-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QRkKJTogHUsFktbkJkj0R1nkw3zlJv6Us47STwNIUQ6/EFafLL4HaVBA+sXRvbJm VPvJgVWB2WKdFOT9hEg0Zw== 0000950135-94-000642.txt : 19941117 0000950135-94-000642.hdr.sgml : 19941117 ACCESSION NUMBER: 0000950135-94-000642 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAYBANKS INC CENTRAL INDEX KEY: 0000010497 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 042008039 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00959 FILM NUMBER: 94558602 BUSINESS ADDRESS: STREET 1: 175 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174821040 MAIL ADDRESS: STREET 1: 175 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: BAYSTATE CORP DATE OF NAME CHANGE: 19760602 10-Q 1 BAYBANKS, INC. FORM 10-Q 1 - - - - - -------------------------------------------------------------------------------- - - - - - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1994 Commission File No. 0-959 ------------------------ BAYBANKS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2008039 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization) 175 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 482-1040 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / As of October 31, 1994, 18,997,854 shares of the registrant's common stock, $2.00 par value, were outstanding. The list of exhibits to this report appears on page 28. - - - - - -------------------------------------------------------------------------------- - - - - - -------------------------------------------------------------------------------- 2 PART I -- FINANCIAL INFORMATION ITEM 1 -- FINANCIAL STATEMENTS BAYBANKS, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS EXCEPT SHARE AMOUNTS)
SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30 1994 1993 1993 ------------ ----------- ------------ ASSETS Cash and due from banks.................................... $ 658,070 $ 632,985 $ 592,011 Interest-bearing deposits and other short-term investments.............................................. 155,503 803,068 353,912 Trading accounts........................................... 21,521 14,595 64,751 Securities available for sale -- amortized cost $140,599 at September 30, 1994, market value $633,446 at December 31, 1993, and $858,947 at September 30, 1993................. 141,406 629,003 851,548 Investment securities -- market value $2,842,806 at September 30, 1994, $1,605,091 at December 31, 1993, and $1,392,595 at September 30, 1993......................... 2,892,584 1,599,060 1,381,339 Loans, net of unearned income and fees Commercial............................................... 1,421,961 1,324,968 1,309,032 Commercial real estate................................... 910,185 935,471 934,884 Residential mortgage..................................... 1,283,960 1,242,597 1,171,226 Instalment............................................... 2,736,869 2,600,134 2,498,715 ----------- ----------- ---------- 6,352,975 6,103,170 5,913,857 Less allowance for loan losses........................... 150,614 171,496 180,604 ----------- ----------- ---------- 6,202,361 5,931,674 5,733,253 Premises and equipment, net................................ 191,629 192,554 193,859 Other real estate owned and in-substance foreclosures, net...................................................... 77,566 113,679 138,156 Other assets............................................... 196,297 193,966 204,572 ----------- ----------- ---------- Total assets...................................... $10,536,937 $10,110,584 $9,513,401 =========== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Demand................................................... $ 2,063,635 $ 2,077,206 $1,999,317 NOW accounts............................................. 1,415,506 1,481,859 1,362,389 Savings.................................................. 1,486,199 1,459,134 1,423,346 Money market deposit accounts............................ 2,602,956 2,731,720 2,750,279 Consumer time............................................ 1,014,838 993,945 1,042,401 Time -- $100,000 or more................................. 112,932 34,957 27,574 ----------- ----------- ---------- 8,696,066 8,778,821 8,605,306 Federal funds purchased and other short-term borrowings.... 951,037 507,820 109,269 Accrued expenses and other accounts payable................ 60,653 53,952 47,494 Long-term debt............................................. 54,009 54,488 54,519 Guarantee of ESOP indebtedness............................. 9,451 12,241 12,241 Stockholders' equity: Common stock, par value $2.00 per share Shares authorized -- 50,000,000 Shares issued -- 18,999,093 at September 30, 1994, 18,742,934 at December 31, 1993, and 18,724,755 at September 30, 1993................................... 37,998 37,486 37,449 Surplus.................................................. 313,968 310,355 309,700 Retained earnings........................................ 423,206 367,662 349,664 ----------- ----------- ---------- 775,172 715,503 696,813 Less guarantee of ESOP indebtedness...................... 9,451 12,241 12,241 ----------- ----------- ---------- Total stockholders' equity........................ 765,721 703,262 684,572 ----------- ----------- ---------- Total liabilities and stockholders' equity........ $10,536,937 $10,110,584 $9,513,401 =========== =========== ==========
2 3 BAYBANKS, INC. CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS EXCEPT SHARE AMOUNTS)
THIRD QUARTER NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 --------------------------- --------------------------- 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Income on interest-bearing deposits and other short-term investments....................... $ 1,822 $ 3,168 $ 6,232 $ 15,754 Interest on securities available for sale and investment securities........................ 40,754 23,791 101,299 65,671 Interest and fees on loans..................... 130,240 120,179 368,008 362,314 ----------- ----------- ----------- ----------- Total income on earning assets................. 172,816 147,138 475,539 443,739 Interest expense on deposits and borrowings Deposits..................................... 39,640 37,398 109,027 124,850 Short-term borrowings........................ 12,475 924 23,199 2,575 Long-term debt............................... 697 534 1,827 1,587 ----------- ----------- ----------- ----------- Total interest expense......................... 52,812 38,856 134,053 129,012 ----------- ----------- ----------- ----------- Net interest income............................ 120,004 108,282 341,486 314,727 Provision for loan losses...................... 6,000 9,000 18,000 29,500 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses....................................... 114,004 99,282 323,486 285,227 Noninterest income Service charges and fees on deposit accounts.................................. 28,176 26,265 82,218 78,046 Other noninterest income..................... 24,381 25,639 74,085 69,505 ----------- ----------- ----------- ----------- Total noninterest income....................... 52,557 51,904 156,303 147,551 Net securities gains........................... -- 49 475 407 Operating expenses Salaries and benefits........................ 58,264 54,416 172,081 158,552 Occupancy and equipment...................... 21,877 21,474 65,923 66,295 Other operating expenses..................... 34,565 36,334 103,609 109,576 ----------- ----------- ----------- ----------- Total operating expenses....................... 114,706 112,224 341,613 334,423 Provision for OREO reserve, net................ 2,415 7,800 7,852 22,692 ----------- ----------- ----------- ----------- Total operating expenses and OREO provision.... 117,121 120,024 349,465 357,115 ----------- ----------- ----------- ----------- Income before taxes and cumulative effect of accounting change............................ 49,440 31,211 130,799 76,070 Provision for income taxes..................... 20,407 13,210 53,133 31,101 ----------- ----------- ----------- ----------- Income before cumulative effect of accounting change............................ 29,033 18,001 77,666 44,969 Less cumulative effect of accounting change (net of tax benefit of $683)................. -- -- 932 -- ----------- ----------- ----------- ----------- NET INCOME..................................... $ 29,033 $ 18,001 $ 76,734 $ 44,969 =========== =========== =========== =========== Earnings Per Share Income before accounting change.............. $ 1.51 $ 0.95 $ 4.06 $ 2.37 Less cumulative effect of accounting change.................................... -- -- 0.05 -- ----------- ----------- ----------- ----------- Net Income................................... $ 1.51 $ 0.95 $ 4.01 $ 2.37 =========== =========== =========== =========== Average shares outstanding..................... 19,187,890 19,000,208 19,145,704 18,936,862
3 4 BAYBANKS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE AMOUNTS)
COMMON RETAINED TREASURY ESOP LOAN STOCK SURPLUS EARNINGS STOCK GUARANTEE TOTAL ------- -------- -------- -------- --------- -------- BALANCE AS OF DECEMBER 31, 1992... $37,016 $304,890 $316,812 $ (26) $(14,473) $644,219 Net income -- Nine months ended September 30, 1993........... 44,969 44,969 Cash dividends declared ($0.65 per share)................... (12,117) (12,117) Amortization of restricted stock compensation expense......... 1,039 1,039 Other equity transactions....... 433 3,771 26 2,232 6,462 ------- -------- -------- ------ --------- -------- BALANCE AS OF SEPTEMBER 30, 1993............................ $37,449 $309,700* $349,664 $ -- $(12,241) $684,572 ======= ======== ======== ====== ======== ======== BALANCE AS OF DECEMBER 31, 1993... $37,486 $310,355 $367,662 $ -- $(12,241) $703,262 Net income -- Nine months ended September 30, 1994........... 76,734 76,734 Cash dividends declared ($1.15 per share)................... (21,659) (21,659) Net change in valuation reserve related to securities available for sale portfolio, net of tax................... 469 469 Stock issued (112,000 shares) in connection with restricted stock plan................... 224 (224) -- Amortization of restricted stock compensation expense......... 1,010 1,010 Other equity transactions....... 288 2,827 -- 2,790 5,905 ------- -------- -------- ------ -------- -------- BALANCE AS OF SEPTEMBER 30, 1994............................ $37,998 $313,968* $423,206 $ -- $ (9,451) $765,721 ======= ======== ======== ====== ======== ======== - - - - - --------------- * Net of unamortized restricted stock compensation expense of $6,844 and $1,801 at September 30, 1994 and 1993, respectively.
4 5 BAYBANKS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 ------------------------- 1994 1993 ----------- ----------- Operating Activities Net income.................................................................. $ 76,734 $ 44,969 Adjustments to reconcile net income to net cash provided by operating activities: Fixed-rate mortgages sold................................................. 255,043 647,989 Fixed-rate mortgages originated for sale.................................. (149,286) (596,000) Student loans transferred from portfolio and sold......................... 127,013 67,184 Proceeds from sales and maturities of trading account assets.............. 1,927,406 1,382,406 Purchases of trading account assets....................................... (1,949,810) (1,375,163) Provision for loan losses................................................. 18,000 29,500 Amortization of security premium.......................................... 19,100 5,410 Provision for OREO reserve, net........................................... 7,852 22,692 Deferred income taxes..................................................... 13,243 1,168 Gains on sales of premises and equipment.................................. (903) -- Depreciation and amortization of premises and equipment................... 19,131 18,749 Net securities gains...................................................... (475) (407) Change in other assets.................................................... (2,589) (33,450) Change in accrued expenses and other accounts payable..................... 7,400 (159) Change in interest receivable............................................. (13,987) (3,021) Change in interest payable................................................ 1,255 (3,190) ----------- ----------- Net cash provided by operating activities............................ 355,127 208,677 ----------- ----------- Investing Activities Proceeds from sales of securities available for sale........................ 264,758 424,851 Proceeds from maturities of securities available for sale................... 329,197 104,631 Purchases of securities available for sale.................................. (95,655) (374,889) Proceeds from maturities of investment securities........................... 496,191 105,319 Purchases of investment securities.......................................... (1,802,954) (815,733) Net cash provided (used) by: Short-term investments.................................................... 647,565 738,073 Loans(1)(2)............................................................... (541,480) (155,552) Customers' acceptances.................................................... 860 7,928 Proceeds from sales of premises and equipment............................... 1,469 125 Purchases of premises and equipment......................................... (18,772) (14,303) Proceeds from sales and payments related to OREO(2)......................... 48,284 53,663 ----------- ----------- Net cash provided (used) by investing activities..................... (670,537) 74,113 ----------- ----------- Financing Activities Net cash provided (used) by: Demand deposits, NOW, and savings accounts................................ (52,859) 43,497 Money market deposits..................................................... (128,764) (217,012) Consumer time deposits.................................................... 20,893 (192,346) Time deposits -- $100,000 or more......................................... 77,975 (11,381) Short-term borrowings..................................................... 443,217 (30,700) Customers' acceptances.................................................... (860) (7,928) Long-term debt............................................................ (438) 680 Dividends paid.............................................................. (21,659) (12,117) Other equity transactions................................................... 2,990 2,802 ----------- ----------- Net cash provided (used) by financing activities..................... 340,495 (424,505) ----------- ----------- Net change in cash and cash equivalents....................................... 25,085 (141,715) Cash and cash equivalents at beginning of year(3)............................. 632,985 733,726 ----------- ----------- Cash and cash equivalents at September 30(3).................................. $ 658,070 $ 592,011 ============ ============ Supplemental disclosure of cash flow information Interest paid............................................................... $ 132,798 $ 132,202 Taxes paid.................................................................. 37,584 50,398 - - - - - --------------- (1) Excludes transfers of loans to the other real estate owned category of $27.2 million and $34.6 million in 1994 and 1993, respectively. (2) Excludes loan originations in conjunction with OREO sales of $7.2 million and $15.7 million in 1994 and 1993, respectively. (3) Cash and cash equivalents consist of cash on hand and due from banks.
5 6 BAYBANKS, INC. NOTE 1. ACCOUNTING ADJUSTMENTS In the opinion of management, all of the adjustments (consisting of normal recurring accruals unless otherwise indicated) necessary for a fair statement of the results of operations have been included in the accompanying financial statements. Certain 1993 amounts have been reclassified to conform with 1994 presentation. NOTE 2. SECURITIES PORTFOLIOS
PERIOD-END SECURITIES PORTFOLIOS ------------------------------------------------------------ GROSS GROSS WEIGHTED AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE COST GAINS LOSSES VALUE YIELD* ---------- ---------- ---------- ----------- -------- (DOLLARS IN THOUSANDS) SEPTEMBER 30, 1994 SECURITIES AVAILABLE FOR SALE U.S. Government securities, maturing Within 1 year........................... $ 24,741 $ -- $ (3) $ 24,738 4.72% ---------- ---------- ---------- ----------- 24,741 -- (3) 24,738 4.72 ---------- ---------- ---------- ----------- State and local governments, maturing Within 1 year........................... 5,029 -- (3) 5,026 4.82 ---------- ---------- ---------- ----------- 5,029 -- (3) 5,026 4.82 ---------- ---------- ---------- ----------- Corporate, maturing Within 1 year........................... 58,100 -- -- 58,100 5.23 ---------- ---------- ---------- ----------- 58,100 -- -- 58,100 5.23 ---------- ---------- ---------- ----------- Mortgage-backed securities................ 25,075 328 -- 25,403 6.49 Other**................................... 27,654 485 -- 28,139 8.08 ---------- ---------- ---------- ----------- Total Securities Available for Sale.......................... $ 140,599 $ 813 $ (6) $ 141,406 5.91% ========== ========== ========== =========== INVESTMENT SECURITIES U.S. Government securities, maturing Within 1 year........................... $ 850,299 $ 9 $ (3,995) $ 846,313 4.55% After 1 year but within 5 years......... 1,552,485 -- (39,121) 1,513,364 5.42 After 5 years but within 10 years....... 23,899 -- (270) 23,629 7.05 ---------- ---------- ---------- ----------- 2,426,683 9 (43,386) 2,383,306 5.13 State and local governments, maturing Within 1 year........................... 127,563 20 (91) 127,492 5.09 After 1 year but within 5 years......... 27,084 73 (410) 26,747 6.39 After 5 years but within 10 years....... 5,168 16 (166) 5,018 7.29 ---------- ---------- ---------- ----------- 159,815 109 (667) 159,257 5.38 Asset-backed securities................... 203,089 -- (4,097) 198,992 4.33 Mortgage-backed securities................ 49,488 -- (1,746) 47,742 5.14 Industrial revenue bonds.................. 51,652 -- -- 51,652 10.10 Other..................................... 1,857 -- -- 1,857 -- ---------- ---------- ---------- ----------- Total Investment Securities..... $2,892,584 $ 118 $ (49,896) $ 2,842,806 5.17% ========== ========== ========== =========== - - - - - --------------- * Tax equivalent basis. ** BayBank, the Company's principal bank subsidiary, is a member of the Federal Home Loan Bank (FHLB). As of September 30, 1994, $27,555,500 in stock of the FHLB is included in the Securities Available for Sale portfolio in the Other category at cost, which approximates market value. Outstanding advances as of September 30, 1994 due to the FHLB were $100,000,000, at an average interest rate of 4.78% and with an average maturity of .1 years, and are included on the consolidated balance sheet in the other short-term borrowings category.
6 7 BAYBANKS, INC. NOTE 2. SECURITIES PORTFOLIOS (CONTINUED)
PERIOD-END SECURITIES PORTFOLIOS -------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ---------- ---------- ---------- ----------- (DOLLARS IN THOUSANDS) DECEMBER 31, 1993 SECURITIES AVAILABLE FOR SALE U.S. Government securities......................... $ 322,707 $ 3,280 $ (3) $ 325,984 State and local governments........................ 18,964 6 (2) 18,968 Mortgage-backed securities......................... 30,832 1,162 -- 31,994 Corporate.......................................... 256,500 -- -- 256,500 ---------- -------- ------ ----------- Total Securities Available for Sale...... $ 629,003 $ 4,448 $ (5) $ 633,446 ========== ======== ====== =========== INVESTMENT SECURITIES U.S. Government securities......................... $1,203,315 $ 6,447 $ (59) $ 1,209,703 State and local governments........................ 128,997 380 (25) 129,352 Asset-backed securities............................ 204,798 115 (827) 204,086 Industrial revenue bonds........................... 59,958 -- -- 59,958 Other.............................................. 1,992 -- -- 1,992 ---------- -------- ------ ----------- Total Investment Securities.............. $1,599,060 $ 6,942 $ (911) $ 1,605,091 ========== ======== ====== =========== SEPTEMBER 30, 1993 SECURITIES AVAILABLE FOR SALE U.S. Government securities......................... $ 774,217 $ 6,084 $ -- $ 780,301 State and local governments........................ 2,700 -- -- 2,700 Mortgage-backed securities......................... 33,081 1,315 -- 34,396 Corporate.......................................... 41,550 -- -- 41,550 ---------- -------- ------ ----------- Total Securities Available for Sale...... $ 851,548 $ 7,399 $ -- $ 858,947 ========== ======== ====== =========== INVESTMENT SECURITIES U.S. Government securities......................... $1,019,209 $ 10,517 $ -- $ 1,029,726 State and local governments........................ 88,431 370 -- 88,801 Asset-back securities.............................. 205,389 481 (112) 205,758 Industrial revenue bonds........................... 66,334 -- -- 66,334 Other.............................................. 1,976 -- -- 1,976 ---------- -------- ------ ----------- Total Investment Securities.............. $1,381,339 $ 11,368 $ (112) $ 1,392,595 ========== ======== ====== ===========
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS PERFORMANCE OVERVIEW BayBanks' net income was $29.0 million for the third quarter of 1994, or $1.51 per share, an increase of 59% on a per share basis, compared with net income of $18.0 million, or $.95 per share, for the third quarter of 1993. Net income for the first nine months of 1994 was $76.7 million, or $4.01 per share, an increase of 69% on a per share basis, compared with $45.0 million, or $2.37 per share, for the first nine months of 1993. The increase in net income was affected by the following items: - Operating income (defined below) increased 21% in the third quarter of 1994 compared with the third quarter of 1993, primarily as the result of an 11% increase in net interest income. - Asset quality continued to improve; nonperforming assets were reduced to $137 million, a 39% decrease from December 31, 1993, and a 50% decrease from September 30, 1993. As a consequence, the combined provisions for loan losses and the other real estate owned (OREO) reserve decreased 50% to $8.4 million in the third quarter of 1994 from $16.8 million in the third quarter of 1993. The 7 8 comparable decrease for the first nine months of 1994 was 50%, to $25.9 million, compared with $52.2 million for the same period in 1993. EARNINGS ANALYSIS Operating Income Operating income, presented in TABLE A, is on a tax equivalent basis; excludes net securities gains, and the provisions for loan losses and the OREO reserve, and is before income taxes and the cumulative effect of an accounting change. For the third quarter of 1994, total operating income was $59.7 million, compared with $54.2 million in the second quarter and $49.4 million in the third quarter of 1993. The increase over the previous year was primarily the result of an 11% increase in net interest income. There was a 1% increase in noninterest income and a 2% increase in operating expenses. For the nine-month periods, operating income increased 23% to $162.0 million in 1994, compared with $131.6 million in 1993. Increases in the combination of net interest income and noninterest income were partially offset by a 2% increase in operating expenses. TABLE A SUMMARY OF OPERATIONS FOR THE FOLLOWING PERIODS TAX EQUIVALENT BASIS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
THIRD SECOND THIRD NINE MONTHS QUARTER QUARTER QUARTER ------------------- 1994 1994 1993 1994 1993 -------- -------- -------- -------- -------- Income on earning assets..................... $174,632 $158,305 $148,539 $481,395 $447,436 Interest on deposits and borrowings.......... 52,812 43,423 38,856 134,053 129,012 -------- -------- -------- -------- -------- Net interest income.......................... 121,820 114,882 109,683 347,342 318,424 Noninterest income........................... 52,557 54,031 51,904 156,303 147,551 -------- -------- -------- -------- -------- Total income from operations................. 174,377 168,913 161,587 503,645 465,975 Operating expenses........................... 114,706 114,712 112,224 341,613 334,423 -------- -------- -------- -------- -------- Operating Income before Net Securities Gains and Provisions for Loan Losses and OREO Reserve.................................... 59,671 54,201 49,363 162,032 131,552 -------- -------- -------- -------- -------- Net securities gains......................... -- 436 49 475 407 -------- -------- -------- -------- -------- Provision for loan losses.................... 6,000 6,000 9,000 18,000 29,500 Provision for OREO reserve, net.............. 2,415 2,500 7,800 7,852 22,692 -------- -------- -------- -------- -------- Total credit provisions...................... 8,415 8,500 16,800 25,852 52,192 -------- -------- -------- -------- -------- Income before taxes and cumulative effect of accounting change.......................... 51,256 46,137 32,612 136,655 79,767 Income taxes and tax equivalent adjustment... 22,223 19,715 14,611 58,989 34,798 -------- -------- -------- -------- -------- Income before cumulative effect of accounting change..................................... 29,033 26,422 18,001 77,666 44,969 Less cumulative effect of accounting change (net of tax benefit)....................... -- -- -- 932 -- -------- -------- -------- -------- -------- Net Income................................... $ 29,033 $ 26,422 $ 18,001 $ 76,734 $ 44,969 ======== ======== ======== ======== ======== Earnings Per Share Income before accounting change............ $ 1.51 $ 1.38 $ 0.95 $ 4.06 $ 2.37 Less cumulative effect of accounting change.................................. -- -- -- 0.05 -- -------- -------- -------- -------- -------- Net Income.............................. $ 1.51 $ 1.38 $ 0.95 $ 4.01 $ 2.37 ======== ======== ======== ======== ========
8 9 Net Interest Income (tax equivalent basis) Net interest income was $121.8 million in the third quarter of 1994, $114.9 million in the preceding quarter and $109.7 million in the third quarter of 1993. The net interest margin in the third quarter of 1994 was 5.03%, compared with 5.00% in the previous quarter and 5.11% in the third quarter of 1993. Net interest income and the net interest margin are affected by the quantity and mix of interest-bearing assets and liabilities, movements in interest rates, and the level of nonperforming assets. The increase in net interest income in the third quarter of 1994 compared with 1993 was primarily the result of the 13% growth in average earning assets. In particular, net interest income was affected by the general expansion of the securities portfolios over the course of the year, financed by purchased funds. For the third quarter, however, loan growth played a significant role in earning asset increases. As a result, the yield on earning assets was 7.20% in the third quarter of 1994 compared with 6.91% for the same period of the previous year. The increase of 29 basis points was due to increased yields on the securities portfolios as maturities were reinvested at higher rates and to higher rates on the commercial and commercial real estate loan portfolios as market rates increased. The cost of total interest-bearing liabilities increased 44 basis points to 2.68% in the third quarter of 1994 compared to 1993. Average earning assets increased 5% and net interest income increased $6.9 million in the third quarter of 1994 compared with the second quarter of 1994. The increase in the net interest margin from 5.00% in the second quarter to 5.03% in the third quarter was due to the increased yield on earning assets partially offset by the increased level of higher cost purchased funds. For the nine-month periods, net interest income increased to $347.3 million in 1994 from $318.4 million in 1993. Average earning assets increased 8% in 1994 compared with 1993, primarily in the securities held for investment category, as described above. The net interest margin increased to 5.01% in 1994 from 4.97% in 1993. The cost of total interest bearing liabilities fell 7 basis points to 2.40% for the first nine months of 1994, compared with 2.47% in 1993. For the same period the yield on average earning assets fell by 5 basis points to 6.94%, compared with 6.99% in 1993. The yield on the loan portfolio decreased from 8.21% to 8.05% partially offset by an increase in the yield on the securities portfolios from 4.28% in 1993 to 4.80% in 1994 as maturities were reinvested at higher rates and the average maturity of the securities portfolios was lengthened. Fees, Service Charges, and Other Noninterest Income Noninterest income consists primarily of service charges and fees on deposit accounts and fees from credit and non-credit services and is well diversified among consumer, corporate, and small business banking activities. Noninterest income (TABLE B page 10) increased slightly to $52.6 million in the third quarter of 1994 from $51.9 million in the third quarter of 1993. Lower mortgage banking fees and the timing of the sale of student loans affect the quarterly comparison as explained below. For the first nine months, noninterest income increased 6% to $156.3 million in 1994 from $147.6 million in 1993. Service charges and fees on deposit accounts continued to provide over one half of noninterest income. Total service charges and fees on deposits increased 7% to $28.2 million in the third quarter of 1994, compared with $26.3 million in the third quarter of 1993. For the first nine months, service charges and fees on deposit accounts were up 5% to $82.2 million in 1994 from $78.0 million in 1993. The increase was attributable to higher service charges and fees on consumer accounts as a result of an increase in the number of accounts and selected repricings partially offset by a decline in corporate service charges due to higher earnings credit rates on compensating deposit balances. The increase in credit card fees in 1994 is due to higher merchant volume and the implementation of late charges in June 1994. Processing fees increased 19% to $4.0 million in the third quarter of 1994 from $3.4 million in the third quarter of 1993. For the nine-month periods, processing fees were $11.4 million in 1994 and $10.0 million in 9 10 1993. The increase in processing fees in 1994 was primarily due to an increasing volume of point-of-sale transactions and higher revenue from non-BayBank cardholders using BayBank ATMs. Investment management and brokerage fees increased 13% to $1.9 million in the third quarter of 1994 from $1.7 million in the third quarter of 1993. For the nine-month periods, investment management and brokerage fees increased 31% to $5.9 million in 1994 from $4.5 million in 1993. The increase in investment management and brokerage fees was due primarily to investment advisory fees from BayFunds(R). Total assets under management in BayFunds were $1.3 billion at September 30, 1994, compared with $1.1 billion at September 30, 1993. Mortgage banking fees decreased 38% to $1.9 million in the third quarter of 1994 from $3.0 million in the third quarter of 1993. For the nine-month periods, mortgage banking fees were $5.6 million in 1994 and $8.4 million in 1993. The decrease in mortgage banking fees was due to a lower level of secondary market activity resulting from a decrease in refinance volumes in 1994 as market interest rates increased. The Company periodically sells student loans when these primarily government-guaranteed loans are no longer in a deferred payment status. During the second quarter of 1994, the Company sold student loans resulting in a gain of $4.4 million. The 1993 student loan sales occurred in the second and third quarters, resulting in gains of $223 thousand and $1.5 million, respectively. The increase in other noninterest income for the quarter and year-to-date was primarily due to gains on sales of buildings no longer utilized by the Company. There were no securities gains in the third quarter of 1994 and were minimal in the third quarter of 1993. TABLE B NONINTEREST INCOME FOR THE PERIODS ENDED SEPTEMBER 30 (IN THOUSANDS)
