-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J+/+fP8+YG6JJUQe+MGSVgboE0Qo9aH00XCQlmsWnmCT3KePYYTkcna4F7EgOnSj suYqBB2NdrShHQ7B/QjZ7Q== 0000950135-01-501913.txt : 20010703 0000950135-01-501913.hdr.sgml : 20010703 ACCESSION NUMBER: 0000950135-01-501913 CONFORMED SUBMISSION TYPE: 8-K12G3 PUBLIC DOCUMENT COUNT: 27 CONFORMED PERIOD OF REPORT: 20010702 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010702 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LSB CORP CENTRAL INDEX KEY: 0001143848 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043557612 FILING VALUES: FORM TYPE: 8-K12G3 SEC ACT: SEC FILE NUMBER: 000-32955 FILM NUMBER: 1674079 BUSINESS ADDRESS: STREET 1: C/O LSB CORP. STREET 2: 30 MASSACHUSETTS AVE. CITY: NORTH ANDOVER STATE: MA ZIP: 01845 BUSINESS PHONE: 9789757500 8-K12G3 1 b39832lse8-k12g3.txt LSB CORPORATION 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------------------- DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 2, 2001 LSB CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-3557612 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) ------------------------------- 30 MASSACHUSETTS AVENUE NORTH ANDOVER, MASSACHUSETTS 01845 (ADDRESS, INCLUDING ZIP CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) 2 Item 5. Other Events On July 1, 2001 at 12:01 a.m. (the "Effective Date") LSB Corporation (the "Company") and Lawrence Savings Bank, a Massachusetts savings bank (the "Bank"), consummated the formation of a holding company for the Bank (the "Reorganization") pursuant to a Plan of Reorganization and Acquisition dated as of March 12, 2001 (the "Plan of Reorganization"). Pursuant to the Plan of Reorganization, at the Effective Date, each issued and outstanding share of the Bank's common stock ("Bank Common Stock"), par value $0.10 per share (together with associated preferred stock purchase rights), automatically and without consideration was converted into and exchanged for one share of the common stock, par value $0.10 per share (the "Common Stock") of the Company (together with associated preferred stock purchase rights) (no shareholders exercised dissenters' rights). Prior to the completion of the Reorganization, the Company was a wholly-owned subsidiary of the Bank. On the Effective Date, the Bank became a wholly-owned subsidiary of the Company and the stockholders of the Bank became stockholders of the Company. No additional shares were offered or sold in connection with the Reorganization. Until the Effective Date, the Bank's common stock was registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and traded on the Nasdaq National Market System. The Bank has filed reports with the FDIC under Section 12(i) of the Exchange Act since 1991. This report on Form 8-K is being filed in connection with the registration of the Common Stock of the Company under Section 12(g) of the Exchange Act pursuant to Rule 12g-3(a) thereunder. As of the Effective Date, (i) the Company is the successor issuer to the Bank, (ii) the Common Stock of the Company was held of record by three hundred or more persons and (iii) the Common Stock of the Company is listed in place of the common stock of the Bank on the Nasdaq Stock Market under the trading symbol "LSBX." Pursuant to the Plan of Reorganization, as of the Effective Date, the Company assumed all of the Bank's obligations under the Bank's two stock option plans, the Lawrence Savings Bank 1986 Stock Option Plan and the Lawrence Savings Bank 1997 Stock Option Plan (the "Stock Option Plans"). The Stock Option Plans ceased to exist as option plans of the Bank. Accordingly, the unexercised portions of the options outstanding as of the Effective Date are now exercisable for shares of the Common Stock of the Company. The Company intends to file a registration statement on Form S-8 for all Common Stock issuable under the Stock Option Plans. Pursuant to the Plan of Reorganization, as of the Effective Date, the Company assumed that certain Rights Agreement dated as of December 19, 1996 between the Bank and State Street Bank and Trust Company (the "Shareholder Rights Plan") and such plan ceased to exist as a rights plan of the Bank. Accordingly, as of the Effective Date, the outstanding Bank Rights (as defined below) issued pursuant to the Shareholder Rights Plan were assumed by, and deemed to be rights issued by, the Company ("Rights"). Each Right shall be exercisable for the same number of shares of the Company as would have been available to the holder of a Bank Right upon exercise thereof. The following summary description of the Shareholder Rights Plan does not purport to be complete and is qualified in its entirety by reference to the Shareholder Rights Plan, which has been filed as an exhibit to this Current Report on Form 8-K. In connection with the adoption of the Shareholder Rights Plan by the Bank, the Board of Directors of the Bank declared a dividend distribution of one preferred stock purchase right (a "Bank Right") for each outstanding share of the Bank's common stock to stockholders of record as of the close of business on December 29, 1996. On March 12, 2001, in connection with the Reorganization, the Board of Directors of the Company adopted resolutions assuming the Bank's Shareholder Rights Plan and converting it into the Company's Shareholder Rights Plan, which contains substantially the terms and conditions of the Bank's Shareholder Rights Agreement. As of the Effective Date, the rights currently are not exercisable and are attached to and trade with the outstanding shares of the Company's Common Stock. Under the Company's Shareholder Rights Plan, the Rights become exercisable (i) if a person becomes an -2- 3 "acquiring person" by acquiring 10% or more of the outstanding shares of the Company's Common Stock or (ii) if a person commences a tender offer that would result in that person owning 10% or more of the Company's Common Stock. In the event that a person becomes an "acquiring person," each holder of a Right (other than the acquiring person) would be entitled to acquire such number of shares of the Company's preferred stock as are provided for in the Company's Shareholder Rights Plan. As of the Effective Time, the Company became an additional obligor with respect to certain employment agreements, special termination agreements and supplemental agreements then existing between the Bank and certain senior executives. Such agreements are being filed as exhibits hereto. Item 7. Financial Statements and Exhibits (a) Exhibits Exhibit Number 2.1 Plan of Reorganization and Acquisition, dated as of March 12, 2001 between the Company and the Bank 3.1 Articles of Organization of the Company 3.2 By-Laws of the Company 4.1 Specimen certificate for shares of Common Stock of the Company 4.2 See Exhibit 3.1 for sections pertaining to rights of security holders 4.3 See Exhibit 3.2 for sections pertaining to rights of security holders 4.4 Rights Agreement dated as of December 19, 1996 10.1 Employment Agreement by and between the Bank and Paul A. Miller dated April 21, 1989 10.2 Amendment dated December 23, 1992 to Employment Agreement dated April 21, 1989 10.3 Amendment dated May 25, 2000 to Employment Agreement dated April 21, 1989 10.4 Employment Agreement by and between the Bank and Robert P. Perreault dated May 9, 1986 10.5 Amendment dated December 23, 1992 to Employment Agreement dated May 9, 1986 10.6 Special Termination Agreement by and between the Bank and Robert P. Perreault dated May 9, 1986 10.7 Amendment dated May 25, 2000 to Special Termination Agreement dated May 9, 1986 10.8 Supplemental Retirement Agreement by and between the Bank and Paul A. Miller dated April 21, 1989 10.9 Supplemental Retirement Agreement by and between the Bank and Paul A. Miller dated April 21, 1996 10.10 Employment Agreement by and between the Bank and Jeffrey W. Leeds dated February 24, 2000 10.11 Employment Agreement by and between the Bank and Timothy L. Felter dated February 24, 2000 10.12 Employment Agreement by and between the Bank and John E. Sharland dated February 24, 2000 -3- 4 10.13 Employment Agreement by and between the Bank and Richard J. D'Ambrosio dated February 24, 2000 10.14 Lawrence Savings Bank 1986 Stock Option Plan 10.15 Lawrence Savings Bank 1997 Stock Option Plan 99.1 Annual Report of the Bank for the year ended December 31, 2000 99.2 Form 10-K for the year ended December 31, 2000, as filed with the Federal Deposit Insurance Corporation ("FDIC") 99.3 Quarterly Report of the Bank filed on Form 10-Q for the quarter ended March 31, 2001, as filed with the FDIC 99.4 Proxy Statement, dated as of March 23, 2001, delivered to the Bank's stockholders in connection with the Bank's 2001 Annual Meeting of Stockholders, as filed with the FDIC 99.5 Press Release dated December 21, 2000, in which the Bank announces plan to form holding company 99.6 Press Release dated July 2, 2001, in which the Bank announces the completion of the holding company reorganization -4- 5 SIGNATURES 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 under-signed hereunto duly authorized. LSB CORPORATION DATED: July 2, 2001 By: /s/ Paul A. Miller ------------------------------- Paul A. Miller President and Chief Executive Offficer -5- 6 EXHIBIT INDEX Exhibit No. Description 2.1 Plan of Reorganization and Acquisition, dated as of March 12, 2001 between the Company and the Bank 3.1 Articles of Organization of the Company 3.2 By-Laws of the Company 4.1 Specimen certificate for shares of Common Stock of the Company 4.2 See Exhibit 3.1 for sections pertaining to rights of security holders 4.3 See Exhibit 3.2 for sections pertaining to rights of security holders 4.4 Rights Agreement dated as of December 19, 1996 10.1 Employment Agreement by and between the Bank and Paul A. Miller dated April 21, 1989 10.2 Amendment dated December 23, 1992 to Employment Agreement dated April 21, 1989 10.3 Amendment dated May 25, 2000 to Employment Agreement dated April 21, 1989 10.4 Employment Agreement by and between the Bank and Robert P. Perreault dated May 9, 1986 10.5 Amendment dated December 23, 1992 to Employment Agreement dated May 9, 1986 10.6 Special Termination Agreement by and between the Bank and Robert P. Perreault dated May 9, 1986 10.7 Amendment dated May 25, 2000 to Special Termination Agreement dated May 9, 1986 10.8 Supplemental Retirement Agreement by and between the Bank and Paul A. Miller dated April 21, 1989 10.9 Supplemental Retirement Agreement by and between the Bank and Paul A. Miller dated April 21, 1996 10.10 Employment Agreement by and between the Bank and Jeffrey W. Leeds dated February 24, 2000 10.11 Employment Agreement by and between the Bank and Timothy L. Felter dated February 24, 2000 10.12 Employment Agreement by and between the Bank and John E. Sharland dated February 24, 2000 -6- 7 10.13 Employment Agreement by and between the Bank and Richard J. D'Ambrosio dated February 24, 2000 10.14 Lawrence Savings Bank 1986 Stock Option Plan 10.15 Lawrence Saving Bank 1997 Stock Option Plan 99.1 Annual Report of the Bank for the year ended December 31, 2000 99.2 Form 10-K for the year ended December 31, 2000, as filed with the Federal Deposit Insurance Corporation ("FDIC") 99.3 Quarterly Report of the Bank filed on Form 10-Q for the quarter ended March 31, 2001, as filed with the FDIC 99.4 Proxy Statement, dated as of March 23, 2001, delivered to the Bank's stockholders in connection with the Bank's 2001 Annual Meeting of Stockholders, as filed with the FDIC 99.5 Press Release dated December 21, 2000, in which the Bank announces plan to form holding company 99.6 Press Release dated July 2, 2001, in which the Bank announces the completion of the holding company reorganization -7- EX-2.1 2 b39832lsex2-1.txt PLAN OF REORGANIZATION AND ACQUISITION 1 EXHIBIT 2.1 PLAN OF REORGANIZATION AND ACQUISITION PURSUANT TO SECTION 26B OF CHAPTER 172 OF THE GENERAL LAWS OF MASSACHUSETTS This Plan of Reorganization and Acquisition (the "Plan") is dated as of March 12, 2001, and made between Lawrence Savings Bank, a Massachusetts savings bank in stock form (the "Bank"), and LSB Corporation, a Massachusetts corporation ("LSB Corp."). The Bank is a stock savings bank, duly organized and validly existing under the laws of The Commonwealth of Massachusetts, with its principal office at 30 Massachusetts Avenue, North Andover, Massachusetts 01845. As of the date hereof, the authorized capital stock of the Bank consists of (1) 20,000,000 shares of common stock, par value $0.10 per share (the "Bank Common Stock"), of which 4,371,500 shares are issued and outstanding, 286,530 shares are reserved for issuance under the Bank's 1986 Stock Option Plan (as the same may be renamed from time to time), and, 158,800 shares are reserved for issuance under the Bank's 1997 Stock Option Plan (the 1986 Stock Option Plan and the 1997 Stock Option Plan are collectively referred to herein as the "Stock Option Plans"), and (2) 5,000,000 shares of preferred stock, par value $0.10 per share, none of which shares are issued and outstanding. LSB Corp. is a corporation, duly organized and validly existing under the laws of The Commonwealth of Massachusetts, with its principal office at 30 Massachusetts Avenue, North Andover, Massachusetts 01845. The articles of organization of LSB Corp. at the Effective Time (as defined herein) will provide for authorized capital stock consisting of 20,000,000 shares of common stock, par value $0.10 per share (the "LSB Corp. Common Stock"), and 5,000,000 shares of preferred stock, par value $0.10 per share. As of the date hereof, there are 100 shares of LSB Corp. Common Stock issued and outstanding, all of which are held by the Bank. The Bank and LSB Corp. have agreed that LSB Corp. will acquire all of the issued and outstanding shares of Bank Common Stock (together with associated preferred stock purchase rights) in exchange for shares of LSB Corp. Common Stock (together with associated preferred stock purchase rights) pursuant to the provisions of Section 26B of Chapter 172 of the General Laws of Massachusetts and of this Plan. The Plan has been adopted and approved by a vote of a majority of all the members of the Board of Directors of the Bank, and by a vote of a majority of all the members of the Board of Directors of LSB Corp. The officers of the Bank and of LSB Corp. whose respective signatures appear below have been duly authorized to execute and deliver this Plan. Now, THEREFORE, in consideration of these premises, the Bank and LSB Corp. agree as follows: SECTION 1 -- APPROVAL AND FILING OF PLAN 1.1. The Plan shall be submitted for approval by the holders of Bank Common Stock at a meeting to be called and held in accordance with the applicable provisions of law. Notice of such meeting shall be published at least once a week for two successive weeks in a newspaper of general circulation in the County of Essex, Commonwealth of Massachusetts. Both of said publications shall be at least fifteen days prior to the date of the meeting. 1.2. Upon approval of the Plan by the affirmative vote of the holders of 66 2/3% of the outstanding shares of Bank Common Stock as required by law, the Bank and LSB Corp. shall submit the Plan to the Commissioner of Banks of The Commonwealth of Massachusetts (the "Bank Commissioner") for his approval and filing in accordance with the provisions of Section 26B of Chapter 172 of the General Laws of Massachusetts. The Plan shall be accompanied by such certificates of the respective officers of the Bank and LSB Corp. as may be required by law and a written request from the Bank that the Plan not be filed by the Bank Commissioner until such future time as the Bank Commissioner shall have received from the -1- 2 Bank and LSB Corp. the written notice described in Subsection 2.1. 1.3. If the requisite approval of the Plan is obtained at the meeting of holders of Bank Common Stock referred to in Subsection 1.1, thereafter and until the Effective Time, as hereinafter defined, the Bank shall issue certificates for Bank Common Stock, whether upon transfer or otherwise, only if such certificates bear a legend indicating that the Plan has been approved and that shares of Bank Common Stock evidenced by such certificates are subject to acquisition by LSB Corp. pursuant to the Plan. SECTION 2 -- DEFINITION OF EFFECTIVE TIME 2.1. The Plan shall become effective at 12:01 A.M. on the first business day following the date on which the Bank and LSB Corp. advise the Bank Commissioner in writing (i) that all the conditions precedent to the Plan becoming effective specified in Section 5 have been satisfied and (ii) that the Plan has not been abandoned by the Bank or LSB Corp. in accordance with the provisions of Section 6, or at such other date and time as is specified in such written notice to the Bank Commissioner. Such time is hereafter called the "Effective Time." SECTION 3 -- ACTIONS AT THE EFFECTIVE TIME 3.1. At the Effective Time, LSB Corp. shall, without any further action on its part or on the part of the holders of Bank Common Stock, automatically and by operation of law acquire and become the owner for all purposes of all the then issued and outstanding shares of Bank Common Stock (together with associated preferred stock purchase rights) and shall be entitled to have issued to it by the Bank a certificate or certificates representing such shares. Thereafter, LSB Corp. shall have full and exclusive power to vote such shares of Bank Common Stock, to receive dividends thereon and to exercise all rights of an owner thereof. 3.2. At the Effective Time, the shares of LSB Corp. Common Stock which are outstanding immediately prior to the Effective Time shall be canceled. 3.3. At the Effective Time, the holders of the then issued and outstanding shares of Bank Common Stock (together with associated preferred stock purchase rights) shall, without any further action on their part or on the part of LSB Corp., automatically and by operation of law cease to own such shares and shall instead become owners of one share of LSB Corp. Common Stock (together with associated preferred stock purchase rights) for each share of Bank Common Stock held by them immediately prior to the Effective Time. Thereafter, such persons shall have full and exclusive power to vote such shares of LSB Corp. Common Stock, to receive dividends thereon, except as otherwise provided herein, and to exercise all rights of an owner thereof. 3.4. At the Effective Time, all previously issued and outstanding certificates representing shares of Bank Common Stock (the "Old Certificates") shall automatically and by operation of law cease to represent shares of Bank Common Stock or any interest therein and each Old Certificate shall instead represent the ownership by the holder thereof of an equal number of shares of LSB Corp. Common Stock. No holder of an Old Certificate shall be entitled to vote the shares of Bank Common Stock formerly represented by such certificate, or to receive dividends thereon, or to exercise any other rights of ownership in respect thereof. 3.5. Notwithstanding any of the foregoing, any Dissenting Stockholder, as defined in Subsection 8.1, shall have such rights as are provided by Subsection 8.2 and by the laws of The Commonwealth of Massachusetts. SECTION 4 -- ACTIONS AFTER THE EFFECTIVE TIME As soon as practicable and in any event not more than thirty days after the Effective Time: 4.1. LSB Corp. shall deliver to the transfer agent for the Bank and LSB Corp. (the "Transfer Agent"), -2- 3 as agent for the then holders of the Old Certificates (other than Old Certificates representing shares of Bank Common Stock as to which dissenters' appraisal rights shall have been exercised), a certificate or certificates for the aggregate number of shares of LSB Corp. Common Stock (the "New Certificates"), to which said holders shall be entitled. Each such holder may surrender his Old Certificate to the Transfer Agent and receive in exchange therefor a New Certificate for an equal number of shares of LSB Corp. Common Stock. However, holders of Old Certificates need not surrender Old Certificates to the transfer Agent in exchange for a New Certificate. The Transfer Agent shall treat Old Certificates as representing for all purposes an equal number of shares of LSB Corp. Common Stock. 4.2. LSB Corp. may publish a notice to the holders of all Old Certificates, specifying the Effective Time of the Plan and notifying such holders that they may present their Old Certificates to the Transfer Agent for exchange for a New Certificate representing an equal number of shares of LSB Corp. Common Stock. Such notice may likewise be given by mail to such holders at their addresses on the Bank's records. SECTION 5 -- CONDITIONS PRECEDENT The Plan and the acquisition provided for herein shall not become effective unless all of the following first shall have occurred: 5.1. The Plan shall have been approved by the affirmative vote of the holders of two-thirds of the outstanding Bank Common Stock at a meeting of such stockholders called for such purpose. 5.2. The Plan shall have been approved by the Bank Commissioner and a copy of the Plan with his approval endorsed thereon shall have been filed in his office, all as provided in Section 26B of Chapter 172 of the General Laws of Massachusetts. 5.3. Any approval, consent, or waiver required by the Board of Governors of the Federal Reserve System shall have been received, and any waiting period imposed by applicable law shall have expired. 5.4. The Bank shall have received a favorable opinion from KPMG, LLP, satisfactory in form and substance to the Bank, with respect to the federal income tax consequences of the Plan and the acquisition contemplated thereby. 5.5. The shares of LSB Corp. Common Stock (together with associated preferred stock purchase rights) to be issued to the holders of Bank Common Stock pursuant to the Plan shall have been registered or qualified for such issuance to the extent required under all applicable state securities laws. 5.6. The Bank and LSB Corp. shall have obtained all other consents, permissions and approvals and taken all actions required by law or agreement, or deemed necessary by the Bank or LSB Corp., prior to the consummation of the acquisition provided for by the Plan and to LSB Corp.'s having and exercising all rights of ownership with respect to all of the outstanding shares of Bank Common Stock acquired by it thereunder. SECTION 6 -- ABANDONMENT OF PLAN 6.1. The Plan may be abandoned by either the Bank or LSB Corp. at any time before the Effective Time in the event that: (a) Necessary regulatory approvals cannot be obtained, or the conditions or obligations associated with such regulatory approvals make consummation of the acquisition contemplated by the Plan inadvisable in the opinion of Bank or LSB Corp.; (b) The number of shares of Bank Common Stock owned by Dissenting Stockholders, as defined in Subsection 8.1, shall make consummation of the acquisition contemplated by the Plan inadvisable in the opinion of the Bank or LSB Corp.; -3- 4 (c) Any action, suit, proceeding or claim has been instituted, made or threatened relating to the Plan which shall make consummation of the acquisition contemplated by the Plan inadvisable in the opinion of the Bank or LSB Corp.; or (d) For any other reason consummation of the acquisition contemplated by the Plan is inadvisable in the opinion of the Bank or LSB Corp.. Such abandonment shall be effected by written notice by either the Bank or LSB Corp. to the other of them, and shall be authorized or approved by the Board of Directors of the party giving such notice. Upon the giving of such notice, the Plan shall be terminated and there shall be no liability hereunder or on account of such on the part of the Bank or LSB Corp. or the Directors, officers, employees, agents or stockholders of either of them. In the event of abandonment of the Plan, the Bank shall pay the fees and expenses incurred by itself and LSB Corp. in connection with the Plan and the proposed acquisition. If either party hereto gives written notice of termination to the other party pursuant to this section, the party giving such written notice shall simultaneously furnish a copy thereof to the Bank Commissioner. SECTION 7 -- AMENDMENT OF PLAN 7.1. The Plan may be amended or modified at any time by mutual agreement of the Boards of Directors of LSB Corp. and the Bank (i) prior to its approval by the stockholders of the Bank, in any respect, and (ii) subsequent to such approval, in any respect, provided that the Bank Commissioner shall approve of such amendment or modification. SECTION 8 -- RIGHTS OF DISSENTING STOCKHOLDERS 8.1. "Dissenting Stockholders" shall mean those holders of Bank Common Stock who file with the Bank before the taking of the vote on the Plan, written objection to the Plan, pursuant to Section 86 of Chapter 156B of the General Laws of Massachusetts, stating that they intend to demand payment for their shares of Bank Common Stock if the Plan is consummated and whose shares are not voted in favor of the Plan. 8.2. Dissenting Stockholders who comply with the provisions of Sections 86 to 98, inclusive, of Chapter 156B of the General Laws of Massachusetts and all other applicable provisions of law shall be entitled to receive from the Bank payment of the fair value of their shares of Bank Common Stock upon surrender by such holders of the certificates which previously represented shares of Bank Common Stock. Certificates so obtained by the Bank, upon payment of the fair value of such shares as provided by law, shall be canceled. Shares of LSB Corp. Common Stock, to which Dissenting Stockholders would have been entitled had they not dissented, shall be deemed to constitute authorized but unissued shares of LSB Corp. Common Stock and may be sold or otherwise disposed of by LSB Corp. at the discretion of, and on such terms as may be fixed by, its Board of Directors. SECTION 9 -- STOCK OPTIONS; SHAREHOLDER RIGHTS PLAN 9.1 By approving and entering into the Plan and by consummation of the acquisition contemplated by the Plan, LSB Corp. shall have approved adoption by LSB Corp. of the Stock Option Plans of the Bank as the Stock Option Plans of LSB Corp. and shall have agreed to issue LSB Corp. Common Stock in lieu of Bank Common Stock pursuant to stock options then outstanding under the Stock Option Plans. As of the Effective Time, the unexercised portion of the options outstanding under the existing Stock Option Plans shall be assumed by LSB Corp. and thereafter shall be exercisable only for shares of LSB Corp. Common Stock, with each such option being exercisable for a number of shares of LSB Corp. Common Stock equal to the number of shares of Bank Common Stock that were available thereunder immediately prior to the Effective Time, and with no change in the exercise price or any other term or condition of such option. LSB Corp. and the Bank shall make appropriate amendments to the Stock Option Plans to reflect the adoption of such plans as the Stock Option Plans of LSB Corp. without adverse effect upon the options outstanding -4- 5 under the Stock Option Plans. 9.2 By approving and entering into the Plan and by consummation of the acquisition contemplated by the Plan, and subject to any required third party consents or approvals, LSB Corp. shall be deemed to have approved adoption by LSB Corp. of the Rights Agreement dated as of December 19, 1996 between the Bank and State Street Bank and Trust Company (the "Shareholder Rights Plan") as the Shareholder Rights Plan of LSB Corp. and to have agreed to issue LSB Corp. Preferred Stock in lieu of Bank Preferred Stock pursuant to preferred stock purchase rights then outstanding under the Shareholder Rights Plan. As of the Effective Time, the unexercised portion of the rights outstanding under the existing Shareholder Rights Plan shall be assumed by LSB Corp. and thereafter shall be exercisable only for shares of LSB Corp. Preferred Stock, with each such right being exercisable for a number of shares of LSB Corp. Preferred Stock equal to the number of shares of Bank Preferred Stock that were available thereunder immediately prior to the Effective Time, and with no change in the exercise price or any other term or condition of such right or Preferred Stock except that any term or condition referring to the acquisition of a specified number or percentage of outstanding shares of Bank Common or Preferred Stock shall be deemed to refer respectively to a like number or percentage of outstanding shares LSB Corp. Common or Preferred Stock. LSB Corp. and the Bank shall make appropriate amendments to the Shareholder Rights Plan to reflect the adoption of such plan as the Shareholder Rights Plan of LSB Corp. without adverse effect upon any rights outstanding under the such plan. SECTION 10 -- GOVERNING LAW The Plan shall take effect as a sealed instrument and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. -5- 6 SECTION 11 -- COUNTERPARTS The Plan may be executed in several identical counterparts, each of which when executed and delivered by the parties hereto shall be an original, but all of which together shall constitute a single instrument. In making proof of the Plan, it shall not be necessary to produce or account for more than one such counterpart. LAWRENCE SAVINGS BANK BANK By: /s/ Paul A. Miller ------------------------ Paul A. Miller President and Chief Executive Officer ATTEST: /s/ Robert P. Perreault - -------------------------------- Robert P. Perreault Clerk LSB CORPORATION By: /s/ Paul A. Miller -------------------------- Paul A. Miller President and Chief Executive Officer ATTEST: /s/ Robert P. Perreault - -------------------------------- Robert P. Perreault Clerk I hereby approve this Plan of Reorganization and Acquisition. Date 6/22/01 /s/ Thomas J. Curry --------------------------- Thomas J. Curry Commissioner of Banks -6- EX-3.1 3 b39832lsex3-1.txt ARTICLES OF ORGANIZATION OF THE COMPANY 1 EXHIBIT 3.1 THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN SECRETARY OF THE COMMONWEALTH ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108-1512 ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B) ARTICLE I The exact name of the corporation is LSB Corporation ARTICLE II The purpose of the corporation is to engage in the following business activities: See Addendum A attached hereto. ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue. WITHOUT PAR VALUE WITH PAR VALUE ------------------------------ ---------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE ---- ---------------- ---- ---------------- --------- Common: Common: 20,000,000 $ 0.10 Preferred: Preferred: 5,000,000 $ 0.10 ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class. See Addendum B attached hereto. ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: None. ARTICLE VI Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders. See Addendum C attached hereto. -1- 2 ARTICLE VII The effective date of organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a later date is desired, specify such date which shall not be more than thirty days after the date of filing. ARTICLE VIII THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE ARTICLES OF ORGANIZATION. a. The street address (post office boxes are not acceptable) of the principal office of the corporation in Massachusetts is: 30 Massachusetts Avenue, North Andover, MA 01845 b. The name, residential address and post office address of each director and officer of the corporation is as follows: NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS See Addendum D attached hereto. c. The fiscal year (i.e., tax year) of the corporation shall end on the last day of the month of: October d. The name and business address of the resident agent, if any, of the corporation is: ARTICLE IX By-Laws of the corporation have been duly adopted and the president, treasurer, clerk and directors whose names are set forth above, have been duly elected. IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I/we, whose signature(s) appear below as incorporator(s) and those name(s) and business or residential address(es) are clearly typed or printed beneath each signature do hereby associate with the intention of forming this corporation under the provisions of General Laws, Chapter 156B and do hereby sign these Articles of Organization as incorporator(s) this 12th day of March, 2001. /s/ Kevin J. Handly -------------------- c/o Goulston & Storrs, P.C. 400 Atlantic Avenue Boston, MA 02110 -2- 3 ADDENDUM A TO THE ARTICLES OF ORGANIZATION OF LSB CORPORATION ARTICLE II A. To acquire, invest in or hold stock in any subsidiary permitted under (i) the Bank Holding Company Act of 1956, and (ii) Massachusetts General Laws, Chapter 167A, as such statutes may be amended from time to time, and to engage in any other activity or enterprise permitted to a bank holding company under said statutes or other applicable law. B. To buy, sell, invest in, hold and deal in property of every nature and description, real and personal, tangible and intangible permissible for such a corporation. C. To carry on any business or other activity which may be lawfully carried on by a corporation organized under the Business Corporation Law of the Commonwealth of Massachusetts, whether or not related to those referred to in the foregoing paragraphs. A-1 ADDENDUM B TO THE ARTICLES OF ORGANIZATION LSB CORPORATION ARTICLE IV. Capital Stock. The total number of shares of all classes of capital stock which LSB Corporation ("LSB") is authorized to issue is 25,000,000 shares, of which 20,000,000 shares shall be common stock, $0.10 par value per share, and 5,000,000 shares shall be preferred stock, $0.10 par value per share. The shares may be issued by LSB from time to time by a vote of its Board of Directors without the approval of its stockholders. Upon payment of lawful consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the surplus of LSB which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. A description of the different classes and series of LSB's capital stock and a statement of the designations and the relative rights, preferences and limitations of the shares of each class and series of capital stock are as follows: A. Common Stock. Except as provided by law or in this Article IV (or in any supplemental sections hereto or in any certificate of establishment of any series of preferred stock), the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder. There shall be no cumulative voting rights in the election of Directors. If there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of a sinking fund or a retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends; but only when and as declared by the Board of Directors. In the event of any liquidation, dissolution or winding up of LSB, after there shall have been paid to or -3- 4 set aside for the holders of any class having preference over the common stock in the event of liquidation, dissolution or winding up of LSB the full preferential amounts to which they are respectively entitled, the holders of the common stock, and of any class or series of stock entitled to participate in whole or in part therewith as to distribution of assets, shall be entitled, after payment or provision for payment of all debts and liabilities of LSB, to receive the remaining assets of LSB available for distribution, in cash or in kind, in proportion to their holdings. B. Preferred Stock. The Board of Directors of LSB is authorized by vote or votes, from time to time adopted, to provide for the issuance of preferred stock in one or more series and to fix and state the voting powers, designations, preferences and relative participating, optional or other special rights of the shares of each series and the qualifications, limitations, and restrictions thereof, including, but not limited to, determination of one or more of the following: (1) The distinctive serial designation and the number of shares constituting such series; (2) The dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends and the participating or other special rights, if any, with respect to dividends; (3) The voting powers, if any, of shares of such series; (4) Whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions on which, such shares may be redeemed; (5) The amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of LSB; (6) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemable or purchased through the application of such fund; (7) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of LSB, and if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (8) The price or other consideration for which the shares of such series shall be issued; and (9) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of preferred stock and whether such shares may be reissued as shares of the same or any other series of stock. Unless otherwise provided by law, any such vote shall become effective when LSB files with the Secretary of the Commonwealth of Massachusetts a certificate of establishment of one or more series of preferred stock signed by the President or any Vice President and by the Clerk, Assistant Clerk, Secretary or Assistant Secretary of LSB, setting forth a copy of the vote of the Board of Directors establishing and designating the series and fixing and determining the relative rights and preferences thereof, the date of adoption of such vote and a certification that such vote was duly adopted by the Board of Directors. -4- 5 ADDENDUM C TO THE ARTICLES OF ORGANIZATION OF LSB CORPORATION ARTICLE VI(A). Certain Business Combinations. SECTION 1. Vote Required for Certain Business Combinations. A. Required Vote for Certain Business Combinations. In addition to any affirmative vote required by the Massachusetts General Laws or by these Articles of Organization, and except as otherwise expressly provided in Section 2 of this Article VI(A): (1) any merger or consolidation of LSB or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation or entity (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of LSB or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $1,000,000 or more; (3) the issuance or transfer by LSB or any Subsidiary (in one transaction or a series of transactions) of any securities of LSB or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities, or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; (4) the adoption of any plan or proposal for the liquidation or dissolution of LSB proposed by or on behalf of any Interested Stockholder of any Affiliate of any Interested Stockholder; or (5) any reclassification of securities (including any reverse stock split), any recapitalization of LSB, any merger or consolidation of LSB with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving any Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportion of the outstanding shares of any class of equity or convertible securities of LSB or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; shall require (subject to Section 2 of this Article VI(A)) the affirmative vote of the holders of at least eighty percent of the voting power of the then outstanding shares of capital stock of LSB entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified by law. B. Definition of "Business Combination." The term "Business Combination" as used in this Article VI(A) shall mean any transaction which is referred to in any one or more of clauses (1) through (5) of Paragraph A of this Section 1. SECTION 2. When Higher Vote is Not Required. The provisions of Section 1 of this Article VI(A) shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of these Articles of Organization, if all of the conditions specified in either of the following Paragraphs A or B are met: -5- 6 A. Approval by Continuing Directors. The Business Combination shall have been approved by a majority of the Continuing Directors then in office (as hereinafter defined); or B. Price and Procedure Requirements. All of the following conditions shall have been met: (1) The aggregate amount of cash and the Fair Market Value as of the date of the consummation of the Business Combination (the "Consummation Date") of any consideration other than cash to be received per share by holders of common stock in such Business Combination shall be at least equal to the highest of the following: (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of common stock acquired by it (i) within the two-year period immediately prior to and including the first public announcement of the proposed Business Combination (the "Announcement Date") or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; (b) the highest Fair Market Value per share of common stock on any date during the one-year period prior to and including the Announcement Date; and (c) (if applicable) the price per share equal to the product of (i) the Fair Market Value per share of common stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such later date is referred to in this Article VI(A) as the "Determination Date"), whichever is higher, multiplied by (ii) the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of common stock acquired by it within the two-year period immediately prior to and including the Announcement Date to (y) the Fair Market Value per share of common stock on the first day in such two-year period upon which the Interested Stockholder acquired any shares of common stock. (2) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of the Business Combination of consideration other than cash to be received per share by holders of any other class of outstanding Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this Paragraph B(2) shall be required to be met with respect to every other class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (i) within the two-year period immediately prior to and including the Announcement Date or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; (b) (if applicable) the highest preferential amount per share which the holders of shares of such class of Voting Stock are entitled to receive from LSB in the event of any voluntary or involuntary liquidation, dissolution or winding up of LSB; (c) the highest Fair Market Value per share of such class of Voting Stock on any date during the one-year period prior to and including the Announcement Date; and (d) (if applicable) the price per share equal to the product of (i) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher, multiplied by (ii) the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it within the two-year period immediately prior to and -6- 7 including the Announcement Date to (y) the Fair Market Value per share of such class of Voting Stock on the first day in such two-year period upon which the Interested Stockholder acquired any shares of such class of Voting Stock. (3) The consideration to be received by holders of a particular class of outstanding Voting Stock (including common stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. (4) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of any such Business Combination: (a) there shall have been (i) no failure to declare and pay at regular dates therefor the full amount of any dividends (whether or not cumulative) payable on any class or series having a preference over the common stock of LSB as to dividends or upon liquidation, except as approved by a majority of the Continuing Directors; (ii) no reduction in the annual rate of dividends paid on the common stock (except as necessary to reflect any subdivision of the common stock), except as approved by a majority of the Continuing Directors; and (iii) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the common stock, unless the failure to so increase such annual rate is approved by a majority of the Continuing Directors; and (b) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder's becoming an Interested Stockholder. (5) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by LSB, whether in anticipation of or in connection with such Business Combination or otherwise, unless such transaction shall have been approved or ratified by a majority of the Continuing Directors after such person shall have become an Interested Stockholder. (6) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public stockholders of LSB at least twenty days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). SECTION 3. Certain Definitions. For the purpose of these Articles of Organization: A. A "person" shall mean an individual, a group acting in concert, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, a business trust, a government or political subdivision, any unincorporated organization and any similar association or entity. B. "Interested Stockholder" shall mean any person (other than LSB or any Subsidiary) who or which: (1) is the beneficial owner, directly or indirectly, of more than ten percent of the voting power of the then outstanding shares of Voting Stock; -7- 8 (2) is an Affiliate of LSB and at any time within the two-year period immediately prior to and including the date in question was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of Voting Stock; or (3) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to and including the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933 and such assignment or succession was not approved by a majority of the Continuing Directors. C. A person shall be a "beneficial owner" of any shares of Voting Stock: (1) which such person or any of its Affiliates or Associates, directly or indirectly, has or shares with respect to the Voting Stock (a) the right to acquire or direct the acquisition of (whether such right is exercisable immediately or only after the passage of time or upon the satisfaction of any conditions or both), pursuant to any agreement, arrangement or understanding or upon the exercise of any conversion rights, warrants, or options or otherwise; (b) the right to vote, or direct the voting of, pursuant to any agreement, arrangement or understanding or otherwise; or (c) the right to dispose of or transfer or direct the disposition or transfer of, pursuant to any agreement, arrangement, understanding or otherwise; or (2) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. D. For the purpose of determining whether a person is an Interested Stockholder pursuant to Paragraph B of this Section 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by such person through application of Paragraph C of this Section 3 but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options or otherwise. E. "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. F. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by LSB; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph B of this Section 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by LSB. G. "Continuing Director" means any member of the Board of Directors of LSB (the "Board") who is not an Affiliate or Associate of the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is not an Affiliate or Associate of the Interested Stockholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board. H. "Fair Market Value" means: (1) in the case of stock, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such stock on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty-day period preceding the date in question on the National Association of Securities Dealers Automated Quotation System or any comparable system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as -8- 9 determined by at least a majority of the Continuing Directors of the Board in good faith; and (2) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by at least a majority of the Continuing Directors of the Board in good faith. I. "Group Acting in Concert" shall mean persons seeking to combine or pool their voting or other interests in the securities of LSB for a common purpose, pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written, oral or otherwise, or any "group of persons" as defined under Section 13(d) of the Securities Exchange Act of 1934. When persons act together for any such purpose, their group is deemed to have acquired their stock. J. In the event of any Business Combination in which LSB survives, the phrase "other consideration to be received" as used in Paragraphs B(1) and (2) of Section 2 of this Article VI(A) shall include the shares of common stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. SECTION 4. Powers of the Board of Directors. A majority of the Directors of LSB (or, if there is an Interested Stockholder, a majority of the Continuing Directors then in office) shall have the power to determine for the purposes of this Article VI(A), on the basis of information known to them after reasonable inquiry, (A) whether a person is an Interested Stockholder, (B) the number or percentage of any class of securities beneficially owned by any person, (C) whether a person is an Affiliate or Associate of or is affiliated or associated with another, (D) whether the requirements of Section 2 of this Article VI(A) have been met with respect to any Business Combination, (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by LSB or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more and (F) any other matters of interpretation arising under this Article VI(A). The good faith determination of a majority of the Directors (or, if there is an Interested Stockholder, a majority of the Continuing Directors then in office) on such matters shall be conclusive and binding for all purposes of this Article VI(A). SECTION 5. No Effect on Fiduciary Obligations of Interested Stockholders. Nothing contained in this Article VI(A) shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. ARTICLE VI(B). Standards for Board of Directors' Evaluation of Offers. The Board of Directors of LSB, when evaluating any offer of another person (as defined in Article VI(A) hereof) to (A) make a tender or exchange offer for any equity security of LSB or any Subsidiary (as defined in Article VI(A) hereof), (B) merge or consolidate LSB or any Subsidiary with another institution or (C) purchase or otherwise acquire all or substantially all of the properties and assets of LSB or any Subsidiary, shall, in connection with the exercise of its judgment in determining what is in the best interests of LSB and its stockholders, give due consideration to all relevant factors including, without limitation, the social and economic effects of acceptance of such offer on LSB's and/or any Subsidiaries' present and future account holders, borrowers and employees; on the communities in which LSB or any Subsidiary operates or is located; and on the ability of LSB and its Subsidiaries to fulfill their objectives under applicable statutes and regulations. ARTICLE VI(C). Pre-emptive Rights. Holders of the capital stock of LSB shall not be entitled to preemptive rights with respect to any shares of the capital stock of LSB which may be issued. -9- 10 ARTICLE VI(D). Directors. LSB shall be under the direction of a Board of Directors. The number of Directors shall not be fewer nor more than permitted by law. The Board of Directors shall be divided into three classes as nearly equal in number as possible, with one class to be elected annually. Any Director (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed from office, with or without cause, by an affirmative vote of not less than (i) 80% of the total votes eligible to be cast by stockholders in the election of directors at a duly constituted meeting of stockholders called expressly for such purpose, or (ii) 66 2/3% of the members of the Board of Directors then in office, unless at the time of such removal there shall be an Interested Stockholder, in which case the affirmative vote of not less than a majority of the Continuing Directors then in office shall instead be required for removal by vote of the Board of Directors. At least thirty days prior to such meeting of stockholders, written notice shall be sent to the Director whose removal will be considered at the meeting. ARTICLE VI(E). Transactions with Interested Persons. SECTION 1. Unless entered into in bad faith or in violation of any provision of these Articles of Organization, no contract or transaction by LSB shall be void, voidable or in any way affected by reason of the fact that it is with an Interested Person. SECTION 2. For the purposes of this Article VI(E), "Interested Person" means any person or organization in any way interested in LSB whether as a director, officer, stockholder, employee or otherwise, and any other entity in which any such person or organization of LSB is in any way interested. SECTION 3. Unless such contract or transaction was entered into in bad faith or in violation of any provision of these Articles of Organization, no Interested Person, because of such interest, shall be liable to LSB or to any other person or organization for any loss or expense incurred by reason of such contract or transaction or shall be accountable for any gain or profit realized from such contract or transaction. SECTION 4. The provisions of this Article VI(E) shall be operative notwithstanding the fact that the presence of an Interested Person was necessary to constitute a quorum at a meeting of Directors or stockholders of LSB at which such contract or transaction was authorized or that the vote of an Interested Person was necessary for the authorization of such contract or transaction. ARTICLE VI(F). Acting as a Partner, Member or Manager. LSB may be a partner, member or manager in any business enterprise which LSB would have power to conduct by itself. ARTICLE VI(G). Stockholders' Meetings. Meetings of stockholders may be held at such place in the Commonwealth of Massachusetts or, if permitted by applicable law, elsewhere in the United States as the Board of Directors may determine. ARTICLE VI(H). Call of Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called at any time only by the Chairman of the Board, if one is elected, the President or by the affirmative vote of a majority of the Directors then in office; provided, however, that if there is an Interested Stockholder, any such call shall also require the affirmative vote of a majority of the Continuing Directors then in office. Only those matters set forth in the call of the special meeting may be considered or acted upon at such special meeting, unless otherwise provided by law. ARTICLE VI(I). Amendment of By-Laws. -10- 11 The By-Laws of LSB may be adopted, altered, amended, changed or repealed by the Board of Directors or the stockholders of LSB. Such action by the Board of Directors shall require the affirmative vote of at least 66 2/3% of the Directors then in office at a duly constituted meeting of the Board of Directors, unless at the time of such action there shall be an Interested Stockholder, in which case such action shall in addition require the affirmative vote of at least a majority of the Continuing Directors then in office, at such a meeting. Such action by the stockholders shall require (i) approval by the affirmative vote of a majority of the Board of Directors of LSB then in office at a duly constituted meeting of the Board of Directors, unless at the time of such action there shall be an Interested Stockholder, in which case such action shall in addition require the affirmative vote of at least a majority of the Continuing Directors then in office, at such meeting, (ii) unless waived by the affirmative vote of the Board of Directors (and, if applicable, Continuing Directors) specified in the preceding sentence, the submission by the stockholders of written proposals for adopting, altering, amending, changing or repealing the By-Laws at least sixty days prior to the meeting at which they are to be considered and (iii) the affirmative vote of at least 66 2/3% of the total votes eligible to be cast by stockholders in the election of directors at a duly constituted meeting of stockholders called expressly for such purpose. ARTICLE VI(J). Amendment of Articles of Organization. No amendment, addition, alteration, change or repeal of these Articles of Organization shall be made, unless the same is first approved by the affirmative vote of a majority of the Board of Directors of LSB then in office, and thereafter approved by the stockholders by not less than 66 2/3% of the total votes eligible to be cast at a duly constituted meeting, or, in the case of Articles I, II and III and the first sentence of Article IV as set forth in Addendum B to these Articles of Organization, by not less than a majority of the total votes eligible to be cast at a duly constituted meeting; provided, however, that if, at any time within the sixty day period immediately preceding the meeting at which the stockholder vote is to be taken, there is an Interested Stockholder, such amendment, addition, alteration, change or repeal shall also require the affirmative vote of not less than a majority of the Continuing Directors then in office, prior to approval by the stockholders. Notwithstanding the foregoing, to the extent that any provision of these Articles of Organization stipulates stockholder approval by a vote of more than 66 2/3% of the total votes eligible to be cast by stockholders in the election of directors, and if, at any time within the sixty day period immediately preceding the meeting at which the stockholder vote is to be taken there is an Interested Stockholder, such provision may only be amended, altered, changed or repealed after approval by the same vote required by such provision, unless such amendment, alteration or repeal shall also have been approved by the affirmative vote of not less than a majority of the Continuing Directors then in office, in which case only the vote of 66 2/3% of the total votes eligible to be cast by the stockholders shall be required. Unless otherwise provided by law, any amendment, addition, alteration, change or repeal so acted upon shall be effective on the date it is filed with the Secretary of the Commonwealth of Massachusetts or on such other date as specified in such amendment, addition, alteration, change or repeal or as the Secretary of the Commonwealth may specify. -11- 12 ADDENDUM D TO THE ARTICLES OF ORGANIZATION OF LSB CORPORATION ARTICLE VIII(b) The name, residential address and post office address of each director and officer of the corporation is as follows:
RESIDENTIAL POST OFFICE TITLE NAME ADDRESS ADDRESS - ----------------------------- ------------------- --------------------- ----------------------- President/Chief Executive Paul A. Miller 43 Covey Hill Rd. 30 Massachusetts Ave. Officer...................... Reading, MA 01867 North Andover, MA 01845 Senior Vice President/Chief John E. Sharland 52 Mount View Dr. 30 Massachusetts Ave. Financial.................... Clinton, MA 01510 North Andover, MA 01845 Officer and Treasurer Executive Vice President/.... Robert P. Perreault 30 Riverview Ave. 30 Massachusetts Ave. Clerk and Secretary Methuen, MA 01844 North Andover, MA 01845 Directors:................... Eugene A. Beliveau 25 West Parish Ct., 328 Main Street U28D North Andover, MA 01845 Haverhill, MA 01832 Kathleen I. Boshar 17 Stonegate Road 76 Main Street Chelmsford, MA 01824 Andover, MA 01810 Malcolm W. Brawn 17 Hawk Hill Lane 95 Old River Road Ipswich, MA 01938 Andover, MA 01810 Thomas J. Burke 6 West Chester Dr. 381 Common Street Lawrence, MA 01843 Lawrence, MA 01842 Byron R. Cleveland, 130 Holt Road 109 Blanchard Street Jr. Andover, MA 01810 Lawrence, MA 01843 Neil H. Cullen 74 Bartlett Street South Main Street Andover, MA 01810 Andover, MA 01810 Richard Hart 23 Ipswich Street 30 Massachusetts Ave. Harrington No. Andover, MA 01845 North Andover, MA 01845 Robert F. Hatem 780 Andover Street North Essex Lowell, MA 01850 Community College Haverhill, MA 01830 Marsha A. McDonough 42 Fairmount Ave. U.S. Dept. of State Wakefield, MA 01880 Office of Overseas Schools Room H328, SA-1 Washington, DC 20522-0132 Paul A. Miller 43 Covey Hill Rd. 30 Massachusetts Ave. Reading, MA 01867 North Andover, MA 01845
-12- 13 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B) I hereby certify that, upon examination of these Articles of Organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations have been complied with, and I hereby approve said articles; and the filing fee in the amount of $ having been paid, said articles are deemed to have been filed with me this day of , 20 . Effective date:____________________ WILLIAM FRANCIS GALVIN Secretary of the Commonwealth FILING FEE: One-tenth of one percent of the total authorized capital stock, but not less than $200.00. For the purpose of filing, shares of stock with a par value less than $1.00, or no par stock, shall be deemed to have a par value of $1.00 per share. TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: Kevin J. Handly, Esq. c/o Goulston & Storrs, P.C., 400 Atlantic Avenue Boston, Massachusetts 02110 Telephone: 617-482-1776 EX-3.2 4 b39832lsex3-2.txt BY-LAWS OF THE COMPANY 1 EXHIBIT 3.2 BY-LAWS OF LSB CORPORATION 2 TABLE OF CONTENTS ARTICLE I Organization.....................................................1 ARTICLE II Stockholders....................................................1 SECTION 1. Annual Meeting..............................................1 SECTION 2. Matters to be Considered at the Annual Meeting..............1 SECTION 3. Special Meeting.............................................3 SECTION 4. Notice of Meetings; Adjournments............................3 SECTION 5. Quorum......................................................4 SECTION 6. Voting and Proxies..........................................4 SECTION 7. Action at Meeting...........................................5 SECTION 8. Control Share Acquisition...................................5 ARTICLE III Directors......................................................5 SECTION 1. Powers......................................................5 SECTION 2. Composition and Term........................................5 SECTION 3. Director Nominations........................................5 SECTION 4. Qualification...............................................8 SECTION 5. Resignation.................................................8 SECTION 6. Removal.....................................................8 SECTION 7. Vacancies...................................................8 SECTION 8. Compensation................................................8 SECTION 9. Regular Meetings............................................8 SECTION 10. Special Meetings...........................................8 SECTION 11. Notice of Meetings.........................................8 SECTION 12. Quorum.....................................................9 SECTION 13. Action at a Meeting........................................9 SECTION 14. Action by Consent..........................................9 SECTION 15. Presumption of Assent......................................9 SECTION 16. Committees.................................................9 SECTION 17. Manner of Participation...................................10 ARTICLE IV Officers.......................................................10 SECTION 1. Enumeration................................................10 SECTION 2. Election...................................................10 SECTION 3. Qualification..............................................10 SECTION 4. Tenure.....................................................11 SECTION 5. Removal....................................................11 SECTION 6. Absence or Disability......................................11 SECTION 7. Vacancies..................................................11 SECTION 8. Chief Executive Officer....................................11 i 3 SECTION 9. President..................................................11 SECTION 10. Chairman of the Board.....................................11 SECTION 11. Vice Presidents, Treasurer and Other Officers.............12 SECTION 12. Clerk and Assistant Clerks................................12 SECTION 13. Secretary and Assistant Secretary.........................12 ARTICLE V Capital Stock...................................................12 SECTION 1. Certificates of Stock......................................12 SECTION 2. Transfers..................................................12 SECTION 3. Record Holders.............................................12 SECTION 4. Record Date................................................13 SECTION 5. Replacement of Certificates................................13 SECTION 6. Issuance of Capital Stock..................................13 SECTION 7. Dividends..................................................13 ARTICLE VI Indemnification................................................13 SECTION 1. Definitions................................................13 SECTION 2. Officers...................................................14 SECTION 3. Non-Officer Employees......................................14 SECTION 4. Service at the Request or Direction of the Company.........14 SECTION 5. Good Faith.................................................14 SECTION 6. Prior to Final Disposition.................................15 SECTION 7. Insurance..................................................15 SECTION 8. Other Indemnification Rights...............................15 ARTICLE VII Miscellaneous Provisions......................................15 SECTION 1. Amendment of By-laws.......................................15 SECTION 2. Fiscal Year................................................15 SECTION 3. Seal.......................................................15 SECTION 4. Execution of Instruments...................................15 SECTION 5. Voting of Securities.......................................16 SECTION 6. Inapplicability of Control Share Provisions................16 SECTION 7. Articles...................................................16 ii 4 BY-LAWS OF LSB CORPORATION ARTICLE I ORGANIZATION The name of this corporation is "LSB Corporation" (the "Company"). The main office of the Company is located in North Andover, Massachusetts, or such other location as the Board of Directors may designate, subject to applicable law. The Company shall engage directly or indirectly only in such activities as shall be proper activities for bank holding companies registered under the Bank Holding Company Act of 1956, as amended, and shall have and may exercise all the powers, privileges and authority, whether express or implied, now or hereafter conferred by applicable law. ARTICLE II STOCKHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders (the "Annual Meeting") for the election of Directors and such other business as may properly come before the Annual Meeting shall be held on the first Tuesday in May at 10:00 a.m. at the main office of the Company in Massachusetts, unless a different hour, date or place within Massachusetts (or if permitted by law, elsewhere in the United States) is fixed by the Board of Directors (the "Board"), the Chief Executive Officer, the President or, in the President's absence, the Chairman of the Board, if one is elected. If no Annual Meeting has been held on the date fixed as above provided, a special meeting in lieu thereof may be held and such special meeting shall be treated for all purposes as an Annual Meeting. SECTION 2. MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING. The purposes for which the Annual Meeting is to be held, in addition to those prescribed by law, by the Articles of Organization (the "Articles") or by these By-laws (the "By-laws"), may be specified by the Board of Directors, the Chief Executive Officer, the President or, in the absence of the President, the Chairman of the Board if one is elected. At any Annual Meeting or any special meeting in lieu of Annual Meeting, only such new business shall be conducted, and only such additional proposals shall be acted upon, as shall have been properly brought before such Annual Meeting. To be considered as properly brought before an Annual Meeting, business must be: (a) specified in the notice of meeting; (b) otherwise properly brought before the meeting by, or at the direction of, the Board of Directors (unless at the time of such action there is an Interested Stockholder, in which case the affirmative vote of a majority of -1- 5 the Continuing Directors then in office shall also be required); or (c) otherwise properly brought before the Annual Meeting by or on behalf of any stockholder of record who (i) shall have been a stockholder of record at the time of the giving of notice as provided in this Section 2; (ii) shall continue to be a stockholder of record on the record date for such Annual Meeting and on the Annual Meeting date; and (iii) shall be entitled to vote at such Annual Meeting. In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder of record of any shares of capital stock entitled to vote at such Annual Meeting, such stockholder shall: (i) give timely notice as required by this Section 2 to the Clerk of the Company; and (ii) be present at such meeting, either in person or by a representative. For the first Annual Meeting following the effective date of these By-Laws, to be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the anniversary of the last succeeding Annual Meeting of Lawrence Savings Bank (the "Prior Anniversary Date"); provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than thirty (30) days before the Prior Anniversary Date or more than sixty (60) days after the Prior Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Company at its principal executive office not later than the close of business on the later of (a) the 75th day prior to the scheduled date of such Annual Meeting, or (b) the 15th day following the day on which public disclosure of the date of such Annual Meeting is first made by the Company. For all subsequent Annual Meetings, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Company at its principal executive office not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding Annual Meeting (the "Anniversary Date"); provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than thirty (30) days before the Anniversary Date or more than sixty (60) days after the Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Company at its principal executive office not later than the close of business on the later of (a) the 75th day prior to the scheduled date of such Annual Meeting, or (b) the 15th day following the day on which public disclosure of the date of such Annual Meeting is first made by the Company. For purposes of these By-laws, "public disclosure" shall mean: (i) disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service; (ii) a report or other document filed publicly with the Securities and Exchange Commission (including, without limitation, a Form 8-K); or (iii) a letter or report sent to stockholders of record of the Company at the time of the mailing of such letter or report. A stockholder's notice to the Clerk shall set forth as to each matter proposed to be brought before an Annual Meeting: (i) a brief description of the business the stockholder desires to bring before such Annual Meeting and the reasons for -2- 6 conducting such business at such Annual Meeting; (ii) the name and address, as they appear on the Company's stock transfer books, of the stockholder proposing such business; (iii) the class and number of shares of the Company's capital stock beneficially owned by the stockholder proposing such business; (iv) the names and addresses of the beneficial owners, if any, of any capital stock of the Company registered in such stockholder's name on such books, and the class and number of shares of the Company's capital stock beneficially owned by such beneficial owners; (v) the names and addresses of other stockholders known by the stockholder proposing such business to support such proposal, and the class and number of shares of the Company's capital stock beneficially owned by such other stockholders; and (vi) any material interest of the stockholder proposing to bring such business before such meeting (or any other stockholders known to be supporting such proposal) in such proposal. The Board of Directors may reject any stockholder proposal not timely made in accordance with the terms of this Section 2. If the Board of Directors or a designated committee thereof determines that any stockholder proposal was not made in a timely fashion in accordance with the provisions of this Section 2 or that the information provided in a stockholder's notice does not satisfy the information requirements of this Section 2 in any material respect, such stockholder proposal shall not be presented for action at the Annual Meeting in question. The Clerk of the Company shall notify a stockholder in writing whether his or her proposal has been made in accordance with the time and informational requirements of this Section 2. Notwithstanding the procedure set forth in the above paragraph, if neither the Board of Directors nor such committee makes a determination as to the validity of any stockholder proposal in the manner set forth above, the presiding officer of the Annual Meeting shall determine whether the stockholder proposal was made in accordance with the time and informational requirements of this Section 2. If the presiding officer determines that any stockholder proposal was not made in a timely fashion in accordance with the provisions of this Section 2 or that the information provided in a stockholder's notice does not satisfy the information requirements of this Section 2 in any material respect, such proposal shall not be presented for action at the Annual Meeting in question. If the Board of Directors, a designated committee thereof or the presiding officer determines that a stockholder proposal was made in accordance with the time and informational requirements of this Section 2, the presiding officer shall so declare at the Annual Meeting and ballots shall be provided for use at the Annual Meeting with respect to such proposal. If there is an Interested Stockholder at the time, any determinations to be made by the Board of Directors or a designated committee thereof pursuant to the provisions of this Section 2, shall also require the concurrence of a majority of the Continuing Directors then in office. Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable regulations of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934, as amended, with respect to the matters set forth in this By-law, and nothing in this By-law shall -3- 7 be deemed to affect any rights of stockholders to request inclusion of proposals in the Company's proxy statement pursuant to such regulations. As used in these By-laws, the terms "Interested Stockholder" and "Continuing Director" shall have the same respective meanings assigned to them in the Articles. Any determination of beneficial ownership of securities under these By-laws shall be made in the manner specified in the Articles. SECTION 3. SPECIAL MEETING. Special meetings of the stockholders for any purpose or purposes may be called at any time only by a majority of the Directors then in office (provided however, that if there is an Interested Stockholder, any such call shall also require the affirmative vote of a majority of the Continuing Directors then in office), the President or the Chairman of the Board, if one is elected. Only those matters set forth in the call of the special meeting may be considered or acted upon at such special meeting, unless otherwise provided by law. SECTION 4. NOTICE OF MEETINGS; ADJOURNMENTS. A written notice of the place, time and date of all annual and special meetings of stockholders shall be given by the Clerk or Assistant Clerk (or other person authorized by these By-laws or by law) not less than ten (10) days nor more than sixty (60) days before the date on which the meeting is to be held to each stockholder entitled to vote at such meeting by mailing it addressed to such stockholder at the address of such stockholder as it appears on the stock transfer books of the Company. Such notice shall be deemed to be delivered when deposited in the mail so addressed with postage pre-paid. Notice of an annual or special meeting of stockholders need not be given to a stockholder if a written waiver of notice is executed before or after such meeting by such stockholder or such stockholder's authorized attorney, if communication with such stockholder is unlawful, or if such stockholder attends such meeting, unless such attendance was for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of stockholders need be specified in any written waiver of notice. A written waiver of notice, executed before or after a meeting by a stockholder or by an authorized attorney, shall be deemed equivalent to notice of the meeting. When any annual or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place to which the meeting is adjourned; provided, however, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of the original meeting to each stockholder of record entitled to vote thereat. The Chief Executive Officer, or in the Chief Executive Officer's absence, the President or the Chairman of the Board if one is elected, shall preside at all -4- 8 stockholder meetings and shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Section 5 of this Article II. The order of business and all other matters of procedure including, without limitation, the rules for conducting the meeting at any meeting of the stockholders shall be determined by the presiding officer. SECTION 5. QUORUM. The holders of a majority in interest of all stock issued, outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders; but if less than a quorum is present at a meeting, a majority in interest of the stockholders present or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article II. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 6. VOTING AND PROXIES. Stockholders shall have one (1) vote for each share of common stock entitled to vote owned by them of record according to the books of the Company and a proportionate vote for a fractional share, unless otherwise provided by law or by the Articles. Stockholders may vote either in person or by written proxy dated not more than six (6) months before the meeting named therein. Proxies shall be filed with the Clerk of the meeting, or of any adjournment thereof, before being voted. Except as otherwise limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two (2) or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Company receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. SECTION 7. ACTION AT MEETING. When a quorum is present, any matter before any annual or special meeting of stockholders shall be decided by vote of the holders of a majority of the shares of stock voting on such matter, except where a larger vote is required by law, by the Articles or by these By-laws. Any election by stockholders shall be determined by a plurality of the votes cast, except where a larger vote is required by law, by the Articles or by these By-laws. SECTION 8. CONTROL SHARE ACQUISITION. The provisions of Chapter 110D of the General Laws of the Commonwealth of Massachusetts, as amended, shall not apply to any "control share acquisition" of the Company as that term is defined in Chapter 110D of the General Laws of the Commonwealth of Massachusetts, as amended. -5- 9 ARTICLE III DIRECTORS SECTION 1. POWERS. The business and affairs of the Company shall be managed by a Board of Directors. SECTION 2. COMPOSITION AND TERM. The Board of Directors shall be composed of: those persons who are elected as Directors from time to time as provided herein. The Board of Directors shall consist of not fewer than seven (7) and not more than twenty-five (25) individuals and shall be divided into three (3) classes, such classes to be as nearly equal in number as possible. One of such classes of Directors shall be elected annually by the stockholders. Subject to the foregoing requirements and applicable law, the Board of Directors may from time to time fix the number of Directors and their respective classifications; provided, however, that if at the time of such action there is an Interested Stockholder such action shall in addition require a majority vote of the Continuing Directors then in office. Up to two (2) additional Directors may be elected by vote of a majority of the Directors then in office. Except as otherwise provided in accordance with these By-laws, the members of each class shall be elected for a term of three (3) years and until their successors are elected and qualified. SECTION 3. DIRECTOR NOMINATIONS. Nominations of candidates for election as Directors of the Company at any Annual Meeting may be made only (a) by, or at the direction of, a majority of the Board of Directors (unless at the time of such action there is an Interested Stockholder, in which case the affirmative vote of a majority of the Continuing Directors then in office shall also be required), or (b) by or on behalf of any stockholder of record who (i) shall have been a stockholder of record at the time of the giving of notice as provided in this Section 3, (ii) shall continue to be a stockholder of record on the record date for such Annual Meeting and on the Annual Meeting date, and (iii) shall be entitled to vote at such Annual Meeting. Any stockholder who has complied with the timing, informational and other requirements set forth in this Section 3 and who seeks to make such a nomination, or his, her or its representative, must be present in person at the Annual Meeting. Only persons nominated in accordance with the procedures set forth in this Section 3 shall be eligible for election as Directors at an Annual Meeting. Nominations, other than those made by, or at the direction of, the Board of Directors (or by the Continuing Directors, if required), shall be made pursuant to timely notice in writing to the Clerk of the Company as set forth in this Section 3. For the first Annual Meeting following the effective date of these By-Laws, to be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the Prior Anniversary Date; provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than thirty (30) days before the Prior Anniversary Date or more than sixty (60) days after the Prior Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed -6- 10 and received by, the Company at its principal executive office not later than the close of business on the later of (a) the 75th day prior to the scheduled date of such Annual Meeting, or (b) the 15th day following the day on which public disclosure of the date of such Annual Meeting is first made by the Company. For all subsequent Annual Meetings, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Company at its principal executive office not less than sixty (60) days nor more than ninety (90) days prior to the Anniversary Date; provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than thirty (30) days before the Anniversary Date or more than sixty (60) days after the Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed and received by, the Company at its principal executive office not later than the close of business on the later of (a) the 75th day prior to the scheduled date of such Annual Meeting, or (b) the 15th day following the day on which public disclosure of the date of such Annual Meeting is first made by the Company. A stockholder's notice to the Clerk shall set forth as to each person whom the stockholder proposes to nominate for election or re-election as a Director: (i) the name, age, business address and residence address of such person; (ii) the principal occupation or employment of such person; (iii) the class and number of shares of the Company's capital stock which are beneficially owned by such person on the date of such stockholder notice; (iv) the consent of each nominee to serve as a Director if elected; and (v) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and Regulation 14A and Schedule 14A promulgated thereunder by the Securities and Exchange Commission. A stockholder's notice to the Clerk shall further set forth as to the stockholder giving such notice: (i) the name and address, as they appear on the Company's stock transfer books, of such stockholder and of the beneficial owners (if any) of the Company's capital stock registered in such stockholder's name and the name and address of other stockholders known by such stockholder to be supporting such nominee(s); (ii) the class and number of shares of the Company's capital stock which are held of record, beneficially owned or represented by proxy by such stockholder and by any other stockholders known by such stockholder to be supporting such nominee(s) on the record date for the Annual Meeting in question (if such date shall then have been made publicly available) and on the date of such stockholder's notice; and (iii) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder. The Board of Directors may reject any nomination by a stockholder not timely made in accordance with the requirements of this Section 3. If the Board of Directors or a designated committee thereof determines that the information provided in a stockholder's notice does not satisfy the time and informational requirements of this Section 3 in any material respect, then the Board of Directors may reject such stockholder's nomination. The Clerk of the Company shall notify a -7- 11 stockholder in writing whether his or her nomination has been made in accordance with the time and informational requirements of this Section 3. Notwithstanding the procedures set forth in the above paragraph, if neither the Board of Directors nor such committee makes a determination as to whether a stockholder nomination was made in accordance with the provisions of this Section 3, the presiding officer of the Annual Meeting shall determine whether a nomination was made in accordance with the time and informational requirements of this Section 3. If the presiding officer determines that any stockholder nomination was not made in a timely fashion in accordance with the provisions of this Section 3 or that the information provided in a stockholder's notice does not satisfy the informational requirements of this Section 3 in any material respect, such stockholder's nomination shall not be considered at the Annual Meeting in question. If the Board of Directors, a designated committee thereof or the presiding officer determines that a stockholder nomination was made in accordance with the requirements of this Section 3, the presiding officer shall so declare at the Annual Meeting and ballots shall be provided for use at the meeting with respect to such nominee. If there is an Interested Stockholder at the time, any determinations to be made by the Board of Directors or a designated committee thereof pursuant to the provisions of this Section 3, shall also require the concurrence of a majority of the Continuing Directors then in office. Notwithstanding anything to the contrary in the second sentence of the second paragraph of this Section 3 or the third paragraph of this Section 3, in the event that the number of Directors to be elected to the Board of Directors of the Company is increased and there is no public disclosure by the Company naming all of the nominees for Director or specifying the size of the increased Board of Directors at least seventy-five (75) days prior to the Anniversary Date, a stockholder's notice required by this Section 3 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if (i) with respect only to the first Annual Meeting following the effective date of these By-Laws, such notice shall be delivered to, or mailed and received by the Company at its principal executive office not later than the close of business on the tenth day following the day on which such public announcement is first made by the Company; and (ii) for all subsequent Annual Meetings, such notice shall be delivered to, or mailed to and received by, the Company at its principal executive office not later than the close of business on the 15th day following the day on which such public announcement is first made by the Company. No person shall be elected by the stockholders as a Director of the Company unless nominated in accordance with the procedures set forth in this Section 3. Election of Directors at an Annual Meeting need not be by written ballot, unless otherwise provided by the Board of Directors or presiding officer at such Annual Meeting. If written ballots are to be used, ballots bearing the names of all the persons who have been nominated for election as Directors at the Annual Meeting in accordance with the procedures set forth in this Section shall be provided for use at the Annual Meeting. -8- 12 SECTION 4. QUALIFICATION. Each Director shall have such qualifications as are required by applicable law. Unless waived by a vote of the Board of Directors, no individual may serve as a Director if he had reached the age of seventy (70) years at the time of election; provided however, that such age limitation shall be seventy-two (72) for persons who were serving as a Directors of Lawrence Savings Bank on December 31, 1990. SECTION 5. RESIGNATION. Any Director may resign at any time by written notice to the Chief Executive Officer. A resignation shall be effective upon receipt, unless the resignation otherwise provides. SECTION 6. REMOVAL. Any Director may be removed from office as provided in the Articles. SECTION 7. VACANCIES. Any and all vacancies occurring on the Board of Directors, however occurring, or the death, resignation, disqualification or removal of a Director, shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even if less than a quorum of the Board of Directors, unless there is an Interested Stockholder in which case such vacancy shall be filled solely by the affirmative vote of a majority of the Continuing Directors then in office. Any Director elected in accordance with the preceding sentence shall be elected to serve for a term of office continuing until the next election of Directors by the stockholders. When the number of Directors is increased or decreased, the Board of Directors shall determine the class or classes to which the increased or decreased number of Directors shall be apportioned; provided, however, that no decrease in the number of Directors shall shorten the term of any incumbent Director. SECTION 8. COMPENSATION. The members of the Board of Directors and the members of standing or special committees shall receive such compensation as the Board of Directors may determine. SECTION 9. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without other notice than this By-law on the same date and at the same place as the Annual Meeting following such meeting of stockholders. The Board of Directors may provide the hour, date and place for the holding of regular meetings by resolution without other notice than such resolution. The Board of Directors shall meet in each calendar quarter at a place or places fixed from time to time by the Board of Directors, the Chairman of the Board, if one is elected, or the President. SECTION 10. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of a majority of the Directors, the Chairman of the Board, if one is elected, or the President. The person or persons authorized to call special meetings of the Board of Directors may fix the hour, date and place for holding a special meeting. -9- 13 SECTION 11. NOTICE OF MEETINGS. Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each Director by the Clerk or Assistant Clerk, or in the case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice of any special meeting of the Board of Directors shall be given to each Director in person, or by telephone, or sent to his or her business or home address as shown in the Company's records by telegram, telecopier, facsimile or similar method at least twenty-four (24) hours in advance of the meeting or by written notice mailed to his or her business or home address at least forty-eight (48) hours in advance of such meeting. Such notice shall be deemed to be delivered when hand delivered to such address, read to such Director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, delivered to the telegraph company if sent by telegram, or confirmed as the date and time of receipt if sent by telecopier, facsimile or similar method. When any Board of Directors meeting, either regular or special, is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the hour, date or place of any meeting adjourned for less than thirty (30) days or of the business to be transacted thereat, other than an announcement at the meeting at which such adjournment is taken of the hour, date and place to which the meeting is adjourned. A written waiver of notice executed before or after a meeting by a Director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because such meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 12. QUORUM. A majority of the number of Directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than a quorum is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 11 of this Article III. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. SECTION 13. ACTION AT A MEETING. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless otherwise prescribed by law, by the Articles or by these By-laws. SECTION 14. ACTION BY CONSENT. Any action required or permitted to be taken by the Board of Directors at any meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors. Such written consents shall be filed with the records of the meetings of the Board of Directors and shall be treated for all purposes as a vote at a meeting of the Board of Directors. -10- 14 SECTION 15. PRESUMPTION OF ASSENT. A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless he shall file a written dissent to such action with the person acting as the Clerk of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Clerk of the Company within five (5) days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a Director who voted in favor of such action. SECTION 16. COMMITTEES. The Board of Directors shall elect from its number not fewer than three (3) members to serve as an Executive Committee and may elect other committees from its number. It may delegate to the Executive Committee or such other committees some or all of its powers except those which by law, by the Articles or by these By-laws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time, subject to applicable law. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors. The Board of Directors shall have power to rescind any action of any committee, but no such rescission shall have retroactive effect. With the approval of the Board of Directors, the Chief Executive Officer may appoint such other committees consisting of such Directors as the Chief Executive Officer shall select. Any recommendations of such committees appointed by the Chief Executive Officer shall be submitted to the Board of Directors. SECTION 17. MANNER OF PARTICIPATION. Members of the Board of Directors or of committees elected by the Board pursuant to Section 16 of this Article III may participate in meetings of the Board and of such committees by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person but shall not constitute attendance for the purpose of compensation pursuant to Section 8 of this Article III, unless the Board of Directors by resolution so provides. ARTICLE IV OFFICERS SECTION 1. ENUMERATION. The officers of the Company shall consist of a President, a Treasurer, a Clerk and such other officers, including, without limitation, a Chairman of the Board, a Vice Chairman of the Board, a Secretary and one or more Vice Presidents, Assistant Vice Presidents, Assistant Treasurers and -11- 15 Assistant Clerks as the Board of Directors may determine to be necessary for the management of the Company. SECTION 2. ELECTION. The President shall be elected annually by the Board of Directors at its first meeting following the Annual Meeting; and the Clerk shall be elected by the stockholders at their Annual Meeting or at a special meeting of stockholders duly called for such purpose, so long as the election of the Clerk is required by law to be by the stockholders, otherwise the Clerk shall be elected annually by the Board of Directors. Other officers shall be elected by the Board of Directors and serve at its pleasure. SECTION 3. QUALIFICATION. Any two (2) or more offices may be held by any person. The President shall be a Director. The Clerk shall be a resident of the Commonwealth of Massachusetts unless the Company shall have appointed a resident agent pursuant to applicable law. Any officer may be required by the Board of Directors to give bond for the faithful performance of his or her duties in such amount and with such sureties as the Board of Directors may determine. SECTION 4. TENURE. Except as otherwise provided by law, by the Articles, or by these By-laws, the President shall hold office until the first meeting of the Board of Directors following the next Annual Meeting of the stockholders and until his or her respective successors are chosen and qualified; the Clerk shall hold office until the next Annual Meeting of stockholders and until his or her successor is chosen and qualified; and all other officers shall hold office until their respective successors are elected by the Board of Directors. The Chief Executive Officer may resign at any time by written notice to the Board of Directors or the Clerk. Any other officer may resign at any time by written notice to the Chief Executive Officer. Such resignation shall be effective upon receipt unless the resignation otherwise provides. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The Board of Directors may, however, authorize the Company to enter into an employment contract with any officer in accordance with law, but no such contract right shall impair the right of the Board of Directors to remove any officer at any time in accordance with Section 5 of this Article IV. SECTION 5. REMOVAL. Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the entire number of Directors then in office; provided, however, that, if at the time of such removal there is an Interested Stockholder, the affirmative vote of a majority of the Continuing Directors then in office shall instead be required. Any such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the persons involved. Any officer may be removed for cause only after reasonable notice and opportunity to be heard by the Board of Directors. SECTION 6. ABSENCE OR DISABILITY. In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer. -12- 16 SECTION 7. VACANCIES. Any vacancy in any office may be filled for any unexpired portion of the term of such office by the Board of Directors. SECTION 8. CHIEF EXECUTIVE OFFICER. The President shall be the Chief Executive Officer, unless the Board of Directors shall designate another officer enumerated in Section 1 of this Article IV to be the Chief Executive Officer. The Chief Executive Officer shall, subject to the direction of the Board of Directors, have general supervision and control of the Company's business, and shall preside at all meetings of the stockholders and Board of Directors. SECTION 9. PRESIDENT. If the President is not the Chief Executive Officer, he shall have such power and perform such duties as the Board of Directors and the Chief Executive Officer may from time to time designate. If the Chief Executive Officer is absent, the President shall preside at all meetings of the Stockholders and Board of Directors. SECTION 10. CHAIRMAN OF THE BOARD. In the absence of the Chief Executive Officer or the President, the Chairman of the Board shall preside, when present, at all meetings of the Board of Directors and stockholders. The Chairman of the Board shall have such powers and shall perform such duties as the Board of Directors may from time to time designate. If the Chairman of the Board is not the Chief Executive Officer, he shall also have such powers and perform such duties as the Chief Executive Officer may from time to time designate. SECTION 11. VICE PRESIDENTS, TREASURER AND OTHER OFFICERS. Any Vice President, the Treasurer and any other officers whose powers and duties are not otherwise specifically provided for herein shall have such powers and shall perform such duties as the Chief Executive Officer may from time to time designate. SECTION 12. CLERK AND ASSISTANT CLERKS. The Clerk shall keep a record of the meetings of stockholders. If a Secretary is not elected or is absent, the Clerk shall keep a record of the meetings of the Board of Directors. In the absence of the Clerk, an Assistant Clerk, if one is elected, shall perform the Clerk's duties. Otherwise a Temporary Clerk designated by the person presiding at the meeting shall perform the Clerk's duties. SECTION 13. SECRETARY AND ASSISTANT SECRETARY. The Secretary, if one is selected, shall keep a record of the meetings of the Board of Directors. In the absence of the Secretary, any Assistant Secretary, the Clerk and any Assistant Clerk, a Temporary Secretary designated by the person presiding at such meeting shall perform the Secretary's duties. ARTICLE V CAPITAL STOCK SECTION 1. CERTIFICATES OF STOCK. Unless otherwise provided by the Board of Directors, each stockholder shall be entitled to a certificate representing the -13- 17 capital stock of the Company in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer. Such signatures may be facsimile if the certificate is signed by a transfer agent or by a registrar, other than a Director, officer or employee of the Company. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Company is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. SECTION 2. TRANSFERS. