UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss.240.14a-12
WESTBOROUGH FINANCIAL SERVICES, INC.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common stock, par value $0.01 per share
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(2) Aggregate number of securities to which transaction applies:
580,881 shares of common stock, par value $0.01 per share (does not
include shares of common stock issuable upon exercise of options that
are being retired in connection with the proposed transaction).
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined.):
The transaction value was based upon the sum of (a) the product of
580,881 shares of common stock and the total cash merger
consideration of $35.00 per share; and (b) the difference between (i)
the product of $35.00 and the 17,290 shares of common stock subject
to outstanding options; and (ii) the product of the weighted average
exercise price per share of such stock options and the number of such
options. In accordance with Section 14(g) of the Securities Exchange
Act of 1934, as amended, the amount of the filing fee was calculated
by multiplying $0.000107 by the amount calculated pursuant to the
preceding sentence.
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(4) Proposed maximum aggregate value of transaction:
$20,688,147
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(5) Total fee paid:
$2,213.63
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[_____], 2007
Dear Fellow Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Westborough Financial Services, Inc., the holding company for The Westborough
Bank, to be held at [location] located at [address] on [day], [date], 2007
beginning at [time], local time.
The accompanying proxy materials provide important information concerning
the proposed acquisition of Westborough Financial pursuant to an Agreement and
Plan of Merger among Assabet Valley Bancorp, HudWest Financial Services, Inc.,
Hudson Savings Bank and Westborough Bancorp, MHC, Westborough Financial
Services, Inc. and The Westborough Bank.
Shareholders will also be asked to elect four directors at the annual
meeting.
Please review these materials carefully, including the enclosed copy of
the merger agreement.
Approval of the merger agreement requires the affirmative vote of
two-thirds (2/3) of the issued and outstanding shares of Westborough Financial
common stock.
The merger cannot be completed unless the shareholders of Westborough
Financial approve the merger agreement and the parties receive all required
regulatory approvals.
THE BOARD OF DIRECTORS OF WESTBOROUGH FINANCIAL UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT AND "FOR" THE ELECTION OF EACH DIRECTOR
NOMINEE. YOU ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN
THE POSTAGE-PAID ENVELOPE PROVIDED FOR YOUR CONVENIENCE.
Sincerely,
Joseph F. MacDonough
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: [date], 2007
Time: [time], local time
Place: [location]
At the annual meeting, Westborough Financial will ask you to:
1. Consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of November 13, 2006 among Assabet Valley
Bancorp, HudWest Financial Services, Inc., Hudson Savings Bank and
Westborough Bancorp, MHC, Westborough Financial Services, Inc., and
The Westborough Bank, which provides for, among other things, (1)
the merger of Westborough Financial with HudWest Financial,
Services, Inc., a newly-formed acquisition subsidiary of Assabet
Valley Bancorp, with Westborough Financial as the surviving
corporation; and (2) the conversion of each share of Westborough
Financial common stock outstanding immediately prior to the merger
(other than shares held by Westborough MHC and Assabet Valley
Bancorp) into the right to receive $35.00 in cash, without
interest;
2. Elect four directors: Nancy M. Carlson, Benjamin H. Colonero, Jr.,
Jeffrey B. Leland and Joseph F. MacDonough for three-year terms;
and
3. Transact such other business as may properly be brought before the
annual meeting, or any adjournments or postponements of the annual
meeting.
Any action may be taken on the foregoing proposals at the annual meeting
on the date specified above, or on any date or dates to which the annual
meeting may be adjourned or postponed.
Westborough Financial's Board of Directors has fixed the close of
business on [record date], 2007 as the record date for determining the
shareholders entitled to receive notice of and to vote at the annual meeting
and any adjournments or postponements of the annual meeting. Only holders of
shares of Westborough Financial common stock at the close of business on the
record date will be entitled to receive notice of and to vote at the annual
meeting and any adjournments or postponements of the annual meeting.
A majority in interest of the outstanding shares of Westborough Financial
common stock must be represented at the annual meeting, in person or by proxy,
to constitute a quorum for the transaction of business. The affirmative vote of
the holders of two-thirds (2/3) of the outstanding shares of Westborough
Financial common is required to approve the merger agreement. Accordingly, a
failure to vote, an abstention or a broker non-vote will have the same effect
as voting against the proposal to approve the merger agreement. Directors will
be elected by a plurality of the votes cast at the annual meeting.
Westborough Financial believes that, pursuant to the provisions of
Section 13.02 of the Massachusetts Business Corporation Act, shareholders of
Westborough Financial are not entitled to dissent to the merger and assert
appraisal rights under Sections 13.01 to 13.31 of the Massachusetts Business
Corporation Act. However, since Section 13.02 has not yet been the subject of
judicial interpretation, Westborough Financial has concluded that you may have
appraisal rights. Any
shareholder who believes he or she is entitled to appraisal rights and who
wishes to preserve those rights should carefully follow the procedures
described in the proxy statement, including (1) delivering, before the vote on
the approval of the merger agreement is taken, written notice of his or her
intent to demand payment for his or her shares (to John L. Casagrande, Clerk,
Westborough Financial Services, Inc., 100 East Main Street, Westborough,
Massachusetts 01581), and (2) not voting his or her shares in favor of approval
of the merger agreement. A copy of the applicable Massachusetts Business
Corporation Act provisions is attached as APPENDIX D to the accompanying proxy
statement.
By Order Of The Board Of Directors,
John L. Casagrande
Clerk
Westborough, Massachusetts
[_______], 2007
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YOUR VOTE IS IMPORTANT. EVEN THOUGH YOU MAY PLAN TO ATTEND THE ANNUAL MEETING
IN PERSON, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE ANNUAL MEETING AND DESIRE TO REVOKE YOUR PROXY
AND VOTE IN PERSON, YOU MAY DO SO.
================================================================================
TABLE OF CONTENTS
Page
SUMMARY TERM SHEET........................................................ 1
FORWARD-LOOKING STATEMENTS--CAUTIONARY STATEMENTS......................... 13
INTRODUCTION.............................................................. 14
THE ANNUAL MEETING........................................................ 15
DATE, PLACE AND TIME.................................................... 15
RECORD DATE............................................................. 15
QUORUM.................................................................. 15
VOTING RIGHTS........................................................... 15
VOTES BY WESTBOROUGH MHC................................................ 15
VOTE REQUIRED........................................................... 16
VOTING AND REVOCATION OF PROXIES........................................ 16
SOLICITATION OF PROXIES................................................. 17
VOTING AGREEMENTS....................................................... 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 18
PROPOSAL 1 - THE MERGER................................................... 21
THE PARTIES............................................................. 21
DESCRIPTION OF THE MERGER..................................................21
BACKGROUND OF THE MERGER................................................ 23
WESTBOROUGH FINANCIAL'S REASONS FOR THE MERGER; RECOMMENDATION OF
THE BOARD OF DIRECTORS................................................. 31
OPINION OF WESTBOROUGH'S FINANCIAL ADVISOR.............................. 33
MERGER CONSIDERATION.................................................... 42
RESULTING CORPORATE STRUCTURE AND GOVERNANCE............................ 42
TREATMENT OF EQUITY-BASED AWARDS........................................ 43
FINANCING THE TRANSACTION............................................... 43
NO SOLICITATION......................................................... 43
RECOMMENDATION OF WESTBOROUGH FINANCIAL'S BOARD OF DIRECTORS............ 44
SURRENDER OF STOCK CERTIFICATES; PAYMENT FOR SHARES..................... 45
CONDITIONS TO THE MERGER................................................ 45
REPRESENTATIONS AND WARRANTIES OF WESTBOROUGH AND ASSABET............... 47
CONDUCT PENDING THE MERGER.............................................. 49
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT................. 53
EXPENSES................................................................ 53
TERMINATION OF MERGER AGREEMENT......................................... 53
TERMINATION FEE......................................................... 55
FINANCIAL INTERESTS OF WESTBOROUGH FINANCIAL OFFICERS AND DIRECTORS
IN THE MERGER.......................................................... 57
EMPLOYEE BENEFITS MATTERS............................................... 60
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................. 61
ACCOUNTING TREATMENT.................................................... 62
REGULATORY APPROVALS.................................................... 62
APPRAISAL RIGHTS........................................................ 64
PROPOSAL 2 - ELECTION OF DIRECTORS........................................ 66
GENERAL................................................................. 66
RECOMMENDATION OF WESTBOROUGH FINANCIAL'S BOARD OF DIRECTORS............ 66
BOARD OF DIRECTORS...................................................... 66
TABLE OF CONTENTS
Page
CORPORATE GOVERNANCE.................................................... 69
CODE OF ETHICS.......................................................... 69
CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS............................ 70
INDEPENDENT DIRECTORS................................................... 71
COMMITTEES OF THE BOARD................................................. 72
AUDIT COMMITTEE REPORT.................................................. 74
SHAREHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS AND ATTENDANCE
AT ANNUAL MEETINGS..................................................... 75
DIRECTORS' COMPENSATION................................................. 75
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS................................ 76
EXECUTIVE COMPENSATION.................................................. 77
BENEFIT PLANS........................................................... 79
TRANSACTIONS WITH CERTAIN RELATED PERSONS............................... 82
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................. 82
PRINCIPAL ACCOUNTANT FEES AND SERVICES.................................. 83
ADDITIONAL INFORMATION.................................................... 84
WHERE YOU CAN FIND MORE INFORMATION....................................... 85
APPENDICES
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A Agreement and Plan of Merger among Assabet Valley Bancorp, HudWest
Financial Services, Inc., Hudson Savings Bank and Westborough Bancorp,
MHC, Westborough Financial Services, Inc. and The Westborough Bank
dated as of November 13, 2006......................................... A-1
B Opinion of RBC Capital Markets........................................ B-1
C Form of Voting Agreement.............................................. C-1
D Part 113 of the Massachusetts Business Corporation Act................ D-1
WESTBOROUGH FINANCIAL SERVICES, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE], 2007
This proxy statement is first being mailed to shareholders of Westborough
Financial Services, Inc. on or about [______], 2007.
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this proxy
statement and may not contain all of the information that is important to you.
To understand the merger fully and for a more complete description of the legal
terms of the merger, you should read carefully this entire proxy statement,
including the merger agreement, a copy of which is included as APPENDIX A to
this proxy statement, and the other documents to which we have referred you.
You may obtain copies of our publicly filed reports and other information from
the sources listed under the section "Where You Can Find More Information" on
page [__]. Page references are included in this summary term sheet to direct
you to a more complete description of the topics.
Throughout this proxy statement, "Westborough Financial," "we" and "our"
refer to Westborough Financial Services, Inc., "Westborough Bank" refers to
Westborough Financial's wholly-owned banking subsidiary, The Westborough Bank,
"Westborough MHC" refers to Westborough Bancorp, MHC, the mutual holding
company that owns a majority of Westborough Financial's outstanding common
stock, "Westborough" refers to each of Westborough Financial, Westborough Bank
and Westborough MHC, individually and collectively, as context requires,
"Assabet" refers to each of Assabet Valley Bancorp, Hudson Savings Bank, the
wholly-owned banking subsidiary of Assabet Valley Bancorp, and HudWest
Financial Services, Inc., a newly-formed acquisition subsidiary of Assabet
Valley Bancorp, individually and collectively, as context requires. The term
"Westborough Boards" refers to the Board of Directors of Westborough Financial,
the Board of Directors of Westborough Bank and the Board of Trustees of
Westborough MHC. Also, the merger between Westborough Financial and HudWest
Financial Services, Inc. is referred to as the "merger," the merger between
Westborough Bank and Hudson Savings Bank is referred to as the "bank merger,"
the merger between Westborough MHC and Assabet Valley Bancorp is referred to as
the "MHC merger," the agreement and plan of merger, dated as of November 13,
2006, among Assabet Valley Bancorp, HudWest Financial Services, Inc., Hudson
Savings Bank and Westborough MHC, Westborough Financial and Westborough Bank is
referred to as the "merger agreement," and the agreement and plan of merger
between Westborough Bank and Hudson Savings Bank is referred to as the "bank
merger agreement." Finally, the owners of the outstanding shares of Westborough
Financial common stock, other than Westborough MHC, are referred to as the
"public shareholders" and "New Bank" refers to the institution formed by the
merger of Westborough Bank with and into Hudson Savings Bank.
THE PARTIES (PAGE __)
o WESTBOROUGH FINANCIAL is a Massachusetts corporation and the
mid-tier holding company of Westborough Bank. Westborough Financial
completed its initial public offering in February 2000 in
connection with the reorganization of Westborough Bank from a
Massachusetts chartered mutual savings bank into the Massachusetts
mutual holding company form of organization. Westborough Financial
is majority owned by Westborough MHC, a Massachusetts chartered
mutual holding company. Westborough Bank is a community- and
customer-oriented financial institution offering traditional
deposit products, residential and commercial real estate mortgage
loans and, to a lesser
1
extent, consumer and commercial loans. Westborough Bank operates
four full service-banking offices located in the towns of
Westborough (two offices), Northborough and Shrewsbury,
Massachusetts. At September 30, 2006, Westborough Financial had
consolidated assets of $301.0 million and consolidated
shareholders' equity of $28.4 million.
o Westborough's principal executive offices are located at 100 East
Main Street, Westborough, Massachusetts 01581. The telephone number
at that location is 508-366-4111.
o ASSABET VALLEY BANCORP is a Massachusetts chartered mutual holding
company that owns 100% of the outstanding capital stock of Hudson
Savings Bank. HudWest Financial Services, Inc., a Massachusetts
corporation and wholly-owned subsidiary of Assabet Valley Bancorp,
is newly-formed for the purposes of effectuating the transactions
contemplated by the merger agreement. Hudson Savings Bank, a
Massachusetts chartered stock savings bank, operates five full
service banking offices located in Hudson (two offices),
Marlborough, Clinton and Leominster, Massachusetts. At September
30, 2006, Hudson Savings Bank had total assets of $659.7 million
and shareholders' equity of $52.3 million.
o Assabet's executive offices are located at 42 Main Street, Hudson,
Massachusetts 01749. The telephone number at that location is (978)
562-2222.
THE MERGER
Westborough and Assabet propose a transaction in which Westborough will
merge with Assabet. Shareholders of Westborough Financial, other than
Westborough MHC, will receive $35.00 in cash for each share of Westborough
Financial common stock they own. Holders of Westborough Financial common stock
options will receive a cash payment equal to the excess of the $35.00 per share
transaction value over the exercise price of such options. On November 13, 2006,
the business day immediately preceding the public announcement of the merger,
the closing price of Westborough Financial's common stock, as reported on the
Over-the-Counter Bulletin Board, was $31.00 per share. The merger will be
effected as follows:
o Westborough MHC will merge into Assabet Valley Bancorp. The
separate corporate existence of Westborough MHC will cease to exist
and the shares of Westborough Financial common stock owned by
Westborough MHC will be cancelled and retired. These shares will
not be entitled to receive the $35.00 per share merger
consideration.
o Westborough Financial will merge into HudWest Financial Services,
Inc., with Westborough Financial as the surviving institution and a
wholly-owned subsidiary of Assabet Valley Bancorp. Westborough
Financial will eventually be liquidated with and into Assabet
Valley Bancorp.
o Westborough Bank will merge into Hudson Savings Bank. The
institution formed by the bank merger will be renamed following the
transaction with a name that is mutually agreeable to the parties,
and is referred to as "New Bank" in this proxy statement. New Bank
will be wholly-owned by Assabet Valley Bancorp.
Westborough is currently in the "mutual holding company" form of
organization where Westborough MHC owns a majority of Westborough Financial's
outstanding common stock and the
2
remainder is held by the public. Under Massachusetts law, for so long as
Westborough MHC is in existence it must own at least fifty-one percent of
Westborough Financial's outstanding common stock. Under Massachusetts law,
depositors of Westborough Bank hold liquidation rights in Westborough MHC and
subscription rights if Westborough MHC had undertaken a second step conversion.
The type of transaction proposed by Westborough and Assabet is commonly
referred to as a "remutualization" transaction. In a remutualization
transaction, only the outstanding shares of a mid-tier mutual holding company,
such as Westborough Financial, that are held by minority shareholders are
purchased. The outstanding shares of a mid-tier holding company held by the
mutual holding company parent, such as Westborough MHC, are cancelled in
connection with the mutual holding company parent's merger with another mutual
entity, such as Assabet Valley Bancorp. The mutual interests of the members of
Westborough MHC will be preserved in the merger in the form of liquidation
rights in Assabet Valley Bancorp and subscription rights in the event of a
conversion of Assabet Valley Bancorp to stock form.
Because, in remutualization transactions such as the merger, less than 50
percent of a company's outstanding shares are purchased, less importance is
typically placed on the ratio of purchase price to book value than in a
traditional transaction where 100 percent of a company's outstanding shares are
purchased. Based on the 567,881 outstanding shares of Westborough Financial
common stock not held by Westborough MHC or Assabet and its affiliates and
30,290 options outstanding with a weighted average exercise price of $12.61 as
of the date of the merger agreement, the aggregate consideration to be paid in
the merger is approximately $20.6 million, which is 2.06 times Westborough
Financial's minority book value as of June 30, 2006, the most recent financial
information available at announcement (i.e., Westborough Financial's book value
per share multiplied by the fully diluted shares held by stockholders other
than Westborough MHC). As of February 28, 2007, the book value of Westborough
Financial equaled approximately $17.37 per share based upon total shares of
stock outstanding on that date of 1,608,974. As more fully described in the
section entitled "Opinion of Westborough's Financial Advisor," the median price
to book value ratio in comparable non-remutualization bank acquisitions equals
approximately 1.93 times book value.
WESTBOROUGH FINANCIAL SHAREHOLDERS WILL RECEIVE $35.00 IN CASH FOR EACH SHARE
OF WESTBOROUGH FINANCIAL COMMON STOCK (PAGE __)
Westborough and Assabet propose a transaction in which Westborough will
merge with Assabet. If the merger of Westborough and Assabet is completed, you
will have the right to receive $35.00 in cash, without interest, for each share
of Westborough Financial common stock that you own as of the effective time of
the merger. Shares of Westborough Financial common stock owned by Westborough
MHC will be cancelled and retired and no consideration will be issued in
exchange therefore. Immediately after the merger, Westborough Bank will be
merged into Hudson Savings Bank. You will need to surrender your Westborough
Financial stock certificates to receive the cash merger consideration, but you
should not send us any certificates now. After the merger is completed, an
exchange agent appointed by Assabet will send you detailed instructions on how
to exchange your shares.
THE MERGER WILL BE TAXABLE FOR WESTBOROUGH FINANCIAL SHAREHOLDERS (PAGE __)
For U.S. federal income tax purposes, the merger will be treated as a
sale to Assabet of all of the public shares of Westborough Financial common
stock. Each public shareholder will recognize a gain or loss equal to the
difference between the cash received and his or her adjusted tax basis in the
shares exchanged. The gain or loss will be a capital gain or loss and will be
long-term if the shares have been held for more than one year or short-term if
the shares have been held for one year or less. The tax treatment of amounts
received for shares acquired upon the exercise of incentive stock options
granted
3
within two years of the effective time or exercised within one year of the
effective time will be subject to different tax treatment.
Tax matters are complicated, and the tax consequences of the merger may
vary among shareholders. In addition, you may be subject to state, local or
foreign tax laws that are not discussed in this proxy statement. You should
therefore consult your own tax advisor for a full understanding of the state
and federal tax consequences to you of the merger.
TREATMENT OF EQUITY-BASED AWARDS (PAGE __)
Upon shareholder approval of the merger, all stock options granted under
Westborough Financial's plans will immediately vest. Immediately prior to the
merger, each unexercised stock option to buy Westborough Financial common stock
will be cancelled and each holder of an unexercised stock option will be
entitled to receive from Westborough Financial a cash payment in an amount
equal to the number of shares subject to the stock option multiplied by the
difference between $35.00 and the exercise price of the stock option, less any
required withholding taxes. Upon shareholder approval of the merger shares of
restricted stock then outstanding will immediately vest. These shares will then
be exchangeable for the $35.00 per share merger consideration on the same basis
as other public shareholders.
WESTBOROUGH FINANCIAL HAS RECEIVED AN OPINION FROM ITS FINANCIAL ADVISOR THAT
THE PER SHARE MERGER CONSIDERATION IS FAIR TO ITS PUBLIC SHAREHOLDERS FROM A
FINANCIAL POINT OF VIEW (PAGE __)
Westborough Financial has received the written opinion of its financial
advisor, RBC Capital Markets Corporation ("RBC"), that, as of November 13, 2006
(the date on which Westborough Financial executed the merger agreement), the
$35.00 per share merger consideration is fair to the public shareholders of
Westborough Financial common stock from a financial point of view. The opinion
is included as APPENDIX B to this proxy statement. You should read this opinion
completely to understand the assumptions made, matters considered and
limitations of the review undertaken by RBC in providing its opinion. RBC's
opinion does not constitute a recommendation to any shareholder as to how such
shareholder should vote at the annual meeting with respect to the merger or any
other matter.
THE ANNUAL MEETING (PAGE __)
The annual meeting will be held at [time], local time, on [day], [date],
2007 at [location] located at [address]. At the annual meeting, you will be
asked to approve the merger agreement, elect four directors for three year
terms and to act on any other matters that may properly come before the annual
meeting.
RECORD DATE; VOTE REQUIRED (PAGE __)
You can vote at the annual meeting if you owned shares of Westborough
Financial common stock as of the close of business on [record date], 2007. On
that date, there were [_______] shares of Westborough Financial common stock
outstanding. You will have one vote at the annual meeting for each share of
Westborough Financial common stock that you owned on that date. If you own
Westborough Financial shares as a participant in the Employee Stock Ownership
Plan of Westborough Financial Services, Inc. or The Westborough Bank 401(k)
Plan or hold unvested restricted Westborough Financial common stock under the
Westborough Financial Services, Inc. 2001 Recognition and Retention Plan, you
will have the right to vote those shares.
4
The affirmative vote of the holders of two-thirds (2/3) of the
outstanding shares of Westborough Financial common stock is required to approve
the merger agreement. Each of the directors of Westborough Financial has agreed
with Assabet to vote his or her shares of Westborough Financial common stock in
favor of the merger agreement and the transactions contemplated thereby,
including the merger. These individuals own in the aggregate approximately
3.70% of the outstanding shares of Westborough Financial common stock. In
addition, Westborough MHC, which owns approximately 64% of the outstanding
shares of Westborough Financial common stock, has also agreed to vote the
shares Westborough Financial common stock it owns in favor of the merger
agreement. Votes in favor of the merger agreement by each of Westborough
Financial's directors and officers and Westborough MHC will ensure the merger
agreement's approval because they own, in the aggregate, greater than
two-thirds (2/3) of Westborough Financial's common stock.
Directors will be elected by a plurality of the votes cast at the annual
meeting.
WESTBOROUGH FINANCIAL'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF
THE MERGER AGREEMENT (PAGE __)
Based on the reasons described elsewhere in this proxy statement,
Westborough Financial's Board of Directors believes that the merger is fair to
you and in your best interests and unanimously recommends that you vote FOR the
approval of the merger agreement.
RESULTING CORPORATE STRUCTURE AND GOVERNANCE (PAGE __)
As a result of the transactions contemplated by the merger agreement:
o Westborough Bank will merge into Hudson Savings Bank to form New
Bank. New Bank will be wholly-owned by Assabet Valley Bancorp;
o Westborough MHC will merge into Assabet Valley Bancorp and its
separate corporate existence will cease to exist.
o Westborough Financial will merge into HudWest Financial Services,
Inc., with Westborough Financial as the surviving institution and a
wholly-owned subsidiary of Assabet Valley Bancorp. It is expected
that Westborough Financial will eventually be liquidated with and
into Assabet Valley Bancorp;
o Westborough MHC's trustees and corporators will become trustees and
corporators of Assabet Valley Bancorp;
o nine of Westborough Financial's directors and fifteen of Hudson
Savings Bank's directors will become directors of New Bank; and
o Joseph F. MacDonough, President and Chief Executive Officer of
Westborough Financial, will become Executive Vice President of New
Bank, a director of New Bank, a member of New Bank's Executive
Committee, a trustee of Assabet Valley Bancorp and President and
Chief Executive Officer of Assabet Valley Bancorp.
CONDITIONS TO COMPLETING THE MERGER (PAGE __)
The obligations of Westborough and Assabet to complete the merger are
subject to the satisfaction of a number of conditions, including the following:
5
o the shareholders of Westborough Financial and the corporators of
Westborough MHC and Assabet Valley Bancorp must approve the merger
agreement;
o Westborough and Assabet must have received all regulatory approvals
required to consummate the transactions contemplated by the merger,
such regulatory approvals must remain in full force and effect and
all statutory waiting periods in respect thereof must have expired
or been terminated and no such approval shall contain a condition
or restriction that would, in the good faith determination of
Westborough or Assabet, materially reduce the benefits of the
transactions contemplated by the merger agreement;
o no statute, rule, regulation, judgment, decree, injunction or other
order shall have been enacted, issued, promulgated or enforced that
prohibits the completion of the transactions contemplated by the
merger agreement; and
o each party must have received a written opinion of its counsel to
the effect that the MHC merger will qualify as a tax-free
reorganization and neither the merger nor the bank merger will
adversely affect such qualification.
In addition, the obligation of Westborough to complete the merger
agreement is conditioned on the satisfaction or waiver of the following
conditions:
o the representations and warranties of Assabet in the merger
agreement must be true and correct as of the date of the merger
agreement and the closing date of the merger;
o Assabet must have performed all of its obligations required under
the merger agreement; and
o there shall not have occurred any change between the date of the
merger agreement and the consummation of the merger that
individually or in the aggregate has or could reasonably be
expected to have a material adverse effect on Assabet.
In addition, the obligation of Assabet to complete the merger agreement
is conditioned on the satisfaction or waiver of the following conditions:
o the representations and warranties of Westborough in the merger
agreement must be true and correct as of the date of the merger
agreement and the closing date of the merger;
o Westborough must have performed all of its obligations required
under the merger agreement;
o Westborough shall not have taken any action or made any payments
that would result in the payment of an "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code or
that could result in payments that would be nondeductible under
Section 162(m) of the Internal Revenue Code, other than is
specifically provided for in the merger agreement;
o Westborough shall not have taken any action or made any payments,
either individually or in the aggregate, to or for the benefit of
Joseph F. MacDonough, John L. Casagrande or Vickie A. Bouvier that
could be deemed to be in the nature of compensation other than as
provided in the merger agreement; and
6
o there shall not have occurred any change between the date of the
merger agreement and the consummation of the merger that
individually or in the aggregate has or could reasonably be
expected to have a material adverse effect on Westborough.
TERMINATION OF THE MERGER AGREEMENT (PAGE __)
The merger agreement may be terminated by Westborough or Assabet as
follows:
o by mutual consent of the parties;
o if the merger is not consummated by June 30, 2007 or such later
date as the parties have agreed upon in writing, except as
contemplated under the merger agreement;
o if any required regulatory approval is denied or an application is
permanently withdrawn at the request of a governmental authority;
o if the other party breaches and does not cure any of its
representations, warranties, covenants or agreements under the
merger agreement and the terminating party is not then in material
breach of the merger agreement;
o if the shareholders of Westborough Financial do not approve the
merger agreement at the meeting of shareholders called to approve
the merger agreement, or any adjournment thereof, or if such
meeting of shareholders is not held or cancelled prior to June 30,
2007 (provided that Westborough may only terminate for this reason
if it is not then in material breach of certain obligations
relating to the meeting of shareholders); or
o if Westborough MHC's corporators or Assabet Valley Bancorp's
corporators do not approve the merger agreement or if the
Westborough MHC or Assabet Valley Bancorp meeting of corporators to
approve the merger agreement is not held or is cancelled prior to
June 30, 2007 (provided that a party may only terminate as a result
of its own corporators' vote or meeting if such party is not then
in material breach of certain obligations relating to the meeting
of its corporators).
The merger agreement may also be terminated by Assabet as follows:
o if, prior to the meeting of Westborough Financial shareholders,
Westborough or any of its directors or officers materially breaches
its duty not to (and its duty to use its reasonable best efforts to
cause its employees, agents and representatives not to) initiate,
solicit, encourage or otherwise facilitate any inquiries regarding,
or the making or negotiation of, a proposal to acquire Westborough
Financial by any person other than Assabet;
o if Westborough Financial's Board of Directors fails to recommend
that its shareholders approve the merger agreement or withdraws,
modifies or changes such recommendation in a manner adverse to the
interests of Assabet;
o if Westborough materially breaches its obligation to call, give
notice of, convene or hold a meeting of the shareholders of
Westborough Financial to approve the merger agreement;
7
o if Westborough MHC fails to recommend that its corporators approve
the merger agreement or if it materially breaches its obligation to
call, give notice of, convene or hold a meeting of the corporators
to approve the merger agreement; or
o if a tender offer is commenced for the acquisition of Westborough
Financial common stock by any person other than Assabet and
Westborough Financial's Board of Directors recommends that
shareholders tender their shares in such tender offer or otherwise
fails to recommend that shareholders reject such tender offer
within the ten business day period specified in Rule 14e-2(a) under
the Securities Exchange Act of 1934, as amended; or
o if Westborough enters into an agreement with a third party to
effect a "change in control transaction" (as such term is defined
in the merger agreement).
In addition, the merger agreement may be terminated by Westborough if
Assabet Valley Bancorp fails to recommend that its corporators approve the
merger agreement or if it materially breaches its obligation to call, give
notice of, convene or hold a meeting of corporators to approve the merger
agreement.
TERMINATION FEE (PAGE __)
As a material inducement to Assabet to enter into the merger agreement,
Westborough agreed to pay Assabet a termination fee of 5% of the aggregate
merger consideration if Assabet terminates the merger agreement because:
o prior to the meeting of Westborough Financial shareholders,
Westborough or any of its directors or officers materially breaches
its duty not to (and its duty to use its reasonable best efforts to
cause its employees, agents and representatives not to) initiate,
solicit, encourage or otherwise facilitate any inquiries regarding,
or the making or negotiation of, a proposal to acquire Westborough
Financial by any person other than Assabet;
o prior to the meeting of Westborough Financial shareholders, the
Westborough Financial Board of Directors fails to recommend that
Westborough Financial shareholders approve the merger agreement, or
withdraws or changes such recommendation in a manner adverse to the
interests of Assabet (including making a recommendation that
Westborough Financial shareholders approve an acquisition proposal
made by any person other than Assabet);
o Westborough materially breaches its obligation to call, give notice
of, convene or hold a meeting of the shareholders of Westborough
Financial to approve the merger agreement;
o Westborough MHC fails to recommend that Westborough MHC's
corporators approve the MHC merger or materially breaches its
obligation to call, give notice of, convene or hold a meeting of
the corporators of Westborough MHC to approve the MHC merger;
o a tender offer is commenced for the acquisition of Westborough
Financial by any person other than Assabet and Westborough
Financial's Board of Directors recommends that shareholders tender
their shares in such tender offer or otherwise fails to recommend
that shareholders reject such tender offer within the ten business
day period specified in Rule 14e-2(a) under the Securities Exchange
Act of 1934, as amended; or
8
o Westborough enters into an agreement with a third party to effect a
"change in control transaction" (as such term is defined in the
merger agreement).
In addition, Westborough will be obligated to pay the termination fee if
Westborough enters into a "change in control transaction" (as such term is
defined in the merger agreement) within 12 months after termination of the
merger agreement because:
o of Westborough's willful, uncured breach of any representation,
warranty or covenant contained in the merger agreement;
o the merger was not consummated by June 30, 2007 without a vote of
Westborough Financial shareholders to approve the merger agreement
having occurred; or
o of the failure to obtain the required vote to approve the merger at
a duly held meeting of Westborough Financial's shareholders.
FINANCIAL INTERESTS OF WESTBOROUGH FINANCIAL OFFICERS AND DIRECTORS IN THE
MERGER (PAGE __)
Some of the directors and executive officers of Westborough Financial
have agreements, stock options, restricted stock awards and other benefit plans
or arrangements that provide them with interests in the merger that are
different from, or in addition to, your interests. These interests arise from
the merger agreement and because of rights under benefits and compensation
plans or arrangements maintained by Westborough Financial or Westborough Bank
and, in the case of two officers, under employment agreements, and include the
following:
o the entry into payments agreements among Assabet, Hudson,
Westborough Bank, Westborough Financial and Westborough MHC and
each of Joseph F. MacDonough, Westborough Financial's President and
Chief Executive Officer and John L. Casagrande, Westborough
Financial's Senior Vice President and Chief Financial Officer,
which provide, among other things, for the termination of each such
officer's multi-year employment agreement with Westborough upon
consummation of the merger in exchange for a cash payment at that
time in the amounts of $330,000 for Mr. MacDonough and $126,000 for
Mr. Casagrande;
o Assabet's entry into an employment agreement with Joseph F.
MacDonough to be President and Chief Executive Officer of Assabet
Valley Bancorp and Executive Vice President of New Bank at an
initial annual salary of $210,000 per year with a term to extend
until Mr. MacDonough's 65th birthday;
o the payment by Westborough of a year-end bonus in the amount of
$250,000 for calendar 2006 to Mr. MacDonough;
o Assabet's entry into a consulting and noncompetition agreement with
Mr. Casagrande for a three-year period during which time Mr.
Casagrande will receive a consulting fee payable monthly in arrears
at an annual rate of $120,000 for the first year, $100,000 for the
second year and $40,000 for the third year;
9
o the continuation of certain health insurance coverages for Mr.
Casagrande for a period of three years under the same terms
provided in his multi-year existing employment agreement (which
employment agreement is being terminated);
o the vesting of all unvested stock options and the cancellation of
all outstanding stock options in exchange for the payment by
Westborough Financial of the difference between $35.00 and the
exercise price of such option and vesting of all unvested shares of
restricted stock granted under Westborough's equity compensation
plans prior to the consummation of the merger as contemplated by
the merger agreement, valued in the aggregate at approximately
$132,083 for all officers as a group (other than Messrs. MacDonough
and Casagrande and Vickie A. Bouvier, Westborough Bank's Senior
Vice President and Senior Operations Manager, who hold no options
and to whom all restricted stock has previously vested) and
$219,414 for all non-employee directors as a group (12 persons);
o Assabet's agreement to provide indemnification arrangements for,
among others, directors and officers of Westborough Financial
(including its subsidiaries) and to maintain directors' and
officers' indemnification insurance for such persons for a period
of six years following the merger;
o the calculation of benefits under Westborough's existing
supplemental executive retirement agreements (SERPs) for each of
Messrs. MacDonough and Casagrande and Ms. Bouvier as if each
executive had continued working until age 65 and had received a 5%
annual increase in salary and bonus to age 65 (as provided in the
existing SERPs in the event of a change in control), and the
amendment of such SERPs to provide for the payment of such benefits
in a lump sum to each executive upon completion of the merger,
whether or not the officer's employment is terminated (the lump sum
present value of the increased SERP benefit to those officers that
is attributable to the merger is estimated to be approximately
$846,309 in the aggregate). Payments to Messrs. MacDonough and
Casagrande and Ms. Bouvier under the SERPs upon completion of the
merger will equal approximately $1,173,261; $711,589 and $597,040,
respectively. Of these amounts, approximately $243,723; $166,108
and $436,478, respectively, is due to the increased SERP benefit
attributable to the merger and the remainder represents the
officers' already vested interest in the SERP benefit;
o full vesting of benefits under Westborough's supplemental
compensation agreements with all non-employee directors (12
persons) who have not attained normal retirement age (age 75) (the
lump sum present value of the increased benefit to these 12
directors that is attributable to this accelerated vesting is
estimated to be $363,618 in aggregate; however, because these
agreements provide for payment of benefits only in connection with
termination of service as a director, the only benefits that will
be paid or commence upon completion of the merger will be to the
four non-employee directors who are not continuing as directors of
New Bank);
o employees participating in Westborough Financial's employee stock
ownership plan (including Westborough officers) will become fully
vested in their accounts, and currently unallocated shares of
Westborough common stock held by the plan in a suspense account
will be allocated to employee accounts upon the repayment in full
of the outstanding employee stock ownership plan loan balance,
which will occur upon consummation of the merger (it is anticipated
that approximately $530,984 in aggregate
10
will be allocated to the accounts of participating Westborough
employees as a result of the merger, of which it is anticipated
that Messrs. MacDonough and Casagrande, Ms. Bouvier and two other
officers will be allocated approximately $64,617; $45,726; $33,032
and $42,001, respectively); and
o Westborough MHC's trustees and corporators will become trustees and
corporators of Assabet Valley Bancorp and nine of Westborough
Financial's directors will become directors of New Bank.
The board seats for Westborough's directors, trustees and corporators,
the employment arrangement for Mr. MacDonough and the consulting arrangement
for Mr. Casagrande described above were negotiated along with the other merger
terms. It is currently anticipated that all amounts payable in connection with
the merger will be fully deductible to Westborough and Assabet, as applicable.
Westborough Financial's Board of Directors was aware of these factors and
considered them in approving the merger and the merger agreement.
The total aggregate dollar amount of benefits listed above that will
accrue to Westborough's officers and directors as a result of the merger equals
approximately $2,452,800.
REGULATORY APPROVALS (PAGE __)
The merger, bank merger and MHC merger are subject to the approval of, or
notice to, certain regulatory authorities, including the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance Corporation, the
Commissioner of Banks of the Commonwealth of Massachusetts, the Deposit
Insurance Fund of Massachusetts, the Massachusetts Board of Bank Incorporation
and the Massachusetts Housing Partnership Fund. The U.S. Department of Justice
also may review the mergers under applicable antitrust laws. To date, Assabet
and Westborough have filed all necessary applications and notices with the
applicable regulatory agencies and, on March 14, 2007, the bank merger was
approved by the Federal Deposit Insurance Corporation. Although Assabet and
Westborough do not know of any reason why such regulatory approvals would not
be obtained in a timely manner, Assabet and Westborough cannot be certain when
such approvals will be obtained or if they will be obtained.
APPRAISAL RIGHTS (PAGE __)
Sections 13.01 to 13.31 (Part 13) of the Massachusetts Business
Corporation Act govern whether appraisal rights are available in connection
with the merger. We believe that you are not entitled to appraisal rights in
connection with the merger pursuant to Section 13.02(a)(1) of the Massachusetts
Business Corporation Act because shareholders will receive only cash for their
shares and no director, officer, or controlling shareholder has any direct or
indirect material financial interest in the merger other than in their capacity
as a shareholder of Westborough or a director, trustee, officer, employee or
consultant of Westborough or Assabet pursuant to a bona fide arrangement with
Westborough or Assabet. However, the Massachusetts Business Corporation Act
took effect on July 1, 2004, and Section 13.02 has not yet been the subject of
judicial interpretation. Therefore, we have concluded that you may have
appraisal rights. If you believe that you are entitled to appraisal rights, you
should do the following pursuant to Part 13 of the Massachusetts Business
Corporation Act:
o Deliver written notice of your intent to demand payment for your
shares of common stock before the vote on the approval of the
merger agreement is taken to John L. Casagrande, Clerk, Westborough
Financial Services, Inc., 100 East Main Street, Westborough,
Massachusetts 01581;
11
o NOT vote for the approval of the merger agreement; and
o Comply with other procedures as are required by Part 13 of the
Massachusetts Business Corporation Act.
As long as you do not vote for the approval of the merger agreement,
failure to vote against the approval of the merger agreement does not
constitute a waiver of your appraisal rights. However, in order to exercise any
appraisal rights you may have, you must comply with the procedures as required
by Part 13 of the Massachusetts Business Corporation Act.
Part 13 of the Massachusetts Business Corporation Act requires the
delivery, within 10 days after the effective date of the merger, of a written
appraisal notice and forms containing certain information to all shareholders
who have properly demanded appraisal rights. If appraisal rights are available
in connection with the merger:
o Each shareholder that has properly perfected their appraisal rights
will be entitled to a cash payment of the estimated fair value of
the shares, plus interest but subject to any applicable withholding
taxes, within 30 days of the written appraisal notice and forms due
date;
o A shareholder that fails to execute and return the forms, and
comply with the terms stated therein, will not be entitled to any
payment; and
o If dissatisfied with the payment or offer, shareholders may demand
further payment.
A copy of Part 13 of the Massachusetts Business Corporation Act is
attached to this proxy statement as APPENDIX D.
QUESTIONS
You may contact Joseph F. MacDonough at (508) 366-4111 with any questions
about the merger and related matters.
12
FORWARD-LOOKING STATEMENTS--CAUTIONARY STATEMENTS
This proxy statement and the documents incorporated by reference into
this proxy statement contain forward-looking statements and information with
respect to the financial condition, results of operations, plans, objectives,
future performance, business and other matters relating to Westborough
Financial or the merger that are based on the beliefs of, as well as
assumptions made by and information currently available to, Westborough
Financial's management. When used in this proxy statement, the words
"anticipate," "believe," "estimate," "expect" and "intend" and words or phrases
of similar import are intended to identify forward-looking statements. These
statements reflect the current view of Westborough Financial with respect to
future events and are subject to risks, uncertainties and assumptions that
include, without limitation, the risk factors set forth in Westborough's 2006
Annual Report on Form 10-KSB and other filings with the Securities and Exchange
Commission, the risk that the merger will not be completed and risks associated
with competitive factors, general economic conditions, geographic credit
concentration, customer relations, interest rate volatility, governmental
regulation and supervision, defaults in the repayment of loans, changes in
volume of loan originations, and changes in industry practices. Should any one
or more of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described in this proxy statement as anticipated, believed, estimated, expected
or intended.
13
INTRODUCTION
This proxy statement is furnished to the shareholders of Westborough
Financial in connection with the solicitation of proxies by Westborough
Financial's Board of Directors for use at the annual meeting of shareholders of
Westborough Financial to be held at [location] located at [address], on [day],
[date], 2007 beginning at [time], local time, and any adjournment or
postponement thereof.
At the annual meeting, shareholders of Westborough Financial will be
asked to consider and approve the merger agreement, elect four directors for
three-year terms and to transact such other business as may properly come
before the annual meeting or any adjournment or postponement of the annual
meeting. A copy of the merger agreement is attached to this proxy statement as
APPENDIX A.
At the effective time of the merger, each share of Westborough Financial
common stock issued and outstanding immediately prior to the effective time,
other than shares owned by Westborough MHC or Assabet, will be canceled and
converted automatically into the right to receive from Assabet an amount equal
to $35.00 in cash, without interest.
The merger will become effective when articles of merger, executed in
accordance with the relevant provisions of the Massachusetts Business
Corporation Act, is filed with the Secretary of State of the Commonwealth of
Massachusetts (or such later time as may set forth in the articles of merger by
the parties), which will not be done unless and until all conditions to the
obligations of the parties to consummate the merger are satisfied or waived
where permissible. See "--Conditions to the Merger," beginning on page [__].
Although no assurance can be given in this regard, it is anticipated that the
merger will become effective in the second quarter of 2007.
After the completion of the merger, holders of certificates that prior to
the merger represented issued and outstanding shares of Westborough Financial
common stock will have no rights with respect to those shares except for the
right to surrender the certificates for the merger consideration. After the
completion of the merger, holders of shares of Westborough Financial common
stock will have no continuing equity interest in Westborough or Assabet and,
therefore, will not share in the future earnings, dividends or growth of
Westborough or Assabet.
Immediately prior to the merger, the MHC merger will be effected, thereby
terminating the separate legal existence of Westborough MHC. Immediately after
the merger, the bank merger is expected to be completed, thereby terminating
the separate legal existence of Westborough Bank. Shares of Westborough
Financial common stock owned by Westborough MHC will be canceled and retired
and will not be entitled to receive the $35.00 per share merger consideration.
In addition, Westborough Financial will thereafter be liquidated with and into
Assabet Valley Bancorp.
14
THE ANNUAL MEETING
DATE, PLACE AND TIME
The annual meeting of shareholders of Westborough Financial will be held
at [location] located at [address], on [day], [date], 2007, beginning at
[time], local time.
RECORD DATE
The close of business on [record date], 2007 has been fixed as the record
date for determining the shareholders of Westborough Financial entitled to
receive notice of and to vote at the annual meeting and any adjournment or
postponement of the annual meeting. There were [______] shares of common stock
outstanding as of the record date.
QUORUM
A quorum of shareholders is necessary to hold a valid meeting. If the
holders of at least a majority of the total number of the outstanding shares of
common stock entitled to vote are represented in person or by proxy at the
annual meeting, a quorum will exist. Because Westborough MHC owns greater than
a majority of Westborough Financial's outstanding shares of common stock,
representation of Westborough MHC at the annual meeting will constitute a
quorum. Westborough Financial will include proxies marked as abstentions and
broker non-votes to determine the number of shares present at the annual
meeting and any adjournment or postponement of the annual meeting but will not
count them in the voting on the proposal to elect directors. However, proxies
marked as abstentions and broker non-votes will have the same effect as voting
against the proposal to approve the merger agreement.
VOTING RIGHTS
You are entitled to one vote for each share of Westborough Financial
common stock that you owned as of record at the close of business on [record
date], 2007. The number of shares you own (and may vote) is listed at the top
of the back of the proxy card.
You may vote your shares at the annual meeting in person or by proxy. To
vote in person, you must attend the annual meeting and obtain and submit a
ballot, which Westborough Financial will provide to you at the annual meeting.
To vote by proxy, you must complete, sign and return the enclosed proxy card.
If you properly complete your proxy card and send it to us in time to vote,
your "proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares FOR the proposal to approve
the merger agreement and FOR the election of the four nominees for director for
three-year terms.
If any other matter is properly presented at the annual meeting, your
proxy will vote the shares represented by all properly executed proxies on such
matters as a majority of Westborough Financial's Board of Directors determines.
As of the date of this proxy statement, Westborough Financial knows of no other
matters that may be presented at the annual meeting, other than those listed in
the notice of annual meeting.
VOTES BY WESTBOROUGH MHC
Westborough MHC is the holding company for Westborough Financial, which
was formed pursuant to the reorganization of Westborough Bank to a mutual
holding company structure in February
15
2000. As indicated under "Security Ownership of Certain Beneficial Owners and
Management," Westborough MHC owns 1,027,893 shares, or approximately 64%, of
the outstanding common stock of Westborough Financial.
Westborough MHC has entered into a voting agreement with Assabet pursuant
to which Westborough MHC will vote, among other things, all of its shares for
approval of the merger agreement. For a more complete description of the voting
agreement, please refer to "Voting Agreements," below, in this proxy statement.
VOTE REQUIRED
The affirmative vote of two-thirds (2/3) of the outstanding shares of
Westborough Financial common stock is required to approve the merger agreement.
Accordingly, a failure to vote, an abstention or a broker non-vote will have
the same effect as a vote against the proposal to approve the merger agreement.
Each of the directors of Westborough Financial has agreed with Assabet to vote
his or her shares of Westborough Financial common stock in favor of the merger
agreement. These individuals collectively own approximately 3.70% of the
outstanding shares of Westborough Financial common stock. In addition,
Westborough MHC, which owns approximately 64% of the outstanding shares of
Westborough Financial common stock, has also agreed to vote the shares
Westborough Financial common stock it owns in favor of the merger agreement.
As of the close of business on the record date for the annual meeting,
neither Assabet nor, to the knowledge of Assabet, any of its directors,
trustees or executive officers, beneficially owned any shares of Westborough
Financial common stock.
Directors are elected by a plurality of votes cast, without regard to
either broker non-votes or proxies as to which the authority to vote the
nominees being proposed is withheld. Because Westborough MHC owns more than 50%
of Westborough Financial's total outstanding shares, we expect that Westborough
MHC will control the outcome of the vote on the election of directors.
VOTING AND REVOCATION OF PROXIES
Common stock represented by properly executed proxies received by
Westborough Financial and not revoked will be voted at the annual meeting in
accordance with the instructions contained in the proxies. If there are no
instructions, properly executed proxies will be voted FOR the proposal to
approve the merger agreement and FOR the election of the four nominees for
director for three-year terms.
Westborough Financial intends to count the shares of common stock present
in person at the annual meeting but not voting, and shares of common stock for
which it has received proxies, but the holders of these shares have abstained
on any matter, as present at the annual meeting for purposes of determining the
presence or absence of a quorum for the transaction of business at the annual
meeting. However, these nonvoting shares and abstentions will not be counted as
votes cast for purposes of determining the number of votes cast on the
proposals.
In addition, brokers who hold shares in street name for customers who are
the beneficial owners of these shares are prohibited from giving a proxy to
vote shares in favor of the approval of the merger agreement without
instructions from the customers who beneficially own the shares. Accordingly,
the failure of these customers to provide voting instructions to their broker
will result in those shares not being voted.
16
A shareholder of record may revoke a proxy by:
o filing a written notice of revocation with John L. Casagrande,
Clerk of Westborough Financial, at Westborough Financial Services,
Inc., 100 East Main Street, Westborough, Massachusetts 01581;
o filing a properly signed proxy bearing a later date; or
o appearing at the annual meeting in person, notifying the Clerk and
voting by ballot at the annual meeting. The mere presence of a
shareholder at the annual meeting (without notification of
revocation to the Clerk) will not, by itself, automatically revoke
a shareholder's proxy.
At this time, Westborough Financial's Board of Directors is not aware of
any business that may properly be presented at the annual meeting other than
the proposals to approve the merger agreement and elect directors. However, if
further business is properly presented, the persons present will have
discretionary authority to vote the shares they own or represent by proxy in
accordance with their judgment. Unless otherwise provided by Westborough
Financial's Articles of Organization or bylaws or by law, other matters will be
approved by a majority of the votes cast in favor of such matters.
SOLICITATION OF PROXIES
This proxy statement is furnished in connection with the solicitation of
proxies by Westborough Financial's Board of Directors for use at the annual
meeting or any adjournment or postponement of the annual meeting. The cost of
solicitation of proxies by the Board of Directors will be borne by Westborough
Financial. In addition to the solicitation of proxies by mail, the directors,
trustees, officers and employees of Westborough may also solicit proxies
personally or by telephone, telecopier, or similar means without compensation
other than reimbursement by Westborough for their actual expenses. Westborough
also will request persons, firms and corporations holding shares which are
beneficially owned by others to send proxy materials to and obtain proxy
instructions from those beneficial owners. Westborough will reimburse those
holders for their reasonable out-of-pocket expenses. Westborough Financial has
also retained Georgeson Inc., a proxy soliciting firm, to assist in the
solicitation of proxies at a fee of $7,500 plus reimbursement of reasonable
out-of-pocket expenses.
VOTING AGREEMENTS
Concurrently with the execution of the merger agreement, Westborough MHC
and each director of Westborough Financial separately entered into voting
agreements with Assabet under which they: (1) agreed to restrict their ability
to transfer or dispose of their shares of Westborough Financial common stock;
(2) agreed to vote their shares of Westborough Financial common stock in favor
of adoption of the merger agreement; (3) agreed to vote their shares of
Westborough Financial common stock against any action or agreement that would
result in a material breach of any covenant, representation or warranty, or
other obligation or agreement, of Westborough Financial contained in the merger
agreement; and (4) agreed to vote their shares of Westborough Financial common
stock against any proposal to acquire Westborough Financial by any person other
than Assabet or against any agreement or transaction intended to, or could
reasonably be expected to, materially impede, interfere with, delay, postpone,
discourage or materially and adversely affect the consummation of the merger or
any of the transactions contemplated by the merger agreement. Westborough
Financial's directors and Westborough MHC agreed to enter into the voting
agreements as an indication of their support for the merger agreement and the
transactions contemplated by it and their willingness to vote their shares of
Westborough Financial common stock in favor of the merger agreement at the
annual meeting.
17
The voting agreements terminate automatically upon the consummation of
the merger or upon termination of the merger agreement. In addition, the voting
agreements provide that, notwithstanding anything to the contrary therein,
noting in the voting agreements shall in any way restrict a director in the
exercise of his or her fiduciary duties as a director of Westborough Financial
or prevent any director from taking any action in his or her capacity as a
director of Westborough Financial. The foregoing summary is qualified in its
entirety by reference to the voting agreements, the forms of which are attached
to this proxy statement as APPENDIX C.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders of Westborough Financial. The following table
contains common stock ownership information for persons known to Westborough
Financial to "beneficially own" 5% or more of Westborough Financial's common
stock as of December 26, 2006. In general, beneficial ownership includes those
shares that a person has the power to vote, sell or otherwise dispose.
Beneficial ownership also includes the number of shares that an individual has
the right to acquire within 60 days (such as stock options) after December 26,
2006. Two or more persons may be considered the beneficial owner of the same
shares. We obtained the information provided in the following table from
filings with the Securities and Exchange Commission and with Westborough
Financial. In this proxy statement, "voting power" is the power to vote or
direct the voting of shares, and "investment power" includes the power to
dispose or direct the disposition of shares.
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership(1) Percent
- --------------- -------------------------------- ----------------------- -------
Common Stock Westborough Bancorp, MHC 1,027,893 63.89%
$0.01 par value 100 East Main Street
Westborough, Massachusetts 01581
- ------------------
(1) As reported by Westborough Bancorp, MHC in a Schedule 13D dated February
15, 2000, which reported sole voting and dispositive power with respect
to 1,027,893 shares.
18
Security Ownership of Management. The following table shows the number of
shares of Westborough Financial's common stock beneficially owned by each
director, the named executive officers identified in the Summary Compensation
Table included elsewhere in this proxy statement, and all directors and
executive officers of Westborough Financial as a group, as of December 26,
2006. The percent of common stock outstanding was based on a total of 1,608,774
shares of Westborough Financial's common stock outstanding on that date, plus
shares of common stock that such person or group has the right to acquire
within 60 days after that date by the exercise of stock options. Except as
otherwise indicated, each person and each group shown in the table has sole
voting and investment power with respect to the shares of common stock listed
next to their name.
Amount and
Position with Nature Percent of
Westborough Financial and of Beneficial Common Stock
Name Westborough Bank Ownership(1) Outstanding
- ------------------------------------ ----------------------------- ------------- ------------
James N. Ball Director 1,150(2) *
Nelson P. Ball Director 1,450(3) *
Edward S. Bilzerian Director 4,450(4) *
Nancy M. Carlson Director 650 *
David E. Carlstrom Director 3,950(5) *
John L. Casagrande Senior Vice President, Chief 5,279(6) *
Financial Officer, Treasurer,
Clerk and Director
Benjamin H. Colonero, Jr. Director 490 *
Robert A. Klugman Director 3,450(7) *
Jeffrey B. Leland Director 600 *
Joseph F. MacDonough President, Chief Executive 22,238(8) 1.4%
Officer and Director
Paul F. McGrath Director 5,850(9) *
Charlotte C. Spinney Director 2,950(10) *
Phyllis A. Stone Director 2,500(11) *
James E. Tashjian Director 4,450(12) *
All directors and executive
officers as a group (17 persons)(13) 96,644 6.01%
- ------------------
* Less than one percent of the total outstanding shares of common stock.
(1) Includes stock options that may be acquired by executive officers and
directors of Westborough Financial under the Westborough Financial
Services Inc. 2001 Stock Option Plan within 60 days after December 26,
2006. These amounts also include unvested restricted stock awards under
the Westborough Financial Services, Inc. 2001 Recognition and Retention
Plan. Under the plan, each of Mr. James Ball, Ms. Carlson and Mr.
Colonero holds unvested restricted stock awards of 450 shares of common
stock. Each holder of an unvested restricted stock award has sole voting
power but no investment power, except in limited circumstances, over the
common stock covered by the award.
(2) Includes 700 shares held jointly with Mr. Ball's spouse.
(3) Includes options to purchase 1,000 shares that are currently vested.
Excludes 3,500 shares held by his spouse for which Mr. Ball disclaims
beneficial ownership.
19
(4) Includes options to purchase 1,000 shares that are currently vested.
(5) Includes options to purchase 600 shares that are currently vested.
(6) Includes 705 shares held in Westborough Bank's 401(k) plan.
(7) Includes options to purchase 1,000 shares that are currently vested.
(8) Includes: 1,741 shares held in Mr. MacDonough's individual retirement
account; 314 shares held in his spouse's individual retirement account;
1,679 shares held in Westborough Bank's 401(k) plan and 3,500 shares held
jointly with his spouse.
(9) Includes 5,000 shares held in Mr. McGrath's individual retirement account
and options to purchase 400 shares that are currently vested.
(10) Includes: 1,500 shares held in Ms. Spinney's individual retirement
account; 90 shares held as custodian for a minor child under the Uniform
Transfer to Minors Act; and options to purchase 900 shares that are
currently vested.
(11) Includes: 75 shares held by Ms. Stone as custodian under the Uniform
Transfers to Minors Act; and 900 shares held jointly with her spouse.
(12) Includes 3,000 shares held jointly with his spouse and options to
purchase 1,000 shares that are currently vested.
(13) Includes:
o 59,457 shares beneficially owned by the individuals listed in the
table;
o 1,604 shares held in trust pursuant to the Westborough Financial
Services, Inc. Employee Stock Ownership Plan (the "ESOP") that have
been allocated to Mr. MacDonough. Because Mr. MacDonough disclaims
beneficial ownership of these shares, they have not been attributed
to him individually in the table;
o 1,074 shares held in trust pursuant to the ESOP that have been
allocated to Mr. Casagrande. Because Mr. Casagrande disclaims
beneficial ownership of these shares, they have not been attributed
to him individually in the table;
o 26,518 shares held by the ESOP trust that have not been allocated
over which the ESOP Committee (Ms. Carlson, Mr. Carlstrom and Mr.
Klugman) may be deemed to have beneficial ownership. Because the
members of the ESOP Committee disclaim beneficial ownership of
these shares, they have not been attributed to them individually in
the table; and
o 7,991 shares beneficially owned by executive officers who are not
listed in the table.
For a detailed description of the ESOP, see "Benefit Plans-Employee Stock
Ownership Plan."
20
PROPOSAL 1 - THE MERGER
This section of the proxy statement describes the material aspects of the
merger agreement. A copy of the merger agreement is attached to this proxy
statement as APPENDIX A. Shareholders are urged to read the merger agreement
carefully and in its entirety.
THE PARTIES
Westborough Financial Services, Inc., or Westborough Financial, is a
Massachusetts corporation and the mid-tier holding company of Westborough Bank.
Westborough Financial completed its initial public offering in February 2000 in
connection with the reorganization of Westborough Bank from a Massachusetts
chartered mutual savings bank into the Massachusetts mutual holding company
form of organization. Westborough Financial is majority owned by Westborough
MHC, a Massachusetts chartered mutual holding company. Westborough Bank is a
community- and customer-oriented financial institution offering traditional
deposit products, residential and commercial real estate mortgage loans and, to
a lesser extent, consumer and commercial loans. Westborough Bank operates four
full service-banking offices located in the towns of Westborough, Northborough
and Shrewsbury, Massachusetts. At September 30, 2006, Westborough Financial had
consolidated assets of $301.0 million and consolidated shareholders' equity of
$28.4 million.
Westborough's principal executive offices are located at 100 East Main
Street, Westborough, Massachusetts 01581. The telephone number at that location
is 508-366-4111.
Assabet Valley Bancorp is a Massachusetts chartered mutual holding
company and holds 100% of the outstanding capital stock of Hudson Savings Bank.
HudWest Financial Services, Inc., a Massachusetts corporation and wholly-owned
subsidiary of Assabet Valley Bancorp, is newly-formed for the purposes of
effectuating the transactions contemplated by the merger agreement. Hudson
Savings Bank, a Massachusetts chartered stock savings bank, operates five full
service banking offices located in Hudson (two offices), Marlborough, Clinton
and Leominster, Massachusetts. At September 30, 2006, Hudson Savings Bank had
total assets of $659.7 million and shareholders' equity of $52.3 million.