THIRD QUARTER NINE MONTHS --------------------------- ----------------------------- 1994 1993 CHANGE 1994 1993 CHANGE ------- ------- ------- -------- -------- ------- Service charges and fees on deposit accounts............................. $28,176 $26,265 $ 1,911 $ 82,218 $ 78,046 $ 4,172 Credit card fees....................... 5,212 5,027 185 14,917 14,069 848 Processing fees........................ 4,049 3,408 641 11,381 10,004 1,377 Trust fees............................. 3,599 3,785 (186) 10,749 10,998 (249) International fees..................... 1,949 1,692 257 4,793 4,557 236 Investment management and brokerage fees................................. 1,913 1,691 222 5,892 4,511 1,381 Mortgage banking fees.................. 1,858 3,008 (1,150) 5,627 8,425 (2,798) Student loan sales gains............... -- 1,539 (1,539) 4,395 1,762 2,633 Other noninterest income............... 5,801 5,489 312 16,331 15,179 1,152 ------- ------- ------- -------- -------- ------- Total noninterest income..... $52,557 $51,904 $ 653 $156,303 $147,551 $ 8,752 ======= ======= ======= ======== ======== =======
10 11 Operating Expenses The operating expense analysis presented in TABLE C separates OREO and legal expenses related to the workout of problem assets from other operating expenses. Operating expenses, excluding OREO and legal expenses related to loan workouts, were $113.5 million in the third quarter of 1994, compared with $109.1 million in the third quarter of 1993; for the first nine months, these operating expenses were $333.8 million in 1994, compared with $321.1 million in 1993. Salaries and benefits increased 7% to $58.3 million in the third quarter of 1994, compared with $54.4 million in the third quarter of 1993 primarily as the result of normal salary increases, additional staffing requirements and higher accruals for performance awards. For the first nine months, salaries and benefits increased 9% to $172.1 million in 1994, compared with $158.6 million in 1993. Occupancy and equipment was $21.9 million in the third quarter of 1994, compared with $21.5 million in the third quarter of 1993. For the first nine months of 1994, occupancy and equipment declined slightly to $65.9 million, compared with $66.3 million for the first nine months of 1993, as renegotiation of telecommunications and other equipment rental contracts in 1994 lowered costs and were only partially offset by increased maintenance expenses. Marketing and public relations was $6.3 million in the third quarter of 1994 and $5.8 million in the third quarter of 1993. For the first nine months of 1994, marketing and public relations was $17.6 million, compared with $16.8 million in 1993 due to increased promotional activity related to consumer lending programs and community banking. Other operating expenses at $16.4 million for the third quarter of 1994 were virtually unchanged from the third quarter of 1993. For the first nine months of 1994, other operating expenses decreased 1% to $46.6 million, compared with $47.2 million for the first nine months of 1993, due to decreased expenses for professional services, which also positively impacted the third quarter of 1994 as compared with the third quarter of 1993. The cost of administering, managing, and disposing of OREO properties and legal expenses related to such workout was $1.2 million in the third quarter of 1994, compared with $3.1 million in the third quarter of 1993, reflecting the continued disposition of OREO. For the first nine months of 1994, these costs were $7.8 million, down from $13.3 million in 1993. TABLE C OPERATING EXPENSES FOR THE PERIODS ENDED SEPTEMBER 30 (IN THOUSANDS)
THIRD QUARTER NINE MONTHS ----------------------------- ----------------------------- 1994 1993 CHANGE 1994 1993 CHANGE -------- -------- ------- -------- -------- ------- Salaries and benefits................ $ 58,264 $ 54,416 $ 3,848 $172,081 $158,552 $13,529 Occupancy and equipment.............. 21,877 21,474 403 65,923 66,295 (372) Marketing and public relations....... 6,270 5,774 496 17,631 16,841 790 FDIC insurance....................... 5,403 5,460 (57) 16,305 16,512 (207) Postage and supplies................. 5,278 5,530 (252) 15,206 15,658 (452) Other................................ 16,437 16,447 (10) 46,617 47,239 (622) -------- -------- ------- -------- -------- ------- Operating expenses excluding OREO expenses........................... 113,529 109,101 4,428 333,763 321,097 12,666 OREO and legal expenses related to workout............................ 1,177 3,123 (1,946) 7,850 13,326 (5,476) -------- -------- ------- -------- -------- ------- Total operating expenses... $114,706 $112,224 $ 2,482 $341,613 $334,423 $ 7,190 ======== ======== ======= ======== ======== =======
11 12 Provision for Loan Losses and Other Real Estate Owned Reserve Due to the continued improvement in credit quality, the provisions for loan losses and the OREO reserve (credit provisions) declined substantially in the third quarter of 1994 to $8.4 million, compared with $16.8 million in the third quarter of 1993. The provision for loan losses was $6.0 million in the third quarter of 1994, compared with $9.0 million in the third quarter of 1993. For the first nine months of 1994, the provision for loan losses was $18.0 million, compared with $29.5 million in 1993. The provision for the OREO reserve was $2.4 million in the third quarter of 1994, compared with $7.8 million in the third quarter of 1993. For the first nine months of 1994, the provision for the OREO reserve was $7.9 million, compared with $22.7 million in 1993. The OREO provision includes $1.7 million of net gains on sales of properties in the third quarter of 1994 and $1.0 million in the third quarter of 1993. For the first nine months of 1994, net gains on the sales of OREO properties were $4.8 million as compared with $3.0 million in 1993. Income Taxes The Company reported a provision for income taxes of $20.4 million in the third quarter of 1994, compared with $13.2 million in the third quarter of 1993. The effective tax rate in the third quarter of 1994 was 41.3%, compared with 42.3% in the third quarter of 1993. The lower effective tax rate in the 1994 third quarter as compared with the 1993 third quarter rate was due to a retroactive increase in the federal income tax rate from 34% to 35% reflected in the third quarter of 1993. For the 1994 and 1993 first nine-month periods, the effective tax rates were 40.6% and 40.9%, respectively. BALANCE SHEET REVIEW Trends in Earning Assets Average earning assets increased to $9.6 billion during the third quarter of 1994, compared with $8.5 billion in the third quarter of 1993. The increase was due primarily to the expansion of the securities portfolios, financed by purchased funds although in the third quarter of 1994 loan volume increases were significant. Average earning assets were $9.3 billion for the first nine months of 1994, compared with $8.5 billion for the first nine months of 1993. Loan Portfolio The loan portfolio of the Company is diversified (TABLE D). Consumer loans represent 63% of the quarter-end loan portfolio, with $1.3 billion in residential loan balances and $2.7 billion in various types of instalment loan balances. The consumer lending activities of the Company are focused primarily on the Massachusetts market. The remaining 37% of the loan portfolio is commercial and commercial real estate loans. The majority of the Company's commercial loans are to New England-based companies, primarily local middle-market companies and small businesses in Massachusetts. The Company originates fixed- and adjustable-rate residential mortgage loans. The majority of fixed-rate residential real estate loan originations are securitized and sold to the secondary market with servicing retained. The remainder of the fixed-rate and floating-rate residential real estate loan originations are held in the loan portfolio or may be securitized and transferred to the securities available for sale portfolio. An analysis of the changes in major loan categories for the third quarters and first nine months of 1994 and 1993 is presented in TABLE D. Net business volume was $298 million in the third quarter of 1994, compared with $201 million in the third quarter of 1993. Residential real estate loan volume for the third quarter of 1994 was principally the result of mortgages for purchases as refinance activity continued to decline during 1994. The Company sold $26 million of fixed-rate residential real estate loans during the third quarter of 1994, compared with $209 million in the third quarter of 1993. At September 30, 1994 loans held for resale were $8 million, compared with $138 million at December 31, 1993, due to the decreased refinancing activity. 12 13 Instalment loan net business volume was $151 million in the third quarter of 1994, compared with $127 million in the third quarter of 1993. Net business volume in the commercial real estate portfolio was negative $2 million during the third quarter of 1994, compared with negative $13 million during the third quarter of 1993; however, volume for the first nine months of 1994 was $4 million compared with negative $66 million in 1993. Commercial loan volume was $73 million, primarily related to short-term money market-priced loans, in particular to major retailers in the Company's market area and reflects a decline of $17 million in international trade finance activities. TABLE D CHANGES IN THE LOAN PORTFOLIO (IN THOUSANDS)
THIRD QUARTER 1994 NET ANALYSIS OF CHANGE IN LOAN CATEGORIES BUSINESS ------------------------------------------ VOLUME GROSS TRANSFERS NET THIRD SEPTEMBER 30 JUNE 30 INCREASE CHARGE- TO BUSINESS QUARTER 1994 1994 (DECREASE) OFFS OREO SALES VOLUME 1993 ------------ ---------- ---------- -------- --------- -------- -------- --------- Commercial................... $1,421,961 $1,352,961 $ 69,000 $ (2,364) $(1,821) $ -- $ 73,185 $(102,138) Commercial real estate....... 910,185 916,731 (6,546) (3,535) (900) -- (2,111) (13,443) Residential mortgage......... 1,283,960* 1,239,026* 44,934 (1,648) (3,361) (26,302) 76,245 189,475 Instalment loans Automobile and other....... 1,306,555 1,236,018 70,537 (1,488) -- -- 72,025 73,363 Home equity................ 735,683 712,438 23,245 (503) (348) -- 24,096 13,258 Credit card................ 304,237 300,054 4,183 (3,090) -- -- 7,273 605 Student loans.............. 257,803 216,115 41,688 (159) -- (9) 41,856 35,393 Reserve credit............. 132,591 128,228 4,363 (1,229) -- -- 5,592 4,001 ---------- ---------- -------- --------- ------- -------- -------- --------- Total instalment loans.................... 2,736,869 2,592,853 144,016 (6,469) (348) (9) 150,842 126,620 ----------- ---------- -------- -------- ------- -------- -------- --------- Total loans.......... $6,352,975 $6,101,571 $251,404 $(14,016) $(6,430) $(26,311) $298,161 $ 200,514 ============ ========== ======== ======== ======= ======== ======== ========= - - - - - --------------- * Includes residential mortgage loans held for sale of $8 million at September 30, 1994, and $18 million at June 30, 1994.
NET NINE MONTHS ENDED SEPTEMBER 30, 1994 BUSINESS ANALYSIS OF CHANGE IN LOAN CATEGORIES VOLUME ------------------------------------------- NINE MONTHS GROSS TRANSFERS NET ENDED SEPTEMBER 30 DECEMBER 31 INCREASE CHARGE- TO BUSINESS SEPTEMBER 30 1994 1993 (DECREASE) OFFS OREO SALES VOLUME 1993 ------------ ----------- ---------- -------- --------- --------- -------- ------------ Commercial............. $1,421,961 $1,324,968 $ 96,993 $ (9,421) $ (2,984) $ -- $109,398 $ (78,288) Commercial real estate............... 910,185 935,471 (25,286) (17,250) (11,764) -- 3,728 (66,167) Residential mortgage... 1,283,960* 1,242,597* 41,363 (5,580) (12,113) (255,043) 314,099 595,527 Instalment loans Automobile and other.............. 1,306,555 1,173,950 132,605 (5,280) -- -- 137,885 235,981 Home equity.......... 735,683 700,055 35,628 (1,452) (351) -- 37,431 17,881 Credit card.......... 304,237 325,794 (21,557) (9,177) -- -- (12,380) (9,644) Student loans........ 257,803 276,923 (19,120) (283) -- (127,013) 108,176 78,381 Reserve credit....... 132,591 123,412 9,179 (3,936) -- -- 13,115 9,437 ---------- ---------- -------- -------- -------- --------- -------- ---------- Total instalment loans.............. 2,736,869 2,600,134 136,735 (20,128) (351) (127,013) 284,227 332,036 ---------- ---------- -------- -------- -------- --------- -------- ---------- Total loans.... $6,352,975 $6,103,170 $249,805 $(52,379) $(27,212) $(382,056) $711,452 $ 783,108 ========== ========== ======== ======== ======== ========= ======== ========== - - - - - --------------- * Includes residential mortgage loans held for sale of $8 million at September 30, 1994, and $138 million at December 31, 1993.
13 14 Securities Portfolios The securities portfolios are presented in TABLE E and consist of short-term investments, securities available for sale, and investment securities. The securities portfolio was $3.2 billion at September 30, 1994, $3.0 billion at December 31, 1993 and $2.6 billion at September 30, 1993. The weighted average maturity of the securities portfolio was 1.7 years at September 30, 1994, compared with .8 years at December 31, 1993 and 1.1 years at September 30, 1993. Short-term investments were $155.5 million at September 30, 1994, compared with $803.1 million at December 31, 1993 and $353.9 million at September 30, 1993. The decline in the balance reflects the reinvestment of certain proceeds from maturing short-term investments into the securities available for sale and investment securities portfolios. Securities available for sale, consisting principally of debt securities, are stated at market value in 1994, and at the lower of aggregate cost or market for previous periods. Decisions to purchase or sell these securities as part of the Company's ongoing asset and liability management process are based on management's assessment of changes in economic and financial market conditions, interest rate environments, the Company's balance sheet and its interest sensitivity position, liquidity, and capital. During 1994, the proceeds from the sales and maturities of securities available for sale have been reinvested in the investment portfolio and the loan portfolio. At September 30, 1994, securities available for sale had gross unrealized gains of $813 thousand and gross unrealized losses of $6 thousand. The investment securities portfolio, consisting principally of debt securities, is stated at amortized cost. This basis for valuation reflects management's intention and ability to hold these securities until maturity. The Company's investment securities portfolio was $2.9 billion at September 30, 1994, $1.6 billion at December 31, 1993 and $1.4 billion at September 30, 1993. The aggregate market value of the investment securities portfolio was $2.8 billion and $1.4 billion at September 30, 1994 and 1993, respectively. The weighted average maturity of the investment securities portfolio was 1.8 years at September 30, 1994, compared with 1.3 years at December 31, 1993, and 1.5 years at September 30, 1993. At September 30, 1994, gross unrealized gains were $118 thousand, and gross unrealized losses were $49.9 million. The Company's investment securities portfolio contains U.S. Government securities, state and local government securities, asset-backed securities, mortgage-backed securities, and industrial revenue bonds. The total state and local government portfolio was $160 million at September 30, 1994, with the single largest issue being approximately $5 million. Of this total, $110 million were securities rated investment grade and $50 million were unrated. All municipal securities are subject to an internal review process that assigns a rating to the securities. In the case of rated securities, the process verifies or adjusts the independent rating. In the case of unrated securities only securities determined to be equivalent to investment grade are purchased. Industrial revenue bonds are also subject to a credit review process. While there is no ready market for the Company's holdings of industrial revenue bonds, management has determined that, based on periodic private placement quotes, their amortized cost is a reasonable estimate of market value. Trading account securities, consisting of debt securities, are recorded at market value. Trading account gains were $513 thousand in the third quarter of 1994 and $733 thousand in the third quarter of 1993. For the first nine months of 1994, trading account gains were $1.5 million compared with $1.8 million in 1993. 14 15 TABLE E SECURITIES PORTFOLIOS AT PERIOD-END (DOLLARS IN THOUSANDS)
SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30 1994 1993 1993 ------------ ----------- ------------ Short-term investments............................ $ 155,503 $ 803,068 $ 353,912 ---------- ----------- ---------- Securities available for sale U.S. Government securities...................... 24,738 322,707 774,217 U.S. Agency mortgage-backed securities.......... 25,403 30,832 33,081 State and local governments..................... 5,026 18,964 2,700 Corporate and other............................. 86,239 256,500 41,550 ---------- ----------- ---------- 141,406 629,003 851,548 ---------- ----------- ---------- Investment securities U.S. Government securities...................... 2,426,683 1,203,315 1,019,209 Asset-backed securities......................... 203,089 204,798 205,389 State and local governments..................... 159,815 128,997 88,431 Industrial revenue bonds........................ 51,652 59,958 66,334 U.S. Agency mortgage-backed securities.......... 49,488 -- -- Corporate and other............................. 1,857 1,992 1,976 ---------- ----------- ---------- 2,892,584 1,599,060 1,381,339 ---------- ----------- ---------- Total................................... $3,189,493 $ 3,031,131 $2,586,799 ========== =========== ========== Weighted average maturity of securities available for sale and investment securities in years*.... 1.8 1.1 1.2 Weighted average maturity of total securities in years*.......................................... 1.7 0.8 1.1 - - - - - --------------- * The weighted average maturity calculation excludes amortizing IRBs and reflects estimated prepayments for mortgage-backed securities.
Deposits and Other Sources of Funds The Company's extensive product lines and banking network of 204 full-service offices and 359 automated banking facilities generate significant core deposits, which accounted for 99% of total average deposits during the third quarters of 1994 and 1993. Core deposits include transaction accounts (demand, NOW, and savings accounts), money market deposit accounts, and consumer time certificates. Average core deposits were $8.5 billion in the third quarter of 1994 and $8.6 billion in the third quarter of 1993. Average core deposits were $8.5 billion and $8.6 billion for the first nine months of 1994 and 1993, respectively. Average transaction accounts were $4.9 billion in the third quarter of 1994, compared with $4.7 billion in the third quarter of 1993, reflecting certain customers' preferences to maintain significant balances in lower-yielding transaction accounts, thus having a positive impact on the Company's net interest margin. Average money market deposit and consumer certificate of deposit balances were $3.6 billion during the third quarter of 1994, compared with $3.9 billion in the third quarter of 1993, and were $3.7 billion and $4.0 billion in the first nine months of 1994 and 1993, respectively. During the third quarter of 1994, average consumer certificate of deposit balances were $981 million, compared with an average balance of $945 million in the second quarter of 1994. Average corporate certificates of deposit in excess of $100 thousand (CDs), which represent a small portion of the Company's total funding, were $125 million in the third quarter of 1994, compared with 15 16 $29 million in the third quarter of 1993, and were $75 million and $34 million in the first nine months of 1994 and 1993, respectively. Purchased funds were $951 million at September 30, 1994, compared with $508 million at December 31, 1993, and $109 million at September 30, 1993, as the securities portfolios were increased, as discussed in the Trends in Earning Assets section. The use of purchased funds to finance the securities portfolios is designed to take advantage of the Company's strong capital position. While these funding and investment actions increased net interest income, the net interest margin reflects the lower net interest spread on such transactions. Interest Rate Risk Management and Liquidity BayBanks' Capital Markets Committee monitors and manages the overall on - and off - balance sheet interest sensitivity position, the securities portfolios, funding and liquidity. Interest sensitivity, as measured by the Company's gap position, is affected by the level and direction of interest rates and current liquidity preferences of its customers. These factors, as well as projected balance sheet growth, current and potential pricing actions, competitive influences, national monetary and fiscal policy, and the national and regional economic environment, are considered in the asset and liability management decision process. The Company's interest sensitivity gap position in TABLE F is first presented based on contractual maturities and repricing opportunities. In a period of rising or falling interest rates this basis of presentation does not reflect lags that may occur in the repricing of certain loans and deposits. For example, in 1994 the cost of certain interest-bearing core deposit categories have lagged changes in market interest rates, although the Company contractually could change the interest rates on these deposits at any time. A management adjustment provides for the expected repricing lags. The management adjustment also recognizes that interest rate changes in these core deposit categories are not as sensitive to changes in market interest rates. In addition to the gap analysis presented in the table, the Company also uses a simulation model under varying interest rate scenarios, including the effect of rapid changes (both increases and decreases up to 200 basis points) in interest rates on its net interest income and net interest margin. The Company's policy is to minimize volatility in its net interest income and net interest margin. At September 30, 1994, the Company's adjusted gap position for the total within-180-day period moved from a positive gap position of $116 million at December 31, 1993, to a negative gap position of $299 million at September 30, 1994. The total within-one-year gap moved from a positive $132 million at December 31, 1993, to a negative $213 million at September 30, 1994. The Company believes its overall management-adjusted gap is essentially neutral, and therefore the effect on net interest income of a change in market interest rates should not be significant. 16 17 TABLE F INTEREST RATE SENSITIVITY POSITION AT PERIOD-END (IN MILLIONS)
0-30 31-90 91-180 TOTAL WITHIN 181-365 TOTAL WITHIN DAYS DAYS DAYS 180 DAYS DAYS ONE YEAR ------- ------- ------ ------------ ------- ------------ September 30, 1994 Total assets..................... $ 3,220 $ 559 $ 881 $ 4,660 $ 1,255 $ 5,915 Total liabilities................ 6,868 186 173 7,227 245 7,472 ------- ------- ------ -------- ------- -------- Net contractual gap position..... (3,648) 373 708 (2,567) 1,010 (1,557) Net interest rate swaps.......... -- 5 -- 5 -- 5 ------- ------- ------ -------- ------- -------- Net gap position including interest rate swaps at September 30, 1994............. (3,648) 378 708 (2,562) 1,010 (1,552) Management adjustment............ 5,378 (2,653) (462) 2,263 (924) 1,339 ------- ------- ------ -------- ------- -------- Management adjusted gap at September 30, 1994............... $ 1,730 $(2,275) $ 246 $ (299) $ 86 $ (213) ======= ======= ===== ======== ======= ======== Management adjusted gap at December 31, 1993......................... $ 2,625 $(2,325) $(184) $ 116 $ 16 $ 132 ======= ======= ===== ======== ======= ======== Management adjusted gap at September 30, 1993............... $ 2,654 $(2,329) $(285) $ 40 $ 91 $ 131 ======= ======= ===== ======== ======= ========
Liquidity, for commercial banking activities, is the ability to respond to maturing obligations, deposit withdrawals, and loan demand. The liquidity positions of the Company's bank subsidiaries are closely monitored by the Company's Capital Markets Committee. BayBank's retail network provides a stable base of in-market core deposits and limits the need to raise funds from the national market. The Company's net liquidity position (short-term investments, securities available for sale and investment securities, less pledged securities, large CDs, and purchased funds) was $1.9 billion, or 20% of total deposits and borrowings at September 30, 1994, compared with $2.1 billion, or 24% of total deposits and borrowings, at September 30, 1993. The Company also has additional liquidity flexibility due to the relatively short average maturity (1.7 years) of its securities portfolios. The statement of cash flows provides additional information on liquidity. The statement of cash flows includes operating, investing, and financing categories. Operating activities included $76.7 million in net income for the first nine months of 1994, before adjustment of noncash items. Investing activities are primarily comprised of both proceeds from sales and purchases of short-term investments and securities and net loan originations. Financing activities present the net change in the Company's various deposit accounts, short-term borrowings, and dividends paid. Cash and cash equivalents were $633 million at December 31, 1993. During the first nine months of 1994, net cash provided by operating activities was $355 million, net cash used in investing activities totaled $670 million and net cash provided by financing activities was $340 million. Cash and cash equivalents were $658 million at September 30, 1994. The parent company's sources of liquidity are dividend and interest income received from its subsidiaries and income earned on its securities portfolios. The most significant uses of the parent company's resources are dividends paid to stockholders and capital contributions to banking and other subsidiaries when appropriate. In managing liquidity, regulatory limitations on the extent to which bank subsidiaries can pay dividends or supply funds to the parent company are taken into account. During the first nine months of 1994 the parent company did not provide any capital to its subsidiaries. Dividends received from bank subsidiaries were $18.8 million and dividends from nonbank subsidiaries were $4.5 million during the first nine months of 1994. The parent company paid $21.7 million in dividends to its stockholders during the first nine months of 1994. At September 30, 1994, the parent company had $76 million in cash, short-term investments, and other securities. The parent company does not sell commercial paper and does not have any revolving credit lines or short-term debt outstanding. 17 18 CREDIT QUALITY REVIEW Overview The Company continually monitors the credit quality of its loan portfolio. Employing a standard system for grading loans, individual account officers assign their loans a grade, or risk rating, and, if necessary, a specific loan loss reserve. An independent Loan Review Department then reviews loan grades and specific loan loss reserves. Any loan or portion of a loan determined to be uncollectible is charged off. On a quarterly basis, senior management reviews the loan portfolio, with particular emphasis on higher-risk loans, to assess the credit quality and loss potential inherent in the portfolio. Also considered in this review are delinquency trends and the adequacy of reserves. The size of the allowance for loan losses, the OREO reserve and the related provisions reflect this analysis. Nonperforming assets, presented in TABLE G (which exclude restructured, accruing loans, and accruing loans 90 days or more past due), include nonperforming loans and OREO and were $137 million at September 30, 1994, a 39% decrease from $224 million at December 31, 1993, and a 50% decrease from $272 million at September 30, 1993. In the third quarter of 1994, nonperforming assets declined 21% from June 30, 1994, continuing the favorable trend that began in the first quarter of 1991. While the Company expects to experience continued improvement in nonperforming assets, the pace of that improvement will depend on many factors, including national and regional economic conditions. TABLE G NONPERFORMING ASSETS, RESTRUCTURED, ACCRUING LOANS, AND ACCRUING LOANS 90 DAYS OR MORE PAST DUE AT PERIOD-END (DOLLARS IN THOUSANDS)
SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30 1994 1993 1993 ------------ ----------- ------------ Nonperforming loans..................................... $ 59,538 $ 110,001 $134,240 Other real estate owned In-substance foreclosures............................. 52,737 72,505 79,673 Foreclosed property................................... 51,685 70,950 87,817 -------- --------- -------- 104,422 143,455 167,490 Less OREO reserve..................................... 26,856 29,776 29,334 -------- --------- -------- OREO, net of reserve.................................. 77,566 113,679 138,156 -------- --------- -------- Total nonperforming assets.............................. $137,104 $ 223,680 $272,396 ======== ========= ======== Restructured, accruing loans............................ $ 8,772 $ 18,398 $ 18,025 ======== ========= ======== Accruing loans 90 days or more past due................. $ 43,483 $ 51,749 $ 60,559 ======== ========= ======== Nonperforming assets as a percentage of loans and OREO.. 2.1% 3.6% 4.5% Nonperforming assets as a percentage of total assets.... 1.3 2.2 2.9
The decline in nonperforming assets, presented in TABLE H (which exclude restructured, accruing loans and accruing loans 90 days or more past due), is affected by successful workout activities that include property sales, payments on nonperforming loans, and loans that qualified for and were returned to accrual status. The net outflow of nonperforming assets increased in the first nine months of 1994 compared with the first nine months of 1993, primarily due to a lower level of additions to nonperforming assets. Favorable resolutions were $37 million in the third quarter of 1994, or 22% of nonperforming assets at the beginning of the period. During the third quarter of 1994, additions to nonperforming assets were $10 million; additions to nonperforming assets in the third quarter of 1993 were $27 million. As of September 30, 1994, the Company held $674 thousand in deposits on OREO property sales pending of $7.7 million. 18 19 TABLE H CHANGE IN ASSET QUALITY (IN THOUSANDS)
1994 1993 NINE MONTHS ------------------------------ ------------------- ENDED SEPTEMBER 30 THIRD SECOND FIRST FOURTH THIRD -------------------- QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993 -------- -------- -------- -------- -------- -------- --------- Nonperforming assets*............. $137,104 $172,921 $203,744 $223,680 $272,396 $137,104 $ 272,396 ======== ======== ======== ======== ======== ======== ========= Nonperforming asset activity Additions....................... $ 10,233 $ 23,446 $ 20,656 $ 14,752 $ 27,034 $ 54,335 $ 91,453 -------- -------- -------- -------- -------- -------- --------- Payments........................ (10,428) (10,879) (8,070) (9,832) (15,515) (29,377) (57,102) Returns to accrual.............. (11,990) (9,992) (4,349) (9,545) (8,021) (26,331) (14,459) OREO sales...................... (15,058) (19,525) (21,477) (27,514) (20,651) (56,060) (62,552) -------- -------- -------- -------- -------- -------- --------- Total improvements....... (37,476) (40,396) (33,896) (46,891) (44,187) (111,768) (134,113) -------- -------- -------- -------- -------- -------- --------- Net outflow.............. (27,243) (16,950) (13,240) (32,139) (17,153) (57,433) (42,660) -------- -------- -------- -------- -------- -------- --------- Charge-offs....................... (7,911) (14,648) (9,504) (16,135) (11,967) (32,063) (39,609) Net change in OREO reserve........ (663) 775 2,808 (442) (6,858) 2,920 (21,501) -------- -------- -------- -------- -------- -------- --------- Total decrease in nonperforming assets.......................... $(35,817) $(30,823) $(19,936) $(48,716) $(35,978) $(86,576) $(103,770) ======== ======== ======== ======== ======== ======== ========= - - - - - --------------- * At period-end, excluding restructured, accruing loans and accruing loans 90 days or more past due.