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock may be transferred on the books of the Company by the surrender to the Company or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Company or its transfer agent, if one is appointed, may reasonably require. SECTION 3. RECORD HOLDERS. Except as otherwise required by law, by the Articles or by these By-laws, the Company shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Company in accordance with the requirements of these By-laws. It shall be the duty of each stockholder to notify the Company of his or her address and any changes thereto. SECTION 4. RECORD DATE. The Board of Directors may fix in advance a time of not more than sixty (60) days before the date of any meeting of the stockholders, the date for the payment of any dividend or the making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting, and any adjournment thereof, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case, only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the Company after the record date. Without fixing such record date, the Board of Directors may for any of such purposes close the transfer books for all or any part of such period. If no record date is fixed and the transfer books are not closed, (a) the record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be the close of business on the day next preceding the day on which notice is given, and (b) the record date for determining stockholders for -14- 18 any other purpose shall be the close of business on the date on which the Board of Directors acts with respect thereto. SECTION 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe. SECTION 6. ISSUANCE OF CAPITAL STOCK. Except as provided by law, the Board of Directors shall have the authority to issue or reserve for issue from time to time the whole or any part of the capital stock of the Company which may be authorized from time to time, to such persons or organizations, for such consideration, whether cash, property, services or expenses and on such terms as the Board of Directors may determine, including, without limitation, the granting of options, warrants or conversion or other rights to subscribe to said capital stock. SECTION 7. DIVIDENDS. Subject to applicable law, the Articles and these By-laws, the Board of Directors may from time to time declare, and the Company may pay, dividends on outstanding shares of its capital stock. ARTICLE VI INDEMNIFICATION SECTION 1. DEFINITIONS. For purposes of this Article: (a) "Officer" means any person who serves or has served as a Director of the Company or in any other office filled by election or appointment by the stockholders or the Board of Directors and any heirs or personal representatives of such person; (b) "Non-Officer Employee" means any person who serves or has served as an employee of the Company, but who is not or was not an Officer, and any heirs or personal representatives of such person; (c) "Proceeding" means any action, suit or proceeding, civil or criminal, brought or threatened in or before any court, tribunal administrative or legislative body or agency and any claim which could be the subject of a Proceeding; and (d) "Expenses" means any liability fixed by a judgment, order, decree or award in a Proceeding, any amount reasonably paid in settlement of a Proceeding and any professional fees or other disbursements reasonably incurred in a Proceeding. SECTION 2. OFFICERS. Except as provided in Sections 4 and 5 of this Article VI, each Officer of the Company shall be indemnified by the Company against all Expenses incurred by such Officer in connection with any Proceedings in which such Officer is involved as a result of serving or having served (a) as an Officer or employee of the Company; (b) as a director, officer or employee of any wholly owned subsidiary of the Company; or (c) in any capacity with any other corporation, organization, partnership, joint venture, trust or other entity at the request or direction of the Company. SECTION 3. NON-OFFICER EMPLOYEES. Except as provided in Sections 4 and 5 of this Article VI, each Non-Officer Employee of the Company may, in the discretion of the Board of Directors, be indemnified against any or all Expenses incurred -15- 19 by such Non-Officer Employee in connection with any Proceeding in which such Non-Officer Employee is involved as a result of serving or having served (a) as a Non-Officer Employee of the Company; (b) as a director, officer or employee of any wholly owned subsidiary of the Company; or (c) in any capacity with any other corporation, organization, partnership, joint venture, trust or other entity at the request or direction of the Company. SECTION 4. SERVICE AT THE REQUEST OR DIRECTION OF THE COMPANY. No indemnification shall be provided to an Officer or Non-Officer Employee with respect to serving or having served in any of the capacities described in Section 2(c) or 3(c) above unless the following two conditions are met: (a) such service was requested or directed in each specific case by vote of the Board of Directors prior to the occurrence of the event to which the indemnification relates, and (b) the Company maintains insurance coverage for the type of indemnification sought. In no event shall the Company be liable for indemnification under Section 2(c) or 3(c) above for any amount in excess of the proceeds of insurance received with respect to such coverage as the Company in its discretion may elect to carry. The Company may but shall not be required to maintain insurance coverage with respect to indemnification under Section 2(c) or 3(c) above. Notwithstanding any other provision of this Section 4, but subject to Section 5 of this Article VI, the Board of Directors may provide an Officer or Non-Officer Employee with indemnification under Section 2(c) or 3(c) above as to a specific Proceeding even if one or both of the two conditions specified in this Section 4 have not been met and even if the amount of the indemnification exceeds the amount of the proceeds of any insurance which the Company may have elected to carry, provided that the Board of Directors in its discretion determines it to be in the best interests of the Company to do so. SECTION 5. GOOD FAITH. No indemnification shall be provided to an Officer or to a Non-Officer Employee with respect to a matter as to which such person shall have been adjudicated in any Proceeding not to have acted in good faith in the reasonable belief that the action of such person was in the best interests of the Company. In the event that a Proceeding is compromised or settled so as to impose any liability or obligation upon an Officer or Non-Officer Employee, no indemnification shall be provided to said Officer or Non-Officer Employee with respect to a matter if there be a determination that with respect to such matter such person did not act in good faith in the reasonable belief that the action of such person was in the best interests of the Company. The determination shall be made by a majority vote of those Directors who are not involved in such Proceeding. However, if more than half of the Directors are involved in such Proceeding, the determination shall be made by a majority vote of a committee of three disinterested Directors chosen by the disinterested Directors at a regular or special meeting. If there are fewer than three (3) disinterested Directors, the determination shall be based upon the opinion of the Company's regular outside counsel. SECTION 6. PRIOR TO FINAL DISPOSITION. Unless otherwise provided by the Board of Directors or by the committee pursuant to the procedure specified in Section 5 of this Article VI, any indemnification provided for under this Article VI shall include payment by the Company of Expenses incurred in defending a -16- 20 Proceeding in advance of the final disposition of such Proceeding upon receipt of an undertaking by the Officer or Non-Officer Employee seeking indemnification to repay such payment if such Officer or Non-Officer Employee shall be adjudicated or determined to be not entitled to indemnification under this Article VI. SECTION 7. INSURANCE. The Company may purchase and maintain insurance to protect itself and any Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Company or any such Officer or Non-Officer Employee, or arising out of any such status, whether or not the Company would have the power to indemnify such person against such liability by law or under the provisions of this Article VI. SECTION 8. OTHER INDEMNIFICATION RIGHTS. Nothing in this Article VI shall limit any lawful rights to indemnification existing independently of this Article VI. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 1. AMENDMENT OF BY-LAWS. These By-laws may be adopted, altered, amended, changed or repealed as provided in the Articles. SECTION 2. FISCAL YEAR. Except as otherwise determined by the Board of Directors, the fiscal year of the Company shall be the twelve (12) months ending October 31, or on such other date as may be required by law. SECTION 3. SEAL. The Board of Directors shall have power to adopt and alter the seal of the Company. SECTION 4. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Company in the ordinary course of its business without Board of Directors action may be executed on behalf of the Company by the Chief Executive Officer, the President, the Chairman of the Board, if one is elected, the Treasurer or any other officer, employee or agent of the Company as the Board of Directors or the Executive Committee may authorize. SECTION 5. VOTING OF SECURITIES. Unless otherwise provided by the Board of Directors, the Chief Executive Officer, the President, the Chairman of the Board, if one is elected, or the Treasurer may waive notice of and act on behalf of the Company, or appoint another person or persons to act as proxy or attorney in fact for the Company with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other organization, any of whose securities are held by the Company. SECTION 6. INAPPLICABILITY OF CONTROL SHARE PROVISIONS. The provisions of Chapter 110D of the Massachusetts Business Corporation Law, as the same may be amended from time to time, shall not apply to control share acquisitions (as such term is defined in such chapter) of the Company. -17- 21 SECTION 7. ARTICLES. All references in these By-laws to the Articles shall be deemed to refer to the Articles of the Company, as amended and in effect from time to time. -------------------------------- We hereby certify under penalties of perjury that the foregoing constitutes a true and correct copy of the By-laws of LSB Corporation as in effect on this _____ day of March, 2001. ------------------------------- Paul A. Miller, President and Chief Executive Officer ------------------------------- Robert P. Perreault, Executive Vice President and Clerk -18- EX-4.1 5 b39832lsex4-1.txt SPECIMEN CERTIFICATE FOR SHARES OF COMMON STOCK 1 070175 EXHIBIT 4.1 NUMBER LSB SHARES -------- ----------- -------- LSB Corporation INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS THIS CERTIFICATE IS TRANSFERABLE IN CANTON, MA., JERSEY CITY, N.J., AND NEW YORK CITY, N.Y. COMMON STOCK COMMON STOCK PAR VALUE $0.10 SEE REVERSE FOR CERTAIN RESTRICTIONS AND FOR INFORMATION CONCERNING CERTAIN PREFERENCES WHICH MAY EXIST WITH RESPECT TO THE COMMON STOCK =============================================================== THIS CERTIFIES THAT CUSIP 50215P 10 0 is the owner of =============================================================== Countersigned and registered; EQUISERVE TRUST COMPANY, N.A. By Transfer Agent and Registrar Authorized Signature FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $0.10 EACH OF LSB Corporation transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate duly endorsed or assigned. This certificate and the shares of common stock represented hereby are issued and shall be held subject to the laws of The Commonwealth of Massachusetts and to the Articles of Organization and By-Laws of the Corporation as in effect and as amended from time to time hereafter. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: LSB CORPORATION INCORPORATED /s/ John E. Sharland 2001 Paul A. Miller MASSACHUSETTS TREASURER PRESIDENT American Bank Note Company 2 LSB CORPORATION This certificate and the shares represented hereby are issued and shall be subject to the provisions of the Articles of Organization and the By-Laws of the Corporation as amended from time to time, to all of which the holder by acceptance hereof assents. The Articles of Organization authorize the issuance of shares of preferred stock in one or more series with such voting, dividend, dissolution and other rights and preferences as specified by the Board of Directors of the Corporation at the time of issuance of the shares. A statement of the preferences, powers, qualifications and rights of the series and classes of such stock will be furnished to the holder of this certificate upon written request and without charge. The Corporation will furnish to any stockholder, upon request and without charge, a copy of the Articles of Organization. Such request may be made to the Secretary of the Corporation. Additionally, the Corporation will furnish to any stockholder, upon request to the Secretary of the Corporation and without charge, a full or summary statement of (a) the designations, terms, limitations and relative rights and preferences of the shares of each class of stock authorized to be issued by the Corporation; (b) the authority of the Board of Directors to issue any class of stock in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined by the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series; and (c) the number of shares constituting each class or series and the designations thereof. This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Lawrence Savings Bank (the "Company") and State Street Bank and Trust Company (the "Rights Agent"), dated as of December 19, 1996, as the same may be amended, restated, renewed or extended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights beneficially owned (as such term is defined in the Rights Agreement) by any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. The Rights shall not be exercisable, and shall be void so long as held, by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been obtained or be obtainable. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT -______Custodian_____ TEN ENT - as tenants by entireties (Cust) (Minor) JT TEN - as joint tenants with right under Uniform Gifts to Minors of survivorship and not as Act________________ tenants in common (State) Additional abbreviations may also be used though not in the above list. For value received,______________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________shares of the capitol stock represented by the within Certificate, and do hereby irrevocably constitute and appoint______________________________________________ ________________________________________________________________________Attorney to transfer the said shares on the books of the within-named Corporation with full power of substitution in the premises. Dated_______________ ____________________________________________________ NOTICE:The signature to this assignment must correspond with the name as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever. Signature(s) Guaranteed:________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-4.4 6 b39832lsex4-4.txt RIGHTS AGREEMENT DATED AS OF DECEMBER 19, 1996 1 Exhibit 4.4 RIGHTS AGREEMENT RIGHTS AGREEMENT, dated as of December 19, 1996, between Lawrence Savings Bank, a corporation organized under Section 34C of Chapter 168 of the Massachusetts General Laws (the "Company"), and State Street Bank and Trust Company, a Massachusetts trust company (the "Rights Agent"). WITNESSETH WHEREAS, on December 19, 1996 (the "Rights Dividend Declaration Date"), the Board of Directors of the Company authorized and declared a dividend distribution of one Right (as hereinafter defined) for each share of Common Stock (as hereinafter defined) of the Company outstanding at 5:00 pm, Boston time, on December 29, 1996 (the "Record Date") and authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(i) hereof) for each share of Common Stock of the Company issued between the Record Date (whether originally issued or delivered from the Company's treasury) and the Distribution Date (as hereinafter defined) and under certain circumstances thereafter, each Right initially representing the right to purchase one one-hundredth of a share of Preferred Stock (as hereinafter defined) upon the terms and subject to the conditions hereinafter set forth (collectively, the "Rights"); NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, the parties hereby agree as follows: Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as hereinafter defined) who or which, together with all Affiliates and Associates (as hereinafter defined) of such Person, shall be the Beneficial Owner (as hereinafter defined) of more than 10% of the shares of Common Stock of the Company then outstanding, but shall not include an Exempt Person (as hereinafter defined). (b) "Act" shall mean the Securities Act of 1933, as amended. 2 (c) "Adjustment Shares" shall have the meaning set forth in Section 11(a)(ii) hereof. (d) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Section 335.102 of the Rules and Regulations of the FDIC (as hereinafter defined). (e) "Agreement" means this Rights Agreement as originally executed or as it may from time to time be supplemented, amended, renewed or extended pursuant to the applicable provisions hereof. (f) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, owns or has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; PROVIDED, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," (A) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights are Original Rights (as hereinafter defined) or securities issued pursuant to Section 11(i) hereof in connection with an adjustment made with respect to any Original Rights; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or 2 3 dispose of or has "beneficial ownership" of (as determined pursuant to Section 335.403 of the Rules and Regulations of the FDIC in effect on the date of this Agreement), including pursuant to any agreement, arrangement or understanding, whether or not in writing; PROVIDED, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding (whether or not in writing) to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy or consent given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the Rules and Regulations of the FDIC and (B) is not also then reportable by such Person on Form F-11 under the Rules and Regulations of the FDIC (or any comparable or successor statement); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in clause (A) of the proviso to subparagraph (ii) of this paragraph (f)) or disposing of any voting securities of the Company; PROVIDED, however, that nothing in this paragraph (f) shall cause a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of, or to be deemed to "beneficially own," any securities acquired or which that Person has the right to acquire through such Person's participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. (g) "Board" means the Board of Directors of the Company. 3 4 (h) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized or obligated by law or executive order to close. (i) "Close of Business" on any given date shall mean 5:00 P.M., Boston time, on such date; PROVIDED, however, that if such date is not a Business Day, it shall mean 5:00 P.M., Boston time, on the next succeeding Business Day. (j) "Common Stock" when used in reference to the Company shall mean the Common Stock, par value $.10 per share, of the Company or any other shares of capital stock of the Company into which such stock shall be reclassified or changed. "Common Stock" when used with reference to any Person other than the Company organized in corporate form shall mean (i) the capital stock or other equity securities or interest of such Person with the greatest voting power, (ii) the equity securities or other equity interest having power to control or direct the management of such Person or (iii) if such Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person and which have issued any such outstanding capital stock, equity securities or equity interest. "Common Stock" when used with reference to any Person not organized in corporate form shall mean units of beneficial interest which (x) shall represent the right to participate generally in the profits and losses of such Person (including, without limitation, any flow-through tax benefits resulting from an ownership interest in such Person) and (y) shall be entitled to exercise the greatest voting power of such Person or, in the case of a limited partnership, shall have the power to remove the general partner or partners. (k) "Common Stock Equivalents" shall have the meaning set forth in Section 11(a)(iii) hereof. (l) "Company" shall mean the Person named as the "Company" in the first paragraph of this Agreement until a successor corporation or entity shall have become such, or until a Principal Party (as hereinafter defined) shall assume, and thereafter be liable for, all obligations and duties of the Company hereunder pursuant to the 4 5 applicable provisions of this Agreement, and thereafter, "Company" shall mean such successor or Principal Party, respectively. (m) "Current Market Price" shall have the meaning set forth in Section 11(d) hereof. (n) "Current Value" shall have the meaning set forth in Section 11(a)(iii) hereof. (o) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof. (p) "Equivalent Preferred Stock" shall have the meaning set forth in Section 11(b) hereof. (q) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (r) "Exchange Ratio" shall have the meaning set forth in Section 29(a) hereof. (s) "Exempt Person" shall mean: (i) the Company; (ii) any Subsidiary of the Company; (iii) any employee benefit or employee stock plan of the Company or of any Subsidiary of the Company; (iv) any Person or entity organized, appointed, established or holding Common Stock of the Company by, for or pursuant to the terms of any such plan; (v) any Person who becomes an Acquiring Person solely as a result of a reduction in the number of shares of Common Stock of the Company outstanding due to the repurchase of shares of such Common Stock by the Company, unless and until any such Person referred to in this clause (v) shall purchase or otherwise become the Beneficial Owner of additional shares of Common Stock of the Company constituting one percent or more of the then outstanding shares of Common Stock of the Company; or (vi) any Person who (A) is the Beneficial Owner of less then 15% of the Common Stock of the Company then outstanding and has reported such ownership on Form F-11A under the Rules and Regulations of the FDIC (or any comparable or successor report) or on Form F-11 under the Rules and Regulations of the FDIC (or any comparable or successor report) which Form F-11 does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of such Schedule 5 6 (other than the disposition of Common Stock of the Company), (B) within 10 Business Days of being requested by the Company to advise the Company regarding its intentions, certifies to the Company that such Person acquired such shares of Common Stock of the Company in excess of 10% inadvertently or without knowledge of the terms of the Rights, (C) the Company determines acquired of the outstanding Common Stock of the Company in excess of 10% inadvertently or without knowledge of the terms of the Rights and (D) together with its Affiliates and Associates, thereafter does not acquire any additional shares of Common Stock of the Company while the Beneficial Owner of more than 10% of the shares of Common Stock of the Company then outstanding. (t) "Expiration Date" shall mean the earliest of (i) the Final Expiration Date, (ii) the time at which the Rights are redeemed as provided in Section 23 hereof, (iii) the time at which the Rights expire pursuant to Section 13(d) hereof and (iv) the time at which all Rights are exchanged as provided in Section 29 hereof. (u) "FDIC" shall mean the Federal Deposit Insurance Corporation. (v) "Final Expiration Date" shall mean the Close of Business on December 19, 2006. (w) "Original Rights" shall mean Rights acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 22 hereof. (x) "Outside Directors" shall mean members of the Board who are not officers of the Company or any of its Subsidiaries and who are not Acquiring Persons or representatives, nominees, Affiliates or Associates of Acquiring Persons. (y) "Person" shall mean any individual, firm, corporation, partnership, trust or other entity and includes without limitation an unincorporated group of persons who, by formal or informal agreement, whether or not in writing, have embarked on a common purpose or act. 6 7 (z) "Preferred Stock" shall mean shares of Series A Junior Participating Preferred Stock, par value $.10 per share, of the Company, having the rights, powers and preferences set forth in Exhibit A hereto. (aa) "Principal Party" shall have the meaning set forth in Section 13(b) hereof. (bb) "Purchase Price" shall have the meaning set forth in Section 4(a) hereof. (cc) "Record Date" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (dd) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof. (ee) "Rights" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (ff) "Rights Agent" shall mean the Person named as the "Rights Agent" in the first paragraph of this Agreement until a successor Rights Agent shall have become such pursuant to the applicable provisions hereof, and thereafter, "Rights Agent" shall mean such successor Rights Agent. If at any time there is more than one Person appointed by the Company as Rights Agent pursuant to the applicable provisions of this Agreement, "Rights Agent" shall mean and include each such Person. (gg) "Rights Certificates" shall have the meaning set forth in Section 3(a) hereof. (hh) "Rights Dividend Declaration Date" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (ii) "Section 11(a)(ii) Event" shall have the meaning set forth in Section 11(a)(ii) hereof. (jj) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in Section 11(a)(iii) hereof. 7 8 (kk) "Section 13 Event" shall have the meaning set forth in Section 13(a) hereof. (ll) "Spread" shall have the meaning set forth in Section 11(a)(iii) hereof. (mm) "Stock Acquisition Date" shall mean the first date of public announcement by the Company that an Acquiring Person has become such. (nn) "Subsidiary" shall mean, with reference to any Person, any corporation or other entity of which securities or other ownership interest having ordinary voting power sufficient, in the absence of contingencies, to elect a majority of the board of directors or other persons performing similar functions of such corporation or other entity are at the time directly or indirectly beneficially owned, or otherwise controlled, by such Person and any Affiliate or Associate of such Person. (oo) "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) hereof. (pp) "Trading Day" shall have the meaning set forth in Section 11(d)(ii) hereof. (qq) "Triggering Event" shall mean any Section 11(a)(ii) Event or any Section 13 Event. Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock of the Company) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable and shall give prompt notice of such appointment to the Rights Agent. The Rights Agent shall have no duty to supervise, and shall in no event be liable for, the acts or omissions of any such Co-Rights Agent. In the event that the Company appoints one or more Co-Rights Agents, the respective duties of the Rights Agent and any Co-Rights Agents shall be as the Company shall determine, and any actions which may be taken by the Rights Agent 8 9 pursuant to the terms of this Agreement may be taken by any such Co-Rights Agent. Section 3. ISSUANCE OF RIGHTS CERTIFICATES. (a) Until the earlier of (i) the Close of Business on the tenth Business Day (or such specified or unspecified date as may be determined by the Board before the occurrence of a Distribution Date) after the Stock Acquisition Date (or, if the tenth Business Day after the Stock Acquisition Date occurs before the Record Date, the Close of Business on the Record Date) or (ii) the Close of Business on the tenth Business Day (or such specified or unspecified later date as may be determined by the Board before the occurrence of a Distribution Date) after the date that a tender or exchange offer by any Person (other than an Exempt Person) is first published or sent or given within the meaning of Section 335.502 of the Rules and Regulations of the FDIC, if upon consummation thereof, such Person would be the Beneficial Owner of more than 10% of the Common Stock of the Company then outstanding (the earlier of (i) and (ii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraphs (b) and (c) of this Section 3) by the certificates for the Common Stock of the Company registered in the names of the holders of the Common Stock of the Company either with the Summary of Rights attached or bearing the legend set forth in Section 3(c) hereof (which certificates for Common Stock of the Company shall be deemed also to be certificates for Rights) and not by separate certificates and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock of the Company (including a transfer to the Company). As soon as practicable after the Distribution Date, the Rights Agent will send by first-class, insured, postage prepaid mail, to each record holder of the Common Stock of the Company as of the Close of Business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more rights certificates substantially in the form attached hereto as Exhibit B (the "Rights Certificates") evidencing one Right for each share of Common Stock of the Company so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock of the Company has been made pursuant to Section 11(i) hereof, at the time of 9 10 distribution of the Rights Certificates, the Company shall not be required to issue Rights Certificates evidencing fractional Rights, but may, in lieu thereof, make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. (b) As promptly as practicable following the Record Date, the Company will send a copy of a Summary of Rights, substantially in the form attached hereto as Exhibit C, by first-class, insured, postage prepaid mail, to each record holder of the Common Stock of the Company as of the Close of Business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for the Common Stock of the Company outstanding as of the Record Date, until the earlier of the Distribution Date or the Expiration Date, the Rights will be evidenced by such certificates for the Common Stock of the Company with or without a copy of the Summary of Rights attached, and the registered holders of the Common Stock of the Company shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date, the transfer of any certificates representing shares of Common Stock of the Company in respect of which Rights have been issued shall also constitute the transfer of the Rights associated with such shares of Common Stock of the Company. (c) Rights shall be issued in respect of all shares of Common Stock of the Company which are issued (whether originally issued or from the Company's treasury) after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date, and to the extent provided in Section 22 hereof, in respect of shares of Common Stock of the Company issued after the Distribution Date and prior to the Expiration Date. Certificates representing such shares of Common Stock of the Company shall also be deemed to be certificates for Rights, and shall, as promptly as practicable following the Record Date, bear the following legend: 10 11 This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Lawrence Savings Bank (the "Company") and State Street Bank and Trust Company (the "Rights Agent"), dated as of December 19, 1996, as the same may be amended, restated, renewed or extended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights beneficially owned (as such term is defined in the Rights Agreement) by any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. The Rights shall not be exercisable, and shall be void so long as held, by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been obtained or be obtainable. With respect to such certificates containing the foregoing legend, until the earlier of the Distribution Date or the Expiration Date, the Rights associated with the Common Stock of the Company represented by such certificates shall be evidenced by such certificates alone, and registered holders of Common Stock of the Company shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock of the Company represented by such certificates. 11 12 Section 4. FORM OF RIGHTS CERTIFICATES. (a) The Rights Certificates (and the forms of election to purchase and the form of assignment and the certificates contained therein to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of one one-hundredths of a share of Preferred Stock as shall be set forth therein at the exercise price set forth therein (such exercise price per one one-hundredth of a share, as adjusted from time to time hereunder, the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. (b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding (whether or not in writing) regarding the transferred Rights or (B) a transfer which the Board has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof, and 12 13 any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend: The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of such Agreement. Section 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Rights Certificates shall be executed under seal on behalf of the Company by its Chairman of the Board, its President or any Vice President and by the Treasurer or any Assistant Treasurer, either manually or by facsimile signature. The Rights Certificates shall be manually countersigned by an authorized signatory of the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by an authorized signatory of the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by an authorized signatory of the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise 13 14 or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates. Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the Close of Business on the Distribution Date, and at or prior to the Close of Business on the Expiration Date, any Rights Certificate or Rights Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Rights Certificates, entitling the registered holder to purchase a like number of one one-hundredths of a share of Preferred Stock (or, following the occurrence of a Triggering Event, Common Stock, other securities, cash or other assets of the Company, as the case may be) as the Rights Certificate or Rights Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Rights Certificates shall make such request in writing delivered to the Rights Agent and shall surrender the Rights Certificate or Rights Certificates to be transferred, split up, combined or exchanged with the forms of assignment and certificate contained therein appropriately executed at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer or exchange of any such surrendered Rights Certificate or Rights Certificates until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate or Rights Certificates and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person entitled thereto a Rights Certifi- 14 15 cate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a valid Rights Certificate and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to the Company, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS. (a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including without limitation the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii), Section 23(a) and Section 29 hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate contained therein duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-hundredths of a share of Preferred Stock (or, following the occurrence of a Triggering Event, Common Stock, other securities, cash or other assets of the Company, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earliest of (i) the Final Expiration Date, (ii) the time at which all outstanding Rights are redeemed as provided in Section 23 hereof, (iii) the time at which the Rights expire pursuant to Section 13(d) hereof and (iv) the time at which such Rights are exchanged as provided in Section 29 hereof. 15 16 (b) The Purchase Price for each one one-hundredth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be $40 and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below. (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate contained therein duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price, as such amount may be reduced pursuant to Section 11(a)(iii) hereof, per one one-hundredth of a share of Preferred Stock (or following a Triggering Event, for Common Stock, other securities, cash or other assets of the Company, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Sections 7(f) and 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-hundredths of a share of Preferred Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) 16 17 shall be made in cash or by certified check, cashier's check or bank draft payable to the order of the Company. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash or distribute other property pursuant to Section 11(a)(iii) hereof, the Company will make all arrangements necessary so that such other securities, cash or other property are available for distribution by the Rights Agent, if and when appropriate. The Company reserves the right to require prior to the occurrence of a Triggering Event that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock would be issued. (d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person which the Board in its sole discretion determines is or was involved in or caused or facilitated, directly or indirectly (including through any change in the Board), such Section 11(a)(ii) Event, (ii) a transferee of any such Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such or (iii) a transferee of any such Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from such Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding (whether or not in writing) regarding the transferred Rights or (B) a transfer which the Board has determined is part of a plan, arrangement or understanding which has as a primary 17 18 purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action, and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but the Company and the Rights Agent shall have no liability to any holder of Rights Certificates or other Person as a result of the Company's failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder of any Rights Certificates upon the occurrence of any purported assignment or exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of assignment or election to purchase set forth on the reverse side of the Rights Certificate surrendered for such assignment or exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the Company or shall, at the written request of the Company, destroy such cancelled Rights Certificates and, in such case, shall deliver a certificate of destruction thereof to the Company. 18 19 Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock of the Company or other securities or out of its authorized and issued shares held in its treasury), the number of shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock, other securities, cash or other assets of the Company, as the case may be) that, as provided in this Agreement (including Section 11(a)(iii) hereof), will be sufficient to permit the exercise in full of all outstanding Rights. (b) So long as the shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock, other securities, cash or other assets of the Company, as the case may be) issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use all reasonable efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) The Company shall use all reasonable efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Triggering Event in which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with this Agreement, or as soon as required by law following the Distribution Date, as the case may be, a registration statement under the Act on an appropriate form with respect to the securities purchasable upon exercise of the Rights, (ii) cause such registration statement to become effective as soon as practicable after such filing and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities and (B) the Expiration Date. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states and other jurisdictions in connection with the exercisability of the Rights. The Company may, acting by 19 20 resolution of its Board, temporarily suspend, for a period of time not to exceed 90 days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to (A) prepare and file such registration statement and permit it to become effective and (B) gain approval for the issuance of Preferred Stock from the Commissioner of Banks of the Commonwealth of Massachusetts, if required. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended and a public announcement at such time as the suspension is no longer in effect. In addition, if the Company shall determine that a registration statement is required in other circumstances following the Distribution Date, the Company may similarly temporarily suspend the exercisability of the Rights until such time as a registration statement has been declared effective. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, the exercise thereof shall not otherwise be permitted under applicable law or a registration statement shall not have been declared effective. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all one one-hundredths of a share of Preferred Stock (and, following the occurrence of a Triggering Event, all shares of Common Stock or other securities of the Company, as the case may be) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable. (e) The Company further covenants and agrees that, except as set forth in this Section 9(e) and Section 6(a) hereof, it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of one one-hundredths of a share of Preferred Stock (or shares of Common Stock or other securities of the Company, as the case may be) upon the exercise of Rights. The Company shall not, however, be 20 21 required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of one one-hundredths of a share of Preferred Stock (or shares of Common Stock or other securities of the Company, as the case may be) in respect of a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise, nor shall the Company be required to issue or deliver any certificates for a number of one one-hundredths of a share of Preferred Stock (or Common Stock or other securities of the Company, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. PREFERRED STOCK RECORD DATE. Each person in whose name any certificate for a number of one one-hundredths of a share of Preferred Stock (or shares of Common Stock or other securities of the Company, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock (or shares of Common Stock or other securities of the Company, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; PROVIDED, however, that if the date of such surrender and payment is a date upon which the transfer books for the Preferred Stock (or Common Stock or other securities of the Company, as the case may be) are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the transfer books for the Preferred Stock (or Common Stock or other securities of the Company, as the case may be) are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate, as such, shall not be entitled to any rights of a stockholder of the Company (or the Principal Party) with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or 21 22 other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company (or the Principal Party), except as provided herein. Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares, or fractions thereof, purchasable upon the exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a)(i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide or split the outstanding Preferred Stock, (C) combine or consolidate the outstanding Preferred Stock into a smaller number of shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, split, combination, consolidation or reclassification, and the number and kind of shares of Preferred Stock (or other capital stock, as the case may be) issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of Preferred Stock (or other capital stock, as the case may be) which, if such Right had been exercised immediately prior to such date, whether or not such Right was then exercisable, and at a time when the transfer books for the Preferred Stock (or other capital stock, as the case may be) of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such 22 23 dividend, subdivision, split, combination, consolidation or reclassification. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. (ii) In the event (a "Section 11(a)(ii) Event") that any Person (other than an Exempt Person) alone or together with its Affiliates or Associates, shall, at any time after the Rights Dividend Declaration Date, become an Acquiring Person, unless the event causing such Person to become an Acquiring Person is a Section 13(a) Event, or is an acquisition of shares of Common Stock of the Company pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock of the Company at a price and on terms determined by at least a majority of the Outside Directors, after receiving advice from one or more investment banking firms, to be (a) at a price that is fair to stockholders (taking into account all factors which such Outside Directors deem relevant including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders, then promptly after the date of the occurrence of such a Section 11(a)(ii) Event, proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of a number of one one-hundredths of a share of Preferred Stock, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of one one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first 23 24 occurrence of a Section 11(a)(ii) Event, whether or not such Right was then exercisable, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the Current Market Price per share of Common Stock of the Company on the date of such first occurrence (such number of shares being referred to as the "Adjustment Shares"). (iii) In lieu of issuing any shares of Common Stock of the Company in accordance with Section 11(a)(ii) hereof, the Company, acting by resolution of the Board, may, and in the event that the number of shares of Common Stock of the Company which are authorized by the Company's Amended and Restated Articles of Organization but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company, acting by resolution of the Board, shall (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value") over (2) the Purchase Price attributable to each Right (such excess being referred to as the "Spread"), and (B) with respect to all or a portion of each Right (subject to Section 7(e) hereof), make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) equity securities of the Company other than Common Stock (including without limitation shares, or units of shares, of preferred stock of the Company which the Board has deemed to have the same value as shares of Common Stock of the Company (such shares of preferred stock being referred to as "Common Stock Equivalents")), (4) debt securities of the Company, (5) other assets or (6) any combination of the foregoing which, when added to any shares of Common Stock of the Company issued upon such exercise, has an aggregate value 24 25 equal to the Current Value, where such aggregate value has been determined by the Board based upon the advice of a nationally recognized investment banking firm selected by the Board; PROVIDED, however, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within 30 days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's right of redemption pursuant to Section 23(a) hereof, as such date may be delayed pursuant to Section 23(a) hereof or otherwise amended pursuant to Section 26 hereof, expires (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock of the Company (to the extent available) and then, if necessary, cash, which shares or cash have an aggregate value equal to the Spread. If the Board shall determine in good faith that it is likely that sufficient additional shares of Common Stock of the Company could be authorized for issuance upon exercise in full of the Rights, the 30-day period set forth above may be extended to the extent necessary, but not more than 90 days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such period, as it may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue 25 26 a public announcement stating that the exercisability of the Rights has been temporarily suspended and a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock of the Company shall be the Current Market Price per share of the Common Stock of the Company on the Section 11(a)(ii) Trigger Date and the value of any Common Stock Equivalent shall be deemed to have the same value as the Common Stock of the Company on such date. (b) In case the Company shall at any time after the date of this Agreement fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a period expiring within 45 calendar days after such record date) Preferred Stock (or shares having the same rights, privileges and preferences as the shares of Preferred Stock ("Equivalent Preferred Stock")) or securities convertible into Preferred Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or per share of Equivalent Preferred Stock (or having a conversion price per share, if a security convertible into Preferred Stock or Equivalent Preferred Stock) less than the Current Market Price per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock or Equivalent Preferred Stock which the aggregate subscription or purchase price of the total number of shares of Preferred Stock or Equivalent Preferred Stock so to be offered (or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock or Equivalent Preferred Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form 26 27 other than cash, the value of such consideration shall be as determined in good faith by the Board, which determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness, cash (other than a regular periodic cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board, which determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Preferred Stock and the denominator of which shall be such Current Market Price per share of Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed. (d)(i) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the 27 28 Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the 30 consecutive Trading Days immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the 10 consecutive Trading Days immediately following such date; PROVIDED, however, that in the event that the Current Market Price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights) or (B) any subdivision, combination, consolidation, reverse stock split or reclassification of such Common Stock, and prior to the expiration of the requisite period of 30 Trading Days or 10 Trading Days, as set forth above, after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination, consolidation, reverse stock split or reclassification, then, and in each such case, the Current Market Price shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, or if the shares of Common Stock are not listed or traded on the New York Stock Exchange, as reported on the principal consolidated transaction reporting system with respect to the securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading, or if the shares of Common Stock are not listed or 28 29 admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the Nasdaq National Market or the Nasdaq Stock Market or any other quotation system then in use, or if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board. If on any such date the Common Stock is not publicly held or not so listed, admitted to trading or quoted and no market maker is making a market in such Common Stock, "Current Market Price" shall mean the fair value of such shares on such date as determined in good faith by the Board, which determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (ii) For the purpose of any computation hereunder, the Current Market Price per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section 11(d) (other than the last sentence thereof). If the Current Market Price per share of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or admitted to trading or quoted in a manner described in clause (i) of this Section 11(d), the "Current Market Price" per share of Preferred Stock shall be conclusively deemed to be an amount equal to 100 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock occurring after the date of this Agreement) multiplied by the Current Market Price per share of the Common Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or admitted to trading or quoted, "Current Market Price" per share of the Preferred Stock shall mean the fair value per share as determined in good 29 30 faith by the Board, which determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the "Current Market Price" of one one-hundredth of a share of Preferred Stock shall be equal to the Current Market Price of one share of Preferred Stock divided by 100. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business, or if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. (e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease in the Purchase Price of at least one percent; PROVIDED, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest one cent or to the nearest one one-hundredth of a share of Common Stock or other share or ten-thousandth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which mandates such adjustments or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof (or the number of Rights) shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m) hereof, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock 30 31 shall apply on like terms to any such other shares; PROVIDED, however, that the Company shall not be liable for its inability to reserve and keep available for issuance upon exercise of the Rights pursuant to Section 11(a)(ii) hereof a number of shares of Common Stock greater than the number then authorized by the Company's Amended and Restated Articles of Organization but not outstanding or reserved for any other purpose. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i) hereof, upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c) hereof, each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a share of Preferred Stock (calculated to the nearest one ten-thousandth of a share) obtained by (i) multiplying (x) the number of one one-hundredths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of one one-hundredths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one one-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth of a Right) obtained by dividing the Purchase Price in effect 31 32 immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter but, if the Rights Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i) hereof, the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-hundredths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-hundredth of a share and the number of one one-hundredths of a share which were expressed in the initial Rights Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then stated value, if any, of the number of one one-hundredths of a share of Preferred Stock issuable upon exercise of the Rights, the Company shall use all reason- 32 33 able efforts to take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue, fully paid and nonassessable, such number of one one-hundredths of a share of Preferred Stock at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of one one-hundredths of a share of Preferred Stock or other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one one-hundredths of a share of Preferred Stock or other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such adjustments in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in its good faith judgment the Board shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than the Current Market Price, (iii) issuance wholly for cash of shares of Preferred Stock or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11 hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders. (n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), (ii) merge with or into any 33 34 other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof) if (x) at the time of or immediately after such consolidation, merger, sale or transfer there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger, sale or transfer, the stockholders of the Person who constitutes, or would constitute, the Principal Party for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. (o) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. (p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Rights Dividend Declaration Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock of the Company payable in shares of Common Stock of the Company, (ii) subdivide the outstanding shares of Common Stock of the Company in a manner not covered by clause (i) of this Section 11(p) or (iii) combine or consolidate the outstanding shares of Common Stock of the Company into a smaller number of shares, the number of Rights associated with each share of Common Stock of the Company then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with 34 35 each share of the Common Stock of the Company following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock of the Company immediately prior to such event by a fraction, the numerator of which shall be the total number of shares of Common Stock of the Company outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock of the Company outstanding immediately following the occurrence of such event. The adjustments provided for in this Section 11(p) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected. If an event occurs which would require an adjustment under Section 11(a)(ii) hereof and this Section 11(p), the adjustments provided for in this Section 11(p) shall be in addition and prior to any adjustment required pursuant to Section 11(a)(ii) hereof. Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES. Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Stock and the Common Stock of the Company, a copy of such certificate and (c) mail a brief summary thereof to each record holder of a Rights Certificate (or if prior to the Distribution Date, to each record holder of a certificate representing shares of Common Stock of the Company) in accordance with Section 25 hereof. Notwithstanding the foregoing sentence, the failure of the Company to prepare such certificate or statement or make such filings or mailings shall not affect the validity of, or the force or effect of, the requirement for such adjustment. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of any such adjustment unless and until it shall have received such certificate. 35 36 Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER. (a) In the event (a "Section 13 Event") that, on or after the Stock Acquisition Date, directly or indirectly, (x) the Company shall CONSOLIDATE or otherwise COMBINE WITH, or MERGE WITH or into, any other Person or Persons (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) and the Company shall not be the continuing or surviving corporation of such consolidation, combination or merger, (y) any Person or Persons (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) shall consolidate or otherwise combine with, or merge with or into, the Company and the Company shall be the continuing or surviving corporation of such consolidation, combination or merger and, in connection with such consolidation, combination or merger, all or part of the outstanding shares of Common Stock of the Company shall be changed into or exchanged for stock or other securities of any other Person or Persons or cash or any other property or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole and calculated on the basis of the Company's most recent regularly prepared financial statements) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof); PROVIDED, however, that this clause (z) of Section 13(a) hereof shall not apply to the pro rata distribution by the Company of assets (including securities) of the Company or any of its Subsidiaries to all holders of the Common Stock of the Company; THEN, and in each such case (except as may be contemplated by Section 13(d) hereof), proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall, on or after the later of (A) the date of the first occurrence of any such Section 13 Event or (B) the date of the expiration of the period within which the Rights may be redeemed pursuant to Section 23 hereof (as the same may be amended as provided in Section 26 hereof), have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the 36 37 terms of this Agreement, such number of validly authorized and issued, fully paid, nonassessable and freely tradeable shares of Common Stock of the Principal Party, not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-hundredths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of one one-hundredths of a share for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the Current Market Price per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii) the shares of Common Stock of such Principal Party received by each holder of a Right upon exercise of that Right pursuant to this Section 13 shall be fully paid and nonassessable; (iii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iv) the term Company shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (v) such Principal Party shall take such steps (including without limitation the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (vi) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event. 37 38 (b) "Principal Party" shall mean: (i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a) hereof, (A) the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted, changed or exchanged in such merger, consolidation or combination, or if there is more than one such issuer, the issuer of the Common Stock of which has the greatest aggregate market value or (B) if no securities are so issued, the Person that is the other party to such merger (and survives the merger), consolidation or combination (or, if there is more than one such Person, the Person the Common Stock of which has the greatest aggregate market value), or if the other party to the merger does not survive the merger, the Person that does survive the merger (including the Company, if it survives); and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a) hereof, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions or, if each Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons as is the issuer of Common Stock having the greatest aggregate market value; PROVIDED, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding 12 month period registered under Section 12 of the Exchange Act or comparable federal laws then applicable to such Person, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, Principal Party shall refer to such other Person; (2) if the Common Stock of such Person is not and has not been so registered and such Person is a Subsid- 38 39 iary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, Principal Party shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value; and (3) if the Common Stock of such Person is not and has not been so registered and such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in (1) and (2) above shall apply to each of the chains of ownership having an interest in such joint venture as if such party were a Subsidiary of both or all of such joint venturers and the Principal Parties in each such chain shall bear the obligations set forth in this Section 13 in the same ratio as their direct or indirect interests in such Person bear to the total of such interests. (c) The Company shall not consummate any Section 13 Event unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement confirming that the requirements of Section 13(a) and Section 13(b) hereof shall promptly be performed in accordance with their terms and that such Section 13 Event shall not result in a default by the Principal Party under this Agreement as the same shall have been assumed by the Principal Party pursuant to Section 13(a) and Section 13(b) hereof and further providing that, as soon as practicable after the date of such Section 13 Event, the Principal Party will: (i) prepare and file a registration statement under the Act or such comparable federal laws then applicable to such Person with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration 39 40 Date and to similarly comply with applicable state securities laws; (ii) use its best efforts to list or obtain quotation of (or continue the listing or quotation of) the Rights and the securities purchasable upon exercise of the Rights on a national securities exchange or by an automated quotation service; (iii) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act; and (iv) use its best efforts to obtain waivers of any rights of first refusal or preemptive rights in respect of the shares of Common Stock of the Principal Party subject to purchase upon exercise of outstanding Rights. The provisions of this Section 13 hereof shall similarly apply to successive mergers, consolidations, combinations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a) hereof. (d) Notwithstanding anything in this Agreement to the contrary, Section 13 hereof shall not be applicable to a transaction described in subparagraph (x) or (y) of Section 13(a) hereof if (i) such transaction is consummated with a Person or Persons (or a wholly owned subsidiary of any such Person or Persons) who acquired shares of Common Stock of the Company pursuant to a tender offer or exchange offer for all outstanding shares of Common Stock of the Company which complies with the exception provided for in Section 11(a)(ii) hereof, (ii) the price per share of Common Stock of the Company offered in such transaction is not less than the price per share of Common Stock of the Company paid to all holders of shares of Common Stock of the Company whose shares were purchased pursuant to such tender offer or exchange offer and (iii) the form of consideration being offered 40 41 to the remaining holders of shares of Common Stock of the Company pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(d), all Rights hereunder shall expire. Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(i) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of any such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any Trading Day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, or if the shares of Common Stock of the Company are not listed or traded on the New York Stock Exchange, as reported on the principal consolidated transaction reporting system with respect to the securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the Nasdaq National Market or the Nasdaq Stock Market or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board. If on any such date no such market maker is making a market in the 41 42 Rights, the fair value of the Rights on such date as determined in good faith by the Board shall be used. (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one one-hundredth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-hundredth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-hundredth of a share of Preferred Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-hundredth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one one-hundredth of a share of Preferred Stock shall be one one-hundredth of the closing price of a share of Preferred Stock, or if unavailable, the appropriate alternative price (in each case as determined pursuant to Section 11(d)(i) hereof), for the Trading Day immediately prior to the date of such exercise. (c) Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock of the Company. In lieu of fractional shares of Common Stock of the Company, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one share of Common Stock of the Company. For purposes of this Section 14(c), the current market value of one share of Common Stock of the Company shall be the closing price of one share of Common Stock of the Company or, if unavailable, the appropriate alternative price (in each case, as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (d) The holder of a Right by the acceptance of that Right expressly waives his right to receive 42 43 any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14. Section 15. RIGHTS OF ACTION. All rights of action in respect of this Agreement, other than rights of action vested in the Rights Agent in Section 18 hereof, are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock of the Company); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock of the Company), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock of the Company), may, in the holder's own behalf and for the holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, the holder's right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of shares of Common Stock of the Company; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed; 43 44 (c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated certificate for Common Stock of the Company) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated certificate for Common Stock of the Company made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; PROVIDED, however, the Company must use all reasonable efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the number of one one-hundredths of a share of Preferred Stock or any other securities of the Company which may at any time be issuable upon the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24 hereof), or to 44 45 receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof. Section 18. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in good faith in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock of the Company or for other securities of the Company or upon any instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document reasonably believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged by the proper Person or Persons. Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any suc- 45 46 cessor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; PROVIDED, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. If at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and if at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases, such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. (b) If at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. 46 47 (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of the Current Market Price) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President, any Vice President, the Treasurer or any Assistant Treasurer of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates, nor shall it be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereon); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after receipt of a certificate describing any such adjustment); nor shall it by any act hereunder be deemed to make any representation 47 48 or warranty as to the authorization or reservation of any shares of Common Stock of the Company or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock of the Company or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, any Vice President, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any 48 49 such act, default, neglect or misconduct; PROVIDED, however, reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate contained in the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 or clause 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing, mailed to the Company and to each transfer agent of the Common Stock of the Company and Preferred Stock, by registered or certified mail and to the holders of the Rights Certificates, if any, by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock of the Company and Preferred Stock by registered or certified mail and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then any registered holder of any Rights 49 50 Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. If no successor Rights Agent shall have been appointed within 30 days from effectiveness of such removal or resignation, and no registered holders of any Rights Certificates have applied pursuant to this Agreement for the appointment of a new Rights Agent, the Company shall be automatically designated as successor Rights Agent. Any successor Rights Agent appointed by the Company or by such a court shall be (a) a corporation organized and doing business under the laws of the United States or of any state of the United States so long as such corporation is authorized to do business as a banking institution in such state, is in good standing, is authorized under such laws to exercise corporate trust powers, is subject to supervision or examination by federal or state authority and has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an Affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder and shall execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock of the Company and the Preferred Stock and shall mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights Certificates to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares 50 51 or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock of the Company following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of its Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, or upon the exercise, conversion or exchange of securities hereafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; PROVIDED, however, that (i) no such Rights Certificate shall be issued if and to the extent that the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if and to the extent that appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 23. REDEMPTION AND TERMINATION. (a) The Board may, at its option, at any time prior to the earlier of (i) the Close of Business on the tenth Business Day (or such specified or unspecified date as may be determined by the Board before the Rights cease being redeemable) following the Stock Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to the Record Date, the Close of Business on the tenth Business Day following the Record Date), or (ii) the Final Expiration Date, direct the Company to, and if directed, the Company shall, redeem all but not less than all of the then outstanding Rights at a redemption price of $.01 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"), and the Company may, at its option, pay the Redemption Price in shares of Common Stock of the Company (based on the Current Market Price of the Common Stock of the Company at the time of redemption), cash or any other form of consideration deemed appropriate by the Board. Notwithstanding anything con- 51 52 tained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company's right of redemption hereunder has expired. (b) Immediately upon the action of the Board directing the Company to make the redemption of the Rights, evidence of which shall have been filed with the Rights Agent, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board directing the Company to make the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to each record holder of the Common Stock of the Company at the address of such holder shown on the records of the Company. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Section 24. NOTICE OF CERTAIN EVENTS. (a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular periodic cash dividend out of earnings or retained earnings of the Company), (ii) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision or split of outstanding shares of Preferred Stock), (iv) to effect any consolidation, combination or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more 52 53 than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof) or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, combination, merger, sale, transfer, liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of the shares of Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 20 days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and in the case of any such other action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock, whichever shall be the earlier. (b) In case any Section 11(a)(ii) Event hereof shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter to refer to Common Stock of the Company or, if appropriate, other securities. Section 25. NOTICES. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: 53 54 Lawrence Savings Bank 30 Massachusetts Avenue North Andover, MA 01845 Attention: Robert P. Perreault Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Boston EquiServe L.P. Client Administration Mail Stop 45-02-62 150 Royall Street Canton, MA 02021 Attention: John Riccio Subject to the provisions in Section 21 hereof, notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock of the Company) shall be sufficiently given or made if sent by first-class mail, insured, postage prepaid, to each record holder of the Common Stock of the Company at the address of such holder shown on the records of the Company. Section 26. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date and subject to the penultimate sentence of this Section 26 hereof, the Company and the Rights Agent shall, if the Board so directs, supplement or amend any provision of this Agreement (including, without limitation, any extension of the period in which the Rights may be redeemed) without the approval of any holders of certificates representing shares of Common Stock of the Company. From and after the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Board so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions 54 55 herein, (iii) to shorten or lengthen any time period hereunder or (iv) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person); PROVIDED, this Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence (A) a time period relating to when the Rights may be redeemed or to modify the ability (or inability) of the Board to redeem the Rights, in either case at such time as the Rights are not then redeemable or (B) any other time periods unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, or the benefits to, the holders of Rights (other than an Acquiring Person or an Affiliate or Associate of any such Person). Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price or the number of one one-hundredths of a share of Preferred Stock for which a Right is exercisable; provided, however, that at any time prior to the earlier of (x) the existence of an Acquiring Person or (y) the date that a tender or exchange offer by any Person (other than an Exempt Person) is first published or sent or given within the meaning of Section 335.502 of the Rules and Regulations of the FDIC if upon consummation of thereof such Person would be the Beneficial Owner of more than 10% of the Common Stock of the Company then outstanding, the Board may amend this Agreement to increase the Purchase Price or extend the Final Expiration Date. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock of the Company. Section 27. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 55 56 Section 28. DETERMINATIONS AND ACTIONS BY THE BOARD, ETC. For all purposes of this Agreement, any calculation of the number of shares of Common Stock of the Company outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of the Company of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Section 334.403(d)(1)(i) of the Rules and Regulations of the FDIC. The Board shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement including, without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend this Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board or the Company in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties and (y) not subject the Board or the Outside Directors to any liability to the holders of the Rights. Section 29. EXCHANGE. (a) The Board may, at its option, at any time after any Person becomes an Acquiring Person, direct the Company to, and if so directed, the Company shall, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provision of Section 7(e) hereof) for shares of Common Stock of the Company at an exchange ratio of one share of Common Stock of the Company per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board shall not be empowered to effect such exchange at any time after any Person (other than an Exempt Person) becomes the Beneficial Owner of 50% or more of the shares of Common Stock of the Company then outstanding. 56 57 (b) Immediately upon the action of the Board directing the Company to exchange any Rights pursuant to subsection (a) of this Section 29 and without any further action and without notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock of the Company equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; PROVIDED, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock of the Company. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock of the Company for Rights will be affected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be affected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights. (c) In any exchange pursuant to this Section 29, the Company, at its option, may substitute Preferred Stock (or Equivalent Preferred Stock, as such term is defined in Section 11(b) hereof) for shares of Common Stock of the Company exchangeable for Rights, at the initial rate of one one-hundredth of a share of Preferred Stock (or Equivalent Preferred Stock) for each share of such Common Stock, as appropriately adjusted to reflect adjustment in the voting rights of the Preferred Stock pursuant to Section 3(a) of Exhibit A hereto, so that the fraction of a share of Preferred Stock delivered in lieu of each share of Common Stock of the Company shall have the same voting rights as one share of Common Stock of the Company. (d) In the event that there shall not be sufficient shares of Common Stock of the Company issued but not outstanding or authorized but unissued to permit 57 58 any exchange of Rights as contemplated in accordance with this Section 29, the Company shall take all such action as may be necessary to authorize additional shares of Common Stock of the Company for issuance upon exchange of the Rights. (e) The Company shall not be required to issue fractions of shares of Common Stock of the Company or to distribute certificates which evidence fractional shares of Common Stock of the Company. In lieu of such fractional shares of Common Stock of the Company, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional shares of Common Stock of the Company would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of such Common Stock. For the purposes of this subsection (e), the current market value of one whole share of Common Stock of the Company shall be the closing price of one such share of Common Stock or, if unavailable, the appropriate alternative price (in each case as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 29. Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock of the Company) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock of the Company). Section 31. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; PROVIDED, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or 58 59 restriction is held by such court or authority to be invalid, void or unenforceable and the Board determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the Close of Business on the tenth Business Day following the date of such determination by the Board. Without limiting the foregoing, if any provision of this Agreement requiring that a determination be made by the Outside Directors is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, such determination shall then be made by the Board in accordance with applicable law and the Company's Amended and Restated Articles of Organization and By-Laws. Section 32. GOVERNING LAW. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the Commonwealth of Massachusetts, and the law of the Commonwealth of Massachusetts shall govern the rights and duties of the Rights Agent hereunder, and for all purposes this Agreement shall be governed by and construed in accordance with the laws of such Commonwealth applicable to contracts made and to be performed entirely within such Commonwealth. Section 33. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 35. PRONOUNS AND CONJUNCTIONS. Unless otherwise indicated herein or the context otherwise requires, the masculine pronoun shall include the feminine and the neuter, and the singular shall include the plural. The word "or" shall not be deemed exclusive. 59 60 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal as of December 19, 1996. Attest: LAWRENCE SAVINGS BANK By /s/ Robert P. Perreault By /s/ Paul A. Miller ------------------------ --------------------------- Name: Robert P. Perreault Name: Paul A. Miller Title: Clerk Title: President Attest: STATE STREET BANK AND TRUST COMPANY, as Rights Agent By /s/ Stephen Cesso By /s/ David M. Elwood ------------------------ --------------------------- Name: Stephen Cesso Name: David M. Elwood Title: Vice President and Title: Vice President Associate Counsel and Senior Counsel 60 61 Exhibit A CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING A SERIES OF A CLASS OF STOCK Massachusetts General Laws, Chapter 172, Section 24 We, Paul A. Miller, President and Robert P. Perreault, Clerk, of Lawrence Savings Bank, located at 30 Massachusetts Ave., North Andover, Massachusetts 01845, do hereby certify that at a meeting of the Board of Directors of the corporation held on December 19, 1996, the following vote establishing and designating a series of a class of stock and determining the relative rights and preferences thereof was duly adopted: 62 VOTED, that pursuant to the authority vested in the Board of Directors (the "Board") of Lawrence Savings Bank (the "Corporation") and in accordance with the provisions of the Amended and Restated Articles of Organization, the Board hereby establishes a series of preferred stock of the Corporation and hereby states the designation and amount thereof, and fixes the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" ("Series A Preferred Stock") and the number of shares constituting such series shall be 200,000. Section 2. Dividends and Distributions. (a) Subject to the prior and superior rights of the holders of any shares of any series of preferred stock ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock, par value $.10 per share, of the Corporation (the "Common Stock") or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first 2 63 Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time after December 19, 1996 (the "Rights Dividend Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in Paragraph (a) above immediately after it declares any dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the most recent Quarterly Dividend Payment Date preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events, such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not 3 64 bear interest. Dividends paid on shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares of Series A Preferred Stock shall be allocated pro rata on a share-by-share basis among all such shares of Series A Preferred Stock at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following rights: (a) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event that the Corporation shall at any time after the Rights Dividend Declaration Date (i) declare any dividend on the Common Stock payable in shares of Common Stock, (ii) subdivide the Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case, the number of votes per share to which holders of the Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such event. (b) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. 4 65 Section 4. Certain Restrictions. (a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions on shares of Series A Preferred Stock outstanding, whether or not declared, shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with 5 66 the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors of the Corporation (the "Board")) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of the Series A Preferred Stock redeemed, exchanged, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Series A Preferred Stock and may be reissued as part of a new series of Series A Preferred Stock to be created by resolution or resolutions of the Board, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (a) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Liquidation Preference"). Following the payment of the full amount of the Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Preferred Stock unless, prior thereto, the hold- 6 67 ers of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in Paragraph (c) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Preferred Stock and Common Stock, respectively, holders of shares of Series A Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Series A Preferred Stock and Common Stock, on a per share basis, respectively. (b) In the event, however, that there are not sufficient assets available to permit payment in full of the Liquidation Preference and the liquidation preferences of all other series of stock, if any, which rank on a parity (as to rights, privileges and preferences) with the Series A Preferred Stock, then such remaining assets shall be distributed ratably to the holders of Series A Preferred Stock and such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment after payment in full of the Liquidation Preference and the liquidation preferences of all other series of Series A Preferred Stock, if any, which rank on a parity with the Series A Preferred Stock, then such remaining assets shall be distributed ratably to the holders of Common Stock. (c) In the event that the Corporation shall at any time after the Rights Dividend Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of 7 68 shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case, the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to the Adjustment Number in effect immediately prior to such transaction times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. Section 8. Redemption. The outstanding shares of Series A Preferred Stock may be redeemed at the option of the Board as a whole, but not in part, at any time, at a cash price per share equal to (i) the product of the Adjustment Number and the Average Market Value (as such term is hereinafter defined) of the Common Stock, plus (ii) all dividends which on the redemption date have accrued on the shares to be redeemed and have not been paid or declared, and the Board shall set apart a sum sufficient for the payment thereof, without interest. The "Average Market Value" is the average per share closing sale prices of the Common Stock during the 30 day period immediately preceding the date before the redemption date on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the average of the closing sale prices with respect to a share of Common Stock during the 30 day period, as quoted on the Nasdaq National Market or any other quotation service then in use or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, or if on any such date no such quotations are available, the fair market value of the Common Stock as determined by the Board in good faith. Section 9. Ranking. The Series A Preferred Stock shall rank on a parity with all other series of the Corporation's preferred stock as to the payment of divi- 8 69 dends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Amended and Restated Articles of Organization of the Corporation, shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Preferred Stock, voting separately as a class. Section 11. Fractional Shares. The Board may, at its discretion, but shall not be required to, issue Series A Preferred Stock in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock. 9 70 IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this day of December, 1996. ----------------------------------- Name: Paul A. Miller Title: President ----------------------------------- Name: Robert P. Perreault Title: Clerk 10 71 Exhibit B [Form of Rights Certificate] Certificate No. R- __________ Rights NOT EXERCISABLE AFTER DECEMBER 19, 2006 OR EARLIER REDEMPTION OR EXCHANGE BY THE COMPANY OR EXPIRATION PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY AT 5.01 PER RIGHT, AND ARE SUBJECT TO EXCHANGE AT THE OPTION OF THE COMPANY ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. THE RIGHTS EVIDENCED BY THIS RIGHTS CERTIFICATE SHALL NOT BE EXERCISABLE, AND SHALL BE VOID SO LONG AS HELD, BY A HOLDER IN ANY JURISDICTION WHERE THE REQUISITE QUALIFICATION FOR THE ISSUANCE TO SUCH HOLDER, OR THE EXERCISE BY SUCH HOLDER, OF THE RIGHTS IN SUCH JURISDICTION SHALL NOT HAVE BEEN OBTAINED OR BE OBTAINABLE. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]1 Rights Certificate LAWRENCE SAVINGS BANK This certifies that _________________________, or registered assigns, is the registered owner of the ________________________ 1. The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence. 72 number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement dated as of December 19, 1996 (the "Rights Agreement") between Lawrence Savings Bank, a corporation organized under Section 34C of Chapter 168 of the Massachusetts General Laws (the "Company"), and State Street Bank and Trust Company (the "Rights Agent") and to purchase from the Company at any time prior to 5:00 P.M. (Boston time), on December 19, 2006, subject to extension (the "Final Expiration Date"), at the office or offices of the Rights Agent or its successor as Rights Agent designated for such purpose, one one-hundredth of a fully paid, nonassessable share of Series A Junior Participating Preferred Stock of the Company (the "Preferred Stock", at a purchase price of $40 per one one-hundredth of a share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Election to Purchase and included Certificate duly completed and executed. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above and the Purchase Price per share set forth above are the number and Purchase Price as of December 19, 1996, based on the Preferred Stock as constituted at such date, subject to adjustment as set forth in the Rights Agreement. Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person or any Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement) which the Board of Directors of the Company in its sole discretion determines is or was involved in or caused or facilitated, directly or indirectly (including through any change in the Board of the Directors of the Company), such 11(a)(ii) Event, (ii) a transferee of any such Acquiring Person or Affiliate or Associate or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person or an Affiliate or Associate of an Acquiring Person, such Rights shall become null and void, and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event. In addition, the Rights evidenced by this Rights Certificate shall not be exercisable, and 2 73 shall be void so long as held, by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been obtained or obtainable. As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Preferred Stock or other securities which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events (as defined in the Rights Agreement). This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Rights Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Company. This Rights Certificate, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of one one-hundredths of a share of Preferred Stock as the Rights evidenced by this Rights Certificate shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option at a redemption price of $.01 per Right at any time prior to the earlier of (i) the close of business on the tenth business day 3 74 following the Stock Acquisition Date (as such time period may be extended pursuant to the Rights Agreement), (ii) the date the Rights expire pursuant to Section 13(d) of the Rights Agreement; (iii) the Final Expiration Date and (iv) the time at which such Rights are exchanged as provided in Section 29 of the Rights Agreement. Subject to the provisions of the Rights Agreement, the Company may, at its option, at any time after an Acquiring Person becomes such and prior to the time that any person, other than an Exempt Person becomes the Beneficial Owner of 50% or more of the shares of Common Stock (as such terms are defined in the Rights Agreement) then outstanding, exchange all or part of the Rights evidenced by this Certificate for Common Stock or securities equivalent to Common Stock at an exchange ratio of one share of Common Stock (or its equivalent) per Right, subject to adjustment. No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (unless the Company determines, in its discretion, to issue fractions which are integral multiples of one one-hundredth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. 4 75 This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. 5 76 WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ________________________________________, ____. ATTEST: LAWRENCE SAVINGS BANK By ____________________________ By ____________________________________ Name: Robert P. Perreault Name: Paul A. Miller Title: Clerk Title: President Countersigned: STATE STREET BANK AND TRUST COMPANY By _____________________________ Authorized Signature 6 77 [FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE] ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer this Rights Certificate.) FOR VALUE RECEIVED ____________________________________________________________ hereby sells, assigns and transfers unto_______________________________________ _______________________________________________________________________________ (Please print name and address of transferee) _______________________________________________________________________________ this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ____________________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: _________________________, ____ _______________________________________ Signature Signature Guaranteed: 7 78 CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ------------------, ------------ ------------------------------ Signature Signature Guaranteed: NOTICE The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. 5 79 ELECTION TO PURCHASE (To be executed by the registered holder if such holder desires to exercise Rights represented by this Rights Certificate.) To: LAWRENCE SAVINGS BANK The undersigned hereby irrevocably elects to exercise ___________________ Rights represented by this Rights Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Rights ( or such other securities of the Company or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to: Please insert social security or other identifying number --------------------------- - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number --------------------------- - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- Dated: , ------------------------- ---------- ---------------------------------------- Signature Signature Guaranteed: 9 80 CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ---------------------, --------- ------------------------------ Signature Signature Guaranteed: NOTICE The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. 10 81 Exhibit C SUMMARY OF RIGHTS TO PURCHASE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK On December 19, 1996, the Board of Directors (the "Board") of Lawrence Savings Bank (the "Company") declared a dividend distribution of one preferred stock purchase right (one "Right") for each outstanding share of common stock, par value $.10 per share, of the Company (the "Common Stock") to holders of record of the Common Stock at 5:00 pm, Boston time, on December 29, 1996 (the "Record Date"). Each Right entitles the registered holder to purchase from the Company a unit (a "Unit") consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $.10 per share, of the Company (the "Preferred Stock") or, in certain circumstances, to receive cash, property, Common Stock or other securities of the Company, at a purchase price of $40 per Unit, subject to adjustment (the "Purchase Price"). The full description and terms of the Rights are set forth in the Rights Agreement (the "Rights Agreement"), dated as of December 19, 1996, between the Company and State Street Bank and Trust Company, as Rights Agent (the "Rights Agent"). Initially, the Rights will be attached to all certificates representing shares of Common Stock then outstanding, and no separate Rights Certificates will be distributed. The Rights will separate from the Common Stock upon the earlier of (i) 10 business days (subject to extension by the Board) following a public announcement by the Company that a person or group of affiliated or associated persons, other than an Exempt Person (an "Acquiring Person"), has acquired, or obtained the right to acquire, beneficial ownership of more than 10% of the outstanding shares of Common Stock (the date of such public announcement being the "Stock Acquisition Date") or (ii) 10 business days (subject to extension by the Board) following the commencement of a tender offer or exchange offer that would result in a person or group, other than an Exempt Person, beneficially owning more than 10% of such outstanding shares of Common Stock (the earlier of (i) and (ii) being the "Distribution Date"). Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock 82 certificates issued subsequent to the Record Date will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for outstanding Common Stock will also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. Pursuant to the Rights Agreement, the Company reserves the right to require prior to the occurrence of a Triggering Event (as defined below) that, upon the exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock will be issued. The term "Exempt Person" includes, among others, the Company, any subsidiary of the Company and, in certain limited circumstances, institutional investors. The Rights are not exercisable until the Distribution Date and will expire at the close of business on December 19, 2006 unless earlier redeemed, exchanged, extended or terminated by the Company as described below. At no time will the Rights have any voting power. As soon as practicable after the Distribution Date, separate Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date, and thereafter, the Rights will trade separately and the Rights Certificates alone will represent the Rights. Except as otherwise determined by the Board, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights. In the event (a "Section 11(a)(ii) Event") that any person or group becomes an Acquiring Person (unless the event causing such person or group to become an Acquiring Person is a tender or exchange offer for all outstanding shares of the Company, at a price determined by a majority of the outside directors of the Company who are not representatives, nominees, affiliates or associates of an Acquiring Person to be fair and otherwise in the best interests of the Company and its stockholders (a "Fair Offer")), each holder of a Right will thereafter have the right to receive, upon exercise thereof, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a Current Market Price (as defined in the Rights Agreement) equal to two times the Purchase Price of the Right. Notwithstanding any of the foregoing, following the occurrence of any Section 2 83 11(a)(ii) Event, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by specified Acquiring Persons (or by certain related persons) will be null and void. However, Rights are not exercisable following the occurrence of any Section 11(a)(ii) Event until such time as the Rights are no longer redeemable by the Company as set forth below. For example, at an exercise price of $40 per Right, each Right not owned by a specified Acquiring Person (or by certain related persons) following a Section 11(a)(ii) Event would entitle its holder to purchase $80 worth of Common Stock (or other consideration, as noted above) for $40. Assuming that the Common Stock had a Current Market Price of $8 at such time, the holder of each valid Right would be entitled to purchase 10 shares of Common Stock for $40. In the event (a "Section 13 Event") that, at any time on or after the Stock Acquisition Date, (i) the Company shall take part in a merger or other business combination transaction (other than certain mergers that follow a Fair Offer) in which the Company is not the surviving entity or in which the Common Stock is changed into or exchanged for other securities, cash or any other property of any other person or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right (except Rights which previously have been voided, as set forth above) shall thereafter have the right to receive, upon payment of the exercise price, common stock of the acquiring company having a value equal to two times the exercise price of the Right. Section 11(a)(ii) Events and Section 13 Events are collectively referred to as "Triggering Events." The Purchase Price payable and the number of Units of Preferred Stock (or the amount of cash, property or other securities) issuable upon exercise of the Rights, are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) in the event that holders of the Preferred Stock are granted certain rights or warrants to subscribe for Preferred Stock or convertible securities at less than the Current Market Price of the Preferred Stock or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding 3 84 regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. The Company may, but is not required to, issue fractional shares of Preferred Stock upon the exercise of any Right or Rights. In lieu thereof, an adjustment in cash will be made based on the Current Market Price of the Preferred Stock. At any time until 10 business days following the Stock Acquisition Date (or such later date as the Board may determine before the Rights become nonredeemable), the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (payable, at the option of the Company, in cash, Common Stock or such other consideration deemed appropriate by the Board). Immediately upon the effectiveness of any action of the Board ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the redemption price of $.01 per Right. At any time after any person becomes an Acquiring Person and prior to the acquisition by such person or certain related persons of 50% or more of the outstanding shares of Common Stock, the Board may exchange all or a part of the then outstanding and exercisable Rights (other than Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by such Acquiring Person or by certain related persons, which Rights shall have become void), in whole or in part, at an exchange ratio of one share of Common Stock per Right (subject to adjustment). Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including without limitation the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or cash, property or other securities) of the Company or for common stock of the acquiring company as set forth above. 4 85 The Company may amend the terms of the Rights to increase the Purchase Price or extend the expiration date of the Rights at any time prior to the earlier of (1) the Stock Acquisition Date or (2) the date that any person or group commences a tender or exchange offer if, upon its consummation, such person or group would become an Acquiring Person. Other terms of the Rights, except for certain principal economic terms, may be amended by the Company (a) in any manner prior to the time the Rights separate and are distributed and (b) in order to (i) cure any ambiguity, (ii) make changes which do not adversely affect interests of holders of Rights (other than those of an Acquiring Person and certain related persons) or (iii) shorten or lengthen any time period under the Rights Agreement after the time the Rights separate and are distributed; provided, however, that no extension or amendment to adjust the time period for redemption is permitted after the Rights become nonredeemable. A copy of the Rights Agreement is being filed with the Federal Deposit Insurance Corporation as an Exhibit to a Registration Statement on Form F-10. A copy of the Rights Agreement is available free of charge from the Company or the Rights Agent. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is incorporated herein by reference. 5 EX-10.1 7 b39832lsex10-1.txt EMPLOYMENT AGREEMENT - PAUL A. MILLER 1 Exhibit 10.1 EMPLOYMENT AGREEMENT This Agreement made as of this April 21, 1989, by and among Paul A. Miller (the "Employee"), Intrex Financial Services, Inc. ("Intrex") and Lawrence Savings Bank (the "Bank") shall be effective as of April 21, 1989 (the "Effective Date"). WHEREAS, the Boards of Directors of Intrex and the Bank recognize the Employee's potential contribution to the growth and success of Intrex and the Bank and desire to assure Intrex and the Bank of the Employee's employment in an executive capacity and to compensate him therefor; and WHEREAS, the Employee is desirous of being employed by Intrex and the Bank and of committing himself to serve both Intrex and the Bank on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. Position, Responsibilities and Term of Employment. 1.01 Position. The Employee shall serve as President and Chief Executive Officer of Intrex and the Bank and in such additional management position(s) as the Boards of Directors of Intrex and the Bank (the "Boards" or, as appropriate, individually the "Board") shall designate. In this capacity the Employee shall, subject to the By-Laws of Intrex and the Bank, and to the direction of the Boards, serve Intrex and the Bank by performing such duties and carrying out such responsibilities as are normally related, in accordance with the standards of the banking industry relating to the Employee's position and to the Employee's level of experience and training. 1.02 Best Efforts Covenant. The Employee will, to the best of his ability, devote his full professional and business time and best efforts to the performance of his duties for, and in the business and affairs of, Intrex and the Bank and any subsidiaries and affiliates of Intrex or the Bank. 1.03 Exclusivity Covenant. While employed by Intrex and the Bank, except with the written consent of the Boards, the Employee will not undertake or engage in any other employment, occupation or business enterprise other than a business enterprise in which the Employee does not actively participate. Further, while employed by Intrex and the Bank, the Employee agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest adverse or antagonistic to Intrex or the Bank, its business or prospects, 2 financial or otherwise, or take any action towards any of the foregoing, except for any investment representing less than 1% of the voting shares of any publicly-held corporation. 1.04 Initial Term and Extensions. Subject to the provisions of this Section and Section 3.03, the term of this Agreement shall be for three years commencing with the Effective Date hereof. On the third anniversary of the Effective Date, the Agreement shall be automatically extended for an additional year unless the Employee notifies Intrex and the Bank in writing, or either Intrex on the Bank notifies the Employee in writing, more than 90 days prior to the second anniversary of the Effective Date that the Agreement is not to be extended. Thereafter, the Agreement shall be automatically extended for additional two-year periods unless the Employee notifies Intrex and the Bank in writing, or either Intrex or the Bank notifies the Employee in writing, more than 90 days prior to the date that the Agreement is scheduled to expire that the Agreement is no longer to be extended. 2. Compensation. 2.01 Base Salary. (a) Intrex and/or the Bank shall pay to the Employee for the services to be rendered hereunder a base salary according to the following schedule: Year of the Agreement Base Salary --------------------- ----------- First $200,000 Second 220,000 Third 242,000. (b) If the Agreement is extended for an additional year following the third anniversary of the Effective Date pursuant to Section 1.04, the Employee's base salary for such year shall be at least $250,000. In addition, there shall be a review for merit by the Boards and the Employee's base salary for such year may be set at an amount greater than $250,000 if the Boards deem such an increase to be appropriate to reflect the value of the services of the Employee. (c) If the Agreement is extended beyond the fourth anniversary of the Effective Date, there shall be an annual review for merit by the Boards and the Employee's base salary may be increased if the Boards deem such an increase to be appropriate to reflect the value of the services of the Employee. (d) If the Boards increase the Employee's base salary at any time during the term of this Agreement, the Employee's -2- 3 increased annual base salary shall become a floor below which the Employee's annual base salary shall not fall at any future time during the term of this Agreement. (e) The Employee's base salary shall be payable in periodic installments in accordance with the Bank's usual practice for its senior executive officers. 2.02 Incentive Compensation. In addition to a base salary, the Employee shall be entitled to receive payments under the incentive compensation bonus program(s) (as in effect from time to time) maintained by either, on both, Intrex or the Bank, if any, in such amounts as are determined by Intrex and the Bank to be appropriate for senior executive officers of Intrex and the Bank. 2.03 Participation in Benefit Plans. (a) The Employee shall be entitled to participate in, and receive benefits under, all employee benefit plans and arrangements maintained by either, or both, Intrex or the Bank in effect on the Effective Date for as long as such plans and arrangements may remain in effect (including, but not limited to, participation in any other pension, profit sharing, stock bonus or employee stock ownership plan adopted by Intrex and/or the Bank, and all group life, health, dental, disability and other insurance) or any substitute or additional plans, policies or arrangements made available in the future to the similarly situated employees of Intrex and/or the Bank, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, policies and arrangements. At the date the Employee begins employment with Intrex and the Bank and to the extent permitted by the documents governing the plans, he shall participate in (at the cost and expense of Intrex and/or the Bank) the group life, health plans, and other health and welfare plans maintained by Intrex and/or the Bank, notwithstanding any waiting period otherwise provided for in such plans. (b) Intrex and/or the Bank shall reimburse the Employee for, or pay directly, the Employee for his employee contribution portion of his major medical insurance coverage. Notwithstanding the foregoing, if such contributions cause any plan to be discriminatory or violate the provisions of any law or otherwise cause adverse tax consequences to Intrex or the Bank, such reimbursement or payment shall cease. (c) Intrex and/or the Bank shall pay all reasonable costs associated with an annual physical examination for the Employee. (d) Nothing paid to the Employee under any plan, policy or arrangement presently in effect or made available in the future -3- 4 shall be deemed to be in lieu of other Compensation to the Employee hereunder as described in this Section 2. 2.04 Vacation Days. The Employee shall be entitled to the number of paid vacation days and paid holidays in each year as are determined by Intrex and the Bank from time to time for senior executive officers, provided that the aggregate annual number of such vacation days and paid holidays shall at no time fall below the number of days per year to which he was entitled on the Effective Date. 2.05 Expenses. During the term of his employment hereunder, the Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him (in accordance with the policies and procedures established by the Boards for the senior executive officers of Intrex and the Bank) in performing services hereunder. 2.06 Automobile. During the term of this Agreement, Intrex and/or the Bank shall provide the Employee with an automobile for business and reasonable local personal use. The purchase price of the automobile shall not exceed $50,000 and Intrex and/or the Bank shall pay for all expenses associated with the automobile to the extent that it is used for the purposes described in the preceding sentence. In addition, upon the Employee's request, Intrex and/or the Bank shall provide the Employee with a new automobile (as described in, and for the purposes specified in, this Section) when the automobile currently provided to the Employee has been in use for 30 months or has 30,000 miles, whichever occurs first. If in the future the terms of this Section are deemed by the Boards to be unreasonable, such terms may be changed by the Boards in their discretion. 3. Termination. 3.01 Termination by Intrex and the Bank for Other Than Cause. (a) If during the term of this Agreement Intrex or the Bank terminates the employment of the Employee and such termination is not for "cause" (as defined in Section 3.02): (1) Intrex and/or the Bank shall pay to the Employee an amount equal to the Employee's monthly base salary (as defined in Section 2.01 and at the monthly salary rate in effect on the date of such termination) multiplied by the greater of: (i) 12 months; or (ii) the number of months remaining in the term of this Agreement. This amount shall be paid to the Employee in one -4- 5 lump sum as soon as practicable, but in no event later than 60 days after the date of such termination. (2) Intrex and/or the Bank shall also pay the Employee, throughout the remainder of the term of this Agreement (as defined in Section 1.04) following the date that the Employee's employment terminated, such Compensation as is provided to the Employee pursuant to Section 2.02 (to the extent that incentive compensation relates to a period during which the Employee was employed by Intrex or the Bank), Section 2.03 (except where continuation of benefits cannot be provided as contemplated by this Section 3.01 by reason of a prohibition in the terms of the benefit plan) and Section 2.05. For the purposes of determining the amount of benefits to which the Employee shall continue to be entitled to pursuant to Section 2.03, the Employee shall be deemed, throughout the period of his entitlement pursuant to this Section 3.01, to have continued to have performed services for Intrex or the Bank at a rate of total compensation equal to the rate in effect on the date of his termination of employment. (b) If Intrex or the Bank fails to reappoint (or reelect) the Employee to the position or positions listed in Section 1.01, fails to comply with the provisions of Section 2 or engages in any other material breach of the terms of this Agreement, a termination of the Employee's employment shall be considered to be a termination of the Employee's employment by Intrex and the Bank for reasons other than "cause" (as defined in Section 3.02 below) pursuant to this Section 3.01. 3.02 Termination by Intrex and the Bank for Cause. (a) Intrex and/or the Bank shall have the right to terminate the employment of the Employee for cause only after (i) giving written notice to the Employee setting forth in reasonable detail the nature of such cause, and (ii) giving the Employee a reasonable and fair opportunity to respond to such written notice. Effective as of the date that the employment of the Employee terminates by reason of cause, this Agreement shall terminate and no further payments of the Compensation described in Section 2 (except for such remaining payments of base salary under Section 2.01 relating to periods during which the Employee was -5- 6 employed by Intrex or the Bank, benefits under Section 2.03 which are required by applicable law to be continued and reimbursement of proper expenses under Section 2.05) shall be made. (b) For the purposes of this Section, "cause" shall mean willful or gross neglect of duties for which the Employee is employed (other than on account of a medically determinable disability which renders the Employee incapable of performing such services); committing fraud, misappropriation or embezzlement in the performance of duties as an employee of Intrex or the Bank; conviction of a felony involving a crime of moral turpitude; materially failing to follow the proper instructions of either Board; or willfully engaging in conduct materially injurious to the Bank and in violation of the covenants contained in Sections 1.03 or 5.04. 3.03 Termination Following Change of Control. If there is a "change of control" (as defined in subsection (a) below) while this Agreement is in effect, the provisions of this Section 3.03 shall apply and shall continue to apply for a two-year period following the "change of control" (as defined in subsection (a) below); the provisions of this Section 3.03 shall continue to apply regardless of whether the Agreement is terminated. If during the two-year period following a "change of control" (as defined in subsection (a) below) the Employee's employment is terminated by the Employee following the occurrence of any of the events listed in subsection (b) below, the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. Similarly, if the Employee's employment is terminated without "cause" (as defined in Section 3.02 above) by Intrex or the Bank during the two-year period following the "change of control" (as defined in subsection (a) below), the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. (a) For the purposes of this Section 3.03, "change of control" shall mean the occurrence of one or more of the following three events: (1) after the Effective Date, any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than Intrex or the Bank, becomes a beneficial owner (as such term is defined in Rule 13d-3 as promulgated under the Securities Exchange Act of 1934, as amended) directly or indirectly of securities representing 25% or more of the total number of votes that may be cast for the election of directors of either Intrex or the Bank and two-thirds of the directors of the Boards, or the -6- 7 appropriate Board, have not consented to such event prior to its occurrence or within 60 days thereafter, provided that if the consent occurs after the event, it shall only be valid for the purposes of this paragraph (1) if a majority of the consenting Board or Boards are comprised of directors of either, or both, Intrex and the Bank, as appropriate, who were directors of either, or both, Intrex or the Bank, as appropriate, immediately prior to the event; (2) within two years after a merger, consolidation or sale of assets (other than in the ordinary course of business of Intrex or the Bank, as appropriate), involving Intrex or the Bank, or a contested election of a director of either, or both, Intrex or the Bank, as appropriate, or any combination of the foregoing, the individuals who were directors of Intrex or the Bank immediately prior thereto shall cease to constitute a majority of the respective Boards; (3) within two years after a tender offer or exchange offer for voting securities of Intrex or the Bank (other than by Intrex or the Bank, as appropriate), the individuals who were directors of Intrex or the Bank, as appropriate, immediately prior thereto shall cease to constitute a majority of the appropriate Board or the Boards. (b) The events referred to in this Section 3.03 shall be as follows: (1) a reduction of the Employee's annual Compensation (as described in Section 2 above) other than a reduction which is based on the financial performance of Intrex and/or the Bank and is similar to the reduction made to the compensation provided to each other senior executive officer of Intrex and/or the Bank, provided that such reduction does not exceed 25%; (2) in the judgment of the Employee (such judgment being exercised in good faith), a significant change in the Employee's responsibilities and/or duties which constitutes, when compared to the Employee's responsibilities and/or duties before the "change of control" (as defined in subsection (a) above), a demotion; (3) a loss of title or office; (4) an increase in Compensation for the Employee following a "change of control" that, when compared to the increases in Compensation received in the prior three years, is a lower dollar amount or percentage of increase, except that such reduction in increases in Compensation shall not be considered an "event" for purposes of this subsection (b) if such reduction in increases is based on the financial performance of -7- 8 Intrex and/or the Bank and is similar to the reduction in increases in compensation provided to other senior executive officers of Intrex or the Bank; or (5) a requirement that the Employee relocate to a location that is more than 25 miles from the main office of Intrex and the Bank immediately prior to the "change in control". (c) If the Employee becomes entitled to receive compensation pursuant to this Section 3.03, he shall receive a lump-sum payment from the Bank within 60 days of the termination of his employment. Such lump-sum payment shall equal three times of the Employee's "base amount" (as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")), provided that the Boards shall have full power, without the prior consent of the Employee, to reduce the amount of the lump-sum payment payable pursuant to this Section but only to the extent necessary to ensure that such lump-sum payment is not subject to tax pursuant to Section 4999 of the Code. (d) If the Employee's termination of employment is covered by both Section 3.01 and this Section 3.03, the Employee shall receive the greater of: (1) the compensation described in Section 3.01 net of the amount of tax imposed on such compensation under Section 4999 of the Code; and (2) the compensation described in subsection (c) above. 3.04 Termination by Death or Disability. If the Employee dies or becomes disabled (within the meaning of Section 72(m)(7) of the Code), this Agreement shall terminate and the Employee shall then be entitled to such compensation described in Section 2 that relates to the period that he performed services for Intrex or the Bank plus all applicable benefits to which the Employee is entitled under employee benefit plans maintained by Intrex or the Bank, incentive compensation or bonus plans, other benefit plans or programs maintained by Intrex or the Bank and all such other benefits from employment policies and practices of Intrex and the Bank. 4. Assignment. This Agreement and the rights and obligations of the parties hereto shall bind and inure to the benefit of each of the parties hereto and shall also bind and inure to the benefit of any successor or successors of Intrex or the Bank by reorganization, merger or consolidation and any assignee or all or -8- 9 substantially all of business and properties of Intrex or the Bank, but, except as to any such successor or assignee of Intrex or the Bank, neither this Agreement nor any rights or benefits hereunder may be assigned by Intrex, the Bank or the Employee. 5. Miscellaneous. 5.01 Governing Law. This Agreement shall be construed in accordance with and governed for all purposes by the laws of The Commonwealth of Massachusetts. 5.02 Interpretation. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 5.03 Notices. Any notice required or permitted to be given hereunder shall be effective when received and shall be sufficient if in writing and if personally delivered or sent by prepaid cable, telex or registered air mail, return receipt requested, to the party to receive such notice. 5.04 Confidential Information. The Employee will not disclose to any other person or entity (except as required by applicable law or in connection with the performance of his responsibilities hereunder), or use for his own benefit, any confidential information of Intrex or the Bank obtained by him incident to his employment with Intrex or the Bank. The term "confidential information" includes, without limitation, financial information, business plans, prospects and opportunities which have been discussed or considered by the Boards or management of Intrex or the Bank but does not include any information which has become public other than on account of the Employee's failure to comply with the provisions of this Section. 5.05 Amendment and Waiver. This Agreement may not be amended, supplemented or waived except by a writing signed by the party against which such amendment or waiver is to be enforced. The waiver by any party of a breach of any provision of this Agreement shall not operate to, or be construed as a waiver of, any other breach of that provision nor as a waiver of any breach of another provision. 5.06 Binding Effect. Subject to the provisions of Section 4 hereof, this Agreement shall be binding on the successors and assigns of the parties hereto. -9- 10 5.07 Survival of Rights and Obligations. All rights and obligations of the Employee, Intrex or the Bank arising during the term of this Agreement shall continue to have full force and effect after the termination of this Agreement. 5.08 Counterparts. This Agreement may be executed in three counterparts, each of which is an original but which shall together constitute one and the same instrument. 5.09 Legal Expenses. In the event that after a "change of control" the Employee's employment is terminated for any reason, including "cause", Intrex and/or the Bank shall pay such amounts as shall become due all of the legal expenses incurred by the Employee to contest such termination, except that the Employee shall reimburse Intrex and/or the Bank for all such expenses paid, and neither Intrex nor the Bank shall be further liable for any further expenses, should it be finally determined by a court of competent jurisdiction that the termination was for "cause" or, if the reason for termination was for "cause", the Employee fails to pursue his remedies to such a final determination. Execution Upon execution below by all parties, this Agreement will enter into full force and effect on the Effective Date. LAWRENCE SAVINGS BANK PAUL A. MILLER By: /s/ ARCHIBALD MACLAREN /s/ PAUL A. MILLER ------------------------- ------------------------- Archibald MacLaren Vice Chairman Witness: /s/ FRED S. TARBOX ------------------------------ INTREX FINANCIAL SERVICES, INC. By: /s/ WALLACE BOLTON ----------------------------- Wallace Bolton Vice Chairman -10- EX-10.2 8 b39832lsex10-2.txt AMENDMENT DATED DECEMBER 23, 1992 (MILLER) 1 Exhibit 10.2 [LAWRENCE SAVINGS BANK LETTERHEAD] December 23, 1992 Mr. Paul A. Miller 43 Covey Hill Road Reading, MA 01867 Dear Paul: Over the last several years, you and the Board of Intrex (before it was liquidated) and the Executive Committee of the Board of Directors of Lawrence Savings Bank have discussed your employment agreement. Specifically, you have indicated that it was your understanding that other than the salary dollars, your contract was to be identical to the employment agreement Mr. Dwain Smith had. The Directors of Intrex or the Executive Committee members who negotiated your employment and the related contracts were also under the impression that the contracts would be identical to Mr. Smith's employment agreements. It has subsequently been determined that the Smith agreement contained an arbitration clause which is not included in your contract. It has also subsequently been determined that the Smith agreement had a three-year term extended annually, whereas your contract reverted to a one-year contract after the third year and then reverted to a two-year contract. After discussion by the Executive Committee, it is their intention to change your employment agreement. Your employment agreement dated April 21, 1989 is hereby amended to include an Arbitration Clause without the provision that the Bank will pay all of the costs of arbitration regardless of the final outcome, etc. Accordingly, your employment agreement dated April 21, 1989 is hereby amended as follows: 2 Mr. Paul A. Miller December 23, 1992 Page 2 Section 1.04 Initial Term and Extensions is deleted in its entirety, and the following section 1.04 Initial Term and Extension is inserted. 1.04 Initial Term and Extension. Subject to the provisions of this section and Section 3.03, the term of this employment agreement shall be for three years commencing with the effective date hereof (April 21, 1989) provided, however, that the term shall be extended automatically for periods of one year commencing on the second anniversary of the effective date and on each subsequent anniversary thereafter, unless either party gives written notice to the other, prior to the date of such anniversary, of such party's election not to extend the term of this agreement. (This means that after April 21, 1992 the employment agreement will have a two year life at each renewal.) Your employment agreement is further amended by deleting Section 5.09 Legal Expenses and adding the following Section 6 Arbitration as follows: 6. Arbitration 6.01 Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three arbitrators, one of whom shall be appointed by the Bank, one by the Employee and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 6.01. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In any arbitration proceeding brought pursuant to this Section 6.01, or in any court proceeding to enforce or review an award of the arbitrators, each of the parties shall pay his or its own legal costs, expenses and attorneys' fees, provided, that if the issue or one of the issues if there be more than one, between the parties is whether the termination or dismissal of the 3 Mr. Paul A. Miller December 23, 1992 Page 3 Employee was for cause, and the ultimate conclusion, whether made by the arbitrators, or by a court (in a proceeding to enforce or review the arbitration award) is that the termination or dismissal was not for cause, then the Bank shall pay (or the Employee shall be entitled to recover from the Bank, as the case may be) the Employee's reasonable legal costs, expenses and attorneys' fees incurred in the litigation. The provisions of this Section 6.01 shall apply regardless of whether the termination or dismissal of the Employee for cause was made after or as a result of a "change of control." Execution Upon execution below by all parties, this Agreement will enter into full force and effect on the Effective Date as shown below: LAWRENCE SAVINGS BANK PAUL A. MILLER By: /s/ FRED S. TARBOX /s/ PAUL A. MILLER --------------------------- ----------------------- Fred S. Tarbox, Chairman /s/ THOMAS J. BURKE --------------------------- Thomas J. Burke /s/ SALVATORE F. CATAUDELLA ---------------------------- Salvatore F. Cataudella /s/ EDWARD F. CREGG ---------------------------- Edward F. Cregg /s/ JOHN P. FORD ----------------------------- John P. Ford /s/ ARCHIBALD D. MACLAREN ----------------------------- Archibald D. Maclaren December 23, 1992 ----------------------- Effective Date EX-10.3 9 b39832lsex10-3.txt AMENDMENT DATED MAY 25, 2000 (MILLER) 1 [LAWRENCE SAVINGS BANK LOGO] 30 Massachusetts Avenue North Andover, MA 01845-3460 Main: 978-725-7500 Fax: 978-725-7607 Web: www.lawrencesavings.com May 25, 2000 Mr. Paul A. Miller 43 Covey Hill Road Reading, MA 01867 Dear Paul: Your employment agreement dated April 21, 1989, as amended December 23, 1992, is hereby amended as follows: Section 3.03 Termination Following Change in Control (a)(1) line 7 - "25%" is hereby stricken and 15% is inserted in its place. Execution Upon execution below by all parties, this Agreement will enter in full force and effect on the effective date below: LAWRENCE SAVINGS BANK /s/ Thomas J. Burke /s/ Paul A. Miller _______________________________ _______________________________ Thomas J. Burke, Chairman Paul A. Miller /s/ Eugene A. Beliveau 5-25-00 _______________________________ _______________________________ Eugene A. Beliveau Effective Date /s/ Kathleen I. Boshar _______________________________ Kathleen I. Boshar /s/ Malcolm W. Brawn _______________________________ Malcolm W. Brawn /s/ Byron R. Cleveland _______________________________ Byron R. Cleveland, Jr. /s/ Neil H. Cullen _______________________________ Neil H. Cullen /s/ Richard Hart Harrington _______________________________ Richard Hart Harrington /s/ Robert F. Hatem _______________________________ Robert F. Hatem /s/ Marsha A. McDonough _______________________________ Marsha A. McDonough EX-10.4 10 b39832lsex10-4.txt EMPLOYMENT AGREEMENT - ROBERT P. PERREAULT 1 Exhibit 10.4 EMPLOYMENT AGREEMENT AGREEMENT made as of the 9th day of May, 1986, by and between Lawrence Savings Bank, a Massachusetts savings bank with its main office in Lawrence, Massachusetts (the "Bank") and Robert P. Perreault of Methuen, Massachusetts (the "Executive"). WITNESSETH WHEREAS, the parties hereto desire to provide for the Executive's employment by the Bank; NOW THEREFORE, in consideration of the mutual covenants contained herein, the Bank and the Executive agree as follows: 1. Employment. The Bank agrees to employ the Executive and the Executive agrees to continue in the employ of the Bank on the terms and conditions hereinafter set forth. 2. Capacity. The Executive shall serve the Bank as its Senior Vice President and Treasurer, subject to his election by the Board of Directors, or in such other executive position as the Board of Directors may designate. 3. Effective Date and Term. The commencement date (the "Commencement Date") of this Agreement shall be one day prior to the effective date of the conversion of the Bank from mutual to stock form of Massachusetts savings bank (the "Conversion"), subject, however, to the satisfaction of the conditions set forth in Sections 18 and 19 hereof. Subject to the provisions of Section 6, the term of the Executive's employment hereunder shall be for three years from the Commencement Date; provided, however, that the term shall be extended automatically for periods of one year commencing on the first anniversary of the Commencement Date and on each subsequent anniversary thereafter, unless either party gives written notice to the other, prior to the date of any such anniversary, of such party's election not to extend the term of this Agreement. The last day of such term, as so extended from time to time, is herein sometimes referred to as the "Expiration Date." 4. Compensation and Benefits. The regular compensation and benefits payable to the Executive under this Agreement shall be as follows: 2 (a) Salary. For all services rendered by the Executive under this Agreement, the Bank shall pay the Executive a salary at the rate of $49,000 per year, subject to increase from time to time in accordance with the usual practice of the Bank with respect to review of compensation of its senior executives. The Executive's salary shall be payable in periodic installments in accordance with the Bank's usual practice for its senior executives. (b) Regular Benefits. The Executive shall also be entitled to participate in any and all employee benefit plans, medical insurance plans, life insurance plans, disability income plans, retirement plans, bonus incentive plans and other benefit plans from time to time in effect for senior executives of the Bank. Such participation shall be subject to (i) the terms of the applicable plan documents, (ii) generally applicable Bank policies and (iii) the discretion of the Board of Directors or any administrative or other committee provided for in or contemplated by such plan. In addition, the Executive shall be entitled to receive benefits which are the same or substantially similar to those which are currently being provided to the Executive by the Bank. (c) Business Expenses. The Bank shall reimburse the Executive for all reasonable travel and other business expenses incurred by him in the performance of his duties and responsibilities, subject to such reasonable requirements with respect to substantiation and documentation as may be specified by the Bank. (d) Vacation. The Executive shall be entitled to not less than four weeks of vacation per year, to be taken at such times and intervals as shall be determined by the Executive with the approval of the Bank, which approval shall not be unreasonably withheld. 5. Extent of Service. During his employment hereunder, the Executive shall, subject to the direction and supervision of the Board of Directors, devote his full business time, best efforts and business judgment, skill and knowledge to the advancement of the Bank's interests and to the discharge of his duties and responsibilities hereunder. He shall not engage in any other business activity, except as may be approved by the Board of Directors; provided, however, that nothing herein shall be construed as preventing the Executive from: (a) investing his assets in a manner not prohibited by Section 8(a) hereof, and in such form or manner as shall not require any material services on his part in the operations or affairs of the companies or other entities in which such investments are made; 2 3 (b) serving on the board of directors of any company, subject to the prohibitions set forth in Section 8(a) and provided that he shall not be required to render any material services with respect to the operations or affairs of any such company; or (c) engaging in religious, charitable or other community or non-profit activities which do not impair his ability to fulfill his duties and responsibilities under this Agreement. 6. Termination and Termination Benefits. Notwithstanding the provisions of Section 3, the Executive's employment hereunder shall terminate under the following circumstances: (a) Death. In the event of the Executive's death during the Executive's employment hereunder, the Executive's employment shall terminate on the date of his death; provided, however, that (i) the Bank shall continue to pay an amount equal to the Executive's salary to the Executive's beneficiary designated in writing to the Bank prior to his death (or to his estate, if he fails to make such designation) for a period of six months after the date of the Executive's death, at the salary rate in effect on the date of his death, said payments to be made on the same periodic dates as salary payments would have been made to the Executive had he not died, and (ii) For a period of six months subsequent to the date of the Executive's death, the Executive's beneficiary designated in writing to the Bank prior to his death (or to his estate, if he fails to make such designation) shall continue to receive all benefits described in Section 4(b) above existing on the date of death (except for any cash bonus plans which shall be pro-rated through the date of death). For purposes of application of such benefits the Executive shall be treated as if he had remained in the employ of the Bank, with an annual salary at the rate in effect on the date of termination, with increases as provided in Section 4(a), and service credits will continue to accrue during such period as if the Executive had remained in the employ of the Bank. If benefits or service credits under any benefit plan shall not be payable or provided under any such plan to the Executive, or to the Executive's beneficiary or estate, because the Executive is no longer deemed to be an employee of the Bank, the Bank itself shall pay 3 4 or provide for payment of such benefits and services credits for such benefits to the Executive, or to the Executive's beneficiary or estate. (b) Termination by the Bank for Cause. The Executive's employment hereunder may be terminated without further liability on the part of the Bank effective immediately by a two-thirds vote of all of the members of the Board of Directors for cause by written notice to the Executive setting forth in reasonable detail the nature of such cause. Only the following shall constitute "cause" for such termination: (i) Deliberate dishonesty of the Executive with respect to the Bank or any subsidiary or affiliate thereof. (ii) Conviction of the Executive of a crime involving moral turpitude. (iii) Gross and willful failure to perform a substantial portion of his duties and responsibilities hereunder, which failure continues for more than thirty days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board of Directors, such vote to set forth in reasonable detail the nature of such failure. (c) Termination by the Executive. The Executive's employment hereunder may be terminated effective immediately by the Executive by written notice to the Board of Directors in the event of material breach by the Bank of any provision of this Agreement (d) Termination by the Bank Without Cause. The Executive's employment with the Bank may be terminated without cause by a two-thirds vote of all of the members of the Board of Directors on written notice to the Executive. (e) Certain Termination Benefits. In the event of termination pursuant to Sections 6(c) or (d), the Executive shall be entitled to the following benefits: (i) The Bank shall continue to pay the Executive a salary at the rate in effect on the date of termination until the Expiration Date. (ii) From the date of termination to the Expiration Date, the Executive shall continue to receive all benefits described in Section 4(b) above existing on the date of termination (except for any cash bonus plans which shall be pro-rated through the date of 4 5 termination). For purposes of application of such benefits the Executive shall be treated as if he had remained in the employ of the Bank, with an annual salary at the rate in effect on the date of termination, with increases as provided in Section 4(a), and service credits will continue to accrue during such period as if the Executive had remained in the employ of the Bank. If, in spite of the provisions of Section 6(e)(ii) above, benefits or service credits under any benefit plan shall not be payable or provided under any such plan to the Executive, or to the Executive's dependents, beneficiaries or estate, because the Executive is no longer deemed to be an employee of the Bank, the Bank itself shall pay or provide for payment of such benefits and service credits for such benefits to the Executive, or to the Executive's dependents, beneficiaries or estate. (f) Set-off. The Bank shall be entitled to set off against any cash compensation to be provided to the Executive under Section 6(e)(i) above one-half of the amount of any cash compensation received by the Executive from other employment during the period in which the Executive receives cash compensation under Section 6(e)(i). The Executive shall inform the Bank of any such amounts of cash compensation and shall refund to the Bank any amounts which the Bank has paid which exceed the amounts due from the Bank after application of the set-off provided for in this paragraph. Notwithstanding the foregoing and any other provision of this Agreement, the Executive shall be under no obligation to seek or accept any employment after termination of employment with the Bank for any reason. 7. Disability. If, due to physical or mental illness, the Executive shall be disabled so as to be unable to perform substantially all of his duties and responsibilities hereunder, the Board of Directors may designate another executive to act in his place during the period of such disability. Notwithstanding any such designation, the Executive shall continue to receive his full salary and benefits under Section 4 of this Agreement until he becomes eligible for disability income under the Bank's disability income plan. While receiving disability income payments under such plan, the Executive shall not receive any salary under Section 4(a), but shall continue to participate in the Bank's benefit plans and to receive other benefits as specified in Section 4 until the Expiration Date. In the absence of a disability income plan at the time of such disability, the Bank shall pay the Executive benefits equal to those the Executive would have received if the Bank's current disability income plan were in effect at such time. If any question shall arise as to whether during any period the Executive was disabled so as to be unable to perform substantially 5 6 all of his duties and responsibilities hereunder due to physical or mental illness, the Executive may, and at the request of the Bank will, submit to the Bank a certification in reasonable detail by a physician selected by the Executive or his guardian to whom the Bank has no reasonable objection as to whether the Executive was so disabled and such certification shall for the purposes of this Agreement be conclusive of the issue. If such question shall arise and the Executive shall fail to submit such certification, the Bank's determination of such issue shall be binding on the Executive. 8. Noncompetition and Confidential Information. (a) Noncompetition. During (i) a period of one year following the date of termination of the Executive's employment with the Bank by the Executive as a result of his election not to extend pursuant to Section 3 or by the Bank for cause pursuant to Section 6(b) hereof, and (ii) the period during which the Bank continues to provide benefits to the Executive pursuant to Section 6(e)(i)-(ii) hereof, the Executive will not, directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, or through any Person (as defined in Section 10), compete in the Bank's market area (defined as the towns of Lawrence, Andover, North Andover and Metheun, Massachusetts) with the banking or any other business conducted by the Bank during the period of his employment hereunder, nor will he attempt to hire any employee of the Bank, assist in such hiring by any other Person, encourage any such employee to terminate his or her relationship with the Bank, or solicit or encourage any customer of the bank to terminate its relationship with the Bank or to conduct with any other Person any business or activity which such customer conducts or could conduct with the Bank. (b) Confidential Information. The Executive will not disclose to any other Person (except as required by applicable law or in connection with the performance of his duties and responsibilities hereunder), or use for his own benefit or gain, any confidential information of the Bank obtained by him incident to his employment with the Bank. The term "confidential information" includes, without limitation, financial information, business plans, prospects and opportunities (such as lending relationships, financial product developments, or possible acquisitions or dispositions of businesses or facilities) which have been dis- 6 7 cussed or considered by the Bank's management but does not include any information which has become part of the public domain by means other than the Executive's non-observance of his obligations hereunder. (c) Relief; Interpretation. The Executive agrees that the Bank shall be entitled to injunctive relief for any breach by him of the covenants contained in Sections 8(a) or 8(b). In the event that any provision of this Section 8 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a period of time, too large a geographic area, or too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area, or range of activities as to which it may be enforceable. For purposes of this Section 8, the term "Bank" shall mean the Bank and any of its subsidiaries and affiliates. 9. Conflicting Agreements. The Executive hereby represents and warrants that the execution of this Agreement and the performance of his obligations hereunder will not breach or be in conflict with any other agreement to which he is a party or is bound, and that he is not now subject to any covenants against competition or similar covenants which would affect the performance of his obligations hereunder. 10. Definition of "Person," "Director" and "Board of Directors." For purposes of this Agreement: the term "Person" shall mean an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization; and the terms "Director" and "Board of Directors" shall mean a Director and the Board of Directors, respectively, of the Bank upon and after its conversion to stock form. 11. Withholding. All payments made by the Bank under this Agreement shall be net of any tax or other amounts required to be withheld by the Bank under applicable law. 12. Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three arbitrators, one of whom shall be appointed by the Bank, one by the Executive and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 12. Judgment upon the 7 8 award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any or all of the Executive's rights under this Agreement, the Bank shall pay (or the Executive shall be entitled to recover from the Bank, as the case may be) the Executive's reasonable attorneys' fees and other reasonable costs and expenses in connection with the enforcement of said rights (including the enforcement of any arbitration award in court) regardless of the final outcome, unless and to the extent the arbitrators shall determine that under the circumstances recovery by the Executive of all or a part of any such fees and costs and expenses would be unjust. 13. Assignment; Successors and Assigns, etc. Neither the Bank nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; provided, however, that the Bank may assign its rights under this Agreement without the consent of the Executive in the event the Bank shall hereafter effect a reorganization, consolidate with or merge into any other Person, or transfer all or substantially all of its properties or assets to any other Person. This Agreement shall inure to the benefit of and be binding upon the Bank and the Executive, their respective successors, executors, administrators, heirs and permitted assigns. In the event of the Executive's death prior to the completion by the Bank of all payments due him under this Agreement, the Bank shall continue such payments to the Executive's beneficiary designated in writing to the Bank prior to his death (or to his estate, if he fails to make such designation). 14. Enforceability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 15. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 16. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be suffi- 8 9 cient if in writing and delivered in person or sent by registered or certified mail, postage prepaid, to the Executive at the last address the Executive has filed in writing with the Bank or, in the case of the Bank, at its main office, attention of the Clerk. 17. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Bank. 18. Ratification of Agreement. This Agreement shall be submitted to the full Board of Directors of the Bank for ratification at the first meeting of the Board of Directors subsequent to the Conversion. 19. Agreement to be Null and Void. If the Conversion does not take place for any reason whatsoever, this Agreement shall be null and void. 20. Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Bank, by its duly authorized officer, and by the Executive, as of the date first above written. ATTEST: LAWRENCE SAVINGS BANK /s/ Robert P. Perreault By: - ------------------------------ ---------------------------- Clerk Title: President [Seal] WITNESS: /s/ Illegible /s/ Robert P. Perreault - ------------------------------ -------------------------------- ROBERT P. PERREAULT VS-6550/c 2/3/86 9 EX-10.5 11 b39832lsex10-5.txt AMENDMENT DATED DECEMBER 23, 1992 (PERREAULT) 1 Exhibit 10.5 [Lawrence Savings Bank Logo] P.O. Box 988 Lawrence, MA 01842 508-687-1131 December 23, 1992 Mr. Robert P. Perreault 30 Riverview Avenue Methuen, MA 01844 Dear Bob: Your employment agreement dated May 9, 1986 is hereby amended as follows: Section 3 Effective Date and Term is amended by inserting after "hereunder shall be for three years from the commencement date;" the words "until May 9, 1992 and thereafter be for two years" so that the Section reads "hereunder shall be for three years from the Commencement Date; until May 9, 1992 and thereafter be for two years; provided, however, that the term shall be extended automatically for periods of one year"... etc, etc. (This means that after May 9, 1992 the employment agreement will have a two-year life at each renewal.) Your employment agreement is further amended by deleting Section 12 Arbitration of Disputes and adding the following Section 12 Arbitration of Disputes as follows: 12. Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three arbitrators, one of whom shall be appointed by the Bank, one by the Employee and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 12. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 2 MR. R. P. PERREAULT DECEMBER 23, 1992 PAGE 2 In any arbitration proceeding brought pursuant to this Section 12, or in any court proceeding to enforce or review an award of the arbitrators, each of the parties shall pay his or its own legal costs, expenses and attorneys' fees, provided, that if the issue or one of the issues if there be more than one, between the parties is whether the termination or dismissal of the Employee was for cause, and the ultimate conclusion, whether made by the arbitrators, or by a court (in a proceeding to enforce or review the arbitration award) is that the termination or dismissal was not for cause, then the Bank shall pay (or the Employee shall be entitled to recover from the Bank, as the case may be) the Employee's reasonable legal costs, expenses and attorneys' fees incurred in the litigation. The provisions of this Section 12 shall apply regardless of whether the termination or dismissal of the Employee for cause was made after or as a result of a "change of control." Execution Upon execution below by all parties, this Agreement will enter into full force and effect on the Effective Date as shown below: LAWRENCE SAVINGS BANK ROBERT P. PERREAULT By: /s/ Fred S. Tarbox /s/ Robert P. Perreualt ---------------------------- ---------------------------- Fred S. Tarbox, Chairman /s/ Thomas J. Burke ---------------------------- Thomas J. Burke /s/ Salvatore F. Cataudella ---------------------------- Salvatore F. Cataudella /s/ Edward F. Cregg ---------------------------- Edward F. Cregg /s/ John P. Ford ---------------------------- John P. Ford /s/ Archibald D. Maclaren ---------------------------- Archibald D. Maclaren /s/ Paul A. Miller ---------------------------- Paul A. Miller December 23, 1992 ---------------------------- Effective Date EX-10.6 12 b39832lsex10-6.txt SPECIAL TERMINATION AGREEMENT (PERREAULT) 1 Exhibit 10.3 SPECIAL TERMINATION AGREEMENT AGREEMENT made as of the 9th day of May, 1986 by and between Lawrence Savings Bank, a Massachusetts savings bank with its main office in Lawrence, Massachusetts (the "Bank"), and Robert P. Perreault, an individual presently employed by the Bank in the capacity of Senior Vice President and Treasurer (the "Executive"). 1. Purpose. In order to allow the Executive to consider the prospect of a Change in Control (as defined in Section 2) in an objective manner and in consideration of the services rendered and to be rendered by the Executive to the Bank and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Bank, the Bank is willing to provide, subject to the terms of this Agreement, certain severance benefits to protect the Executive from the consequences of a Terminating Event (as defined in Section 3) occurring subsequent to a Change in Control. 2. Change in Control. A "Change in Control" shall be deemed to have occurred in either of the following events: (i) if there has occurred a change in control which the Bank would be required to report in response to Item 5(f) of the Form for Proxy Statement (Form F-5) prescribed by 12 CFR Section 335.212 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), or, if such regulation is no longer in effect, any regulations promulgated by the Federal Deposit Insurance Corporation or by the Securities and Exchange Commission pursuant to the 1934 Act which are intended to serve similar purposes or (ii) when any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of securities of the Bank representing twenty-five percent (25%) or more of the total number of votes that may be cast for the election of directors of the Bank and, in the case of either (i) or (ii) above, the Bank's Board of Directors has not consented to such event by a two-thirds vote of all of the members of the Board of Directors adopted either prior to such event or within ninety (90) days thereafter, except that if at the time such a consent vote is adopted after such event, the persons who were directors of the Bank immediately prior to such event do not constitute a majority of the Board of Directors of the Bank or of any successor institution, such vote shall not be deemed to constitute consent for the purposes of this Agreement. In 2 addition, a Change in Control shall be deemed to have occurred if, as the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Bank before such transaction shall cease to constitute a majority of the Board of Directors of the Bank or of any successor institution. Notwithstanding the other provisions of this Section, the sale of the Bank's stock in connection with its conversion from mutual to stock form (the "Conversion") shall not constitute a Change in Control. 3. Terminating Event. A "Terminating Event" shall mean (a) termination by the Bank of the employment of the Executive with the Bank for any reason other than (i) death, (ii) deliberate dishonesty of the Executive with respect to the Bank or any subsidiary or affiliate thereof, or (iii) conviction of the Executive of a crime involving moral turpitude, or (b) resignation of the Executive from the employ of the Bank, while the Executive is not receiving payments or benefits from the Bank by reason of the Executive's disability, subsequent to the occurrence of any of the following events: (i) A significant change in the nature or scope of the Executive's responsibilities, authorities, powers, functions or duties from the responsibilities, authorities, powers, functions or duties exercised by the Executive immediately prior to the Change in Control; or (ii) A reasonable determination by the Executive that, as a result of a Change in Control, he is unable to exercise the responsibilities, authorities, powers, functions or duties exercised by the Executive immediately prior to such Change in Control; or (iii) A decrease in the total annual compensation payable by the Bank to the Executive other than as a result of a decrease in compensation payable to the Executive and to all other executive officers of the Bank on the basis of the Bank's financial performance. 4. Severance Payment. In the event a Terminating Event occurs within three (3) years after a Change in Control, the Bank shall pay to the Executive an amount equal to (x) three times the "base amount" (as defined in Section 280G(b)(3) of the Internal Revenue Code of 1954, as amended (the "Code") 2 3 applicable to the Executive, less (y) One Dollar ($1.00), payable in one lump-sum payment on the date of termination. 5. Limitation on Benefits. (a) It is the intention of the Executive and of the Bank that no payments by the Bank to or for the benefit of the Executive under this Agreement or any other agreement or plan pursuant to which he is entitled to receive payments or benefits shall be non-deductible to the Bank by reason of the operation of Section 280G of the Code relating to parachute payments. Accordingly, and notwithstanding any other provision of this Agreement or any such agreement or plan, if by reason of the operation of said Section 280G, any such payments exceed the amount which can be deducted by the Bank, such payments shall be reduced to the maximum amount which can be deducted by the Bank. To the extent that payments exceeding such maximum deductible amount have been made to or for the benefit of the Executive, such excess payments shall be refunded to the Bank with interest thereon at the applicable Federal Rate determined under Section 1274(d) of the Code, compounded annually, or at such other rate as may be required in order that no such payments shall be non-deductible to the Bank by reason of the operation of said Section 280G. To the extent that there is more than one method of reducing the payments to bring them within the limitations of said Section 280G, the Executive shall determine which method shall be followed, provided that if the Executive fails to make such determination within forty-five days after the Bank has sent him written notice of the need for such reduction, the Bank may determine the method of such reduction in its sole discretion. (b) If any dispute between the Bank and the Executive as to any of the amounts to be determined under this Section 5, or the method of calculating such amounts, cannot be resolved by the Bank and the Executive, either party after giving three days written notice to the other, may refer the dispute to a partner in the Boston office of a firm of independent certified public accountants selected jointly by the Bank and the Executive. The determination of such partner as to the amount to be determined under Section 5(a) and the method of calculating such amounts shall be final and binding on both the Bank and the Executive. The Bank shall bear the costs of any such determination. 6. Employment Status. This Agreement is not an agreement for the employment of the Executive and shall confer no rights on the Executive except as herein expressly provided. 7. Term. Subject to the satisfaction of the conditions set forth in Sections 16 and 17, this Agreement shall take 3 4 effect one day prior to the effective date of the Conversion, and shall terminate upon the earlier of (a) the termination by the Bank of the employment of the Executive because of death, deliberate dishonesty of the Executive with respect to the Bank or any subsidiary or affiliate thereof, or conviction of the Executive of a crime involving moral turpitude, (b) the resignation or termination of the Executive for any reason prior to a Change in Control, or (c) the resignation of the Executive after a Change in Control for any reason other than the occurrence of any of the events enumerated in Section 3(b)(i)-(iii) of this Agreement. 8. Withholding. All payments made by the Bank under this Agreement shall be net of any tax or other amounts required to be withheld by the Bank under applicable law. 9. Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three arbitrators, one of whom shall be appointed by the Bank, one by the Executive and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 9. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any or all of the Executive's rights under this Agreement, the Bank shall pay (or the Executive shall be entitled to recover from the Bank, as the case may be) the Executive's reasonable attorneys' fees and other reasonable costs and expenses in connection with the enforcement of said rights (including the enforcement of any arbitration award in court) regardless of the final outcome, unless and to the extent the arbitrators shall determine that under the circumstances recovery by the Executive of all or a part of any such fees and costs and expenses would be unjust. This provision shall not apply to Section 5(b), except in the event that the Bank and the Executive cannot agree on the selection of the accounting partner described in said Section. 10. Assignment. Neither the Bank nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without prior written consent of the other party. This Agreement shall inure to the benefit of and be binding upon the Bank and the Executive, 4 5 their respective successors, executors, administrators, heirs and permitted assigns. In the event of the Executive's death prior to the completion by the Bank of all payments due him under this Agreement, the Bank shall continue such payments to the Executive's beneficiary designated in writing to the Bank prior to his death (or to his estate, if he fails to make such designation). 11. ENFORCEABILITY. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 12. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 13. NOTICES. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage prepaid, to the Executive at the last address the Executive has filed in writing with the Bank or, in the case of the Bank, at its main office, attention of the Clerk. 14. ELECTION OF REMEDIES. An election by the Executive to resign after a Change in Control under the provisions of this Agreement shall not constitute a breach by the Executive of any employment agreement between the Bank and the Executive and shall not be deemed a voluntary termination of employment by the Executive for the purpose of interpreting the provisions of any of the Bank's benefit plans, programs or policies. Nothing in this Agreement shall be construed to limit the rights of the Executive under any employment agreement he may then have with the Bank, provided, however, that if there is a Terminating Event under Section 3 hereof, the Executive may elect either to receive the severance payment provided under Section 4 or such termination benefits as he may have under any such employment agreement, but may not elect to receive both. 15. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Bank. 5 6 16. Ratification of Agreement. This Agreement shall be submitted to the full Board of Directors of the Bank for ratification at the first meeting of the Board of Directors subsequent to the Conversion. 17. Agreement to be Null and Void. If the Conversion does not take place for any reason whatsoever, this Agreement shall be null and void. 18. Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Bank, by its duly authorized officer, and by the Executive, as of the date first above written. WITNESS: /s/ Illegible /s/ ROBERT P. PERREAULT - --------------------------------- ----------------------------------- ROBERT P. PERREAULT ATTEST: LAWRENCE SAVINGS BANK /s/ ROBERT P. PERREAULT By: /s/ Illegible - --------------------------------- -------------------------------- Assistant Clerk Title: President ----------------------------- [Seal] VS-6560/c 2/3/86 6 EX-10.7 13 b39832lsex10-7.txt AMENDMENT DATED MAY 25, 2000 (PERREAULT) 1 [LAWRENCE SAVINGS BANK LETTERHEAD] May 25, 2000 Mr. Robert P. Perreault 30 Riverview Avenue Methuen, MA 01844 Dear Bob: Your special termination agreement dated May 9, 1986 is hereby amended as follows: Section 2 Change in Control, line 15 - "twenty-five percent (25%)" is hereby stricken and fifteen percent (15%) is inserted in its place. Execution Upon execution below by all parties, this Agreement will enter in full force and effect on the effective date below: LAWRENCE SAVINGS BANK /s/ THOMAS J. BURKE /s/ ROBERT P. PERREAULT - --------------------------------- ----------------------------------- Thomas J. Burke, Chairman Robert P. Perreault /s/ EUGENE A. BELIVEAU 5-25-00 - --------------------------------- ----------------------------------- Eugene A. Beliveau Effective Date /s/ KATHLEEN I. BOSHAR - --------------------------------- Kathleen I. Boshar /s/ MALCOLM W. BRAWN - --------------------------------- Malcolm W. Brawn /s/ BYRON R. CLEVELAND, JR. - --------------------------------- Byron R. Cleveland, Jr. /s/ NEIL H. CULLEN - --------------------------------- Neil H. Cullen /s/ RICHARD HART HARRINGTON - --------------------------------- Richard Hart Harrington /s/ ROBERT F. HATEM - --------------------------------- Robert F. Hatem /s/ MARSHA A. MCDONOUGH - --------------------------------- Marsha A. McDonough /s/ PAUL A. MILLER - --------------------------------- Paul A. Miller EX-10.8 14 b39832lsex10-8.txt SUPPLEMENTAL RETIREMENT AGREEMENT, APRIL 21, 1989 1 Exhibit 10.4 SUPPLEMENTAL RETIREMENT AGREEMENT This Agreement (the "Agreement") made and entered into as of this 4/21/89, 1989, by among and between Paul A. Miller (The "Employee"), Intrex Financial Services, Inc. ("Intrex") and Lawrence Savings Bank (the "Bank"). WHEREAS, the Intrex, the Bank and the Employee are, concurrently with the execution of this Agreement, entering into an Employment Agreement providing for the employment of the Employee with Intrex and the Bank; and WHEREAS, In recognition of the services to be provided by the Employee to Intrex and the Bank, Intrex and the Bank wish to provide the Employee with supplemental retirement benefits in addition to any retirement benefits to which the Employee may be entitled under any tax qualified plan maintained by Intrex or the Bank. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereby agree as follows: 1. Retirement Benefits. 1.01 Retirement Benefits. Subject to Section 1.03, Intrex and/or the Bank shall pay the Employee, commencing on the appropriate date specified in Section 1.02, $5,000 per month for 180 months. 1.02 Payment Date. The retirement benefits described in Section 1.01 shall begin on the earlier of: (a) the date that the Employee attains age 65 or, if later, the date that he terminates employment with Intrex and the Bank; (b) the date of the Employee's death; or (c) the date that the Employee is determined to be totally disabled (within the meaning of Section 72(m)(7) of the Internal Revenue Code of 1986, as amended (the "Code")). 1.03. Vesting. (a) Until the Employee is vested in the retirement benefits described in Section 1.01, neither he nor his beneficiary shall be entitled to such retirement benefits. (b) The Employee shall vest in 20% of the retirement benefits described in Section 1.01 for each full year that the Employee is employed by Intrex or the Bank. Notwithstanding the foregoing, the Employee shall be fully and immediately vested in the such retirement benefits on the date of his death or the date that he is determined to 2 be totally disabled (within the meaning of Section 72(m)(7) of the Code), provided that he is employed by Intrex or the Bank on such date. 1.04 Beneficiaries. (a) In the event that the Employee should die prior to receipt of any or all of the retirement benefits to which he is entitled hereunder, any retirement benefits remaining unpaid shall be paid to such beneficiary or beneficiaries as the Employee may designate by filing with Intrex or the Bank a notice in writing; but in the absence of any such designation, such unpaid amounts shall be so paid to his surviving spouse, if any, in the same manner that such benefits were paid or made payable to the Employee. If a beneficiary or the Employee's surviving spouse becomes entitled to receive retirement benefits under this Section and dies before all retirement benefits are paid to him or her, the balance of any such payments shall be made to the estate of the beneficiary or the Employee's surviving spouse in a single, lump sum. If there is no surviving beneficiary or spouse on the date of his death, then the current value of the balance remaining unpaid shall be paid in a single, lump sum to the Employee's estate. (b) The Board of Directors of the Bank, upon the request of a beneficiary or the Employee's surviving spouse may direct that the retirement benefits payable to that beneficiary or the surviving spouse be paid to such individual in a single, lump sum. 2. General. 2.01 Non-Assignable Rights. Except as otherwise provided by this Agreement, neither the Employee nor his spouse, nor any other beneficiary, shall have any right to sell, assign, transfer or otherwise convey the right to receive any payment hereunder, which payments and the right thereto are expressly declared to be non-assignable and non-transferable. 2.02 Independence of Agreement. The benefits payable under this Agreement shall be independent of, and in addition to, any other employment agreement that may exist from time to time between the parties hereto, including without limitation the Employment Agreement entered into as of the date hereof by and among, Intrex, the Bank and the Employee, or any other compensation payable by Intrex or the Bank to the Employee, whether as salary, bonus or otherwise. This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of Intrex or the Bank to discharge the Employee, or restrict the right of the Employee to terminate his employment. -2- 3 2.03 Non-Secured Promise. The rights of the Employee under this Agreement and of any beneficiary or the spouse of the Employee shall be solely those of an unsecured creditor of Intrex and the Bank. Any insurance policy or any other asset that may be acquired or held by Intrex or the Bank in connection with the liabilities assumed hereunder shall not be deemed to be held under any trust for the benefit of the Employee, his spouse or his beneficiaries or to be security for the performance of the obligations of Intrex or the bank, but shall be, and remain, a general, unpledged, unrestricted asset of Intrex and/or the Bank. 2.04 Governing Law. This Agreement shall be construed in accordance with and governed for all purposes by the laws of The Commonwealth of Massachusetts. 2.05 Amendment and Waiver. This Agreement may not be amended, supplemented or waived except by a writing signed by the party against which such amendment or waiver is to be enforced. The waiver by any party of a breach of any provision of this Agreement shall not operate to, or be construed as a waiver of, any other breach of that provision nor as a waiver of any breach of another provision. 2.06 Binding Effect. Subject to the provisions of Section 2.01, this Agreement shall be binding on the successors and assigns of the parties hereto. 2.07 Counterparts. This Agreement may be executed in three counterparts, each of which is an original but which shall together constitute one and the same instrument. Execution Upon execution below by all parties, this Agreement will be of full force and effect. LAWRENCE SAVINGS BANK PAUL A. MILLER By /s/ ARCHIBALD MACLAREN /s/ PAUL A. MILLER --------------------------------- ---------------------------------------- ARCHIBALD MACLAREN VICE CHAIRMAN WITNESS: /s/ FRED S. TARBOX ------------------------------ INTREX FINANCIAL SERVICES, INC. By /s/ WALLACE L. BOLTON --------------------------------- WALLACE L. BOLTON VICE CHAIRMAN -3- EX-10.9 15 b39832lsex10-9.txt SUPPLEMENTAL RETIREMENT AGREEMENT, APRIL 21, 1996 1 Exhibit 10.9 Lawrence Savings Bank SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 2 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN BASIC PLAN DOCUMENT TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Actuarial Equivalent 1 1.2 Average Compensation 1 1.3 Beneficiary 1 1.4 Board 1 1.5 Compensation 1 1.6 Construction of Contract 1 1.7 Disability 1 1.8 Early Retirement Age 1 1.9 Election 1 1.10 Employee 1 1.11 Employer 2 1.12 Entry Date 2 1.13 IRC 2 1.14 Normal Form of Benefit 2 1.15 Normal Retirement Age 2 1.16 Normal Retirement Benefit 2 1.17 Participant 2 1.18 Plan 2 1.19 Plan Administrator 2 1.20 Plan Year 2 1.21 Retirement Date 2 1.22 Social Security Benefit 2 1.23 Termination Date 2 1.24 Vested Benefit 3 1.25 Years of Service 3
ARTICLE II BENEFITS 2.1 Accrued Benefit 4 2.2 Automatic Pension 4 2.3 Optional Forms of Payment 4 2.4 Payment of the Accrued Benefit 4 2.5 Early Retirement Benefit 4 2.6 Late Retirement Benefit 4 2.7 Termination of Employment Benefit 4 2.8 Denial of Benefits 4
3 ARTICLE III DEATH BENEFITS 3.1 Death Benefit 5 3.2 Designation of Beneficiary 5 3.3 Death of Participant After Retirement or Termination of Employment 5
ARTICLE IV DISABILITY BENEFITS 4.1 Disability Benefits 6 4.2 Return to Work 6
ARTICLE V FUNDING 5.1 Investment 7
ARTICLE VI MISCELLANEOUS 6.1 Alienability 8 6.2 Amendment by Employer 8 6.3 Expenses 8 6.4 Limitation 8 6.5 Change of Control 9 6.6 Violation of Agreement 9 6.7 For Cause Clause 9 6.8 Non-Compete Clause 10
ADOPTION AGREEMENT APPENDIX A Supplemental Executive Retirement Plan Agreement APPENDIX B Change of Beneficiary Form APPENDIX C Application for Plan Benefits APPENDIX D Sample ERISA Department of Labor Statement APPENDIX E Sample Votes of Board 4 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN BASIC PLAN DOCUMENT ARTICLE I DEFINITIONS 1.1 Actuarial Equivalent means any benefit under this Plan which, at any time, has the same present value as a straight life annuity commencing at Normal Retirement Age based on 6 percent interest and the 1971 Individual Annuity Mortality Table for males set back 3 years, discounted to the payment commencement date by 7 percent, or by interest rates and mortality specified in Section 2.3 of Article II, if applicable. 1.2 Average Compensation means the average of the Participant's highest 3 consecutive Plan Years Compensation prior to his Retirement Date unless otherwise elected in Section A3 of the Adoption Agreement. 1.3 Beneficiary shall mean the person or persons designated by the Participant to receive benefits under the Plan after the death of the Participant. 1.4 Board shall mean the Board of Directors of the Employer. 1.5 Compensation means the definition elected in Section A3 of the Adoption Agreement. 1.6 Construction of Contract shall be made without regard to the gender or whether words are used in the singular or plural unless the context requires such interpretation. 1.7 Disability means the Participant's entitlement to Social Security disability income benefits. 1.8 Early Retirement Age is the earliest of the ages elected in Section A4(b) of the Adoption Agreement. 1.9 Election means a written instrument executed by a Participant and filed with the Plan Administrator on or before its effective date, exercising one or more rights under this Plan. 1.10 Employee shall mean each current or future Employee of the Employer who is a member of a selected group of management or otherwise highly compensated personnel as determined by the Board. 1 5 1.11 Employer means the Lawrence Savings Bank, its successors and assigns, any subsidiary or affiliated organizations authorized by the Board to participate in this Plan with respect to their Employees, and any organization into which the Employer may be merged or consolidated or to which all or substantially all of its assets may be transferred. 1.12 Entry Date means the date that an Employee satisfies the eligibility requirements set in Section A5 of the Adoption Agreement. 1.13 IRC means the Internal Revenue Code of 1986 and the appropriate section thereof is designated by the numbers following IRC. 1.14 Normal Form of Benefit means an annuity payable for the life of the Participant ceasing at his death. 1.15 Normal Retirement Age means the age elected in Section A4(a) of the Adoption Agreement. 1.16 Normal Retirement Benefit means the Accrued Benefit payable to the Participant upon separation from service at Normal Retirement Age under the Plan. 1.17 Participant means an Employee who has satisfied the eligibility requirements contained in Section A5 of the Adoption Agreement. Participation will commence on the Employee's Entry Date. A terminated Employee who has a Vested Benefit or a Beneficiary entitled to benefits hereunder is an Inactive Participant. 1.18 Plan means the Employer's Supplemental Executive Retirement Plan. 1.19 Plan Administrator shall mean the individual designated by the Board to administer the Plan. 1.20 Plan Year means the period specified in Section A2 of the Adoption Agreement. 1.21 Retirement Date means the date that payment of a Participant's Accrued Benefit commences which shall be the first day of the month following Normal Retirement Age unless the Participant elects a different Retirement Date with the consent of the Employer. 1.22 Social Security Benefit means the monthly old age insurance benefit the Participant is first entitled to receive at his Social Security Retirement Agent. Prior to his Social Security Retirement Age it will be assumed that the Participant will continue to earn the same annual Compensation which is in effect for him and that the Social Security law will not change thereafter, and by using his actual salary history, if available, or by estimating his prior Compensation using a 5% salary scale projected backwards. 1.23 Termination Date means the date a Participant ceases to be an Employee. 2 6 1.24 Vested Benefit means an Accrued Benefit which is non-forfeitable. An Accrued Benefit derived from Employer Contributions is 100% vested at the earliest of the Participant's Early Retirement Age, or at an earlier mandatory Retirement Age enforced by the Employer, or at his Disability or his death and prior thereto as set in Section A7 of the Adoption Agreement. 1.25 Years of Service shall be defined as elected in Section A6 of the Adoption Agreement. 3 7 ARTICLE II BENEFITS 2.1 Accrued Benefit means the benefit derived from Employer contributions that a Participant will begin to receive at Normal Retirement Age, as elected in A8 of the Adoption Agreement. For purposes of determining the amount of benefits payable under any qualified plan of the Employer, benefits attributable to Employee contributions, shall not be considered. 2.2 Automatic Pension means a straight life annuity for a Participant who is not married on the Retirement Date and an actuarially equivalent joint & survivor annuity for a Participant who is married on the Retirement Date. 2.3 Optional Forms of Payment. In lieu of the Automatic Pension, the Participant may elect, any time prior to the date specified in Section 2.5 below, Actuarial Equivalent Optional Forms of Payment as provided in Sections A9, A11 and A12 of the Adoption Agreement. Lump sum payments of the defined benefit portion of the Accrued Benefit shall be based on the mortality table and interest rates in Section 1.1. 2.4 Payment of the Accrued Benefit shall begin effective with the first day of the month next following termination of employment and, unless the Participant elects otherwise and with the written approval of the Board, no later than 60 days after the later of the last day of the Plan Year in which the Participant: a) attains Normal Retirement Age; or b) terminates his service with the Employer. 2.5 Early Retirement Benefit. The amount payable to a Participant who terminates employment after attaining Early Retirement Age but before Normal Retirement Age is the Actuarial Equivalent of the Participant's Accrued Benefit payable at Normal Retirement Age. The Early Retirement Benefit is payable as provided in Sections 2.2 and 2.3 of the Plan. 2.6 Late Retirement Benefit. The amount payable to a Participant who continues working after Normal Retirement Age is the Participant's Accrued Benefit upon retirement. The Late Retirement Benefit is payable as provided in Sections 2.2 and 2.3 of this Plan. 2.7 Termination of Employment Benefit. The amount payable at the Termination Date to a Participant who terminates employment prior to Early Retirement Age and satisfies the Vesting requirement in A7 of the Adoption Agreement is the Actuarial Equivalent of the Accrued Benefit payable at Normal Retirement Age. The Termination of Employment Benefit is payable as provided in Sections 2.2 and 2.3 of this Plan. 2.8 Denial of Benefits. The Plan Administrator shall give a written explanation to the Participant, setting forth the specific reasons for the denial of any benefit. 4 8 ARTICLE III DEATH BENEFITS 3.1 Death Benefit. If a Participant dies prior to his Retirement Date, his designated Beneficiary will be paid, commencing on the first day of the month next following the Participant's death, (i) the Actuarial Equivalent value of his Accrued Benefit on the day he died, payable under any Optional Form of Payment provided in Section A9 of the Adoption Agreement. If a Beneficiary dies prior to receiving all benefits available under the Optional Form of Payment, the remaining benefits shall be made to the person or persons named by the Beneficiary to receive the benefits payable under such Optional Form of Payment or to the Beneficiary's estate if no such person is named. If the Participant is not survived by a named Beneficiary, or if the Board is in doubt as to the effective status of a Beneficiary designation, then the Death Benefit provided by this Section 3.1 shall be paid to the Participant's estate in one lump sum. 3.2 Designation of Beneficiary. The Participant shall have the right to designate a Beneficiary, including a contingent beneficiary, entitled to receive the benefits payable under Section 3.1 in the event of his death. Such designation shall be made in writing and delivered to the Board. The Participant may change such designation from time to time and may revoke such designation. 3.3 Death of Participant After Retirement or Termination of Employment. Upon the death of the Participant after retirement or other termination of employment, no benefits will be payable to the Participant's Beneficiary or any other person so designated by the Participant unless the Automatic Pension or Optional Form of Payment in effect or elected under Section 2.3 or 2.4 of this Plan provides a death benefit. 5 9 ARTICLE IV DISABILITY BENEFITS 4.1 Disability Benefits. If the Participant is unable to continue in the employ of the Employer by reason of Disability, the Participant shall be entitled to receive a Disability Benefit, in lieu of all other benefits under the Plan, commencing on the first day of the month next following such determination of Disability, payable in monthly installments, in an amount equal to the amount elected in A10 of the Adoption Agreement. Distribution may be in any form provided in A11 of the Adoption Agreement. 4.2 Return to Work. In the event the Participant returns to work after receiving Disability Benefits, Disability Benefits shall cease and the Participant shall continue in this Plan as though such disability had not occurred. Accrued benefits payable under the Plan thereafter shall be determined on the basis of the Participant's total Years of Service and shall be adjusted to take into account the Actuarial Equivalent of the Disability Benefits, if any, previously paid to the Participant. 6 10 ARTICLE V FUNDING 5.1 Investment. All payments of amounts under the Plan shall be paid from the general funds of the Employer and no special or separate fund shall necessarily be established and no other segregation of assets shall necessarily be made to assure the payment of such amounts. Neither Participants nor their beneficiaries or estates shall have any right, title, or interest whatever in or to any investments, including any "Applicable Policy", which the Employer may make to aid it in meeting its obligation hereunder. To the extent that any person acquires any right to receive payments from the Employer under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Employer. Notwithstanding the foregoing, nothing in the Plan document shall preclude the Employer from contributing to or making Plan payments from a Rabbi Trust, as elected in the Adoption Agreement. 7 11 ARTICLE VI MISCELLANEOUS 6.1 Alienability. The right of a Participant to receive any amount credited to the Participant under the Plan shall not be transferable or assignable by the Participant. No person shall be entitled to anticipate any payment by assignment, alienation, sale, pledge, encumbrance or transfer in any form or manner prior to actual or constructive receipt thereof. 6.2 Amendment by Employer. The Employer may amend the Adoption Agreement by selecting any of its elective provisions. The amendment may not reduce the Accrued Benefit as elected in A8 of the Adoption Agreement. Any such amendment shall be delivered to the Participants and Beneficiaries and to the Plan Administrator. 6.3 Expenses. The Employer will pay all Expenses of the Plan. 6.4 Limitation. The establishment of this Plan, or the payment of benefits, shall not give any Participant or Employee any legal or equitable right against the Employer. This Plan shall not give any Participant or Employee the right to be retained in the service of the Employer. This Plan shall be governed by, and shall be construed and interpreted in accordance with, applicable federal law and with the laws of the Commonwealth of Massachusetts. The Accrued Benefit of any individual under the Plan shall be reduced by the amount, if any, by which the cash value or the death proceeds under any Applicable Policy maintained by the Employer with respect to such individual's benefits is reduced as a result of any misstatement or other action or omission by the Participant to which such Applicable Policy relates or by any such other individual. In the event that any one or more of the provisions of this Plan shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalidated provision shall be automatically amended to the extent necessary to make it valid consistent with the intent of the Employer hereunder. 8 12 6.5 Change of Control. A Participant shall be immediately vested in the total amount credited to his Accrued Benefit in the event of a change of control of the Employer, and such amount will be immediately distributable to the Participant. A change of control for this purpose shall be deemed to occur upon the purchase or other acquisition by any person, entity, or group of persons, within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 50 percent or more of either the outstanding shares of common stock or the combined voting power of the Employer's then outstanding voting securities entitled to vote generally, or the approval by the stockholders of the Employer of a reorganization, merger, or consolidation, in each case, with respect to which persons who were stockholders of the Employer immediately prior to such reorganization, merger, or consolidation, do not immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged, or consolidated Employer's then outstanding securities, or a liquidation or dissolution of the Employer of the sale of all or substantially all of the Employer's assets. 6.6 Violation of Agreement. In the event that the Participant violates any of the terms of this Plan, the Employer, in addition to any other rights which it may have, shall be relieved of the liability to make any further payments under the Plan to, or on behalf of, the Participant and shall have the right to specifically enforce this Plan by proceedings in equity. 6.7 For Cause Clause. As elected in Section A13(a) of the Adoption Agreement, all of a Participant's benefits under this Plan will be forfeited if the Participant's employment is terminated for cause. The Corporation shall have "cause" to terminate the Participant's employment hereunder because of the Participant's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation involving moral turpitude or final cease and desist order, or material breach of any provision of this Agreement. For purposes of this Section, no act or failure to act on the Participant's part will be considered "willful" unless done, or admitted to be done, by him in bad faith and without reasonable belief that his action or omission was in the best interests of the Employer; provided that any act or omission to act by the Participant in reliance upon an opinion of counsel to the Employer shall not be deemed to be willful. Notwithstanding the foregoing, the Participant shall not be deemed to have been terminated for cause unless and until there shall have been delivered to him a copy of a certification by the Clerk of the Corporation that three-fourths (3/4) of the entire Board of Directors of the Employer found in good faith that the Participant was guilty of conduct which is deemed to be Cause as defined above and specifying the particulars thereof, after reasonable notice to the Participant and an opportunity for him together with his counsel, to be heard before such majority. 9 13 6.8 Non-Compete Clause. If the Non-Compete Clause is elected in Section A 13(b) of the Adoption Agreement, the Participant must not violate the terms of this Section 6.8. After becoming a Participant in this Plan, and for the period after termination of employment with the Employer as elected in Section A13(b) of the Adoption Agreement, the Participant may not be an employee or consultant of, or hold any other position with, or directly or indirectly assist, any bank in connection with any banking activities by said bank in the same county where the Participant's Employer has a branch; nor will the Participant attempt to hire any employee of the Employer, assist in such hiring by any other person or entity, encourage any such employee to terminate his or her relationship with the Employer, or solicit or encourage any customer of the Employer to terminate its relationship with the Employer or to conduct with any other person or entity any business or activity which such customer conducts or could conduct with the Employer; provided, however, that nothing herein shall prohibit the Participant from owning up to 2% of the shares of common stock of any bank whose shares are publicly traded on a national securities exchange or in the over-the-counter market. 10 14 LAWRENCE SAVINGS BANK SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ADOPTION AGREEMENT The undersigned Employer adopts this Plan for the exclusive benefit of its eligible employees and beneficiaries to provide retirement and pre-retirement benefits. The Plan shall operate in accordance with the Basic Plan Document and the Adoption Agreement provisions as elected. Lawrence Savings Bank PLAN NAME: Supplemental Executive Retirement Plan EMPLOYER NAME: Lawrence Savings Bank FEDERAL IDENTIFICATION NUMBER: 04-1528790 PLAN ADMINISTRATOR: Thomas Forese, Jr., 7 Millstone Road Windham, NH 03087 A1. EFFECTIVE DATE OF PLAN: 01-01-96 A2. PLAN YEAR: -------a) The Plan Year is the calendar year. x -------b) The Plan Year is a 12 month period beginning on 01-01___. A3. COMPENSATION AND AVERAGE COMPENSATION: a) COMPENSATION x -------1) Reported W-2 earnings. -------2) As defined in IRC 415(c)(3). (elect 1) or 2)) -------3) Compensation as defined in 1) or 2) shall exclude bonuses. -------4) Including ----- not including ----- amounts contributed pursuant to a Salary Reduction Agreement and which is not included in the participant's gross income under IRC 125, 402(a)(8), 402(h) or 403(b). Compensation as elected means Compensation which is actually paid to a Participant during the Plan Year and earned from the Participant's Entry Date. b) AVERAGE COMPENSATION is ------------------------------------ (If left blank, the definition of Average Compensation in Plan Section 1.2 shall apply.) AA1 15 A4. DATES: ------ a) NORMAL RETIREMENT AGE is 65. -- b) EARLY RETIREMENT AGE IS 62. -- A5. ELIGIBILITY ----------- a) Class of employees (i.e., Exec. V.P. and above/employees ----- earning over $150,000 or IRC 401(a)(17)). (please define) ------------------------------------------------------------- ------------------------------------------------------------- x b) Individuals by name. (please define) ----- Paul A. Miller ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- c) Other. (please define) ----- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- A6. YEARS OF SERVICE ---------------- x a) Same as SBERA Pension Plan. ----- b) Same as SBERA Defined Contribution Plan. ----- c) Other: ----- ------------------------------------------------------------- ------------------------------------------------------------- A7. VESTING ------- a) Minimum Age of 60 . ---- b) Minimum years of service of 3 . --- AA2 16 A8. BENEFITS: Annual benefits at retirement shall be in accordance with the following: 70% of the average of the participant's three highest consecutive year's gross compensation reduced by: - The amount of the participant's annual benefits payable under the SBERA defined benefit pension plan, - The amount of the participant's annual benefits payable under the Shawmut Bank Supplemental Executive Retirement Plan, and - The amount of the participants annual benefits payable under the Supplemental Retirement Agreement dated April 21, 1989 between Lawrence Savings Bank and the participant. A9. DISTRIBUTION OPTIONS AT DEATH AND AT EARLY, NORMAL AND LATE RETIREMENT (select desired options) _______ a) Lump Sum. _______ b) Annual Installments over _________ (specify options) years. _______ c) Life Annuity. ___X___ d) Joint and ____100____% (specify options) Survivor Annuity. A10. DISABILITY RETIREMENT BENEFIT ___X___ a) Accrued Benefit (unreduced for early commencement). _______ b) Actuarially Equivalent Accrued Benefit (reduced for early commencement). _______ c) Accrued Benefit with payment deferred to ______________________. _______ d) None. _______ e) Other: _______________________________________________________________ _______________________________________________________________ AA3 17 A11. DISTRIBUTION OPTIONS AT DISABILITY RETIREMENT (select desired options) _____ a) Lump Sum. _____ b) Annual Installments over __________ (specify options) years. _____ c) Life Annuity. __X__ d) Joint and ___100___% (specify options) Survivor Annuity. _____ e) No Distribution. A12. DISTRIBUTION OPTIONS DUE TO TERMINATION OF EMPLOYMENT, IF VESTED (select desired options) _____ a) Lump Sum. _____ b) Annual Installments over __________ (specify options) years. _____ c) Life Annuity. __X__ d) Joint and ___100___% (specify options) Survivor Annuity. A13. FORFEITURE CLAUSE __X__ a) For cause. _____ b) Non-complete clause within the Commonwealth of Massachusetts which shall be applicable for __________ years after the Participant terminates employment with the Employer. A14. CONTROLLING STATE LAW The laws of The Commonwealth of Massachusetts shall control this Plan. Employer: Lawrence Savings Bank _______________________________ FID# 04-1528790 ___________________________ _______________________, 1996 BY: /s/ A.D. Maclaren ___________________________ PM4AA-LAWR AA4 18 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT I hereby acknowledge that, as an Employee, I have been offered an opportunity to participate in the Supplemental Executive Retirement Plan (the "Plan") providing the Supplemental Benefits specified in Section A8 of the Adoption Agreement (which Plan and Adoption Agreement are attached hereto and made a part hereof), and that I hereby elect to participate in the Plan. I further acknowledge that neither the Employer nor any of its subsidiaries, affiliated companies, employees or agents has any responsibility or liability whatsoever for any changes which I may make in personal plans or programs as a result of my decision to participate in the Plan and I recognize that the Employer has the right to terminate, amend or modify the Plan at any time. I hereby designate as Primary Beneficiary under the Plan: Carol A. Miller - Wife, Social Security Number ###-##-#### I hereby designate as Secondary Beneficiary under the Plan: I understand that Beneficiary means the Primary Beneficiary if the Primary Beneficiary survives me, and the Secondary Beneficiary if the Primary Beneficiary does not survive me and means my estate if neither the Primary Beneficiary nor the Secondary Beneficiary survives me. I reserve the right to change the Primary and/or Secondary Beneficiary from time to time in the manner as required by the Plan, and I agree that no change in Beneficiary shall be effective unless received by the Employer while I am living and until acknowledged in writing by the Employer. Notices to me (Participant) shall be sent as follows: Name Paul A. Miller Street Address or 43 Covey Hill Road Post Office Box No. City and State Reading, MA Zip Code 01867 1 19 IN WITNESS WHEREOF, the Employer and I have executed this acceptance as of the ____ day of ____________, 1996. EMPLOYEE: /s/ Paul A. Miller ----------------------------------- (Signature) Paul A. Miller ------------------------------------ (Type or Print Name Under Signature) ACCEPTED Lawrence Savings Bank By: /s/ A. D. Maclaren --------------------------- Authorized Signature 2 20 CHANGE OF BENEFICIARY FORM FOR SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As a Participant of the Supplemental Executive Retirement Plan (the "Plan") of the Employer, I hereby designate as Primary Beneficiary and Secondary Beneficiary under the Plan and my Plan Agreement the following: Primary Beneficiary: Carol A. Miller (wife) ---------------------------------------------------------- Secondary Beneficiary: (4 Illegible names) -------------------------------------------------------- CHILDREN - EQUALLY All previous beneficiary designations made by me in my Plan Agreement are revoked and any benefits due to be paid by the Employer shall be paid to the above designated beneficiary(ies) in accordance with the terms of the Plan and my Plan Agreement as though the above designated beneficiary(ies) have been originally named in my Plan Agreement. I acknowledge that this beneficiary designation will not be effective unless received by the Employer while I am living and acknowledged in writing by the Employer in the space provided below. Signed and sealed this 29th day of April 1996 PARTICIPANT: /s/ Paul A. Miller ------------------------------ (Signature) Beneficiary designated herein acknowledged this day of 19 . ---- ---------- ---- By: ------------------------------- Plan Administrator 1 21 SAMPLE ERISA DEPARTMENT OF LABOR STATEMENT* TO: The Secretary of Labor: In order to comply with the requirements of the alternative reporting and disclosure method under ERISA, Title 1, Part 1, as provided for an unfunded deferred compensation plan for a select group of management or highly compensated employees in D.O.L. Reg. 2520.104,23, the following information is provided by the undersigned Plan Administrator: (1) The name of the Employer is: Lawrence Savings Bank --------------------- (2) The mailing address of the Employer is: P.O. Box 988, Lawrence, MA 01842 (3) The Employer's Federal Identification Number (FIN) is: 04-1528790 (4) The number of plans and the number of participants in each plan is: One plan covering one Employees. ----- The above named Employer maintains (this) plan primarily for the purpose of providing deferred compensation in the form of salary continuation benefits to a select group of management or highly compensated employees. The Employer will provide a copy of the agreement to the Secretary of Labor upon request. LAWRENCE SAVINGS BANK --------------------- (Name of Employer) By: ------------------------------ Plan Administrator Dated: ----------------------------- *NOTE: This statement must be filed within 120 days after the plan is adopted (D.O.L. Reg 2520.104.23(b)(2)). If the employer fails to comply with this requirement, the plan must distribute and file a Summary Plan Description and meet other applicable reporting and disclosure requirements. This Statement should be mailed to: Office of Employee Benefits Security, Labor Management Services Administration, U.S. Department of Labor, Washington, D.C. 20216. 1 22 SAMPLE VOTES OF BOARD 1. Voted: That the Lawrence Savings Bank's Supplemental Executive Retirement Plan in the form attached hereto and made a part of hereof is hereby adopted effective and the of the Employer is authorized and directed to take such action as may be necessary or desirable to effectuate this vote. 2. Voted: That is hereby designated as Plan Administrator. 3. Voted: That shall be entitled to Participate in the Employer's Supplemental Executive Retirement Plan and that benefits for such Employee shall be as provided in the Supplemental Executive Retirement Plan Agreement and copy of which is attached hereto and made a part hereof. 1 23 LAWRENCE SAVINGS BANK SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN APPLICATION FOR PLAN BENEFITS TO: Plan Administrator: The undersigned hereby makes application for payment of benefits for ____________________ a Participant under the Plan. The Participant terminated employment as a result of: __________________ Retirement __________________ Total Disability __________________ Death Subject to approval of the Board, the claimant requests distribution of the Participant's benefit in the manner provided in the Plan Agreement. _____________________________ Claimant* *In the Event the Participant is deceased, the Claimant shall be the Participant's Beneficiary, and in all other cases, the Claimant is the Participant. NOTICE OF ACTION ON CLAIM The Board received the above application for payment of benefits on behalf of the Participant on ____________________, 19___. The following number(s) which are checked explain the disposition of the application. ___ 1. The Board approved the following method of distribution of the Participant's Benefit: _________________________________________________ _________________________________________________ 1 24 ___ 2. The claim has been denied in full or in part for the following reason(s): _________________________________________________ _________________________________________________ ___ 3. Additional material or information necessary for the Claimant to perfect the claim and the reason why such material or information is necessary as follows: _________________________________________________ _________________________________________________ _________________________________________________ _____________________________ Plan Administrator 2 EX-10.10 16 b39832lsex10-10.txt EMPLOYMENT AGREEMENT - JEFFREY W. LEEDS 1 Exhibit 10.10 EMPLOYMENT AGREEMENT This Agreement made as of this February 24, 2000, by and among J.W. Leeds (the "Employee") and Lawrence Savings Bank (the "Bank") shall be effective as of February 24, 2000 (the "Effective Date"). WHEREAS, the Board of Directors of the Bank recognizes the Employee's potential contribution to the growth and success of the Bank and desires to assure the Bank of the Employee's employment in an executive capacity and to compensate him therefor; and WHEREAS, the Employee is desirous of being employed by the Bank and of committing himself to serve the Bank on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. POSITION, RESPONSIBILITIES AND TERM OF EMPLOYMENT 1.01 POSITION. The Employee shall serve as Executive Vice President of the Bank and in such additional management position(s) as the Chief Executive Officer of the Bank shall designate. In this capacity the Employee shall, subject to the By-Laws of the Bank and the direction of the Board, serve the Bank by performing such duties and carrying out such responsibilities as are normally related, in accordance with the standards of the banking industry relating to the Employee's position and to the Employee's level of experience and training. 1.02 BEST EFFORTS COVENANT. The Employee will, to the best of his ability, devote his full professional and business time and best efforts to the performance of his duties for, and in the business and affairs of the Bank and any subsidiaries and affiliates of the Bank. 1.03 EXCLUSIVITY COVENANT. While employed by the Bank, except with the written consent of the Board, the Employee will not undertake or engage in any other employment occupation or business enterprise other than a business enterprise in which the Employee does not actively participate. Further, while employed by the Bank, the Employee agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest adverse or antagonistic to the Bank, its business or prospects, financial or otherwise, or take any action towards any of the foregoing, except for any investment representing less than 1% of the voting shares of any publicly-held corporation. 