Assabet's executive offices are located at 42 Main Street, Hudson,
Massachusetts 01749. The telephone number at that location is (978) 562-2222.
DESCRIPTION OF THE MERGER
Westborough and Assabet propose a transaction in which Westborough will
merge with Assabet. Shareholders of Westborough Financial, other than
Westborough MHC, will receive $35.00 in cash for each share of Westborough
Financial common stock they own. Holders of Westborough Financial common stock
options will receive a cash payment equal to the excess of the $35.00 per share
transaction value over the exercise price of such options. On November 13,
2006, the business day immediately preceding the public announcement of the
merger, the closing price of Westborough Financial's common stock, as reported
on the Over-the-Counter Bulletin Board, was $31.00 per share. The merger will
be effected as follows:
o Westborough MHC will merge into Assabet Valley Bancorp. The
separate corporate existence of Westborough MHC will cease to exist
and the shares of Westborough Financial common stock owned by
Westborough MHC will be cancelled and retired. These shares will
not be entitled to receive the $35.00 per share merger
consideration.
21
o Westborough Financial will merge into HudWest Financial Services,
Inc., with Westborough Financial as the surviving institution and a
wholly-owned subsidiary of Assabet Valley Bancorp. Westborough
Financial will eventually be liquidated with and into Assabet
Valley Bancorp.
o Westborough Bank will merge into Hudson Savings Bank. The
institution formed by the bank merger will be renamed following the
transaction with a name that is mutually agreeable to the parties,
and is referred to as "New Bank" in this proxy statement. New Bank
will be wholly-owned by Assabet Valley Bancorp.
Westborough is currently in the "mutual holding company" form of
organization where Westborough MHC owns a majority of Westborough Financial's
outstanding common stock and the remainder is held by the public. Under
Massachusetts law, for so long as Westborough MHC is in existence it must own
at least fifty-one percent Westborough Financial's outstanding common stock.
Under Massachusetts law, depositors of Westborough Bank hold liquidation rights
in Westborough MHC and subscription rights if Westborough MHC had undertaken a
second step conversion.
The type of transaction proposed by Westborough and Assabet is commonly
referred to as a "remutualization" transaction. In a remutualization
transaction, only the outstanding shares of a mid-tier mutual holding company,
such as Westborough Financial, that are held by minority shareholders are
purchased. The outstanding shares of a mid-tier holding company held by the
mutual holding company parent, such as Westborough MHC, are cancelled in
connection with the mutual holding company parent's merger with another mutual
entity, such as Assabet Valley Bancorp. The mutual interests of the members of
Westborough MHC will be preserved in the merger in the form of liquidation
rights in Assabet Valley Bancorp and subscription rights in the event of a
conversion of Assabet Valley Bancorp to stock form.
Because, in remutualization transactions such as the merger, less than 50
percent of a company's outstanding shares are purchased, less importance is
typically placed on the ratio of purchase price to book value than in a
traditional transaction where 100 percent of a company's outstanding shares are
purchased. Based on the 567,881 outstanding shares of Westborough Financial
common stock not held by Westborough MHC or Assabet and its affiliates and
30,290 options outstanding with a weighted average exercise price of $12.61 as
of the date of the merger agreement, the aggregate consideration to be paid in
the merger is approximately $20.6 million, which is 2.06 times Westborough
Financial's minority book value as of June 30, 2006, the most recent financial
information available at announcement (i.e., Westborough Financial's book value
per share multiplied by the fully diluted shares held by stockholders other
than Westborough MHC). As of February 28, 2007, the book value of Westborough
Financial equaled approximately $17.37 per share based upon total shares of
stock outstanding on that date of 1,608,974. As more fully described in the
section entitled "Opinion of Westborough's Financial Advisor," the median price
to book value ratio in comparable non-remutualization bank acquisitions equals
approximately 1.93 times book value.
22
BACKGROUND OF THE MERGER
Because Westborough Bank and Hudson Savings are similarly-sized community
banks operating in near proximity to one another in east central Massachusetts,
a long history of familiarity exists between Westborough and Assabet. On
numerous occasions over the past ten years, Westborough and Assabet held
discussions of various degrees of formality regarding the possible combination
of the two organizations. Other than the discussions that resulted in
Westborough and Assabet entering into the merger agreement in November 2006,
these interactions did not result in any type of agreement between the two
institutions.
In February 2000, Westborough Bank completed a mutual holding company
reorganization that resulted in the formation of Westborough MHC and the
formation and initial public offering of Westborough Financial. Since the
reorganization, Westborough's management has focused its principal attention on
growing Westborough's core business of offering savings and certificate of
deposit accounts and residential mortgage loans in the market area of
Westborough, Massachusetts and surrounding communities. In recent years,
Westborough has adopted a growth-oriented strategy that has focused on
expanding its product lines and services and providing expanded electronic and
traditional delivery systems for its customers. In accordance with this
strategy, Westborough has emphasized (1) expanding its residential lending and
retail banking franchise, and increasing the number of households served within
its market area, (2) expanding its commercial banking products and services for
small- and medium-sized businesses, (3) expanding its branch network to
increase its market share, (4) increasing the use of alternative delivery
channels, such as Internet and telephone banking, and (5) offering a variety of
non-deposit investment products (such as mutual funds and insurance) and
services as a means to compete for an increased share of its customers'
financial service business and improve fee-based income.
The Westborough Boards and senior management have also regularly
evaluated Westborough's strategic alternatives and assessed various
opportunities for increasing long-term shareholder value, including
opportunities for enhancing earnings internally, opportunistic de novo
branching, and acquiring and/or merging with other financial institutions.
These reviews included a periodic assessment by Westborough's outside financial
advisors of Westborough's financial performance and return to shareholders,
stock trading patterns and trends in the financial marketplace, including
merger and acquisition activity, both local and nationwide. These reviews often
included a discussion of the Westborough Boards' fiduciary duties with
Westborough's legal counsel.
Other than merging with another financial institution, the
Westborough Boards had at times considered a second-step conversion as a
possible means of increasing long-term shareholder value. The Westborough
Boards had determined not to pursue a second-step transaction, however, because
it would require significant time and expense and would involve significant
market and transactional uncertainty. Additionally, up to and including the
present time, Westborough had yet to fully deploy the capital raised in its
initial public offering in 2000.
During 2005, the Westborough Boards had also considered a going-private
transaction in which Westborough Financial's common stock would be deregistered
and Westborough Financial would no longer be subject to securities laws and
regulations applicable to public companies. However, during October 2005, the
Westborough Boards decided not to pursue a deregistration transaction because
it appeared that the cost savings Westborough would benefit from as a result of
not being a public company would not offset the earnings and competitive
challenges Westborough faced in its banking business. In addition, due to the
competitive market environment in which Westborough operates, the Westborough
Boards decided to consider the possibility of a strategic merger as a potential
alternative.
23
One of Westborough's periodic reviews, including an assessment of
Westborough by RBC Capital Markets Corporation ("RBC"), a financial advisor,
occurred on November 14, 2005 when Westborough's Long Range Planning Committee
held a meeting to discuss strategic alternatives.
At a meeting of the Westborough Boards on November 21, 2005, RBC reviewed
Westborough's business plan and discussed strategic alternatives and the
possibility of Westborough merging with another financial institution.
On December 19, 2005, the Westborough Boards met with RBC to discuss the
merger process. The Westborough Boards and RBC discussed the important
attributes of a potential merger partner and developed a list of such
attributes and other items that Westborough would require in any transaction.
Such items included the desire for Westborough to combine with another
financial institution rather than be acquired, a preference for a partner with
similar corporate and cultural characteristics to those of Westborough, a
preference for geographic proximity, the desire that the transaction have a
positive effect on Westborough Bank's customers and the possibility of
continued employment for Westborough's employees, and the desire for ongoing
Westborough Board representation to ensure that Westborough's communities would
continue to be served and benefited by the transaction.
On February 21, 2006, RBC met with the Westborough Boards and discussed
six potential merger partners that RBC had identified based upon the desired
characteristics developed by the Westborough Boards. One of these potential
partners was Assabet.
On February 24, 2006, Westborough engaged RBC as its exclusive financial
advisor with respect to a possible transaction.
During early 2006, as a result of informal discussions between Joseph F.
MacDonough, Westborough's President and Chief Executive Officer, and Mark R.
O'Connell, Hudson Savings Bank's President and Chief Executive Officer, which
were later communicated to the Westborough Boards, Westborough gained a sense
of the probable deal terms that could be obtained in connection with a possible
merger with Assabet. Such terms included the mutual development of a new brand
for the combined bank rather than keeping the name "Hudson Savings Bank" or
"The Westborough Bank," continued employment for Westborough's employees,
including an executive-level position and employment agreement for Mr.
MacDonough, the strong probability that no branch closings would occur as a
result of the combination and continued representation in the combined
institution by members of the Westborough Boards for the benefit of
Westborough's communities. Price was not discussed during these informal
discussions.
On March 13, 2006 and March 27, 2006, RBC met with Westborough's Long
Range Planning Committee and the Westborough Boards, respectively. The purpose
of these meetings was to discuss potential merger partners and the merits of
holding discussions with one potential partner as opposed to contacting several
potential partners. The Westborough Boards considered the long history of
familiarity that Westborough had with Assabet, the geographic proximity of the
institutions, the similar culture of the institutions and, most importantly,
the sense of deal terms that Westborough had previously gained from Assabet.
These factors led to the view of the Westborough Boards that of the six
potential merger partners identified, Assabet's characteristics most closely
resembled those of an ideal merger partner. As a result, the Westborough Boards
determined to attempt to hold discussions with Assabet only. In making this
determination, Westborough Financial's Board of Directors had also considered
the value Westborough Financial's public shareholders would receive in a merger
transaction and whether it was more likely that shareholder value would be
maximized if more than one potential partner was contacted. Westborough
Financial's Board determined that if a transaction with Assabet would not
result in sufficient value for Westborough Financial's public shareholders,
then Westborough would hold
24
discussions with additional potential partners. In addition, the Westborough
Boards noted the fact that because Westborough MHC is the majority stockholder
of Westborough Financial, the interests of Westborough MHC's stakeholders,
including The Westborough Bank's depositors and customers and the local
community, were appropriate considerations in making this determination.
On April 6, 2006, Mr. MacDonough sent a letter to Mr. O'Connell setting
forth Westborough's view of the potential terms of a merger between Westborough
and Assabet. The letter described Westborough's view of certain broad issues
including the resulting corporate structure, effect on employees, corporate
governance matters, treatment of executive officers, board representation and
timing and due diligence.
During April and early-May 2006, Westborough, Assabet and their
respective representatives continued their discussions regarding a potential
transaction and on May 12, 2006, Westborough and Assabet entered into a mutual
confidentiality agreement and agreed to exchange information and commence
discussions regarding a possible merger.
On May 16, 2006 representatives Westborough, Assabet, RBC, Keefe,
Bruyette & Woods, Assabet's financial advisor, Thacher Proffitt & Wood LLP
("Thacher Proffitt"), special legal counsel to Westborough, and Foley Hoag LLP,
special legal counsel to Assabet, conducted a meeting in order to discuss the
progress of the merger discussions.
On May 22, 2006, the Westborough Boards and Thacher Proffitt met to
discuss the general parameters of a potential business combination with
Assabet, including continued employment by Mr. MacDonough, treatment of
Westborough employees and customers, continued representation on the board of
the combined institution by members of the Westborough Boards and certain other
issues.
On June 12, 2006, RBC met with Westborough's Executive Committee to
review the progress of discussions with Assabet and certain issues that had
arisen in connection with those discussions, including Assabet and Westborough
board representation following consummation of a potential transaction and
other corporate governance matters.
On July 17, 2006, Westborough's Executive Committee met with RBC to
discuss Westborough's valuation and related topics.
On July 31, 2006, the Westborough Boards met with RBC to discuss certain
key points related to the potential merger of Westborough and Assabet. These
points included issues related to continued employment by Westborough
executives and other employees and board representation in the combined
institution following a transaction. The Westborough Boards determined to
continue Westborough's discussions with Assabet.
On August 4, 2006, Assabet delivered to Westborough a non-binding draft
term sheet for a potential merger transaction. The term sheet highlighted
certain key financial and non-financial components to a proposed transaction,
including a proposal to pay $33.00 in cash per public share of Westborough
Financial common stock. This term sheet constituted the first time during the
process that a quantified offer for a specific dollar amount was discussed or
made.
The Westborough Boards met with RBC on August 7, 2006 to discuss the
non-binding term sheet. The Boards directed RBC to request an increase in the
proposed purchase price of Westborough Financial common stock to $35.00 per
share and to address certain non-financial matters with Assabet. Pending the
outcome of those requests, the Westborough Boards authorized RBC and Thacher
Proffitt to begin negotiating a definitive merger agreement.
25
On August 9, 2006, Assabet delivered to Westborough an initial draft
merger agreement. Negotiation of the merger agreement commenced among RBC,
Thacher Proffitt and Assabet's financial advisors and legal counsel.
During September and October 2006, Westborough and Assabet conducted due
diligence on one another, with RBC and Thacher Proffitt conducting due
diligence on Assabet on September 29, 2006. Advisors of Westborough and Assabet
continued to negotiate the merger agreement and RBC and Thacher Proffitt met
frequently with Westborough's Executive Committee to review the merger
agreement and discuss progress in the negotiations.
During the weeks of October 23, October 30 and November 6, 2006, the
schedules to the merger agreement, employment and compensation matters and
other outstanding items were negotiated. The Westborough Boards met with RBC
and Thacher Proffitt to discuss the merger agreement and the negotiations. The
final open items were resolved on November 10, 2006 and the morning of November
13, 2006.
During the evening of November 13, 2006, a special meeting of the
Westborough Boards was held. At this meeting, RBC and Thacher Proffitt updated
the Westborough Boards on the status of the negotiations. Thacher Proffitt
reviewed for the Boards the terms of the merger agreement, as well as the
voting agreement to be entered into by each of the members of the Westborough
Boards, the legal duties of the Westborough Financial Board to Westborough
Financial's public shareholders and potential conflicts of interest issues. RBC
delivered a presentation of its fairness opinion to the Westborough Financial
Board, which was confirmed in writing, which stated that, based upon and
subject to the considerations described in its opinion, the per share merger
consideration offered by Assabet was fair from a financial point of view to
Westborough Financial's public shareholders. After fully considering the
proposal, including the tax implications to Westborough Financial's
shareholders of Assabet's all cash offer, the Westborough Boards unanimously
approved the merger agreement and the transactions contemplated thereby.
Shortly thereafter, the parties executed the merger agreement and issued a
joint press release publicly announcing the transaction the morning of November
14, 2006.
On December 27, 2006, Westborough Financial received an unsolicited
letter from an individual expressing an interest in acquiring the shares of
common stock of Westborough Financial not owned by Westborough MHC for a price
of $38.50 per share.
The proposal contained the following additional terms:
o Westborough MHC would remain in place and Westborough Bank would
continue to operate as an independent bank.
o the boards of each of the Westborough entities would be comprised
of twelve members, with five chosen from their existing boards and
seven appointed by the prospective buyer.
o the prospective buyer would reimburse Westborough for the
termination fee payable to Assabet in the event the prospective
buyer was unable to close a transaction after signing a definitive
agreement and receipt of regulatory approvals.
o a fee payable to the prospective buyer substantially similar to the
termination fee contained in the merger agreement, except that it
would equal to 4% of the aggregate consideration.
26
o all other material provisions of a definitive agreement would be
the same as those contained in the merger agreement.
In accordance with the terms of the merger agreement, Westborough
Financial informed Assabet of this development. By letter dated January 5,
2007, Mr. MacDonough acknowledged receipt of the unsolicited letter and
indicated that Westborough Financial's Board of Directors was in the process of
reviewing its terms. By letter dated January 8, 2007, the individual
supplemented the original proposal with additional proposed terms.
Under the terms of the merger agreement with Assabet, Westborough
Financial and its Board of Directors are prohibited from negotiating with a
third party concerning a competing proposal unless certain conditions are
satisfied, including a determination by Westborough Financial's Board of
Directors (after consultation with its financial advisor) that the competing
proposal, if accepted, would be reasonably likely to lead to a "superior
proposal." For the purposes of the merger agreement, a superior proposal means
any bona fide offer for 100% of the outstanding shares of Westborough Financial
that is reasonably likely to be consummated and, if consummated, is reasonably
likely to result in a transaction more favorable to Westborough MHC and to
Westborough Financial's shareholders from a financial point of view than the
merger with Assabet. See "No Solicitation."
Westborough Financial's Board of Directors met on January 15, 2007 to
review the proposal. Representatives of RBC and Thacher Proffitt attended the
meeting.
Westborough Financial's Board of Directors met again on January 22, 2007
to review the proposal. Representatives of RBC and Thacher Proffitt
participated by telephone. After reviewing the proposal and discussing various
matters, including the proposal in relation to the merger with Assabet and the
merger agreement, Westborough Financial's Board of Directors unanimously
determined that the proposal was not a superior proposal. The Board of
Directors further determined that discussions with the individual who made the
proposal would not be reasonably likely to lead to a superior proposal.
Therefore, the Board of Directors elected not to proceed further and Thacher
Proffitt sent a letter to that effect to the individual.
In making its determination, Westborough Financial's Board of Directors
considered and reviewed with its outside advisors a number of factors
including, among other things, the following:
o the uncertainty of whether the third party would be able to obtain
the financing necessary to complete the proposed transaction. The
proposal indicated that it would be necessary to raise
approximately $23 million in the form of private equity, and
possibly a small amount of debt. Conversely, Assabet already had
the funds necessary to fund the transaction.
o the proposal was subject to regulatory approvals, and the
contemplated structure, in which Westborough MHC would remain in
place, with the remaining shares of Westborough Financial owned by,
and the board of directors controlled by, one individual or
business entity, raised questions as to whether the individual
would be able to obtain the regulatory approvals necessary to
consummate a transaction; conversely, Assabet had nearly completed
its applications to the Federal Deposit Insurance Corporation, the
Board of Governors of the Federal Reserve System, the Massachusetts
Division of Banks and the Massachusetts Board of Bank Incorporation
and there was no reason to believe that such applications would not
result in all necessary regulatory approvals.
27
o the proposal required that the prospective buyer be allowed to
undertake a due diligence review of Westborough; Assabet had
already completed its due diligence of Westborough.
o the proposal was subject to the negotiation and execution of a
definitive acquisition agreement; Assabet had already negotiated
and entered into a definitive agreement with Westborough.
o the uncertainty of the value of the offer made by the third party.
The offer of $38.50 in cash per share of Westborough Financial
common stock was subject to a due diligence review and the
negotiation of a definitive agreement, thereby raising the question
of whether the ultimate purchase price would actually be $38.50 per
share.
o the delay and costs involved in attempting to pursue another
transaction with a third party, which would require the completion
of due diligence, the negotiation of an acquisition agreement and
the receipt of regulatory approvals. Westborough Financial's Board
of Directors believes the merger with Assabet will be consummated
in late April or early May of 2007, whereas, in the Board of
Directors opinion, assuming the due diligence is satisfactory and
an acceptable agreement can be negotiated, the other offer would
not be consummated for several months thereafter.
o if Westborough pursued the other offer, Assabet might attempt to
terminate the merger agreement, which could cause Westborough to
lose a transaction that was fairly close to being completed without
any guarantee that Westborough would be able to reach an agreement
with the proposed buyer.
o the certainty of the purchase price that Westborough Financial
shareholders would receive in the event the transaction with
Assabet was consummated ($35.00 per share) compared to the purchase
price indicated in the other proposal ($38.50 per share).
o the corporate structure and corporate governance that would result
from the proposal compared to the corporate structure and corporate
governance that would result from the merger with Assabet.
o the potentially negative impact that pursuing a competing proposal
after working with Assabet since November 13, 2006 would have upon
the employees and customers of Westborough.
This summary is not meant to be an exhaustive description of the
information and factors considered by Westborough Financial's Board of
Directors but is believed to address the material information and factors
considered. In view of the wide variety of factors considered by Westborough
Financial's Board of Directors, it is not possible to quantify or to give
relative weights to the various factors. After taking into consideration all
the factors set forth above, as well as other factors not specifically
described above, the Board of Directors unanimously concluded that the proposed
offer was not a superior proposal and that further discussions with the
proposed buyer would not be reasonably likely to lead to a superior proposal.
Westborough Financial's Board of Directors reaffirmed its conclusion that the
merger with Assabet is fair to, and in the best interests of, Westborough MHC
and Westborough Financial's shareholders.
28
On February 28, 2007, Westborough Financial received an unsolicited
letter from an individual representing an investor group expressing an interest
in acquiring the shares of common stock of Westborough Financial not owned by
Westborough MHC for a price of $40.00 per share. The individual also issued a
press release announcing delivery of the letter to Westborough Financial's
Board of Directors.
The proposal contained the following additional terms:
o Westborough MHC would remain in place and Westborough Bank would
continue to operate as an independent bank.
o the proposal was conditioned on majority representation on
Westborough Financial's Board of Directors.
o the proposal was not subject to a financing contingency.
o the proposal was subject to a due diligence review period of up to
four weeks.
o a definitive agreement would contain a termination fee of an
unspecified amount payable to the prospective buyer.
o the scope, level and tenor of the representations and warranties
made by Westborough in a definitive agreement would be the same as
those contained in the merger agreement.
In accordance with the terms of the merger agreement, Westborough
Financial informed Assabet of this development. Receipt of the proposal was
acknowledged by letter to the individual dated March 1, 2007.
As previously described, pursuant to the terms of the merger agreement
with Assabet, Westborough Financial and its Board of Directors are prohibited
from negotiating with a third party concerning a competing proposal unless
certain conditions are satisfied, including a determination by Westborough
Financial's Board of Directors (after consultation with its financial advisor)
that the competing proposal, if accepted, would be reasonably likely to lead to
a "superior proposal," as defined in the merger agreement.
Westborough Financial's Board of Directors reviewed the proposal during
the week of March 5, 2007 and met on March 12, 2007 to discuss a response.
Representatives of RBC and Thacher Proffitt attended the meeting. After
reviewing the proposal and discussing various matters, including the proposal
in relation to the merger with Assabet and the merger agreement, Westborough
Financial's Board of Directors unanimously determined that the proposal was not
a superior proposal. The Board of Directors further determined that discussions
with the individual who made the proposal would not be reasonably likely to
lead to a superior proposal. Therefore, the Board of Directors elected not to
proceed further and Thacher Proffitt sent a letter to that effect to the
individual.
In making its determination, Westborough Financial's Board of Directors
considered and reviewed with its outside advisors a number of factors
including, among other things, the following:
o the proposal would be subject to regulatory approvals, and the
contemplated structure, in which Westborough MHC would remain in
place as the majority shareholder, with the remaining shares of
Westborough Financial owned by, and the Board of Directors
controlled by, an investor group, raised serious concerns as to
whether the individual
29
would be able to obtain the regulatory approvals necessary to
consummate a transaction; conversely, Assabet had already completed
and submitted its applications to the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System,
the Massachusetts Division of Banks and the Massachusetts Board of
Bank Incorporation and there was no reason to believe that such
applications would not result in all necessary regulatory
approvals.
o the Board of Directors' opinion that, in light of Westborough's
extensive strategic analysis and evaluation of local market
conditions, the merger with Assabet would strengthen Westborough's
financial condition on a going-forward basis while providing
Westborough's customers, depositors and community with access to
the products and services offered by a stronger and more diverse
financial institution, and the fact that these advantages were not
present in the proposal.
o the proposal required that the prospective buyer be allowed to
undertake a due diligence review of Westborough that could take up
to four weeks; Assabet had already completed its due diligence of
Westborough.
o the proposal was subject to the negotiation and execution of a
definitive acquisition agreement; Assabet had already negotiated
and entered into a definitive agreement with Westborough.
o the uncertainty of the value of the offer made by the third party.
The offer of $40.00 in cash per share of Westborough Financial
common stock was subject to a due diligence review and the
negotiation of a definitive agreement. While the proposal indicated
that the $40.00 per share price was firm absent anything of a
materially adverse nature discovered in due diligence, the question
of whether the ultimate purchase price would actually be $40.00 per
share was still raised.
o the delay and costs involved in attempting to pursue another
transaction with a third party, which would require the completion
of due diligence, the negotiation of an acquisition agreement and
the receipt of regulatory approvals. Westborough Financial's Board
of Directors believes the merger with Assabet will be consummated
in late April or early May of 2007, whereas, in the Board of
Directors opinion, assuming the due diligence is satisfactory and
an acceptable agreement can be negotiated, the other offer would
not be consummated for several months thereafter.
o if Westborough pursued the other offer, Assabet might attempt to
terminate the merger agreement, which could cause Westborough to
lose a transaction that was fairly close to being completed without
any guarantee that Westborough would be able to reach an agreement
with the proposed buyer.
o the certainty of the purchase price that Westborough Financial
shareholders would receive in the event the transaction with
Assabet was consummated ($35.00 per share) compared to the purchase
price indicated in the other proposal ($40.00 per share).
o the corporate structure and corporate governance that would result
from the proposal compared to the corporate structure and corporate
governance that would result from the merger with Assabet.
30
o the potentially negative impact that pursuing a competing proposal
after working with Assabet since November 13, 2006 would have upon
the employees and customers of Westborough.
This summary is not meant to be an exhaustive description of the
information and factors considered by Westborough Financial's Board of
Directors but is believed to address the material information and factors
considered. In view of the wide variety of factors considered by Westborough
Financial's Board of Directors, it is not possible to quantify or to give
relative weights to the various factors. After taking into consideration all
the factors set forth above, as well as other factors not specifically
described above, the Board of Directors unanimously concluded that the proposed
offer was not a superior proposal and that further discussions with the
proposed buyer would not be reasonably likely to lead to a superior proposal.
Westborough Financial's Board of Directors reaffirmed its conclusion that the
merger with Assabet is fair to, and in the best interests of, Westborough MHC
and Westborough Financial's shareholders.
WESTBOROUGH FINANCIAL'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD
OF DIRECTORS
Westborough Financial's Board of Directors has unanimously approved the
merger agreement and unanimously recommends that Westborough Financial
shareholders vote FOR approval of the merger agreement.
Westborough Financial's Board of Directors has determined that the merger
is fair to, and in the best interests of, Westborough Financial and its
shareholders. In approving the merger agreement, the Board of Directors
consulted with RBC with respect to the fairness of the per share merger
consideration to the holders of Westborough Financial common stock from a
financial point of view and Thacher Proffitt as to its legal duties and the
terms of the merger agreement. In arriving at its determination, the Board of
Directors also considered a number of factors, including the following:
o the board's familiarity with and review of information concerning
the business, results of operations, financial condition,
competitive position and future prospects of Westborough Financial;
o the current and prospective environment in which Westborough
Financial operates, including national, regional and local economic
conditions, the competitive environment for banks and other
financial institutions generally and the increased regulatory
burdens on financial institutions generally and the trend toward
consolidation in the banking industry and in the financial services
industry;
o the financial presentation of RBC and the opinion of RBC that, as
of the date of such opinion, the per share merger consideration of
$35.00 in cash is fair, from a financial point of view, to
Westborough Financial's public shareholders;
o results that could be expected to be obtained by Westborough
Financial if it continued to operate independently, and the likely
benefits to shareholders of such course, as compared with the value
of the merger consideration being offered by Assabet;
o the ability of Assabet to pay the aggregate merger consideration
and to receive the requisite regulatory approvals in a timely
manner;
31
o the fact that the consideration to be received in the merger is
cash, thus eliminating any uncertainty in valuing the merger
consideration to be received by Westborough Financial shareholders,
and that this consideration would result in a fully-taxable
transaction to Westborough Financial shareholders;
o the terms and conditions of the merger agreement, including the
parties' respective representations, warranties, covenants and
other agreements, the conditions to closing, the absence of a
financing condition, a provision which permits Westborough
Financial's Board of Directors, in the exercise of its fiduciary
duties, under certain conditions, to furnish information to, or
engage in negotiations with, a third party which has submitted a
bona fide unsolicited written proposal to acquire Westborough
Financial and a provision providing for Westborough Financial's
payment of a termination fee to Assabet if the merger agreement is
terminated under certain circumstances, and the effect such
termination fee could have on a third party's decision to propose a
merger or similar transaction to Westborough Financial at a higher
price than that contemplated by the merger;
o the retention of Joseph F. MacDonough as a senior executive officer
of the combined institution, post-merger board representation by
members of Westborough Financial's current Board of Directors and
the relative reciprocity of merger agreement representations and
warranties made between Westborough and Assabet;
o the effects of the merger on Westborough's depositors and customers
and the communities served by Westborough, which was deemed to be
favorable given that they would be served by the institution formed
by the merger of Westborough Bank and Hudson Savings Bank would be
a larger, more diverse institution; and
o the effects of the merger on Westborough's employees, including the
expectation that no layoffs or branch closings would occur in
connection with the merger and the severance agreed to be provided
by Assabet in the event any employee's employment is terminated in
connection with the merger.
Westborough Financial's Board of Directors also considered the following
negative factors in its deliberations concerning the merger:
o the effect on Westborough Financial's public shareholders because
Westborough would no longer have the ability to undertake a
"second-step conversion" transaction as a means to potentially
increase long-term shareholder value;
o the risk of a third party offering Westborough Financial a superior
proposal, which, if accepted, would result in the termination of
the merger agreement and the payment by Westborough to Assabet of a
termination fee equal to approximately $1.0 million;
32
o the timing of the receipt of and the terms of approvals from
appropriate governmental and regulatory entities, including the
possibility of delay in obtaining satisfactory approvals or the
imposition of unfavorable terms or conditions in the approvals;
o the risk that some or all of the benefits sought in the merger may
not be achieved; and
o the risk that the merger would not be consummated.
Westborough Financial's Board of Directors believed that these negative
factors were substantially outweighed by the benefits anticipated from the
merger.
Because the aggregate consideration to be received in the merger will be
paid to Westborough Financial's minority shareholders only, Westborough
Financial's Board of Directors did not consider the ratio of aggregate
consideration to Westborough Financial's aggregate book value to be relevant.
As such, Westborough Financial's Board of Directors did not consider this ratio
in its evaluation and approval of the merger agreement.
The discussion and factors considered by Westborough Financial's Board of
Directors is not intended to be exhaustive, but includes all material factors
considered. In approving the merger agreement, the Board of Directors did not
assign any specific or relative weights to any of the foregoing factors and
individual directors may have weighted factors differently.
OPINION OF WESTBOROUGH'S FINANCIAL ADVISOR
By agreement dated February 24, 2006, Westborough Financial retained RBC
as its financial advisor in connection with a possible business combination
involving another financial institution. As part of its investment banking
business, RBC is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions.
On November 13, 2006, the board of directors of Westborough Financial met
to evaluate the merger and the terms of the merger agreement. At this meeting,
RBC rendered its oral opinion (subsequently confirmed in writing) that, as of
the date of its opinion, the per share merger consideration offered by Assabet
was fair from a financial point of view to the public shareholders of
Westborough Financial. There were no limitations imposed by Westborough
Financial on RBC in connection with its rendering of the fairness opinion.
The full text of RBC's written fairness opinion, which sets forth the
assumptions made and matters considered in regards to the fairness of the
consideration offered to the public shareholders of Westborough Financial, is
attached as Appendix B to this proxy statement. You should read RBC's opinion
in its entirety. While the discussion of RBC's opinion in this proxy statement
is not intended to be all-inclusive, it does constitute a summary of all of the
material information considered by the Board of Directors of Westborough
Financial in conjunction with the fairness opinion as presented by RBC. The
following should be considered when reading the discussion of RBC's opinion in
this proxy statement:
o RBC's opinion is directed only to the per share consideration
offered in the merger to the public shareholders and does not
constitute a recommendation to any Westborough Financial
shareholder as to how such shareholder should vote on the proposed
transaction;
o RBC's opinion does not address the relative merits of the merger
and the other business strategies considered by the Westborough
Financial Board, including but not limited to a second step
conversion of Westborough Financial, nor does it address the
Westborough Financial Board's decision to proceed with the merger;
33
o the summary information regarding RBC's opinion and the procedures
followed in rendering such opinion set forth in this proxy
statement is qualified in its entirety by reference to the full
text of such opinion.
In arriving at the opinion, RBC, among other things:
o reviewed financial and other information that was publicly
available, including regulatory filings and related disclosures for
both Westborough Financial and Assabet, and Securities and Exchange
Commission filings for Westborough Financial;
o analyzed certain internal financial projections and other financial
and operating data prepared by the management of Westborough
Financial;
o discussed with senior management of each of Westborough Financial
and Assabet their views on each company's respective past and
current business operations, results thereof, financial condition
and future prospects;
o reviewed the historical stock prices and trading volumes of
Westborough Financial's common stock;
o reviewed the merger agreement;
o compared certain market and financial information for Westborough
Financial with similar information for certain other banking
companies deemed comparable to Westborough Financial whose
securities are publicly traded;
o analyzed certain bank mergers and acquisitions of regional
institutions deemed to be reasonably similar to Westborough
Financial, and compared the proposed financial consideration in the
merger with the consideration paid in other relevant mergers and
acquisitions;
o reviewed the capacity of Assabet to fund the aggregate
consideration in the merger and analyzed Assabet's pro forma
regulatory capital ratios expected after the merger;
o considered the characteristics unique to mutual holding companies
and remutualization transactions; and
o conducted such other financial studies, analyses and investigations
as RBC deemed appropriate for purposes of its opinion.
In performing its review and arriving at its opinion, RBC assumed and
relied upon, without independent verification, the accuracy and completeness of
all the financial information, analyses and other information reviewed by and
discussed with RBC. RBC did not make any independent evaluation or appraisal of
specific assets or liabilities, the collateral securing the assets or the
liabilities of Westborough Financial or Assabet or any of their subsidiaries,
or the collectibility of any such assets (relying, where relevant, on the
analyses and estimates of Westborough Financial and Assabet). RBC assumed,
without independent verification, that the aggregate allowances for loan losses
for Westborough Financial and Assabet are adequate to cover those losses. RBC
also assumed the following with regard to its review:
34
o The financial projections reviewed with management have been
reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the future financial
performance of Westborough Financial;
o the merger would be consummated in accordance with the terms of the
merger agreement, without material waiver or modification;
o the representations and warranties of each party in the merger
agreement and in all related documents referred to in the merger
agreement are true and correct;
o each party to the merger agreement and all related documents will
perform all of the covenants and agreements required to be
performed by such party in such documents;
o the transaction will be treated as a taxable stock purchase for
United States federal income tax purposes and all material
governmental, regulatory or other consents and approvals necessary
for the consummation of the merger will be obtained without any
adverse effect on Westborough Financial or Assabet or on the
anticipated benefits of the merger; and
o there has been no material change in Westborough Financial's or
Assabet's assets, financial condition, results of operations,
business or prospects since the date of the last financial
statements made available to RBC.
In connection with rendering its fairness opinion to the Westborough
Financial Board, RBC performed a variety of financial analyses. None of these
analyses failed to support RBC's fairness conclusion. The following is a
summary of such analyses, but does not purport to be a complete description of
the RBC analyses. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analyses or summary description. RBC believes that its analyses must be
considered as a whole and that selecting portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the processes underlying RBC's
opinion. You should also understand that the order of analyses (and results
thereof) described does not represent relative importance or weight given to
these analyses by RBC.
In performing its analyses, RBC made numerous assumptions with respect to
industry performance, business and economic conditions and various other
matters, many of which cannot be predicted and are beyond the control of
Westborough Financial, Assabet, or RBC. No company or transaction utilized in
RBC's analyses was identical to Westborough Financial or Assabet or the merger.
Any estimates contained in RBC's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable
than such estimates. Estimates of values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold. Because such estimates are inherently subject
to uncertainty, RBC assumes no responsibility for their accuracy.
The financial forecast information furnished to RBC by Westborough
Financial was prepared by Westborough Financial's management. As a matter of
policy, Westborough Financial does not publicly disclose internal management
forecasts, projections or estimates of the type furnished to RBC in connection
with its analysis of the merger, and such forecasts, projections and estimates
were not prepared with a view towards public disclosure. These forecasts,
projections and estimates were based on numerous variables and assumptions
which are inherently uncertain and which may not be within the control of
Westborough Financial's management, including, without limitation, general
economic,
35
regulatory and competitive conditions. Therefore, actual results may vary
significantly from the projections.
Summary of Proposal. Public shareholders of Westborough Financial will
receive $35.00 in cash for each share of Westborough Financial common stock.
Holders of Westborough Financial common stock options will receive a cash
payment equal to the excess of the $35.00 per share transaction value over the
exercise price of such options. Based on 567,881 minority shares outstanding
and 30,290 options outstanding with a weighted average exercise price of
$12.61, the aggregate consideration to be paid in the merger is approximately
$20.6 million. See "Description of the Merger."
The aggregate consideration represents a multiple of 700.0 times trailing
twelve months' earnings of Westborough Financial, and a multiple of 2.06 times
Westborough Financial's fully diluted minority book value and tangible book
value, as of June 30, 2006. The aggregate consideration represents 73.4% of
total book value and total tangible book value as of June 30, 2006.
Stock Trading History. RBC reviewed the history of reported trading
prices for Westborough Financial. It was noted that at a value of $35.00 per
share, the cash consideration in the merger is a 13% premium to the most recent
market price and a 25% premium to the 90-day volume weighted average price for
Westborough Financial common stock.
Discounted Cash Flow Valuation. RBC performed a discounted cash flow
valuation to estimate a range of present values for Westborough Financial,
assuming Westborough Financial continued to operate as a stand-alone entity.
RBC calculated the theoretical per share value of Westborough Financial based
on the present value of: (i) an initial amount of capital representing the
excess of the tangible equity to tangible assets ratio of Westborough Financial
above 6.00%; (ii) implied dividends per share over a five-year period, assuming
Westborough Financial could dividend out all current earnings as long as its
ratio of tangible equity to tangible assets remained at 6.00%; and (iii) the
terminal value, or the theoretical value of the Bank at the end of the
five-year period, or the fiscal year ended June 30, 2011. RBC based the
projected earnings for Westborough Financial on internal management estimates.
The terminal values are based upon a range of earnings multiples at which
similarly sized banking institutions could be expected to trade over the long
term of 12 to 15 times earnings. RBC used a range of discount rates of 12% to
15%, which it deemed appropriate for a company with Westborough Financial's
risk characteristics. RBC determined that the implied value per share, based on
total shares outstanding, including MHC shares, of Westborough Financial common
stock ranged from $13.49 to $16.60 based on the price-to-earnings multiple
assumptions for the terminal values as summarized below:
Terminal Value P/E Multiple to FY 2012 Earnings
-----------------------------------------------
12x 13x 14x 15x
--- --- --- ---
12% $14.61 $15.28 $15.94 $16.60
Discount 13% $14.22 $14.85 $15.48 $16.10
Rate 14% $13.85 $14.44 $15.04 $15.64
15% $13.49 $14.06 $14.63 $15.19
The results of the discounted cash flow analysis using implied dividends
does not purport to reflect the prices at which any securities may trade at the
present time or at any time in the future. Discounted cash flow analysis is a
widely used valuation method, but the results of this method are highly
dependent upon numerous assumptions, including earnings growth rates, dividend
payout rates, multiples to terminal earnings and discount rates.
36
Comparable Public Company Analysis.
Comparable Regionally Based Peers. RBC reviewed certain financial,
operating and stock market performance data of twenty-three publicly traded
thrifts headquartered in the Mid-Atlantic and Northeast regions (not including
metropolitan New York City and Philadelphia), each with total assets less than
$1.0 billion, return on average equity greater than zero and tangible equity to
tangible assets greater than 7.0% using data as of June 30, 2006. An asterisk
next to the individual peer company notes peers that are in mutual holding
company form with minority shares outstanding ("partially converted"). Share
prices of the partially converted mutual holding companies have not been
manipulated in any way to reflect these companies as fully converted or
otherwise. The peer companies were as follows:
o Abington Community Bancorp, Inc. * (Jenkintown, PA)
o American Bancorp of New Jersey, Inc. (Bloomfield, NJ)
o American Bank Holdings, Inc. (Silver Spring, MD)
o Benjamin Franklin Bancorp, Inc. (Franklin, MA)
o Colonial Bankshares, Inc. * (Bridgeton, NJ)
o Eureka Financial Corporation * (Pittsburgh, PA)
o Gouverneur Bancorp, Inc. * (Gouverneur, NY)
o Greater Delaware Valley Savings Bank * (Broomall, PA)
o Greene County Bancorp, Inc. * (Catskill, NY)
o Lincoln Park Bancorp * (Lincoln Park, NJ)
o MASSBANK Corp. (Reading, MA)
o Naugatuck Valley Financial Corp. * (Naugatuck, CT)
o Ocean Shore Holding Company * (Ocean City, NJ)
o Oneida Financial Corp. * (Oneida, NY)
o Pamrapo Bancorp (Bayonne, NJ)
o PSB Holdings, Inc. * (Putnam, CT)
o Severn Bancorp (Annapolis, MD)
o SI Financial Group, Inc. * (Willimantic, CT)
o Synergy Financial Group, Inc. (Cranford, NJ)
o TF Financial Corp. (Newtown, PA)
37
o United Financial Bancorp, Inc. * (West Springfield, MA)
o Washington Savings Bank, F.S.B. (Bowie, MD)
o Wawel Savings Bank * (Wallington, NJ)
RBC analyzed the relative performance and value of Westborough Financial
by comparing certain publicly available financial data of Westborough Financial
with that of its peer companies, including tangible equity to tangible assets,
return on average assets, return on average equity, market price to last twelve
months' earnings per share, market price to last twelve months' core earnings
per share, market price to tangible book value and market price to book value.
For Westborough Financial, last twelve months' core earnings per share
represents reported earnings per share excluding non-recurring expense items
totaling $467 thousand on a pre-tax basis. All stock prices were closing prices
as of November 9, 2006, and trading multiples for Westborough Financial are
based on total shares outstanding. The analyses yielded the following
comparison of the medians for the peer companies with Westborough Financial,
respectively:
- --------------------------------------------------------------------------------
Regional Westborough
Peer Median Financial
- --------------------------------------------------------------------------------
Tangible equity to tangible assets................ 10.92% 9.34%
- --------------------------------------------------------------------------------
Return on average assets (LTM).................... 0.76% 0.03%
- --------------------------------------------------------------------------------
Return on average equity (LTM).................... 5.38% 0.28%
- --------------------------------------------------------------------------------
Market price to LTM earnings per share............ 36.1x 620.0x
- --------------------------------------------------------------------------------
Market price to LTM core earnings per share....... 36.1x 128.4x
- --------------------------------------------------------------------------------
Market price to tangible book value............... 183% 177%
- --------------------------------------------------------------------------------
Market price to book value........................ 174% 177%
- --------------------------------------------------------------------------------
Comparable Mutual Holding Companies ("MHCs"). Due to fact that
Westborough Financial is a mid-tier mutual holding company (MHC), RBC performed
similar analyses with a second peer group consisting of publicly traded MHCs
nationwide with assets less than $1.0 billion, return on average equity greater
than zero and tangible equity to tangible assets greater than 7.0%. RBC
reviewed and compared certain financial, operating and stock performance data
of Westborough Financial with 26 publicly traded MHCs. All peers in this
comparison are partially converted. Share prices have not been manipulated in
any way to reflect these companies as fully converted or otherwise. This peer
analysis also utilized financial data as of June 30, 2006. These peers are as
follows:
o Abington Community Bancorp, Inc. (Jenkintown, PA)
o AJS Bancorp, Inc. (Midlothian, IL)
o Atlantic Coast Federal Corp. (Waycross, GA)
o Cheviot Financial Corp. (Cincinnati, OH)
o Colonial Bankshares, Inc. (Bridgeton, NJ)
o Eagle Bancorp (Helena, MT)
o Eureka Financial Corporation (Pittsburgh, PA)
38
o Gouverneur Bancorp, Inc. (Gouverneur, NY)
o Greater Delaware Valley Savings Bank (Broomall, PA)
o Greene County Bancorp, Inc. (Catskill, NY)
o Heritage Financial Group (Albany, GA)
o Home Federal Bancorp, Inc. (Nampa, ID)
o Home Federal Bancorp, Inc. of Louisiana (Shreveport, LA)
o Kentucky First Federal Bancorp (Hazard, KY)
o K-Fed Bancorp (Covina, CA)
o Lincoln Park Bancorp (Lincoln Park, NJ)
o Mid-Southern Savings Bank, F.S.B. (Salem, IN)
o Minden Bancorp, Inc. (Minden, LA)
o Naugatuck Valley Financial Corp. (Naugatuck, CT)
o Ocean Shore Holding Company (Ocean City, NJ)
o Oneida Financial Corp. (Oneida, NY)
o SI Financial Group, Inc. (Willimantic, CT)
o United Financial Bancorp, Inc. (West Springfield, MA)
o Wake Forest Bankshares, Inc. (Wake Forest, NC)
o Wawel Savings Bank (Wallington, NJ)
o Webster City Federal Bancorp (Webster City, IA)
RBC analyzed the relative performance and value of Westborough Financial
by comparing certain publicly available financial data of Westborough Financial
with that of the MHC peer companies, including tangible equity to tangible
assets, return on average assets, return on average equity, market price to
last twelve months' earnings per share, market price to last twelve months'
core earnings per share, market price to tangible book value and market price
to book value. For Westborough Financial, last twelve months' core earnings per
share represents reported earnings per share excluding non-recurring expense
items totaling $467 thousand on a pre-tax basis. All stock prices were closing
prices as of November 9, 2006, and trading multiples for Westborough Financial
are based on total shares outstanding, including MHC shares. The analysis
yielded the following comparison of the medians for the peer companies with
those for Westborough Financial, respectively:
39
- --------------------------------------------------------------------------------
MHC Westborough
Peer Median Financial
- --------------------------------------------------------------------------------
Tangible equity to tangible assets................ 13.60% 9.34%
- --------------------------------------------------------------------------------
Return on average assets (LTM).................... 0.72% 0.03%
- --------------------------------------------------------------------------------
Return on average equity (LTM).................... 5.07% 0.28%
- --------------------------------------------------------------------------------
Market price to LTM earnings per share............ 41.8x 620.0x
- --------------------------------------------------------------------------------
Market price to LTM core earnings per share....... 41.8x 128.4x
- --------------------------------------------------------------------------------
Market price to tangible book value............... 183% 177%
- --------------------------------------------------------------------------------
Market price to book value........................ 181% 177%
- --------------------------------------------------------------------------------
Analysis of Selected Merger Transactions. RBC reviewed the proposed
consideration paid, or proposed to be paid, in other merger transactions and
compared the consideration to be received in the merger to thrift transactions
in the Mid-Atlantic and Northeast regions announced since January 1, 2004.
Specifically, RBC reviewed 21 acquisitions involving target thrifts with assets
less than $1.0 billion:
Acquirer Target
-------- ------
Community Banks Inc. (PA) BUCS Financial Corp. (MD)
Bradford Bank (MD) Valley Bancorp, Inc. (MD)
First Marblehead Corp. (MA) Union Bank (RI)
Sterling Bank (NJ) Farnsworth Bancorp, Inc. (NJ)
Passumpsic Bancorp (VT) Siwooganock Holding Company (NH)
First Commonwealth Financial (PA) Laurel Capital Group, Inc. (PA)
Webster Financial Corp. (CT) New Mil Bancorp, Inc. (CT)
Community Bank System (NY) ES&L Bancorp, Inc. (NY)
Allegheny Valley Bancorp (PA) RSV Bancorp (PA)
Sterling Financial Corp. (PA) Bay Net Financial, Inc. (MD)
Flushing Financial Corp. (NY) Atlantic Liberty Financial Corp. (NY)
Bay View Capital Corp. (CA) Great Lakes Bancorp, Inc. (NY)
National Penn Bancshares, Inc. (PA) Nittany Financial Corp. (PA)
Berkshire Hills Bancorp, Inc. (MA) Woronoco Bancorp, Inc. (MA)
KNBT Bancorp, Inc. (PA) Northeast Pennsylvania Fin. Corp. (PA)
Benjamin Franklin Bancorp (MA) Chart Bank, A Co-op Bank (MA)
ESB Financial Corp. (PA) PHSB Financial Corp. (PA)
Brookline Bancorp, Inc. (MA) Mystic Financial, Inc. (MA)
Prosperity Bancshares, Inc. (TX) Liberty Bancshares, Inc. (NY)
Provident Bancorp, Inc. (NY) Warwick Community Bancorp, Inc. (NY)
Independent Bank Corp. (MA) Falmouth Bancorp, Inc. (MA)
In reviewing the comparable transactions, RBC examined the multiples at
announcement of premium to market price, price to latest twelve months
earnings, premium to core deposits, price to assets, price to tangible book
value per share and price to book value per share. The multiples calculated for
the merger are presented on a GAAP basis, accounting for the fact that the
merger consideration is paid to the public shareholders only. See "Description
of the Merger." This impacts the ratios of premium to core deposits, price to
assets, price to tangible book value and price to book value, all of which are
calculated for the merger based on the fully diluted minority shares
outstanding for Westborough. These analyses yielded the following comparisons
of the median transaction multiples for the merger with the median transaction
multiples for the selected thrift merger transactions, respectively:
40
Selected Merger
Transactions The merger
------------ ----------
Market premium 20.2% 12.9%
Price to LTM earnings (per share) 25.4x 700.0x
Price to LTM core earnings (per share) 25.4x 144.9x
Premium to core deposits 16.7% 15.6%
Price to assets 19.8% 19.3%
Price to tangible book value per share (reported) 193.3% 206.3%
Price to book value per share (reported) 193.3% 206.3%
Affordability Analysis Valuation. RBC analyzed and calculated a range of
values a potential buyer would assign to Westborough Financial assuming such
buyer had a required rate of return of between 12% and 15%. This valuation
methodology is similar to the discounted cash flow approach used earlier, and
uses the financial projections of Westborough Financial, the same terminal
value price-to-earnings multiples of 12 to 15 times earnings and the same
target ratio of tangible equity to tangible assets of 6.00%. The analysis also
uses anticipated cost savings equal to 20% of Westborough Financial's
non-interest expense base.
Based on these variables and inputs, RBC determined that a buyer would
ascribe a range of values per share of $20.74 to $34.91 for Westborough
Financial, based on total shares outstanding, including MHC shares, assuming
different required rates of return and different terminal price to earnings
multiples, as summarized below:
Terminal Value P/E Multiple to FY 2012 Earnings
-----------------------------------------------
12x 13x 14x 15x
--- --- --- ---
Required 12% $25.66 $28.74 $31.83 $34.91
Internal 13% $23.95 $26.90 $29.85 $32.80
Rate of 14% $22.31 $25.13 $27.96 $30.79
Return 15% $20.74 $23.45 $26.15 $28.86
Pro Forma Merger Analysis. RBC analyzed the impact of the merger on the
combined company's total assets, loan portfolio, deposit base, tangible equity
and regulatory capital ratios. This analysis uses the merger consideration as
provided in the merger agreement, whereby the public shareholders of
Westborough Financial receive an aggregate $20.6 million based on Westborough
Financial's shares and options outstanding as of November 13, 2006. The
analysis is also based upon: (i) June 30, 2006 balance sheet information for
Assabet and Westborough Financial and (ii) projected one-time costs and
restructuring charges associated with the merger. RBC calculated the pro forma
leverage ratio and total risk-based capital ratio of Assabet to be 6.32% and
10.22%, respectively, as of June 30, 2006, as compared to estimated stand-alone
ratios of 8.42% and 12.95%.
Consideration to RBC. Westborough Financial has agreed to pay RBC a
fairness opinion fee of $50,000 that was earned upon delivery of the fairness
opinion to the Westborough Financial Board. In addition, Westborough Financial
has agreed to pay RBC a transaction fee equal to 1.00% of the aggregate
transaction value at the closing of the merger, of which a non-refundable cash
retainer fee of $10,000 has already been paid, as well as the fairness opinion
fee referenced above. Pursuant to the engagement agreement, Westborough
Financial has agreed to reimburse RBC for all reasonable out-of-pocket expenses
incurred in connection with the merger up to $25,000. Westborough Financial has
also agreed to indemnify RBC and related persons against certain liabilities,
including certain liabilities under the federal securities laws, from and
arising out of or based upon RBC's engagement on Westborough Financial's behalf
with regard to the merger.
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RBC and its affiliates in the past have provided financial and investment
banking services to Westborough Financial for which RBC has received
compensation. RBC received a $5,000 retainer in 2005 with regard to providing
advisory services to Westborough Financial in connection with Westborough
Financial's review of a de-registration transaction. This transaction was
abandoned in October 2005 and RBC received no additional fees for this
assignment.
In the ordinary course of business, RBC may effect transactions, for its
own account or for the accounts of customers, and hold at any time a long or
short position in securities of Westborough Financial.
MERGER CONSIDERATION
At the effective time of the merger, each share of Westborough Financial
common stock issued and outstanding immediately prior to the effective time
(other than shares held by Westborough MHC or Assabet) will be cancelled and
converted automatically into the right to receive from Assabet an amount equal
to $35.00 in cash, without interest.
After the completion of the merger, holders of certificates that prior to
the merger representing issued and outstanding shares of Westborough Financial
common stock will have no rights with respect to those shares except for the
right to surrender the certificates for the merger consideration. After the
completion of the merger, holders of shares of Westborough Financial common
stock will have no continuing equity interest in Westborough Financial or
Assabet and, therefore, will not share in future earnings, dividends or growth
of Westborough Financial or Assabet.
RESULTING CORPORATE STRUCTURE AND GOVERNANCE
Pursuant to the merger agreement and as a result of the transactions
contemplated thereby, including the merger, the bank merger and the MHC merger,
the following will occur with respect to the corporate structure and governance
of the parties following consummation of the transactions:
o Westborough Bank will merge into Hudson Savings Bank. The
institution formed by the bank merger will be renamed following the
transaction with a name that is mutually agreeable to the parties,
and is referred to as "New Bank" in this proxy statement. New Bank
will be wholly-owned by Assabet Valley Bancorp;
o Westborough MHC will merge into Assabet Valley Bancorp. The
separate corporate existence of Westborough MHC will cease to exist
and the shares of Westborough Financial common stock owned by
Westborough MHC will be cancelled and retired and will not be
exchanged for the $35.00 per share merger consideration;
o Westborough Financial will merge into HudWest Financial Services,
Inc., with Westborough Financial as the surviving institution and a
wholly-owned subsidiary of Assabet Valley Bancorp. Westborough
Financial will eventually be liquidated with and into Assabet
Valley Bancorp;
o Westborough MHC's trustees and corporators will become trustees and
corporators of Assabet Valley Bancorp;
o nine of Westborough Financial's directors and fifteen of Hudson
Savings Bank's directors will become the directors of New Bank; and
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o Joseph F. MacDonough, President and Chief Executive Officer of
Westborough Financial, will become Executive Vice President of New
Bank, a director of New Bank, a member of New Bank's Executive
Committee, a trustee of Assabet Valley Bancorp and President and
Chief Executive Officer of Assabet Valley Bancorp.
TREATMENT OF EQUITY-BASED AWARDS
Immediately prior to the merger, any unexercised option to buy
Westborough Financial common stock which is outstanding will be terminated and
each holder will be entitled to receive from Westborough Financial in
consideration therefor a cash payment at the closing in an amount equal to the
difference between $35.00 and the exercise price of such stock option,
multiplied by the number of shares subject to the stock option held, less any
required tax withholdings. In addition, upon shareholder approval of the
merger, all unvested shares of restricted stock then outstanding will vest.
These shares will then be exchangeable for the $35.00 per share merger
consideration on the same basis as other public shareholders. See "-Interests
of Certain Persons in the Transaction-Equity-Based Awards."
FINANCING THE TRANSACTION
Based on the fully diluted number of shares of Westborough Financial
outstanding, the aggregate amount of consideration to be paid to Westborough
Financial's public shareholders and option holders will be approximately $20.6
million. Assabet represented and warranted in the merger agreement that it will
have capital and financing sufficient to pay the merger consideration to the
shareholders of Westborough Financial following completion of the merger and
that the consummation of the transactions contemplated by the merger agreement
is not conditioned upon Assabet obtaining financing of any kind from any
source.
NO SOLICITATION
The merger agreement provides that Westborough and its directors,
officers, employees, agents or representatives may not directly or indirectly
solicit, initiate, encourage or otherwise facilitate, or furnish or disclose
nonpublic information in furtherance of, any inquiries regarding, or the making
of, any acquisition proposal. The term "acquisition proposal" is generally
defined in the merger agreement as a bona fide proposal to engage in, a public
statement of intention to make a proposal to engage in, or the filing of an
application or notice with a governmental authority for approval to engage in,
any of the following:
o a merger, tender offer, recapitalization, reorganization,
liquidation, share exchange, consolidation or similar transaction
involving Westborough MHC or any subsidiary of Westborough MHC
whose assets constitute more than 15% of the consolidated assets of
Westborough MHC;
o any purchase, lease or other acquisition of assets of Westborough
MHC, or any subsidiary of Westborough MHC, representing in either
case 15% or more of the consolidated assets of Westborough MHC; or
o the issuance, sale or other disposition of (including by way of
merger, consolidation, share exchange or any similar transaction),
or the acquisition of, securities representing 15% or more of the
voting power of Westborough Financial or any subsidiary whose
assets constitute more than 15% of the consolidated assets of
Westborough Financial.
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The merger agreement also provides that Westborough and its directors,
officers, employees, agents or representatives shall not participate in any
discussions or negotiations with, or provide any confidential information to,
any person (other than Assabet or its affiliates or representatives) concerning
an acquisition proposal, or enter into any definitive agreement or
understanding for any acquisition proposal or requiring Westborough to abandon,
terminate or fail to complete the transactions contemplated by the merger
agreement, except as authorized in the manner described in the following
paragraph.
The merger agreement allows Westborough to furnish information to, and
negotiate and engage in discussions with, any person that delivers an
unsolicited, bona fide written acquisition proposal if:
o the Board of Directors of Westborough acting in good faith (1)
determines by a majority vote, after consultation with its outside
legal counsel, that such action would be required in order for the
directors to comply with their fiduciary duties under applicable
law; and (2) determines, after consultation with its financial
advisor, that the proposal, if accepted, is reasonably likely to be
consummated and to result in a transaction that is more favorable,
from a financial point of view, to Westborough MHC and the
Westborough shareholders than is the merger with Assabet (a
"superior proposal"); and
o prior to furnishing any information to that person, Westborough has
entered into a confidentiality agreement with that person that is
no less favorable, in any material respect, than the
confidentiality agreement between Assabet and Westborough, and
Westborough enforces and does not waive any of the provisions of
the confidentiality agreement with that person.
The merger agreement also allows Westborough to comply with its
disclosure obligations under the tender offer rules set forth in the federal
securities regulations so long as Westborough has complied with the
requirements contained in the agreement with respect to making a recommendation
to shareholders that is adverse to Assabet, including recommending the
acceptance of an acquisition proposal.
Westborough is required to notify Assabet if Westborough receives any
inquiries, proposals or offers or requests for discussions or negotiations
relating to an acquisition proposal.