Nonperforming Loans Total nonperforming loans, TABLE I (which exclude restructured, accruing loans and accruing loans 90 days or more past due), declined 56% to $60 million at September 30, 1994, compared with $134 million at September 30, 1993. Nonperforming commercial loans decreased 68% to $20 million at September 30, 1994, compared with $62 million at September 30, 1993; commercial real estate nonperforming loans declined 51% during the same period to $28 million at September 30, 1994, compared with $57 million at September 30, 1993. The nonperforming loans in the consumer portfolio, which includes residential mortgages and instalment loans, decreased 22% to $12 million at September 30, 1994, from $15 million at September 30, 1993. TABLE I NONPERFORMING LOANS AT PERIOD-END (DOLLARS IN THOUSANDS)
SEPTEMBER 30, 1994 DECEMBER 31, 1993 SEPTEMBER 30, 1993 ----------------- ------------------ ------------------ Commercial..................... $19,763 33% $ 47,751 43% $ 62,403 46% Commercial real estate......... 28,000 47 49,014 45 56,706 42 Residential mortgage........... 10,318 17 11,473 10 13,083 10 Instalment..................... 1,457 3 1,763 2 2,048 2 ------- --- -------- --- -------- --- Total nonperforming loans.............. $59,538 100% $110,001 100% $134,240 100% ======= === ======== === ======== ===
Other Real Estate Owned OREO consists of foreclosed properties and in-substance foreclosures. Foreclosed properties are being prepared for sale or are currently listed for sale. The Company is also involved in managing in-substance foreclosures, taking operating control to stabilize values while the properties are being prepared for sale, or working closely with borrowers to obtain new equity. OREO (net of reserve) declined 44% to $78 million at September 30, 1994, from $138 million at September 30, 1993, primarily due to property sales. 19 20 Restructured, Accruing Loans The Company restructures credits with borrowers experiencing a period of financial difficulty if such arrangements are likely to minimize losses the Company may otherwise incur on a particular credit. Loans that have been restructured generally remain on nonaccrual status until the customer has demonstrated a period of performance under the new contractual terms. Restructured, accruing loans were $9 million at September 30, 1994, compared with $18 million at September 30, 1993. Accruing Loans 90 Days or More Past Due Accruing loans 90 days or more past due presented in TABLE J declined 28% to $43 million at September 30, 1994, compared with $61 million at September 30, 1993. Accruing loans 90 days or more past due increased slightly during the third quarter of 1994 compared with $42 million at the end of the previous quarter. Of the $43 million in accruing loans 90 days or more past due at September 30, 1994, $11 million were residential real estate loans and $19 million were instalment loans, which together represented 70% of the total. Residential real estate and instalment loans by their nature include a large number of smaller loans. Of the $11 million in such residential real estate loans, $10 million were in owner-occupied properties. Commercial and commercial real estate accruing loans 90 days or more past due at September 30, 1994 were $13 million, compared with $18 million at September 30, 1993. TABLE J ACCRUING LOANS 90 DAYS OR MORE PAST DUE AT PERIOD-END (DOLLARS IN THOUSANDS)
SEPTEMBER 30, SEPTEMBER 30, 1994 DECEMBER 31, 1993 1993 ----------------- ----------------- ----------------- Commercial........................... $ 3,503 8% $ 3,558 7% $ 8,124 13% Commercial real estate............... 9,643 22 5,093 10 9,981 17 Residential mortgage................. 11,587 27 20,698 40 21,350 35 Instalment........................... 18,750 43 22,400 43 21,104 35 ------- --- ------- --- ------- --- Total...................... $43,483 100% $51,749 100% $60,559 100% ======= === ======= === ======= ===
Allowance for Loan Losses The allowance for loan losses is increased by the provision for loan losses and is reduced by net loans charged off (TABLE K). Net loans charged off were $9.5 million in the third quarter of 1994, compared with $12.2 million in the third quarter of 1993. Net charge-offs were $38.9 million for the first nine months of 1994 and $41.6 million for the first nine months of 1993. The provision for loan losses was $6.0 million in the third quarter of 1994, compared with $9.0 million in the third quarter of 1993. For the first nine months of 1994, the provision for loan losses was $18.0 million, compared with $29.5 million for the first nine months of 1993. Since older problem assets are being resolved and the rate of emerging problem assets continued to decline, the allowance for loan losses was not replenished to the full extent of charge-offs. The allowance for loan losses was $150.6 million at September 30, 1994, and $180.6 million at September 30, 1993. While the overall 20 21 allowance for loan losses declined, its coverage of nonperforming loans increased to 253% at September 30, 1994, from 135% at September 30, 1993. TABLE K SUMMARY OF LOAN LOSS EXPERIENCE (DOLLARS IN THOUSANDS)
THIRD QUARTER NINE MONTHS ------------------------- ------------------------- 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Loans outstanding at September 30......... $6,352,975 $5,913,857 $6,352,975 $5,913,857 ========== ========== ========== ========== Average loans............................. $6,201,580 $5,955,295 $6,100,086 $5,892,709 ========== ========== ========== ========== Allowance for loan losses: Balance at beginning of period............ $ 154,126 $ 183,794 $ 171,496 $ 192,700 Loans charged off Commercial........................... 2,364 4,828 9,421 15,848 Commercial real estate............... 3,535 2,673 17,250 10,621 Residential mortgage................. 1,648 3,226 5,580 8,835 Instalment........................... 6,469 6,871 20,128 22,148 ---------- ---------- ---------- ---------- Total loans charged off.............. 14,016 17,598 52,379 57,452 ---------- ---------- ---------- ---------- Recoveries Commercial........................... 2,017 2,774 5,902 8,512 Commercial real estate............... 371 472 966 1,123 Residential mortgage................. 483 817 1,692 1,679 Instalment........................... 1,633 1,345 4,937 4,542 ---------- ---------- ---------- ---------- Total recoveries..................... 4,504 5,408 13,497 15,856 ---------- ---------- ---------- ---------- Net loans charged off................ 9,512 12,190 38,882 41,596 Provision for loan losses................. 6,000 9,000 18,000 29,500 ---------- ---------- ---------- ---------- Balance at September 30................... $ 150,614 $ 180,604 $ 150,614 $ 180,604 ========== ========== ========== ========== Annualized net charge-offs as a percentage of average period-to-date loans......... 0.6% 0.8% 0.9% 0.9% Allowance for loan losses as a percentage of period-end loans..................... 2.4 3.1 2.4 3.1 Allowance for loan losses as a percentage of nonperforming loans.................. 253.0 134.5 253.0 134.5 Allowance for loan losses as a percentage of nonperforming loans, restructured, accruing loans, and accruing loans past due 90 days or more..................... 134.7 84.9 134.7 84.9
21 22 CAPITAL AND DIVIDENDS BayBanks' consolidated risk-based capital ratios were 13.46% for total capital and 11.74% for core capital at September 30, 1994, compared with 13.06% and 11.14%, respectively, at September 30, 1993. At December 31, 1993, the consolidated risk-based capital ratios were 12.40% for total capital and 10.68% for core capital. The consolidated leverage ratio was 7.21% at September 30, 1994, and 7.26% at December 31, 1993 and September 30, 1993. (TABLE L). TABLE L CAPITAL RATIOS SEPTEMBER 30, 1994
RISK-BASED RATIOS -------------------------------------------------------- TIER 1 CAPITAL TOTAL CAPITAL LEVERAGE RATIO --------------------------- --------------------------- --------------------------- REQUIRED TO BE REQUIRED TO BE REQUIRED TO BE WELL CAPITALIZED* REPORTED WELL CAPITALIZED* REPORTED WELL CAPITALIZED* REPORTED ----------------- -------- ----------------- -------- ----------------- -------- BayBanks, Inc................ n/a 11.74% n/a 13.46% n/a 7.21% BayBank...................... 6.00% 9.86 10.00% 11.60 5.00% 6.05 BayBank Boston, N.A.......... 6.00 11.16 10.00 13.01 5.00 6.60 BayBank Connecticut, N.A..... 6.00 12.66 10.00 13.92 5.00 11.51 - - - - - --------------- * Under Federal Prompt Corrective Action and Risk-based Deposit Insurance Assessment Regulations. n/a -- not applicable
BayBanks paid a dividend in the third quarter of 1994 of $.45 per share. Dividends paid since reinstatement of the quarterly cash dividend in the first quarter of 1993 are presented in TABLE M. TABLE M DIVIDENDS PAID
1994 1993 NINE MONTHS ------------------------------- ------------------------------------------- - - - - - --------------- THIRD SECOND FIRST FOURTH THIRD SECOND FIRST 1994 1993 QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER - - - - - ----- ----- ------- ------- ------- ------- ------- ------- ------- $1.15 $0.65 $0.45 $0.35 $0.35 $0.25 $0.25 $0.20 $0.20 ===== ===== ===== ===== ===== ===== ===== ===== =====
On October 27, 1994, BayBanks declared its fourth quarter dividend at $.45 per share payable December 1, 1994. IMPENDING ACCOUNTING CHANGE In May 1993, the Financial Accounting Standards Board (FASB) issued Statement No. 114, "Accounting by Creditors for Impairment of a Loan" which was amended by Statement No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures," issued in October 1994. These statements are effective for fiscal years beginning after December 15, 1994 and will require changes in the disclosure of nonperforming assets. Loans currently reported as nonperforming and in-substance foreclosures will be reported as impaired loans in a financial statement footnote. Restructured loans, reported as restructured, accruing loans prior to the adoption of Statement No. 114, will not be regarded as impaired loans when the statement is adopted if they are performing under the restructured terms. Restructured accruing loans entered into after the adoption of Statement No. 114 will be accounted for as impaired loans. The amount of impairment will be determined by the difference between the present value of the expected cash flows related to the loan using the contractual interest rate and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the appraised value of the collateral and the recorded amount of the loan. Any additional impairment will be recorded as an adjustment to the existing allowance for 22 23 loan losses account. The adoption of Statement No. 114 and Statement No. 118 is not expected to have a material effect on the Company's reported results of operations or financial condition. In October 1994, the FASB issued Statement No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." This statement is effective for fiscal years ending after December 15, 1994 and requires disclosures about derivative financial instruments including futures, forward, swap, and option contracts, and other financial instruments with similar characteristics. 23 24 BAYBANKS, INC. AVERAGE BALANCES AND CAPITAL RATIOS (DOLLARS IN MILLIONS)
1994 1993 NINE MONTHS --------------------------- ----------------- ---------------- THIRD SECOND FIRST FOURTH THIRD 1994 1993 QUARTER QUARTER QUARTER QUARTER QUARTER ------- ------ ------- ------- ------- ------- ------- ASSETS Interest-bearing deposits and other short-term investments................................. $ 231 $ 652 $ 175 $ 204 $ 315 $ 420 $ 412 Securities available for sale, at cost........ 545 1,380 420 597 618 831 974 Investment securities, at cost................ 2,378 621 2,840 2,347 1,938 1,469 1,201 Loans* Commercial.................................. 1,342 1,391 1,372 1,360 1,294 1,288 1,371 Commercial real estate...................... 916 966 915 908 926 930 945 Residential mortgage........................ 1,219 1,163 1,256 1,193 1,209 1,194 1,178 Instalment.................................. 2,622 2,372 2,659 2,594 2,613 2,550 2,461 ------- ------ ------- ------- ------- ------- ------- 6,099 5,892 6,202 6,055 6,042 5,962 5,955 Less allowance for loan losses.............. 163 190 155 164 172 184 185 ------- ------ ------- ------- ------- ------- ------- 5,936 5,702 6,047 5,891 5,870 5,778 5,770 ------- ------ ------- ------- ------- ------- ------- Total earning assets................. 9,253 8,545 9,637 9,203 8,913 8,682 8,542 Cash and due from banks....................... 625 620 651 622 602 659 630 Other assets.................................. 485 559 480 480 495 519 539 ------- ------ ------- ------- ------- ------- ------- Total assets......................... $10,200 $9,534 $10,613 $10,141 $ 9,838 $ 9,676 $ 9,526 ======= ====== ======= ======= ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Demand...................................... $ 1,964 $1,838 $ 1,992 $ 1,946 $ 1,955 $ 2,031 $ 1,914 NOW accounts................................ 1,393 1,324 1,388 1,399 1,391 1,372 1,338 Savings..................................... 1,497 1,385 1,502 1,509 1,481 1,443 1,422 Money market deposit accounts............... 2,699 2,901 2,655 2,700 2,742 2,758 2,823 Consumer time............................... 967 1,131 981 945 975 1,016 1,069 Time -- $100,000 or more.................... 75 34 125 63 37 30 29 ------- ------ ------- ------- ------- ------- ------- 8,595 8,613 8,643 8,562 8,581 8,650 8,595 Federal funds purchased and other short-term borrowings.................................. 749 131 1,086 728 425 209 139 Long-term debt................................ 54 54 54 54 54 55 55 ------- ------ ------- ------- ------- ------- ------- Total deposits and borrowings............... 9,398 8,798 9,783 9,344 9,060 8,914 8,789 Other liabilities**........................... 70 72 77 66 66 70 60 Stockholders' equity.......................... 732 664 753 731 712 692 677 ------- ------ ------- ------- ------- ------- ------- Total liabilities and stockholders' equity............................. $10,200 $9,534 $10,613 $10,141 $ 9,838 $ 9,676 $ 9,526 ======= ====== ======= ======= ======= ======= ======= CAPITAL RATIOS Risk-Based Core (Min. regulatory standard -- 4.00%).... 11.74% 11.14% 11.74% 11.71% 11.32% 10.68% 11.14% Total (Min. regulatory standard -- 8.00%)... 13.46 13.06 13.46 13.45 13.06 12.40 13.06 Leverage...................................... 7.21 7.26 7.21 7.32 7.33 7.26 7.26 - - - - - --------------- * Nonperforming loans are included in the average balances. ** Includes guarantee of ESOP indebtedness.
24 25 BAYBANKS, INC. SUMMARY OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
1994 1993 NINE MONTHS ------------------------------ ------------------- ------------------- THIRD SECOND FIRST FOURTH THIRD 1994 1993 QUARTER QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- -------- -------- -------- Income on earning assets (tax equivalent basis)................ $481,395 $447,436 $174,632 $158,305 $148,458 $148,393 $148,539 Interest expense on deposits and borrowings....................... 134,053 129,012 52,812 43,423 37,818 37,636 38,856 -------- -------- -------- -------- -------- -------- -------- Net interest income................ 347,342 318,424 121,820 114,882 110,640 110,757 109,683 Noninterest income................. 156,303 147,551 52,557 54,031 49,715 50,973 51,904 -------- -------- -------- -------- -------- -------- -------- Total income from operations....... 503,645 465,975 174,377 168,913 160,355 161,730 161,587 Operating expenses................. 341,613 334,423 114,706 114,712 112,195 112,282 112,224 -------- -------- -------- -------- -------- -------- -------- Operating Income before Net Securities Gains and Provisions for Loan Losses and OREO Reserve.......................... 162,032 131,552 59,671 54,201 48,160 49,448 49,363 Net securities gains............... 475 407 -- 436 39 4 49 Provision for loan losses.......... 18,000 29,500 6,000 6,000 6,000 7,000 9,000 Provision for OREO reserve, net.... 7,852 22,692 2,415 2,500 2,937 2,138 7,800 -------- -------- -------- -------- -------- -------- -------- Total credit provisions............ 25,852 52,192 8,415 8,500 8,937 9,138 16,800 -------- -------- -------- -------- -------- -------- -------- Pre-tax income..................... 136,655 79,767 51,256 46,137 39,262 40,314 32,612 Less tax equivalent adjustment included above................... 5,856 3,697 1,816 2,067 1,973 1,661 1,401 -------- -------- -------- -------- -------- -------- -------- Income before taxes and cumulative effect of accounting change...... 130,799 76,070 49,440 44,070 37,289 38,653 31,211 Provision for income taxes......... 53,133 31,101 20,407 17,648 15,078 15,971 13,210 -------- -------- -------- -------- -------- -------- -------- Income before cumulative effect of accounting change................ 77,666 44,969 29,033 26,422 22,211 22,682 18,001 Less cumulative effect of accounting change (net of tax benefit of $683)................. 932 -- -- -- 932 -- -- -------- -------- -------- -------- -------- -------- -------- Net Income......................... $ 76,734 $ 44,969 $ 29,033 $ 26,422 $ 21,279 $ 22,682 $ 18,001 ======== ======== ======== ======== ======== ======== ======== Earnings Per Share Income before accounting change........................ $ 4.06 $ 2.37 $ 1.51 $ 1.38 $ 1.16 $ 1.19 $ 0.95 Less cumulative effect of accounting change............. 0.05 -- -- -- 0.05 -- -- -------- -------- -------- -------- -------- -------- -------- Net Income....................... $ 4.01 $ 2.37 $ 1.51 $ 1.38 $ 1.11 $ 1.19 $ 0.95 ======== ======== ======== ======== ======== ======== ======== Dividends Paid Per Share........... $ 1.15 $ 0.65 $ 0.45 $ 0.35 $ 0.35 $ 0.25 $ 0.25 Financial Ratios Return on average equity........... 14.0% 9.1% 15.3% 14.5% 12.1% 13.0% 10.5% Return on average assets........... 1.01 0.63 1.09 1.05 0.88 0.93 0.75 Common Stock Data Period-end book value per share.... $ 40.30 $ 36.56 $ 40.30 $ 39.47 $ 38.51 $ 37.52 $ 36.56 Dividend payout ratio.............. 28.7% 27.4% 29.7% 25.4% 31.5% 21.0% 26.3% Range of BayBanks, Inc., last sale price High............................. $ 64.13 $ 52.13 $ 63.00 $ 64.13 $ 57.25 $ 50.75 $ 50.50 Low.............................. 50.00 38.25 54.25 54.50 50.00 43.25 43.25 Close............................ 55.00 48.75 55.00 60.25 54.50 50.75 48.75
25 26 BAYBANKS, INC. AVERAGE YIELDS, RATES PAID, AND NET INTEREST MARGIN*
1994 1993 NINE MONTHS --------------------------- ----------------- ------------- THIRD SECOND FIRST FOURTH THIRD 1994 1993 QUARTER QUARTER QUARTER QUARTER QUARTER ---- ---- ------- ------- ------- ------- ------- Interest-bearing deposits and other short-term investments.................. 3.77% 3.33% 4.38% 3.94% 3.32% 3.24% 3.28% Securities available for sale**........... 4.96 4.44 5.42 4.98 4.64 4.70 4.40 Investment securities..................... 4.86 4.92 5.13 4.80 4.55 4.52 4.67 Loans..................................... 8.05 8.21 8.35 7.98 7.81 7.90 8.03 Commercial.............................. 7.16 6.57 7.68 7.19 6.57 6.48 6.50 Commercial real estate.................. 8.06 7.78 8.54 8.05 7.58 7.74 7.73 Residential mortgage.................... 7.36 8.02 7.48 7.24 7.35 7.51 7.74 Instalment.............................. 8.83 9.44 9.03 8.72 8.71 8.86 9.14 Total earning assets...................... 6.94% 6.99% 7.20% 6.89% 6.72% 6.80% 6.91% Interest-bearing funds.................... 2.40% 2.47% 2.68% 2.35% 2.16% 2.16% 2.24% NOW accounts............................ 1.35 1.79 1.37 1.34 1.33 1.42 1.54 Savings................................. 1.93 2.17 1.96 1.93 1.90 1.92 1.96 Money market deposit accounts........... 2.25 2.37 2.50 2.20 2.04 2.08 2.13 Consumer time........................... 3.57 3.84 3.80 3.46 3.45 3.52 3.65 Time -- $100,000 or more................ 3.90 2.67 4.29 3.69 2.91 2.63 2.57 Short-term borrowings................... 4.09 2.59 4.50 3.97 3.21 2.86 2.60 Long-term debt.......................... 4.46 3.85 5.05 4.44 3.88 3.75 3.83 Interest expense as a percentage of average earning assets.................. 1.93% 2.02% 2.17% 1.89% 1.72% 1.72% 1.80% Net interest margin....................... 5.01% 4.97% 5.03% 5.00% 5.00% 5.08% 5.11% - - - - - --------------- * Tax equivalent basis. ** Yields based on average cost.
PART II -- OTHER INFORMATION ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K a) See Exhibit List and Index on page 28. b) No report on Form 8-K was filed during the third quarter ended September 30, 1994. 26 27 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BayBanks, Inc. -------------------------------------- (Registrant) By: /s/ MICHAEL W. VASILY ----------------------------------- Michael W. Vasily Executive Vice President and Chief Financial Officer (Duly Authorized and Principal Financial Officer) Date: November 10, 1994 27 28 BAYBANKS, INC. EXHIBIT LIST AND INDEX
EXHIBIT NO. DESCRIPTION - - - - - ----------- ----------- ARTICLES OF INCORPORATION AND BY-LAWS 3.1 -- By-Laws, as amended through October 27, 1994. MATERIAL CONTRACTS -- EXECUTIVE COMPENSATION PLANS 10.1 -- Amendment dated October 27, 1994, to 1978 Stock Option Plan for Key Employees of Bay Banks, Inc. and Affiliates. 10.2 -- 1988 Stock Option Plan for Key Employees of BayBanks, Inc. and Affiliates, as amended. 10.3 -- 1982 Restricted Stock Plan for Key Employees of BayBanks, Inc. and Affiliates, as amended. 10.4 -- BayBanks, Inc. 1994 Restricted Stock Plan, as amended. 10.5 -- BayBanks, Inc. Incentive Compensation Plan, as amended. 10.6 -- BayBanks, Inc. Compensation Plan for Directors, as amended. 10.7 -- BayBanks, Inc. 1990 Stock Plan for Directors, as amended. 10.8 -- Third Amendment dated October 27, 1994, to BayBanks Supplemental Executive Retirement Plan. 10.9 -- BayBanks, Inc. Severance Benefits Plan, as amended. 10.10 -- First Amendment dated October 27, 1994, to BayBanks Deferred Payment Plans Trust Agreement. MISCELLANEOUS 11.1 -- Computation of Primary and Fully Diluted Earnings Per Share. See Page 29. 27 -- Financial Data Schedule.