2 Page 2 of 9 1.04 INITIAL TERM AND EXTENSION. Subject to the provision of this section and Section 3.03, the term of this Employment Agreement shall be for two (2) years commencing with the "Effective Date" hereof (02/24/2000) provided, however, that the term shall be extended automatically for periods of one (1) year commencing on the second anniversary of the Effective Date and on each subsequent anniversary of the Effective Date thereafter, unless either party gives written notice to the other, prior to the date of such anniversary, of such party's election not to extend the term of this Agreement. (This means that after 02/24/2000 the Employment Agreement will have a 2-year life at each renewal.) 2.0 COMPENSATION. 2.01 ANNUAL BASE SALARY. (a) The Bank shall pay to the Employee for the services to be rendered hereunder a "Base Salary", annually, equal to the salary the Employee was receiving effective 07/01/99. (b) Annually, there shall be a review for merit by the President and the Employee's Base Salary for such year may be set at an amount greater than the salary the Employee was receiving effective 07/01/99 if the President deems such an increase to be appropriate to reflect the value of the services of the Employee. (c) If the President increases the Employee's Base Salary at any time during the term of this Agreement, the Employee's increased annual Base Salary shall become the floor below which the Employee's annual Base Salary shall not fall at any future time during the term of this Agreement. (d) If the Agreement is extended for an additional year(s) following the second anniversary of the Effective Date pursuant to Section 1.04, the Employee's Base Salary for such year(s) shall be at least the salary the Employee was receiving in accordance with the provisions of subpart (c) of section 2.01. (e) The Employee's Base Salary shall be payable in periodic installments in accordance with the Bank's usual practice for its employees. 2.02 INCENTIVE COMPENSATION. In addition to a Base Salary, the Employee shall be entitled to receive payments under any formal or informal bonus program(s), if any, in such amounts as is determined by the President to be appropriate for the Employee. 3 Page 3 of 9 2.03 PARTICIPATION IN BENEFIT PLANS. (a) The Employee shall be entitled to participate in, and receive benefits under, all employee benefit plans and arrangements maintained by the Bank in effect on the Effective Date for as long as such plans and arrangements may remain in effect (including, but not limited to, participation in any other pension or 401K plan adopted by the Bank and all group life, health, dental, disability and any or all other insurance and benefit plans), or any substitute or additional plans, policies or arrangements made available in the future to the similarly situated employees of the Bank, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, policies and arrangements. At the date the Employee begins employment with the Bank and to the extent permitted by the documents governing the plans, he shall participate in (at the cost and expense of the Bank) the group life, health plans and other health and welfare plans maintained by the Bank, notwithstanding any waiting period otherwise provided for in such plans. (b) The Bank shall pay all reasonable costs (less any amounts paid by medical insurance plans) associated with an annual physical examination for the Employee. (c) Nothing paid to the Employee under any plan, policy or arrangement presently in effect, or made available in the future, shall be deemed in lieu of other Compensation to the Employee hereunder as described in this Section 2. 2.04 VACATION DAYS. The Employee shall be entitled to the number of paid vacation days and paid holidays in each year as is determined by the Bank from time-to-time for employees of similar title and/or length of service, provided that the aggregate annual number of such vacation days and paid holidays shall at no time fall below the number of days per year to which he was entitled on the Effective Date. 2.05 EXPENSES. During the term of his employment hereunder, the Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him in accordance with the policies and procedures established by the Bank for the Employee, in performing services hereunder. 3.0 TERMINATION. 3.01 TERMINATION BY THE BANK FOR OTHER THAN CAUSE. (a) If during the term of this Agreement the Bank terminates the employment of the Employee and such termination is not for "cause" (as defined in Section 3.02), then: 4 Page 4 of 9 (1) The Bank shall pay to the Employee an amount equal to the Employee's monthly Base Salary (as defined in Section 2.01 and at the monthly salary rate in effect on the date of such termination) multiplied by the greater of (i) 12 months; or (ii) the number of months remaining in the term of this Agreement. This amount shall be paid to the Employee in one (1) lump sum as soon as practicable, but in no event later than 60 days after the date of such termination. (2) The Bank shall also pay the Employee, throughout the remainder of this Agreement (as defined in Section 1.04) following the date that the Employee's employment terminated, such Compensation as is provided to the Employee pursuant to Section 2.02 (to the extent that incentive compensation relates to a period during which the Employee was employed by the Bank), Section 2.03 (except where continuation of benefits cannot be provided as contemplated by this Section 3.01 by reason of a prohibition in the terms of the benefit plan) and Section 2.05. For the purposes of determining the amount of benefits to which the Employee shall continue to be entitled to pursuant to Section 2.03, the Employee shall be deemed, throughout the period of his entitlement pursuant to this Section 3.01, to have continued to have performed services for the Bank at a rate of total compensation equal to the rate in effect on the date of his termination of employment. (b) If the Bank fails to re-appoint (or re-elect) the Employee to the position or positions listed in Section 1.01, fails to comply with the provisions of Section 2 or engages in any other material breach of the terms of this Agreement, a termination of the Employee's employment shall be considered to be a termination of the Employee's employment by the Bank for reasons other than "cause" (as defined in Section 3.02 below) pursuant to this Section 3.01. 3.02 TERMINATION BY THE BANK FOR CAUSE. (a) The Bank shall have the right to terminate the employment of the Employee for cause only after (i) giving written notice to the Employee setting forth in reasonable detail the nature of such cause, and (ii) giving the Employee a reasonable and fair opportunity to respond to such written notice. Effective as of the date that the employment of the Employee terminates by reason of cause, this Agreement shall terminate and no further payments of the Compensation described in Section 2 (except for such remaining payments of Base Salary under Section 2.01 relating to periods during which the Employee was employed by the Bank, benefits under Section 2.03 which are required by applicable law to be continued and reimbursement of proper expenses under Section 2.05) shall be made. 5 Page 5 of 9 (b) For the purposes of this Section "cause" shall mean willful or gross neglect of duties for which the Employee is employed (other than on account of a medically determinable disability which renders the Employee incapable of performing such services); committing fraud, misappropriation or embezzlement in the performance of duties as an employee of the Bank; conviction of a felony involving a crime of moral turpitude; materially failing to follow the proper instructions of the Board; or willfully engaging in conduct materially injurious to the Bank and in violation of the covenants contained in Sections 1.03 or 5.04, or any conduct or circumstance warranting removal of the executive by state or federal regulatory authorities under applicable provisions of Massachusetts or federal law. 3.03 TERMINATION FOLLOWING CHANGE OF CONTROL. If there is a "change of control" (as defined in subsection (a) below) while this Agreement is in effect, the provisions of this Section 3.03 shall apply and shall continue to apply for a 2-year period following the "change of control" (as defined in subsection (a) below); the provisions of this Section 3.03 shall continue to apply regardless of whether the Agreement is terminated. If during the 2-year period following a change of control the Employee's employment is terminated by the Employee following the occurrence of any of the events listed in subsection (b) below, the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. Similarly, if the Employee's employment is terminated without cause (as defined in Section 3.02 above) by the Bank during the 2-year period following the change of control, the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. (a) For the purposes of this Section 3.03, "change of control" shall mean the occurrence of one or more of the following three events: (1) After the Effective Date, if any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than the Bank, becomes a beneficial owner (as such term is defined in Rule 13d-3 as promulgated under the Securities Exchange Act of 1934, as amended) directly or indirectly of securities representing 15% or more of the total number of votes that may be cast for the election of Directors of the Bank and 2/3 of the appropriate Board have not consented to such event prior to its occurrence or within 60 days thereafter, provided that if the consent occurs after the event, it shall only be valid for the purposes of this paragraph (1) if a majority of the consenting Board is comprised of Directors of the Bank, as appropriate, who were Directors of the Bank, as appropriate, immediately prior to the event; (2) Within two (2) years after a merger, consolidation or sale of assets (other than in the ordinary course of business of the Bank, as appropriate), involving the Bank, or a contested election of a Director of the Bank, as appropriate, or any combination of the foregoing, the individuals who were Directors of the Bank immediately prior thereto shall cease to constitute a majority of the respective Boards; 6 Page 6 of 9 (3) Within two (2) years after a tender offer or exchange offer for voting securities of the Bank (other than by the Bank, as appropriate), the individuals who were Directors of the Bank, as appropriate, immediately prior thereto shall cease to constitute a majority of the Board. (b) The "events" referred to in this Section 3.03 shall be as follows: (1) A reduction of the Employee's annual Compensation (as described in Section 2 above) other than a reduction which is based on the financial performance of the Bank and is similar to the reduction made to the compensation provided to each other Employee of the Bank, provided that such reduction does not exceed 25%; (2) In the judgment of the Employee (such judgment being exercised in good faith), a significant change in the Employee's responsibilities and/or duties which constitutes, when compared to the Employee's responsibilities and/or duties before the "change of control" (as defined in subsection (a) above), a demotion; (3) A loss of title or office; (4) An increase in Compensation for the Employee following a "change of control" that, when compared to the increases in Compensation received in the prior three (3) years, is a lower dollar amount or percentage of increase, except that such reduction in increases in Compensation shall not be considered an "event" for purposes of this subsection (b) if such reduction in increases is based on the financial performance of the Bank and is similar to the reduction in increases in compensation provided to other Employees of the Bank; or (5) A requirement that the Employee relocate to a location that is more than 25 miles from the main office of the Bank in effect immediately prior to the "change in control". (c) If the Employee becomes entitled to receive compensation pursuant to this Section 3.03, he shall receive a lump-sum payment from the Bank within 60 days of the termination of his employment. Such lump-sum payment shall equal three (3) times of the Employee's "base amount" (as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended [the "Code"]), provided that the Board shall have full power, without the prior consent of the Employee, to reduce the amount of the lump-sum payment payable pursuant to this Section, but only to the extent necessary to ensure that such lump-sum payment is not subject to tax pursuant to Section 4999 of the Code. 7 Page 7 of 9 3.04 OTHER. If the Employee's termination of employment is covered by both Section 3.01 and Section 3.03 the Employee shall receive the greater of: (a) The compensation described in Section 3.01 net of the amount of tax imposed on such compensation under Section 4999 of the Code; or (b) The compensation described in section 3.03 above. 3.05 TERMINATION BY DEATH OR DISABILITY. If the Employee dies or becomes disabled, this Agreement shall terminate and the Employee shall then be entitled to such compensation described in Section 2 that relates to the period that he performed services for the Bank plus all applicable benefits to which the Employee is entitled under employee benefit plans maintained by the Bank, incentive compensation or bonus plans, other benefit plans or programs maintained by the Bank and all such other benefits from employment policies and practices of the Bank. For purposes of this section, the Employee shall be regarded as "disabled" if he or she is (in the good faith judgement of the Board of Directors of the Bank) substantially unable, as a result of physical or mental capacity or any combination thereof, to perform his or her duties hereunder for a (i) a period of three consecutive months; or (ii) for a total of 90 days in any one-year period. 4. ASSIGNMENT. This Agreement and the rights and obligations of the parties hereto shall bind and inure to the benefit of each of the parties hereto and shall also bind and inure to the benefit of any successor or successors of the Bank by reorganization, merger or consolidation and any assignee of all or substantially all of business and properties of the Bank, but, except as to any such successor or assignee of the Bank, neither this Agreement nor any rights or benefits hereunder may be assigned by the Bank or the Employee. 5. MISCELLANEOUS. 5.01 GOVERNING LAW. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the Commonwealth of Massachusetts. 5.02 INTERPRETATION. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or provision unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 5.03 NOTICES. Any notice required or permitted to be given hereunder shall be effective when received and shall be sufficient if in writing and if personally delivered or sent by pre-paid cable, telex or registered mail, return receipt requested, to the party to receive such notice. 8 Page 8 of 9 5.04 CONFIDENTIAL INFORMATION. The Employee will not disclose to any other person or entity (except as required by applicable law or in connection with the performance of his responsibilities hereunder), or use for his own benefit, any confidential information of the Bank obtained by him incident to his employment with the Bank. The term "confidential information" includes, without limitation, financial information, business plans, prospects and opportunities which have been discussed or considered by the Board or management of the Bank, but does not include any information which has been public other than on account of the Employee's failure to comply with the provisions of this Section. 5.05 AMENDMENT AND WAIVER. This Agreement may not be amended, supplemented or waived except by a writing signed by the party against which such amendment or waiver is to be enforced. The waiver by any party of a breach of any provision of this Agreement shall not operate to, or be construed as a waiver of, any other breach of that provision nor as a waiver of any breach of another provision. 5.06 BINDING EFFECT. Subject to the provisions of Section 4 hereof, this Agreement shall be binding on the successors and assigns of the parties hereto. 5.07 SURVIVAL OF RIGHTS AND OBLIGATIONS. All rights and obligations of the Employee or the Bank arising during the term of this Agreement shall continue to have full force and effect after the termination of this Agreement. 5.08 COUNTERPARTS. This Agreement may be executed in two (2) counterparts, each of which is an original, but which shall together constitute one and the same instrument. 5.09. LEGAL EXPENSES. In the event that after a "change of control" the Employee's employment is terminated for any reason, including "cause", the Bank shall pay such amounts as shall become due all of the legal expenses incurred by the Employee to contest such termination, except that the Employee shall reimburse the Bank for all such expenses paid, and the Bank shall not be further liable for any further expenses, should it be finally determined by a court of competent jurisdiction that the termination was for "cause" or, if the reason for termination was "cause", the Employee fails to pursue his remedies to such a final determination. 6. ARBITRATION. ------------ 6.01 ARBITRATION OF DISPUTES. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three (3) arbitrators, one of whom shall be appointed by the Bank, one by the Employee and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall by appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 6.01. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 9 Page 9 of 9 In any arbitration proceeding brought pursuant to this Section 6.01, or in any court proceeding to enforce or review an award of the arbitrators, each of the parties shall pay his or its own legal costs, expenses and attorney's fees, provided, that if the issue or one of the issues if there be more than one, between the parties is whether the termination or dismissal of the Employee was for cause, and the ultimate conclusion, whether made by the arbitrators, or by a court (in a proceeding to enforce or review the arbitration award) is that the termination or dismissal was NOT for cause, then the Bank shall pay (or the Employee shall be entitled to recover from the Bank, as the case may be) the Employee's reasonable legal costs, expenses and attorney's fees incurred in the litigation,. The provisions of this Section 6.01 shall apply regardless of whether the termination or dismissal of the Employee for cause was made after or as a result of a "change of control". EXECUTION Upon execution below by all parties, this Agreement will enter into full force and effect on the Effective Date as an instrument under seal. LAWRENCE SAVINGS BANK By: /s/ Paul A. Miller Witness: /s/ illegible ---------------------------- ----------------------------- Paul A. Miller President EMPLOYEE /s/ J.W. Leeds Witness: /s/ Donna H. Green ---------------------------- ----------------------------- J.W. Leeds Executive Vice President EX-10.11 17 b39832lsex10-11.txt EMPLOYMENT AGREEMENT - TIMOTHY L. FELTER 1 Exhibit 10.11 EMPLOYMENT AGREEMENT This Agreement made as of this February 24, 2000, by and among Timothy L. Felter (the "Employee") and Lawrence Savings Bank (the "Bank") shall be effective as of February 24, 2000 (the "Effective Date"). WHEREAS, the Board of Directors of the Bank recognizes the Employee's potential contribution to the growth and success of the Bank and desires to assure the Bank of the Employee's employment in an executive capacity and to compensate him therefor; and WHEREAS, the Employee is desirous of being employed by the Bank and of committing himself to serve the Bank on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. POSITION, RESPONSIBILITIES AND TERM OF EMPLOYMENT 1.01 POSITION. The Employee shall serve as Executive Vice President of the Bank and in such additional management position(s) as the Chief Executive Officer of the Bank shall designate. In this capacity the Employee shall, subject to the By-Laws of the Bank and the direction of the Board, serve the Bank by performing such duties and carrying out such responsibilities as are normally related, in accordance with the standards of the banking industry relating to the Employee's position and to the Employee's level of experience and training. 1.02 BEST EFFORTS COVENANT. The Employee will, to the best of his ability, devote his full professional and business time and best efforts to the performance of his duties for, and in the business and affairs of the Bank and any subsidiaries and affiliates of the Bank. 1.03 EXCLUSIVITY COVENANT. While employed by the Bank, except with the written consent of the Board, the Employee will not undertake or engage in any other employment occupation or business enterprise other than a business enterprise in which the Employee does not actively participate. Further, while employed by the Bank, the Employee agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest adverse or antagonistic to the Bank, its business or prospects, financial or otherwise, or take any action towards any of the foregoing, except for any investment representing less than 1% of the voting shares of any publicly-held corporation. 2 Page 2 of 9 1.04 INITIAL TERM AND EXTENSION. Subject to the provision of this section and Section 3.03, the term of this Employment Agreement shall be for two (2) years commencing with the "Effective Date" hereof (02/24/2000) provided, however, that the term shall be extended automatically for periods of one (1) year commencing on the second anniversary of the Effective Date and on each subsequent anniversary of the Effective Date thereafter, unless either party gives written notice to the other, prior to the date of such anniversary, of such party's election not to extend the term of this Agreement. (This means that after 02/24/2000 the Employment Agreement will have a 2-year life at each renewal.) 2.0 COMPENSATION. 2.01 ANNUAL BASE SALARY. (a) The Bank shall pay to the Employee for the services to be rendered hereunder a "Base Salary", annually, equal to the salary the Employee was receiving effective 07/01/99. (b) Annually, there shall be a review for merit by the President and the Employee's Base Salary for such year may be set at an amount greater than the salary the Employee was receiving effective 07/01/99 if the President deems such an increase to be appropriate to reflect the value of the services of the Employee. (c) If the President increases the Employee's Base Salary at any time during the term of this Agreement, the Employee's increased annual Base Salary shall become the floor below which the Employee's annual Base Salary shall not fall at any future time during the term of this Agreement. (d) If the Agreement is extended for an additional year(s) following the second anniversary of the Effective Date pursuant to Section 1.04, the Employee's Base Salary for such year(s) shall be at least the salary the Employee was receiving in accordance with the provisions of subpart (c) of section 2.01. (e) The Employee's Base Salary shall be payable in periodic installments in accordance with the Bank's usual practice for its employees. 2.02 INCENTIVE COMPENSATION. In addition to a Base Salary, the Employee shall be entitled to receive payments under any formal or informal bonus program(s), if any, in such amounts as is determined by the President to be appropriate for the Employee. 3 Page 3 of 9 2.03 PARTICIPATION IN BENEFIT PLANS. (a) The Employee shall be entitled to participate in, and receive benefits under, all employee benefit plans and arrangements maintained by the Bank in effect on the Effective Date for as long as such plans and arrangements may remain in effect (including, but not limited to, participation in any other pension or 401K plan adopted by the Bank and all group life, health, dental, disability and any or all other insurance and benefit plans), or any substitute or additional plans, policies or arrangements made available in the future to the similarly situated employees of the Bank, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, policies and arrangements. At the date the Employee begins employment with the Bank and to the extent permitted by the documents governing the plans, he shall participate in (at the cost and expense of the Bank) the group life, health plans and other health and welfare plans maintained by the Bank, notwithstanding any waiting period otherwise provided for in such plans. (b) The Bank shall pay all reasonable costs (less any amounts paid by medical insurance plans) associated with an annual physical examination for the Employee. (c) Nothing paid to the Employee under any plan, policy or arrangement presently in effect, or made available in the future, shall be deemed in lieu of other Compensation to the Employee hereunder as described in this Section 2. 2.04 VACATION DAYS. The Employee shall be entitled to the number of paid vacation days and paid holidays in each year as is determined by the Bank from time-to-time for employees of similar title and/or length of service, provided that the aggregate annual number of such vacation days and paid holidays shall at no time fall below the number of days per year to which he was entitled on the Effective Date. 2.05 EXPENSES. During the term of his employment hereunder, the Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him in accordance with the policies and procedures established by the Bank for the Employee, in performing services hereunder. 3.0 TERMINATION. 3.01 TERMINATION BY THE BANK FOR OTHER THAN CAUSE. (a) If during the term of this Agreement the Bank terminates the employment of the Employee and such termination is not for "cause" (as defined in Section 3.02), then: 4 Page 4 of 9 (1) The Bank shall pay to the Employee an amount equal to the Employee's monthly Base Salary (as defined in Section 2.01 and at the monthly salary rate in effect on the date of such termination) multiplied by the greater of (i) 12 months; or (ii) the number of months remaining in the term of this Agreement. This amount shall be paid to the Employee in one (1) lump sum as soon as practicable, but in no event later than 60 days after the date of such termination. (2) The Bank shall also pay the Employee, throughout the remainder of this Agreement (as defined in Section 1.04) following the date that the Employee's employment terminated, such Compensation as is provided to the Employee pursuant to Section 2.02 (to the extent that incentive compensation relates to a period during which the Employee was employed by the Bank), Section 2.03 (except where continuation of benefits cannot be provided as contemplated by this Section 3.01 by reason of a prohibition in the terms of the benefit plan) and Section 2.05. For the purposes of determining the amount of benefits to which the Employee shall continue to be entitled to pursuant to Section 2.03, the Employee shall be deemed, throughout the period of his entitlement pursuant to this Section 3.01, to have continued to have performed services for the Bank at a rate of total compensation equal to the rate in effect on the date of his termination of employment. (b) If the Bank fails to re-appoint (or re-elect) the Employee to the position or positions listed in Section 1.01, fails to comply with the provisions of Section 2 or engages in any other material breach of the terms of this Agreement, a termination of the Employee's employment shall be considered to be a termination of the Employee's employment by the Bank for reasons other than "cause" (as defined in Section 3.02 below) pursuant to this Section 3.01. 3.02 TERMINATION BY THE BANK FOR CAUSE. (a) The Bank shall have the right to terminate the employment of the Employee for cause only after (i) giving written notice to the Employee setting forth in reasonable detail the nature of such cause, and (ii) giving the Employee a reasonable and fair opportunity to respond to such written notice. Effective as of the date that the employment of the Employee terminates by reason of cause, this Agreement shall terminate and no further payments of the Compensation described in Section 2 (except for such remaining payments of Base Salary under Section 2.01 relating to periods during which the Employee was employed by the Bank, benefits under Section 2.03 which are required by applicable law to be continued and reimbursement of proper expenses under Section 2.05) shall be made. 5 Page 5 of 9 (b) For the purposes of this Section "cause" shall mean willful or gross neglect of duties for which the Employee is employed (other than on account of a medically determinable disability which renders the Employee incapable of performing such services); committing fraud, misappropriation or embezzlement in the performance of duties as an employee of the Bank; conviction of a felony involving a crime of moral turpitude; materially failing to follow the proper instructions of the Board; or willfully engaging in conduct materially injurious to the Bank and in violation of the covenants contained in Sections 1.03 or 5.04, or any conduct or circumstance warranting removal of the executive by state or federal regulatory authorities under applicable provisions of Massachusetts or federal law. 3.03 TERMINATION FOLLOWING CHANGE OF CONTROL. If there is a "change of control" (as defined in subsection (a) below) while this Agreement is in effect, the provisions of this Section 3.03 shall apply and shall continue to apply for a 2-year period following the "change of control" (as defined in subsection (a) below); the provisions of this Section 3.03 shall continue to apply regardless of whether the Agreement is terminated. If during the 2-year period following a change of control the Employee's employment is terminated by the Employee following the occurrence of any of the events listed in subsection (b) below, the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. Similarly, if the Employee's employment is terminated without cause (as defined in Section 3.02 above) by the Bank during the 2-year period following the change of control, the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. (a) For the purposes of this Section 3.03, "change of control" shall mean the occurrence of one or more of the following three events: (1) After the Effective Date, if any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than the Bank, becomes a beneficial owner (as such term is defined in Rule 13d-3 as promulgated under the Securities Exchange Act of 1934, as amended) directly or indirectly of securities representing 15% or more of the total number of votes that may be cast for the election of Directors of the Bank and 2/3 of the appropriate Board have not consented to such event prior to its occurrence or within 60 days thereafter, provided that if the consent occurs after the event, it shall only be valid for the purposes of this paragraph (1) if a majority of the consenting Board is comprised of Directors of the Bank, as appropriate, who were Directors of the Bank, as appropriate, immediately prior to the event; (2) Within two (2) years after a merger, consolidation or sale of assets (other than in the ordinary course of business of the Bank, as appropriate), involving the Bank, or a contested election of a Director of the Bank, as appropriate, or any combination of the foregoing, the individuals who were Directors of the Bank immediately prior thereto shall cease to constitute a majority of the respective Boards; 6 Page 6 of 9 (3) Within two (2) years after a tender offer or exchange offer for voting securities of the Bank (other than by the Bank, as appropriate), the individuals who were Directors of the Bank, as appropriate, immediately prior thereto shall cease to constitute a majority of the Board. (b) The "events" referred to in this Section 3.03 shall be as follows: (1) A reduction of the Employee's annual Compensation (as described in Section 2 above) other than a reduction which is based on the financial performance of the Bank and is similar to the reduction made to the compensation provided to each other Employee of the Bank, provided that such reduction does not exceed 25%; (2) In the judgment of the Employee (such judgment being exercised in good faith), a significant change in the Employee's responsibilities and/or duties which constitutes, when compared to the Employee's responsibilities and/or duties before the "change of control" (as defined in subsection (a) above), a demotion; (3) A loss of title or office; (4) An increase in Compensation for the Employee following a "change of control" that, when compared to the increases in Compensation received in the prior three (3) years, is a lower dollar amount or percentage of increase, except that such reduction in increases in Compensation shall not be considered an "event" for purposes of this subsection (b) if such reduction in increases is based on the financial performance of the Bank and is similar to the reduction in increases in compensation provided to other Employees of the Bank; or (5) A requirement that the Employee relocate to a location that is more than 25 miles from the main office of the Bank in effect immediately prior to the "change in control". (c) If the Employee becomes entitled to receive compensation pursuant to this Section 3.03, he shall receive a lump-sum payment from the Bank within 60 days of the termination of his employment. Such lump-sum payment shall equal three (3) times of the Employee's "base amount" (as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended [the "Code"]), provided that the Board shall have full power, without the prior consent of the Employee, to reduce the amount of the lump-sum payment payable pursuant to this Section, but only to the extent necessary to ensure that such lump-sum payment is not subject to tax pursuant to Section 4999 of the Code. 7 Page 7 of 9 3.04 OTHER. If the Employee's termination of employment is covered by both Section 3.01 and Section 3.03 the Employee shall receive the greater of: (a) The compensation described in Section 3.01 net of the amount of tax imposed on such compensation under Section 4999 of the Code; or (b) The compensation described in section 3.03 above. 3.05 TERMINATION BY DEATH OR DISABILITY. If the Employee dies or becomes disabled, this Agreement shall terminate and the Employee shall then be entitled to such compensation described in Section 2 that relates to the period that he performed services for the Bank plus all applicable benefits to which the Employee is entitled under employee benefit plans maintained by the Bank, incentive compensation or bonus plans, other benefit plans or programs maintained by the Bank and all such other benefits from employment policies and practices of the Bank. For purposes of this section, the Employee shall be regarded as "disabled" if he or she is (in the good faith judgement of the Board of Directors of the Bank) substantially unable, as a result of physical or mental capacity or any combination thereof, to perform his or her duties hereunder for a (i) a period of three consecutive months; or (ii) for a total of 90 days in any one-year period. 4. ASSIGNMENT. This Agreement and the rights and obligations of the parties hereto shall bind and inure to the benefit of each of the parties hereto and shall also bind and inure to the benefit of any successor or successors of the Bank by reorganization, merger or consolidation and any assignee of all or substantially all of business and properties of the Bank, but, except as to any such successor or assignee of the Bank, neither this Agreement nor any rights or benefits hereunder may be assigned by the Bank or the Employee. 5. MISCELLANEOUS. 5.01 GOVERNING LAW. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the Commonwealth of Massachusetts. 5.02 INTERPRETATION. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or provision unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 5.03 NOTICES. Any notice required or permitted to be given hereunder shall be effective when received and shall be sufficient if in writing and if personally delivered or sent by pre-paid cable, telex or registered mail, return receipt requested, to the party to receive such notice. 8 Page 8 of 9 5.04 CONFIDENTIAL INFORMATION. The Employee will not disclose to any other person or entity (except as required by applicable law or in connection with the performance of his responsibilities hereunder), or use for his own benefit, any confidential information of the Bank obtained by him incident to his employment with the Bank. The term "confidential information" includes, without limitation, financial information, business plans, prospects and opportunities which have been discussed or considered by the Board or management of the Bank, but does not include any information which has been public other than on account of the Employee's failure to comply with the provisions of this Section. 5.05 AMENDMENT AND WAIVER. This Agreement may not be amended, supplemented or waived except by a writing signed by the party against which such amendment or waiver is to be enforced. The waiver by any party of a breach of any provision of this Agreement shall not operate to, or be construed as a waiver of, any other breach of that provision nor as a waiver of any breach of another provision. 5.06 BINDING EFFECT. Subject to the provisions of Section 4 hereof, this Agreement shall be binding on the successors and assigns of the parties hereto. 5.07 SURVIVAL OF RIGHTS AND OBLIGATIONS. All rights and obligations of the Employee or the Bank arising during the term of this Agreement shall continue to have full force and effect after the termination of this Agreement. 5.08 COUNTERPARTS. This Agreement may be executed in two (2) counterparts, each of which is an original, but which shall together constitute one and the same instrument. 5.09. LEGAL EXPENSES. In the event that after a "change of control" the Employee's employment is terminated for any reason, including "cause", the Bank shall pay such amounts as shall become due all of the legal expenses incurred by the Employee to contest such termination, except that the Employee shall reimburse the Bank for all such expenses paid, and the Bank shall not be further liable for any further expenses, should it be finally determined by a court of competent jurisdiction that the termination was for "cause" or, if the reason for termination was "cause", the Employee fails to pursue his remedies to such a final determination. 6. ARBITRATION. 6.01 ARBITRATION OF DISPUTES. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three (3) arbitrators, one of whom shall be appointed by the Bank, one by the Employee and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall by appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 6.01. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 9 Page 9 of 9 In any arbitration proceeding brought pursuant to this Section 6.01, or in any court proceeding to enforce or review an award of the arbitrators, each of the parties shall pay his or its own legal costs, expenses and attorney's fees, provided, that if the issue or one of the issues if there be more than one, between the parties is whether the termination or dismissal of the Employee was for cause, and the ultimate conclusion, whether made by the arbitrators, or by a court (in a proceeding to enforce or review the arbitration award) is that the termination or dismissal was NOT for cause, then the Bank shall pay (or the Employee shall be entitled to recover from the Bank, as the case may be) the Employee's reasonable legal costs, expenses and attorney's fees incurred in the litigation,. The provisions of this Section 6.01 shall apply regardless of whether the termination or dismissal of the Employee for cause was made after or as a result of a "change of control". EXECUTION Upon execution below by all parties, this Agreement will enter into full force and effect on the Effective Date as an instrument under seal. LAWRENCE SAVINGS BANK By: /s/ Paul A. Miller Witness: /s/ illegible ---------------------------- ----------------------------- Paul A. Miller President EMPLOYEE /s/ Timothy L. Felter Witness: /s/ illegible ---------------------------- ----------------------------- Timothy L. Felter Executive Vice President EX-10.12 18 b39832lsex10-12.txt EMPLOYMENT AGREEMENT - JOHN E. SHARLAND 1 Exhibit 10.12 EMPLOYMENT AGREEMENT This Agreement made as of this February 24, 2000, by and among John E. Sharland (the "Employee") and Lawrence Savings Bank (the "Bank") shall be effective as of February 24, 2000 (the "Effective Date"). WHEREAS, the Board of Directors of the Bank recognizes the Employee's potential contribution to the growth and success of the Bank and desires to assure the Bank of the Employee's employment in an executive capacity and to compensate him therefor; and WHEREAS, the Employee is desirous of being employed by the Bank and of committing himself to serve the Bank on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. POSITION, RESPONSIBILITIES AND TERM OF EMPLOYMENT 1.01 POSITION. The Employee shall serve as Senior Vice President of the Bank and in such additional management position(s) as the Chief Executive Officer of the Bank shall designate. In this capacity the Employee shall, subject to the By-Laws of the Bank and the direction of the Board, serve the Bank by performing such duties and carrying out such responsibilities as are normally related, in accordance with the standards of the banking industry relating to the Employee's position and to the Employee's level of experience and training. 1.02 BEST EFFORTS COVENANT. The Employee will, to the best of his ability, devote his full professional and business time and best efforts to the performance of his duties for, and in the business and affairs of the Bank and any subsidiaries and affiliates of the Bank. 1.03 EXCLUSIVITY COVENANT. While employed by the Bank, except with the written consent of the Board, the Employee will not undertake or engage in any other employment occupation or business enterprise other than a business enterprise in which the Employee does not actively participate. Further, while employed by the Bank, the Employee agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest adverse or antagonistic to the Bank, its business or prospects, financial or otherwise, or take any action towards any of the foregoing, except for any investment representing less than 1% of the voting shares of any publicly-held corporation. 2 Page 2 of 9 1.04 INITIAL TERM AND EXTENSION. Subject to the provision of this section and Section 3.03, the term of this Employment Agreement shall be for two (2) years commencing with the "Effective Date" hereof (02/24/2000) provided, however, that the term shall be extended automatically for periods of one (1) year commencing on the second anniversary of the Effective Date and on each subsequent anniversary of the Effective Date thereafter, unless either party gives written notice to the other, prior to the date of such anniversary, of such party's election not to extend the term of this Agreement. (This means that after 02/24/2000 the Employment Agreement will have a 2-year life at each renewal.) 2.0 COMPENSATION. 2.01 ANNUAL BASE SALARY. (a) The Bank shall pay to the Employee for the services to be rendered hereunder a "Base Salary", annually, equal to the salary the Employee was receiving effective 07/01/99. (b) Annually, there shall be a review for merit by the President and the Employee's Base Salary for such year may be set at an amount greater than the salary the Employee was receiving effective 07/01/99 if the President deems such an increase to be appropriate to reflect the value of the services of the Employee. (c) If the President increases the Employee's Base Salary at any time during the term of this Agreement, the Employee's increased annual Base Salary shall become the floor below which the Employee's annual Base Salary shall not fall at any future time during the term of this Agreement. (d) If the Agreement is extended for an additional year(s) following the second anniversary of the Effective Date pursuant to Section 1.04, the Employee's Base Salary for such year(s) shall be at least the salary the Employee was receiving in accordance with the provisions of subpart (c) of section 2.01. (e) The Employee's Base Salary shall be payable in periodic installments in accordance with the Bank's usual practice for its employees. 2.02 INCENTIVE COMPENSATION. In addition to a Base Salary, the Employee shall be entitled to receive payments under any formal or informal bonus program(s), if any, in such amounts as is determined by the President to be appropriate for the Employee. 3 Page 3 of 9 2.03 PARTICIPATION IN BENEFIT PLANS. (a) The Employee shall be entitled to participate in, and receive benefits under, all employee benefit plans and arrangements maintained by the Bank in effect on the Effective Date for as long as such plans and arrangements may remain in effect (including, but not limited to, participation in any other pension or 401K plan adopted by the Bank and all group life, health, dental, disability and any or all other insurance and benefit plans), or any substitute or additional plans, policies or arrangements made available in the future to the similarly situated employees of the Bank, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, policies and arrangements. At the date the Employee begins employment with the Bank and to the extent permitted by the documents governing the plans, he shall participate in (at the cost and expense of the Bank) the group life, health plans and other health and welfare plans maintained by the Bank, notwithstanding any waiting period otherwise provided for in such plans. (b) The Bank shall pay all reasonable costs (less any amounts paid by medical insurance plans) associated with an annual physical examination for the Employee. (c) Nothing paid to the Employee under any plan, policy or arrangement presently in effect, or made available in the future, shall be deemed in lieu of other Compensation to the Employee hereunder as described in this Section 2. 2.04 VACATION DAYS. The Employee shall be entitled to the number of paid vacation days and paid holidays in each year as is determined by the Bank from time-to-time for employees of similar title and/or length of service, provided that the aggregate annual number of such vacation days and paid holidays shall at no time fall below the number of days per year to which he was entitled on the Effective Date. 2.05 EXPENSES. During the term of his employment hereunder, the Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him in accordance with the policies and procedures established by the Bank for the Employee, in performing services hereunder. 3.0 TERMINATION. 3.01 TERMINATION BY THE BANK FOR OTHER THAN CAUSE. (a) If during the term of this Agreement the Bank terminates the employment of the Employee and such termination is not for "cause" (as defined in Section 3.02), then: 4 Page 4 of 9 (1) The Bank shall pay to the Employee an amount equal to the Employee's monthly Base Salary (as defined in Section 2.01 and at the monthly salary rate in effect on the date of such termination) multiplied by the greater of (i) 12 months; or (ii) the number of months remaining in the term of this Agreement. This amount shall be paid to the Employee in one (1) lump sum as soon as practicable, but in no event later than 60 days after the date of such termination. (2) The Bank shall also pay the Employee, throughout the remainder of this Agreement (as defined in Section 1.04) following the date that the Employee's employment terminated, such Compensation as is provided to the Employee pursuant to Section 2.02 (to the extent that incentive compensation relates to a period during which the Employee was employed by the Bank), Section 2.03 (except where continuation of benefits cannot be provided as contemplated by this Section 3.01 by reason of a prohibition in the terms of the benefit plan) and Section 2.05. For the purposes of determining the amount of benefits to which the Employee shall continue to be entitled to pursuant to Section 2.03, the Employee shall be deemed, throughout the period of his entitlement pursuant to this Section 3.01, to have continued to have performed services for the Bank at a rate of total compensation equal to the rate in effect on the date of his termination of employment. (b) If the Bank fails to re-appoint (or re-elect) the Employee to the position or positions listed in Section 1.01, fails to comply with the provisions of Section 2 or engages in any other material breach of the terms of this Agreement, a termination of the Employee's employment shall be considered to be a termination of the Employee's employment by the Bank for reasons other than "cause" (as defined in Section 3.02 below) pursuant to this Section 3.01. 3.02 TERMINATION BY THE BANK FOR CAUSE. (a) The Bank shall have the right to terminate the employment of the Employee for cause only after (i) giving written notice to the Employee setting forth in reasonable detail the nature of such cause, and (ii) giving the Employee a reasonable and fair opportunity to respond to such written notice. Effective as of the date that the employment of the Employee terminates by reason of cause, this Agreement shall terminate and no further payments of the Compensation described in Section 2 (except for such remaining payments of Base Salary under Section 2.01 relating to periods during which the Employee was employed by the Bank, benefits under Section 2.03 which are required by applicable law to be continued and reimbursement of proper expenses under Section 2.05) shall be made. 5 Page 5 of 9 (b) For the purposes of this Section "cause" shall mean willful or gross neglect of duties for which the Employee is employed (other than on account of a medically determinable disability which renders the Employee incapable of performing such services); committing fraud, misappropriation or embezzlement in the performance of duties as an employee of the Bank; conviction of a felony involving a crime of moral turpitude; materially failing to follow the proper instructions of the Board; or willfully engaging in conduct materially injurious to the Bank and in violation of the covenants contained in Sections 1.03 or 5.04, or any conduct or circumstance warranting removal of the executive by state or federal regulatory authorities under applicable provisions of Massachusetts or federal law. 3.03 TERMINATION FOLLOWING CHANGE OF CONTROL. If there is a "change of control" (as defined in subsection (a) below) while this Agreement is in effect, the provisions of this Section 3.03 shall apply and shall continue to apply for a 2-year period following the "change of control" (as defined in subsection (a) below); the provisions of this Section 3.03 shall continue to apply regardless of whether the Agreement is terminated. If during the 2-year period following a change of control the Employee's employment is terminated by the Employee following the occurrence of any of the events listed in subsection (b) below, the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. Similarly, if the Employee's employment is terminated without cause (as defined in Section 3.02 above) by the Bank during the 2-year period following the change of control, the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. (a) For the purposes of this Section 3.03, "change of control" shall mean the occurrence of one or more of the following three events: (1) After the Effective Date, if any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than the Bank, becomes a beneficial owner (as such term is defined in Rule 13d-3 as promulgated under the Securities Exchange Act of 1934, as amended) directly or indirectly of securities representing 15% or more of the total number of votes that may be cast for the election of Directors of the Bank and 2/3 of the appropriate Board have not consented to such event prior to its occurrence or within 60 days thereafter, provided that if the consent occurs after the event, it shall only be valid for the purposes of this paragraph (1) if a majority of the consenting Board is comprised of Directors of the Bank, as appropriate, who were Directors of the Bank, as appropriate, immediately prior to the event; (2) Within two (2) years after a merger, consolidation or sale of assets (other than in the ordinary course of business of the Bank, as appropriate), involving the Bank, or a contested election of a Director of the Bank, as appropriate, or any combination of the foregoing, the individuals who were Directors of the Bank immediately prior thereto shall cease to constitute a majority of the respective Boards; 6 Page 6 of 9 (3) Within two (2) years after a tender offer or exchange offer for voting securities of the Bank (other than by the Bank, as appropriate), the individuals who were Directors of the Bank, as appropriate, immediately prior thereto shall cease to constitute a majority of the Board. (b) The "events" referred to in this Section 3.03 shall be as follows: (1) A reduction of the Employee's annual Compensation (as described in Section 2 above) other than a reduction which is based on the financial performance of the Bank and is similar to the reduction made to the compensation provided to each other Employee of the Bank, provided that such reduction does not exceed 25%; (2) In the judgment of the Employee (such judgment being exercised in good faith), a significant change in the Employee's responsibilities and/or duties which constitutes, when compared to the Employee's responsibilities and/or duties before the "change of control" (as defined in subsection (a) above), a demotion; (3) A loss of title or office; (4) An increase in Compensation for the Employee following a "change of control" that, when compared to the increases in Compensation received in the prior three (3) years, is a lower dollar amount or percentage of increase, except that such reduction in increases in Compensation shall not be considered an "event" for purposes of this subsection (b) if such reduction in increases is based on the financial performance of the Bank and is similar to the reduction in increases in compensation provided to other Employees of the Bank; or (5) A requirement that the Employee relocate to a location that is more than 25 miles from the main office of the Bank in effect immediately prior to the "change in control". (c) If the Employee becomes entitled to receive compensation pursuant to this Section 3.03, he shall receive a lump-sum payment from the Bank within 60 days of the termination of his employment. Such lump-sum payment shall equal three (3) times of the Employee's "base amount" (as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended [the "Code"]), provided that the Board shall have full power, without the prior consent of the Employee, to reduce the amount of the lump-sum payment payable pursuant to this Section, but only to the extent necessary to ensure that such lump-sum payment is not subject to tax pursuant to Section 4999 of the Code. 7 Page 7 of 9 3.04 OTHER. If the Employee's termination of employment is covered by both Section 3.01 and Section 3.03 the Employee shall receive the greater of: (a) The compensation described in Section 3.01 net of the amount of tax imposed on such compensation under Section 4999 of the Code; or (b) The compensation described in section 3.03 above. 3.05 TERMINATION BY DEATH OR DISABILITY. If the Employee dies or becomes disabled, this Agreement shall terminate and the Employee shall then be entitled to such compensation described in Section 2 that relates to the period that he performed services for the Bank plus all applicable benefits to which the Employee is entitled under employee benefit plans maintained by the Bank, incentive compensation or bonus plans, other benefit plans or programs maintained by the Bank and all such other benefits from employment policies and practices of the Bank. For purposes of this section, the Employee shall be regarded as "disabled" if he or she is (in the good faith judgement of the Board of Directors of the Bank) substantially unable, as a result of physical or mental capacity or any combination thereof, to perform his or her duties hereunder for a (i) a period of three consecutive months; or (ii) for a total of 90 days in any one-year period. 4. ASSIGNMENT. This Agreement and the rights and obligations of the parties hereto shall bind and inure to the benefit of each of the parties hereto and shall also bind and inure to the benefit of any successor or successors of the Bank by reorganization, merger or consolidation and any assignee of all or substantially all of business and properties of the Bank, but, except as to any such successor or assignee of the Bank, neither this Agreement nor any rights or benefits hereunder may be assigned by the Bank or the Employee. 5. MISCELLANEOUS. 5.01 GOVERNING LAW. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the Commonwealth of Massachusetts. 5.02 INTERPRETATION. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or provision unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 5.03 NOTICES. Any notice required or permitted to be given hereunder shall be effective when received and shall be sufficient if in writing and if personally delivered or sent by pre-paid cable, telex or registered mail, return receipt requested, to the party to receive such notice. 8 Page 8 of 9 5.04 CONFIDENTIAL INFORMATION. The Employee will not disclose to any other person or entity (except as required by applicable law or in connection with the performance of his responsibilities hereunder), or use for his own benefit, any confidential information of the Bank obtained by him incident to his employment with the Bank. The term "confidential information" includes, without limitation, financial information, business plans, prospects and opportunities which have been discussed or considered by the Board or management of the Bank, but does not include any information which has been public other than on account of the Employee's failure to comply with the provisions of this Section. 5.05 AMENDMENT AND WAIVER. This Agreement may not be amended, supplemented or waived except by a writing signed by the party against which such amendment or waiver is to be enforced. The waiver by any party of a breach of any provision of this Agreement shall not operate to, or be construed as a waiver of, any other breach of that provision nor as a waiver of any breach of another provision. 5.06 BINDING EFFECT. Subject to the provisions of Section 4 hereof, this Agreement shall be binding on the successors and assigns of the parties hereto. 5.07 SURVIVAL OF RIGHTS AND OBLIGATIONS. All rights and obligations of the Employee or the Bank arising during the term of this Agreement shall continue to have full force and effect after the termination of this Agreement. 5.08 COUNTERPARTS. This Agreement may be executed in two (2) counterparts, each of which is an original, but which shall together constitute one and the same instrument. 5.09. LEGAL EXPENSES. In the event that after a "change of control" the Employee's employment is terminated for any reason, including "cause", the Bank shall pay such amounts as shall become due all of the legal expenses incurred by the Employee to contest such termination, except that the Employee shall reimburse the Bank for all such expenses paid, and the Bank shall not be further liable for any further expenses, should it be finally determined by a court of competent jurisdiction that the termination was for "cause" or, if the reason for termination was "cause", the Employee fails to pursue his remedies to such a final determination. 6. ARBITRATION. 6.01 ARBITRATION OF DISPUTES. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three (3) arbitrators, one of whom shall be appointed by the Bank, one by the Employee and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall by appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 6.01. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 9 Page 9 of 9 In any arbitration proceeding brought pursuant to this Section 6.01, or in any court proceeding to enforce or review an award of the arbitrators, each of the parties shall pay his or its own legal costs, expenses and attorney's fees, provided, that if the issue or one of the issues if there be more than one, between the parties is whether the termination or dismissal of the Employee was for cause, and the ultimate conclusion, whether made by the arbitrators, or by a court (in a proceeding to enforce or review the arbitration award) is that the termination or dismissal was NOT for cause, then the Bank shall pay (or the Employee shall be entitled to recover from the Bank, as the case may be) the Employee's reasonable legal costs, expenses and attorney's fees incurred in the litigation,. The provisions of this Section 6.01 shall apply regardless of whether the termination or dismissal of the Employee for cause was made after or as a result of a "change of control". EXECUTION Upon execution below by all parties, this Agreement will enter into full force and effect on the Effective Date as an instrument under seal. LAWRENCE SAVINGS BANK By: /s/ Paul A. Miller Witness: /s/ illegible ---------------------------- ----------------------------- Paul A. Miller President EMPLOYEE /s/ John E. Sharland Witness: /s/ illegible ---------------------------- ----------------------------- John E. Sharland Senior Vice President EX-10.13 19 b39832lsex10-13.txt EMPLOYMENT AGREEMENT - RICHARD J. D'AMBROSIO 1 Exhibit 10.13 EMPLOYMENT AGREEMENT This Agreement made as of this February 24, 2000, by and among Richard J. D'Ambrosio (the "Employee") and Lawrence Savings Bank (the "Bank") shall be effective as of February 24, 2000 (the "Effective Date"). WHEREAS, the Board of Directors of the Bank recognizes the Employee's potential contribution to the growth and success of the Bank and desires to assure the Bank of the Employee's employment in an executive capacity and to compensate him therefor; and WHEREAS, the Employee is desirous of being employed by the Bank and of committing himself to serve the Bank on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. POSITION, RESPONSIBILITIES AND TERM OF EMPLOYMENT 1.01 POSITION. The Employee shall serve as Senior Vice President of the Bank and in such additional management position(s) as the Chief Executive Officer of the Bank shall designate. In this capacity the Employee shall, subject to the By-Laws of the Bank and the direction of the Board, serve the Bank by performing such duties and carrying out such responsibilities as are normally related, in accordance with the standards of the banking industry relating to the Employee's position and to the Employee's level of experience and training. 1.02 BEST EFFORTS COVENANT. The Employee will, to the best of his ability, devote his full professional and business time and best efforts to the performance of his duties for, and in the business and affairs of the Bank and any subsidiaries and affiliates of the Bank. 1.03 EXCLUSIVITY COVENANT. While employed by the Bank, except with the written consent of the Board, the Employee will not undertake or engage in any other employment occupation or business enterprise other than a business enterprise in which the Employee does not actively participate. Further, while employed by the Bank, the Employee agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest adverse or antagonistic to the Bank, its business or prospects, financial or otherwise, or take any action towards any of the foregoing, except for any investment representing less than 1% of the voting shares of any publicly-held corporation. 2 Page 2 of 9 1.04 INITIAL TERM AND EXTENSION. Subject to the provision of this section and Section 3.03, the term of this Employment Agreement shall be for two (2) years commencing with the "Effective Date" hereof (02/24/2000) provided, however, that the term shall be extended automatically for periods of one (1) year commencing on the second anniversary of the Effective Date and on each subsequent anniversary of the Effective Date thereafter, unless either party gives written notice to the other, prior to the date of such anniversary, of such party's election not to extend the term of this Agreement. (This means that after 02/24/2000 the Employment Agreement will have a 2-year life at each renewal.) 2.0 COMPENSATION. 2.01 ANNUAL BASE SALARY. (a) The Bank shall pay to the Employee for the services to be rendered hereunder a "Base Salary", annually, equal to the salary the Employee was receiving effective 07/01/99. (b) Annually, there shall be a review for merit by the President and the Employee's Base Salary for such year may be set at an amount greater than the salary the Employee was receiving effective 07/01/99 if the President deems such an increase to be appropriate to reflect the value of the services of the Employee. (c) If the President increases the Employee's Base Salary at any time during the term of this Agreement, the Employee's increased annual Base Salary shall become the floor below which the Employee's annual Base Salary shall not fall at any future time during the term of this Agreement. (d) If the Agreement is extended for an additional year(s) following the second anniversary of the Effective Date pursuant to Section 1.04, the Employee's Base Salary for such year(s) shall be at least the salary the Employee was receiving in accordance with the provisions of subpart (c) of section 2.01. (e) The Employee's Base Salary shall be payable in periodic installments in accordance with the Bank's usual practice for its employees. 2.02 INCENTIVE COMPENSATION. In addition to a Base Salary, the Employee shall be entitled to receive payments under any formal or informal bonus program(s), if any, in such amounts as is determined by the President to be appropriate for the Employee. 3 Page 3 of 9 2.03 PARTICIPATION IN BENEFIT PLANS. (a) The Employee shall be entitled to participate in, and receive benefits under, all employee benefit plans and arrangements maintained by the Bank in effect on the Effective Date for as long as such plans and arrangements may remain in effect (including, but not limited to, participation in any other pension or 401K plan adopted by the Bank and all group life, health, dental, disability and any or all other insurance and benefit plans), or any substitute or additional plans, policies or arrangements made available in the future to the similarly situated employees of the Bank, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, policies and arrangements. At the date the Employee begins employment with the Bank and to the extent permitted by the documents governing the plans, he shall participate in (at the cost and expense of the Bank) the group life, health plans and other health and welfare plans maintained by the Bank, notwithstanding any waiting period otherwise provided for in such plans. (b) The Bank shall pay all reasonable costs (less any amounts paid by medical insurance plans) associated with an annual physical examination for the Employee. (c) Nothing paid to the Employee under any plan, policy or arrangement presently in effect, or made available in the future, shall be deemed in lieu of other Compensation to the Employee hereunder as described in this Section 2. 2.04 VACATION DAYS. The Employee shall be entitled to the number of paid vacation days and paid holidays in each year as is determined by the Bank from time-to-time for employees of similar title and/or length of service, provided that the aggregate annual number of such vacation days and paid holidays shall at no time fall below the number of days per year to which he was entitled on the Effective Date. 2.05 EXPENSES. During the term of his employment hereunder, the Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him in accordance with the policies and procedures established by the Bank for the Employee, in performing services hereunder. 3.0 TERMINATION. 3.01 TERMINATION BY THE BANK FOR OTHER THAN CAUSE. (a) If during the term of this Agreement the Bank terminates the employment of the Employee and such termination is not for "cause" (as defined in Section 3.02), then: 4 Page 4 of 9 (1) The Bank shall pay to the Employee an amount equal to the Employee's monthly Base Salary (as defined in Section 2.01 and at the monthly salary rate in effect on the date of such termination) multiplied by the greater of (i) 12 months; or (ii) the number of months remaining in the term of this Agreement. This amount shall be paid to the Employee in one (1) lump sum as soon as practicable, but in no event later than 60 days after the date of such termination. (2) The Bank shall also pay the Employee, throughout the remainder of this Agreement (as defined in Section 1.04) following the date that the Employee's employment terminated, such Compensation as is provided to the Employee pursuant to Section 2.02 (to the extent that incentive compensation relates to a period during which the Employee was employed by the Bank), Section 2.03 (except where continuation of benefits cannot be provided as contemplated by this Section 3.01 by reason of a prohibition in the terms of the benefit plan) and Section 2.05. For the purposes of determining the amount of benefits to which the Employee shall continue to be entitled to pursuant to Section 2.03, the Employee shall be deemed, throughout the period of his entitlement pursuant to this Section 3.01, to have continued to have performed services for the Bank at a rate of total compensation equal to the rate in effect on the date of his termination of employment. (b) If the Bank fails to re-appoint (or re-elect) the Employee to the position or positions listed in Section 1.01, fails to comply with the provisions of Section 2 or engages in any other material breach of the terms of this Agreement, a termination of the Employee's employment shall be considered to be a termination of the Employee's employment by the Bank for reasons other than "cause" (as defined in Section 3.02 below) pursuant to this Section 3.01. 3.02 TERMINATION BY THE BANK FOR CAUSE. (a) The Bank shall have the right to terminate the employment of the Employee for cause only after (i) giving written notice to the Employee setting forth in reasonable detail the nature of such cause, and (ii) giving the Employee a reasonable and fair opportunity to respond to such written notice. Effective as of the date that the employment of the Employee terminates by reason of cause, this Agreement shall terminate and no further payments of the Compensation described in Section 2 (except for such remaining payments of Base Salary under Section 2.01 relating to periods during which the Employee was employed by the Bank, benefits under Section 2.03 which are required by applicable law to be continued and reimbursement of proper expenses under Section 2.05) shall be made. 5 Page 5 of 9 (b) For the purposes of this Section "cause" shall mean willful or gross neglect of duties for which the Employee is employed (other than on account of a medically determinable disability which renders the Employee incapable of performing such services); committing fraud, misappropriation or embezzlement in the performance of duties as an employee of the Bank; conviction of a felony involving a crime of moral turpitude; materially failing to follow the proper instructions of the Board; or willfully engaging in conduct materially injurious to the Bank and in violation of the covenants contained in Sections 1.03 or 5.04, or any conduct or circumstance warranting removal of the executive by state or federal regulatory authorities under applicable provisions of Massachusetts or federal law. 3.03 TERMINATION FOLLOWING CHANGE OF CONTROL. If there is a "change of control" (as defined in subsection (a) below) while this Agreement is in effect, the provisions of this Section 3.03 shall apply and shall continue to apply for a 2-year period following the "change of control" (as defined in subsection (a) below); the provisions of this Section 3.03 shall continue to apply regardless of whether the Agreement is terminated. If during the 2-year period following a change of control the Employee's employment is terminated by the Employee following the occurrence of any of the events listed in subsection (b) below, the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. Similarly, if the Employee's employment is terminated without cause (as defined in Section 3.02 above) by the Bank during the 2-year period following the change of control, the Employee shall receive such compensation as is provided to the Employee pursuant to subsection (c) below. (a) For the purposes of this Section 3.03, "change of control" shall mean the occurrence of one or more of the following three events: (1) After the Effective Date, if any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than the Bank, becomes a beneficial owner (as such term is defined in Rule 13d-3 as promulgated under the Securities Exchange Act of 1934, as amended) directly or indirectly of securities representing 15% or more of the total number of votes that may be cast for the election of Directors of the Bank and 2/3 of the appropriate Board have not consented to such event prior to its occurrence or within 60 days thereafter, provided that if the consent occurs after the event, it shall only be valid for the purposes of this paragraph (1) if a majority of the consenting Board is comprised of Directors of the Bank, as appropriate, who were Directors of the Bank, as appropriate, immediately prior to the event; (2) Within two (2) years after a merger, consolidation or sale of assets (other than in the ordinary course of business of the Bank, as appropriate), involving the Bank, or a contested election of a Director of the Bank, as appropriate, or any combination of the foregoing, the individuals who were Directors of the Bank immediately prior thereto shall cease to constitute a majority of the respective Boards; 6 Page 6 of 9 (3) Within two (2) years after a tender offer or exchange offer for voting securities of the Bank (other than by the Bank, as appropriate), the individuals who were Directors of the Bank, as appropriate, immediately prior thereto shall cease to constitute a majority of the Board. (b) The "events" referred to in this Section 3.03 shall be as follows: (1) A reduction of the Employee's annual Compensation (as described in Section 2 above) other than a reduction which is based on the financial performance of the Bank and is similar to the reduction made to the compensation provided to each other Employee of the Bank, provided that such reduction does not exceed 25%; (2) In the judgment of the Employee (such judgment being exercised in good faith), a significant change in the Employee's responsibilities and/or duties which constitutes, when compared to the Employee's responsibilities and/or duties before the "change of control" (as defined in subsection (a) above), a demotion; (3) A loss of title or office; (4) An increase in Compensation for the Employee following a "change of control" that, when compared to the increases in Compensation received in the prior three (3) years, is a lower dollar amount or percentage of increase, except that such reduction in increases in Compensation shall not be considered an "event" for purposes of this subsection (b) if such reduction in increases is based on the financial performance of the Bank and is similar to the reduction in increases in compensation provided to other Employees of the Bank; or (5) A requirement that the Employee relocate to a location that is more than 25 miles from the main office of the Bank in effect immediately prior to the "change in control". (c) If the Employee becomes entitled to receive compensation pursuant to this Section 3.03, he shall receive a lump-sum payment from the Bank within 60 days of the termination of his employment. Such lump-sum payment shall equal three (3) times of the Employee's "base amount" (as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended [the "Code"]), provided that the Board shall have full power, without the prior consent of the Employee, to reduce the amount of the lump-sum payment payable pursuant to this Section, but only to the extent necessary to ensure that such lump-sum payment is not subject to tax pursuant to Section 4999 of the Code. 7 Page 7 of 9 3.04 OTHER. If the Employee's termination of employment is covered by both Section 3.01 and Section 3.03 the Employee shall receive the greater of: (a) The compensation described in Section 3.01 net of the amount of tax imposed on such compensation under Section 4999 of the Code; or (b) The compensation described in section 3.03 above. 3.05 TERMINATION BY DEATH OR DISABILITY. If the Employee dies or becomes disabled, this Agreement shall terminate and the Employee shall then be entitled to such compensation described in Section 2 that relates to the period that he performed services for the Bank plus all applicable benefits to which the Employee is entitled under employee benefit plans maintained by the Bank, incentive compensation or bonus plans, other benefit plans or programs maintained by the Bank and all such other benefits from employment policies and practices of the Bank. For purposes of this section, the Employee shall be regarded as "disabled" if he or she is (in the good faith judgement of the Board of Directors of the Bank) substantially unable, as a result of physical or mental capacity or any combination thereof, to perform his or her duties hereunder for a (i) a period of three consecutive months; or (ii) for a total of 90 days in any one-year period. 4. ASSIGNMENT. This Agreement and the rights and obligations of the parties hereto shall bind and inure to the benefit of each of the parties hereto and shall also bind and inure to the benefit of any successor or successors of the Bank by reorganization, merger or consolidation and any assignee of all or substantially all of business and properties of the Bank, but, except as to any such successor or assignee of the Bank, neither this Agreement nor any rights or benefits hereunder may be assigned by the Bank or the Employee. 5. MISCELLANEOUS. 5.01 GOVERNING LAW. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the Commonwealth of Massachusetts. 5.02 INTERPRETATION. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or provision unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 5.03 NOTICES. Any notice required or permitted to be given hereunder shall be effective when received and shall be sufficient if in writing and if personally delivered or sent by pre-paid cable, telex or registered mail, return receipt requested, to the party to receive such notice. 8 Page 8 of 9 5.04 CONFIDENTIAL INFORMATION. The Employee will not disclose to any other person or entity (except as required by applicable law or in connection with the performance of his responsibilities hereunder), or use for his own benefit, any confidential information of the Bank obtained by him incident to his employment with the Bank. The term "confidential information" includes, without limitation, financial information, business plans, prospects and opportunities which have been discussed or considered by the Board or management of the Bank, but does not include any information which has been public other than on account of the Employee's failure to comply with the provisions of this Section. 5.05 AMENDMENT AND WAIVER. This Agreement may not be amended, supplemented or waived except by a writing signed by the party against which such amendment or waiver is to be enforced. The waiver by any party of a breach of any provision of this Agreement shall not operate to, or be construed as a waiver of, any other breach of that provision nor as a waiver of any breach of another provision. 5.06 BINDING EFFECT. Subject to the provisions of Section 4 hereof, this Agreement shall be binding on the successors and assigns of the parties hereto. 5.07 SURVIVAL OF RIGHTS AND OBLIGATIONS. All rights and obligations of the Employee or the Bank arising during the term of this Agreement shall continue to have full force and effect after the termination of this Agreement. 5.08 COUNTERPARTS. This Agreement may be executed in two (2) counterparts, each of which is an original, but which shall together constitute one and the same instrument. 5.09. LEGAL EXPENSES. In the event that after a "change of control" the Employee's employment is terminated for any reason, including "cause", the Bank shall pay such amounts as shall become due all of the legal expenses incurred by the Employee to contest such termination, except that the Employee shall reimburse the Bank for all such expenses paid, and the Bank shall not be further liable for any further expenses, should it be finally determined by a court of competent jurisdiction that the termination was for "cause" or, if the reason for termination was "cause", the Employee fails to pursue his remedies to such a final determination. 6. ARBITRATION. 6.01 ARBITRATION OF DISPUTES. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three (3) arbitrators, one of whom shall be appointed by the Bank, one by the Employee and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall by appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 6.01. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 9 Page 9 of 9 In any arbitration proceeding brought pursuant to this Section 6.01, or in any court proceeding to enforce or review an award of the arbitrators, each of the parties shall pay his or its own legal costs, expenses and attorney's fees, provided, that if the issue or one of the issues if there be more than one, between the parties is whether the termination or dismissal of the Employee was for cause, and the ultimate conclusion, whether made by the arbitrators, or by a court (in a proceeding to enforce or review the arbitration award) is that the termination or dismissal was NOT for cause, then the Bank shall pay (or the Employee shall be entitled to recover from the Bank, as the case may be) the Employee's reasonable legal costs, expenses and attorney's fees incurred in the litigation,. The provisions of this Section 6.01 shall apply regardless of whether the termination or dismissal of the Employee for cause was made after or as a result of a "change of control". EXECUTION Upon execution below by all parties, this Agreement will enter into full force and effect on the Effective Date as an instrument under seal. LAWRENCE SAVINGS BANK By: /s/ Paul A. Miller Witness: /s/ illegible ---------------------------- ----------------------------- Paul A. Miller President EMPLOYEE /s/ Richard J. D'Ambrosio Witness: /s/ illegible ---------------------------- ----------------------------- Richard J. D'Ambrosio Senior Vice President EX-10.14 20 b39832lsex10-14.txt 1986 STOCK OPTION PLAN 1 EXHIBIT 10.14 LAWRENCE SAVINGS BANK 1986 STOCK OPTION PLAN ---------------------- February 20, 1986 1. PURPOSE This Stock Option Plan (the "Plan") is intended as a performance incentive for directors, officers and full-time employees of Lawrence Savings Bank (the "Bank") or its Subsidiaries (as hereinafter defined) to enable the persons to whom options are granted (the "Optionees") to acquire or increase a proprietary interest in the success of the Bank. The Bank intends that this purpose will be effected by the granting of "incentive stock options" ("Incentive Options") as defined in Section 422A(b) of the Internal Revenue Code of 1954, as amended (the "Code"), nonqualified stock options ("Nonqualified Options") and stock appreciation rights under the Plan. The term "Subsidiaries" includes any corporations in which stock possessing 50 percent or more of the total combined voting power of all classes of stock is owned directly or indirectly by the Bank. 2. OPTIONS TO BE GRANTED AND ADMINISTRATION (a) Options granted under the Plan may be either Incentive Options or Nonqualified Options. (b) The Plan shall be administered by a committee (the "Option Committee") of not less than three directors appointed by the Board of Directors of the Bank. None of the members of the Option Committee shall be an officer or other full-time employee of the Bank. It is the intention of the Bank that the Plan shall be administered, in accordance with the provisions of Section 4 hereof, by "disinterested administrators" -1- 2 within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934 Act"). Prior to the conversion of the Bank to stock form, the Option Committee shall consist of three Trustees of the Bank who satisfy the requirements of this paragraph (b) and who shall be selected from among those Trustees who will serve as initial directors after conversion. The Committee so selected shall exercise all powers under the Plan and shall continue in office after conversion until other action is taken by the Board of Directors. Action by the Option Committee shall require the affirmative vote of a majority of all its members. (c) Subject to the terms and conditions of the Plan, the Option Committee shall have the power: (i) To determine from time to time the options to be granted to eligible persons under the Plan, to prescribe the terms and provisions (which need not be identical) of each option granted under the Plan to such persons, and to recommend to the Board of Directors for its approval the grant of options; (ii) To construe and interpret the Plan and options granted thereunder and to establish, amend, and revoke rules and regulations for administration of the Plan. In this connection, the Option Committee may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, or in any option agreement, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All decisions and determinations by the Option Committee in the exercise of this power shall be final and binding upon the Bank and Optionees; and -2- 3 (iii) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interest of the Bank with respect to the Plan. 3. STOCK (a) The stock subject to the options granted under the Plan shall be shares of the Bank's authorized but unissued common stock, par value $.10 per share (the "Common Stock"). The total number of shares that may be issued pursuant to options or stock appreciation rights granted under the Plan shall not exceed an aggregate of 431,250(*) shares of Common Stock. Such number shall be subject to adjustment as provided in Section 8 hereof. (b) Whenever any outstanding option under the Plan expires, is canceled or is otherwise terminated (other than by exercise), the shares of Common Stock allocable to the unexercised portion of such option may again be the subject of options under the Plan, except for options surrendered as provided in Section 7 hereof. 4. ELIGIBILITY (a) Incentive Options may be granted only to officers and other full-time employees of the Bank and its Subsidiaries, including members of the Board of Directors who are also employees of the Bank or its Subsidiaries. Nonqualified Options may be granted to officers or other full-time employees of the Bank or its Subsidiaries and to members of the Board of Directors (regardless of whether they are also employees). - ------------------- (*) Such number equal to 10 percent of the number of shares of Common Stock to be outstanding upon completion of the Conversion. -3- 4 (b) No person shall be eligible to receive any option under the Plan, if at the date of grant such person beneficially owns in excess of ten percent of the outstanding Common Stock of the Bank. (c) No person shall be eligible to receive Incentive Options under the Plan and incentive stock options under any other option plan of the Bank (or a parent or subsidiary as defined in ss.425 of the Code) in any calendar year covering stock having an aggregate fair market value (determined at the time the option is granted) in excess of $100,000, plus any unused limit carryover to such year as defined in ss.422A(c)(4) of the Code. Any option granted in excess of the foregoing limitations shall be clearly and specifically designated as not being an Incentive Option. (d) The aggregate number of shares of Common Stock subject to Nonqualified Options granted to non-employee directors shall at no time exceed 30% of the aggregate number of shares of Common Stock subject to the Plan; provided that the aggregate number of shares of Common Stock subject to all Nonqualified Options granted to any such director shall at no time exceed 2% of the aggregate number of shares of Common Stock subject to the Plan. 5. TERMS OF THE OPTION AGREEMENTS Each option agreement shall contain such provisions as the Option Committee shall from time to time deem appropriate. Option agreements need not be identical, but each option agreement by appropriate language shall include the substance of all of the following provisions: (a) EXPIRATION. Notwithstanding any other provision of the Plan or of any option agreement, each option shall expire on the date specified in the option agreement, -4- 5 which date shall not be later than the tenth anniversary of the date on which the option was granted. (b) MINIMUM SHARES EXERCISABLE. The minimum number of shares with respect to which an option may be exercised at any one time shall be 100 shares, or such lesser number as is subject to exercise under the option at the time. (c) EXERCISE. (i) Each option shall be exercisable in such installments (which need not be equal) and at such times as designated by the Option Committee. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the option expires. (ii) Notwithstanding any other provision of the Plan, no Incentive Option (or related stock appreciation right) shall be exercisable by an Optionee while there is outstanding (within the meaning of ss.422A(c)(7) of the Code) any other Incentive Option to purchase stock of (i) the Bank or (ii) a parent, subsidiary or predecessor corporation, which was granted to such Optionee prior to the granting of the Incentive Option which such Optionee proposes to exercise. (iii) In the event of a Change in Control of the Bank (as defined in (f) below), all options outstanding as of the date of such Change in Control shall become immediately exercisable. (iv) Notwithstanding any other provisions of the Plan, no officer or director of the Bank shall exercise any option granted hereunder within three years from the date of completion of the conversion of the Bank to stock form, -5- 6 except with the approval of the Commissioner of Banks of the Commonwealth of Massachusetts. (d) PURCHASE PRICE. The purchase price per share of Common Stock under each option shall be not less than the fair market value of the Common Stock on the date the option is granted. For the purposes of the Plan the fair market value of the Common Stock shall be determined by the Option Committee. (e) RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose to be the owner of any shares of Common Stock subject to any option unless and until (i) the option shall have been exercised pursuant to the terms thereof, (ii) the Bank shall have issued and delivered the shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Bank. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Common Stock. (f) CHANGE IN CONTROL. For purposes of the Plan, a "Change in Control" shall be deemed to have occurred in either of the following events: (i) if there has occurred a change in control which the Bank would be required to report in response to Item 5(f) of the Form for Proxy Statement (Form F-5) prescribed by 12 CFR Section 335.212 promulgated under the 1934 Act, or, if such regulation is no longer in effect, any regulations promulgated by the Federal Deposit Insurance Corporation or the Securities and Exchange Commission pursuant to the 1934 Act which are intended to serve similar purposes or (ii) when any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of securities of the Bank -6- 7 representing twenty-five percent (25%) or more of the total number of votes that may be cast of the election of directors of the Bank, and in the case of either (i) or (ii) above, the Bank's Board of Directors has not consented to such event by a two-thirds vote of all of the members of the Board of Directors adopted prior to such event. In addition, a Change in Control shall be deemed to have occurred if, as the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the Bank before such transaction shall cease to constitute a majority of the Board of Directors of the Bank or of any successor institution. Notwithstanding the other provisions of this Section, the sale of the Bank's stock in connection with its conversion from mutual to stock form shall not constitute a Change in Control. 6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE (a) Any option granted under the Plan may be exercised by the Optionee by delivering to the Option Committee on any business day a written notice specifying the number of shares of Common Stock the Optionee then desires to purchase (the "Notice"). (b) Payment for the shares of Common Stock purchased pursuant to the exercise of an option shall be made either in (i) cash equal to the option price for the number of shares specified in the Notice (the "Total Option Price"), or (ii) if authorized by the applicable option agreement, shares of Common Stock of the Bank having a fair market value, determined as provided in Section 5(d) hereof, equal to or less than the Total Option Price, plus cash in an amount equal to the excess, if any, of the Total Option Price over the fair market value of such shares of Common Stock. 7. STOCK APPRECIATION RIGHTS -7- 8 (a) The Option Committee may, but shall not be obligated to, include stock appreciation rights in any option agreement, on such terms and conditions as it deems appropriate in each case. Such stock appreciation rights shall permit the Optionee, at his or her election, to surrender to the Bank the right to exercise such option (or portion thereof) in consideration for the payment by the Bank of an amount equal to the excess of the fair market value on the date of such surrender of the shares of Common Stock subject to such option (or portion thereof) surrendered over the exercise price of such shares. Such payment may be made, at the discretion of the Option Committee upon the request of the Optionee, in shares of Common Stock valued at fair market value thereof on the date of such surrender or in cash, or any combination thereof. (b) Any election by an Optionee to exercise stock appreciation rights included in any option agreement shall be made only during the period beginning on the third business day following the release for publication of quarterly or annual financial information and ending on the twelfth business day following such date. This condition shall be deemed to be satisfied when the specified financial data appears on or in a wire service, financial news service or newspaper of general circulation or is otherwise first made publicly available. No stock appreciation right may be exercised within six months from the date of grant thereof. (c) Any option surrendered as provided in this Section 7 shall be canceled by the Bank and shall not be subject to further grant. (d) The Option Committee shall be authorized hereunder to make payment to the Optionee in shares of Common Stock only if Sections 61 and 83 of the Code apply to the Common Stock transferred to the Optionee. -8- 9 8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION (a) If the shares of the Bank's Common Stock as a whole are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Bank, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or the like, an appropriate and proportionate adjustment shall be made in the number and kind of shares subject to the Plan, and in the number, kind, and per share exercise price of shares subject to unexercised options or portions thereof granted prior to such change. In the event of any such adjustment in an outstanding option, the Optionee thereafter shall have the right to purchase the number of shares under such option at the per share price, as so adjusted, which the Optionee could purchase at the total purchase price applicable to the option immediately prior to such adjustment. (b) Adjustments under this Section 8 shall be determined by the Option Committee and such determinations shall be conclusive. The Option Committee shall have the discretion and power in any such event to determine and to make effective provision for acceleration of the time or times at which any option or portion thereof shall become exercisable. No fractional shares of Common Stock shall be issued under the Plan on account of any adjustment specified above. 9. EFFECT ON CERTAIN TRANSACTIONS In the case of (i) the dissolution or liquidation of the Bank, (ii) a reorganization, merger or consolidation in which the Bank is acquired by another entity (other than a holding company formed by the Bank) or in which the Bank is not the surviving -9- 10 corporation, or (iii) the sale of all or substantially all of the property of the Bank to the corporation, the Plan and the options issued hereunder shall terminate, unless provision is made in connection with such transaction for the assumption of options theretofore granted, or the substitution for such option of new options of the successor corporation or parent thereof, with appropriate adjustment as to the number and kind of shares and the per share exercise prices, as provided in Section 8. In the event of such termination, all outstanding options shall be exercisable in full for at least 15 days prior to the date of such termination whether or not otherwise exercisable during such period. 10. RELEASE OF FINANCIAL INFORMATION A copy of the Bank's annual report to stockholders shall be delivered to each Optionee at the time such report is distributed to the Bank's stockholders. Upon request, the Bank shall furnish to each Optionee a copy of its most recent annual report and each quarterly report and current report filed under the 1934 Act since the end of the Bank's prior fiscal year. 11. AMENDMENT OF THE PLAN The Board of Directors may amend the Plan at any time, and from time to time, subject to any required regulatory approval and to the limitation that, except as provided in Sections 8 and 9 hereof, no amendment shall be effective unless approved by the stockholders of the Bank in accordance with applicable law and regulations at an annual or special meeting held within twelve months before or after the date of adoption of such amendment, where such amendment will: (a) increase the number of shares of Common Stock as to which options may be granted under the Plan; -10- 11 (b) change in substance Section 4 hereof relating to eligibility to participate in the Plan; (c) change the minimum option price; or (d) increase the maximum term of options provided herein. Except as provided in Sections 8 and 9 hereof, rights and obligations under any option granted before any amendment of the Plan shall not be altered or impaired by such amendment, except with the consent of the Optionee. 12. NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Bank for approval shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 13. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW (a) The obligation of the Bank to sell and deliver shares of Common Stock with respect to options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Option Committee. (b) The Plan shall be governed by Massachusetts law, except to the extent that such law is preempted by federal law. -11- 12 (c) The Plan is intended to comply with Rule 16b-3 under the 1934 Act. Any provision inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. 14. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL The Plan shall become effective at the time that the public offering price for stock of the Bank to be sold to the public in connection with the Conversion is established by Agreement of the Bank with the Underwriters, or, if no public offering is held, at the time the price for the Common Stock to be issued and sold in connection with the Conversion is otherwise determined by the Bank, provided, however, that the Plan shall be subject to (i) the approval of the Bank's stockholders in accordance with applicable laws and regulations at an annual or special meeting held within twelve months of such effective date and (ii) the approval of the Commissioner of Banks of the Commonwealth of Massachusetts if required by applicable law or regulation. No options granted under the Plan prior to such regulatory and stockholder approvals may be exercised until such approvals have been obtained. No option may be granted under the Plan after the tenth anniversary of the effective date of the Plan. *** -12- EX-10.15 21 b39832lsex10-15.txt 1997 STOCK OPTION PLAN 1 EXHIBIT 10.15 LAWRENCE SAVINGS BANK 1997 STOCK OPTION PLAN 1. PURPOSE This Stock Option Plan (the "Plan") is intended as a performance incentive for directors, officers and full-time employees of Lawrence Savings Bank (the "Bank") or its Subsidiaries (as hereinafter defined) to enable the persons to whom options are granted (the "Optionees") to acquire or increase a proprietary interest in the success of the Bank. The Bank intends that this purpose will be effected by the granting of "incentive stock options" ("Incentive Options") as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), non-qualified stock options ("Nonqualified Options") and stock appreciation rights under the Plan. The term "Subsidiaries" includes any corporations in which stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock is owned directly or indirectly by the Bank. 2. OPTIONS TO BE GRANTED AND ADMINISTRATION (a) Options granted under the Plan may be either Incentive Options or Nonqualified Options. (b) The Plan shall be administrated by a committee (the "Option Committee") of not less than three directors appointed by the Board of Directors of the Bank. None of the members of the Option committee shall be an officer or other full-time employee of the Bank. It is the intention of the Bank that the Plan shall be administered, in accordance with the provisions of Section 4 hereof, in a manner consistent with provisions of and regulations adopted under Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Action by the Option Committee shall require the affirmative vote of a majority of all its members. (c) Subject to the terms and conditions of the Plan, the Option Committee shall have the power: (i) To determine from time to time the options to be granted to eligible persons under the Plan, to prescribe the terms and provisions (which need not be identical) of each option granted under the Plan to such persons, and to recommend to the Board of Directors for its approval the grant of options; (ii) To construe and interpret the Plan and options granted thereunder and establish, amend, and revoke rules and regulations for administration of the Plan. In this connection, the Option Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any option -1- 2 agreement, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All decisions and determinations by the Option Committee in the exercise of this power shall be final and binding upon the Bank and Optionees; and (iii) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Bank with respect to the Plan. 3. STOCK (a) The stock subject to the options granted under the Plan shall be shares of the Bank's authorized but unissued common stock, par value $.10 per share (the "Common Stock"). The total number of shares that may be issued pursuant to options or stock appreciation rights granted under the Plan shall not exceed an aggregate of 427,850 shares of Common Stock. Such number shall be subject to adjustment as provided in Section 8 hereof. (b) Whenever any outstanding option under the Plan expires, is canceled or is otherwise terminated (other than by exercise), the shares of Common Stock allocable to the unexercised portion of such option may again be the subject of options under the Plan, except for options surrendered as provided in Section 7 hereof. 