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Exhibit 99.8
NOTICE
by
MEDFORD BANCORP, INC.
to the
FEDERAL RESERVE BANK OF BOSTON
pursuant to
SECTION 225.17 OF REGULATION Y (12 C.F.R. Section 225.17)
for a
ONE-BANK HOLDING COMPANY FORMATION
Medford Bancorp, Inc., Medford, Massachusetts, a Massachusetts
corporation ("Bancorp"), hereby submits this notice (the "Notice") to the
Federal Reserve Bank of Boston ("Reserve Bank") under Section 225.17 of
Regulation Y ("Section 225.17") of the proposed acquisition by Bancorp of 100%
of the voting shares of Medford Savings Bank, Medford, Massachusetts, a
Massachusetts-chartered savings bank ("Medford") (the "Proposed
Reorganization"). Medford currently is a publicly held bank, with its stock
listed on the NASDAQ National Market System ("NASDAQ").
As is more fully discussed below, the Proposed Reorganization involves
a change in the corporate structure of Medford by which Bancorp would become the
holding company of Medford and a unitary bank holding company with its stock
traded on NASDAQ. As is also discussed more fully below, Medford believes a
holding company structure provides more flexibility to respond to market demands
and thus will enable it to compete more effectively against the much larger
competitors in its market.
The first part of this Notice describes the parties, purposes and terms
of the Proposed Reorganization. The second part then addresses each of the
specific requirements of Section 225.17. All factual information stated herein
has been provided by Medford.
INTRODUCTION
DESCRIPTION OF THE PARTIES
Bancorp
Bancorp was organized as a Massachusetts corporate subsidiary of
Medford in July, 1997 for the sole purpose of becoming the holding company of
Medford in accordance with Massachusetts law. Upon completion of the Proposed
Reorganization, Medford will be a wholly owned subsidiary of Bancorp, and
Bancorp will thereby become a bank holding company.
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Bancorp currently is a shell subsidiary. When Bancorp becomes the
holding company of Medford, its principal activities will be related to its
holding of Medford stock. In the future, upon receipt of all necessary
regulatory approvals, Bancorp may acquire banks or companies engaged in
bank-related activities and may engage in such activities as may be permitted by
applicable law, although no such activities or acquisitions are contemplated at
this time.
Medford
Medford was organized in 1869 as a Massachusetts mutual savings bank.
Medford converted from mutual to stock form on March 18, 1986 and issued
3,680,000 shares of common stock.
Until January, 1996, Medford had two wholly-owned subsidiaries: Medco
Realty, Inc. ("Medco") and Medford Securities Corporation ("MSC"). Medco engaged
in the ownership and maintenance of certain buildings leased to Medford and, to
the extent excess space was available, third parties. Medford elected to
dissolve Medco in January, 1996, and acquired all of its assets and liabilities.
MSC was established as a wholly owned subsidiary of Medford in February, 1995
and became operational on March 1, 1995. MSC is a securities corporation engaged
exclusively in bank-permissible buying and selling of securities.
Medford is principally engaged in the business of attracting deposits
from the general public, originating residential and commercial real estate
mortgages and consumer and commercial loans, and investing in securities.
Medford is headquartered in Medford, Massachusetts, which is located
approximately seven miles north of downtown Boston. It has a network of sixteen
banking offices located in Medford, Malden, Arlington, Belmont, Burlington,
North Reading, Waltham, and Wilmington. Medford's primary market area includes
these communities as well as other cities and towns in Middlesex County and the
surrounding area north of Boston.
Medford also offers savings bank life insurance ("SBLI") in accordance
with Massachusetts law. Medford intends to continue offering SBLI after the
Proposed Reorganization, and submits that such activity would continue to be
permissible pursuant to Section 3(f) of the Bank Holding Company Act of 1956, as
amended.
At June 30, 1997, Medford had total assets of $1,072,557,000, total
deposits of $824,611,000, and total stockholders' equity of $96,458,000. For the
fiscal year ended December 31, 1996 and the six month period ended June 30,
1997, Medford had net income of $10,429,000 and $5,923,000 respectively. On June
30, 1997, Medford's leverage ratio was 8.49% and its Tier 1 risk-based and total
risk-based capital ratios were 14.89% and 16.03%, respectively. As a result,
Medford is considered "well-capitalized" under applicable prompt corrective
action regulations. Copies of Medford's 1996 Annual Report and most recent
quarterly report on Form F-4 are attached hereto as Exhibit 1.