28 EX-3.1 2 BY LAWS 1 EXHIBIT 3.1 As amended through October 27, 1994. BAYBANKS, INC. BY-LAWS ARTICLE I OFFICERS: ELECTION, POWERS AND DUTIES SECTION 1. OFFICERS. The officers of the Company shall be a President, a Treasurer, a Clerk, a Board of Directors, as hereinafter provided for, and if deemed expedient by the Board of Directors, a Chairman of said Board, an Executive Committee of said Board, and such other officers as the Board of Directors may elect or appoint. So far as permitted by law, the same person may simultaneously occupy more than one office, but no officer shall execute, acknowledge, or verify any instrument in more than one capacity if such instrument is required by law to be executed, acknowledged or verified by two or more officers. SECTION 2. Terms: VACANCIES. All officers other than Directors shall hold office for the term of one year and until their successors are chosen and qualified. In case a vacancy shall occur from any cause in any office or in the Board of Directors, the Board of Directors (or the remaining Directors, although less than a quorum) may by a majority vote fill such vacancy. An officer or Director so elected to fill such vacancy shall hold office only until the next meeting of the stockholders or Directors at which the office would regularly be filled and until a successor is chosen and qualified. SECTION 3. REMOVAL. Any officer or Director may for cause, and any officer elected or appointed by the Board of Directors may for or without cause, be removed at any time by a majority vote of the Board. Any officer or any Director whom the stockholders have power to elect may be removed for or without cause at any regular meeting of the stockholders, or at any special meeting of the stockholders called for the purpose, by a vote of the holders of a majority of a quorum of the stock outstanding and entitled to vote. An officer or Director may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him. 2 SECTION 4. RESIGNATION. Any officer or Director or member of the Executive Committee may at any time by resignation in writing delivered to the Company resign his office and an acceptance thereof shall not be necessary to make said resignation effective unless so stated in the resignation. SECTION 5. BOARD OF DIRECTORS. From and after the 1945 annual meeting of stockholders or any meeting of stockholders held in lieu thereof until the 1948 annual meeting of stockholders or any meeting of stockholders held in lieu thereof, the Board of Directors shall consist of nine (9) members, including the Chairman of said Board if one be then in office. At the 1945 annual meeting of the stockholders or at any meeting of the stockholders held in lieu thereof three Directors shall be elected to hold office for the term of one year and until their respective successors are chosen and qualified, three Directors shall be elected to hold office for the term of two years and until their respective successors are chosen and qualified and three Directors shall be elected to hold office for the term of three years and until their respective successors are chosen and qualified. Subsequent to 1945 and prior to 1948 the stockholders shall annually reelect, or elect successors to, those Directors whose terms then expire, to hold office for the term of three (3) years and until their respective successors are chosen and qualified. Beginning with the 1948 annual meeting of stockholders, or with any meeting of stockholders held in lieu thereof, and until the 1984 annual meeting of stockholders, or any meeting of stockholders held in lieu thereof, the Board of Directors shall consist of eleven (11) members, including the Chairman of said Board if one be then in office. At the 1948 annual meeting of stockholders, or at any meeting of stockholders held in lieu thereof, the stockholders shall reelect, or elect successors to those Directors whose terms then expire to hold office for the term of three (3) years and until their respective successors are chosen and qualified, and shall elect two (2) additional Directors, one (1) to hold office for the term of three (3) years and until his successor is chosen and qualified, and the other to hold office for the term of two (2) years and until his successor is chosen and qualified. Beginning with the 1984 annual meeting of stockholders, or with any meeting of stockholders held in lieu thereof, and continuing thereafter the Board of Directors shall consist of twelve (12) members, including the Chairman of said Board if one be then in office. At the 1984 annual meeting of stockholders, or at any meeting of the stockholders held in lieu thereof, the stockholders shall reelect, or elect successors to, those Directors whose terms then expire to hold office for the term of three (3) years and until their respective successors are chosen and qualified, and shall elect one (1) additional - 2 - 3 Director to hold office for the term of one (1) year and until his successor is chosen and qualified. Subsequent to 1984 the stockholders shall annually reelect, or elect successors to, those Directors whose terms then expire, to hold office for the term of three (3) years and until their respective successors are chosen and qualified. Directors need not be stockholders of the corporation. The Board of Directors shall have the general management and control of all the property and affairs of the Company and shall exercise all the powers of the Company except such as are conferred by law, by the Articles of Organization of the Company as the same may be from time to time amended, or by these By-Laws upon the stockholders. Without limiting the generality of the foregoing, the Board of Directors shall have full power to fix the compensation of all officers, agents and attorneys of the Company and to provide such fees or other compensation to Directors for their services to the Company as said Board may deem reasonable. The Board of Directors shall have power and authority to make contributions, in such amounts as the Board of Directors may determine to be reasonable, to corporations, trusts, funds or foundations organized and operated exclusively for charitable, scientific or educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual, provided that such contributions in any fiscal year shall not in the aggregate exceed one-half of one percent of the capital and surplus of the Company as of the end of the preceding fiscal year. Nothing in this paragraph shall be construed as directly or indirectly restricting or otherwise affecting, except as herein provided, the rights and powers of the Company with reference to payments of the nature above specified. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors, if there be one, shall be elected annually by and from the Board and shall preside at all meetings of the stockholders and Directors at which he shall be present. When so designated by the Board of Directors, he shall be the chief executive officer of the Company and, if so designated, shall have general charge and control of all its affairs, subject to the supervision of the Board. SECTION 7. EXECUTIVE COMMITTEE. The Board of Directors may elect at any time from its members an Executive Committee which shall have and may exercise such powers (which may include powers vested in the Board of Directors) as are delegated (to the extent permitted by law) to the Executive Committee by the Board of Directors. - 3 - 4 The members of the Executive Committee shall hold office subject to the pleasure of the Board of Directors, and the Board may at any time remove one or more members of said Committee and elect as aforesaid another person in lieu of any member so removed. The Board of Directors may also designate one or more Directors as alternate members of the Executive Committee, who may replace any absent member at any meeting of such Committee. SECTION 8. PRESIDENT. The President shall be annually elected by and from the Board of Directors. He shall be the chief executive officer of the Company and, subject to the supervision of the Board, shall have general charge and control of all the affairs of the Company, unless the Board of Directors shall have designated the Chairman of the Board as the chief executive officer of the Company. He shall have such other powers and be charged with such other duties as the Board may prescribe. In the absence of a Chairman of the Board of Directors, he shall preside at all meetings of the stockholders and Directors at which he shall be present. SECTION 9. VICE PRESIDENT. The Vice President, if there be one, shall be elected by, but not necessarily from, the Board of Directors. Unless his authority is expressly limited, he shall have such powers and be charged with such duties including any and all of the powers and duties of the President as the Board may prescribe. The Board of Directors may elect other Vice Presidents and may establish the powers and duties to be exercised by each. SECTION 10. TREASURER. The Treasurer, who shall be annually elected by the Board of Directors, shall keep or cause to be kept regular books of account which shall be open at all times to any Director, and shall report to the Board of Directors on the financial condition of the Company. He shall have the custody of the corporate seal, of all documents of title and valuable papers, and, unless and until the same be delegated by the Board of Directors to a Transfer Agent, of the stock and transfer books of the Company. Subject to the supervision and control of the Board of Directors, he shall receive and disburse the funds of the Company and shall borrow money on its behalf. One or more Assistant Treasurers may from time to time be appointed by the Board of Directors, with such powers and duties, including any or all of the powers and duties of the Treasurer, as the Board may prescribe. SECTION 11. CLERK. The Clerk, who shall be a resident of the Commonwealth of Massachusetts, shall be annually - 4 - 5 elected by the Board of Directors, shall attend all meetings of the stockholders and Board of Directors, shall keep minutes of the business transacted thereat, and shall see to the giving and serving of notice of all meetings of the stockholders. One or more Assistant Clerks may from time to time be appointed by the Board of Directors, with such powers and duties, including any or all of the powers and duties of the Clerk as the Board may prescribe. SECTION 12. MISCELLANEOUS DUTIES AND POWERS. In addition to the foregoing especially enumerated duties and powers, the several officers of the Company shall be charged with such other duties and shall have such other powers as may be delegated to them by the Board of Directors or may be imposed upon them by law. ARTICLE II STOCKHOLDERS' MEETINGS SECTION 1. ANNUAL MEETING. The annual meeting of stockholders shall be held in every year on the fourth Thursday in April (or if that day falls on a legal holiday on the next succeeding business day, other than a Saturday) at the principal office of the Company within the Commonwealth at 10:00 o'clock A.M., or on such other date within six months after the end of the fiscal year of the Company or at such other hour or place as the Directors shall determine. In lieu of the annual meeting, a special meeting may be held either before or after the date specified in this section for the annual meeting, such special meeting to be called by the President or the Directors and held in the same manner as provided for special meetings of stockholders set forth in Section 2 of this Article II. The purposes for which an annual meeting or special meeting in lieu thereof is to be held shall only be those prescribed by law, by the Articles of Organization, or by these By-Laws and those that are specified by the Board of Directors. SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be called at any time by the President or by the Directors, and shall be called by the Clerk, or in the case of his death, absence, incapacity, or refusal, by any other officer upon written application of stockholders who hold at least sixty-six and two-thirds percent (or, to the extent legally required, the maximum lesser percentage permitted by law, but in no case less than forty percent) in interest of the capital stock entitled to vote at such meeting, stating the time, place, and purposes of the meeting. Special meetings of stockholders may be held at such hour and such place within the Commonwealth of Massachusetts as shall be fixed by the Board of Directors, provided that if the Board of Directors shall not fix the hour and place of any special meeting it shall be held at 10:30 - 5 - 6 o'clock A.M. at the principal office of the Company within the Commonwealth. SECTION 3. NOTICE. A written or printed notice of any meeting of the stockholders, stating the place, day, hour, and purposes thereof, shall be given by the Clerk, or, in the case of his death, absence, incapacity or refusal, by a person designated by the Board of Directors or Executive Committee, at least seven (7) days before the date of the meeting to each stockholder entitled to vote thereat or entitled to receive notice thereof by leaving such notice with the stockholder or at his residence or usual place of business or by mailing the same, postage prepaid, directed to him at his address as last recorded on the books of the Company. Whenever notice of a meeting is required to be given a stockholder under any provisions of the General Laws of the Commonwealth of Massachusetts or of the Company's Articles of Organization or By-Laws, a written waiver thereof, executed before or after the meeting by such stockholder or his attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice. SECTION 4. QUORUM, ADJOURNMENT, AND CANCELLATION. A majority in interest of the capital stock outstanding and at the time entitled to vote represented at a meeting in person or by proxy shall constitute a quorum for the transaction of business; but less than a quorum may adjourn or dissolve a meeting which has been called. The vote of a majority of any quorum shall be sufficient to elect Directors and transact any business, except as a larger vote may be required or a lesser vote may be permitted by the provisions of the Agreement of Association and Articles of Organization and amendments thereto, or by law. No proxy which is dated more than six months before the meeting named therein shall be accepted, and no such proxy shall be valid after the final adjournment of such meeting. The Chairman of the meeting or a majority of the shares present or represented may adjourn the meeting from time to time or dissolve the meeting, whether or not there is a quorum. No notice of the time and place of adjourned meetings need be given, except as required by law. Any previously scheduled meeting of the stockholders may be postponed, and any special meeting of the stockholders called by the President or by the Directors may be cancelled, by resolution of the Board of Directors upon a public announcement made by the Company prior to the date previously scheduled for such meeting of stockholders. For purposes of Article II of these By-Laws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service, or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). SECTION 5. VOTING. Every holder of stock entitled to vote at a meeting of stockholders shall, if present in person - 6 - 7 or represented by valid proxy, have one vote at such meeting for each share held of record by such holder on the date fixed for determination of stockholders entitled to vote at such meeting. Action with respect to any matter may be taken by ballot but need not be so taken unless a stockholder requests that a ballot be taken. SECTION 6. Notice of Stockholder Business and Nominations. ----------------------------------------------- A. Annual Meetings of Stockholders. -------------------------------- (1) Only such business shall be conducted at an annual meeting or special meeting in lieu thereof as shall have been specified in the Company's notice of meeting or, to the extent permitted by law, as shall be approved by the Chairman of the meeting or the Board of Directors. (2) Nominations of persons for election to the Board of Directors of the Company may be made at an annual meeting of stockholders or special meeting in lieu thereof (a) pursuant to the Company's notice of meeting, (b) by, or at, the direction of the Board of Directors or, (c) by any stockholder of the Company who complies with the requirements set forth in this By-Law. (3) Any nomination or other business that a stockholder may bring before an annual meeting or special meeting in lieu thereof pursuant to this By-Law, may only be brought before such meeting by a stockholder of the Company who was a stockholder of record at the time of giving notice provided for in this By-Law, who is entitled to vote at the meeting, and who complies with the notice procedures and other requirements set forth in this By-Law. (4) For nominations or other business to be properly brought before an annual meeting or special meeting in lieu thereof by a stockholder pursuant to this By-Law, the stockholder must have given timely notice thereof in writing to the Clerk of the Company and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice of nominations of persons for election to the Board of Directors shall be delivered to the Clerk at the principal executive office of the Company not later than the close of business on the 60th day, nor earlier than the close of business on the 90th day, prior to the first anniversary of the preceding year's annual meeting or special meeting in lieu thereof; provided, however, that in the event that the date of the annual meeting or special meeting in lieu thereof is more than 30 days before, or more than 60 days after, such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such meeting, and not later than the close of business on the later of the 60th - 7 - 8 day prior to such meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Company. To be timely, a stockholder's notice of other business to be brought before the annual meeting or special meeting in lieu thereof shall be delivered to the Clerk at the Company's principal executive office not less than 120 calendar days in advance of the date of the Company's proxy statement in connection with the previous year's annual meeting or special meeting in lieu thereof, except that, if no annual meeting or special meeting in lieu thereof was held in the previous year, or if the date of the annual meeting or special meeting in lieu thereof has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement, the stockholder's notice of other business shall be delivered to the Clerk at the Company's principal executive office not less than 60 calendar days before the Company's proxy solicitation is made. In no event shall the public announcement of an adjournment of an annual meeting or special meeting in lieu thereof commence a new time period for the giving of a stockholder's notice as described above. 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 in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act and Rule 14a-11 thereunder (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 Company's books, and of such beneficial owner and (ii) the class and number of shares of the Company that are owned beneficially and of record by such stockholder and such beneficial owner. (5) Notwithstanding anything in the second sentence of paragraph A.(4) of this By-Law to the contrary, if the number of directors to be elected to the Board of Directors of the Company is increased between annual meetings and one or more of the new positions is subject to - 8 - 9 election at the next annual meeting, and if no public announcement is made by the Company naming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of the preceding year's annual meeting or special meeting in lieu thereof, then with respect only to nominees for any such new positions created by such increase, a stockholder's notice required by this By-Law shall be considered timely, if it shall be delivered to the Clerk at the principal executive office of the Company not later than the close of business on the 10th day following the day on which such public announcement is first made by the Company. B. SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted at a special meeting of stockholders as shall have been specified in the Company's notice of meeting. C. GENERAL. (1) Only such persons who are nominated in accordance with the procedures set forth in this By- Law shall be eligible to be elected as Directors at an annual meeting or special meeting in lieu thereof, 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 and requirements set forth in this By-Law. Except as otherwise provided by law, the Articles of Organization, or these By-Laws, the 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 or proposed, as the case may be, in accordance with applicable law and the procedures and requirements set forth in this By-Law, and, if any proposed nomination or business is not in compliance with applicable law and this By-Law, to declare that such defective nomination or proposal shall be disregarded. (2) A stockholder proposal of business that the Company is required under Rule 14a-8 under the Exchange Act to set forth in its proxy statement for an annual meeting or special meeting in lieu thereof shall be subject to the requirements of this By-Law. 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 this By-Law. ARTICLE III DIRECTORS' MEETINGS: MEETINGS OF THE EXECUTIVE COMMITTEE SECTION 1. MEETINGS OF DIRECTORS. A regular meeting of the Board of Directors shall be held in every year as soon as - 9 - 10 may be after the annual meeting of stockholders or any special meeting held in lieu of such annual meeting, for the election of officers and such other business as may properly come before the meeting. Any other regular meetings may be held at such time as may be fixed by the Board of Directors. Special meetings of the Board of Directors may be called on order of the Chairman of the Board, or of the President, or any two Directors. Any regular or special meeting of the Board of Directors may be held within or without the Commonwealth of Massachusetts. SECTION 2. NOTICE. Notice of any regular or special meeting of the Board of Directors shall be given by the Clerk, or other officer calling the meeting orally, or by mail, telephone, cable, radio, or telegraph. Notice so sent to a Director's usual and last known place of business or residence two (2) days at least before the meeting shall be sufficient notice in all cases; and any notice received by a Director in time to enable him to attend the meeting concerning which such notice is given shall be likewise sufficient. Notice of a meeting need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends a meeting without protesting prior thereto or at its commencement the lack of notice to him of the meeting. Any business whatever may be transacted at a meeting of the Board, although it may not have been specified in the notice or waiver of notice of the meeting. SECTION 3. QUORUM. Four members of the Board of Directors shall (except as otherwise provided in Section 2 of Article I hereof) constitute a quorum for the transaction of business; but a smaller number may adjourn or dissolve a meeting which had been called. Except as otherwise provided in or permitted by these By-Laws, the Agreement of Association or the Articles of Organization of the Corporation, as any of the same may be amended from time to time, and irrespective of the existence of a vacancy or vacancies in the Board of Directors, the vote of a majority of the Directors present at a meeting at which a quorum is present shall be sufficient to transact all business coming before the meeting. SECTION 4. MEETINGS OF THE EXECUTIVE COMMITTEE. Except as the Board of Directors may otherwise determine, the manner of conducting the business of the Executive Committee, whether at a meeting or otherwise, including the calling of meetings, shall be as determined from time to time by the members of such Committee. A majority of the members of the Executive Committee in office for the time being shall constitute a quorum for the transaction of business at a - 10 - 11 meeting, but in the absence of a quorum, less than a quorum may adjourn a meeting to another time without further notice and may dissolve a meeting. SECTION 5. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the Directors consent to the action in writing and the written consents are filed with the records of the meetings of Directors. Such consents shall be treated as a vote for all purposes. SECTION 6. TELEPHONIC MEETINGS. Members of the Board of Directors may participate in any regular or special meeting of the Board of Directors by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation in a meeting by such means shall constitute presence in person at such meeting for all purposes. ARTICLE IV OFFICE AND SEAL SECTION 1. LOCATION. The Company shall have such offices in addition to the principal office set forth in the Agreement of Association and Articles of Organization as the Board of Directors or stockholders may from time to time designate. SECTION 2. SEAL. The corporate seal shall be in such form as the Board of Directors may from time to time determine. ARTICLE V CAPITAL STOCK AND TRANSFER OF STOCK SECTION 1. STOCK CERTIFICATE. Certificates of stock shall be in such form as the Board of Directors may from time to time determine, except insofar as such form is prescribed by law, and shall be signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer and bear the seal of the Company, provided that when any certificate is signed by a transfer agent or transfer clerk and by a registrar, the signature of the President or a Vice President, or of the Treasurer or an Assistant Treasurer, or both such signatures, or the seal of the corporation upon such certificate or either or both such signatures and such seal may be a facsimile thereof, engraved or printed. - 11 - 12 SECTION 2. LOST OR DESTROYED CERTIFICATES. In case any stock certificate shall be lost, mutilated or destroyed, a new certificate may be issued in place thereof on reasonable evidence of the loss, mutilation or destruction and upon such indemnity, if any, as the Board of Directors may require for the Company, the Transfer Agent, and/or the Registrar. SECTION 3. TRANSFER OF STOCK. Shares of stock shall be transferable only on the books of the Company by assignment in writing, signed by the holder of record thereof, his attorney legally constituted, or his legal representatives, upon surrender of the certificate or certificates therefor. The Company shall not be bound to take notice of or recognize any trust, expressed, implied, or constructive, or any charge or equity affecting any of the shares of the capital stock; or to ascertain or inquire whether any sale or transfer of any such share by any holder of record thereof, his attorney legally constituted, or his legal representative, is authorized by such trust, charge or equity; or to recognize any person as having any interest therein, except the holder of record thereof for the time being. SECTION 4. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint, subject to revocation, reappointment or change, a Transfer Agent and a Registrar of capital stock of any class, or make either one of such appointments with respect to any class of its stock; and while any such appointment is in force with respect to any class of its stock, no certificate issued for stock of such class shall be valid without being countersigned by such Transfer Agent, if one be so appointed, and registered by such Registrar, if one be so appointed. The same person may be appointed to serve as both Transfer Agent and Registrar. SECTION 5. SETTING RECORD DATE AND CLOSING TRANSFER BOOKS. The Board of Directors may fix in advance a time, which shall not be more than sixty (60) days before the date of any meeting of stockholders or the date for the payment of any dividend or the making of any distribution to stock holders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent, and in such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the Company after the record date, or without fixing such record date, the Board of Directors may for any of such purposes close the stock transfer books of the Company for all or any part of said sixty (60) day period. - 12 - 13 ARTICLE VI INDEMNIFICATION The Company shall, to the fullest extent legally permissible, indemnify each person at any time elected or appointed a Director or officer of the Company, each person who serves at the Company's request as a director or officer of another organization and each person who serves at the Company's request in any capacity with respect to any employee benefit plan against any and all costs and expenses (including but not limited to court costs and legal fees) reasonably incurred by, and any and all liabilities imposed upon, him in connection with, or arising out of, or resulting from, any claim made, or any action, suit or proceeding (whether civil, criminal, administrative or investigative) threatened or brought, against him or in which he may be involved as a party or otherwise by reason of his having so served or by reason of any action taken or omitted or alleged to have been taken or omitted by him in such capacity unless in any proceeding such person shall have been finally adjudicated with respect to the matter or matters as to which indemnification is sought hereunder not to have acted in good faith in the reasonable belief that his action was in the best interest of the Company or, to the extent that such matter or matters relate to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. The indemnification provided hereunder shall also include the payment by the Company from time to time of expenses incurred in defending any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by or on behalf of the person indemnified to repay such payment if he shall be adjudicated to be not entitled to indemnification hereunder which undertaking shall be accepted without reference to the financial ability of such person to make repayment. The right of indemnification under this Article shall not extend to amounts incurred or paid in connection with any matter which shall be disposed of through a compromise payment or other settlement prior to such final adjudication, whether by or pursuant to a consent decree or otherwise, unless such compromise or other settlement shall be approved by the Company, which approval shall not unreasonably be withheld, or by a court of competent jurisdiction. The payment of any indemnification shall be conclusively deemed approved by the Company under this Article, and each Director of the Company approving such payment shall be wholly protected if: - 13 - 14 (i) the payment has been approved or ratified (1) by a majority vote of a quorum of the Directors consisting of persons who are not at that time parties to the action, suit or proceeding, (2) by a majority vote of a committee of two or more Directors who are not at that time parties to the action, suit or proceeding and are selected for this purpose by the full Board of Directors (in which selection Directors who are parties may participate) or (3) by a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for Directors, voting as a single class, which majority shall include a majority of the shares voted by stockholders who are not at that time parties to the proceeding; or (ii) the action is taken in reliance upon the opinion of independent legal counsel (who may be counsel to the Company) appointed for the purpose by vote of the Directors or in the manner specified in clauses (1), (2) or (3) of sub-paragraph (i) above; or (iii) the Directors have otherwise acted in accordance with the standard of conduct set forth in the Massachusetts Business Corporation Law. Any indemnification or advance of expenses under this Article shall be paid promptly, and in any event within 30 days, after the receipt by the Company of a written request therefor from the person to be indemnified, unless with respect to a claim for indemnification the Company shall have determined that the person is not entitled to indemnification. If the Company denies the request or if payment is not made within such 30 day period, the person seeking to be indemnified may at any time thereafter seek to enforce his rights hereunder in a court of competent jurisdiction and, if successful in whole or in part, he shall be entitled also to indemnification for the expenses of prosecuting such action. Unless otherwise provided by law, the burden of proving that the person is not entitled to indemnification shall be on the Company. The right of indemnification under this Article shall be a contract right inuring to the benefit of the Directors, officers and other persons entitled to be indemnified hereunder, and no amendment or repeal of this Article shall adversely affect any right of such Director, officer or other person existing at the time of such amendment or repeal. The right of indemnification under this Article shall be in addition to and shall not exclude or affect any other rights to which any such Director or officer or other person may be entitled. The right of indemnification under this Article shall inure to the benefit of the heirs, executors, administrators and legal representatives of a Director, officer or other person entitled to indemnification hereunder. The - 14 - 15 indemnification provided hereunder shall be provided to a Director, officer or other person entitled to indemnification whether or not he continues in such capacity at the time any indemnifiable costs and expenses are incurred or any indemnifiable liability is imposed. ARTICLE VII MISCELLANEOUS SECTION 1. BONDS. The Board of Directors may from time to time require from any one or more of the officers or agents of the Company that he or they shall give bond for the faithful performance of duties; and the premiums for all such bonds shall be paid by the Company. SECTION 2. FISCAL YEAR. The fiscal year of the Company shall, unless otherwise fixed by the Board of Directors, end on the last day of December in every year. SECTION 3. VOTING STOCK IN OTHER CORPORATIONS. Whenever the Company shall own stock of another corporation, the Chairman of the Board, President, a Vice Chairman of the Board, or Treasurer, acting either in person or by proxy, may exercise in the name and on behalf of the Company all voting and subscription rights thereof, but the Board may from time to time, either generally or in any specific instance, delegate like authority to any one or more other persons. SECTION 4. EXECUTION OF WRITINGS. Unless the Board of Directors, Executive Committee, or stockholders shall otherwise generally or in any specific instance provide: (a) any bill, note, check, or negotiable instrument shall be signed or endorsed in the name and on behalf of the Company by the Chairman of the Board, or President, or a Vice Chairman of the Board, or a Vice President, or Treasurer, or an Assistant Treasurer, and shall bear such countersignature of an officer of the Company other than the officer so signing or endorsing as may be required by the Board of Directors; and (b) any other instrument whatsoever shall be signed in the name and on behalf of the Company by the Chairman of the Board, or President, or a Vice Chairman of the Board, or a Vice President, or Treasurer, or an Assistant Treasurer, and any officer so signing any instrument may also seal, acknowledge and deliver the instrument. SECTION 5. EXECUTION OF CERTIFICATIONS. Any action taken by the stockholders, Board of Directors, or Executive Committee at any meeting may be certified by the officer whose duty it is to keep the minutes of such meeting or by the officer or Director keeping the records thereof or presiding thereat; and any such certificate shall be conclusive evidence for all purposes that the action so certified was taken. - 15 - 16 SECTION 6. CONTROL SHARE ACQUISITIONS. The provisions of Chapter 110D of the Massachusetts General Laws, Regulation of Control Share Acquisitions, as amended from time to time, shall not apply to control share acquisitions of the Company. SECTION 7. AMENDMENT. These By-Laws may be altered, added to, amended or repealed either: (1) by the stock holders at any meeting of the stockholders by affirmative vote of a majority in interest of the stock outstanding and entitled to vote thereat, provided notice of the proposed alteration, addition, amendment or repeal shall have been given in the notice of such meeting; or (2) by the Board of Directors at any meeting of said Board by affirmative vote of a majority of the Directors then in office, except with respect to any provision as to which stockholder action is required by law, the Articles of Organization, or these By- Laws; and further provided that not later than the time of giving notice of the meeting of stockholders next following any such change in the By-Laws by the Directors, notice thereof stating such change or the substance thereof shall be given to all stockholders entitled to vote on amending the By-Laws. - 16 - EX-10.1 3 AMENDMENT TO 1978 STOCK OPTION PLAN 1 EXHIBIT 10.1 BAYBANKS, INC. -------------- 1978 Stock Option Plan for Key Employees of ------------------------------------------- BayBanks, Inc. and Affiliates ----------------------------- Amendment Dated as of October 27, 1994 -------------------------------------- The BayBanks, Inc. 1978 Stock Option Plan for Key Employees of BayBanks, Inc. and Affiliates, as heretofore amended, is hereby amended effective as of October 27, 1994, by adding a new subsection 14(e) to read as follows: (e) WITHHOLDING TAXES. The Corporation or an Affiliate, as the case may be, shall have the right to deduct from amounts payable to the Optionee, or to require the Optionee to pay, the amount of any taxes required by law to be withheld with respect to the exercise of Non-qualified Stock Options or Rights. In the Committee's discretion, the Optionee may be given the right to elect that such required withholding, as well as additional withholding with respect to such exercise, be paid in whole or in part in shares of Common Stock, including shares retained from those that otherwise would be delivered to the Optionee upon such exercise, valued at their fair market value on the date of delivery. EX-10.2 4 1988 STOCK OPTION PLAN FOR KEY EMPLOYEES 1 EXHIBIT 10.2 As Amended 10/27/94 BAYBANKS, INC. 1988 Stock Option Plan for Key Employees of ------------------------------------------- BayBanks, Inc. and Affiliates ----------------------------- 1. PURPOSE. -------- The purpose of this Stock Option Plan (the "Plan"), is to provide an incentive to Eligible Employees, as hereinafter defined, of BayBanks, Inc. (the "Corporation") and its bank and other Affiliates, as hereinafter defined, which will stimulate their efforts on behalf of the Corporation and its Affiliates and strengthen their desire to remain with the Corporation or its Affiliates. 