4. ELIGIBILITY (a) Incentive Options may be granted only to officers and other full-time employees of the Bank or its Subsidiaries, including members of the Board of Directors who are also employees of the Bank or its Subsidiaries. Nonqualified Options may be granted to officers or other full-time employees of the Bank or its subsidiaries and to members of the Board of Directors (regardless of whether they are also employees). (b) No person shall be eligible to receive any option under the Plan if at the date of grant such person beneficially owns in excess of ten percent of the outstanding Common Stock of the Bank. (c) No person shall be eligible to receive Incentive Options under the Plan and incentive stock options under any other option plan of the Bank (or a parent or subsidiary as respectively defined in Section 424(e) and (f) of the Code) in an amount exercisable for the first time during any calendar year covering stock having an aggregate fair market value (determined at the time and in the order the option is granted), in excess of $100,000, pursuant to Section 422(d) of the Code. Any option granted in excess of the foregoing limitations shall be clearly and specifically designated as not being an Incentive Option. -2- 3 (d) The aggregate number of shares of Common Stock subject to Nonqualified Options granted to non-employee directors shall at no time exceed 20% of the aggregate number of shares of Common Stock subject to the Plan; provided that the aggregate number of shares of Common Stock subject to all Nonqualified Options granted to any such director shall at no time exceed 2% of the aggregate number of shares of Common Stock subject to the Plan. The aggregate number of shares of Common Stock subject to Nonqualified Options and Incentive Options granted to directors who are employees shall at no time exceed 50% of the aggregate number of shares of Common Stock subject to the Plan; provided that the aggregate number of shares of Common Stock subject to all Nonqualified Options and Incentive Options granted to any such director shall at no time exceed 20% of the aggregate number of shares of Common Stock subject to the Plan. 5. TERMS OF THE OPTION AGREEMENTS Each option agreement shall contain such provisions as the Option Committee shall from time to time deem appropriate. Option agreements need not be identical, but each option agreement by appropriate language shall include the substance of all of the following provisions: (a) Expiration. Notwithstanding any other provision of the Plan or of any option agreement, each option shall expire on the date specified in the option agreement, which date shall not be later than the tenth anniversary of the date on which the option was granted and, in the case of Incentive Options, the period specified in Section 422 of the Code, if earlier. (b) Minimum Shares Exercisable. The minimum number of shares with respect to which an option may be exercised at any one time shall be 100 shares, or such lesser number as is subject to exercise under the option at the time. (c) Exercise. (i) Each option shall be exercisable in such installments (which need not be equal) and at such times as designated by the Option Committee. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the option expires. (ii) In the event of a Change in Control of the Bank (as defined below in paragraph (f)), all options outstanding as of the date of such Change in Control shall become immediately exercisable. (iii) Notwithstanding any other provisions of the Plan, no officer or director of the Bank shall exercise any option granted hereunder or any related -3- 4 stock appreciation right within one year of the date of grant of the option or stock appreciation right. (d) Purchase Price. The purchase price per share of Common Stock under each option shall be not less than the fair market value of the Common Stock on the date the option is granted. For purposes of the Plan, the fair market value of the Common Stock shall be determined in good faith by the Option Committee. (e) Rights of Optionees. No optionee shall be deemed for any purpose to be the owner of any shares of Common Stock subject to any option unless and until (i) the option shall have been exercised pursuant to the terms thereof, (ii) the Bank shall have issued and delivered the shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Bank. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Common Stock. (f) Change in Control. For purposes of the Plan, a "Change in Control" shall be deemed to have occurred in either of the following events: (i) if there has occurred a change in control which the Bank would be required to report as such in the Form for Proxy Statement prescribed by applicable regulations promulgated under the 1934 Act by the Federal Deposit Insurance Corporation or the Securities and Exchange Commission or (ii) when any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is defined in Rule 13(d)(3) promulgated under the 1934 Act), directly or indirectly, of securities of the Bank representing twenty-five percent (25%) or more of the total number of votes that may be cast for the election of directors of the Bank and, in the case of either (i) or (ii) above, the Bank's Board of Directors has not consented to such event by a two-thirds vote of all the members of the Board of Directors then in office adopted prior to such event. In addition, a Change in Control shall be deemed to have occurred if, as the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Bank before such transaction shall cease to constitute a majority of the Board of Directors of the Bank or of any successor institution. Notwithstanding the other provisions of this Section, the formation of a holding company at the direction of the Bank pursuant to the provisions of the Massachusetts General Laws for the purpose of acquiring all or substantially all of the outstanding common stock of the Bank and the said acquisition by such a holder company shall not constitute a Change in Control. (g) Limitation on Change in Control Compensation. An Optionee shall not be entitled to receive any compensation resulting from a Change in Control which would, with respect to the Participant, constitute a "parachute payment" for purposes of Section 280G of the Internal Revenue Code. In the event any compensation resulting from a Change in Control Action would, with respect to the Optionee, constitute a "parachute payment," the Optionee shall have the right to designate compensation resulting from a -4- 5 Change in Control which would be reduced or eliminated so that the Optionee will not receive a "parachute payment." (h) No options or stock appreciation rights shall be transferable by the Optionee, other than by will or by the laws of descent and distribution. All options or stock appreciation rights may be exercised during the Optionee's lifetime only by the Optionee, or by his or her guardian or legal representative. 6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE (a) Any option granted under the Plan may be exercised by the Optionee by delivering to the Option Committee on any business day a written notice specifying the number of shares of Common Stock the Optionee then desires to purchase (the "Notice"). (b) Payment for the shares of Common Stock purchased pursuant to the exercise of an option shall be made either (i) in cash equal to the option price for the number of shares specified in the Notice (the "Total Option Price"), or (ii) if authorized by the applicable option agreement, by actual or constructive transfer to the Company of nonforfeitable, nonrestricted shares of Common Stock of the Bank having a fair market value, determined as provided in Section 5(d) hereof, equal to or less than the Total Option Price, plus cash or certified check in an amount equal to the excess, if any, of the Total Option Price over the fair market value of such shares of Common Stock. 7. STOCK APPRECIATION RIGHTS (a) The Option Committee may, but shall not be so obligated to include stock appreciation rights in any option agreement, on such terms and conditions as it deems appropriate in each case. Such stock appreciation rights shall permit the Optionee, at his or her election, to surrender to the Bank the right to exercise such option (or portion thereof) in consideration for the payment by the Bank of an amount equal to the excess of the fair market value on the date of such surrender of the shares of Common Stock subject to such options (or portion thereof) surrendered over the exercise price of such shares. Such payment may be made, at the discretion of the Option Committee upon the request of the Optionee, in shares of Common Stock valued at the fair market value thereof on the date of such surrender or in cash, or any combination thereof. (b) Any option surrendered as provided in this Section 7 shall be cancelled by the Bank and shall not be subject to further grant. (c) The Option Committee shall be authorized hereunder to make payment to the Optionee in shares of Common Stock only if Sections 61 and 83 of the Code (pertaining to gross income) apply to the Common Stock transferred to the Optionee. 8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION -5- 6 (a) If the shares of the Bank's Common Stock as a whole are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Bank, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or the like, an appropriate and proportionate adjustment shall be made in the number and kind of shares subject to the Plan, and in the number, kind and per share exercise price of shares subject to unexercised options or portions thereof granted prior to any such change. In any event of any such adjustment in an outstanding option, the Optionee thereafter shall have the right to purchase the number of shares under such option at the per share price, as so adjusted, which the Optionee could purchase at the total purchase price applicable to the option immediately prior to such adjustment. (b) Adjustments under this Section 8 shall be determined by the Option Committee and such determinations shall be conclusive. The Option Committee shall have the discretion and power in any such event to determine and to make effective provision for acceleration of the time or times at which any option or portion thereof shall become exercisable. No fractional shares of Common Stock shall be issued under the Plan on account of any adjustment specified above. 9. EFFECT OF CERTAIN TRANSACTIONS Except as set forth below, in the case of (i) the dissolution or liquidation of the Bank, (ii) a reorganization, merger or consolidation in which the Bank is acquired by another entity (other than a holding company formed at the direction of the Bank) or in which the Bank is not the surviving corporation, or (iii) the sale of all or substantially all of the property of the Bank to another corporation, the Plan and the options issued hereunder shall terminate on the effective date of such transaction, unless provision is made in connection with such transaction for the assumption of options theretofore granted under the Plan, or the substitution for such options of new options of the successor corporation or parent thereof, with appropriate adjustment as to the number and kind of shares and the per share exercise prices, as provided in Section 8. Optionees shall be given at least 15 days prior written notice of such termination. In the event of such termination, outstanding options shall be exercisable in full for at least fifteen days prior to the date of such termination whether or not otherwise exercisable during such period. Notwithstanding anything to the contrary contained herein, neither the formation of a holding company at the direction of the Bank pursuant to the provisions of Chapter 167A of the Massachusetts General Laws for the purpose of acquiring all or substantially all of the outstanding Common Stock of the Bank nor the said acquisition of the outstanding Common Stock of the Bank by such a holding company shall trigger such a termination, and upon the effective date of such acquisition of the outstanding Common Stock of the Bank by the holding company, the options issued hereunder shall be considered options to purchase shares of the holding company. 10. RELEASE OF FINANCIAL INFORMATION -6- 7 A copy of the Bank's annual report to stockholders shall be delivered to each Optionee at the time such report is distributed to the Bank's stockholders. Upon request, the Bank shall furnish to each Optionee a copy of its most recent annual report and each quarterly report and current report filed under the 1934 Act since the end of the Bank's prior fiscal year. 11. AMENDMENT OF THE PLAN The Board of Directors may amend the Plan at any time, and from time to time, subject to any required regulatory approval and to the limitation that, except as provided in Sections 8 and 9 hereof, no amendment shall be effective unless approved by the stockholders of the Bank in accordance with applicable laws and regulations at an annual or special meeting held within twelve months before or after the date of adoption of such amendment, where such amendment will: (a) increase the number of stock appreciation rights which may be granted or of shares of Common Stock as to which options may be granted under the Plan; (b) change in substance Section 4 hereof relating to eligibility to participate in the Plan; (c) change the minimum option price; (d) increase the maximum term of options provided herein; or (e) otherwise materially increase the benefits accruing to participants under the Plan. Except as provided in Section 8 and 9 hereof, rights and obligations under any option granted before any amendment of the Plan shall not be altered or impaired by such amendment, except with the consent of the Optionee. 12. NON-EXCLUSIVITY OF THE PLAN Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Bank for approval shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangement may be either applicable generally or only in specific cases. 13. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW -7- 8 (a) The obligation of the Bank to sell and deliver shares of Common Stock with respect to options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Option Committee. (b) The Plan shall be governed by Massachusetts law, except to the extent that such law is preempted by federal law. (c) The Plan is intended to comply with the applicable provisions of the regulations adopted under Section 16 of the 1934 Act. Any provision inconsistent with such provisions shall be inoperative and shall not affect the validity of the Plan. 14. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL The Plan shall become effective upon adoption by the Board of Directors, subject to (i) the approval of the Bank's stockholders in accordance with applicable laws and regulations at an annual or special meting held within twelve months of approval of the Plan by the Board of Directors; and (ii) the approval of the Commissioner of Banks of the Commonwealth of Massachusetts if required by applicable laws or regulations. No options granted under the Plan prior to such regulatory and stockholder approvals may be exercised until such approvals have been obtained. No option may be granted under the Plan after the tenth anniversary of the adoption of the Plan by the Board of Directors. -8- EX-99.1 22 b39832lsex99-1.txt ANNUAL REPORT FOR YEAR ENDED 12/31/00 1 EXHIBIT 99.1 ------------------------ LAWRENCE SAVINGS BANK [BIRD GRAPHIC] 2000 ANNUAL REPORT ------------------------ 2 LETTER TO THE STOCKHOLDERS Lawrence Savings Bank reported net income of $4,323,000 or $0.97 diluted earnings per share, an increase of 57% for the year ended December 31, 2000, as compared to $2,754,000 or $0.61 diluted earnings per share for the prior year of 1999. The increase in net income and earnings per share during the year 2000 is attributable to favorable impact to earnings of non-interest income increasing, non-interest expense decreasing and provision for income taxes decreasing. The largest favorable impact on earnings was the decline in the provision for income taxes. Income taxes declined by $728,000 to $854,000 for the year 2000 compared to $1,582,000 for the year 1999. The favorable outcome of an income tax matter led to a lower effective income tax rate for the Bank. Net interest income declined slightly to $12,679,000 in 2000 from $12,914,000 in 1999. The Bank's net interest margin on average earning assets decreased to 3.22% in 2000 from 3.55% in 1999. This was the result of rising interest rates, which affected the cost of the Bank's short-term borrowing from the Federal Home Loan Bank of Boston and certificate of deposit accounts offered to our customers, which were used to fund the increase in earning assets of the Bank. The Bank increased the average loan portfolio to $203.7 million in 2000 from $196.9 million in 1999 and the investment securities portfolio to $190.5 million in 2000 from $166.6 million in 1999. The Bank's adherence to prudent loan underwriting policies has allowed the Bank to maintain a low level of risk assets during a period of rising interest rates and slower economic activity. Non-performing loans were $10,000 at December 31, 2000 and zero at December 31, 1999. Risk assets as a percentage of total assets have remained below 1.00% for the last five years and were 0.01% and 0.13% at December 31, 2000 and 1999, respectively. Provisions for loan losses were $250,000 and $75,000 for the years ended December 31, 2000 and 1999, respectively. The Bank continues to look for quality assets to grow the loan portfolio. The Bank has not acquired property through foreclosure in the past three years. Non-interest income increased to $1,124,000 for the year 2000 compared to $844,000 for the year 1999. This increase was primarily due to gains on sales of mortgage loans of $47,000 in 2000 compared to losses on sales of mortgage loans of $205,000 in 1999. Increases in other accounts such as deposit account fees and official check income also contributed to the increase in non-interest income. Non-interest expense was $8,376,000 and $9,347,000 for the years ended December 31, 2000 and 1999, respectively. The main reason for this decrease was lower legal expenses incurred during 2000 versus 1999. Professional expenses, which includes legal expenses, decreased to $496,000 in 2000, down from $1,401,000 in 1999. Total assets increased to $413,090,000 at December 31, 2000 from $404,172,000 at December 31, 1999. The increase in asset size during 2000 primarily occurred because the Bank had loan growth of $23.9 million. Gross loans at December 31, 2000 increased by 12% to $222,045,000 up from $198,098,000 at December 31, 1999. The allowance for loan losses was $3,685,000 at December 31, 2000 and $3,381,000 at December 31, 1999. Total deposits at December 31, 2000 were $270,548,000 up from $246,040,000 at December 31, 1999 which helped fund our loan growth. The increase in deposits at December 31, 2000 from December 31, 1999 was primarily due to an increase in money market, NOW and certificate of deposit accounts. 3 LETTER TO THE STOCKHOLDERS (CONTINUED) The Bank exceeds all regulatory minimum capital ratio requirements as defined by the FDIC. The leverage ratio was 11.71% and 10.83% at December 31, 2000 and December 31, 1999, respectively. The financial results in the past five years indicate that loan balances for commercial real estate, construction and commercial business loans continue to grow and are the focus of loan growth for the Bank. Management will continue to concentrate on maintaining asset quality and improving net interest margin to enhance Bank earnings. The Bank paid its first cash dividends to shareholders of $0.15 per share in 1999 and $0.26 per share in 2000. The Bank's 24-hour e-branch www.LawrenceSavings.com continues to provide a helpful delivery system of Bank products to customers. Customers can do their banking anytime, anywhere, at their convenience using our website. Our Board of Directors, management and staff will continue to work to further improve earnings of the Bank and shareholder value. /s/ Paul A. Miller Paul A. Miller President and Chief Executive Officer Lawrence Savings Bank 4 FINANCIAL TABLE OF CONTENTS 4 FINANCIAL HIGHLIGHTS 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16 REPORT OF MANAGEMENT RESPONSIBILITY 17 INDEPENDENT AUDITORS' REPORT 18 CONSOLIDATED BALANCE SHEETS 19 CONSOLIDATED STATEMENTS OF OPERATIONS 20 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 21 CONSOLIDATED STATEMENTS OF CASH FLOWS 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38 STOCKHOLDER INFORMATION _________________________ 3 5 FINANCIAL HIGHLIGHTS
December 31, 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- (In Thousands, Except Per Share Data) BALANCE SHEET DATA: Total assets $ 413,090 $ 404,172 $340,041 $360,845 $337,856 Loans, gross 222,045 198,098 197,110 164,500 153,603 Allowance for loan losses 3,685 3,381 3,272 3,144 3,633 Other real estate owned 32 519 556 809 739 Federal fund sold 15,427 -- 5,629 -- 500 U.S. Treasury, Government agency and Corporate obligations 125,542 151,358 87,006 153,421 155,214 Municipal obligations 60 113 1,265 -- -- Other securities 25,231 26,301 25,216 23,685 14,922 Deposits 270,548 246,040 253,501 254,462 246,063 Borrowed funds 86,161 104,167 34,214 63,396 59,030 Equity 52,313 48,408 46,713 37,610 29,010
Year Ended December 31, 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- OPERATING DATA: Interest income $ 29,037 $ 26,097 $ 25,060 $ 25,416 $ 22,889 Interest expense 16,358 13,183 13,257 14,288 13,028 ---------- ---------- -------- -------- -------- Net interest income 12,679 12,914 11,803 11,128 9,861 Provision (credit) for loan losses 250 75 450 (300) (900) Non-interest income 1,124 844 1,380 1,451 1,625 Non-interest expense 8,376 9,347 8,725 7,767 7,758 ---------- ---------- -------- -------- -------- Income before income taxes 5,177 4,336 4,008 5,112 4,628 Income tax expense (benefit) 854 1,582 (4,800) (3,000) (600) ---------- ---------- -------- -------- -------- Net income $ 4,323 $ 2,754 $ 8,808 $ 8,112 $ 5,228 ===================================================================================================================== Basic earnings per share $ .99 $ .63 $ 2.04 $ 1.90 $ 1.23 Diluted earnings per share $ .97 $ .61 $ 1.95 $ 1.82 $ 1.21 ===================================================================================================================== OTHER DATA: Interest rate spread 2.66% 3.05% 2.97% 2.77% 2.70% Net interest margin on average earning assets 3.22 3.55 3.54 3.26 3.13 Return on average assets (net income / average assets) 1.05 0.72 2.52 2.31 1.61 Return on average equity (net income / average stockholders' equity) 8.72 5.77 21.09 25.64 20.74 Dividend payout ratio (dividends declared per share divided by net income per share) 26.26 23.81 -- -- -- Cash dividends declared and paid per common share $ 0.26 $ 0.15 -- -- -- Average stockholders' equity to average assets ratio 12.06% 12.47% 11.96% 9.00% 7.78% - --------------------------------------------------------------------------------------------------------------------- Book value per share at year end $ 11.99 $ 11.11 $ 10.78 $ 8.77 $ 6.83 - ---------------------------------------------------------------------------------------------------------------------
4 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Lawrence Savings Bank makes forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 as amended) in this document that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of the Bank. Also, when verbs in the present tense such as "believes," "expects," "anticipates," "continues," "attempts" or similar expressions are used, forward-looking statements are being made. Stockholders should note that many factors, some of which are discussed elsewhere in this document and in the documents which we incorporate by reference, could affect the future financial results of the Bank and could cause results to differ materially from those expressed in or incorporated by reference in this document. Those factors include fluctuations in interest rates, inflation, government regulations and economic conditions and competition in the geographic and business areas in which the Bank conducts its operations. As a result of such risks and uncertainties, the Bank's actual results may differ materially from such forward-looking statements. Lawrence Savings Bank does not undertake, and specifically disclaims any obligation to publicly release revisions to any such forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. SUMMARY The Bank is a Massachusetts bank formed in 1868. The Bank was a mutual savings bank until May 9, 1986 when the Bank converted to a stock-form bank. The stock is currently traded on the Nasdaq Stock Market under the symbol "LSBX". Sales prices of the stock are reported in the The Wall Street Journal as "LawrencSvg". The Bank is subject to the regulation of, and periodic examination by, the Federal Deposit Insurance Corporation ("FDIC") and the Massachusetts Division of Banks. The Bank has four wholly-owned subsidiaries at December 31, 2000. Shawsheen Security Corporation and Shawsheen Security Corporation II engage exclusively in buying, selling, dealing in and holding securities for their own accounts. Pemberton Corporation and Spruce Wood Realty Trust hold foreclosed real estate and real estate used in the ordinary course of the Bank's business. The Bank offers various financial products to the general public. These products include loans for residential real estate, commercial real estate, construction, consumer and commercial businesses. The Bank offers various deposit accounts including savings, checking, money market, certificates of deposit and individual retirement accounts. The Bank invests a portion of its funds in federal funds and investment securities. The principal sources of funds for the Bank's lending and investment activities are deposits, loan payments and prepayments, investment securities payments and maturities, advances from the Federal Home Loan Bank, federal funds purchased and securities sold under agreements to repurchase. MARKET AREA The Bank's primary market area is the Merrimack Valley of Massachusetts and Southern New Hampshire. The Bank has five banking offices in the communities of Andover, Lawrence, Methuen (2), and North Andover, Massachusetts. LENDING ACTIVITIES The Bank's loan portfolio consists of commercial real estate, commercial business, construction, residential mortgage, home equity and consumer loans. The Bank has been aggressive in seeking loans from creditworthy customers while competition on both pricing and underwriting terms have been strong in the Bank's market area. Gross loans at December 31, 2000 were $222.0 million, up from $198.1 million at December 31, 1999. COMMERCIAL REAL ESTATE. The Bank originates loans secured by real estate other than 1-4 family residential properties. These loans are generally secured by various types of commercial real estate including income properties, commercial facilities (including retail, manufacturing office and office condominiums) and small businesses. The interest rates on these loans are fixed or variable. The interest rates are based on a margin over the Treasury note rate or another index (such as the Prime Rate as published in the The Wall Street Journal) for a similar term. The margin is determined by the Bank based on the creditworthiness of the borrower, relationship profitability and competitive factors. COMMERCIAL BUSINESS. The Bank originates loans secured by business assets which are not real estate. These loans are based on the creditworthiness, security offered and future cash flows of the borrower. The Bank has "Preferred Lender" status from the U.S. Small Business Administration ("SBA"). The interest rates on the loans can be fixed or variable in nature. The rates are primarily based on a margin over the Prime Rate as published in the The Wall Street Journal or the Base Rate determined by the Bank. The margin is determined based on the creditworthiness of the borrower, security offered and competitive factors. CONSTRUCTION. These loans are generally short-term in nature and are for land development, construction of residential homes built on speculation, construction of homes for homeowners with permanent financing, and for commercial facilities (including retail, manufacturing and office space). These loans are generally priced to yield the The Wall Street Journal Prime Rate plus a margin. Construction loans may involve additional risk due to uncertainty of estimated cost of completion of a project, or ultimate sale of the property to an end buyer. The Bank attempts to reduce these risks by lending to contractors with pre-arranged buyers or having financing commitments upon completion, or to businesses that are expanding and will occupy the completed project. RESIDENTIAL MORTGAGES. The Bank originates fixed and adjustable rate residential mortgage loans which are underwritten to be eligible for sale in the secondary market. These loans are secured primarily by owner occupied 1-4 family primary residential properties. Adjustable rate mortgage loans are generally held by the Bank in the loan portfolio as a means to manage interest rate risk. Fixed rate mortgages are sold into the secondary market unless management believes they represent a good long-term asset based on various factors such as loan-to-value ratios, interest rates and management's expectations of a loan's duration. SECONDARY MORTGAGE MARKET. The Bank is an approved seller and servicer for the Federal Home Loan Mortgage Corporation ("FHLMC") and the Massachusetts Housing Financing Agency ("MHFA"). Sales of mortgage loans may be made at a premium or discount resulting in gains or losses on the transaction. Based on the structure of the sale, loans sold in the secondary market provide the Bank with service fee income over the life of the loan. HOME EQUITY. The Bank makes second mortgage and home equity loans. Home equity loans can be accessed by the borrower by an account established with the Bank. These loans carry interest rates that are either fixed or variable based on the Prime Rate published in the The Wall Street Journal plus or minus a margin above or below this rate depending on the particular product selected by the borrower. CONSUMER. The Bank offers a variety of consumer loan products including overdraft lines of credit, collateral loans, secured and 5 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) unsecured personal loans. These loans are generally fixed rate in nature. The Bank adjusts these interest rates from time-to-time based on competitive factors in the marketplace. DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS. Deposits and borrowings are the primary source of funds for funding loans and purchasing investment securities. The mix of deposits and borrowings is dependent on many factors, such as loan demand, competition, the economy, interest rates, and capital resources. Deposits are obtained from the general public through the Bank's branch offices by additions to various deposit accounts, including checking, savings, money market, certificates of deposit and individual retirement accounts. The interest rates on these accounts generally are competitive with other local financial institutions. The Bank's core deposit products (savings, checking and money market accounts) allow customers more flexibility and access and generally earn lower interest rates than other types of accounts due to the Bank's operating costs to service these accounts. Certificates of deposit provide customers with higher interest rates, but less flexibility and access to deposits. Increasing and decreasing interest rates on certificates of deposit allows the Bank to adjust its sources of funds while providing a competitive interest rate. In addition to deposit accounts, other sources of funds include advances from the Federal Home Loan Bank of Boston ("FHLB"), federal funds purchased and securities sold under agreements to repurchase. The Bank is a member of FHLB. As a member, the Bank is required to hold FHLB stock equal to at least 1% of residential mortgage loans or 5% of outstanding FHLB advances, whichever is higher. All FHLB advances are secured by a blanket lien on the Bank's assets. These FHLB advances may be used to fund loans and investment securities or meet other cash needs of the Bank. The terms of FHLB advances can be short or long-term with interest rates based on U.S. Treasury obligations with similar maturities. COMPETITION. The Bank competes with local, regional and national financial service providers in its lending and deposit activities. The Bank competes in the local market against other local and branch offices of regional financial institutions such as banks, thrifts and credit unions. In addition, less regulated national companies such as mortgage companies, securities brokerage firms, insurance companies and mutual funds offer services competitive with those of the Bank. Bank mergers and recent legislation permitting interstate and cross-industry expansion may increase competition. The Bank competes on the basis of interest rates, deposit and loan terms, fees, office location, product and services arrays, customer convenience and technological advantages. Competition in the Bank's deposit taking and lending activities is affected by movements in interest rates, national and local market developments, economic trends and the Bank's ability to adjust to change. SUPERVISION AND REGULATION. The Bank is a state-chartered savings bank subject to the regulations and supervisory authority of, and periodic examinations by, both the FDIC and the Massachusetts Division of Banks. These examinations test the Bank's safety and soundness and compliance with various statutory and regulatory requirements. The Bank is subject to Federal and State taxation authorities. As a non-member bank of the Federal Reserve System, the Bank is subject to certain reserve and reporting requirements. Federal and State bank regulatory agencies have authority to issue cease and desist orders, assess civil money penalties, remove officers and directors, issue capital directives and impose prompt corrective action restrictions or requirements to address safety and soundness and compliance issues of the Bank. In addition, the Bank must obtain prior regulatory approvals to undertake certain banking transactions and initiatives, including establishment, relocation or termination of a banking office, and merger or acquisition transactions with other banks or non-banking entities. The supervision and regulation of the Bank are intended primarily for the protection of depositors and non-business borrowers. The results of examinations provide regulators with a means of measuring and assessing each institution and taking prompt corrective actions to address any safety and soundness or compliance issues. RESULTS OF OPERATIONS. The Bank's net earnings were $4.3 million for 2000, $2.8 million for 1999 and $8.8 million for 1998. The Bank's earnings increased by 57% or $1.5 million in 2000 from 1999 due to several factors having a favorable impact on earnings including an increase in non-interest income, and decreases in non-interest expense and provisions for income taxes. The Bank's earnings declined by 69% or $6.0 million in 1999 from 1998 due to lower tax benefits. During 1999, the Bank recognized income tax expense of $1.6 million. The Bank's net interest income, which is the difference between interest earned on assets and interest paid on liabilities, was $12.7 million in 2000, $12.9 million in 1999 and $11.8 million in 1998. The slight decrease in net interest income in 2000 from 1999 is due to higher funding cost due to rising interest rates. The increase in 1999 from 1998 is due to higher average loan balances for residential and commercial real estate loans plus purchases of investment securities funded by borrowed funds. The Bank also reduced the interest cost on certificates of deposits during the year 1999. The Bank's interest margin decreased to 3.22% in 2000 from 3.55% in 1999 and 3.54% in 1998. The decrease in the net interest margin is primarily due to higher average rates paid on interest bearing liabilities. The provision for loan losses was a charge of $0.3 million in 2000, $0.1 million in 1999 and $0.5 million in 1998. The provisions for loan losses were made to maintain an appropriate allowance for loan losses. Non-interest income was $1.1 million in 2000, $0.8 million in 1999 and $1.4 million in 1998. The increase in 2000 was primarily due to gains on sales of mortgage loans of $47.0 thousand compared to losses on sales of mortgage loans of $205.0 thousand in 1999. The decrease in 1999 from 1998 was primarily due to losses on sales of mortgage loans of $0.2 million in 1999 compared to gains on sales of mortgage loans of $0.3 million in 1998. There was also a $0.2 million decrease in loan fees in 1999 from 1998 due to much lower prepayment penalties collected in 1999 compared to 1998. Non-interest expense was $8.4 million in 2000, $9.3 million in 1999 and $8.7 million in 1998. Professional expenses decreased to $0.5 million in 2000 from $1.4 million in 1999 and $1.1 million in 1998. Professional expenses were higher in 1999 and 1998 due to increased litigation associated with problem borrowers and collection of amounts due the Bank. The Bank recognized income tax expense of $0.9 million in 2000 and $1.6 million in 1999. The decrease in the provision for taxes was due to a favorable outcome of an income tax matter that led to a lower effective income tax rate for the year 2000. The income tax expense recognized in 2000 and 1999 compares to income tax benefits of $4.8 million in 1998. In 1998, the Bank recognized tax benefits of prior operating losses, based on management's assessment of the likelihood that the income tax benefits of those losses will more likely than not be realized. 6 8 AVERAGE BALANCES, NET INTEREST INCOME AND AVERAGE INTEREST RATES The table below presents the Bank's average balance sheet, net interest income and average interest rates for the years 2000, 1999, and 1998. Average real estate, commercial business, and consumer loans include non-performing loans.
2000 1999 1998 -------------------------- -------------------------- -------------------------------- Average Average Average Average Interest Average interest Average Interest Balance Interest Rate Balance Interest Rate Balance Interest Rate - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) ASSETS Loans: Residential $ 92,547 $ 6,875 7.43% $ 98,777 $ 7,183 7.27% $ 91,098 $ 7,090 7.78% Commercial 93,683 8,644 9.23 84,592 7,597 8.98 75,308 7,130 9.47 Commercial business 16,111 1,512 9.38 11,995 1,071 8.93 11,751 1,085 9.23 Consumer 1,337 108 8.08 1,534 122 7.95 1,650 140 8.48 -------- ------- -------- ------- --------- ------- Total loans 203,678 17,139 8.41 196,898 15,973 8.11 179,807 15,445 8.59 -------- ------- -------- ------- --------- ------- Investment securities: U.S. Treasury and Government Agency obligations 94,353 5,640 5.98 82,972 4,997 6.02 84,143 5,347 6.35 Other bonds and equity securities 61,421 4,039 6.58 45,769 2,782 6.08 18,620 1,140 6.12 Mortgage-backed securities 32,423 2,077 6.41 36,021 2,249 6.24 47,063 2,916 6.20 Short-term investments 2,334 142 6.08 1,812 96 5.30 3,978 212 5.33 -------- ------- -------- ------- --------- ------- Total investment securities 190,531 11,898 6.25 166,574 10,124 6.08 153,804 9,615 6.25 -------- ------- -------- ------- --------- ------- Total interest earning assets 394,209 29,037 7.37 363,472 26,097 7.18 333,611 25,060 7.51 ------- ---- ------- ---- ------- ---- Allowance for loan losses (3,491) (3,393) (3,223) Cash and due from banks 5,124 4,923 4,643 Other real estate owned 189 537 622 Other assets 15,338 16,875 13,436 -------- -------- -------- Total assets $411,369 $382,414 $349,089 ================================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Regular savings accounts $ 39,045 $ 770 1.97% $ 39,385 $ 772 1.96% $ 39,089 $ 812 2.08% NOW and Super NOW accounts 27,084 142 0.52 25,000 131 0.52 23,040 207 0.90 Money market accounts 48,199 1,935 4.01 43,838 1,424 3.25 38,563 1,335 3.46 Certificates of deposit 130,976 7,083 5.41 131,385 6,548 4.98 144,251 8,192 5.68 -------- ------- -------- ------- --------- ------- Total interest bearing deposits 245,304 9,930 4.05 239,608 8,875 3.70 244,943 10,546 4.31 Borrowed funds 101,913 6,428 6.31 79,379 4,308 5.43 46,987 2,711 5.77 -------- ------- -------- ------- --------- ------- Total interest bearing liabilities 347,217 16,358 4.71 318,987 13,183 4.13 291,930 13,257 4.54 -------- ------- ---- -------- ------- ---- --------- ------- ---- Non-interest bearing deposits 9,877 10,719 11,328 Other liabilities 4,672 5,017 4,065 -------- -------- -------- Total liabilities 361,766 334,723 307,323 Stockholders' equity 49,603 47,691 41,766 -------- -------- -------- Total liabilities and stockholders' equity $411,369 $382,414 $349,089 ================================================================================================================================== Net interest rate spread 2.66% 3.05% 2.97% ================================================================================================================================== Net interest income $12,679 $12,914 $11,803 ================================================================================================================================== Net interest margin on average earning assets 3.22% 3.55% 3.54% ==================================================================================================================================
7 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RATE-VOLUME ANALYSIS The effect on net interest income of changes in interest rates and in the amounts of interest earning assets and interest bearing liabilities is shown in the following table. Information is provided on changes for the years indicated and is attributable to (i) changes in volume (change in average balance multiplied by prior year rate), (ii) changes in interest rate (change in rate multiplied by prior year average balance) and (iii) the combined effects of changes in interest rates and volume (change in rate multiplied by change in average balance).
2000 vs. 1999 1999 vs. 1998 ----------------------------------- ------------------------------------- Total Rate/ Total Rate/ Change Volume Rate Volume Change Volume Rate Volume - --------------------------------------------------------------------------------------------------------------------------- (In Thousands) INTEREST INCOME: Loans: Residential $ (308) $ (453) $ 155 $ (10) $ 93 $ 598 $ (465) $(40) Commercial 1,047 816 208 23 467 879 (367) (45) Commercial business 441 368 55 18 (14) 23 (36) (1) Consumer (14) (16) 2 -- (18) (10) (9) 1 ------ ----- ------ ----- ------- ------ ------- ---- Total loans 1,166 715 420 31 528 1,490 (877) (85) ------ ----- ------ ----- ------- ------ ------- ---- Investment securities: U.S. Treasury and Government Agency obligations 643 685 (37) (5) (350) (74) (279) 3 Other bonds and equity securities 1,257 951 228 78 1,642 1,662 (8) (12) Mortgage-backed securities (172) (225) 58 (5) (667) (684) 22 (5) Short-term investments 46 28 14 4 (116) (115) (1) -- ------ ----- ------ ----- ------- ------ ------- ---- Total investments 1,774 1,439 263 72 509 789 (266) (14) ------ ----- ------ ----- ------- ------ ------- ---- Total interest income 2,940 2,154 683 103 1,037 2,279 (1,143) (99) ------ ----- ------ ----- ------- ------ ------- ---- INTEREST EXPENSE: Deposits: Regular savings accounts (2) (7) 5 -- (40) 6 (46) -- NOW and Super NOW accounts 11 11 -- -- (76) 18 (86) (8) Money market accounts 511 142 336 33 89 183 (82) (12) Certificates of deposit 535 (20) 557 (2) (1,644) (731) (1,003) 90 ------ ----- ------ ----- ------- ------ ------- ---- Total interest bearing deposits 1,055 126 898 31 (1,671) (524) (1,217) 70 Borrowed funds 2,120 1,223 699 198 1,597 1,869 (161) (111) ------ ----- ------ ----- ------- ------ ------- ---- Total interest expense 3,175 1,349 1,597 229 (74) 1,345 (1,378) (41) ------ ----- ------ ----- ------- ------ ------- ---- Net interest income $ (235) $ 805 $ (914) $(126) $ 1,111 $ 934 $ 235 $(58) =========================================================================================================================
[NET INTEREST INCOME BAR GRAPH]
1996 1997 1998 1999 2000 $9.9M $11.1M 11.8M 12.9M $12.7M
NET INTEREST INCOME Net interest income is the difference between the interest income earned on earning assets and the interest expense paid on interest bearing liabilities. Interest income and interest expense are affected by changes in earning assets and interest bearing liabilities balances in addition to changes in interest rates. The Bank's net interest income was $12.7 million in 2000, $12.9 million in 1999 and $11.8 million in 1998. Interest income from earning assets was $29.0 million, $26.1 million and $25.1 million in 2000, 1999 and 1998, respectively. The increase in interest income in 2000 from 1999 was due to loan growth and the purchase of investment securities funded by an increase in deposits and borrowed funds. The increase in interest income in 1999 from 1998 was also due to loan growth and the purchase of investment securities funded by FHLB advances, repurchase agreements and other borrowings. Interest expense on interest bearing deposits was $9.9 million in 2000 compared to $8.9 million in 1999 and $10.5 million in 1998. Average deposit balances increased in 2000 from 1999 with the largest increase in the money market category resulting in a $0.1 million increase in interest expense. Average rates paid on money market accounts increased to 4.01% in 2000 from 3.25% in 1999 which 8 10 resulted in $0.3 million increase in interest expense. Average rates paid on certificates of deposit increased to 5.41% in 2000 from 4.98% in 1999 which resulted in an $0.6 million increase in interest expense. Average deposit balances decreased in 1999 to $239.6 million from $244.9 million in 1998 which resulted in a $0.5 million decrease in interest expense. Average rates paid on deposits during 1999 decreased to 3.70% from 4.31% in 1998 which resulted in a $1.2 million decrease in interest expense. Interest expense on borrowed funds increased to $6.4 million in 2000 compared to $4.3 million in 1999 and $2.7 million in 1998. The increase of $2.1 million in 2000 was due to higher average balances which resulted in a $1.2 million increase in interest expense and to higher average rates paid on borrowings which resulted in a $0.7 million increase in interest expense. The increase of $1.6 million in 1999 was due to higher average balances of borrowed funds to fund loan growth and purchase investment securities. Interest expense on total interest bearing liabilities was $16.4 million, $13.2 million and $13.3 million for 2000, 1999 and 1998, respectively. The average yield on earning assets in 2000 was 7.37% which was an increase of 19 basis points from 7.18% in 1999. The average rate paid on interest bearing liabilities in 2000 was 4.71% which was an increase of 58 basis points from 4.13% in 1999. The net interest rate spread in 2000 was 2.66% which was a decrease of 39 basis points from 3.05% in 1999. The decrease was due to rising interest rates during the year 2000 which resulted in higher funding costs. The average yield on earning assets in 1999 decreased 33 basis points to 7.18% from 7.51% in 1998. The average rate paid on interest bearing liabilities in 1999 decreased 41 basis points to 4.13% from 4.54% in 1998. The net interest rate spread increased in 1999 and 1998 primarily due to increases in the Bank's portfolio of loans, which are higher interest earning assets. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained through the provision for loan losses which is a charge to operations. The allowance balance reflects management's assessment of losses and is based on a review of the risk characteristics of the loan portfolio. The Bank considers many factors in determining the adequacy of the allowance for loan losses. Collateral value on a loan-by-loan basis, trends of loan delinquencies on a portfolio segment level, risk classification identified in the Bank's regular review of individual loans, and economic conditions are primary factors in establishing the allowance. The allowance for loan losses reflects all information available at the end of each year. The Bank considers the current year end 2000 level of the allowance for loan losses to be appropriate. The allowance as a percentage of total loans was 1.7% at December 31, 2000, 1999 and 1998. See Note 1 of the financial statements for further details on establishing the allowance for loan losses. "Impaired loans" are commercial, commercial real estate and individually significant residential mortgage and consumer loans for which it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are not the same as "non-accrual loans," although the two categories overlap. Non-accrual loans include impaired loans and are those on which the accrual of interest is discontinued when principal or interest has become contractually past due 90 days. The Bank may choose to place a loan on non-accrual status due to payment delinquency or uncertain collectibility, while not classifying the loan as impaired, if (i) it is probable that the Bank will collect all amounts due in accordance with the contractual terms of the loan or (ii) the loan is not a commercial, commercial real estate or an individually significant residential mortgage or consumer loan. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment is determined by the difference between the present value of the expected cash flows related to the loan, using the original contractual interest rate, and its recorded value, or, as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is based on the fair value of the collateral. The provision for loan losses for the years 2000, 1999 and 1998 was a charge of $250.0 thousand, $75.0 thousand and $450.0 thousand, respectively. The Bank had net recoveries of $54.0 thousand in 2000, $34.0 thousand in 1999, and net charge-offs of $322.0 thousand in 1998, respectively. The following table summarizes changes in the allowance for loan losses for each of the five years ended December 31:
Year Ended December 31, 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- (In Thousands) Balance at beginning of year $ 3,381 $ 3,272 $ 3,144 $ 3,633 $ 4,019 Charge-offs by loan type: Residential mortgage -- (17) (224) (150) (233) Commercial -- -- -- (1) (24) Commercial real estate (27) -- (215) (483) (253) Consumer (1) -- (16) (25) (68) ------- ------- ------- ------- ------- Total charge-offs (28) (17) (455) (659) (578) ------- ------- ------- ------- ------- Recoveries by loan type: Residential mortgage 6 28 10 33 106 Commercial 5 3 60 59 166 Commercial real estate 62 13 49 370 798 Consumer 9 7 14 8 22 ------- ------- ------- ------- ------- Total recoveries 82 51 133 470 1,092 ------- ------- ------- ------- ------- Net recoveries (charge-offs) 54 34 (322) (189) 514 Provision (credit) for loan losses 250 75 450 (300) (900) ------- ------- ------- ------- ------- Ending balance $ 3,685 $ 3,381 $ 3,272 $ 3,144 $ 3,633 ================================================================================================================ Ratio of net recoveries (charge-offs) to average loans outstanding during the period 0.03% 0.02% (0.18)% (0.12)% 0.35% ================================================================================================================
9 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The following table sets forth the breakdown of the allowance for loan losses by loan category for the periods indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.
Year Ended December 31 2000 1999 1998 1997 1996 (In Thousands) Percent Percent Percent Percent Percent of loans of loans of loans of loans of loans in each in each in each in each in each category category category category category to Total to Total to Total to Total to Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- Construction/ Commercial real estate $ 2,711 57.1% $ 1,933 52.3% $ 1,787 48.4% $ 1,715 48.5% $ 1,465 42.7% Residential mortgages 436 42.3% 526 46.8 634 50.8 830 50.3 855 56.0 Consumer 49 0.6% 55 0.9 55 0.8 65 1.2 65 1.3 Unallocated 489 N/A 867 N/A 796 N/A 534 N/A 1,248 N/A ------- ----- ------- ----- ------- --- ------- ----- ------- ----- $ 3,685 100.0% $ 3,381 100.0% $3,272 100% $3,144 100.0% $3,633 100.0% ===============================================================================================================================
In determining the adequacy of the allowance for loan losses, the Bank aggregates the estimated credit loss on individual loans, pools of loans and other pools of risk having geographic, industry or other common exposures where inherent losses are identified or anticipated. All loans classified as "Substandard" or "Doubtful" are evaluated for collectibility and an allocation is made based on an assessment of the net realizable value of any collateral. The Bank categorizes each commercial loan into different pools of risk. Each risk level allocation factor has been determined based upon the Bank's review of common practices within the industry, its estimate of expected loss for loans with similar credit characteristics based upon historical experience and migration analysis, the losses experienced by the Bank in the most recent 24 months, together with the Bank's assessment of future economic trends, conditions and other relevant factors that may have an impact on or may affect repayment of loans in these pools. Residential mortgages, equity loans, equity lines of credit, second mortgages and all other small consumer loans are considered in the aggregate and an allocation factor is assessed based upon the Bank's most recent 24-month historical loss experience together with an assessment of future economic trends, conditions and other relevant factors that may have an impact on, or may affect repayment of, the loans in these pools. On a quarterly basis, the Bank evaluates all allocation factors for appropriateness, considering (i) significant changes in the nature and volume of the loan portfolio, (ii) the Bank's assessment of local and national economic business conditions, and (iii) any other relevant factor that it considers may have an impact on loan portfolio risk. Based upon these evaluations, changes to the reserve provision may be made to maintain the overall level of the reserve at a level that the Bank deems appropriate to cover the estimated credit losses inherent in the Bank's loan portfolio including unfunded binding commitments to lend. POTENTIAL PROBLEM LOANS The Bank has a loan review and grading system. During the loan review process, deteriorating conditions of certain loans come to management's attention in which erosion of the borrower's ability to comply with the original terms of the loan agreement could potentially result in the classification of the loan as a risk asset. This may result from deteriorating conditions such as cash flows, collateral values or creditworthiness of the borrower. At December 31, 2000, there were $0.6 million of loans identified as potential problem loans. NON-INTEREST INCOME Non-interest income was $1.1 million and $0.8 million for 2000 and 1999, respectively. The increase in 2000 is primarily due to a net gain on the sale of mortgage loans of $47 thousand in 2000 compared to a net loss on the sale of mortgage loans of $205 thousand in 1999. Increases in deposit accounts and official check income also contributed to the increase in non-interest income. Non-interest income for 1999 was $0.8 million as compared to $1.4 million in 1998. The decrease in 1999 is primarily due to a net loss on the sale of mortgage loans of $205 thousand in 1999 compared to a net gain on the sale of mortgage loans of $272 thousand in 1998. NON-INTEREST EXPENSE Non-interest expense decreased to $8.4 million in 2000 from $9.3 million in 1999 and $8.7 million in 1998. The primary reason for this decrease is lower legal fees incurred during 2000 versus 1999. Professional fees, which include legal expenses, totaled $0.5 million in 2000 compared to $1.4 million in 1999. Salaries and employee benefits expense was $5.0 million in 2000, $5.1 million in 1999 and $4.9 million in 1998. Full-time equivalent employees were 100 at December 31, 2000 and 97 at December 31, 1999 and 1998. Increases in normal merit raises and bonuses offset by reduced pension expense accounted for the changes between 2000, 1999 and 1998. The Bank continually evaluates staffing levels in order to control salaries and employee benefits while managing business volumes. Data processing expenses remained level at $0.6 million in 2000 and 1999 compared to $0.4 million in 1998. This includes the Bank's service contract to provide on-line deposit accounting, loan accounting and item processing services. This contract is effective through November 12, 2003. 10 12 Occupancy and equipment expenses have remained level at $0.8 million for 2000, 1999 and 1998. Insurance expenses remained level at $0.1 million in 2000, 1999 and 1998 and other expenses remained level at $1.4 million in 2000, 1999 and 1998. INCOME TAXES The Bank reported income tax expense of $0.9 million in 2000 and $1.6 million in 1999.The decrease in the provision for taxes was due to a favorable outcome of an income tax matter that led to lower effective income tax rate for the year 2000.The income tax expense recognized in 2000 and 1999 compares to income tax benefits of $4.8 million in 1998. The tax benefits recognized in 1998 were due to the utilization of prior years' operating losses. The Bank's recognition of income tax benefits in 1998 was based on the Bank's sustained earnings for the past few years and management's expectations of future earnings. Factors supporting the recognition of this tax benefit include increased asset quality, higher capital levels, positive economic conditions and the low level of non-performing assets. The income tax benefits recognized in each year prior to 1999 were from an assessment of future realizable tax benefits arising from loss carryforwards. See Note 8 to the financial statements for further information regarding income taxes. FINANCIAL CONDITION AND EARNING ASSETS The Bank manages its earning assets by utilizing available capital resources in a manner consistent with the Bank's credit, investment and leverage policies. Loans, U.S. Treasury and Government Agency obligations, mortgage-backed securities, other investment securities, and short term investments comprise the Bank's earning assets. Total earning assets averaged $394.2 million in 2000 which was a $30.7 million or 8% increase from 1999. Average earning assets in 1999 were $363.5 million which was a $29.9 million or 9.0% increase from $333.6 million in 1998. One of the Bank's primary objectives continues to be the origination of loans that are soundly underwritten and collateralized. The Bank's loan portfolios for commercial real estate and commercial loans increased in 2000. Loan growth in these portfolios caused the average balance of the loan portfolio to increase in 2000 by $6.8 million to $203.7 million. The average loan portfolio for 1999 was $196.9 million or $17.1 million greater than the 1998 average loan portfolio balance. The following schedule lists the components of the loan portfolio as of December 31, for each of the past five years:
December 31, 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Balance Percent Balance Percent Balance Percent Balance Percent Balance Percent - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) Residential real estate loans: Fixed rate $ 44,350 20.0% 49,825 25.1% $ 47,887 24.3% $ 38,221 23.2% $ 39,075 25.4% Adjustable rate 33,576 15.1 30,232 15.3 31,845 16.2 33,672 20.5 35,252 23.0 -------- ----- -------- ----- --------- ----- -------- ----- -------- ----- 77,926 35.1 80,057 40.4 79,732 40.5 71,893 43.7 74,327 48.4 -------- -------- --------- -------- -------- Home equity loans: Fixed rate 12,367 5.6 8,716 4.4 7,652 3.9 5,326 3.2 5,617 3.6 Adjustable rate 3,630 1.6 3,890 2.0 3,805 1.9 4,861 3.0 4,873 3.2 -------- ----- -------- ----- --------- ----- -------- ----- -------- ----- 15,997 7.2 12,606 6.4 11,457 5.8 10,187 6.2 10,490 6.8 -------- -------- --------- -------- -------- Commercial real estate loans: Fixed rate 10,247 4.6 10,898 5.5 9,206 4.7 8,861 5.4 12,940 8.4 Adjustable rate 76,882 34.6 69,995 35.3 62,052 31.4 52,196 31.7 37,296 24.3 -------- ----- -------- ----- --------- ----- -------- ----- -------- ----- 87,129 39.2 80,893 40.8 71,258 36.1 61,057 37.1 50,236 32.7 -------- -------- --------- -------- -------- Construction loans 17,148 7.7 9,666 4.9 11,550 5.9 5,781 3.5 5,095 3.3 Loans held for sale -- 0.0 -- 0.0 8,950 4.5 682 0.4 1,158 0.8 Commercial loans 22,602 10.2 13,143 6.6 12,558 6.4 12,942 7.9 10,317 6.7 Consumer loans 1,243 0.6 1,733 0.9 1,605 0.8 1,958 1.2 1,980 1.3 -------- ----- -------- ----- --------- ----- -------- ----- -------- ----- Total loans 222,045 100.0% 198,098 100.0% 197,110 100.0% 164,500 100.0% 153,603 100.0% ===== ===== ===== ===== ===== Allowance for loan losses 3,685 3,381 3,272 3,144 3,633 -------- -------- -------- -------- -------- Loans, net $218,360 $194,717 $193,838 $161,356 $149,970 ===================================================================================================================================
The Bank increases the investment portfolio through funds obtained from the FHLB, repurchase agreements and other borrowings when it is profitable to do so. The average balance of investment securities, including U.S. Treasury and Government Agency securities, mortgage-backed securities, other equity securities, and short-term investments was $190.5 million in 2000 as compared to $166.6 million in 1999 and $153.8 million in 1998. These securities represent 46% of the Bank's average assets at December 31, 2000 and 1999 and 44% of the Bank's average assets at December 31, 1999 and 1998. 11 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) INTEREST BEARING LIABILITIES The Bank's earning assets are primarily funded with deposits, securities sold under agreements to repurchase, FHLB advances and stockholders' equity. The Bank manages its interest bearing liabilities to maintain a stable source of funds while providing competitively priced deposit accounts. Interest bearing deposits include regular savings accounts, NOW and Super NOW accounts, money market accounts, and certificates of deposit. In 2000 average total interest bearing liabilities were $347.2 million which was a $28.2 million or 8.8% increase from $319.0 million in 1999. Average total interest bearing deposits of $245.3 million comprised 71% of interest bearing liabilities in 2000 while in 1999 such deposits totaling $239.6 million comprised 75% of interest bearing liabilities. Changing interest rates can affect the mix and level of various deposit categories. The higher average interest rate paid on certificates of deposit and money market accounts had an impact on the mix of deposits at year-end 2000 as compared to 1999 and resulted in an increase in the overall interest rate paid on deposits by 35 basis points. The average balance of certificates of deposit decreased by $0.4 million to $131.0 million in 2000. The average balance of money market investment accounts increased by $4.4 million to $48.2 million in 2000 and the average balance of NOW and Super NOW accounts increased by $2.1 million to $27.1 million in 2000. Average borrowed funds in 2000 and 1999 were $101.9 million and $79.4 million, respectively, and includes advances from the FHLB and other borrowed funds. The increase in 2000 from 1999 is the result of the Bank using borrowed funds to purchase investment securities and fund loan growth. RISK ASSETS Risk assets consist of non-performing loans, OREO, and restructured loans. The following paragraphs define each of these categories. The components of risk assets as of year end for the past five years are as follows:
December 31, 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- (Dollars In Thousands) Risk assets: Non-performing loans: Residential real estate $ 10 $ -- $ 66 $ 428 $ 387 Commercial real estate -- -- -- 624 766 Consumer -- -- -- 1 -- ---- ----- ----- ------- ------- Total non-performing loans 10 -- 66) 1,053 1,153 ---- ----- ----- ------- ------- Other real estate owned: One to four family residential properties -- -- -- 177 -- Condominiums -- -- -- 61 74 Land 77) 87 89 104 117 Commercial real estate -- 477 512 512 854 OREO valuation allowance (45) (45) (45) (45) (306) ---- ----- ----- ------- ------- Total other real estate owned 32 519 556 809 739 ---- ----- ----- ------- ------- Total non-performing assets 42 519 622 1,862 1,892 Restructured loans: Commercial real estate -- -- -- -- -- ---- ----- ----- ------- ------- Total risk assets $ 42 $ 519 $ 622 $ 1,862 $ 1,892 ============================================================================================================== Risk assets as a percent of total loans and OREO 0.0% 0.3% 0.3% 1.1% 1.2% ============================================================================================================== Risk assets as a percent of total assets 0.0% 0.1% 0.2% 0.5% 0.6% ==============================================================================================================
12 14 Non-performing loans consist of both a) loans 90 days or more past due, and b) loans placed on a non-accrual status because full collection of the principal balance is in doubt. Non-performing loans at December 31, 2000 were $10 thousand, a slight increase from zero at December 31, 1999 and down from $66 thousand at December 31, 1998. The Bank actively monitors risk assets. The Bank attempts to work with delinquent borrowers in order to bring loans current. If the borrower is not able to bring the loan current, the Bank commences collection efforts. Valuation of property at foreclosure, and periodically thereafter, is based upon appraisals and management's best estimates of fair value less selling costs. The Bank's policy is to sell such property as quickly as possible at fair value. ASSET/LIABILITY MANAGEMENT Managing interest rate risk is fundamental to banking. The Bank has continued to manage its liquidity, capital, and GAP position so as to control its exposure to interest rate risk. As of December 31, 2000, the Bank had interest rate sensitive assets which repriced or matured within one year of $178.4 million and interest rate sensitive liabilities which repriced or matured within one year of $182.2 million. As of December 31, 1999, the Bank had interest rate sensitive assets which matured or repriced within one year of $125.3 million and interest rate sensitive liabilities which repriced or matured within one year of $241.9 million. INTEREST RATE SENSITIVITY The Bank actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to risks associated with interest rate movements and to achieve a stable and rising flow of net interest income. The Asset/Liability Committee ("ALCO") using policies approved by the Board of Directors, is responsible for managing the Bank's rate sensitivity position. The asset/liability management policy establishes guidelines for acceptable exposure to interest rate risk, liquidity, and capital. The objective of ALCO is to manage earning assets and liabilities to produce results which are consistent with the Bank's policy for net interest income, liquidity and capital and identify acceptable levels of growth, risk and profitability. ALCO establishes and monitors origination and pricing strategies consistent with ALCO policy. ALCO meets regularly to review the current economic environment, income simulation model and GAP analysis and implements appropriate changes in strategy that will manage the Bank's exposure to interest rate risk, liquidity and capital. ALCO manages the Bank's interest rate risk using both income simulation and GAP analysis. Income simulation is used to quantify interest rate risk inherent in the Bank's consolidated balance sheet by showing the effect of a change in net interest income over a 24 month period. The income simulation model uses parallel interest rate shocks of up and down 200 basis points (bp) for earning assets and liabilities in the first year of the model. Interest rates are not shocked in the second year of the model. The composition of the Bank's consolidated balance sheet remains relatively well matched over the 24 month horizon with a slight bias towards liability sensitivity in the first year. The simulation takes into account the dates for repricing, maturing, prepaying and call options assumptions of various financial categories which may vary under different interest rate scenarios. Prepayment speeds are estimates for the Bank's loans and are adjusted according to the degree of rate changes. Call options and prepayment speeds for investment securities are estimates using industry standards for pricing and prepayment assumptions. The assumptions of financial instrument categories are reviewed before each simulation by ALCO in light of current economic trends. As of December 31, 2000, the income simulation model indicated some negative exposure of net interest income to declining interest rates to a degree that remains within tolerance levels established by the Bank's policy. The interest rate scenario used does not necessarily reflect ALCO's view of the "most likely" change in interest rates over the model's period. Furthermore, the model assumes a static consolidated balance sheet, these results do not reflect the anticipated future net interest income of the Bank for the same periods. The following table summarizes the net interest income for the 24 month period of the Bank's consolidated balance sheet for earning assets and liabilities as of December 31, 2000 and 1999: Net Interest Income Simulation Model Results:
Interest Rate Shock ------------------------------- down up December 31, 2000 Flat Rates 200 bp 200 bp - --------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) Year One $ 12,917 $ 12,770 $ 13,048 Year Two 13,130 13,111 $ 12,580 - -------- -------- -------- Total net interest income for 2 year period $ 26,047 $ 25,881 $ 25,628 ============================================================================================================================
Interest Rate Shock ------------------------------- down up December 31, 1999 Flat Rates 200 bp 200 bp - --------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) Year One $ 12,296 $ 13,096 $ 11,476 Year Two 12,644 14,144 $ 10,799 - -------- -------- -------- Total net interest income for 2 year period $ 24,940 $ 27,240 $ 22,275 ============================================================================================================================
13 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The income simulation model reflects negative exposure to net interest income in a declining interest rate environment of 200 bp, which would result from shorter asset lives due to prepayment or refinancing of assets. Margins would narrow as deposits and borrowings are slower to reprice to lower interest rates. The Bank's principal measure of interest rate risk is GAP analysis. GAP measurement attempts to analyze any mismatches in the timing of interest rate repricing between assets and liabilities. It identifies those balance sheet sensitivity areas which are vulnerable to unfavorable interest rate movements. As a tool of asset/liability management, the GAP position is compared with potential changes in interest rate levels in an attempt to measure the favorable and unfavorable effect such changes would have on net interest income. For example, when the GAP is positive, (i.e., assets reprice faster than liabilities) a rise in interest rates will increase net interest income; and, conversely, if the GAP is negative, a rise in rates will decrease net interest income. The accuracy of this measure is limited by unpredictable loan prepayments and the lags in the interest rate indices used for repricing variable rate loans. The Bank's one-year cumulative GAP to total assets decreased from (29)% at December, 1999, to (1)% at December, 2000. The table below shows the interest rate sensitivity gap position as of December 31, 2000. The table excludes non-performing loans and assumes that all deposits except savings and NOWs will be withdrawn within the legal time period for withdrawal. This withdrawal of deposit assumption is not likely to occur.
RATE SENSITIVITY GAP POSITION - ------------------------------------------------------------------------------------------------------------------------------ Position/Volume Time interval from December 31, 2000 0-3 Mo. 4-6 Mo. 7-12 Mo. 13-36 Mo. 37-60 Mo. +60 Mo. - ------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) EARNING ASSETS: Investment securities held to maturity $ 10,816 $ 7,331 $ 17,406 $ 47,073 $ 27,288 $ 7,892 Investments securities available for sale 7,701 4,271 13,555 2,630 3,536 1,212 Federal Home Loan Bank Stock and other earning assets 21,377 -- -- -- -- 122 Fixed rate mortgages loans 2,928 2,564 4,833 15,996 11,624 18,772 Adjustable rate mortgages loans 10,476 3,454 7,998 13,815 1,453 -- Consumer loans 844 75 233 53 -- 38 Fixed rate commercial real estate loans 2,163 282 527 3,333 1,233 2,087 Adjustable rate commercial real estate loans 13,053 4,366 9,006 33,734 17,345 -- Construction loans 13,898 -- -- 3,000 250 -- Fixed rate commercial loans 452 394 721 1,180 198 300 Adjustable rate commercial loans 16,970 46 669 1,672 -- -- -------- -------- -------- -------- -------- -------- Total earning assets 100,678 22,783 54,948 122,486 62,927 30,423 -------- -------- -------- -------- -------- -------- INTEREST BEARING LIABILITIES: Savings and escrow accounts -- -- -- -- -- 39,326 NOW and Super Now accounts -- -- -- -- -- 29,731 Money market accounts 51,344 -- -- -- -- -- Certificates of deposit and retirement accounts 34,648 17,163 51,754 31,081 4,791 -- FHLB advances and other borrowed funds 2,134 24,386 790 26,712 5,016 27,123 -------- -------- -------- -------- -------- -------- Total interest bearing liabilities 88,126 41,549 52,544 57,793 9,807 96,180 -------- -------- -------- -------- -------- -------- INTEREST SENSITIVITY GAP $ 12,552 $(18,766) $ 2,404 $ 64,693 $ 53,120 $(65,757) ============================================================================================================================== CUMULATIVE GAP $ 12,552 $ (6,214) $ (3,810) $ 60,883 $114,003 $ 48,246 ============================================================================================================================== CUMULATIVE GAP AS A PERCENT OF TOTAL ASSETS 3% (2%) (1%) 15% 28% 12% ==============================================================================================================================
LIQUIDITY Managing liquidity involves planning to meet anticipated funding needs at a reasonable cost, as well as contingency plans to meet unanticipated funding needs or a loss of funding sources. The following factors are considered in managing liquidity; marketability of assets, the sources and stability of funding and the level of unfunded commitments. The Bank's loans and investments are primarily funded by deposits, Federal Home Loan Bank advances, securities sold under agreements to repurchase and stockholders' equity. The investment portfolio is one of the primary sources of liquidity for the Bank. Maturities of securities provide a flow of funds which are available for cash needs such as loan originations and net deposit outflows. In addition, the investment portfolio consists of high quality, and, therefore, readily marketable, U.S. Treasury and Government Agency obligations. At December 31, 2000, the Bank's investment securities and mortgage-backed securities available for sale totaled $33.0 million which is available to meet the Bank's liquidity needs. Loan maturities and amortization as well as deposit growth provide a constant flow of funds. In addition, the Bank has two overnight lines of credit totaling $11.8 million to meet short-term liquidity needs. The Bank did not utilize these overnight lines at December 31, 2000 and had the full $11.8 million available. 14 16 CAPITAL ADEQUACY The Bank is required to maintain a leverage capital ratio of 5% and risk-based capital ratios of at least 10% in order to be categorized as "well capitalized" in accordance with definitions in regulatory guidelines promulgated by the FDIC. At December 31, 2000 and 1999, the Bank's leverage and risk-based capital ratios exceeded the required levels for a "well-capitalized" bank. The Bank may not declare or pay cash dividends on its shares of common stock if the effect thereof would cause its stockholders' equity to be reduced below applicable capital requirements or if such declaration and payments would otherwise violate regulatory requirements. IMPACT OF INFLATION AND CHANGING PRICES A bank's asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of a bank are monetary in nature. Management believes the impact of inflation on financial results depends upon the Bank's ability to react to changes in interest rates and by such reaction reduce the impact of inflation on performance. Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services. As discussed previously, management seeks to manage the relationship between interest-sensitive assets and liabilities in order to protect against wide net interest income fluctuations, including those resulting from inflation. Various information shown elsewhere in this Annual Report will assist in the understanding of how well the Bank is positioned to react to changing interest rates and inflationary trends. In particular, the summary of net interest income, the maturity distributions, the compositions of the loan and security portfolios and the data on the interest rate sensitivity of loans and deposits should be considered. [AVERAGE EQUITY TO AVERAGE ASSETS BAR GRAPH]
1996 1997 1998 1999 2000 7.78% 9.00% 11.96% 12.47% 12.06%
15 17 REPORT OF MANAGEMENT RESPONSIBILITY The management of Lawrence Savings Bank is responsible for the preparation and integrity of the financial statements and other financial information contained in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles and prevailing practices of the banking industry and, accordingly, include amounts based on management's best estimates and judgments. Management has established and is responsible for maintaining internal accounting controls designed to provide reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets, and the prevention and detection of irregularities. The concept of reasonable assurance recognizes that the cost of a system of internal accounting controls should not exceed the benefits derived. The internal accounting control system is augmented by written policies and guidelines, careful selection and training of qualified personnel, a written program of internal audits, appropriate review by management, and a written code of professional conduct for directors and officers. Lawrence Savings Bank's Board of Directors has an Audit Committee composed solely of independent directors. The Committee meets periodically with management, the internal auditors and KPMG LLP ("KPMG") to review the work of each and to inquire of each as to their assessment of the performance of the others in their work relating to the Bank's financial statements. Both the independent and internal auditors have, at all times, the right of full access to the Audit Committee, without management present, to discuss any matter they believe should be brought to the attention of the Committee. Management recognizes that there are inherent limitations in the effectiveness of any internal control system. However, management believes that as of December 31, 2000 the Bank's internal accounting controls provide reasonable assurance as to the integrity and reliability of the financial statements and related financial information. The independent auditors, KPMG, are recommended to the Board of Directors by the Audit Committee, appointed by the Board of Directors, and ratified by the stockholders. KPMG's audits include reviews and tests of the Bank's internal controls to the extent they believe necessary to determine and conduct the audit procedures that support their report. Members of that firm also have the right of full access to each member of management in conducting their audits. The report of KPMG appears on the next page. /s/ Paul A. Miller /s/ John E. Sharland Paul A. Miller John E. Sharland President and Senior Vice President and Chief Executive Officer Chief Financial Officer December 31, 2000 16 18 INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND STOCKHOLDERS LAWRENCE SAVINGS BANK: We have audited the accompanying consolidated balance sheets of Lawrence Savings Bank and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lawrence Savings Bank and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Boston, Massachusetts January 19, 2001 17 19 CONSOLIDATED BALANCE SHEETS
December 31, 2000 1999 - --------------------------------------------------------------------------------------------------- (Dollars in Thousands) ASSETS: Cash and due from banks $ 7,086 $ 7,597 Fed funds sold 15,427 -- --------- --------- Total cash and cash equivalents 22,513 7,597 Investment securities held to maturity market value of $118,393 in 2000 and $118,433 in 1999 (notes 2 and 7) 117,806 120,862 Investment securities available for sale amortized cost of $32,840 in 2000 and $57,742 in 1999 (notes 2 and 7) 33,027 56,910 Federal Home Loan Bank stock, at cost (note 3) 5,950 5,950 Loans, net of allowance for loan losses of $3,685 in 2000 and $3,381 in 1999 (notes 4 and 7) 218,360 194,717 Bank premises and equipment (note 5) 3,337 3,337 Accrued interest receivable 2,969 2,821 Other real estate owned 32 519 Deferred income tax asset (note 8) 7,511 9,856 Other assets 1,585 1,603 --------- --------- Total assets $ 413,090 $ 404,172 =================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Interest bearing deposits (note 6) $ 259,325 $ 236,416 Non-interest bearing deposits (note 6) 11,223 9,624 Federal Home Loan Bank advances (note 7) 82,283 69,496 Other borrowed funds (note 7) 3,878 34,671 Advance payments by borrowers for taxes and insurance 513 650 Other liabilities 3,555 4,907 --------- --------- Total liabilities 360,777 355,764 --------- --------- Commitments and contingencies (notes 5, 11 and 12): Stockholders' equity (notes 9 and 10): Preferred stock, $.10 par value; 5,000,000 shares authorized, none issued -- -- Common stock, $.10 par value; 20,000,000 shares authorized; 4,364,800 and 4,356,800 shares issued and outstanding at December 31, 2000 and 1999, respectively 436 436 Additional paid-in capital 57,711 57,668 Accumulated deficit (5,956) (9,145) Accumulated other comprehensive (loss) income 122 (551) --------- --------- Total stockholders' equity 52,313 48,408 --------- --------- Total liabilities and stockholders' equity $ 413,090 $ 404,172 ===================================================================================================
The accompanying notes are an integral part of these financial statements. 18 20 CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- (In Thousands, Except Share Data) Interest and dividend income: Loans $ 17,139 $ 15,973 $ 15,445 Investment securities held to maturity 8,089 6,968 6,526 Investment securities available for sale 3,202 2,715 2,580 Federal Home Loan Bank stock 454 334 275 Other interest income 153 107 234 ----------- ----------- ----------- Total interest and dividend income 29,037 26,097 25,060 - ---------------------------------------------------------------------------------------------------------- Interest expense: Deposits (note 6) 9,930 8,875 10,546 Borrowed funds 4,525 3,041 2,511 Securities sold under agreements to repurchase and other borrowed funds 1,903 1,267 200 ----------- ----------- ----------- Total interest expense 16,358 13,183 13,257 - ---------------------------------------------------------------------------------------------------------- Net interest income 12,679 12,914 11,803 Provision for loan losses (note 4) 250 75 450 ----------- ----------- ----------- Net interest income after provision for loan losses 12,429 12,839 11,353 - ---------------------------------------------------------------------------------------------------------- Non-interest income: Loan servicing fees 281 319 527 Deposit account fees 500 490 400 Gains (losses) on sales of mortgage loans, net 47 (205) 272 Loss on sale of investment securities available for sale (41) -- -- Other income 337 240 181 ----------- ----------- ----------- Total non-interest income 1,124 844 1,380 - ---------------------------------------------------------------------------------------------------------- Non-interest expense: Salaries and employee benefits 5,033 5,116 4,853 Occupancy and equipment expenses 763 769 845 Professional expenses 496 1,401 1,060 Data processing expenses 590 550 423 Insurance expenses 139 117 125 Other expenses 1,355 1,394 1,419 ----------- ----------- ----------- Total non-interest expense 8,376 9,347 8,725 - ---------------------------------------------------------------------------------------------------------- Income before income taxes 5,177 4,336 4,008 Income tax expense (benefit) (note 8) 854 1,582 (4,800) ----------- ----------- ----------- Net income $ 4,323 $ 2,754 $ 8,808 ========================================================================================================== Average shares outstanding 4,360,415 4,353,286 4,321,250 Average diluted shares outstanding 4,434,645 4,468,529 4,521,949 ========================================================================================================== Basic earnings per share $ 0.99 $ 0.63 $ 2.04 Diluted earnings per share $ 0.97 $ 0.61 $ 1.95 ==========================================================================================================
The accompanying notes are an integral part of these financial statements. 19 21 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Net Unrealized Additional Gains (Losses) Total Common Paid-in Accumulated on Securities Stockholders' Years Ended Stock Capital Deficit Available for Sale Equity - ----------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) Balance at December 31, 1997 $ 429 $57,185 $(20,054) $ 50 $ 37,610 Net income -- -- 8,808 -- 8,808 Other comprehensive income unrealized gain (loss) on securities available for sale (tax effect $42) -- -- -- 81 81 -------- Total comprehensive income 8,889 Exercise of stock options 4 210 -- -- 214 ------- ------- -------- ----- -------- Balance at December 31, 1998 433 57,395 (11,246) 131 46,713 Net income -- -- 2,754 -- 2,754 Other comprehensive income unrealized gain (loss) on securities available for sale (tax effect $348) -- -- -- (682) (682) -------- Total comprehensive income 2,072 Exercise of stock options 3 273 -- -- 276 Dividends declared and paid ($0.15 per share) -- -- (653) -- (653) ------- ------- -------- ----- -------- Balance at December 31, 1999 436 57,668 (9,145) (551) 48,408 Net income -- -- 4,323 -- 4,323 Other comprehensive income unrealized gain (loss) on securities available for sale (tax effect $346), net of reclassification -- -- -- 673 673 -------- Total comprehensive income 4,996 Exercise of stock options -- 43 -- -- 43 Dividends declared and paid ($0.26 per share) -- -- (1,134) -- (1,134) ------- ------- -------- ----- -------- Balance at December 31, 2000 $ 436 $57,711 $ (5,956) $ 122 $ 52,313 =============================================================================================================================
2000 - ----------------------------------------------------------------------------------------------------------------------------- Disclosure of reclassification amount: Gross unrealized appreciation arising during the period $ 980 Tax effect (333) ------- Unrealized holding appreciation, net of tax 647 ------- Less: reclassification adjustment for losses included in net income (tax effect $15) (26) ------- Unrealized appreciation on securities, net of reclassification $ 673 =============================================================================================================================
The bank had no sales of investment securities during 1999 and 1998. The accompanying notes are an integral part of these financial statements. 20 22 CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ (In Thousands) Cash flow from operating activities: Net income $ 4,323 $ 2,754 $ 8,808 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 250 75 450 (Gains) losses on sales of mortgage loans and mortgage-backed securities (47) 205 (272) Losses on investment securities available for sale 41 -- -- Gains on sale of OREO (39) -- (6) Depreciation and amortization of premises and equipment, investments and other assets 762 820 755 Loans originated for sale (2,485) (7,694) (21,497) Proceeds from sales of mortgage loans and mortgage-backed securities 2,532 16,439 13,501 (Increase) decrease in accrued interest receivable (148) (725) 851 Decrease (increase) in deferred income tax asset 1,999 1,141 (5,215) Decrease (increase) in other assets 18 (569) 74 (Decrease) increase in advance payments by borrowers (137) 110 53 (Decrease) increase in other liabilities (1,352) (166) 183 ------- ------- ------- Net cash provided by (used in) operating activities 5,717 12,390 (2,315) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Proceeds from maturities of investment securities held to maturity 8,611 15,765 50,888) Proceeds from maturities of investment securities available for sale -- 4,000 15,000 Purchases of investment securities held to maturity (16,430) (65,357) (21,215) Purchases of investment securities available for sale -- (29,433) (11,697) Purchases of mortgage-backed securities held to maturity -- (8,368) -- Purchases of mortgage-backed securities available for sale -- (4,905) -- Proceeds from sales of investment securities available for sale 21,899 -- -- Principal payments of securities held to maturity 10,748 16,498 20,090 Principal payments of securities available for sale 2,775 6,219 10,314 Purchase of Federal Home Loan Bank stock -- (1,650) -- Purchase of other equity securities -- (122) -- Increase in loans, net (23,893) (9,904) (24,664) Proceeds from sales of OREO 526 37 259 Purchases of Bank premises and equipment (448) (346) (532) ------- ------- ------- Net cash provided by (used in) investing activities 3,788 (77,566) 38,443 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Net increase (decrease) in deposits 24,508 (7,461) (961) Additions to Federal Home Loan Bank advances 695,950 1,123,600 31,000 Payments on Federal Home Loan Bank advances (683,163) (1,086,104) (59,000) (Decrease) increase in other borrowed funds (30,793) 32,457 (1,182) Dividends paid (1,134) (653) -- Proceeds from exercise of stock options 43 276 214 ------- ------- ------- Net cash provided by (used in) financing activities 5,411 62,115 (29,929) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 14,916 (3,061) 6,199 Cash and cash equivalents, beginning of year 7,597 10,658 4,459 ------- ------- ------- Cash and cash equivalents, end of year $ 22,513 $ 7,597 $ 10,658 ==================================================================================================================================== Cash paid during the year for: Interest on deposits and borrowed funds $ 16,098 $ 13,135 $ 13,367 Income taxes 179 366 136 Supplemental Schedule of non-cash activities: Change in valuation of investment securities available for sale 1,019 1,030 123 ====================================================================================================================================
The accompanying notes are an integral part of these financial statements. 21 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A BASIS OF PRESENTATION - The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Accordingly, management is required to make estimates and assumptions that affect amounts reported in the balance sheets and statements of operations. Actual results could differ significantly from those estimates and judgments. Material estimates that are particularly susceptible to change relate to the allowance for loan losses and the deferred tax asset. The Bank is subject to the regulations of, and periodic examination by, the Federal Deposit Insurance Corporation ("FDIC") and the Massachusetts Division of Banks. The Bank's deposits are insured by the Bank Insurance Fund of the FDIC up to $100,000 per account, as defined by the FDIC and the Depositors Insurance Fund for customer deposit amounts in excess of $100,000. The consolidated financial statements include the accounts of Lawrence Savings Bank and its wholly-owned subsidiaries, Pemberton Corporation, Shawsheen Security Corporation, Shawsheen Security Corporation II and Spruce Wood Realty Trust. All inter-company balances and transactions have been eliminated in consolidation. The Bank has one reportable operating segment. Certain amounts in prior periods have been re-classified to conform to the current presentation. INVESTMENT AND MORTGAGE-BACKED SECURITIES - Debt securities that the Bank has the intent and ability to hold to maturity are classified as "held to maturity" and reported at amortized cost; debt, mortgage-backed and equity securities that are bought and held principally for the purpose of selling in the near term are classified as "trading" and reported at fair value, with unrealized gains and losses included in earnings; and debt, mortgage-backed and equity securities not classified as either held to maturity or trading are classified as "available for sale" and reported at fair value, with unrealized gains and losses excluded from earnings and reported as other comprehensive income, net of estimated income taxes. Premiums and discounts on investments and mortgage-backed securities are amortized or accreted into income by use of the interest method. If a decline in fair value below the amortized cost basis of an investment or mortgage-backed security is judged to be other than temporary, the cost basis of the investment is written down to fair value and the amount of the write-down is included as a charge to earnings. Gains and losses on the sale of investment and mortgage-backed securities are recognized at the time of sale on a specific identification basis. EQUITY SECURITIES - Includes stock received as a result of the reorganization of the Savings Bank Life Insurance Company of Massachusetts ("SBLI") and Northeast Retirement Services ("NRS"). The Bank's holdings of SBLI stock was sold in its entirety in the fourth quarter 2000. SBLI stock, which is closely held and not publicly traded, is carried at a value established by an independent third party at the time the Bank received the shares. NRS stock is closely held and not publicly traded and is carried at cost. Dividend income is recorded when dividends are declared. INTEREST ON LOANS - Interest on loans is accrued as earned. Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. It is management's policy to discontinue the accrual of interest on a loan when there is a reasonable doubt as to its collectibility. Interest on loans 90 days or more contractually delinquent is generally excluded from interest income. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on loans that have been 90 days or more past due only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are expected to be fully collectible as to both principal and interest. ALLOWANCE FOR LOAN LOSSES - Losses on loans are provided for under the allowance method of accounting. The allowance is increased by provisions charged to operations on the basis of many factors including the risk characteristics of the portfolio, current economic conditions and trends in loan delinquencies and charge-offs. When management believes that the collection of a loan's principal balance is unlikely, the principal amount is charged against the allowance. Recoveries on loans which have been previously charged off are credited to the allowance as received. Management's methodology for assessing the appropriateness of the allowance consists of several key elements, which include a formula allowance, specific allowances for indentified problem loans and an unallocated allowance. The formula allowance is calculated by applying loss factors to outstanding loans, in each case based on the internal risk grade of such loans. Changes in risk grades affect the amount of the formula allowance. Loss factors are based on the Bank's historical loss experience as well as regulatory guidelines. Specific allowances are established in cases where management has indentified significant conditions related to a credit that management believes that the probability that a loss has been incurred in excess of the amount determined by the application of the formula allowance. The unallocated allowance recognizes the model and estimation risk associated with the formula allowance and specific allowances as well as management's evaluation of various conditions, the effects of which are not directly measured in the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance for loan losses based on judgments different from those of management. Impaired loans are commercial, commercial real estate, and individually significant residential mortgage and consumer loans for which it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans except those loans that are accounted for at fair value or at lower of cost or fair value are accounted for at the present value of the expected future cash flows discounted at the loan's effective interest rates. 22 24 LOAN FEES - Loan origination fees, net of direct loan acquisitions costs, are deferred and recognized over the contractual life of the loan as an adjustment of the loan's yield using a basis, which approximates the interest method. Amortization of loan fees is discontinued once a loan is designated as non-accrual status. When loans are sold or paid-off, the unamortized portion of net fees and costs is credited to income. MORTGAGE BANKING ACTIVITIES - Loans held for sale are valued at the lower of their amortized cost or market value. The Bank, from time to time, enters into forward commitments to sell loans or mortgage-backed securities for the purpose of reducing interest rate risk associated with the origination of loans for sale. Unrealized gains and losses on contracts used to hedge the Bank's closed loans and the pipeline of loans expected to close are considered in adjusting carrying values of loans and mortgage-backed securities held for sale. Gains or losses on sales of loans are recognized to the extent that the sale proceeds exceed or are less than the carrying amount of the loans. Gains and losses are determined using the specific identification method. When loans are sold with servicing rights retained, the Bank allocates the carrying amount of the loans between the underlying asset sold and the rights retained, based on their relative fair values. The resulting mortgage servicing rights are amortized over the period of estimated net servicing income using a method which approximates the interest method. Actual prepayment experience is reviewed periodically. When actual prepayments exceed estimated prepayments, the balance of the mortgage servicing rights is adjusted accordingly. Periodically, the mortgage servicing rights are assessed for impairment based on the fair value of such rights using market prices. PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less allowances for depreciation and amortization. Depreciation and amortization are computed principally on the straight-line method over the estimated useful lives of the assets or the terms of the leases, if shorter. OTHER REAL ESTATE OWNED - Other real estate owned (OREO) is comprised of foreclosed properties where the Bank has formally received title or has possession of the collateral. Properties are carried at the lower of the investment in the related loan or the estimated fair value of the property or collateral less selling costs. INCOME TAXES - Deferred tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax valuation allowances are established and based on management's judgment as to whether it is more likely than not that all or some portion of the future tax benefits of prior operating losses will be realized. PENSION EXPENSE - The Bank is a participant in a multiple employer defined benefit pension plan. Pension expense is recorded as the liability is incurred. The method recognizes the compensation cost of an employee's pension benefit over the employee's appropriate service period. Funding is provided as required by the Savings Banks Employees' Retirement Association. EARNINGS PER SHARE - Basic EPS is calculated based on the weighted average number of common shares outstanding during each period. Stock options outstanding, accounted for under the Treasury Stock Method, had a dilutive effect on the computation of diluted EPS. RECENT ACCOUNTING DEVELOPMENTS - In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. These statements establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. These statements also provide for matching the timing of gain or loss recognition on the hedged asset or liability that is attributable to the hedged risk or the earnings effect of the hedged forecasted transaction. The Bank adopted these statements on January 1, 2001. The adoption of these statements did not have a material effect on the Bank's consolidated financial statements. 23 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) INVESTMENT SECURITIES Proceeds from sales of investments available for sale totaled $21.9 million, realized gains totaled $52 thousand and realized losses totaled $93 thousand for the year ended December 31, 2000. There were no sales of investment securities during 1999 and 1998. The amortized cost and market value of investment securities at December 31 follows:
2000 1999 ----------------------------------------------- ------------------------------------------------- Unrealized Unrealized Amortized ------------------- Market Amortized ------------------ Market Cost Gain Loss Value Cost Gain Loss Value - ------------------------------------------------------------------------------------------------------------------------------------ (In Thousands) Investment securities held to maturity: US Treasury obligations $ 6,041 $ 86 $ -- $ 6,127 $ 6,059 $ -- $ (66) $ 5,993 US Government Agency obligations 38,705 600 (116) 39,189 36,696 43 (758) 35,981 Mortgage-backed securities 18,868 82 (122) 18,828 23,477 38 (473) 23,042 Asset-backed securities 31,220 257 (96) 31,381 31,989 17 (475) 31,531 Corporate obligations 22,912 134 (238) 22,808 22,528 -- (754) 21,774 Municipal obligations 60 -- -- 60 113 -- (1) 112 --------- --------- --------- --------- --------- --------- --------- --------- $ 117,806 $ 1,159 $ (572) $ 118,393 $ 120,862 $ 98 $ (2,527) $ 118,433 ==================================================================================================================================== Investment securities available for sale: US Treasury obligations $ 6,091 $ -- $ (35) $ 6,056 $ 26,563 $ -- $ (715) $ 25,848 US Government Agency obligations 5,999 -- (12) 5,987 5,989 -- (115) 5,874 Mortgage-backed securities 9,439 55 (13) 9,481 13,099 91 (47) 13,143 Asset-backed securities 8,269 94 (3) 8,360 8,722 -- (37) 8,685 Corporate obligations 2,920 101 -- 3,021 2,899 -- (9) 2,890 Equity securities 122 -- -- 122 470 -- -- 470 --------- --------- --------- --------- --------- --------- --------- --------- $ 32,840 $ 250 $ (63) $ 33,027 $ 57,742 $ 91 $ (923) $ 56,910 ====================================================================================================================================
The following table is a summary of the contractual maturities of investment securities held to maturity and available for sale at December 31, 2000. These amounts exclude equity securities, which have no contractual maturities. Mortgage-backed securities consist of FHLMC, FNMA, and GNMA certificates. Mortgage-backed and asset-backed securities are shown at their final contractual maturity date but are expected to have shorter average lives.
