
advance of the final disposition of a proceeding may be paid only upon the
Corporation's receipt of an undertaking by the indemnitee to repay such payment
if he or she shall be adjudicated or determined to be not entitled to
indemnification under applicable law. The Corporation may accept such
undertaking without reference to the financial ability of the Indemnitee to make
such repayment. The rights to indemnification and to the advancement of expenses
conferred in Sections A and B of this Section 6.7 shall be contract rights and
such rights shall continue as to an indemnitee who has ceased to be a Director,
Officer, employee or agent and shall inure to the benefit of the indemnitee's
heirs, executors and administrators.
C. If a claim under Section A or B of this Section 6.7 is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee also shall be
entitled to be paid the expense of prosecuting or defending such suit. In (i)
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, he or she shall not have acted in good faith in the
reasonable belief that his or her action was in the best interests of the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Massachusetts Business
Corporation Law, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Section 6.7 or
otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Section 6.7 shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Articles, Bylaws, agreement, vote of stockholders or disinterested Directors or
otherwise.
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E. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Massachusetts Business Corporation Law.
F. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section 6.7 with respect to the
indemnification and advancement of expenses of Directors and Officers of the
Corporation. Without limiting the generality of the foregoing, the Corporation
may enter into specific agreements, commitments or arrangements for
indemnification on any terms not prohibited by law which it deems to be
appropriate.
G. If the Corporation is merged into or consolidated with another
corporation and the Corporation is not the surviving corporation, the surviving
Corporation shall assume the obligations of the Corporation under this Section
6.7 with respect to any action, suit, proceeding or investigation arising out of
or relating to any actions, transactions or facts occurring at or prior to the
date of such merger or consolidation.
6.8 LIMITATION OF LIABILITY OF DIRECTORS
A. No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director notwithstanding any provision of law imposing such liability;
provided, however, that this Section 6.8 shall not eliminate or limit any
liability of a Director (i) for any breach of the Director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Sections 61 or 62 of Chapter 156B of the General Laws of the
Commonwealth of Massachusetts, or (iv) with respect to any transaction from
which the Director derived an improper personal benefit.
B. No amendment or repeal of this Section 6.8 shall adversely affect
the rights and protection afforded to a Director of this Corporation under this
Section 6.8 for acts or omissions occurring prior to such amendment or repeal.
If the Massachusetts Business Corporation Law is hereafter amended to further
eliminate or limit the personal liability of Directors or to authorize corporate
action to further eliminate or limit such liability, then the liability of the
Directors of this Corporation shall be eliminated or limited to the fullest
extent permitted by the Massachusetts Business Corporation Law as so amended.
6.9 TRANSACTIONS WITH INTERESTED PERSONS
A. Unless entered into in bad faith, no contract or transaction by
the Corporation shall be void, voidable or in any way affected by reason of the
fact that it is with an Interested Person.
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B. For the purposes of this Section 6.9, "Interested Person" means
any person or organization in any way interested in the Corporation whether as a
director, officer, stockholder, employee or otherwise, and any other entity in
which any such person or organization of the Corporation is in any way
interested.
C. Unless such contract or transaction was entered into in bad
faith, no Interested Person, because of such interest, shall be liable to the
Corporation or to any other person or organization for any loss or expense
incurred by reason of such contract or transaction or shall be accountable for
any gain or profit realized from such contract or transaction.
D. The provisions of this Section 6.9 shall be operative
notwithstanding the fact that the presence of an Interested Person was necessary
to constitute a quorum at a meeting of Directors or stockholders of the
Corporation at which such contract or transaction was authorized or that the
vote of an Interested Person was necessary for the authorization of such
contract or transaction.
6.10 ACTING AS A PARTNER
The Corporation may be a partner in any business enterprise which it would
have power to conduct by itself.
6.11 STOCKHOLDERS' MEETINGS
Meetings of stockholders may be held at such place in The Commonwealth of
Massachusetts or, if permitted by applicable law, elsewhere in the United States
as the Board of Directors may determine.
6.12 OWNERSHIP OF VOTING STOCK BY MUTUAL HOLDING COMPANY
At all times so long as Westborough Bancorp, M.H.C. (the "Mutual Holding
Company"), the majority holder of the Corporation's Common Stock, shall be in
existence, the Mutual Holding Company shall own at least a majority of the
Voting Stock of the Corporation, and the Corporation shall not be authorized to
issue any shares of Voting Stock or take any action while the Mutual Holding
Company is in existence if after such issuance or action the Mutual Holding
Company shall own less than the majority of the Corporation's Voting Stock. For
these purposes, "Voting Stock" means Common Stock or preferred stock, or similar
interests if the shares by statute, charter or in any manner, entitle the
holder: (i) to vote for or to select directors of the Corporation, and (ii) to
vote on or to direct the conduct of the operations or other significant policies
of the Corporation. Notwithstanding anything in the preceding sentence,
preferred stock is not "Voting Stock" if: (i) voting rights associated with the
preferred stock are limited solely to the type customarily provided by statute
with regard to matters that would significantly and adversely affect the rights
or preferences of the preferred stock, such as the issuance of additional
amounts or classes of senior securities, the modification of the terms of the
preferred stock, the dissolution of the Corporation, or the payment of dividends
by the Corporation when preferred dividends are in arrears; (ii) the preferred
stock represents an essentially passive investment or financing device and does
not
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otherwise provide the holder with control over the Corporation; and (iii) the
preferred stock does not at the time entitle the holder, by statute, charter, or
otherwise, to select or to vote for the selection of directors of the
Corporation. Notwithstanding anything in the preceding two sentences, "Voting
Stock" shall be deemed to include preferred stock and other securities that,
upon transfer or otherwise, are convertible into Voting Stock or exercisable to
acquire Voting Stock where the holder of the stock, convertible security or
right to acquire Voting Stock has the preponderant economic risk in the
underlying Voting Stock. Securities immediately convertible into Voting Stock at
the option of the holder without payment of additional consideration shall be
deemed to constitute the Voting Stock into which they are convertible; other
convertible securities and rights to acquire Voting Stock shall not be deemed to
vest the holder with the preponderant economic risk in the underlying Voting
Stock if the holder has paid less than 50% of the consideration required to
directly acquire the Voting Stock and has no other economic interest in the
underlying Voting Stock.
6.13 CONVERSION TRANSACTION
A. In the event that the Mutual Holding Company elects to convert to
stock form in accordance with applicable law and regulation (a "Conversion
Transaction"), the Mutual Holding Company or its successor may merge or combine
with the Corporation or The Westborough Bank (the "Bank"), the Corporation's
wholly-owned subsidiary, and the depositors of the Bank will receive the right
to subscribe for a number of shares of Common Stock of the surviving or
resulting corporation determined as set forth in the Plan of Reorganization From
a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the
"Plan") of the Bank's mutual savings bank predecessor. The additional shares of
Common Stock of the Corporation issued in the Conversion Transaction shall be
sold at their aggregate pro forma market value. Pursuant to the Plan, in any
Conversion Transaction, the minority stockholders of the Corporation (who
consist of the holders of Common Stock other than the Mutual Holding Company),
will be entitled to maintain the same percentage ownership interest in the
Common Stock of the Corporation (or the resulting corporation) after the
Conversion Transaction as their ownership interest in the Common Stock of the
Corporation immediately prior to the Conversion Transaction, subject only to
adjustment (if required by federal or state law, regulation, or regulatory
policy) to reflect (i) the cumulative effect of the aggregate amount of
dividends waived by the Mutual Holding Company, (ii) the market value of assets
of the Mutual Holding Company (other than Common Stock of the Corporation) and
(iii) any other factors required by applicable law.
B. At the sole discretion of the Board of Trustees of the Mutual
Holding Company and the Board of Directors of the Corporation, a Conversion
Transaction may be effected in any other manner necessary to qualify the
Conversion Transaction as a tax-free reorganization under applicable federal and
state tax laws, provided such Conversion Transaction does not diminish the
rights and ownership interest of Minority Stockholders as set forth in the
preceding paragraphs of this Section 6.11. If a Conversion Transaction does not
occur, the Mutual Holding Company will always own a majority of the Voting Stock
of the Corporation.
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6.14 AMENDMENT TO ARTICLES OF ORGANIZATION
These Articles may be amended at a duly constituted meeting of
stockholders called expressly for such purpose, by the affirmative vote of at
least 80% of the total votes eligible to be cast by stockholders on such
amendment, voting together as a single class; provided, however, that if the
Board of Directors recommends, by the affirmative vote of at least two-thirds of
the Directors then in office at a duly constituted meeting of the Board of
Directors (unless at any time within the 60 day period immediately preceding the
meeting at which the stockholder vote is to be taken, there shall be an
Interested Stockholder, in which case such action shall also require the
affirmative vote of a majority of the Disinterested Directors then in office),
that stockholders approve such amendment at such meeting of stockholders, such
amendment shall only require the affirmative vote of a majority of the total
votes eligible to be cast by stockholders on such amendment, voting together as
a single class.
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ARTICLE VII
EFFECTIVE DATE
The effective date of organization of the Corporation shall be the date
approved and filed by the Secretary of the Commonwealth.
ARTICLE VIII
DIRECTORS AND OFFICERS
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address of the principal office of the Corporation in
Massachusetts is: 100 E. Main Street, Westborough, Massachusetts
01581.
b. The name, residential address and post office address of each
Director and Officer of the Corporation is as follows:
TITLE NAME RESIDENTIAL ADDRESS AND POST OFFICE ADDRESS
--------------- -------------------- -------------------------------------------
President: Joseph F. MacDonough 14 Pinecrest Dr.
Westborough, MA 01581
Treasurer: John L. Casagrande 171 West St.
Northborough, MA 01532
Clerk: Nelson P. Ball 7 Adams St.
Westborough, MA 01581
Director: Edward S. Bilzerian 1 Jenkins St.
Worcester, MA 01602
Director: David E. Carlstrom 33 Gulf St.
Shrewsbury, MA 01545
Director: William W. Cotting, Jr. 203 Pleasant St.
Northborough, MA 01532
Director: Robert G. Daniel 22 Wheeler Rd.
Westborough, MA 01581
Director: Earl H. Hutt P.O. Box 1444
Westborough, MA 01581
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TITLE NAME RESIDENTIAL ADDRESS AND POST OFFICE ADDRESS
--------------- -------------------- -------------------------------------------
Director: Walter A. Kinell, Jr. 20 Capt. Samuel Forbush Rd.
Westborough, MA 01581
Director: Robert A. Klugman 5 Chestnut St.
Westoborough, MA 01581
Director: Roger B. Leland 24 South St.
Northborough, MA 01532
Director: Paul F. McGrath 56 Bowman St.
Westborough, MA 01581
Director: Charlotte C. Spinney 9 Cedar St.
Westborough, MA 01581
Director: Phyllis A. Stone 265 Rice Avenue
Northborough, MA 01532
Director: James E. Tashjian 225 West Main St.
Westborough, MA 01581
Director: Daniel G. Tear 10 Wesson Terr.
Northborough, MA 01532-1933
c. The fiscal year (i.e., tax year) of the Corporation shall end on the
last day of the month of September.
d. The name and business address of the resident agent, if any, of the
Corporation is: NONE
ARTICLE IX
BYLAWS
Bylaws of the Corporation have been duly adopted and the President,
Treasurer, Clerk and Directors whose names are set forth above, have been duly
elected.
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IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I/we,
whose signature(s) appear below as incorporator(s) and whose name(s) and
business or residential address(es) are clearly typed or printed beneath each
signature do hereby associate with the intention of forming this Corporation
under the provisions of General Laws, Chapter 156B and do hereby sign these
Articles of Organization as incorporator(s) this ____ day of __________, 1999
/S/
------------------------------------
Exhibit 3.2
BYLAWS
OF
WESTBOROUGH FINANCIAL SERVICES, INC.
ARTICLE I
STOCKHOLDERS
Section 1. ANNUAL MEETING. An annual meeting of the stockholders,
for the election of Directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held on the third Thursday of January of each year or on such other day
(other than a legal holiday or day of religious significance) as the Board of
Directors shall designate. The time and place of the annual meeting shall be
designated by the Board of Directors.
Section 2. SPECIAL MEETINGS. Subject to the rights of the holders of
any class or series of preferred stock of the Corporation, special meetings of
stockholders of the Corporation may be called by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of Directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter, the "Whole Board") or otherwise as set forth in the Articles of
Organization. The hour, date and place of any special meeting and the record
date for determining the stockholders having the right to notice of and to vote
at any such meeting shall be determined by the Board of Directors or the
President.
Section 3. NOTICE OF MEETINGS. Written notice of the place, date,
and time of all meetings of the stockholders shall be given at least seven (7)
days before the date on which the meeting is to be held to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
Chapter 156B of the General Laws of the Commonwealth of Massachusetts (or
successor provisions) (the "Massachusetts Business Corporation Law"), other
applicable law, or the Articles of Organization of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. QUORUM. At any meeting of the stockholders, the holders
of a majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy shall constitute a quorum for all purposes, unless
or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter. The stockholders present at a duly
constituted meeting may continue to transact business until adjournment
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
Section 5. ORGANIZATION. The President or, in the absence of the
President, the Chairman of the Board of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Clerk of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. CONDUCT OF BUSINESS.
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order. The date and time of the
opening and closing of the polls for each matter upon which the
stockholders will vote at the meeting shall be announced at the
meeting.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the
meeting: (i) by or at the direction of the Board of Directors; or
(ii) by any stockholder of the Corporation who is entitled to vote
with respect thereto and who complies with the notice procedures set
forth in this Section 6(b). For business to be properly brought
before an annual meeting by a stockholder, the business must relate
to a proper subject matter for stockholder action and the
stockholder must have given timely notice thereof in writing to the
Clerk of the Corporation. To be timely, a stockholder's notice must
be received at the principal executive offices of the Corporation
not less than ninety (90) calendar days in advance of the date of
the Corporation's proxy statement which was released to stockholders
in connection with the previous year's annual meeting of
stockholders; provided, however, with respect to the Corporation's
first annual meeting of stockholders, to be timely notice shall be
received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the annual meeting
except that in the event less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A
stockholder's notice to the Clerk shall set forth as to each matter
such stockholder
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proposes to bring before the annual meeting: (A) a brief description
of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (B)
the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business; (C) the class and number of
shares of the Corporation's capital stock that are beneficially
owned by such stockholder; and (D) any material interest of such
stockholder in such business.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) as a result of a written application
for a special meeting brought by stockholders in accordance with the Articles of
Organization. Any such written application for a special meeting by one or more
stockholders shall set forth as to each matter proposed to be brought before the
special meeting the information described in subsections (A) through (D) of this
Section 6(b).