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PURPOSE OF THE TRANSACTION
The Board of Directors of Medford believes that a holding company
structure will provide flexibility for meeting the future financial needs of
Medford and responding to competitive conditions in the financial services
market. For example, although no transactions are presently contemplated, the
holding company structure will facilitate the acquisition of other banks as well
as other companies engaged in bank-related activities if and when opportunities
arise. In this regard, 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 Medford. This more autonomous operation may
be decisive in acquisition negotiations. In addition, the stock of Bancorp might
serve as appropriate consideration in any such acquisition.
Moreover, as a bank holding company, Bancorp will not be subject to the
same regulatory restrictions as Medford, 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. 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 Medford, and,
except under certain circumstances, no regulatory approval is required for such
repurchase by Bancorp.
DESCRIPTION OF THE PROPOSED REORGANIZATION
The Proposed Reorganization will be effected pursuant to a Plan of
Reorganization and Acquisition dated as of July 29, 1997, by and between Bancorp
and Medford (the "Plan of Reorganization"), a copy of which is attached as
Exhibit 2 hereto, in accordance with Massachusetts General Laws, Chapter 172,
Section 26B ("Section 26B").(1)
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(1) The Plan of Reorganization provides that it shall not become effective
until all of the following first shall have occurred: (i) the Plan of
Reorganization shall have been approved by the affirmative vote of the holders
of two-thirds of the outstanding common stock of Medford at a meeting of such
stockholders called for such purpose, (ii) the Plan of Reorganization shall have
been approved by the Massachusetts Commissioner of Banks and a copy of the Plan
of Reorganization with his approval endorsed thereon shall have been filed in
his office, all as provided in Section 26B, (iii) 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, (iv) Medford shall have received a favorable opinion from its counsel,
satisfactory in form and substance to Medford, with respect to the federal
income tax consequences of the Plan of Reorganization and the acquisition
contemplated thereby, (v) the shares of Bancorp common stock (together with
associated preferred stock purchase rights) to be issued to the holders of
common stock of Medford pursuant to the Proposed Reorganization shall have been
registered or qualified for such issuance to the extent required under all
applicable state securities laws, and (vi) Medford and Bancorp shall have
obtained all other consents, permissions and approvals and taken all actions
required by law or agreement, or deemed necessary by Medford or Bancorp, prior
to the consummation of
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In accordance with Section 26B, the Plan of Reorganization was approved
by the Board of Directors of Bancorp and Medford on July 29, 1997. The Plan of
Reorganization also was approved by the holders of more than two-thirds of the
outstanding shares of Medford's common stock entitled to vote at a special
meeting of Medford's stockholders held on September 16, 1997. A copy of the
proxy statement delivered to the stockholders in connection with the Proposed
Reorganization (the "Proxy Statement") is attached hereto as Exhibit 3.
Under the Plan of Reorganization, Bancorp will become the owner of all
the outstanding shares of the common stock of Medford, and each stockholder of
Medford 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 common stock of Medford held immediately prior to the consummation
of the Proposed Reorganization, together with certain associated preferred stock
purchase rights issued pursuant to Medford's Shareholder Rights Plan (see below
in this section for a discussion of the Shareholder Rights Plan). On the
effective date of the Proposed Reorganization, each share of common stock of
Medford will be automatically converted into and exchanged for one share of
Bancorp common stock (together with associated preferred stock purchase rights).
The number of shares of Bancorp common stock to be issued at the
effective time of the Proposed Reorganization will equal the number of shares of
common stock of Medford issued and outstanding immediately prior thereto, less
the number of shares of common stock of Medford held by dissenting
stockholders.(2) 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 of the Proposed Reorganization, all of
which are presently held by Medford, will be cancelled as part of the Proposed
Reorganization.
After consummation of the Proposed Reorganization, Medford, as a
subsidiary of Bancorp, will continue to serve the communities it presently
serves from its existing office locations. In connection with the Proposed
Reorganization, Medford currently intends to transfer up to approximately $7
million to Bancorp, which amount does not exceed the accumulated earnings and
profits for tax purposes of Medford as of June 30, 1997. If such a transfer to
Bancorp had been made on June 30, 1997, the leverage, Tier 1 risk-based, and
total risk-based capital ratios of Medford would have been approximately 7.88%,
13.89% and
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the acquisition provided for by the Plan of Reorganization and to Bancorp's
having and exercising all rights of ownership with respect to all of the
outstanding shares of common stock of Medford acquired by it thereunder.
(2) Medford has received a letter from a single stockholder objecting to
the Proposed Reorganization and demanding payment for his shares if the Proposed
Reorganization is consummated. The stockholder holds 2,170 shares of Medford
common stock, which represents less than 0.1% of the total number of shares
outstanding. Medford is uncertain whether the stockholder intends to complete
the statutory dissent process.