RECOMMENDATION OF WESTBOROUGH FINANCIAL'S BOARD OF DIRECTORS
For the reasons set forth above under "Westborough Financial's Reasons
for the Merger; Recommendation of the Board of Directors," Westborough
Financial's Board of Directors recommends that Westborough Financial's
shareholders approve the merger agreement and the merger. The merger agreement
requires that Westborough Financial's Board of Directors continue to recommend
the merger agreement and the merger, provided that the merger agreement permits
the Board to withdraw, modify or change in a manner adverse to Assabet its
recommendation to shareholders with respect to the merger agreement and the
merger, and to recommend another acquisition proposal, only if:
o the Board of Directors of Westborough acting in good faith (1)
determines by a majority vote, after consultation with its outside
legal counsel, that such action would be required in order for the
directors to comply with their fiduciary duties under applicable
law; and (2) determines, after consultation with its financial
advisor, that the acquisition proposal is a superior proposal;
44
o Westborough has given Assabet five business days' prior written
notice of its intention to do so and Westborough's Board of
Directors has considered any changes to the merger consideration
and the merger agreement, if any, proposed by Assabet and has
determined in good faith, after consultation with its outside legal
counsel and after consultation with its financial advisor, that the
unsolicited proposal remains a superior proposal even after the
changes proposed by Assabet; and
o Westborough has complied in all material respects with the
requirements described under "-No Solicitation" above.
SURRENDER OF STOCK CERTIFICATES; PAYMENT FOR SHARES
Prior to the completion of the merger, Assabet will appoint an paying
agent for the benefit of the holders of shares of Westborough Financial common
stock in connection with the merger. Immediately prior to the effective time of
the merger, Assabet will deliver to the paying agent an amount of cash equal to
the aggregate merger consideration.
No later than five business days following the completion of the merger,
the paying agent will mail to each holder of record of shares of Westborough
Financial common stock a form letter of transmittal and related documents
containing instructions for use in effecting the surrender of Westborough
Financial stock certificates. After the effective time, each holder of a
certificate representing shares of issued and outstanding Westborough Financial
common stock will, upon surrender to the paying agent of a certificate for
exchange together with a properly completed letter of transmittal and related
documents, be entitled to receive $35.00 in cash, without interest, multiplied
by the number of shares of Westborough Financial common stock represented by
the certificate. No interest will be paid or accrued on the merger
consideration upon the surrender of any certificate for the benefit of the
holder of the certificate.
Any portion of the cash delivered to the paying agent by Assabet
(together with any interest or other income earned thereon) that remains
unclaimed by the former shareholders of Westborough Financial for six months
after the effective time will be delivered to Assabet. Any shareholders of
Westborough Financial who have not exchanged their certificates as of that date
may look only to Assabet for payment of the merger consideration. However, none
of the paying agent, Assabet, Westborough Financial or any other person shall
be liable to any holder of shares of Westborough Financial common stock for any
shares of stock or cash properly delivered to a public official pursuant to
abandoned property, escheat or similar laws.
CONDITIONS TO THE MERGER
Completion of the merger is subject to the satisfaction of conditions set
forth in the merger agreement, or, to the extent permitted by law, the written
waiver of those conditions by the party entitled to do so, at or before the
effective time of the merger. Each of the parties' obligation to complete the
merger is subject to the following conditions:
o the holders of two-thirds of the shares of Westborough Financial
common stock entitled to vote at the annual meeting must vote to
approve the merger agreement;
o two-thirds of the corporators of Westborough MHC and Assabet Valley
Bancorp must vote to approve the merger agreement;
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o all regulatory approvals required to complete the transactions
contemplated by the merger agreement shall have been obtained and
shall remain in full force and effect and all statutory waiting
periods shall have expired and no such approval shall contain a
condition or restriction that would, in the good faith
determination of Westborough or Assabet, materially reduce the
benefits of the transactions contemplated by the merger agreement;
o no statute, rule, regulation, judgment, decree, injunction or other
order may have been enacted, issued, promulgated or enforced that
prohibits the completion of the transactions contemplated by the
merger agreement; and
o each party must have received a written opinion of its counsel to
the effect that the MHC merger will qualify as a tax-free
reorganization and neither the merger nor the bank merger will
adversely affect such qualification.
The obligation of Westborough to complete the merger is also conditioned
upon the satisfaction or waiver of each of the following conditions:
o the representations and warranties of Assabet in the merger
agreement are true and correct as of the date of the merger
agreement and as of the closing date for the merger and Westborough
shall have received a certificate from specified officers of
Assabet to such effect;
o Assabet shall have performed in all material respects all
obligations required to be performed by it at or prior to
completion of the merger agreement and Westborough shall have
received a certificate from specified officers of Assabet with
respect to compliance with this condition;
o there shall not have occurred any change between the date of the
merger agreement and the consummation of the merger that
individually or in the aggregate has or could reasonably be
expected to have a material adverse effect on Assabet; and
o Assabet shall have provided Westborough with certificates and other
such documents to evidence fulfillments of the conditions set forth
in the merger agreement as Westborough may reasonably request.
The obligation of Assabet to complete the merger is also conditioned upon
the satisfaction or waiver of each of the following conditions:
o the representations and warranties of Westborough in the merger
agreement are true and correct as of the date of the merger
agreement and as of the closing date for the merger and Assabet
shall have received a certificate from specified officers of
Westborough to such effect;
o Westborough shall have performed in all material respects all
obligations required to be performed by it at or prior to the
completion of the merger agreement and Assabet shall have received
a certificate from specified officers of Westborough with respect
to compliance with this condition;
46
o Westborough shall not have taken any action or made any payments
that would result, either individually or in the aggregate, in the
payment of an excess parachute payment within the meaning of
Section 280G of the Code or that could result in payments that
would be nondeductible pursuant to Section 162(m) of the Code,
other than as specifically provided for in the merger agreement;
o Westborough shall not have taken any action or made any payments,
either individually or in the aggregate, to or for the benefit of
Joseph F. MacDonough, John L. Casagrande or Vickie A. Bouvier that
could be deemed to be in the nature of compensation other than as
specifically provided for in the merger agreement;
o there shall not have occurred any change between the date of the
merger agreement and the consummation of the merger that
individually or in the aggregate has or could reasonably be
expected to have a material adverse effect on Westborough; and
o Westborough shall have provided Assabet with certificates and such
other documents as may be necessary to evidence fulfillments of the
conditions set forth in the merger agreement as Assabet may
reasonably request.
REPRESENTATIONS AND WARRANTIES OF WESTBOROUGH AND ASSABET
Westborough and Assabet each has made representations and warranties to
the other with respect to, among other things:
o corporate organization and existence;
o capital stock;
o subsidiaries;
o corporate power and authority to conduct its business, to execute
the merger agreement and to complete the transactions contemplated
by the merger agreement;
o required consents, approvals, notices and filings;
o the accuracy of Securities and Exchange Commission filings,
financial statements and regulatory reports;
o the absence of undisclosed liabilities and the absence of material
changes since the end of its last fiscal year;
o pending or threatened legal proceedings, if any;
o the absence of regulatory agreements or specific restrictions;
o its compliance with applicable laws, and in particular, compliance
with the Community Reinvestment Act, the Bank Secrecy Act,
anti-money-laundering requirements; and customer information
security requirements;
o material contracts;
47
o broker's fees;
o employee benefit plans;
o loan portfolios, including nonperforming loans and classified
assets;
o policies regarding allowances for loan losses;
o investment securities;
o regulatory capitalization;
o the filing of tax returns and the payment of taxes;
o real property and material personal property;
o derivative transactions and risk management instruments;
o transactions with affiliates;
o fiduciary accounts;
o labor matters;
o adequacy of insurance;
o environmental matters;
o bank owned life insurance;
o intellectual property;
o the completeness of corporate books and records;
o the receipt of fairness opinions; and
o required votes and anti-takeover provisions;
Assabet has also made an additional representation and warranty to
Westborough with respect to having available to it sufficient cash to pay the
aggregate merger consideration.
Westborough has also made additional representations and warranties to
Assabet with respect to, among other things:
o credit card accounts;
o merchant processing accounts;
o transactions in securities; and
48
o the truth and accuracy of certain information included in this
proxy statement.
CONDUCT PENDING THE MERGER
The merger agreement contains covenants of Westborough and Assabet
pending the completion of the merger, including covenants regarding the conduct
of Westborough's business. These covenants are briefly described below.
Westborough and Assabet have agreed that they will conduct their business
in the usual, regular and ordinary course consistent with prudent banking
practice, generally to conduct their business in substantially the same way as
it has been conducted in the past, and use reasonable best efforts to preserve
their business organization and relationships with employees, customers and
suppliers. Westborough and Assabet have also agreed not to take any action that
would adversely affect or materially delay their ability to obtain any
regulatory approvals necessary to complete the merger agreement or their
performance of covenants under the merger agreement.
Westborough and Assabet have further agreed that, except as expressly
contemplated or permitted by the merger agreement, they will not, nor will they
permit any of their subsidiaries to, do any of the following without the prior
written consent of the other party:
o enter into, terminate, amend or modify any material contract;
o hire any new employee other than at-will employees at an annual
rate of compensation not to exceed $75,000 to fill vacancies that
may from time to time arise in the ordinary course of business;
o establish, adopt, enter into or amend any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any
trust agreement, or renew any such arrangement with a term greater
than one year, except (1) as may be required by law, (2) to satisfy
contractual obligations existing as of the date of the merger
agreement or (3) as otherwise contemplated by the merger agreement;
o sell, transfer, mortgage, encumber or otherwise dispose of or
discontinue any of its assets, deposits, business or properties, or
cancel or release any indebtedness of a person or any claims held
by any person, except in the ordinary course of business consistent
with past practice;
o enter into, amend or renew any employment, consulting, severance or
similar agreements or arrangements with any trustee, director,
officer or employee of either party, grant any salary or wage
increase or increase any employee benefit, except for (1) increases
in compensation to employees in the ordinary course of business
consistent with past practice, not to exceed 4% individually or in
the aggregate, (2) changes that are required by applicable law or
(3) bonuses payable pursuant to either party's bonus plans or as
contemplated by the merger agreement;
o foreclose upon or take a deed or title to any commercial real
estate without first conducting an environmental assessment of the
property or foreclose upon any commercial real estate if such
environmental assessment indicates the material presence of a
hazardous substance;
49
o acquire all or any portion of the assets, business, deposits or
properties of any other entity other than in the ordinary course of
business consistent with past practice;
o make (1) any material investment by purchase of stock or
securities, contributions to capital, property transfers, (2) any
material purchase of any property or assets of any other person, or
(3) any commitment to make such an investment or purchase other
than in the ordinary course of business consistent with past
practice;
o implement or adopt any change in accounting principles, practices
or methods, other than as may be required by changes in laws or
regulations or GAAP;
o enter into any derivatives contract;
o incur any indebtedness for borrowed money, including issuing any
debt securities, or assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other
person, other than in the ordinary course of business consistent
with past practice;
o make or change any material tax election, file any material amended
tax return, enter into any material closing agreement, settle or
compromise any material liability with respect to taxes, agree to
any material adjustment of any tax attribute, file any claim for a
material refund of taxes, or consent to any extension or waiver of
the limitation period applicable to any material tax claim or
assessment;
o restructure or materially change either party's investment
securities portfolio other than in the ordinary course of business;
o make any new or additional equity investment in real estate or
commit to make any such investment or in any real estate
development project, other than (1) in connection with
foreclosures, settlements in lieu of foreclosure or troubled loan
or debt restructurings in the ordinary course of business
consistent with past practice, or (2) as required by agreements or
instruments in effect as of the date of the merger agreement;
o change either party's loan or investment policies and procedures in
any material respect, except as required by regulatory authorities;
o commit any act or omission which constitutes a material breach or
default by either party under any agreement with any governmental
authority or under any material contract or material license to
which either party is associated or by which any of either party's
properties are bound;
o take any action that is intended or is reasonably likely to result
in any of either party's representations and warranties set forth
in the merger agreement being or becoming untrue in any material
respect, any of the covenants to the MHC merger and the merger not
being satisfied, or a material violation of any provision of the
merger agreement or the bank merger agreement, except as may be
required by applicable law or regulation; and
o agree to, or make any commitments to, take any of the foregoing
actions.
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Westborough has further agreed that, except as expressly contemplated or
permitted by the merger agreement, it will not, nor will it permit any of its
subsidiaries to, do any of the following without the prior written consent of
Assabet:
o issue, sell or otherwise permit to become outstanding, or authorize
the creation of, any additional shares of Westborough Financial
common stock or any other equity interests in Westborough;
o make, declare, pay or set aside for payment any dividend on or in
respect of, or declare or make any distribution on any shares of
Westborough Financial Stock, other than regular, quarterly cash
dividends at a rate not in excess of $0.06 per share on Westborough
Financial common stock, declared and paid in accordance with past
practice (including with respect to the timing of such declaration
and payment),
o adjust, split, combine, redeem, reclassify, purchase or otherwise
acquire, or issue any other securities in respect of, in lieu of,
or in substitution for, any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any
shares of its capital stock;
o take any action to accelerate the vesting or exercisability of
stock options, restricted stock or other compensation or benefits
payable except pursuant to the merger agreement;
o renew, amend or permit to expire, lapse or terminate, or knowingly
take any action reasonably likely to result in the creation,
renewal, amendment, expiration, lapse or termination of any
insurance policies with a term greater than 1 year, for which a
fully earned premium has been, will be or is required to be paid at
the commencement of the coverage period;
o take any action or make any payments that could result in the
payment of an "excess parachute payment" within the meaning of
Section 280G of the Code or that could result, in payments that
would be nondeductible pursuant to Section 162(m) of the Code;
o pay (or agree to pay) to or for the benefit of Joseph F.
MacDonough, John L. Casagrande or Vickie A. Bouvier any amount that
could be deemed to be in the nature of compensation other than (1)
regular incremental payments of his or her salary, management bonus
and fringe benefits of general applicability at the rates and under
the programs now in effect and disclosed in the merger agreement,
(2) reimbursement of his or her business expenses in the ordinary
course consistent with past practices, and (3) payments required to
be made to such individual under the merger agreement;
o make any capital expenditures other than capital expenditures in
the ordinary course of business consistent with past practice in
amounts not exceeding $25,000 individually or $100,000 in the
aggregate;
o amend the corporate charter or bylaws (or equivalent documents) of
any Westborough entity;
o enter into any settlement or similar agreement with respect to any
action, suit, proceeding, order or investigation to which
Westborough is or becomes a party, which involves payment by
Westborough of an amount which exceeds $25,000 individually or
51
$100,000 in the aggregate and/or would impose any material
restriction on the business of Westborough;
o make (1) any commercial or commercial real estate loan that exceeds
$1,000,000, (2) any unsecured loan that exceeds $100,000, (3) any
residential loan that exceeds $1,000,000, or (4) any other loan
that exceeds $1,000,000;
o make any contributions to the Westborough Savings Charitable
Foundation, Inc.; or
o enter into, renew, amend or terminate, or give notice of a proposed
renewal, amendment or termination of, or make any commitment with
respect to any lease, license, contract, agreement or commitment
for office space, operations space or branch space, to which
Westborough is, or may be, a party or by which Westborough or any
Westborough property is bound, other than in the ordinary course
and consistent with past practices, exclusive of commitments
involving an aggregate payment by or to Westborough of more than
$25,000 or having a term of one year or more from the date of
execution.
Assabet has further agreed that, except as expressly contemplated or
permitted by the merger agreement, it will not, nor will it permit any of its
subsidiaries to, do any of the following without the prior written consent of
Westborough:
o take any action to accelerate the vesting or payment of any other
compensation or benefits payable except pursuant to the merger
agreement;
o amend or permit to expire, lapse or terminate, or knowingly take
any action reasonably likely to result in the creation, renewal,
amendment, expiration, lapse or termination of any insurance
policies;
o make any capital expenditures other than capital expenditures in
the ordinary course of business consistent with past practice in
amounts not exceeding $25,000 individually or $200,000 in the
aggregate;
o amend the corporate charter or bylaws (or equivalent documents) of
any Assabet entity;
o enter into any settlement or similar agreement with respect to any
action, suit, proceeding, order or investigation to which Assabet
is or becomes a party, which involves payment by Assabet of an
amount which exceeds $50,000 individually or $200,000 in the
aggregate and/or would impose any material restriction on the
business of Assabet;
o make (1) any commercial or commercial real estate loan that exceeds
$2,000,000, (2) any unsecured loan that exceeds $200,000, (3) any
residential loan that exceeds $2,000,000, or (4) any other loan
that exceeds $2,000,000;
o make any contributions to the Hudson Savings Charitable Foundation,
Inc.;
o Enter into or renew, amend or terminate, or give notice of a
proposed renewal, amendment or termination of, or make any
commitment with respect to any lease, license, contract, agreement
or commitment for office space, operations space or branch space,
regardless of where located or to be located, to which Assabet is,
or may be, a
52
party or by which Assabet is or any Assabet is property is bound,
other than in the ordinary course of business and consistent with
past practices;
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
At any time prior to the effective time of the merger (and whether before
or after approval of the merger by Westborough Financial's shareholders),
Assabet and Westborough may, to the extent permitted by law:
o extend the time for performance of any of the obligations of the
other party under the merger agreement;
o waive any inaccuracies in the representations and warranties
contained in the merger agreement or any document delivered
pursuant thereto;
o waive compliance with any agreements or conditions contained in the
merger agreement; or
o amend any provision of the merger agreement.
However, after the approval of the merger by the shareholders of
Westborough Financial, Assabet and Westborough may not, without further
approval of the Westborough Financial's shareholders, extend, waive or amend
any provision of the merger agreement which by law requires further approval by
Westborough Financial's shareholders without obtaining such approval.
EXPENSES
The merger agreement provides that, as a general matter, each party shall
bear its own costs and expenses incurred in connection with the merger
agreement and the transactions contemplated by the merger agreement. In some
circumstances, however, Westborough may be required to pay a termination fee to
Assabet. See "-Termination Fee" below.
TERMINATION OF MERGER AGREEMENT
The merger agreement may be terminated by Westborough or by Assabet as
follows:
o by mutual consent of the parties;
o if the merger is not completed by June 30, 2007 or such later date
as the parties may have agreed upon in writing, unless the failure
to consummate the merger is due to the knowing action or inaction
of (1) the party seeking to terminate the merger agreement, which
action or inaction is in violation of such party's obligations
under the merger agreement or (2) any voting shareholder (if
Westborough is the party seeking to terminate), which action or
inaction is in violation of a voting shareholder's obligations
under the relevant voting agreement;
o if any required regulatory or government approval for the
completion of the transactions contemplated by the merger agreement
is denied by final order of a governmental authority or an
application for regulatory or government approval is permanently
withdrawn at the request of a governmental authority;
53
o if the other party breaches any of its representations, warranties,
covenants or agreements under the merger agreement and the breach
cannot be or has not been cured within 30 days of written notice of
the breach, provided that the terminating party is not then in
material breach of the merger agreement;
o if the shareholders of Westborough Financial do not approve the
merger at the meeting of shareholders called to approve the merger
agreement or any adjournment thereof, or if such meeting of
shareholders is not held or is cancelled prior to June 30, 2007
(provided that Westborough may only terminate for this reason if it
is not then in material breach of certain obligations relating to
the meeting of shareholders); or
o if the corporators of Westborough MHC or Assabet Valley Bancorp do
not approve the MHC merger at the respective meeting of corporators
called to approve the merger agreement or any adjournment thereof,
or if such meeting of corporators is not held or is cancelled prior
to June 30, 2007 (provided that a party may only terminate as a
result of its own corporators' vote or meeting if such party is not
then in material breach of certain obligations relating to the
meeting of its corporators).
The merger agreement may be terminated by Assabet as follows:
o if, prior to the meeting of Westborough Financial shareholders,
Westborough or any of its directors or officers materially breaches
its duty not to (and its duty to use its reasonable best efforts to
cause its employees, agents and representatives not to) initiate,
solicit, encourage or otherwise facilitate any inquiries regarding,
or the making or negotiation of, a proposal to acquire Westborough
Financial by any person other than Assabet;
o if the Westborough Financial Board of Directors fails to recommend
that Westborough Financial shareholders approve of the merger
agreement or withdraws, modifies or changes such recommendation in
a manner adverse to the interests of Assabet (including
recommending an alternate acquisition proposal);
o if Westborough materially breaches its obligation to call, give
notice of, convene or hold a meeting of Westborough Financial
shareholders to approve the merger agreement;
o if Westborough MHC fails to recommend (or withdraws, modifies or
changes such recommendation in a manner adverse in any respect to
the interests of Assabet Valley Bancorp) that Westborough MHC's
corporators approve the MHC merger or materially breaches its
obligation to call, give notice of, convene or hold a meeting of
the corporators of Westborough MHC to approve the MHC merger;
o if any person other than Assabet commences a tender offer for the
acquisition of the outstanding shares of Westborough Financial
common stock and Westborough Financial's Board of Directors
recommends that shareholders tender their shares in such tender
offer or otherwise fails to recommend that shareholders reject such
tender offer within the ten business day period specified in Rule
14e-2(a) under the Securities Exchange Act of 1934, as amended; or
o if Westborough enters into an agreement with a third party to
effect a "change in control transaction" (as such term is defined
in the merger agreement).
54
In addition, the merger agreement may be terminated by Westborough if
Assabet Valley Bancorp fails to recommend that its corporators approve the MHC
merger or Assabet materially breaches its obligation to call, give notice of,
convene or hold a meeting of corporators to approve the MHC merger.
TERMINATION FEE
As a material inducement to Assabet to enter into the merger agreement,
Westborough agreed to pay Assabet a termination fee of 5% of the aggregate
merger consideration if Assabet terminates the merger agreement because:
o prior to the meeting of Westborough Financial shareholders,
Westborough or any of its directors or officers materially breaches
its duty not to (and its duty to use its reasonable best efforts to
cause its employees, agents and representatives not to) initiate,
solicit, encourage or otherwise facilitate any inquiries regarding,
or the making or negotiation of, a proposal to acquire Westborough
Financial by any person other than Assabet;
o prior to the meeting of Westborough Financial shareholders, the
Westborough Financial Board of Directors fails to recommend that
Westborough Financial shareholders approve the merger agreement, or
withdraws or changes such recommendation in a manner adverse to the
interests of Assabet (including making a recommendation that
Westborough Financial shareholders approve an acquisition proposal
made by any person other than Assabet);
o Westborough materially breaches its obligation to call, give notice
of, convene or hold a meeting of the shareholders of Westborough
Financial to approve the merger agreement;
o Westborough MHC fails to recommend that Westborough MHC's
corporators approve the MHC merger or materially breaches its
obligation to call, give notice of, convene or hold a meeting of
the corporators of Westborough MHC to approve the MHC merger;
o a tender offer is commenced for the acquisition of Westborough
Financial by any person other than Assabet and Westborough
Financial's Board of Directors recommends that shareholders tender
their shares in such tender offer or otherwise fails to recommend
that shareholders reject such tender offer within the ten business
day period specified in Rule 14e-2(a) under the Securities Exchange
Act of 1934, as amended; or
o Westborough enters into an agreement with a third party to effect a
"change in control transaction" (as such term is defined in the
merger agreement).
In addition, Westborough will pay the termination fee if (1) Assabet
terminates the merger agreement because of a willful, uncured breach by
Westborough of any representation, warranty or covenant contained in the merger
agreement; or (2) Assabet or Westborough terminates the merger agreement
because the merger is not consummated by June 30, 2007 without a vote of
Westborough Financial shareholders to approve the merger agreement having
occurred, and, in each case, (a) a proposal to acquire Westborough Financial by
any person other than Assabet shall have been publicly announced or otherwise
communicated or made known to Westborough Financial's senior management or
Board of Directors prior to the date of termination; and (b) within 12 months
of termination Westborough enters into a definitive agreement with respect to a
"change in control transaction," or a "change in control transaction" is
consummated.
55
Furthermore, Westborough will pay the termination fee if Assabet or
Westborough terminates the merger agreement because Westborough Financial's
shareholders fail to approve or if the meeting of Westborough Financial
shareholders to approve the merger agreement is not held or is cancelled prior
to June 30, 2007 and (1) a proposal to acquire Westborough Financial by any
person other than Assabet shall have been publicly announced or otherwise
communicated or made known to Westborough Financial's senior management or
Board of Directors prior to the date of the Westborough Financial shareholders
meeting; and (2) within 12 months of termination Westborough enters into a
definitive agreement with respect to a "change in control transaction," or a
"change in control transaction" is consummated.
The termination fee is payable by Westborough within 5 business days
after demand by Assabet. The termination fee will be reduced by the amount of
any expenses paid by Westborough to Assabet pursuant to the merger agreement as
a result of termination of the merger agreement.
56
FINANCIAL INTERESTS OF WESTBOROUGH FINANCIAL OFFICERS AND DIRECTORS IN THE
MERGER
Some of the members of Westborough management and Board of Directors may
be deemed to have interests in the merger that are in addition to their
interests as shareholders of Westborough generally. The Board of Directors was
aware of these interests and considered them in approving the merger agreement
and the transactions contemplated by the merger agreement.
Equity-Based Awards. Immediately prior to the effective time of the
merger, any unexercised option will be terminated and each holder will receive
in consideration for the cancellation of such option a cash payment from
Westborough in an amount equal to the difference between $35.00 and the
exercise price of such stock option, multiplied by the number of shares of
common stock subject to such option, less any required tax withholdings. In
addition, upon shareholder approval of the merger, all unvested options will
become fully vested and all unvested shares of restricted stock then
outstanding will become fully vested (with an assumed value of $35.00 per
share, less any required tax withholdings).
The following table sets forth the number of unexercised options and
unvested shares of restricted stock which were held by the named executive
officers, all other officers as a group and all non-employee directors as a
group as of the date of this document.
Value at
Payment at $35.00 of
Completion of Unvested
Merger in Shares of
Cancellation Restricted
of Unexercised Stock
Options (Before Number of (Before
Number of Deduction of Unvested Shares Deduction of
Unexercised Withholding Shares of Withholding
Name Options Taxes) Restricted Stock Taxes)
----------- --------------- ---------------- ------------
Joseph F. MacDonough 0 0 0 0
John L. Casagrande 0 0 0 0
Vickie A. Bouvier 0 0 0 0
All other officers as
group (2 persons) 5,600 $111,083 600 $21,000
All non-employee
directors as a group
(12 persons) 8,690 $172,164 1,350 $47,250
----- -------- ----- -------
57
Settlement of Existing Employment Agreements. Under the merger agreement,
Assabet, Hudson, Westborough Bank, Westborough Financial and Westborough MHC
have entered into payments and waiver agreements with each of Mr. MacDonough
and Mr. Casagrande. The agreements provide, among other things, for the
termination of each such officer's multi-year employment agreement with
Westborough upon consummation of the merger in exchange for a cash payment at
that time in the amounts of $330,000 for Mr. MacDonough and $126,000 for Mr.
Casagrande. In addition, Assabet and Hudson consented, in the payments and
waiver agreement, to Westborough's payment of a year-end bonus to Mr.
MacDonough in the amount of $250,000 for calendar 2006. In addition, Assabet
will continue certain insurance coverages to Mr. Casagrande for a period of up
to three years (subject to certain limitations).
Each of Mr. MacDonough and Mr. Casagrande will also receive his unpaid
base salary up to termination, accrued vacation pay, and may be "grossed up" to
cover any excise tax imposed by Section 4999 of the Internal Revenue Code under
certain circumstances (it is currently anticipated that no amounts will be owed
in order to "gross-up" the executives under their agreements).
Indemnification and Insurance. The merger agreement provides that from
and after the effective time of the merger, Assabet shall indemnify and hold
harmless each present and former director, officer and employee of Westborough
Financial determined as of the effective time of the merger against any costs
or expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
effective time of the merger, whether asserted or claimed prior to, at or after
the effective time of the merger, arising in whole or in part out of or
pertaining to the fact that he or she is or was a director, officer or employee
of Westborough Financial or, while a director, officer or employee, is or was
serving at the request of Westborough Financial as a director, officer,
employee or agent of another corporation, association, partnership, joint
venture, trust or other enterprise, including without limitation matters
related to the negotiation, execution and performance of the merger agreement
or any of the transactions contemplated thereby, to the fullest extent which
such persons would be entitled under the certificate of incorporation of
Westborough as of the date of the merger agreement.
In addition, the merger agreement provides that Assabet shall cause the
persons serving as directors and officers of Westborough Financial immediately
prior to the effective time of the merger to be covered by the directors' and
officers' liability insurance policy for a six-year period following the
effective time of the merger with respect to acts or omissions occurring prior
to the effective time of the merger which were committed by such directors and
officers in their capacities as such.
Full Vesting of Benefits to Non-Employee Directors under Existing
Supplemental Compensation Agreements. Under these agreements, each director
retiring after age 75 (or his or her beneficiary in the event of death) is
entitled to an annual benefit equal to eighty percent (80%) of the average
annual fees paid as calculated from the average of the highest three (3) years
paid to the director by Westborough Bank payable in monthly installments for a
period of ten (10) years or in an equivalent lump sum as provided in
individualized agreements. These benefits are also payable following a
termination of service after the completion of the merger, regardless of the
director's age. The lump sum present value of the increased benefit to all
non-employee directors (12 persons) who have not attained normal retirement age
that is attributable to this accelerated vesting due to the merger is estimated
to be $363,618 in aggregate. However, because these agreements provide for
payment of benefits only in connection with termination of service as a
director, the only benefits that will be paid or commence upon completion of
the merger will be to the four non-employee directors who are not continuing as
directors of New Bank.
58
Increased Benefits to Certain Executives under Existing Supplemental
Executive Retirement Agreements. Under these agreements, as a result of the
merger, each of Messrs. MacDonough and Casagrande and Ms. Bouvier is entitled
to a retirement benefit computed as if each executive had continued working
until age 65 and had received a 5% annual increase in salary and bonus to age
65 (as provided in the existing SERPs in the event of a change in control).
(payable in lump sum to each executive upon completion of the merger). These
agreements were amended in December 2006 to provide for the payment of such
benefits in a lump sum to each executive upon completion of the merger, whether
or not the officer's employment is terminated The lump sum present value of the
increased benefit to these three officers under these agreements that is
attributable to the merger is estimated to be approximately $846,309 in the
aggregate. Payments to Messrs. MacDonough and Casagrande and Ms. Bouvier under
the SERPs upon completion of the merger will equal approximately $1,173,261;
$711,589 and $597,040, respectively. Of these amounts, approximately $243,723;
$166,108 and $436,478, respectively, is due to the increased SERP benefit
attributable to the merger and the remainder represents the officers' already
vested interest in the SERP benefit.
Entry into Employment Agreement with Joseph F. MacDonough. In connection
with the completion of the merger, Assabet will enter into an employment
agreement with Joseph F. MacDonough to be President and Chief Executive Officer
of Assabet Valley and Executive Vice President of New Bank at an initial annual
salary of $210,000 per year with a term to extend until Mr. MacDonough's 65th
birthday. This agreement will provide limited benefits in the case of death or
disability but will provide for payment of base salary and benefit continuation
until the end of the term of the agreement in the event that Mr. MacDonough's
employment is terminated for reasons other than (1) refusal to perform, or
gross negligence in the performance of, duties, (2) fraud, embezzlement or
other material dishonesty with respect to Assabet, or (3) gross misconduct or
conviction of a crime of moral turpitude. These same benefits would be payable
if Mr. MacDonough resigned during the term of the agreement due to certain
breaches of the agreement including loss of title or diminution in duties.
Entry into Consulting and Noncompetition Agreement with John L.
Casagrande. Upon the completion of the merger, Assabet will enter into a
consulting and noncompetition agreement with Mr. Casagrande for a three-year
period during which time Mr. Casagrande will receive a consulting fee payable
monthly in arrears at an annual rate of $120,000 for the first year, $100,000
for the second year and $40,000 for the third year. The agreement also provides
that Mr. Casagrande may not compete, directly or indirectly, with Assabet or
its affiliates during the consulting period following the completion of the
merger.
Employee Stock Ownership Plan Termination. Employees participating in the
Westborough employee stock ownership plan (including Westborough officers) will
become fully vested in their accounts, and currently unallocated shares of
Westborough common stock held by the plan in a suspense account will be
allocated to employee accounts upon the repayment in full of the outstanding
employee stock ownership plan loan balance, which will occur upon consummation
of the merger (it is anticipated that approximately $530,984 in aggregate will
be allocated to the accounts of participating Westborough employees as a result
of the merger, of which it is anticipated that Messrs. MacDonough and
Casagrande, Ms. Bouvier and two other officers will be allocated approximately
$64,617; $45,726; $33,032 and $42,001, respectively).
Other than as set forth above, no director or executive officer of
Westborough has any substantial interest, direct or indirect, in the proposed
merger, except insofar as ownership of Westborough Financial's common stock
might be deemed such an interest. See "Security Ownership of Certain Beneficial
Owners and Management."
59
EMPLOYEE BENEFITS MATTERS
The merger agreement contains agreements of the parties with respect to
various employee matters, which are briefly described below.
As soon as administratively practicable after the effective time of the
merger, Assabet will provide the employees of Westborough Financial or
Westborough Bank who remain employed after the merger with at least the types
and levels of employee benefits maintain by Assabet for similarly situated
employees.
Assabet will cause its benefit plans:
o not to treat any employee of Westborough as a "new" employee for
purposes of exclusions from any benefit plan for a pre-existing
medical condition covered under the Assabet benefits plans;
o to waive any waiting period limitation or evidence of insurability
requirement for employees of Westborough Financial or Westborough
Bank which would otherwise apply under the Assabet benefits plans,
unless such employees have not yet satisfied any similar limitation
or requirement under an analogous plan maintained by Westborough
Financial or Westborough Bank;
o to provide full credit under such plans for any deductibles,
co-payments or out-of-pocket expenses incurred by any employees
during the portion of the calendar year prior to the Westborough
employees' participation in such plans; and
o to recognize the service rendered by Westborough employees to
Westborough for purposes of eligibility to participate and vesting
(but not for accrual or amount of benefits) under Assabet benefit
plans, to the same extent as such service was credited for such
purposes by Westborough.
In addition, Assabet will honor in accordance with their terms all
written compensation agreements disclosed to Assabet by Westborough.
Assabet will have no obligation to continue the employment of any
employee of Westborough Financial or Westborough Bank and nothing contained in
the merger agreement will be deemed to give any employee of Westborough
Financial or Westborough Bank a right to continuing employment with Assabet
after the effective time of the merger. An employee of Westborough Financial or
Westborough Bank (other than an employee who is party to an employment
agreement, a severance agreement or a special termination agreement) with at
least one year of service who is involuntarily terminated, other than for
cause, within one year following the effective time of the merger will be
entitled to receive lump sum severance payments in accordance with, and to the
extent provided in, the severance plan adopted by Westborough Bank (which
generally provides for a specified number of weeks of base pay as cash
severance based upon years of service and position with Westborough Bank, with
benefits capped at one year's base pay).
60
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This summary sets forth the material United States federal income tax
consequences to shareholders of their exchange of their shares of Westborough
Financial common stock for cash pursuant to the merger. This summary is based
on the provisions of the Internal Revenue Code of 1986, as amended, or the
Code, the Treasury Regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as in effect as of the date hereof. Such
laws or interpretations may be amended at any time, possibly with retroactive
effect. The summary does not address any state, local or foreign tax
consequences and does not address estate or gift tax consequences. The
consummation of the merger is not conditioned upon the receipt of any ruling
from the Internal Revenue Service or any opinion of counsel as to tax matters.
This summary is for general information only. The tax treatment of each
shareholder will depend in part upon his or her particular situation. Special
tax consequences not described below may be applicable to particular classes of
taxpayers, including financial institutions, pension funds, mutual funds,
broker-dealers, persons who are not citizens or residents of the United States
or persons who are foreign corporations, foreign partnerships or foreign
estates or trusts.
EACH SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Treatment of Merger. The receipt of cash for shares of Westborough
Financial common stock pursuant to the merger will be a taxable transaction for
United States federal income tax purposes.
Capital Gain or Loss. In general, except as discussed under "Stock
Options and Incentive Stock Option Shares" below, each shareholder will
recognize gain or loss equal to the difference between the amount of cash
received and such shareholder's adjusted tax basis for the shares exchanged in
the merger. Such gain or loss will be capital gain or loss (assuming that the
shares of Westborough Financial common stock are held as a capital asset) and
any such capital gain or loss will be long term if, as of the date of the
merger, the shares were held for more than one year or will be short term if
the shares were held for one year or less.
Withholding and Information Reporting. Unless a shareholder complies with
certain reporting and/or certification procedures or is an exempt recipient
under applicable provisions of the Code and the Treasury Regulations, such
shareholder may be subject to withholding tax (currently 28%) with respect to
any cash payments received pursuant to the merger. Shareholders should consult
their brokers to ensure compliance with such procedures.
Stock Options and Incentive Stock Option Shares. If you acquired shares
of Westborough Financial common stock as a result of the exercise of an
incentive stock option that was granted within two years of the effective time
of the merger or exercised within one year of the effective time of the merger,
you will recognize a portion of your gain in the merger as ordinary income.
Specifically, the difference between the price at which you exercised your
options and the lesser of (1) the fair market value of the shares on the date
of exercise; and (2) the fair market value of the shares at the effective time,
will be treated as ordinary income rather than capital gain.
If you hold incentive or nonqualified stock options and do not exercise
your options prior to the completion of the merger, you will receive the merger
consideration (minus the exercise price and any applicable withholding taxes)
in exchange for your options pursuant to the merger agreement. This will
61
result in ordinary income equal to the difference between the fair market value
of the shares deemed received (which should be the same as the merger
consideration) and the exercise price of the options.
ACCOUNTING TREATMENT
The merger will be accounted for under both the purchase and the
pooling-of-interests accounting methods because Assabet Valley Bancorp and
Westborough MHC are both mutual holding companies, and Westborough Financial is
a mid-tier stock holding company that is majority-owned by Westborough MHC and
minority-owned by public stockholders. Accordingly, (1) the merger of the
mutual holding companies will utilize the pooling-of-interests method of
accounting, and (2) the acquisition of the mid-tier stock holding company's
minority shareholder interests will be accounted for under the purchase method
of accounting as the acquisition of non-controlling minority interests, and
Assabet Valley Bancorp will record goodwill in an amount equal to the excess of
the aggregate amount paid to Westborough Financial's minority shareholders over
the minority shareholders'proportionate interest in the fair value of
Westborough Financial's net assets.
REGULATORY APPROVALS
Regulatory Approvals that Must be Obtained for the Merger and the MHC Merger to
Occur.
Federal Reserve. The merger and the MHC merger are subject to the prior
approval of the Board of Governors of the Federal Reserve System (the "Federal
Reserve") under Section 3 of the Bank Holding Company Act of 1956, as amended
(the "BHC Act"), and the Federal Reserve's implementing regulation, Regulation
Y (12 C.F.R. Part 225, Subpart B). Pursuant to the BHC Act, the Federal Reserve
may not approve the merger or the MHC merger if:
o they would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize
the business of banking in any part of the United States; or
o their effect may be substantially to lessen competition in any
section of the country, tend to create a monopoly, or in any other
manner be in restraint of trade, unless the Federal Reserve finds
that the anti-competitive effects of the merger and the MHC merger
are clearly outweighed in the public interest by their probable
effect in meeting the convenience and needs of the communities to
be served.
In considering the approval of the merger and MHC merger, the BHC Act
also requires the Federal Reserve to review the financial and managerial
resources and future prospects of Assabet Valley Bancorp, HudWest Financial
Services, Inc., Westborough MHC and Westborough Financial and their respective
subsidiary banks, and the convenience and needs of the communities to be
served. The Federal Reserve also must take into account (1) the effectiveness
of Assabet Valley Bancorp, HudWest Financial Services, Inc., Westborough MHC
and Westborough Financial in combating money laundering activities, and (2) the
record of performance of Westborough Bank and Hudson Savings Bank in meeting
the credit needs of their entire community, including low- and moderate-income
neighborhoods, under the Community Reinvestment Act of 1977, as amended.
State Approvals and Notices. The merger and MHC merger also are subject
to the prior approval of the Massachusetts Board of Bank Incorporation (the
"Massachusetts Board") under Sections 2 and 4 of Chapter 167A of the
Massachusetts General Laws. Massachusetts law requires the Massachusetts Board
to hold a public hearing to consider the merger and MHC merger and find that
such mergers would not unreasonably affect competition among banking
institutions and would promote public convenience and
62
advantage. In making such a determination, the Massachusetts Board must
consider, among other things, a showing of net new benefits (including initial
capital investments), job creation plans, consumer and business services,
commitments to maintain and open branch offices within a bank's statutorily
delineated local community, and such other matters as the Massachusetts Board
may deem necessary or advisable.
In addition, Massachusetts law provides that the Massachusetts Board
cannot approve the merger and MHC merger until it has received notice from the
Massachusetts Housing Partnership Fund (the "MHPF") that arrangements
satisfactory to the MHPF have been made for the proposed acquiror to make 0.9
percent of its assets located in Massachusetts available for call by the MHPF
for a period of ten years for purposes of funding various affordable housing
programs. Massachusetts law provides that all loans made to the MHPF bear
interest at rates approved by the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Massachusetts Commissioner"), which shall be based upon the
costs (not to include lost opportunity costs) incurred in making funds
available to the MHPF.
Regulatory Approvals that Must be Obtained for the Bank Merger to Occur.
Federal Deposit Insurance Corporation. The bank merger is expected to be
completed immediately after the completion of the merger. The bank merger is
subject to the prior approval of the Federal Deposit Insurance Corporation (the
"FDIC") under the Bank Merger Act. The FDIC will review the bank merger under
statutory criteria which are substantially the same as those required to be
considered by the Federal Reserve in evaluating transactions for approval under
Section 3 of the BHC Act, as discussed above.
The bank merger may not be completed until 30 days after the date of the
FDIC's approval, during which time the U.S. Department of Justice may challenge
the merger on antitrust grounds and seek the divestiture of certain assets and
liabilities. If the FDIC has not received any adverse comment from the U.S.
Attorney General relating to the competitive factors, the FDIC, with the
concurrence of the Attorney General, may reduce the waiting period to no less
than 15 days after the date of its approval.
State Approvals and Notices. The bank merger also is subject to approval
by the Massachusetts Commissioner under Section 34D of Chapter 168 of the
Massachusetts General Laws. This statute requires the Massachusetts
Commissioner to find that the bank merger would not unreasonably affect
competition among banking institutions and that it would promote public
convenience and advantage. In making its determination, the Massachusetts
Commissioner would consider, but would not be limited to, a showing of net new
benefits (including initial capital investments), job creation plans, consumer
and business services and commitments to maintain and open branch offices
within a bank's statutorily delineated local community, and such other matters
as the Massachusetts Commissioner may deem necessary or advisable. Because
Hudson Savings Bank and Westborough Bank are members of the MDIF, the bank
merger may not be completed until the parties have made arrangements
"satisfactory" to the MDIF and until the MDIF has provided notice of those
arrangements to the Massachusetts Commissioner.
Status of Applications and Notices. To date Assabet and Westborough have
filed all required applications, notices and requests for waiver with
applicable federal and state regulatory authorities in connection with the
merger, the bank merger and the MHC merger and, on March 14, 2007, the FDIC
approved the bank merger. Although Assabet and Westborough do not know of any
reason why such regulatory approvals would not be obtained in a timely manner,
Assabet and Westborough cannot be certain when such approvals will be obtained
or if they will be obtained.
63
APPRAISAL RIGHTS
Section 13.02(a)(1) of the Massachusetts Business Corporation Act
generally provides that shareholders of Massachusetts corporations are entitled
to appraisal rights in the event of a merger. An exemption set forth in Section
13.02(a)(1)(A) of the Massachusetts Business Corporation Act provides that
shareholders are not entitled to appraisal rights in transactions similar to
this merger where cash is the sole consideration received by the shareholders.
However, in the event that certain persons or entities are determined to have a
direct or indirect material financial interest in the merger for purposes of
the Massachusetts Business Corporation Act, this exemption would be
inapplicable with respect to the merger. Accordingly, if such a determination
were made, our shareholders may be entitled to appraisal rights under
Massachusetts law.
We believe that holders of our common stock are not entitled to appraisal
rights in connection with the merger because shareholders will receive only
cash for their shares and no director, officer or controlling shareholder has
any direct or indirect material financial interest in the merger other than in
their capacity as a shareholder of ours or a director, officer, employee or
consultant of ours pursuant to a bona fide arrangement with us, Assabet or one
of Assabet's affiliates. However, Section 13.02 of the Massachusetts Business
Corporaton Act has not yet been the subject of judicial interpretation.
Therefore, we have concluded that you may have appraisal rights. If you believe
that you are entitled to appraisal rights, you should do the following pursuant
to Part 13 of the Massachusetts Business Corporation Act:
o Deliver written notice of your intent to demand payment for your
shares of common stock before the vote on the approval of the
merger agreement is taken to John L. Casagrande, Clerk, Westborough
Financial Services, Inc., 100 East Main Street, Westborough,
Massachusetts 10581;
o NOT vote for the approval of the merger agreement; and
o Comply with other procedures as are required by Part 13 of the
Massachusetts Business Corporation Act.
As long as you do not vote for the approval of the merger agreement,
failure to vote against the approval of the merger agreement does not
constitute a waiver of your appraisal rights. However, in order to exercise any
appraisal rights you may have, you must comply with the procedures as required
by Part 13 of the Massachusetts Business Corporation Act.
Part 13 of the Massachusetts Business Corporation Act requires the
delivery, within 10 days after the effective date of the merger, of a written
appraisal notice and forms containing certain information to all shareholders
who have properly demanded appraisal rights. If appraisal rights are available
in connection with the merger:
o Each shareholder who has properly perfected their appraisal rights
will be entitled to a cash payment of the estimated fair value of
the shares, plus interest but subject to any applicable withholding
taxes, within 30 days of the written appraisal notice and forms due
date;
o A shareholder that fails to execute and return the forms, and
comply with the terms stated therein, will not be entitled to any
payment; and
o If dissatisfied with the payment or offer, shareholders may demand
further payment.
64
Any shareholder who believes he or she is entitled to appraisal rights
and who wishes to preserve those rights should carefully review Sections 13.01
through 13.31 of Part 13 of the Massachusetts Business Corporation Act,
attached as APPENDIX D to this proxy statement, which sets forth the procedures
to be complied with in perfecting any such rights. Failure to strictly comply
with the procedures specified in Part 13 of the Massachusetts Business
Corporation Act would result in the loss of any appraisal rights to which such
shareholder may be entitled. In light of the complexity of Part 13 (and in
particular, Section 13.02) of the Massachusetts Business Corporation Act, those
shareholders of ours who may wish to dissent from the merger and pursue
appraisal rights should consult their legal advisors.
65
PROPOSAL 2 - ELECTION OF DIRECTORS
GENERAL
The Nominating and Corporate Governance Committee has nominated four
persons for election as directors at the Annual Meeting. If you elect the
nominees, they will hold office for the term set forth opposite their names or
until their successors have been elected.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for another
nominee proposed by the Nominating Committee of the Board of Directors. If for
any reason these nominees prove unable or unwilling to stand for election, the
Nominating Committee will nominate alternates or reduce the size of the Board
of Directors to eliminate the vacancy. The Board of Directors has no reason to
believe that its nominees would prove unable to serve if elected.
RECOMMENDATION OF WESTBOROUGH FINANCIAL'S BOARD OF DIRECTORS
Westborough Financial's Board of Directors recommends that you vote FOR
election of the four nominees listed below. Unless contrary instruction is
given, it is intended that the named proxies will vote in favor of each of the
four nominees listed below.
BOARD OF DIRECTORS
Westborough Financial's Board of Directors currently consists of 14
members. Westborough Financial's Articles of Organization provides that the
Board of Directors shall be divided into three classes. The Nominating and
Corporate Governance Committee of the Board of Directors has nominated four
directors for election at the 2007 Annual Meeting.
The Board of Directors oversees our business and monitors the performance
of our management. In accordance with our corporate governance procedures, the
Board of Directors does not involve itself in the day-to-day operations of
Westborough Financial. Westborough Financial's executive officers and
management oversee our day-to-day operations. Our directors fulfill their
duties and responsibilities by attending regular meetings of the Board of
Directors, which are held on a monthly basis. Our directors also discuss
business and other matters with the Chairman, other key executives and our
principal external advisers (legal counsel, auditors, financial advisors and
other consultants).
The Board of Directors held 13 regular meetings and 3 special meetings
during the fiscal year ended September 30, 2006. Each incumbent director
attended at least 75% of the meetings of the Board of Directors, plus meetings
of committees on which that particular director served during this period.
66
Position(s) Held
Term with Westborough Director
Nominees Age(1) Expires Financial Since(2)
- ------------------------- ------ ------- ---------------------- --------
Nancy M. Carlson 60 2007 Director 2003
Benjamin H. Colonero, Jr. 58 2007 Director 2003
Jeffrey B. Leland 41 2007 Director 2005
Joseph F. MacDonough 61 2007 President, Chief 1982
Executive Officer
and Director
Continuing Directors
- -------------------------
James N. Ball 44 2009 Director 2003
Edward S. Bilzerian 73 2008 Director 1992
David E. Carlstrom 72 2009 Director 1976
John L. Casagrande 60 2009 Senior Vice President, 1994
Chief Financial
Officer, Treasurer,
Clerk and Director
Robert A. Klugman 55 2009 Director 1994
Paul F. McGrath 60 2008 Director 1991
Charlotte C. Spinney 70 2008 Director 1990
Phyllis A. Stone 63 2008 Director 1999
James E. Tashjian 65 2008 Director 1973
Retiring Director
- -------------------------
Nelson P. Ball 75 2007 Director 1980
- ------------------
(1) As of September 30, 2006.
(2) Includes service as a trustee of Westborough Bank prior to the formation
of Westborough Financial in 2000.
The principal occupation and business experience of each nominee for
election as director and each continuing director are set forth below. Unless
otherwise indicated, each of the following persons has held his or her present
position for the last five years.
Nominees.
Nancy M. Carlson is the owner and president of The Suburban Group, Inc.,
a company that provides full staffing services, employee retention and
development, pay rolling services and vendor management services, located in
Westborough, Massachusetts since 1968. She purchased the company in 1994 and
has grown in size and services to include consulting services, Human Resources
and Management training, automated data management and conversions. Nancy has
served on the Board of Directors of the Corridor Nine Chamber of Commerce since
1995, served on the Chamber's executive committee since 1997 and as president
from 2001-2003.
Benjamin H. Colonero, Jr. has served as chief financial officer and
executive director in the healthcare industry for over 20 years. Mr. Colonero
is currently the executive director of the Westborough campus of the Salmons
Family of Services, which serves the health and social needs of over 430
seniors.
67
Jeffrey B. Leland has practiced estate administration, elder law and real
estate law and other general practices of law at Leland Law Associates, P.C.
for 14 years. At the same time, he has also served as an insurance broker
selling property and casualty insurance through Leland Insurance Agency, Inc.
Both Leland Law Associates, P.C. and Leland Insurance Agency, Inc. are located
in Northborough, Massachusetts. Mr. Leland is an officer and director of both
of the corporations.
Joseph F. MacDonough has served as President and Chief Executive Officer
of Westborough Bank since 1994 and of Westborough Financial Services since its
inception in 2000. He joined Westborough Bank in 1981 and served as Vice
President and Treasurer until his appointment as President. Mr. MacDonough
serves on the Board of Directors of the Massachusetts Bankers Association.
Continuing Directors.
James N. Ball is the sole owner and president of Secure Futures, Inc. He
has been in that position since 1984. Mr. Ball is a financial independence
specialist and a member of the National Association of Securities Dealers as a
registered representative. Mr. Ball assists individuals, families and small
business owners to create and maintain multi-generational wealth. Mr. Ball is
also the son of Nelson P. Ball, a retiring member of the Board of Directors.
Edward S. Bilzerian is retired from Bilzerian Consulting Group, Inc., a
privately held company located in Worcester, Massachusetts, specializing in
small business turnarounds, where he served as president. Prior to that, he was
Vice President of Marketing and Finance at Bay State Abrasive's Division of
Dresser Industries. He has been self-employed for over 18 years. Mr. Bilzerian
was a member of the Worcester Airport Commission and was Chairman of the
Worcester Health and Hospital Authority.
David E. Carlstrom is formerly the President of Carlstrom Pressed Metal
Co., Inc., a contract manufacturer of metal stampings located in Westborough
for the past 55 years, and now serves as a consultant to the family owned
company. Mr. Carlstrom also served in the United States Air Force and retired
as a Lieutenant Colonel. He served as the President of the Westborough Rotary
Club and is the former Vice Chairman of the CMEA, The Employers Association.
John L. Casagrande has served as the senior vice president and chief
financial officer of Westborough Bank since 1993 and of Westborough Financial
Services since its inception in 2000. He joined Westborough Bank after having
been employed as a senior bank officer and certified public accountant for over
15 years at various times by several financial institutions (including mutual
and stock institutions) and the accounting firm of Peat Marwick. Mr. Casagrande
has been serving as clerk of Westborough Financial Services since 2001. Mr.
Casagrande had served as a director of the Massachusetts Bank Insurance
Association, a division of the Massachusetts Bankers Association.
Robert A. Klugman, M.D., F.A.C.P. has practiced general medicine in
Westborough, Massachusetts for over 25 years. Dr. Klugman is currently the
Chief Quality Officer of Medicine at the University of Massachusetts Medical
School as well as Medical Director of Managed Care for UMASS/Memorial.
Paul F. McGrath is a certified public accountant and has served as
President of Mottle McGrath Braney & Flynn, P.C. for over fifteen years. Mottle
McGrath is a certified public accounting firm, located in Worcester,
Massachusetts, that provides accounting, tax and business advisory services
throughout central New England.
Charlotte C. Spinney is a retired social studies teacher. Ms. Spinney
taught at Westborough High School for 41 years and, during that time, she
created the curriculum for the community service component of the school's
Sociology course.
68
Phyllis A. Stone served as Vice President and Treasurer of Comey Oil Co.,
Inc., located in Westborough, Massachusetts, for 13 years prior to her
retirement in 2001. Ms. Stone served in various other capacities within Comey
Oil for over 30 years. Ms. Stone is currently President of Schenker Properties,
Inc., a real estate holding company based in Westborough, Massachusetts. She is
past Treasurer of the Regatta Point Community Sailing Inc. of Worcester,
Massachusetts.
James E. Tashjian, the Chairman of the Westborough Board of Directors, is
an attorney engaged in the general practice of law and is associated with the
firm of Tashjian, Simsarian & Wickstrom, LLP located in Worcester,
Massachusetts. He has engaged in the general practice of law for over 40 years.
Retiring Director.
Nelson P. Ball is the owner of Ball Financial Services, Co., located in
Westborough, Massachusetts. He has served as a financial services consultant
for over 40 years. Mr. Ball is the father of James N. Ball, also a member of
the Board of Directors.
CORPORATE GOVERNANCE
Westborough Financial and Westborough Bank are committed to establishing
and maintaining high standards of corporate governance. Our executive officers
and the Board of Directors have worked together to construct a comprehensive
set of corporate governance initiatives that we believe will serve the
long-term interests of our shareholders and employees. As discussed in more
detail below, we believe these initiatives comply fully with the Sarbanes-Oxley
Act of 2002 and the rules and regulations of the Securities and Exchange
Commission adopted thereunder. In addition, we believe our corporate governance
initiatives fully comply with the rules of The Nasdaq Stock Market. The Board
of Directors will continue to evaluate, and improve upon as appropriate, our
corporate governance principles and policies.
CODE OF ETHICS
Westborough Financial's Board of Directors has adopted a Code of Ethics
and Conflicts of Interest Policy that applies to each of our directors,
officers and employees. The Code of Ethics sets forth our policies and
expectations on a number of topics, including:
o acceptance of gifts;
o financial responsibility regarding both personal and business
affairs, including loans or other transactions with Westborough
Bank;
o personal conduct, including ethical behavior and outside employment
and other activities;
o affiliated transactions, including separate identities and
usurpation of corporate opportunities;
o preservation and accuracy of Westborough Financial's and
Westborough Bank's records;
o compliance with laws, including insider trading compliance;
o preservation of confidential information relating to our business
and that of our clients;
o conflicts of interest;
69
o the safeguarding and proper use of our assets and institutional
property;
o code administration and enforcement;
o reporting, investigating and resolving of all code violations; and
o code-related training, certification of compliance and maintenance
of code-related records.
The Audit Committee will review the Code of Ethics on a regular basis,
and propose or adopt additions or amendments to the Code of Ethics as
appropriate. The Code of Ethics is posted on our website,
www.westboroughbank.com. A copy of the Code of Ethics may also be obtained free
of charge by sending a written request to:
John L. Casagrande, Clerk
Westborough Financial Services, Inc.
100 East Main Street
Westborough, Massachusetts 01581
CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS
Westborough Financial's Board of Directors has adopted a Code of Ethics
for Senior Financial Officers that applies to each of our senior financial
officers, including our principal executive officer, principal financial
officer and principal accounting officer. The Code of Ethics for Senior
Financial Officers sets forth our policies and expectations on a number of
topics, including:
o personal conduct, including ethical behavior and personal
integrity;
o conflicts of interest;
o compliance with laws, rules and regulations;
o preservation of confidential information;
o proper use of corporate assets and opportunities; and
o compliance and compliance monitoring.
The Audit Committee will review the Code of Ethics for Senior Financial
Officers on a regular basis, and propose or adopt additions or amendments to
the Code of Ethics for Senior Financial Officers as appropriate. The Code of
Ethics for Senior Financial Officers is posted on our website,
www.westboroughbank.com. A copy of the Code of Ethics for Senior Financial
Officers may also be obtained free of charge by sending a written request to:
John L. Casagrande, Clerk
Westborough Financial Services, Inc.
100 East Main Street
Westborough, Massachusetts 01581
70
INDEPENDENT DIRECTORS
Although Westborough Financial's common stock is not traded on The Nasdaq
Stock Market, we use the definition of independence of the The Nasdaq Stock
Market's rules to determine the independence of our directors. For a director
to be "independent" under The Nasdaq Stock Market's rules, the director must
not be an officer or employee of Westborough Financial or any of its
subsidiaries, and must not have a relationship that, in the opinion of the
Board of Directors, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director. The Nasdaq Stock Market's
rules also expressly provide that the following persons cannot be considered
independent:
o a director who is, or during the past three years was, employed by
Westborough Financial or by any subsidiary of Westborough
Financial;
o a director who accepts or who has a family member who accepts any
payments from Westborough Financial or any subsidiary of
Westborough Financial in excess of $60,000 during the current
fiscal year or any of the past three fiscal years, other than (1)
payments for board service, (2) payments arising solely from
investments in Westborough Financial's securities, (3) compensation
paid to a family member who is a non-executive employee of
Westborough Financial, (4) benefits under a tax-qualified
retirement plan, or non-discretionary compensation or (5) loans to
directors and executive officers permitted under Section 13(k) of
the Securities Exchange Act of 1934;
o a director who is a family member of an individual who is, or
during the past three years was, employed by Westborough Financial
or by any subsidiary of Westborough Financial as an executive
officer;
o a director who is, or has a family member who is, a partner in, or
a controlling shareholder or an executive officer of, any
organization to which Westborough Financial made, or from which
Westborough Financial received, payments for property or services
(other than those arising solely from investments in Westborough
Financial's securities or payments under non-discretionary
charitable contribution matching schemes) that exceed 5% of the
recipient's consolidated gross revenues for that year, or $200,000,
whichever is more, in the current fiscal year or any of the past
three fiscal years;
o a director of Westborough Financial who is employed, or has a
family member who is employed, as an executive officer of another
entity where any of the officers of Westborough Financial serve on
the compensation committee of such other entity, or if such
relationship existed during the past three years; or
o a director who is, or has a family member who is, a current partner
of Westborough Financial's outside auditor, or was a partner or
employee of Westborough Financial's outside auditor, and worked on
Westborough Financial's audit during the past three years.