2. STOCK SUBJECT TO THE PLAN. -------------------------- The stock subject to the options and other provisions of the Plan shall be the Common Stock, $2.00 par value, of the Corporation. The total amount of shares of such stock which may be issued pursuant to options under the Plan shall not exceed an aggregate of 800,000 shares (except as such amount may be adjusted in accordance with the provisions of Section 8 hereof). Such shares may be either unissued shares or reacquired shares. No option may be granted which if exercised would cause the total number of shares issued and issuable under the Plan to exceed such maximum limit. 2 If options lapse for any reason, new options may be granted from time to time for the purchase of such number of shares as were subject to such lapsed options. 3. ELIGIBILITY. ------------ For all purposes of the Plan, the term "Eligible Employee" shall mean any key employee of the Corporation or any Affiliate. No director of the Corporation or of an Affiliate who is not an officer or salaried employee of the Corporation or of an Affiliate shall be an Eligible Employee. 4. ADMINISTRATION OF THE PLAN. --------------------------- The Plan shall be administered by a Stock Option Committee (the "Committee") appointed by, and to serve at the pleasure of, the Board of Directors of the Corporation and consisting of three or more disinterested directors. The Committee shall have authority, subject to the express provisions hereof, to determine (i) the present and future Eligible Employees who are to receive options hereunder and the number and option price of shares to be covered by each such option, and (ii) the time or times when each option shall become exercisable in whole or in part. A director shall be deemed to be a disinterested director only if he is not eligible to receive options under this Plan at the time such determinations are made by the Committee and has not at any time within one year prior thereto been eligible to receive options under this Plan or any other plan of the Corporation or any of its Affiliates entitling the participants therein to acquire stock, stock options or stock appreciation rights of the Corporation or any of its Affiliates. The Committee shall also have authority to adopt rules and - 2 - 3 regulations for carrying out the Plan and to interpret, construe, implement and otherwise administer the provisions of the Plan. Decisions of the Committee shall be final. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present (or acts approved in writing by a majority of the Committee) shall be the acts of the Committee. The Committee shall keep minutes of its proceedings and from time to time make such reports to the Board of Directors as the Board shall direct. 5. EFFECTIVE DATE. --------------- The Effective Date of the Plan shall be the date upon which the Plan is adopted by the Board of Directors of the Corporation. The Plan shall terminate if it is not approved within twelve months after the Effective Date by vote of the holders of a majority of the stock of the Corporation present in person or by proxy and entitled to vote at a special or annual meeting of the stockholders of the Corporation. 6. TERMS AND CONDITIONS OF STOCK OPTIONS. -------------------------------------- Stock options granted pursuant to the Plan shall be designated by the Committee either as "Non-qualified Stock Options" or as "Incentive Stock Options". Incentive Stock Options granted pursuant to the Plan are intended to comply with the provisions of Section 422(b) of the Internal Revenue Code and shall be construed by the Committee in accordance with such provisions. Each stock option granted pursuant to the Plan shall be evidenced by a written option agreement, in form not inconsistent with the Plan, duly executed and delivered on behalf of the - 3 - 4 Corporation and by the individual to whom the option is granted (the "Optionee"). 6.1 Non-Qualified Stock Options --------------------------- Option agreements with respect to Non-qualified Stock Options shall contain in substance the following terms and conditions: (a) PRICE. The option price per share shall be as determined by the Committee from time to time but in no instance shall it be less than 100% of the fair market value of the Common Stock of the Corporation on the date an option is granted. Such fair market value shall be as determined by the Committee in good faith. (b) NUMBER OF SHARES. The option agreement shall specify the number of shares to which it pertains. (c) PERIOD FOR EXERCISE. At the time an option is granted, the Committee in its discretion shall determine the time or times when the option will become exercisable in whole or in part, and this time or these times shall be specified in the option agreement except that any option may be made fully exercisable as to all or part of the entire then remaining balance of shares covered by it upon determination by the Committee that such earlier exercise would be advisable owing to the death or retirement of the Optionee or physical or mental disability preventing the Optionee from performing the Optionee's regular duties. All or any part of the number of whole shares with respect to which such right to purchase has accrued may be purchased at the time of such accrual or at any time thereafter before the tenth anniversary of the date on which the option is - 4 - 5 granted or such earlier expiration date as may be determined by the Committee and specified in the option agreement. Each option shall expire completely, however, to the extent that it is not exercised before the tenth anniversary of the date it was granted or such earlier expiration date as may be determined by the Committee and specified in the option agreement. (d) TRANSFERABILITY. No option shall be assignable or transferable by the Optionee except by will or under the laws of descent and distribution, and during the life of an Optionee, the option shall be exercisable only by the Optionee. (e) EXERCISE AND PAYMENT. An Optionee electing to exercise an option shall give written notice of such election to the Corporation specifying the option agreement under which the option was granted and the number of whole shares as to which the exercise is being made. Such notice shall be accompanied by payment in full in cash of the purchase price for the number of shares as to which the exercise relates, except that in the discretion of the Committee, payment of such purchase price may be made in whole or in part by the transfer to the Corporation of shares of the Common Stock of the Corporation valued at their fair market value on the date of exercise, as determined by the Committee. Upon receipt of such notice and payment the Corporation shall promptly issue and deliver to the Optionee (or other person entitled to exercise the option) a certificate or certificates for such number of shares. (f) DEATH. Any option, if not expired, shall be exercisable at any time within twelve months after the date of the Optionee's death by the executor or administrator of the - 5 - 6 estate of the Optionee or by the legatees or heirs of the Optionee, whichever may be entitled, but only if and to the extent that the option might have been exercised by the Optionee at the date of his or her death, or as determined by the Committee under the provisions of Section 6.1(c) hereof, and in no case after the option has expired. (g) TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH. If the employment of an Optionee with the Corporation or an Affiliate is terminated because of retirement or physical or mental disability preventing the Optionee from performing his or her regular duties, the option, if not expired, may be exercised by the Optionee at any time within three months after the date of such termination, but only if and to the extent that the Optionee was entitled to exercise the option at the time of such termination, or as determined by the Committee under the provisions of Section 6.1(c) hereof, and in no case after the option has expired, except that in the case of an employee who is permanently and totally disabled because of an inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months, the three month period shall be six months. If the employment of an Optionee with the Corporation or an Affiliate shall terminate for any reason other than death, retirement, or physical or mental disability preventing the Optionee from performing the Optionee's regular duties, all rights to purchase shares pursuant to his or her option - 6 - 7 (including rights to purchase shares thereunder which have accrued but which then remain unexercised) shall forthwith cease and terminate on the date of such termination. (h) LEAVE OF ABSENCE. The Committee shall determine whether an authorized leave of absence shall constitute a termination of employment for the purposes of the Plan and the terms respecting continuance and exercise of an option in any such case except that no such determination by the Committee shall permit an option to be exercised after the expiration of its term. (i) TERMINATION DUE TO CONSOLIDATION OR MERGER. The Committee may cause an option agreement to contain a provision that the Corporation in its discretion may give an Optionee not less than thirty days written notice of a proposed consolidation or merger affecting the Corporation, such notice to state either (A) that (i) it is given to cause the option to be exercised or terminated, (ii) the Optionee may exercise during a thirty day period after the sending of such notice, and not after the expiration of the term of the Optionee's option, any part or all of his or her option not previously exercised, whether or not, in the absence of such notice, it might have been exercised in such thirty day period, and (iii) all of said option not exercised within such thirty-day period shall be cancelled or (B) that the Corporation will at or before the time any such consolidation and merger takes place terminate such option and pay to the Optionee in cash the amount, if any, by which the value per share to be received by the holders of the Corporation's Common Stock (after giving effect to any such payment to the holders of options) in - 7 - 8 such consolidation or merger, as determined by the Board of Directors, exceeds the option price multiplied by the number of shares covered by such option. (j) SECURITIES AND OTHER LAWS. In any case where in the opinion of the Committee the issue and delivery of shares upon the exercise of an option would violate requirements of Federal or state securities or other laws, the Corporation shall be entitled to postpone such issue and delivery until such requirements have been complied with. Each option agreement shall contain such provisions as the Committee shall require in order to insure compliance with Federal or state securities or other laws. Any representation or agreement required by the Committee for that purpose, such as a representation or agreement that the Optionee is acquiring shares for investment and not for distribution or resale, may contain provisions to the effect that it shall not prevent or restrict resales of the shares in conformity with such laws. (k) RIGHTS AS STOCKHOLDER. No Optionee shall have any rights as a stockholder with respect to any shares covered by his or her option until the date of issuance of a stock certificate to the Optionee for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. (1) OTHER PROVISIONS. An option agreement may contain such other terms, provisions and conditions as are not inconsistent with the Plan. - 8 - 9 6.2 Incentive Stock Options ----------------------- Option agreements with respect to Incentive Stock Options shall contain in substance the same terms and conditions as those with respect to Non-qualified Stock Options. 6.3 Change in Control ----------------- Notwithstanding the preceding provisions of this Section 6, any agreements evidencing options granted under this Plan or Rights granted pursuant to Section 10 hereof may contain such provisions as the Committee shall approve permitting all or some part of the options or Rights evidenced by such agreements to be exercised at any time after a Change in Control of the Corporation even though such options or Rights have not yet become exercisable under the other provisions of such agreements and even though such Change in Control of the Corporation occurs less than two years after the date such options or Rights were granted. However, no provisions included in an agreement pursuant to this Section 6.3 shall permit exercising any option or Right after the expiration date thereof specified in such agreement. Provisions so included may contain such limitations and conditions as the Committee shall determine, applying to the exercise of options and Rights pursuant thereto. The provisions authorized by this Section 6.3 may be incorporated in agreements evidencing options or Rights to be granted or, by amendment, in existing agreements. A "Change in Control" of the Corporation shall be deemed to have occurred upon the occurrence of any of the following: - 9 - 10 (a) Any transaction or series of transactions, as a result of which any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) (a "Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under such act), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation's then outstanding voting securities (the "Corporation's Outstanding Voting Securities"); provided, however, that a Change in Control shall not be deemed to have occurred solely because of the acquisition of securities of the Corporation by (i) one or more employee benefit plans or related trusts established for the benefit of the employees of the Corporation or any Affiliate of the Corporation; or (ii) any Person when such acquisition (A) is effected primarily to prevent the Corporation from being declared insolvent and (B) is approved by the Board of Directors of the Corporation (the "Board"). (b) Any change in the membership of the Board such that individuals who are Incumbent Directors (as defined herein) cease for any reason to constitute at least a majority of the Board. The Incumbent Directors shall be (i) those members of the Board who were Directors as of October 27, 1994, and who have served continuously as Directors since such date, and (ii) any other member - 10 - 11 of the Board who subsequently became a Director and whose election or nomination for election by the Corporation's stockholders at the beginning of his or her current tenure was approved by a vote of at least a majority of the Directors who were then Incumbent Directors, except that no individual shall be an Incumbent Director if such individual's initial assumption of office as a Director occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors, or other actual or threatened solicitation of proxies or consents, by, or on behalf of, a Person other than the Board. (c) The approval by the Corporation's stockholders of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of the Corporation, or similar transaction (a "Business Combination"), unless all of the following conditions are met, with such conditions being applied as of the date of such approval as if the Business Combination were consummated on such date on the terms then specified in the agreement or plan providing for the Business Combination: (i) the individuals and entities who are the beneficial owners of the Corporation's Outstanding Voting Securities as of the date of such approval would beneficially own, directly or indirectly, securities representing more than 50% of the - 11 - 12 outstanding combined voting power of the voting securities that would be outstanding and entitled to vote generally in the election of the governing body of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity that as a result of such transaction would own the Corporation or all or substantially all of the Corporation's assets, either directly or through one or more subsidiaries) (the "Resulting Entity"), and the securities of the Resulting Entity that would be owned by such beneficial owners of the Corporation's Outstanding Voting Securities would be owned by them in substantially the same proportions as they own the Corporation's Outstanding Voting Securities; (ii) no Person (excluding any corporation or other entity resulting from such Business Combination, and excluding any employee benefit plan or related trust of the Corporation or of such corporation or other entity resulting from such Business Combination) would beneficially own, directly or indirectly, 30% or more of the combined voting power of the outstanding voting securities of the Resulting Entity except to the extent that such ownership existed prior to the Business Combination; and - 12 - 13 (iii) at least a majority of the members of the board of directors of the Resulting Entity would be persons who were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination. (d) Approval by the Corporation's stockholders of a liquidation or dissolution of the Corporation (unless the liquidation or dissolution is part of a Business Combination excepted from clause (c) above). (e) The close of business on the latest of the following dates: (i) the date that a tender or exchange offer by any Person (other than the Corporation, any Affiliate of the Corporation, or any employee benefit plan or related trust established for the benefit of the employees of the Corporation or any Affiliate of the Corporation) that, if consummated, would result in such Person becoming a "beneficial owner" (as defined in clause (a) above), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation's then outstanding voting securities, is first published or sent or given within the meaning of Rule 14d-2(a) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder; - 13 - 14 (ii) the date upon which all regulatory approvals required for the acquisition of securities pursuant to the tender or exchange offer referred to in clause (i) have been obtained or waived; or (iii) the date upon which any approval of the security holders of the Person publishing or sending or giving the tender or exchange offer referred to in clause (i) required for the acquisition of securities pursuant to such tender or exchange offer is obtained or waived. 7. WITHHOLDING TAXES. ------------------ The Corporation or an Affiliate, as the case may be, shall have the right to deduct from amounts payable to the Optionee, or to require the Optionee to pay, the amount of any taxes required by law to be withheld with respect to the exercise of Non-qualified Stock Options or Rights. In the Committee's discretion, the Optionee may be given the right to elect that such required withholding, as well as additional withholding with respect to such exercise, be paid in whole or in part in shares of Common Stock, including shares retained from those that otherwise would be delivered to the Optionee upon such exercise, valued at their fair market value on the date of delivery; provided that the use of Common Stock to pay required withholding with respect to the exercise of Non-qualified Stock Options granted before October 27, 1994 shall not be subject to the discretion of the Committee, consistent with the terms of the Stock Option Agreements outstanding as of the aforementioned date. - 14 - 15 8. ADJUSTMENT IN NUMBER OF SHARES AND OPTION PRICE. ------------------------------------------------ In the event that there are any changes in the outstanding Common Stock of the Corporation by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations, or exchanges of shares or the like, the aggregate number and kind of shares available under the Plan, the number and kind of shares subject to each outstanding option, and the option price, shall be appropriately adjusted by the Committee, if necessary, to reflect equitably such change or changes. The determination of the Committee shall be conclusive. 9. OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS. ----------------------------------------- Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become key employees of the Corporation or an Affiliate as the result of such other corporation becoming an Affiliate or the acquisition by the Corporation or an Affiliate of the assets of such other corporation. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in Section 6 hereof, as appropriate, to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options in substitution for which they are granted. 10. STOCK APPRECIATION RIGHTS. -------------------------- (a) Stock appreciation rights ("Rights") may be granted under the Plan by and in the discretion of the Committee in accordance with the provisions of this Section 10. - 15 - 16 (b) Rights may be granted in connection with any stock option granted or to be granted under the Plan. In addition, Rights may be granted separately, without being connected with any stock option, in any case where a stock option could be granted under the Plan. Rights connected with stock options may be granted either at the time of the grant of the option or at any time thereafter during the term of the option. (c) Each Right shall when exercised entitle the holder to the same rights as a stock option for one share of Common Stock, except that a holder of Rights, instead of purchasing shares of Common Stock, shall be entitled to an amount determined and payable as provided in (g) below. (d) Rights shall be evidenced in the same manner as stock options granted under the Plan by an agreement between the Corporation and the holder stating the date of grant, the number of Rights, the option price per share, and the period or periods during which the Rights shall be exercisable; and otherwise containing such provisions and restrictions as the Plan requires or the Committee shall determine. Except as specifically permitted in agreements evidencing Rights, no Rights shall be exercisable without the approval of the Committee in each instance, and each agreement evidencing Rights shall so provide. (e) Rights not connected with stock options shall be subject to all the provisions of the Plan applying to stock options, and shall contain the same provisions as would be required in the case of such options, with the sole exception that upon the exercise of Rights the holder shall receive a payment as herein provided instead of purchasing shares. - 16 - 17 (f) Rights connected with stock options shall have the same option price and shall be exercisable to the same extent and during the same period or periods as the related stock option, subject to approval by the Committee as herein provided, and to any limitations imposed by the Committee when such Rights are granted; provided that no Rights shall be exercisable within six months after the date they are granted. However, such restriction on exercise shall cease to apply if the holder's employment is terminated before the end of the six-month period because of death or disability. Rights connected with stock options shall otherwise be governed by the terms of such options and the provisions of the Plan applying to such options. Upon exercise of Rights connected with stock options or stock options connected with Rights, the holder shall be deemed to have surrendered an equal number of options, if Rights are exercised, or of Rights, if options are exercised; and the Rights or options so surrendered shall thereupon cease to be exercisable. (g) Upon exercise of Rights the holder shall be entitled to receive, for each Right exercised, an amount equal to the fair market value per share of the Common Stock of the Corporation on the date of exercise, minus the option price per share stated in the Right. The total amount due the holder upon the exercise of Rights shall be paid in cash or in shares of Common Stock of the Corporation at their fair market value on the date of exercise, or partly in cash and partly in shares of Common Stock, all as the Committee in its sole discretion shall determine. The fair market value of the Common Stock on the date of exercise shall be as determined by the Committee. - 17 - 18 (h) The number of stock options and Rights authorized to be granted under the Plan is limited so that the total number of shares of stock issued on the exercise of options granted under the Plan plus the total number of Rights exercised shall not exceed the total number of shares of Common Stock authorized for the Plan. Accordingly, the exercise of Rights shall have the same effect for the purposes of Section 2 hereof as the exercise of stock options for a number of shares equal to the number of Rights exercised. 11. EMPLOYMENT. ---------- Nothing in the Plan or in any options or Rights granted pursuant to the Plan shall confer on any Optionee or holder any right to continue in the employ of the Corporation or any of its Affiliates, or interfere in any way with the right of the Corporation or any of its Affiliates to terminate his or her employment at any time as freely as if no option or Right had been granted and no Plan had been in existence. 12. TERM OF PLAN. ------------- Unless sooner terminated the Plan shall terminate ten years from the Effective Date and no option shall be granted thereafter. 13. AMENDMENT AND TERMINATION OF PLAN. ---------------------------------- The Plan may be terminated at any time by vote of the holders of a majority of the stock of the Corporation present in person or by proxy and entitled to vote at a special or annual meeting of the stockholders of the Corporation or by the Board of Directors of the Corporation, provided, however, that no outstanding option may be terminated other than pursuant to - 18 - 19 Section 5 or Section 6.1(i) above. The Board of Directors of the Corporation may make such amendments to the Plan, and with the consent of the Optionee or the holder of Rights, to the terms and conditions of his or her option or Rights, as it shall deem advisable, but may not, without approval by vote of the holders of a majority of the stock of the Corporation present in person or by proxy and entitled to vote at a special or annual meeting of the stockholders of the Corporation, (i) increase the maximum number of shares as to which options may be granted under the Plan, except as provided in Section 8, or (ii) extend the last date for the grant or exercise of options or (iii) reduce the price at which options may be granted, or (iv) withdraw the administration of the Plan from a committee of three or more disinterested directors of the Corporation. 14. USE OF PROCEEDS. ---------------- The proceeds derived from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Corporation available for all corporate purposes. 15. MISCELLANEOUS. -------------- (a) TRANSFER OF EMPLOYMENT. The transfer of employment of an employee from the Corporation to an Affiliate or from an Affiliate to the Corporation or to another Affiliate shall not constitute a termination of employment for the purposes of the Plan. (b) DEFINITION OF AFFILIATE. For all purposes of the Plan the term "Affiliate" means any corporation which is either a "Parent Corporation" or a "Subsidiary Corporation" of the - 19 - 20 Corporation, as those terms are defined in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code. (c) INTERNAL REVENUE CODE REFERENCES. Except where otherwise indicated, references in this Plan to sections of the Internal Revenue Code shall include any amendments thereto and subsequently enacted sections of the Internal Revenue Code which replace or correspond to the sections referred to in this Plan. (d) ENFORCEMENT.* After a Change in Control, the Corporation shall pay all reasonable legal fees, costs, and other expenses incurred by a holder of options or Rights in enforcing rights under this Plan or the agreement evidencing such options or Rights. - - - - - ---------------------------------- * This subsection does not apply to officers of the Corporation who are subject to the provisions of Section 16 of the Securities Exchange Act of 1934. - 20 - EX-10.3 5 1982 RESTRICTED STOCK PLAN FOR KEY EMPLOYEES 1 EXHIBIT 10.3 As Amended 10/27/94 BAYBANKS, INC. -------------- 1982 Restricted Stock Plan for Key Employees of ----------------------------------------------- BayBanks, Inc. and Affiliates ----------------------------- 1. PURPOSE. - - - - - ----------- The purpose of this Restricted Stock Plan (the "Plan") is to attract, motivate and retain outstanding individuals as employees of BayBanks, Inc. (the "Corporation") and its bank and other Affiliates, as hereinafter defined, and to reward those who make substantial contributions to the success and welfare of the Corporation and the benefit of the Corporation's stockholders. 2. STOCK SUBJECT TO THE PLAN. - - - - - ----------------------------- The stock which may be granted under the Plan shall be the Common Stock, $2.00 par value, of the Corporation. The maximum total number of shares of such stock which may be issued under the Plan shall be 400,000 shares (except as such amount may be adjusted in accordance with the provisions of Section 9 hereof). Such shares may be either unissued shares or reacquired shares. No more than a total of 60,000 shares shall be granted under the Plan to any one participant. If previously awarded shares revert to the Corporation by reason of termination of employment during the applicable Restriction Period, or for any other reason, such shares may again be awarded under the Plan. 2 3. ELIGIBILITY AND PARTICIPATION. - - - - - --------------------------------- Participants in the Plan shall consist of those key employees of the Corporation and its Affiliates to whom the Committee may, from time to time, make grants of Restricted Stock, as hereinafter defined, provided, however, that each participant must have been employed by the Corporation or an Affiliate for a period of at least six months immediately preceding the date of such grant. No director of the Corporation or an Affiliate who is not an officer or salaried employee of the Corporation or an Affiliate shall be eligible to be a participant in the Plan. Committee selection of a participant in any year shall neither preclude nor require selection of such person to participate in any other year, or, if so selected, require that the participant receive the same type or amount of award as in any other year, or as may be received by any other participant in any year. Neither the Plan nor any action taken under the Plan shall be construed as giving any participant the right to be retained in the employ of the Corporation or an Affiliate. 4. ADMINISTRATION OF THE PLAN. - - - - - ------------------------------ The Plan shall be administered by a Committee (the "Committee") appointed by, and to serve at the pleasure of, the Board of Directors of the Corporation and consisting of three or more disinterested directors. Until the Board of Directors shall otherwise determine the Committee shall be the Corporate Compensation Committee. Subject to the express provisions hereof, the Committee shall have sole and complete authority to - 2 - 3 make grants of Restricted Stock. Such authority shall include but not be limited to selecting participants, determining the number of shares of Common Stock (subject to the limitations in Section 2 hereof) to be granted to each of the participants under the Plan and the terms and conditions under which such grants shall be made, and determining the duration of each Restriction Period. A director shall be deemed to be a disinterested director only if he is not eligible at the time such determinations are made by the Committee and has not at any time within one year prior thereto been eligible for selection as a person to whom stock may be allocated or to whom stock options or stock appreciation rights may be granted pursuant to this Plan or any other plan of the Corporation or any of its Affiliates entitling the participants therein to acquire stock, stock options or stock appreciation rights of the Corporation or any of its Affiliates. The Committee shall also have authority to adopt rules and regulations for carrying out the Plan and to interpret, construe, implement and otherwise administer the provisions of the Plan. Decisions of the Committee shall be final. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present (or acts approved in writing by a majority of the Committee) shall be the acts of the Committee. The Committee shall keep minutes of its proceedings and from time to time make such reports to the Board of Directors as the Board shall direct. - 3 - 4 5. EFFECTIVE DATE. - - - - - ------------------ The Effective Date of the Plan shall be the date upon which the Plan is adopted by the Board of Directors of the Corporation. The Plan shall terminate if it is not approved within twelve months after the Effective Date by vote of the holders of a majority of the stock of the Corporation present in person or by proxy and entitled to vote at a special or annual meeting of the stockholders of the Corporation. 6. TERMS AND CONDITIONS OF GRANTS. - - - - - ---------------------------------- 6.1. Grants under the Plan shall consist of Restricted Stock which shall be shares of Common Stock of the Corporation transferred to participants in furtherance of the purposes of the Plan without, unless otherwise provided, other payment and subject to the restrictions referred to in this Section 6. All shares of Restricted Stock granted to participants under the Plan shall be so granted solely for, and in consideration of, past services rendered to the Corporation or an Affiliate and shall be subject to the following terms and conditions and to such other terms and conditions, not inconsistent with the Plan, as shall be prescribed by the Committee in its sole discretion and as shall be contained in the Agreement referred to in Section 6.1(d) hereof. (a) At the time of a grant of shares of Restricted Stock to a participant, the Committee shall establish for all such shares (or, if it is the intent that the total of such shares shall be divided into separate parts, for each part of such total) a period of time (the "Restriction Period") commencing with the date of the grant of such shares during which - 4 - 5 time the shares may not be sold, assigned, transferred, pledged or otherwise encumbered, except as herein provided. Different Restriction Periods may be fixed for different parts of the shares that are being granted to a participant, and the Restriction Period for one grant may differ from the Restriction Period of other grants. Except for such restrictions, the participant as owner of such Restricted Stock shall have all the rights of a stockholder including but not limited to the right to receive all dividends paid on such Restricted Stock and the right to vote such Restricted Stock. The restrictions shall terminate upon the earliest to occur of the expiration of the Restriction Period or the participant's death, disability, or retirement. The Agreement referred to in Section 6.1(d) hereof may be amended at any time to modify the Restriction Period with respect to any shares of Restricted Stock the restrictions on which have not then lapsed. (b) If a participant ceases to be an employee of the Corporation or an Affiliate, for any reason except death, disability, or retirement, all shares of Restricted Stock theretofore granted to him, which are still subject to the restrictions imposed under this Section 6, shall, except as provided in Section 7 hereof, upon such termination of employment be forfeited and returned to the Corporation unless the Committee, in its discretion, otherwise determines. (c) Each certificate issued in respect of shares of Restricted Stock granted under the Plan shall be registered in the name of the participant and deposited by him, together with a - 5 - 6 stock power endorsed in blank, with the Corporation and shall bear the following (or a similar) legend: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms, conditions and restrictions (including forfeiture) contained in a Plan and an Agreement between the registered owner and BayBanks, Inc. A copy of such Plan and Agreement will be furnished to the holder of this certificate upon written request and without charge." (d) The participant shall enter into an Agreement with the Corporation, in form not inconsistent with the Plan, agreeing to the terms and conditions of the grant and such other matters as the Committee shall in its sole discretion determine. (e) Upon the termination of the restrictions imposed under this Section 6, the Corporation shall return to the participant (or his legal representative, beneficiary or heir) certificates, without a legend, for the shares of Common Stock deposited with it pursuant to subsection (c) hereof. 6.2. The Corporation or an Affiliate, as the case may be, shall have the right to deduct from amounts payable to the participant, or to require the participant to pay, the amount of any taxes required by law to be withheld with respect to such Restricted Stock. In the Committee's discretion, the participant may be given the right to elect that such required withholding, as well as additional withholding with respect to such Restricted Stock, be paid in whole or in part in shares of Common Stock, including shares retained from the grant creating the tax - 6 - 7 obligation, valued at their fair market value on the date of delivery. 6.3. No rights or interests of a participant under the Plan may be assigned, encumbered or transferred except by will or the laws of descent and distribution. 