Notwithstanding anything in these Bylaws to the contrary, no business
shall be brought before or conducted at a meeting of stockholders except in
accordance with the provisions of this Section 6(b). The Officer of the
Corporation or other person presiding over the meeting shall, if the facts so
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section
6(b) and, if he or she should so determine, he or she shall so declare to the
meeting and any such business so determined to be not properly brought before
the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election
as Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of
stockholders at which Directors are to be elected only: (i) by or at
the direction of the Board of Directors; or (ii) by any stockholder
of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made by timely
notice in writing to the Clerk of the Corporation. To be timely, a
stockholder's notice must be received at the principal executive
offices of the Corporation not less than ninety (90) calendar days
in advance of the date of the Corporation's proxy statement which
was released to stockholders in connection with the previous year's
annual meeting of stockholders; provided, however, with respect to
the Corporation's first annual meeting of stockholders, to be timely
notice shall be received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the
annual meeting except that in the event less than one hundred (100)
days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be
timely must be received not later than the close of business on the
10th day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth: (i) as to each person whom
such stockholder proposes to nominate for election or re-election as
a Director, all information relating to such person that is required
to be disclosed in solicitations of proxies for the
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election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); and
(ii) as to the stockholder giving notice of (x) the name and
address, as they appear on the Corporation's books, of such
stockholder and (y) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a Director shall
furnish to the Clerk of the Corporation that information required to
be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the
provisions of this Section 6(c). The Officer of the Corporation or
other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with
such provisions and, if he or she should so determine, he or she
shall declare to the meeting and the defective nomination shall be
disregarded.
(d) Nothing contained in this Section 6 shall require proxy
materials distributed by the management of the Corporation to
include any information with respect to nominations or other
proposals by stockholders.
Section 7. PROXIES AND VOTING. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. Proxies shall be in written form and
shall be dated not more than six (6) months before the meeting named therein,
unless the proxy is coupled with an interest and provides otherwise. Proxies
shall be filed with the Clerk at the meeting, or of any adjournment thereof,
before being voted. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the Board of Directors. Except as otherwise limited
therein, proxies shall entitle the persons authorized thereby to vote at any
adjournment of such Meeting, but they shall not be valid after final adjournment
of such meeting. A proxy with respect to stock held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to exercise
of the proxy the Clerk of the Corporation receives a specific written notice to
the contrary from any one of them. Whenever stock is held in the name of two or
more persons, in the absence of specific written notice to the Corporation to
the contrary, at any meeting of the stockholders of the Corporation any one or
more of such stockholders may cast, in person or by proxy, all votes to which
such ownership is entitled. In the event an attempt is made to cast conflicting
votes, in person or by proxy, by the several persons in whose names shares of
stock stand, the vote or votes to which those persons are entitled shall be cast
as directed by a majority of those holding such stock and present in person or
by proxy at such meeting, but no votes shall be cast for such stock if a
majority does
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not agree. A proxy purporting to be executed by or on behalf of a stockholder
shall be deemed valid unless successfully challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
Every vote shall be taken by ballots, each of which shall state the name
of the stockholder or proxy voting and such other information as may be required
under the procedure established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by the Articles of Organization or by law, all
other matters shall be determined by a majority of the votes present and cast at
a properly called meeting of stockholders.
ARTICLE II
BOARD OF DIRECTORS
Section 1. GENERAL POWERS, NUMBER AND TERM OF OFFICE. The business
and affairs of the Corporation shall be under the direction of its Board of
Directors. The number of Directors who shall constitute the Whole Board shall be
such number as the Board of Directors shall from time to time have designated.
The Board of Directors may annually elect a Chairman of the Board from among its
members who shall, when present, preside at its meetings. In the absence of a
Chairman of the Board, meetings of the Board of Directors will be chaired by a
Director selected by the Board of Directors from among its members.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, commencing with the first
annual meeting, Directors elected to succeed those Directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, with each Director to hold
office until his or her successor shall have been duly elected and qualified. No
person shall be elected or re-elected as a Director for a term extending beyond
his or her 75th birthday.
Section 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
rights of the holders of any class or series of Preferred Stock then
outstanding, newly
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created Directorships resulting from any increase in the authorized number of
Directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the Directors then in office, though
less than a quorum; (provided, however, that if there is an Interested
Stockholder, such action shall also require the affirmative vote of a majority
of the Disinterested Directors then in office) and Directors so chosen shall
hold office for a term specified by the Directors then in office or, if not so
specified, for a term expiring at the annual meeting of stockholders at which
the term of office of the class to which they have been elected expires and
until such Director's successor shall have been duly elected and qualified. No
decrease in the number of authorized Directors constituting the Board shall
shorten the term of any incumbent Director.
Section 3. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or dates, and at
such time or times as shall have been established by the Board of Directors and
publicized among all Directors. A notice of each regular meeting shall not be
required.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by a majority of the Directors then in office or by the
President and shall be held at such place, on such date, and at such time as
they or he/she shall fix. Notice of the place, date, and time of each such
special meeting shall be given to each Director by whom it is not waived by
mailing written notice in person or by telephone or sent to his or her business
or home address by telecommunication at least five (5) days in advance of the
meeting, or by written notice mailed to his or her business or home address at
least seven (7) days in advance of such meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
Notice of any special meeting may be waived in accordance with Article VI,
Section 2, hereof.
Section 5. QUORUM. At any meeting of the Board of Directors, a
majority of the Whole Board shall constitute a quorum for all purposes. If a
quorum shall fail to attend any meeting, a majority of those present may adjourn
the meeting to another place, date, or time, without further notice or waiver
thereof.
Section 6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may participate
in a meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other and such participation shall constitute presence
in person at such meeting but shall not constitute attendance for the purpose of
compensation pursuant to Section 9 of this Article II, unless the Board of
Directors by resolution so provides.
Section 7. CONDUCT OF BUSINESS. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the Directors present, except as otherwise provided herein or
required by law. Action may be taken by the Board of Directors without a meeting
if all members thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
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Section 8. POWERS. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(a) To declare, and the Corporation may pay, dividends on
outstanding shares of its capital stock;
(b) To issue or reserve for issue from time to time the whole
or any part of the capital stock of the Corporation which may be
authorized from time to time, to such persons or organizations, for
such consideration, whether cash, property, services or expenses,
and on such terms as the Board of Directors or a designated
committee thereof may determine, including without limitation the
granting of options, warrants, or conversion or other rights to
subscribe to said capital stock;
(c) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(d) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to do all
things necessary in connection therewith;
(e) To remove any Officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any
Officer upon any other person for the time being;
(f) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and
agents;
(g) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for Directors, Officers,
employees and agents of the Corporation and its subsidiaries as it
may determine;
(h) To adopt from time to time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and agents of
the Corporation and its subsidiaries as it may determine; and
(i) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business
and affairs.
Section 9. COMPENSATION OF DIRECTORS. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as Directors, including, without limitation,
their services as members of committees of the Board of Directors.
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ARTICLE III
COMMITTEES
Section 1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the Whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a Director or
Directors to serve as the member or members, designating, if it desires, other
Directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of any
member of any committee and any alternate member in his or her place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. CONDUCT OF BUSINESS. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. NOMINATING COMMITTEE. The Board of Directors shall
appoint a Nominating Committee of the Board consisting of not less than three
(3) members. The Nominating Committee shall have authority (a) to review any
nominations for election to the Board of Directors made by a stockholder of the
Corporation pursuant to Section 6 of Article I of these Bylaws in order to
determine compliance with such Bylaw provision, and (b) to recommend to the
Whole Board nominees for election to the Board of Directors.
ARTICLE IV
OFFICERS
Section 1. GENERALLY. The Board of Directors as soon as may be
practicable after the annual meeting of stockholders may choose a Chairman of
the Board, and shall choose a President, a Treasurer, and a Clerk, and from time
to time may choose such other Officers as it may deem proper. The Chairman of
the Board, if any, shall be chosen from among the Directors. Any number of
offices may be held by the same person.
(a) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors
are chosen, but any Officer may be removed from office at any time
by the affirmative vote of a majority of the Directors then in
office.
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(b) All Officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective
offices, subject to the specific provisions of this Article IV. Such
Officers shall also have such powers and duties as from time to time
may be conferred by the Board of Directors or by any committee
thereof.
Section 2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
is chosen, shall, when present, preside at all meetings of the Board of
Directors. The Chairman of the Board shall perform all duties and have all
powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
Section 3. PRESIDENT. The President shall be the Chief Executive
Officer unless the Board of Trustees, by special vote confer the duties of Chief
Executive Officer upon the Treasurer or an Executive Vice President. The
President or such other Chief Executive Officer shall have general
responsibility for the management and control of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the office of President or which are delegated to him or her by the
Board of Directors. Subject to the direction of the Board of Directors, and in
the absence of a Chairman of the Board, the President shall have all of the
powers and perform all of the duties of the Chairman of the Board (as designated
in Section 2), and shall also have power to sign all stock certificates,
contracts and other instruments of the Corporation which are authorized and
shall have general supervision of all of the other Officers (other than the
Chairman of the Board, if any), employees and agents of the Corporation.
Section 4. VICE PRESIDENTS. The Vice President or Vice Presidents
shall perform the duties and exercise the powers usually incident to their
respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors or the Chief Executive Officer. A
Vice President or Vice Presidents may be designated as Executive Vice President
or Senior Vice President.
Section 5. TREASURER, VICE TREASURERS, AND ASSISTANT
TREASURERS. The Treasurer shall, subject to the direction of the Board of
Directors, have general charge of the financial affairs of the Corporation and
shall cause to be kept accurate books of account. He or she shall have custody
of all funds, securities, and valuable documents of the Corporation, except as
the Board of Directors may otherwise provide. The Treasurer shall also perform
such other duties as the Board of Directors may from time to time designate. Any
Vice Treasurer and any Assistant Treasurer shall have such powers and perform
such duties as the Board of Directors or the Chief Executive Officer may from
time to time designate.
Section 6. CLERK. The Clerk or an Assistant Clerk shall issue
notices of meetings, shall keep their minutes, shall have charge of the seal and
the corporate books, shall perform such other duties and exercise such other
powers as are usually incident to such offices and/or such other duties and
powers as are properly assigned thereto by the Board of Directors or the
President.
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Section 7. ASSISTANT CLERKS AND OTHER OFFICERS. The Board of
Directors may appoint one or more Assistant Clerks and such other Officers who
shall have such powers and shall perform such duties as are provided in these
Bylaws or as may be assigned to them by the Board of Directors or the President.
Section 8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or in which the
Corporation may hold securities and otherwise to exercise any and all rights and
powers which the Corporation may possess by reason of its ownership of
securities in such other corporation.
ARTICLE V
STOCK
Section 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled
to a certificate of the capital stock of the Corporation in such form as may
from time to time be prescribed by the Board of Directors. Such certificate
shall be signed by the Chairman of the Board, President or a Vice President and
by the Treasurer or an Assistant Treasurer, and sealed with the corporate seal
or a facsimile thereof. Such signatures may be facsimile if the certificate is
signed by a transfer agent, or by a registrar, other than a Director, Officer or
employee of the Corporation. In case any officer who has signed or whose
signature has been placed on such certificate shall have ceased to be such
Officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he or she were such Officer at the time of its issue.
Each certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. Every certificate for shares of stock which are subject to
any restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
Section 2. TRANSFERS OF STOCK. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of Article V of these Bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
Section 3. RECORD DATE. The Board of Directors may fix in advance a
time of not more than sixty (60) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend or the making of any
distribution to stockholders, or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting, and any adjournment thereof, or the right to receive such dividend
or distribution or the right to give such consent or dissent. In such case only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the Corporation after the
record date. Without fixing such record date the Board of Directors may for any
of such purposes close the transfer books for all or any part of such period.
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A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
If no record date is fixed and the transfer books are not closed, (a) the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of
the loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the Board of Directors may
establish concerning proof of such loss, theft or destruction and concerning the
giving of a satisfactory bond or bonds of indemnity.
Section 5. REGULATIONS. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 1. NOTICES. Except as otherwise specifically provided herein
or required by law, all notices required to be given to any stockholder,
Director, Officer, employee or agent shall be in writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or by sending such notice by
telecommunication. Any such notice shall be addressed to such stockholder,
Director, Officer, employee or agent at his or her last known address as the
same appears on the books of the Corporation. The time when such notice is
received, if hand delivered, or dispatched, if delivered through the mails or by
telecommunication, shall be the time of the giving of the notice.
Section 2. WAIVERS. A written waiver of any notice, signed by a
stockholder, Director, Officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, Director, Officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
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ARTICLE VII
MISCELLANEOUS
Section 1. FACSIMILE SIGNATURES. In addition to the provisions for
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any Officer or Officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Clerk. If and when so directed by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the
Comptroller or by an Assistant Clerk or an assistant to the Comptroller.
Section 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each Director,
each member of any committee designated by the Board of Directors, and each
Officer of the Corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the books of account or other
records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its Officers or employees, or
committees of the Board of Directors so designated, or by any other person as to
matters which such Director or committee member reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Corporation.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall be
as fixed by the Board of Directors.
Section 5. TIME PERIODS. In applying any provision of these Bylaws
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded, and the day of the event shall be included.
Section 6. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other instruments and obligations to be entered into
by the Corporation in the ordinary course of its business without Board of
Directors action may be executed on behalf of the Corporation by the Chairman of
the Board, President, any Vice President, Treasurer or any other officer,
employee or agent of the Corporation as the Board of Directors may authorize.
Section 7. ARTICLES OF ORGANIZATION. All references in these Bylaws
to the Articles of Organization shall be deemed to refer to the Articles of
Organization of the Corporation, as amended and in effect from time to time.
Section 8. POWERS OF CORPORATION. The Corporation shall have and may
exercise all the powers, privileges and authority, express, implied and
incidental, now or hereafter conferred by applicable law and the Corporation's
Articles of Organization.
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ARTICLE VIII
AMENDMENT
Section 1. AMENDMENT BY DIRECTORS. The Bylaws of the Corporation may
be amended or repealed by the affirmative vote of two-thirds of the whole Board
at a duly constituted meeting of the Board of Directors, unless at the time of
such action there shall be an Interested Stockholder, in which case such action
shall also require the affirmative vote of a majority of the Disinterested
Directors (as such term is defined in the Articles of Organization) then in
office at such meeting. Not later than the time of giving notice of the annual
meeting of stockholders next following the amending or repealing by the
Directors of any Bylaw, notice thereof stating the substance of such change
shall be given to all stockholders entitled to vote on amending the Bylaws.
Section 2. AMENDMENT BY STOCKHOLDERS. The Bylaws of the Corporation
may be amended or repealed at a duly constituted meeting of stockholders called
expressly for such purpose, by the affirmative vote of at least 80% of the total
voting power of all of the then-outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of Directors, voting
together as a single class.
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Exhibit 3.3
ARTICLES OF ORGANIZATION
OF
THE WESTBOROUGH BANK
ARTICLE I
NAME
The name of this bank shall be "The Westborough Bank" (the "Bank") and may
be changed from time to time by the stockholders of the Bank.