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15.05%, respectively, resulting in it still being considered
"well-capitalized" under the applicable prompt corrective action regulations.(3)
The Charter and By-laws of Medford will not be affected by consummation
of the Proposed Reorganization, and the Articles of Organization and By-laws of
Bancorp are substantially identical to those of Medford. The Medford Savings
Bank 1993 Stock Option Plan and the Medford Savings Bank 1986 Stock Option Plan
will become stock option plans of Bancorp. All other stock related benefit plans
of Medford will be unchanged by the Proposed Reorganization, except that any
plan which refers to the common stock of Medford, such as the Employee Stock
Ownership Plan, will, following the completion of the Proposed Reorganization,
be deemed to refer instead to Bancorp common stock.
Medford's Shareholder Rights Plan, pursuant to which the preferred
stock purchase rights were provided to shareholders, will be amended so that it
will be assumed by Bancorp following the Proposed Reorganization. Accordingly,
the outstanding rights 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 Shareholders Rights Plan is more fully described on page 13 of the
Proxy Statement.
The Directors, officers and other employees of Medford will be
unchanged by the Proposed Reorganization. The Directors of Bancorp will
initially consist of the ten persons currently serving as members of the Board
of Directors of Medford. The President and Chief Executive Officer, Chief
Financial Officer and the Clerk of Bancorp will initially be the persons serving
identical roles with respect to Medford.
NOTICE REQUIREMENTS
Having provided in the Introduction a general description of the
Proposed Reorganization, the parties thereto, and the purposes thereof, this
Notice now specifically details why the Proposed Reorganization qualifies for
eligibility under the notice procedures of Section 225.17(a), and further
discusses why the Proposed Reorganization satisfies each of the requirements set
forth in Section 225.17(b) and is worthy of Federal Reserve System approval. For
ease of review, the text of each applicable item of Section 225.17 has been
enclosed in a box.
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(3) Due to a recent update of financial information regarding Medford,
these pro forma capital ratios differ immaterially from those stated in the
Proxy Statement. As already mentioned, however, Medford will remain
"well-capitalized" pursuant to applicable prompt corrective action regulations
under the revised numbers.
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SECTION 225.17(a) ELIGIBILITY REQUIREMENTS
To qualify for the notice procedure under Section 225.17, a proposal
must satisfy the criteria set forth at Section 225.17(a) of Regulation Y. As
discussed below, the Proposed Reorganization satisfies each of the first seven
conditions and will satisfy the eighth condition upon expiration of the 30-day
period following notice to the Reserve Bank, assuming no objection or a request
for an application under Section 225.15 of Regulation Y is received during such
period.
(1) THE SHAREHOLDER OR SHAREHOLDERS WHO CONTROL AT LEAST 67
PERCENT OF THE SHARES OF THE BANK WILL CONTROL, IMMEDIATELY
AFTER THE REORGANIZATION, AT LEAST 67 PERCENT OF THE SHARES OF
THE HOLDING COMPANY IN SUBSTANTIALLY THE SAME PROPORTION,
EXCEPT FOR CHANGES IN SHAREHOLDERS' INTERESTS RESULTING FROM
THE EXERCISE OF DISSENTING SHAREHOLDERS' RIGHTS UNDER STATE OR
FEDERAL LAW;
In accordance with the Plan of Reorganization, Bancorp will become the
owner of all the outstanding shares of common stock of Medford and each
stockholder of Medford 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 common stock of Medford held immediately prior to the
consummation of the Proposed Reorganization. As a result, this condition is
satisfied.
(2) NO SHAREHOLDER, OR GROUP OF SHAREHOLDERS ACTING IN CONCERT,
WILL, FOLLOWING THE REORGANIZATION, OWN OR CONTROL 10 PERCENT
OR MORE OF ANY CLASS OF VOTING SHARES OF THE BANK HOLDING
COMPANY, UNLESS THAT SHAREHOLDER OR GROUP OF SHAREHOLDERS WAS
AUTHORIZED, AFTER REVIEW UNDER THE CHANGE IN BANK CONTROL ACT
OF 1978 (12 U.S.C. 1817(j)) BY THE APPROPRIATE FEDERAL BANKING
AGENCY FOR THE BANK, TO OWN OR CONTROL 10 PERCENT OR MORE OF
ANY CLASS OF VOTING SHARES OF THE BANK;
Based on Medford's stockholders, a list of which as of the record date
(July 31, 1997) of the special meeting of stockholders to consider the Proposed
Reorganization is attached hereto as Confidential Exhibit 4, no stockholder, or
group of stockholders acting in concert, is contemplated to own or control 10%
or more of any class of voting shares of Bancorp following the Proposed
Reorganization.(4)
With respect to the footnote in Section 225.17 concerning this
requirement, no company (other than Bancorp) will be required to register as a
bank holding company as a result of the Proposed Reorganization. Furthermore, as
indicated above, Bancorp is not being organized in mutual form.