HELD TO MATURITY AVAILABLE FOR SALE ------------------------------------------- ---------------------------------------------- Amortized Market Weighted Amortized Market Weighted December 31, 2000 Cost Value Avg. Yield Cost Value Avg. Yield - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) US Treasury & Agencies obligations Within 1 year $ 7,996 $ 7,969 5.48% $ 5,999 $ 5,987 5.52% 1 to 2 years 2,997 2,987 5.70 6,091 6,056 4.91 2 to 3 years 12,028 12,132 5.76 -- -- - 3 to 5 years 17,726 18,283 6.12 -- -- - 5 to 10 years 3,999 3,945 6.58 -- -- - -------- -------- -------- -------- 44,746 45,316 5.92 12,090 12,043 5.21 -------- -------- -------- -------- Mortgage-backed securities: Within 1 year 372 370 6.26 1,399 1,389 7.00 1 to 2 years 187 187 6.61 -- -- - 2 to 3 years 1,068 1,064 6.08 -- -- - 3 to 5 years 3,997 3,951 5.66 347 345 6.57 5 to 10 years 4,481 4,461 6.32 -- -- - After 10 years 8,763 8,795 6.77 7,693 7,747 6.87 -------- -------- -------- -------- 18,868 18,828 6.38 9,439 9,481 6.88 -------- -------- -------- -------- Asset-backed securities: 5 to 10 years 9,491 9,605 6.67 5,349 5,350 6.44 After 10 years 21,729 21,776 6.59 2,920 3,010 7.59 -------- -------- -------- -------- 31,220 31,381 6.61 8,269 8,360 6.85 -------- -------- -------- -------- Corporate obligations Within 1 year 2,108 2,126 7.10 -- -- - 1 to 2 years 4,034 4,012 6.07 -- -- - 2 to 3 years 11,161 11,002 5.75 -- -- - 3 to 5 years 2,067 2,010 6.00 2,920 3,021 7.28 5 to 10 years 2,042 2,135 7.42 -- -- - After 10 years 1,500 1,523 11.00 -- -- - -------- -------- -------- -------- 22,912 22,808 6.45 2,920 3,021 7.28 -------- -------- -------- -------- Municipal obligations Within 1 year 60 60 8.50 -- -- - -------- -------- -------- -------- $117,806 $118,393 6.25% $ 32,718 $ 32,905 6.26% ===================================================================================================================================
24 26 Issuers may have the right to call or prepay obligations with or without call or prepayment penalties. This right may cause actual maturities and yields to differ from the contractual maturities summarized above. As of December 31, 2000, the Bank had callable investment securities with a par value of $21.0 million and $2.2 million in the held to maturity and available for sale portfolios, respectively. (3) FEDERAL HOME LOAN BANK STOCK The Bank is required to own stock of the Federal Home Loan Bank of Boston ("FHLB"). The minimum investment is 5% of outstanding FHLB advances, or 1% of outstanding residential mortgages, whichever is largest. The Bank receives an amount equal to the par value of the stock when excess stock is redeemed. (4) LOANS The following table shows the components of the loan portfolio:
December 31, 2000 1999 - -------------------------------------------------------------------------------- (In Thousands) Residential mortgage $ 77,926 $ 80,057 Home equity 15,997 12,606 Construction 17,148 9,666 Commercial real estate 87,129 80,893 Commercial 22,602 13,143 Consumer 1,243 1,733 --------- --------- Total loans 222,045 198,098 Allowance for loan losses (3,685) (3,381) --------- --------- $ 218,360 $ 194,717 ===============================================================================
The previous table includes deferred loan origination fees. These amounts total $0.2 million and $0.2 million at December 31, 2000 and 1999, respectively. Mortgage loans serviced by the Bank for others amounted to $65.4 million and $69.8 million at December 31, 2000 and 1999, respectively. Non-performing loans at December 31, 2000 and 1999 amounted to $10.0 thousand and zero, respectively. There were no impaired loans at December 31, 2000 and 1999. In the ordinary course of business, the Bank makes loans to its Directors and Officers and their associates and affiliated companies ("related parties") at substantially the same terms as those prevailing at the time of origination for comparable transactions with other borrowers. An analysis of total related party loans for the year ended December 31, 2000 follows:
Balance at Balance at January 1, 2000 Additions Repayments December 31, 2000 - -------------------------------------------------------------------------------- (In Thousands) $1,957 $ 160 $ 118 $1,999 ================================================================================
25 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes activity in the allowance for loan losses:
Years Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- (In Thousands) Balance at beginning of year $ 3,381 $ 3,272 $ 3,144 Total charge-offs (28) (17) (455) Total recoveries 82 51 133 ------- ------- ------- Net recoveries (charge-offs) 54 34 (322) Provision for loan losses 250 75 450 ------- ------- ------- Balance at end of year $ 3,685 $ 3,381 $ 3,272 ================================================================================
(5) BANK PREMISES AND EQUIPMENT The following table shows the components of premises and equipment:
At December 31, 2000 1999 - -------------------------------------------------------------------------------- (In Thousands) Premises $3,486 $3,424 Equipment 2,017 1,641 Leasehold improvements 336 326 ------ ------ 5,839 5,391 Less accumulated depreciation and amortization 2,502 2,054 ------ ------ $3,337 $3,337 ===============================================================================
Depreciation and amortization expense for the years ended December 31, 2000, 1999, and 1998 amounted to $448,000, $435,000, and $393,000, respectively. Rent expense for leased premises for the years ended December 31, 2000, 1999 and 1998 amounted to $143,000, $140,000, and $246,000, respectively. The Bank is obligated, under non-cancelable leases for premises and equipment, for minimum payments in future periods of $142,000 for each of the years 2001, 2002, $103,000 in 2003, and $83,000 in 2004 and 2005. 26 28 (6) DEPOSITS The following table shows the components of deposits at December 31, 2000 and 1999 and the range of interest rates paid as of December 31, 2000.
Rates as of December 31, December 31, 2000 2000 1999 - ----------------------------------------------------------------------------------------------- (In Thousands) Interest bearing accounts: NOW and Super NOW accounts 0.50-1.00% $ 29,731 $ 26,072 Savings accounts 1.25-2.00% 38,813 38,403 Money market investment accounts 0.25-5.00% 51,344 43,171 Certificates of deposit 4.30-7.02% 112,239 101,195 Retirement accounts 4.30-7.00% 27,198 27,575 --------- --------- Total interest bearing deposits 259,325 236,416 Non-interest bearing demand deposit accounts -- 11,223 9,624 --------- --------- $270,548 $246,040 ===============================================================================================
The components of interest expense on deposits were as follows:
Years ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- (In Thousands) NOW and Super NOW accounts $ 138 $ 126 $ 202 Savings accounts 774 777 817 Money market investment accounts 1,935 1,424 1,335 Certificates of deposit 5,623 5,002 6,394 Retirement accounts 1,460 1,546 1,798 ------- ------- ------- $ 9,930 $ 8,875 $10,546 ================================================================================
The amount and weighted average interest rate on certificates of deposit, including retirement accounts, by periods to maturity are summarized as follows:
Equal to Weighted Less and greater Average than than Interest December 31, 2000 $100,000 $100,000 Total Rate - ------------------------------------------------------------------------------- (Dollars in Thousands) 3 months or less $ 26,930 $ 7,704 $ 34,634 5.49% From three to six months 14,668 2,399 17,067 5.16 From six to twelve months 40,480 11,382 51,862 6.24 From one to two years 23,589 4,720 28,309 6.29 From two to three years 1,933 842 2,775 5.61 Three years and thereafter 4,790 -- 4,790 5.66 -------- -------- -------- ---- $112,390 $ 27,047 $139,437 5.90% ===============================================================================
27 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) FEDERAL HOME LOAN BANK ADVANCES, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS The FHLB permits member institutions to borrow funds for various purposes. Outstanding advances at December 31, 2000 are collateralized by a blanket lien against residential mortgages and other qualifying collateral. Advances outstanding are as follows:
December 31, 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Weighted Average Weighted Average Maturity Amount Interest Rate Amount Interest Rate - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2000 $ -- -- % $49,200 5.67% 2001 24,000 6.60% -- -- 2002 18,000 6.40 3,000 5.50 2003 10,000 6.14 2,000 5.84 2005 5,000 6.23 -- -- 2006 -- -- 10,000 5.22 2007 5,000 6.20 -- -- 2009 283 6.42 5,000 5.32 2010 20,000 6.03 -- -- 2014 -- -- 296 6.42 ------- ------- ------- ------- $82,283 6.31% $69,496 5.58% ====================================================================================================================================
The Bank may enter into agreements to repurchase securities sold. These agreements are treated as secured borrowings and the obligations to repurchase securities sold are reflected as liabilities and the securities collateralized by the agreements remain as assets. Generally, the outstanding collateral consists of U.S. Treasury and Government Agency obligations and are held by third party custodians. Other borrowed funds at December 31, 2000 and 1999 consist of secured borrowings of $3.9 million and $34.7 million bearing an average interest rate of 9.53% and 5.23%, respectively. Included in the $34.7 million of other borrowed funds at December 31, 1999 is $32.5 million of short-term Federal Reserve Bank of Boston (FRB) advances at an average interest rate of 5.00% which was the first year that the Bank utilized the FRB for advances. (8) INCOME TAXES An analysis of income tax expense (benefit) follows:
Year Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- (In Thousands) Current expense: Federal $ 69 $ 375 $ 79 State 76 66 336 ------- ------- ------- Total current expense 145 441 415 Deferred expense (benefit): Federal 1,462 1,166 1,167 State 83 142 28 Change in valuation reserve 15 (167) (6,410) ------- ------- ------- Total deferred expense (benefit) 1,560 1,141 (5,215) Change in estimate for tax contingencies (851) -- -- ------- ------- ------- Total income tax expense (benefit) $ 854 $ 1,582 $(4,800) ====================================================================================================================================
A reconciliation of the difference between the expected federal income tax expense computed by applying the federal statutory rate of 34% to the amount of actual income tax expense is as follows:
Year Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- (In Thousands) Expected federal income tax expense $ 1,760 $ 1,474 $ 1,363 Items affecting expected tax: State income tax, net of federal benefit 105 137 240 Other (175) 138 7 Change in valuation reserve 15 (167) (6,410) Change in estimate for tax contingencies (851) -- -- ------- ------- -------- Total income tax benefit $ 854 $ 1,582 $(4,800) ===================================================================================================================================
28 30 (8) INCOME TAXES (CONTINUED) The tax effects of temporary differences (the difference between financial statement carrying amounts of existing assets and liabilities and their respective tax basis) that give rise to deferred tax assets and liabilities are as follows:
Year Ended December 31, 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars In Thousands) Deferred tax assets: Allowance for loan losses $ 2,416 $ 2,300 Net operating loss carryforward 3,969 5,720 Alternative minimum tax carryforward 236 148 Pension costs 517 662 Loan origination fees 32 84 Depreciation 300 273 Unrealized losses on investment securities available for sale -- 281 Other 530 939 -------- -------- Gross deferred tax asset 8,000 10,407 Valuation reserve (15) -- -------- -------- Net deferred tax asset 7,985 10,407 Deferred tax liabilities: SBLI stock distribution -- (134) Unrealized gains on investment securities available for sale (65) -- Other (409) (417) -------- -------- Net deferred income tax asset $ 7,511 $ 9,856 ===================================================================================================================================
Operating losses in the early 1990's resulted in available tax loss carry forwards of approximately $47 million. A deferred tax valuation allowance is required to reduce the potential deferred tax asset when it is more likely than not that all or some portion of the potential deferred tax asset will not be realized due to the lack of sufficient taxable income in the carry forward period. At December 31, 2000, the Bank has $11.6 million of tax loss carryforwards available that expire between 2011 and 2019. At December 31, 2000, the Bank would need to generate approximately $22 million of future net taxable income to realize the net deferred income tax asset. Management believes that it is more likely than not that the net deferred income tax asset at December 31, 2000 will be realized based on recent operating results. It should be noted, however, that factors beyond Management's control, such as the general state of the economy and real estate values, can affect future levels of taxable income and that no assurance can be given that sufficient taxable income will be generated to fully absorb gross deductible temporary differences. The unrecaptured base year tax reserves as of October 31, 1998 will not be subject to recapture as long as the institution continues to carry on the business of banking. In addition, the balance of the pre-1988 bad debt tax reserves continue to be subject to a provision of the current law that requires recapture in the case of certain excess distributions to shareholders. The tax effect of pre-1988 bad debt tax reserves subject to recapture in the case of certain excess distributions is approximately $1.1 million. 29 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCKHOLDERS' EQUITY The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the Massachusetts Division of Banks. The FDIC has issued two capital requirement guidelines. Failure by the Bank to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by Federal or State regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets (Leverage ratio). There are two categories of capital under the guidelines. Tier 1 capital as it applies to the Bank, includes stockholders' equity exclusive of the net unrealizable gains/losses on investment securities available for sale and the deferred tax asset is disallowed. Tier 2 capital includes the allowance for loan losses, subject to guideline limitations. At December 31, 2000 and 1999, the Bank not only exceeded each of the minimum capital requirements but also met the definition of a "well capitalized" bank as defined by FDIC under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the Bank must maintain Tier 1, Total and Leverage Capital ratios as set forth in the table below. There are no conditions or events that management believes have changed the Bank's classification as "well capitalized." The Bank's actual capital ratios and amounts are presented as of December 31, 2000 and 1999.
Risk-Based Ratios ---------------------------------------------------------------------------------------------------- Tier 1 Capital Total Capital Leverage Capital ----------------------------- ---------------------------- ----------------------------- December 31, 2000 1999 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) Capital ratios: Adequately capitalized 4.00% 4.00% 8.00% 8.00% 4.00% 4.00% Well capitalized 6.00% 6.00% 10.00% 10.00% 5.00% 5.00% Bank's ratio 15.67% 15.83% 16.86% 17.08% 11.71% 10.83% Capital Amounts: (1) Adequately capitalized $ 12,381 $ 10,878 $ 24,762 $ 21,757 $ 16,567 $ 15,894 Well capitalized 18,572 16,317 30,953 27,196 20,709 19,868 Bank's capital 48,516 43,046 52,201 46,427 48,516 43,046 ===================================================================================================================================
(1) Minimum capital amounts for Tier 1 and total risk-based capital ratios were calculated based upon net risk weighted balance sheet assets of $309.5 million and $271.9 million as of December 31, 2000 and 1999, and risk weighted off-balance sheet items of $31.9 million and $20.0 million as of December 31, 2000 and 1999. Minimum capital requirements for leverage ratio calculations were based upon average assets of $414.2 million and $397.4 million for the fourth quarters of 2000 and 1999, respectively. STOCKHOLDERS' RIGHTS PLAN In 1996, the Board of Directors adopted a stockholder rights plan declaring a dividend of one preferred stock purchase right for each share of outstanding common stock. The rights will remain attached to the common stock and are not exercisable except under limited circumstances relating to (i) acquisition of beneficial ownership of more than 10% of the outstanding shares of common stock, or (ii) a tender offer or exchange offer that would result in a person or group beneficially owning more than 10% of the outstanding share of common stock. The rights are not exercisable until those aforementioned circumstances occur. The rights expire in 2006. Until a right is exercised, the holder has no rights to vote or to receive dividends. The rights are not taxable to stockholders until exercisable. 30 32 (10) EMPLOYEE BENEFITS The Bank provides pension benefits for its employees through membership in the Savings Bank Employees' Retirement Association (the "Plan"). The Plan is a multiple-employer, non-contributory, defined benefit plan. Bank employees become eligible after attaining age 21 and completing one year of service. Additionally, benefits become fully vested after three years of eligible service. The Bank's annual contribution to the Plan is based upon standards established by the Employee Retirement Income Security Act. The contribution is based on an actuarial method intended to provide not only for benefits attributable to service to date, but also for those expected to be earned in the future. The following table sets forth the Plan's funded status and amounts recognized in the Bank's consolidated financial statements through the Plan's latest valuation dates which were October 31, 2000 and 1999.
October 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ (In Thousands) Change in benefit obligation: Benefit obligation at beginning of year $ 4,317 $ 4,697 Service cost 258 305 Interest cost 334 317 Actuarial (gain) loss (117) (780) Benefits paid (152) (222) ------- ------- Benefit obligation at end of year $ 4,640 $ 4,317 =================================================================================================================================== Change in plan assets: Fair value of plan assets at beginning of year $ 5,570 $ 4,368 Increase in assets 799 895 Employer contribution 261 529 Benefits paid (152) (222) ------- ------- Fair value of plan assets at end of year $ 6,478 $ 5,570 =================================================================================================================================== Funded status 1,838 1,253 Unrecognized net actuarial gain (3,043) (2,800) Unrecognized transition asset (40) (44) ------- ------- Accrued benefit cost included in other liabilities $(1,245) $(1,591) ===================================================================================================================================
The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.75% and 4.50% for 2000 and 1999. 31 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) EMPLOYEE BENEFITS (CONTINUED) Net pension cost included the following components:
Years ended October 31, 2000 1999 1998 - -------------------------------------------------------------------------------- (In Thousands) Service cost $ 258 $ 305 $ 259 Interest cost 334 317 277 Expected return on plan assets (416) (349) (316) Amortization of net (gains) losses (228) (112) (176) Net amortization and deferrals (4) (4) (4) ----- ----- ----- Net periodic pension cost $ (56) $ 157 $ 40 ================================================================================
Assumptions used to develop the net periodic pension cost were:
2000 1999 1998 - -------------------------------------------------------------------------------- Discount rate 7.75% 6.75% 7.25% Rate of increase in compensation levels 4.50 4.50 5.00 Expected long-term rate of return on assets 8.00 8.00 8.00 ================================================================================
The Bank provides an employee savings plan "the Savings Plan" through the Savings Banks Employees' Retirement Association. The Savings Plan qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. Bank employees are eligible to participate in the Savings Plan immediately upon employment with the Bank provided they have attained 21 years of age. Bank employees become eligible for matching contributions after completing one year of service with 1,000 hours or more. On an annual basis, the Bank determines whether or not to contribute to the Savings Plan. The Bank contributed $0.1 million on behalf of the employees who are in the Savings Plan in 2000 and 1999. The Board offers options on its common stock to Directors, Management and Officers to purchase unissued common stock of the Bank at a price equal to the fair market value of the Bank's common stock on the date of grant. All options expire ten years from the date of grant. The Bank applies APB Opinion No. 25 and related interpretations in accounting for its Stock Option Plan. Had compensation cost for the Bank's Stock Option Plan been determined consistent with SFAS 123, the Bank's net income and earnings per share would have reduced to the proforma amounts as follows:
Years Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- (In Thousands) Net Income: As Reported $ 4,323 $ 2,754 $ 8,808 Pro forma 4,167 2,604 8,604 Basic earnings per share As Reported $ 0.99 $ 0.63 $ 2.04 Pro forma 0.96 0.60 1.99 Diluted earnings per share As Reported $ 0.97 $ 0.61 $ 1.95 Pro forma 0.94 0.58 1.90
32 34 (10) EMPLOYEE BENEFITS (CONTINUED) Under the 1986 and 1997 Stock Option Plans, the Bank may grant options to Directors, Officers or employees up to 859,100 of which 137,220 shares have been exercised. As of December 31, 2000, 452,030 options were outstanding with 268,850 available for future use. The vesting schedule provides that 50% of options granted are vested after the first year and an additional 25% vest each year thereafter. Options are fully vested three years after the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999; expected volatility of 30%, expected life of 8 years; and risk-free interest rates of 6.07% and expected dividend yield of 2.30%. There were no options granted during 2000 and 1998. The summary of the status of the Stock Option Plan as of December 31, 2000, 1999, 1998 and changes during the years ended are as follows:
2000 1999 1998 ------------------------- ----------------------- ------------------------ Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Options Price Options Price Options Price - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding at beginning of year 463,030 $ 6.66 326,030 $ 5.32 371,833 $ 5.29 Granted -- -- 162,000 9.06 -- -- Exercised (8,000) 5.50 (25,000) 4.70 (44,803) 5.07 Canceled (3,000) 9.13 -- -- (1,000) 6.00 ------- ------- ------- Outstanding at end of year 452,030 6.67 463,030 6.66 326,030 5.32 ------- ------- ------- Options exercisable end of year 372,530 6.16 301,030 $ 5.37 273,905 $ 5.19 ------- -------- ------- -------- ------- -------- Weighted average fair value of options granted during the year $ -- $ 3.18 $ -- -------- -------- --------
The following table summarizes information about the Stock Option Plan based on a range of exercise prices as of December 31, 2000.
Options Outstanding Options Exercisable ----------------------------------------- ---------------------------- Weighted Weighted Weighted Average Average Average Number of Exercise Remaining Number of Exercise Range of Exercise Price Options Price Life Options Price - -------------------------------------------------------------------------------------------------------------------------- $2.00 to $3.00 2,000 $ 2.00 0.3 years 2,000 $ 2.00 $3.01 to $4.00 16,850 3.72 4.3 16,850 3.72 $4.01 to $5.00 92,680 4.50 3.5 92,680 4.50 $5.01 to $6.00 181,500 6.00 5.3 181.500 6.00 $6.01 and greater 159.000 9.06 8.6 79,500 9.06 ------- -------- Outstanding at end of year 452,030 6.67 6.1 372,530 6.16 ==========================================================================================================================
In addition to the Bank's defined benefit pension plan, the Bank sponsors a defined benefit postretirement plan that provides limited postretirement medical benefits to certain full-time employees who retire before age 65 and life insurance benefits to full-time employees who retire after age 62 and after completing 10 years of service. The plan is non-contributory. The Bank's policy is to fund the cost of postretirement benefits in amounts determined at the discretion of management. The amounts of accrued postretirement benefit cost reported on the Bank's consolidated balance sheet were $234 thousand and $205 thousand as of December 31, 2000 and 1999, respectively. 33 35 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (11) CONTINGENCIES The Bank is involved in various legal proceedings incidental to its business. After review with legal counsel, management does not believe resolution of such litigation will have a material adverse effect on the financial condition and operating results of the Bank. In one litigation matter, the Bank was awarded a $4.2 million judgment in 1997. This matter has been appealed, and this judgment has not yet been collected. The Bank expects to prevail on this appeal. The Bank expects to collect this judgment, at least in substantial part, which would have a material favorable impact to the Bank's financial statements. Post judgment interest accrues from the date of this judgment and approximates $1.9 million at December 31, 2000. However, collectibility of post judgment interest in addition to the $4.2 million award has not yet been determined. In another litigation matter, the Bank was awarded $1.1 million by a jury verdict, during the fourth quarter 1999, in a legal case where the Bank sought to recover damages from loans previously charged off. In 2000, the court entered final judgment for approximately $1.8 million, which includes post judgment accrued interest. This award has been appealed by defendants and collectibility of this award is subject to this appeal and other contingencies. It is management's opinion the timing and final amount to be collected cannot be determined at this time. Accordingly, no recognition of these judgments has been recorded in the financial statements. - -------------------------------------------------------------------------------- (12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to financial instruments with off-balance sheet risk. These instruments, in the form of commitments to extend credit and financial and standby letters of credit, are offered in the normal course of business to meet the financing needs of customers. The Bank is exposed to varying degrees of credit and interest rate risk in excess of amounts recognized in the consolidated financial statements as a result of such transactions. Commitments to extend credit are agreements to lend to a customer as long as there is compliance with conditions established in the agreement. These extensions of credit are based upon traditional underwriting standards and generally have a fixed expiration date of less than five years. Standby letters of credit are conditional commitments issued by the Bank to guarantee payment to a third party. Outstanding letters of credit expire within one year. The credit risk involved with these instruments is similar to the risk of extending loans and, accordingly, the underwriting standards are also similar. It is expected that most letters of credit will not require cash disbursements. The following table lists financial instruments with off-balance sheet risk:
Fixed Variable December 31, 2000 Rate Rate Total - ------------------------------------------------------------------------------------------------------------------------------------ (In Thousands) Financial instruments with contract amounts represent credit risk: Unused commitments to extend credit: Residential mortgages $ 666 $ 1,517 $ 2,183 Home equity lines of credit 2,059 5.454 7,513 Personal lines of credit 237 -- 237 Commercial real estate mortgage 56 4,522 4,578 Construction -- 13,097 13,097 Commercial loans 3,105 30,480 33,585 ------- ------- ------- Total unused commitments $ 6,123 $55,070 $61,193 ==================================================================================================================================== Standby and financial letters of credit $ -- $ 2,357 $ 2,357 - ------------------------------------------------------------------------------------------------------------------------------------ Forward commitments to sell mortgage loans $ 165 $ -- $ 165 ====================================================================================================================================
Fixed Variable December 31, 1999 Rate Rate Total - ------------------------------------------------------------------------------------------------------------------------------------ (In Thousands) Financial instruments with contract amounts represent credit risk: Unused commitments to extend credit: Residential mortgages $ 272 $ -- $ 272 Home equity lines of credit 2,091 6,840 8,931 Personal lines of credit 288 -- 288 Commercial real estate mortgage 96 7,536 7,632 Construction -- 7,369 7,369 Commercial loans 3,050 12,041 15,091 ------- ------- ------- Total unused commitments $ 5797 $33,786 $39,583 ==================================================================================================================================== Standby and financial letters of credit $ -- $ 362 $ 362 - ------------------------------------------------------------------------------------------------------------------------------------ Forward commitments to sell mortgage loans $ 277 $ -- $ 277 ====================================================================================================================================
34 36 Forward commitments to sell mortgage loans are contracts which the Bank enters into for the purpose of reducing the interest rate risk associated with originating loans held for sale. Risk may arise from the possible inability of the Bank to originate loans to fulfill the contracts. Unrealized gains or losses on contracts used to hedge the Bank's closed loans and pipeline of loans expected to close are considered in determining the lower of cost or market value of loans held for sale. (13) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND DUE FROM BANKS, SHORT-TERM INVESTMENTS, STOCK IN FEDERAL HOME LOAN BANK OF BOSTON, ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE. The carrying amount of each of these assets and liabilities is a reasonable estimate of fair value. INVESTMENT SECURITIES For investment securities, fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. LOANS Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial real estate, residential mortgage, and other consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by classified and non-classified categories. The fair value of non-classified loans is calculated by discounting scheduled cash flows through the expected maturity using current rates at which similar loans would be made by the Bank to borrowers with similar credit ratings. For non-classified residential mortgage loans, maturity estimates are based on secondary market sources. Fair value for significant classified loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. DEPOSITS AND MORTGAGORS' ESCROW ACCOUNTS The fair value of demand deposits, NOW accounts, money market deposit accounts, savings accounts, and mortgage escrow accounts of borrowers is the amount payable on demand at the balance sheet date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. BORROWED FUNDS The fair value of borrowed funds is determined as the cost of extinguishing the debt inclusive of any and all prepayment penalties. The prepayment penalties are determined by the Federal Home Loan Bank of Boston, The estimated fair values of the Bank's financial instruments are as follows:
December 31, -------------------------------------------------------------------- 2000 1999 ---------------------------- ----------------------------- Carrying Fair Carrying Fair Value Value Value Value - ------------------------------------------------------------------------------------------------------------------------------------ (In Thousands) Financial assets: Cash and due from banks $ 7,086 $ 7,086 $ 7,597 $ 7,597 Short-term investments 15,427 15,427 -- -- Investment securities 150,833 151,420 177,772 175,343 Federal Home Loan Bank stock 5,950 5,950 5,950 5,950 Accrued interest receivable 2,969 2,969 2,821 2,821 Loans, net 218,360 221,197 194,717 192,277 Financial liabilities: Deposits 270,548 270,873 246,040 245,999 Borrowed funds 86,161 86,673 104,167 103,810 Mortgagors' escrow accounts 513 513 650 650 Accrued interest payable $ 460 $ 460 $ 200 $ 200 - ------------------------------------------------------------------------------------------------------------------------------------
35 37 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- FAIR VALUE OF FINANCIAL INSTRUMENTS OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Off balance sheet financial instruments generally have interest rates which reflect current market rates. Management has determined that the difference between the carrying and fair value amounts of these instruments is not material. LIMITATIONS Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank's entire holdings of a particular financial instrument. Because no active market exists for a portion of the Bank's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions and market conditions could significantly affect these estimates. Fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets that are not considered financial assets include other real estate acquired, banking premises and equipment, and core deposit and other intangibles. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. 36 38 (14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
2000 ------------------------------------------------------------ MARCH JUNE SEPTEMBER DECEMBER Quarter Ended 31 30 30 31 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars In Thousands, Except Share Data) Interest and dividend income $ 7,015 $ 7,106 $ 7,330 $ 7,586 Interest expense 3,778 4,001 4,224 4,355 ------- ------- ------- ------- Net interest income 3,237 3,105 3,106 3,231 Provision for loan losses -- -- 125 125 ------- ------- ------- ------- Net interest income after provision for loan losses 3,237 3,105 2,981 3,106 Non-interest income 288 296 246 294 Non-interest expense 2,128 2,049 2,085 2,114 ------- ------- ------- ------- Income before income tax expense 1,397 1,352 1,142 1,286 Income tax expense 497 456 (185) 86 (i) ------- ------- ------- ------- Net income $ 900 $ 896 $ 1,327 $ 1,200 ==================================================================================================================================== Basic earnings per share $ 0.21 $ 0.21 $ 0.30 $ 0.27 Diluted earnings per share $ 0.20 $ 0.20 $ 0.30 $ 0.27 ====================================================================================================================================
(i) Includes tax benefits of $639 thousand and $213 thousand in the third and fourth quarters of 2000, respectively.
1999 ---------------------------------------------------------- March June September December Quarter Ended 31 30 30 31 - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars In Thousands, Except Share Data) Interest and dividend income $5,932 $6,565 $6,745 $6,855 Interest expense 2,795 3,322 3,448 3,618 ------ ------ ------ ------ Net interest income 3,137 3,243 3,297 3,237 Provision for loan losses 50 -- 25 -- ------ ------ ------ ------ Net interest income after provision for loan losses 3,087 3,243 3,272 3,237 Non-interest income 199 39 258 348 Non-interest expense 2,197 2,200 2,220 2,730 (ii) ------ ------ ------ ------ Income before income tax expense 1,089 1,082 1,310 855 Income tax expense 404 364 502 312 ------ ------ ------ ------ Net income $ 685 $ 718 $ 808 $ 543 =================================================================================================================================== Basic earnings per share $ 0.16 $ 0.16 $ 0.19 $ 0.12 Diluted earnings per share $ 0.15 $ 0.16 $ 0.18 $ 0.12 ===================================================================================================================================
(ii) Increase in legal expenses due to litigation matter; see footnote (11) for more details. 37 39 STOCKHOLDER INFORMATION The stock trades on the Nasdaq Stock Market under the symbol "LSBX". Sales prices of the stock are reported in the The Wall Street Journal as "LawrencSvg". The following table sets forth for the fiscal periods indicated certain information with respect to the sales prices of the Bank's common stock.
Price --------------------------- Fiscal Year High Low - -------------------------------------------------------------------------------- 2000 First Quarter $ 7.625 $ 6.750 Second Quarter 7.500 6.813 Third Quarter 9.313 6.625 Fourth Quarter 10.875 8.000 1999 First Quarter $ 12.94 $ 9.50 Second Quarter 10.50 8.25 Third Quarter 9.50 7.50 Fourth Quarter 8.50 7.13 1998 First Quarter $ 19.50 $ 14.00 Second Quarter 18.88 14.75 Third Quarter 15.88 11.00 Fourth Quarter 14.00 9.25
The Bank declared and paid a cash dividend of $0.26 per share ($0.05 in the first quarter and $0.07 in the second, third, fourth quarters) during 2000. The Bank expects to pay dividends during 2001. On December 31, 2000 there were approximately 1,173 holders of common stock. This number does not reflect the number of persons or entities who hold their stock in nominee or "street" name through various brokerage firms. The Annual Meeting of the stockholders of Lawrence Savings Bank will be held at 10:00 a.m. on Tuesday, May 1, 2001 at the Andover Country Club, Canterbury Street, Andover, Massachusetts. CORPORATE HEADQUARTERS Lawrence Savings Bank 30 Massachusetts Avenue North Andover, MA 01845-3460 MAILING ADDRESS 30 Massachusetts Avenue North Andover, MA 01845-3460 INVESTOR RELATIONS Barbara Biondo Telephone (978) 725-7556 Fax (978) 725-7593 A COPY OF THE BANK'S FORM 10-K, FILED WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR RELATIONS. TRANSFER AGENT EquiServe 150 Royall Street Canton, MA 02021 INDEPENDENT AUDITORS KPMG LLP 99 High Street Boston, MA 02110 LEGAL COUNSEL Nixon Peabody LLP 101 Federal Street Boston, MA 02110-1832 Goulston & Storrs, P.C. 400 Atlantic Avenue Boston, MA 02110-3333 [BOOK VALUE PER SHARE VS STOCK PRICE BAR CHART] Book Value Per Share vs Stock Price
1996 1997 1998 1999 2000 Book Value $6.83 $ 8.77 $10.78 $11.11 $11.99 Stock Price $8.13 $16.38 $12.81 $ 7.63 $10.50
38 40 DIRECTORS OF LAWRENCE SAVINGS BANK EUGENE A. BELIVEAU, D.D.S. Dentist KATHLEEN I. BOSHAR Sales Manager DeWolfe Companies MALCOLM W. BRAWN Executive Vice President & Secretary The Andover Companies THOMAS J. BURKE Chairman of the Board Lawrence Savings Bank Register of Deeds Attorney BYRON R. CLEVELAND, JR. President J. H. Horne & Sons NEIL H. CULLEN Chief Financial Officer Phillips Academy RICHARD HART HARRINGTON, CPA Chairman Gordon, Harrington & Osborn, P.C. ROBERT F. HATEM Executive Assistant to the President Northern Essex Community College MARSHA A. MCDONOUGH Regional Education Offices U.S. Department of State PAUL A. MILLER President and Chief Executive Officer Lawrence Savings Bank 39 41 OFFICERS OF LAWRENCE SAVINGS BANK PAUL A. MILLER President and Chief Executive Officer CARLA M. FRIEDRICH Vice President and Human Resources Officer ROBYN K. LEBUFF Vice President and Marketing Officer BRENDA MISKINIS Assistant Vice President Marketing Officer LENDING DIVISION JEFFREY W. LEEDS Executive Vice President and Chief Lending Officer COMMERCIAL BANKING JACOB KOJALO Senior Vice President and Senior Lending Officer ROBERT J. DELUCA Vice President STEVEN K. VENTRE Vice President COMMERCIAL REAL ESTATE LENDING FREDERICK P. MALOOF Vice President JOHN P. TEOLI Vice President PAUL M. VALLACE Vice President CREDIT POLICY AND ADMINISTRATION LEE D. DICKEY Senior Vice President JOHN P. MALYNN Vice President and Collections Manager LINDA A. BAILEY Credit Administration Officer CONSUMER LENDING MAUREEN MCCARTHY Vice President and Compliance/CRA Officer RESIDENTIAL MORTGAGE LENDING ROBERT P. PERREAULT Executive Vice President Residential Mortgage Lending and Clerk SUSAN M. CAIN Assistant Vice President and Senior Mortgage Underwriter LYNETTE S. KIMBALL Assistant Vice President and Loan Closing Coordinator FINANCE DIVISION JOHN E. SHARLAND Senior Vice President, Treasurer and Chief Financial Officer VALERIE S. GRONDIN Vice President and Controller PERSONAL BANKING DIVISION TIMOTHY L. FELTER Executive Vice President and Investment Officer SHARON S. PRIVITERA Vice President and Branch Administrator/Security Officer CHERYL A. PARENT Vice President and Branch Manager ANNA CURRAO Assistant Vice President and Branch Manager SUSAN M. DANCAUSE Assistant Vice President and Retirement Services Officer GAYLE M. FILI Vice President and Branch Manager LINDA BUELL Branch Manager PAUL M. FRANK Branch Manager SUPPORT SERVICE DIVISION RICHARD J. D'AMBROSIO Senior Vice President CARMELA CUTULI Vice President and Loan Servicing Manager CHERYL A. VINING Vice President and Deposit Servicing Manager STANLEY R. WARD, JR. Assistant Vice President LAURA LAVOIE Assistant Vice President Computer Network Engineer 40 42 CORPORATE OFFICES OF LAWRENCE SAVINGS BANK 30 Massachusetts Avenue North Andover, MA 01845 (978) 725-7500 BANKING OFFICES OF LAWRENCE SAVINGS BANK 342 North Main Street Andover, MA 01810 (978) 725-7590 300 Essex Street Lawrence, MA 01842 (978) 725-7530 20 Jackson Street Methuen, MA 01844 (978) 725-7545 148 Lowell Street Methuen, MA 01844 (978) 725-7570 30 Massachusetts Avenue North Andover, MA 01845 (978) 725-7670 Lawrence Savings Bank 24 Hour Information Phone: (978) 725-7700 Fax: (978) 725-7607 www.LawrenceSavings.com Member FDIC Member DIF [RECYCLE LOGO] This Annual Report is printed on recycled paper. EX-99.2 23 b39832lsex99-2.txt FORM 10-K FOR PERIOD ENDED 12/31/00 1 EXHIBIT 99.2 FEDERAL DEPOSIT INSURANCE CORPORATION Washington, DC 20429 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ FDIC Certificate No. 23288 Massachusetts 04-1528790 - ------------------------------------------ -------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 30 Massachusetts Avenue, North Andover, MA 01845 - ------------------------------------------ -------------------------------------- (Address of principal executive officers) (Zip Code)
(978) 725-7500 (Registrant's telephone number, including area code) ------------------- Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $.10 per share -------------------------------------- (Title of Class) Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filling requirements for the past 90 days. Yes X No --- Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] State the aggregate market value of the voting stock held by non-affiliates* of the registrant based on the closing sale price of $11.813 per share as of March 8, 20001 Approximately $50,550,249 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding as of March 8, 2001 - ----- ------------------------------- Common Stock, par value $.10 per share 4,371,500 shares DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Lawrence Savings Bank (the "Bank") Annual Report to Stockholders for the fiscal year ended December 31, 2000 (the "Annual Report"), attached hereto as Exhibit (13) and the Lawrence Savings Bank Proxy Statement for the 2001 Annual Meeting (the "Proxy Statement"), attached hereto as Exhibit (20), are incorporated by reference into Parts, I, II, and III of this Form 10-K. An index to the exhibits attached to this Form 10-K can be found on page 6 of this Form 10-K. * For purposes of this calculation only, the common stock of Lawrence Savings Bank held by directors executive officers of Lawrence Savings Bank has been treated as owned by affiliates. 2 PART I Item 1. BUSINESS The response is incorporated herein by reference from the discussion respectively under the captions entitled "FINANCIAL HIGHLIGHTS" on page 4, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on pages 5 through 15 and Financial Statements and Notes to Consolidated Financial Statements on pages 18 through 37 of the Annul Report. The following table is to supplement for information not contained in the Annual Report. Short term borrowings include securities sold under agreements to repurchase, Federal Home Loan Bank (FHLB) advances and Federal Reserve Bank (FRB) borrowings for which the original maturity is less than 3 months. Short-term borrowings are summarized as follows:
2000 1999 1998 ---------------------- ----------------------- ------------------- Repurchase FHLB/FRB Repurchase FHLB/FRB Repurchase FHLB (Dollars in Thousands) Agreements Advances Agreements Advances Agreements Advances - ---------------------- ---------- -------- ---------- -------- ---------- -------- Outstanding at December 31 $ -- -- $ -- 32,500 $ -- -- Weighted average rate at December 31 -- -- -- 5.00% -- -- Average balance outstanding during the year 24,539 24,364 19,899 22,152 -- 4,526 Weighted average rate during the year 6.29% 6.14% 5.13% 5.27% -- 5.71% Maximum outstanding at any month end $42,544 $71,000 $37,639 54,000 $ -- $6,000 ------- ------- ------- ------ ------- ------
Item 2. PROPERTIES Rent expense for 2000 totaled $143,000. The following table sets forth the locations of the offices of the Bank, as well as certain information relating to these offices as of December 31, 2000.
Lease ---------------------- Year Current Acquired Square Owned/ Term Renewal Or Leased Feet Leased Expires Options --------- ------ ------ -------- ------------- CORPORATE OFFICES North Andover 1992 45,315 Owned -- -- 30 Massachusetts Ave. No. Andover, MA 01845 BRANCH OFFICES Essex Street 1998 3,432 Leased 2003 One (5) yr. 300 Essex Street Renewal Option Lawrence, MA 01842 Jackson Street 1998 2,369 Leased 2003 One (5) yr. 20 Jackson Street Renewal Option Methuen, MA 01844 West Methuen 1979 5,234 Owned -- -- 148 Lowell Street Methuen, MA 01844 Andover 1995 2,449 Leased 2010 Two (5) yr. 342 North Main Street Options Andover, MA 01810
2 3 ITEM 3. LEGAL PROCEEDINGS The Bank is involved in various legal proceedings incidental to its business. After review with legal counsel, management does not believe resolution of such litigation will have a material adverse effect on the financial condition and operating results of the Bank. In one litigation matter, the Bank was awarded a $4.2 million judgment in 1997. This matter has been appealed, and this judgment has not yet been collected. The Bank expects to prevail on this appeal. The Bank expects to collect this judgment, at least in substantial part, which would have a material favorable impact to the Bank's financial statements. Post judgment interest accrues from the date of this judgment and approximates $1.9 million at December 31, 2000. However, collectibility of post judgment interest in addition to the $4.2 million award has not yet been determined. In another litigation matter, the Bank was awarded $1.1 million by a jury verdict, during the fourth quarter 1999, in a legal case where the Bank sought to recover damages from loans previously charged off. In 2000, the court entered final judgment for approximately $1.8 million, which includes post judgment accrued interest. This award has been appealed by defendants and collectibility of this award is subject to this appeal and other contingencies. It is management's opinion that the timing and final amounts to be collected cannot be determined at this time. Accordingly, no recognition of these judgments has been recorded in the financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK EQUITY AND RELATED STOCKHOLDER MATTERS The response is incorporated herein by reference from the discussion under the caption "STOCKHOLDER INFORMATION" on page 38 and the discussion under the subcaption "Capital Adequacy" of the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on page 15 of the Annual Report. ITEM 6. SELECTED FINANCIAL DATA The response is incorporated herein by reference from the table titled "FINANCIAL HIGHLIGHTS" on page 4 of the Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The response is incorporated herein by reference from the discussion under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on pages 5 through 15 of the Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The response is incorporated herein by reference from the discussion under the subcaption "Interest Rate Sensitivity" of the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on pages 13 and 14 of the Annual Report. 3 4 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response is incorporated herein by reference from the Lawrence Savings Bank and Subsidiaries Consolidated Financial Statements and Notes thereto at pages 18 through 37 of the Annual Report. PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The response is incorporated herein by reference from the discussion under the caption "INFORMATION REGARDING DIRECTORS" on pages 21 through 22, the discussion under the caption "PRINCIPAL OFFICERS" on page 25 and the discussion under the caption "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" on page 34 of the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The response is incorporated herein by reference from the section entitled "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS" on pages 26 through 31 of the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response is incorporated herein by reference from the discussion under the caption entitled "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" on pages 32 through 34 of the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response is incorporated herein by reference from the discussion under the caption entitled "INDEBTEDNESS OF DIRECTORS AND MANAGEMENT AND CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS" on page 31 and 32 of the Proxy Statement. In August 2000, the Bank entered into a 50% participation, not to exceed the Bank's aggregate limit of $25.0 million, with Southern New Hampshire Bank and Trust Company in floor plan lines of credit to used car dealers. Southern New Hampshire and Trust Company is an affiliate of William P. DeLuca, Jr. and Lease and Rental Management Corp., which have reported ownership of 9.6% of the Bank's outstanding common stock. The line is guaranteed by Windham Equities Company, which is also an affiliate of William P. DeLuca, Jr. and Lease and Rental Management Corp. This transaction was made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other borrowers not affiliated with the Bank and does not involve more than normal risk of collectibility or present other features unfavorable to the Bank. 4 5 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM F-3 OR FORM 8-K (a) (l) Financial Statements: the following Lawrence Savings Bank and Subsidiaries Consolidated Financial Statements are incorporated herein by reference from the Annual Report, listed below and attached as Exhibit (13). Page number(s) in Annual Report ------------------------ Report of Management Responsibility 16 Independent Auditors' Report 17 Consolidated Balance Sheets as of December 31, 2000 and 1999 18 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 19 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2000 1999 and 1998 20 Consolidated Statements of Cash Flows for the years ended December 31, 2000 1999 and 1998 21 Notes to Consolidated Financial Statements 22-37 (a) (2) Financial Statement Schedules: None. (b) Report on Form 8-K: None. 5 6 (c) List of Exhibits: Exhibits to the Form 10-K have been included (unless otherwise noted) only with the copies of the Form 10-K filed with the FDIC. Upon request to Investors Relations, Lawrence Savings Bank, 30 Massachusetts Avenue, North Andover, MA 01845, copies of the individual exhibits will be furnished upon payment of a reasonable reproduction fee. Exhibits: (2) Plan of Reorganization (3) (i) Articles of incorporation* (3) (ii) Corporate By-Laws, as amended# (3) (iii) Certificate of vote of directors establishing a series of a class of stock# (4) Rights Agreement dated as of December 12, 1996** (10.1) Lawrence Savings Bank 1986 Stock Option Plan*** (10.2) Employment Agreement with Paul A. Miller+ (10.3) Employment Agreement with Robert P. Perreault++ (10.4) Special Termination Agreement with Paul A. Miller+ (10.5) Special Termination Agreement with Robert P. Perreault++ (10.7) Supplemental Retirement Agreement with Paul A. Miller dated April 21, 1989## (10.8) Supplemental Retirement Agreement with Paul A. Miller dated April 29, 1996## (10.9) Lawrence Savings Bank 1997 Stock Option Plan## (10.10) Employment Agreement with Jeffrey W. Leeds### (10.11) Employment Agreement with Timothy L. Felter### (10.12) Employment Agreement with John E. Sharland (10.13) Employment Agreement with Richard J. D'Ambrosio (13) 2000 Annual Report to Shareholders of Lawrence Savings Bank (20) 2001 Proxy Statement (21) Subsidiaries of the Bank (99.1) Press release - Lawrence Savings Bank Announces Plan to Form Holding Company dated December 21, 2000 - ------------------ The documents listed in exhibits 10.1 through 10.13 include each management contract or compensatory plan or arrangement required to file as an exhibit to this Form pursuant to item #601 of regulation S-K. * Incorporated herein by reference from Lawrence Savings Bank Form F-1 filed July 17, 1986. ** Incorporated herein by reference from Exhibit 1 to Lawrence Savings Bank Registration Statement on Form F-10, dated December 20, 1996 *** Incorporated herein by reference from Intrex Financial Services, Inc. Registration Statement No. 33-30775 on Form S-8/S-3. + Incorporated herein by reference from Intrex Financial Services, Inc. March 31, 1989 Form 10-Q filed on May 11, 1989, and as amended in the Lawrence Savings Bank Form F-2 filed March 25, 1993. 6 7 ++ Incorporated herein by reference from Intrex Financial Services, Inc. Registration Statement No. 33-11982 on Form S-4, and as amended in the Lawrence Savings Bank Form F-2 filed March 25, 1993. # Incorporated herein by reference from Lawrence Savings Bank Form F-2 filed March 26, 1997. ## Incorporated herein by reference from Lawrence Savings Bank's Form 10K filed March 30, 1998. ### Incorporated herein by reference from Lawrence Savings Bank's Form 10-K filed March 29, 2000. (d) None. Subsequent Developments On December 21, 2000, The Bank's Board of Directors voted to approve the reorganization of the Bank into a holding company structure. The Board of Directors approved the Plan of Reorganization and Acquisition (the "Plan") dated March 12, 2001 for the establishment of the holding company ("LSB Corp."). The Plan indicates that the Bank and LSB Corp. have agreed that LSB Corp. will acquire all of the issued and outstanding shares of the Bank's Common Stock (together with associated preferred stock purchase rights) in exchange for shares of LSB Corp. Common Stock (together with associated preferred stock purchase rights). Consummation of the Plan is conditioned on shareholder and regulatory approvals. The Bank's press release dated December 21, 2000 and the Plan of Reorganization and Acquisition are incorporated herein by reference and attached as exhibits (99.1) and (2) of this Form 10-K. 7 8 Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Lawrence Savings Bank By: /s/ Paul A. Miller ---------------------------------- Paul A. Miller, President and Chief Executive Officer DATE: March 22, 2001 8 9 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Bank and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ Paul A. Miller President, Chief Executive Officer and March 22, 2001 - -------------------------------- Director (Principal Executive Officer) Paul A. Miller /s/ John E. Sharland Senior Vice President, Chief Financial Officer March 22, 2001 - -------------------------------- (Principal Financial and Principal Accounting John E. Sharland Officer) Chairman of the Board March 22, 2001 - -------------------------------- Director Thomas J. Burke /s/ Eugene A. Beliveau Director March 22, 2001 - -------------------------------- Eugene A. Beliveau /s/ Kathleen I. Boshar Director March 22, 2001 - -------------------------------- Kathleen I. Boshar /s/ Malcolm W. Brawn Director March 22, 2001 - -------------------------------- Malcolm W. Brawn /s/ Byron R. Cleveland, Jr. Director March 22, 2001 - -------------------------------- Byron R. Cleveland, Jr. /s/ Neil H. Cullen Director March 22, 2001 - -------------------------------- Neil H. Cullen /s/ Robert F. Hatem Director March 22, 2001 - -------------------------------- Robert F. Hatem /s/ Richard Hart Harrington Director March 22, 2001 - -------------------------------- Richard Hart Harrington Director March 22, 2001 - -------------------------------- Marsha A. McDonough
9 10 INDEX TO EXHIBITS ATTACHED TO FORM 10-K Sequentially order
ITEM DESCRIPTION PAGE # - ---------------- ------ (2) Plan of Reorganization 11 (10.12) Employment Agreement with John E. Sharland 17 (10.13) Employment Agreement with Richard J. D'Ambrosio 26 (13) 2000 Annual Report to Shareholders of Lawrence Savings Bank 35 (20) 2001 Proxy Statement 76 (21) Subsidiaries of the Bank 142 (99.1) Press Release - Lawrence Savings Bank Announces Plan to Form Holding Company dated December 21, 2000. 143
10 11 Exhibit 21 SUBSIDIARIES OF LAWRENCE SAVINGS BANK Pemberton Corporation: Holds real estate for sale. Spruce Wood Realty Trust: Holds real estate used in the normal course of business. Shawsheen Security Corporation and Shawsheen Security Corporation II: Engages exclusively in buying, selling, dealing in and holding investment securities on its own behalf. Each of the subsidiaries is organized or incorporated in Massachusetts. 11 EX-99.3 24 b39832lsex99-3.txt QUARTERLY REPORT ON 10-Q FOR MARCH 31, 2001 1 EXHIBIT 99.3 FEDERAL DEPOSIT INSURANCE CORPORATION Washington, DC 20429 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001 [ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the transition period from _____ to _____ FDIC Certificate No. 23288 LAWRENCE SAVINGS BANK (Exact name of registrant as specified in its Charter) MASSACHUSETTS 04-1528790 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 30 MASSACHUSETTS AVENUE, NORTH ANDOVER, MA 01845 (Address of principal executive offices) (Zip Code) (978) 725-7500 (Registrant's telephone number, including area code) Indicated by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 2001 - ----- -------------------------------- Common Stock, par value $.10 per share 4,371,500 shares
2 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LAWRENCE SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 2001 2000 ---- ---- (In Thousands) ASSETS Assets: Cash and due from banks $ 9,795 $ 7,086 Federal funds sold 17,296 15,427 --------- --------- Total cash and cash equivalents 27,091 22,513 Investment securities held to maturity (market value of $145,238 in 2001 and $118,393 in 2000) 143,277 117,806 Investment securities available for sale (amortized cost of $25,820 in 2001 and $32,840 in 2000 26,288 33,027 Federal Home Loan Bank stock, at cost 5,950 5,950 Loans, net of allowance for loan losses (Notes 2 and 6) 216,640 218,360 Bank premises and equipment 3,357 3,337 Accrued interest receivable 2,703 2,969 Other real estate owned 29 32 Deferred income tax asset 6,984 7,511 Other assets 1,489 1,585 --------- --------- Total assets $ 433,808 $ 413,090 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Interest bearing deposits (Note 3) $ 270,581 $ 259,325 Non-interest bearing deposits 10,410 11,223 Federal Home Loan Bank advances 91,898 82,283 Other borrowed funds 3,704 3,878 Advance payments by borrowers for taxes and insurance 620 513 Other liabilities 3,711 3,555 --------- --------- Total liabilities 380,924 360,777 --------- --------- Stockholders' equity: Preferred stock, $.10 par value per share; 5,000,000 shares authorized, none issued -- -- Common stock, $.10 par value per share; 20,000,000 shares authorized; 4,371,500 and 4,364,800 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 437 436 Additional paid-in capital 57,740 57,711 Accumulated deficit (5,602) (5,956) Accumulated other comprehensive income 309 122 --------- --------- Total stockholders' equity 52,884 52,313 --------- --------- Total liabilities and stockholders' equity $ 433,808 $ 413,090 ========= =========
The accompanying notes are an integral part of these unaudited financial statements. 2 3 LAWRENCE SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended March 31, ----------------------------------- 2001 2000 ---------- ---------- (In Thousands, except per share data) Interest and dividend income: Loans (Note 4) $ 4,528 $ 4,036 Investment securities held to maturity 2,042 2,019 Investment securities available for sale 439 829 Federal Home Loan Bank stock 106 104 Other interest and dividend income 283 27 ---------- ---------- Total interest and dividend income 7,398 7,015 ---------- ---------- Interest expense: Deposits (Note 5) 2,766 2,211 Borrowed funds 1,341 1,115 Securities sold under agreements to repurchase and other borrowed funds 89 452 ---------- ---------- Total interest expense 4,196 3,778 ---------- ---------- Net interest income 3,202 3,237 Provision for loan losses -- -- ---------- ---------- Net interest income after provision for loan losses 3,202 3,237 ---------- ---------- Non-interest income: Loan servicing fees 58 82 Deposit account fees 132 124 Gains on sales of mortgage loans 4 10 Other income 87 72 ---------- ---------- Total non-interest income 281 288 ---------- ---------- Non-interest expense: Salaries and employee benefits 1,295 1,242 Occupancy and equipment expenses 214 195 Professional expenses 167 123 Data processing expenses 158 155 Other expenses 374 413 ---------- ---------- Total non-interest expenses 2,208 2,128 ---------- ---------- Income before income tax benefit 1,275 1,397 Income tax expense 484 497 ---------- ---------- Net income $ 791 $ 900 ========== ========== Average shares outstanding 4,369,546 4,356,800 Average diluted shares outstanding 4,516,683 4,426,668 ========== ========== Basic earnings per share $ 0.18 $ 0.21 Diluted earnings per share $ 0.18 $ 0.20 ========== ==========
The accompanying notes are an integral part of these unaudited financial statements. 3 4 LAWRENCE SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated Additional Other Total Common Paid-In (Accumulated Comprehensive Stockholders' Stock Capital Deficit) Income (Loss) Equity ----- ------- -------- ------------- ------ (In Thousands) Balance at December 31, 1999 $ 436 $ 57,668 $ (9,145) $ (551) $ 48,408 Net income -- -- 900 -- 900 Other comprehensive income: Unrealized loss on securities available for sale (tax effect $48) -- -- -- (91) (91) -------- Total comprehensive income 809 Dividends declared and paid ($0.05 per share) -- -- (218) -- (218) -------- -------- -------- -------- -------- Balance at March 31, 2000 $ 436 $ 57,668 $ (8,463) $ (642) $ 48,999 ======== ======== ======== ======== ======== Balance at December 31, 2000 $ 436 $ 57,711 $ (5,956) $ 122 $ 52,313 Net income -- -- 791 -- 791 Other comprehensive income: Unrealized gain on securities available for sale (tax effect $94) -- -- -- 187 187 -------- Total comprehensive income 978 Exercise of stock options 1 29 -- -- 30 Dividends declared and paid ($0.10 per share) -- -- (437) -- (437) -------- -------- -------- -------- -------- Balance at March 31, 2001 $ 437 $ 57,740 $ (5,602) $ 309 $ 52,884 ======== ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited financial statements. 4 5 LAWRENCE SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended March 31, --------------------------- 2001 2000 --------- --------- (In Thousands) Cash flow from operating activities: Net income $ 791 $ 900 Adjustments to reconcile net income to net cash provided by operating activities: Gains on sales of mortgage loans (4) (10) Depreciation and amortization of premises and equipment, investments and other assets 25 191 Loans originated for sale (1,006) (421) Proceeds from sales of mortgage loans and mortgage-backed securities 411 431 Decrease (increase) in accrued interest receivable 266 (226) Decrease in deferred income tax asset 433 449 Decrease (increase) in other assets 96 (13) Increase in advance payments by borrowers 107 84 Increase in other liabilities 156 29 --------- --------- Net cash provided by operating activities 1,275 1,414 --------- --------- Cash flows from investing activities: Proceeds from maturities of investment securities held to maturity 84,872 2,308 Proceeds from sales of investment securities available for sale 6,118 -- Purchases of investment securities held to maturity (113,777) (16,430) Principal payments of securities held to maturity 3,497 2,372 Principal payments of securities available for sale 933 828 Decrease in loans, net 2,319 2,559 Proceeds from payments on OREO 3 6 Purchases of Bank premises and equipment (139) (99) --------- --------- Net cash used in investing activities (16,174) (8,456) --------- --------- Cash flows from financing activities: Net increase in deposits 10,443 3,377 Additions to Federal Home Loan Bank advances 10,000 354,000 Payments on Federal Home Loan Bank advances (385) (357,688) Increase in securities sold under agreement to repurchase -- 38,630 Decrease in other borrowed funds (174) (31,228) Dividends paid (437) (218) Proceeds from exercise of stock options 30 -- --------- --------- Net cash provided by financing activities 19,477 6,873 --------- --------- Net increase (decrease) in cash and cash equivalents 4,578 (169) Cash and cash equivalents, beginning of period 22,513 7,597 --------- --------- Cash and equivalents, end of period $ 27,091 $ 7,428 ========= ========= Cash paid during the year for: Interest on deposits $ 2,767 $ 2,210 Interest on borrowed funds 1,390 1,419 Supplemental Schedule of non-cash activities: Net change in valuation of investment securities available for sale 281 (139) ========= =========
The accompanying notes are an integral part of these unaudited financial statements. 5 6 LAWRENCE SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (UNAUDITED) 1. BASIS OF PRESENTATION The unaudited consolidated financial statements of Lawrence Savings Bank (the "Bank") and subsidiaries presented herein should be read in conjunction with the consolidated financial statements of the Bank as of and for the year ended December 31, 2000. In the opinion of management, the unaudited financial statements reflect all adjustments necessary for a fair presentation. Interim results are not necessarily indicative of results to be expected for the entire year. 2. The following table reflects the loan portfolio at March 31, 2001 and December 31, 2000:
3/31/01 12/31/00 ------- -------- (In Thousands) Residential mortgage loans $ 78,085 $ 77,926 Loans held for sale 599 -- Equity loans 15,041 15,997 Construction loans 17,114 17,148 Commercial real estate loans 88,265 87,129 Commercial loans 20,051 22,602 Consumer loans 1,215 1,243 --------- --------- Total loans 220,370 222,045 Allowance for loan losses (3,730) (3,685) --------- --------- Total loans, net $ 216,640 $ 218,360 ========= =========
3. The following table reflects the components of interest bearing deposits at March 31, 2001 and December 31, 2000:
3/31/01 12/31/00 ------- -------- (In Thousands) NOW and Super NOW accounts $ 33,154 $ 29,731 Savings accounts 39,754 38,813 Money market investment accounts 54,693 51,344 Certificates of deposit 115,513 112,239 Retirement accounts 27,467 27,198 -------- -------- Total interest bearing deposits $270,581 $259,325 ======== ========
6 7 4. The following table lists the components of loan interest income for the three month periods ended March 31, 2001 and 2000:
Three months ended ---------------------------- 3/31/01 3/31/00 ------- ------- (In Thousands) Residential mortgage loans $1,441 $1,431 Loans held for sale 2 3 Equity loans 300 242 Construction loans 386 266 Commercial real estate loans 1,925 1,800 Commercial loans 445 267 Consumer loans 29 27 ------ ------ Total loan interest income $4,528 $4,036 ====== ======
5. The following table lists the components of deposit interest expense for the three month periods ended March 31, 2001 and 2000:
Three months ended --------------------------- 3/31/01 3/31/00 (In Thousands) NOW and Super NOW accounts $ 38 $ 32 Savings deposit accounts 189 192 Money market investment accounts 493 384 Certificates of deposit 1,660 1,251 Retirement accounts 386 352 ------ ------ Total deposit interest expense $2,766 $2,211 ====== ======
6. The following table summarizes changes in the allowance for loan losses for the three month period ended March 31, 2001 and 2000.