ARTICLE II
MAIN OFFICE
The main office of the Bank shall be located at 100 E. Main Street,
Westborough, Massachusetts, and may be changed from time to time by the Board of
Directors of the Bank, subject to compliance with the provisions of Section 2 of
Chapter 167C of the Massachusetts General Laws, or successor statute.
ARTICLE III
PURPOSE AND POWERS
The Bank is a stock savings bank chartered under Chapters 167H and 168 of
the Massachusetts General Laws and shall have and may exercise all powers and
authority, express and implied, available to it under law.
ARTICLE IV
DURATION
The duration of the Bank is perpetual.
ARTICLE V
CAPITAL STOCK
The total number of shares of all classes of capital stock which is
authorized to issue is six million (6,000,000) shares, of which five million
(5,000,000) shares shall be common stock, $1.00 par value per share and one
million (1,000,000) shares shall be preferred stock, $1.00 par value per share.
Subject to the approval of the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Commissioner of Banks"), if required by law, the shares may
be issued by the
Bank from time to time by a vote of its Board of Directors without the approval
of its stockholders. Upon payment of lawful consideration, such shares shall be
deemed to be fully paid and nonassessable. In the case of a stock dividend, that
part of the surplus of the Bank which is transferred to stated capital upon the
issuance of shares as a stock dividend shall be deemed to be the consideration
for their issuance.
A description of the different classes and series of the Bank's capital
stock and a statement of the designations and the relative rights, preferences
and limitations of the shares of each class and series of capital stock are as
follows:
A. COMMON STOCK. Except as provided by law or in this Article V (or
in any supplementary sections hereto or in any certificate of establishment of
any series of preferred stock), the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote on all matters for each share held by such holder.
Stockholders shall not be permitted to cumulate their votes for the election of
directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of a sinking fund or a retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the common stock, then dividends may be paid on the common stock and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only when and
as declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up of the
Bank, after there shall have been paid to or set aside for the holders of any
class having preference over the common stock in the event of liquidation,
dissolution or winding up of the Bank the full preferential amounts to which
they are respectively entitled, the holders of the common stock, and of any
class or series of stock entitled to participate in whole or in part therewith
as to distribution of assets, shall be entitled, after payment or provision for
payment of all debts and liabilities of the Bank, to receive the remaining
assets of the Bank available for distribution, in cash or in kind, in proportion
to their holdings.
B. PREFERRED STOCK. Subject to the approval of the provisions of any
series of preferred stock by the Commissioner of Banks, if required by law, the
Board of Directors of the Bank is authorized by vote or votes, from time to time
adopted, to provide for the issuance of preferred stock in one or more series
and to fix and state the voting powers, designations, preferences and relative
participating, optional or other special rights of the shares of each series and
the qualifications, limitations and restrictions thereof, including, but not
limited to, determination of one or more of the following:
1. The distinctive serial designation and the number of shares
constituting such series;
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2. The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends and the
participating or other special rights, if any, with respect to dividends;
3. The voting powers, if any, of shares of such series;
4. Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
5. The amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or winding
up of the Bank;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
7. Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series the same or any other class or classes of stock of the Bank, and if
so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which
such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
8. The price or other consideration for which the shares of such
series shall be issued; and
9. Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of preferred stock
and whether such shares may be reissued as shares of the same or any other
series of stock.
Unless otherwise provided by law, any such vote shall become effective
when the Bank files with the Secretary of State of the Commonwealth of
Massachusetts a certificate of designation of one or more series of preferred
stock signed by the President or any Vice President and by the Clerk, Assistant
Clerk, Secretary or Assistant Secretary of the Bank, setting forth a copy of the
vote of the Board of Directors establishing and designating the series and
fixing and determining the relative rights and preferences thereof, the date of
adoption of such vote and a certification that such vote was duly adopted by the
Board of Directors.
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ARTICLE VI
NO ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Charter to elect
additional Directors under specific circumstances or to consent to specific
actions taken by the Bank, any action required or permitted to be taken by the
stockholders of the Bank must be effected at a duly called annual or special
meeting of stockholders of the Bank and may not be effected by any consent in
writing in lieu of a meeting of such stockholders.
ARTICLE VII
CERTAIN BUSINESS COMBINATIONS
Section 1. In addition to any affirmative vote required by law or
this Charter, and except as otherwise expressly provided in this Article VII:
A. any merger or consolidation of the Bank or any Subsidiary (as
defined in Section 3 of this Article VII) with (i) any Interested Stockholder
(as defined in Section 3 of this Article VII), or (ii) any other corporation
(whether or not itself an Interested Stockholder) which is, or after such merger
or consolidation would be, an Affiliate (as defined in Section 3 of this Article
VII) of an Interested Stockholder; or
B. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder, or any Affiliate of any Interested Stockholder, of any
assets of the Bank or any Subsidiary having an aggregate Fair Market Value (as
herein defined in Section 3 of this Article VII) equaling or exceeding 25% or
more of the combined assets of the Bank and its Subsidiaries; or
C. the issuance or transfer by the Bank or any Subsidiary (in one
transaction or a series of transactions) of any securities of the Bank or any
Subsidiary to any Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property (or a combination
thereof) having an aggregate Fair Market Value equaling or exceeding 25% of the
combined Fair Market Value of the outstanding Common Stock of the Bank and its
Subsidiaries, except for any issuance or transfer pursuant to an employee
benefit plan of the Bank or any Subsidiary thereof (established with the
approval of a majority of the Disinterested Directors then in office); or
D. the adoption of any plan or proposal for the liquidation or
dissolution of the Bank proposed by or on behalf of an Interested Stockholder or
any Affiliate of any Interested Stockholder; or
E. any reclassification of securities (including any reverse stock
split), or recapitalization of the Bank, or any merger or consolidation of the
Bank with any of its Subsidiaries
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or any other transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class of
equity or convertible securities of the Bank or any Subsidiary which is directly
or indirectly owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Bank entitled to vote in
the election of Directors (the "Voting Stock"), voting together as a single
class. Such affirmative vote shall be required notwithstanding the fact that no
vote may be required, or that a lesser percentage may be specified, by law or by
any other provisions of these Articles or any Certificate of Establishment or in
any agreement with any national securities exchange or otherwise.
The term "Business Combination" as used in this Article VII shall mean any
transaction which is referred to in any one or more of paragraphs A through E of
Section 1 of this Article VII.
Section 2. The provisions of Section 1 of this Article VII shall not
be applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote, or such vote (if any), as
is required by law or by these Articles, if, in the case of any Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Bank solely in their capacity as stockholders of the
Bank, the condition specified in the following paragraph 1 is met or, in the
case of any other Business Combination, all of the conditions specified in
either of the following paragraphs 1 or 2 are met:
A. The Business Combination shall have been approved by a majority
of the Disinterested Directors then in office.
B. All of the following conditions shall have been met:
(i) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the
holders of Common Stock in such Business Combination shall at least
be equal to the higher of the following:
(a) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder or any of its Affiliates for any shares
of Common Stock acquired by it (i) within the two-year period
immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement
Date"), or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher.
(b) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder
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became an Interested Stockholder (such latter date is referred
to in this Article VII as the "Determination Date"), whichever
is higher.
(ii) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business Combination
of consideration other than cash to be received per share by holders
of shares of any class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the following (it
being intended that the requirements of this subparagraph (b) shall
be required to be met with respect to every such class of
outstanding Voting Stock, whether or not the Interested Stockholder
has previously acquired any shares of a particular class of Voting
Stock):
(a) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder for any shares of such class of Voting
Stock acquired by it (i) within the two-year period
immediately prior to the Announcement Date, or (ii) in the
transaction in which it became an Interested Stockholder,
whichever is higher;
(b) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Bank; and
(c) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the Determination
Date, whichever is higher.
(iii) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of Voting
Stock. If the Interested Stockholder has paid for shares of any
class of Voting Stock with varying forms of consideration, the form
of consideration to be received per share by holders of shares of
such class of Voting Stock shall be either cash or the form used to
acquire the largest number of shares of such class of Voting Stock
previously acquired by the Interested Stockholder. The price
determined in accordance with subparagraph B of Section 2 of this
Article VII shall be subject to appropriate adjustment in the event
of any stock dividend, stock split, combination of shares or similar
event.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (1) except as approved by a majority of the
Disinterested Directors then in office, there shall have been no
failure to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any outstanding
stock having
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preference over the Common Stock as to dividends or liquidation; (2)
there shall have been (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a
majority of the Disinterested Directors then in office, and (ii) an
increase in such annual rate of dividends as necessary to reflect
any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the
Common Stock, unless the failure to so increase such annual rate is
approved by a majority of the Disinterested Directors then in
office, and (3) neither such Interested Stockholder or any of its
Affiliates shall have become the beneficial owner of any additional
shares of Voting Stock except as part of the transaction which
results in such Interested Stockholder becoming an Interested
Stockholder.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided, directly or indirectly, by the Bank, whether in
anticipation of or in connection with such Business Combination or
otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing such
Act, and the rules or regulations thereunder) shall be mailed to
stockholders of the Bank at least 30 days prior to the consummation
of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act
or subsequent provisions).
Section 3. For the purposes of this Article VII and Article XV:
A. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint venture, a pool,
a joint stock company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of acquiring,
holding or disposing of securities or any other entity.
B. "Interested Stockholder" shall mean any person (other than the
Bank or any Holding Company or Subsidiary thereof) who or which:
(i) is the beneficial owner, directly or indirectly, of more
than 5% of the outstanding Voting Stock; or
(ii) is an Affiliate of the Bank and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 5% or more of the
voting power of the then outstanding Voting Stock; or
-7-
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned
by any Interested Stockholder, if such assignment or succession
shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of
the Securities Act of 1933, as amended.
C. "Beneficial ownership" shall be determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Securities Exchange Act of 1934
(or any successor rule or statutory provision), or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or statutory provision thereto,
pursuant to said Rule 13d-3 as in effect on the date of filing of this Charter;
provided, however, that a person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(i) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(ii) which such person or any of its affiliates has (i) the
right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of an
agreement, contract, or other arrangement with this Bank to effect
any transaction which is described in any one or more clauses of
Section 1 of Article VII) or upon the exercise of conversion rights,
exchange rights, warrants, or options or otherwise, or (ii) sole or
shared voting or investment power with respect thereto pursuant to
any agreement, arrangement, understanding, relationship or otherwise
(but shall not be deemed to be the beneficial owner of any voting
shares solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to shares of
which neither such person nor any such affiliate is otherwise deemed
the beneficial owner); or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of
its affiliates acts as a partnership, limited partnership, syndicate
or other group pursuant to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of this Bank;
and provided further, however, that (1) no Director or Officer of this Bank (or
any affiliate of any such Director or Officer) shall, solely by reason of any or
all of such Directors or Officers acting in their capacities as such, be deemed,
for any purposes hereof, to beneficially own any Common Stock beneficially owned
by another such Director or Officer (or any affiliate thereof, and (2) neither
any employee stock ownership plan or similar plan of this Bank or any subsidiary
of this Bank, nor any trustee with respect thereto or any affiliate of such
trustee (solely by reason of such capacity of such trustee), shall be deemed,
for any purposes hereof, to beneficially own any Common Stock held under any
such plan. For purposes of computing the percentage beneficial ownership of
Common
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Stock of a person, the outstanding Common Stock shall include shares deemed
owned by such person through application of this subsection but shall not
include any other Common Stock which may be issuable by this Bank pursuant to
any agreement, or upon exercise of conversion rights, warrants or options, or
otherwise. For all other purposes, the outstanding Common Stock shall include
only Common Stock then outstanding and shall not include any Common Stock which
may be issuable by this Bank pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
D. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, as in effect on the date of
filing of this Charter.
E. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Bank;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph B of this Section 3, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Bank.
F. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was a member
of the Board of Directors prior to the time that the Interested Stockholder
became an Interested Stockholder, and any Director who is thereafter chosen to
fill any vacancy of the Board of Directors or who is elected and who, in either
event, is unaffiliated with the Interested Stockholder and in connection with
his or her initial assumption of office is recommended for appointment or
election by a majority of Disinterested Directors then in office.
E. "Fair Market Value" means:
(i) in the case of stock, the highest closing sales price of
the stock during the 30-day period immediately preceding the date in
question of a share of such stock on the National Association of
Securities Dealers Automated Quotation System or any system then in
use, or, if such stock is admitted to trading on a principal United
States securities exchange registered under the Securities Exchange
Act of 1934, as amended, Fair Market Value shall be the highest sale
price reported during the 30-day period preceding the date in
question, or, if no such quotations are available, the Fair Market
Value on the date in question of a share of such stock as determined
by the Board of Directors in good faith, in each case with respect
to any class of stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater
number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock, and
(ii) in the case of property other than cash or stock, the
Fair Market Value of such property on the date in question as
determined by the Board of Directors in good faith.
-9-
F. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for any dividend
or distribution in shares of such stock or any stock split or reclassification
of outstanding shares of such stock into a greater number of shares of such
stock or any combination or reclassification of outstanding shares of such stock
into a smaller number of shares of such stock.
G. In the event of any Business Combination in which the Bank
survives, the phrase "consideration other than cash to be received" as used in
Subparagraphs (i) and (ii) of Paragraph B of Section 2 of this Article VII shall
include the shares of Common Stock and/or the shares of any other class of
outstanding Voting Stock retained by the holders of such shares.
Section 4. A majority of the Directors of the Bank then in office
(provided, however, that if there is an Interested Stockholder, any such
determination shall also require the affirmative vote of a majority of the
Disinterested Directors then in office) shall have the power and duty to
determine for the purposes of this Article VII, on the basis of information
known to them after reasonable inquiry: (a) whether a person is an Interested
Stockholder; (b) the number of shares of Voting Stock beneficially owned by any
person; (c) whether a person is an Affiliate or Associate of another; and (d)
whether the assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities by
the Bank or any Subsidiary in any Business Combination has, an aggregate Fair
Market Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Bank and its Subsidiaries. A majority of the Disinterested
Directors then in office shall have the further power to interpret all of the
terms and provisions of this Article VII.
Section 5. Nothing contained in this Article VII shall be construed
to relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
Section 6. Notwithstanding any other provisions of this Charter or
any provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, this Article or any Certificate of
Establishment, the affirmative vote of the holders of at least 80% of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal this Article VII.
ARTICLE VIII
STANDARDS FOR BOARD OF DIRECTORS' EVALUATION OF OFFERS
The Board of Directors of the Bank, when evaluating any offer to (A) make
a tender or exchange offer for any equity security of the Bank, (B) merge or
consolidate the Bank with another institution or (C) purchase or otherwise
acquire all or substantially all of the properties and assets of the Bank,
shall, in connection with the exercise of its judgment in determining what is in
the best interests of the Bank and its stockholders, give due consideration to
all relevant factors including, without limitation, the social and economic
effects of acceptance of such offer on the Bank's present and future account
holders, borrowers and employees; on the communities in which the Bank
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operates or is located; and on the ability of the Bank to fulfill the objectives
of a Massachusetts-chartered stock savings bank under applicable statutes and
regulations.