The Board of Directors has determined that all of its current
non-management members, a majority of the board, are "independent" directors
under The Nasdaq Stock Market's rules.
Consistent with The Nasdaq Stock Market's rules, independent directors
meet in regularly scheduled executive sessions without non-independent
directors. The independent directors have selected James E. Tashjian to serve
as the presiding director at the executive sessions for the 2007 fiscal year.
The presiding director will take a lead role in the Board's self-evaluation
process.
71
The Nasdaq Stock Market's rules, as well as recently adopted Securities
and Exchange Commission rules, impose additional independence requirements for
all members of the Audit Committee. Specifically, in addition to the
"independence" requirements discussed above, "independent" audit committee
members must: (1) not accept, directly or indirectly, any consulting, advisory,
or other compensatory fess from Westborough Financial or any subsidiary of
Westborough Financial other than in the member's capacity as a member of the
Board of Directors and any board committee; (2) not be an affiliated person of
Westborough Financial or any subsidiary of Westborough Financial; and (3) not
have participated in the preparation of the financial statements of Westborough
Financial or any current subsidiary of Westborough Financial at any time during
the past three years. In addition, The Nasdaq Stock Market's rules require that
all audit committee members be able to read and understand fundamental
financial statements, including Westborough Financial's balance sheet, income
statement, and cash flow statement. Westborough Financial's Board of Directors
believes that the current members of the Audit Committee meet these additional
standards.
Furthermore, the Securities and Exchange Commission requires that
Westborough Financial disclose whether the Audit Committee has, and will
continue to have, at least one member who is "financial expert." The Board of
Directors has determined that Paul F. McGrath meets the Securities and Exchange
Commission definition of an audit committee financial expert.
COMMITTEES OF THE BOARD
Westborough Financial's Board of Directors has established the following
committees:
Executive The Executive Committee exercises the powers of the Board
Committee of Directors in between Board meetings.
Directors Carlson, Carlstrom, Klugman, MacDonough, McGrath
and Tashjian currently serve as members of the committee.
Mr. MacDonough is the Chairman of the Committee. The
Executive Committee met 30 times in the 2006 fiscal year.
Compensation The Compensation Committee provides advice and
Committee recommendations to the Board of Directors in the areas of
employee salaries and benefit programs.
Directors Carlson, Carlstrom, and Klugman currently serve
on the committee. Mr. Carlstrom is the Chairman of the
Committee. Each of the members is independent as defined
by the Nasdaq Stock market rules. The Compensation
Committee met 4 times in the 2006 fiscal year.
Long Range The Long Range Planning Committee sets long-range goals and
Planning objectives and develops plans for their achievement. The
Committee Long Range Planning Committee also recommends nominees to
the Board of Directors for consideration by the Nominating
and Corporate Governance Committee.
Directors Ball (J.), Carlson, Carlstrom, Casagrande,
Colonero, Klugman, MacDonough, McGrath, and Tashjian
currently serve on the committee. Dr. Klugman is the
Chairman of the Committee. The Long Range Planning
Committee met 8 times in the 2006 fiscal year.
72
Nominating and The Nominating and Corporate Governance Committee (the
Corporate "Nominating Committee") selects nominees for election as
Governance directors and develops and recommends to the Board of
Committee Directors corporate governance guidelines. The Board of
Directors has adopted a Charter for the Nominating
Committee, a copy of which was attached to the Westborough
Financial proxy statement for the 2005 Annual Meeting.
Directors Carlstrom, McGrath and Tashjian currently serve
on the Nominating Committee. Each of the members is
independent as defined by The Nasdaq Stock Market rules.
Mr. McGrath is the Chairman of the Committee. The
Nominating Committee met 3 times in the 2006 fiscal year.
As set forth in Westborough Financial's bylaws, it is the
policy of the Nominating Committee to consider director
candidate recommended by shareholders. Recommendations for
the 2008 annual meeting should be submitted no later than
[____], 2007 to the Nominating Committee in care of the
Clerk of Westborough Financial Services, Inc., 100 East
Main Street, Westborough, Massachusetts 01581. Each
recommendation should include a personal biography of the
suggested nominee, an indication of the background or
experience that the shareholder believes qualifies the
person for consideration, a statement that the person has
agreed to serve if nominated and elected, and any other
information required under the bylaws.
The Nominating Committee has used an informal process to
identify potential candidates for nomination as directors.
Each of the candidates for nomination have been recommended
by the Long Range Planning Committee, and considered by the
Nominating Committee and the Board of Directors. In
evaluating candidates for nomination, the committee will
consider the factors it believes to be appropriate, which
include the candidate's personal and professional
integrity, knowledge of the banking business, business
judgment, relevant experience and skills, involvement in
community, business and civic affairs, and potential to be
an effective director in conjunction with the rest of the
Board of Directors in collectively serving the long-term
interests of the Company's shareholders. Although the
Nominating Committee has the authority to retain a search
firm to assist it identify director candidates, there has
to date been no need to employ a search firm. The
Nominating Committee does not evaluate potential nominees
for director differently based on whether they are
recommended to the Committee by a security holder, an
officer, a director or any other person.
Audit Committee The Audit Committee reviews the annual audit prepared by
the independent accountants and recommends the appointment
of accountants. The Board of Directors of Westborough
Financial has adopted a written charter for the Audit
Committee, which was attached to the Westborough Financial
proxy statement for the 2005 Annual Meeting.
Directors Bilzerian, Colonero, and McGrath currently serve
as members of the committee. Mr. McGrath is the Chairman
of the Committee. Mr. McGrath has been determined by the
Board of Directors to meet the
73
definition of an "audit committee financial expert" as such
term is defined in Section 401(d)(5) of Regulation S-B as
promulgated by the Securities and Exchange Commission. In
addition, all members of the Audit Committee are
independent directors as defined under The Nasdaq Stock
Market listing standards.
The Audit Committee met 6 times in the 2006 fiscal year.
AUDIT COMMITTEE REPORT
The following Audit Committee Report is provided in accordance with the
rules and regulations of the Securities and Exchange Commission. Pursuant to
such rules and regulations, this report shall not be deemed "soliciting
materials," filed with the Securities and Exchange Commission, subject to
Regulation 14A or 14C of the Securities and Exchange Commission or subject to
the liabilities of section 18 of the Securities Exchange Act of 1934, as
amended.
The Audit Committee has reviewed and discussed the audited financial
statements with management. The committee has also reviewed and discussed with
Wolf & Company, P.C., their independent auditors the matters required to be
discussed by SAS 61, as may be modified or supplemented.
The Audit Committee also has received the written disclosures and the
letter from the independent accountants required by Independence Standards
Board Standard No. 1 (Independence Standards Board Standard No.1, Independence
Discussions with Audit Committee), as may be modified or supplemented, and has
discussed with Wolf & Company, P.C. its independence.
Based on the foregoing discussions, the Audit Committee recommended to
the Board of Directors of Westborough Financial that the audited financial
statements be included in Westborough Financial's Annual Report on Form 10-KSB
for the year ended September 30, 2006.
Audit Committee of Westborough
Financial Services, Inc.
Paul F. McGrath (Chairman)
Edward S. Bilzerian
Benjamin H. Colonero, Jr.
74
SHAREHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS AND ATTENDANCE AT ANNUAL
MEETINGS
The Board of Directors maintains a process for shareholders to
communicate with the Board and its committees. Shareholders of Westborough
Financial and other interested persons may communicate with the Board or the
Chairperson of the Nominating Committee, Audit Committee or Compensation
Committee or Executive Committee by writing to the Clerk of Westborough
Financial Services, Inc., 100 East Main Street, Westborough, Massachusetts
01581. All communications that relate to matters that are within the scope of
the responsibilities of the Board will be presented to the Board no later than
the next regularly scheduled meeting. Communications that relate to matters
that are within the responsibility of one of the Board committees will be
forwarded to the Chairperson of the appropriate committee. Communications that
relate to ordinary business matters that are not within the scope of the
Board's responsibilities, such as customer complaints, will be forwarded to the
appropriate officer. Solicitations, junk mail and obviously frivolous or
inappropriate communications are not forwarded, but will be made available to
any director who wishes to review them.
Directors are expected to prepare themselves for and attend all Board
meetings, the Annual Meeting of Shareholders and the meetings of the committees
on which they serve, with the understanding that on occasion a director may be
unable to attend a meeting. Directors are expected to prepare themselves for
and attend all Board meetings, the Annual Meeting of Shareholders and the
meetings of the committees on which they serve, with the understanding that on
occasion a director may be unable to attend a meeting. All of our directors
attended our 2006 Annual Meeting.
DIRECTORS' COMPENSATION
Meeting Fees. Currently, each non-employee director of Westborough Bank
receives the following fees:
o $275 per Board of Directors meeting attended; and
o $275 per committee meeting attended, with the Chairman of each
committee receiving a fee of $350.
In addition, Directors Carlson, Carlstrom, Klugman, McGrath and Tashjian
receive an annual retainer of $7,500 as members of the Executive Committee.
Directors Bilzerian and Colonero receive an annual retainer of $5,000 as
members of the Audit Committee. The remaining directors, Directors Ball (J.),
Ball (N.), Leland, Spinney and Stone receive an annual retainer of $3,500.
Total directors' meeting and committee fees for fiscal year 2006 were
$193,825. We do not compensate our employee-directors for service as directors.
Directors are also entitled to the protection of certain indemnification
provisions in our Articles of Organization.
Deferred Income Agreements. Westborough Bank has entered into deferred
income agreements with Messrs. Carlstrom and Tashjian. Under these agreements,
Messrs. Carlstrom and Tashjian (or his beneficiary in the event of his death)
are entitled to payments for ten years following the attainment of age 65 equal
to $14,567 and $21,500, respectively, per year payable in monthly installments.
These agreements also provide for payments upon the death of the director as if
the director had attained age 65. Pursuant to his agreement, Mr. Carlstrom was
paid an aggregate of $14,567 and Mr. Tashjian was paid an aggregate of $7,167
in the last fiscal year.
Supplemental Compensation Agreements. Westborough Bank has entered into
supplemental compensation agreements with Directors Ball (N.), Bilzerian,
Carlstrom, Klugman, McGrath, Spinney,
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Stone and Tashjian which provide for benefits when they each retire from
service after age 75. Westborough Bank will also enter into similar
supplemental compensation agreements with Directors Ball (J.), Carlson and
Colonero, effective in April 2006. Under these agreements, each director
retiring after age 75 (or his or her beneficiary in the event of death) is
entitled to an annual benefit equal to eighty percent (80%) of the average
annual fees paid as calculated from the average of the highest three (3) years
paid to the director by Westborough Bank payable (i) in monthly installments
for a period of ten (10) years, or (ii) in a lump sum with an equivalent value,
as elected by the participants in connection with the amendment of the
agreements to comply with the provisions of 409A of the Internal Revenue Code.
These agreements also provide for payments upon the death or disability of the
director, or upon termination of the director's service following a change in
control, as if the director had retired after age 75.
Stock Option Plan and Recognition and Retention Plan. Our directors are
eligible to participate in the Westborough Financial Services, Inc. 2001 Stock
Option Plan and the Westborough Financial Services, Inc. 2001 Recognition and
Retention Plan. These stock benefit plans are discussed under "- Benefit Plans
- - 2001 Stock Option Plan" and "- 2001 Recognition and Retention Plan."
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Biographical information and the business experience of each non-director
executive officer of Westborough Financial and Westborough Bank are set forth
below.
Michael D. Allard, age 44, is Senior Vice President of Marketing and
Retail Sales of Westborough Bank, a position he has held since 2001. Prior to
joining Westborough Bank in 2001, he served as Senior Vice President of Sales,
Marketing and Branch Administration at Ipswich Bank, a position he held from
2000 to 2001. Prior to that, from 1996 to 2000, he served as Vice President and
Regional Sales and Marketing Coordinator of US Trust Bank. Mr. Allard has over
17 years retail banking experience.
Vickie A. Bouvier, age 49, currently serves as Senior Vice President and
Senior Operations Officer of Westborough Bank. She has worked for Westborough
Bank in various capacities since 1976. In 2001, she was named Senior Vice
President and Senior Operations Officer. Prior to that, she served as Vice
President and Senior Operations Officer.
Margaret I. Duquette, age 54, has worked for Westborough Bank as its Vice
President - Director of Human Resources since 1997. Prior to 1997, she held the
position of Director of Human Resources at Bay State Savings Bank in Worcester,
Massachusetts where she worked for 19 years.
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EXECUTIVE COMPENSATION
The following table sets forth compensation paid during the fiscal year
ended September 30, 2006 to the Chief Executive Officer of Westborough
Financial and Westborough Bank and to the other most highly compensated
executive officers of Westborough Financial and Westborough Bank whose salary
and bonus for 2006 was in excess of $100,000. We refer to these individuals as
"named executive officers" in this proxy statement.
Summary Compensation Table
Long Term Compensation
------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------ --------------------- -----------------------
Other Restricted
Annual Stock LTIP All Other
Name and Principal Bonus Compensation Awards Options Payouts Compensation
Positions Year Salary($) ($) ($)(1) ($) (#) ($) ($)(2)
- ------------------------- ---- -------- ------- ------------ ---------- ------- ------- ------------
Joseph F. MacDonough..... 2006 $200,000 $ 0 $22,893
President and Chief 2005 $220,509 $ 6,130 - - - - $20,731
Executive Officer 2004 $216,827 - - - - - $23,682
John L. Casagrande....... 2006 $120,800 $ 2,400 $12,593
Senior Vice President, 2005 $119,877 $13,393 - - - - $10,788
Chief Financial Officer 2004 $120,600 - - - - - $14,404
Treasurer and Clerk
- ------------------
(1) Westborough Bank provides Mr. MacDonough with certain non-cash benefits and perquisites, such as the use of an
automobile, club membership dues and certain other personal benefits, the aggregate value of which did not exceed the
lesser of $50,000 or 10% of the total annual salary and annual bonus reported for him in the Summary Compensation Table.
(2) Includes the dollar value of the benefit of the following components: (1) premiums paid by Westborough Bank under their
split dollar life and group term life insurance arrangements during 2006: Mr. MacDonough, $9,951 and Mr. Casagrande,
$4,435; (2) contributions on behalf of Westborough Bank's 401(k) plan during 2006: Mr. MacDonough, $4,923 and Mr.
Casagrande, $3,362; (3) allocations of common stock under the ESOP during 2006: Mr. MacDonough, $6,894 and Mr.
Casagrande, $4,796; and (4) accruals under the benefit restoration plan for Mr. MacDonough during 2006 were $1,525.
Employment Agreements. Westborough Financial has entered into separate
employment agreements with Messrs. MacDonough and Casagrande to secure their
services as President and Chief Executive Officer, and as Senior Vice
President, Chief Financial Officer, Treasurer, and Clerk, respectively. The
employment agreements provide for an initial term of three years in the case of
Mr. MacDonough, and two years in the case of Mr. Casagrande. Commencing on the
first anniversary of the effective date of each agreement, and continuing on
each anniversary date thereafter, the employment agreements may be extended,
after review by the Compensation Committee of the Board of the executive's
performance, for an additional one-year period, so that the remaining term will
be three years in the case of Mr. MacDonough, and two years in the case of Mr.
Casagrande.
The employment agreements provide for each executive's base salary to be
reviewed annually by the Board. Each executive's base salary may be adjusted
based on his job performance and the overall performance of Westborough
Financial and Westborough Bank. In addition to base salary, each employment
agreement provides for participation in stock, retirement and welfare benefit
plans, and eligibility for fringe benefits applicable to executive personnel.
Mr. MacDonough's agreement provides for the reimbursement of his ordinary and
necessary business expenses, which specifically include travel and
entertainment expenses, expenses related to the use of an automobile, and fees
for membership in clubs and organizations that he and Westborough Financial
agree are for business purposes. Mr. Casagrande's agreement provides for the
reimbursement of his ordinary and necessary business expenses, which
specifically include certain travel and entertainment expenses.
77
Westborough Financial may terminate each executive's employment at any
time with or without cause, and each executive may resign at any time provided
he provides 30 days' prior written notice and fully cooperates in the
transition of his duties. In the event an executive's employment is terminated
without cause during the term of the employment agreement, the executive will
be entitled to severance benefits. These severance benefits include a lump sum
payment equal to the present value of the base salary and bonus payments that
would have been made to the executive for the remaining term of his employment
agreement, assuming the executive would have been awarded a bonus for each year
remaining in the agreement term equal to the highest annual bonus paid to him
in the preceding three-year period and paid his base salary during the
remaining agreement term at the annual rate in effect as of the termination. In
addition, the executive would be entitled to continue his participation in the
group life, health, dental, accidental death and long-term disability plans
sponsored by Westborough Bank for the remaining term of his employment
agreement. The same severance benefits would be payable if the executive
resigns during the term of the employment agreement following: (1) failure of
the Board to reappoint the executive to the position provided for in his
employment agreement; (2) failure of Westborough Financial to vest in the
executive the duties set forth in the agreement; and (3) Westborough
Financial's material breach of the agreement. The employment agreements also
provide certain uninsured benefits in the event the executive's employment
terminates because of death or disability.
Under his employment agreement, Mr. MacDonough agrees that for the
three-year period following his termination of employment, he will not take a
position with any competitor that would require him to work within a 50 mile
radius of the headquarters of Westborough Financial or Westborough Bank. Mr.
Casagrande agrees under his employment agreement that for a period of two years
following his termination of employment he will not take a position with any
competitor that would require him to work within a 30 mile radius of the
headquarters of Westborough Financial or Westborough Bank.
In connection with the execution of the merger agreement with Assabet,
each of Messrs. MacDonough and Casagrande entered into payments and waiver
agreements with Assabet under which their employment agreements with
Westborough Financial will terminate upon the consummation of the merger. See
"-Interests of Certain Persons in the Transaction-Settlement of Existing
Employment Agreements."
Change in Control Provisions. The employment agreements described above
provide that, in the event Mr. MacDonough or Mr. Casagrande resigns for any
reason or is terminated without cause following a change in control of
Westborough Financial or Westborough Bank, he will be entitled to certain
severance benefits. These severance benefits include a lump sum payment equal
to the present value of the base salary and bonus payments that would have been
made to the executive for the remaining term of his employment agreement,
assuming the executive would have been awarded a bonus for each year remaining
in the agreement term equal to the highest annual bonus paid to him in the
preceding three-year period and paid his base salary during the remaining
agreement term at the annual rate in effect as of the termination. However, in
no event will the amount of this lump sum payment be less than 2.99 multiplied
by the executive's average annual compensation for the preceding five years. In
addition, the executive will be entitled to continue his participation in the
group life, health, dental, accidental death and long-term disability plans
sponsored by Westborough Bank for the remaining term of his employment
agreement. A second-step conversion will not trigger additional benefits or
accelerate benefits under the employment agreements or under any other
arrangement.
If Westborough Financial or Westborough Bank experiences a change in
ownership, a change in effective ownership or control or a change in the
ownership of a substantial portion of their assets as contemplated by section
280G of the Internal Revenue Code of 1988, as amended (the "Code"), a portion
of any severance payments under the employment agreements might constitute an
"excess parachute payment" under current federal tax laws. Any excess parachute
payment would be subject to a 20%
78
federal excise tax payable by the executive. Neither Westborough Bank nor
Westborough Financial could claim a federal income tax deduction for an excess
parachute payment. The employment agreements require Westborough Financial to
indemnify each executive against the financial effects of the excise tax.
In connection with the execution of the merger agreement with Assabet,
each of Messrs. MacDonough and Casagrande entered into agreements with Assabet
under which their employment agreements with Westborough Financial would
terminate upon the consummation of the merger, in consideration of a cash
payment described in "-Interests of Certain Persons in the
Transaction-Settlement of Existing Employment Agreements" above. As a result,
upon consummation of the merger with Assabet, Mr. MacDonough and Mr. Casagrande
will not receive payments under their employment agreements as described above.
BENEFIT PLANS
Pension Plans. Westborough Bank maintains a tax-qualified pension plan
that covers substantially all employees who have attained age 21 and have at
least one year of service. The following table shows the estimated aggregate
benefits payable under the pension plan upon retirement at age 65 with various
years of service and average compensation combinations.
Years of Service
Average -------------------------------------------------------------
Compensation 10 15 20 25 30 35
- ------------ ------- ------- ------- ------- ------- -------
$ 20,000 $ 2,500 $ 3,750 $ 5,000 $ 6,250 $ 6,250 $ 6,250
$ 40,000 $ 5,000 $ 7,500 $10,000 $12,500 $12,500 $12,500
$ 50,000 $ 6,250 $ 9,375 $12,500 $15,625 $15,625 $15,625
$ 75,000 $10,800 $16,200 $21,600 $27,000 $27,000 $27,000
$100,000 $15,425 $23,137 $30,850 $38,562 $38,562 $38,562
$120,000 $19,125 $28,687 $38,250 $47,812 $47,812 $47,812
$125,000 $20,050 $30,075 $40,100 $50,125 $50,125 $50,125
$140,000 $22,825 $34,237 $45,650 $57,062 $57,062 $57,062
$150,000 $24,675 $37,012 $49,350 $61,687 $61,687 $61,687
$160,000 $26,525 $39,787 $53,050 $66,312 $66,312 $66,312
$175,000 $29,300 $43,950 $58,600 $73,250 $73,250 $73,250
$200,000 $33,925 $50,887 $67,850 $84,812 $84,812 $84,812
$300,000 $37,625 $56,437 $75,250 $94,062 $94,062 $94,062
$400,000 $37,625 $56,437 $75,250 $94,062 $94,062 $94,062
The benefits shown in the preceding table are annual benefits payable in
the form of a single life annuity and are not subject to any deduction for
Social Security benefits or other offset amounts. At September 30, 2006, Mr.
MacDonough's and Mr. Casagrande's average compensation and estimated years of
service were $205,000 and 28.75 years of service and $145,509 and 12.75 years
of service, respectively.
Supplemental Executive Retirement Agreements. Mr. MacDonough, Mr.
Casagrande and one other executive officer are entitled to supplemental
retirement benefits under a Supplemental Executive Retirement Agreement each
has entered into with Westborough Bank. Under each agreement, each executive is
entitled to an annual retirement benefit equal to 37%, 35% and 20%,
respectively, of the executive's final average compensation for life with
fifteen years certain (payable either in the annuity form or a lump sum as
elected by each executive). Under the agreements, each executive's final
average compensation is the average annual compensation for the final three
calendar years of the executive's service to Westborough Bank. These agreements
provide for full payments at age 65 with a discount
79
applied for retirement prior to age 65. These agreements also provide for
payments upon the death or disability of the executive that are equal in amount
to the payments that would have been payable to the executive upon retirement
at age 65. The agreements also provide benefits to be paid in a lump sum upon
the change of control of Westborough Bank and Westborough Financial as if the
executive had attained age 65 with a five percent imputed increase in
compensation each year until age 65 would have been attained.
Employee Stock Ownership Plan. This plan is a tax-qualified plan that
covers substantially all employees of Westborough Bank and Westborough
Financial who have at least one year of service and have attained age 21.
The ESOP purchased 44,200 shares of common stock issued by Westborough
Financial in its mutual holding company reorganization with borrowed funds.
This loan is for a term of 15 years and calls for level annual payments of
principal and interest. The plan has pledged the shares as collateral for the
loan and holds them in a suspense account.
The plan will release a portion of the pledged shares annually,
allocating the shares released each year among the accounts of participants in
proportion to their salary for the year. For example, if a participant's base
salary for a year represents 1% of the total base salaries of all participants
for the year, the plan would allocate to that participant 1% of the shares
released for the year. Participants direct the voting of shares allocated to
their accounts. Shares in the suspense account will usually be voted in a way
that mirrors the votes which participants cast for shares in their individual
accounts.
This plan may purchase additional shares in the future, and may do so
using borrowed funds, cash dividends, periodic employer contributions or other
cash flow.
Upon the consummation of the merger, all participants in this plan will
become fully vested in their accounts, the outstanding loan balance on the plan
loan will be repaid and any surplus assets will then be allocated to the
accounts of plan participants.
Benefit Restoration Plan. Westborough Financial has also adopted a
benefit restoration plan for Mr. MacDonough. This plan is designed to provide
Mr. MacDonough with the benefits that would otherwise be earned by him as a
participant in the 401(k) Plan and the ESOP if such benefits were not limited
by certain provisions of the Code. The benefit restoration plan provides for a
benefit equal in value to the allocations under the ESOP and the 401(k) Plan
that would have been made on Mr. MacDonough's behalf but for these IRS limits,
including employer matching contributions that would have been made under the
401(k) Plan if Mr. MacDonough had elected to make pre-tax contributions to the
401(k) Plan up to the maximum percentage of salary permitted under the terms of
the plan and the annual IRS limit on pre-tax contributions did not apply.
Under the benefit restoration plan, a bookkeeping account has been
established for Mr. MacDonough that will be credited with a number of "stock
units" equal to the number of shares that could not be allocated on his behalf
under the ESOP each year because of the IRS limits. The value of this
supplemental ESOP bookkeeping account at any time is equal to the number of
stock units credited to the account multiplied by the current fair market value
per share. A bookkeeping account also has been established for Mr. MacDonough
which will be credited each year with an amount equal to the employer matching
contributions that could not be allocated to his account under the 401(k) Plan
because of the IRS limits. Each year, this supplemental employer matching
contribution bookkeeping account will be credited with hypothetical investment
earnings as if the amount credited to the account were invested in certain
investment funds selected by the Compensation Committee.
80
Unless a different time or form of distribution is elected by Mr.
MacDonough within the 30-day period following the effective date of the plan,
the value of his supplemental employee stock ownership plan and employer
matching contribution bookkeeping accounts will be paid to him in one lump sum
cash payment as soon as possible following the end of the calendar year in
which his employment terminates. The benefit restoration plan is an unfunded
plan, and benefits payable thereunder will be paid from the general assets of
Westborough Financial.
Officers' Deferred Compensation Plan. Westborough Financial also
maintains the Officers' Deferred Compensation Plan of Westborough Financial
Services, Inc., a non-qualified plan, in order to offer eligible executives the
opportunity to defer the receipt of a portion of their income in a manner that
defers the taxation of such income.
2001 Stock Option Plan. The Westborough Financial Services, Inc. 2001
Stock Option Plan (the "Stock Option Plan") was adopted by our Board of
Directors and approved by our shareholders at an annual meeting held on January
25, 2001. Article IX of the Stock Option Plan, which allows for acceleration of
vesting upon retirement of the option holder or a change in control of
Westborough Financial, terms that are defined in the plan, was approved by our
shareholders at our 2002 Annual Meeting. No additional options were granted to
the named executive officers during the 2005 fiscal year.
The purpose of the Stock Option Plan is to encourage the retention of key
employees and directors by facilitating their purchase of a stock interest in
Westborough Financial. The Stock Option Plan is not subject to ERISA and is not
a tax-qualified plan. Westborough Financial has reserved an aggregate of 55,348
shares of common stock for issuance upon the exercise of stock options granted
under the plan.
Awards typically vest and become distributable at the rate of 20% per
year, over a five year period, subject to automatic full vesting on the date of
the Award holder's death, disability, retirement or upon a change in control of
Westborough Financial.
Westborough Financial may amend or terminate the Stock Option Plan, in
whole or in part, at any time, subject to the requirements of all applicable
laws.
The following table provides the value for "in-the-money" options, which
represent the positive spread between the exercise price of any such existing
stock options and the closing price per share of the common stock on September
29, 2006, the last trading day of the 2006 fiscal year for Westborough
Financial, which was $27.25 per share.
2006 Fiscal Year-End Option/SAR Values
- ---------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Value Options/SARs at Fiscal Options/SARs at Fiscal
Acquired Realized Year-End Year-End
on Exercise on Exercise (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- -------------------- ----------- ----------- ------------------------- ----------------------------
Joseph F. MacDonough - - 9,600/0 $162,605/0
John L. Casagrande - - 2,700/0 $45,733/0
- ------------------
(1) The closing price per share of common stock on September 29, 2006, the last trading day of the 2006
fiscal year, was $27.25, and all options have an exercise price of $10.312 per share, which equals
a spread of $16.938 per share.
81
2001 Recognition and Retention Plan. The Westborough Financial Services,
Inc. 2001 Recognition and Retention Plan (the "RRP") was adopted by our Board
of Directors and approved by our shareholders at an annual meeting held on
January 25, 2001. Article X of the RRP, which allows for acceleration of
vesting upon retirement or change in control of Westborough Financial, terms
which are defined in the plan, was approved by our shareholders at our 2002
Annual Meeting.
Similar to the Stock Option Plan, the RRP functions as a long-term
incentive compensation program for eligible officers, employees and directors
of Westborough Financial and Westborough Bank. The RRP is not subject to ERISA
and is not a tax-qualified plan. Westborough Financial pays all costs and
expenses of administering the RRP.
The maximum number of restricted stock awards ("Awards") that may be
granted under the RRP is 22,139 shares of common stock. Shares of common stock
subject to an Award are held in a trust until the Award vests at which time the
shares of common stock attributable to the portion of the Award that have
vested are distributed to the Award holder. An Award recipient is entitled to
exercise voting rights and receive cash dividends with respect to the shares of
common stock subject to his Award, whether or not the underlying shares have
vested.
Awards typically vest and become distributable at the rate of 20% per
year, over a five year period, subject to automatic full vesting on the date of
the Award holder's death, disability, retirement or upon a change in control of
Westborough Financial.
Westborough Financial may amend or terminate the RRP, in whole or in
part, at any time, subject to the requirements of all applicable laws.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
In the normal course of business, Westborough Bank makes loans to its
Directors, Officers and employees. These loans bear interest and have the same
underwriting terms that apply to any non-affiliated borrower. The outstanding
principal balance of such loans to Directors and Officers totaled $3.3 million
or 11.6% of Westborough Financial's total equity at September 30, 2006.
Westborough Financial retains the law firm of Tashjian, Simsarian &
Wickstrom. Mr. James E. Tashjian, a director of Westborough Financial and
Westborough Bank, and a trustee of Westborough MHC, has been a partner of
Tashjian, Simsarian & Wickstrom since 1995. The legal fees received by the law
firm for professional services rendered to Westborough Bank during the year
ended September 30, 2006 did not exceed 5% of the firm's gross revenues.
Westborough Financial retains Suburban Staffing, Inc., to provide
temporary staffing as needed. Nancy M. Carlson, a director of Westborough
Financial and Westborough Bank, is the owner and president of Suburban
Staffing, Inc., a full-service staffing firm located in Westborough,
Massachusetts since 1968, which Ms. Carlson purchased in 1994. The fees
received by Suburban Staffing, Inc. for staffing services rendered to
Westborough Bank during the year ended September 30, 2006 did not exceed 5% of
the firm's gross revenues.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires Westborough Financial's directors and executive officers, and persons
who own more than 10% of Westborough Financial's common stock, to report to the
Securities and Exchange Commission their initial ownership of Westborough
Financial's common stock, on Form 3, and any subsequent changes in that
ownership, on Form 4. Reports on Form 3 must be filed within 10 days of
becoming a beneficial owner, director or officer. Reports on Form 4 must be
filed before the end of the second business day following the day on
82
which the transaction effecting a change in ownership occurred. Westborough
Financial is required to disclose in this proxy statement any late filings or
failures to file.
To Westborough Financial's knowledge, based solely on its review of the
copies of such reports furnished to Westborough Financial and written
representations that no other reports were required during the fiscal year
ended September 30, 2006, all Section 16(a) filing requirements applicable to
Westborough Financial's executive officers and directors during fiscal year
2006 were met, with the exception of the following: a Form 4 filing for Vickie
A. Bouvier reflecting shares of common stock disposed of on December 8, 2005
was filed late on January 9, 2006 and Form 4s for James N. Ball, Nancy M.
Carlson and Benjamin H. Colonero, Jr. reflecting stock option awards granted on
April 24, 2006 were filed late on May 3, 2006.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
During the fiscal years ended September 30, 2006 and 2005, Westborough
Financial retained Wolf & Company, P.C. to provide audit and other services and
incurred fees as follows:
2006 2005
---- ----
Audit fees(1) $ 99,600 $ 94,650
Tax fees(2) 21,800 20,800
All other fees -- --
Total $121,400 $115,450
- ------------------
(1) Audit fees consisted of work performed in connection with the audit of
the consolidated financial statements as well as work generally only the
independent auditors can reasonably be expected to provide, such as
quarterly reviews and review of the annual form 10-KSB filings.
(2) Tax fees consisted of fees related to the preparation of Westborough
Financial's income tax returns and reviews of income tax provisions.
Audit Committee Pre-Approval Policy. The Audit Committee, or a designated
member of the Audit Committee, shall pre-approve all auditing services and
permitted non-audit services (including the fees and terms) to be performed for
the Company by its independent auditor, subject to the de minimis exceptions
for non-audit services that are approved by the Audit Committee prior to
completion of the audit, provided that: (1) the aggregate amount of all such
services provided constitutes no more than five percent of the total amount of
revenues paid by the Company to its auditor during the fiscal year in which the
services are provided; (2) such services were not recognized by the Company at
the time of the engagement to be non-audit services; and (3) such services are
promptly brought to the attention of the Audit Committee and approved prior to
the completion of the audit by the Audit Committee or by one or more members of
the Audit Committee who are members of the Board of Directors to whom authority
to grant such approvals has been delegated by the Audit Committee. Of the
services set forth in the table above, all were pre-approved by the Audit
Committee.
83
ADDITIONAL INFORMATION
Westborough Financial will hold a 2008 Annual Meeting only if the merger
with Assabet is not consummated before the time of the meeting. If such a
meeting is held, shareholders may submit proposals for consideration. In order
to be included in our proxy statement for the 2008 Annual Meeting, we must
receive such proposal no later than [______], 2007. Proposals should be
addressed to John L. Casagrande, Clerk, Westborough Financial Services, Inc.,
100 East Main Street, Westborough, Massachusetts 01581. Securities and Exchange
Commission rules contain standards as to whether shareholder proposals are
required to be included in the proxy statement. Any such proposal will be
subject to 17 C.F.R. ss. 240.14a-8 of the rules and regulations promulgated by
the Securities and Exchange Commission. Nothing in this paragraph shall be
deemed to require Westborough Financial to include in its proxy statement and
proxy card relating to any annual meeting any shareholder proposal or
nomination which does not meet all of the requirements for inclusion
established by the Securities and Exchange Commission and Westborough
Financial's bylaws in effect at the time such proposal is received.
In addition, under Westborough Financial's bylaws, if you wish to submit
a proposal to the 2008 Annual Meeting (if one is held) without including such
proposal in the proxy statement for that meeting, that proposal will be
considered untimely, and the proxies solicited by the Board of Directors will
confer discretionary authority to vote on the proposal as the proxies solicited
see fit, unless you have given notice in writing according to the procedures
set forth in our bylaws to the Clerk of Westborough Financial, mailed to John
L. Casagrande, Clerk, Westborough Financial Services, Inc., 100 East Main
Street, Westborough, Massachusetts 01581, and received by [_______], 2007.
84
WHERE YOU CAN FIND MORE INFORMATION
Westborough Financial is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and files annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information filed by Westborough Financial with the Securities and Exchange
Commission at its public reference room at 100 F Street, N.E., Washington, D.C.
20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Westborough Financial's
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the Securities and Exchange
Commission at http://www.sec.gov.
In addition, Westborough Financial maintains a website at
www.westboroughbank.com, where you can request Westborough Financial's annual
report to shareholders and Westborough Financial's quarterly reports for recent
quarters. Copies of any of these documents are also available upon request by
contacting Westborough Financial Services, Inc., 100 East Main Street,
Westborough, Massachusetts 01581, Attention: John L. Casagrande, Clerk, or by
telephone at (508) 366-4111.
A copy of Westborough Financial's Annual Report on Form 10-KSB/A for the
fiscal year ended September 30, 2006 is being mailed to Westborough Financial
shareholders with this proxy statement. If you would like an additional copy of
our Annual Report on Form 10-KSB/A, including audited financial statements for
the fiscal year ended September 30, 2006, we will send you one (without
exhibits) free of charge. Please write to Westborough Financial Services, Inc.,
100 East Main Street, Westborough, Massachusetts 01581, Attention: John L.
Casagrande, Clerk, or by telephone at (508) 366-4111.
By Order of the Board of Directors,
John L. Casagrande
Clerk
Westborough, Massachusetts
[______], 2007
================================================================================
To assure that your shares are represented at the Annual Meeting, please
complete, sign, date and promptly return the accompanying proxy card in the
postage-paid envelope provided.
================================================================================
85
APPENDIX A
Execution Copy
===============================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 13, 2006
AMONG
ASSABET VALLEY BANCORP,
HUDWEST FINANCIAL SERVICES, INC.,
HUDSON SAVINGS BANK
AND
WESTBOROUGH BANCORP, MHC,
WESTBOROUGH FINANCIAL SERVICES, INC.,
AND
THE WESTBOROUGH BANK
===============================================================================
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS; DISCLOSURE........................................... 2
1.1. CERTAIN DEFINITIONS................................................. 2
1.2. OTHER DEFINED TERMS................................................. 7
1.3. OTHER DEFINITIONAL MATTERS.......................................... 8
1.4. DISCLOSURE SCHEDULES................................................ 8
ARTICLE II. THE MERGERS...................................................... 8
2.1. THE MHC MERGER...................................................... 9
2.2. THE MID-TIER MERGER................................................. 9
2.3. THE BANK MERGER.....................................................10
2.4. AUTHORIZED CAPITAL STOCK............................................10
2.5. EFFECT OF THE MHC MERGER AND MID TIER MERGER........................10
2.6. ADDITIONAL ACTIONS..................................................11
2.7. EFFECTIVE DATE AND EFFECTIVE TIME; CLOSING..........................11
2.8. TAX CONSEQUENCES....................................................12
ARTICLE III. CONVERSION OF SHARES; CONSIDERATION; PAYMENT PROCEDURES.........13
3.1. CONVERSION OF SHARES................................................13
3.2. PAYMENT PROCEDURES..................................................13
3.3. RETURN OF EXCHANGE FUND.............................................14
3.4. RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS.............................14
3.5. DISSENTING SHARES...................................................14
3.6. WITHHOLDING RIGHTS..................................................15
3.7. STOCK OPTIONS.......................................................15
ARTICLE IV. ACTIONS PENDING MERGER...........................................15
4.1. AGREEMENTS OF WESTBOROUGH...........................................15
4.2. AGREEMENTS OF ASSABET...............................................21
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF WESTBOROUGH.....................24
5.1. ORGANIZATION, STANDING AND AUTHORITY................................25
5.2. WESTBOROUGH FINANCIAL CAPITAL STOCK.................................26
5.3. SUBSIDIARIES........................................................27
5.4. CORPORATE POWER.....................................................28
5.5. CORPORATE AUTHORITY.................................................28
5.6. REGULATORY APPROVALS; NO DEFAULTS...................................28
5.7. FINANCIAL STATEMENTS; REPORTS.......................................29
5.8. ABSENCE OF UNDISCLOSED LIABILITIES..................................31
5.9. ABSENCE OF CERTAIN CHANGES OR EVENTS................................31
5.10. LITIGATION..........................................................32
5.11. REGULATORY MATTERS..................................................32
A-i
5.12. COMPLIANCE WITH LAWS................................................33
5.13. MATERIAL CONTRACTS; DEFAULTS........................................33
5.14. NO BROKERS..........................................................35
5.15. EMPLOYEE BENEFIT PLANS..............................................35
5.16. LABOR MATTERS.......................................................37
5.17. ENVIRONMENTAL MATTERS...............................................37
5.18. TAX MATTERS.........................................................38
5.19. RISK MANAGEMENT INSTRUMENTS.........................................40
5.20. INVESTMENT SECURITIES...............................................41
5.21. LOANS; NONPERFORMING AND CLASSIFIED ASSETS..........................41
5.22. BANK OWNED LIFE INSURANCE...........................................42
5.23. PROPERTIES..........................................................42
5.24. INTELLECTUAL PROPERTY...............................................42
5.25. FIDUCIARY ACCOUNTS..................................................43
5.26. CAPITALIZATION......................................................43
5.27. COMMUNITY REINVESTMENT ACT, BANK SECRECY, ANTI-MONEY LAUNDERING AND
CUSTOMER INFORMATION SECURITY......................................43
5.28. BOOKS AND RECORDS...................................................43
5.29. INSURANCE...........................................................44
5.30. ALLOWANCE FOR LOAN LOSSES...........................................44
5.31. CREDIT CARD ACCOUNTS................................................44
5.32. MERCHANT PROCESSING.................................................44
5.33. TRANSACTIONS WITH AFFILIATES........................................44
5.34. REQUIRED VOTE; ANTITAKEOVER PROVISIONS..............................44
5.35. FAIRNESS OPINION....................................................45
5.36. TRANSACTIONS IN SECURITIES..........................................45
5.37. PROXY STATEMENT.....................................................45
5.38. DISCLOSURE..........................................................46
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF ASSABET........................46
6.1. ORGANIZATION, STANDING AND AUTHORITY................................46
6.2. NO AVB STOCK........................................................47
6.3. SUBSIDIARIES........................................................47
6.4. CORPORATE POWER.....................................................48
6.5. CORPORATE AUTHORITY.................................................48
6.6. REGULATORY APPROVALS; NO DEFAULTS...................................48
6.7. FINANCIAL STATEMENTS; REPORTS.......................................49
6.8. ABSENCE OF UNDISCLOSED LIABILITIES..................................50
6.9. ABSENCE OF CERTAIN CHANGES OR EVENTS................................50
6.10. LITIGATION..........................................................51
6.11. REGULATORY MATTERS..................................................51
6.12. COMPLIANCE WITH LAWS................................................51
6.13. MATERIAL CONTRACTS; DEFAULTS........................................52
6.14. NO BROKERS..........................................................54
6.15. EMPLOYEE BENEFIT PLANS..............................................54
6.16. LABOR MATTERS.......................................................55
6.17. ENVIRONMENTAL MATTERS...............................................56
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6.18. TAX MATTERS.........................................................56
6.19. RISK MANAGEMENT INSTRUMENTS.........................................58
6.20. INVESTMENT SECURITIES...............................................59
6.21. LOANS; NONPERFORMING AND CLASSIFIED ASSETS..........................59
6.22. BANK OWNED LIFE INSURANCE...........................................60
6.23. PROPERTIES..........................................................60
6.24. INTELLECTUAL PROPERTY...............................................60
6.25. FIDUCIARY ACCOUNTS..................................................60
6.26. CAPITALIZATION......................................................61
6.27. COMMUNITY REINVESTMENT ACT, BANK SECRECY, ANTI-MONEY LAUNDERING AND
CUSTOMER INFORMATION SECURITY......................................61
6.28. BOOKS AND RECORDS...................................................61
6.29. INSURANCE...........................................................61
6.30. ALLOWANCE FOR LOAN LOSSES...........................................62
6.31. TRANSACTIONS WITH AFFILIATES........................................62
6.32. REQUIRED VOTE; ANTITAKEOVER PROVISIONS..............................62
6.33. FAIRNESS OPINION....................................................62
6.34. PROXY STATEMENT.....................................................62
6.35. OWNERSHIP OF WESTBOROUGH FINANCIAL COMMON STOCK.....................62
6.36. FINANCIAL ABILITY...................................................62
6.37. DISCLOSURE..........................................................63
ARTICLE VII. COVENANTS.......................................................63
7.1. REASONABLE BEST EFFORTS.............................................63
7.2. SHAREHOLDER APPROVAL................................................63
7.3. CORPORATOR APPROVAL.................................................64
7.4. REGULATORY FILINGS..................................................64
7.5. PRESS RELEASES......................................................64
7.6. ACCESS; INFORMATION.................................................65
7.7. ACQUISITION PROPOSALS...............................................65
7.8. CERTAIN POLICIES....................................................67
7.9. INDEMNIFICATION.....................................................67
7.10. EMPLOYMENT AND BENEFIT MATTERS......................................68
7.11. NOTIFICATION OF CERTAIN MATTERS.....................................70
7.12. PAYMENTS AND RELATED AGREEMENTS.....................................70
7.13. UPDATE OF DISCLOSURE SCHEDULES......................................70
7.14. CURRENT INFORMATION.................................................71
7.15. LOAN LOSS RESERVES..................................................71
7.16. ALCO MANAGEMENT.....................................................71
ARTICLE VIII. CONDITIONS TO CONSUMMATION OF THE MERGERS......................72
8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS.........72
8.2. CONDITIONS TO OBLIGATION OF WESTBOROUGH.............................72
8.3. CONDITIONS TO OBLIGATIONS OF AVB....................................73
ARTICLE IX. TERMINATION......................................................74
9.1. TERMINATION.........................................................74
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9.2. EFFECT OF TERMINATION; EXPENSES.....................................75
9.3. WESTBOROUGH SPECIAL PAYMENT.........................................76
ARTICLE X. MISCELLANEOUS.....................................................77
10.1. SURVIVAL............................................................77
10.2. WAIVER; AMENDMENT...................................................77
10.3. COUNTERPARTS AND FACSIMILE SIGNATURES...............................77
10.4. GOVERNING LAW.......................................................78
10.5. EXPENSES............................................................78
10.6. NOTICES.............................................................78
10.7. ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES..................78
10.8. SEVERABILITY........................................................79
10.9. ENFORCEMENT OF THE AGREEMENT........................................79
10.10. INTERPRETATION......................................................79
10.11. ASSIGNMENT..........................................................79
10.12. ALTERNATIVE STRUCTURE...............................................79
Annex A List of Voting Shareholders
- -------
Annex B Form of Voting Agreement
- -------
Annex C Officers and Directors of Surviving Corporation
- -------
Annex D New Bank Committee Structure
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AGREEMENT AND PLAN OF MERGER
PREAMBLE
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
November 13, 2006, is by and among (i) Hudson Savings Bank, a
Massachusetts-chartered savings bank ("Hudson"), HudWest Financial Services,
Inc., a Massachusetts-chartered corporation ("Merger Sub"), and Assabet Valley
Bancorp ("AVB"), a Massachusetts-chartered mutual holding company and the
parent company of Hudson and Merger Sub, and (ii) The Westborough Bank, a
Massachusetts-chartered savings bank ("Westborough Bank"), Westborough
Financial Services, Inc., a Massachusetts-chartered mid-tier holding company of
Westborough Bank ("Westborough Financial") and Westborough Bancorp, MHC, a
Massachusetts-chartered mutual holding company ("Westborough MHC"). Each of
Hudson, AVB, Merger Sub, Westborough Bank, Westborough Financial and
Westborough MHC is sometimes individually referred to in this Agreement as a
"party" and collectively as the "parties."
1. Hudson is a stock savings bank, and AVB is the mutual holding company
for Hudson. Hudson and AVB both have their principal offices located in Hudson,
Massachusetts.
2. Westborough MHC owns a majority of the outstanding capital stock of
Westborough Financial, which, in turn, owns all of the outstanding capital
stock of Westborough Bank. Westborough Bank, Westborough Financial and
Westborough MHC all have their principal offices located in Westborough,
Massachusetts.
3. The respective Boards of Trustees and Directors of the parties deem it
advisable and in the best interests of the parties, as well as of the
shareholders of Westborough Financial, to consummate the following merger
transactions: (i) Westborough MHC will merge with and into AVB, with AVB as the
surviving entity (the "MHC Merger"), (ii) Westborough Financial will merge with
and into Merger Sub, with Westborough Financial as the surviving entity (the
"Mid-Tier Merger"), (iii) Westborough Bank will merge with and into Hudson,
with Hudson as the surviving institution (the "Bank Merger") (which is referred
to herein as "New Bank" and shall be renamed with a name that is mutually
agreeable to the parties hereto) and New Bank will remain a subsidiary of AVB,
(iv) concurrently with step (i), each outstanding share of Westborough
Financial Common Stock previously held by any shareholder other than
Westborough MHC or AVB (collectively, the "Outstanding Shares") will be
canceled and exchanged for an amount of cash per share equal to the Per Share
Merger Consideration to be paid by AVB or Merger Sub pursuant to the terms of
this Agreement, and (v) as a result of the foregoing, the interests of
Westborough Bank depositors in Westborough MHC shall cease to exist and will be
converted into interests of the same nature in AVB.
4. The parties intend each of the MHC Merger, the Mid-Tier Merger, and
the Bank Merger to qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
In view of the foregoing and for other good and valuable consideration,
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
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ARTICLE I.
DEFINITIONS; DISCLOSURE
1.1. Certain Definitions. The following terms are used in this Agreement
with the meanings set forth below:
"Acquisition Proposal" shall mean (x) a bona fide proposal by any Person
(other than AVB or any Subsidiary of AVB) to Westborough or the shareholders of
Westborough Financial to engage in a Change in Control Transaction, (y) a
public statement by any Person (other than AVB or any Subsidiary of AVB) to
Westborough or the shareholders of Westborough Financial of such Person's
intention to make a proposal to engage in a Change in Control Transaction if
this Agreement terminates, or (z) the filing by any Person (other than AVB or
any Subsidiary of AVB) of an application or notice with any Governmental
Authority to engage in a Change in Control Transaction.
"Affiliate" shall mean a Person that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common
control with, the Person specified. For purposes of this definition, the terms
"control," "controlled by" and "under common control with" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person and, in the case of an
entity, shall require (a) in the case of a corporate entity, direct or indirect
ownership of at least a majority of the securities having the right to vote for
the election of directors, and (b) in the case of a non-corporate entity,
direct or indirect ownership of at least a majority of the Equity Interests
with the power to direct the management and policies of such non-corporate
entity.
"Aggregate Merger Consideration" shall be equal to the aggregate Per
Share Merger Consideration payable with respect to all Outstanding Shares of
Westborough Financial Common Stock pursuant to Section 3.1(c) plus the
aggregate amount payable to holders of Westborough Financial Options pursuant
to Section 3.7.
"Agreement" shall mean this Agreement, as amended or modified from time
to time in accordance with Section 10.2.
"Assabet" shall mean each of AVB, Merger Sub and Hudson and the
Subsidiaries of each of the foregoing, individually and collectively.
"AVB" shall have the meaning set forth in the Preamble to this Agreement.
"AVB Board" shall mean the Board of Trustees of AVB.
"AVB Bylaws" shall mean the Bylaws of AVB.
"AVB Charter" shall mean the Amended and Restated Charter of AVB, as
amended.
"Bank Merger" shall have the meaning set forth in the Preamble to this
Agreement.
"Bank Regulator" shall mean and include any pertinent federal or state
Governmental Authority charged with the supervision of banks or bank or
financial holding companies or
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engaged in the insurance of bank deposits, including, without limitation, the
Federal Reserve Board, the FDIC, the Depositors Insurance Fund of
Massachusetts, the Massachusetts Bank Commissioner and the Massachusetts Board.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Business Day" shall mean Monday through Friday of each week, except (i)
a legal holiday recognized as such by the United States Government, or (ii) any
day on which banking institutions in The Commonwealth of Massachusetts are
authorized or obligated to close.
"Certificate" shall mean any certificate which, immediately prior to the
Mid-Tier Effective Time, represented Outstanding Shares of Westborough
Financial Common Stock.
"Change in Control Transaction" shall mean (A) a merger, reorganization,
tender or exchange offer, recapitalization, reorganization, liquidation, share
exchange, consolidation or similar transaction involving Westborough MHC or any
Subsidiary of Westborough MHC whose assets constitute more than 15% of the
consolidated assets of Westborough MHC, (B) the disposition, by sale, lease,
exchange or otherwise, of assets of Westborough MHC or any Subsidiary of
Westborough MHC representing in either case 15% or more of the consolidated
assets of Westborough MHC, or (C) the issuance, sale or other disposition of
(including by way of merger, consolidation, share exchange or any similar
transaction), or the acquisition of, securities representing 15% or more of the
voting power of Westborough Financial or any Subsidiary whose assets constitute
more than 15% of the consolidated assets of Westborough Financial.
"Code" shall have the meaning set forth in the Preamble to this
Agreement.
"Community Reinvestment Act" shall mean the Community Reinvestment Act of
1977, as amended.
"Equal Credit Opportunity Act" shall mean the Equal Credit Opportunity
Act, as amended.
"Equity Interests" shall mean, with respect to any Person, capital stock
or other ownership or equity interests of such Person or any Subsidiary, and
warrants, options, rights, subscriptions, calls, commitments, convertible
securities and other arrangements or commitments of any character which call
for the Person to issue, deliver or dispose, or cause to be issued, delivered
or disposed, any of its or its Subsidiaries' capital stock or other ownership
or equity interests of such Person or any Subsidiary.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Fair Housing Act" shall mean the Fair Housing Act, as amended.
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"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Act" shall mean the Federal Reserve Act, as amended.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System.
"GAAP" shall mean United States generally accepted accounting principles.
"Governmental Authority" shall mean any United States or foreign,
federal, state or local governmental commission, board, body, bureau, agency or
other regulatory authority (including all Bank Regulators), including courts
and other judicial bodies, or any self-regulatory body or authority, including
any instrumentality or entity designated to act for or on behalf of the
foregoing.
"Hudson" shall have the meaning set forth in the Preamble to this
Agreement.
"Hudson Bylaws" shall mean the Bylaws of Hudson.
"Hudson Charter" shall mean the Charter of Hudson.
"JFM" shall mean Joseph F. MacDonough.
"Joint Venture" shall mean any corporation, limited liability company,
limited liability partnership, partnership, joint venture, trust, association
or other entity which is not a Subsidiary of Westborough or Assabet and in
which (a) Westborough or Assabet, directly or indirectly, owns or controls any
shares of any class of the outstanding voting securities or other Equity
Interests, including, without limitation, an equity investment, as such term as
of the date of this Agreement is defined in the FDIC's rules and regulations
regarding activities and investments of insured state banks at 12 C.F.R.
[SECTION] 362.2(g), or (b) Westborough or Assabet is a general partner.
"knowledge" or any words or phrases of similar effect shall mean, with
respect to any Person, the actual knowledge of such Person, after reasonable
due inquiry.
"Liens" shall mean any charge, mortgage, pledge, security interest,
restriction, option, right of first refusal, claim, lien or encumbrance.
"Loan Loss Reserves" shall mean the reserves established by Westborough
or Hudson in accordance with its customary practices with respect to Loans as
of the Closing Date.
"Massachusetts Bank Commissioner" shall mean the Commissioner of Banks of
The Commonwealth of Massachusetts.
"Massachusetts Board" shall mean the Massachusetts Board of Bank
Incorporation.
"Material Adverse Effect" shall mean, with respect to any Person, any
change or effect that (i) is or would be reasonably likely to be material and
adverse to the financial position, results of operations, business or prospects
of such Person or its Subsidiaries, or (ii) would
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materially impair the ability of any Person to perform its respective
obligations under this Agreement or the Bank Merger Agreement, or otherwise
materially impede the consummation of the Transactions; provided, however, that
"Material Adverse Effect" shall not be deemed to include the impact of (1)
changes in banking and similar laws, rules or regulations of general
applicability or interpretations thereof by Governmental Authorities, (2)
changes in GAAP or regulatory accounting requirements applicable to financial
institutions and their holding companies generally, (3) changes after the date
of this Agreement in general economic or capital market conditions affecting
financial institutions or their market prices generally and not specifically
related to Westborough or Assabet, including, but not limited to, changes in
levels of interest rates generally, (4) direct effects of compliance with this
Agreement on the operating performance of Westborough or Assabet, including
expenses incurred by Westborough or Assabet in consummating the transactions
contemplated by this Agreement, and (5) the effects of any action or omission
taken by Westborough with the prior consent of Assabet, and vice versa, or as
otherwise contemplated by this Agreement, the Bank Merger Agreement and the
Voting Agreements.
"MBCA" shall mean the Massachusetts Business Corporations Act, MGL
Chapter 156D, [SECTIONS]1 et seq., as amended.
"Merger" shall have the meaning set forth in the Preamble to this
Agreement.
"Merger Sub" shall mean the wholly owned subsidiary of AVB incorporated
under the MBCA for the purpose of being merged with and into Westborough
Financial.
"Merger Sub Charter" shall mean the Corporate Charter of Merger Sub.
"MHC Merger" shall have the meaning set forth in the Preamble to this
Agreement.
"MHPF" shall mean the Massachusetts Housing Partnership Fund.
"National Labor Relations Act" shall mean the National Labor Relations
Act, as amended.
"New Bank" shall have the meaning set forth in the Preamble to this
Agreement.
"OREO" shall mean other real estate owned.
"Outstanding Shares" shall have the meaning set forth in the Preamble to
this Agreement.
"Person" shall mean any individual, bank, corporation, partnership,
association, joint-stock company, business trust, limited liability company or
unincorporated organization.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
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"Subsidiary" shall have the meaning ascribed to that term in Rule 1-02 of
Regulation S-X of the SEC.
"Tax" and "Taxes" mean all federal, state, local or foreign income, gross
income, gains, gross receipts, sales, use, ad valorem, goods and services,
capital, production, transfer, franchise, windfall profits, license,
withholding, payroll, employment, disability, employer health, excise,
estimated, severance, stamp, occupation, property, environmental, custom
duties, unemployment or other taxes of any kind whatsoever, together with any
interest, additions or penalties thereto and any interest in respect of such
interest and penalties.
"Tax Returns" shall mean any return, declaration, report, claim for
refund, information return or other document (including any schedules or
attachments thereto) filed or required to be filed in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, regulations or administrative requirements relating to any Tax.
"Tender Offer" shall mean a tender offer or exchange offer to purchase
any shares of Westborough Financial Common Stock such that, upon consummation
of such offer, the Person making such tender offer or exchange offer would own
or control 25% or more of the then Outstanding Shares of Westborough Financial
Common Stock.
"Transaction Documents" shall mean this Agreement, the Bank Merger
Agreement and the Voting Agreements.
"Transactions" shall mean the MHC Merger, the Mid-Tier Merger and the
Bank Merger.
"Voting Agreements" shall mean those certain Voting Agreements (each of
which is in the form set forth on Annex B to this Agreement) executed by the
Voting Shareholders in connection with the execution and delivery of this
Agreement.
"Voting Shareholders" shall mean the Persons listed on Annex A to this
Agreement.
"Westborough" shall mean each of Westborough Bank, Westborough Financial
and Westborough MHC and the Subsidiaries of each of the foregoing, individually
and collectively.
"Westborough Bank" shall have the meaning set forth in the Preamble to
this Agreement.
"Westborough Financial" shall have the meaning set forth in the Preamble
to this Agreement.
"Westborough Financial Board" shall mean the Board of Directors of
Westborough Financial.
"Westborough Financial Bylaws" shall mean the Bylaws of Westborough
Financial.
"Westborough Financial Charter" shall mean the Articles of Organization
of Westborough Financial.
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"Westborough Financial Common Stock" shall mean the common stock, $0.01
par value per share, of Westborough Financial.
"Westborough Financial Options" shall mean the options to acquire
Westborough Financial Common Stock issued under the Westborough Financial Stock
Option Plan.
"Westborough Financial Preferred Stock" shall mean the serial preferred
stock, par value $0.01 per share, of Westborough Financial.
"Westborough Financial Stock" shall mean, collectively, Westborough
Financial Common Stock and Westborough Financial Preferred Stock.
"Westborough Financial Stock Option Plan" shall mean the Westborough
Financial Services, Inc. 2001 Stock Option Plan.