Three months ended ---------------------------- 3/31/01 3/31/00 ------- ------- (In Thousands) Beginning balance $3,685 $3,381 Provision charged to operations -- -- Recoveries on loans previously charged-off 45 12 Loans charged-off -- -- ------ ------ Ending balance $3,730 $3,393 ====== ======
7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Bank has made forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 as amended) in this document that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of the Bank. Also, when words such as "believes," "expects," "anticipates" or similar expressions are used, forward-looking statements are being made. Stockholders should note that many factors, some of which are discussed elsewhere in this document and in the documents which we incorporate by reference, could affect the future financial results of the Bank and could cause results to differ materially from those expressed in or incorporated by reference in this document. Those factors include fluctuations in interest rates, inflation, government regulations and economic conditions and competition in the geographic and business areas in which the Bank conducts its operations. Risk Assets Risk assets consist of non-performing loans and other real estate owned. Non-performing loans consist of both a) loans 90 days or more past due and b) loans placed on non-accrual because full collection of the principal balance is in doubt. Other real estate owned (OREO) is comprised of foreclosed properties where the Bank has formally received title or has possession of the collateral. Properties are carried at the lower of the investment in the related loan or the estimated fair value of the property or collateral less selling costs. Fair value of such property or collateral is determined based on independent appraisals and other relevant factors. Management periodically reviews property values and makes adjustments as required. Gains from sales of properties, net operating expenses and any subsequent provisions to increase the allowance for losses on real estate acquired by foreclosure are charged to other real estate owned expenses. Losses are charged to the allowance. Total risk assets were $39 thousand at March 31, 2001. This represents a decrease of $3 thousand from December 31, 2000. The following table summarizes the Bank's risk assets for the past quarters:
3/31/01 12/31/00 3/31/00 ------- -------- ------- (In thousands) Non-performing loans $ 10 $ 10 $ 10 Other real estate owned 29 32 513 ---- ---- ---- Total risk assets $ 39 $ 42 $523 ==== ==== ==== Risk assets as a percent of total assets 0.01% 0.01% 0.13% ==== ==== ====
8 9 Liquidity and Capital Resources The Bank's primary sources of funds include collections of principal payments and prepayments on outstanding loans, increases in deposits, advances from the Federal Home Loan Bank of Boston (FHLB) and securities sold under agreements to repurchase. The Bank has a line of credit of $6.8 million with the FHLB. The Bank also has a $5 million unsecured Federal Funds line of credit. At March 31, 2001 the Bank's stockholders' equity was $52.9 million as compared to $52.3 million at December 31, 2000. The increase during the first quarter of 2001 occurred due to net income of $0.8 million offset by $0.4 million dividends paid and an increase in market value of $0.2 million on securities available for sale. The Bank's leverage ratio at March 31, 2001 and December 31, 2000 was 11.87% and 11.71%. The Bank exceeds all regulatory minimum capital ratios requirements as defined by the FDIC. Three Months Ended March 31, 2001 and 2000 Overview The Bank has maintained risk assets below 1% for the past year. Lawrence Savings Bank maintains its commitment to servicing the needs of the local communities in the Merrimack Valley area of Massachusetts. The investment securities portfolio increased by $18.7 million as of March 31, 2001 from December 31, 2000 funded by deposits and borrowings. Total deposits increased by $10.4 million at March 31, 2001 to $281.0 million from $270.5 million at December 31, 2000 with the growth primarily in money market, NOW and certificate of deposit accounts. The Bank reported net income of $0.8 million and $0.9 million for the three months ended March 31, 2001 and 2000, respectively. The decrease is primarily due to expenses associated with the establishment of a bank holding company as part of the reorganization of the bank, which were included in non-interest expense. The establishment of the holding company will require stockholder and regulatory approval. The holding company reorganization is expected to be completed at the end of the second quarter or beginning of the third quarter 2001. Net Interest Income From Operations Net interest income remained fairly level at $3.2 million for the quarters ended March 31, 2001 and 2000. The net interest rate spread decreased to 2.63% from 2.82%. This decrease occurred because the average rate paid on interest bearing liabilities increased to 4.83% in 2001 from 4.41% in 2000. The following table presents the components of net interest income and net interest spread:
Income/Expense Yield/Rate ------------------------ ---------------------- Quarter Ended ------------------------------------------------------- 3/31/01 3/31/00 3/31/01 3/31/00 ------- ------- ------- ------- (In Thousands) Interest income and average yield: Loans $4,528 $4,036 8.39% 8.25% Investments, mortgage-backed securities and other earning assets 2,870 2,979 6.35 6.19 ------ ------ Total 7,398 7,015 7.46 7.23 ------ ------ ---- ---- Interest expense and average rate paid: Deposits 2,766 2,211 4.27 3.75 Federal Home Loan Bank advances 1,341 1,115 6.34 5.78 Securities sold under agreements to repurchase and other borrowed funds 89 452 9.67 6.03 ------ ------ Total 4,196 3,778 4.83 4.41 ------ ------ ---- ---- Net interest income $3,202 $3,237 ====== ====== Net interest rate spread 2.63% 2.82% ==== ====
9 10 Interest and Dividend Income Interest income for the first quarter of 2001 and 2000 was $7.4 million and $7.0 million, respectively. The increase of $0.4 million was due to higher average balances and higher yields on interest earning assets. The impact to interest income due to higher average balances was $0.3 million and higher yields was $0.1 million in the first quarter in 2001 from 2000. Although the Bank had higher average balances for total interest earning assets, the Bank had lower average balances for investments. Higher average loan balances of $218.8 million versus $196.7 million for the quarters ended March 31, 2001 and 2000, respectively, resulted in a $0.5 million increase to interest income. Lower average investment balances of $183.4 million versus $193.6 million for the same quarters resulted in an $0.2 million decrease of interest income. Yields on loans were 8.39% and 8.25% for the quarters ended March 31, 2001 and 2000, which had a minimal impact to interest income. Yields on investment securities and other earning assets were 6.35% and 6.19% for the same periods in 2001 and 2000, which resulted in a $0.1 million increase in interest income. Interest Expense Interest expense for the first quarter of 2001 was $4.2 million. This is an increase of $0.4 million from the same quarter of 2000. Average rates paid on interest bearing liabilities increased resulting in $0.6 million increase in interest expense and changes in average balances resulted in a decline of $0.2 million in interest expense. Higher cost of deposits had a $0.3 million impact to interest expense while higher cost of borrowed funds also had an impact of $0.3 million. The average rate paid on deposits were 4.27% and 3.75% for the quarters ended March 31, 2001 and 2000, respectively. Lower average balances for borrowed funds resulted in $0.5 million decrease in interest expense. Average balances of Federal Home Loan Bank advances increased to $85.8 million versus $77.6 million for the quarters ended March 31, 2001 and 2000, respectively. Other borrowed funds decreased to $3.7 million in 2001 from $30.1 million for the same quarter in 2000. Higher average deposit balances of $262.9 million versus $237.2 million resulted in an increase of interest expense of $0.3 million. Provision and Allowance for Loan Losses The provision for loan losses was zero for the quarters ended March 31, 2001 and 2000, respectively. The following table shows the allowance for loan losses information:
3/31/01 12/31/00 3/31/00 --------- ---------- --------- (In thousands) Non-performing loans $ 10 $ 10 $ 10 Allowance for loan losses $ 3,730 $ 3,685 $ 3,393 Allowance for loan losses as a percent of total loans 1.69% 1.66% 1.74%
The allowance for the loan losses balance reflects management's assessment of losses and is based on a review of the risk characteristics of the loan portfolio. The Bank considers many factors in determining the adequacy of the allowance for loan losses. Collateral value on a loan by loan basis, trends of loan delinquencies on a portfolio segment level, risk classification identified in the Bank's regular review of individual loans, and economic conditions are primary factors in establishing allowance levels. The allowance level is adequate to absorb estimated credit losses associated with loan and lease portfolio, including all binding commitments to lend and off-balance sheet credit instruments. The allowance for loan losses reflects all information available at the end of each period. Non-Interest Income 10 11 Non-interest income remained level at $0.3 for the quarters ended March 31, 2001 and 2000, respectively. Loan servicing fees decreased slightly to $58,000 at March 31, 2001 from $82 thousand at March 31, 2000. This was offset by increases in deposit account fees and debit card fees. Non-Interest Expense Non-interest expense was $2.2 million and $2.1 million for the first quarter of 2001 and 2000, respectively. The slight increase in non-interest expense is due to expenses associated with the establishment of a bank holding company as part of a reorganization of the Bank. Income Taxes The Bank reported an income tax expense of $0.5 million for the quarters ended March 31, 2001 and 2000 representing an effective tax rate of 38.0% and 35.6%, respectively. 11 12 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The response is incorporated herein by reference from the discussion under the subcaption "Interest Rate Sensitivity" of the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on pages 13 and 14 of the Annual Report which is incorporated herein by reference. Part II - Other Information ITEM 1. LEGAL PROCEEDINGS The response is incorporated herein by reference from the discussion under the caption "CONTINGENCIES" on page 34 of the Annual Report which is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None. 12 13 SIGNATURES 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. LAWRENCE SAVINGS BANK AND SUBSIDIARIES May 14, 2001 /s/ PAUL A. MILLER ----------------------- Paul A. Miller President and Chief Executive Officer May 14, 2001 /s/ JOHN E. SHARLAND ----------------------- John E. Sharland Senior Vice President Chief Financial Officer Treasurer EX-99.4 25 b39832lsex99-4.txt PROXY STATEMENT DATED MARCH 23, 2001 1 Exhibit 99.4 LAWRENCE SAVINGS BANK 30 MASSACHUSETTS AVENUE NORTH ANDOVER, MASSACHUSETTS 01845 (978) 725-7500 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 1, 2001 Dear Stockholder of Lawrence Savings Bank: Notice is hereby given that the annual meeting of stockholders (the "Annual Meeting") of Lawrence Savings Bank (the "Bank") will be held at 10:00 a.m. local time on Tuesday, May 1, 2001 at the Andover Country Club, Canterbury Street, Andover, Massachusetts, for the following purposes: 1. To consider and vote upon the formation of a holding company for the Bank by approval of the Plan of Reorganization and Acquisition, dated as of March 12, 2001 (the "Plan of Reorganization") between the Bank and LSB Corporation ("Bancorp"), a newly-formed Massachusetts corporation organized at the direction of the Bank, and each of the transactions contemplated thereby, pursuant to which the Bank will become a wholly owned subsidiary of Bancorp, and each issued and outstanding share of common stock of the Bank, par value $0.10 per share ("Bank Common Stock") (together with associated preferred stock purchase rights), other than shares held by stockholders, if any, exercising dissenters' rights, will be converted into and exchanged for one share of common stock of Bancorp, par value $0.10 per share ("Bancorp Common Stock") (together with associated preferred stock purchase rights) (the "Reorganization"). A copy of the Plan of Reorganization is attached as Exhibit A to the accompanying Proxy Statement. 2. To elect three Class B Directors for a three-year term. 3. To elect Robert P. Perreault as the Clerk of the Bank. 4. To ratify the appointment of KPMG LLP as the Bank's independent auditors for the current fiscal year. 5. To transact such other business as may properly come before the meeting and any adjournments or postponements thereof. Pursuant to the By-Laws, the Board of Directors has fixed the close of business on March 2, 2001 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting. The above matters are described in detail in the accompanying Proxy Statement. By Order of the Board of Directors, ROBERT P. PERREAULT, Clerk March 23, 2001 PURSUANT TO THE FDIC'S RULES (12 C.F.R. PART 350) AND THE REQUIREMENT THAT THE BANK MAKE AVAILABLE ITS ANNUAL DISCLOSURE STATEMENT, ANY HOLDER OR BENEFICIAL OWNER OF COMMON STOCK IS ENTITLED TO RECEIVE A COPY 2 OF THE 2000 ANNUAL REPORT OF THE BANK ON FORM 10-K AS FILED WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION. TO RECEIVE A COPY OF THIS REPORT WITHOUT CHARGE, PLEASE WRITE TO: ROBERT P. PERREAULT, CLERK, LAWRENCE SAVINGS BANK, 30 MASSACHUSETTS AVENUE, NORTH ANDOVER, MASSACHUSETTS 01845. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DO ATTEND THE ANNUAL MEETING AND DESIRE TO WITHDRAW YOUR PROXY AND VOTE IN PERSON, YOU MAY DO SO. 3 LAWRENCE SAVINGS BANK 30 MASSACHUSETTS AVENUE NORTH ANDOVER, MASSACHUSETTS 01845 (978) 725-7500 PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 1, 2001 This Proxy Statement and the accompanying proxy card are furnished in connection with the solicitation of proxies by the Board of Directors of Lawrence Savings Bank (the "Bank") for use at the Annual Meeting of Stockholders of the Bank to be held at the Andover Country Club, Canterbury Street, Andover, Massachusetts at 10:00 a.m. on Tuesday, May 1, 2001 and any adjournments or postponements thereof (the "Annual Meeting"). At the Annual Meeting, stockholders of the Bank will be asked to consider and vote upon the following matters: 1. To consider and vote upon the formation of a holding company for the Bank by approval of the Plan of Reorganization and Acquisition, dated as of March 12, 2001 (the "Plan of Reorganization") between the Bank and LSB Corporation ("Bancorp"), a newly-formed Massachusetts corporation organized at the direction of the Bank, and each of the transactions contemplated thereby, pursuant to which the Bank will become a wholly owned subsidiary of Bancorp, and each issued and outstanding share of common stock of the Bank, par value $0.10 per share ("Bank Common Stock") (together with associated preferred stock purchase rights), other than shares held by stockholders, if any, exercising dissenters' rights, will be converted into and exchanged for one share of common stock of Bancorp, par value $0.10 per share ("Bancorp Common Stock") (together with associated preferred stock purchase rights) (the "Reorganization"). A copy of the Plan of Reorganization is attached as Exhibit A to this Proxy Statement. 2. To elect three Class B Directors, each for a three-year term, each such term to continue until the Bank's annual meeting of stockholders in the year 2004 and until each Director's successor is duly elected and qualified. 3. To elect Robert P. Perreault as the Clerk of the Bank. 4. To ratify the appointment of KPMG LLP as the Bank's independent auditors for the current fiscal year. 5. To transact such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof. This Proxy Statement and the accompanying form of proxy are first being mailed to stockholders of the Bank on or about March 23, 2001 in connection with the solicitation of proxies for the Annual Meeting. The Board of Directors has fixed the close of business on March 2, 2001 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof (the "Record Date"). Only holders of the common stock, par value $.10 per share, of the Bank ("Common Stock") at the Record Date will be entitled to notice of and to vote at the Annual Meeting or any adjournments or postponements thereof. At the Record Date, there were 4,371,500 shares of Common Stock outstanding and entitled to vote at the Annual Meeting, and each such outstanding share is entitled to one vote. The presence, in person or by proxy, of at least a majority of the total number of outstanding shares of 4 Common Stock is necessary to constitute a quorum for transaction of business at the Annual Meeting. The affirmative vote of the holders of two-thirds of the issued and outstanding Common Stock entitled to vote by stockholders of record at the close of business on the Record Date is required to approve the Plan of Reorganization. The affirmative vote of the holders of a plurality of Common Stock present or represented by proxy and voting is required to elect three Class B Directors for a three-year term. The approval of the holders of a majority of Common Stock present or represented by proxy and voting is required to elect Robert P. Perreault as Clerk of the Bank and to ratify the appointment of KPMG LLP as the Bank's independent auditors. Abstentions and "broker non-votes" will be counted as present for determining the presence or absence of a quorum for the transaction of business at the Annual Meeting. A "broker non-vote" is a proxy from a broker or other nominee indicating that such person has not received instructions from the beneficial owner or other person entitled to vote the shares on a particular matter with respect to which the broker or other nominee does not have discretionary voting power. Abstentions and broker non-votes will not be counted for purposes of determining the number of votes cast for a proposal. Abstentions and broker non-votes will not be counted as votes for Proposal One and, therefore, will have the effect of negative votes. Stockholders of the Bank are requested to complete, date, sign, and promptly return the accompanying form of proxy in the enclosed envelope. Common Stock represented by properly executed proxies received by the Bank and not revoked will be voted at the Annual Meeting in accordance with the instructions contained therein. If instructions are not given therein, properly executed proxies will be voted FOR approval of the Plan of Reorganization, FOR the election of the three (3) nominees for Class B Directors listed in the Proxy Statement, FOR the election of Mr. Perreault as Clerk and FOR ratification of the appointment of KPMG LLP as the Bank's independent auditors for the current fiscal year. Although it is anticipated that all the nominees for Director will be available to serve as Directors if elected, should any one or more of them be unable to serve, proxies may be voted for the election of a substitute nominee or nominees. It is not anticipated that any matters other than those set forth in the Proxy Statement will be presented at the Annual Meeting. If other matters are presented, proxies will be voted in accordance with the discretion of the proxy holders. Any properly completed proxy may be revoked at any time before it is voted by giving written notice of such revocation to the Clerk of the Bank, or by signing and duly delivering a proxy bearing a later date, or by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not in and of itself constitute revocation of a proxy. The cost of soliciting proxies will be borne by the Bank. Morrow & Co. has been retained to assist in the solicitation process and will be compensated in the estimated amount of $10,000.00. After the initial mailing of this Proxy Statement, officers and regular employees of the Bank may solicit proxies personally, by telephone or by facsimile without additional compensation. The Bank intends to request banks, brokers and other institutions, nominees and fiduciaries who hold Common Stock for beneficial owners to forward the proxy materials to the beneficial owners and to obtain authorizations for the execution of proxies, and will reimburse such institutions and persons for their reasonable expenses. The Bank's Annual Report to Stockholders, including financial statements for the fiscal year ended December 31, 2000, is being mailed to stockholders of record of the Bank concurrently with this Proxy Statement. The Annual Report, however, is not part of the proxy soliciting material. 2 5 PROPOSAL 1 FORMATION OF HOLDING COMPANY The following descriptions are qualified in their entirety by reference and made subject to the Plan of Reorganization attached hereto as Exhibit A, certain provisions of the General Laws of Massachusetts relating to the rights of dissenting stockholders attached hereto as Exhibit B, the form of Articles of Organization of Bancorp attached hereto as Exhibit C, and the form of the Lawrence Savings Bank Audit Committee Charter attached hereto as Exhibit D. DESCRIPTION OF THE PLAN OF REORGANIZATION Bancorp has been organized as a Massachusetts corporation at the direction of the Bank for the purpose of becoming the holding company of the Bank. Bancorp and the Bank have entered into the Plan of Reorganization, which provides, subject to the exercise of dissenters' rights, for the acquisition of all the outstanding shares of Bank Common Stock by Bancorp in exchange for an equal number of shares of Bancorp Common Stock pursuant to the provisions of Section 26B of Chapter 172 of the General Laws of Massachusetts. After consummation of the Reorganization, the Bank, as a subsidiary of Bancorp, will continue to serve the communities it presently serves from its existing office locations. The assets, property, rights and powers, debts, liabilities, obligations and duties of the Bank will not be changed by the Reorganization, except for the proposed initial dividend, subject to applicable law and any agreements of the Bank with regulatory agencies, of up to approximately $2 million from the Bank to Bancorp. See "Regulation of Bancorp and the Bank." Similarly, the Charter and By-laws of the Bank will not be affected by consummation of the Reorganization. The Lawrence Savings Bank 1986 Stock Option Plan and the Lawrence Savings Bank 1997 Stock Option Plan (collectively, the "Stock Option Plans") will become stock option plans of Bancorp. All other stock related benefit plans of the Bank will be unchanged by the Reorganization, except that any plan which refers to Bank Common Stock, will, following the completion of the Reorganization, be deemed to refer instead to Bancorp Common Stock. The Directors, officers and other employees of the Bank will be unchanged by the Reorganization. The Directors of Bancorp will initially consist of the ten persons currently serving as members of the Board of Directors of the Bank. The President and Chief Executive Officer, Chief Financial Officer and the Clerk of the Bank will initially be the persons serving as the executive officers of Bancorp. Under the Plan of Reorganization, Bancorp will become the owner of all the outstanding shares of the Bank Common Stock, and each stockholder of the Bank who does not exercise dissenters' rights with respect to the Plan of Reorganization will become the owner of one share of Bancorp Common Stock for each share of Bank Common Stock held immediately prior to the consummation of the Reorganization, together with associated preferred stock purchase rights under the Rights Agreement dated as of December 19, 1996 between the Bank and State Street Bank and Trust Company (the "Shareholder Rights Plan"). See "Comparison of Stockholder Rights -- Shareholder Rights Plan." On the effective date of the Reorganization, each share of Bank Common Stock (together with associated preferred stock purchase rights) will be automatically converted into and exchanged for one share of Bancorp Common Stock (together with associated preferred stock purchase rights). The Reorganization will become effective at 12:01 a.m. on a business day following the date on which the Bank and Bancorp advise the Massachusetts Commissioner of Banks (the "Commissioner" or the "Commissioner of Banks") in writing that all the conditions precedent to the Reorganization becoming effective have been satisfied and that the Plan of Reorganization has not been abandoned by the Bank or Bancorp (the "Effective Time"). As a condition to the consummation of the Reorganization, Bancorp and the Bank must receive certain regulatory approvals. See "Conditions of the Reorganization." Neither Bancorp nor the Bank can predict with any certainty whether such approvals on 3 6 terms satisfactory to Bancorp and the Bank will be obtained, and, if so, the timing of such approvals. Accordingly, the consummation of the Reorganization may be subject to a delay, which may, under certain circumstances, be significant. If the stockholders approve the Plan of Reorganization at the Annual Meeting, Bancorp and the Bank shall have the right to consummate the Reorganization at any time thereafter. The number of shares of Bancorp Common Stock (together with associated preferred stock purchase rights) to be issued at the Effective Time will equal the number of shares of Bank Common Stock (together with associated preferred stock purchase rights) issued and outstanding immediately prior thereto, less the number of shares of Bank Common Stock held by dissenting stockholders. Shares of Bancorp Common Stock that would have been issued had dissenting stockholders not dissented will remain as authorized but unissued shares of Bancorp Common Stock. The shares of Bancorp Common Stock that are outstanding prior to the Effective Time, all of which are presently held by the Bank, will be canceled as part of the Reorganization. The outstanding stock certificates of Bank Common Stock that, prior to the Reorganization, represented shares of Bank Common Stock, will thereafter for all purposes represent an equal number of shares of Bancorp Common Stock, except for certificates held by dissenting stockholders and as further described below. After the Effective Time, Bancorp and the Bank will notify stockholders by mail at their addresses as shown on the Bank's records and by publication that they may present their certificates to the transfer agent (the "Transfer Agent") for exchange. However, stockholders need not surrender stock certificates representing Bank Common Stock to the Transfer Agent in exchange for new certificates representing Bancorp Common Stock. The Transfer Agent will treat certificates for Bank Common Stock as representing, for all purposes, an equal number of shares of Bancorp Common Stock, and the holders of those certificates will have all the other rights of stockholders of Bancorp. REASONS FOR THE HOLDING COMPANY FORMATION The Board of Directors of the Bank believes that a holding company structure will provide flexibility for meeting the future financial needs of the Bank or other subsidiaries of Bancorp and responding to competitive conditions in the financial services market. As a bank holding company, Bancorp will not be subject to the same regulatory restrictions as the Bank, and will be able to acquire and invest more freely in certain bank and bank-related activities as well as such other activities as might be permitted by regulatory authorities. In addition, Bancorp will not be subject to the same regulatory limitations on the amounts which it can invest in its subsidiaries and other businesses and will not be required to obtain regulatory approval before issuing shares of its capital stock, except under certain circumstances. See "Regulation of Bancorp and the Bank." Moreover, providing even further operational flexibility, the repurchase of stock by Bancorp will not be subject to the same significant adverse tax consequences as a repurchase of stock by the Bank and, except under certain circumstances, no regulatory approval is required for such repurchase by Bancorp. There are no current agreements or understandings with respect to any investments or the issuance of any additional shares of capital stock by either the Bank or Bancorp, except pursuant to options granted under the Stock Option Plans. The holding company structure will also facilitate the acquisition of other banks as well as other companies engaged in bank-related activities if and when opportunities arise. A holding company structure would permit an acquired entity to operate on a more autonomous basis as a wholly owned subsidiary of Bancorp rather than as a division of the Bank. For example, the acquired institution could retain its own directors, officers, corporate name and local identity. This more autonomous operation may be decisive in acquisition negotiations. In addition, the stock of Bancorp may serve as appropriate consideration in any such acquisition. While the Bank is, from time to time, exploring various acquisition possibilities, there are no current agreements or understandings for the acquisition of any financial institution or other company and there are no 4 7 assurances that any such acquisitions will occur. It is recognized that some increased costs, including administrative expenses, will be incurred in the formation and operation of Bancorp. However, such increased costs are not expected to have a material adverse effect on the consolidated financial results of Bancorp and the Bank. The Bank estimates that the total cost of the Reorganization will be between $150,000 to $200,000. If the Reorganization is consummated, these expenses will be paid by Bancorp. BUSINESS OF BANCORP Bancorp is a business corporation organized under the laws of the Commonwealth of Massachusetts in March, 2001. The only office of Bancorp, and its principal place of business, is located at the main office of the Bank at 30 Massachusetts Avenue, North Andover, Massachusetts 01845, and its telephone number is (978) 725-7500. Bancorp was organized for the purpose of becoming the holding company of the Bank. Upon completion of the Reorganization, the Bank will be a wholly owned subsidiary of Bancorp, which will thereby become a bank holding company. Each stockholder of the Bank, upon completion of the Reorganization, will, subject to dissenters' appraisal rights, become a stockholder of Bancorp without change in the number of shares owned or in respective ownership percentages. Bancorp has not yet undertaken any business activities and there are no operating business activities currently proposed for Bancorp. In the future, Bancorp may become an operating company or acquire banks or companies engaged in bank-related activities and may engage in or acquire such other business or activities as may be permitted by applicable law. Upon consummation of the Reorganization, Bancorp will own all of the outstanding Bank Common Stock. FINANCIAL RESOURCES OF BANCORP In connection with the Reorganization, the Bank currently intends, subject to applicable law and any agreements of the Bank with regulatory agencies, to pay an initial dividend of up to approximately $2 million to Bancorp, which amount is not expected to exceed the current earnings and profits for tax purposes of the Bank for the fiscal year ended October 31, 2001. The actual amount of the initial dividend to Bancorp, however, is subject to change and may be greater or less than this amount, depending on a number of factors, including Bancorp's future financial requirements and applicable regulatory restrictions. Moreover, the amount of the dividend which will initially be transferred from the Bank to Bancorp may be reduced to the extent necessary to avoid any taxable income to the Bank. See "Income Tax Consequences." A dividend payment of $2 million to Bancorp would reduce the Bank's stockholders' equity as of December 31, 2000, to approximately $50.3 million. See "Capitalization." If such a dividend to Bancorp had been made on December 31, 2000, the leverage, Tier 1 risk-based, and total risk-based capital ratios of the Bank would have been approximately 11.23%, 15.03% and 16.22%, respectively. Upon consummation of the Reorganization, the currently outstanding shares of Bancorp, all of which are owned by the Bank, will be canceled. The Bank is contemplating paying an initial dividend of up to $2 million to Bancorp to provide its holding company with flexibility in its ongoing operations. The dividend, which will be paid only if the Reorganization becomes effective, will be reflected as an increase in the accumulated deficit in the Bank's retained earnings account. The purpose of the dividend is to provide the holding company with initial working capital not currently needed at the Bank. This dividend is intended to defray the costs of the Reorganization and enable Bancorp, as market conditions warrant, to engage in general corporate activities, such as funding of regular quarterly dividends and stock repurchases, and also to establish nonbank subsidiaries to engage in new activities, without having to rely solely on new dividends from the Bank to support those activities. However, although it is contemplated that regular quarterly dividends will occur after Bancorp is the holding company of the Bank, no definite plans exist at this time as to any other of the corporate activities described above. It 5 8 should also be noted, however, that bank holding companies, such as Bancorp, have a much more extensive array of permissible investments than banks, such as the Bank. Of course, any contribution to Bancorp would be subject to receipt of all necessary federal and state bank regulatory approvals. Additional financial resources may be available to Bancorp in the future through borrowings, debt or equity financings, or dividends from the Bank, other acquired entities or new businesses. In addition, the Bank may lend amounts to Bancorp both prior to the consummation of the Reorganization and thereafter, subject to certain restrictions on transactions with insured bank affiliates under the Federal Reserve Act. There can be no assurance, however, as to the amount of additional financial resources which will be available to Bancorp. In particular, dividends from the Bank to Bancorp will be subject to tax considerations and regulatory limitations. See "Income Tax Consequences," "Regulation of Bancorp and the Bank -- Certain Federal Tax Matters," "Comparison of Stockholder Rights -- Common Stock -- Dividend Rights." CAPITALIZATION The following table sets forth (i) the consolidated capitalization of the Bank as of December 31, 2000, (ii) the pro forma consolidated capitalization of the Bank as of December 31, 2000 after giving effect to the Reorganization (which reflects the proposed maximum initial dividend of $2 million from the Bank's current year earnings to Bancorp), and (iii) the pro forma capitalization of Bancorp on a consolidated basis after giving effect to the Reorganization. The pro forma consolidated capitalization of Bancorp as of December 31, 2000, will be the same as the consolidated capitalization of the Bank as of that date. However, the pro forma capitalization of the Bank is changed as a result of the proposed $2 million initial dividend payment by the Bank to Bancorp.
CONSOLIDATED AS OF DECEMBER 31, 2000 (IN THOUSANDS) -------------------------------------- BANK BANK BANCORP (ACTUAL) (PRO FORMA) (PRO FORMA) -------- ----------- ----------- Deposits................................................ $270,548 $270,548 $270,548 ======== ======== ======== Federal Home Loan Bank advances......................... $ 82,283 $ 82,283 $ 82,283 Other Borrowed Funds.................................... 3,878 3,878 3,878 -------- -------- -------- $ 86,161 $ 86,161 $ 86,161 -------- -------- -------- Stockholders' equity: Preferred stock -- par value $0.10 Per share; 5,000,000 shares authorized, none issued(1).......................................... $ -- $ -- $ -- Common stock -- par value $0.10 per share; 20,000,000 shares authorized, 4,364,800 issued(2)............. 436 436 436 Additional paid-in capital............................ 57,711 57,711 57,711 Accumulated deficit................................... (5,956) (7,956)(3) (5,956) -------- -------- -------- 52,191 50,191 52,191 -------- -------- -------- Net unrealized gain (loss) on investment Securities available for sale, after tax effects...... 122 122 122 -------- -------- -------- Total stockholders' equity.................... $ 52,313 $ 50,313 $ 52,313 ======== ======== ========
- --------------- (1) Represents, in the case of Bancorp, 5,000,000 shares of authorized, but unissued, preferred stock, par value $0.10 per share. 6 9 (2) Represents, in the case of Bancorp, 20,000,000 shares of authorized common stock, par value $0.10 per share of which 4,364,800 shares are to be issued to stockholders of the Bank in exchange for the equivalent number of shares of Bank Common Stock as part of the Reorganization, with the assumption that no holders of Bank Common Stock exercise dissenter's rights. Does not include the following shares of Bank Common Stock that were issuable as of December 31, 2000: 720,880 the aggregate shares of Bank Common Stock reserved for issuance under the Stock Option Plans. Upon consummation of the Reorganization, the Stock Option Plans will become stock option plans of Bancorp and an identical number of shares will be reserved for issuance thereunder as are reserved immediately prior to the consummation of the Reorganization. (3) The increase in the accumulated deficit in the Bank's retained earnings account reflects the initial dividend payment of $2 million to Bancorp in connection with the Reorganization. CONDITIONS OF THE REORGANIZATION The Plan of Reorganization provides that it shall not become effective, and thus the Reorganization will not occur, until all of the following first shall have occurred: (i) the Plan of Reorganization shall have been approved by a vote of the holders of two-thirds of the outstanding Common Stock of the Bank, (ii) the Plan of Reorganization shall have been approved by the Commissioner of Banks under Section 26B of Chapter 172 of the General Laws of Massachusetts, (iii) any approval, consent, waiver, or confirmation of no objection required by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") shall have been received and any waiting period imposed by applicable law shall have expired, (iv) the Bank and Bancorp shall have received a favorable opinion from KPMG LLP concerning the federal income tax consequences of the Reorganization, (v) Bancorp Common Stock to be issued in exchange for Bank Common Stock shall have been registered or qualified, if necessary, for issuance under applicable state securities laws, and (vi) the Bank and Bancorp shall have obtained all other necessary consents or approvals required for the holding company formation. The Bank intends to file an application with the Commissioner of Banks to obtain approval of the Plan of Reorganization under Section 26B of Chapter 172 of the General Laws of Massachusetts after the date of this Proxy Statement. The Commissioner will not grant his approval until the Plan of Reorganization has been approved by the Bank's stockholders. In addition, the Bank intends to file, after the date hereof, a notice of one bank holding company formation with the Federal Reserve Board. Bancorp also currently intends to file an application to register with the Federal Reserve Board as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Any delays which are encountered in seeking any of the foregoing regulatory approvals could result in a delay in the consummation of the Reorganization. See "Regulation of Bancorp and the Bank." If the Plan of Reorganization is approved by the Bank's stockholders at the Annual Meeting, the formation of the holding company structure is currently expected to become effective as soon thereafter as the required regulatory approvals are received. Bank and Bancorp have the right under the terms of the Plan of Reorganization to abandon the Reorganization if, among other things, regulatory approvals cannot be obtained or if the conditions or obligations associated with such regulatory approvals make the Reorganization inadvisable in the opinion of the Bank or Bancorp. In addition, the Plan of Reorganization also provides that it may be abandoned by the Board of Directors of the Bank or Bancorp if, among other things (i) the number of shares of Bank Common Stock owned by dissenting stockholders will make consummation of the Reorganization inadvisable in the opinion of the Bank or Bancorp, (ii) any action, suit, proceeding or claim has been instituted, made or threatened relating to the Plan which will make consummation of the Reorganization inadvisable in the opinion of the Bank or Bancorp, 7 10 or (iii) for any other reason consummation of the Reorganization is inadvisable in the opinion of the Bank or Bancorp. Moreover, the Plan of Reorganization may be amended by the mutual consent of the Boards of Directors of Bancorp and the Bank (i) prior to its approval by the stockholders of the Bank, in any respect, and (ii) subsequent to such approval, in any respect, provided that the Commissioner shall approve of such amendment or modification. If the Plan of Reorganization is not approved at the Annual Meeting or all of the necessary regulatory approvals are not obtained, the Bank will continue to operate without a holding company structure. All expenses in connection with the Reorganization will be paid by the Bank whether or not the Plan of Reorganization is approved by its stockholders or the Reorganization is consummated. The Bank intends to seek approval for the listing of Bancorp Common Stock in substitution for Bank Common Stock on the Nasdaq National Market using the symbol "LSBX" subject to completion of the holding company formation. The Bank expects that approval for this substitution will be received prior to consummation of the Reorganization. RIGHTS OF DISSENTING STOCKHOLDERS Any holder of Bank Common Stock (i) who files with the Bank before the taking of the vote on the approval of the Plan of Reorganization written objection to the Plan of Reorganization, stating that he or she intends to demand payment for his or her shares if the Reorganization is consummated, and (ii) whose shares are not voted in favor of the Plan of Reorganization, has or may have the right to demand in writing from the Bank, within 20 days after the date of mailing to him or her of notice in writing that the Reorganization has become effective, payment for his or her shares and an appraisal of the value thereof. The Bank and any such stockholder shall follow the procedures set forth in Sections 86 to 98, inclusive, of Chapter 156B of the General Laws of Massachusetts. A brief summary of those sections of the General Laws of Massachusetts is set forth below. However, this summary does not purport to be a complete statement of the procedures to be followed by stockholders desiring to exercise their rights to dissent from the Reorganization and is qualified in its entirety by express reference to such sections, which are included in this Proxy Statement as Exhibit B. A holder of Bank Common Stock intending to exercise his or her dissenter's right to receive payment for his or her shares must file with the Bank, before the Annual Meeting and the vote on the Plan of Reorganization, written objection to the proposed Plan of Reorganization, stating that he or she intends to demand payment for his or her shares if the Reorganization is consummated, and must not vote in favor of the Reorganization at the Annual Meeting. Any such objection should be sent to the attention of Robert P. Perreault, Clerk of the Bank. Within ten days after the Reorganization becomes effective, the Bank will give written notice of such effectiveness by registered or certified mail to each holder of Bank Common Stock who filed such written objection and who did not vote in favor of the Plan of Reorganization. Such written notice of effectiveness will be addressed to the stockholder at his or her last known address as it appears in the stock record books of the Bank. Within 20 days after the mailing of such notice, any holder of Bank Common Stock to whom the Bank was required to give such notice may make written demand for payment for his or her shares from the Bank, and, in such event, the Bank will be required to pay to him or her the fair value of such shares within 30 days after the expiration of the period during which such demand may be made. If during such 30-day period the Bank and the dissenting stockholder fail to agree as to the fair value of such shares, the Bank or such stockholder may have the fair value of the stock of all dissenting stockholders determined by judicial proceedings by filing a bill in equity in the Superior Court in Essex County, Massachusetts, within four months after the expiration of such 30-day period. For the purposes of any such Superior Court determination, the value of the shares of the Bank is to be determined as of the day preceding the date of the vote of the stockholders approving the Plan of Reorganization and shall be exclusive of any element of value arising from the expectation or accomplishment of the Reorganization. Upon making such written demand for 8 11 payment, the dissenting stockholder will not thereafter be entitled to notices of meetings of stockholders, to vote, or to dividends unless no suit is filed within four months after such 30-day period to determine the value of the stock, any such suit is dismissed as to that stockholder, or the stockholder withdraws his objection in writing with the written approval of the Bank. The enforcement by a dissenting stockholder of his or her right to receive payment for his Bank Common Stock in the manner provided by Sections 86 through 98 of Chapter 156B of the General Laws of Massachusetts will be his or her exclusive remedy, except that a stockholder shall not be excluded from bringing or maintaining an appropriate proceeding to obtain relief on the ground that consummation of the Reorganization will be or is illegal or fraudulent as to him or her. INCOME TAX CONSEQUENCES The Bank will not seek a ruling from the Internal Revenue Service concerning the federal income tax consequences of the proposed holding company formation, but will instead rely on an opinion of its outside tax advisor, KPMG LLP. Unlike a private letter ruling from the Internal Revenue Service, an opinion of tax advisor has no binding effect on the Internal Revenue Service. Based on such opinion, the material federal tax results of the Reorganization would be as follows: 1. No gain or loss will be recognized by the stockholders of the Bank upon the exchange of their Common Stock of the Bank solely for Bancorp Common Stock. 2. No gain or loss will be recognized by the Bank as a result of the proposed transaction (except to the extent that, as described below, the Bank may have taxable income as a result of payments to stockholders who exercise dissenters' rights and/or the payment of a dividend to Bancorp of an amount that exceeds the current taxable earnings and profits of the Bank). 3. No gain or loss will be recognized by Bancorp upon the receipt of shares of Bank Common Stock solely in exchange for Bancorp Common Stock. 4. The basis of the Bancorp Common Stock to be received by each stockholder of the Bank will be the same as the basis of Bank Common Stock surrendered in exchange therefor. 5. The holding period of the Bancorp Common Stock to be received by each stockholder of the Bank will include the holding period of Bank Common Stock surrendered in exchange therefor, provided that such Bank Common Stock was held as a capital asset in the hands of such stockholder. 6. Stockholders of the Bank who exercise their dissenters' appraisal rights and receive cash in exchange for their shares of Bank Common Stock will recognize taxable income or gain or loss for federal income tax purposes in connection with the transaction. The amount of that income or gain or loss and the character of that income or gain or loss (that is, whether it constitutes ordinary income, short-term capital gain or loss or long-term capital gain or loss) will turn upon a number of factual considerations peculiar to the individual stockholder. If a stockholder exercises his or her dissenter's appraisal rights with respect to all of his or her shares of Bank Common Stock, and if no shares are constructively owned by him under the rules of Section 318(a) (or if such constructive ownership is waived under the rules of Section 302(c)(2)), then the transaction should qualify as a sale or exchange of the stock under Section 302(a), rather than a dividend. If the shares of Bank Common Stock qualify as "capital assets" in the hands of such a stockholder and if the shares have been held for more than one year, then any gain recognized on the exchange should qualify for long-term capital gain treatment. If, however, a stockholder fails to exercise dissenters' appraisal rights as to all shares owned by him or her (or is considered to constructively own shares under Section 318(a)), then the transaction might be 9 12 treated as a dividend to the stockholder, depending upon whether or not it qualifies as "not essentially equivalent to a dividend" within the meaning of Section 302(b)(1), or as "a substantially disproportionate redemption" within the meaning of Section 302(b)(2). If the transaction were treated as a dividend, then the entire payment could be taxable as ordinary income, depending upon the circumstances. Any stockholder of the Bank considering exercising his or her dissenter's appraisal rights with respect to any shares of Bank Common Stock should consult his personal income tax advisor for specific advice with respect to the federal income tax consequences of that exercise. Payments made by the Bank to stockholders who exercise their dissenters' appraisal rights may result in taxable income to the Bank to the extent the payments are deemed made out of the Bank's bad debt reserve. In addition, any dividend distributions by the Bank (including any distribution made to provide working capital to Bancorp and any payments to dissenting stockholders that are treated as dividends) that exceed the current taxable earnings and profits of the Bank will result in taxable income to the Bank to the extent that they are deemed made out of the Bank's bad debt reserve. The determination of current taxable earnings and profits turns upon the application of a complicated set of legal rules to a number of factual issues arising over an extended period of years. Because of the inherently factual issues associated with determining current taxable earnings and profits, KPMG LLP does not intend to confirm the amount of the Bank's earnings and profits and thus its opinion will not address whether or not the proposed initial dividend payment of funds to Bancorp will exceed the current taxable earnings and profits of the Bank. ACCOUNTING TREATMENT It is anticipated that the Reorganization will be accounted for as similar to a "pooling of interests" transaction under generally accepted accounting principles. COMPARISON OF STOCKHOLDER RIGHTS As a result of the holding company formation, stockholders of the Bank, whose rights are presently governed by Massachusetts banking law, will become stockholders of Bancorp, a Massachusetts corporation, and as such their rights will be governed by Massachusetts corporate law. Certain differences in the rights of stockholders arise from this change in governing law. The provisions of the Bank's Restated Articles of Organization (the "Charter") and By-laws and Bancorp's Articles of Organization (the "Articles") and By-laws are substantively identical, however. Certain differences and similarities of the rights of stockholders of the Bank and Bancorp are discussed below. The following discussion does not purport to be a complete statement of such similarities and differences affecting the rights of stockholders of the Bank but is intended as a summary only. The form of Articles of Bancorp attached as Exhibit C to this Proxy Statement should be reviewed carefully by each stockholder. Capital Stock Authorized and Issued Stock. The Bank had, as of the Record Date, 20,000,000 shares of authorized Common Stock of which 4,371,500 shares were issued and outstanding and 714,180 shares were reserved for issuance under the Stock Option Plans. As of such date, the Bank also had 5,000,000 shares of authorized but unissued preferred stock. The Articles of Bancorp will provide for 20,000,000 shares of authorized Bancorp Common Stock and 5,000,000 shares of preferred stock, of which 100,000 shares of Bancorp Common Stock are currently issued and outstanding, all of which are owned by the Bank. After the consummation of the Reorganization, and 10 13 subject to the exercise of dissenters' appraisal rights, the number of issued and outstanding shares, shares reserved for issuance under the Stock Option Plans and non-reserved shares of Bancorp Common Stock available for future issuance by Bancorp will be the same as the number of such shares of Bank Common Stock immediately prior to the Effective Time. Issuance of Stock. Under the provisions of Massachusetts banking law, the issuance of capital stock by the Bank requires the prior approval of the Commissioner of Banks. In contrast, Bancorp is authorized to issue shares of capital stock without obtaining prior approval of the Commissioner of Banks. Although the issuance of Bancorp Common Stock in connection with the Reorganization is exempt from registration under the Securities Act, future issuances of Bancorp Common Stock would be subject to registration under the Securities Act, unless another exemption were available. See "Regulation of Bancorp and the Bank -- Consequences of the Reorganization Under Federal Securities Laws." Bank Common Stock is exempt from registration under the Securities Act. There are no current agreements or understandings with respect to the issuance of any additional shares of Bancorp capital stock. Pre-emptive Rights. The stockholders of Bancorp, like the stockholders of the Bank, will not be entitled to pre-emptive rights with respect to any shares of capital stock which may be issued. Common Stock Dividend Rights. The stockholders of the Bank are entitled to dividends when and as declared by the Bank's Board of Directors. Under Massachusetts banking law, Massachusetts stock-form savings banks such as the Bank may pay dividends only out of net profits without impairing their capital stock and surplus accounts. Such dividend payments are also subject to a number of additional statutory limitations. Bancorp may pay dividends if, as, and when declared by its Board of Directors. The holders of Bancorp Common Stock will be entitled to receive and share equally in such dividends as may be declared by the Board of Directors out of funds legally available therefor. Although Massachusetts corporate law does not have a specific statute regulating the payment of dividends by Massachusetts corporations, the directors of a corporation are jointly and severally liable to the corporation if a payment of dividends (i) is made when the corporation is insolvent, (ii) renders the corporation insolvent, or (iii) violates the corporation's articles of organization. In any case, any issuance by the Bank or Bancorp of preferred stock with a preference over common stock as to dividends may affect the dividend rights of common stock holders. Voting Rights. All voting rights in the Bank are currently vested in the holders of the Bank's issued and outstanding Common Stock. Each share of Bank Common Stock is entitled to one vote on all matters, without any right to cumulative voting in the election of Directors. Following the formation of the holding company, all voting rights in Bancorp will be vested in the holders of Bancorp Common Stock, and each share of Bancorp Common Stock will be entitled to one vote on all matters. In both cases, any issuance by the Bank or Bancorp of preferred stock with voting rights may affect the voting rights of holders of common stock. Preferred Stock Both under the Charter of the Bank and under the Articles of Bancorp, the respective Boards of Directors of the Bank and Bancorp are authorized to issue preferred stock in series and to fix the powers, designations, preferences, or other rights of the shares of each such series and the qualifications, limitations, and restrictions thereof. The issuance of preferred stock by the Bank, unlike the issuance of preferred stock by Bancorp, would be subject to approval by the Commissioner of Banks. Preferred stock issued by Bancorp after the Reorganization may rank prior to the Bancorp Common Stock as to dividend rights, liquidation preferences, or both, may have full or limited voting rights (including multiple voting rights and voting rights as a class), and 11 14 may be convertible into shares of Bancorp Common Stock. Bancorp has no present plans or understandings for the issuance of any preferred stock. Directors Number and Staggered Terms. The By-laws of Bancorp provide that the Board of Directors shall consist of not less than seven directors. The Board of Directors of Bancorp will initially be composed of ten Directors. The By-laws of the Bank provide that the Board shall consist of not less than seven nor more than 25 Directors. The By-laws of the Bank and Bancorp provide that the Board of Directors may fix the number and classification of Directors, unless at the time there is an Interested Stockholder (as defined below), in which case a majority vote of the Continuing Directors (as defined in the Bank's Charter and Bancorp's Articles, respectively) is also required. For purposes of these provisions, the term "Interested Stockholder" means generally any person (other than the Bank or Bancorp or any subsidiary of either of them) who or which acquires voting control of more than 10% of the voting stock of the Bank or Bancorp. Both the By-laws of the Bank and the By-laws of Bancorp provide for three classes of Directors with one class elected each year for three-year staggered terms, so that ordinarily no more than approximately one-third of the Directors will stand for election in any one year, and that there will be no cumulative voting in the election of Directors. Removal of Directors. The Bank's Charter and Bancorp's Articles provide that any Director may be removed from office, with or without cause, by an affirmative vote of (i) at least 80% of the total votes eligible to be cast by stockholders at a duly constituted meeting of stockholders called expressly for such purpose, or (ii) at least two-thirds of the members of the Board of Directors then in office, unless at the time of such removal there shall be an Interested Stockholder, in which case the affirmative vote of not less than a majority of the Continuing Directors then in office shall instead be required for removal by vote of the Board of Directors. Vacancies. The By-laws of the Bank and the By-laws of Bancorp both provide that any vacancy occurring on the Board of Directors as a result of resignation, removal, disqualification or death or by reason of an increase in the number of Directors may be filled by vote of a majority of the remaining Directors, unless at the time of such action there is an Interested Stockholder, in which case a majority vote of the Continuing Directors then in office is required instead. Any Director of the Bank or Bancorp so appointed would serve for a term of office until the next election of Directors by the Stockholders. Massachusetts Law Regarding Directors. Under Section 50A of Massachusetts General Laws Chapter 156B, a publicly-held Massachusetts corporation which has not opted out of that statute must have a classified board of directors. In general, Section 50A provides that the board of directors of the corporation must be divided into three classes, each of which would contain approximately one-third of the total number of the members of the board of directors. Section 50A provides that each class shall serve a staggered term, with approximately one-third of the total number of directors being elected each year. The stockholders may remove a director from the board prior to the expiration of his term only for cause, upon the affirmative vote of the holders of a majority of the shares then entitled to vote in an election of directors. Section 50A provides that the number of directors shall be fixed by the board, and that any vacancy occurring on the board, including a vacancy created by an increase in the number of directors or resulting from death, resignation, disqualification, removal from office or other cause, shall be filled for the remainder of the unexpired term exclusively by a majority vote of the directors then in office. 12 15 Section 50A does not apply to the Bank by its terms and Massachusetts banking statutes under which the Bank is governed do not contain a similar provision. The Board of Directors of Bancorp has voted to expressly opt out of Section 50A, and the Board may at any time in the future vote to subject Bancorp to the express provisions of Section 50A. Notwithstanding such action, Bancorp's Articles (like the Bank's Charter) contain provisions substantially similar to that of Section 50A regarding a classified board of directors, as described above. Meetings of Stockholders The Bank's Charter and By-laws and Bancorp's Articles and By-laws provide that special meetings of the stockholders may be called only by the Chairman of the Board, if one is elected, the President, or by a majority of the Directors then in office; provided, however, that if there is an Interested Stockholder, any such call shall also require the affirmative vote of a majority of the Continuing Directors then in office. Only those matters set forth in the call of the special meeting may be considered or acted upon at such special meeting, unless otherwise provided by law. Both the Bank's By-laws and Bancorp's By-laws set forth certain advance notice and informational requirements and time limitations on any Director nomination or any new business that a stockholder wishes to propose for consideration at an annual or special meeting of stockholders. Any such nomination or new business must be stated in writing and must generally be filed with the Clerk at least 60 days, but no more than 90 days, prior to the anniversary date of the immediately preceding Annual Meeting. The Board of Directors of the Bank or Bancorp, as the case may be, or the officer presiding at the meeting of the stockholders of Bancorp or the Bank, as the case may be, may reject such nomination or new business proposal not timely made or supported by insufficient information. In addition, the By-laws of the Bank and the By-Laws of Bancorp provide that, if at the time there is an Interested Stockholder, any determination by the Board of Directors with respect to such nomination or new business proposal shall also require the concurrence of a majority of the Continuing Directors then in office. Stockholder Vote Required to Approve Mergers and Certain Business Combinations Stockholder Vote Required for Mergers. Massachusetts law provides that a vote of two-thirds of the shares of each class of stock outstanding and entitled to vote thereon is generally required to authorize a merger or the sale, lease or exchange of all or substantially all of a corporation's property and assets, except that the articles of organization of a Massachusetts corporation may provide for a different percentage vote, but not less than a majority. Fair Price Provision. The Bank's Charter and Bancorp's Articles contain a so-called "fair price" provision pursuant to which any Business Combination (as defined in the Bank's Charter and Bancorp's Articles) involving an Interested Stockholder or an affiliate of an Interested Stockholder and the Bank or Bancorp (or any subsidiary), as the case may be, would require approval by the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of voting stock of the Bank or Bancorp, as the case may be, entitled to vote in the election of directors voting together as a single class. The fair price provision provides that the 80% stockholder vote is not required if the Business Combination is approved by a majority of the Continuing Directors or if certain procedures and price requirements are met. Massachusetts Law. Chapter 110F of the Massachusetts General Laws, entitled "Business Combinations with Interested Shareholders" ("Chapter 110F") provides that a Massachusetts corporation with more than 200 stockholders generally may not engage in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless (i) the interested stockholder obtains the approval of the Board of Directors prior to 13 16 becoming an interested stockholder, (ii) the interested stockholder acquires 90% of the outstanding voting stock of the corporation (excluding shares held by certain affiliates of the corporation) at the time it becomes an interested stockholder, or (iii) the business combination is approved by both the Board of Directors and the holders of two-thirds of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder) at an annual or special meeting of stockholders. An "interested stockholder" is a person who, together with affiliates and associates, owns (or, in certain cases, at any time within the prior three years did own) 5% or more of the outstanding voting stock of the corporation. A "business combination" includes a merger, certain stock or asset sales, and certain other specified transactions resulting in a financial benefit to the interested stockholder. Chapter 110F is by its terms applicable to both the Bank and Bancorp. A Massachusetts corporation is permitted to opt out of Chapter 110F. However, neither the Bank nor Bancorp has opted out of Chapter 110F. Provisions Relating to Exercise of Business Judgment by Board of Directors The Charter of the Bank provides that its Board of Directors, when evaluating any tender, exchange, merger, acquisition or similar offer of another person, must in connection with the exercise of its judgment in determining what is in the best interests of the Bank and its stockholders, give due consideration to all relevant factors including, without limitation, the social and economic effects of acceptance of such an offer on the Bank's present and future account holders, borrowers and employees, on the communities in which the Bank operates or is located, and on the ability of the Bank to fulfill its objectives as a Massachusetts-chartered stock form savings bank under applicable statutes and regulations. The Articles of Bancorp contain a substantially similar provision that states, in addition, that such evaluation shall include an examination of the effect of such a transaction on any subsidiary of Bancorp. Control Share Acquisition Statute Chapter 110D of the Massachusetts General Laws, entitled "Regulation of Control Share Acquisitions" ("Chapter 110D") provides that any person who makes a bona fide offer to acquire, or acquires (the "acquiror") shares of stock of a corporation in an amount equal to or greater than one-fifth, one-third or a majority of the voting stock of the corporation (the "thresholds") must obtain the approval of a majority of shares of all stockholders except the acquiror and the officers and inside directors of the corporation in order to vote the shares that the acquiror acquires in crossing the thresholds. Chapter 110D does not apply to the Bank by its terms and Massachusetts banking statutes under which the Bank is governed do not contain a similar provision. As permitted under Chapter 110D, Bancorp's By-laws contain a provision opting out of Chapter 110D, making Chapter 110D inapplicable to Bancorp's stockholders. The Board of Directors of Bancorp may amend the By-laws at any time in the future to allow Bancorp to opt into this statute prospectively. Indemnification The By-laws of the Bank provide that Directors and officers of the Bank shall, and in the discretion of the Board of Directors, non-officer employees may, be indemnified by the Bank against liabilities and expenses arising out of service for or on behalf of the Bank. The By-laws of the Bank provide that such indemnification shall not be provided if it is determined that the action giving rise to the liability was not taken in good faith in the reasonable belief that the action was in the best interests of the Bank. The By-laws of the Bank provide that the indemnification provision in the By-laws does not limit any other right to indemnification existing independently of the By-laws. The By-laws of Bancorp contain a similar indemnification provision. 14 17 Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to Directors, officers or persons controlling Bancorp pursuant to the foregoing provisions, it is the position of the Securities and Exchange Commission (the "SEC") that such indemnification is against public policy as expressed in such Act and is therefore unenforceable. Shareholder Rights Plan In connection with the Reorganization, the Bank's Shareholder Rights Plan will be amended so that it will be assumed by Bancorp following the Reorganization. Accordingly, the outstanding Rights (as defined below) issued pursuant to the Shareholder Rights Plan will be assumed by, and deemed to be Rights issued by, Bancorp. The Shareholder Rights Plan, as amended, will be substantially similar to the plan as currently in effect. The purpose of the Shareholder Rights Plan is, among other things, to enable stockholders to receive fair and equal treatment in the event of any proposed acquisition or other business combination transaction involving Bancorp. The Shareholder Rights Plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, Bancorp or a large block of Bancorp's common stock. The following summary description of the Shareholder Rights Plan does not purport to be complete and is qualified in its entirety by reference to the Bank's Shareholder Rights Plan, a copy of which is available upon request. The expiration date of the Shareholder Rights Plan is December 19, 2006. In connection with the adoption of the Shareholder Rights Plan, the Board of Directors of the Bank declared a dividend distribution of one preferred stock purchase right (a "Right") for each outstanding share of the Bank's common stock to stockholders of record as of the close of business on December 29, 1996. The Rights currently are not exercisable and are attached to and trade with the outstanding shares of the Bank's common stock. Under the Shareholder Rights Plan, the Rights become exercisable (i) if a person becomes an "acquiring person" by acquiring more than 10% of the outstanding shares of the Bank's common stock, or (ii) if a person or group commences a tender offer that would result in that person or group owning more than 10% of the Bank's common stock. In the event that a person becomes an "acquiring person" each holder of a Right (other than the acquiring person) would be entitled to acquire such number of shares of the Bank's preferred stock which are convertible into such number of shares of common stock having a value of twice the then-current exercise price of the Right. If the Bank is acquired in a merger or other business combination transaction after any such event, each holder of a Right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company's common stock having a value of twice the exercise price of the Right. Amendment of Charter and Articles The Bank's Charter and Bancorp's Articles both provide that any amendment thereof must be first approved by a majority of the Board of Directors, and then approved by at least two-thirds of the total votes eligible to be cast at a duly constituted meeting (but only a majority of the stockholders in the case of amendments to provisions in the Bank's Charter or Bancorp's Articles, as the case may be, relating to the name, office, powers, and authorized capital stock) except that if at any time within the 60 day period immediately preceding the meeting at which the stockholder vote is to be taken on such amendment there is an Interested Stockholder, such amendment shall also require the vote of at least a majority of the Continuing Directors, prior to approval by the stockholders. Notwithstanding the foregoing, the Bank's Charter and Bancorp's Articles both state that to the extent any provision thereof requires approval by a vote of more than two-thirds of the total votes eligible to be cast by stockholders in the election of director, and if, at any time within the 60 day period immediately preceding the meeting at which a stockholder vote is to be taken there is an Interested Stockholder, such provision may only be amended after approval of the same vote required by such provision unless such amendment shall also have been approved by the affirmative vote of not less than a 15 18 majority of the Continuing Directors then in office, in which case only the vote of two-thirds of the total votes eligible to be cast by the stockholders shall be required. Under Massachusetts law, certain amendments to a corporation's articles of organization require a vote of a majority of the outstanding shares of each class of stock entitled to vote thereon, while other amendments require a two-thirds vote. In either case, the articles of organization may provide for a greater or lesser percentage vote, but not less than a majority. Massachusetts law requires a class vote under certain circumstances when an amendment of the articles of organization will adversely affect the special rights of a class of stock. Amendment of By-laws The Charter of the Bank and the Articles of Bancorp provide that their respective By-laws may be adopted or amended either by their respective Board of Directors or stockholders. Such action by the Board of Directors of the Bank or Bancorp, as the case may be, shall require the affirmative vote of at least two-thirds of the Directors then in office, unless, in the case of both the Bank and Bancorp, at the time of such action there shall be an Interested Stockholder, in which case such action shall also require the affirmative vote of at least a majority of the Continuing Directors. Such action by the stockholders of the Bank or Bancorp, as the case may be, shall require (i) approval by the majority of the Board of Directors (and, if there is an Interested Stockholder at the time of such action, such action shall also require the affirmative vote of a majority of the Continuing Directors), (ii) unless waived by the majority of the Board of Directors (and, if applicable, the Continuing Directors), the submission by the stockholders of written proposals for amending the By-laws at least 60 days prior to the meeting at which the amendment is to be considered, and (iii) the vote of at least two-thirds of the total votes eligible to be cast by stockholders in the election of directors at a duly constituted meeting of stockholders called expressly for such purpose. EFFECT ON CURRENT MARKET VALUE OF OUTSTANDING BANK STOCK Although the Board of Directors does not know of any reason why implementation of the Plan of Reorganization would cause the market value of the stock of Bancorp to be different from the market value of the stock of the Bank immediately prior to consummation of the Reorganization, it is possible that the public trading market could perceive that the stock of Bancorp has a different value from the stock of the Bank. It is not known whether the public trading market will attribute any additional or lesser value to Bancorp Common Stock than it would attribute to Bank Common Stock. On December 20, 2000, the last trading day prior to the day on which the Board of Directors adopted a resolution approving the Plan of Reorganization, the high and low sale prices of Bank Common Stock as quoted on the Nasdaq National Market were $10.00 and $9.75 per share, respectively. ANTI-TAKEOVER PROVISIONS A number of provisions of the Bank's Charter and By-laws and similarly of Bancorp's Articles and By-laws deal with matters of corporate governance and rights of stockholders. Certain of those provisions discussed above may be deemed to have an "anti-takeover" effect, and may discourage takeover attempts not first approved by the Directors (including takeovers which certain stockholders might deem to be in their interests). Although the Board of Directors of Bancorp is not aware of any effort that might be made to gain control of Bancorp after the Reorganization, the Board of Directors believes that those provisions are appropriate to protect the interests of Bancorp and its stockholders from certain hostile takeovers that the Board of Directors believes would not be in the best interests of Bancorp and all of its stockholders. In addition, the Bank has entered into agreements with certain of its officers which require the Bank to make 16 19 certain payments to such officers upon the termination of their employment under certain circumstances. See "Employment Contracts, Special Termination Agreement." LEGAL INVESTMENTS Under the laws of some jurisdictions, shares of Bank Common Stock may be legal investments for certain institutions and fiduciaries, whereas shares of Bancorp Common Stock may not be legal investments for such investors. REGULATION OF BANCORP AND THE BANK The following summaries of statutes and regulations affecting banks and holding companies do not purport to be complete. Such summaries are qualified in their entirety by reference to such statutes and regulations. Holding Company Regulation. As a bank holding company, Bancorp would be subject to regulation and supervision by the Federal Reserve Board under the BHC Act. The regulations of the Federal Reserve Board restrict or require prior approval for acquisitions of ownership or control of banks or other companies, restrict transactions between bank holding companies and their affiliates, restrict tying arrangements, limit nonbanking activities of bank holding companies and their subsidiaries, require the filing of annual and periodic reports and give the Federal Reserve Board supervisory authority over various activities of bank holding companies. The Bank is not currently subject to the regulations or authority of the Federal Reserve Board, except as certain of such regulations are made applicable to the Bank by law or regulations of the FDIC. Certain Federal and State Restrictions on Acquisition of Stock. Any attempt to acquire control of the Bank, currently, or Bancorp, following completion of the Reorganization, through the purchase of stock would be subject to regulation under Massachusetts law, and the BHC Act or the federal Change in Bank Control Act of 1978, as amended (the "CBCA"). With respect to acquisitions of Common Stock of the Bank, Massachusetts law prohibits any person from acquiring voting stock of a bank that would result in such person having the power, directly or indirectly, to direct the management or policies of such bank or to vote 25% or more of such stock unless such person has provided the Commissioner 60 days' prior notice and certain information in connection therewith, and the acquisition has not been disapproved by the Commissioner. An exemption from these requirements is provided for acquiring persons who have complied with substantially similar procedures under the federal law provisions outlined below. The Federal Reserve Board's regulations promulgated under the CBCA generally require persons who at any time intend to acquire control of a bank holding company to provide 60 days' prior written notice and certain financial and other information to the Federal Reserve Board. The 60-day notice period does not commence until the information submitted is deemed to be substantially complete. Control for the purpose of the CBCA exists in situations in which the acquiring party would have voting control of at least 25% of any class of a holding company's voting stock. However, under Federal Reserve Board regulations, control would be presumed to exist where the acquiring party would have voting control of at least 10% of any class of the holding company's voting securities if (i) the holding company has a class of voting securities which is registered under Section 12 of the Exchange Act, or (ii) the acquiring party would be the largest holder of a class of voting shares of the holding company. The statute and underlying regulations authorize the Federal Reserve Board to disapprove the proposed acquisition on certain specified grounds. The FDIC has adopted substantially similar regulations under the CBCA which would apply to the acquisition of control of an FDIC-insured bank such as the Bank. 17 20 Under the BHC Act, prior approval of the Federal Reserve Board is generally required for an acquisition of control of a bank or bank holding company by any "company" defined under the BHCA. Control for purposes of the BHCA would be based on a 25% voting stock test or on the ability of the acquiror otherwise to control the election of a majority of the Board of Directors of the bank or bank holding company or to exert controlling influence over the management or policies of the bank or bank holding company (as set forth in the BHCA). As part of such acquisition, the acquiring company (unless already so registered) would be required to register as a bank holding company under the BHCA. In addition, an existing bank holding company would have to obtain prior approval from the Federal Reserve Board under the BHCA if it sought to acquire in excess of 5% of any class of the voting stock of another bank holding company or bank, such as Bancorp or the Bank. A bank holding company's business activities are generally limited to those activities which the Federal Reserve Board determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Registration as a bank holding company would generally require divestiture or other termination of other business activities not approved for bank holding companies by the Federal Reserve Board under the foregoing test. In addition, under the provisions of the Gramm Leach-Bliley Act of 1999, certain bank holding companies that obtain designation as "financial holding companies" by the Federal Reserve Board may be permitted to engage in activities that the Federal Reserve Board determines by order or regulation to be financial in nature or incidental to such financial activity or complementary to a financial activity and the Federal Reserve Board further determines do not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. Bank Regulation. As a Massachusetts-chartered, FDIC-insured savings bank, the Bank is subject to regulation and supervision by the Commissioner and the FDIC. After the Reorganization, the Bank will continue to be subject to such regulation and supervision. Massachusetts Law. As a Massachusetts-chartered, stock form savings bank, the Bank now is, and following consummation of the Reorganization will continue to be, subject to regulation and examination by the Commissioner. The Massachusetts banking statutes and regulations govern, among other things, lending and investment powers, deposit activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings, and payment of dividends. The Bank is also subject to state regulatory provisions covering such matters as issuance of capital stock, branching, and mergers and acquisitions. Bancorp has been incorporated as a business corporation under Massachusetts law. Thus, Bancorp is subject to regulation by the Secretary of The Commonwealth of Massachusetts and the rights of its stockholders are governed by Massachusetts corporate law. Proposed Legislation. From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and restrictions on, the business of the Bank or Bancorp. It cannot be predicted whether any legislation currently being considered will be adopted or how such legislation or any other legislation that might be enacted in the future would affect the business of the Bank or Bancorp. Certain Federal Tax Matters. If the Reorganization is consummated, Bancorp and the Bank intend to file consolidated federal income tax returns, which would have the effect of eliminating inter-company distributions, including dividends, in the computation of consolidated taxable income. Bancorp and the Bank are required to file unconsolidated state income tax returns. Although Bancorp and the Bank plan to file consolidated federal income tax returns, distributions from the Bank to Bancorp would have significant adverse tax consequences to the Bank to the extent that the distributions were deemed to be out of the Bank's bad debt reserve balance as of the close of its last taxable year beginning before November 1, 1988 (which amount otherwise generally is not subject to recapture notwithstanding the repeal in 1996 of the special thrift 18 21 bad debt reserve tax rules) rather than its current taxable earnings and profits. The amount deemed distributed out of the bad debt reserve would increase the Bank's federal taxable income and be subject to federal income tax. However, a dividend distribution will be deemed to be out of the bad debt reserve only if it exceeds the current taxable earnings and profits of the Bank. Some or all of the Bank's current taxable earnings and profits is expected to be paid as an initial dividend to Bancorp by the Bank as part of the Reorganization. The actual amount of the distribution may be adjusted to the extent necessary to avoid any taxable income to the Bank. See "Financial Resources of Bancorp." Bancorp has no present intention to cause the Bank to pay cash dividends that would result in the Bank being required to recognize taxable income. Consequences of the Reorganization Under Federal Securities Laws. Upon consummation of the Reorganization, the reporting obligations of the Bank under the Exchange Act, as administered by the FDIC, will be replaced with substantially similar obligations of Bancorp under the Exchange Act, as administered by the SEC. Pursuant to the Exchange Act, Bancorp will file annual, quarterly and periodic reports with the SEC. Bancorp will also be subject to the insider trading requirements of Sections 16(a) and 16(b) of the 1934 Act as administered by the SEC. In connection with the Reorganization, the Bank will deregister the Bank's Common Stock under the Exchange Act. Upon consummation of the Reorganization, Bancorp intends to file a Registration Statement on Form S-8 to register the issuance of shares of Bancorp Common Stock under the Stock Option Plans. The issuance of Bancorp Common Stock (together with associated preferred stock purchase rights) in connection with the Reorganization is exempt from registration under the Securities Act, as a result of Section 3(a)(12) of the Securities Act. Section 3(a)(12) exempts securities issued in connection with the acquisition of a bank by a newly formed holding company from the registration requirements of the Securities Act. In order to qualify for the exemption (i) the acquisition must occur solely as part of a reorganization in which security holders exchange their shares of the bank for shares of a newly formed holding company with no significant assets other than securities of the bank and its existing subsidiaries, (ii) the security holders must receive the same proportional share interests in the holding company as they held in the bank (except for changes resulting from elimination of fractional interests and the exercise of dissenters' rights), (iii) the rights and interests of security holders in the holding company must be substantially the same as those in the bank prior to the transaction, other than as required by law, and (iv) the assets and liabilities of the holding company on a consolidated basis must be substantially the same as those of the bank prior to the transaction. The exemption under Section 3(a)(12) would not apply to future issuances of Bancorp Common Stock. Such future issuances would be subject to the registration requirements of the Securities Act, unless another exemption under the Securities Act were available. In addition, the Section 3(a)(12) exemption does not cover the resale of any of Bancorp Common Stock issued in connection with the Reorganization. Bancorp Common Stock received by persons who are not deemed to be "affiliates" (as such term is defined under the Securities Act) of the Bank or Bancorp may be resold without registration. Shares of Bancorp Common Stock received by persons who are deemed to be "affiliates" of the Bank or Bancorp in connection with the Reorganization will be subject to the resale restrictions of Rule 145 under the Securities Act (or Rule 144 under the Securities Act in the case of such persons who become affiliates of Bancorp), which are substantially the same as the restrictions of Rule 144. Persons who may be deemed to be "affiliates" of the Bank or Bancorp generally include individuals or entities that at the time the Plan of Reorganization is submitted for a vote of the stockholders of the Bank control, are controlled by, or are under common control with, the Bank and may include certain officers and directors of the Bank as well as principal stockholders of the Bank. Under the terms of the proposed Reorganization whereby the Bank will become a subsidiary of Bancorp, the Stock Option Plans will be continued as and become the stock option plans of Bancorp if the 19 22 Reorganization is approved at the Annual Meeting and consummated. Stock options with respect to shares of Bank Common Stock granted under the Stock Option Plans and outstanding prior to consummation of the Reorganization will automatically become options to purchase the same number of shares of Bancorp Common Stock following the Reorganization, upon identical terms and conditions and for an identical price, and Bancorp will assume all of the Bank's obligations with respect to such outstanding options. If the Plan of Reorganization is not approved by the stockholders of the Bank, then the Stock Option Plans will continue to be the stock option plans of the Bank. RELATED PARTY TRANSACTIONS Certain Directors and officers of the Bank and members of their immediate families are at present, as in the past, customers of the Bank and have transactions with the Bank in the ordinary course of business. In addition, certain of the Directors are at present, as in the past, also directors, officers or shareholders of corporations or members of partnerships which are customers of the Bank and which have transactions with the Bank in the ordinary course of business. Such transactions with Directors and officers of the Bank and with such corporations and partnerships are on terms comparable to those charged to other customers of the Bank. Included in such transactions are loans to Directors and officers and their associates which were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and which did not involve more than the normal risk of collectability or present other features unfavorable to the Bank. EMPLOYMENT CONTRACTS, SPECIAL TERMINATION AGREEMENT The present employment agreement between the President and Chief Executive Officer and the Bank, which provides for a specified minimum annual compensation and the continuation of benefits currently received, will be amended to include Bancorp as a party. Such employment may be terminated for cause, as defined, without incurring any continuing obligations. Similarly, employment and special termination agreements with certain senior executives currently in place with the Bank will be further amended to include Bancorp as a party. The employment and special termination agreements generally provide for certain lump-sum severance payments to the executives in the event of an involuntary termination of the executives' employment without cause, within a two-year period (three years in the case of Mr. Perreault) following a "change in control of the Bank," as defined therein. See "PROPOSAL 2 -- ELECTION OF A CLASS OF DIRECTORS -- COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS -- Employment Contracts; Special Termination Agreement" (page 27). RECOMMENDATION OF DIRECTORS The Plan of Reorganization has been unanimously approved by the Boards of Directors of the Bank and Bancorp. THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK ELIGIBLE TO BE CAST BY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON THE RECORD DATE WILL BE REQUIRED TO APPROVE THE PLAN OF REORGANIZATION AND EACH OF THE TRANSACTIONS CONTEMPLATED THEREBY. THE BOARD OF DIRECTORS OF THE BANK BELIEVES THAT THE PLAN OF REORGANIZATION IS IN THE BEST INTERESTS OF THE BANK AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE BANK VOTE FOR APPROVAL OF THE PLAN OF REORGANIZATION AND EACH OF THE TRANSACTIONS CONTEMPLATED THEREBY. 20 23 PROPOSAL 2 ELECTION OF A CLASS OF DIRECTORS The Directors are divided into three classes as nearly equal in size as possible. The Directors in each class serve a term of three years, with the terms of the various classes expiring in different years and when the Directors' successors are duly elected and qualified. At the Annual Meeting three Class B Directors will be elected to serve until the Annual Meeting of stockholders of the Bank in the year 2004 and until their successors are duly elected and qualified. The Board of Directors has nominated Malcolm W. Braun, Neil H. Cullen and Richard Hart Harrington as Class B Directors (the "Nominees"). Each of the Nominees is currently serving as a Director of the Bank. Unless authority to do so has been withheld or limited in a proxy, it is the intention of the persons named as proxies to vote the shares to which the proxy relates FOR the election of the Nominees to the Board of Directors. The Board of Directors anticipates that each of the Nominees will stand for election and serve, if elected, as a Director. However, if any person nominated by the Board of Directors fails to stand for election or is unable to accept election, the proxies will be voted for the election of such other person or persons as the Board of Directors may recommend. INFORMATION REGARDING DIRECTORS The following table sets forth, for each of the three (3) Nominees for election as Class B Director at the Annual Meeting, the Nominee's name and, as of February 28, 2001, the Nominee's age and the date from which the Nominee has served as a Director of the Bank. Similar information is provided for continuing Class C and Class A Directors whose terms do not expire until the annual meetings of the stockholders of the Bank in 2002 and 2003, respectively, and until their successors are duly elected and qualified.
TRUSTEE DIRECTOR NAMES OF NOMINEES AND CONTINUING DIRECTORS AGE SINCE(1) ------------------------------------------ --- -------- NOMINEES CLASS B (TERM EXPIRING 2004) Malcolm W. Brawn............................................ 61 1991 Neil H. Cullen.............................................. 58 1991 Richard Hart Harrington..................................... 64 1995 CONTINUING DIRECTORS CLASS C (TERM EXPIRING 2002) Eugene A. Beliveau.......................................... 70 1978 Byron R. Cleveland, Jr...................................... 69 1968 Robert F. Hatem............................................. 65 1974 Paul A. Miller.............................................. 61 1989 CONTINUING DIRECTORS CLASS A (TERM EXPIRING 2003) Kathleen I. Boshar.......................................... 45 1991 Thomas J. Burke............................................. 60 1985 Marsha A. McDonough......................................... 57 1993
- --------------- (1) All Nominees and continuing Directors have served as Directors or Trustees of the Bank since the dates indicated above and continue to serve as Directors of the Bank at the present time. 21 24 PRINCIPAL OCCUPATION OF NOMINEES AND CONTINUING DIRECTORS EUGENE A. BELIVEAU, practicing dentist in North Andover, Massachusetts. KATHLEEN I. BOSHAR, Sales Manager, DeWolfe Companies, Andover, Massachusetts, a real estate brokerage company. MALCOLM W. BRAWN, Executive Vice President and Secretary of The Andover Companies, Andover, Massachusetts, a property and casualty insurance company. THOMAS J. BURKE, Register of Deeds of Essex County, Massachusetts and attorney. BYRON R. CLEVELAND, JR., President of J.H. Horne & Sons, Lawrence, Massachusetts, a manufacturer of paper mill machinery. NEIL H. CULLEN, Chief Financial Officer of Phillips Academy, Andover, Massachusetts, a private secondary school. RICHARD HART HARRINGTON, CPA, Chairman, Gordon, Harrington & Osborn, P.C., certified public accountants, North Andover, Massachusetts. ROBERT F. HATEM, Executive Assistant to the President, Northern Essex Community College, Lawrence/Haverhill, Massachusetts. MARSHA A. MCDONOUGH, Regional Education Officer, U.S. Department of State, Office of Overseas Schools, Washington, D.C. PAUL A. MILLER, President and Chief Executive Officer of the Bank. Each of the Nominees and Continuing Directors has held such position(s) for five or more years with the exception of Robert F. Hatem, who has been in his present position since January 1998, and previously was Manager, Customer/Community Relations of Raytheon Corporation's Electronic System Division, Bedford, Massachusetts, a defense contractor, Kathleen I. Boshar, who has been in her present position since July 2000, and previously was Executive Director, Residential Association of Realtors, Greater Boston Real Estate Board, Boston, Massachusetts, and Marsha A. McDonough, who has been in her present position since August, 2000 and previously was Associate Dean, Endicott College, Beverly, Massachusetts. THE BOARD OF DIRECTORS AND ITS COMMITTEES The Board of Directors of the Bank met 12 times in 2000. Each incumbent director attended at least 75% of the aggregate of the total number of meetings held by the Board and all committees of the Board on which such Director served during the period of such Director's service in 2000. The Board of Directors of the Bank has six standing committees: an Executive Committee, a Nominating Committee, an Audit Committee, a Stock Option Committee, a Community Affairs Committee and a Compensation Committee. The members of the Executive Committee are Messrs. Burke (Chairman), Beliveau, Brawn, and Miller (President & CEO) plus two additional Board members on a rotating basis. The rotating members of the Executive Committee are drawn from the six other directors not listed in the preceding sentence. Each such rotating member serves as a member of the Executive Committee for a two-month interval (four meetings) approximately twice a year. The Executive Committee is vested with authority of the Board on most matters between meetings of the Board. The Executive Committee met 26 times in 2000. The members of the Nominating Committee are Messrs. Burke (Chairman), Beliveau, Brawn and Miller (President & CEO). Persons wishing to nominate persons to the Board of Directors may make such nomination in writing and transmit it to the Nominating Committee of the Board of Directors, who will 22 25 consider such nomination in accordance with the By-Laws of the Bank. The Nominating Committee met once in 2000. The members of the Audit Committee are Messrs. Beliveau (Chairman), Cleveland, Hatem and Harrington. The Audit Committee reviews the scope of the annual audit by the Bank's independent auditors and internal auditors, monitors the Bank's internal financial and accounting controls and procedures and recommends to the Board of Directors the appointment of independent auditors. The Audit Committee held four meetings in 2000. The Audit Committee and the full Board of Directors have adopted a written charter for the Audit Committee which is attached to this Proxy Statement as Appendix D. Each member of the Audit Committee is an independent director as defined in Rule 4200(a)(15) of the Nasdaq Stock Market's Marketplace Rules. The members of the Stock Option Committee are Messrs. Burke (Chairman), Beliveau and Brawn. The Stock Option Committee administers the Bank's stock option plans. The Stock Option Committee held one meeting in 2000. The members of the Community Affairs Committee are Messrs. Hatem (Chairman) and Miller. The Community Affairs Committee reviews and approves requests for money from non-profit organizations. The Community Affairs Committee held no meetings in 2000. The members of the Compensation Committee are Messrs. Burke (Chairman), Beliveau and Brawn. The Committee prepares an annual appraisal of the performance of the Chief Executive Officer of the Bank and recommends the annual compensation and benefits for the Chief Executive Officer to the Bank's Board of Directors for the approval of the Board. The Compensation Committee met six times in 2000. AUDIT COMMITTEE REPORT The Audit Committee reviews the scope of the annual audit by the Bank's independent auditors and internal auditors, monitors the Bank's internal financial and accounting controls and procedures and recommends to the Board of Directors the appointment of independent auditors. In fulfilling its responsibilities, the Audit Committee: - discussed and considered the independence of KPMG LLP, reviewing as necessary all relationships and services which might bear on KPMG LLP's objectivity as outside auditor; - received written affirmation from KPMG LLP that it is in fact independent; - discussed the overall audit process, receiving and reviewing all reports of KPMG LLP; - involved KPMG LLP in the Audit Committee's review of the Bank's financial statements and related reports with management; - provided to KPMG LLP full access to the Audit Committee and the full Board of Directors to report on all appropriate matters; and - discussed with KPMG LLP all matters required under generally accepted auditing standards to be reviewed. The Audit Committee met with selected members of management and KPMG LLP to review financial statements (including quarterly reports), discussing such matters as the quality of earnings; estimates, reserves and accruals; the suitability of accounting principles; financial reporting decisions requiring a high degree of judgment; and audit adjustments, whether or not recorded. 23 26 The Audit Committee recommended to the Board of Directors, subject to stockholder ratification, the selection of KPMG LLP as the Bank's outside auditor. In addition, the Committee considered the quality and adequacy of the Bank's internal controls and the status of pending litigation, taxation matters and such other areas of oversight of the Bank's financial reporting and audit process as the Audit Committee felt appropriate. Based upon its work and the information received in the inquiries outlined above, the Audit Committee recommended to the Bank's Board of Directors that the Bank's audited financial statements be included in the Bank's Annual Report on Form 10-K for the year ended December 31, 2000 for filing with the Federal Deposit Insurance Corporation. Respectfully submitted, Eugene A. Beliveau (Chairman) Byron R. Cleveland, Jr. Robert F. Hatem Richard Hart Harrington COMPENSATION OF DIRECTORS The members of the Board of Directors of the Bank who serve on the Executive Committee, except for the Chairman of the Board of Directors and Mr. Miller, currently receive a fee of $600 for each Executive Committee and Board meeting plus a fee of $600 for each Committee meeting attended (other than meetings of the Executive Committee, Compensation Committee, Nominating Committee and Stock Option Committee). The Chairman of the Board of Directors receives a fee of $690 for each meeting attended, except conferences and training meetings outside of the Bank for which the fee is $600. Each Director of the Bank other than members of the Executive Committee receives a fee of $600 for each Board or Committee meeting attended. Each Director receives a fee of $600 for all conferences and training meetings attended outside the Bank. Mr. Miller does not receive any separate compensation for service as a Director or as a member of any of the Committees of the Board of Directors. 24 27 PRINCIPAL OFFICERS The following is a list, as of February 28, 2001, showing the name, age, and position or office held by each of the principal officers of the Bank as well as certain biographical information. Each of the listed Principal Officers are employed by the Bank under the terms and conditions of certain employment agreements. The Bank has also entered into a special termination agreement with Mr. Perreault. See "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS -- Employment Contracts; Special Termination Agreement" (page 27).