ARTICLE IX
PRE-EMPTIVE RIGHTS
Holders of the capital stock of the Bank shall not be entitled to
preemptive rights with respect to any shares of the capital stock of the Bank
which may be issued.
ARTICLE X
DIRECTORS
The Bank shall be under the direction of a Board of Directors. The number
of Directors shall not be fewer than seven nor more than twenty-five. The names
of the original sixteen (16) Directors under this Charter, together with the
year of expiration of their respective terms, are set forth in Appendix A
hereto. The Board of Directors shall be divided into three classes as nearly
equal in number as possible, with one class to be elected each year. Directors
shall continue to serve for the terms specified in Appendix A hereto and until
their successors are elected and qualified, unless they sooner resign, retire,
die or are removed. No person shall be elected or re-elected as a Director for a
term extending beyond his or her 75th birthday.
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in any certificate of
establishment with respect thereto to elect additional Directors under specific
circumstances, any Director may be removed from office at any time, but only for
cause and only by the affirmative vote of (i) two-thirds of the total number of
authorized directorships (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption) (the "Whole Board") or (ii) the holders of at least eighty
percent (80%) of the voting power of the then outstanding shares of the Voting
Stock, voting together as a single class. At least thirty days prior to such
meeting of the Board of Directors or the stockholders, as applicable, written
notice shall be sent to the Director whose removal will be considered at such
meeting.
ARTICLE XI
DIRECTORS' LIABILITY
No Director shall be personally liable to the Bank or its stockholders for
monetary damages for any breach of such Director's fiduciary duty as a Director,
notwithstanding any provision of law imposing such liability; provided, however,
that, to the extent required by applicable law, this provision shall not
eliminate the liability of a Director (i) for any breach of such Director's duty
of loyalty to the Bank or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under provisions of the Massachusetts General Laws imposing
liabilities on Directors in respect of distributions to the stockholders of the
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Bank or loans to officers or Directors of the Bank, or (iv) any transaction from
which such Director derived any improper personal benefit. This provision shall
not eliminate the liability of a Director for any act or omission occurring
prior to the date upon which this provision becomes effective. No amendment to
or repeal of this provision shall apply to or have any effect on the liability
or alleged liability of any Director of the Bank for or with respect to any acts
or omissions of such Director occurring prior to the date of such amendment or
repeal.
ARTICLE XII
TRANSACTIONS WITH INTERESTED PERSONS
Section 1. Unless entered into in bad faith or in violation of any
provision of this Charter, no contract or transaction by the Bank shall be void,
voidable or in any way affected by reason of the fact that it is with an
Interested Person.
Section 2. For the purposes of this Article XIII, "Interested
Person" means any Person in any way interested in the Bank whether as a
director, officer, stockholder, employee or otherwise, and any other entity in
which any such Person is in any way interested.
Section 3. Unless such contract or transaction was entered into in
bad faith or in violation of any provision of this Charter, no Interested
Person, because of such interest, shall be liable to the Bank or to any other
Person for any loss or expense incurred by reason of such contract or
transaction or shall be accountable for any gain or profit realized from such
contract or transaction.
Section 4. The provisions of this Article XII shall be operative
notwithstanding the fact that the presence of an Interested Person was necessary
to constitute a quorum at a meeting of Directors or stockholders of the Bank at
which such contract or transaction was authorized or that the vote of an
Interested Person was necessary for the authorization of such contract or
transaction.
ARTICLE XIII
ACTING AS A PARTNER
To the extent not prohibited by applicable law, the Bank may be a partner
in any business enterprise which it would have power to conduct by itself.
ARTICLE XIV
STOCKHOLDERS MEETINGS
Meetings of stockholders may be held at such place in the Commonwealth of
Massachusetts or, if permitted by applicable law, elsewhere in the United States
as the Board of Directors may determine.
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ARTICLE XV
CALL OF SPECIAL MEETINGS
Special meetings of stockholders of the Bank may be called only by the
Board of Directors pursuant to a resolution adopted by a majority of the Whole
Board, (provided, however, that if there is an Interested Stockholder, any such
call by the Board of Directors shall also require the affirmative vote of a
majority of the Disinterested Directors then in office). Special meetings shall
be called by the Clerk, or in the case of the death, absence, incapacity or
refusal of the Clerk, by any other officer, upon written application of one or
more stockholders who hold at least 80% in interest of the capital stock
entitled to vote at such meeting. Application to a court pursuant to Section
34(b) of Chapter 156B (the "Massachusetts Business Corporation Law") of The
General Laws of The Commonwealth of Massachusetts (or successor provisions)
requesting the call of a special meeting of stockholders because none of the
officers is able and willing to call such a meeting may be made only by
stockholders who hold at least 80% in interest of the capital stock entitled to
vote at such meeting. At a special meeting of stockholders, only such business
shall be conducted, and only such proposals shall be acted upon, as shall have
been stated in the written notice of the special meeting, unless otherwise
provided by law.
ARTICLE XVI
AMENDMENT OF BYLAWS
The Bylaws of the Bank may be adopted, altered, amended, changed or
repealed by the Board of Directors or the stockholders of the Bank. Such action
by the Board of Directors shall require the affirmative vote of at least
two-thirds of the Directors then in office at a duly constituted meeting of the
Board of Directors unless at the time of such action there shall be an
Interested Stockholder, in which case such action shall also require the
affirmative vote of at least a majority of the Continuing Directors then in
office. Such action by the stockholders shall require (i) approval by the
affirmative vote of a majority of Directors then in office, unless at the time
of such action there shall be an Interested Stockholder, in which case such
action shall also require the affirmative vote of at least a majority of the
Continuing Directors then in office, at such meeting, (ii) unless waived by the
affirmative vote of a majority of the Directors then in office (and, if
applicable, Continuing Directors) specified in the preceding sentence, the
submission by the stockholders of written proposals for adopting, altering,
amending, changing or repealing the Bylaws that comply in all respects with the
provisions of the Bylaws governing such submissions and (iii) the affirmative
vote of at least eighty percent (80%) of the voting power of the then
outstanding Voting Stock voting together as a single class at a duly constituted
meeting of stockholders called expressly for such purpose.
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ARTICLE XVII
AMENDMENT OF CHARTER
This Charter may be amended at a duly constituted meeting of
stockholders called expressly for such purpose, by the affirmative vote of at
least 80% of the total votes eligible to be cast by stockholders on such
amendment, voting together as a single class; provided, however, that if the
Board of Directors recommends, by the affirmative vote of at least two-thirds of
the Directors then in office at a duly constituted meeting of the Board of
Directors (unless at any time within the 60 day period immediately preceding the
meeting at which the stockholder vote is to be taken, there shall be an
Interested Stockholder, in which case such action shall also require the
affirmative vote of a majority of the Disinterested Directors then in office),
that stockholders approve such amendment at such meeting of stockholders, such
amendment shall only require the affirmative vote of a majority of the total
votes eligible to be cast by stockholders on such amendment, voting together as
a single class. Unless otherwise provided by law, any amendment, addition,
alteration, change or repeal so acted upon shall be effective on the date it is
filed with the Secretary of State of the Commonwealth of Massachusetts or on
such other date as specified in such amendment, addition, alteration, change or
repeal or as the Secretary of State may specify.
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APPENDIX A
DIRECTORS OF THE WESTBOROUGH BANK
NAME EXPIRATION OF TERM
---- ------------------
Nelson P. Ball 2001
Edward S. Bilzerian 2002
David E. Carlstrom 2000
John L. Casagrande 2000
William W. Cotting, Jr. 2000
Robert G. Daniel 2002
Earl H. Hutt 2000
Walter A. Kinell, Jr. 2000
Robert A. Klugman 2000
Roger B. Leland 2001
Joseph F. MacDonough 2000
Paul F. McGrath 2002
Charlotte C. Spinney 2000
Phyllis A. Stone 2002
James E. Tashjian 2002
Daniel G. Tear 2000
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Exhibit 3.4
BYLAWS
OF
THE WESTBOROUGH BANK
ARTICLE I
ORGANIZATION
The name of this bank is "The Westborough Bank" (the "Bank"). The Bank
shall have and fully exercise all powers and authority, both express and
implied, available to it under applicable law.
ARTICLE II
OFFICES
2.1 PRINCIPAL OFFICE. The principal office of the Bank shall be located at
100 E. Main Street, Westborough, Massachusetts and may be changed from time to
time by the Board of Directors of the Bank, subject, however, to compliance with
the provisions of Section 2 of Chapter 167C of the Massachusetts General Laws,
or successor statute.
2.2 ADDITIONAL OFFICES. The Bank may have such additional offices, either
within or without the Commonwealth of Massachusetts, as the Board of Directors
may from time to time designate or the business of the Bank may require,
subject, however, to compliance with the provisions of Section 3 of Chapter 167C
of the Massachusetts General Laws, or successor statute, and to the approval of
the Federal Deposit Insurance Corporation (the "FDIC") to the extent required by
law.
ARTICLE III
STOCKHOLDERS
3.1 ANNUAL MEETING. The annual meeting of the stockholders of the Bank
shall be held on the third Thursday in January of each year or on such other day
(other than a legal holiday or day of religious significance) as the Board of
Directors shall designate. The time and place of the annual meeting shall be
designated by the Board of Directors.
3.2 SPECIAL MEETING. Special meetings of stockholders of the Bank may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directorships (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption) (the "Whole Board"),
(provided, however, that if there is an Interested Stockholder, any such call by
the Board of Directors shall also require the affirmative vote of a majority of
the Disinterested Directors then
in office). Special meetings shall be called by the Clerk, or in the case of the
death, absence, incapacity or refusal of the Clerk, by any other officer, upon
written application of one or more stockholders who hold at least 80% in
interest of the capital stock entitled to vote at such meeting. Application to a
court pursuant to Section 34(b) of Chapter 156B (the "Massachusetts Business
Corporation Law") of The General Laws of The Commonwealth of Massachusetts (or
successor provisions) requesting the call of a special meeting of stockholders
because none of the officers is able and willing to call such a meeting may be
made only by stockholders who hold at least 80% in interest of the capital stock
entitled to vote at such meeting. At a special meeting of stockholders, only
such business shall be conducted, and only such proposals shall be acted upon,
as shall have been stated in the written notice of the special meeting, unless
otherwise provided by law. As used in these Bylaws, the terms "Interested
Stockholder" and "Disinterested Director" shall have the same respective
meanings assigned to them in the Charter. Any determination of beneficial
ownership of securities under these Bylaws shall be made in the manner specified
in the Charter.
3.3 PLACE OF MEETING. The Board of Directors may designate the place of
meeting for any meeting of the stockholders. If no designation is made by the
Board of Directors, the place of meeting shall be the principal executive
offices of the Bank.
3.4 NOTICE OF MEETING. A written notice of all annual and special meetings
of stockholders stating the hour, date, place and purposes of such meetings
shall be given by the Clerk or an Assistant Clerk (or other person authorized by
these Bylaws or by law) not less than seven days nor more than fifty days before
the meeting to each stockholder entitled to vote thereat or to each stockholder
who, under the Charter or under these Bylaws, is entitled to such notice by
mailing it addressed to such stockholder at the address of such stockholder as
it appears on the stock transfer books of the Bank. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail with postage
thereon prepaid. In the case of a special meeting the notice shall also state
the purpose or purposes thereof. Any previously scheduled meeting of the
stockholders may be postponed by resolution of the Board of Directors upon
public notice given prior to the time previously scheduled for such meeting of
stockholders.
3.5 WAIVER OF NOTICE. Notice of any stockholders' meeting may be waived in
writing by any stockholder either before or after the time stated therein for
convening of the meeting, and, if any person present in person or by proxy at a
stockholders' meeting does not protest, prior to or at the commencement of the
meeting, the lack of proper notice, such person shall be deemed to have waived
notice of such meeting.
3.6 QUORUM AND ADJOURNMENT. Except as otherwise provided by law or by the
Charter, the holders of a majority of the voting power of the then outstanding
shares of the Bank entitled to vote generally in the election of directors (the
"Voting Stock"), represented in person or by proxy, shall constitute a quorum at
a meeting of stockholders, except that when specified business is to be voted on
by a class or series voting as a class, the holders of a majority of the shares
of such class or series shall constitute a quorum for the transaction of such
business. The chairman of the meeting or a majority of the voting power of the
shares of Voting Stock so represented may adjourn the meeting from time to time,
whether or not there is such a quorum (or in the case of specified business to
be voted on as a class or series, the chairman or a majority of the shares of
such class or
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series so represented may adjourn the meeting with respect to such specified
business). No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
3.7 PROXIES. Stockholders may vote either in person or by written proxy
dated not more than six months before the meeting named therein. Proxies shall
be filed with the Clerk of the Bank at any meeting or of any adjournment
thereof, before being voted. Except as otherwise limited therein, proxies shall
entitle the persons authorized thereby to vote at any adjournment of such
meeting, but they shall not be valid after final adjournment of such meeting. A
proxy with respect to stock held in the name of two or more persons shall be
valid if executed by or on behalf of any one of them unless at or prior to the
exercise of the proxy the Bank receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on behalf
of a stockholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
3.8 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
A. ANNUAL MEETINGS OF STOCKHOLDERS
1. Nominations of persons for election to the Board of Directors of
the Bank and the proposal of business to be considered by the stockholders
at an annual meeting of the stockholders may be made (a) pursuant to the
Bank's notice of meeting delivered pursuant to Section 3.4 of these
Bylaws, (b) by or at the direction of the Board of Directors pursuant to a
resolution adopted by a majority of the Whole Board (unless there is an
Interested Stockholder, in which case the affirmative vote of a majority
of the Disinterested Directors then in office shall also be required) or
(c) by any stockholder of the Bank who is entitled to vote at the meeting,
who complied with the notice procedures set forth in clauses (2) and (3)
of paragraph (A) of this Section 3.8 and who was a stockholder of record
at the time such notice is delivered to the Clerk of the Bank
2. For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 3.8, the stockholder must have given timely notice
thereof in writing to the Clerk of the Bank. To be timely, a stockholder's
notice shall be delivered to the Clerk at the principal executive offices
of the Bank not less than seventy days nor more than ninety days prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced
by more than twenty days, or delayed by more than seventy days, from such
anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the ninetieth day prior to such annual meeting
and not later than the close of business on the later of the seventieth
day prior to such annual meeting. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
regulations promulgated by the FDIC pursuant to the
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Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address
of such stockholder, as they appear on the Bank's books, and of such
beneficial owner and (ii) the class and number of shares of the Bank which
are owned beneficially and of record by such stockholder and such
beneficial owner.
B. SPECIAL MEETING OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Bank's notice of meeting pursuant to Section 3.4 of
these Bylaws.