1.2. Other Defined Terms. Definitions of the defined terms listed below
are contained in the Section set forth opposite the defined term in the table
below:
Defined Term Section of Agreement
Articles of Merger Section 2.7(a)
Assabet Benefit Plan Section 6.15(a)
Assabet Employees Section 6.15(a)
Assabet Loan Property Section 6.17(b)
Assabet Regulatory Authorities Section 6.11(a)
Assabet Reports Section 6.7(b)
AVB Benefit Plans Section 7.10(a)
AVB's Financial Statements Section 6.7(a)
Bank Effective Time Section 2.3(a)
Bank Merger Agreement Section 2.3(a)
BOLI Section 5.22
Closing and Closing Date Section 2.7(c)
Derivatives Contract Section 5.19
Disclosure Schedules Section 1.4
Dissenting Shares Section 3.5
Effective Date Section 2.7(a)
Employment Agreement Section 7.12
Environmental Laws Section 5.17
ERISA Affiliate Section 5.15(d)
ESOP Section 7.10(f)
Expenses Section 9.2(b)
Expiration Date Section 9.1(b)
Hazardous Substance Section 5.17
Indemnified Party, Indemnified Parties Section 7.9(a)
and Indemnifying Party
Insurance Amount Section 7.9(c)
Insurance Policies Section 5.29
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Loans Section 5.21(a)
Material Contract Section 5.13(a)
Merger Sub Common Stock Section 3.1(b)
MHC Effective Time Section 2.7(a)
Mid-Tier Effective Time Section 2.7(b)
Paying Agent Section 3.2(a)
Pension Plan Section 5.15(b)
Per Share Merger Consideration Section 3.1(c)
Proxy Statement Section 5.37
Representatives Section 7.7
SEC Documents Section 5.7(a)
Surviving Corporation Section 2.2
Unperfected Dissenting Shares Section 3.5
USA Patriot Act Section 5.27
Welfare Plan Section 5.15(f)
Westborough Benefit Plans Section 5.15(a)
Westborough Employees Section 5.15(a)
Westborough Financial Board Recommendation Section 7.2(b)
Westborough Financial Loan Property Section 5.17(b)
Westborough Financial Meeting Section 7.2(b)
Westborough Regulatory Authorities Section 5.11(a)
Westborough Reports Section 5.7(c)
Westborough Special Payment Section 9.3
1.3. Other Definitional Matters. Unless the context otherwise requires, a
term defined anywhere in this Agreement has the same meaning throughout; all
references to "the Agreement" or "this Agreement" are to this Agreement as
modified, supplemented or amended from time to time, and terms defined in the
singular shall have a comparable meaning when used in the plural, and vice
versa.
1.4. Disclosure Schedules. On or prior to the date of this Agreement, AVB
has delivered to Westborough a schedule and Westborough has delivered to AVB a
schedule (respectively, its "Disclosure Schedules") setting forth, among other
things, items the disclosure of which is necessary or appropriate either in
response to an express disclosure requirement contained in a provision hereof
or as an exception to one or more representations or warranties contained in
Article V or Article VI or to one or more of its covenants contained in Article
IV. The mere inclusion of a fact, circumstance or event in a Disclosure
Schedule shall not be deemed an admission by a party that such item represents
a material exception or that such item is reasonably likely to result in a
Material Adverse Effect. Any matter disclosed pursuant to one section of a
party's Disclosure Schedules shall be deemed disclosed for all purposes of such
party's Disclosure Schedules, but only to the extent that it is reasonably
apparent from a reading of the disclosure that it also qualifies or applies to
other sections of the Agreement and the corresponding Disclosure Schedule.
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ARTICLE II.
THE MERGERS
2.1. The MHC Merger.
(a) Surviving MHC. Subject to the terms and conditions of this
Agreement, at the MHC Effective Time, Westborough MHC shall merge with and
into AVB in accordance with Massachusetts law, the separate corporate
existence of Westborough MHC shall cease and AVB shall survive and
continue to exist as a mutual holding company incorporated under the laws
of The Commonwealth of Massachusetts (AVB, as the surviving corporation in
the MHC Merger, is sometimes referred to in this Agreement as "Surviving
MHC").
(b) Name. The name of Surviving MHC shall be "Assabet Valley
Bancorp."
(c) Corporate Charter and Bylaws. The corporate charter and bylaws
of Surviving MHC immediately after the MHC Merger shall be AVB's Charter
and Bylaws as in effect immediately prior to the MHC Merger, as amended as
set forth in Section 2.1(c) of Westborough's Disclosure Schedules or as
otherwise mutually agreed upon. The purpose of Surviving MHC shall be to
engage in activities permitted to bank holding companies under the BHCA
and the laws of The Commonwealth of Massachusetts.
(d) Trustees, Corporators and Officers of Surviving MHC. Effective
as of the MHC Effective Time, (i) all of the trustees and corporators of
Westborough MHC as of the date immediately prior to the Effective Date
shall be elected or appointed to the Surviving MHC Board of Trustees and
Board of Corporators, and (ii) the officers of the Surviving MHC shall be
the persons serving as officers of AVB immediately prior to the Effective
Date, plus JFM, who shall be elected or appointed as President and Chief
Executive Officer of the Surviving MHC.
2.2. The Mid-Tier Merger.
(a) Surviving Corporation. Subject to the terms and conditions of
this Agreement, effective at the Mid-Tier Effective Time, Merger Sub shall
merge with and into Westborough Financial in accordance with the MBCA, the
separate corporate existence of Merger Sub shall cease and Westborough
Financial shall survive and continue to exist as a corporation
incorporated under the laws of The Commonwealth of Massachusetts
(Westborough Financial, as the surviving corporation in the Mid-Tier
Merger, is sometimes referred to in this Agreement as "Surviving
Corporation").
(b) Name. The name of Surviving Corporation shall be "HudWest
Financial Services, Inc."
(c) Corporate Charter and Bylaws. The corporate charter and bylaws
of Surviving Corporation immediately after the Mid-Tier Merger shall be
the Merger Sub Charter and the Merger Sub Bylaws as in effect immediately
prior to the Mid-Tier Merger. The purpose of Surviving Corporation shall
be to engage in activities permitted to bank holding companies under the
BHCA and the laws of The Commonwealth of Massachusetts.
(d) Directors and Officers of Surviving Corporation. Effective as of
the Mid-Tier Effective Time, the individuals specified on Annex C hereto
shall be elected or appointed to Surviving Corporation's Board of
Directors, and the officers of Surviving Corporation shall be those
individuals, in such capacities, as are specified on such Annex C. To the
extent not specified
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on such Annex C, Assabet and Westborough agree prior to the Mid-Tier
Effective Time to appoint or elect such officers and/or directors as
mutually agreed upon. In any event, JFM shall be the President and CEO of
Surviving Corporation and a member of its Board of Directors.
2.3. The Bank Merger.
(a) Assabet and Westborough agree to take all action necessary and
appropriate to carry out the Bank Merger, including causing the entering
into of an appropriate merger agreement (the "Bank Merger Agreement"), to
cause Westborough Bank to merge, either directly or indirectly, by use of
one or more interim corporations, with and into Hudson in accordance with
applicable laws and regulations and the terms of the Bank Merger Agreement
and as soon as practicable after consummation of the MHC Merger and the
Mid-Tier Merger. The Bylaws of Hudson shall be amended as set forth in
Section 2.3(a) of Westborough's Disclosure Schedules or as otherwise
mutually agreed upon.
(b) Effective as of the effective time of the Bank Merger (the "Bank
Effective Time"), nine of the directors of Westborough Financial who are
in office as of the date immediately prior to the Effective Date (to be
chosen by Westborough in consultation with Hudson, but one of whom shall
be JFM) shall be elected or appointed to New Bank's Board of Directors.
The remaining directors of New Bank shall be fifteen of the Persons (to be
chosen by AVB in consultation with Westborough) who are serving as
directors of Hudson immediately prior to the Effective Date.
(c) As of the Bank Effective Time, the committees of New Bank's
Board of Directors shall be reconstituted so that such committees shall be
comprised a number of directors from Westborough Financial and a number of
directors from Hudson as specified on Annex D hereto. To the extent not
specified on Annex D, Assabet and Westborough shall mutually agree prior
to the Bank Effective Time to reconstitute the committees of New Bank's
Board of Directors, taking into account to the extent practicable the
specific skills, education and experience of the various designees, and
taking into account a desire to divide among the committees the former
directors of Westborough Financial who are joining New Bank's Board of
Directors. Effective as of the Mid-Tier Effective Time, all officers of
Westborough Bank except for those who have entered into Payments and
Waiver Agreements in accordance with Section 7.12 will be offered jobs as
officers of New Bank at a rate of pay equal to or exceeding the rate of
pay at Westborough Bank.
(d) As of the Bank Effective Time, JFM shall be elected or appointed
as an Executive Vice President and a member of the Board of Directors of
New Bank and a member of New Bank's Executive Committee.
2.4. Authorized Capital Stock. The authorized capital stock of Surviving
Corporation upon consummation of the Mid-Tier Merger shall be as set forth in
the Merger Sub Charter immediately prior to the Mid-Tier Merger. The total
authorized capital stock of Surviving Corporation shall be one thousand (1,000)
shares of common stock, $0.01 par value.
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2.5. Effect of the MHC Merger and Mid Tier Merger.
(a) At the MHC Effective Time, the effect of the MHC Merger shall be
as provided in this Agreement and in the applicable provisions of the laws
of The Commonwealth of Massachusetts. Without limiting the generality of
the foregoing, and subject thereto, at the MHC Effective Time, all the
property, rights, privileges, powers and franchises of Westborough MHC and
AVB shall vest in Surviving MHC, and all debts, liabilities, obligations,
restrictions, disabilities and duties of Westborough MHC and AVB shall
become the debts, liabilities, obligations, restrictions, disabilities and
duties of Surviving MHC.
(b) At the Mid-Tier Effective Time, the effect of the Mid-Tier
Merger shall be as provided in this Agreement and in the applicable
provisions of the laws of The Commonwealth of Massachusetts. Without
limiting the generality of the foregoing, and subject thereto, at the
Mid-Tier Effective Time, all the property, rights, privileges, powers and
franchises of Westborough Financial and Merger Sub shall vest in Surviving
Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of Westborough Financial and Merger Sub shall
become the debts, liabilities, obligations, restrictions, disabilities and
duties of Surviving Corporation.
2.6. Additional Actions.
(a) If, at any time after the MHC Effective Time, Surviving MHC
shall consider that any further assignments or assurances in law or any
other acts are necessary or desirable to (i) vest, perfect or confirm, of
record or otherwise, in Surviving MHC its right, title or interest in, to
or under any of the rights, properties or assets of Westborough MHC and
AVB acquired or to be acquired by Surviving MHC as a result of, or in
connection with, the MHC Merger, or (ii) otherwise carry out the purposes
of this Agreement, Westborough MHC and AVB, and its proper officers and
directors, shall be deemed to have granted to Surviving MHC an irrevocable
power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper
to vest, perfect or confirm title to and possession of such rights,
properties or assets in Surviving MHC and otherwise to carry out the
purposes of this Agreement, and the proper officers and directors of
Surviving Corporation MHC are fully authorized in the name of Surviving
MHC or otherwise to take any and all such action.
(b) If, at any time after the Mid-Tier Effective Time, Surviving
Corporation, shall consider that any further assignments or assurances in
law or any other acts are necessary or desirable to (i) vest, perfect or
confirm, of record or otherwise, in Surviving Corporation its right, title
or interest in, to or under any of the rights, properties or assets of
Westborough Financial and Merger Sub acquired or to be acquired by
Surviving Corporation as a result of, or in connection with, the Mid-Tier
Merger, or (ii) otherwise carry out the purposes of this Agreement,
Westborough Financial and Merger Sub, and its proper officers and
directors, shall be deemed to have granted to Surviving Corporation an
irrevocable power of attorney to execute and deliver all such proper
deeds, assignments and assurances in law and to do all acts necessary or
proper to vest, perfect or confirm title to and possession of such rights,
properties or assets in Surviving Corporation and otherwise to carry out
the purposes of this Agreement, and the proper officers and directors of
Surviving Corporation are fully authorized in the name of Surviving
Corporation or otherwise to take any and all such action.
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2.7. Effective Date and Effective Time; Closing.
(a) Subject to the satisfaction or waiver of the conditions set
forth in Article VIII (other than those conditions that by their nature
are to be satisfied at the consummation of the MHC Merger, but subject to
the fulfillment or waiver of those conditions), the parties shall cause
articles of merger relating to the MHC Merger (the "MHC Articles of
Merger") to be filed with the Secretary of State of The Commonwealth of
Massachusetts pursuant to the applicable provisions of Massachusetts Law
on (i) a date selected by AVB after such satisfaction or waiver which is
no later than seven Business Days after such satisfaction or waiver, or
(ii) such other date to which the parties may agree in writing. The MHC
Merger provided for in this Agreement shall become effective upon such
filing or on such date as may be specified therein. The date of such
filing or such later effective date is in this Agreement called the
"Effective Date." The "MHC Effective Time" shall be the time of such
filings or as set forth in such filings. The filing of the MHC Articles of
Merger shall be made on the Closing Date.
(b) Subject to the satisfaction or waiver of the conditions set
forth in Article VIII (other than those conditions that by their nature
are to be satisfied at the consummation of the Mid-Tier Merger, but
subject to the fulfillment or waiver of those conditions), the parties
shall cause articles of merger relating to the Mid-Tier Merger (the
"Mid-Tier Articles of Merger") to be filed with the Secretary of State of
The Commonwealth of Massachusetts pursuant to the MBCA on the Effective
Date. The Mid-Tier Merger provided for in this Agreement shall become
effective upon such filing or on such date as may be specified therein.
The "Mid-Tier Effective Time" shall be the time of such filings or as set
forth in such filings, which shall be immediately after the MHC Effective
Time. The filing of the Mid-Tier Articles of Merger shall be made on the
Closing Date.
(c) A closing (the "Closing") shall take place on the date on which
the MHC Articles of Merger and the Mid-Tier Articles of Merger are to be
filed at 10:00 a.m. Eastern Time at the principal offices of Foley Hoag
LLP, Boston, Massachusetts, or at such other place, at such other time, or
on such other date as the parties may mutually agree upon (such date, the
"Closing Date"). At the Closing, there shall be delivered to AVB and
Westborough Financial the opinions, certificates and other documents
required to be delivered under Article VIII hereof.
2.8. Tax Consequences. It is intended that each of the MHC Merger, the
Mid-Tier Merger, and the Bank Merger shall qualify as a reorganization within
the meaning of Section 368(a) of the Code, and that this Agreement shall
constitute a "plan of reorganization" as that term is used in Sections 354 and
361 of the Code. From and after the date of this Agreement and until the Closing
Date, each party hereto shall use its reasonable best efforts to cause the MHC
Merger to qualify, and will not knowingly take any action, cause any action to
be taken, fail to take any action or cause any action to fail to be taken which
action or failure could prevent the MHC Merger from qualifying as a
reorganization under Section 368(a) of the Code. Following the Closing, no party
hereto shall knowingly take any action, cause any action to be taken, fail to
take any action or cause any action to fail to be taken, which action or failure
to act could cause any of the MHC Merger, the Mid-Tier Merger or the Bank Merger
to fail to qualify as a reorganization under Section 368(a) of the Code.
Westborough MHC and AVB each hereby agree to deliver certificates substantially
in compliance with Internal Revenue Service published advance ruling guidelines,
with customary exceptions and modifications thereto, to enable counsel to
deliver the legal opinions contemplated by Section 8.1(e), which certificates
shall be effective as of the date of such opinions.
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ARTICLE III.
CONVERSION OF SHARES; CONSIDERATION; PAYMENT PROCEDURES
3.1. Conversion of Shares. At the Mid-Tier Effective Time, by virtue of
the Mid-Tier Merger and without any action on the part of a holder of Equity
Interests of Westborough Financial or Merger Sub:
(a) Each share of Westborough Financial Common Stock held of record
immediately prior to the Mid-Tier Effective Time by Westborough MHC,
Westborough Financial, Merger Sub, AVB or any Subsidiary of Westborough
Financial or of AVB shall be canceled and retired at the Mid-Tier
Effective Time and no consideration shall be issued in exchange therefor.
(b) Each share of common stock of Merger Sub (the "Merger Sub Common
Stock") issued and outstanding immediately prior to the Mid-Tier Effective
Time shall be canceled and retired at the Mid-Tier Effective Time and
automatically converted into one validly issued, fully paid and
nonassessable share of common stock, $0.01 par value, of Surviving
Corporation. Each certificate evidencing ownership of a number of shares
of Merger Sub Common Stock shall be deemed to evidence ownership of the
same number of shares of common stock, $0.01 par value, of Surviving
Corporation.
(c) Subject to Sections 3.2 and 3.5, each of the Outstanding Shares
(other than shares to be canceled in accordance with Section 3.1(a)) shall
be converted into the right to receive cash in the amount of $35.00 (the
"Per Share Merger Consideration").
3.2. Payment Procedures.
(a) Immediately prior to the Mid-Tier Effective Time, AVB shall
deposit, or shall cause to be deposited, with Registrar and Transfer
Company (the "Paying Agent"), for the benefit of the holders of
Outstanding Shares, for exchange in accordance with this Section 3.2, cash
in an amount equal to the Aggregate Merger Consideration (such cash shall
hereinafter be referred to as the "Exchange Fund").
(b) As soon as practicable after the Mid-Tier Effective Time, and in
no event later than five Business Days thereafter (which date shall be
referred to as the "Mailing Date"), AVB shall cause the Paying Agent to
mail to each holder of record of a Certificate or Certificates at the
Mid-Tier Effective Time, a form letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Paying Agent) (the "Transmittal Form") containing instructions for use in
effecting the surrender of the Certificates. Westborough Financial shall
have the right to approve the Transmittal Form.
(c) Each Transmittal Form shall permit the holder (or in the case of
nominee record holders, the beneficial owner through appropriate and
customary documentation and instructions) to receive the Per Share Merger
Consideration for each share of Westborough Financial Common Stock. A
Transmittal Form shall be deemed properly completed only if accompanied by
one or more Certificates representing all shares of Westborough Financial
Common Stock covered by such Transmittal Form, together with duly executed
transmittal materials included with the
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Transmittal Form. Neither AVB nor the Paying Agent shall be under any
obligation to notify any Person of any defect in a Transmittal Form.
(d) Upon surrender of a Certificate for exchange and cancellation to
the Paying Agent, together with the Transmittal Form, duly executed, the
holder of such Certificates shall be entitled to receive in exchange
therefor a check representing the amount of cash which such holder has the
right to receive in respect of the Certificate surrendered pursuant to the
provisions of this Article III.
(e) At and after the Mid-Tier Effective Time, there shall be no
transfers on the stock transfer books of Westborough Financial of the
shares of Westborough Financial Common Stock which were outstanding
immediately prior to the Mid-Tier Effective Time and if, after the
Mid-Tier Effective Time, Certificates are presented for transfer, they
shall be canceled against delivery of the Per Share Merger Consideration
as herein provided.
(f) The provisions of this Article III assume that there will be
598,171 shares of Westborough Financial Common Stock that are Outstanding
Shares or are issuable upon the exercise of Equity Interests through
options or warrants or otherwise, at the Mid-Tier Effective Time. If there
is any change in this number as of the Mid-Tier Effective Time, the
provisions of this Article III, including the Aggregate Merger
Consideration and the Per Share Merger Consideration, will be
appropriately adjusted.
3.3. Return of Exchange Fund. Any portion of the Exchange Fund that
remains unclaimed by the former shareholders of Westborough Financial six months
after the Mid-Tier Effective Time shall be delivered to AVB. Any former
shareholders of Westborough Financial who have not theretofore complied with
this Article III shall thereafter look only to AVB for payment of any
consideration payable as a result of the Mid-Tier Merger pursuant to this
Agreement, without any interest thereon. None of AVB, Westborough Financial, the
Paying Agent or any other Person shall be liable to any former holder of shares
of Westborough Financial Common Stock for any shares of stock or cash properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
3.4. Rights as Shareholders; Stock Transfers. At the Mid-Tier Effective
Time, holders of Westborough Financial Stock shall cease to be, and shall have
no rights as, shareholders of Westborough Financial other than to receive the
consideration provided under this Article III. After the Mid-Tier Effective
Time, there shall be no transfers on the stock transfer books of Westborough
Financial or Surviving Corporation of shares of Westborough Financial Stock.
3.5. Dissenting Shares. Each outstanding share of Westborough Financial
Common Stock, the holder of which has perfected his right to dissent under the
MBCA and has not effectively withdrawn or lost such right as of the Mid-Tier
Effective Time (the "Dissenting Shares"), shall not be converted into or
represent a right to receive Per Share Merger Consideration. Rather, the holder
thereof shall be entitled only such rights as are granted in accordance with the
provisions of [SECTIONS]13.01 - 13.31, inclusive, of the MBCA. Westborough
Financial shall give AVB (i) prompt notice of any demands filed pursuant to
[SECTIONS]13.01 - 13.31, inclusive, of the MBCA received by Westborough
Financial, withdrawals of such demands, and any other instruments served in
connection with such demands pursuant to the MBCA and
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received by Westborough Financial, and (ii) the opportunity to participate in
all negotiations and proceedings with respect to demands under the MBCA,
consistent with the obligations of Westborough Financial thereunder. Westborough
Financial shall not, except with the prior written consent of AVB, (x) make any
payment with respect to, or to any Person making, any such demand, (y) offer to
settle or settle any such demand, or (z) waive any failure to timely deliver a
written demand in accordance with the MBCA. If any holder of Dissenting Shares
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent (which shares are referred to as "Unperfected Dissenting Shares") at any
time, the Unperfected Dissenting Shares held by such holder shall be converted
on a share-by-share basis into the right to receive the Per Share Merger
Consideration in accordance with the applicable provisions of this Agreement, as
AVB or the Paying Agent shall determine, without any interest thereon. Any
payments made in respect of Dissenting Shares shall be made by Surviving
Corporation.
3.6. Withholding Rights. AVB (through the Paying Agent, if applicable)
shall be entitled to deduct and withhold from any amounts otherwise payable
pursuant to this Agreement, to any holder of Westborough Financial Equity
Interests, such amounts as AVB is required under the Code or any state, local or
foreign tax law or regulation thereunder to deduct and withhold with respect to
the making of such payment, if any. Any amounts so withheld shall be treated for
all purposes of this Agreement as having been paid to the holder of Westborough
Financial Equity Interests in respect of which such deduction and withholding
was made by AVB.
3.7. Stock Options. Prior to the Mid-Tier Effective Time, Westborough
Financial shall, in accordance with the terms of the Westborough Financial Stock
Option Plan, provide written notice to each holder of a Westborough Financial
Option (whether or not such stock option is then vested or exercisable), that
such Westborough Financial Option shall be, as at the date of such notice,
exercisable in full and that such Westborough Financial Option will be
automatically cancelled at the Mid-Tier Effective Time, and that, if such
Westborough Financial Option is not exercised or otherwise terminated before the
Mid-Tier Effective Time, such holder shall be entitled to receive, in
cancellation of such Westborough Financial Option, a cash payment from
Westborough Financial at the Closing in an amount equal to the excess of the Per
Share Merger Consideration over the per share exercise price of such Westborough
Financial Option, multiplied by the number of shares of Westborough Financial
Common Stock covered by such Westborough Financial Option, subject to any
required withholding of taxes. Subject to the foregoing, the Westborough
Financial Stock Option Plan and all options issued and outstanding thereunder
shall terminate at the Mid-Tier Effective Time. Westborough Financial hereby
represents and warrants to AVB that the maximum number of shares subject to
issuance pursuant to the exercise of stock options issued and outstanding under
the Westborough Financial Stock Option Plan or otherwise is not and shall not
be, at or prior to the Mid-Tier Effective Time, more than 30,290.
ARTICLE IV.
ACTIONS PENDING MERGER
4.1. Agreements of Westborough.
(a) Westborough covenants and agrees that, except as expressly
contemplated by this Agreement, between the date of this Agreement and the
Mid-Tier Effective Time, unless AVB
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shall otherwise agree in writing, (i) the business of Westborough shall be
conducted only in, and Westborough shall not take any action except in,
the usual, regular and ordinary course of business and in a manner
consistent with prudent banking practice and generally to conduct its
business in substantially the same way as heretofore conducted, and
without limiting the foregoing, to continue to operate in the same
geographic markets serving the same market segments and maintain its
current loan, deposit, banking products and service programs on
substantially the same terms and conditions, (ii) Westborough shall use
its reasonable best efforts to preserve the business organization of
Westborough, to keep available the present services of the officers,
employees and consultants of Westborough and to preserve the current
relationships and goodwill of Westborough with customers, suppliers and
other Persons with which Westborough has business relationships, and (iii)
Westborough shall take no action which would materially adversely affect
or materially delay the ability of Westborough to obtain any necessary
approvals of any Governmental Authority required for the transactions
contemplated hereby or to perform its covenants and agreements under this
Agreement or the Bank Merger Agreement.
(b) By way of amplification and not limitation of Section 4.1(a)
above, except as expressly contemplated by this Agreement, Westborough
shall not do, nor shall Westborough permit any of its Affiliates, between
the date of this Agreement and the Mid-Tier Effective Time, directly or
indirectly, to do, or publicly announce an intention to do, any of the
following without the prior written consent of AVB through its
representative, its Chief Executive Officer (which consent shall not be
unreasonably withheld):
(i) Capital Stock. Other than pursuant to the Equity Interests
set forth in Section 5.2 of Westborough's Disclosure Schedules and
outstanding on the date of this Agreement, (i) issue, sell or
otherwise permit to become outstanding, or authorize the creation
of, any additional shares of Westborough Financial Stock or any
other Equity Interests in Westborough, or (ii) permit any additional
shares of Westborough Financial Stock or other Equity Interests in
Westborough to become subject to grants of employee or director
stock options or other Equity Interests.
(ii) Dividends; Etc. (i) Make, declare, pay or set aside for
payment any dividend on or in respect of, or declare or make any
distribution on any shares of Westborough Financial Stock, other
than regular, quarterly cash dividends at a rate not in excess of
$0.06 per share on Westborough Financial Common Stock, declared and
paid in accordance with past practice (including with respect to the
timing of such declaration and payment), or (ii) directly or
indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, or issue any other securities in respect of, in
lieu of, or in substitution for, any shares of its capital stock or
any securities or obligations convertible into or exchangeable for
any shares of its capital stock (other than pursuant to the Equity
Interests set forth in Section 5.2 of Westborough's Disclosure
Schedules and outstanding on the date of this Agreement).
(iii) Contracts. Except as set forth in Section 4.1(b)(iii) of
Westborough's Disclosure Schedules, or except in the ordinary course
of business consistent with past practice, as required by law, as
expressly contemplated by this Agreement or as otherwise permitted
under this Section 4.1, enter into or terminate any Material
Contract or amend or modify any of its existing Material Contracts.
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(iv) Hiring. Hire any Person as an employee of Westborough or
promote any employee, except (i) to satisfy contractual obligations
existing as of the date of this Agreement and set forth in Section
4.1(b)(iv) of Westborough's Disclosure Schedules, and (ii) Persons
hired to fill any vacancies arising after the date of this Agreement
and whose employment is terminable at the will of Westborough,
provided that Westborough shall not in any event hire any Person who
would have a base salary, including any guaranteed bonus or any
similar bonus, considered on an annual basis of more than $75,000.
(v) Benefit Plans. Enter into, establish, adopt, renew or
amend (except (i) as may be required by applicable law including,
but not limited to, Section 409A of the Code, (ii) to satisfy
contractual obligations existing as of the date of this Agreement
and set forth in Section 4.1(b)(v) of Westborough's Disclosure
Schedules, or (iii) as otherwise expressly contemplated by this
Agreement) any pension, retirement, stock option, stock purchase,
savings, profit sharing, deferred compensation, consulting, bonus,
group insurance or other employee benefit, incentive or welfare
contract, plan or arrangement, or any trust agreement (or similar
arrangement) related thereto, in respect of any director, officer or
employee of Westborough (provided, however, that the restrictions
contained in this Section 4.1(b)(v) concerning renewals shall apply
only to those Benefit Plans with a term greater than one (1) year)
or take any action to accelerate the vesting or exercisability of
stock options, restricted stock or other compensation or benefits
payable thereunder except pursuant to this Agreement.
(vi) Dispositions. Sell, transfer, mortgage, encumber or
otherwise dispose of or discontinue any of its assets, deposits,
business or properties, or cancel or release any indebtedness of a
Person or any claims held by any Person, except in the ordinary
course of business consistent with past practice.
(vii) Compensation; Employment Agreements. Except as
contemplated by this Agreement or by Section 4.1(b)(vii) of
Westborough's Disclosure Schedules, enter into or amend or renew any
employment, consulting, severance or similar agreements or
arrangements with any trustee, director, officer or employee of
Westborough or grant any salary or wage increase or increase any
employee benefit (including incentive or bonus payments), except for
(i) normal individual increases in compensation to employees in the
ordinary course of business consistent with past practice, provided
that such increases shall not result in an annual adjustment in
total compensation of more than 4% for any individual or 4% in the
aggregate for all employees of Westborough, (ii) other changes that
are required by applicable law, including, but not limited to,
Section 409A of the Code, (iii) bonuses payable pursuant to the
bonus plan for Westborough set forth (and not exceeding in the
aggregate the amount set forth) in Section 4.1(b)(vii) of
Westborough's Disclosure Schedules, and (iv) payments pursuant to
Section 7.10(g) hereof.
(viii) Environmental. Foreclose upon or take a deed or title
to any commercial real estate without first conducting a Phase I
environmental assessment of the property or foreclose upon any
commercial real estate if such environmental assessment
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indicates the presence of Hazardous Substance in amounts which, if
such foreclosure were to occur, could be material.
(ix) Insurance. Renew, amend or permit to expire, lapse or
terminate, or knowingly take any action reasonably likely to result
in the creation, renewal, amendment, expiration, lapse or
termination of any insurance policies referred to in Section 5.29
hereof; provided, however, that the restrictions contained in this
Section 4.1(b)(ix) concerning renewal shall apply only to those
insurance policies with a term greater than one (1) year or for
which a fully earned premium has been or will be or is required to
be paid at the commencement of the coverage period (or such renewal
coverage period).
(x) Parachute Payments.
(A) The provisions of this Section 4.1(b)(x)(A) shall
apply to payments to or for the benefit of Persons other than
JFM, John L. Casagrande and Vickie A. Bouvier. Notwithstanding
anything to the contrary contained in this Agreement, in no
event shall Westborough or any of its Subsidiaries take any
action or make any payments that could result, in the
reasonable opinion of AVB, Westborough and their professional
advisors, either individually or in the aggregate, in the
payment of an "excess parachute payment" within the meaning of
Section 280G of the Code or that could result, in the
reasonable opinion of Assabet or its professional advisors,
either individually or in the aggregate, in payments that
would be nondeductible pursuant to Section 162(m) of the Code;
(B) In no event shall Westborough or any of its
Subsidiaries pay (or agree to pay) to or for the benefit of
JFM, John L. Casagrande or Vickie A. Bouvier any amount that
could be deemed to be in the nature of compensation other
than (i) regular incremental payments of his or her salary,
management bonus and fringe benefits of general applicability
at the rates and under the programs now in effect and
disclosed in Section 4.1(b)(x) of Westborough's Disclosure
Schedules, (ii) reimbursement of his or her business expenses
in the ordinary course consistent with past practices, and
(iii) payments required to be made to such individual under
the applicable Payments and Waiver Agreement (including
payments under all "Permitted Arrangements" as defined under
the applicable Payments and Waiver Agreements).
(xi) Acquisitions. Acquire (other than by way of foreclosures
or acquisitions of control in a bona fide fiduciary capacity or in
satisfaction of debts previously contracted in good faith) all or
any portion of the assets, business, deposits or properties of any
other entity, including by merging or consolidating with, or by
purchasing an Equity Interest in or a portion of the assets of, or
by any other manner, any business or any corporation, partnership,
joint venture, other business organization or any division thereof,
or any material amount of assets, other than in the ordinary course
of business consistent with past practice.
(xii) Investments. Make (i) any material investment either by
purchase of stock or securities, contributions to capital, property
transfers, (ii) any material purchase
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of any property or assets of any other Person, or (iii) any
commitment to make such an investment or purchase other than in the
ordinary course of business consistent with past practice.
(xiii) Capital Expenditures. Other than as set forth in
Section 4.1(b)(xiii) of Westborough's Disclosure Schedules, make
any capital expenditures other than capital expenditures in the
ordinary course of business consistent with past practice in
amounts not exceeding $25,000 individually or $100,000 in the
aggregate.
(xiv) Governing Documents. Amend the Westborough Financial
Charter or Westborough Financial Bylaws or the corporate charter or
bylaws (or equivalent documents) of any other Westborough entity.
(xv) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be
required by changes in laws or regulations or GAAP.
(xvi) Claims. Other than as set forth in Section 4.1(b)(xvi)
of Westborough's Disclosure Schedules, enter into any settlement or
similar agreement with respect to any action, suit, proceeding,
order or investigation to which Westborough is or becomes a party
after the date of this Agreement, which settlement, agreement or
action involves payment by Westborough of an amount which exceeds
$25,000 individually or $100,000 in the aggregate and/or would
impose any material restriction on the business of Westborough.
(xvii) Derivatives Contracts. Enter into any Derivatives
Contract.
(xviii) Indebtedness. Incur any indebtedness for borrowed
money (other than deposits, federal funds purchased, cash
management accounts, borrowings from the Federal Home Loan Bank of
Boston and securities sold under agreements to repurchase, in each
case in the ordinary course of business consistent with past
practice), including issuing any debt securities, or assume,
guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other Person, or renewals
thereof, other than in the ordinary course of business consistent
with past practice.
(xix) Taxes. Other than as set forth in Section 4.1(b)(xix)
of Westborough's Disclosure Schedules, or with the cooperation of
and in consultation with AVB, make or change any material Tax
election, file any material amended Tax Return, enter into any
material closing agreement, settle or compromise any material
liability with respect to Taxes, agree to any material adjustment
of any Tax attribute, file any claim for a material refund of
Taxes, or consent to any extension or waiver of the limitation
period applicable to any material Tax claim or assessment;
provided, that, for purposes of this subparagraph (xix), "material"
shall mean affecting or relating to $250,000 of taxable income.
(xx) Lending. Make (i) any commercial or commercial real
estate loan that exceeds (or causes the total loans to one borrower
or related group of borrowers to
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exceed) $1,000,000, (ii) any unsecured loan that exceeds $100,000,
(iii) any residential loan that exceeds $1,000,000, or (iv) any
other loan that exceeds $1,000,000.
(xxi) Charitable Foundation. Make any contributions to the
Westborough Savings Charitable Foundation, Inc.
(xxii) Investment Securities Portfolio. Other than in the
ordinary course of business, restructure or materially change its
investment securities portfolio or its gap position, through
purchases, sales or otherwise, or the manner in which the portfolio
is classified or reported.
(xxiii) Real Estate. Make any new or additional equity
investment in real estate or commitment to make any such investment
or in any real estate development project, other than (i) in
connection with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructurings in the ordinary course of
business consistent with past practice, or (ii) as required by
agreements or instruments in effect as of the date of this
Agreement.
(xxiv) Loan and Investment Policies. Change in any material
respect its loan or investment policies and procedures, except as
required by regulatory authorities.
(xxv) Leases. Enter into or renew, amend or terminate, or
give notice of a proposed renewal, amendment or termination of, or
make any commitment with respect to (i) any lease, license,
contract, agreement or commitment for office space, operations
space or branch space, regardless of where located or to be
located, to which Westborough is, or may be, a party or by which
Westborough or any Westborough property is bound, other than in the
ordinary course and consistent with past practices, or (ii)
regardless of whether in the ordinary course or consistent with
past practices, any such lease, license, contract, agreement or
commitment involving an aggregate payment by or to Westborough of
more than $25,000 or having a term of one year or more from the
date of execution.
(xxvi) Defaults. Commit any act or omission which constitutes
a material breach or default by Westborough under any agreement
with any Governmental Authority or under any material contract or
material license to which Westborough is a party or by which any of
Westborough's properties is bound.
(xxvii) Adverse Actions. Take any action that is intended or
is reasonably likely to result in (x) any of its representations
and warranties set forth in this Agreement being or becoming untrue
in any material respect at any time at or prior to the Mid-Tier
Effective Time, (y) any of the conditions to the MHC Merger and the
Mid-Tier Merger set forth in Article VIII not being satisfied, or
(z) a material violation of any provision of this Agreement or the
Bank Merger Agreement, except, in each case, as may be required by
applicable law or regulation.
(xxviii) Commitments. Enter into any contract with respect
to, or otherwise agree or commit to do, any of actions addressed to
in Article IV.
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4.2. Agreements of Assabet.
(a) Assabet covenants and agrees that, except as expressly
contemplated by this Agreement, between the date of this Agreement and
the Mid-Tier Effective Time, unless Westborough Financial shall otherwise
agree in writing, (i) the business of Assabet shall be conducted only in,
and Assabet shall not take any action except in, the usual, regular and
ordinary course of business and in a manner consistent with prudent
banking practice and generally to conduct its business in substantially
the same way as heretofore conducted, and without limiting the foregoing,
to continue to operate in the same geographic markets serving the same
market segments and maintain its current loan, deposit, banking products
and service programs on substantially the same terms and conditions, (ii)
Assabet shall use its reasonable best efforts to preserve the business
organization of Assabet, to keep available the present services of the
officers, employees and consultants of Assabet and to preserve the
current relationships and goodwill of Assabet with customers, suppliers
and other Persons with which Assabet has business relationships, and
(iii) Assabet shall take no action which would materially adversely
affect or materially delay the ability of Assabet to obtain any necessary
approvals of any Governmental Authority required for the transactions
contemplated hereby or to perform its covenants and agreements under this
Agreement or the Bank Merger Agreement.
(b) By way of amplification and not limitation of Section 4.2(a)
above, except as expressly contemplated by this Agreement, Assabet shall
not do, nor shall Assabet permit any of its Affiliates, between the date
of this Agreement and the Mid-Tier Effective Time, directly or
indirectly, to do, or publicly announce an intention to do, any of the
following without the prior written consent of Westborough Financial
through its representative, its Chief Executive Officer (which consent
shall not be unreasonably withheld):
(i) Contracts. Except in the ordinary course of business
consistent with past practice, as required by law, as expressly
contemplated by this Agreement or as otherwise permitted under this
Section 4.2, enter into or terminate any Material Contract (as
defined in Section 5.13) or amend or modify any of its existing
Material Contracts.
(ii) Hiring. Hire any Person as an employee of Assabet or
promote any employee, except (i) to satisfy contractual obligations
existing as of the date of this Agreement and set forth in Section
4.2(b)(ii) of Assabet's Disclosure Schedules, and (ii) Persons
hired to fill any vacancies arising after the date of this
Agreement and whose employment is terminable at the will of
Assabet, provided that Assabet shall not in any event hire any
Person who would have a base salary, including any guaranteed bonus
or any similar bonus, considered on an annual basis of more than
$75,000.
(iii) Benefit Plans. Enter into, establish, adopt, renew or
amend (except (i) as may be required by applicable law including,
but not limited to, Section 409A of the Code, (ii) to satisfy
contractual obligations existing as of the date of this Agreement
and set forth in Section 4.2(b)(iii) of Assabet's Disclosure
Schedules, or (iii) as otherwise expressly contemplated by this
Agreement) any pension, retirement, stock option, stock purchase,
savings, profit sharing, deferred compensation, consulting, bonus,
group insurance or other employee benefit, incentive or welfare
contract, plan or arrangement, or any trust agreement (or similar
arrangement) related thereto, in respect of any director,
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officer or employee of Assabet (provided, however, that the
restrictions contained in this Section 4.2(b)(iii) concerning
renewals shall apply only to those Assabet Benefit Plans with a
term greater than one (1) year) or take any action to accelerate
the vesting or payment of any other compensation or benefits
payable thereunder except pursuant to this Agreement.
(iv) Dispositions. Sell, transfer, mortgage, encumber or
otherwise dispose of or discontinue any of its assets, deposits,
business or properties, or cancel or release any indebtedness of a
Person or any claims held by any Person, except in the ordinary
course of business consistent with past practice.
(v) Compensation; Employment Agreements. Except as
contemplated by this Agreement or by Section 4.2(b)(v) of Assabet's
Disclosure Schedules, enter into or amend or renew any employment,
consulting, severance or similar agreements or arrangements with
any trustee, director, officer or employee of Assabet or grant any
salary or wage increase or increase any employee benefit (including
incentive or bonus payments), except for (i) normal individual
increases in compensation to employees in the ordinary course of
business consistent with past practice, provided that other than as
set forth in Section 4.2(b)(v) of Assabet's Disclosure Schedules,
such increases shall not result in an annual adjustment in total
compensation of more than 4% for any individual or 4% in the
aggregate for all employees of Assabet, (ii) other changes that are
required by applicable law, including, but not limited to, Section
409A of the Code, or (iii) bonus payments in the ordinary course of
business consistent with past practices.
(vi) Environmental. Foreclose upon or take a deed or title to
any commercial real estate without first conducting a Phase I
environmental assessment of the property or foreclose upon any
commercial real estate if such environmental assessment indicates
the presence of Hazardous Substance in amounts which, if such
foreclosure were to occur, could be material.
(vii) Insurance. Amend or permit to expire, lapse or
terminate, or knowingly take any action reasonably likely to result
in the creation, renewal, amendment, expiration, lapse or
termination of any insurance policies referred to in Section 6.29
hereof.
(viii) Acquisitions. Acquire (other than by way of
foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good
faith) all or any portion of the assets, business, deposits or
properties of any other entity, including by merging or
consolidating with, or by purchasing an Equity Interest in or a
portion of the assets of, or by any other manner, any business or
any corporation, partnership, joint venture, other business
organization or any division thereof, or any material amount of
assets, other than in the ordinary course of business consistent
with past practice.
(ix) Investments. Make (i) any material investment either by
purchase of stock or securities, contributions to capital, property
transfers, (ii) any material purchase of any property or assets of
any other Person, or (iii) any commitment to make such an
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investment or purchase other than in the ordinary course of
business consistent with past practice.
(x) Securities. Purchase any securities except securities
rated "A" or higher by either Standard & Poor's Ratings Services or
Moody's Investors Service and otherwise in the ordinary course of
business consistent with past practice.
(xi) Capital Expenditures. Other than as set forth in Section
4.2(b)(xi) of Assabet's Disclosure Schedules, make any capital
expenditures other than capital expenditures in the ordinary course
of business consistent with past practice in amounts not exceeding
$25,000 individually or $200,000 in the aggregate.
(xii) Governing Documents. Amend the AVB Charter or AVB
Bylaws or the corporate charter or bylaws (or equivalent documents)
of any other Assabet entity.
(xiii) Accounting Methods. Implement or adopt any change in
its accounting principles, practices or methods, other than as may
be required by changes in laws or regulations or GAAP.
(xiv) Claims. Enter into any settlement or similar agreement
with respect to any action, suit, proceeding, order or
investigation to which Assabet is or becomes a party after the date
of this Agreement, which settlement, agreement or action involves
payment by Assabet of an amount which exceeds $50,000 individually
or $200,000 in the aggregate and/or would impose any material
restriction on the business of Assabet.
(xv) Derivatives Contracts. Enter into any Derivatives
Contract.
(xvi) Indebtedness. Incur any indebtedness for borrowed money
(other than deposits, federal funds purchased, cash management
accounts, borrowings from the Federal Home Loan Bank of Boston and
securities sold under agreements to repurchase, in each case in the
ordinary course of business consistent with past practice),
including issuing any debt securities, or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other Person, or renewals thereof, other than in
the ordinary course of business consistent with past practice.
(xvii) Taxes. Other than as set forth in Section 4.2(b)(xvii)
of Assabet's Disclosure Schedules, other than with the cooperation
of and in consultation with Westborough, make or change any
material Tax election, file any material amended Tax Return, enter
into any material closing agreement, settle or compromise any
material liability with respect to Taxes, agree to any material
adjustment of any Tax attribute, file any claim for a material
refund of Taxes, or consent to any extension or waiver of the
limitation period applicable to any material Tax claim or
assessment; provided, that, for purposes of this subparagraph
(xvii), "material" shall mean affecting or relating to $250,000 of
taxable income.
(xviii) Lending. Make (i) any commercial or commercial real
estate loan that exceeds (or causes the total loans to one borrower
or related group of borrowers to
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exceed) $2,000,000, (ii) any unsecured loan that exceeds $200,000,
(iii) any residential loan that exceeds $2,000,000, or (iv) any
other loan that exceeds $2,000,000.
(xix) Charitable Foundation. Make any contributions to the
Hudson Savings Charitable Foundation, Inc.
(xx) Investment Securities Portfolio. Other than in the
ordinary course of business, restructure or materially change its
investment securities portfolio or its gap position, through
purchases, sales or otherwise, or the manner in which the portfolio
is classified or reported.
(xxi) Real Estate. Make any new or additional equity
investment in real estate or commitment to make any such investment
or in any real estate development project, other than (i) in
connection with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructurings in the ordinary course of
business consistent with past practice, or (ii) as required by
agreements or instruments in effect as of the date of this
Agreement.
(xxii) Loan and Investment Policies. Change in any material
respect its loan or investment policies and procedures, except as
required by regulatory authorities.
(xxiii) Leases. Enter into or renew, amend or terminate, or
give notice of a proposed renewal, amendment or termination of, or
make any commitment with respect to (i) any lease, license,
contract, agreement or commitment for office space, operations
space or branch space, regardless of where located or to be
located, to which Assabet is, or may be, a party or by which
Assabet is or any Assabet is property is bound, other than in the
ordinary course and consistent with past practices.
(xxiv) Defaults. Commit any act or omission which constitutes
a material breach or default by Assabet under any agreement with
any Governmental Authority or under any material contract or
material license to which Assabet is a party or by which any of
Assabet's properties is bound.
(xxv) Adverse Actions. Take any action that is intended or is
reasonably likely to result in (x) any of its representations and
warranties set forth in this Agreement being or becoming untrue in
any material respect at any time at or prior to the Mid-Tier
Effective Time, (y) any of the conditions to the MHC Merger or the
Mid-Tier Merger set forth in Article VIII not being satisfied, or
(z) a material violation of any provision of this Agreement or the
Bank Merger Agreement, except, in each case, as may be required by
applicable law or regulation.
(xxvi) Commitments. Enter into any contract with respect to,
or otherwise agree or commit to do, any actions addressed in
Article IV.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF WESTBOROUGH
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As a material inducement to AVB, Hudson and Merger Sub to enter into this
Agreement, and with the understanding that AVB, Hudson and Merger Sub will be
relying thereon in consummating the Transactions, the Westborough parties,
jointly and severally, hereby represent and warrant to AVB, Hudson and Merger
Sub that except as set forth in Westborough's Disclosure Schedules delivered by
Westborough to AVB on the date of this Agreement, the statements contained in
this Article V are true and correct as of the date of this Agreement and shall
be true and correct as of the Closing Date, except for representations and
warranties made as of a specific time, which shall be true and correct as of
such time. Westborough's Disclosure Schedules are arranged in sections
corresponding to the sections and subsections of this Article V, and disclosure
in one section of Westborough's Disclosure Schedules shall constitute
disclosure for all sections of Westborough's Disclosure Schedules only to the
extent to which the applicability of such disclosure is reasonably apparent.
5.1. Organization, Standing and Authority.
(a) Westborough Financial. Westborough Financial is a corporation
duly organized, validly existing and in good standing under the laws of
The Commonwealth of Massachusetts. Westborough Financial is duly
qualified to do business and is in corporate good standing in each
jurisdiction where its ownership or leasing of property or assets, or the
conduct of its business, requires it to be so qualified, except when the
failure to be so licensed or in good standing would not result in a
Material Adverse Effect. Westborough Financial has in full force and
effect all federal, state, local and foreign governmental authorizations
necessary for it to own, operate or lease its properties and assets and
to carry on its business as now conducted. Westborough Financial is a
bank holding company registered with the Federal Reserve Board under the
BHCA. The Westborough Financial Charter and Westborough Financial Bylaws,
copies of which have previously been made available to AVB, are true,
complete and correct copies of such documents in effect as of the date of
this Agreement. Westborough Financial is not in violation of any
provision of the Westborough Financial Charter or Westborough Financial
Bylaws. The minute books of Westborough Financial contain, in all
material respects, true and accurate records of all meetings held and
corporate actions taken since January 1, 2003 of Westborough Financial's
shareholders and the Westborough Financial Board (including committees of
the Westborough Financial Board), other than minutes which have not been
prepared as of the date of this Agreement.
(b) Westborough MHC. Westborough MHC is a mutual holding company
duly organized, validly existing and in good standing under the laws of
The Commonwealth of Massachusetts. Westborough MHC is duly qualified to
do business and is in corporate good standing in each jurisdiction where
its ownership or leasing of property or assets, or the conduct of its
business, requires it to be so qualified, except when the failure to be
so licensed or in good standing would not result in a Material Adverse
Effect. Westborough MHC has in full force and effect all federal, state,
local and foreign governmental authorizations necessary for it to own,
operate or lease its properties and assets and to carry on its business
as now conducted. Westborough MHC is a bank holding company registered
with the Federal Reserve Board under the BHCA. The Westborough MHC
Charter and Westborough MHC Bylaws, copies of which have previously been
made available to AVB, are true, complete and correct copies of such
documents in effect as of the date of this Agreement. Westborough MHC is
not in violation of any provision of the Westborough MHC Charter or
Westborough MHC Bylaws. The minute books of
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Westborough MHC contain, in all material respects, true and accurate
records of all meetings held and corporate actions taken since January 1,
2003 of Westborough MHC's shareholders and the Westborough MHC Board of
Trustees (including committees of the Westborough MHC Board of Trustees),
other than minutes which have not been prepared as of the date of this
Agreement.
(c) Westborough Bank. Westborough Bank is a stock form savings bank
duly organized and validly existing under the laws of The Commonwealth of
Massachusetts. Westborough Bank is duly qualified to do business and is
in corporate good standing in each jurisdiction where its ownership or
leasing of property or assets, or the conduct of its business, requires
it to be so qualified, except when the failure to be so licensed or in
good standing would not result in a Material Adverse Effect. Westborough
Bank has in full force and effect all federal, state, local and foreign
governmental authorizations necessary for it to own, operate or lease its
properties and assets and to carry on its business as now conducted. The
Westborough Bank Charter and Westborough Bank Bylaws, copies of which
have previously been made available to AVB, are true, complete and
correct copies of such documents in effect as of the date of this
Agreement. Westborough Bank is not in violation of any provision of the
Westborough Bank Charter or Westborough Bank Bylaws. The minute books of
Westborough Bank contain, in all material respects, true and accurate
records of all meetings held and corporate actions taken since January 1,
2003 of Westborough Bank's shareholders and the Westborough Bank Board of
Directors (including committees of the Westborough Bank Board of
Directors), other than minutes which have not been prepared as of the
date of this Agreement. The deposit accounts of Westborough Bank are
insured by the Deposit Insurance Fund maintained by the FDIC and the
Deposit Insurance Fund of the Depositors Insurance Fund of Massachusetts
in the manner and to the maximum extent provided by applicable law, and
Westborough Bank has paid all deposit insurance premiums and assessments
required by applicable laws and regulations. Westborough Bank is not
obligated to make any payments for premiums and assessments and it has
filed all reports required by the FDIC. No proceedings for the revocation
or termination of such deposit insurance are pending or, to the best
knowledge of Westborough, threatened.
5.2. Westborough Financial Capital Stock. Westborough MHC is a mutual
holding company and has no authorized capital stock. The authorized capital
stock of Westborough Financial consists solely of 5,000,000 shares of
Westborough Financial Common Stock, of which 1,027,893 shares are held by
Westborough MHC and 567,881 shares are Outstanding Shares as of the date of
this Agreement, and 1,000,000 shares of Westborough Financial Preferred Stock,
of which no shares are outstanding. As of the date of this Agreement, no shares
of Westborough Financial Common Stock were held in treasury by Westborough
Financial. No shares of Westborough Financial Stock are held by Westborough
Financial's Subsidiaries. The outstanding shares of Westborough Financial Stock
have been duly authorized and validly issued and are fully paid and
non-assessable, and free of preemptive rights, with no personal liability
attaching to the ownership thereof, and none of the outstanding shares of
Westborough Financial Stock have been issued in violation of the preemptive
rights of any Person. Section 5.2 of Westborough's Disclosure Schedules sets
forth, for each Westborough Financial Option, the name of the grantee, the date
of the grant, the status of the option grant as qualified or non-qualified
under Section 422 of the Code, the number of shares of Westborough Financial
Common Stock subject to each option, the number of shares of Westborough
Financial Common Stock subject to options that are currently exercisable and
the exercise price per share. Except as set forth in the preceding two
sentence(s), there are no shares of Westborough Financial Stock
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reserved for issuance, Westborough Financial does not have any options,
warrants or other Equity Interests issued or outstanding, and Westborough
Financial does not have any commitment to authorize, issue or sell any
Westborough Financial Stock or other Equity Interests in Westborough Financial.
There are no outstanding contractual obligations of Westborough Financial to
repurchase, redeem or otherwise acquire any shares of capital stock of, or
other Equity Interests in, Westborough Financial or to provide funds to, or
make any investment (in the form of a loan, capital contribution or otherwise)
in, any Subsidiary of Westborough Financial. Except for restricted shares
issued pursuant to the Westborough Financial Services, Inc. 2001 Recognition
and Retention Plan, all of which vest upon a change of control, there are no
shares of Westborough Financial Common Stock outstanding which are subject to
vesting over time or upon the satisfaction of any condition precedent, or which
are otherwise subject to any right or obligation of repurchase or redemption on
the part of Westborough Financial.
5.3. Subsidiaries.
(a) (1) Westborough MHC has disclosed in Section 5.3(a) of
Westborough's Disclosure Schedules a list of all of its Subsidiaries,
together with the jurisdiction of organization of each such Subsidiary
and the percentage and type of equity security owned or controlled by
Westborough MHC, (2) Westborough MHC owns approximately 64.5% of the
issued and outstanding shares of Westborough Financial, and Westborough
Financial owns, directly or indirectly, all the issued and outstanding
equity securities of each of its Subsidiaries (including Westborough
Bank), and all of such equity securities are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof, (3) no equity
securities of any of its Subsidiaries are or may become required to be
issued (other than to Westborough Financial) by reason of any Equity
Interest or otherwise, (4) there are no contracts, commitments,
understandings or arrangements by which any of its Subsidiaries is or may
be bound to sell or otherwise transfer any of its equity securities
(other than to Westborough Financial or any of its wholly-owned
Subsidiaries), (5) there are no contracts, commitments, understandings,
or arrangements relating to Westborough Financial's rights to vote or to
dispose of such securities, (6) all the equity securities of Westborough
Financial's Subsidiaries held by Westborough Financial or its
Subsidiaries are fully paid and nonassessable and are owned by
Westborough Financial or its Subsidiaries free and clear of any Liens,
and (7) there are no outstanding contractual obligations of any
Subsidiary of Westborough Financial to repurchase, redeem or otherwise
acquire any shares of capital stock of, or other Equity Interests in,
Westborough Financial or any such Subsidiary or to provide funds to, or
make any investment (in the form of a loan, capital contribution or
otherwise) in, any such Subsidiary of Westborough Financial.
(b) Except for securities and other interests held in a fiduciary
capacity and beneficially owned by third parties or taken in
consideration of debts previously contracted, Westborough Financial does
not own beneficially, directly or indirectly, any equity securities or
similar interests of any Person or any interest in a partnership or joint
venture of any kind other than Westborough Bank and its Subsidiaries and
stock in the Federal Home Loan Bank of Boston.
(c) Each of Westborough Bank's Subsidiaries has been duly organized
and is validly existing in good standing under the laws of the
jurisdiction of its organization and is duly qualified
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to do business and is in good standing in the jurisdictions where its
ownership or leasing of property or the conduct of its business requires
it to be so qualified, except when the failure to be so licensed or in
good standing would not result in a Material Adverse Effect.
(d) The corporate charter and bylaws, or equivalent organizational
documents, of each of Westborough Bank's Subsidiaries, copies of which
have previously been made available to AVB, are true, correct and
complete copies of such documents in effect. No Westborough Bank
Subsidiary is in violation of any provision of its corporate charter,
bylaws or equivalent organizational documents. The minute books of each
of Westborough Bank's Subsidiaries contain, in all material respects,
true and accurate records of all meetings held and corporate actions
taken since January 1, 2003 of its shareholders and Board of Directors
(including committees of its Board of Directors), other than minutes
which have not been prepared as of the date of this Agreement.
5.4. Corporate Power. Westborough has the requisite corporate power and
authority to carry on its business as it is now being conducted and to own,
lease or operate all its properties and assets; and Westborough has the
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby, subject to (i) receipt of all necessary approvals of
Governmental Authorities, (ii) the approval of this Agreement by the holders of
two-thirds of the outstanding shares of Westborough Financial Common Stock,
(iii) the approval of this Agreement by a two-thirds vote of the corporators of
Westborough MHC, and (iv) any other approvals set forth in Section 5.4 of
Westborough's Disclosure Schedules.
5.5. Corporate Authority. Subject to (i) the approval of this Agreement
by the holders of two-thirds of the outstanding shares of Westborough Financial
Common Stock, (ii) the approval of this Agreement by two-thirds of the
corporators of Westborough MHC, and (iii) any other approvals set forth in
Section 5.4 of Westborough's Disclosure Schedules, this Agreement and the
transactions contemplated hereby have been authorized by all necessary
corporate action of Westborough. The execution and delivery of this Agreement
and the other Transaction Documents, and the consummation of the transactions
contemplated hereby and thereby, have been declared advisable by, and have been
duly and validly approved by the requisite vote of, the Westborough MHC Board
of Trustees and the Westborough Financial Board. The Westborough Financial
Board (i) has directed that this Agreement and the transactions contemplated
hereby, including the Mid-Tier Merger, be submitted to the shareholders of
Westborough Financial for approval at a meeting of such shareholders, and (ii)
has recommended that the shareholders of Westborough Financial approve this
Agreement and the transactions contemplated hereby. The Westborough parties
have duly executed and delivered this Agreement and, assuming due
authorization, execution and delivery by AVB, Hudson and Merger Sub, this
Agreement is a valid and legally binding obligation of the Westborough parties,
enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles).
5.6. Regulatory Approvals; No Defaults.
(a) No consents or approvals of, or waivers by, or filings or
registrations with, any Governmental Authority or with any third party
are required to be made or obtained by
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Westborough in connection with the execution, delivery or performance by
the Westborough parties of this Agreement or the Bank Merger Agreement,
as applicable, or to consummate the Transactions and the other
transactions contemplated hereby and thereby, except for (A) filings of
applications or notices with, and approvals or waivers by, the Federal
Reserve Board, the FDIC, the Massachusetts Bank Commissioner, the
Depositors Insurance Fund of Massachusetts, the Massachusetts Board and
the MHPF, as required, (B) filings with the SEC and state securities
authorities in connection with the solicitation of proxies from
Westborough Financial's shareholders for approval of the Mid-Tier Merger,
(C) the filing of Articles of Merger with the Secretary of State of The
Commonwealth of Massachusetts pursuant to the MBCA, (D) the approval of
this Agreement by the holders of two-thirds of the outstanding shares of
Westborough Financial Common Stock, and (E) such corporate approvals and
such consents or approvals of, or waivers by, or filings or registrations
with, certain of the foregoing federal and state banking agencies in
connection with the MHC Merger and the Bank Merger. As of the date of
this Agreement, Westborough is not aware of any reason why the approvals
set forth above and referred to in Section 8.1(c) will not be received in
a timely manner and without the imposition of a condition, restriction or
requirement of the type described in Section 8.1(c), or that the
requisite approval of Westborough Financial's shareholders will not be
obtained.