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(4) Medford has not become aware of any information since the record date
which would lead to a belief that any significant shifting in stock ownership
has occurred since the record date or will occur prior to the consummation of
the Proposed Reorganization.
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(3) THE BANK IS ADEQUATELY CAPITALIZED (AS DEFINED IN SECTION 38
OF THE FEDERAL DEPOSIT INSURANCE ACT (12 U.S.C. 1831O));
As is discussed in the Introduction, Medford currently is
well-capitalized under applicable prompt corrective action regulations.
(4) THE BANK HAS RECEIVED AT LEAST A COMPOSITE "SATISFACTORY"
RATING AT ITS MOST RECENT EXAMINATION, IN THE EVENT THAT THE
BANK WAS EXAMINED;
As demonstrated in the certificate attached hereto as Confidential
Exhibit 5, the requirements of Section 225.17(a)(4) have been satisfied.
(5) AT THE TIME OF THE REORGANIZATION, NEITHER THE BANK NOR ANY OF
ITS OFFICERS, DIRECTORS, OR PRINCIPAL SHAREHOLDERS IS INVOLVED
IN ANY UNRESOLVED SUPERVISORY OR ENFORCEMENT MATTERS WITH ANY
APPROPRIATE FEDERAL BANKING AGENCY;
Neither Medford nor any of its officers or directors is involved in any
unresolved supervisory or enforcement matters with any appropriate federal
banking agency. Medford had no principal shareholders (as defined in Section
225(2)(n)(2) of Regulation Y) as of July 31, 1997, and none are contemplated to
exist at the consummation of the Proposed Reorganization.
(6) THE COMPANY DEMONSTRATES THAT ANY DEBT THAT IT INCURS AT THE
TIME OF THE REORGANIZATION, AND THE PROPOSED MEANS OF RETIRING
THIS DEBT, WILL NOT PLACE UNDUE BURDEN ON THE HOLDING COMPANY
OR ITS SUBSIDIARY ON A PRO FORMA BASIS;
Bancorp will not assume any debt at the effective time of the Proposed
Reorganization.
(7) THE HOLDING COMPANY WILL NOT, AS A RESULT OF THE
REORGANIZATION, ACQUIRE CONTROL OF ANY ADDITIONAL BANK OR
ENGAGE IN ANY ACTIVITIES OTHER THAN THOSE OF MANAGING AND
CONTROLLING BANKS; AND
Bancorp, as a result of the Proposed Reorganization, will only directly
acquire Medford and indirectly acquire Medford's existing subsidiary, MSC.
Bancorp has no current plans to acquire any other banking or nonbanking
interests. Attached as Exhibit 6 hereto is a pro forma organizational chart for
Bancorp.
(8) DURING THIS PERIOD, NEITHER THE APPROPRIATE RESERVE BANK NOR
THE BOARD OBJECTED TO THE PROPOSAL OR REQUIRED THE FILING OF
AN APPLICATION UNDER SECTION 225.15 OF THIS SUBPART.
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Expiration of the 30-day period following receipt of this Notice by the
Reserve Bank without such objection or request will satisfy this requirement.
SECTION 225.17(b) NOTICE REQUIREMENTS
Having detailed why the Proposed Reorganization qualifies for the
notice procedure under Section 225.17, this Notice now demonstrates why the
Proposed Reorganization would be worthy of Reserve Bank approval under Section
225.17(b) of Regulation Y.
(1) CERTIFICATION BY THE NOTIFICANT'S BOARD OF DIRECTORS THAT THE
REQUIREMENTS OF 12 U.S.C. 1842(a)(C) AND THIS SECTION ARE MET
BY THE PROPOSAL;
A copy of the required certification by Bancorp is attached as Exhibit
7 hereto.