C. GENERAL.
1. Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set
forth in these Bylaws.
2. Except as otherwise provided by law, the Charter or these Bylaws,
the President of the Bank as chairman of the meeting shall have the power,
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set
forth in these Bylaws and, if any proposed nomination or business is not
in compliance with these Bylaws, to declare that such defective proposal
or nomination shall be disregarded.
3. Notwithstanding the foregoing provisions of these Bylaws, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in those Bylaws. Nothing in these Bylaws shall be deemed
to affect any rights (i) of stockholders to request inclusion of proposals
in the Bank's proxy statement pursuant to rules promulgated under the
Exchange Act or (ii) of the holders of any series of Preferred Stock to
elect directors under specified circumstances.
3.9 PROCEDURE FOR ELECTION OF DIRECTORS: REQUIRED VOTE. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by written ballot, and except as otherwise set forth in the
Charter with respect to the right of the holders of any series of Preferred
Stock or any other series or class of stock to elect additional directors under
specified circumstances, a plurality of the votes cast thereat shall elect the
directors. Except as otherwise provided by law, the Charter or these Bylaws, all
matters submitted to the stockholders at any meeting shall be decided by the
affirmative vote of a majority of the shares present in person or
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represented by proxy at the meeting and entitled to vote on the matter and shall
be the act of the stockholders.
3.10 NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to the rights of
the holders of any series of Preferred Stock or any other series or class of
stock as set forth in the Charter to elect additional directors under specific
circumstances or to consent to specific actions taken by the Bank, any action
required or permitted to be taken by the stockholders of the Bank must be
effected at an annual or special meeting of stockholders of the Bank and may not
be effected by any consent in writing by such stockholders.
ARTICLE IV
BOARD OF DIRECTORS
4.1 GENERAL POWERS. The business and affairs of the Bank shall be managed
by or under the direction of its Board of Directors. In addition to the powers
and authorities by these Bylaws expressly conferred upon them, the Board of
Directors may exercise all such powers of the Bank and do all such lawful acts
and things as are not by law or by the Charter or by these Bylaws required to be
exercised or done by the stockholders.
4.2 COMPOSITION AND TERM. The Board of Directors shall be composed of: (a)
those persons designated in the Charter of the Bank, such persons to serve as
directors until the respective expiration dates of their terms as set forth
therein and until their successors are elected and qualified and (b) as such
terms expire, those persons who are elected as directors from time to time as
provided herein. Subject to the rights of the holders of any series of Preferred
Stock or any other series or class of stock as set forth in the Charter to elect
directors under specified circumstances, the number of directors shall be fixed
from time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board (provided that if at the time of such action there is an
Interested Stockholder, a majority vote of the Disinterested Directors then in
office shall also be required), but shall consist of not more than twenty-five
nor less than eleven directors. The directors, other than those who may be
elected by the holders of any series of Preferred Stock or any other series or
class of stock as set forth in the Charter, shall be divided into three classes
as nearly equal in number as possible, and designated as Class I, Class II and
Class III. Members of each Class shall hold office until their successors shall
have been duly elected and qualified. At each succeeding annual meeting of
stockholders of the Bank, the successors of the Class of directors whose term
expires at that meeting shall be elected by a plurality vote of all votes cast
at such meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election, and
until their successors are elected and qualified. Additional directors may be
elected in any fiscal year by vote of a majority of the directors then in
office. No person shall be elected or re-elected as a Director for a term
extending beyond his or her 75th birthday.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in
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office, though less than a quorum, (provided, however, that if there is an
Interested Stockholder, any such action by the Board of Directors shall also
require the affirmative vote of a majority of the Disinterested Directors then
in office) and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been chosen expires. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
4.3 QUALIFICATION. Each director shall have such qualifications as are
required by applicable law. Each director shall own, in his or her own right and
free of any lien or encumbrance, common stock, either of the Bank or of a
company owning seventy-five percent of the stock of the Bank, having a par
value, or a fair market value on the date the person became a director, of not
less than $1,000. Any director who ceases to be the owner of the required number
of shares of stock, or who becomes in any other manner disqualified, shall
vacate his or her office forthwith. Each director, when appointed or elected,
shall take an oath that he or she will faithfully perform the duties of his or
her office and that he or she is the owner, in his or her own right and free of
any lien or encumbrance, of the amount of stock required by this Section 4.3. To
the extent required by law, members of the Board of Directors shall be citizens
and residents of the Commonwealth of Massachusetts.
4.4 REGULAR MEETINGS. A regular meeting of the Board of Directors shall be
held without notice other than these Bylaws immediately after, and at the same
place as, each annual meeting of stockholders. The Board of Directors may, by
resolution, provide the time and place for the holding of additional regular
meetings without notice other than such resolution.
4.5 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be
called at the request of the Chairman of the Board, if one is elected, the
President, or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
4.6 NOTICE. Notice of any special meeting shall be given to each director
at his or her business or residence in writing by hand delivery, first class or
overnight mail or courier service, telegram or facsimile transmission or orally
by telephone communication. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least five days before such meeting. If by telegram,
overnight mail, or courier service such notice shall be deemed adequately
delivered when the telegram is delivered to the telegraph company or its notice
is delivered to the overnight mail or courier service company at least
twenty-four hours before such meeting. If by facsimile transmission, such notice
shall be deemed adequately delivered when the notice is transmitted at least
twenty-four hours before such meeting. If by telephone or by hand delivery, the
notice shall be given at least twelve hours prior to the time set for the
meeting. Neither business to be transacted at, nor the purpose of, any regular
or special meeting of the Board of Directors need be specified in the notice of
such meeting, except for amendments to these Bylaws as provided under Article 12
of these Bylaws. A meeting may be held at any time without notice if all the
directors are present or if those not present waive notice of the meeting as
provided in Section 4.7 of these Bylaws.
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4.7 WAIVER OF NOTICE. Notice of any directors' meeting may be waived in
writing by all the directors and, if any director present at a directors'
meeting does not protest prior to or at the commencement of the meeting the lack
of proper notice, he or she shall be deemed to have waived notice of such
meeting.
4.8 QUORUM. A majority of the Whole Board shall constitute a quorum for
the transaction of business, but if at any meeting of the Board of Directors
there shall be less than a quorum present, a majority of the directors present
may adjourn the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
4.9 VACANCIES. Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in the
Charter to elect additional directors under specified circumstances, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, unless there is an Interested Stockholder, in
which case such vacancy may only be filled by vote of a majority of the
Distinterested Directors then in office. A director so elected shall hold office
for a term continuing until the next election of directors by the stockholders.
No decrease in the number of authorized directors shall shorten the term of any
incumbent director.
4.10 PRESUMPTION OF ASSENT. A director of the Bank who is present at a
meeting of the Board of Directors at which action on any Bank matter is taken
shall be presumed to have assented to the action taken unless his or her dissent
or abstention shall be entered in the minutes of the meeting or unless he or she
shall file a written dissent to such action with the person acting as the Clerk
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Clerk of the Bank within five days after the date a copy
of the minutes of the meeting is received. Such right to dissent shall not apply
to a director who voted in favor of such action.
4.11 MANNER OF PARTICIPATION. Members of the Board of Directors or of
committees elected by the Board pursuant to Section 4.15 may participate in
meetings of the Board or such committee by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person but shall not constitute attendance for the purpose of compensation
pursuant to Section 4.12 or Section 5.8, unless the Board of Directors by
resolution so provides.
4.12 COMPENSATION OF DIRECTORS. The Board of Directors shall have
authority to fix fees of directors, including a reasonable allowance for
expenses actually incurred in connection with their duties.
4.13 RESIGNATION. Any director may resign at any time by sending a written
notice of such resignation to the principal executive office of the Bank
addressed to the Chairman of the Board, the Chief Executive Officer or the
Clerk. Unless the resigning director otherwise specifies in the notice
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of resignation, such resignation shall take effect upon receipt by the Chairman
of the Board, the Chief Executive Officer or the Clerk.
4.14 COMMITTEES. In addition to the Executive Committee referred to in
Article 5 of these Bylaws and the Audit Committee referred to in Section 4.15
hereof, the Board of Directors may, by resolution adopted by a majority of the
Whole Board, designate one or more additional committees, each such additional
committee to consist of those directors elected by the Board of Directors. The
Board of Directors may elect one or more directors as alternate members of any
such committee, who may take the place of any absent member or members at a
meeting of such committee.
If a member of any such committee shall be absent from any meeting,
or disqualified from voting thereat, the remaining member or members present and
not disqualified from voting, whether or not such member or members constitute a
quorum, may, by unanimous vote, appoint another member of the Board of Directors
to act at the meeting in place of an absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise, when the Board of Directors is not in session, all
the powers and authority of the Board of Directors in the direction of the Bank,
except action in respect to dividends to stockholders, election of the principal
officers, the filling of vacancies in the Board of Directors or committees
created pursuant to the authority set forth in this section, the amendment of
the Charter of the Bank, or the amendment of these Bylaws.
Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Unless otherwise specified in the resolution of the Board of Directors
designating the committee, the majority of the total number of members of the
committee shall constitute a quorum for the transaction of business, and (the
vote of the majority of the members of the committee present at any meeting of
which there is a quorum shall be the act of the committee. Each such committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors, when required.
4.15 AUDIT COMMITTEE. The Board of Directors shall, by resolution adopted
by a majority of the Whole Board, designate certain directors of the Bank to
constitute an Audit Committee, none of whom shall be an operating officer of the
bank. The Board of Directors shall cause an annual audit to be made of the
financial statements of the Bank by certified public accountants under the
supervision of such Audit Committee, as of a date to be determined by such
Committee. The Audit Committee shall perform such other functions as a duly
adopted resolution of the Board of Directors may provide.
4.16 REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in any
certificate of establishment with respect thereto to elect additional Directors
under specific circumstances, any Director may be removed from office at any
time, but only for cause and only by the affirmative vote of (i) two-thirds of
the Whole Board or (ii) the holders of at least eighty percent (80%) of the
voting power of the then outstanding shares of the Voting Stock, voting together
as a single class. At least thirty days prior to such meeting of the Board of
Directors or the stockholders, as applicable, written notice shall be sent to
the Director whose removal will be considered at such meeting.
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ARTICLE V
EXECUTIVE COMMITTEE
5.1 COMPOSITION. The Executive Committee shall consist of six directors,
one of whom shall be the President who shall preside, subject to the limitations
provided by law. The Committee shall elect a Clerk of the Executive Committee
who may but need not be member thereof; and, in the case of his or her absence
or disability, the Committee or the President may appoint a person to serve as
Clerk PRO TEM. Such Clerk shall be subject to the duties and requirements
provided by law.
5.2 POWERS OF THE EXECUTIVE COMMITTEE. The Executive Committee shall make
the investment of all the funds of the Bank and shall have charge of, and the
power to sell, or authorize the sale of all property held by it. The Committee
also shall have charge of the Bank building and all equipment used or owned by
the Bank, and shall have authority to purchase any necessary equipment or to
make any necessary repairs. It shall approve all loans made, shall make all
changes in the property or security pledged, or the rates of interest charged
therfor, and all purchases of bonds, stocks, and notes, and in general shall
make and change all investment of the funds of the Bank under such limitations
as are prescribed by law. The Committee shall direct the Treasurer to collect,
by suit or otherwise, all monies due the Bank when its interest so requires, and
shall exercise general supervision and control of all matters pertaining to
property of the Bank, subject always to direction of the directors and to the
provisions of law.
In addition to the powers and duties provided by law, the Executive
Committee shall exercise general supervision and control in all matters
pertaining to the interests of the Bank not otherwise provided by law or in
these bylaws, subject at all times to the direction of the Board of Directors.
In case of the death or disability of the President, the Executive Committee may
designate a Vice President or the Treasurer to perform his or her duties, and in
case of the death, disability or termination of employment of any other officer,
the Executive Committee may designate a person to act temporarily in such other
officer's stead. In each case until the next meeting of the Board of Directors,
and in case of the creation of a new office, the Executive Committee may fill
such office until the next meeting of the Board of Directors.
5.3 RECORD OF PROCEEDINGS. The Executive Committee shall keep minutes of
its acts and proceedings which shall be submitted to the next succeeding meeting
of the Board of Directors for approval; but failure to submit or to receive
approval of such minutes shall not invalidate any action taken upon an
authorization contained in them.
5.4 PLACE OF MEETINGS. Meetings of the Executive Committee, regular or
special, may be held either within or without the United States.
5.5 REGULAR MEETINGS. Regular meetings of the Executive Committee, of
which no notice shall be necessary, shall be held on such days and at such
places as shall be established by resolution adopted by the majority of the
Executive Committee.
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5.6 SPECIAL MEETINGS. Special meetings of the Executive Committee shall be
called at the request of any member of the Executive Committee and shall be held
upon notice by mail, facsimile or comparable facility, posted or delivered for
transmission not later than during the third day immediately preceding the day
for the meeting, or by telephone not later than the day immediately preceding
the day for the meeting. Notice of any special meeting of the Executive
Committee may be waived in writing, signed by the member or members entitled to
the notice, whether before or after the time of the meeting. Attendance of any
member of the Executive Committee at a special meeting shall constitute a waiver
of notice of the meeting.
5.7 QUORUM. Three of the Executive Committee's elected members shall
constitute a quorum for the transaction of business.
5.8 COMPENSATION. The Board of Directors may authorize payment to the
members of the Executive Committee of a reasonable fee as compensation for
service as a member of the Executive Committee.
ARTICLE VI
OFFICERS
6.1 ENUMERATION. The officers of the Bank shall consist of a President,
one or more Vice Presidents, a Treasurer, a Clerk and such other officers as the
Board of Directors may determine to be necessary for the management of the Bank.
6.2 ELECTION. The President and Treasurer shall be elected annually by the
Board of Directors and the Clerk shall be elected by the stockholders at their
annual meeting or at a special meeting of stockholders duly called for such
purpose. Other officers may be elected by the Board of Directors at any meeting
of the Board of Directors.
6.3 QUALIFICATION. Any two or more offices may be held by any person. The
President shall be a Director.
6.4 TENURE. Except as otherwise provided by law, by the Charter, or by
these Bylaws, the President and Treasurer shall hold office until the first
meeting of the Board of Directors following the next annual meeting of the
stockholders and until their respective successors are elected and qualified;
the Clerk shall hold office until the next annual meeting of stockholders and
until a successor is elected and qualified; and all other officers shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of stockholders, or for such shorter term as the Board of
Directors may fix at the time such officers are elected. The President may
resign at any time by written notice to the Board of Directors or the Clerk. Any
other officer may resign at any time by written notice to the President. Such
resignation shall be effective upon receipt unless the resignation otherwise
provides. Election or appointment of an officer, employee or agent shall not of
itself create contract rights. The Board of Directors may, however, authorize
the Bank to enter into an employment contract with any officer in accordance
with law, but no such contract right shall
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impair the right of the Board of Directors to remove any officer at any time in
accordance with Section 6.5 hereof.