7. LAPSE OF RESTRICTIONS. - - - - - ------------------------- In the event of death, disability or retirement of a participant, all restrictions on the Restricted Stock of such participant shall lapse. Also, the Committee, in its discretion, may include in the Agreement referred to in Section 6.1(d) hereof provisions permitting restrictions on Restricted Stock to lapse, in whole or in part, upon a Change in Control of the Corporation. A "Change in Control" of the Corporation shall be deemed to have occurred upon the occurrence of any of the following: (a) Any transaction or series of transactions, as a result of which any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) (a "Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under such act), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation's then outstanding voting securities (the "Corporation's Outstanding Voting Securities"); provided, however, that a Change in Control shall not be deemed to have occurred solely because of the acquisition of securities of the Corporation by (i) one or more employee benefit plans or related trusts established for the benefit of the employees of the Corporation or any Affiliate of the Corporation; or (ii) any - 7 - 8 Person when such acquisition (A) is effected primarily to prevent the Corporation from being declared insolvent and (B) is approved by the Board of Directors of the Corporation (the "Board"). (b) Any change in the membership of the Board such that individuals who are Incumbent Directors (as defined herein) cease for any reason to constitute at least a majority of the Board. The Incumbent Directors shall be (i) those members of the Board who were Directors as of October 27, 1994, and who have served continuously as Directors since such date, and (ii) any other member of the Board who subsequently became a Director and whose election or nomination for election by the Corporation's stockholders at the beginning of his or her current tenure was approved by a vote of at least a majority of the Directors who were then Incumbent Directors, except that no individual shall be an Incumbent Director if such individual's initial assumption of office as a Director occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors, or other actual or threatened solicitation of proxies or consents, by, or on behalf of, a Person other than the Board. (c) The approval by the Corporation's stockholders of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of the Corporation, or similar transaction (a "Business Combination"), unless all of the following conditions are met, with such conditions being applied as of the date of such approval as if the Business Combination were consummated on such date on the - 8 - 9 terms then specified in the agreement or plan providing for the Business Combination: (i) the individuals and entities who are the beneficial owners of the Corporation's Outstanding Voting Securities as of the date of such approval would beneficially own, directly or indirectly, securities representing more than 50% of the outstanding combined voting power of the voting securities that would be outstanding and entitled to vote generally in the election of the governing body of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity that as a result of such transaction would own the Corporation or all or substantially all of the Corporation's assets, either directly or through one or more subsidiaries) (the "Resulting Entity"), and the securities of the Resulting Entity that would be owned by such beneficial owners of the Corporation's Outstanding Voting Securities would be owned by them in substantially the same proportions as they own the Corporation's Outstanding Voting Securities; (ii) no Person (excluding any corporation or other entity resulting from such Business Combination, and excluding any employee benefit plan or related trust of the Corporation or of such corporation or other entity resulting from such Business - 9 - 10 Combination) would beneficially own, directly or indirectly, 30% or more of the combined voting power of the outstanding voting securities of the Resulting Entity except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of the Resulting Entity would be persons who were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination. (d) Approval by the Corporation's stockholders of a liquidation or dissolution of the Corporation (unless the liquidation or dis- solution is part of a Business Combination excepted from clause (c) above). (e) The close of business on the latest of the following dates: (i) the date that a tender or exchange offer by any Person (other than the Corporation, any Affiliate of the Corporation, or any employee benefit plan or related trust established for the benefit of the employees of the Corporation or any Affiliate of the Corporation) that, if consummated, would result in such Person becoming a "beneficial owner" (as defined in clause (a) above), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the - 10 - 11 combined voting power of the Corporation's then out- standing voting securities, is first published or sent or given within the meaning of Rule 14d-2(a) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder; (ii) the date upon which all regulatory approvals required for the acquisition of securities pursuant to the tender or exchange offer referred to in clause (i) have been obtained or waived; or (iii) the date upon which any approval of the security holders of the Person publishing or sending or giving the tender or exchange offer referred to in clause (i) required for the acquisition of securities pursuant to such tender or exchange offer is obtained or waived. 8. SECURITIES AND OTHER LAWS. - - - - - ----------------------------- In any case where in the opinion of the Committee, the issue and/or delivery of shares of Common Stock under the Plan would violate requirements of Federal or state securities or other laws, or the requirements of any exchange on which the securities are listed, the Corporation shall be entitled to postpone such issue and/or delivery until such requirements have been met. The Committee may require representations and agreements from any participant in order to insure compliance with Federal or state securities or other laws. - 11 - 12 9. ADJUSTMENT IN NUMBER OF SHARES. - - - - - ---------------------------------- In the event that there are any changes in the outstanding Common Stock of the Corporation by reason of stock dividends, stock splits, or recapitalizations (whether by way of mergers, consolidations, combinations, or exchanges of shares or the like) the aggregate number and kind of shares available under the Plan shall be appropriately adjusted by the Committee, if necessary, to reflect equitably such change or changes. Any shares of stock or other securities received by a participant with respect to shares still subject to the restrictions imposed by Section 6 will be subject to the same restrictions and shall be deposited with the Corporation in accordance with Section 6. 10. NOTICE OF ELECTION UNDER SECTION 83(b). - - - - - ------------------------------------------- Each employee making an election under Section 83(b) of the Internal Revenue Code of 1954, as amended, and the regulations and rulings promulgated thereunder, will provide a copy thereof to the Corporation within thirty days of the filing of such election with the Internal Revenue Service and the Agreement referred to in Section 6 shall so provide. 11. TERM OF PLAN. - - - - - ----------------- Unless sooner terminated the Plan shall terminate ten years from the Effective Date and no Restricted Stock shall be granted thereafter. 12. AMENDMENTS AND TERMINATION. - - - - - ------------------------------- The Plan or any portion hereof may be amended at any time and from time to time or terminated by the Board of Directors, but no amendment which increases the aggregate number of shares of Common Stock which may be granted pursuant to the - 12 - 13 Plan (otherwise than as contemplated by Section 9 hereof) or which extends the period during which Restricted Stock may be granted under the Plan shall be effective unless and until the same is approved by the affirmative vote of the holders of a majority of the shares of the stock of the Corporation present in person or by proxy and entitled to vote at a meeting held to take such action. No amendment or termination shall adversely affect the terms and conditions of outstanding grants of a participant without his written consent, except that the Plan may be amended without the consent of any participant in order to conform to restrictions or limitations imposed by the Federal securities laws or regulations, or any other laws or regulations deemed by the Corporation to be binding upon it. 13. MISCELLANEOUS. - - - - - ------------------ 13.1. TRANSFER OF EMPLOYMENT. The transfer of employment of an employee from the Corporation to an Affiliate or from an Affiliate to the Corporation or to another Affiliate shall not constitute a termination of employment for the purposes of the Plan. 13.2. DEFINITION OF AFFILIATE. For all purposes of the Plan the term "Affiliate" means any corporation of which the Corporation owns or controls more than 50% of the outstanding shares of capital stock entitled ordinarily (rather than in some contingency) to vote for the election of directors (counting shares owned or controlled by an Affiliate within this definition as being owned or controlled by the Corporation). - 13 - 14 13.3. ENFORCEMENT.* After a Change in Control, the Corporation shall pay all reasonable legal fees, costs, and other expenses incurred by any participant in enforcing rights under this Plan or the participant's Agreement. - - - - - ---------------------------------- * This subsection does not apply to officers of the Corporation who are subject to the provisions of Section 16 of the Securities Exchange Act of 1934. - 14 - EX-10.4 6 1994 RESTICTED STOCK PLAN 1 EXHIBIT 10.4 As Amended 10/27/94 BAYBANKS, INC. -------------- 1994 RESTRICTED STOCK PLAN -------------------------- 1. PURPOSE. -------- The purpose of this Restricted Stock Plan (the "Plan") is to attract, motivate, and retain outstanding individuals as employees of BayBanks, Inc. (the "Corporation") and its Subsidiaries, as hereinafter defined, to align their future interests with those of the Corporation's stockholders, and to reward appropriately those who make substantial contributions to the success and welfare of the Corporation. 2. STOCK SUBJECT TO THE PLAN. -------------------------- The stock that may be granted under the Plan shall be the Common Stock, $2.00 par value, of the Corporation. The maximum total number of shares of such stock that may be issued under the Plan shall be 500,000 shares (except as such amount may be adjusted in accordance with the provisions of Section 9 hereof). Such shares may be either unissued shares or reacquired shares. If previously awarded shares are forfeited to the Corporation by reason of termination of employment during the applicable Restriction Period, or for any other reason, such shares shall not again be awarded under the Plan unless the respective grant recipient has not had the benefits of ownership thereof (other than voting rights). In the event the Corporation acquires or merges or consolidates with another company, Common Stock issuable under the Plan as a result of the Corporation's assumption of outstanding awards from such other company or the substitution of grants under the Plan for outstanding awards of such other company shall not reduce the shares available for grant under the Plan. 3. ELIGIBILITY AND PARTICIPATION. ------------------------------ Individuals eligible to receive grants of Restricted Stock, as hereinafter defined, under the Plan shall be those employees of the Corporation and its Subsidiaries selected from time to time by the Plan's administrative committee, provided, however, that each grant recipient must have been employed by the Corporation or a Subsidiary for a period of at least six months immediately preceding the date of grant. No person who is not an officer or salaried employee of the Corporation or a Subsidiary shall be eligible to receive a grant under the Plan. Grants made under the Plan in any year shall neither preclude nor require selection of a grantee to receive future grants or require that the grantee receive the same type or amount of award as at any other time, or as may be received by any other grant recipient at any time. Neither the Plan nor any action taken under the Plan shall be construed as giving any grantee the right to be retained in the employ of the Corporation or a Subsidiary. 2 4. ADMINISTRATION OF THE PLAN. --------------------------- The Plan shall be administered by a Committee (the "Committee") appointed by, and to serve at the pleasure of, the Board of Directors of the Corporation and consisting of three or more directors, each of whom is a "disinterested person" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, or any successor provision, as applicable to the Corporation at the time. Until the Board of Directors shall otherwise determine, that Committee shall be the Corporate Compensation Committee. Subject to the express provisions hereof, the Committee shall have sole and complete authority to make grants of Restricted Stock. Such authority shall include, but not be limited to, selecting individuals to receive grants under the Plan, determining the number of shares of Common Stock (subject to the limitations in Section 2 hereof) to be awarded to each grant recipient under the Plan and the terms and conditions under which such grants shall be made, and determining the duration and terms of each Restriction Period. The Committee also shall have authority to adopt rules and regulations for carrying out the Plan and to interpret, construe, implement, and otherwise administer the provisions of the Plan. Decisions of the Committee shall be final. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present (or acts approved in writing by a majority of the Committee) shall be the acts of the Committee. The Committee shall keep minutes of its proceedings and from time to time make such reports to the Board of Directors as the Board shall direct. 5. EFFECTIVE DATE. --------------- The Effective Date of the Plan shall be the date upon which the Plan is adopted by the Board of Directors of the Corporation. The Plan shall terminate if it is not approved within twelve months after the Effective Date by vote of the holders of a majority of the stock of the Corporation present in person or by proxy and entitled to vote at a special or annual meeting of the stockholders of the Corporation. 6. TERMS AND CONDITIONS OF GRANTS. ------------------------------- 6.1 Grants under the Plan shall consist of Restricted Stock, which shall be shares of Common Stock of the Corporation transferred to grant recipients in furtherance of the purposes of the Plan without, unless otherwise provided, other payment and subject to the restrictions referred to in this Section 6. All shares of Restricted Stock granted under the Plan shall be so granted for, and in consideration of, past services rendered to the Corporation or a Subsidiary and shall be subject to the following terms and conditions and to such other terms and conditions, not inconsistent with the Plan, as shall be prescribed by the Committee in its sole discretion and as shall be contained in the Agreement referred to in Section 6.1(d) hereof. (a) At the time of a grant of shares of Restricted Stock, the Committee shall establish for all such shares received by a grantee (or, if it is the intent that the total of such shares shall be divided into separate parts, for each part of such total) a period of time (the "Restriction Period") commencing with the date of the grant of such shares during which - 2 - 3 time the shares may not be sold, assigned, transferred, pledged, or otherwise encumbered, except as herein provided. Different Restriction Periods may be fixed for different parts of the shares that are being granted to a recipient, and the Restriction Period for one grant may differ from the Restriction Period for other grants. Except for such restrictions, unless otherwise determined by the Committee, the grant recipient as owner of such Restricted Stock shall have all the rights of a stockholder, including but not limited to the right to receive all dividends paid on such Restricted Stock and the right to vote such Restricted Stock. Unless otherwise determined by the Committee, the restrictions shall terminate upon the earliest to occur of the expiration of the Restriction Period or the grantee's death, disability, or retirement, or in any other circumstances determined by the Committee at the time of the grant or at any time thereafter. (b) If a grant recipient ceases to be an employee of the Corporation or a Subsidiary, all shares of Restricted Stock theretofore granted to him as to which the restrictions imposed under this Section 6 have not terminated or do not thereby terminate shall, except as provided in Section 7 hereof, upon such cessation of employment be forfeited and returned to the Corporation unless the Committee, in its discretion, otherwise determines. (c) Each certificate issued in respect of shares of Restricted Stock granted under the Plan shall be registered in the name of the grantee and deposited by him, together with a stock power endorsed in blank, with the Corporation and shall bear the following (or a similar) legend: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms, conditions and restrictions (including forfeiture) contained in a Plan and an Agreement between the registered owner and BayBanks, Inc. A copy of such Plan and Agreement will be furnished to the holder of this certificate upon written request and without charge." (d) The grant recipient shall enter into an Agreement with the Corporation, in a form not inconsistent with the Plan, agreeing to the terms and conditions of the grant and such other matters as the Committee shall in its sole discretion determine. The Agreement may be amended by the Committee at any time to modify the Restriction Period with respect to any shares of Restricted Stock the restrictions on which have not then lapsed or in any other respect; provided that, except as provided in Section 12, no amendment shall adversely affect the terms and conditions of an outstanding grant without the written consent of the grant recipient. (e) Upon the termination of the restrictions imposed under this Section 6, the Corporation shall return to the grantee (or his legal representative, beneficiary, or heir) certificates, without a legend, for the shares of Common Stock deposited with it pursuant to subsection (c) hereof. 6.2 The Corporation or a Subsidiary, as the case may be, shall have the right to deduct from amounts payable to the grantee, or to require the grantee to pay, the amount of any taxes required by law to be withheld with respect to such Restricted Stock. In the Committee's discretion, the grantee may be given the right to elect that such required - 3 - 4 withholding, as well as additional withholding with respect to such Restricted Stock, be paid in whole or in part in shares of Common Stock, including shares retained from the grant creating the tax obligation, valued at their fair market value on the date of delivery. 6.3 No rights or interests of a grant recipient under the Plan may be assigned, encumbered or transferred except by will or the laws of descent and distribution. 7. CHANGE IN CONTROL. ------------------ In order to preserve the rights of a grant recipient in the event of a Change in Control of the Corporation, the Committee may in its discretion include in the grant Agreement or in any amendment thereto (subject to the proviso of Section 6.1(d)) provisions: (i) permitting restrictions on Restricted Stock to lapse, in whole or in part, immediately prior to such event, (ii) adjusting the terms of a grant in a manner determined by the Committee to reflect the Change in Control, (iii) causing a grant to be assumed, or new rights substituted therefor, by another entity, and/or (iv) making such other provision as the Committee may consider equitable and in the best interests of the Corporation. After a Change in Control of the Corporation, the Corporation shall pay all reasonable legal fees, costs, and other expenses incurred by any grantee in enforcing rights under this Plan or the grant Agreement. The term "Change in Control" shall have such meaning with respect to any grant of Restricted Stock as the Committee determines and is specified in the Agreement for such grant. 8. SECURITIES AND OTHER LAWS. -------------------------- In any case where in the opinion of the Committee, the issue and/or delivery of shares of Common Stock under the Plan would violate requirements of Federal or state securities or other laws, or the requirements of any exchange on which the securities are listed, the Corporation shall be entitled to postpone such issue and/or delivery until such requirements have been met. The Committee may require representations and agreements from any grant recipient in order to ensure compliance with Federal or state securities or other laws. 9. ADJUSTMENT IN NUMBER OF SHARES. ------------------------------- In the event that there are any changes in the outstanding Common Stock of the Corporation by reason of stock dividends, stock splits, or recapitalizations (whether by way of mergers, consolidations, combinations, or exchanges of shares or the like) the aggregate number and kind of shares available under the Plan shall be appropriately adjusted by the Committee, if necessary, to reflect equitably such change or changes. Any shares of stock or other securities received by a grant recipient with respect to shares still subject to the restrictions imposed by Section 6 will be subject to the same restrictions and shall be deposited with the Corporation in accordance with Section 6. 10. NOTICE OF ELECTION UNDER SECTION 83(b). --------------------------------------- Each grant recipient making an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, and the regulations and rulings promulgated thereunder, will provide a - 4 - 5 copy thereof to the Corporation within thirty days of the filing of such election with the Internal Revenue Service and the Agreement referred to in Section 6 shall so provide. 11. TERM OF PLAN. ------------- Unless sooner terminated the Plan shall terminate ten years from the Effective Date and no Restricted Stock shall be granted thereafter. 12. AMENDMENTS AND TERMINATION. --------------------------- The Plan or any portion hereof may be amended at any time and from time to time or terminated by the Board of Directors, subject to such approval of the stockholders as the Board of Directors shall deem necessary or advisable. No amendment or termination shall adversely affect the terms and conditions of outstanding grants without the written consent of the grantee, except that the Plan and any Agreement may be amended without the consent of any grant recipient in order to conform to restrictions or limitations imposed by securities or tax laws or regulations, or any other laws or regulations deemed by the Corporation to be binding upon it. 13. MISCELLANEOUS. -------------- 13.1 TRANSFER OF EMPLOYMENT. The transfer of employment of an employee from the Corporation to a Subsidiary or from a Subsidiary to the Corporation or to another Subsidiary shall not constitute a termination of employment for the purposes of the Plan. 13.2 DEFINITION OF SUBSIDIARY. For all purposes of the Plan, the term "Subsidiary" means any corporation of which the Corporation owns or controls more than 50% of the outstanding shares of capital stock entitled ordinarily (rather than in some contingency) to vote for the election of directors (counting shares owned or controlled by a Subsidiary within this definition as being owned or controlled by the Corporation). - 5 - EX-10.5 7 INCENTIVE COMPENSATION PLAN 1 EXHIBIT 10.5 BAYBANKS, INC. -------------- INCENTIVE COMPENSATION PLAN DESCRIPTION --------------------------------------- Issues ------ The issues covered in this document include: I. Participation in the Incentive Compensation Plan II. Award formula III. Payout of incentive awards IV. Plan administration V. Change in Control 2 BAYBANKS, INC. -------------- INCENTIVE COMPENSATION PLAN DESCRIPTION --------------------------------------- October 27, 1994 3 BAYBANKS, INC. -------------- INCENTIVE COMPENSATION PLAN DESCRIPTION --------------------------------------- I. Participation ------------- Prior to the commencement of a plan year the management of BayBanks, Inc. will select the participants in the Plan for the coming plan year. Certain open positions also may be designated as carrying with them eligibility for incentive compensation. In general, participation is dependent on the degree to which a position has those characteristics that suggest a discernible and significant effect on profits can result from job performance. Thus participation runs more to the job than to the individual, and a person once selected will generally participate as long as he or she holds such a position. A person will be selected only if it is clear that he or she will be able to complete a particular plan year. Once selected, a participant will qualify for an award only if he or she remains employed by BayBanks at the end of that plan year. During the plan year, an individual who is hired into a position that has been designated as eligible for incentive compensation may be allowed to participate in the Plan on a pro-rated basis for the duration of the plan year if such plan participation has been pre-approved by the BayBanks, Inc. Chairman and provided for in the employment offer letter. The BayBanks, Inc. Corporate Compensation Committee will approve award eligibility levels for participants based upon the recommendation of BayBanks, Inc. management. The Board of Directors of BayBanks, Inc. is the final determinant of plan participation and any modification or exceptions to any aspects of the Plan or its administration. II. Award Formula ------------- The incentive compensation program is designed to meet three requirements: . The Plan should have a balance between overall corporate performance and individual performance. . The formulation of awards should focus both on external comparisons and on internal standards and objectives. . The program should contain qualitative as well as quantitative measures. Incentive awards will be determined by a combination of individual and corporate performance factors. 4 A. Corporate Performance - Weighted 1/3 ------------------------------------ The measures used to assess the corporate performance of BayBanks, Inc. are: 1. The accomplishment of earnings objectives as reflected in the Company's annual budget 2. The Company's Return on Earning Assets (ROEA) and Return on Equity (ROE) The Board will use such external comparisons as may be appropriate (e.g., the Keefe Bank Index of Money Center Regional Banks, or indices composed solely of New England Banks or solely of selected Regional Banks) to test the comparative adequacy of the Company's ROEA and/or ROE. B. The Individual Performance Factor - Weighted 2/3 --------------------------------- The individual performance factor is expressed as the sum of two percentage ratings, one based on attainment of goals and objectives (0-50%) and one on judgmental evaluation (0-50%). 1. Goals and Objectives (0-50%) -------------------- The yardsticks for measurement of individual performance will vary depending upon the characteristics of the individual's job. Participants will be measured based upon task accomplishment or sales or other goals that will be put in writing and discussed with each of them at the beginning of a plan year. In the case of a Chief Executive Officer these may include measures similar to those used for corporate performance as described above e.g., a bank's ROEA/ROE) and earnings or profit margin performance against goals or budget. 2. Judgmental Factors (0-50%) ------------------ In addition to performance measurement against established goals and objectives, Plan participants also will be evaluated based on broader judgmental considerations that might include, for example, their overall leadership, support for organizational and Company-wide objectives, quality of individual initiatives, effectiveness in responding to new developments during the course of the year, and personal growth -- among others. The judgmental factor reflects management assessment of the character of an individual's contribution to his or her assigned area of responsibility and to the Company generally. C. Application ----------- Awards are determined by the product of corporate and individual performance factors. Based on measures of corporate performance, the Board in its sole discretion establishes a percentage ranging from 66-2/3% to 100% as the factor for corporate - 2 - 5 performance*. Based on measures of individual performance, the evaluation of each participant's performance will produce a percentage ranging from 0% to 100% as the factor for individual performance. The product of these two factors then represents the size of the award to be made relative to the maximum award a participant can earn. For example: - - -Performance Factors- - -
Formula: Corporate Individual Maximum Actual Factor times Factor times Award = Award -------- ----- ---------- ----- ------- ------ Range = Range = (as a (as a 66.67-100% 0-100% % of % of salary) salary) Example: 80.00% 80.00% 25.00% 16.00%
III. Award Payout ------------ The normal method of payment will be in cash, following the close of a plan year;I.E., approximately March of the year following the plan year. (Certain participants in the incentive program may be given the option of receiving their awards on a deferred basis, as permitted by law. Under current regulations, such participants must elect to do so prior to the plan year for which the award is being made, on forms and in a manner prescribed for this purpose.) IV. Plan Administration ------------------- A. Oversight --------- Overall responsibility for administering the Incentive Compensation Plan is vested in the Corporate Compensation Committee of BayBanks, Inc. The Committee shall perform the following tasks: 1. Review and determine for appropriateness: (1) the reference group of competitive bank holding companies that will be used in determining the corporate performance factor, and (2) the standards of internal and external comparison used for performance evaluation. 2. Review all award proposals for appropriateness and to ensure compliance with the Plan. 3. Review all exceptions to the Plan and bring them to the full Board for ratification. - - - - - ---------------------------------- *The effect of this factor is to weight the corporate portion of the award 1/3 and the individual performance portion 2/3. However, in unusual circumstances, (E.G., very poor earnings), the Board may set a lower percentage for the corporate performance factor. - 3 - 6 4. Recommend to the full Board of Directors any modification to the Plan that the Committee feels is appropriate. B. Annual Procedure ---------------- At the beginning of each plan year, participants will be selected and notified in writing, and incentive targets will be established. The Chief Executive Officer of BayBanks, Inc., or other appropriate BayBanks officer, will review with each participant in the Plan his/her objectives for the year, which also will be prepared in written form. Following the close of the plan year, the Chief Executive Officer of BayBanks, Inc., or other appropriate BayBanks officer, will review the performance of Plan participants and develop initial individual award recommendations based on individual performance and judgmental factors. These recommendations will be forwarded to the Corporate Compensation Committee of the BayBanks, Inc. Board. The Corporate Compensation Committee of BayBanks, Inc. will request the chief financial officer of BayBanks, Inc. to develop appropriate data for external comparisons and internal targets. These financial comparisons then will be translated into a corporate percentage and used to adjust individual award recommendations as provided for by the award formula (described above). Awards will be approved by the Corporate Compensation Committee of BayBanks, Inc., ratified by the BayBanks, Inc. Board, and, in the case of bank executives, also ratified by that executive's board. Awards will then be discussed with each executive by his or her immediate administrative and functional superior. Awards will come from the general funds of each executive's direct employer to the respective executive. V. Change in Control ----------------- A. Application of Article ---------------------- This Article will apply following a Change in Control of BayBanks, Inc. (the "Corporation") and will supersede any conflicting provisions of the Plan. For purposes of the Plan and any documents referring to it, a "Change in Control" of the Corporation shall be deemed to have occurred upon the occurrence of any of the following: 1. Any transaction or series of transactions, as a result of which any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) (a "Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under such act), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation's then outstanding voting securities - 4 - 7 (the "Corporation's Outstanding Voting Securities"); provided, however, that a Change in Control shall not be deemed to have occurred solely because of the acquisition of securities of the Corporation by (i) one or more employee benefit plans or related trusts established for the benefit of the employees of the Corporation or any affiliate of the Corporation; or (ii) any Person when such acquisition (A) is effected primarily to prevent the Corporation from being declared insolvent and (B) is approved by the Board of Directors of the Corporation (the "Board"). 2. Any change in the membership of the Board such that individuals who are Incumbent Directors (as defined herein) cease for any reason to constitute at least a majority of the Board. The Incumbent Directors shall be (i) those members of the Board who were Directors as of October 27, 1994, and who have served continuously as Directors since such date, and (ii) any other member of the Board who subsequently became a Director and whose election or nomination for election by the Corporation's stockholders at the beginning of his or her current tenure was approved by a vote of at least a majority of the Directors who were then Incumbent Directors, except that no individual shall be an Incumbent Director if such individual's initial assumption of office as a Director occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors, or other actual or threatened solicitation of proxies or consents, by, or on behalf of, a Person other than the Board. 3. The approval by the Corporation's stockholders of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of the Corporation, or similar transaction (a "Business Combination"), unless all of the following conditions are met, with such conditions being applied as of the date of such approval as if the Business Combination were consummated on such date on the terms then specified in the agreement or plan providing for the Business Combination: a. the individuals and entities who are the beneficial owners of the Corporation's Outstanding Voting Securities as of the date of such approval would beneficially own, directly or indirectly, securities representing more than 50% of the outstanding combined voting power of the voting securities that would be outstanding and entitled to vote generally in the election of the governing body of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity that as a result of such transaction would own the Corporation or all or substantially all of the Corporation's assets, either directly or through one or more subsidiaries) (the "Resulting Entity"), and the securities of the Resulting Entity that would be owned by such beneficial owners - 5 - 8 of the Corporation's Outstanding Voting Securities would be owned by them in substantially the same proportions as they own the Corporation's Outstanding Voting Securities; b. no Person (excluding any corporation or other entity resulting from such Business Combination, and excluding any employee benefit plan or related trust of the Corporation or of such corporation or other entity resulting from such Business Combination) would beneficially own, directly or indirectly, 30% or more of the combined voting power of the outstanding voting securities of the Resulting Entity except to the extent that such ownership existed prior to the Business Combination; and c. at least a majority of the members of the board of directors of the Resulting Entity would be persons who were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination. 4. Approval by the Corporation's stockholders of a liquidation or dissolution of the Corporation (unless the liquidation or dissolution is part of a Business Combination excepted from clause 3. above). B. Award Payout ------------ Awards paid under this Article shall be paid as soon as possible after the Change in Control unless the participant has elected to receive awards on a deferred basis and has not elected to accelerate deferred awards upon a Change in Control. C. Awards for Preceding Year ------------------------- If a Change in Control has occurred following the end of a plan year but before awards have been approved for such year, awards for that year shall be determined by the Corporate Compensation Committee at the time of the Change in Control based on any estimates then available of corporate and individual performance levels for such year. In making the attained performance determination, the Corporate Compensation Committee will make appropriate allowances for the effects of the Change in Control and any related events and circumstances that have a bearing on corporate or individual performance levels. D. Pro-Rated Awards for Partial Years ---------------------------------- If a Change in Control has occurred in any year after March, the amount of the award will be equal to the participant's individual performance factor for the most recent year for which individual performance factors were determined multiplied by the maximum incentive award for which the participant is - 6 - 9 eligible for the year in which the Change in Control occurs, pro-rated to reflect the portion of the year that elapsed prior to the Change in Control. If a current Plan participant was not a Plan participant in the most recent year for which individual performance factors were determined and therefore does not have an applicable individual performance factor, the award for such individual shall equal the average of the applicable individual performance factors for all participants in the same percentage-eligibility category as the participant, multiplied by the participant's salary for the current year. E. Ratification of Awards ---------------------- Awards paid under this Article are automatically deemed to be ratified by the BayBanks, Inc. Board and, in the case of bank executives, by the board of directors of the executive's employer. By ratification and approval of this Plan, each such employer's board hereby delegates to the Corporate Compensation Committee of BayBanks, Inc. authority to determine whether such a Change in Control has occurred and the amount of any awards payable under the Plan upon a Change in Control. F. Amendment of Plan ----------------- After a Change in Control, no amendment or modification of this Plan may be made that would materially adversely affect the rights of participants under this Plan, including without limitation any change in the award deferral provisions that would materially adversely affect the rights of participants to receive previously deferred amounts at the time or times they elect or that would reduce the rate at which interest would accrue on such amounts below the benchmark in use at the time of the Change in Control. G. Enforcement of Awards --------------------- After a Change in Control, each BayBanks employer will pay all reasonable legal fees, costs and other expenses incurred by any of its executives in enforcing his or her rights under this Plan. 10/20/76 Revised: 10/1/78 12/11/80 1/27/83 3/5/84 1/2/85 3/2/85 12/14/89 6/27/91 10/27/94 - 7 - EX-10.6 8 COMPENSATION PLAN FOR DIRECTORS 1 EXHIBIT 10.6 As Amended 10/27/94 BAYBANKS, INC. COMPENSATION PLAN FOR DIRECTORS PLAN DESCRIPTION ---------------- A. Basic Plan ---------- Each Director of BayBanks, Inc. ("BayBanks") who becomes entitled to receive cash compensation for services as a Director of BayBanks may elect to have the cash compensation to which he or she becomes entitled during any year paid in the manner provided by any one of the following: 1. Full payment in cash following determination of the amount. 