(b) Subject to receipt of the approvals referred to in Section
5.6(a), and the expiration of related waiting periods, the execution,
delivery and performance of this Agreement and the Bank Merger Agreement,
as applicable, by the Westborough parties, and the consummation of the
Transactions and the other transactions contemplated hereby and thereby
do not and will not (A) constitute a breach or violation of, or a default
under (or, with notice or lapse of time, or both, would constitute a
default under), or give rise to any Lien, any acceleration of remedies or
performance or any right of termination under, any law, rule or
regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture, note, bond, mortgage, deed of trust,
lease or instrument of Westborough, or to which Westborough or any of its
properties or assets is subject, affected or bound (whether as issuer,
guarantor, obligor or otherwise), (B) constitute a breach or violation
of, or a default under, the corporate charter or bylaws (or similar
governing documents) of Westborough, or (C) require any consent or
approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture, note, bond,
mortgage, deed of trust, lease or instrument.
5.7. Financial Statements; Reports.
(a) SEC Reports. Westborough Financial's Annual Reports on Form
10-KSB for the fiscal years ended September 30, 2005, September 30, 2004
and September 30, 2003 and all other reports (including reports on Form
10-QSB and Form 8-K), registration statements, definitive proxy
statements or information statements filed or to be filed by it
subsequent to September 30, 2003 with the SEC (collectively, Westborough
Financial's "SEC Documents"), as of the date filed or to be filed and as
amended prior to the date of this Agreement, (A) complied or will comply
in all material respects as to form with the applicable requirements
under the Securities Act or the Exchange Act, as the case may be, and (B)
did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that information as of a
later date shall be deemed to modify information as of an earlier date,
and (C) each of the balance sheets contained in or incorporated by
reference into any such
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SEC Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, the consolidated financial position of
Westborough Financial and its Subsidiaries as of its date, and (D) each
of the consolidated statements of income and changes in shareholders'
equity and cash flows or equivalent statements in such SEC Documents
(including any related notes and schedules thereto) fairly presents, or
will fairly present, the consolidated results of operations, changes in
shareholders' equity and changes in cash flows, as the case may be, of
Westborough Financial and its Subsidiaries for the periods to which they
relate, in each case in accordance with GAAP consistently applied during
the periods involved (subject, in the case of unaudited interim
statements, to normal fiscal year-end adjustments). Each of the
consolidated financial statements of Westborough Financial and its
Subsidiaries, including, in each case, the notes thereto, contained in
the Westborough Financial SEC Documents comply, and the financial
statements to be filed with the SEC by Westborough Financial after the
date of this Agreement will comply, with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto. The books and records of Westborough Financial and its
Subsidiaries have been, and are being, maintained in accordance with GAAP
and applicable legal and regulatory requirements. None of Westborough
Financial's Subsidiaries is required to file any form, report or other
document with the SEC.
(b) Westborough MHC Financial Statements. The audited balance
sheets of Westborough MHC at September 30, 2005, 2004 and 2003, and the
related statements of operations, changes in retained earnings and cash
flows (along with the report of the independent auditors and notes
thereto), and the unaudited balance sheet and statements of operations,
changes in retained earnings and cash flows as of and for the nine months
ended June 30, 2006, in each case included in Section 5.7(b) of
Westborough's Disclosure Schedules, fairly present the financial position
of Westborough MHC as at such dates and the results of its operations for
the periods then ended in accordance with GAAP, subject, in the case of
the unaudited financial statements, to normal recurring year-end audit
adjustments (none of which will be material) and the absence of
footnotes.
(c) Westborough Reports. Except as set forth in Section 5.7(c) of
Westborough's Disclosure Schedules, since January 1, 2003, Westborough
MHC, Westborough Financial and their Subsidiaries have timely filed, and
subsequent to the date of this Agreement will timely file, all reports,
registrations and statements, together with any amendments required to be
made with respect thereto, that were and are required to be filed with
(i) the Federal Reserve Board, (ii) the FDIC, and (iii) any applicable
state securities or banking authorities (except, in the case of state
securities authorities, no such representation is made as to filings
which are not material) (all such reports, registrations and statements,
together with any amendments thereto and the Westborough Financial SEC
Documents, are collectively referred to in this Agreement as the
"Westborough Reports") and have paid all fees and assessments due and
payable in connection with any of the foregoing. As of the date filed or
to be filed and as amended prior to the date of this Agreement, the
Westborough Reports complied and, with respect to filings made after the
date of this Agreement, will at the date of filing comply, in all
material respects with all of the statutes, rules and regulations
enforced or promulgated by the regulatory authority with which they were
filed. Westborough Financial has made available to AVB true and complete
copies of all amendments and modifications that have not been filed by
Westborough Financial with the SEC to all agreements, documents and other
instruments that previously had been filed by Westborough Financial with
the SEC and are currently in effect. Except for normal periodic
examinations
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conducted by a Bank Regulator in the regular course of the business of
Westborough MHC, Westborough Financial and their Subsidiaries, since
January 1, 2000, no Bank Regulator has initiated any proceeding or, to
the best knowledge of Westborough, investigation into the business or
operations of Westborough MHC, Westborough Financial or any of their
Subsidiaries. Except as set forth in Section 5.7(c) of Westborough's
Disclosure Schedules, Westborough MHC, Westborough Financial and their
Subsidiaries have resolved all material violations, criticisms or
exceptions by any Bank Regulator with respect to any such normal periodic
examination.
(d) Disclosure Controls and Procedures. Westborough Financial has
established and maintains disclosure controls and procedures as required
by Rule 13a-15 under the Exchange Act. As of the end of the period
covered by each applicable SEC Document, Westborough Financial has
conducted an evaluation under the supervision and with the participation
of its management, including Westborough Financial's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design
and operation of its disclosure controls and procedures, and has
concluded that its disclosure controls and procedures are effective to
ensure that information required to be disclosed in its SEC Document is
made known to them by others within Westborough Financial on a timely
basis, and in accordance with the requirements of the SEC's rules,
regulations and forms. There are no significant deficiencies in the
design or operation of Westborough Financial's internal controls, there
are no material weaknesses in Westborough Financial's internal controls,
and there has been no fraud, whether or not material, that involved
management of Westborough Financial or any of its Subsidiaries who have a
significant role in Westborough Financial's internal controls.
5.8. Absence of Undisclosed Liabilities. Except for those liabilities set
forth in Section 5.8 of Westborough's Disclosure Schedules or those liabilities
that are appropriately reflected or reserved against in the balance sheets of
Westborough Financial's SEC Documents, and for liabilities incurred in the
ordinary course of business consistent with past practice or in connection with
this Agreement, or the transactions contemplated hereby, since January 1, 2003,
none of Westborough MHC, Westborough Financial nor any of their Subsidiaries
has incurred any obligation or liability (contingent or otherwise) that, either
alone or when combined with all similar liabilities, has had, or could
reasonably be expected to have, a Material Adverse Effect on Westborough.
5.9. Absence of Certain Changes or Events. Since September 30, 2005,
except as set forth in Section 5.9 of Westborough's Disclosure Schedules or
reflected in Westborough Financial's SEC Documents, there has not been (a)
either individually or in the aggregate, any Material Adverse Effect and, to
the best knowledge of Westborough, no fact or condition exists which is
reasonably likely to cause such a Material Adverse Effect in the future, (b)
any material damage, destruction or loss with respect to any property or asset
of Westborough, (c) any change by Westborough in its accounting methods,
principles or practices, other than changes required by applicable law or GAAP
or regulatory accounting as concurred in by Westborough independent
accountants, (d) any revaluation by Westborough of any asset, including,
without limitation, writing off of notes or accounts receivable, other than in
the ordinary course of business consistent with past practice, (e) any entry by
Westborough into any contract or commitment (other than with respect to Loans,
as hereinafter defined) of more than $30,000 or with a term of more than one
(1) year that is not terminable without penalty, (f) any declaration, setting
aside or payment of any dividend or distribution in respect of any capital
stock of
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Westborough or any redemption, purchase or other acquisition of any of its
securities, (g) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any trustees, directors or
officers of Westborough, or any grant of severance or termination pay, or any
contract or arrangement entered into to make or grant any severance or
termination pay, any payment of any bonus, or the taking of any other material
action not in the ordinary course of business with respect to the compensation
or employment of trustees, directors, officers or employees of Westborough, (h)
any strike, work stoppage, slowdown or other labor disturbance, (i) any
material election made by Westborough for federal or state income tax purposes,
(j) any change in the credit policies or procedures of Westborough, the effect
of which was or is to make any such policy or procedure materially less
restrictive in any material respect, (k) any material liability or obligation
of any nature (whether accrued, absolute, contingent or otherwise and whether
due or to become due), including, without limiting the generality of the
foregoing, liabilities as guarantor under any guarantees or liabilities for
taxes, other than in the ordinary course of business consistent with past
practice, (l) any forgiveness or cancellation of any indebtedness or
contractual obligation other than in the ordinary course of business consistent
with past practice, (m) except with respect to funds borrowed by Westborough
from the Federal Home Loan Bank, any mortgage, pledge, lien or lease of any
assets, tangible or intangible, of Westborough with a value in excess of
$25,000 in the aggregate, (n) any acquisition or disposition of any assets or
properties having a value in excess of $25,000, or any contract for any such
acquisition or disposition entered into other than loans and investment
securities, or (o) any lease of real or personal property entered into, other
than in connection with foreclosed property or in the ordinary course of
business consistent with past practice.
5.10. Litigation. Except as set forth in Section 5.10 of Westborough's
Disclosure Schedules, there is no claim, suit, hearing, arbitration, action,
proceeding (public or private) or investigation of any nature pending or, to
the knowledge of Westborough, threatened, against Westborough or challenging
the validity or propriety of the transactions contemplated by this Agreement,
nor is there any judgment, decree, injunction, rule, award or order of any
legal or administrative body or arbitrator outstanding against Westborough
having, or which insofar as reasonably can be foreseen, in the future could
have, any such effect or restricting, or which could restrict, its ability to
conduct business in any material respect in any area. Westborough is not aware
of any facts which could reasonably give rise to any such claim, suit, action,
investigation or other proceeding.
5.11. Regulatory Matters.
(a) Westborough is not a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission to, order to cease and
desist with, or extraordinary supervisory letter from, any federal or
state governmental agency or authority charged with the supervision or
regulation of financial institutions or issuers of securities, or engaged
in the insurance of deposits or the supervision or regulation of it
(collectively, the "Westborough Regulatory Authorities"). No Westborough
Regulatory Authority has either issued any order or directive
specifically naming or referring to
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Westborough or required Westborough to adopt any board resolution, which
order, directive or board resolution is currently in effect and restricts
materially the conduct of Westborough's business, or in any manner
relates to its capital adequacy, loan loss allowances or reserves, credit
policies, management or overall safety and soundness or its ability to
perform its obligations hereunder. Except as set forth in Section 5.11(a)
of Westborough's Disclosure Schedules, Westborough is not a party to any
agreement or arrangement entered into in connection with the consummation
of a federally assisted acquisition of a depository institution pursuant
to which Westborough is entitled to receive financial assistance or
indemnification from any Governmental Authority. Westborough has paid all
assessments made or imposed by any Westborough Regulatory Authority.
(b) Westborough has not been advised by, and has no knowledge of
facts which would reasonably be expected to give rise to an advisory
notice by, any Westborough Regulatory Authority that such Westborough
Regulatory Authority is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, cease and desist order,
extraordinary supervisory letter, order, directive or board resolution
referred to in Section 5.11(a).
5.12. Compliance with Laws. Westborough:
(a) is in material compliance with all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(b) has all permits, licenses, franchises, authorizations, orders
and approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities that are required in
order to permit Westborough to own or lease its properties and to conduct
its business as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect and, to Westborough's knowledge, no suspension or cancellation of
any of them is threatened; and
(c) has received, since December 31, 2000, no notification or
communication from any Governmental Authority (A) asserting that
Westborough is not in material compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or
(B) threatening to revoke any license, franchise, permit or governmental
authorization (nor, to Westborough's knowledge, do any grounds for any of
the foregoing exist).
5.13. Material Contracts; Defaults.
(a) Except for documents listed in Section 5.13 of Westborough's
Disclosure Schedules or listed as exhibits to Westborough Financial's
Annual Report on Form 10-KSB for the year ended September 30, 2005 or
filed with Westborough Financial's Quarterly Report on Form 10-QSB for
the quarters ended December 31, 2005, March 31, 2006 or June 30, 2006, or
filed with any Westborough Financial Form 8-K that was filed with the SEC
since September 30, 2005, none of Westborough MHC, Westborough Bank or
Westborough Financial is a party to, bound by or
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subject to any agreement, contract, arrangement, commitment or
understanding (whether written or oral):
(i) that is a "Material Contract" within the meaning of Item
601(b)(10) of the SEC's Regulation S-K (whether or not filed as an
exhibit to an SEC document);
(ii) that materially restricts the conduct of business by
Westborough;
(iii) that is material to the financial condition, results of
operations or business of Westborough;
(iv) that provides for the lease of real property;
(v) relating to the employment, including, without
limitation, employment as a consultant, of any Person, or the
election or retention in office, or severance of any present or
former trustee, director or officer of Westborough;
(vi) with any labor union, or other employee representative
or group of employees of Westborough;
(vii) by and between Westborough and/or any Affiliate
thereof;
(viii) which, upon the consummation of the transactions
contemplated by this Agreement or the Bank Merger Agreement will
result in any payment (whether of severance pay or otherwise)
becoming due from Westborough to any officer or employee thereof;
(ix) requiring that a particular line of business be
maintained;
(x) which is a consulting or other agreement (including
agreements entered into in the ordinary course and data processing,
software programming and licensing contracts) not terminable on
sixty (60) days or less notice, involving the payment of more than
$50,000 per annum;
(xi) except for Westborough Financial Stock Option Plan, any
of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the Bank Merger
Agreement, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by
this Agreement or the Bank Merger Agreement;
(xii) which purports to limit in any respect, the ability of
Westborough or its businesses to solicit customers or the manner in
which, or the localities in which, all or any substantial portion
of the business of Westborough, taken as a whole, or, following
consummation of the transactions contemplated by this Agreement or
the Bank Merger Agreement, AVB and its Subsidiaries, is or would be
conducted;
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(xiii) providing for the indemnification by Westborough of
any Person, other than customary agreements relating to the
indemnity of directors, officers and employees of Westborough;
(xiv) that is a Joint Venture, acquisition or partnership
agreement;
(xv) that grants any right of first refusal or right of first
offer or similar right, or that limits (or purports to limit) the
ability of Westborough to own, operate, sell, transfer, pledge or
otherwise dispose of any material amount of assets or business;
(xvi) providing for any material future payments that are
conditioned, in whole or in part, on a change of control of
Westborough;
(xvii) that contains a "most favored nation" clause;
(xviii) pertaining to the use of, or granting any right to
use or practice any rights under, any Westborough intellectual
property assets, whether Westborough is the licensee or licensor
thereunder; or
(xix) that is an investment management, or investment
advisory or sub-advisory, or any other contract for the provision
of financial planning, brokerage (including, without limitation,
insurance brokerage) or similar services not terminable on sixty
(60) days or less notice.
(b) Westborough is not in material default under any material
contract, agreement, commitment, arrangement, lease, insurance policy or
other instrument to which it is a party, by which its respective assets,
business or operations may be bound or affected, or under which it or its
respective assets, business or operations receives benefits, and there
has not occurred any event that, with the lapse of time or the giving of
notice or both, would constitute such a default. No power of attorney or
similar authorization given directly or indirectly by Westborough is
currently outstanding.
5.14. No Brokers. Excluding the arrangement disclosed in Section 5.14 of
Westborough's Disclosure Schedules with a fee paid or payable to RBC Capital
Markets Corporation ("RBC"), neither Westborough nor any of its officers,
directors, employees, Affiliates or agents has employed any broker, finder or
financial advisor, or incurred any liability for any fees or commissions, in
connection with any of the transactions contemplated by this Agreement except
for legal, accounting and other professional fees payable in connection with
the Mid-Tier Merger and the other Transactions. Westborough will be responsible
for the payment of all such fees. The fee payable to RBC in connection with the
transactions contemplated by this Agreement is as described in an engagement
letter between Westborough Financial and RBC, a true and complete copy of which
has heretofore been furnished to AVB.
5.15. Employee Benefit Plans.
(a) All benefit and compensation plans, contracts, policies or
arrangements covering current or former employees of Westborough (the
"Westborough Employees") and current or former directors of Westborough
including, but not limited to, "employee benefit plans" within the
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meaning of Section 3(3) of ERISA, and deferred compensation, stock
option, stock purchase, stock appreciation rights, stock based, incentive
and bonus plans (the "Westborough Benefit Plans"), are disclosed in
Section 5.15(a) of Westborough's Disclosure Schedules. True and complete
copies of all Westborough Benefit Plans including, but not limited to,
any trust instruments and insurance contracts forming a part of any
Westborough Benefit Plans and all amendments thereto have been provided
or made available to AVB.
(b) All Westborough Benefit Plans are in substantial compliance
with ERISA in all material respects. Each Westborough Benefit Plan which
is an "employee pension benefit plan" within the meaning of Section 3(2)
of ERISA ("Pension Plan") and which is intended to be qualified under
Section 401(a) of the Code, has received a favorable determination letter
from the Internal Revenue Service, and Westborough is not aware of any
circumstances likely to result in revocation of any such favorable
determination letter or the loss of the qualification of such Pension
Plan under Section 401(a) of the Code. There is no material pending or,
to Westborough's knowledge, threatened litigation relating to the
Westborough Benefit Plans. Westborough has not engaged in a transaction
with respect to any Westborough Benefit Plan or Pension Plan that,
assuming the taxable period of such transaction expired as of the date of
this Agreement, could subject Westborough to a tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA in an amount
which would be material.
(c) All contributions required to be made under the terms of any
Westborough Benefit Plan have been timely made or have been reflected on
the financial statements of Westborough Financial included in Westborough
Financial's SEC Documents.
(d) Neither Westborough, nor any entity which is considered one
employer with Westborough under Section 4001(a)(15) or Section 414 of the
Code (an "ERISA Affiliate"), has incurred any liability under Title IV of
ERISA which will not have been paid in full prior to the Closing. Other
than as disclosed in Section 5.15(d) of Westborough's Disclosure
Schedules, neither Westborough nor any ERISA Affiliate has ever
maintained a Multiemployer Plan.
(e) There are no pending or, to the knowledge of Westborough,
threatened claims by or on behalf of any Westborough Benefit Plans, or by
or on behalf of any individual participants or beneficiaries of any
Westborough Benefit Plans, alleging any breach of fiduciary duty on the
part of Westborough or any of its officers, directors or employees under
ERISA or any other applicable regulations, or claiming benefit payments
for which Westborough may be liable (other than those made in the
ordinary operation of such plans), nor is there, to the knowledge of
Westborough, any basis for such claim. The Westborough Benefit Plans are
not the subject of any pending (or to the knowledge of Westborough, any
threatened) investigation or audit by the Internal Revenue Service, the
Department of Labor or the Pension Benefit Guaranty Corporation.
(f) With respect to any Westborough Benefit Plan that is an
employee welfare benefit plan (within the meaning of Section 3(1) of
ERISA) (a "Welfare Plan") and except as disclosed in Section 5.15(f) of
Westborough's Disclosure Schedules, to Westborough's knowledge, (i) each
Welfare Plan for which contributions are claimed by Westborough as
deductions under any provision of the Code is in material compliance with
all applicable requirements pertaining to such deduction, (ii) with
respect to any welfare benefit fund (within the meaning of Section 419 of
the Code) related to a Welfare Plan, there is no disqualified benefit
(within the meaning of Section
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4976(b) of the Code) that would result in the imposition of a tax under
Section 4976(a) of the Code, (iii) any Westborough Benefit Plan that is a
group health plan (within the meaning of Section 4980B(g)(2) of the Code)
complies, and in each and every case has complied, with all of the
applicable material requirements of Section 4980B of the Code, ERISA,
Title XXII of the Public Health Service Act and the Social Security Act,
and (iv) all Welfare Plans may be amended or terminated at any time on or
after the Closing Date without incurring any liability thereunder.
(g) Except as disclosed in Section 5.15(g) of Westborough's
Disclosure Schedules, Westborough has no obligations for retiree health
and life benefits under any Westborough Benefit Plan, other than coverage
as may be required under Section 4980B of the Code or Part 6 of Title I
of ERISA, or under the continuation of coverage provisions of the laws of
any state or locality.
(h) Except as set forth in Section 5.15(h) of Westborough's
Disclosure Schedules, neither the execution of this Agreement, nor
shareholder approval of this Agreement, nor consummation of the
Transactions will (i) entitle any employees of Westborough to severance
pay or any increase in severance pay upon any termination of employment
after the date of this Agreement, (ii) accelerate the time of payment or
vesting or trigger any payment or funding (through a grantor trust or
otherwise) of compensation or benefits under, increase the amount payable
or trigger any other material obligation pursuant to, any of the
Westborough Benefit Plans, (iii) result in any breach or violation of, or
a default under, any of the Westborough Benefit Plans, (iv) result in any
payment that would be a "parachute payment" to a "disqualified
individual," as those terms are defined in Section 280G of the Code,
without regard to whether such payment is reasonable compensation for
personal services performed or to be performed in the future, or (v)
result in any payment that would be nondeductible pursuant to Section
162(m) of the Code.
5.16. Labor Matters. Westborough is not a party to or bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is Westborough the subject of a
proceeding asserting that it has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel Westborough
to bargain with any labor organization as to wages or conditions of employment,
nor is there any strike, work stoppage or other labor dispute, arbitration,
lawsuit or administrative proceeding involving it pending or, to Westborough's
knowledge, threatened, nor is Westborough aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in other
organizational activity. No employees of Westborough are represented by any
labor union.
5.17. Environmental Matters. Except as set forth in Section 5.17 of
Westborough's Disclosure Schedules:
(a) To Westborough's knowledge, Westborough is in material
compliance with applicable Environmental Laws;
(b) To Westborough's knowledge, no real property (including
buildings or other structures) currently or formerly owned or operated by
Westborough, or any property in which Westborough has held a security
interest, Lien or a fiduciary or official management role within the past
five (5) years ("Westborough Loan Property"), has been contaminated with,
or has had any release of, any Hazardous Substance except in compliance
with Environmental Laws;
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(c) To Westborough's knowledge, Westborough has not participated in
the management regarding Hazardous Substances of any Westborough Loan
Property which has been contaminated with any Hazardous Substance except
in compliance with Environmental Laws;
(d) To Westborough's knowledge, Westborough has no present material
liability for any Hazardous Substance contamination on any third party
property;
(e) Westborough has not received any notice, demand letter, claim
or request for information alleging any violation of, or liability under,
any Environmental Law;
(f) To Westborough's knowledge, Westborough is not subject to any
order, decree, injunction or other agreement with any Governmental
Authority or any third party relating to any Environmental Law;
(g) To Westborough's knowledge, there are no existing conditions
involving Westborough, any currently or formerly owned or operated
property, or any Westborough Loan Property, that could reasonably be
expected to result in any material claims, or liability against
Westborough, or result in any restrictions on the ownership, use or
transfer of any currently owned property pursuant to any Environmental
Law; and
(h) To Westborough's knowledge, Westborough has delivered or made
available to AVB copies of all environmental reports, studies, sampling
data, correspondence, filings and other environmental information
concerning known environmental conditions in its possession, or
reasonably available to it, relating to Westborough and any currently or
formerly owned or operated property or any Westborough Loan Property.
As used in this Agreement, the term "Environmental Laws" shall mean any
federal, state or local law, regulation, order, decree, permit, authorization,
or agency requirement in effect at or prior to the date of this Agreement
relating to: (A) the protection or restoration of the environment, health, or
natural resources, (B) the handling, use, disposal, or release of any Hazardous
Substance, or (C) wetlands, indoor air, pollution, contamination or any
material injury to Persons or property in connection with any Hazardous
Substance; and the term "Hazardous Substance" shall mean any substance that is:
(A) listed, classified or regulated pursuant to any Environmental Law, (B) any
petroleum product or by-product, asbestos-containing material, polychlorinated
biphenyls, radioactive materials, or (C) any other substance which is the
subject of regulatory action by any Governmental Authority in connection with
any Environmental Law but, excluding substances of kinds and in amounts
ordinarily and customarily used or stored for the purpose of cleaning or other
maintenance operations and otherwise in compliance with Environmental Law.
5.18. Tax Matters.
(a) For the taxable periods ended September 30, 2005, 2004 and
2003, Westborough has filed all Tax Returns that it was required to file
under applicable laws and regulations. All such Tax Returns were correct
and complete in all material respects and have been prepared in
substantial compliance with all applicable laws and regulations. All
Taxes due and owing by Westborough (whether or not shown on any Tax
Return) have been paid other than Taxes (i) which are not yet due, (ii)
which are being contested in good faith as described in Section 5.18 of
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Westborough's Disclosure Schedules, or (iii) for which adequate reserves
have been accrued in the balance sheets contained on Westborough
Financial's SEC Documents. Westborough is not the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where Westborough does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Liens for Taxes (other than Taxes not yet due
and payable) upon any of the assets of Westborough.
(b) Westborough has withheld and paid all Taxes required to have
been withheld and paid in connection with any amounts paid or owing to
any employee, independent contractor, creditor, stockholder or other
third party.
(c) No foreign, federal, state, or local tax audits or
administrative or judicial Tax proceedings are pending or being conducted
with respect to Westborough. Westborough has not received from any
foreign, federal, state, or local taxing authority (including
jurisdictions where Westborough has not filed Tax Returns) any (i) notice
indicating an intent to open an audit or other review, (ii) request for
information related to Tax matters, or (iii) notice of deficiency or
proposed adjustment for any amount of Tax proposed, asserted, or assessed
by any taxing authority against Westborough.
(d) Westborough has provided AVB with true and complete copies of
the United States federal, state, local, and foreign income Tax Returns
filed with respect to Westborough for taxable periods ended September 30,
2005, 2004 and 2003. Westborough has disclosed in Section 5.18 of
Westborough's Disclosure Schedules those Tax Returns that have been
audited during the last three years, and those Tax Returns that currently
are the subject of an audit. Westborough has delivered to AVB correct and
complete copies of all examination reports, and statements of
deficiencies assessed against or agreed to by Westborough, filed for the
years ended September 30, 2005, 2004 and 2003. Westborough has timely and
properly taken such actions in response to, and in compliance with,
notices Westborough has received from the Internal Revenue Service in
respect of information reporting and backup and nonresident withholding
as are required by law, including the notation in their records of any B
notices or C notices received with respect to any depositors, customer,
shareholders or payees.
(e) Westborough has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(f) Westborough has not filed a consent under Code Section 341(f)
concerning collapsible corporations. Except as set forth in Section
5.18(f) or Westborough's Disclosure Schedules, Westborough is not a party
to any agreement, contract, arrangement or plan that has resulted or
would result, separately or in the aggregate, in the payment of (i) any
"excess parachute payment" within the meaning of Code Section 280G (or
any corresponding provision of state, local or foreign Tax law), or (ii)
any amount that will not be fully deductible as a result of Code Section
162(m) (or any corresponding provision of state, local or foreign Tax
law). Westborough Financial has not been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii).
Westborough has disclosed on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. Westborough
is not a party to or bound by any Tax allocation or sharing agreement.
Westborough
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(i) has not been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group, the common parent of which
was Westborough Financial), and (ii) has no liability for the Taxes of
any Person (other than Westborough) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(g) The unpaid Taxes of Westborough (i) did not, as of the end of
the most recent period covered by Westborough Financial's SEC Documents
filed on or prior to the date of this Agreement, exceed the reserve for
Tax liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the
face of the financial statements included in Westborough Financial's SEC
Documents filed on or prior to the date of this Agreement (rather than in
any notes thereto), and (ii) do not exceed that reserve as adjusted for
the passage of time through the Closing Date in accordance with the past
custom and practice of Westborough in filing its Tax Returns. Since the
end of the most recent period covered by Westborough Financial's SEC
Documents filed prior to the date of this Agreement, Westborough has not
incurred any liability for Taxes arising from extraordinary gains or
losses, as that term is used in GAAP, outside the ordinary course of
business consistent with past custom and practice.
(h) Westborough will not be required to include any item of income
in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of
any: (i) change in method of accounting for a taxable period ending on or
prior to the Closing Date, (ii) "closing agreement" as described in Code
Section 7121 (or any corresponding or similar provision of state, local
or foreign income Tax law) executed on or prior to the Closing Date,
(iii) intercompany transactions or any excess loss account described in
Treasury Regulations under Code Section 1502 (or any corresponding or
similar provision of state, local or foreign income Tax law), (iv)
installment sale or open transaction disposition made on or prior to the
Closing Date, or (v) prepaid amount received on or prior to the Closing
Date.
5.19. Risk Management Instruments. Westborough is not a party, nor has it
agreed to enter into an exchange traded or over-the-counter equity, interest
rate, foreign exchange or other swap, forward, future, option, cap, floor or
collar or any other contract that is not included on the balance sheet and is a
derivatives contract (including various combinations thereof) (each, a
"Derivatives Contract") or owns securities that (i) are referred to generically
as "structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives," or (ii) are likely to
have changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes, except for those Derivatives Contracts and other
instruments legally purchased or entered into in the ordinary course of
business, consistent with safe and sound banking practices and regulatory
guidance. All of such Derivatives Contracts or other instruments are legal,
valid and binding obligations of Westborough, enforceable in accordance with
their terms (except as enforcement may be limited by general principles of
equity, whether applied in a court of law or a court of equity and by
bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally), and are in full force and effect. Westborough has duly
performed, in all material respects, all of their material obligations
thereunder to the extent that such obligations to perform have accrued; and, to
Westborough's knowledge, there are no breaches, violations or defaults, or
allegations or assertions of such, by any party
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thereunder which would have, or would reasonably be expected to have, a
Material Adverse Effect on Westborough.
5.20. Investment Securities. Except for pledges to secure public and
trust deposits, Federal Reserve borrowings, Federal Home Loan Bank advances,
repurchase agreements and reverse repurchase agreements entered into in
arms'-length transactions pursuant to normal commercial terms and conditions
and other pledges required by law, none of the investments reflected in the
balance sheet of Westborough Financial contained in its most recent Form 10-KSB
filed with the SEC, and none of the material investments made by Westborough
since October 1, 2005, is subject to any restriction (contractual, statutory or
otherwise) that would materially impair the ability of the entity holding such
investment freely to dispose of such investment at any time. The information
(including electronic information and information contained on tapes and
computer disks) with respect to all investment securities (including
mortgaged-backed securities) of Westborough furnished to AVB by Westborough is,
as of the respective dates indicated therein, true and correct in all material
respects.
5.21. Loans; Nonperforming and Classified Assets.
(a) Each loan agreement, note or borrowing arrangement (whether
written or oral), including, without limitation, portions of outstanding
lines of credit, loan commitments, leases, credit enhancements and
guarantees (collectively, "Loans"), on the books and records of
Westborough (i) was made and has been serviced in all material respects
in accordance with customary lending standards in the ordinary course of
business, (ii) is evidenced in all material respects by appropriate and
sufficient documentation, and (iii) to the knowledge of Westborough,
constitutes the legal, valid and binding obligation of the obligor named
therein, subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to
or affecting creditor's rights or by general equity principles. The
information (including electronic information and information contained
on tapes and computer disks) with respect to all Loans of Westborough
furnished to AVB by Westborough is, as of the respective dates indicated
therein, true and correct in all material respects. To the best knowledge
of Westborough, all Loans originated, directly or through third party
mortgage brokers, have been originated in compliance with all federal,
state and local laws, including, without limitation, the Real Estate
Settlement Procedures Act of 1974, as amended.
(b) Westborough has disclosed in Section 5.21(b) of Westborough's
Disclosure Schedules, as of the latest practicable date: (i) any written
or oral Loan under the terms of which the obligor is 60 or more days
delinquent in payment of principal or interest, or to Westborough's
knowledge, in default of any other material provision thereof, (ii) each
Loan which has been classified as "substandard," "doubtful," "loss" or
"special mention" (or words of similar import) by Westborough or an
applicable regulatory authority (it being understood that no
representation is being made that FDIC or Staff of the Massachusetts Bank
Commissioner would agree with the loan classifications established by
Westborough), (iii) a listing of the OREO acquired by foreclosure or by
deed-in-lieu thereof, including the book value thereof, and (iv) each
Loan with any director, executive officer or five percent or greater
shareholder of Westborough, or to the knowledge of Westborough, any
Person controlling, controlled by or under common control with any of the
foregoing.
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(c) No agreement, pursuant to which any Loans or other assets have
been or shall be sold by Westborough, entitled the buyer of such Loans or
other assets, unless there is material breach of a representation or
covenant by Westborough, to cause Westborough to repurchase such Loan or
other asset, or the buyer to pursue any other form of recourse against
Westborough.
5.22. Bank Owned Life Insurance. Westborough has disclosed in Section
5.22 of Westborough's Disclosure Schedules a true, correct and complete
description of all Bank Owned Life Insurance ("BOLI") owned by Westborough.
Except as set forth in Section 5.22 of Westborough's Disclosure Schedules, the
value of such BOLI, as of the date of this Agreement, is fairly and accurately
reflected on Westborough Financial's balance sheet contained in Westborough
Financial's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006
in accordance with GAAP. Except as set forth in Section 5.22 of Westborough's
Disclosure Schedules, all life insurance policies on the lives of any of the
current and former officers and directors of Westborough that are maintained by
Westborough and are otherwise included as assets on the books of Westborough
are, or will at the Mid-Tier Effective Time be, owned by Westborough, free and
clear of any claims thereon by the officers or members of their families,
except with respect to the death benefits thereunder, as to which Westborough
agrees that there will not be an amendment prior to the Mid-Tier Effective Time
without the consent of AVB.
5.23. Properties. The real and material personal property owned by
Westborough or presently used by Westborough in its business is in an adequate
condition (ordinary wear and tear excepted) and is sufficient to carry on its
business in the ordinary course of business consistent with its past practices.
Westborough has good and marketable title, free and clear of all Liens, to all
of the real and material personal properties and assets reflected on the
consolidated statement of financial condition of Westborough Financial as of
September 30, 2005, included in Westborough Financial's SEC Documents or
acquired after such date, other than properties sold by Westborough in the
ordinary course of business, except (i) Liens for current taxes and assessments
not yet due or payable, (ii) pledges to secure deposits and other Liens
incurred in the ordinary course of its banking business, (iii) such
imperfections of title, easements and encumbrances, if any, as are not,
individually or in the aggregate, material in character, amount or extent, and
(iv) as reflected on the consolidated statement of financial condition of
Westborough Financial as of September 30, 2005, included in Westborough
Financial's SEC Documents. All real and personal property which is material to
Westborough's business on a consolidated basis and leased or licensed by
Westborough is held pursuant to leases or licenses which are valid and
enforceable in accordance with their respective terms, and such leases will not
terminate or lapse prior to the Mid-Tier Effective Time, and there exists no
material default under any such leases or licenses by Westborough nor, to the
knowledge of Westborough and except as set forth in Section 5.23 of
Westborough's Disclosure Schedules, any event which, with notice or lapse of
time or both, would constitute a material default thereunder by Westborough,
except for such defaults which, individually, or in the aggregate, would not
result in the forfeiture of the use or occupancy of the property covered by
such lease or in a material liability to Westborough.
5.24. Intellectual Property. Westborough owns or possesses valid and
binding licenses and other rights to use, without payment of any material
amount, all material patents, copyrights, trade secrets, trade names, service
marks and trademarks used in its businesses, all of which have been disclosed
in Section 5.24 of Westborough's Disclosure Schedules, and Westborough has
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not received any notice of conflict with respect thereto that asserts the right
of others. Westborough has performed, in all material respects, all the
obligations required to be performed by it and is not in default under any
contract, agreement, arrangement or commitment relating to any of the
foregoing.
5.25. Fiduciary Accounts. Westborough does not engage in any trust
business, nor does it administer or maintain accounts for which it acts as a
fiduciary (other than individual retirement accounts and Keogh accounts),
including, but not limited to, accounts for which it serves as a trustee,
agent, custodian, personal representative, guardian, conservator or investment
advisor.
5.26. Capitalization. Westborough has elected to qualify as a "financial
holding company" under the Gramm-Leach-Bliley Act of 1999. Westborough Bank is
"well capitalized," as such term is defined in the rules and regulations
promulgated by the FDIC. Westborough Bank would be "well capitalized," as such
term is defined in the rules and regulations promulgated by the Federal Reserve
Board if Westborough Bank were a state-chartered member bank.
5.27. Community Reinvestment Act, Bank Secrecy, Anti-Money Laundering and
Customer Information Security. Westborough is not aware of, has not been
advised of, and has no reason to believe that any facts or circumstances exist
which would cause Westborough Bank: (i) to be deemed not to be in satisfactory
compliance in any material respect with the Community Reinvestment Act, and the
regulations promulgated thereunder, or to be assigned a rating for Community
Reinvestment Act purposes by federal or state bank regulators of lower than
"satisfactory;" or (ii) to be deemed to be operating in violation in any
material respect of the Bank Secrecy Act, as amended, and its implementing
regulations (31 C.F.R. Part 103), the USA Patriot Act of 2001, Public Law
107-56 (the "USA Patriot Act"), and the regulations promulgated thereunder, any
order issued with respect to anti-money laundering by the U.S. Department of
the Treasury's Office of Foreign Assets Control, or any other applicable
anti-money laundering statute, rule or regulation; or (iii) to be deemed not to
be in satisfactory compliance in any material respect with the applicable
privacy of customer information requirements contained in any applicable
federal and state privacy laws and regulations, including, without limitation,
in Title V of the Gramm-Leach-Bliley Act of 1999 and regulations promulgated
thereunder, as well as the provisions of the information security program
adopted by Westborough Bank pursuant to 12 C.F.R. Part 364. Furthermore, the
Board of Directors of Westborough Bank has adopted, and Westborough Bank has
implemented, an anti-money laundering program that contains adequate and
appropriate customer identification verification procedures that have not been
deemed ineffective in any material respects by any Bank Regulators and that
meet the requirements in all material respects of Section 352 of the USA
Patriot Act and the regulations thereunder.
5.28. Books and Records. The books and records of Westborough are being
maintained in material compliance with applicable legal and accounting
requirements, and such books and records accurately reflect, in all material
respects, all dealings and transactions in respect of the business, assets,
liabilities and affairs of Westborough.
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5.29. Insurance. Westborough has disclosed in Section 5.29 of
Westborough's Disclosure Schedules all of the material insurance policies,
binders or bonds currently maintained by Westborough ("Insurance Policies").
Westborough is insured with reputable insurers against such risks and in such
amounts as the management of Westborough reasonably has determined to be
prudent in accordance with industry practices. All the Insurance Policies are
in full force and effect; Westborough is not in material default thereunder and
has not received any notice of non-renewal or cancellation with respect
thereto; and all claims thereunder have been filed in due and timely fashion,
and Westborough has timely provided such insurers with due notice of all
matters which may reasonably become a claim or otherwise constitute a basis for
seeking recovery under the Insurance Policies. There is no claim pending under
any Insurance Policy as to which coverage has been questioned, denied or
disputed by the underwriter of such policy.
5.30. Allowance for Loan Losses. Westborough's allowance for loan losses
is in compliance with Westborough's existing methodology for determining the
adequacy of its allowance for loan losses and, to the knowledge of Westborough,
the standards established by applicable Governmental Authorities and the
Financial Accounting Standards Board and is adequate under all such standards.
5.31. Credit Card Accounts. Except as set forth in Section 5.31 of
Westborough's Disclosure Schedules, Westborough does not originate, maintain or
administer credit card accounts.
5.32. Merchant Processing. Except as set forth in Section 5.32 of
Westborough's Disclosure Schedules, Westborough does not provide, and has not
provided, merchant credit card processing services to any merchants.
5.33. Transactions with Affiliates. All "covered transactions" between
Westborough Bank and an "affiliate," within the meaning of Sections 23A and 23B
of the Federal Reserve Act, have been in compliance with such provisions and
the provisions of Federal Reserve Board Regulation W.
5.34. Required Vote; Antitakeover Provisions.
(a) The affirmative vote of the holders of two-thirds of the issued
and outstanding shares of Westborough Financial Common Stock eligible to
vote at the Westborough Financial Meeting is necessary to approve this
Agreement and the Transactions on behalf of Westborough Financial. Except
as set forth in Section 5.4 of Westborough's Disclosure Schedules, no
other vote of the shareholders of Westborough Financial is required by
law, the Westborough Financial Charter, Westborough Financial Bylaws or
otherwise to approve this Agreement and the Transactions.
(b) The affirmative vote of two-thirds of the trustees of
Westborough MHC and at least two-thirds of the corporators of Westborough
MHC at a special meeting called to consider the subject is necessary to
approve the MHC Merger on behalf of Westborough MHC. No other vote of the
trustees or corporators of Westborough MHC is required by law, the
Westborough MHC
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Charter, the Westborough MHC Bylaws or otherwise to approve this
Agreement and the Transactions.
(c) Assuming the accuracy of the representation and warranty of AVB
and Merger Sub contained in Section 6.35, no "control share acquisition,"
"business combination moratorium," "fair price" or other form of
antitakeover statute or regulation, including, without limitation, MGL
Chapter 110F, is applicable to this Agreement and the transactions
contemplated hereby.
(d) Westborough Financial (including its Board of Directors) does
not have in place, and has not ever adopted, a shareholder rights or
similar plan pursuant to which, subject to the occurrence of specified
triggering events, Westborough Financial shareholders would be permitted
to purchase at a discount shares of Westborough Financial Common Stock or
other Equity Interests or property of Westborough Financial, with the
intention and/or effect of diluting the value or voting power of
Westborough Financial Common Stock with respect to any stockholder, or
any other arrangement designed to have a similar intention and/or effect
(including any plan commonly referred to as a "poison pill").
5.35. Fairness Opinion. The Westborough Financial Board has received the
oral opinion of RBC, which opinion will be promptly confirmed in writing and
dated as of the date of this Agreement, to the effect that as of the date of
this Agreement, the Per Share Merger Consideration is fair to the holders of
Westborough Financial Common Stock from a financial point of view.
5.36. Transactions in Securities. Westborough has questioned its
trustees, directors and executive officers concerning known stock transfers
since September 30, 2002, and based upon that investigation, Westborough has
not, and to Westborough's knowledge (a) no trustee, director or officer of
Westborough, (b) no Person related to any such trustee, director or officer by
blood, marriage or adoption and residing in the same household, and (c) no
Person who has been knowingly provided material nonpublic information by any
one or more of these Persons, has purchased or sold, or caused to be purchased
or sold, any shares of Westborough Financial Common Stock or other securities
issued by Westborough Financial (i) during any period when Westborough
Financial was in possession of material nonpublic information, or (ii) in
violation of any applicable provision of the Exchange Act.
5.37. Proxy Statement. The information contained in the proxy statement
to be sent to the shareholders of Westborough Financial in connection with the
Westborough Financial Meeting (the "Proxy Statement") will not, on the date the
Proxy Statement (or any amendment or supplement thereto) is first mailed to
shareholders of Westborough Financial or at the time of the Westborough
Financial Meeting, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with respect
to any material fact, or omits to state any material fact required to be stated
therein, or necessary in order to make the statements therein, not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Westborough Financial
Meeting which shall have become false or misleading. Notwithstanding the
foregoing, Westborough Financial makes no representation or warranty with
respect to any information to be supplied by Assabet which is contained in any
of the foregoing documents. The Proxy Statement will
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comply in all material respects as to form and content with the requirements of
the Exchange Act.
5.38. Disclosure. The representations and warranties contained in this
Article V, when considered as a whole, together with any certificate, list or
other writing, including, but not limited to, Westborough's Disclosure
Schedules, specifically required to be furnished to AVB, Merger Sub or Hudson
pursuant to the provisions hereof, do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained in this Agreement and therein not
misleading.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF ASSABET
As a material inducement to the Westborough parties to enter into this
Agreement, and with the understanding that Westborough will be relying thereon
in consummating the Transactions, AVB, Merger Sub and Hudson, jointly and
severally, hereby represent and warrant to Westborough that, except as set
forth in Assabet's Disclosure Schedules delivered by Assabet to Westborough on
the date of this Agreement, the statements contained in this Article VI are
true and correct as of the date of this Agreement and shall be true and correct
as of the Closing Date, except for representations and warranties made as of a
specific time, which shall be true and correct as of such time. Assabet's
Disclosure Schedules are arranged in sections corresponding to the sections and
subsections of this Article VI, and disclosure in one section of Assabet's
Disclosure Schedules shall constitute disclosure for all sections of Assabet's
Disclosure Schedules only to the extent to which the applicability of such
disclosure is reasonably apparent.
6.1. Organization, Standing and Authority.
(a) AVB. AVB is a mutual holding company duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts. AVB is duly qualified to do business and is in corporate
good standing in each jurisdiction where its ownership or leasing of
property or assets, or the conduct of its business, requires it to be so
qualified, except when the failure to be so licensed or in good standing
would not result in a Material Adverse Effect. AVB has in full force and
effect all federal, state, local and foreign governmental authorizations
necessary for it to own, operate or lease its properties and assets and
to carry on its business as now conducted. AVB is a bank holding company
registered with the Federal Reserve Board under the BHCA. The AVB Charter
and AVB By-Laws, copies of which have previously been made available to
Westborough, are true, complete and correct copies of such documents in
effect as of the date of this Agreement. AVB is not in violation of any
provision of the AVB Charter or AVB Bylaws. The minute books of AVB
contain, in all material respects, true and accurate records of all
meetings held and corporate actions taken since January 1, 2000 of AVB's
corporators and the AVB Board (including committees of the AVB Board),
other than minutes which have not been prepared as of the date of this
Agreement.
(b) Hudson. Hudson is a stock form savings bank duly organized and
validly existing under the laws of The Commonwealth of Massachusetts.
Hudson is duly qualified to do business and is in corporate good standing
in each jurisdiction where its ownership or leasing of
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property or assets, or the conduct of its business, requires it to be so
qualified, except when the failure to be so licensed or in good standing
would not result in a Material Adverse Effect. Hudson has in full force
and effect all federal, state, local and foreign governmental
authorizations necessary for it to own, operate or lease its properties
and assets and to carry on its business as now conducted. The Hudson
Charter and Hudson Bylaws, copies of which have previously been made
available to Westborough, are true, complete and correct copies of such
documents in effect as of the date of this Agreement. Hudson is not in
violation of any provision of the Hudson Charter or Hudson Bylaws. The
minute books of Hudson contain, in all material respects, true and
accurate records of all meetings held and corporate actions taken since
January 1, 2003 of Hudson's stockholder and the Hudson Board (including
committees of the Hudson Board), other than minutes which have not been
prepared as of the date of this Agreement. The deposit accounts of Hudson
are insured by the Deposit Insurance Fund maintained by the FDIC and the
Deposit Insurance Fund of the Depositors Insurance Fund of Massachusetts
in the manner and to the maximum extent provided by applicable law, and
Hudson has paid all deposit insurance premiums and assessments required
by applicable laws and regulations. Hudson is not obligated to make any
payments for premiums and assessments and it has filed all reports
required by the FDIC. No proceedings for the revocation or termination of
such deposit insurance are pending or, to the best knowledge of Assabet,
threatened.
6.2. No AVB Stock. AVB is a mutual holding company and has no authorized
capital stock.
6.3. Subsidiaries.
(a) (1) Assabet has disclosed in Section 6.3 of Assabet's
Disclosure Schedules a list of all of AVB's Subsidiaries, together with
the jurisdiction of organization of each such Subsidiary and the
percentage and type of equity security owned or controlled by AVB, (2)
AVB owns, directly or indirectly, all the issued and outstanding equity
securities of each of its Subsidiaries (including Hudson), and all of
such equity securities are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof, (3) no equity securities of any of
its Subsidiaries are or may become required to be issued (other than to
AVB) by reason of any Equity Interest or otherwise, (4) there are no
contracts, commitments, understandings or arrangements by which any of
its Subsidiaries is or may be bound to sell or otherwise transfer any of
its equity securities (other than to AVB or any of its wholly-owned
Subsidiaries), (5) there are no contracts, commitments, understandings,
or arrangements relating to AVB's rights to vote or to dispose of such
securities, (6) all the equity securities of AVB's Subsidiaries held by
AVB or its Subsidiaries are fully paid and nonassessable and are owned by
AVB or its Subsidiaries free and clear of any Liens, and (7) there are no
outstanding contractual obligations of any Subsidiary of AVB to
repurchase, redeem or otherwise acquire any shares of capital stock of,
or other Equity Interests in, any such Subsidiary or to provide funds to,
or make any investment (in the form of a loan, capital contribution or
otherwise) in, any such Subsidiary of AVB.
(b) Except for securities and other interests held in a fiduciary
capacity and beneficially owned by third parties or taken in
consideration of debts previously contracted, AVB does not own
beneficially, directly or indirectly, any equity securities or similar
interests of any Person or any interest in a partnership or joint venture
of any kind other than its Subsidiaries, stock
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in the Federal Home Loan Bank of Boston and stock in the Savings Bank
Life Insurance Company of Massachusetts.
(c) Each of AVB's Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of
its organization and is duly qualified to do business and is in good
standing in the jurisdictions where its ownership or leasing of property
or the conduct of its business requires it to be so qualified, except
when the failure to be so licensed or in good standing would not result
in a Material Adverse Effect.
(d) The corporate charter and bylaws, or equivalent organizational
documents, of each of AVB's Subsidiaries, copies of which have previously
been made available to Westborough, are true, correct and complete copies
of such documents in effect. Neither AVB nor any of its Subsidiaries is
in violation of any provision of its corporate charter, bylaws or
equivalent organizational documents. The minute books of each of AVB's
Subsidiaries contain, in all material respects, true and accurate records
of all meetings held and corporate actions taken since January 1, 2000 of
its shareholders and Board of Directors (including committees of its
Board of Directors), other than minutes which have not been prepared as
of the date of this Agreement.
6.4. Corporate Power. Assabet has the requisite corporate power and
authority to carry on its business as it is now being conducted and to own,
lease or operate all its properties and assets; and Assabet has the requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby,
subject to receipt of all necessary approvals of Governmental Authorities and
the approval of this Agreement by two-thirds of the corporators of AVB.
6.5. Corporate Authority. Subject to the approval of this Agreement by
two thirds of the corporators of AVB, this Agreement and the transactions
contemplated hereby have been authorized by all necessary corporate action of
Assabet. The execution and delivery of this Agreement and the other Transaction
Documents, and the consummation of the transactions contemplated hereby and
thereby, have been declared advisable by, and have been duly and validly
approved by the requisite vote of, the AVB Board. The AVB Board (i) has
directed that this Agreement and the transactions contemplated hereby,
including the MHC Merger, be submitted to the corporators of AVB for approval
at a meeting of such corporators, and (ii) has recommended that the corporators
of AVB approve this Agreement and the transactions contemplated hereby. Assabet
has duly executed and delivered this Agreement and, assuming due authorization,
execution and delivery by Westborough, this Agreement is a valid and legally
binding obligation of Assabet, enforceable in accordance with its terms (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles).
6.6. Regulatory Approvals; No Defaults.
(a) No consents or approvals of, or waivers by, or filings or
registrations with, any Governmental Authority or with any third party
are required to be made or obtained by Assabet in connection with the
execution, delivery or performance by Assabet of this Agreement or the
Bank Merger Agreement, as applicable, or to consummate the Transactions
and the other transactions
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contemplated hereby and thereby, except for (A) filings of applications
or notices with, and approvals or waivers by, the Federal Reserve Board,
the FDIC, the Massachusetts Bank Commissioner, the Depositors Insurance
Fund of Massachusetts, the Massachusetts Board and the MHPF, as required,
(B) the filing of Articles of Merger with the Secretary of State of The
Commonwealth of Massachusetts pursuant to the MBCA, (C) the approval of
this Agreement by two-thirds of the corporators of AVB, and (D) such
corporate approvals and such consents or approvals of, or waivers by, or
filings or registrations with, certain of the foregoing federal and state
banking agencies in connection with the MHC Merger and the Bank Merger.
As of the date of this Agreement, Assabet is not aware of any reason why
the approvals set forth above and referred to in Section 8.1(c) will not
be received in a timely manner and without the imposition of a condition,
restriction or requirement of the type described in Section 8.1(c), or
that the requisite approval of AVB's corporators will not be obtained.
(b) Subject to receipt of the approvals referred to in Section
6.6(b), and the expiration of related waiting periods, the execution,
delivery and performance of this Agreement and the Bank Merger Agreement,
as applicable, by Assabet, and the consummation of the Transactions and
the other transactions contemplated hereby and thereby do not and will
not (A) constitute a breach or violation of, or a default under (or, with
notice or lapse of time, or both, would constitute a default under), or
give rise to any Lien, any acceleration of remedies or performance or any
right of termination under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, or agreement, indenture,
note, bond, mortgage, deed of trust, lease or instrument of Assabet, or
to which Assabet or any of the Assabet respective properties or assets is
subject, affected or bound (whether as issuer, guarantor, obligor or
otherwise), (B) constitute a breach or violation of, or a default under,
the corporate charter or bylaws (or similar governing documents) of
Assabet, or (C) require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license,
agreement, indenture, note, bond, mortgage, deed of trust, lease or
instrument.
6.7. Financial Statements; Reports.
(a) AVB Financial Statements. The audited balance sheets of AVB at
December 31, 2005, 2004 and 2003, and the related statements of
operations, changes in retained earnings and cash flows (along with the
report of the independent auditors and notes thereto), and the unaudited
balance sheet and statements of operations, changes in retained earnings
and cash flows as of and for the six months ended June 30, 2006, in each
case included in Section 6.7(a) of Assabet's Disclosure Schedules
(collectively, "AVB's Financial Statements"), fairly present the
financial position of AVB as at such dates and the results of its
operations for the periods then ended in accordance with GAAP, subject,
in the case of the unaudited financial statements, to normal recurring
year-end audit adjustments (none of which will be material) and the
absence of footnotes.
(b) Assabet Reports. Since January 1, 2003, AVB, Hudson and their
Subsidiaries have timely filed, and subsequent to the date of this
Agreement will timely file, all reports, registrations and statements,
together with any amendments required to be made with respect thereto,
that were and are required to be filed with (i) the Federal Reserve
Board, (ii) the FDIC, and (iii) any applicable state securities or
banking authorities (all such reports, registrations and statements,
together with any amendments thereto, are collectively referred to in
this Agreement as the "Assabet Reports") and have paid all fees and
assessments due and payable in connection with
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any of the foregoing. As of the date filed or to be filed and as amended
prior to the date of this Agreement, the Assabet Reports complied and,
with respect to filings made after the date of this Agreement, will at
the date of filing comply, in all material respects with all of the
statutes, rules and regulations enforced or promulgated by the regulatory
authority with which they were filed. Except for normal periodic
examinations conducted by a Bank Regulator in the regular course of the
business of AVB, Hudson and their Subsidiaries, since January 1, 2000, no
Bank Regulator has initiated any proceeding or, to the best knowledge of
Assabet, investigation into the business or operations of AVB or any of
its Subsidiaries. Except as set forth in Section 6.7(b) of Assabet's
Disclosure Schedules, AVB and its Subsidiaries have resolved all material
violations, criticisms or exceptions by any Bank Regulator with respect
to any such normal periodic examination.
6.8. Absence of Undisclosed Liabilities. Except for those liabilities
that are appropriately reflected or reserved against in the balance sheets of
the Assabet Reports, and for liabilities incurred in the ordinary course of
business consistent with past practice or in connection with this Agreement, or
the transactions contemplated hereby, since January 1, 2003, none of AVB,
Hudson nor any of their Subsidiaries has incurred any obligation or liability
(contingent or otherwise) that, either alone or when combined with all similar
liabilities, has had, or could reasonably be expected to have, a Material
Adverse Effect on Assabet.
6.9. Absence of Certain Changes or Events. Since December 31, 2005,
except as set forth in Section 6.9 of Assabet's Disclosure Schedules or
reflected in AVB's Financial Statements, there has not been (a) either
individually or in the aggregate, any Material Adverse Effect and, to the best
knowledge of Assabet, no fact or condition exists which is reasonably likely to
cause such a Material Adverse Effect in the future, (b) any material damage,
destruction or loss with respect to any property or asset of Assabet, (c) any
change by Assabet in its accounting methods, principles or practices, other
than changes required by applicable law or GAAP or regulatory accounting as
concurred in by Assabet independent accountants, (d) any revaluation by Assabet
of any asset, including, without limitation, writing off of notes or accounts
receivable, other than in the ordinary course of business consistent with past
practice, (e) any entry by Assabet into any contract or commitment (other than
with respect to Loans, as hereinafter defined) of more than $30,000 or with a
term of more than one (1) year that is not terminable without penalty, (f) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing or other employee benefit
plan, or any other increase in the compensation payable or to become payable to
any trustees, directors or officers of Assabet, or any grant of severance or
termination pay, or any contract or arrangement entered into to make or grant
any severance or termination pay, any payment of any bonus, or the taking of
any other material action not in the ordinary course of business with respect
to the compensation or employment of trustees, directors, officers or employees
of Assabet, (g) any strike, work stoppage, slowdown or other labor disturbance,
(i) any material election made by Assabet for federal or state income tax
purposes, (h) any change in the credit policies or procedures of Assabet, the
effect of which was or is to make any such policy or procedure materially less
restrictive in any material respect, (i) any material liability or obligation
of any nature (whether accrued, absolute, contingent or otherwise and whether
due or to become due), including, without limiting the generality of the
foregoing, liabilities as guarantor under any guarantees or liabilities for
taxes, other than in the ordinary course of business consistent with past
practice, (j) any forgiveness or cancellation of any indebtedness or
contractual obligation other than in the ordinary course of business consistent
with past practice,
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(k) except with respect to funds borrowed by Assabet from the Federal Home Loan
Bank, any mortgage, pledge, lien or lease of any assets, tangible or
intangible, of Assabet with a value in excess of $25,000 in the aggregate, (l)
any acquisition or disposition of any assets or properties having a value in
excess of $25,000, or any contract for any such acquisition or disposition
entered into other than loans and investment securities, or (m) any lease of
real or personal property entered into, other than in connection with
foreclosed property or in the ordinary course of business consistent with past
practice.
6.10. Litigation. Except as set forth in Section 6.10 of Assabet's
Disclosure Schedules, there is no claim, suit, hearing, arbitration, action,
proceeding (public or private) or investigation of any nature pending or, to
the knowledge of Assabet, threatened, against Assabet or challenging the
validity or propriety of the transactions contemplated by this Agreement, nor
is there any judgment, decree, injunction, rule, award or order of any legal or
administrative body or arbitrator outstanding against Assabet having, or which
insofar as reasonably can be foreseen, in the future could have, any such
effect or restricting, or which could restrict, its ability to conduct business
in any material respect in any area. Assabet is not aware of any facts which
could reasonably give rise to any such claim, suit, action, investigation or
other proceeding.