6.5 REMOVAL. Except as otherwise provided by law, the Charter or these
Bylaws, the Board of Directors may remove any officer with or without cause by
the affirmative vote of a majority of the Whole Board; provided, however, that
if at the time of such removal there is an Interested Stockholder, the
affirmative vote of a majority of the Disinterested Directors then in office
shall also be required. Any such removal, other than for cause, shall be without
prejudice to the contract rights, if any, of the persons involved.
6.6 ABSENCE OR DISABILITY. In the event of the absence or disability of
any officer, the Board of Directors may designate another officer to act
temporarily in place of such absent or disabled officer.
6.7 VACANCIES. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
6.8 CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors. If a Chairman of the Board is
not elected or is absent, the President shall preside at all meetings of the
Board of Directors. The Chairman of the Board shall have such other powers and
shall perform such other duties as the Board of Directors may from time to time
designate. If the Chairman of the Board is not the President, he or she shall
also have such powers and perform such duties as the President may from time to
time designate.
6.9 THE PRESIDENT. The President shall be the Chief Executive Officer,
unless the Board of Trustees, by special vote, transfers the duties of Chief
Executive Officer upon the Treasurer or an Executive Vice President. The
President shall, subject to the direction of the Board of Directors, have
general supervision and control of the Bank's business and shall preside, when
present, at all meetings of the stockholders and, in the absence of the Chairman
of the Board, at all meetings of the Board of Directors.
6.10 VICE PRESIDENTS, TREASURER AND OTHER OFFICERS. Any Vice President,
the Treasurer and any other officers whose powers and duties are not otherwise
specifically provided for herein shall have such powers and shall perform such
duties as the Chief Executive Officer may from time to time designate.
6.11 CLERK AND ASSISTANT CLERKS. The Clerk shall keep a record of the
meetings of stockholders. If a Secretary is not elected or is absent, the Clerk
shall keep a record of the meetings of the Board of Directors. In the absence of
the Clerk, an Assistant Clerk, if one is elected, shall perform the Clerk's
duties. Otherwise a Temporary Clerk designated by the person presiding at the
meeting shall perform the Clerk's duties.
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ARTICLE VII
STOCK CERTIFICATES AND TRANSFERS
7.1 CERTIFICATES OF STOCK. Unless otherwise provided by the Board of
Directors, each stockholder shall be entitled to a certificate of the capital
stock of the Bank in such form as may from time to time be prescribed by the
Board of Directors. Such certificate shall be signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer. Such signatures may be
facsimile if the certificate is signed by a transfer agent or by a registrar,
other than a Director, officer or employee of the Bank. In case any officer who
has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Bank with the same effect as if he or she were such officer at
the time of its issue. Every certificate for shares of stock which are subject
to any restriction on transfer and every certificate issued when the Bank is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
7.2 TRANSFERS. Subject to any restrictions on transfer and unless
otherwise provided by the Board of Directors, shares of stock may be transferred
on the books of the Bank by the surrender to the Bank or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with transfer stamps (if
necessary) affixed, and with such proof of the authenticity of signature as the
Bank or its transfer agent may reasonably require.
7.3 RECORD HOLDERS. Except as otherwise required by law, by the Charter or
by these Bylaws, the Bank shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to vote, regardless of any transfer, pledge
or other disposition of such stock, until the shares have been transferred on
the books of the Bank in accordance with the requirements of these Bylaws.
It shall be the duty of each stockholder to notify the Bank of his
or her address and any changes thereto.
7.4 RECORD DATE. The Board of Directors may fix in advance a time of not
more than sixty days before the date of any meeting of the stockholders, the
date for the payment of any dividend or the making of any distribution to
stockholders or the last day on which the consent or dissent of stockholders may
be effectively expressed for any purpose, as the record date for determining the
stockholders having the right to notice of and to vote at such meeting, and any
adjournment thereof, or the right to receive such dividend or distribution or
the right to give such consent or dissent. In such case, only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Bank after the record date.
If no record date is fixed and the transfer books are not closed,
(a) the record date for determining stockholders having the right to notice of
or to vote at a meeting of stockholders shall be the close of business on the
day next preceding the day on which notice is given, and (b) the
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record date for determining stockholders for any other purpose shall be the
close of business on the date on which the Board of Directors acts with respect
thereto.
7.5 REPLACEMENT OF CERTIFICATES. In case of the alleged loss, destruction
or mutilation of a certificate of stock, a duplicate certificate may be issued
in place thereof, upon such terms as the Board of Directors may prescribe.
7.6 ISSUANCE OF CAPITAL STOCK. Except as provided by law, the Board of
Directors shall have the authority, with the approval of the Commissioner of
Banks of the Commonwealth of Massachusetts to the extent required by law, to
issue or reserve for issue from time to time the whole or any part of the
capital stock of the Bank which may be authorized from time to time, to such
persons or organizations, for such consideration, whether cash, property,
services or expenses and on such terms as the Board of Directors may determine,
including, without limitation, the granting of options, warrants or conversion
or other rights to subscribe to said capital stock.
7.7 DIVIDENDS. Subject to applicable law, the Charter and these Bylaws,
the Board of Directors may from time to time declare, and the Bank may pay,
dividends on outstanding shares of its capital stock.
ARTICLE VIII
DEPOSITS
Deposits of any type permitted by law may be received by the Bank on such
terms and subject to such limitations as are from time to time provided by law
and the rules, regulations and Bylaws of the Bank, but any deposit may be
refused by the Bank for any reason.
ARTICLE IX
WITHDRAWALS
Deposits may be withdrawn by the depositor or by any person legally
authorized to act on the depositor's behalf. Withdrawals may be made by written
order or by any other method permitted by the Bank, subject to such requirements
as may be established from time to time by the Bank or by law. Withdrawals
requesting payment to the depositor or to one or more persons may be honored by
the Bank. Any payment made by the Bank to the depositor in person or pursuant to
any such withdrawal shall discharge the liability of the Bank to all persons to
the extent of such payment. No alleged agreement with a depositor or with any
other person inconsistent with law, these Bylaws or with any of the rules or
regulations of the Bank shall be valid or binding upon the Bank.
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ARTICLE X
INTEREST
The Bank may pay interest on deposits in accordance with law. The Bank may
elect not to include fractional parts of a dollar in principal in computing
interest. With respect to deposit accounts on which interest is payable, the
Bank may elect not to pay interest on accounts that have a balance of less than
ten dollars, or such other minimum amount as may be fixed or permitted by law,
unless otherwise provided by law.
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNIFICATION AND INSURANCE.
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved (including, without limitation, as a
witness) in any action, suit or proceeding, whether civil, derivative, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she or a person of whom he or she is the legal representative is
or was a director, officer, employee or agent of the Bank, or is or was serving
with the approval of the Bank as a director, officer, partner, trustee, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to any employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action or inaction in an official capacity as a director, officer, partner,
trustee, employee or agent or in any other capacity while serving as a director,
officer, partner, trustee, employee or agent, shall be indemnified and held
harmless by the Bank against all expense, liability and loss (including, without
limitation, attorneys' fees and disbursements, judgments, fines, excise taxes or
penalties under the Employee Retirement Income Security Act of 1974, as amended,
and amounts paid or to be paid in settlement) reasonably incurred by such
indemnitee in connection with such proceeding, provided that such indemnitee
shall have acted in good faith in the reasonable belief that such action was in,
or not opposed to, the best interests of the Bank or such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, as
the case may be; provided, however, that except as provided in paragraph (C) of
this Section 11.1 with respect to proceedings seeking to enforce rights to
indemnification, the Bank shall indemnify any such indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by the
Board of Directors.
B. The right to indemnification conferred in paragraph (A) of this
Section 11.1 shall include the right to be paid by the Bank the expenses
(including attorneys' fees and disbursements) incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, to the extent required by applicable law,
an advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only
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upon delivery to the Bank of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
paragraph (B) or otherwise.
C. If a claim under paragraphs (A) or (B) of this Section 11.1 is
not paid in full by the Bank within thirty days after a written claim has been
received by the Bank, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Bank to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
the indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right of an advancement of expenses) it shall be a defense that,
and (ii) in any suit brought by the Bank to recover an advancement of expenses
pursuant to the terms of an undertaking, the Bank shall be entitled to recover
such expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth under applicable law. Neither
the failure of the Bank (including its Board of Directors, independent legal
counsel or stockholders) to have made a determination prior to the commencement
of such action that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of conduct
set forth under applicable law, nor an actual determination by the Bank
(including its Board of Directors, independent legal counsel or stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Bank to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden or proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under these Bylaws or otherwise
shall be on the Bank.
D. The right to indemnification and the advancement of expenses
conferred in this Section 11.1 shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of the
Charter, provision of these Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
E. The Bank may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Bank or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Bank would have the power to
indemnify such person against such expense, liability or loss under applicable
law.
F. The Bank may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to the
advancement of expenses, to any employee or agent of the Bank to the fullest
extent of the provisions of these Bylaws with respect to the indemnification and
advancement of expenses of directors and officers of the Bank.
G. The rights to indemnification and to the advancement of expenses
conferred in paragraphs (A) and (B) of these Bylaws shall be contract rights and
such rights shall continue as
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to an indemnitee who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
H. The rights to indemnification and to the advancement of expenses
conferred in paragraphs (A) and (B) of these Bylaws shall apply to actions taken
by any person who took such actions in his or her capacity as a legal
representative, director, officer, employee or agent of Westborough Savings Bank
or other predecessor institution of the Bank, or who was serving with the
approval of Westborough Savings Bank or other predecessor institution of the
Bank as a director, officer, partner, trustee, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to any employee benefit plan.
ARTICLE XII
AMENDMENTS
12.1 AMENDMENTS. These Bylaws may be amended, added to, rescinded or
repealed by the vote of two-thirds of the Board of Directors at any meeting of
the Board of Directors or by the stockholders, provided notice of the proposed
change was given in the notice of the meeting and, in the case of the Board of
Directors, in a notice given no less than five days prior to the meeting;
provided, however, that, notwithstanding any other provisions of these Bylaws or
any provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of stock required by law, the Charter or these Bylaws, the affirmative
vote of the holders of at least eighty percent (80%) of the voting power of the
then outstanding Voting Stock, voting together as a single class, shall be
required to alter, amend or repeal any provision of these Bylaws.
ARTICLE XIII
SPECIAL CORPORATE ACTS
13.1 EXECUTION OF NEGOTIABLE INSTRUMENTS. All checks, drafts, notes,
bonds, bills of exchange, and orders for the payment of money shall be signed by
such officer or officers of the Bank as the Board of Directors shall determine
from time to time. The Board of Directors may authorize the use of facsimile
signatures of any officer or employee in lieu of manual signatures.
13.2 EXECUTION OF DEEDS, CONTRACTS, ETC. Subject always to the specific
directions of the Board of Directors or the Executive Committee, all deeds,
mortgages, assignments, extensions, releases, partial releases, and discharges
of mortgages made by the Bank and all other written contracts, agreements and
undertakings to which the Bank shall be a party shall be executed in its name by
the Chairman of the Board of Directors, the Chief Executive Officer, any
Executive Vice President, any Senior Vice President, any Vice President, or such
other officer as may be designated by the Chairman of the Board of Directors or
the Chief Executive Officer, and, when requested, the Clerk or an Assistant
Clerk shall attest to such signatures and affix the corporate seal to the
instruments.
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13.3 ENDORSEMENT OF STOCK CERTIFICATES. Subject always to the specific
directions of the Board of Directors or the Executive Committee, any share or
shares of stock issued by any corporation and owned by the Bank (including
reacquired shares of stock of the Bank) may, for sale or transfer, be endorsed
in the name of the Bank by the Chairman of the Board of Directors, the Chief
Executive Officer or such other officer as may be designated by the Chairman of
the Board of Directors or the Chief Executive Officer, and his or her signature
shall be attested to by the Clerk or an Assistant Clerk who shall affix the
corporate seal.
13.4 VOTING OF SHARES OWNED BY BANK. Subject always to the specific
directions of the Board of Directors or the Executive Committee, any share or
shares of stock issued by any other corporation and owned or controlled by the
Bank may be voted at any stockholders' meeting of the other corporation by the
Chief Executive Officer of the Bank, or in the absence by such other officer as
may be designated by the Chief Executive Officer. Whenever, in the judgment of
the Chief Executive Officer, or in his or her absence, of any such other officer
as may be designated by the Chief Executive Officer, it is desirable for the
Bank to execute a proxy or give a stockholders' consent in respect to any share
or shares of stock issued by any other corporation and owned or controlled by
the Bank, the proxy or consent shall be executed in the name of the Bank by the
Chief Executive Officer without necessity of any authorization by the Board of
Directors. Any person or persons designated in the manner above stated as the
proxy or proxies of the Bank shall have full right, power and authority to vote
the share or shares of stock issued by the other corporation.
13.5 FORECLOSURE OF MORTGAGE. Subject always to the specific directions of
the Board of Directors or the Executive Committee, in the event of a breach of
condition of any mortgage held by the Bank, the Chief Executive Officer, the
Chairman of the Board, the President, any Vice Presidents, the Treasurer or any
Assistant Treasurer are authorized and empowered severally in the name and on
behalf of the Bank, wherever authorized by the Board of Directors or the
Executive Committee, by general or specific vote, to make entry for the purpose
of taking possession of the mortgaged property or of foreclosure of such
mortgage and to perform any and all acts necessary or proper to consummate such
foreclosure and effect the due execution of any power of sale contained in such
mortgage, including the execution, acknowledgment and delivery of all deeds and
instruments of conveyance to the purchaser and the execution of all affidavits
and certificates required by law or deemed necessary by any of such officers.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 FISCAL YEAR. Except as otherwise determined by the Board of
Directors, the fiscal year of the bank shall be the twelve months ending
September 30 or on such other date as may be required by law.
14.2 SEAL. The Board of Directors shall have power to adopt and alter the
seal of the Bank.
14.3 CHARTER. All references in these Bylaws to the Charter shall be
deemed to refer to the Charter of the Bank, as amended and in effect from time
to time.
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14.4 EFFECTIVE DATE. These Bylaws shall become effective on the date of
the formation of the Bank as a Massachusetts-chartered stock savings bank.
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Exhibit 3.5
CHARTER
OF
WESTBOROUGH BANCORP, MHC
ARTICLE I
NAME
The name of this corporation shall be "Westborough Bancorp, MHC"
(the "Corporation") and may be changed from time to time by the Corporators of
the Corporation.
ARTICLE II
MAIN OFFICE
The main office of the Corporation shall be located at 100 E. Main
Street, Westborough, Massachusetts, and may be changed from time to time by the
Board of Trustees of the Corporation.
ARTICLE III
DURATION
The duration of the Corporation is perpetual.