2. Such portion of compensation as he or she may elect to be deferred, with payment to commence on such specific date as he or she may select, provided payment shall not commence earlier than the beginning of the second year after the date of election, and to be paid (a) in full in cash on the specified date, or (b) in such number of annual cash installments not to exceed twenty as he or she may elect. 3. Such portion of compensation as he or she may elect to be deferred, with payment to commence on termination of services as a Director of BayBanks and to be paid (a) in full in cash on the specified date, or (b) in such number of annual cash installments not to exceed twenty as he or she may elect. 4. Such portion of compensation as he or she may elect to be deferred, with payment to commence on his or her reaching age seventy-two and to be paid (a) in full in cash on the specified date, or (b) in such number of annual cash installments not to exceed twenty as he or she may elect. 2 If any payments elected have not been completed at the time of the Director's death, payment shall be made to such beneficiary as he or she may have designated and otherwise to his or her estate. B. Change in Control ----------------- For purposes of this plan and any documents referring to it, a Change in Control will be deemed to have occurred upon the occurrence of any of the following: (a) Any transaction or series of transactions, as a result of which any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) (a "Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under such act), directly or indirectly, of securities of BayBanks representing thirty percent (30%) or more of the combined voting power of BayBanks' then outstanding voting securities (the "BayBanks' Outstanding Voting Securities"); provided, however, that a Change in Control shall not be deemed to have occurred solely because of the acquisition of securities of BayBanks by (i) one or more employee benefit plans or related trusts established for the benefit of the employees of BayBanks or any affiliate of BayBanks; or (ii) any Person when such acquisition (A) is effected primarily to prevent BayBanks from being declared insolvent and (B) is approved by the Board of Directors of BayBanks (the "Board"). (b) Any change in the membership of the Board such that individuals who are Incumbent Directors (as defined herein) cease for any reason to constitute at least a majority of the Board. The Incumbent Directors shall be (i) those members of the Board who were Directors as of October 27, 1994, and who have served continuously as Directors since such date, and (ii) any other member of the Board who subsequently became a Director and whose election or nomination for election by BayBanks' stockholders at the beginning of his or her current tenure was approved by a vote of at least a majority of the Directors who were then Incumbent Directors, except that no individual shall be an Incumbent Director if such individual's initial assumption of office as a Director occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors, or other actual or threatened solicitation of proxies or consents, by, or on behalf of, a Person other than the Board. (c) The approval by BayBanks' stockholders of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of BayBanks, or similar transaction (a "Business Combination"), unless all of the following conditions are met, with such conditions being applied as of the date of such approval as if the Business Combination were consummated on such date on the terms then - 2 - 3 specified in the agreement or plan providing for the Business Combination: (i) the individuals and entities who are the beneficial owners of BayBanks' Outstanding Voting Securities as of the date of such approval would beneficially own, directly or indirectly, securities representing more than 50% of the outstanding combined voting power of the voting securities that would be outstanding and entitled to vote generally in the election of the governing body of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity that as a result of such transaction would own BayBanks or all or substantially all of BayBanks' assets, either directly or through one or more subsidiaries) (the "Resulting Entity"), and the securities of the Resulting Entity that would be owned by such beneficial owners of BayBanks' Outstanding Voting Securities would be owned by them in substantially the same proportions as they own BayBanks' Outstanding Voting Securities; (ii) no Person (excluding any corporation or other entity resulting from such Business Combination, and excluding any employee benefit plan or related trust of BayBanks or of such corporation or other entity resulting from such Business Combination) would beneficially own, directly or indirectly, 30% or more of the combined voting power of the outstanding voting securities of the Resulting Entity except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of the Resulting Entity would be persons who were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination. (d) Approval by BayBanks' stockholders of a liquidation or dissolution of BayBanks (unless the liquidation or dissolution is part of a Business Combination excepted from clause (c) above). A Director may elect to have all amounts that he or she has deferred under the Plan prior to a Change in Control paid automatically in cash on an accelerated basis at the time of the Change in Control. A special one-time irrevocable election will also be permitted to allow Directors to elect this option for amounts for which a deferral election was made before the date of the one-time election. This election must be made no later than December 31, 1991. - 3 - 4 After a Change in Control, no amendment or modification of the Plan may be made that would materially adversely affect the rights of participants to receive previously deferred amounts at the time or times they elected or that would reduce the rate at which interest would accrue on such amounts below the benchmark in effect at the time of the Change in Control. C. Plan Administration ------------------- Except for the special one-time election referred to above, all elections shall (i) be made annually in writing and delivered to the Secretary of BayBanks on or before December 31 of each year, (ii) apply only to compensation earned with respect to the immediately following year, and (iii) be irrevocable once made. If any Director shall not make any timely election, option 1 above shall apply to his or her compensation. The obligations of BayBanks under this Plan shall not be funded, although BayBanks may establish a grantor trust to provide for the payment of amounts deferred under this Plan. BayBanks shall be treated as the owner of any such trust under Section 671 of the Internal Revenue Code of 1986. Interest shall accrue on amounts of compensation that are deferred at such appropriate published market rate as may be designated from time to time by vote of the Board of Directors (e.g., 10-year Treasury note rate). Accrued interest shall be paid pro-rata on the dates elected for payment of deferred amounts. - 4 - EX-10.7 9 1990 STOCK OPTION PLAN FOR DIRECTORS 1 EXHIBIT 10.7 As Amended 10/27/94 BAYBANKS, INC. 1990 Stock Plan for Directors ----------------------------- 1. PURPOSE. -------- The purpose of this 1990 Stock Plan for Directors (the "Plan") is to attract and retain outstanding individuals as Directors of BayBanks, Inc. (the "Corporation") and to increase their equity interest in the Corporation. 2. STOCK SUBJECT TO THE PLAN. -------------------------- The stock to be granted under the Plan shall be the Common Stock, $2.00 par value, of the Corporation. The maximum total number of shares of such stock that may be issued under the Plan shall be 60,000 shares (except as such amount may be adjusted in accordance with the provisions of Section 8 hereof). Such shares may be either unissued shares or reacquired shares. If previously granted shares revert to the Corporation for any reason, such shares may again be granted under the Plan. 3. ELIGIBILITY AND PARTICIPATION. ------------------------------ Participants in the Plan shall be the Directors of the Corporation who are not employees of the Corporation. The Plan shall not be construed as giving any Director the right to be renominated or retained as such. 4. TERMS AND CONDITIONS OF GRANTS OF STOCK. ---------------------------------------- 4.1 NATURE OF GRANTS. Grants under the Plan shall consist of shares of Common Stock of the Corporation transferred to the Director in furtherance of the purposes of the Plan. All grants shall be solely for, and in consideration of, past services rendered to the Corporation and shall be subject to the terms and conditions of this Plan. 4.2 DATE OF GRANT AND NUMBER OF SHARES. Subject to Section 4.3, grants, which are not subject to the discretion of any person, shall be made automatically on the date of the annual meeting of stockholders in each year to each Director of the Corporation who is elected at such annual meeting and to each Director otherwise continuing in office. The total number of shares granted to each Director shall equal the Annual Retainer (as defined in Section 6) divided by the average of the closing prices of the Common Stock of the Corporation on the ten business days immediately preceding the date of the annual meeting, computed in the case of fractions to the next higher whole share. 2 4.3 DIRECTORS SERVING LESS THAN SIX MONTHS. The shares granted to any Director who, at the time of the first annual meeting at which he or she is elected by the stockholders or otherwise continues in office, has served less than six months as a Director, shall take place on the date that is six months from the effective date of his or her election as a Director either by the Board of Directors or by the stockholders. The number of shares granted to him or her shall be computed as set forth in Section 4.2 above. 4.4 ELECTION OF RESTRICTIONS. In order to defer taxation, each Director may elect to subject to the Restrictions described in Section 5 all, but not less than all, of the shares granted with respect to any Annual Retainer. All elections shall be made annually in writing and delivered to the Secretary of the Corporation on or before December 31 of each year. The elections shall apply only to the Annual Retainer earned with respect to the period commencing during the immediately following year and shall be irrevocable once made, provided that the election with respect to grants made for the Annual Retainer for 1991 may be made at any time before the 1991 annual meeting of stockholders. 4.5 NO ASSIGNMENT. No rights or interests of a participant under the Plan may be assigned, encumbered or transferred except by will or the laws of descent and distribution. 5. RESTRICTED STOCK. ----------------- 5.1 DESCRIPTION OF RESTRICTIONS. Restricted Stock shall be shares that a Director elects under Section 4.4 to subject to the Restrictions set forth in this Section 5 or that were granted under this Plan during 1990. Until the termination of Restrictions as provided in Section 5.2, Restricted Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered. Except for such Restrictions, the Director as owner of such Restricted Stock shall have all the rights of a stockholder, including but not limited to the right to receive all dividends paid on such Restricted Stock and the right to vote such Restricted Stock. If a Director ceases to be a Director of the Corporation for any reason (other than resignation as a Director for the purpose of standing for election as a Director by the stockholders pursuant to nomination by the Board of Directors or for the purpose of being elected as a Director by the Board of Directors), all shares of Restricted Stock theretofore granted to him or her that are still subject to Restrictions imposed hereunder shall, except as provided in Section 5.2, thereupon be forfeited and returned to the Corporation at no cost to the Corporation. 5.2 TERMINATION OF RESTRICTIONS. The Restrictions with respect to all shares of Restricted Stock granted to any Director shall terminate upon the earliest to occur of: - 2 - 3 (a) the Director's reaching the age, as determined by the Board of Directors, at which a participant is no longer eligible to stand for election; (b) the Director's death or physical or mental disability that renders him or her substantially unable to function as a Director of the Corporation; (c) the Director's resignation from the Board of Directors in order to enter government service; (d) the Director's failure to be reelected as a Director by the stockholders at the expiration of the Director's term of office, whether or not nominated for reelection; or (e) a Change in Control of the Corporation, as defined in Section 6 hereof. Upon the recommendation of the Chairman, the Board of Directors shall have the right in its sole and absolute discretion to terminate the Restrictions earlier with respect to any or all of the shares of Restricted Stock of any Director. 5.3 STOCK CERTIFICATES. Each certificate issued in respect of shares of Restricted Stock granted under the Plan shall be registered in the name of the Director and deposited by him or her, together with a stock power endorsed in blank, with the Corporation and shall bear the following (or a similar) legend: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms, conditions, and restrictions (including forfeiture) contained in Section 5 of the 1990 Stock Plan for Directors and an Agreement under that Plan between the registered owner and BayBanks, Inc. A copy of such Plan and Agreement will be furnished to the holder of this certificate upon written request and without charge." Within thirty days after the termination of the Restrictions imposed hereunder, the Corporation shall deliver to the Director (or his or her legal representative or heir) certificates, without a legend, for the shares of Common Stock deposited with it pursuant to this section; provided, that the Corporation may require, as a condition of such delivery, that the Director or such other person pay any taxes required by law to be withheld with respect to such Restricted Stock. The amount of such taxes may, at the election of the Director or such other person, be deducted from amounts otherwise payable to the Director. - 3 - 4 6. CERTAIN DEFINITIONS. -------------------- As used in this Plan, the following terms shall have the following meanings. 6.1 ANNUAL RETAINER. "Annual Retainer" means the amount that is payable to a Director for service on the Board of Directors during the period from the date of the annual meeting as of which the respective grant is made until the annual meeting of stockholders in the following year, excluding fees paid for attendance at any meeting of the Board or of any committee thereof. 6.2 CHANGE IN CONTROL. A "Change in Control" of the Corporation shall be deemed to have occurred upon the occurrence of any of the following: (a) Any transaction or series of transactions, as a result of which any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) (a "Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under such act), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation's then outstanding voting securities (the "Corporation's Outstanding Voting Securities"); provided, however, that a Change in Control shall not be deemed to have occurred solely because of the acquisition of securities of the Corporation by (i) one or more employee benefit plans or related trusts established for the benefit of the employees of the Corporation or any affiliate of the Corporation; or (ii) any Person when such acquisition (A) is effected primarily to prevent the Corporation from being declared insolvent and (B) is approved by the Board of Directors of the Corporation (the "Board"). (b) Any change in the membership of the Board such that individuals who are Incumbent Directors (as defined herein) cease for any reason to constitute at least a majority of the Board. The Incumbent Directors shall be (i) those members of the Board who were Directors as of October 27, 1994, and who have served continuously as Directors since such date, and (ii) any other member of the Board who subsequently became a Director and whose election or nomination for election by the Corporation's stockholders at the beginning of his or her current tenure was approved by a vote of at least a majority of the Directors who were then Incumbent Directors, except that no individual shall be an Incumbent Director if such individual's initial assumption of office as a Director occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors, or other actual or threatened solicitation of proxies or consents, by, or on behalf of, a Person other than the Board. (c) The approval by the Corporation's stockholders of a reorganization, merger, consolidation, sale or other - 4 - 5 disposition of all or substantially all of the assets of the Corporation, or similar transaction (a "Business Combination"), unless all of the following conditions are met, with such conditions being applied as of the date of such approval as if the Business Combination were consummated on such date on the terms then specified in the agreement or plan providing for the Business Combination: (i) the individuals and entities who are the beneficial owners of the Corporation's Outstanding Voting Securities as of the date of such approval would beneficially own, directly or indirectly, securities representing more than 50% of the outstanding combined voting power of the voting securities that would be outstanding and entitled to vote generally in the election of the governing body of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity that as a result of such transaction would own the Corporation or all or substantially all of the Corporation's assets, either directly or through one or more subsidiaries) (the "Resulting Entity"), and the securities of the Resulting Entity that would be owned by such beneficial owners of the Corporation's Outstanding Voting Securities would be owned by them in substantially the same proportions as they own the Corporation's Outstanding Voting Securities; (ii) no Person (excluding any corporation or other entity resulting from such Business Combination, and excluding any employee benefit plan or related trust of the Corporation or of such corporation or other entity resulting from such Business Combination) would beneficially own, directly or indirectly, 30% or more of the combined voting power of the outstanding voting securities of the Resulting Entity except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of the Resulting Entity would be persons who were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination. (d) Approval by the Corporation's stockholders of a liquidation or dissolution of the Corporation (unless the liquidation or dissolution is part of a Business Combination excepted from clause (c) above). - 5 - 6 (e) The close of business on the latest of the following dates: (i) the date that a tender or exchange offer by any Person (other than the Corporation, any affiliate of the Corporation, or any employee benefit plan or related trust established for the benefit of the employees of the Corporation or any affiliate of the Corporation) that, if consummated, would result in such Person becoming a "beneficial owner" (as defined in clause (a) above), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation's then outstanding voting securities, is first published or sent or given within the meaning of Rule 14d-2(a) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder; (ii) the date upon which all regulatory approvals required for the acquisition of securities pursuant to the tender or exchange offer referred to in clause (i) have been obtained or waived; or (iii) the date upon which any approval of the security holders of the Person publishing or sending or giving the tender or exchange offer referred to in clause (i) required for the acquisition of securities pursuant to such tender or exchange offer is obtained or waived. 7. SECURITIES AND OTHER LAWS. -------------------------- In any case where, in the opinion of counsel for the Corporation, the issue and/or delivery of shares of Common Stock under the Plan would violate requirements of Federal or state securities or other laws, or the requirements of any exchange on which the securities are listed, the Corporation shall be entitled to postpone such issue and/or delivery until such requirements have been met. The Corporation may require representations and agreements from any Director in order to ensure compliance with Federal or state securities or other laws. 8. ADJUSTMENT IN NUMBER OF SHARES. ------------------------------- In the event that there is any change in the outstanding Common Stock of the Corporation by reason of stock dividends, stock splits, or recapitalizations (whether by way of mergers, consolidations, combinations, or exchanges of shares or the like), the aggregate number and kind of shares or other securities issuable under the Plan shall be appropriately - 6 - 7 adjusted by the Corporation, if necessary, to reflect equitably such change. Any shares of stock or other securities received by a Director with respect to shares subject to the Restrictions imposed by Section 5 will be subject to the same Restrictions and shall be deposited with the Corporation in accordance with Section 5.3. 9. AGREEMENT WITH CORPORATION. --------------------------- The Director shall enter into an Agreement with the Corporation, in a form not inconsistent with the Plan, agreeing to the terms and conditions of grants under the Plan. After a Change in Control (as defined in Section 6), the Corporation shall pay all reasonable legal fees, costs and other expenses incurred by any Director in enforcing his or her rights under the Plan or his or her Agreement. 10. NOTICE OF ELECTION UNDER SECTION 83(b). --------------------------------------- Each Director making an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, and the regulations and rulings promulgated thereunder, shall provide a copy thereof to the Corporation within thirty days of the filing of such election with the Internal Revenue Service, and the Agreement referred to in Section 9 shall so provide. 11. AMENDMENTS AND TERMINATION. --------------------------- This Plan or any portion hereof may be amended at any time and from time to time or terminated by the Board of Directors. No amendment or termination shall adversely affect the terms and conditions of outstanding grants of a Director without his or her written consent, except that the Plan may be amended without the consent of any individual Director in order to conform to restrictions or limitations imposed by the Federal securities laws or regulations, or any other laws or regulations deemed by the Corporation to be binding upon it. - 7 - EX-10.8 10 3RD AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT 1 EXHIBIT 10.8 BAYBANKS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Third Amendment --------------- The BayBanks Supplemental Executive Retirement Plan is hereby amended effective as of October 27, 1994, as follows: 1. Subsection 4.1(e) is amended by deleting the words "BayBanks, Inc. Plan Supplementing Statutory Severance Pay" in each place they appear, and by inserting in their place the words "BayBanks, Inc. Severance Benefits Plan". 2. Subsection 4.1(e)(iii) is amended in its entirety to read as follows: "(iii) For purposes of this subsection (e), a CHANGE IN CONTROL OF BAYBANKS, INC. (hereinafter in this subsection "the Corporation") shall be deemed to have occurred upon the occurrence of any of the following: (A) Any transaction or series of transactions, as a result of which any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) (a "Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under such act), directly or indirectly, of securities of the Corporation representing thirty percent (30%) or more of the combined voting power of the Corporation's then outstanding voting securities (the "Corporation's Outstanding Voting Securities"); provided, however, that a Change in Control shall not be deemed to have occurred solely because of the acquisition of securities of the Corporation by (1) one or more employee benefit plans or related trusts established for the benefit of the employees of the Corporation or any Affiliate of the Corporation; or (2) any Person when such acquisition (A) is effected primarily to prevent the Corporation from being declared insolvent and (B) is approved by the Board of Directors of the Corporation (the "Board"). (B) Any change in the membership of the Board such that individuals who are Incumbent Directors (as defined herein) cease for any reason to constitute at least a majority of the Board. The Incumbent Directors shall be (1) those members of the Board who were Directors as of October 27, 1994, and who have served continuously as Directors since such date, and (2) any other member of the Board who subsequently became a Director and whose election or nomination for election by the Corporation's stockholders at the beginning of his or her current tenure was approved by a 2 vote of at least a majority of the Directors who were then Incumbent Directors, except that no individual shall be an Incumbent Director if such individual's initial assumption of office as a Director occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors, or other actual or threatened solicitation of proxies or consents, by, or on behalf of, a Person other than the Board. (C) The approval by the Corporation's stockholders of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of the Corporation, or similar transaction (a "Business Combination"), unless all of the following conditions are met, with such conditions being applied as of the date of such approval as if the Business Combination were consummated on such date on the terms then specified in the agreement or plan providing for the Business Combination: (1) the individuals and entities who are the beneficial owners of the Corporation's Outstanding Voting Securities as of the date of such approval would beneficially own, directly or indirectly, securities representing more than 50% of the outstanding combined voting power of the voting securities that would be outstanding and entitled to vote generally in the election of the governing body of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity that as a result of such transaction would own the Corporation or all or substantially all of the Corporation's assets, either directly or through one or more subsidiaries) (the "Resulting Entity"), and the securities of the Resulting Entity that would be owned by such beneficial owners of the Corporation's Outstanding Voting Securities would be owned by them in substantially the same proportions as they own the Corporation's Outstanding Voting Securities; (2) no Person (excluding any corporation or other entity resulting from such Business Combination, and excluding any employee benefit plan or related trust of the Corporation or of such corporation or other entity resulting from such Business Combination) would beneficially own, directly or indirectly, 30% or more of the combined voting power of the outstanding voting securities of the Resulting Entity except to the extent that such ownership existed prior to the Business Combination; and (3) at least a majority of the members of the board of directors of the Resulting Entity would be persons who were Incumbent Directors at the time of the 3 execution of the initial agreement or of the action of the Board providing for such Business Combination. (D) Approval by the Corporation's stockholders of a liquidation or dissolution of the Corporation (unless the liquidation or dissolution is part of a Business Combination excepted from clause (C) above)." THE CORPORATE COMPENSATION COMMITTEE OF BAYBANKS, INC. By: /s/ Ilene Beal ----------------------------------- Executive Vice President Dated: November 2, 1994 -------------------------------- BayBanks, Inc. hereby consents to the foregoing Third Amendment. BAYBANKS, INC. By: /s/ Ilene Beal ---------------------------------- Executive Vice President Dated: November 2, 1994 -------------------------------- EX-10.9 11 SERVICE BENIFITS PLAN 1 EXHIBIT 10.9 As Amended 10/27/94 BayBanks Severance Benefits Plan -------------------------------- The purpose of this Plan is to provide severance benefits to employees of BayBanks, Inc. ("BayBanks") and its subsidiaries in the event of termination of employment following a change in control. Benefits under the Plan are intended to replace the benefits otherwise payable under Sections 183 and 184 of Chapter 149 of the Massachusetts General Laws and any other legislation in effect from time to time ("Severance Benefit Legislation"). This Plan shall be administered by the Corporate Compensation Committee of the BayBanks Board of Directors or such other committee as the Board may designate (the "Plan Committee"). SECTION 1. DEFINITIONS As used in this Plan, the following terms have the meanings set forth below. 1.1 "BayBanks Employer" -- BayBanks and each subsidiary of BayBanks that adopts this Plan. The BayBanks Employer for a particular employee is the BayBanks Employer that is responsible for paying that employee's salary. 1.2 "Cause" -- an Employee's (a) willful and continued failure substantially to perform the Employee's duties with his or her BayBanks Employer (other than such failure occurring within 90 days after a Constructive Discharge Event) after written notice specifying such failure in reasonable detail is delivered to the Employee by such BayBanks Employer, (b) willful misconduct that is materially injurious to such BayBanks Employer, monetarily or otherwise, or (c) conviction of any crime involving an act of dishonesty or breach of trust. For purposes of determining whether Cause exists, no action or omission by an Employee shall be considered willful unless the Employee acted in bad faith and without reasonable belief that the action or omission was consistent with the best interests of his or her BayBanks Employer. 1.3 A "Change in Control" of BayBanks shall be deemed to have occurred upon the occurrence of any of the following: (a) Any transaction or series of transactions, as a result of which any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) (a "Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under such act), directly or indirectly, of securities of BayBanks representing thirty percent (30%) or more of the combined voting power of BayBanks' then outstanding voting securities ("BayBanks' Outstanding Voting Securities"); provided, however, that a Change in Control shall not be deemed to have occurred solely because of the acquisition of securities of BayBanks by (i) one or more 2 employee benefit plans or related trusts established for the benefit of the employees of any BayBanks Employer; or (ii) any Person when such acquisition (A) is effected primarily to prevent BayBanks from being declared insolvent and (B) is approved by the Board of Directors of BayBanks (the "Board"). (b) Any change in the membership of the Board such that individuals who are Incumbent Directors (as defined herein) cease for any reason to constitute at least a majority of the Board. The Incumbent Directors shall be (i) those members of the Board who were Directors as of October 27, 1994, and who have served continuously as Directors since such date, and (ii) any other member of the Board who subsequently became a Director and whose election or nomination for election by BayBanks' stockholders at the beginning of his or her current tenure was approved by a vote of at least a majority of the Directors who were then Incumbent Directors, except that no individual shall be an Incumbent Director if such individual's initial assumption of office as a Director occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors, or other actual or threatened solicitation of proxies or consents, by, or on behalf of, a Person other than the Board. (c) The approval by BayBanks' stockholders of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of BayBanks, or similar transaction (a "Business Combination"), unless all of the following conditions are met, with such conditions being applied as of the date of such approval as if the Business Combination were consummated on such date on the terms then specified in the agreement or plan providing for the Business Combination: (i) the individuals and entities who are the beneficial owners of BayBanks' Outstanding Voting Securities as of the date of such approval would beneficially own, directly or indirectly, securities representing more than 50% of the outstanding combined voting power of the voting securities that would be outstanding and entitled to vote generally in the election of the governing body of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity that as a result of such transaction would own BayBanks or all or substantially all of BayBanks' assets, either directly or through one or more subsidiaries) (the "Resulting Entity"), and the securities of the Resulting Entity that would be owned by such beneficial owners of BayBanks' Outstanding Voting Securities would be owned by them in substantially the same proportions as they own BayBanks Outstanding Voting Securities; (ii) no Person (excluding any corporation or other entity resulting from such Business Combination, and excluding any employee benefit plan or related trust of BayBanks or of such corporation or other entity resulting from such Business Combination) would beneficially own, directly or indirectly, 30% or more of the combined voting power of the outstanding voting securities of the Resulting Entity except to the extent that such ownership existed prior to the Business Combination; and - 2 - 3 (iii) at least a majority of the members of the board of directors of the Resulting Entity would be persons who were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination. (d) Approval by BayBanks' stockholders of a liquidation or dissolution of BayBanks (unless the liquidation or dissolution is part of a Business Combination excepted from clause (c) above). 1.4 "Constructive Discharge Event" -- (a) with respect to all Employees, the occurrence within two years following a Change in Control of any of the following without the Employee's written consent: (i) a reduction of the Employee's base salary of at least 10% from the base salary in effect immediately prior to the Change in Control; (ii) a reduction subsequent to the Change in Control of at least 10% in the dollar amount of the BayBanks Employer's contribution for the Employee's medical insurance from the amount contributed immediately prior to the Change in Control; (iii) a material adverse change applicable to the Employee in any formula for the accrual of pension benefits under any pension plan in which the Employee was participating immediately prior to the Change in Control; or (iv) a relocation of the Employee's assigned work location of more than 30 miles from his or her principal work location immediately prior to the Change in Control, unless the new work location is closer to the Employee's principal residence. (b) with respect to Employees who are eligible for benefits under Sections 2.2, 2.3, and/or 2.4, the occurrence within two years following a Change in Control of any of the following without the Employee's written consent shall also constitute a Constructive Discharge Event: (i) the termination or reduction of, or failure to provide, compensation opportunities or benefits at least equal to those provided pursuant to any retirement, benefit, or compensation plan or arrangement in which the Employee was participating immediately prior to the Change in Control (except when such action would not constitute a Constructive Discharge Event under subsection (a) above or is offset by a concurrent increase in the Employee's annual base salary in an amount equal to the annual compensation opportunity or benefit lost by the Employee); - 3 - 4 (ii) a material increase in the level of business travel required of the Employee; (iii) a material change, including a material reduction or increase, in the Employee's title, job authorities, or responsibilities existing immediately prior to the Change in Control; or (iv) a material reduction in any significant perquisites provided to the Employee immediately prior to the Change in Control. 1.5 "Eligible Employee" -- any person employed by any BayBanks Employer as a "Full-time" employee or "WorkStyle" employee, in each case with three or more Years of Service at the time of a Qualifying Termination. The terms "Full- time" employee and "WorkStyle" employee are defined in the BayBanks Human Resources Policies and Procedures manual as in effect on January 1, 1991 and as the manual may be amended prior to the Change in Control. 1.6 "Employee" -- any Eligible Employee or Short-Service Employee, other than an employee who is subject to a written separation, retirement or other severance agreement with a BayBanks Employer. 1.7 "Short-Service Employee" -- any person employed by any BayBanks Employer as a "Full-time Employee" or "WorkStyle Employee" with less than 6.5 Years of Service at the time of a Qualifying Termination, who has been designated by the Plan Committee as eligible for additional benefits under Section 2. 1.8 "Qualifying Termination" -- any termination of employment (a) of an Employee by his or her BayBanks Employer without Cause within two years following a Change in Control, other than by reason of disability or death or (b) by an Employee during the period commencing on the occurrence of a Constructive Discharge Event and ending 90 days following the Employee's receipt of written notice thereof under Section 3.3. A termination of employment by an Employee following a Constructive Discharge Event may constitute a Qualifying Termination notwithstanding that the Employee may have other reasons for terminating employment, including a desire to accept other employment. 