(2) A LIST IDENTIFYING ALL PRINCIPAL SHAREHOLDERS OF THE BANK
PRIOR TO THE REORGANIZATION AND OF THE HOLDING COMPANY
FOLLOWING THE REORGANIZATION, AND SPECIFYING THE PERCENTAGE OF
SHARES HELD BY EACH PRINCIPAL SHAREHOLDER IN THE BANK AND
PROPOSED TO BE HELD IN THE NEW HOLDING COMPANY;
As discussed above, Medford had no principal shareholders (as defined
in Section 225(2)(n)(2) of Regulation Y) as of July 31, 1997, and none are
contemplated to exist at the consummation of the Proposed Reorganization. A list
of all stockholders of Medford as of July 31, 1997, the record date for the
special meeting of stockholders to consider the Proposed Reorganization, is
attached hereto as Confidential Exhibit 4.
(3) A DESCRIPTION OF THE RESULTING MANAGEMENT OF THE PROPOSED BANK
HOLDING COMPANY AND ITS SUBSIDIARY BANK, INCLUDING (i)
BIOGRAPHICAL INFORMATION REGARDING ANY SENIOR OFFICERS AND
DIRECTORS OF THE RESULTING BANK HOLDING COMPANY WHO WERE NOT
SENIOR OFFICERS OR DIRECTORS OF THE BANK PRIOR TO THE
REORGANIZATION; AND (ii) A DETAILED HISTORY OF THE INVOLVEMENT
OF ANY OFFICER, DIRECTOR, OR PRINCIPAL SHAREHOLDER OF THE
RESULTING BANK HOLDING COMPANY IN ANY ADMINISTRATIVE OR
CRIMINAL PROCEEDING, AND
Management of Medford will remain unchanged after the effective time of
the Proposed Reorganization. A list of the management of Bancorp after the
effective time of the Proposed Reorganization is attached as Exhibit 8 hereto.
As discussed above, the initial directors of Bancorp will consist of the ten
persons currently serving as members of the Board of Directors of Medford. The
President and Chief Executive Officer, Chief Financial Officer and the Clerk of
Bancorp will initially be the persons serving identical roles with respect to
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Medford. No officer is involved in any administrative or criminal proceeding. As
discussed above, Medford did not have any principal shareholders as of July 31,
1997.
(4) PRO FORMA FINANCIAL STATEMENTS FOR THE HOLDING COMPANY, AND A
DESCRIPTION OF THE AMOUNT, SOURCE, AND TERMS OF DEBT, IF ANY,
THAT THE BANK HOLDING COMPANY PROPOSES TO INCUR, AND
INFORMATION REGARDING THE SOURCES AND TIMING FOR DEBT SERVICE
AND RETIREMENT.
Medford's 1996 year-end and most recent quarterly balance sheets and
income statements are included in its annual report and quarterly report on Form
F-4, attached as Exhibit 1. Attached as Confidential Exhibit 9 are a pro forma
consolidated balance sheet at June 30, 1997 for Bancorp and pro forma capital
ratios as of June 30, 1997 for Medford. As discussed more fully above, Bancorp
will incur no debt at the effective time of the Proposed Reorganization.
REQUEST FOR CONFIDENTIAL TREATMENT
Bancorp requests the Federal Reserve System to accord confidential
treatment to the materials in the separately bound Confidential Exhibits volume
in accordance with Part 261 of the Rules of the Board of Governors Regarding
Disclosure of Information and applicable exemptions from the Freedom of
Information Act. The materials contained in the Confidential Exhibits volume
include privileged and confidential commercial and financial information that is
not otherwise publicly available and disclosure of which would likely cause
significant competitive harm to Bancorp and Medford, and material that is
contained in, or related to, confidential supervisory information prepared by a
federal financial institution supervisory agency that deems such information
confidential. Examples of this type of information include the pro forma
financial statements for Bancorp and Medford, the list of stockholders of
Medford, and a certificate regarding Medford's rating at its most recent
examination. As such, these materials are exempt from public disclosure
requirements and entitled to confidential treatment under Section 261.8(a)(2)
and (a)(3) and Section 261.17 of the Board's Rules and the Freedom of
Information Act, 5 U.S.C. Section 552(b).
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We appreciate your attention to this Notice. Please confirm receipt of
an original and 6 copies of this Notice, including the Confidential Exhibits
volume provided herewith, by signing or date-stamping the enclosed receipt copy
of this letter and returning it to the messenger. As always, if you require
additional information or have any questions concerning this Notice, please do
not hesitate to call me at 570-1329 or Josefina Rotman Childress at 570-1374.
Sincerely,
/s/ Gregory J. Lyons
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Gregory J. Lyons
cc: Arthur H. Meehan
Chairman, President and Chief Executive Officer
Phillip W. Wong
Senior Vice President and Chief Financial Officer
Paul W. Lee, P.C.