NAME POSITION AGE - ---- -------- --- Paul A. Miller............................ Director, President and Chief Executive Officer 61 Jeffrey W. Leeds(1)....................... Executive Vice President and Chief Lending Officer 61 Robert P. Perreault(2).................... Executive Vice President, Residential Mortgage 61 Lending and Clerk Timothy L. Felter(3)...................... Executive Vice President, Personal Banking and 40 Investment Officer John E. Sharland(4)....................... Senior Vice President, Chief Financial Officer and 38 Treasurer Richard J. D'Ambrosio(5).................. Senior Vice President, Support Services Operations 52
- --------------- (1) Jeffrey W. Leeds, who joined the Bank in 1987, has been its Chief Lending Officer since 1988. (2) Robert P. Perreault, who joined the Bank in 1959, has served as its Clerk from 1978 to the present. From 1989 to January 1999, he served as Executive Vice President and Treasurer. In January 1999, he was appointed Executive Vice President, Residential Mortgage Lending. (3) Timothy L. Felter, who joined the Bank in 1990, was appointed Senior Vice President of the Bank in 1993, Senior Vice President, Department Manager of Residential Lending in 1994, Investment Officer in 1995 and Executive Vice President, Personal Banking, and Investment Officer in January 1999. (4) John E. Sharland, who joined the Bank in 1992, was appointed Vice President and Chief Financial Officer in 1994, Senior Vice President in 1998 and Senior Vice President, CFO and Treasurer in January 1999. (5) Richard J. D'Ambrosio, who joined the Bank in 1983, was elected Vice President of Servicing 1986 and Senior Vice President of Support Services/Operations in 1998. 25 28 COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth for the fiscal years ended December 31, 2000, 1999 and 1998 certain information regarding the compensation paid or accrued to Paul A. Miller, Chief Executive Officer of the Bank, and the three other executive officers of the Bank whose total salary and bonus exceeded $100,000 during the year ended December 31, 2000, for services in all capacities to the Bank (the "named executive officers"). SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION ---------------------------------- ---------------------------- SECURITIES UNDERLYING NAME AND YEAR ENDED OPTIONS/ ALL OTHER PRINCIPAL POSITION DECEMBER 31, SALARY BONUS SARS(#) COMPENSATION($) ------------------ ------------ -------- ------- ---------- --------------- Paul A. Miller............................. 2000 $326,896(1) $62,000 0 $141,234(2)(3) President and 1999 $313,502(1) $59,000 12,000 $148,929(2)(3) Chief Executive Officer 1998 $302,169(1) $56,000 0 $114,524(2)(3) Jeffrey W. Leeds........................... 2000 $156,183 $15,100 0 $ 4,503(3) Executive Vice President 1999 $147,062 $15,000 9,000 $ 4,862(3) and Chief Lending Officer 1998 $139,092 $15,000 0 $ 4,104(3) Robert P. Perreault........................ 2000 $119,520 $ 6,000 0 $ 3,535(3) Executive Vice President 1999 $114,785 $10,000 9,000 $ 3,744(3) Residential Lending and Clerk 1998 $110,890 $10,000 0 $ 3,327(3) Timothy L. Felter.......................... 2000 $108,476 $14,700 0 $ 3,240(3) Executive Vice President 1999 $100,703 $14,000 9,000 $ 3,441(3) Personal Banking, Investment Officer 1998 $ 94,658 $12,500 0 $ 2,840(3)
- --------------- (1) Includes benefits paid on behalf of Mr. Miller and reported as wage compensation to him. (2) Represents amounts accrued to fund supplemental retirement plans for the benefit of Mr. Miller pursuant to Supplemental Retirement Agreements with Mr. Miller. See "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS -- Employment Contracts; Special Termination Agreement" (page 27). (3) Includes matching contributions by the Bank to the Bank's 401(k) Retirement Savings Plan for the named executive officer. The Bank provides an automobile for use by Mr. Miller and pays his membership dues to certain organizations. The aggregate amount of such benefits is less than 10% of Mr. Miller's cash compensation. With the exception of certain insurance premiums paid by the Bank, no other benefits are made available to executive officers that are not made available to all employees of the Bank. See "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS -- Benefits" (page 29). Employees of the Bank, including the executive officers, are covered by the Bank's group health insurance program, group life insurance program, long-term disability program and business related travel accident insurance plan. 26 29 The following table sets forth certain information concerning stock options exercised during the calendar year ended December 31, 2000 and the number and value of shares of Common Stock of the Bank subject to options held by the named executive officers as of December 31, 2000: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS SHARES AT FISCAL AT FISCAL YEAR ACQUIRED VALUE YEAR END (#) END($) ON REALIZED EXERCISABLE/ EXERCISABLE/ NAME EXERCISE ($) UNEXERCISABLE UNEXERCISABLE(1) - ---- -------- -------- ------------- ---------------- Paul A. Miller............................. 0 0 133,500/6,000 $662,620/$8,250 Jeffrey W. Leeds........................... 0 0 34,500/4,500 $141,188/$6,188 Robert P. Perreault........................ 0 0 34,500/4,500 $148,688/$6,188 Timothy L. Felter.......................... 0 0 29,180/4,500 $142,268/$6,188
- --------------- (1) Based on a closing price of $10.50 per share of the Bank's Common Stock on December 31, 2000, less the option exercise price. There were no options granted to the named executive officers during fiscal year 2000. EMPLOYMENT CONTRACTS; SPECIAL TERMINATION AGREEMENT The Bank entered into employment agreements with Paul A. Miller and Robert P. Perreault effective on April 21, 1989 and May 9, 1986, respectively, each of which were amended effective December 23, 1992, and with Jeffrey W. Leeds and Timothy L. Felter effective on February 24, 2000. Each of the employment agreements requires the Bank to pay the executive a "Base Salary," which may be increased but shall not be reduced during the term of the agreement and provides for the executive's participation in the Bank's employee benefit plans and arrangements. In addition, the Bank's agreement with Mr. Miller provides the executive with the use of an automobile. Each of the agreements prohibits the executive from disclosing or converting to the executive's own use the Bank's confidential information. The agreements with Mr. Miller and Mr. Perreault each had an initial term of three years. The agreements with Mr. Leeds and Mr. Felter have an initial term of two years. Each of the agreements provides that commencing on the second anniversary of the agreement and on each anniversary date thereafter, in the absence of notice of non-extension, the term of the agreement will automatically be extended for an additional one year period. Under the employment agreements, the Bank may terminate the executive's employment at any time, with or without "cause" as defined in the agreements. If after notice and reasonable opportunity for the executive to respond, the Bank terminates the executive's employment for "cause," the Bank has no continuing obligations to the executive. If the Bank terminates the executive's employment without cause, the Bank is obligated to continue providing the executive compensation and benefits specified in the agreement for the then remaining term of the agreement. The employment agreement with Mr. Perreault prohibits the executive from competing with the Bank and from soliciting employees or customers of the Bank during a period in which the executive is receiving benefits from the Bank under the agreement and for a one-year period following the executive's resignation or a termination of the executive's employment for cause. Each of the employment agreements except for the employment agreement with Mr. Perreault provides for payment of a lump sum to the executive equal to three times the "base amount" of the executive's 27 30 compensation in the event of a termination of the executive's employment within two years following a "change in control" of the Bank as defined in the agreement, provided that the Bank may reduce this amount to the extent necessary to avoid tax under Section 4999 of the Internal Revenue Code. In addition to Mr. Miller's employment agreement, the Bank has adopted two supplemental executive retirement plans for Mr. Miller. The purpose of the supplemental plans, when taken together with the Savings Banks Employees Retirement Association plan described below, is to provide Mr. Miller with annual retirement benefits equal to 70% of the average of his three highest consecutive years gross compensation. The plans also provide certain termination benefits under certain circumstances equal to Mr. Miller's earned and accrued benefits to date, subject to a vesting schedule and other conditions. The Bank has also entered into a special termination agreement with Mr. Perreault. As amended, the agreement provides that if there is a "Change in Control" of the Bank, which is generally defined to mean (i) the acquisition by a person or group of persons of beneficial ownership of 15% or more of the Common Stock during the term of the agreement which is not approved as provided in the agreements, or (ii) a merger, contested election or other business combination or sale which results in a change of a majority of the Board of Directors of the Bank, and if at any time during the three-year period following the Change in Control, the Bank were to terminate the contracting officer's employment for any reason other than for "cause," or if the contracting officer were to terminate his own employment following his demotion, loss of title, office or significant authority, or a reduction in his annual compensation, the officer would be entitled to receive certain severance benefits specified in the agreement. In the case of such termination, the officer would be entitled to receive a lump-sum payment in an amount equal to three times his average annual compensation over the five previous years of his employment with the Bank. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Compensation Policy The Bank's executive compensation program is designed to provide executives with annual salary and benefit plans which are competitive in the industry and with long-term incentives in the form of stock options. The Compensation Committee believes that in order to attract and retain talented executives and to motivate them to achieve the goals of the Bank, compensation opportunities should be comparable to those offered to executives with similar responsibility and position by peer banks. To assist the Compensation Committee, various industry compensation surveys are made available to the Committee. The Chief Executive Officer makes executive salary adjustments annually and from time-to-time awards bonuses. The adjustments and bonuses made by the Chief Executive Officer reflect the overall performance of the Bank, the performance of each named executive officer and information for comparable positions in other like institutions. Each executive salary adjustment and bonus is reported to the Board of Directors. The Bank periodically grants stock options to some or all of its executive officers as long-term incentives. All stock options granted are at the market value of shares of Common Stock on the date of grant; therefore no benefit accrues to the executives from the stock option unless the market value of the Bank's Common Stock increases and the options are exercised. These grants motivate executives to enhance equity value of the Bank which in turn coincides with the interest of the stockholders. No stock options were granted in 2000. Executives may also participate in the Bank's 401(k) Savings Plan and Pension Plan. Chief Executive Officer Compensation The Bank's Chief Executive Officer's compensation is reviewed annually by the Compensation Committee and is based upon his performance, the overall performance of the Bank relative to budget objectives and information regarding compensation for the Chief Executive Officer position at like institutions. The 28 31 Compensation Committee's recommendation for compensation adjustment and if applicable a bonus is then acted upon by the Board. Respectfully submitted, Thomas J. Burke (Chairman) Eugene A. Beliveau Malcolm W. Brawn COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Beliveau, Brawn, Burke and Ford served on the Compensation Committee of the Bank during the fiscal year ended December 31, 2000 (Mr. Ford served as Chairman until May 2, 2000. From and after Mr. Ford's retirement, Mr. Burke served as Chairman.) None of the members of the Compensation Committee has ever served as an officer or employee of the Bank. See also, "Indebtedness of Directors and Management and Certain Transactions with Management and Others" (page 31). No executive officer of the Bank served (i) as a member of the Compensation Committee of another entity, one of whose executive officers served on the Compensation Committee of the Bank, (ii) as a director of another entity, one of whose executive officers served on the Compensation Committee of the Bank, or (iii) as a member of the Compensation Committee of another entity, one of whose executive officers served as a director of the Bank. STOCK OPTION PLANS The Bank's 1986 Stock Option Plan was in effect until 1996. The 1986 Stock Option Plan expired by its own terms in May, 1996. Notwithstanding the expiration of the 1986 Stock Option Plan, outstanding options granted under the 1986 Stock Option Plan continue to be exercisable in accordance with their terms. On December 18, 1997, the Board of Directors of the Bank adopted a new stock option plan (the "1997 Stock Option Plan") as a performance incentive for its officers and other employees and its Directors to replace the expired 1986 Stock Option Plan. The 1997 Stock Option Plan was approved by the stockholders on May 5, 1998 and by the Massachusetts Commissioner of Banks on June 22, 1998. Both "incentive stock options" and "nonqualified stock options" may be granted pursuant to the 1997 Stock Option Plan. The 1997 Stock Option Plan also permits the inclusion of stock appreciation rights in any option granted. The 1986 and 1997 Stock Option Plans are administered by the Stock Option Committee of the Bank, which is comprised of non-employee Directors of the Bank. The Stock Option Committee currently consists of Messrs. Beliveau, Brawn and Burke. As of February 28, 2001 stock options for the purchase of an aggregate of 445,330 shares of Common Stock at an average purchase price per share of $6.70 were outstanding under the 1986 and 1997 Stock Option Plan. Of these options, 365,830 were exercisable on that date. There were 158,800 stock options outstanding under the 1997 Stock Option Plan included in the 445,330 outstanding options. In 2000, options were exercised to purchase 8,000 shares of Common Stock under the 1986 Stock Option Plan. BENEFITS Insurance and Other Benefits. The Bank provides full-time officers and employees with hospitalization, major medical, life, dental, travel accident, and long-term disability insurance under group plans which are available generally and on the same basis to all full-time employees; provided, however, that with respect to the hospitalization and major medical insurance plan, full-time employees hired on or after September 1, 29 32 1984, other than Messrs. Miller and Leeds, are required to pay 25% of each month's premiums. The travel accident insurance plan is also made available to part-time employees. The Bank also sponsors a 401(k) Savings Plan which allows participants to defer a percentage of their before-tax compensation from the Bank as a contribution under this plan. Participants have several investment options, including a fund which invests solely in Common Stock of the Bank. All full-time and certain part-time employees are eligible to participate in this plan. The Bank made matching contributions of 50% of the officer and employee contribution during 2000 for all employees who participate in the 401(k) plan up to 3% of each such employee's salary or the maximum amount allowed under the governing tax regulations. Pension Plan. The Bank provides a retirement plan for all eligible employees through Savings Banks Employees Retirement Association ("SBERA"), an unincorporated association of savings banks operating within Massachusetts and other organizations providing services to or for savings banks. SBERA's sole purpose is to enable participating employers to provide pensions and other benefits for their employees. At October 31, 2000, the latest date for which information is available, the present value of accumulated benefits under the retirement plan was fully funded by the market values of related available assets. The following table illustrates annual pension benefits for retirement at age 65 under the most advantageous plan provisions available for various levels of compensation and years of service. The figures in this table are based upon the assumption that the plan continues in its present form and upon certain other assumptions regarding compensation trends and social security. ANNUAL PENSION BENEFIT* BASED ON YEARS OF SERVICE(1)(2)
AVERAGE 10 15 20 25 OR COMPENSATION(3) YEARS YEARS YEARS MORE YEARS - --------------- ------- ------- ------- ---------- $ 20,000 ................................. $ 2,500 $ 3,750 $ 5,000 $ 6,250 $ 40,000 ................................. $ 5,294 $ 7,940 $10,587 $13,234 $ 60,000 ................................. $ 8,994 $13,490 $17,987 $22,484 $ 80,000 ................................. $12,694 $19,040 $25,387 $31,734 $100,000 ................................. $16,394 $24,590 $32,787 $40,984 $120,000 ................................. $20,094 $30,140 $40,187 $50,234 $125,000 ................................. $21,019 $31,528 $42,037 $52,547 $140,000 ................................. $23,794 $35,690 $47,587 $59,484 $150,000 ................................. $25,644 $38,465 $51,287 $64,109 $170,000** ................................. $29,344 $44,015 $58,687 $73,359
- --------------- * Based on age 65 retirement in 2001 (Plan Year 11/1/00 - 10/31/01) ** Federal law does not permit defined benefit pension plans to recognize compensation in excess of $170,000 for plan year 2000. (1) The annual pension benefit is computed on the basis of a straight life annuity. (2) The Bank provides additional retirement benefits to Mr. Miller through two supplemental retirement plans. See "Employment Contracts; Special Termination Agreement." (3) Average compensation for purposes of this table is based on the average of the highest three consecutive years preceding retirement. The estimated retirement benefits under the plan at normal retirement date computed on the basis of their present salary levels and years of service at such date for Mr. Miller, Mr. Perreault, Mr. Leeds and 30 33 Mr. Felter are $46,005 and 16 years, $51,018 and 46 years and $51,756 and 18 years, and $45,903 and 36 years, respectively. PERFORMANCE GRAPH Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the Bank's Common Stock, based on the market price of the Bank's Common Stock and assuming reinvestment of dividends, with the total return of companies within the Standard & Poor's 500 Stock Index and the Advest New England Thrift Index. The calculation of total cumulative return assumes a $100 investment in the Bank's Common Stock, the S&P 500 and the Advest New England Thrift Index on December 31, 1995. [Line Graph] FIVE YEAR TOTAL RETURN LSBX vs. ADVEST NEW ENGLAND THRIFT INDEX(1) AND S&P 500
ADVEST NEW ENGLAND THRIFT INDEX S&P 500 LSBX INDEX --------------- ------- ---------- 12/31/95 100 100 100 3/31/96 101.76 104.8 129.73 6/30/96 107.74 108.88 116.22 9/30/96 113.59 111.59 145.95 12/31/96 130.05 120.26 175.68 3/31/97 137.61 122.92 213.51 6/30/97 162.42 137.72 243.24 9/30/97 201.17 153.8 272.97 12/31/97 224.35 157.56 354.05 3/31/98 220.2 178.88 370.27 6/30/98 209.77 184.09 336.49 9/30/98 162.23 165.12 278.49 12/31/98 167.36 199.57 276.97 3/31/99 143.81 208.85 208.11 6/30/99 165.7 222.87 203.78 9/30/99 156.46 208.26 170.91 12/31/99 150.45 238.54 167.9 3/31/00 149.26 243.3 155.68 6/30/00 157.42 236.16 157.23 9/30/00 169.5 233.23 198.12 12/31/00 175.04 214.36 239.32
(1) Commencing last year, the Advest New England Thrift Index was substituted for the KBW New England Savings Bank Index, which the Bank used for performance comparison purposes in proxy statements for annual meetings in prior years. Publication of the KBW New England Savings Bank Index was discontinued by its publisher, Keefe Bruyette & Woods, Inc. INDEBTEDNESS OF DIRECTORS AND MANAGEMENT AND CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS Certain of the Bank's Directors and officers are at present, as in the past, customers of the Bank and from time-to-time have entered into transactions with the Bank in the ordinary course of business. In addition, certain Bank Directors are at present, as in the past, directors, officers or stockholders of corporations or members of partnerships that are customers of the Bank, and have transactions with the Bank in the ordinary course of business. Such transactions with Directors and officers of the Bank, and with such corporations and 31 34 partnerships, are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons not affiliated with the Bank, and do not involve more than normal risk of collectability, or present other features unfavorable to the Bank. As a matter of policy, the Bank also makes certain loans to other employees. In addition, from time-to-time, the Bank obtains services from one or more of its Directors. However, at no time during the past year did payments to any Director for such services aggregate $60,000 or more. Extensions of credit to officers of the Bank are restricted by Bank policy and Massachusetts statute to an amount of not more than $20,000, whether secured or unsecured, and not more than $75,000 for educational purposes, except that a loan not exceeding $275,000 may be made to officers secured by a mortgage on their primary residence. All extensions of credit and loans to officers must be approved by the Executive Committee of the Board of Directors of the Bank, and all extensions of credit and loans to executive officers must also be approved by the Bank's Board of Directors. In addition, the Bank is subject to the provisions of Regulation "O" of the Board of Governors of the Federal Reserve System, which: (i) requires the Bank's executive officers, directors and control persons to report to the Bank's Board of Directors any indebtedness to the Bank, (ii) establishes requirements and restrictions as to the terms, size of and approvals necessary for extensions of credit by the Bank to its executive officers, directors, and control persons, and (iii) requires any such loans to be made at the same rates and on the same terms and conditions as comparable loans to unaffiliated persons. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information, as of February 28, 2001, regarding the beneficial ownership of Common Stock by: (i) each Director and Nominee for Director of the Bank, including Mr. Miller; (ii) each of the other three most highly compensated executive officers of the Bank during the last fiscal year, (iii) all Directors, Nominees for Director and executive officers as a group; and (iv) each person who, to the knowledge of the Bank, beneficially owned more than 5% of the Common Stock at the Record Date. Except as otherwise noted, the persons named in the table below have sole voting and investment power with respect to all shares shown as beneficially owned.
AMOUNT AND NATURE OF BENEFICIAL PERCENT NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) OF CLASS(3) ------------------------ ----------------- ----------- Directors and Principal Officers Eugene A. Beliveau........................................ 5,975(4) * Kathleen I. Boshar........................................ 3,200 * Byron R. Cleveland, Jr.................................... 3,600 * Robert F. Hatem........................................... 6,775 * Paul A. Miller............................................ 150,420** 3.44% Thomas J. Burke........................................... 8,850 * Marsha A. McDonough....................................... 2,800 * Malcolm W. Brawn.......................................... 19,500(5) * Neil H. Cullen............................................ 4,500 * Richard Hart Harrington................................... 2,755 * Jeffrey W. Leeds.......................................... 56,820 1.30% Robert P. Perreault....................................... 49,200(6) 1.12% Timothy L. Felter......................................... 33,680** * All Directors and Principal Officers as a Group (15 persons)................................................ 383,075(7)** 8.77%
32 35
AMOUNT AND NATURE OF BENEFICIAL PERCENT NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) OF CLASS(3) ------------------------ ----------------- ----------- 5% Stockholders First Manhattan Co........................................ 341,200(8) 7.80% William P. Deluca Jr. and Lease and Rental Management Corp.................................................... 434,800(9) 9.6%
- --------------- * Less than one percent ** Includes shares held in the Bank's 401(k) Plan. The estimated shares so held with respect to each such participant are: Paul A. Miller, 12,420 shares, Timothy L. Felter, 7,880 shares; John E. Sharland, 3,573 shares; and all Directors and Principal Officers as a Group (15 persons), 23,872 shares, respectively. (1) In accordance with the applicable rules of the Federal Deposit Insurance Corporation (the "FDIC"), a person is deemed to be the beneficial owner of shares of the Common Stock of the Bank if he or she has or shares voting power or investment power with respect to such shares or has the right to acquire beneficial ownership at any time within 60 days. As used herein, "voting power" means the power to vote or direct the voting of shares, and "investment power" means the power to dispose or direct the disposition of shares. Unless otherwise indicated, each person named has sole voting and sole investment power with respect to all shares indicated. (2) Including shares of the Bank's Common Stock which Directors and principal officers of the Bank have the right to acquire within 60 days of February 28, 2001 pursuant to options granted under the 1986 and 1997 Stock Option Plans of the Bank. The following persons have exercisable options to purchase the number of shares indicated: Mr. Miller, 133,500 shares; Messrs. Leeds and Perreault, 34,500 shares each; Mr. Felter, 29,180 shares; Mr. D'Ambrosio, 21,500 shares; Mr. Sharland, 11,500 shares; Mr. Burke, 7,500 shares; Messrs. Beliveau and Hatem, 3,500 shares each; Messrs. Cleveland and Harrington 2,500 shares each; Ms. McDonough, 2,100 shares; Ms. Boshar and Messrs. Brawn and Cullen 1,500 shares each; and all Directors and principal officers as a group, 290,780 shares. See "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS -- Stock Option Plans" (page 29). (3) Computed on the basis of 4,371,500 outstanding shares as of February 28, 2001 plus 290,780 shares subject to options exercisable within 60 days of February 28, 2001 held by the named individual or group. (4) Includes 700 shares owned by a household member, as to which Dr. Beliveau disclaims beneficial ownership. (5) Includes 1,000 shares owned by his spouse, as to which Mr. Brawn disclaims beneficial ownership. (6) Includes 700 shares owned by his spouse, as to which Mr. Perreault disclaims beneficial ownership. (7) The stated number of shares owned by principal officers and Directors of the Bank includes 92,295 shares currently issued and outstanding and 290,780 shares subject to stock options exercisable within 60 days of February 28, 2001. (8) Based solely on Amendment No. 2 to Form 13G filed with the Securities and Exchange Commission on or about February 7, 2001, First Manhattan Co. reports beneficial ownership of 341,200 shares of Bank Common Stock. First Manhattan Co. reports sole voting and dispositive power with respect to 284,300 shares, shared voting power with respect to 26,400 shares and shared dispositive power with respect to 56,900 shares. First Manhattan Co.'s address is 437 Manhattan Avenue, New York, NY 10022. (9) Based solely on a Form 13G filed with the Federal Deposit Insurance Corporation on or about February 9, 2001, Lease and Rental Management Corp. reports beneficial ownership of 415,400 shares of Common Stock of the Bank. Based solely on a Form 13G filed with the Federal Deposit Insurance Corporation on or about February 9, 2001, Mr. William P. DeLuca Jr. reports beneficial ownership of 33 36 434,800 shares of Common Stock of the Bank, with sole voting and dispositive power with respect to 10,500 shares and shared voting and dispositive power with respect to 424,300 shares. Both Mr. DeLuca and Lease and Rental Management Corp. have an address of 45 Haverhill Street, Andover, Massachusetts 01810. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Pursuant to regulations of the FDIC and Section 16(a) of the Securities Exchange Act of 1934, as amended, the Bank's officers and Directors and persons who own more than ten percent of a registered class of the Bank's equity securities must file reports of ownership and changes in ownership with the FDIC and the Nasdaq Stock Market. Officers, Directors and greater-than-ten-percent stockholders are required to furnish the Bank with copies of all ownership reports they file. Based solely on its review of the copies of such reports received by the Bank with respect to its fiscal year 2000, or written representations from certain reporting persons, the Bank believes that during 2000 all Section 16(a) filing requirements applicable to its officers, Directors, and greater-than-ten-percent stockholders were satisfied except as described herein. On December 11, 2000, Director Kathleen Boshar exercised options to purchase 1000 shares of Common Stock of the Bank. The foregoing transaction was reported approximately a week and a half late upon the filing of Form F-8. PROPOSAL 3 PROPOSAL FOR ELECTION OF CLERK At the Annual Meeting, the Clerk of the Bank will be elected to serve until the 2002 Annual Meeting and until his successor is duly elected and qualified. The Board of Directors has nominated Robert P. Perreault for the position of Clerk. Mr. Perreault is currently serving as Clerk of the Bank and has served in that capacity since 1978. For further biographical and employment information regarding Mr. Perreault, see "PROPOSAL 2 -- ELECTION OF A CLASS OF DIRECTORS -- PRINCIPAL OFFICERS" (page 25) and "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS" (page 26). Unless authority to do so has been withheld or limited in a proxy, it is the intention of the persons named as proxies to vote the shares to which the proxy relates FOR the election of Robert Perreault as Clerk of the Bank. The Board of Directors anticipates that Mr. Perreault will stand for election and serve, if elected, as Clerk. However, if Mr. Perreault fails to stand for election or is unable to serve as Clerk, the Board of Directors may fill the vacancy in the office of Clerk until the next meeting of the stockholders of the Bank. PROPOSAL 4 RATIFICATION OF INDEPENDENT AUDITORS The Board of Directors of the Bank has appointed KPMG LLP as independent auditors for the Bank for the current fiscal year. KPMG LLP has served as the Bank's independent auditors since 1980. KPMG LLP has no direct or indirect financial interest in the Bank, nor has it had any connection with the Bank in the capacity of promoter, underwriter, voting trustee, director, officer or employee. The professional services provided by KPMG LLP include the audit of the annual consolidated financial statements of the Bank, review of the filings with various state and federal regulatory agencies, general accounting services and preparation of income tax returns. A representative of KPMG LLP will be present at the Annual Meeting to answer appropriate questions that may be raised orally and to make a statement if he or she desires to do so. 34 37 AUDIT FEES The aggregate audit fees paid to KPMG LLP for fiscal year 2000 were $91,000. This sum includes the cost incurred by the Bank in connection with KPMG LLP's audit of the year end financial statements as well as the reviews of the financial statements of Bank included in the Bank's Forms 10-Q for fiscal year 2000. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION For fiscal year 2000, there were no fees billed by KPMG LLP relating to the design, implementation, operation or management of the Bank's financial information systems. ALL OTHER FEES The aggregate amount of all other fees billed by KPMG LLP for services rendered to the Bank during fiscal year 2000 is $48,000. This sum includes fees for tax return preparation and tax advisory services. The Audit Committee of the Board of Directors of the Bank has determined that the payment to KPMG LLP of these tax return preparation and advisory fees is compatible with maintaining KPMG LLP's independence as the Bank's principal accountants. Unless authority to do so has been withheld or limited in a proxy, it is the intention of the persons named as proxies to vote the shares to which the proxy relates FOR the ratification of KPMG LLP as independent auditors for the current fiscal year. STOCKHOLDER PROPOSALS AT 2002 ANNUAL MEETING Under the rules of the Securities and Exchange Commission, as cross-referenced by the FDIC, if any stockholder intends to present a proposal at the Annual Meeting of stockholders and desires that it be considered for inclusion in the Bank's proxy statement and form of proxy for such meeting, it must be received by the Bank not less than 120 calendar days before the anniversary of the mailing date of the Bank's proxy statement for the prior year. Accordingly, if any stockholder intends to present a proposal at the year 2002 Annual Meeting and wishes it to be considered in the Bank's proxy statement and form of proxy, such proposal must be received by the Bank on or before December 24, 2001. In addition, the Bank's By-Laws provide that any director nominations and new business submitted by a stockholder must be filed with the Clerk of the Bank no fewer than 60 days, but no more than 90 days, prior to the date of the one-year anniversary of the previous Annual Meeting, and that no other nominations or proposals by stockholders shall be acted upon at the Annual Meeting. Certain exceptions under the By-Laws apply to annual meetings of stockholders. Any such proposal should be mailed to: Clerk, Lawrence Savings Bank, 30 Massachusetts Avenue, North Andover, Massachusetts 01845. If the Reorganization described in this Proxy Statement is consummated, the deadline for submission of proposals to be considered at the 2002 Annual Meeting of Bancorp will be the same as it would otherwise have been for the 2002 Annual Meeting of the Bank. Such proposals should be mailed to: Clerk, LSB Corporation, 30 Massachusetts Avenue, North Andover, Massachusetts 01845. OTHER MATTERS As of the date of this Proxy Statement, the Board of Directors of the Bank knows of no matters to be brought before the Annual Meeting other than those specifically listed in the Notice of Annual Meeting of Stockholders. However, if further business is properly presented, the persons named as proxies in the accompanying proxy will vote such proxy in their discretion in accordance with their best judgment. 35 38 EXHIBIT A PLAN OF REORGANIZATION AND ACQUISITION PURSUANT TO SECTION 26B OF CHAPTER 172 OF THE GENERAL LAWS OF MASSACHUSETTS This Plan of Reorganization and Acquisition (the "Plan") is dated as of March 12, 2001, and made between Lawrence Savings Bank, a Massachusetts savings bank in stock form (the "Bank"), and LSB Corporation, a Massachusetts corporation ("LSB Corp."). The Bank is a stock savings bank, duly organized and validly existing under the laws of The Commonwealth of Massachusetts, with its principal office at 30 Massachusetts Avenue, North Andover, Massachusetts 01845. As of the date hereof, the authorized capital stock of the Bank consists of (1) 20,000,000 shares of common stock, par value $0.10 per share (the "Bank Common Stock"), of which 4,371,500 shares are issued and outstanding, 286,530 shares are reserved for issuance under the Bank's 1986 Stock Option Plan (as the same may be renamed from time to time), and, 158,800 shares are reserved for issuance under the Bank's 1997 Stock Option Plan (the 1986 Stock Option Plan and the 1997 Stock Option Plan are collectively referred to herein as the "Stock Option Plans"), and (2) 5,000,000 shares of preferred stock, par value $0.10 per share, none of which shares are issued and outstanding. LSB Corp. is a corporation, duly organized and validly existing under the laws of The Commonwealth of Massachusetts, with its principal office at 30 Massachusetts Avenue, North Andover, Massachusetts 01845. The articles of organization of LSB Corp. at the Effective Time (as defined herein) will provide for authorized capital stock consisting of 20,000,000 shares of common stock, par value $0.10 per share (the "LSB Corp. Common Stock"), and 5,000,000 shares of preferred stock, par value $0.10 per share. As of the date hereof, there are 100 shares of LSB Corp. Common Stock issued and outstanding, all of which are held by the Bank. The Bank and LSB Corp. have agreed that LSB Corp. will acquire all of the issued and outstanding shares of Bank Common Stock (together with associated preferred stock purchase rights) in exchange for shares of LSB Corp. Common Stock (together with associated preferred stock purchase rights) pursuant to the provisions of Section 26B of Chapter 172 of the General Laws of Massachusetts and of this Plan. The Plan has been adopted and approved by a vote of a majority of all the members of the Board of Directors of the Bank, and by a vote of a majority of all the members of the Board of Directors of LSB Corp. The officers of the Bank and of LSB Corp. whose respective signatures appear below have been duly authorized to execute and deliver this Plan. Now, THEREFORE, in consideration of these premises, the Bank and LSB Corp. agree as follows: SECTION 1 -- APPROVAL AND FILING OF PLAN 1.1. The Plan shall be submitted for approval by the holders of Bank Common Stock at a meeting to be called and held in accordance with the applicable provisions of law. Notice of such meeting shall be published at least once a week for two successive weeks in a newspaper of general circulation in the County of Essex, Commonwealth of Massachusetts. Both of said publications shall be at least fifteen days prior to the date of the meeting. 1.2. Upon approval of the Plan by the affirmative vote of the holders of 66 2/3% of the outstanding shares of Bank Common Stock as required by law, the Bank and LSB Corp. shall submit the Plan to the Commissioner of Banks of The Commonwealth of Massachusetts (the "Bank Commissioner") for his approval and filing in accordance with the provisions of Section 26B of Chapter 172 of the General Laws of A-1 39 Massachusetts. The Plan shall be accompanied by such certificates of the respective officers of the Bank and LSB Corp. as may be required by law and a written request from the Bank that the Plan not be filed by the Bank Commissioner until such future time as the Bank Commissioner shall have received from the Bank and LSB Corp. the written notice described in Subsection 2.1. 1.3. If the requisite approval of the Plan is obtained at the meeting of holders of Bank Common Stock referred to in Subsection 1.1, thereafter and until the Effective Time, as hereinafter defined, the Bank shall issue certificates for Bank Common Stock, whether upon transfer or otherwise, only if such certificates bear a legend indicating that the Plan has been approved and that shares of Bank Common Stock evidenced by such certificates are subject to acquisition by LSB Corp. pursuant to the Plan. SECTION 2 -- DEFINITION OF EFFECTIVE TIME 2.1. The Plan shall become effective at 12:01 A.M. on the first business day following the date on which the Bank and LSB Corp. advise the Bank Commissioner in writing (i) that all the conditions precedent to the Plan becoming effective specified in Section 5 have been satisfied and (ii) that the Plan has not been abandoned by the Bank or LSB Corp. in accordance with the provisions of Section 6, or at such other date and time as is specified in such written notice to the Bank Commissioner. Such time is hereafter called the "Effective Time." SECTION 3 -- ACTIONS AT THE EFFECTIVE TIME 3.1. At the Effective Time, LSB Corp. shall, without any further action on its part or on the part of the holders of Bank Common Stock, automatically and by operation of law acquire and become the owner for all purposes of all the then issued and outstanding shares of Bank Common Stock (together with associated preferred stock purchase rights) and shall be entitled to have issued to it by the Bank a certificate or certificates representing such shares. Thereafter, LSB Corp. shall have full and exclusive power to vote such shares of Bank Common Stock, to receive dividends thereon and to exercise all rights of an owner thereof. 3.2. At the Effective Time, the shares of LSB Corp. Common Stock which are outstanding immediately prior to the Effective Time shall be canceled. 3.3. At the Effective Time, the holders of the then issued and outstanding shares of Bank Common Stock (together with associated preferred stock purchase rights) shall, without any further action on their part or on the part of LSB Corp., automatically and by operation of law cease to own such shares and shall instead become owners of one share of LSB Corp. Common Stock (together with associated preferred stock purchase rights) for each share of Bank Common Stock held by them immediately prior to the Effective Time. Thereafter, such persons shall have full and exclusive power to vote such shares of LSB Corp. Common Stock, to receive dividends thereon, except as otherwise provided herein, and to exercise all rights of an owner thereof. 3.4. At the Effective Time, all previously issued and outstanding certificates representing shares of Bank Common Stock (the "Old Certificates") shall automatically and by operation of law cease to represent shares of Bank Common Stock or any interest therein and each Old Certificate shall instead represent the ownership by the holder thereof of an equal number of shares of LSB Corp. Common Stock. No holder of an Old Certificate shall be entitled to vote the shares of Bank Common Stock formerly represented by such certificate, or to receive dividends thereon, or to exercise any other rights of ownership in respect thereof. 3.5. Notwithstanding any of the foregoing, any Dissenting Stockholder, as defined in Subsection 8.1, shall have such rights as are provided by Subsection 8.2 and by the laws of The Commonwealth of Massachusetts. A-2 40 SECTION 4 -- ACTIONS AFTER THE EFFECTIVE TIME As soon as practicable and in any event not more than thirty days after the Effective Time: 4.1. LSB Corp. shall deliver to the transfer agent for the Bank and LSB Corp. (the "Transfer Agent"), as agent for the then holders of the Old Certificates (other than Old Certificates representing shares of Bank Common Stock as to which dissenters' appraisal rights shall have been exercised), a certificate or certificates for the aggregate number of shares of LSB Corp. Common Stock (the "New Certificates"), to which said holders shall be entitled. Each such holder may surrender his Old Certificate to the Transfer Agent and receive in exchange therefor a New Certificate for an equal number of shares of LSB Corp. Common Stock. However, holders of Old Certificates need not surrender Old Certificates to the transfer Agent in exchange for a New Certificate. The Transfer Agent shall treat Old Certificates as representing for all purposes an equal number of shares of LSB Corp. Common Stock. 4.2. LSB Corp. may publish a notice to the holders of all Old Certificates, specifying the Effective Time of the Plan and notifying such holders that they may present their Old Certificates to the Transfer Agent for exchange for a New Certificate representing an equal number of shares of LSB Corp. Common Stock. Such notice may likewise be given by mail to such holders at their addresses on the Bank's records. SECTION 5 -- CONDITIONS PRECEDENT The Plan and the acquisition provided for herein shall not become effective unless all of the following first shall have occurred: 5.1. The Plan shall have been approved by the affirmative vote of the holders of two-thirds of the outstanding Bank Common Stock at a meeting of such stockholders called for such purpose. 5.2. The Plan shall have been approved by the Bank Commissioner and a copy of the Plan with his approval endorsed thereon shall have been filed in his office, all as provided in Section 26B of Chapter 172 of the General Laws of Massachusetts. 5.3. Any approval, consent, or waiver required by the Board of Governors of the Federal Reserve System shall have been received, and any waiting period imposed by applicable law shall have expired. 5.4. The Bank shall have received a favorable opinion from KPMG, LLP, satisfactory in form and substance to the Bank, with respect to the federal income tax consequences of the Plan and the acquisition contemplated thereby. 5.5. The shares of LSB Corp. Common Stock (together with associated preferred stock purchase rights) to be issued to the holders of Bank Common Stock pursuant to the Plan shall have been registered or qualified for such issuance to the extent required under all applicable state securities laws. 5.6. The Bank and LSB Corp. shall have obtained all other consents, permissions and approvals and taken all actions required by law or agreement, or deemed necessary by the Bank or LSB Corp., prior to the consummation of the acquisition provided for by the Plan and to LSB Corp.'s having and exercising all rights of ownership with respect to all of the outstanding shares of Bank Common Stock acquired by it thereunder. A-3 41 SECTION 6 -- ABANDONMENT OF PLAN 6.1. The Plan may be abandoned by either the Bank or LSB Corp. at any time before the Effective Time in the event that: (a) Necessary regulatory approvals cannot be obtained, or the conditions or obligations associated with such regulatory approvals make consummation of the acquisition contemplated by the Plan inadvisable in the opinion of Bank or LSB Corp.; (b) The number of shares of Bank Common Stock owned by Dissenting Stockholders, as defined in Subsection 8.1, shall make consummation of the acquisition contemplated by the Plan inadvisable in the opinion of the Bank or LSB Corp.; (c) Any action, suit, proceeding or claim has been instituted, made or threatened relating to the Plan which shall make consummation of the acquisition contemplated by the Plan inadvisable in the opinion of the Bank or LSB Corp.; or (d) For any other reason consummation of the acquisition contemplated by the Plan is inadvisable in the opinion of the Bank or LSB Corp.. Such abandonment shall be effected by written notice by either the Bank or LSB Corp. to the other of them, and shall be authorized or approved by the Board of Directors of the party giving such notice. Upon the giving of such notice, the Plan shall be terminated and there shall be no liability hereunder or on account of such on the part of the Bank or LSB Corp. or the Directors, officers, employees, agents or stockholders of either of them. In the event of abandonment of the Plan, the Bank shall pay the fees and expenses incurred by itself and LSB Corp. in connection with the Plan and the proposed acquisition. If either party hereto gives written notice of termination to the other party pursuant to this section, the party giving such written notice shall simultaneously furnish a copy thereof to the Bank Commissioner. SECTION 7 -- AMENDMENT OF PLAN 7.1. The Plan may be amended or modified at any time by mutual agreement of the Boards of Directors of LSB Corp. and the Bank (i) prior to its approval by the stockholders of the Bank, in any respect, and (ii) subsequent to such approval, in any respect, provided that the Bank Commissioner shall approve of such amendment or modification. SECTION 8 -- RIGHTS OF DISSENTING STOCKHOLDERS 8.1. "Dissenting Stockholders" shall mean those holders of Bank Common Stock who file with the Bank before the taking of the vote on the Plan, written objection to the Plan, pursuant to Section 86 of Chapter 156B of the General Laws of Massachusetts, stating that they intend to demand payment for their shares of Bank Common Stock if the Plan is consummated and whose shares are not voted in favor of the Plan. 8.2. Dissenting Stockholders who comply with the provisions of Sections 86 to 98, inclusive, of Chapter 156B of the General Laws of Massachusetts and all other applicable provisions of law shall be entitled to receive from the Bank payment of the fair value of their shares of Bank Common Stock upon surrender by such holders of the certificates which previously represented shares of Bank Common Stock. Certificates so obtained by the Bank, upon payment of the fair value of such shares as provided by law, shall be canceled. Shares of LSB Corp. Common Stock, to which Dissenting Stockholders would have been entitled had they not dissented, shall be deemed to constitute authorized but unissued shares of LSB Corp. Common Stock and A-4 42 may be sold or otherwise disposed of by LSB Corp. at the discretion of, and on such terms as may be fixed by, its Board of Directors. SECTION 9 -- STOCK OPTIONS; SHAREHOLDER RIGHTS PLAN 9.1 By approving and entering into the Plan and by consummation of the acquisition contemplated by the Plan, LSB Corp. shall have approved adoption by LSB Corp. of the Stock Option Plans of the Bank as the Stock Option Plans of LSB Corp. and shall have agreed to issue LSB Corp. Common Stock in lieu of Bank Common Stock pursuant to stock options then outstanding under the Stock Option Plans. As of the Effective Time, the unexercised portion of the options outstanding under the existing Stock Option Plans shall be assumed by LSB Corp. and thereafter shall be exercisable only for shares of LSB Corp. Common Stock, with each such option being exercisable for a number of shares of LSB Corp. Common Stock equal to the number of shares of Bank Common Stock that were available thereunder immediately prior to the Effective Time, and with no change in the exercise price or any other term or condition of such option. LSB Corp. and the Bank shall make appropriate amendments to the Stock Option Plans to reflect the adoption of such plans as the Stock Option Plans of LSB Corp. without adverse effect upon the options outstanding under the Stock Option Plans. 9.2 By approving and entering into the Plan and by consummation of the acquisition contemplated by the Plan, and subject to any required third party consents or approvals, LSB Corp. shall be deemed to have approved adoption by LSB Corp. of the Rights Agreement dated as of December 19, 1996 between the Bank and State Street Bank and Trust Company (the "Shareholder Rights Plan") as the Shareholder Rights Plan of LSB Corp. and to have agreed to issue LSB Corp. Preferred Stock in lieu of Bank Preferred Stock pursuant to preferred stock purchase rights then outstanding under the Shareholder Rights Plan. As of the Effective Time, the unexercised portion of the rights outstanding under the existing Shareholder Rights Plan shall be assumed by LSB Corp. and thereafter shall be exercisable only for shares of LSB Corp. Preferred Stock, with each such right being exercisable for a number of shares of LSB Corp. Preferred Stock equal to the number of shares of Bank Preferred Stock that were available thereunder immediately prior to the Effective Time, and with no change in the exercise price or any other term or condition of such right or Preferred Stock except that any term or condition referring to the acquisition of a specified number or percentage of outstanding shares of Bank Common or Preferred Stock shall be deemed to refer respectively to a like number or percentage of outstanding shares LSB Corp. Common or Preferred Stock. LSB Corp. and the Bank shall make appropriate amendments to the Shareholder Rights Plan to reflect the adoption of such plan as the Shareholder Rights Plan of LSB Corp. without adverse effect upon any rights outstanding under the such plan. SECTION 10 -- GOVERNING LAW The Plan shall take effect as a sealed instrument and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. A-5 43 SECTION 11 -- COUNTERPARTS The Plan may be executed in several identical counterparts, each of which when executed and delivered by the parties hereto shall be an original, but all of which together shall constitute a single instrument. In making proof of the Plan, it shall not be necessary to produce or account for more than one such counterpart. LAWRENCE SAVINGS BANK By: /s/ ---------------------------------- Paul A. Miller President and Chief Executive Officer ATTEST: /s/ - --------------------------------------------------- Robert P. Perreault Clerk LSB CORPORATION By: /s/ ---------------------------------- Paul A. Miller President and Chief Executive Officer ATTEST: /s/ - --------------------------------------------------- Robert P. Perreault Clerk I hereby approve this Plan of Reorganization and Acquisition. ------------------------------------ Thomas J. Curry Commissioner of Banks - --------------------------------------------------- Date A-6 44 EXHIBIT B APPRAISAL SEC. 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES If a corporation proposes to take a corporate action as to which any section of this chapter provides that a stockholder who objects to such action shall have the right to demand payment for his shares and an appraisal thereof, sections eighty-seven to ninety-eight, inclusive, shall apply except as otherwise specifically provided in any section of this chapter. Except as provided in sections eighty-two and eighty-three, no stockholder shall have such right unless (1) he files with the corporation before the taking of the vote of the shareholders on such corporate action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) his shares are not voted in favor of the proposed action. SEC. 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING; FORM The notice of the meeting of stockholders at which the approval of such proposed action is to be considered shall contain a statement of the rights of objecting stockholders. The giving of such notice shall not be deemed to create any rights in any stockholder receiving the same to demand payment for his stock, and the directors may authorize the inclusion in any such notice of a statement of opinion by the management as to the existence or non-existence of the rights of the stockholders to demand payment for their stock on account of the proposed corporate action. The notice may be in such form as the directors or officers calling the meeting deem advisable, but the following form of notice shall be sufficient to comply with this section: "If the action proposed is approved by the stockholders at the meeting and effected by the corporation, any stockholder (1) who files with the corporation before the taking of the vote on the approval of such action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) whose shares are not voted in favor of such action has or may have the right to demand in writing from the corporation (or, in the case of consolidation or merger, the name of the resulting or surviving corporation shall be inserted), within twenty days after the date of mailing to him of notice in writing that the corporate action has become effective, payment for his shares and an appraisal of the value thereof. Such corporation and any such stockholder shall in such cases have the rights and duties and shall follow the procedure set forth in section 88 to 98, inclusive, of chapter 156B of the General Laws of Massachusetts." SEC. 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO The corporation taking such action, or in the case of a merger or consolidation the surviving or resulting corporation, shall, within ten days after the date on which such corporate action became effective, notify each stockholder who filed a written objection meeting the requirements of section eighty-six and whose shares were not voted in favor of the approval of such action, that the action approved at the meeting of the corporation which he is a stockholder has become effective. The giving of such notice shall not be deemed to create any rights in any stockholder receiving the same to demand payment for his stock. The notice shall be sent by registered or certified mail, addressed to the stockholder at his last known address as it appears in the records of the corporation. SEC. 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT If within twenty days after the date of mailing of a notice under subsection (e) of section eighty-two, subsection (f) of section eighty-three, or section eighty-eight, any stockholder to whom the corporation was required to give such notice shall demand in writing from the corporation taking such action, or in the case of a B-1 45 consolidation or merger from the resulting or surviving corporation, payment for his stock, the corporation upon which such demand is made shall pay to him the fair value of his stock within thirty days after the expiration of the period during which such demand may be made. SEC. 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE If during the period of thirty days provided for in section eighty-nine the corporation upon which such demand is made and any such objecting stockholder fail to agree as to the value of such stock, such corporation or any such stockholder may within four months after the expiration of such thirty-day period demand a determination of the value of the stock of all such objecting stockholders by a bill in equity filed in the superior court in the county where the corporation in which such objecting stockholder held stock had or has its principal office in the commonwealth. SEC. 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE If the bill is filed by the corporation, it shall name as parties respondent all stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as to the value thereof. If the bill is filed by a stockholder, he shall bring the bill in his own behalf and in behalf of all other stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as to the value thereof, and service of the bill shall be made upon the corporation by subpoena with a copy of the bill annexed. The corporation shall file with its answer a duly verified list of all such other stockholders, and such stockholders shall thereupon be deemed to have been added as parties to the bill. The cooperation shall give notice in such form and returnable on such date as the court shall order to each stockholder party to the bill by registered or certified mail, addressed to the last known address of such stockholder as shown in the records of the corporation, and the court may order such additional notice by publication or otherwise as it deems advisable. Each stockholder who makes demand as provided in section eighty-nine shall be deemed to have consented to the provisions of this section relating to notice, and the giving of notice by the corporation to any such stockholder in compliance with the order of the court shall be a sufficient service of process on him. Failure to give notice to any stockholder making demand shall not invalidate the proceedings as to other stockholders to whom notice was properly given, and the court may at any time before the entry of a final decree make supplementary orders of notice. SEC. 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE After hearing the court shall enter a decree determining the fair value of the stock of those stockholders who have become entitled to valuation of and payment for their shares, and shall order the corporation to make payment of such value, together with interest, if any, as hereinafter provided, to the stockholders entitled thereto upon the transfer by them to the corporation of the certificates representing such stock if certificated or, if uncertificated, upon receipt of an instruction transferring such stock to the corporation. For this purpose, the value of the shares shall be determined as of the day preceding the date of the vote approving the proposed corporate action and shall be exclusive of any element of value arising from the expectation or accomplishment of the proposed corporate action. SEC. 93. REFERENCE TO SPECIAL MASTER The court in its discretion may refer the bill or any question arising thereunder to a special master to hear the parties, make findings and report the same to the court, all in accordance with the usual practice in suits in equity in the superior court. B-2 46 SEC. 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL On motion the court may order stockholder parties to the bill to submit their certificates of stock to the corporation for the notation thereon of the pendency of the bill and may order the corporation to note such pendency in its records with respect to any uncertificated shares held by such stockholder parties, and may on motion dismiss the bill as to any stockholder who fails to comply with such order. SEC. 95. COSTS; INTEREST The costs of the bill, including the reasonable compensation and expenses of any master appointed by the court, but exclusive of fees of counsel or of experts retained by any party, shall be determined by the court and taxed upon the parties to the bill, or any of them, in such manner as appears to be equitable, except that all costs of giving notice to stockholders as provided in this chapter shall be paid by the corporation. Interest shall be paid upon any award from the date of the vote approving the proposed corporate action, and the court may on application of any interested party determine the amount of interest to be paid in the case of any stockholder. SEC. 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT Any stockholder who has demanded payment for his stock as provided in this chapter shall not thereafter be entitled to notice of any meeting of stockholders or to vote such stock for any purpose and shall not be entitled to the payment of dividends or other distribution on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the date of the vote approving the proposed corporate action) unless: (1) A bill shall not be filed within the time provided in section ninety; (2) A bill, if filed, shall be dismissed as to such stockholder; or (3) Such stockholder shall with the written approval of the corporation, or in the case of a consolidation or merger, the resulting or surviving corporation, deliver to it a written withdrawal of his objections to and an acceptance of such corporate action. Notwithstanding the provisions of clauses (1) to (3), inclusive, said stockholder shall have only the rights of a stockholder who did not so demand payment for his stock as provided in this chapter. SEC. 97. STATUS OF SHARES PAID FOR The shares of the corporation paid for by the corporation pursuant to the provisions of this chapter shall have the status of treasury stock, or in the case of a consolidation or merger the shares or the securities of the resulting or surviving corporation into which the shares of such objecting stockholder would have been converted had he not objected to such consolidation or merger shall have the status of treasury stock or securities. SEC. 98. EXCLUSIVE REMEDY; EXCEPTION The enforcement by a stockholder of his right to receive payment for his shares in the manner provided in this chapter shall be an exclusive remedy except that this chapter shall not exclude the right of such stockholder to bring or maintain an appropriate proceeding to obtain relief on the ground that such corporate action will be or is illegal or fraudulent as to him. B-3 47 EXHIBIT C THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN SECRETARY OF THE COMMONWEALTH ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108-1512 ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B) ARTICLE I The exact name of the corporation is LSB Corporation ARTICLE II The purpose of the corporation is to engage in the following business activities: See Addendum A attached hereto. ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue.
WITHOUT PAR VALUE WITH PAR VALUE - -------------------------------- ----------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - ---------- ---------------- ---------- ---------------- --------- Common: Common: 20,000,000 $0.10 Preferred: Preferred: 5,000,000 $0.10
ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class. See Addendum B attached hereto. ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: None. C-1 48 ARTICLE VI Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders. See Addendum C attached hereto. ARTICLE VII The effective date of organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a later date is desired, specify such date which shall not be more than thirty days after the date of filing. ARTICLE VIII THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE ARTICLES OF ORGANIZATION. a. The street address (post office boxes are not acceptable) of the principal office of the corporation in Massachusetts is: 30 Massachusetts Avenue, North Andover, MA 01845 b. The name, residential address and post office address of each director and officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS See Addendum D attached hereto.
c. The fiscal year (i.e., tax year) of the corporation shall end on the last day of the month of: October d. The name and business address of the resident agent, if any, of the corporation is: ARTICLE IX By-Laws of the corporation have been duly adopted and the president, treasurer, clerk and directors whose names are set forth above, have been duly elected. IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I/we, whose signature(s) appear below as incorporator(s) and those name(s) and business or residential address(es) are clearly typed or printed beneath each signature do hereby associate with the intention of forming this corporation under the provisions of General Laws, Chapter 156B and do hereby sign these Articles of Organization as incorporator(s) this 12th day of March, 2001. /s/ Kevin J. Handly ------------------------------- c/o Goulston & Storrs, P.C. 400 Atlantic Avenue Boston, MA 02110 C-2 49 ADDENDUM A TO THE ARTICLES OF ORGANIZATION OF LSB CORPORATION ARTICLE II A. To acquire, invest in or hold stock in any subsidiary permitted under (i) the Bank Holding Company Act of 1956, and (ii) Massachusetts General Laws, Chapter 167A, as such statutes may be amended from time to time, and to engage in any other activity or enterprise permitted to a bank holding company under said statutes or other applicable law. B. To buy, sell, invest in, hold and deal in property of every nature and description, real and personal, tangible and intangible permissible for such a corporation. C. To carry on any business or other activity which may be lawfully carried on by a corporation organized under the Business Corporation Law of the Commonwealth of Massachusetts, whether or not related to those referred to in the foregoing paragraphs. A-1 ADDENDUM B TO THE ARTICLES OF ORGANIZATION LSB CORPORATION ARTICLE IV. Capital Stock. The total number of shares of all classes of capital stock which LSB Corporation ("LSB") is authorized to issue is 25,000,000 shares, of which 20,000,000 shares shall be common stock, $0.10 par value per share, and 5,000,000 shares shall be preferred stock, $0.10 par value per share. The shares may be issued by LSB from time to time by a vote of its Board of Directors without the approval of its stockholders. Upon payment of lawful consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the surplus of LSB which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. A description of the different classes and series of LSB's capital stock and a statement of the designations and the relative rights, preferences and limitations of the shares of each class and series of capital stock are as follows: A. Common Stock. Except as provided by law or in this Article IV (or in any supplemental sections hereto or in any certificate of establishment of any series of preferred stock), the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder. There shall be no cumulative voting rights in the election of Directors. If there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of a sinking fund or a retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends; but only when and as declared by the Board of Directors. C-3 50 In the event of any liquidation, dissolution or winding up of LSB, after there shall have been paid to or set aside for the holders of any class having preference over the common stock in the event of liquidation, dissolution or winding up of LSB the full preferential amounts to which they are respectively entitled, the holders of the common stock, and of any class or series of stock entitled to participate in whole or in part therewith as to distribution of assets, shall be entitled, after payment or provision for payment of all debts and liabilities of LSB, to receive the remaining assets of LSB available for distribution, in cash or in kind, in proportion to their holdings. B. Preferred Stock. The Board of Directors of LSB is authorized by vote or votes, from time to time adopted, to provide for the issuance of preferred stock in one or more series and to fix and state the voting powers, designations, preferences and relative participating, optional or other special rights of the shares of each series and the qualifications, limitations, and restrictions thereof, including, but not limited to, determination of one or more of the following: (1) The distinctive serial designation and the number of shares constituting such series; (2) The dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends and the participating or other special rights, if any, with respect to dividends; (3) The voting powers, if any, of shares of such series; (4) Whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions on which, such shares may be redeemed; (5) The amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of LSB; (6) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemable or purchased through the application of such fund; (7) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of LSB, and if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (8) The price or other consideration for which the shares of such series shall be issued; and (9) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of preferred stock and whether such shares may be reissued as shares of the same or any other series of stock. Unless otherwise provided by law, any such vote shall become effective when LSB files with the Secretary of the Commonwealth of Massachusetts a certificate of establishment of one or more series of preferred stock signed by the President or any Vice President and by the Clerk, Assistant Clerk, Secretary or Assistant Secretary of LSB, setting forth a copy of the vote of the Board of Directors establishing and designating the series and fixing and determining the relative rights and preferences thereof, the date of adoption of such vote and a certification that such vote was duly adopted by the Board of Directors. C-4 51 ADDENDUM C TO THE ARTICLES OF ORGANIZATION OF LSB CORPORATION ARTICLE VI(A). Certain Business Combinations. SECTION 1. Vote Required for Certain Business Combinations. A. Required Vote for Certain Business Combinations. In addition to any affirmative vote required by the Massachusetts General Laws or by these Articles of Organization, and except as otherwise expressly provided in Section 2 of this Article VI(A): (1) any merger or consolidation of LSB or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation or entity (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of LSB or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $1,000,000 or more; (3) the issuance or transfer by LSB or any Subsidiary (in one transaction or a series of transactions) of any securities of LSB or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities, or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; (4) the adoption of any plan or proposal for the liquidation or dissolution of LSB proposed by or on behalf of any Interested Stockholder of any Affiliate of any Interested Stockholder; or (5) any reclassification of securities (including any reverse stock split), any recapitalization of LSB, any merger or consolidation of LSB with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving any Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportion of the outstanding shares of any class of equity or convertible securities of LSB or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; shall require (subject to Section 2 of this Article VI(A)) the affirmative vote of the holders of at least eighty percent of the voting power of the then outstanding shares of capital stock of LSB entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified by law. B. Definition of "Business Combination." The term "Business Combination" as used in this Article VI(A) shall mean any transaction which is referred to in any one or more of clauses (1) through (5) of Paragraph A of this Section 1. SECTION 2. When Higher Vote is Not Required. The provisions of Section 1 of this Article VI(A) shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law C-5 52 and any other provision of these Articles of Organization, if all of the conditions specified in either of the following Paragraphs A or B are met: A. Approval by Continuing Directors. The Business Combination shall have been approved by a majority of the Continuing Directors then in office (as hereinafter defined); or B. Price and Procedure Requirements. All of the following conditions shall have been met: (1) The aggregate amount of cash and the Fair Market Value as of the date of the consummation of the Business Combination (the "Consummation Date") of any consideration other than cash to be received per share by holders of common stock in such Business Combination shall be at least equal to the highest of the following: (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of common stock acquired by it (i) within the two-year period immediately prior to and including the first public announcement of the proposed Business Combination (the "Announcement Date") or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; (b) the highest Fair Market Value per share of common stock on any date during the one-year period prior to and including the Announcement Date; and (c) (if applicable) the price per share equal to the product of (i) the Fair Market Value per share of common stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such later date is referred to in this Article VI(A) as the "Determination Date"), whichever is higher, multiplied by (ii) the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of common stock acquired by it within the two-year period immediately prior to and including the Announcement Date to (y) the Fair Market Value per share of common stock on the first day in such two-year period upon which the Interested Stockholder acquired any shares of common stock. (2) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of the Business Combination of consideration other than cash to be received per share by holders of any other class of outstanding Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this Paragraph B(2) shall be required to be met with respect to every other class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (i) within the two-year period immediately prior to and including the Announcement Date or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; (b) (if applicable) the highest preferential amount per share which the holders of shares of such class of Voting Stock are entitled to receive from LSB in the event of any voluntary or involuntary liquidation, dissolution or winding up of LSB; (c) the highest Fair Market Value per share of such class of Voting Stock on any date during the one-year period prior to and including the Announcement Date; and C-6 53 (d) (if applicable) the price per share equal to the product of (i) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher, multiplied by (ii) the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it within the two-year period immediately prior to and including the Announcement Date to (y) the Fair Market Value per share of such class of Voting Stock on the first day in such two-year period upon which the Interested Stockholder acquired any shares of such class of Voting Stock. (3) The consideration to be received by holders of a particular class of outstanding Voting Stock (including common stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. (4) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of any such Business Combination: (a) there shall have been (i) no failure to declare and pay at regular dates therefor the full amount of any dividends (whether or not cumulative) payable on any class or series having a preference over the common stock of LSB as to dividends or upon liquidation, except as approved by a majority of the Continuing Directors; (ii) no reduction in the annual rate of dividends paid on the common stock (except as necessary to reflect any subdivision of the common stock), except as approved by a majority of the Continuing Directors; and (iii) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the common stock, unless the failure to so increase such annual rate is approved by a majority of the Continuing Directors; and (b) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder's becoming an Interested Stockholder. (5) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by LSB, whether in anticipation of or in connection with such Business Combination or otherwise, unless such transaction shall have been approved or ratified by a majority of the Continuing Directors after such person shall have become an Interested Stockholder. (6) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public stockholders of LSB at least twenty days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). C-7 54 SECTION 3. Certain Definitions. For the purpose of these Articles of Organization: A. A "person" shall mean an individual, a group acting in concert, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, a business trust, a government or political subdivision, any unincorporated organization and any similar association or entity. B. "Interested Stockholder" shall mean any person (other than LSB or any Subsidiary) who or which: (1) is the beneficial owner, directly or indirectly, of more than ten percent of the voting power of the then outstanding shares of Voting Stock; (2) is an Affiliate of LSB and at any time within the two-year period immediately prior to and including the date in question was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of Voting Stock; or (3) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to and including the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933 and such assignment or succession was not approved by a majority of the Continuing Directors. C. A person shall be a "beneficial owner" of any shares of Voting Stock: (1) which such person or any of its Affiliates or Associates, directly or indirectly, has or shares with respect to the Voting Stock (a) the right to acquire or direct the acquisition of (whether such right is exercisable immediately or only after the passage of time or upon the satisfaction of any conditions or both), pursuant to any agreement, arrangement or understanding or upon the exercise of any conversion rights, warrants, or options or otherwise; (b) the right to vote, or direct the voting of, pursuant to any agreement, arrangement or understanding or otherwise; or (c) the right to dispose of or transfer or direct the disposition or transfer of, pursuant to any agreement, arrangement, understanding or otherwise; or (2) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. D. For the purpose of determining whether a person is an Interested Stockholder pursuant to Paragraph B of this Section 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by such person through application of Paragraph C of this Section 3 but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options or otherwise. E. "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. F. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by LSB; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph B of this Section 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by LSB. G. "Continuing Director" means any member of the Board of Directors of LSB (the "Board") who is not an Affiliate or Associate of the Interested Stockholder and was a member of the Board prior to the time C-8 55 that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is not an Affiliate or Associate of the Interested Stockholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board. H. "Fair Market Value" means: (1) in the case of stock, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such stock on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty-day period preceding the date in question on the National Association of Securities Dealers Automated Quotation System or any comparable system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by at least a majority of the Continuing Directors of the Board in good faith; and (2) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by at least a majority of the Continuing Directors of the Board in good faith. I. "Group Acting in Concert" shall mean persons seeking to combine or pool their voting or other interests in the securities of LSB for a common purpose, pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written, oral or otherwise, or any "group of persons" as defined under Section 13(d) of the Securities Exchange Act of 1934. When persons act together for any such purpose, their group is deemed to have acquired their stock. J. In the event of any Business Combination in which LSB survives, the phrase "other consideration to be received" as used in Paragraphs B(1) and (2) of Section 2 of this Article VI(A) shall include the shares of common stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. SECTION 4. Powers of the Board of Directors. A majority of the Directors of LSB (or, if there is an Interested Stockholder, a majority of the Continuing Directors then in office) shall have the power to determine for the purposes of this Article VI(A), on the basis of information known to them after reasonable inquiry, (A) whether a person is an Interested Stockholder, (B) the number or percentage of any class of securities beneficially owned by any person, (C) whether a person is an Affiliate or Associate of or is affiliated or associated with another, (D) whether the requirements of Section 2 of this Article VI(A) have been met with respect to any Business Combination, (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by LSB or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more and (F) any other matters of interpretation arising under this Article VI(A). The good faith determination of a majority of the Directors (or, if there is an Interested Stockholder, a majority of the Continuing Directors then in office) on such matters shall be conclusive and binding for all purposes of this Article VI(A). SECTION 5. No Effect on Fiduciary Obligations of Interested Stockholders. Nothing contained in this Article VI(A) shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. C-9 56 ARTICLE VI(B). Standards for Board of Directors' Evaluation of Offers. The Board of Directors of LSB, when evaluating any offer of another person (as defined in Article VI(A) hereof) to (A) make a tender or exchange offer for any equity security of LSB or any Subsidiary (as defined in Article VI(A) hereof), (B) merge or consolidate LSB or any Subsidiary with another institution or (C) purchase or otherwise acquire all or substantially all of the properties and assets of LSB or any Subsidiary, shall, in connection with the exercise of its judgment in determining what is in the best interests of LSB and its stockholders, give due consideration to all relevant factors including, without limitation, the social and economic effects of acceptance of such offer on LSB's and/or any Subsidiaries' present and future account holders, borrowers and employees; on the communities in which LSB or any Subsidiary operates or is located; and on the ability of LSB and its Subsidiaries to fulfill their objectives under applicable statutes and regulations. ARTICLE VI(C). Pre-emptive Rights. Holders of the capital stock of LSB shall not be entitled to preemptive rights with respect to any shares of the capital stock of LSB which may be issued. ARTICLE VI(D). Directors. LSB shall be under the direction of a Board of Directors. The number of Directors shall not be fewer nor more than permitted by law. The Board of Directors shall be divided into three classes as nearly equal in number as possible, with one class to be elected annually. Any Director (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed from office, with or without cause, by an affirmative vote of not less than (i) 80% of the total votes eligible to be cast by stockholders in the election of directors at a duly constituted meeting of stockholders called expressly for such purpose, or (ii) 66 2/3% of the members of the Board of Directors then in office, unless at the time of such removal there shall be an Interested Stockholder, in which case the affirmative vote of not less than a majority of the Continuing Directors then in office shall instead be required for removal by vote of the Board of Directors. At least thirty days prior to such meeting of stockholders, written notice shall be sent to the Director whose removal will be considered at the meeting. ARTICLE VI(E). Transactions with Interested Persons. SECTION 1. Unless entered into in bad faith or in violation of any provision of these Articles of Organization, no contract or transaction by LSB shall be void, voidable or in any way affected by reason of the fact that it is with an Interested Person. SECTION 2. For the purposes of this Article VI(E), "Interested Person" means any person or organization in any way interested in LSB whether as a director, officer, stockholder, employee or otherwise, and any other entity in which any such person or organization of LSB is in any way interested. SECTION 3. Unless such contract or transaction was entered into in bad faith or in violation of any provision of these Articles of Organization, no Interested Person, because of such interest, shall be liable to LSB or to any other person or organization for any loss or expense incurred by reason of such contract or transaction or shall be accountable for any gain or profit realized from such contract or transaction. SECTION 4. The provisions of this Article VI(E) shall be operative notwithstanding the fact that the presence of an Interested Person was necessary to constitute a quorum at a meeting of Directors or stockholders of LSB at which such contract or transaction was authorized or that the vote of an Interested Person was necessary for the authorization of such contract or transaction. C-10 57 ARTICLE VI(F). Acting as a Partner, Member or Manager. LSB may be a partner, member or manager in any business enterprise which LSB would have power to conduct by itself. ARTICLE VI(G). Stockholders' Meetings. Meetings of stockholders may be held at such place in the Commonwealth of Massachusetts or, if permitted by applicable law, elsewhere in the United States as the Board of Directors may determine. ARTICLE VI(H). Call of Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called at any time only by the Chairman of the Board, if one is elected, the President or by the affirmative vote of a majority of the Directors then in office; provided, however, that if there is an Interested Stockholder, any such call shall also require the affirmative vote of a majority of the Continuing Directors then in office. Only those matters set forth in the call of the special meeting may be considered or acted upon at such special meeting, unless otherwise provided by law. ARTICLE VI(I). Amendment of By-Laws. The By-Laws of LSB may be adopted, altered, amended, changed or repealed by the Board of Directors or the stockholders of LSB. Such action by the Board of Directors shall require the affirmative vote of at least 66 2/3% of the Directors then in office at a duly constituted meeting of the Board of Directors, unless at the time of such action there shall be an Interested Stockholder, in which case such action shall in addition require the affirmative vote of at least a majority of the Continuing Directors then in office, at such a meeting. Such action by the stockholders shall require (i) approval by the affirmative vote of a majority of the Board of Directors of LSB then in office at a duly constituted meeting of the Board of Directors, unless at the time of such action there shall be an Interested Stockholder, in which case such action shall in addition require the affirmative vote of at least a majority of the Continuing Directors then in office, at such meeting, (ii) unless waived by the affirmative vote of the Board of Directors (and, if applicable, Continuing Directors) specified in the preceding sentence, the submission by the stockholders of written proposals for adopting, altering, amending, changing or repealing the By-Laws at least sixty days prior to the meeting at which they are to be considered and (iii) the affirmative vote of at least 66 2/3% of the total votes eligible to be cast by stockholders in the election of directors at a duly constituted meeting of stockholders called expressly for such purpose. ARTICLE VI(J). Amendment of Articles of Organization. No amendment, addition, alteration, change or repeal of these Articles of Organization shall be made, unless the same is first approved by the affirmative vote of a majority of the Board of Directors of LSB then in office, and thereafter approved by the stockholders by not less than 66 2/3% of the total votes eligible to be cast at a duly constituted meeting, or, in the case of Articles I, II and III and the first sentence of Article IV as set forth in Addendum B to these Articles of Organization, by not less than a majority of the total votes eligible to be cast at a duly constituted meeting; provided, however, that if, at any time within the sixty day period immediately preceding the meeting at which the stockholder vote is to be taken, there is an Interested Stockholder, such amendment, addition, alteration, change or repeal shall also require the affirmative vote of not less than a majority of the Continuing Directors then in office, prior to approval by the stockholders. Notwithstanding the foregoing, to the extent that any provision of these Articles of Organization stipulates stockholder approval by a vote of more than 66 2/3% of the total votes eligible to be cast by stockholders in the election of directors, and if, at any time within the sixty day period immediately preceding the meeting at which the stockholder vote is to be taken there is an Interested Stockholder, such provision may only be C-11 58 amended, altered, changed or repealed after approval by the same vote required by such provision, unless such amendment, alteration or repeal shall also have been approved by the affirmative vote of not less than a majority of the Continuing Directors then in office, in which case only the vote of 66 2/3% of the total votes eligible to be cast by the stockholders shall be required. Unless otherwise provided by law, any amendment, addition, alteration, change or repeal so acted upon shall be effective on the date it is filed with the Secretary of the Commonwealth of Massachusetts or on such other date as specified in such amendment, addition, alteration, change or repeal or as the Secretary of the Commonwealth may specify. C-12 59 ADDENDUM D TO THE ARTICLES OF ORGANIZATION OF LSB CORPORATION ARTICLE VIII(b) The name, residential address and post office address of each director and officer of the corporation is as follows:
RESIDENTIAL POST OFFICE TITLE NAME ADDRESS ADDRESS ----- ---- ----------- ----------- President/Chief Executive Officer... Paul A. Miller 43 Covey Hill Rd. 30 Massachusetts Ave. Reading, MA 01867 North Andover, MA 01845 Senior Vice President/Chief John E. Sharland 52 Mount View Dr. 30 Massachusetts Ave. Financial........................... Officer and Treasurer Clinton, MA 01510 North Andover, MA 01845 Executive Vice President/........... Robert P. Perreault 30 Riverview Ave. 30 Massachusetts Ave. Clerk and Secretary Methuen, MA 01844 North Andover, MA 01845 Directors:.......................... Eugene A. Beliveau 25 West Parish Ct., 328 Main Street U28D North Andover, MA 01845 Haverhill, MA 01832 Kathleen I. Boshar 17 Stonegate Road 76 Main Street Chelmsford, MA 01824 Andover, MA 01810 Malcolm W. Brawn 17 Hawk Hill Lane 95 Old River Road Ipswich, MA 01938 Andover, MA 01810 Thomas J. Burke 6 West Chester Dr. 381 Common Street Lawrence, MA 01843 Lawrence, MA 01842 Byron R. Cleveland, Jr. 130 Holt Road 109 Blanchard Street Andover, MA 01810 Lawrence, MA 01843 Neil H. Cullen 74 Bartlett Street South Main Street Andover, MA 01810 Andover, MA 01810 Richard Hart Harrington 23 Ipswich Street 30 Massachusetts Ave. No. Andover, MA 01845 North Andover, MA 01845 Robert F. Hatem 780 Andover Street North Essex Lowell, MA 01850 Community College Haverhill, MA 01830 Marsha A. McDonough 42 Fairmount Ave. U.S. Dept. of State Wakefield, MA 01880 Office of Overseas Schools Room H328, SA-1 Washington, DC 20522-0132 Paul A. Miller 43 Covey Hill Rd. 30 Massachusetts Ave. Reading, MA 01867 North Andover, MA 01845
C-13 60 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B) - -------------------------------------------------------------------------------- I hereby certify that, upon examination of these Articles of Organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations have been complied with, and I hereby approve said articles; and the filing fee in the amount of $ having been paid, said articles are deemed to have been filed with me this day of , 20 . Effective date:____________________ WILLIAM FRANCIS GALVIN Secretary of the Commonwealth FILING FEE: One-tenth of one percent of the total authorized capital stock, but not less than $200.00. For the purpose of filing, shares of stock with a par value less than $1.00, or no par stock, shall be deemed to have a par value of $1.00 per share. TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: Kevin J. Handly, Esq. c/o Goulston & Storrs, P.C., 400 Atlantic Avenue Boston, Massachusetts 02110 Telephone: 617-482-1776 C-14 61 EXHIBIT D LAWRENCE SAVINGS BANK AUDIT COMMITTEE CHARTER I. AUDIT COMMITTEE There shall be a Committee of the Board of Directors to be known as the Audit Committee. The Audit Committee shall be composed of at least three Directors who are independent of the Management of the Bank and are free of any relationship that, in the opinion of the Board of Directors, would interfere with their exercise of independent judgement as a Committee Member. Each Audit Committee member must be able to read and understand fundamental financial statements. At least one Committee Member must have past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background, including a current or past position as a chief executive or financial officer or other senior officer with financial oversight responsibilities. Audit Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Bank or outside programs. INDEPENDENCE A Director will not be considered "Independent" if, among other things, the Director has: - Been employed by the Bank or its affiliates in the current or past three years. - Accepted any compensation from the Bank or its affiliates in excess of $60,000 during the previous fiscal year (except for board services, retirement plan benefits, or non-discretionary compensation). - An immediate family member who is, or has been in the past three years, employed by the Bank or its affiliates as an executive officer. - Been a partner, controlling shareholder or an executive officer of any for profit business to which the Bank made or from which it received, payments (other than those which arise solely from investments in the Bank's securities) that exceed five percent of the Bank's consolidated gross revenues for that year, or $200,000, whichever is more, in any of the past three years. - Been employed as an executive of another entity where any of the Bank's executives serve on that entity's compensation committee. II. STATEMENT OF POLICY The Audit Committee shall provide assistance to the Bank's Directors in fulfilling their responsibilities to shareholders and investment community relating to the Bank's accounting, reporting practices of the Bank and quality and integrity of the financial reports of the Bank. In so doing, it is the responsibility of the Audit Committee to maintain free and open means of communications between the Board of Directors, the Independent Auditors, the Internal Auditors, and the financial management of the Bank. III. MEETINGS The Audit Committee shall meet at least four times annually, or more frequently as circumstances dictate. The Audit Committee will meet at least annually in a separate executive session with Management, the Independent Auditors or Internal Auditors to discuss any matters that the Audit Committee or each of these groups believe should be discussed privately. D-1 62 IV. RESPONSIBILITIES 1. Review and update this Charter at least annually or as conditions dictate and ascertain that this charter is reported in the Bank's proxy statement at least once every three years. 2. Report periodically to the Board of Directors. 3. Review and recommend to the Board of Directors the Independent Auditors to be selected to audit the financial statements of the Bank and subsidiaries. 4. Meet with the Independent Auditors and Management of the Bank to review the scope of the proposed audit for the current year and the audit procedures to be used, and at the conclusion review audit findings, including comments or recommendations of the Independent Auditors. 5. Review the Internal Audit function of the Bank including the Independence and authority of its reporting obligations, the proposed audit plan for the current year and the coordination of such plans with the Independent Auditors. 6. Consult with the Independent and Internal Auditors the integrity of the Bank's financial reporting processes (Internal and external). 7. Inquire as to the Independent Auditors judgements about the quality and appropriateness of the Bank's accounting principles as applied in its financial statements. 8. Consider and approve, if appropriate, major changes to the Bank's auditing and accounting principles and practices as suggested by the Independent Auditors, Management or the Internal Auditors. 9. Review and approve the required reports to be included in the Bank's annual proxy statement to shareholders. 10. While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Bank's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of Management and the Independent Auditor. "WHEN NECESSARY" ACTIVITIES: 1. Review and concur in the appointment, replacement, reassignment, or dismissal of the Internal Auditor. 2. Review and approve requests for any management consulting engagement to be performed by the Bank's Independent Auditors and be advised of any other study undertaken at the request of management that is beyond the scope of the audit engagement letter. 3. Review periodically with general counsel legal and regulatory matters that may have a material impact on the AICPA's and Related Entities' financial statements, compliance policies and programs. 4. Conduct or authorize investigations into any matters within the Committee's scope of responsibilities. The Committee shall be empowered to retain Independent Counsel and other professionals to assist in the conduct of any investigation. D-2 63 V. INDEPENDENT AUDITORS 1. Each year the Independent Auditing Firm will present their Audit Plan and the estimated fees for performing the annual audit and quarterly reviews of Form 10-Q in the form of an engagement letter. This engagement letter will be presented to the Audit Committee for their approval. 2. The Audit Committee will meet with the Independent Auditors to review the Audit Plan and results of their annual audit and to discuss any concerns of the Independent Auditors including those items cited in the Management Letter on the Bank's internal control function. 3. Will discuss with the Audit Committee the matters required to be discussed by Generally Accepted Auditing Standards (GAAS). VI. INTERNAL AUDITORS The objective of the Bank's internal audit function is to determine that the Bank has established effective internal controls and compliance with managerial policies, laws, regulations and generally accepted accounting principles. 1. Internal audit responsibilities will be fulfilled by either an employee of the Bank or an outside firm that provides internal audit services. On a annual basis, senior management and the Audit Committee will evaluate whether the internal audit function should be fulfilled by a Bank employee or employees or a outside firm which provides internal audit services. 2. The Internal auditors will use follow-up procedures to ensure that exceptions noted during regulatory exams, independent or internal audits are addressed in a satisfactory manner. 3. The President and the Audit Committee will have authority to approve internal audit special investigations which have not been included as part of the current Audit Plan. D-3 EX-99.5 26 b39832lsex99-5.txt PRESS RELEASE DATED DECEMBER 21, 2000 1 EXHIBIT 99.5 FOR IMMEDIATE RELEASE COMPANY CONTACT: Paul A. Miller (978)725-7555 LAWRENCE SAVINGS BANK ANNOUNCES PLAN TO FORM HOLDING COMPANY NORTH ANDOVER, MA, December 21, 2000 - Lawrence Savings Bank announced today that its Board of Directors voted to approve the reorganization of the Bank into a holding company structure. When the process of establishing a bank holding company is completed, the shareholders of the Bank will receive shares of the holding company in exchange for their holdings of Bank stock. Although the Bank has no expansion plans at this time, the Board of Directors believes that the establishment of a bank holding company will afford the Bank and its stockholders the greatest flexibility to consider opportunities to expand geographically and into new activities, remain competitive in its marketplace, and build long term value for shareholders. The establishment of the holding company will require stockholder and regulatory approval and is expected to be considered at the annual meeting of stockholders to be held on May 1, 2001. Assuming timely receipt of required regulatory and stockholder approvals, the holding company reorganization is expected to be completed in the second quarter of 2001. Lawrence Savings Bank is a Massachusetts-chartered savings bank with assets of $416 million at September 30, 2000. The Bank offers a wide variety of services to both business and retail customers throughout eastern Massachusetts from five retail banking locations in Essex County. This press release contains certain statements that are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are not historical facts and include expressions of management's expectations at a specific point in time regarding future relationships, structures, opportunities and market conditions. Such forward-looking statements are subject to certain inherent risks and uncertainties, including, among other factors the risk factors set forth in the Bank's filings with the Federal Deposit Insurance Corporation. These also include, but are not limited to, changes in interest rates, disruption in credit markets, changes in regional and local economic conditions, changes in the regulatory environment, and changes in the competitive environment in which the Bank operates. As a result of such risks and uncertainties, the Bank's actual results may differ materially from such forward-looking statements. Lawrence Savings Bank does not undertake, and specifically disclaims any obligation to publicly release revisions to any such forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. EX-99.6 27 b39832lsex99-6.txt PRESS RELEASE DATED JULY 2, 2001 1 Exhibit 99.6 EMBARGOED AGAINST RELEASE COMPANY CONTACT: Paul A. Miller PRIOR TO 8:00 A.M. MONDAY JULY 2, 2001 (978) 725-7555 LAWRENCE SAVINGS BANK ANNOUNCES COMPLETION OF HOLDING COMPANY REORGANIZATION NORTH ANDOVER, MA, July 2, 2001 -- Lawrence Savings Bank (NASDAQ: LSBX) (the "Bank") announced today the completion on July 1, 2001 of its reorganization as a wholly-owned subsidiary of a holding company, LSB Corporation. In the reorganization, all outstanding shares of common stock (and associated preferred stock purchase rights) of Lawrence Savings Bank were converted into shares of common stock (and associated rights) of LSB Corporation. LSB Corporation common stock is listed in place of the common stock of Lawrence Savings Bank on the Nasdaq Stock Market under the symbol "LSBX". The reorganization does not alter the business of the Bank. The Bank's deposits continue to be insured in full by the Federal Deposit Insurance Corporation (FDIC) and the Depositors Insurance Fund of Massachusetts (DIF). Although the Bank has no expansion plans at this time, the Board of Directors believes that the establishment of the holding company affords greater flexibility to consider opportunities to expand geographically and into new activities, remain competitive in its marketplace, and build long term value for shareholders. Lawrence Savings Bank is a Massachusetts-chartered savings bank organized in 1868 and headquartered at 30 Massachusetts Avenue, North Andover, Massachusetts, approximately 25 miles north of downtown Boston. Lawrence Savings Bank operates 5 banking offices in Andover, Lawrence, Methuen, and North Andover. Lawrence Savings Bank is an Equal Housing Lender. Member, FDIC and DIF. This press release may contain certain statements that are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are not historical facts and include expressions of management's expectations at a specific point in time regarding future relationships, structures, opportunities and market conditions. Such expectations may or may not be realized, depending on a number of variable factors, including but not limited to, changes in interest rates, disruptions in credit markets, changes in regional and local economic conditions, changes in the regulatory environment, and changes in the competitive environment in which the Bank operates. As a result of such risks and uncertainties, the Bank's actual results may differ materially from such forward-looking statements. Lawrence Savings Bank does not undertake, and specifically disclaims any obligation to publicly release revisions to any such forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. -----END PRIVACY-ENHANCED MESSAGE-----