1.9 "Weekly Compensation" -- (a) with respect to (i) a Full-time Employee is the annual rate of pay in effect as of the last payroll period ending prior to the Change in Control or prior to a Qualifying Termination, whichever is greater, divided by 52 and (ii) a WorkStyle Employee is the hourly rate of pay in effect as of the last payroll period ending prior to the Change in Control or prior to a Qualifying Termination, whichever is greater, multiplied by the number of hours per week that the Employee was regularly scheduled to work during that pay period; and (b) with respect to any Employee who is eligible for benefits under Sections 2.2, 2.3, and/or 2.4, (i) Weekly Compensation shall include the maximum - 4 - 5 annual incentive or similar award for which the Employee is eligible immediately prior to the Change in Control or the Qualifying Termination, whichever is higher, divided by 52, or (ii) if the Employee was eligible for sales incentive bonuses, commissions or other forms of variable pay (in each case, "Variable Pay") as of the last payroll period ending either prior to the Change in Control or prior to a Qualifying Termination, the Employee's annual rate of pay for purposes of subsection (a)(i) for such payroll period shall include an additional amount equal to the total of all Variable Pay received by the Employee from a BayBanks Employer for the last calendar year prior to the payroll period but not exceeding 50% of such annual rate of pay as determined without regard to this subsection (ii). 1.10 "Years of Service" -- the aggregate number of full calendar months whether or not consecutive, during which an Employee has been employed and paid by any BayBanks Employer, divided by 12, with the result rounded to the nearest one-tenth of a year. SECTION 2. BENEFITS PAYABLE TO EMPLOYEES TERMINATED FOLLOWING A CHANGE IN CONTROL All Eligible Employees shall be entitled to the benefits described in Section 2.1 following a Qualifying Termination. In addition, the Plan Committee may in its discretion designate certain Employees as eligible for the additional benefits described in Sections 2.2, 2.3, or 2.4. All benefits under this Plan are subject to the limitations contained in Section 4. 2.1 BENEFITS FOR ALL ELIGIBLE EMPLOYEES. Each BayBanks Employer shall provide the following benefits to each of its Eligible Employees who experiences a Qualifying Termination in lieu of any benefits provided by the Severance Benefit Legislation (unless the Severance Benefit Legislation would provide an equal or higher level of benefits as described in Section 4.1): (a) CASH PAYMENT -- a lump sum cash payment equal to the Eligible Employee's Weekly Compensation, multiplied by two times his or her Years of Service, provided that such payment shall not exceed 78 times his or her Weekly Compensation; and (b) INSURANCE COVERAGE -- subject to Section 3.5, continued participation in all life, medical, health, accident, or other insurance plans, programs, or arrangements in which the Eligible Employee was enrolled with a BayBanks Employer immediately prior to the Change in Control on substantially the same terms and conditions for a number of weeks following the Qualifying Termination equal to two times the Eligible Employee's Years of Service, but not to exceed 78 weeks. 2.2 ADDITIONAL BENEFITS FOR DESIGNATED EMPLOYEES. In addition to the benefits described in Section 2.1, each BayBanks Employer shall provide the following additional benefits to each of its Eligible Employees who experiences a Qualifying Termination and who has been designated by the Plan Committee as eligible to receive benefits under this Section 2.2: - 5 - 6 (a) CASH PAYMENT -- for each of the paragraphs set forth below under which the Employee qualifies, an additional lump sum cash payment equal to the Eligible Employee's Weekly Compensation multiplied by two times his or her Years of Service, provided that the Employee shall not be entitled to receive a total amount under Sections 2.1 and 2.2 that exceeds 78 times his or her Weekly Compensation: (i) AGE 50 OR 10 YEARS OF SERVICE. The Employee is age 50 or older, or has ten or more Years of Service, on the date of the Qualifying Termination. (ii) BASE SALARY $100,000. The Employee's annualized base salary on the date of the Qualifying Termination, or at the time of the Constructive Discharge Event in the case of a Qualifying Termination under Section 1.8(b), is at least $100,000 or such higher amount as may be applicable under Section 3.2. (iii) QUALIFYING POSITION. The Employee was designated by the Plan Committee on or before the Change in Control expressly for purposes of this Plan as holding a qualifying administrative, staff, or senior business unit position, and such designation was not revoked under Section 3.1(a) prior to the Change in Control. (b) INSURANCE COVERAGE -- subject to Section 3.5, continued participation in the insurance coverage described in Section 2.1(b) for a number of weeks following the Qualifying Termination equal to the total number of weeks of such Employee's Weekly Compensation paid under Sections 2.1, 2.2(a)(i), 2.2(a)(ii), and/or 2.2(a)(iii), but not to exceed a total of 78 weeks under both Sections 2.1 and 2.2. (For example, if an Employee with nine Years of Service qualifies under all of Sections 2.1, 2.2(a)(i), 2.2(a)(ii), and 2.2(a)(iii), he or she would be entitled to continued insurance coverage for 72 weeks following the Qualifying Termination). (c) OUTPLACEMENT ASSISTANCE -- outplacement assistance available from an independent outplacement firm on terms to be determined by the Plan Committee, at a cost to the BayBanks Employer of not less than $5,000. (d) RETIREMENT SUPPLEMENT -- if the Employee is not entitled to benefits under a supplemental executive retirement plan sponsored by a BayBanks Employer, the Employee shall receive a lump sum cash payment equal to the difference between (i) the actuarial present value of the benefits to which the Employee is entitled under the Retirement Plan for Employees of BayBanks, Inc. and Affiliated Companies (the "Retirement Plan") and (ii) the corresponding value of those benefits calculated assuming that the Employee's age and service under the Retirement Plan is increased by the number of weeks of such Employee's Weekly Compensation payable under Sections 2.1, 2.2, and/or 2.3. Actuarial present value shall be based on the interest and mortality factors specified in the Retirement Plan for the valuation of lump sum benefits, as in effect immediately prior to the Change in Control calculated as of the date of the Qualifying Termination. The retirement supplement for an Employee entitled to benefits - 6 - 7 under a supplemental executive retirement plan sponsored by a BayBanks Employer is provided under the provisions of the supplemental executive retirement plan. 2.3 ADDITIONAL BENEFITS FOR DESIGNATED SENIOR EXECUTIVES. Each BayBanks Employer shall provide to each of its Eligible Employees who experiences a Qualifying Termination and who has been designated by the Plan Committee as eligible to receive benefits under this Section 2.3, the benefits described in Sections 2.1 and 2.2, with the following modifications: (a) CASH PAYMENT -- the Employee shall receive up to 156 times his or her Weekly Compensation, rather than up to 78 times such compensation; (b) INSURANCE COVERAGE -- the limitation in Section 2.2(b) of 78 weeks of continued insurance coverage shall instead be 156 weeks of such coverage; and (c) OUTPLACEMENT ASSISTANCE -- the amount of outplacement assistance made available to the Employee under Section 2.2(c) shall be at a cost to the BayBanks Employer of not less than 15% of the Employee's Weekly Compensation multiplied by 52. For purposes of this subsection (c) only, Weekly Compensation will not include any annual incentive or similar award for which the Employee is eligible. 2.4 BENEFITS FOR DESIGNATED SHORT-SERVICE EMPLOYEES. Each BayBanks Employer shall provide the following benefits (instead of any benefits under Sections 2.1, 2.2, and/or 2.3) to each of its Short-Service Employees who experiences a Qualifying Termination (unless the Severance Benefit Legislation would provide an equal or higher level of benefits as described in Section 4.1. (a) CASH PAYMENT -- a lump sum cash payment equal to 13 times the Short-Service Employee's Weekly Compensation, plus an additional 13 times Weekly Compensation for each of the paragraphs set forth below under which the Short-Service Employee qualifies: (i) AGE 50. The Short-Service Employee is age 50 or older on the date of the Qualifying Termination. (ii) BASE SALARY $100,000. The Short-Service Employee's annualized base salary on the date of the Qualifying Termination, or at the time of the Constructive Discharge Event in the case of a Qualifying Termination under Section 1.8(b), is at least $100,000 or such higher amount as may be applied under Section 3.2. (iii) QUALIFYING POSITION. The Short-Service Employee was designated by the Plan Committee on or before the Change in Control expressly for purposes of this Plan as holding a qualifying administrative, staff, or senior business unit position and such designation was not revoked under Section 3.1(a) prior to the Change in Control. - 7 - 8 (b) INSURANCE COVERAGE -- subject to Section 3.5, continued participation in all life, medical, health, accident, or other insurance plans, programs, or arrangements in which the Short-Service Employee was enrolled with a BayBanks Employer immediately prior to the Change in Control on substantially the same terms and conditions for a number of weeks following the Qualifying Termination equal to the total number of weeks of his or her Weekly Compensation paid under subsection (a) hereof. (c) OUTPLACEMENT ASSISTANCE -- outplacement assistance made available from an independent outplacement firm on terms to be determined by the Plan Committee, (i) at a cost to the BayBanks Employer of not less than $5,000 if the Short-Service Employee was designated by the Plan Committee as eligible for benefits under Section 2.2, or (ii) at a cost to the BayBanks Employer of not less than 15% of the Short-Service Employee's Weekly Compensation multiplied by 52 if the Short-Service Employee was designated as eligible for benefits under Section 2.3. (d) RETIREMENT SUPPLEMENT -- if the Employee is not entitled to benefits under a supplemental executive retirement plan sponsored by a BayBanks Employer, the Employee shall receive the lump sum cash retirement supplement described in Section 2.2(d). 2.5. LIABILITY FOR BENEFITS. If, for any reason, any payments or benefits that any Employee is entitled to receive from his or her BayBanks Employer under this Plan cannot be paid or provided when due, then BayBanks, Inc. shall be liable to make such payment or provide such benefits to such Employee, provided that there shall be no duplication of recovery by the Employee. Without limiting its liability to any Employee, BayBanks, Inc. shall be entitled to reimbursement from the BayBanks Employer that is otherwise liable for making such payments or providing such benefits. SECTION 3. PROCEDURES FOR OPERATION OF THE PLAN 3.1 DESIGNATION OF ELIGIBILITY FOR PARTICIPATION UNDER SECTIONS 2.2, 2.3, AND 2.4. The Plan Committee shall from time to time designate Employees who it determines are eligible for the benefits described in Sections 2.2, 2.3, or 2.4 and shall communicate such designation to the Employee in writing in such form and at such time as the Plan Committee may determine. Any such designation may not be changed after it has been communicated to the Employee, except that prior to a Change in Control, the Plan Committee may revoke at any time, without prior notice, the qualifying position designations under Sections 2.2(a)(iii) and 2.4(a)(iii) if such revocation is made because (i) the Employee no longer holds a qualifying administrative, staff, or senior business unit position or (ii) the Plan Committee determines that the position held by the Employee is no longer appropriate for such designation as a result of changes in responsibilities associated with that position or changes in organizational structure. 3.2 INCREASES IN $100,000 THRESHOLD. The Plan Committee may from time to time, prior to a Change in Control, increase the base salary threshold for qualification under Sections 2.2(a)(ii) or 2.4(a)(ii), provided that the increase shall not exceed the percentage increase in the Consumer Price Index (All Items) for All Urban Consumers in the Boston, - 8 - 9 Massachusetts area (or some comparable index if such index is discontinued or unavailable) since January 31, 1991 or since the most recent increase in such threshold amount hereunder, as the case may be. Any increase in the base salary threshold shall not apply to any Employee who had received notice of designation of eligibility for benefits under Sections 2.2, 2.3 or 2.4 prior to such increase. 3.3 NOTICE OF CHANGE IN CONTROL OR CONSTRUCTIVE DISCHARGE EVENT. BayBanks shall cause written notice of the occurrence of a Change in Control to be sent to each Employee within 30 days thereof. Each BayBanks Employer shall cause written notice of the occurrence of a Constructive Discharge Event to be sent to each of its affected Employees within 30 days thereof. 3.4 NOTICE OF REASONS FOR TERMINATION. (a) If a BayBanks Employer terminates the employment of an Employee for Cause within two years following a Change in Control, the BayBanks Employer shall notify the Employee in writing within three days of such termination of the particular reason(s) for such termination. (b) If a Qualifying Termination occurs following a Constructive Discharge Event under Section 1.8(b), the Employee shall within 15 days after the termination notify his or her BayBanks Employer in writing of the particular reason(s) for such termination. The written notices required by this section may be delivered to the Employee at his or her home address on the personnel records of the BayBanks Employer, and to the BayBanks Employer c/o Director-Human Resources Department, BayBanks, Inc., 175 Federal Street, Boston, Massachusetts 02110, in each case by hand or by first-class mail postmarked within the applicable notice period. 3.5 PAYMENT OF BENEFITS. The BayBanks Employer shall, in the event of a Qualifying Termination, make the lump- sum payments required by Section 2 to the Employee within 30 days after the Qualifying Termination. If the BayBanks Employer is unable to continue the insurance coverage as required by Section 2 because the plan providing such insurance does not permit it, or for other reasons beyond the control of the BayBanks Employer, the BayBanks Employer shall within 30 days after the Qualifying Termination make a lump-sum payment to the Employee in an amount equal, after-tax, to the projected cost to the Employee of comparable replacement insurance coverage. 3.6 CLAIMS AND CLAIMS REVIEW PROCEDURES. The Plan Committee shall establish appropriate procedures for the presentation and review of claims by Employees for benefits under this Plan. - 9 - 10 SECTION 4. LIMITATIONS ON PAYMENT OF BENEFITS 4.1 EFFECT OF SEVERANCE BENEFIT LEGISLATION. If for any particular termination, the benefits that an Employee would receive under Severance Benefit Legislation equal or exceed the benefits that the Employee would be entitled to receive under the Plan, the provisions of the Severance Benefit Legislation shall govern and no benefits shall be paid or provided under this Plan. If the benefits that an Employee would receive under this Plan exceed the benefits that the Employee would be entitled to receive under Severance Benefit Legislation, the benefits under this Plan shall replace the benefits under the Legislation. 4.2 LIMITATION FOR RETIREMENT AGE EMPLOYEES. Notwithstanding any other provision of this Plan, in no event shall the number of weeks of Weekly Compensation or continued insurance coverage that the Employee is entitled to receive under Section 2 exceed the number of weeks remaining between the date of the Qualifying Termination and the date of the Employee's 65th birthday, except to the extent otherwise required under applicable law. 4.3 LIMITATION IN THE EVENT OF "EXCESS PARACHUTE PAYMENTS." It is intended that all severance benefits payable pursuant to Section 2, together with all amounts payable under any benefit or compensation plan of BayBanks Employers upon or in connection with a Change in Control, are reasonable compensation for Employees' services to their BayBanks Employers. Notwithstanding the foregoing, should BayBanks determine, based upon the opinion of BayBanks' independent accounting advisors ("Accounting Firm") serving as such immediately prior to a Change in Control, that payment to any Employee of any amounts pursuant to Section 2, together with any other amounts that must be included in such determination, would result in the payment of an "Excess Parachute Payment," as defined in Appendix A, then the BayBanks Employer that is obligated to the Employee under this Plan shall reduce the amounts otherwise payable to the Employee under Section 2 to the maximum amount that would permit a determination that the Employee has not received an Excess Parachute Payment unless the after-tax amount payable to the Employee hereunder without regard to the foregoing limitation ("Uncapped After-Tax Amount," as defined in Appendix A) exceeds the after-tax amount payable to the Employee with regard to such limitation ("Capped After-Tax Amount," as defined in Appendix A) by 10% or more. Any such determination or reduction in amounts payable pursuant to Section 2 shall be made in accordance with Appendix A. 4.4 EFFECT OF 12 U.S.C. [SECTION] 1828(K). Notwithstanding any other provision of this Plan, a BayBanks Employer shall not be obligated to pay, and an Employee shall not be entitled to receive, any payments or benefits under this Plan to the extent that it is finally and conclusively determined by the Federal Deposit Insurance Corporation, with respect to such Employee, that such Employee is not entitled to such payments pursuant to the provisions of 12 U.S.C. Section 1828(k). - 10 - 11 SECTION 5. MISCELLANEOUS 5.1 AMENDMENT AND TERMINATION. (a) PRIOR TO A CHANGE IN CONTROL. This Plan may be amended or terminated by the BayBanks Board of Directors at any time prior to or upon a Change in Control; provided, however, that upon such amendment or termination the Plan as it existed prior to the amendment or termination shall remain in effect with respect to persons who are then employed by a BayBanks Employer and who experience a Qualifying Termination following a Change in Control occurring at the same time as or within two years after the amendment or termination. (b) FOLLOWING A CHANGE IN CONTROL. This Plan may be amended or terminated by the BayBanks Board of Directors at any time following a Change in Control; provided, however, that upon such amendment or termination the Plan as it existed prior to the amendment or termination shall remain in effect with respect to persons who were employed by a BayBanks Employer at the time of the Change in Control and experience a Qualifying Termination within two years following the Change in Control. (c) OTHER PROVISIONS. Notwithstanding subsections (a) and (b) above, (i) this Plan may be amended by the BayBanks Board of Directors in any respect and such amendment shall be effective immediately, to the extent it does not materially adversely affect the rights under this Plan of any persons who are then employed by a BayBanks Employer or who have experienced a Qualifying Termination and (ii) prior to a Change in Control, this Plan shall terminate immediately with respect to a BayBanks Employer other than BayBanks, Inc. and with respect to the employees of such BayBanks Employer if it ceases to be a majority-owned subsidiary of BayBanks as the result of a transaction unrelated to a Change in Control. 5.2 NO CONTRACT OF EMPLOYMENT. This Plan does not constitute a contract of employment, and nothing herein shall affect any BayBanks Employer's ability to terminate an Employee's employment at any time, with or without cause, nor shall this Plan be construed as establishing a policy for, or providing a right to require a BayBanks Employer to provide, any benefits prior to a Change in Control. 5.3 RIGHTS OF EMPLOYEES. (a) Employees shall not be required to mitigate damages or the amount of any payments under this Plan, nor shall the amount of any such payment be reduced by any compensation earned by the Employee as a result of his or her employment after termination of employment with a BayBanks Employer. (b) No rights of any Employee under this Plan may be released, modified, waived, or discharged by an Employee except in a writing signed by the Employee. No failure or delay by any Employee in exercising any right under this Plan shall operate as a waiver thereof. This Plan shall not supersede or in any way limit the - 11 - 12 rights, duties, or obligations the Employee may have under any other written agreement with any BayBanks Employer. (c) After a Change in Control, each BayBanks Employer shall pay all reasonable legal fees, costs, and other expenses incurred by any of its Employees in enforcing his or her rights under this Plan. (d) This Plan shall inure to the benefit of and be enforceable by each Employee's heirs and personal or legal representatives. Upon the death of an Employee any amount that would be payable if he or she had continued to live shall be paid in accordance with the terms of this Plan to his or her designated beneficiary or, if none has been designated, to his or her estate. To the extent permitted by law, the rights of an Employee under this Plan may not be sold, assigned, pledged, or otherwise transferred and shall not be subject to attachment, garnishment, levy, or execution. 5.4 RELATIONSHIP TO OTHER EMPLOYEE BENEFITS; FUNDING. (a) Subject to Section 4.1, all benefits provided under this Plan shall be in addition to any pension, disability, worker's compensation, other benefit plan distribution, unpaid vacation, or other unpaid compensation plan rights that the Employee has at the date of termination. (b) Subject to Section 4.1, nothing in this Plan shall be deemed to limit the type or amount of benefits that may be provided to any Employee or any other employee of any BayBanks Employer under other plans or arrangements, whether or not in connection with a Change in Control. (c) The BayBanks Employers may elect to fund their obligations under this Plan but shall not be required to do so. In any event, this Plan shall not be construed to grant to any Employee any right or interest in any property of any BayBanks Employer. 5.5 SUCCESSORS. Subject to Section 5.1, the obligations of each BayBanks Employer under this Plan shall be binding upon such BayBanks Employer and any successor thereto or any successor to all or substantially all of its business or assets by purchase, merger, consolidation, or otherwise. Each BayBanks Employer shall, in connection with any Change in Control and thereafter, require any successor to all or substantially all of its business or assets to expressly assume and agree to perform the obligations of such BayBanks Employer under this Plan, whether the succession is direct or indirect, by purchase, merger, consolidation, or otherwise. 5.6 GOVERNING LAW. This Plan shall be governed by the laws of Massachusetts. 5.7 SEVERABILITY. If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the other provisions hereof, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included. - 12 - 13 5.8 HEADINGS. The section headings herein are for convenience only and shall not affect the interpretation of this Plan. 5.9 WITHHOLDING. All amounts payable under this Plan shall be subject to appropriate tax withholding by each BayBanks Employer. 5.10 ERISA MATTERS. This Plan is intended to qualify as a severance pay plan as defined in DOL Reg.[Section] 2510.3-2(b) and to the extent not so qualified is intended to qualify as an unfunded deferred compensation plan for a select group of management or highly compensated employees within the meaning of ERISA. This Plan shall be administered and interpreted accordingly. The Plan Committee is the named fiduciary of this Plan and has the authority to control and manage the operation and administration of the Plan. - 13 - 14 Appendix A ---------- Determination of Limitation On Payments Under Section 4.3 of the Plan --------------------------------------- A. EXCESS PARACHUTE PAYMENTS. For purposes of Section 4.3 of the Plan, an "Excess Parachute Payment" shall have the meaning set forth in Section 280G of the Internal Revenue Code of 1986, as amended ("Code") and in proposed or final regulations for applying Section 280G of the Code. B. DETERMINATION OF AFTER-TAX AMOUNTS. For purposes of determining whether the amounts payable to any Employee pursuant to Section 2 of the Plan shall be reduced under Section 4.3 of the Plan to the maximum amount ("Maximum Amount") that would permit a determination that the Employee has not received an Excess Parachute Payment, the following rules shall apply: (1) The "Uncapped After-Tax Amount" shall be equal to the sum of the amounts payable pursuant to Section 2 of the Plan (without regard to Section 4.3 of the Plan) and pursuant to all benefit and compensation plans and arrangements that must be included in determining whether an Excess Parachute Payment has been made, less the Income Tax Amount on such sum and the 20% excise tax under Section 4999 of the Code that would be due on all Excess Parachute Payments. (2) The "Capped After-Tax Amount" shall be equal to the sum of the Maximum Amount and all amounts payable pursuant to all benefit and compensation plans and arrangements that must be included in determining whether an Excess Parachute Payment has been made, less the Income Tax Amount on such sum. (3) The "Income Tax Amount" shall be equal to the amount of Federal, state and local income taxes that would be due on an amount (after taking into account the deductibility of state and local income taxes for Federal income tax purposes) if the highest marginal federal, state and local income tax rate in effect at the time of the Change in Control were imposed on the value of the payments after applying the following rules: (a) the amounts payable pursuant to Section 2 of the Plan and all benefit and compensation plans and arrangements shall be treated as paid in full on the date of the Change in Control; (b) the value of payments resulting from the vesting of restricted stock shall be treated as equal to the fair market value of such stock on the date of the Change in Control, regardless of whether the Employee would, in the absence of an election pursuant to Section 83(b) of the Code ("Section 83(b) Election"), recognize income in connection with such vesting on a later date; and (c) the value of payments resulting from the vesting of a stock option shall be treated as equal to the excess over the option exercise price of the fair market value of the stock subject to the option on the date of the Change in Control, regardless of (i) whether 15 the option is a nonqualified stock option or an incentive stock option, (ii) when the option is exercised, and (iii) whether the Employee would, in the absence of a Section 83(b) Election, recognize income in connection with the transfer of stock pursuant to the exercise of the option on a later date. C. ACCOUNTING FIRM OPINION. The BayBanks Employer that is obligated to the Employee under the Plan may reduce, by applying the Excess Parachute Payment provisions of Section 4.3 of the Plan, the severance benefit amounts payable pursuant to Section 2 of the Plan only if within 60 days of the Employee's Qualifying Termination it provides the Employee with an opinion of the Accounting Firm that the Employee would be considered to have received Excess Parachute Payments if he or she were to receive the full amounts owing pursuant to Section 2 of the Plan. Such opinion shall be based upon Sections 280G and 4999 of the Code and on proposed or final regulations for applying those Code sections, or on substantial authority within the meaning of Section 6662 of the Code, and shall set forth with particularity the smallest amount by which the amounts due to the Employee under Section 2 of the Plan would have to be reduced to avoid the imposition of any excise tax or the denial of any deduction pursuant to Sections 280G and 4999 of the Code and shall demonstrate the methodology by which such smallest amount was calculated. D. SUBSEQUENT DETERMINATION. As a result of possible uncertainty in the application of Section 280G of the Code at the time of the determinations by the Accounting Firm hereunder, amounts may have been paid that should not have been paid ("Overpayment") or additional amounts may not have been paid that could have been paid ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Internal Revenue Service asserts a deficiency against the Employee or the Employee's BayBanks Employer in such a case and the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee from the date such Overpayment was made in an amount equal to the value of such Overpayment, which loan the Employee shall repay to the BayBanks Employer that made the Overpayment together with interest at the applicable federal rate under Section 7872(f)(2)(B) of the Code within 60 business days after receipt by the Employee of written notice of such determination by the Accounting Firm, including the amount of the loan and the interest calculation; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Employee to such BayBanks Employer if and to the extent such deemed loan and repayment with interest would not eliminate the excise tax under Section 4999 of the Code, or the disallowance of the deduction under Section 280G(a) of the Code, for the amounts previously paid to the Employee. In the event that the Accounting Firm determines that an Underpayment has been made, such Underpayment shall be promptly paid by the BayBanks Employer obligated to the Employee under the Plan to or for the benefit of the Employee, together with interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code. - 2 - EX-10.10 12 1ST AMEND. TO DEFERRED PAYMENT PLANS TRUST AGREE 1 EXHIBIT 10.10 BAYBANKS DEFERRED PAYMENT PLANS TRUST AGREEMENT First Amendment --------------- The BayBanks Deferred Payment Plans Trust Agreement (hereinafter called the "Agreement") is hereby amended effective as of October 27, 1994, as follows: 1. Section 2.4 of the Agreement is deleted in its entirety and replaced by the following new section: "2.4 CHANGE IN CONTROL DEFINITION. A "Change in Control" of BayBanks shall be deemed to have occurred upon the occurrence of any of the following: (a) Any transaction or series of transactions, as a result of which any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) (a "Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under such act), directly or indirectly, of securities of BayBanks representing thirty percent (30%) or more of the combined voting power of BayBanks' then outstanding voting securities ("BayBanks' Outstanding Voting Securities"); provided, however, that a Change in Control shall not be deemed to have occurred solely because of the acquisition of securities of BayBanks by (i) one or more employee benefit plans or related trusts established for the benefit of the employees of BayBanks or any subsidiary of BayBanks; or (ii) any Person when such acquisition (A) is effected primarily to prevent BayBanks from being declared insolvent and (B) is approved by the Board of Directors of BayBanks (the "Board"). (b) Any change in the membership of the Board such that individuals who are Incumbent Directors (as defined herein) cease for any reason to constitute at least a majority of the Board. The Incumbent Directors shall be (i) those members of the Board who were Directors as of October 27, 1994, and who have served continuously as Directors since such date, and (ii) any other member of the Board who subsequently became a Director and whose election or nomination for election by BayBanks' stockholders at the beginning of his or her current tenure was approved by a vote of at least a majority of the Directors who were then Incumbent Directors, except that no individual shall be an Incumbent Director if such individual's initial assumption of office as a Director occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors, or other actual or threatened solicitation of proxies or consents, by, or on behalf of, a Person other than the Board. 2 (c) The approval by BayBanks' stockholders of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of BayBanks, or similar transaction (a "Business Combination"), unless all of the following conditions are met, with such conditions being applied as of the date of such approval as if the Business Combination were consummated on such date on the terms then specified in the agreement or plan providing for the Business Combination: (i) the individuals and entities who are the beneficial owners of BayBanks' Outstanding Voting Securities as of the date of such approval would beneficially own, directly or indirectly, securities representing more than 50% of the outstanding combined voting power of the voting securities that would be outstanding and entitled to vote generally in the election of the governing body of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity that as a result of such transaction would own BayBanks or all or substantially all of BayBanks' assets, either directly or through one or more subsidiaries) (the "Resulting Entity"), and the securities of the Resulting Entity that would be owned by such beneficial owners of BayBanks' Outstanding Voting Securities would be owned by them in substantially the same proportions as they own BayBanks' Outstanding Voting Securities; (ii) no Person (excluding any corporation or other entity resulting from such Business Combination, and excluding any employee benefit plan or related trust of BayBanks or of such corporation or other entity resulting from such Business Combination) would beneficially own, directly or indirectly, 30% or more of the combined voting power of the outstanding voting securities of the Resulting Entity except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of the Resulting Entity would be persons who were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination. (d) Approval by BayBanks' stockholders of a liquidation or dissolution of BayBanks (unless the liquidation or dissolution is part of a Business Combination excepted from clause (c) above)." 2. Except as amended hereby, the Agreement remains in full force and effect. - 2 - 3 IN WITNESS WHEREOF, BayBanks, Inc., for itself and its subsidiaries, and the Trustee have executed this First Amendment as of the date first above written. BAYBANKS, INC., for itself and its subsidiaries By: /s/ ILENE BEAL -------------------------------- Title: Executive Vice President ----------------------------- MARINE MIDLAND BANK, N.A., as Trustee By: /s/ STEPHEN J. DAVIDSON -------------------------------- Title: Assistant Vice President ----------------------------- - 3 - EX-11 13 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 BAYBANKS, INC. COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE FOR THE NINE MONTHS AND QUARTERS ENDED SEPTEMBER 30 (DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
NINE MONTHS ENDED QUARTER ENDED SEPTEMBER 30 SEPTEMBER 30 ---------------------------- ---------------------------- 1994 1993 1994 1993 ----------- ----------- ----------- ----------- PRIMARY: Weighted average shares........... 18,827,078 18,649,823 18,883,516 18,709,968 Common Stock Equivalents (CSE): Stock options................... 318,626 287,039 304,374 290,240 ----------- ----------- ----------- ----------- Primary weighted average shares... 19,145,704 18,936,862 19,187,890 19,000,208 =========== =========== =========== =========== Income before cumulative effect of accounting change............... $ 77,666 $ 44,969 $ 29,033 $ 18,001 Less cumulative effect of accounting change............... 932 -- -- -- ----------- ----------- ----------- ----------- Net Income........................ $ 76,734 $ 44,969 $ 29,033 $ 18,001 =========== =========== =========== =========== Primary earnings per share: Income before cumulative effect of accounting change......... $ 4.06 $ 2.37 $ 1.51 $ 0.95 Less cumulative effect of accounting change............ 0.05 -- -- -- ----------- ----------- ----------- ----------- Net Income...................... $ 4.01 $ 2.37 $ 1.51 $ 0.95 =========== =========== =========== =========== FULLY DILUTED: Weighted average shares........... 18,827,078 18,649,823 18,883,516 18,709,968 Common Stock Equivalents (CSE): Stock options................... 318,626 287,039 304,374 290,240 Stock options not CSE............. 5,015 28,175 -- 18,306 5% convertible debentures......... -- 4,073(1) -- 4,073(1) ----------- ----------- ----------- ----------- Fully diluted weighted average shares.......................... 19,150,719 18,969,110 19,187,890 19,022,587 =========== =========== =========== =========== Income before cumulative effect of accounting change............... $ 77,666 $ 44,969 $ 29,033 $ 18,001 Less cumulative effect of accounting change............... 932 -- -- -- ----------- ----------- ----------- ----------- Net income........................ 76,734 44,969 29,033 18,001 5% debentures interest expense -- net of tax........... -- 2 -- 1 ----------- ----------- ----------- ----------- Net Income -- fully diluted basis........................... $ 76,734 $ 44,971 $ 29,033 $ 18,002 =========== =========== =========== =========== Fully diluted earnings per share: Income before cumulative effect of accounting change......... $ 4.06 $ 2.37 $ 1.51 $ 0.95 Less cumulative effect of accounting change............ 0.05 -- -- -- ----------- ----------- ----------- ----------- Net Income...................... $ 4.01 $ 2.37 $ 1.51 $ 0.95 =========== =========== =========== =========== - - - - - --------------- (1) $50 convertible at $13.75 per share.
29 EX-27 14 FINANCIAL DATA SCHEDULES
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF BAYBANKS, INC. FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 U.S. DOLLARS 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 1.0 658,070 155,503 0 21,521 141,406 2,892,584 2,842,806 6,352,975 150,614 10,536,937 8,696,066 951,037 60,653 54,009 37,998 0 0 727,723 10,536,937 368,008 101,299 6,232 475,539 109,027 134,053 341,486 18,000 475 349,465 130,799 77,666 0 (932) 76,734 4.01 4.01 6.94 59,538 43,483 8,772 0 171,496 52,379 13,497 150,614 12,242 0 138,372
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