ARTICLE IV
NATURE AND POWERS
The Corporation is a mutual holding company organized under Chapter
167H of the Massachusetts General Laws and shall have and may exercise all
powers and authority, express and implied, available to it under Chapter 167H,
as it may be amended from time to time, and under all other applicable state and
federal law. Notwithstanding any other provision contained herein, the
Corporation shall have no power to take deposits.
ARTICLE V
CORPORATORS
The Corporation shall have a Board of Corporators which shall
initially consist of those persons who both (a) are serving as Corporators of
the Corporation on the date of the reorganization of the Corporation into a
mutual holding company in accordance with the provisions of said Chapter 167H
and (b) meet the qualifications for the position of Corporator set forth in the
bylaws of the Corporation. Such initial Corporators shall continue to serve as
Corporators for the balance of the terms to which they were elected prior to the
mutual holding company reorganization, subject to the provisions of the bylaws
of the Corporation. Corporators shall otherwise be elected as provided in the
bylaws of the Corporation.
ARTICLE VI
TRUSTEES
The Corporation shall have a Board of Trustees which shall initially
consist of those persons who both (a) are serving as Trustees of the Corporation
on the date of the reorganization of the Corporation into a mutual holding
company in accordance with the provisions of said Chapter 167H and (b) meet the
qualifications for the position of Trustee set forth in the bylaws of the
Corporation. Such initial Trustees shall continue to serve as Trustees for the
balance of the terms to which they were elected prior to the mutual holding
company reorganization, subject to the provisions of the bylaws of the
Corporation. Trustees shall otherwise be elected as provided in the bylaws of
the Corporation.
ARTICLE VII
LIQUIDATION AND DISSOLUTION
Section 1. LIQUIDATION AND DISSOLUTION.
The Corporation may liquidate its affairs and be dissolved in
accordance with the procedures set forth in Chapter 168, Section 33 of the
Massachusetts General Laws, as it may be amended from time to time.
Section 2. LIQUIDATION RIGHTS.
All persons who have deposit accounts with any subsidiary bank of
the Corporation on the date of the vote of liquidation in accordance with said
Chapter 168, Section 33, or such other date, if any, as may be provided in said
Section, as said Section may be amended from time to time, shall have the right,
upon the liquidation of the Corporation, to receive any proceeds of the
Corporation's assets and property which may remain after payment of expenses of
settling the Corporation's affairs and satisfaction of all liabilities of the
Corporation, as provided in said Chapter 168, Section 33.
Section 3. LIMITATIONS.
Liquidation rights accorded depositors under said Chapter 168,
Section 33 shall relate to the liquidation of the Corporation and not to the
liquidation or other disposition of any asset or group of assets owned by the
Corporation, including without limitation any stock bank or other subsidiary
which may be owned in whole or in part by the Corporation. No depositor of any
subsidiary bank of the Corporation shall, as such, have any rights with respect
to the Corporation or any of its assets or properties, except (a) liquidation
rights with respect to the Corporation provided
-2-
for herein and (b) rights as a creditor with respect to any subsidiary bank of
the Corporation in which the depositor has a deposit. No merger, consolidation,
disposition or acquisition of assets or liabilities or other similar transaction
or business combination to which the Corporation is a party or otherwise
involving the Corporation will constitute a liquidation for the purposes of this
Article VII, whether the Corporation is or is not the surviving entity in such
transaction or combination. Only a liquidation of the Corporation in accordance
with said Chapter 168, Section 33 will constitute a liquidation for the purposes
of this Article VII.
ARTICLE VIII
INDEMNIFICATION
The Trustees, officers, and employees of the Corporation shall be
indemnified to the extent provided in the bylaws of the Corporation.
ARTICLE IX
LIMITATION OF LIABILITY
The following provision shall be applicable if and when permitted by
applicable law: No Trustee of the Corporation shall be personally liable to the
Corporation for monetary damages for breach of his fiduciary duty as a Trustee,
except for liability (i) for any breach of such Trustee's duty of loyalty to the
Corporation, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or in knowing violation of law, or (iii) for any
transaction from which the Trustee derived an improper personal benefit. Any
repeal or modification of this Article IX shall not adversely effect any right
or protection existing at the time of such repeal or modification with respect
to any acts or omissions occurring before such repeal or modification.
ARTICLE X
AMENDMENT OF CHARTER
This charter may be amended by a two-thirds vote of the Corporators
present in person and voting at a duly constituted regular or special meeting of
Corporators; provided, however, that the notice for such meeting must state that
a purpose of the meeting is to consider and act upon a proposed amendment to the
charter and shall include the text of the proposed amendment or a summary
thereof.
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Exhibit 3.6
BYLAWS
OF
WESTBOROUGH BANCORP, MHC
ARTICLE I
ORGANIZATION
The name of the corporation is "Westborough Bancorp, MHC" (the
"Corporation"). The location of its main office shall be as set forth in the
charter. The Corporation may have such additional offices, either within or
without the United States, as the Board of Trustees may from time to time
designate in accordance with applicable law.
ARTICLE II
CORPORATORS
Section 1. NOMINATION; ELECTION; NUMBER; TERM. The initial members
of the Board of Corporators shall consist of those persons who both (a) are
serving as Corporators of Westborough De Novo Savings Bank on the date of the
reorganization of Westborough De Novo Savings Bank into a mutual holding company
in accordance with the provisions of Chapter 167H of the Massachusetts General
Laws, and (b) meet the qualifications for the position of Corporator set forth
in Section 6 of this Article II. Such initial Corporators shall continue to
serve as Corporators for the balance of the terms to which they were elected
prior to the reorganization, subject to the provisions of Sections 5 and 6 of
this Article II. Nominations of persons for election to the Board of Corporators
shall be made by the Board of Trustees' Nominating Committee. Corporators may be
elected at any annual or special meeting of Corporators so long as the notice of
the proposed meeting includes the election of Corporators as an item for action
at the meeting. There shall not be less than twenty-five nor more than
seventy-five Corporators. Except as provided in the second sentence of this
paragraph, all Corporators shall be elected for a term of ten years, or, if a
Corporator was elected at a special meeting of Corporators, such Corporator
shall serve until the annual meeting next following the tenth anniversary of
such Corporator's election. No person shall be elected or re-elected as a
Corporator for a term extending beyond his or her 75th birthday.
Section 2. MEETINGS. The Annual Meeting of the Corporators shall be
held on the third Thursday of January of each year, if not a legal holiday or
day of religious significance or on such other day (other than a legal holiday
or a day of religious significance) as the Board of Trustees, the Chairman of
the Board or the President may designate. The time and place of the meeting
shall be designated by the Board of Trustees, the Chairman of the Board of
Trustees or the President. Special meetings may be called by the Board of
Trustees, the Chairman of the Board of Trustees or the President, or as
otherwise required by law. Only those matters set forth in the notice of a
special meeting may be acted upon at such special meeting. The President of the
Corporation shall preside at all meetings of the Corporators. If there is no
President or in the absence of the
President, the Chairman of the Board of the Corporation shall preside. If the
President and Chairman are not present, a Trustee of the Corporation shall be
appointed by the Corporators present to preside at the meetings.
Section 3. NOTICE. Notice of each annual or special meeting of the
Corporators shall be given by the Clerk by mailing written notice of the meeting
to each Corporator not less than seven days before the meeting, and by
advertisement in a newspaper as required by law. Each such notice shall be
mailed to the Corporator at his or her address as appearing on the records of
the Corporation and shall state the date, time, place and purposes of the
meeting. The giving of notice to any Corporator may be waived by such Corporator
in writing either before or after the meeting.
Section 4. QUORUM AND VOTING. Except as otherwise provided in the
charter or these bylaws, a quorum shall consist of thirteen Corporators or
twenty-five percent of the total number of Corporators, whichever is greater,
provided, however, that in any event not more than fifty Corporators shall be
necessary to constitute a quorum. Each Corporator must be present in person to
be entitled to vote, and each Corporator present in person shall be entitled to
one vote. Except as otherwise provided in the charter or these bylaws, all
questions shall be determined by vote of a majority of Corporators present in
person at a meeting of the Corporators at which a quorum is present. If less
than a quorum is present, a meeting of Corporators may be adjourned and
reconvened from time to time until a quorum is present.
Section 5. RESIGNATION AND REMOVAL. Any Corporator may resign at any
time by giving written notice to the President or the Clerk. Unless otherwise
specified in the notice, the resignation shall take effect immediately upon
receipt. If any member of the Board of Corporators fails to attend two
consecutive annual meetings, such membership may, by a vote of two-thirds of the
Board of Corporators present and voting be declared forfeited, and the Clerk
shall notify him or her of the action taken. If any member of the Board of
Corporators fails to attend three consecutive annual meetings, his or her
membership shall be declared forfeited, and the Board of Corporators shall
notify the Corporator of the action taken. Any Corporator may be removed for
cause, including but not limited to a violation of the Corporation's Standards
of Conduct as in effect on the date of such violation, by a two-thirds vote of
the Corporators present and voting or by a two-thirds vote of the Board of
Trustees at a regular or special meeting of the Trustees. In the event any
Corporator is employed by a subsidiary bank of the Corporation as an officer or
other employee and such officer or other employee resigns from such position or
is terminated from such position, with or without cause, then the Board of
Trustees, by a majority vote, may in its discretion remove such person from his
or her position as a Corporator, with or without cause.
Section 6. QUALIFICATION. No Corporator shall serve as a corporator,
trustee or officer of any other mutual holding company; as a trustee, director
or officer of any bank or thrift institution which is not a subsidiary of the
Corporation; or as a director or officer of any holding company for any bank or
thrift institution which is not a subsidiary of the Corporation. No person shall
be elected to serve or shall continue serving as a Corporator if he or she shall
fail to be a depositor of a subsidiary bank of the Corporation.
2
ARTICLE III
TRUSTEES
Section 1. NOMINATION; ELECTION; NUMBER; TERM. The initial members
of the Board of Trustees shall consist of those persons who both (a) are serving
as Trustees of Westborough De Novo Savings Bank on the date of the
reorganization of Westborough De Novo Savings Bank into a mutual holding company
in accordance with the provisions of said Chapter 167H, and (b) meet the
qualifications for the position of Trustee set forth in Section 6 of this
Article III. Such initial Trustees shall continue to serve as Trustees for the
balance of the terms to which they were elected prior to the reorganization,
subject to the provisions of this Section 1 and Sections 5 and 6 of this Article
III. Nominations of persons for election to the Board of Trustees shall be made
only by or at the direction of the Board of Trustees. Trustees may be elected at
any annual meeting of Corporators if the notice of the proposed meeting includes
the election of Trustees as an item for action at the meeting. The number of
Trustees shall be established from time to time by the Board of Trustees,
provided that the number so fixed shall be at least eleven. The Trustees shall
be divided into three groups as nearly equal in number as possible and one of
such groups shall be elected annually to serve for a term of three years and
until their successors are elected and qualified. When the number of Trustees is
changed, the Board of Trustees shall determine the class or classes to which the
increased or decreased number of Trustees shall be apportioned. Any vacancy in
the Board of Trustees, resulting from an increase in the number of Trustees or
otherwise, may be filled by the Trustees for the balance of the vacant term.
No person shall be eligible for election or re-election as a Trustee
for a term extending beyond his or her 75th birthday; provided, however, that
persons who have completed a term of office as Trustee for twenty years or more
and who are not eligible for re-election solely because of age may, by vote of
the Corporators, be granted the honorary title, Trustee Emeritus, of the
Corporation. Trustees Emeritus shall not be deemed to be officers or members of
the Board of Trustees, shall not receive compensation, shall not be required to
attend meetings and shall not be authorized or required to perform any duties.
Section 2. MEETINGS. The Board of Trustees shall hold a regular
meeting at least once every three months. Such meetings shall be held on such
dates, at such times and at such places as determined by the Chief Executive
Officer. Special meetings may be called and held at any time as provided by law.
Section 3. NOTICE. Notice of each special meeting of the Trustees
shall be given by the Clerk by mailing written notice of the meeting to each
Trustee not less than seven days before the meeting or by notice given to each
Trustee in person or by telephone, telegram, facsimile, electronic mail or
express delivery sent to his or her business or home address at least five days
in advance of the meeting. Notices sent by mail shall be mailed to each Trustee
at his or her address as appearing on the records of the Corporation. The notice
shall state the date, time and place of the meeting. The giving of notice to any
Trustee may be waived by such Trustee in writing either before or after the
meeting. The attendance of a Trustee at a meeting shall constitute a waiver of
notice of such meeting, except where a Trustee attends a meeting for the express
purpose of objecting to the transaction of any business because such meeting is
not lawfully called or convened.
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Section 4. QUORUM AND VOTING. Except as otherwise provided in the
charter or these bylaws, a quorum shall consist of a majority of the total
number of the Trustees and all questions shall be determined by vote of a
majority of Trustees present in person at a meeting of Trustees at which a
quorum is present. If less than a quorum is present, a meeting of Trustees may
be adjourned and reconvened from time to time until a quorum is present.
Section 5. RESIGNATION AND REMOVAL. Any Trustee may resign at any
time by giving written notice to the Chief Executive Officer or the Clerk.
Unless otherwise specified in the notice, the resignation shall take effect
immediately upon receipt. At any meeting of the Trustees, the Trustees may
remove any Trustee or Trustees for cause, including but not limited to a
violation of the Corporation's Standards of Conduct as in effect on the date of
such violation, by a vote of two-thirds of the entire Board of Trustees. Any
Trustee who fails to attend at least 25% of the regular meetings in a twelve
month period shall no longer be qualified to serve as a Trustee and shall
automatically be removed from his or her position as Trustee unless such
absences are excused by resolution of the Board of Trustees.
Section 6. QUALIFICATION. No Trustee shall serve as a corporator,
trustee or officer of any other mutual holding company; as a trustee, director
or officer of any bank or thrift institution which is not a subsidiary of the
Corporation; or as a director or officer of any holding company for any bank or
thrift institution which is not a subsidiary of the Corporation. No person shall
be elected or appointed to serve or shall continue serving as a Trustee if he or
she is not a Corporator, except that any person elected by the Board of Trustees
pursuant to the last sentence of Article III, Section I hereof to fill a vacancy
on the Board of Trustees, however created, need not be a Corporator at the time
of such election or at any time prior to the next Annual Meeting of Corporators.
Section 7. POWERS AND DUTIES. The Trustees shall have the power and
authority to govern the business and affairs of the Corporation subject to the
charter and these by-laws.
Section 8. COMPENSATION. Trustees shall receive such compensation as
may be determined from time to time by the Board of Trustees.
Section 9. MANNER OF PARTICIPATION. Members of the Board of Trustees
or committees of the Board appointed pursuant to these bylaws may participate in
meetings by means of a conference telephone or similar communication equipment
by which all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 8 of this Article
III, unless the Board of Trustees by resolution so provides.