6.11. Regulatory Matters.
(a) Assabet is not a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, order to cease and desist
with, or extraordinary supervisory letter from, any federal or state
governmental agency or authority charged with the supervision or
regulation of financial institutions, or engaged in the insurance of
deposits or the supervision or regulation of it (collectively, the
"Assabet Regulatory Authorities"). No Assabet Regulatory Authority has
either issued any order or directive specifically naming or referring to
Assabet or required Assabet to adopt any board resolution, which order,
directive or board resolution is currently in effect and restricts
materially the conduct of Assabet's business, or in any manner relates to
its capital adequacy, loan loss allowances or reserves, credit policies,
management or overall safety and soundness or its ability to perform its
obligations hereunder. Except as set forth in Section 6.11(b) of
Assabet's Disclosure Schedules, Assabet is not a party to any agreement
or arrangement entered into in connection with the consummation of a
federally assisted acquisition of a depository institution pursuant to
which Assabet is entitled to receive financial assistance or
indemnification from any Governmental Authority. Assabet has paid all
assessments made or imposed by any Assabet Regulatory Authority.
(b) Assabet has not been advised by, and has no knowledge of facts
which would reasonably be expected to give rise to an advisory notice by,
any Assabet Regulatory Authority that such Assabet Regulatory Authority
is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum of understanding, cease and desist order,
extraordinary supervisory letter, order, directive or board resolution
referred to in Section 6.11(a).
6.12. Compliance with Laws. Assabet:
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(a) is in material compliance with all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(b) has all permits, licenses, franchises, authorizations, orders
and approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities that are required in
order to permit Assabet to own or lease its properties and to conduct its
business as presently conducted; all such permits, licenses, certificates
of authority, orders and approvals are in full force and effect and, to
Assabet's knowledge, no suspension or cancellation of any of them is
threatened; and
(c) has received, since December 31, 2000, no notification or
communication from any Governmental Authority (A) asserting that Assabet
is not in material compliance with any of the statutes, regulations or
ordinances which such Governmental Authority enforces or (B) threatening
to revoke any license, franchise, permit or governmental authorization
(nor, to Assabet's knowledge, do any grounds for any of the foregoing
exist).
6.13. Material Contracts; Defaults.
(a) Except for documents listed in Section 6.13(a) of Assabet's
Disclosure Schedules or that have previously been made available to
Westborough, Assabet is not a party to, bound by or subject to any
agreement, contract, arrangement, commitment or understanding (whether
written or oral):
(i) that is a "Material Contract" within the meaning of Item
601(b)(10) of the SEC's Regulation S-K;
(ii) that materially restricts the conduct of business by
Assabet;
(iii) that is material to the financial condition, results of
operations or business of Assabet;
(iv) that provides for the lease of real property;
(v) relating to the employment, including, without
limitation, employment as a consultant, of any Person, or the
election or retention in office, or severance of any present or
former trustee, director or officer of Assabet;
(vi) with any labor union, or other employee representative
or group of employees of BSR;
(vii) by and between Assabet and/or any Affiliate thereof;
(viii) which, upon the consummation of the transactions
contemplated by this Agreement or the Bank Merger Agreement will
result in any payment (whether of
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severance pay or otherwise) becoming due from Assabet to any
officer or employee thereof;
(ix) requiring that a particular line of business be
maintained;
(x) which is a consulting or other agreement (including
agreements entered into in the ordinary course and data processing,
software programming and licensing contracts) not terminable on
sixty (60) days or less notice, involving the payment of more than
$50,000 per annum;
(xi) any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the Bank Merger Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement or the Bank Merger
Agreement;
(xii) which purports to limit in any respect, the ability of
Assabet or its businesses to solicit customers or the manner in
which, or the localities in which, all or any substantial portion
of the business of Assabet, taken as a whole, or, following
consummation of the transactions contemplated by this Agreement or
the Bank Merger Agreement, AVB and its Subsidiaries, is or would be
conducted;
(xiii) providing for the indemnification by Assabet of any
Person, other than customary agreements relating to the indemnity
of directors, officers and employees of Assabet;
(xiv) that is a Joint Venture, acquisition or partnership
agreement;
(xv) that grants any right of first refusal or right of first
offer or similar right, or that limits (or purports to limit) the
ability of Assabet to own, operate, sell, transfer, pledge or
otherwise dispose of any material amount of assets or business;
(xvi) providing for any material future payments that are
conditioned, in whole or in part, on a change of control of
Assabet;
(xvii) that contains a "most favored nation" clause;
(xviii) pertaining to the use of, or granting any right to
use or practice any rights under, any Assabet intellectual property
assets, whether Assabet is the licensee or licensor thereunder; or
(xix) that is an investment management, or investment
advisory or sub-advisory, or any other contract for the provision
of financial planning, brokerage (including, without limitation,
insurance brokerage) or similar services not terminable on sixty
(60) days or less notice.
(b) Assabet is not in material default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its
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respective assets, business or operations may be bound or affected, or
under which it or its respective assets, business or operations receives
benefits, and there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default. No
power of attorney or similar authorization given directly or indirectly
by Assabet is currently outstanding.
6.14. No Brokers. Excluding an arrangement disclosed in Section 6.14 of
Assabet's Disclosure Schedules with a fee paid or payable to Keefe, Bruyette &
Woods ("KBW"), neither Assabet nor any of its officers, directors, employees,
Affiliates or agents has employed any broker, finder or financial advisor, or
incurred any liability for any fees or commissions, in connection with any of
the transactions contemplated by this Agreement except for legal, accounting
and other professional fees payable in connection with the Mid-Tier Merger and
the other Transactions. Assabet will be responsible for the payment of all such
fees. The fee payable to KBW in connection with the transactions contemplated
by this Agreement is as described in an engagement letter between Assabet and
KBW, a true and complete copy of which has heretofore been furnished to
Westborough.
6.15. Employee Benefit Plans.
(a) All benefit and compensation plans, contracts, policies or
arrangements covering current or former employees of Assabet (the
"Assabet Employees") and current or former trustees or directors of
Assabet including, but not limited to, "employee benefit plans" within
the meaning of Section 3(3) of ERISA, and deferred compensation,
incentive and bonus plans (the "Assabet Benefit Plans"), are disclosed in
Section 6.15(a) of Assabet's Disclosure Schedules. True and complete
copies of all Assabet Benefit Plans including, but not limited to, any
trust instruments and insurance contracts forming a part of any Assabet
Benefit Plans and all amendments thereto have been provided or made
available to Westborough.
(b) All Assabet Benefit Plans are in substantial compliance with
ERISA in all material respects. Each Assabet Benefit Plan which is a
Pension Plan and which is intended to be qualified under Section 401(a)
of the Code, has received a favorable determination letter from the
Internal Revenue Service, and Assabet is not aware of any circumstances
likely to result in revocation of any such favorable determination letter
or the loss of the qualification of such Pension Plan under Section
401(a) of the Code. There is no material pending or, to Assabet's
knowledge, threatened litigation relating to the Assabet Benefit Plans.
Assabet has not engaged in a transaction with respect to any Assabet
Benefit Plan or Pension Plan that, assuming the taxable period of such
transaction expired as of the date of this Agreement, could subject
Assabet to a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount which would be material.
(c) All contributions required to be made under the terms of any
Assabet Benefit Plan have been timely made or have been reflected on the
financial statements of AVB included in the Assabet Reports.
(d) Neither Assabet, nor any entity which is an ERISA Affiliate,
has incurred any liability under Title IV of ERISA which will not have
been paid in full prior to the Closing. Neither Assabet nor any ERISA
Affiliate currently maintains any Pension Plan subject to Code
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Section 412 or ERISA Section 302, and Assabet has received approval from
the Pension Benefit Guaranty Corporation with regard to the termination
of its defined benefit Pension Plan. Neither Assabet nor any ERISA
Affiliate has ever maintained a Multiemployer Plan.
(e) There are no pending or, to the knowledge of Assabet,
threatened claims by or on behalf of any Assabet Benefit Plans, or by or
on behalf of any individual participants or beneficiaries of any Assabet
Benefit Plans, alleging any breach of fiduciary duty on the part of
Assabet or any of its officers, directors or employees under ERISA or any
other applicable regulations, or claiming benefit payments for which
Assabet may be liable (other than those made in the ordinary operation of
such plans), nor is there, to the knowledge of Assabet, any basis for
such claim. The Assabet Benefit Plans are not the subject of any pending
(or to the knowledge of Assabet, any threatened) investigation or audit
by the Internal Revenue Service, the Department of Labor or the Pension
Benefit Guaranty Corporation.
(f) With respect to any Assabet Benefit Plan that is a Welfare Plan
and except as disclosed in Section 6.15(f) of Assabet's Disclosure
Schedules, (i) each Welfare Plan for which contributions are claimed by
Assabet as deductions under any provision of the Code is in material
compliance with all applicable requirements pertaining to such deduction,
(ii) with respect to any welfare benefit fund (within the meaning of
Section 419 of the Code) related to a Welfare Plan, there is no
disqualified benefit (within the meaning of Section 4976(b) of the Code)
that would result in the imposition of a tax under Section 4976(a) of the
Code, (iii) any Assabet Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and
every case has complied, with all of the applicable material requirements
of Section 4980B of the Code, ERISA, Title XXII of the Public Health
Service Act and the Social Security Act, and (iv) all Welfare Plans may
be amended or terminated at any time on or after the Closing Date without
incurring any liability thereunder.
(g) Assabet has no obligations for retiree health and life benefits
under any Assabet Benefit Plan, other than coverage as may be required
under Section 4980B of the Code or Part 6 of Title I of ERISA, or under
the continuation of coverage provisions of the laws of any state or
locality.
(h) Neither the execution of this Agreement, nor shareholder
approval of this Agreement, nor consummation of the Transactions will (i)
entitle any employees of Assabet to severance pay or any increase in
severance pay upon any termination of employment after the date of this
Agreement, (ii) accelerate the time of payment or vesting or trigger any
payment or funding (through a grantor trust or otherwise) of compensation
or benefits under, increase the amount payable or trigger any other
material obligation pursuant to, any of the Assabet Benefit Plans, (iii)
result in any breach or violation of, or a default under, any of the
Assabet Benefit Plans, (iv) result in any payment that would be a
"parachute payment" to a "disqualified individual," as those terms are
defined in Section 280G of the Code, without regard to whether such
payment is reasonable compensation for personal services performed or to
be performed in the future, or (v) result in any payment that would be
nondeductible pursuant to Section 162(m) of the Code.
6.16. Labor Matters. Assabet is not a party to or bound by any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization, nor is Assabet the subject of a proceeding
asserting that it has committed an unfair
A-55
labor practice (within the meaning of the National Labor Relations Act) or
seeking to compel Assabet to bargain with any labor organization as to wages or
conditions of employment, nor is there any strike, work stoppage or other labor
dispute, arbitration, lawsuit or administrative proceeding involving it pending
or, to Assabet's knowledge, threatened, nor is Assabet aware of any activity
involving its employees seeking to certify a collective bargaining unit or
engaging in other organizational activity. No Assabet Employees are represented
by any labor union.
6.17. Environmental Matters. Except as set forth in Section 6.17 of
Assabet's Disclosure Schedules:
(a) To Assabet's knowledge, Assabet is in material compliance with
applicable Environmental Laws;
(b) To Assabet's knowledge, no real property (including buildings
or other structures) currently or formerly owned or operated by Assabet,
or any property in which Assabet has held a security interest, Lien or a
fiduciary or official management role within the past five (5) years
("Assabet Loan Property"), has been contaminated with, or has had any
release of, any Hazardous Substance except in compliance with
Environmental Laws;
(c) To Assabet's knowledge, Assabet has not participated in the
management regarding Hazardous Substances of any Assabet Loan Property
which has been contaminated with any Hazardous Substance except in
compliance with Environmental Laws;
(d) To Assabet's knowledge, Assabet has no present material
liability for any Hazardous Substance contamination on any third party
property;
(e) Assabet has not received any notice, demand letter, claim or
request for information alleging any violation of, or liability under,
any Environmental Law;
(f) To Assabet's knowledge, Assabet is not subject to any order,
decree, injunction or other agreement with any Governmental Authority or
any third party relating to any Environmental Law;
(g) To Assabet's knowledge, there are no existing conditions
involving Assabet, any currently or formerly owned or operated property,
or any Assabet Loan Property, that could reasonably be expected to result
in any material claims, or liability against Assabet, or result in any
restrictions on the ownership, use or transfer of any currently owned
property pursuant to any Environmental Law; and
(h) To Assabet's knowledge, Assabet has delivered or made available
to AVB copies of all environmental reports, studies, sampling data,
correspondence, filings and other environmental information concerning
known environmental conditions in its possession, or reasonably available
to it, relating to Assabet and any currently or formerly owned or
operated property or any Assabet Loan Property.
6.18. Tax Matters.
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(a) For the taxable periods ended December 31, 2005, 2004, 2003,
2002, 2001 and 2000, Assabet has filed all Tax Returns that it was
required to file under applicable laws and regulations. All such Tax
Returns were correct and complete in all material respects and have been
prepared in substantial compliance with all applicable laws and
regulations. All Taxes due and owing by Assabet (whether or not shown on
any Tax Return) have been paid. Assabet is not the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where Assabet does not file
Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Liens for Taxes (other than Taxes not yet due
and payable) upon any of the assets of Assabet.
(b) Assabet has withheld and paid all Taxes required to have been
withheld and paid in connection with any amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third
party.
(c) No foreign, federal, state, or local tax audits or
administrative or judicial Tax proceedings are pending or being conducted
with respect to Assabet. Assabet has not received from any foreign,
federal, state, or local taxing authority (including jurisdictions where
Assabet has not filed Tax Returns) any (i) notice indicating an intent to
open an audit or other review, (ii) request for information related to
Tax matters, or (iii) notice of deficiency or proposed adjustment for any
amount of Tax proposed, asserted, or assessed by any taxing authority
against Assabet.
(d) Assabet has provided Westborough with true and complete copies
of the United States federal, state, local, and foreign income Tax
Returns filed with respect to Assabet for taxable periods ended December
31, 2005, 2004 and 2003. Assabet has disclosed in Section 6.18(d) of
Assabet's Disclosure Schedules those Tax Returns that have been audited
during the last three years, and those Tax Returns that currently are the
subject of an audit. Assabet has delivered to Westborough correct and
complete copies of all examination reports, and statements of
deficiencies assessed against or agreed to by Assabet, filed for the
years ended December 31, 2005, 2004 and 2003. Assabet has timely and
properly taken such actions in response to, and in compliance with,
notices Assabet has received from the Internal Revenue Service in respect
of information reporting and backup and nonresident withholding as are
required by law, including the notation in their records of any B notices
or C notices received with respect to any depositors, customer,
shareholders or payees.
(e) Assabet has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(f) Assabet has not filed a consent under Code Section 341(f)
concerning collapsible corporations. Assabet is not a party to any
agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of (i) any "excess
parachute payment" within the meaning of Code Section 280G (or any
corresponding provision of state, local or foreign Tax law), or (ii) any
amount that will not be fully deductible as a result of Code Section
162(m) (or any corresponding provision of state, local or foreign Tax
law). AVB has not been a United States real property holding corporation
within the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Assabet has disclosed on its
federal income Tax Returns all positions taken therein that could give
rise to a substantial
A-57
understatement of federal income Tax within the meaning of Code Section
6662. Assabet is not a party to or bound by any Tax allocation or sharing
agreement. Assabet (i) has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return (other than a group, the
common parent of which was AVB), and (ii) has no liability for the Taxes
of any Person (other than Assabet) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(g) The unpaid Taxes of Assabet (i) did not, as of the end of the
most recent period covered by the Assabet Reports filed on or prior to
the date of this Agreement, exceed the reserve for Tax liability (rather
than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the
financial statements included in the Assabet Reports filed on or prior to
the date of this Agreement (rather than in any notes thereto), and (ii)
do not exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of
Assabet in filing its Tax Returns. Since the end of the most recent
period covered by the Assabet Reports filed prior to the date of this
Agreement, Assabet has not incurred any liability for Taxes arising from
extraordinary gains or losses, as that term is used in GAAP, outside the
ordinary course of business consistent with past custom and practice.
(h) Assabet will not be required to include any item of income in,
or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of
any: (i) change in method of accounting for a taxable period ending on or
prior to the Closing Date, (ii) "closing agreement" as described in Code
Section 7121 (or any corresponding or similar provision of state, local
or foreign income Tax law) executed on or prior to the Closing Date,
(iii) intercompany transactions or any excess loss account described in
Treasury Regulations under Code Section 1502 (or any corresponding or
similar provision of state, local or foreign income Tax law), (iv)
installment sale or open transaction disposition made on or prior to the
Closing Date, or (v) prepaid amount received on or prior to the Closing
Date.
6.19. Risk Management Instruments. Assabet is not a party, nor has it
agreed to enter into any Derivatives Contract nor does it own securities that
(i) are referred to generically as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating rate mortgage
derivatives," or (ii) are likely to have changes in value as a result of
interest or exchange rate changes that significantly exceed normal changes in
value attributable to interest or exchange rate changes, except for those
Derivatives Contracts and other instruments legally purchased or entered into
in the ordinary course of business, consistent with safe and sound banking
practices and regulatory guidance. All of such Derivatives Contracts or other
instruments are legal, valid and binding obligations of Assabet, enforceable in
accordance with their terms (except as enforcement may be limited by general
principles of equity, whether applied in a court of law or a court of equity
and by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally), and are in full force and effect. Assabet has duly
performed, in all material respects, all of their material obligations
thereunder to the extent that such obligations to perform have accrued; and, to
Assabet's knowledge, there are no breaches, violations or defaults, or
allegations or assertions of such, by any party thereunder which would have, or
would reasonably be expected to have, a Material Adverse Effect on Assabet.
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6.20. Investment Securities. Except for pledges to secure public and
trust deposits, Federal Reserve borrowings, Federal Home Loan Bank advances,
repurchase agreements and reverse repurchase agreements entered into in
arms'-length transactions pursuant to normal commercial terms and conditions
and other pledges required by law, none of the investments reflected in the
balance sheet of AVB contained in the Assabet Reports, and none of the material
investments made by Assabet since January 1, 2006, is subject to any
restriction (contractual, statutory or otherwise) that would materially impair
the ability of the entity holding such investment freely to dispose of such
investment at any time. The information (including electronic information and
information contained on tapes and computer disks) with respect to all
investment securities (including mortgaged-backed securities) of Assabet
furnished to Westborough by Assabet is, as of the respective dates indicated
therein, true and correct in all material respects.
6.21. Loans; Nonperforming and Classified Assets.
(a) Each Loan on the books and records of Assabet (i) was made and
has been serviced in all material respects in accordance with customary
lending standards in the ordinary course of business, (ii) is evidenced
in all material respects by appropriate and sufficient documentation, and
(iii) to the knowledge of Assabet, constitutes the legal, valid and
binding obligation of the obligor named therein, subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar
laws of general applicability relating to or affecting creditor's rights
or by general equity principles. The information (including electronic
information and information contained on tapes and computer disks) with
respect to all Loans of Assabet furnished to Westborough by Assabet is,
as of the respective dates indicated therein, true and correct in all
material respects. To the best knowledge of Assabet, all Loans
originated, directly or through third party mortgage brokers, have been
originated in compliance with all federal, state and local laws,
including, without limitation, the Real Estate Settlement Procedures Act
of 1974, as amended.
(b) Assabet has disclosed in Section 6.21(b) of Assabet's
disclosure Schedules, as of the latest practicable date: (i) any written
or oral Loan under the terms of which the obligor is 60 or more days
delinquent in payment of principal or interest, or to Assabet's
knowledge, in default of any other material provision thereof, (ii) each
Loan which has been classified as "substandard," "doubtful," "loss" or
"special mention" (or words of similar import) by Assabet or an
applicable regulatory authority (it being understood that no
representation is being made that FDIC or the Staff of the Massachusetts
Bank Commissioner would agree with the loan classifications established
by Assabet), (iii) a listing of the OREO acquired by foreclosure or by
deed-in-lieu thereof, including the book value thereof, and (iv) each
Loan with any director, executive officer or five percent or greater
shareholder of Assabet, or to the knowledge of Assabet, any Person
controlling, controlled by or under common control with any of the
foregoing.
(c) No agreement, pursuant to which any Loans or other assets have
been or shall be sold by Assabet, entitled the buyer of such Loans or
other assets, unless there is material breach of a representation or
covenant by Assabet, to cause Assabet to repurchase such Loan or other
asset, or the buyer to pursue any other form of recourse against Assabet.
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6.22. Bank Owned Life Insurance. Assabet has disclosed in Section 6.22 of
Assabet's Disclosure Schedules a true, correct and complete description of all
BOLI owned by Assabet. The value of such BOLI, as of the date of this
Agreement, is fairly and accurately reflected on AVB's balance sheet contained
in the Assabet Reports in accordance with GAAP. Except as set forth in Section
6.22 of Assabet's Disclosure Schedules, all life insurance policies on the
lives of any of the current and former officers and directors of Assabet that
are maintained by Assabet and are otherwise included as assets on the books of
Assabet are, or will at the Mid-Tier Effective Time be, owned by Assabet, free
and clear of any claims thereon by the officers or members of their families,
except with respect to the death benefits thereunder, as to which Assabet
agrees that there will not be an amendment prior to the Mid-Tier Effective Time
without the consent of Westborough.
6.23. Properties. The real and material personal property owned by
Assabet or presently used by Assabet in its business is in an adequate
condition (ordinary wear and tear excepted) and is sufficient to carry on its
business in the ordinary course of business consistent with its past practices.
Assabet has good and marketable title, free and clear of all Liens, to all of
the real and material personal properties and assets reflected on the
consolidated statement of financial condition of AVB as of December 31, 2005,
included in the Assabet Reports or acquired after such date, other than
properties sold by Assabet in the ordinary course of business, except (i) Liens
for current taxes and assessments not yet due or payable, (ii) pledges to
secure deposits and other Liens incurred in the ordinary course of its banking
business, (iii) such imperfections of title, easements and encumbrances, if
any, as are not, individually or in the aggregate, material in character,
amount or extent, and (iv) as reflected on the consolidated statement of
financial condition of AVB as of December 31, 2005, included in the Assabet
Reports. All real and personal property which is material to Assabet's business
on a consolidated basis and leased or licensed by Assabet or a Subsidiary of
Assabet is held pursuant to leases or licenses which are valid and enforceable
in accordance with their respective terms, and such leases will not terminate
or lapse prior to the Mid-Tier Effective Time, and there exists no material
default under any such leases or licenses by Assabet nor, to the knowledge of
Assabet and except as set forth in Section 6.23 of Assabet's Disclosure
Schedules, any event which, with notice or lapse of time or both, would
constitute a material default thereunder by Assabet, except for such defaults
which, individually, or in the aggregate, would not result in the forfeiture of
the use or occupancy of the property covered by such lease or in a material
liability to Assabet.
6.24. Intellectual Property. Assabet owns or possesses valid and binding
licenses and other rights to use, without payment of any material amount, all
material patents, copyrights, trade secrets, trade names, service marks and
trademarks used in its businesses, all of which have been disclosed in Section
6.24 of Assabet's Disclosure Schedules, and Assabet has not received any notice
of conflict with respect thereto that asserts the right of others. Assabet has
performed, in all material respects, all the obligations required to be
performed by it and is not in default under any contract, agreement,
arrangement or commitment relating to any of the foregoing.
6.25. Fiduciary Accounts. Hudson has performed all of its duties in a
"fiduciary capacity" in a fashion that complied with all applicable laws,
regulations, orders, agreements, wills, instruments, and common law standards
in effect at that time. Hudson has not received notice of any claim,
allegation, or complaint from any person that Hudson failed to perform these
duties in a manner that complied with all applicable laws, regulations, orders,
agreements, wills,
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instruments, and common law standards, except for notices involving matters
that have been resolved and any cost of such resolution is reflected in AVB's
Financial Statements.
6.26. Capitalization. Assabet is qualified to elect "financial holding
company" status under the Gramm-Leach-Bliley Act of 1999 if it so chooses.
Hudson is "well capitalized," as such term is defined in the rules and
regulations promulgated by the FDIC. Hudson would be "well capitalized," as
such term is defined in the rules and regulations promulgated by the Federal
Reserve Board if Hudson were a state-chartered member bank.
6.27. Community Reinvestment Act, Bank Secrecy, Anti-Money Laundering and
Customer Information Security. Assabet is not aware of, has not been advised
of, and has no reason to believe that any facts or circumstances exist which
would cause Hudson: (i) to be deemed not to be in satisfactory compliance in
any material respect with the Community Reinvestment Act, and the regulations
promulgated thereunder, or to be assigned a rating for Community Reinvestment
Act purposes by federal or state bank regulators of lower than "satisfactory;"
or (ii) to be deemed to be operating in violation in any material respect of
the Federal Bank Secrecy Act, as amended, and its implementing regulations (31
C.F.R. Part 103), the USA Patriot Act, and the regulations promulgated
thereunder, any order issued with respect to anti-money laundering by the U.S.
Department of the Treasury's Office of Foreign Assets Control, or any other
applicable anti-money laundering statute, rule or regulation; or (iii) to be
deemed not to be in satisfactory compliance in any material respect with the
applicable privacy of customer information requirements contained in any
federal and state privacy laws and regulations, including, without limitation,
in Title V of the Gramm-Leach-Bliley Act of 1999 and regulations promulgated
thereunder, as well as the provisions of the information security program
adopted by Hudson pursuant to 12 C.F.R. Part 364. Furthermore, the Board of
Directors of Hudson has adopted, and Hudson has implemented, an anti-money
laundering program that contains adequate and appropriate customer
identification verification procedures that have not been deemed ineffective in
any material respects by any Bank Regulators and that meet the requirements in
all material respects of Section 352 of the USA Patriot Act and the regulations
thereunder.
6.28. Books and Records. The books and records of Assabet are being
maintained in material compliance with applicable legal and accounting
requirements, and such books and records accurately reflect, in all material
respects, all dealings and transactions in respect of the business, assets,
liabilities and affairs of Assabet.
6.29. Insurance. Assabet has disclosed in Section 6.29 of Assabet's
Disclosure Schedules all of the Insurance Policies currently maintained by
Assabet. Assabet is insured with reputable insurers against such risks and in
such amounts as the management of Assabet reasonably has determined to be
prudent in accordance with industry practices. All the Insurance Policies are
in full force and effect; Assabet is not in material default thereunder and has
not received any notice of non-renewal or cancellation with respect thereto;
and all claims thereunder have been filed in due and timely fashion, and
Assabet has timely provided such insurers with due notice of all matters which
may reasonably become a claim or otherwise constitute a basis for seeking
recovery under the Insurance Policies. There is no claim pending under any
Insurance Policy as to which coverage has been questioned, denied or disputed
by the underwriter of such policy.
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6.30. Allowance for Loan Losses. Assabet's allowance for loan losses is
in compliance with Assabet's existing methodology for determining the adequacy
of its allowance for loan losses and, to the knowledge of Assabet, the
standards established by applicable Governmental Authorities and the Financial
Accounting Standards Board and is adequate under all such standards.
6.31. Transactions with Affiliates. All "covered transactions" between
Hudson and an "affiliate," within the meaning of Sections 23A and 23B of the
Federal Reserve Act, have been in compliance with such provisions and the
provisions of Federal Reserve Board Regulation W.
6.32. Required Vote; Antitakeover Provisions. The affirmative vote of
two-thirds of the trustees of AVB and two-thirds of the corporators of AVB at a
special meeting called to consider the subject is necessary to approve this
Agreement and the MHC Merger on behalf of AVB. No other vote of the trustees or
corporators of AVB is required by law, AVB Charter, AVB Bylaws or otherwise to
approve this Agreement and the Transactions.
6.33. Fairness Opinion. The AVB Board has received the oral opinion of
KBW, which opinion will be promptly confirmed in writing and dated as of the
date of this Agreement, to the effect that as of the date of this Agreement,
the Aggregate Merger Consideration is fair.
6.34. Proxy Statement. The information to be supplied by Assabet for
inclusion in the proxy statement to be sent to the shareholders of Westborough
Financial in connection with the Westborough Financial Meeting (the "Proxy
Statement") will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to shareholders of Westborough Financial or
at the time of the Westborough Financial Meeting, contain any statement which,
at such time and in light of the circumstances under which it is made, is false
or misleading with respect to any material fact, or omits to state any material
fact required to be stated therein, or necessary in order to make the
statements therein, not false or misleading.
6.35. Ownership of Westborough Financial Common Stock. None of AVB,
Merger Sub or any of AVB's Subsidiaries, or to Assabet's knowledge, any of its
other affiliates or associates (as such terms are defined under the Exchange
Act), owns beneficially or of record, directly or indirectly, or is a party to
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, shares of Westborough Financial Common Stock
(other than shares held in a fiduciary capacity that are beneficially owned by
third parties or as a result of debts previously contracted) which in the
aggregate represent 5% or more of the outstanding Westborough Financial Common
Stock.
6.36. Financial Ability. At the Mid-Tier Effective Time, AVB or Hudson
will have available to it sources of capital and financing sufficient to
fulfill its cash obligations hereunder to pay the Aggregate Merger
Consideration to holders of Westborough Financial Common Stock pursuant to
Section 3.1(c) hereof. The consummation of the transactions contemplated by
this Agreement are not subject, to or otherwise conditioned upon, AVB or Hudson
obtaining financing of any kind from any source. Immediately following
completion of the Transactions, New Bank will be "well capitalized," as such
term is defined in the rules and regulations promulgated by the FDIC. If Hudson
were a state-chartered member bank, AVB would be, as of the date of this
Agreement, and would continue to be immediately following completion of the
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Transactions, "well capitalized," as such term is defined in the rules and
regulations promulgated by the Federal Reserve Board.
6.37. Disclosure. The representations and warranties contained in this
Article VI, when considered as a whole, together with any certificate, list or
other writing, including, but not limited to, Assabet's Disclosure Schedules,
specifically required to be furnished to Westborough pursuant to the provisions
hereof, do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements and information
contained in this Agreement and therein not misleading.
ARTICLE VII.
COVENANTS
7.1. Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of Westborough, Merger Sub, Hudson and AVB agrees to use its
reasonable best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Transactions as promptly as practicable and otherwise to enable
consummation of the Transactions, including the satisfaction of the conditions
set forth in Article VIII hereof, and shall cooperate fully with the other
party hereto to that end.
7.2. Shareholder Approval.
(a) Westborough Financial shall promptly prepare and file with the
SEC the Proxy Statement. Westborough Financial shall make the draft Proxy
Statement available to AVB for review promptly after preparation thereof,
and shall give AVB an opportunity to comment and suggest revisions to
such Proxy Statement prior to filing with the SEC. Promptly after the
Proxy Statement is cleared by the SEC, Westborough Financial shall mail
the Proxy Statement to its shareholders.
(b) The trustees of Westborough MHC, as the majority stockholder of
Westborough Financial, have approved this Agreement and any other matters
required to be approved by Westborough Financial's shareholders for
consummation of the Transactions. Westborough Financial agrees to take,
in accordance with applicable law and the Westborough Financial Charter
and Bylaws, all action necessary to call, give notice of, convene, and
hold as soon as reasonably practicable a meeting of its shareholders to
consider and vote upon the approval of this Agreement and any other
matters required to be approved by Westborough Financial's shareholders
for consummation of the Transactions (including any adjournment or
postponement, the "Westborough Financial Meeting"). Except with the prior
approval of AVB, no other matters (except for routine annual meeting
matters and matters required by the federal securities laws, in the event
the Westborough Financial Meeting is an annual meeting) shall be
submitted for the approval of Westborough Financial shareholders at the
Westborough Financial Meeting. Subject to Section 7.7, the Westborough
Financial Board shall, at all times prior to and during such meeting,
recommend such approval (the "Westborough Financial Board
Recommendation") and shall take all reasonable lawful action to solicit
such approval by its shareholders. Nothing contained in Section 7.7 shall
affect or otherwise limit the obligation of Westborough Financial to
call, give notice of, convene, and hold the Westborough Financial
Meeting. AVB, as the sole stockholder of
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Merger Sub, has approved this Agreement and any other matters required to
be approved by Merger Sub's shareholders for consummation of the
Transactions.
7.3. Corporator Approval. Westborough MHC and AVB each agree to take, in
accordance with applicable law their respective charters and bylaws, all action
necessary to call, give notice of, convene, and hold as soon as reasonably
practicable meetings of their corporators to consider and vote upon the
approval of this Agreement and any other matters required to be approved by
Westborough MHC's corporators or AVB's corporators for consummation of the
Transactions.
7.4. Regulatory Filings.
(a) Each of AVB and Westborough and their respective Subsidiaries
shall cooperate and use their respective reasonable best efforts to
promptly prepare all documentation, to effect all filings and to obtain
all permits, consents, approvals and authorizations of all third parties
and Governmental Authorities necessary or advisable to consummate the
Transactions and any other transactions contemplated by this Agreement
and the Bank Merger Agreement, and to comply with the terms and
conditions of all such permits, consents, approvals and authorizations of
all such Governmental Authorities; and any initial filings with
Governmental Authorities (other than the Proxy Statement) shall be made
by AVB as soon as reasonably practicable after the execution hereof. Each
of AVB and Westborough shall have a reasonable time to review such
filings in advance, and to the extent practicable, each shall consult
with the other, in each case subject to applicable laws relating to the
exchange of information, with respect to all written information
submitted to any third party or any Governmental Authority in connection
with the transactions contemplated by this Agreement. In exercising the
foregoing right, each of such parties agrees to act reasonably and as
promptly as practicable. Each party hereto agrees that it shall consult
with the other parties hereto with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and the Bank Merger
Agreement, and each party shall keep the other parties apprised of the
status of material matters relating to completion of the transactions
contemplated hereby.
(b) Each party agrees, upon request, to furnish the other parties
with all information concerning itself, its Subsidiaries, directors,
trustees, officers and shareholders, and such other matters as may be
reasonably necessary or advisable in connection with any filing, notice
or application made by or on behalf of such other parties or any of their
respective Subsidiaries to any third party or Governmental Authority.
7.5. Press Releases. Westborough and AVB shall consult with each other
before issuing any press release with respect to the Transactions or this
Agreement and shall not issue any such press release or make any such public
statements without the prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party (but after such consultation, to the extent
practicable in the circumstances), issue such press release or make such public
statements as may, upon the advice of outside counsel, be required by law or
the rules or regulations of NASDAQ or other regulatory authority. Westborough
and AVB shall cooperate to develop all public announcement
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materials and make appropriate management available at presentations related to
the Transactions as reasonably requested by the other party.
7.6. Access; Information.
(a) Westborough and Assabet agree that upon reasonable notice and
subject to applicable laws relating to the exchange of information,
Westborough shall afford AVB and AVB's officers, employees, counsel,
accountants and other authorized representatives, and AVB shall afford
Westborough and Westborough's officers, employees, counsel, accountants
and other authorized representatives, such access during normal business
hours throughout the period prior to the Mid-Tier Effective Time to the
books, records (including, without limitation, Tax Returns and work
papers of independent auditors), properties and personnel, and to such
other information as AVB or Westborough may reasonably request and,
during such period, Westborough shall furnish promptly to AVB, and AVB
shall furnish promptly to Westborough, all information concerning its
business, properties and personnel as AVB or Westborough, as the case may
be, may reasonably request. Representatives of Westborough Financial's
senior management will meet periodically with representatives of AVB's
senior management to coordinate post-closing integration planning,
including working toward conforming Westborough Financial's and AVB's
asset/liability management, lending practice, credit review and
administrative and related policies and practices.
(b) Each party agrees that it will not, and will cause its
representatives not to, use any information obtained pursuant to this
Section 7.6 (as well as any other information obtained prior to the date
of this Agreement in connection with the entering into of this Agreement)
for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. Subject to the requirements of law, each
party shall keep confidential, and shall cause its representatives to
keep confidential, all information and documents obtained pursuant to
this Section 7.6 (as well as any other information obtained prior to the
date of this Agreement in connection with the entering into of this
Agreement), unless such information (i) was already known to such party,
(ii) becomes available to such party from other sources not known by such
party to be bound by a confidentiality obligation, (iii) is disclosed
with the prior written approval of the party to which such information
pertains, or (iv) is or becomes readily ascertainable from publicly
available sources. In the event that this Agreement is terminated or the
transactions contemplated by this Agreement shall otherwise fail to be
consummated, each party shall promptly cause all copies of documents or
extracts thereof containing information and data as to another party
hereto to be returned to the party which furnished the same. No
investigation by any party of the business and affairs of any other party
shall affect or be deemed to modify or waive any representation,
warranty, covenant or agreement in this Agreement, or the conditions to
any party's obligation to consummate the transactions contemplated by
this Agreement.
7.7. Acquisition Proposals. Westborough agrees that neither it nor any of
its officers, trustees, or directors shall, and that Westborough shall use its
reasonable best efforts to cause its employees, agents and representatives
(together with Westborough's officers, directors and trustees, the
"Representatives") not to, directly or indirectly, initiate, solicit, encourage
or otherwise facilitate (including, without limitation, by way of furnishing
confidential information or data) any inquiries regarding, or the making of,
any Acquisition Proposal (other than by AVB). Westborough further agrees that
neither it nor any of its officers, directors or trustees shall, directly or
indirectly, and that Westborough shall use its reasonable best efforts to cause
its
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Representatives not to, engage in any negotiations concerning, or provide any
confidential information or data to or have any discussions with, any Person
relating to an Acquisition Proposal, or enter into any definitive agreement,
arrangement or understanding with respect to an Acquisition Proposal or
requiring it (or conditioned upon requiring it) to abandon, terminate or fail
to consummate the MHC Merger, the Mid-Tier Merger or any other transactions
contemplated by this Agreement; provided, however, that nothing contained in
this Agreement shall prevent Westborough Financial or the Westborough Financial
Board, between the date of this Agreement and prior to the date of Westborough
Financial Meeting, from (A) providing information in response to a request
therefor by a Person who has made an unsolicited bona fide written Acquisition
Proposal if the Westborough Financial Board receives from the Person so
requesting such information an executed confidentiality agreement no less
favorable to it than the Confidentiality Agreement entered into on May 12, 2006
by AVB and Westborough Financial (and Westborough Financial shall enforce and
not waive any provision of any confidentiality agreement entered into with any
such Person contemplated by this Section 7.7); (B) engaging in any negotiations
or discussions with any Person who has made an unsolicited bona fide written
Acquisition Proposal; or (C) recommending such an Acquisition Proposal to the
shareholders of Westborough Financial, if and only to the extent that, (i) in
each such case referred to in clause (A), (B) or (C) above, the Westborough
Financial Board determines in good faith (after consultation with outside legal
counsel) and by a majority vote of the entire Westborough Financial Board that
such action would be required in order for its directors to comply with their
respective fiduciary duties under applicable law, (ii) in each such case
referred to in clause (A) or (B) above, the Westborough Financial Board also
determines in good faith (after consultation with its financial advisor) that
such Acquisition Proposal, if accepted, is reasonably likely to lead to a
Superior Proposal (as hereinafter defined), and (iii) in the case referred to
in clause (C) above, (w) the Westborough Financial Board also determines in
good faith (after consultation with its financial advisor) and by a majority of
the entire Westborough Financial Board that such Acquisition Proposal is a
Superior Proposal, (x) Westborough Financial Board has given AVB five (5)
Business Days' prior written notice of its intention to recommend such
Acquisition Proposal to the shareholders of Westborough Financial, (y) the
Westborough Financial Board has considered any changes to the Aggregate Merger
Consideration, Per Share Merger Consideration or to this Agreement (if any)
proposed by AVB, and (z) Westborough Financial Board has determined in good
faith and by a majority vote of the entire Westborough Financial Board, after
consultation with Westborough Financial's outside legal counsel and after
consultation with its financial advisor, that such unsolicited proposal remains
a Superior Proposal even after the changes proposed by AVB. A "Superior
Proposal" shall be a bona fide Acquisition Proposal for 100% of the outstanding
securities of Westborough Financial that is reasonably likely to be
consummated, taking into account all legal, financial and regulatory aspects of
the proposal and the Person making the proposal and, if consummated, is
reasonably likely to result in a transaction more favorable to Westborough MHC
and to Westborough Financial's shareholders from a financial point of view than
the Mid-Tier Merger. Nothing contained in this Agreement shall prevent
Westborough Financial or the Westborough Financial Board from complying with
its disclosure obligations under Rule 14d-9 or 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal (it being understood that
if any such disclosure constitutes or contemplates (i) a withholding,
withdrawing, modification, amendment or qualification to the Westborough
Financial Board Recommendation
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that is adverse to AVB or (ii) recommendation of an Acquisition Proposal,
Westborough Financial shall comply with all provisions of this Section 7.7).
Westborough agrees that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposals and
shall request the return or destruction of all confidential information
provided to any such parties prior to the date of this Agreement. Westborough
Financial agrees that it will notify AVB immediately if any inquiries,
proposals or offers are received by, any such information is requested from, or
any discussions or negotiations are sought to be initiated or continued with,
any of its Representatives relating to an Acquisition Proposal. Westborough
will promptly (within one Business Day) advise AVB following receipt of any
Acquisition Proposal and the substance thereof (including the identity of the
Person making such Acquisition Proposal), and will keep AVB apprised of any
related developments, discussions and negotiations (including the terms and
conditions (and any amendments or modifications thereto) of the Acquisition
Proposal) on a current basis. Westborough Financial will use its best efforts
to enforce (and will not waive any provisions of) any confidentiality or
similar agreement entered into by it or on its behalf by RBC or otherwise
relating to a potential Acquisition Proposal.
7.8. Certain Policies. Prior to the Effective Date, Westborough shall,
consistent with GAAP, the rules and regulations of the SEC and applicable
banking laws and regulations, modify or change its loan, OREO, accrual,
reserve, tax, litigation and real estate valuation policies and practices
(including loan classifications and levels of reserves) so as to be applied on
a basis that is consistent with that of AVB; provided, however, that no such
modifications or changes need be made prior to the satisfaction of all of the
conditions set forth in Article VIII; and further provided that in any event,
no accrual or reserve made by Westborough Financial or any of its Subsidiaries
pursuant to this Section 7.8 shall constitute or be deemed to be a breach,
violation of or failure to satisfy any representation, warranty, covenant,
agreement, condition or other provision of this Agreement or otherwise be
considered in determining whether any such breach, violation or failure to
satisfy shall have occurred. The recording of any such adjustments shall not be
deemed to imply any misstatement of previously furnished financial statements
or information and shall not be construed as concurrence of Westborough
Financial or its management with any such adjustments.
7.9. Indemnification.
(a) From and after the MHC Effective Time, AVB (the "Indemnifying
Party") shall indemnify and hold harmless each present and former
director, officer and employee of Westborough, determined as of the MHC
Effective Time (each an "Indemnified Party" and collectively the
"Indemnified Parties") against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior
to the MHC Effective Time, whether asserted or claimed prior to, at or
after the MHC Effective Time, arising in whole or in part out of, or
pertaining to the fact that he or she was a trustee, director, officer or
employee of Westborough or is or was serving at the request of
Westborough as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, including, without
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limitation, matters related to the negotiation, execution and performance
of this Agreement or any of the transactions contemplated hereby, to the
fullest extent which such Indemnified Parties would be entitled under the
Westborough Financial Charter and Westborough Financial Bylaws as in
effect as of the date of this Agreement.
(b) Any Indemnified Party wishing to claim indemnification under
this Section 7.9, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify the Indemnifying
Party, but the failure to so notify shall not relieve the Indemnifying
Party of any liability it may have to such Indemnified Party if such
failure does not actually prejudice the Indemnifying Party. In the event
of any such claim, action, suit, proceeding or investigation (whether
arising before or after the MHC Effective Time), (i) the Indemnifying
Party shall have the right to assume the defense thereof and the
Indemnifying Party shall not be liable to such Indemnified Parties for
any legal expenses of other counsel or any other expenses subsequently
incurred by such Indemnified Parties in connection with the defense
thereof, except that if the Indemnifying Party elects not to assume such
defense, or counsel for the Indemnified Parties advises that there are
issues which raise conflicts of interest between the Indemnifying Party
and the Indemnified Parties, the Indemnified Parties may retain counsel
which is reasonably satisfactory to the Indemnifying Party, and the
Indemnifying Party shall pay the reasonable fees and expenses of such
counsel for the Indemnified Parties (which may not exceed one firm for
all Indemnified Parties, unless the proposed counsel for the Indemnified
Parties reasonably advises the Indemnified Parties that there are issues
which raise conflicts of interest among such parties, in which case the
Indemnifying Party shall pay the reasonable fees and expenses of one
additional counsel to the extent necessary to avoid such conflict), (ii)
the Indemnified Parties will cooperate in the defense of any such matter,
(iii) the Indemnifying Party shall not be liable for any settlement
effected without its prior written consent, and (iv) the Indemnifying
Party shall have no obligation hereunder in the event that a federal or
state banking agency or a court of competent jurisdiction shall determine
that indemnification of an Indemnified Party by the Indemnifying Party in
the manner contemplated hereby is prohibited by applicable laws and
regulations.
(c) Prior the MHC Effective Time, AVB shall purchase an extended
reporting period endorsement under Westborough Financial's existing
directors' and officers' liability insurance coverage for Westborough
Financial's directors and officers in a form reasonably acceptable to
Westborough Financial which shall provide such directors and officers
with coverage for six years following the MHC Effective Time of not less
than the existing coverage under, and have other terms no materially less
favorable on the whole to the insured Persons than the directors' and
officers' liability insurance coverage presently maintained by
Westborough Financial.
(d) If AVB or any of its successors or assigns shall consolidate
with or merge into any other entity and shall not be the continuing or
surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any other entity, then and in each
case, proper provision shall be made so that the successors and assigns
of AVB shall assume the obligations set forth in this Section 7.9.
7.10. Employment and Benefit Matters.
(a) As soon as administratively practicable after the Mid-Tier
Effective Time, AVB shall take all reasonable action so that employees of
Westborough (i) shall receive employee
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benefits which are no less favorable than those generally afforded to
other employees of AVB or its Subsidiaries holding similar positions, and
(ii) shall be entitled to participate in each employee benefit plan,
program or arrangement of AVB of general applicability (the "AVB Benefit
Plans") to the same extent as similarly-situated employees of AVB and its
Subsidiaries (it being understood that inclusion of the employees of
Westborough in the AVB Benefit Plans may occur at different times with
respect to different plans). AVB shall cause each AVB Benefit Plan in
which employees of Westborough are eligible to participate to recognize,
for purposes of determining eligibility to participate in, the vesting of
benefits and for all other purposes (but not for accrual or amount of
benefits) under the AVB Benefit Plans, the service of such employees with
Westborough to the same extent as such service was credited for such
purpose by Westborough. Westborough Employees will be given credit for
past service with Westborough for purposes of AVB's vacation policy.
(b) Notwithstanding anything to the contrary contained in this
Agreement, AVB shall have sole discretion with respect to the
determination as to whether or when to terminate, merge or continue any
employee benefit plans and programs of Westborough. To the extent amounts
are distributable under Westborough Benefit Plans and constitute
"eligible rollover distributions" (as defined in Section 402(f)(2)(A) of
the Code), said amounts may be rolled over to any tax-qualified AVB
Benefit Plan that accepts rollover distributions or to any eligible
individual retirement account.
(c) Except as otherwise expressly provided in this Agreement, AVB
shall honor, and Surviving Corporation shall continue to be obligated to
perform, in accordance with their terms, all benefit obligations to, and
contractual rights of, current and former employees of Westborough
existing as of the Effective Date, as well as all employment, severance,
deferred compensation or "change-in-control" agreements, plans or
policies of Westborough, but only to the extent that such obligations are
set forth in Sections 4.1(b)(v) or 5.15(a) of Westborough's Disclosure
Schedules. AVB acknowledges that the consummation of the MHC Merger will
constitute a "change-in-control" of Westborough for purposes of any
employee benefit plans, agreements and arrangements of Westborough.
(d) If employees of Westborough become eligible to participate in a
medical, dental or health plan of AVB, AVB shall cause each such plan to
(i) waive any preexisting condition limitations to the extent such
conditions are covered under the applicable medical, health or dental
plans of AVB, (ii) waive any waiting period limitation or evidence of
insurability requirement which would otherwise be applicable to such
employee on or after the Mid-Tier Effective Time to the extent such
employee had satisfied any similar limitation or requirement under an
analogous Westborough Benefit Plan prior to the Mid-Tier Effective Time,
and (iii) provide full credit under such plans for any deductibles,
co-payments and out-of-pocket expenses incurred by the employees and
their beneficiaries during the portion of the calendar year prior to such
participation.
(e) Subject to Section 7.12(ii) hereof, neither AVB nor any AVB
Subsidiary shall have any obligation to continue the employment of any
employee of Westborough, and nothing contained in this Agreement shall
give any such Person the right to continued employment with AVB or a AVB
Subsidiary after the Mid-Tier Effective Time. An employee of Westborough
(other than an employee who is party to an employment agreement, a
severance agreement or a special termination agreement), shall be
entitled to receive severance payments in accordance with, and to
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the extent provided in, Westborough's merger severance benefit program
disclosed in Section 5.15(a) of Westborough's Disclosure Schedules.
(f) Westborough Financial maintains a tax-qualified employee stock
ownership plan for the benefit of employees of Westborough (the "ESOP").
The ESOP shall be terminated as of the Mid-Tier Effective Time pursuant
to the terms of the ESOP. As soon as practicable following the Mid-Tier
Effective Time, AVB shall file, or cause to be filed, all necessary
documents with the Internal Revenue Service for a favorable determination
letter for termination of the ESOP as of the Mid-Tier Effective Time. As
soon as practicable after the receipt of a favorable determination letter
for termination from the Internal Revenue Service, the account balances
in the ESOP shall be distributed to participants and beneficiaries in
accordance with applicable law and the ESOP. Prior to the Mid-Tier
Effective Time, contributions to, and payments on the loan of, the ESOP
shall be made consistent with past practices on the regularly scheduled
payment dates.
(g) Certain employees of Westborough jointly designated in writing
by Westborough and Assabet shall be entitled to receive a "retention"
bonus from Westborough or Assabet, as the case may be, in the event such
employee remains an employee of Westborough or Assabet, as applicable,
until the Effective Date (or in certain cases, through a post-closing
transition period, including systems conversion, if applicable), provided
that such employee satisfactorily fulfills the duties and
responsibilities of the position of such employee through the Effective
Date or thereafter, if applicable. The aggregate amount of such retention
bonuses shall be within the range set forth in Section 7.10(g) of
Assabet's Disclosure Schedules, and the employees entitled to receive
retention bonuses and the amount and timing of each such bonus shall be
mutually agreed upon in writing by the Chief Executive Officer of
Westborough Financial and the Chief Executive Officer of AVB. Retention
bonuses shall not be payable to any employee of Westborough who is a
party to an employment or other agreement that provides severance
benefits in the event of a change in control of Westborough.
7.11. Notification of Certain Matters. Each of Westborough and AVB shall
give prompt notice to the other of any fact, event or circumstance known to it
that (i) if it had been known as of the date of this Agreement, would have been
required to have been included in that party's Disclosure Schedules, (ii) is
reasonably likely, individually or taken together with all other facts, events
and circumstances known to it, to result in any Material Adverse Effect with
respect to it, or (iii) would cause or constitute a material breach of any of
its representations, warranties, covenants or agreements contained in this
Agreement.
7.12. Payments and Related Agreements. Concurrently with the execution of
this Agreement by Westborough and Assabet, (i) Assabet and Westborough have
entered into a Payments and Waiver Agreement with each of JFM, John L.
Casagrande and Vickie A. Bouvier in a form that has been Previously Disclosed
(the "Payments Agreements"), and (ii) AVB has entered into an Employment
Agreement with JFM in a form that has been Previously Disclosed (the
"Employment Agreement"). Subject to the terms of such Employment Agreement, JFM
will remain an operating officer of AVB and New Bank until his retirement.
7.13. Update of Disclosure Schedules. From time to time prior to the MHC
Effective Time, Westborough and Assabet will promptly supplement or amend their
respective Disclosure Schedules in writing to reflect any matter which, if
existing, occurring or known at the date of
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this Agreement, would have been required to be set forth or described in their
Disclosure Schedules or which is necessary to correct any information in their
Disclosure Schedules which has been rendered inaccurate thereby. In addition,
at or prior to the MHC Effective Time, Westborough shall provide Assabet, and
Assabet shall provide Westborough, with a complete written copy of their
respective Disclosure Schedules, marked to show any and all such supplements
and amendments, and/or, if no such supplements or amendments were made to a
particular Section of their Disclosure Schedules, Westborough shall provide
Assabet, and Assabet shall provide Westborough with a certificate signed on
behalf of them by a duly authorized officer to such effect. No supplement or
amendment to Westborough's or Assabet's Disclosure Schedules shall have any
effect for the purpose of determining satisfaction of the conditions set forth
in Section 8.2(a) or Section 8.3(a) hereof or compliance by Westborough or
Assabet with the covenants set forth in Article VII hereof.
7.14. Current Information.
(a) As soon as practicable, Westborough will furnish to Assabet,
and Assabet shall furnish to Westborough, copies of all such financial
statements and reports as it shall send to its shareholders, the SEC or
any other Governmental Authority, to the extent any such reports
furnished to any such Governmental Authority are not confidential and
except as legally prohibited thereby, and Westborough will furnish to
Assabet, and Assabet will furnish to Westborough, such additional
financial data as Assabet or Westborough may reasonably request.
(b) Promptly upon receipt thereof, Westborough will furnish to
Assabet, and Assabet will furnish to Westborough, copies of all internal
control reports submitted to Westborough and Assabet, respectively, by
independent auditors in connection with each annual, interim or special
audit of the books of Westborough and Assabet, respectively, made by such
auditors.
(c) Westborough will promptly notify Assabet, and Assabet will
promptly notify Westborough, of any material change in the normal course
of business or in the operation of the properties of Westborough or
Assabet, respectively, and of any governmental complaints, investigations
or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of material litigation
involving Westborough or Assabet, respectively, and will keep each other
reasonably informed of such events.
7.15. Loan Loss Reserves. During the period from the date of this
Agreement to the MHC Effective Time, Westborough Bank shall provide Hudson, and
Hudson shall provide Westborough Bank, with any information Hudson or
Westborough Bank shall reasonably request regarding each other's Loan Loss
Reserves.
7.16. ALCO Management. Westborough Bank and Hudson agree to manage their
assets and liabilities in accordance with their asset and liability management
policies as in effect on the date of this Agreement, unless otherwise agreed by
the parties. Neither Westborough Bank nor Hudson shall amend or modify such
policy without the express written consent of the other party. Westborough Bank
and Hudson agree to consult on investment programs to be administered by
Westborough Bank and Hudson, respectively.
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ARTICLE VIII.
CONDITIONS TO CONSUMMATION OF THE MERGERS
8.1. Conditions to Each Party's Obligation to Effect the Mergers. The
respective obligations of each of the parties hereto to consummate the MHC
Merger and the Mid-Tier Merger is subject to the fulfillment, where permitted
by law, or written waiver by the parties hereto prior to the Closing Date of
each of the following conditions:
(a) Shareholder Approval. This Agreement shall have been duly
approved by holders of not less than two-thirds of the outstanding
Westborough Financial Common Stock entitled to vote at the Westborough
Financial Meeting and any other approvals set forth in Section 5.4 of
Westborough's Disclosure Schedules shall have been received.
(b) Corporator Approvals. This Agreement shall have been duly
approved by not less than two-thirds of the corporators of Westborough
MHC and not less than two-thirds of the corporators of AVB at meetings
duly held for that purpose.
(c) Regulatory Approvals. All regulatory approvals required to
consummate the Transactions shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect
thereof shall have expired, and no such approval shall contain any
conditions, restrictions or requirements which the AVB Board or the
Westborough Financial Board reasonably determines in good faith would,
individually or in the aggregate, materially reduce the benefits of the
Transactions to such a degree that AVB or Westborough Financial would not
have entered into this Agreement had such conditions, restrictions or
requirements been known at the date of this Agreement.
(d) No Injunction. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) which is in effect
and prohibits consummation of the Transactions.
(e) Tax Opinions. AVB and Merger Sub shall have received a letter
setting forth the written opinion of Foley Hoag LLP, in form and
substance reasonably satisfactory to AVB and Merger Sub, dated as of the
Closing Date, and Westborough shall have received a letter setting forth
the written opinion of Thacher Proffitt & Wood LLP, in form and substance
reasonably satisfactory to Westborough, dated as of the Closing Date, in
each case substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such letter, the MHC Merger
will qualify as a tax-free reorganization described in Section 368(a) of
the Code, and neither the Mid-Tier Merger nor the Bank Merger will
adversely affect such qualification.
8.2. Conditions to Obligation of Westborough. The obligation of
Westborough to consummate the MHC Merger and the Mid-Tier Merger is also
subject to the fulfillment or written waiver by Westborough prior to the
Closing Date of each of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Assabet in this Agreement that is qualified as to
materiality shall be true and correct and each such representation or
warranty that is not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement, as
applicable, and (except to the extent such
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representations and warranties speak as of an earlier date, with respect
to which such representations and warranties shall be true and correct in
all material respects as of such earlier date) as of the Closing Date as
though made on and as of the Closing Date, and Westborough shall have
received a certificate, dated the Effective Date, signed by the Chief
Executive Officer and the Chief Financial Officer of AVB and Merger Sub
to such effect.
(b) Performance of Obligations of Assabet. Assabet shall have
performed all obligations required to be performed by it under this
Agreement at or prior to the MHC Effective Time and the Mid-Tier
Effective Time, and Westborough shall have received a certificate, dated
the Effective Date, to such effect signed by the Chief Executive Officer
and Chief Financial Officer of AVB, Hudson and Merger Sub.
(c) Absence of Assabet Changes. From the date of this Agreement
through the Closing Date, there shall not have occurred any change that
individually or in the aggregate has or could reasonably be expected to
have a Material Adverse Effect on Assabet.
(d) Other Actions. AVB and Merger Sub shall have furnished
Westborough with such certificates of its respective officers or others
and such other documents to evidence fulfillment of the conditions set
forth in Sections 8.1 and 8.2 as Westborough may reasonably request.
8.3. Conditions to Obligations of AVB. The obligations of AVB and Merger
Sub to consummate the MHC Merger and the Mid-Tier Merger are also subject to
the fulfillment or written waiver by AVB and Merger Sub prior to the Closing
Date of each of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Westborough in this Agreement which is qualified as to
materiality shall be true and correct and each such representation or
warranty that is not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement, and
(except to the extent such representations and warranties speak as of an
earlier date, with respect to which such representations and warranties
shall be true and correct in all material respects as of such earlier
date) as of the Closing Date as though made on and as of the Closing
Date. AVB and Merger Sub shall have received a certificate, dated the
Effective Date, signed by the Chief Executive Officer and the Chief
Financial Officer of Westborough to such effect.
(b) Performance of Obligations of Westborough. Westborough shall
have performed all obligations required to be performed by it under this
Agreement at or prior to the MHC Effective Time and the Mid-Tier
Effective Time, and AVB and Merger Sub shall have received a certificate,
dated the Effective Date, to such effect signed by the Chief Executive
Officer and Chief Financial Officer of Westborough MHC, Westborough
Financial and Westborough Bank.
(c) No Parachute Payments. Westborough shall not have taken any
action or made any payments that would result, either individually or in
the aggregate, in any violation of the requirements set forth in Section
4.1(b)(x).
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(d) Absence of Westborough Changes. From the date of this Agreement
through the Closing Date, there shall not have occurred any change that
individually or in the aggregate has or could reasonably be expected to
have a Material Adverse Effect on Westborough.
(e) Other Actions. Westborough shall have furnished AVB and Merger
Sub with such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in Sections
8.1 and 8.3 as AVB or Merger Sub may reasonably request.
ARTICLE IX.