4
ARTICLE IV
COMMITTEES
Section 1. IN GENERAL. The Board of Trustees may appoint, or
authorize the Chairman of the Board to appoint, such committees as the Board of
Trustees from time to time may determine. Such committees shall be elected or
appointed as provided by law and may exercise the powers and shall perform the
duties required by applicable provisions of law. Members of committees appointed
by the Board of Trustees or the President shall serve at the pleasure of the
Board of Trustees.
Section 2. EXECUTIVE COMMITTEE. The Board of Trustees shall appoint
an Executive Committee. The Executive Committee shall exercise all powers of the
Board of Trustees between meetings of the Board of Trustees, except those powers
which by law, the charter or these bylaws may not be delegated. The Executive
Committee members shall be elected from the Board of Trustees to serve for five
year terms, provided the President and the Chairman of the Board of the
Corporation shall serve as members of the Executive Committee.
Section 3. NOMINATING COMMITTEE. A committee of three Trustees shall
be appointed by the Chairman of the Board of Trustees with the approval of the
Executive Committee to serve as a Nominating Committee responsible for
nominating persons to serve as Corporators. Each member of the Nominating
Committee shall serve for a one-year term or until his or her successor is
appointed by the Chairman of the Board of Trustees.
ARTICLE V
OFFICERS
Section 1. COMPOSITION AND DUTIES. The officers of the Corporation
shall consist of a President, one or more Vice Presidents, a Treasurer, a Clerk
and such other officers as the Trustees may from time to time elect. Such
officers shall serve at the pleasure of the Board of Trustees. The powers and
duties of the officers shall be as follows:
(a) PRESIDENT. The President shall be the Chief Executive
Officer unless the Board of Trustees, by special vote, confer the
duties of Chief Executive Officer upon the Treasurer or an Executive
Vice President. The President or such other Chief Executive Officer
shall have authority to appoint any agents or employees, other than
those provided by law or by these bylaws to be elected or appointed
by the Corporators or the Board of Trustees, and to prescribe their
authority and duties which may include the authority to appoint
subordinate agents or employees. In addition to said authority and
to the powers to preside at meetings, hereinbefore provided, the
President shall have such other powers, authority and duties as from
time to time may be provided by law or by action of the Board of
Trustees.
5
(b) VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as from time to time the President
may delegate or as the Board of Trustees may prescribe. In case of
the absence or disability of the President, any Vice President or
the Treasurer may, at the President's request, except as otherwise
provided in these bylaws, act temporarily in the President's place,
unless and until the Board of Trustees shall take other action as
provided in these bylaws.
(c) TREASURER AND ASSISTANT TREASURERS. The Treasurer shall
have the control of the money, securities and other property
belonging to the Bank, and shall cause the same to be held or
deposited for safekeeping subject to the authority of the Board of
Trustees and shall perform such other duties as are usually required
of the Treasurers of savings banks, or as may be prescribed by law
or by the Board of Trustees.
The Assistant Treasurers and any Vice Treasurer may perform
any or all the duties of the Treasurer, and shall have such other
power and perform such other duties as from time to time may be
assigned to them, respectively, by the Board of Trustees or be
delegated to them by the President.
(d) CLERK. The Clerk shall keep a record of the proceedings at
all of the meetings of the Corporators and of the Board of Trustees
and shall perform such other duties as are provided by law. In case
of the absence or disability of such Clerk, the President may
designate a person, other than an operating officer, who shall send
the required notices of meetings during such absence or disability;
and the President or other Chief Executive Officer may appoint a
person who is not an operating officer to serve a Clerk PRO TEM.
Section 2. ELECTION. The Board of Trustees shall have authority to
elect all officers.
Section 3. RESIGNATION AND REMOVAL. Any officer may resign at any
time giving written notice to the Chief Executive Officer or the Board of
Trustees. Unless otherwise specified in the notice, the resignation shall take
effect immediately upon receipt. Any officer elected by the Board of Trustees
may be removed at any time with or without cause by the Board of Trustees or by
the Executive Committee. Any officer appointed by the Chief Executive Officer,
and any employee or agent of the Corporation, may be removed at any time with or
without cause by the Chief Executive Officer, by the Board of Trustees or by the
Board of Investment.
Section 4. QUALIFICATION. No officer of the Corporation shall serve
as a corporator, trustee or officer of any other mutual holding company, as a
trustee, director or officer of any bank or thrift institution which is not a
subsidiary of the Corporation, or as a director or officer of any holding
company for any bank or thrift institution which is not a subsidiary of the
Corporation.
Section 5. COMPENSATION. The compensation of all officers shall be
established by the Board of Trustees.
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ARTICLE VI
INDEMNIFICATION
Section 1. DEFINITIONS. For purposes of this Article: (a) "Officer"
means any Corporator, Trustee, or officer of the Corporation who serves or has
served in such capacity and any heirs or personal representatives of such
person; (b) "Non-Officer Employee" means any person who serves or has served as
an employee of the Corporation but who is not or was not an Officer, and any
heirs or personal representatives of such person; (c) "Proceeding" means any
action, suit or proceeding, civil or criminal, brought or threatened in or
before any court, tribunal, administrative or legislative body or agency and any
claim which could be the subject of a Proceeding; and (d) "Expenses" means any
liability fixed by a judgment, order, decree or award in a Proceeding, any
amount reasonably paid in settlement of a Proceeding and any professional fees
or disbursements or other expenses reasonably incurred in a Proceeding.
Section 2. INDEMNIFIED PARTIES. Except as provided in Sections 4 and
5 of this Article VI, each Officer shall be indemnified by the Corporation
against any and all expenses incurred by such Officer in connection with any
Proceeding in which such Officer is involved as a result of serving or having
served (a) as a Corporator, Trustee, officer or employee of the Corporation, (b)
in any capacity with respect to any employee benefit plan sponsored by the
Corporation or any wholly-owned subsidiary of the Corporation, (c) as a
director, officer or employee of any wholly-owned subsidiary of the Corporation,
or (d) in any capacity with any other corporation, organization, partnership,
joint venture, trust or other entity at the request or direction of the
Corporation.
Section 3. NON-OFFICER EMPLOYEES. Except as provided in Sections 4
and 5 of this Article VI, each Non-Officer Employee of the Corporation may, in
the discretion of the Board of Trustees, be indemnified by the Corporation
against any and all Expenses incurred by such Non-Officer Employee in connection
with any Proceeding in which such Non-Officer Employee is involved as a result
of serving or having served (a) as an employee of the Corporation, (b) in any
capacity with respect to any employee benefit plan sponsored by the Corporation
or any wholly-owned subsidiary of the Corporation, (c) as a director, officer or
employee of any wholly-owned subsidiary of the Corporation, or (d) in any
capacity with any other corporation, organization, partnership, joint venture,
trust or other entity at the request or direction of the Corporation.
Section 4. SERVICE AT THE REQUEST OR DIRECTION OF THE CORPORATION.
No indemnification shall be provided to any Officer or Non-Officer Employee with
respect to serving or having served in any of the capacities described in
Section 2(d) or 3(d) above unless the following two conditions are met: (a) such
service was requested or directed in each specific case by a vote of the Board
of Trustees or by vote of the Executive Committee prior to the occurrence of the
event to which the indemnification relates, and (b) the Corporation maintains
insurance coverage for the type of indemnification sought. The Corporation shall
not be liable for indemnification under Section 2(d) or 3(d) above for any
amount in excess of the proceeds of insurance received with respect to such
coverage as the Corporation in its discretion may elect to carry. The
Corporation may, but shall not be required to, maintain insurance coverage with
respect to indemnification under Section 2(d)
7
or 3(d) above. Notwithstanding any other provision of this Section 4, but
subject to Section 5 of this Article VI, the Board of Trustees may provide an
Officer or Non-Officer Employee with indemnification under Section 2(d) or 3(d)
above as to a Proceeding even if one or both of the two conditions specified in
this Section 4 have not been met and even if the amount of the indemnification
exceeds the amount of the proceeds of any insurance which the Corporation may
have elected to carry, provided that the Board of Trustees in its discretion
determines it to be in the best interests of the Corporation to do so.
Section 5. GOOD FAITH. No indemnification shall be provided to an
Officer or to a Non-Officer Employee with respect to a matter as to which 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
interests of the Corporation. In the event that a Proceeding is compromised or
settled so as to impose any liability or obligation upon an Officer or
Non-Officer Employee, no indemnification shall be provided to said person with
respect to a matter if there is a determination that with respect to such matter
that such person did not act in good faith in the reasonable belief that the
action of such person was in the best interests of the Corporation. The
determination shall be made by a majority vote of those Trustees who are not
involved in such Proceeding. However, if there are less than three disinterested
Trustees, the determination shall be made by a committee consisting of three
disinterested Corporators, chosen at a regular or special meeting of the Board
of Trustees to make such determination.
Section 6. PRIOR TO FINAL DISPOSITION. Any indemnification provided
under this Article, in the case of an Officer shall include, and in the case of
a Non-Officer Employee may in the discretion of the Board of Trustees include,
payment by the Corporation of Expenses incurred in defending a Proceeding in
advance of the final disposition of such Proceeding upon receipt of an
undertaking by the Officer or Non-Officer Employee to repay such payment if such
person shall be adjudicated or determined to be not entitled to indemnification
under this Article.
Section 7. INSURANCE. The Corporation may, but shall not be required
to, purchase and maintain insurance to protect itself and any Officer or
Non-Officer Employee against any liability of any character asserted against or
incurred by the Corporation or any such person, or arising out of any such
status, whether or not the Corporation would have the power to indemnify such
person against such liability by law or under the provisions of this Article.
Section 8. INDEPENDENT INDEMNIFICATION. Nothing in this Article
shall limit any lawful rights to indemnification existing independently of this
Article.
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ARTICLE VII
MISCELLANEOUS
Section 1. FISCAL YEAR. Except as otherwise provided by the Board of
Trustees, the fiscal year of the Corporation shall end on September 30 of each
year.
Section 2. SEAL. The Board of Trustees shall have power to adopt and
alter the seal of the Corporation.
Section 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, stock certificates and other certificates representing
securities, notes and other obligations and certificates to be executed by the
Corporation in the ordinary course of its business without Trustee action may be
executed on behalf of the Corporation by the Chairman of the Board, the Chief
Executive Officer, the President or any other officer or agent of the
Corporation as the Board of Trustees may authorize for such purpose.
Section 4. VOTING OF SECURITIES. Unless the Board of Trustees
otherwise provides, the Chief Executive Officer, the President or any other
officer or agent designated by the Board of Trustees may waive notice of or act
on behalf of the Corporation or appoint another person or persons to act as
proxy or attorney in fact for the Corporation with or without discretionary
power and/or power of substitution at any meeting, or to execute any written
consent in lieu of any meeting, of the stockholders or shareholders of any other
corporation or organization any of whose securities are held by the Corporation.
Section 5. SUBSIDIARY. For purposes of these by-laws, "subsidiary"
of the Corporation means (i) any corporation in which the Corporation directly
or indirectly through subsidiaries holds a substantial controlling interest at
the time or (ii) any partnership, association, joint venture or other entity in
which the Corporation directly or indirectly through subsidiaries holds a
substantial controlling interest at the time.
ARTICLE VIII
AMENDMENTS
These bylaws may be amended by a two-thirds vote of the Corporators
present in person and voting at a duly constituted regular or special meeting of
the Corporators; provided, however, that the notice for such meeting must state
that a purpose of the meeting is to consider and act upon a proposed by-law
amendment and shall include the text of the proposed amendment or a summary
thereof.
9
Exhibit 4.3
WESTBOROUGH FINANCIAL SERVICES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MASSACHUSETTS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF
COMMON STOCK, $0.01 PAR VALUE PER SHARE, OF
WESTBOROUGH FINANCIAL SERVICES, INC.
(the "Corporation"), a corporation formed under the laws of the State of
Massachusetts. The shares represented by this Certificate are transferrable only
on the stock transfer books of the Corporation by the holder of record hereof,
or by his or her duly authorized attorney or legal representative, upon the
surrender of this Certificate properly endorsed. This Certificate is not valid
until countersigned and registered by the Corporation's transfer agent and
registrar. The shares represented by this Certificate are not insured by the
Federal Deposit Insurance Corporation or by any other government agency.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signature of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated:
By: By:
------------------------------- ------------------------------
Corporate Secretary President and
Chief Executive Officer
RESTRICTION
[Note: to be used only on certain shares]
The shares, or any interest therein, represented by this Certificate may
not be sold or otherwise disposed of, directly or indirectly, by the registered
holder hereof for a period of one year from the date of issuance hereof, except
in the event of the death or judicial declaration of incompetency of the
registered holder.
WESTBOROUGH FINANCIAL SERVICES, INC.
The shares represented by this Certificate are issued subject to all the
provisions of the Articles of Organization and Bylaws of WESTBOROUGH FINANCIAL
SERVICES, INC. (the "Corporation") as from time to time amended (copies of which
are on file at the principal office of the Corporation), to all of which the
holder by acceptance hereof assents. The following description constitutes a
summary of certain provisions of, and is qualified in its entirety by reference
to, the Articles of Organization.
The Articles of Organization of the Corporation contains certain
provisions, applicable upon the effective date of the reorganization of
Westborough Savings Bank from a Massachusetts mutual savings bank to a
Massachusetts stock savings bank and the concurrent acquisition by the
Corporation of all of the outstanding capital stock of The Westborough Bank,
that restrict persons from directly or indirectly acquiring or holding, or
attempting to acquire or hold, the beneficial ownership of, in excess of 10% of
the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors ("Voting Stock"), exclusive of the shares
beneficially owned by Westborough Bancorp, MHC. The Articles of Organization
contain a provision pursuant to which the holders of shares in excess of 10% of
the Voting Stock of the Corporation are limited to one hundredth (1/100) of one
vote per share with respect to such shares in excess of the 10% limitation. In
addition, the Corporation is authorized to refuse to recognize a transfer or
attempted transfer of any shares of Voting Stock to any person who beneficially
owns, or who the Corporation believes would become by virtue of such transfer
the beneficial owner of, in excess of 10% of the Voting Stock, exclusive of the
shares beneficially owned by Westborough Bancorp, MHC. These restrictions are
not applicable to underwriters in connection with a public offering of the
common stock, certain reorganization transactions described in the Articles of
Organization or to acquisitions of Voting Stock by the Corporation, any
majority-owned subsidiary of the Corporation, or any pension, profit-sharing,
stock bonus or other compensation plan maintained by the Corporation or by a
member of a controlled group of corporations or trades or businesses of which
the Corporation is a member for the benefit of the employees of the Corporation
and for any subsidiary, or any trust or custodial arrangement established in
connection with any such plan.
The Articles of Organization of the Corporation contains provisions
providing that the affirmative vote of the holders of at least 80% of the Voting
Stock of the Corporation may be required to approve certain business
combinations and other transactions with persons who directly or indirectly
acquire or hold the beneficial ownership of in excess of 10% of the Voting Stock
of the Corporation.
The Corporation will furnish to any shareholder upon written request and
without charge, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or to its
transfer agent and registrar.
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