TERMINATION
9.1. Termination. This Agreement may be terminated and the MHC Merger,
the Mid-Tier Merger and the other transactions contemplated by this Agreement
may be abandoned at any time prior to the MHC Effective Time, notwithstanding
any requisite approval and adoption of this Agreement and the transactions
contemplated in this Agreement by the shareholders of Westborough Financial:
(a) Mutual Consent. By mutual consent of AVB and Westborough, if
the Board of Directors of each so determines by vote of a majority of the
members of its entire Board.
(b) Delay. By either AVB or Westborough (if its Board of Directors
so determines by vote of a majority of the members of its entire Board)
if the MHC Effective Time shall not have occurred on or before June 30,
2007 or such later date as the parties may have agreed upon in writing
(the "Expiration Date"), except to the extent that the failure of the MHC
Merger then to be consummated arises out of or results from the knowing
action or inaction of (i) the party seeking to terminate pursuant to this
Section 9.1(b), or (ii) any of the Voting Shareholders (if Westborough is
the party seeking to terminate), which action or inaction is in violation
of its obligations under this Agreement or his, her or its obligations
under the relevant Voting Agreement.
(c) No Approval. By Westborough or AVB, if its Board of Directors
so determines by a vote of a majority of the members of its entire Board,
in the event the approval of any Governmental Authority required for
consummation of the MHC Merger, the Mid-Tier Merger or the Bank Merger
and the other transactions contemplated by this Agreement shall have been
denied by final nonappealable action of such Governmental Authority or an
application therefor shall have been permanently withdrawn at the request
of a Governmental Authority.
(d) Breach. At any time prior to the MHC Effective Time, by AVB or
Westborough (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement
contained in this Agreement) if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event of:
(i) a material breach by AVB or Westborough, as the case may be, of any
representation or warranty contained in this Agreement, which breach
would constitute, if occurring or continuing on the Closing Date, the
failure of the conditions set forth in Section 8.2(a) or 8.3(a), as the
case may be, and which cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party or parties of
such breach; or (ii) a material breach by AVB or Westborough, as the case
may be, of any of the covenants or agreements contained in this
Agreement, which breach
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cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party or parties of such breach.
(e) No Shareholder or Corporator Approval. By either AVB or
Westborough (provided that the terminating party shall not be in material
breach of any of its obligations under Section 7.2 or 7.3 ) if (i) any
approval of the shareholders of Westborough Financial required for the
consummation of the Mid-Tier Merger shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting
of Westborough Financial's shareholders or at any adjournment or
postponement thereof, or, if such meeting of shareholders shall not have
been held or shall have been canceled prior to the Expiration Date; (ii)
any approval of the corporators of Westborough MHC required for the
consummation of the MHC Merger shall not have been obtained by reason of
the failure to obtain the required vote at a duly held meeting of
Westborough MHC's corporators or at any adjournment or postponement
thereof, or, if such meeting of corporators shall not have been held or
shall have been canceled prior to the Expiration Date; or (iii) any
approval of the corporators of AVB required for the consummation of the
MHC Merger shall not have been obtained by reason of the failure to
obtain the required vote at a duly held meeting of AVB's corporators or
at any adjournment or postponement thereof, or, if such meeting of
corporators shall not have been held or shall have been canceled prior to
the Expiration Date.
(f) Westborough Failure to Recommend. By AVB (A) if, at any time
prior to the Westborough Financial Meeting, (i) Westborough shall have
materially breached Section 7.7, (ii) Westborough Financial Board shall
have failed to make its recommendation referred to in Section 7.2,
withdrawn such recommendation or modified or changed such recommendation
in a manner adverse in any respect to the interests of AVB (including,
without limitation, recommending an Acquisition Proposal in compliance
with Section 7.7), or (iii) Westborough shall have materially breached
its obligations to call, give notice of, convene and hold the Westborough
Financial Meeting in accordance with Section 7.2, or (B) if Westborough
MHC shall have (i) failed to recommend (or withdraws such recommendation
or modifies or changes such recommendation in a manner adverse in any
respect to the interests of Assabet) that Westborough MHC's corporators
approve the MHC Merger, or (ii) materially breached its obligation to
call, give notice of, convene and hold a meeting of corporators to
approve the MHC Merger.
(g) Certain Tender Offers or other Transactions. By AVB, (A) if a
Tender Offer is commenced, other than by AVB or a Subsidiary thereof, and
the Westborough Financial Board recommends (in compliance with Section
7.7) that the shareholders of Westborough Financial tender their shares
in such Tender Offer or otherwise fails to recommend that such
shareholders reject such Tender Offer within the 10 Business Day period
specified in Rule 14e-2(a) under the Exchange Act, or (B) if Westborough
enters into an agreement to effect a Change in Control Transaction.
(h) AVB Failure to Recommend. By Westborough if (i) AVB shall have
failed to recommend (or withdraws such recommendation or modifies or
changes such recommendation in a manner adverse in any respect to the
interests of Westborough) that AVB's corporators approve the MHC Merger,
or (ii) AVB shall have materially breached its obligations to call, give
notice of, convene and hold a meeting of corporators to approve the MHC
Merger.
9.2. Effect of Termination; Expenses.
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(a) In the event of the termination of this Agreement pursuant to
Section 9.1, this Agreement shall forthwith become void (except as set
forth in Section 10.1), subject to Section 9.3, and there shall be no
liability on the part of any party hereto, except (i) each party shall
remain liable in any action at law or otherwise for any liabilities or
damages arising out of its gross negligence or willful breach of any
provision of this Agreement, and (ii) as otherwise provided in this
Section 9.2.
(b) If this Agreement is terminated as a result of any breach of a
representation, warranty, covenant or other agreement which is caused by
the gross negligence or willful or intentional breach of a party hereto,
such party shall be liable to the other party for all out-of-pocket costs
and expenses, including, without limitation, the reasonable fees and
expenses of lawyers, accountants and investment bankers, incurred by such
other party in connection with the entering into of this Agreement and
the carrying out of any and all acts contemplated hereunder ("Expenses");
provided, however, that the maximum amount any party shall be liable to
the other party for Expenses pursuant to this Section 9.2(b) shall be
$500,000. The payment of Expenses is not an exclusive remedy, but is in
addition to any other rights or remedies available to the parties hereto
(whether at law or in equity) arising out of the gross negligence of a
party or willful breach of any provision of this Agreement or under this
Agreement.
9.3. Westborough Special Payment. As a condition of AVB's willingness,
and in order to induce AVB, to enter into this Agreement and to reimburse AVB
for incurring the damages, costs and expenses related to entering into this
Agreement and consummating the transactions contemplated by this Agreement,
Westborough will pay to AVB an amount equal to 5% of Aggregate Merger
Consideration (as such amount may be adjusted pursuant to Section 9.3(d)), the
"Westborough Special Payment"), as follows:
(a) If this Agreement shall have been terminated by AVB pursuant to
Section 9.1(f) or 9.1(g), then Westborough shall pay the Westborough
Special Payment.
(b) If this Agreement shall have been terminated
(i) by AVB pursuant to Section 9.1(d) because of
Westborough's willful breach of any representation, warranty,
covenant or agreement under this Agreement;
(ii) by AVB or Westborough pursuant to Section 9.1(e)(i);
(iii) by AVB or Westborough pursuant to Section 9.1(b)
without a vote of the shareholders of Westborough contemplated by
this Agreement having occurred, and in any such case an Acquisition
Proposal shall have been publicly announced or otherwise
communicated or made known to the senior management or the
Westborough Financial Board (or any Person shall have publicly
announced, communicated or made known an intention, whether or not
conditional, to make an Acquisition Proposal) at any time after the
date of this Agreement and on or prior to the date of the meeting
of Westborough Financial shareholders to approve the Mid-Tier
Merger, in the case of clause (ii), or the date of termination, in
the case of clauses (i) or (iii), then if and only if within 12
months after such termination Westborough enters into a definitive
agreement with respect to a Change in Control Transaction, or a
Change in Control Transaction is
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consummated, then Westborough shall pay the Westborough Special
Payment payable to AVB.
(c) Exclusivity of Remedy. Notwithstanding anything to the contrary
set forth in this Agreement, if Westborough pays or causes to be paid to
AVB or to Hudson the Westborough Special Payment, Westborough will not
have any further obligations or liabilities to AVB or Hudson with respect
to this Agreement or the transactions contemplated by this Agreement.
(d) Adjustment to Amount of Westborough Special Payment. The amount
of Westborough Special Payment shall be reduced by the amount of any
Expenses paid by Westborough to AVB pursuant to Section 9.2(b).
(e) Effect on Standstill Arrangements. In the event Westborough
pays to AVB the Westborough Special Payment, any standstill provisions
contained in the Confidentiality Agreement referred to in Section 7.7
shall terminate.
(f) Payment Required. Any payment required under this Section 9.3
will be payable by Westborough to AVB (by wire transfer of immediately
available funds to an account designated by AVB) within five Business
Days after demand by AVB.
ARTICLE X.
MISCELLANEOUS
10.1. Survival. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the MHC Effective Time (other than
agreements or covenants contained in this Agreement that by their express terms
are to be performed after the MHC Effective Time). If this Agreement is
terminated prior to the MHC Effective Time, no representations, warranties,
agreements or covenants contained in this Agreement shall survive such
termination (other than Sections 7.6(b) and 9.3, and this Article X, all of
which (other than Section 10.12) shall survive any such termination). The
Voting Agreements shall terminate in accordance with the terms thereof.
10.2. Waiver; Amendment. Prior to the MHC Effective Time, any provision
of this Agreement may be (i) waived by the party benefited by the provision or
(ii) amended or modified at any time, by an agreement in writing among the
parties hereto executed in the same manner as this Agreement, except that after
the Westborough Financial Meeting, no amendment shall be made which changes in
kind or reduces in amount the Aggregate Merger Consideration without the
further approval of Westborough Financial's shareholders.
10.3. Counterparts and Facsimile Signatures. This Agreement may be
executed and delivered in any number of counterparts. When each party has
signed and delivered at least one counterpart to all other parties, each
counterpart shall be deemed an original and all counterparts, taken together,
shall constitute one and the same agreement, which shall be binding and
effective on the parties hereto. This Agreement shall not become binding on the
parties hereto unless it has been executed by authorized representatives of all
parties. Facsimile execution and delivery of this Agreement and any Exhibits,
Schedules and Appendices by any of the parties shall be legal, valid and
binding execution and delivery of such document for all purposes.
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10.4. Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of The Commonwealth of Massachusetts that are
applicable to contracts made and to be performed entirely within such state.
10.5. Expenses. Except as otherwise provided in Section 9.2, each party
hereto will bear all expenses incurred by it in connection with this Agreement
and the transactions contemplated hereby, including fees and expenses of its
own financial consultants, accountants and counsel.
10.6. Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to Westborough to:
Westborough Financial Services, Inc.
100 East Main Street
Westborough, Massachusetts 01581
Attention: President & Chief Executive Officer
Fax: (508) 870-0499
With a copy to:
Thacher Proffitt & Wood LLP
1700 Pennsylvania Avenue
Washington, DC 20006
Attention: Richard A. Schaberg
Fax: (202) 626-1930
If to AVB, Hudson or Merger Sub to:
Assabet Valley Bancorp
42 Main Street
Hudson, Massachusetts 01749
Attention: President & Chief Executive Officer
Fax: (978) 562-8581
With a copy to:
Foley Hoag LLP
155 Seaport Boulevard
Boston, Massachusetts 02210
Attention: Peter W. Coogan and Carol Hempfling Pratt
Fax: (617) 832-7000
10.7. Entire Understanding; No Third Party Beneficiaries. This Agreement,
the Bank Merger Agreement and the Voting Agreements represent the entire
understanding of the parties hereto and thereto with reference to the
transactions contemplated hereby and thereby, and this
A-78
Agreement, the Bank Merger Agreement and the Voting Agreements supersede any
and all other oral or written agreements heretofore made. Except for the
Indemnified Parties' right to enforce AVB's obligation under Section 7.9, which
are expressly intended to be for the irrevocable benefit of, and shall be
enforceable by, each Indemnified Party and his or her heirs and
representatives, and the severance benefits contemplated by Section 7.10(e),
nothing in this Agreement, expressed or implied, is intended to confer upon any
Person, other than the parties hereto or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
10.8. Severability. Except to the extent that application of this Section
10.8 would have a Material Adverse Effect on Westborough or AVB, any term or
provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable. In all such cases, the parties shall use their reasonable best
efforts to substitute a valid, legal and enforceable provision which, insofar
as practicable, implements the original purposes and intents of this Agreement.
10.9. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
10.10. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation." References to sections include
subsections which are part of the related sections (e.g., a section numbered
"Section 5.5(a)" would be part of "Section 5.5" and references to "Section 5.5"
would also refer to material contained in the subsection described as "Section
5.5(a)").
10.11. Assignment. No party may assign either this Agreement or any of
its rights, interests or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
10.12. Alternative Structure. Notwithstanding any provision of this
Agreement to the contrary, the parties may at any time modify the structure of
the acquisition of Westborough set forth in this Agreement, subject to the
prior written consent of both parties, which consent shall not be unreasonably
withheld or delayed, provided that (i) the Aggregate Merger Consideration
A-79
to be paid to the holders of Westborough Financial Common Stock is not thereby
changed in kind or reduced in amount as a result of such modification, (ii)
such modification will not adversely affect the tax treatment of Westborough
Financial's shareholders as a result of receiving the Aggregate Merger
Consideration, and (iii) such modification will not materially delay or
jeopardize receipt of any required approvals of Governmental Authorities.
[Remainder of page has intentionally been left blank]
A-80
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
ASSABET VALLEY BANCORP
By: /s/ Oliver F. Nunes, Jr.
---------------------------------------------
Name: Oliver F. Nunes Jr.
Title: President
By: /s/ Mark R. O'Connell
---------------------------------------------
Name: Mark R. O'Connell
Title: Treasurer
HUDWEST FINANCIAL SERVICES, INC.
By: /s/ Mark R. O'Connell
---------------------------------------------
Name: Mark R. O'Connell
Title: President and Chief Executive Officer
By: /s/Margaret Sullivan
---------------------------------------------
Name: Margaret Sullivan
Title: Treasurer
HUDSON SAVINGS BANK
By: /s/ Mark R. O'Connell
---------------------------------------------
Name: Mark R. O'Connell
Title: President and Chief Executive Officer
By: /s/ Margaret Sullivan
---------------------------------------------
Name: Margaret Sullivan
Title: Treasurer
AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE
WESTBOROUGH MHC
By: /s/Joseph F. MacDonough
---------------------------------------------
Name: Joseph F. MacDonough
Title: President & Chief Executive Officer
By: /s/ John L. Casagrande
---------------------------------------------
Name: John L. Casagrande
Title: Treasurer
WESTBOROUGH FINANCIAL SERVICES, INC.
By: /s/ Joseph F. MacDonough
---------------------------------------------
Name: Joseph F. MacDonough
Title: President & Chief Executive Officer
By: /s/ John L. Casagrande
---------------------------------------------
Name: John L. Casagrande
Title: Treasurer
THE WESTBOROUGH BANK
By: /s/ Joseph F. MacDonough
---------------------------------------------
Name: Joseph F. MacDonough
Title: President & Chief Executive Officer
By: /s/ John L. Casagrande
---------------------------------------------
Name: John L. Casagrande
Title: Treasurer
AGREEMENT AND PLAN OF MERGER SIGNATURE PAGE
ANNEX A
VOTING SHAREHOLDERS
-------------------------------------------------------------------
Shareholder Shares Options
-------------------------------------------------------------------
James N. Ball 1,150* 930**
-------------------------------------------------------------------
Nelson P. Ball 450 1,000
-------------------------------------------------------------------
Edward S. Bilzerian 3,450 1,000
-------------------------------------------------------------------
Nancy M. Carlson 650* 930**
-------------------------------------------------------------------
David E. Carlstrom 3,350 600
-------------------------------------------------------------------
John L. Casagrande 2,402 2,700
-------------------------------------------------------------------
Benjamin H. Colonero, Jr. 490* 930**
-------------------------------------------------------------------
Robert A. Klugman 2,450 1,000
-------------------------------------------------------------------
Jeffrey B. Leland 600 0
-------------------------------------------------------------------
Joseph F. MacDonough 12,384 9,600
-------------------------------------------------------------------
Paul F. McGrath 5,450 400
-------------------------------------------------------------------
Charlotte C. Spinney 2,140 900
-------------------------------------------------------------------
Phyllis A. Stone 3,100 0
-------------------------------------------------------------------
James E Tashjian 3,450 1,000
-------------------------------------------------------------------
Westborough Bancorp, MHC 1,027,893 0
-------------------------------------------------------------------
* Includes 450 shares of unvested restricted stock.
** Includes 930 shares of unvested stock options.
ANNEX B
-------
FORM OF VOTING AGREEMENT
VOTING AGREEMENT ("Agreement"), dated as of November ____, 2006, by and
among Assabet Valley Bancorp, a Massachusetts mutual holding company ("AVB"),
Westborough Financial Services, Inc., a Massachusetts corporation ("Company"),
and the undersigned holder ("Company Shareholder") of capital stock of the
Company ("Company Stock").
WHEREAS, AVB, the Company and certain others are about to enter into an
Agreement and Plan of Merger, dated as of the date hereof (as such agreement
may be subsequently amended or modified, the "Agreement and Plan of Merger"),
providing for the merger of Company with a specially-formed, wholly-owned
subsidiary of AVB (the "Mid-Tier Merger");
WHEREAS, Company Shareholder beneficially owns and has sole or shared
voting power with respect to the number of shares of Company Stock, and holds
stock options or other rights to acquire the number of Shareholder Equity
Interests (as defined in Section 3), opposite such Company Shareholder's name
on Schedule 1 attached hereto;
WHEREAS, AVB has informed Company Shareholder that it is a condition to
AVB's entering into the Agreement and Plan of Merger that Company Shareholder
execute and deliver this Agreement on the date hereof; and
WHEREAS, all capitalized terms used in this Agreement without definition
herein shall have the meanings ascribed to them in the Agreement and Plan of
Merger.
NOW, THEREFORE, in consideration of, and as a condition to, AVB entering
into the Agreement and Plan of Merger and proceeding with the transactions
contemplated thereby, and in consideration of the expenses incurred and to be
incurred by AVB in connection therewith, Company Shareholder and AVB agree as
follows:
1. Agreement to Vote Shareholder Equity Interests. Company Shareholder
agrees that, from the date hereof until the Expiration Date (as defined in
Section 2), at any meeting of the stockholders of Company, or in connection
with any written consent of the stockholders of Company, with respect to the
Mid-Tier Merger, the Agreement and Plan of Merger, or any Acquisition Proposal
or any Unsanctioned Agreement (as such term is defined in Section 1(b)) or any
adjournment of any such meeting, Company Shareholder shall:
(a) Appear at such meeting or otherwise cause any Shareholder
Equity Interests to be counted as present thereat for purposes of
calculating a quorum; and
(b) From and after the date hereof until the Expiration Date, vote
(or cause to be voted) or deliver a written consent (or cause a written
consent to be delivered) covering all of the Shareholder Equity Interests
that such Company Shareholder shall be entitled to so vote, whether such
Shareholder Equity Interests are beneficially owned by such Company
Shareholder on the date of this Agreement or are subsequently acquired,
(i) in favor of adoption and approval of the Agreement and Plan of Merger
and the transactions
contemplated thereby, including the Mid-Tier Merger; (ii) against any
action or agreement that would result in a breach in any material respect
of any covenant, representation, or warranty or any other obligation or
agreement of Company contained in the Agreement and Plan of Merger or of
Company Shareholder contained in this Agreement; and (iii) against any
Acquisition Proposal or any agreement or transaction that is intended, or
could reasonably be expected, to materially impede, interfere with,
delay, postpone, discourage or materially and adversely affect the
consummation of the Mid-Tier Merger or any of the transactions
contemplated by the Agreement and Plan of Merger ("Unsanctioned
Agreement").
2. Expiration Date. As used in this Agreement, the term "Expiration Date"
shall mean the earlier of (i) the consummation of the Mid-Tier Merger and (ii)
the termination of the Agreement and Plan of Merger in accordance with Article
IX thereof. Upon termination or expiration of this Agreement, no party shall
have any further obligations or liabilities under this Agreement; provided,
however, that such termination or expiration shall not relieve any party from
liability for any willful breach of this Agreement prior to termination hereof.
3. Agreement to Retain Shareholder Equity Interests. From and after the
date hereof until the Expiration Date, Company Shareholder shall not, except as
contemplated by this Agreement or the Agreement and Plan of Merger, directly or
indirectly, sell, assign, transfer or otherwise dispose of (including, without
limitation, by the voluntary creation of a Lien (as defined in Section 4(c))),
or enter into any contract, option, commitment or other arrangement or
understanding with respect to the sale, transfer, assignment or other
disposition of, any Company Stock or option or right to obtain Company Stock or
any interest convertible into, or exercisable for, Company Stock or the right
to obtain Company Stock or such rights that may at any time be owned (or could
be acquired) by Company Shareholder (collectively, the "Shareholder Equity
Interests"), whether such Shareholder Equity Interests are held by Company
Shareholder on the date of this Agreement or are subsequently acquired prior to
any meeting (or written consent in lieu thereof) of stockholders of the Company
prior to the Expiration Date, whether by the exercise of any option or right to
obtain Shareholder Equity Interests or otherwise. Notwithstanding the
foregoing, Company Shareholder may make (a) transfers by will, or by operation
of law, in which case this Agreement shall bind the transferee, (b) transfers
to any transferee that has agreed in writing to be bound by the terms of, and
perform the obligations of Company Shareholder under, this Agreement, and (c)
as AVB may otherwise agree in writing in its sole discretion.
4. Representations and Warranties of Company Shareholder. Company
Shareholder hereby represents and warrants to AVB as follows:
(a) Company Shareholder has the complete and unrestricted power and
the unqualified right to enter into and perform the terms of this
Agreement;
(b) This Agreement (assuming this Agreement constitutes a valid and
binding agreement of AVB) is a valid and legally binding agreement with
respect to Company Shareholder, enforceable in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent
B-2
transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles);
(c) Company Shareholder beneficially owns the number of Shareholder
Equity Interests indicated opposite such Company Shareholder's name on
Schedule 1, free and clear of any liens, claims, charges or other
encumbrances or restrictions of any kind whatsoever ("Liens"), and has
sole or shared, and otherwise unrestricted, voting power with respect to
such Shareholder Equity Interests;
(d) Company Shareholder understands that at the Effective Time of
the Mid-Tier Merger, each outstanding Shareholder Equity Interest listed
on Schedule 1 shall be cancelled and converted into the right to receive
a cash amount to be determined in accordance with the terms and
provisions of the Agreement and Plan of Merger;
(e) The execution and delivery of this Agreement by Company
Shareholder does not, and the performance by Company Shareholder of his,
her or its obligations hereunder and the consummation by Company
Shareholder of the transactions contemplated hereby will not, violate or
conflict with, or constitute a default under, any agreement, instrument,
contract or other obligation or any order, arbitration award, judgment or
decree to which Company Shareholder is a party or by which Company
Shareholder is bound, or any statute, rule or regulation to which Company
Shareholder is subject or, in the event that Company Shareholder is a
corporation, partnership, trust or other entity, any by-law or other
organizational document of Company Shareholder; and
(f) Company Shareholder has no claim (or any basis therefor), in
Company Shareholder's capacity as a stockholder or former stockholder, or
option holder or former option holder, of Company, in any way arising out
of or based upon: (i) ownership or rights to ownership of any Shareholder
Equity Interests, other than Company Shareholder's right to receive the
consideration to be paid to Company Shareholder under the Agreement and
Plan of Merger with respect to the Shareholder Equity Interests listed on
Schedule 1; (ii) any rights to obtain additional Shareholder Equity
Interests; or (iii) any claim that any Shareholder Equity Interests were
wrongfully repurchased by Company.
5. Irrevocable Proxy. Subject to the last sentence of this Section 5, by
execution of this Agreement, Company Shareholder does hereby appoint AVB with
full power of substitution and resubstitution, as Company Shareholder's true
and lawful attorney and irrevocable proxy, to the full extent of the
undersigned's rights with respect to the Shareholder Equity Interests, to vote,
if Company Shareholder is unable to perform his, her or its obligations under
this Agreement, each of such Shareholder Equity Interests solely with respect
to the matters and in the manner set forth in Section 1 hereof. Company
Shareholder intends this proxy to be irrevocable and coupled with an interest
hereafter until the Expiration Date and hereby revokes any proxy previously
granted by Company Shareholder with respect to the Shareholder Equity
Interests. Notwithstanding anything contained herein to the contrary, this
irrevocable proxy shall automatically terminate upon the Expiration Date of
this Agreement.
B-3
6. No Solicitation. From and after the date hereof until the Expiration
Date, Company Shareholder, in his, her or its capacity as a stockholder of
Company, shall not, nor to the extent applicable to Company Shareholder, shall
he, she or it permit any of his, her or its affiliates to, nor shall he, she or
it authorize any partner, officer, director, advisor or representative of
Company Shareholder or any of its affiliates to (a) solicit, initiate,
knowingly encourage or knowingly facilitate any inquiries with respect to, or
the making, submission or announcement of, any offer or proposal for an
Acquisition Proposal or any Unsanctioned Agreement, (b) participate in any
discussions or negotiations regarding, or furnish to any Person any nonpublic
information with respect to, any Acquisition Proposal or Unsanctioned
Agreement, (c) engage in any discussions with any Person with respect to any
Acquisition Proposal or Unsanctioned Agreement, except as to the existence of
these provisions, (d) approve, endorse or recommend any Acquisition Proposal or
Unsanctioned Agreement (except to the extent specifically permitted in the
Agreement and Plan of Merger) or (e) enter into any letter of intent or similar
document or any Contract contemplating any Acquisition Proposal or transaction
contemplated thereby (other than the Agreement and Plan of Merger) or any
Unsanctioned Agreement.
7. Specific Enforcement. Company Shareholder has signed this Agreement
intending to be legally bound thereby. Company Shareholder expressly agrees
that this Agreement shall be specifically enforceable in any court of competent
jurisdiction in accordance with its terms against Company Shareholder. All of
the covenants and agreements contained in this Agreement shall be binding upon,
and inure to the benefit of, the respective parties and their permitted
successors, assigns, heirs, executors, administrators and other legal
representatives, as the case may be.
8. Counterparts and Facsimile Signatures. This Agreement may be executed
in one or more counterparts, each of which will be deemed an original but all
of which together shall constitute one and the same instrument. Facsimile
execution and delivery of this Agreement by any of the parties shall be legal,
valid and binding execution and delivery of this Agreement for all purposes.
9. No Waivers. No waivers of any breach of this Agreement extended by AVB
to Company Shareholder shall be construed as a waiver of any rights or remedies
of AVB with respect to any other stockholder of Company who has executed an
agreement substantially in the form of this Agreement with respect to Company
Stock (or options or other rights to obtain Company Stock) held or subsequently
held by such stockholder, or with respect to any subsequent breach of Company
Shareholder or any other such stockholder of Company. No waiver of any
provisions hereof by either party shall be deemed a waiver of any other
provisions hereof by any such party, nor shall any such waiver be deemed a
continuing waiver of any provision hereof by such party.
10. Miscellaneous. This Agreement is to be governed by the laws of The
Commonwealth of Massachusetts, without giving effect to the principles of
conflicts of laws thereof. If any provision hereof is deemed unenforceable, the
enforceability of the other provisions hereof shall not be affected.
B-4
11. Capacity as Company Shareholder. Company Shareholder signs this
Agreement solely in Company Shareholder's capacity as the owner of the
Shareholder Equity Interests, and not in Company Shareholder's capacity as a
director, officer or employee of Company or any of its subsidiaries or in
Company Shareholder's capacity as a trustee or fiduciary of any ERISA plan or
trust. Notwithstanding anything herein to the contrary, nothing herein shall in
any way restrict a director and/or officer of Company in the exercise of his or
her fiduciary duties, consistent with the terms of the Agreement and Plan of
Merger, as a director and/or officer of Company or in his or her capacity as a
trustee or fiduciary of any ERISA plan or trust, or prevent or be construed to
create any obligation on the part of any director and/or officer of Company or
any trustee or fiduciary of any ERISA plan or trust from taking any action in
his or her capacity as a director of Company.
12. No Agreement Until Agreement and Plan of Merger Executed.
Irrespective of negotiations among the parties or the exchanging of drafts of
this Agreement, this Agreement shall not constitute or be deemed to evidence a
contract, agreement, arrangement or understanding among the parties hereto
unless and until the Agreement and Plan of Merger is executed by all parties
thereto and this Agreement is executed by the parties whose names are set forth
on the signature page hereof.
13. Entire Agreement. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by each party hereto.
[SIGNATURE PAGES FOLLOW]
B-5
EXECUTED as of the date first above written.
ASSABET VALLEY BANCORP
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
WESTBOROUGH FINANCIAL SERVICES, INC.
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
SIGNATURE PAGE TO VOTING AGREEMENT
EXECUTED as of the date first above written.
COMPANY SHAREHOLDER
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
SIGNATURE PAGE TO VOTING AGREEMENT
SCHEDULE 1
Company Shareholder Shareholder Equity Interests Options
------------------- ---------------------------- -------
ANNEX C
OFFICERS AND DIRECTORS OF SURVIVING CORPORATION
President: Joseph MacDonough
Treasurer: Mark O'Connell
Secretary: Carol Parker
Directors: Joseph MacDonough
Mark O'Connell
Dave Lamson
Fred Williams
James Tashjian
ANNEX D
NEW BANK COMMITTEE STRUCTURE
Executive (7) Lending Review (6)
- ------------- ------------------
5 HSB - Chair 4 HSB - Chair
2 WB 2 WB
Personnel (6) Trust/NDIP (6)
- ------------- --------------
4 HSB 3 HSB
2 WB - Chair 3 WB - Chair
CRA (6) ALCO (6)
- ------- --------
3 HSB - Chair 3 HSB - Chair
3 WB 3 WB
Audit (6) Nominating (6)
- --------- --------------
4 HSB 3 HSB
2 WB - Chair 3 WB - Chair
In addition, those directors of Westborough Financial who (by reason of the
initial limitation that only nine directors of Westborough Financial will serve
on New Bank's Board of Directors) continue in service only as Trustees of
Assabet Valley Bancorp shall be appointed or elected, if qualified, to fill any
vacancy on New Bank's Board of Directors occurring within five years of the
Closing Date and created as a result of the death, retirement or resignation of
any initial director of New Bank who is a Westborough Financial director
immediately prior to the Effective Date.
APPENDIX B
[RBC Capital Markets Corporation letterhead]
November 13, 2006
CONFIDENTIAL
- ------------
The Board of Directors
Westborough Financial Services, Inc.
100 East Main Street
Westborough, MA 01581
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the public shareholders of Westborough Financial Services, Inc., a
Massachusetts-chartered mid-tier holding company (the "Company"), of the Per
Share Merger Consideration (as defined below) to be paid pursuant to the terms
of the proposed Agreement and Plan of Merger dated as of November 13, 2006 (the
"Agreement"), among the Company; Westborough Bancorp, MHC, a
Massachusetts-chartered mutual holding company ("Westborough MHC"); The
Westborough Bank, a Massachusetts-chartered savings bank and wholly owned
subsidiary of the Company ("Westborough Bank"); Assabet Valley Bancorp, a
Massachusetts-chartered mutual holding company ("AVB"); Hudson Savings Bank, a
Massachusetts-chartered savings bank and wholly owned subsidiary of AVB
("Hudson"); and HudWest Financial Services, Inc., a Massachusetts corporation
and newly chartered merger subsidiary of AVB ("Merger Sub"). Capitalized terms
used herein shall have the meanings used in the Agreement, unless otherwise
defined herein.
Pursuant to the Agreement, Westborough MHC will merge with and into AVB,
the Company will merge with and into Merger Sub, and Westborough Bank will
merge with and into Hudson (collectively, the "Merger"). The consideration per
share to be paid by AVB to the public shareholders of the Company in the Merger
for each outstanding share of common stock of the Company equals $35.00 in cash
(the "Per Share Merger Consideration"). Options to purchase shares of stock of
the Company will be cashed out for the difference between the exercise price of
the option and $35.00. The Per Share Merger Consideration shall be paid to the
public holders of Company common stock and Company options based on terms
specified in the Agreement. The terms and conditions of the Merger are set
forth more fully in the Agreement.
RBC Capital Markets Corporation ("RBC"), a member company of RBC
Financial Group, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, underwritings, secondary
distributions of listed and unlisted securities, private
B-1
Westborough Financial Services, Inc.
November 13, 2006
Page 2
placements and valuations for corporate and other purposes. We received a
retainer in 2005 with regard to providing advisory services to the Company in
connection with the Company's review of a de-registration transaction. We
expect to receive a fee for our services as financial advisor to the Company in
the Merger, which is contingent upon consummation of the Merger. We have also
received a non-refundable retainer, and will receive a fee for providing this
opinion. The retainer and opinion fee are not contingent upon the consummation
of the Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. This opinion has been approved by
our fairness opinion committee.
In connection with our review of the Merger, and in arriving at our
opinion, we have undertaken such review and enquiries as we deemed necessary or
appropriate under the circumstances, including the following:
(i) Reviewed and analyzed the financial terms in the draft Agreement
dated as of November 9, 2006;
(ii) Reviewed and analyzed certain publicly available financial and
other data with respect to the Company and AVB and certain other
historical operating data relating to the Company and AVB made
available to us from published sources and from the internal
records of the Company and AVB;
(iii) Conducted discussions with members of the senior management of the
Company with respect to the business prospects and financial
outlook of the Company independently and as combined;
(iv) Conducted discussions with members of the management of AVB with
respect to the business prospects and financial outlook of AVB
independently and as combined;
(v) Received and reviewed financial forecasts prepared by the Company's
management on the potential future performance of the Company as a
stand-alone entity;
(vi) Reviewed the reported prices and trading activity for the Company's
common stock;
(vii) Compared the financial performance of the Company and the price of
the Company common stock with those of certain other publicly
traded companies and their securities that we have deemed relevant;
(viii) Reviewed the financial terms, to the extent publicly available, of
certain merger transactions that we have deemed relevant; and
(ix) Considered the characteristics unique to mutual holding companies
and re-mutualization transactions.
In addition, we have conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we have deemed
necessary in arriving at our opinion.
With respect to the data and discussions relating to the business
prospects and financial outlook of AVB and the Company, upon advice of the
Company, we have assumed that such data have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of AVB and the Company as to the future financial
B-2
Westborough Financial Services, Inc.
November 13, 2006
Page 3
performance of AVB and the Company, and that AVB and the Company will perform
substantially in accordance with such financial data and estimates. We express
no opinion as to such financial data and estimates or the assumptions on which
they were based.
In arriving at our opinion, we did not attribute any particular weight to
any analysis or factor considered by us, but instead made qualitative judgments
as to the significance and relevance of each analysis and factor. Accordingly,
we believe that our analyses must be considered as a whole and that selecting
portions of our analyses, without considering all analyses, would create an
incomplete view of the process underlying this opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial, legal, tax, operating and other information
provided to us by the Company and AVB (including, without limitation, the
financial statements and related notes thereto of the Company and AVB, as well
as other publicly available information with respect to the Company and AVB),
and have not assumed responsibility for independently verifying and have not
independently verified such information. We have not assumed any responsibility
to perform, and have not performed, an independent evaluation or appraisal of
any of the respective assets or liabilities, contingent or other, of the
Company or AVB, and we have not been furnished with any such valuations or
appraisals. We express no opinion regarding the liquidation value of any
entity. In addition, we (i) have not assumed any obligation to conduct, and
have not conducted, any physical inspection of the property or facilities of
the Company or AVB, (ii) have not made an independent evaluation of the
adequacy of the allowance for loan and lease losses of the Company or AVB, and
(iii) have not reviewed the individual credit files relating to the Company or
AVB. We have assumed, with your consent, that the respective allowances for
loan and lease losses will be adequate on a pro forma basis for the combined
entity. Additionally, we have not been asked to, and did not, consider the
possible effects of any litigation or other legal claims. With respect to all
legal matters relating to the Company and AVB, we have relied on the advice of
legal counsel to the Company.
We have assumed that the executed Agreement will be in all material
respects identical to the last draft reviewed by us. We have also assumed the
Merger will be consummated pursuant to the terms of the Agreement, without
amendments thereto and without waiver by any party of any conditions or
obligations thereunder. We have assumed in all respects material to our
analysis, that the representations and warranties of each party contained in
the Agreement are true and correct, and that each party will perform all of the
covenants and agreements required to be performed by it under the Agreement. We
have also assumed that all governmental, regulatory and other consents and
approvals contemplated by the Agreement will be obtained and that in the course
of obtaining any of those consents no restrictions will be imposed or waivers
made that would have an adverse effect on the contemplated benefits of the
Merger.
Our opinion speaks only as of the date hereof, is based on the conditions
as they exist and information which has been supplied as of the date hereof,
and is without regard to any market, economic, financial, legal or other
circumstances or event of any kind or nature which may exist or occur after
such date. It should be understood that although subsequent developments may
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Westborough Financial Services, Inc.
November 13, 2006
Page 4
affect our opinion, unless mutually agreed by the Company and RBC, we do not
have any obligation to update, revise or reaffirm our opinion and we expressly
disclaim any responsibility to do so. Our opinion is delivered pursuant to our
engagement letter with you dated February 24, 2006, and is subject to the
terms, conditions, qualifications, and restrictions set forth therein.
This opinion is provided for the information and assistance of the Board
of Directors of the Company in connection with its consideration of the Merger.
This opinion shall not be otherwise published or otherwise used, nor shall any
public references to us be made without our prior written approval, except as
set forth in our engagement letter with you dated February 24, 2006. Our
opinion does not constitute a recommendation to any stockholder of the Company
to take any action in connection with the Merger or otherwise.
Our opinion addresses solely the fairness of the Per Share Merger
Consideration to be paid in the Merger, from a financial point of view, to the
public shareholders of the Company. Our opinion does not address the shares of
the Company owned by Westborough MHC. We have not reviewed, nor does our
opinion in any way address, other Merger terms or arrangements, including
without limitation the financial or other terms of any employment agreement
with Company management or any break-up or termination fee. Further, our
opinion does not address, nor should it be construed to address, the relative
merits of the underlying decision by the Company to engage in the Merger
compared to any alternative business strategies or transaction in which the
Company might engage. Additionally, we were not directed to, and did not,
solicit indications of interest from other parties regarding a potential
transaction with the Company. We have assumed that the process undertaken by
the Company was based on appropriate business judgment.
Based on our experience as investment bankers and subject to the
foregoing, including the various assumptions and limitations set forth herein,
it is our opinion that, as of the date hereof, the Per Share Merger
Consideration to be paid in the Merger is fair, from a financial point of view,
to the public shareholders of the Company.
Very truly yours,
/s/ RBC CAPITAL MARKETS CORPORATION
RBC CAPITAL MARKETS CORPORATION
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APPENDIX C
FORM OF VOTING AGREEMENT
VOTING AGREEMENT ("Agreement"), dated as of November ____, 2006, by and
among Assabet Valley Bancorp, a Massachusetts mutual holding company ("AVB"),
Westborough Financial Services, Inc., a Massachusetts corporation ("Company"),
and the undersigned holder ("Company Shareholder") of capital stock of the
Company ("Company Stock").
WHEREAS, AVB, the Company and certain others are about to enter into an
Agreement and Plan of Merger, dated as of the date hereof (as such agreement
may be subsequently amended or modified, the "Agreement and Plan of Merger"),
providing for the merger of Company with a specially-formed, wholly-owned
subsidiary of AVB (the "Mid-Tier Merger");
WHEREAS, Company Shareholder beneficially owns and has sole or shared
voting power with respect to the number of shares of Company Stock, and holds
stock options or other rights to acquire the number of Shareholder Equity
Interests (as defined in Section 3), opposite such Company Shareholder's name
on Schedule 1 attached hereto;
WHEREAS, AVB has informed Company Shareholder that it is a condition to
AVB's entering into the Agreement and Plan of Merger that Company Shareholder
execute and deliver this Agreement on the date hereof; and
WHEREAS, all capitalized terms used in this Agreement without definition
herein shall have the meanings ascribed to them in the Agreement and Plan of
Merger.
NOW, THEREFORE, in consideration of, and as a condition to, AVB entering
into the Agreement and Plan of Merger and proceeding with the transactions
contemplated thereby, and in consideration of the expenses incurred and to be
incurred by AVB in connection therewith, Company Shareholder and AVB agree as
follows:
1. Agreement to Vote Shareholder Equity Interests. Company Shareholder
agrees that, from the date hereof until the Expiration Date (as defined in
Section 2), at any meeting of the stockholders of Company, or in connection
with any written consent of the stockholders of Company, with respect to the
Mid-Tier Merger, the Agreement and Plan of Merger, or any Acquisition Proposal
or any Unsanctioned Agreement (as such term is defined in Section 1(b)) or any
adjournment of any such meeting, Company Shareholder shall:
(a) Appear at such meeting or otherwise cause any Shareholder
Equity Interests to be counted as present thereat for purposes of
calculating a quorum; and
(b) From and after the date hereof until the Expiration Date, vote
(or cause to be voted) or deliver a written consent (or cause a written
consent to be delivered) covering all of the Shareholder Equity Interests
that such Company Shareholder shall be entitled to so vote, whether such
Shareholder Equity Interests are beneficially owned by such Company
Shareholder on the date of this Agreement or are subsequently acquired,
(i) in favor of adoption and approval of the Agreement and Plan of Merger
and the transactions
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contemplated thereby, including the Mid-Tier Merger; (ii) against any
action or agreement that would result in a breach in any material respect
of any covenant, representation, or warranty or any other obligation or
agreement of Company contained in the Agreement and Plan of Merger or of
Company Shareholder contained in this Agreement; and (iii) against any
Acquisition Proposal or any agreement or transaction that is intended, or
could reasonably be expected, to materially impede, interfere with,
delay, postpone, discourage or materially and adversely affect the
consummation of the Mid-Tier Merger or any of the transactions
contemplated by the Agreement and Plan of Merger ("Unsanctioned
Agreement").
2. Expiration Date. As used in this Agreement, the term "Expiration Date"
shall mean the earlier of (i) the consummation of the Mid-Tier Merger and (ii)
the termination of the Agreement and Plan of Merger in accordance with Article
IX thereof. Upon termination or expiration of this Agreement, no party shall
have any further obligations or liabilities under this Agreement; provided,
however, that such termination or expiration shall not relieve any party from
liability for any willful breach of this Agreement prior to termination hereof.
3. Agreement to Retain Shareholder Equity Interests. From and after the
date hereof until the Expiration Date, Company Shareholder shall not, except as
contemplated by this Agreement or the Agreement and Plan of Merger, directly or
indirectly, sell, assign, transfer or otherwise dispose of (including, without
limitation, by the voluntary creation of a Lien (as defined in Section 4(c))),
or enter into any contract, option, commitment or other arrangement or
understanding with respect to the sale, transfer, assignment or other
disposition of, any Company Stock or option or right to obtain Company Stock or
any interest convertible into, or exercisable for, Company Stock or the right
to obtain Company Stock or such rights that may at any time be owned (or could
be acquired) by Company Shareholder (collectively, the "Shareholder Equity
Interests"), whether such Shareholder Equity Interests are held by Company
Shareholder on the date of this Agreement or are subsequently acquired prior to
any meeting (or written consent in lieu thereof) of stockholders of the Company
prior to the Expiration Date, whether by the exercise of any option or right to
obtain Shareholder Equity Interests or otherwise. Notwithstanding the
foregoing, Company Shareholder may make (a) transfers by will, or by operation
of law, in which case this Agreement shall bind the transferee, (b) transfers
to any transferee that has agreed in writing to be bound by the terms of, and
perform the obligations of Company Shareholder under, this Agreement, and (c)
as AVB may otherwise agree in writing in its sole discretion.
4. Representations and Warranties of Company Shareholder. Company
Shareholder hereby represents and warrants to AVB as follows:
(a) Company Shareholder has the complete and unrestricted power and
the unqualified right to enter into and perform the terms of this
Agreement;
(b) This Agreement (assuming this Agreement constitutes a valid and
binding agreement of AVB) is a valid and legally binding agreement with
respect to Company Shareholder, enforceable in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent
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transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles);
(c) Company Shareholder beneficially owns the number of Shareholder
Equity Interests indicated opposite such Company Shareholder's name on
Schedule 1, free and clear of any liens, claims, charges or other
encumbrances or restrictions of any kind whatsoever ("Liens"), and has
sole or shared, and otherwise unrestricted, voting power with respect to
such Shareholder Equity Interests;
(d) Company Shareholder understands that at the Effective Time of
the Mid-Tier Merger, each outstanding Shareholder Equity Interest listed
on Schedule 1 shall be cancelled and converted into the right to receive
a cash amount to be determined in accordance with the terms and
provisions of the Agreement and Plan of Merger;
(e) The execution and delivery of this Agreement by Company
Shareholder does not, and the performance by Company Shareholder of his,
her or its obligations hereunder and the consummation by Company
Shareholder of the transactions contemplated hereby will not, violate or
conflict with, or constitute a default under, any agreement, instrument,
contract or other obligation or any order, arbitration award, judgment or
decree to which Company Shareholder is a party or by which Company
Shareholder is bound, or any statute, rule or regulation to which Company
Shareholder is subject or, in the event that Company Shareholder is a
corporation, partnership, trust or other entity, any by-law or other
organizational document of Company Shareholder; and
(f) Company Shareholder has no claim (or any basis therefor), in
Company Shareholder's capacity as a stockholder or former stockholder, or
option holder or former option holder, of Company, in any way arising out
of or based upon: (i) ownership or rights to ownership of any Shareholder
Equity Interests, other than Company Shareholder's right to receive the
consideration to be paid to Company Shareholder under the Agreement and
Plan of Merger with respect to the Shareholder Equity Interests listed on
Schedule 1; (ii) any rights to obtain additional Shareholder Equity
Interests; or (iii) any claim that any Shareholder Equity Interests were
wrongfully repurchased by Company.
5. Irrevocable Proxy. Subject to the last sentence of this Section 5, by
execution of this Agreement, Company Shareholder does hereby appoint AVB with
full power of substitution and resubstitution, as Company Shareholder's true
and lawful attorney and irrevocable proxy, to the full extent of the
undersigned's rights with respect to the Shareholder Equity Interests, to vote,
if Company Shareholder is unable to perform his, her or its obligations under
this Agreement, each of such Shareholder Equity Interests solely with respect
to the matters and in the manner set forth in Section 1 hereof. Company
Shareholder intends this proxy to be irrevocable and coupled with an interest
hereafter until the Expiration Date and hereby revokes any proxy previously
granted by Company Shareholder with respect to the Shareholder Equity
Interests. Notwithstanding anything contained herein to the contrary, this
irrevocable proxy shall automatically terminate upon the Expiration Date of
this Agreement.
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6. No Solicitation. From and after the date hereof until the Expiration
Date, Company Shareholder, in his, her or its capacity as a stockholder of
Company, shall not, nor to the extent applicable to Company Shareholder, shall
he, she or it permit any of his, her or its affiliates to, nor shall he, she or
it authorize any partner, officer, director, advisor or representative of
Company Shareholder or any of its affiliates to (a) solicit, initiate,
knowingly encourage or knowingly facilitate any inquiries with respect to, or
the making, submission or announcement of, any offer or proposal for an
Acquisition Proposal or any Unsanctioned Agreement, (b) participate in any
discussions or negotiations regarding, or furnish to any Person any nonpublic
information with respect to, any Acquisition Proposal or Unsanctioned
Agreement, (c) engage in any discussions with any Person with respect to any
Acquisition Proposal or Unsanctioned Agreement, except as to the existence of
these provisions, (d) approve, endorse or recommend any Acquisition Proposal or
Unsanctioned Agreement (except to the extent specifically permitted in the
Agreement and Plan of Merger) or (e) enter into any letter of intent or similar
document or any Contract contemplating any Acquisition Proposal or transaction
contemplated thereby (other than the Agreement and Plan of Merger) or any
Unsanctioned Agreement.
7. Specific Enforcement. Company Shareholder has signed this Agreement
intending to be legally bound thereby. Company Shareholder expressly agrees
that this Agreement shall be specifically enforceable in any court of competent
jurisdiction in accordance with its terms against Company Shareholder. All of
the covenants and agreements contained in this Agreement shall be binding upon,
and inure to the benefit of, the respective parties and their permitted
successors, assigns, heirs, executors, administrators and other legal
representatives, as the case may be.
8. Counterparts and Facsimile Signatures. This Agreement may be executed
in one or more counterparts, each of which will be deemed an original but all
of which together shall constitute one and the same instrument. Facsimile
execution and delivery of this Agreement by any of the parties shall be legal,
valid and binding execution and delivery of this Agreement for all purposes.
9. No Waivers. No waivers of any breach of this Agreement extended by AVB
to Company Shareholder shall be construed as a waiver of any rights or remedies
of AVB with respect to any other stockholder of Company who has executed an
agreement substantially in the form of this Agreement with respect to Company
Stock (or options or other rights to obtain Company Stock) held or subsequently
held by such stockholder, or with respect to any subsequent breach of Company
Shareholder or any other such stockholder of Company. No waiver of any
provisions hereof by either party shall be deemed a waiver of any other
provisions hereof by any such party, nor shall any such waiver be deemed a
continuing waiver of any provision hereof by such party.
10. Miscellaneous. This Agreement is to be governed by the laws of The
Commonwealth of Massachusetts, without giving effect to the principles of
conflicts of laws thereof. If any provision hereof is deemed unenforceable, the
enforceability of the other provisions hereof shall not be affected.
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11. Capacity as Company Shareholder. Company Shareholder signs this
Agreement solely in Company Shareholder's capacity as the owner of the
Shareholder Equity Interests, and not in Company Shareholder's capacity as a
director, officer or employee of Company or any of its subsidiaries or in
Company Shareholder's capacity as a trustee or fiduciary of any ERISA plan or
trust. Notwithstanding anything herein to the contrary, nothing herein shall in
any way restrict a director and/or officer of Company in the exercise of his or
her fiduciary duties, consistent with the terms of the Agreement and Plan of
Merger, as a director and/or officer of Company or in his or her capacity as a
trustee or fiduciary of any ERISA plan or trust, or prevent or be construed to
create any obligation on the part of any director and/or officer of Company or
any trustee or fiduciary of any ERISA plan or trust from taking any action in
his or her capacity as a director of Company.
12. No Agreement Until Agreement and Plan of Merger Executed.
Irrespective of negotiations among the parties or the exchanging of drafts of
this Agreement, this Agreement shall not constitute or be deemed to evidence a
contract, agreement, arrangement or understanding among the parties hereto
unless and until the Agreement and Plan of Merger is executed by all parties
thereto and this Agreement is executed by the parties whose names are set forth
on the signature page hereof.
13. Entire Agreement. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by each party hereto.
[SIGNATURE PAGES FOLLOW]
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EXECUTED as of the date first above written.
ASSABET VALLEY BANCORP
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
WESTBOROUGH FINANCIAL SERVICES, INC.
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
SIGNATURE PAGE TO VOTING AGREEMENT
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EXECUTED as of the date first above written.
COMPANY SHAREHOLDER
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
SIGNATURE PAGE TO VOTING AGREEMENT
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SCHEDULE 1
Company Shareholder Shareholder Equity Interests Options
------------------- ---------------------------- -------
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APPENDIX D
MASSACHUSETTS BUSINESS CORPORATION ACT
PART 13
SUBDIVISION A.
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SECTION 13.01. DEFINITIONS. - In this Part the following words shall have
the following meanings unless the context requires otherwise:
"Affiliate", any person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control of or
with another person.
"Beneficial shareholder", the person who is a beneficial owner of shares
held in a voting trust or by a nominee as the record shareholder.
"Corporation", the issuer of the shares held by a shareholder demanding
appraisal and, for matters covered in sections 13.22 to 13.31, inclusive,
includes the surviving entity in a merger.
"Fair value", with respect to shares being appraised, the value of the
shares immediately before the effective date of the corporate action to which
the shareholder demanding appraisal objects, excluding any element of value
arising from the expectation or accomplishment of the proposed corporate action
unless exclusion would be inequitable.
"Interest", interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Marketable securities", securities held of record by, or by financial
intermediaries or depositories on behalf of, at least 1,000 persons and which
were
(a) listed on a national securities exchange,
(b) designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or
(c) listed on a regional securities exchange or traded in an
interdealer quotation system or other trading system and had at
least 250,000 outstanding shares, exclusive of shares held by
officers, directors and affiliates, which have a market value of at
least $5,000,000.
"Officer", the chief executive officer, president, chief operating
officer, chief financial officer, and any vice president in charge of a
principal business unit or function of the issuer.
"Person", any individual, corporation, partnership, unincorporated
association or other entity.
"Record shareholder", the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with a corporation.
"Shareholder", the record shareholder or the beneficial shareholder.
D-1
SECTION 13.02. RIGHT TO APPRAISAL. - (a) A shareholder is entitled to
appraisal rights, and obtain payment of the fair value of his shares in the
event of, any of the following corporate or other actions:
(1) consummation of a plan of merger to which the corporation is a
party if shareholder approval is required for the merger by section
11.04 or the articles of organization or if the corporation is a
subsidiary that is merged with its parent under section 11.05,
unless, in either case, (A) all shareholders are to receive only
cash for their shares in amounts equal to what they would receive
upon a dissolution of the corporation or, in the case of
shareholders already holding marketable securities in the merging
corporation, only marketable securities of the surviving
corporation and/or cash and (B) no director, officer or controlling
shareholder has a direct or indirect material financial interest in
the merger other than in his capacity as (i) a shareholder of the
corporation, (ii) a director, officer, employee or consultant of
either the merging or the surviving corporation or of any affiliate
of the surviving corporation if his financial interest is pursuant
to bona fide arrangements with either corporation or any such
affiliate, or (iii) in any other capacity so long as the
shareholder owns not more than five percent of the voting shares of
all classes and series of the corporation in the aggregate;
(2) consummation of a plan of share exchange in which his shares are
included unless: (A) both his existing shares and the shares,
obligations or other securities to be acquired are marketable
securities; and (B) no director, officer or controlling shareholder
has a direct or indirect material financial interest in the share
exchange other than in his capacity as (i) a shareholder of the
corporation whose shares are to be exchanged, (ii) a director,
officer, employee or consultant of either the corporation whose
shares are to be exchanged or the acquiring corporation or of any
affiliate of the acquiring corporation if his financial interest is
pursuant to bona fide arrangements with either corporation or any
such affiliate, or (iii) in any other capacity so long as the
shareholder owns not more than five percent of the voting shares of
all classes and series of the corporation whose shares are to be
exchanged in the aggregate;
(3) consummation of a sale or exchange of all, or substantially all, of
the property of the corporation if the sale or exchange is subject
to section 12.02, or a sale or exchange of all, or substantially
all, of the property of a corporation in dissolution, unless:
(i) his shares are then redeemable by the corporation at a price
not greater than the cash to be received in exchange for his
shares; or
(ii) the sale or exchange is pursuant to court order; or
(iii) in the case of a sale or exchange of all or substantially all
the property of the corporation subject to section 12.02,
approval of shareholders for the sale or exchange is
conditioned upon the dissolution of the corporation and the
distribution in cash or, if his shares are marketable
securities, in marketable securities and/or cash, of
substantially all of its net assets, in excess of a
reasonable amount reserved to meet unknown claims under
section 14.07, to the shareholders in accordance with their
respective interests within one year after the sale or
exchange and no director, officer or controlling shareholder
has a direct or indirect material financial interest in the
sale or exchange other than in his capacity as (i) a
shareholder of the corporation, (ii) a director, officer,
employee or consultant of either the corporation or the
acquiring corporation or
D-2
of any affiliate of the acquiring corporation if his
financial interest is pursuant to bona fide arrangements with
either corporation or any such affiliate, or (iii) in any
other capacity so long as the shareholder owns not more than
five percent of the voting shares of all classes and series
of the corporation in the aggregate;
(4) an amendment of the articles of organization that materially and
adversely affects rights in respect of a shareholder's shares
because it:
(i) creates, alters or abolishes the stated rights or preferences
of the shares with respect to distributions or to
dissolution, including making non-cumulative in whole or in
part a dividend theretofore stated as cumulative;
(ii) creates, alters or abolishes a stated right in respect of
conversion or redemption, including any provision relating to
any sinking fund or purchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(iv) excludes or limits the right of the holder of the shares to
vote on any matter, or to cumulate votes, except as such
right may be limited by voting rights given to new shares
then being authorized of an existing or new class; or
(v) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to
be acquired for cash under section 6.04;
(5) an amendment of the articles of organization or of the bylaws or
the entering into by the corporation of any agreement to which the
shareholder is not a party that adds restrictions on the transfer
or registration or any outstanding shares held by the shareholder
or amends any pre-existing restrictions on the transfer or
registration of his shares in a manner which is materially adverse
to the ability of the shareholder to transfer his shares;
(6) any corporate action taken pursuant to a shareholder vote to the
extent the articles of organization, bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders
are entitled to appraisal;
(7) consummation of a conversion of the corporation to nonprofit status
pursuant to subdivision B of Part 9; or
(8) consummation of a conversion of the corporation into a form of
other entity pursuant to subdivision D of Part 9.
(b) Except as otherwise provided in subsection (a) of section 13.03, in
the event of corporate action specified in clauses (1), (2), (3), (7) or (8) of
subsection (a), a shareholder may assert appraisal rights only if he seeks them
with respect to all of his shares of whatever class or series.
(c) Except as otherwise provided in subsection (a) of section 13.03, in
the event of an amendment to the articles of organization specified in clause
(4) of subsection (a) or in the event of an amendment of the articles of
organization or the bylaws or an agreement to which the shareholder is not a
party specified in clause (5) of subsection (a), a shareholder may assert
appraisal rights with respect to those shares adversely affected by the
amendment or agreement only if he seeks them as to all of such
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shares and, in the case of an amendment to the articles of organization or the
bylaws, has not voted any of his shares of any class or series in favor of the
proposed amendment.
(d) The shareholder's right to obtain payment of the fair value of his
shares shall terminate upon the occurrence of any of the following events:
(i) the proposed action is abandoned or rescinded; or
(ii) a court having jurisdiction permanently enjoins or sets aside the
action; or
(iii) the shareholder's demand for payment is withdrawn with the written
consent of the corporation.
(e) A shareholder entitled to appraisal rights under this chapter may not
challenge the action creating his entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
SECTION 13.03. ASSERTION OF RIGHTS BY NOMINEES AND BENEFICIAL OWNERS. - (a) A
record shareholder may assert appraisal rights as to fewer than all the shares
registered in the record shareholder's name but owned by a beneficial
shareholder only if the record shareholder objects with respect to all shares
of the class or series owned by the beneficial shareholder and notifies the
corporation in writing of the name and address of each beneficial shareholder
on whose behalf appraisal rights are being asserted. The rights of a record
shareholder who asserts appraisal rights for only part of the shares held of
record in the record shareholder's name under this subsection shall be
determined as if the shares as to which the record shareholder objects and the
record shareholder's other shares were registered in the names of different
record shareholders.
(b) A beneficial shareholder may assert appraisal rights as to shares of
any class or series held on behalf of the shareholder only if such shareholder:
(1) submits to the corporation the record shareholder's written consent
to the assertion of such rights no later than the date referred to
in subclause (ii) of clause (2) of subsection (b) of section 13.22;
and
(2) does so with respect to all shares of the class or series that are
beneficially owned by the beneficial shareholder.
D-4
SUBDIVISION B.
PROCEDURE FOR EXERCISE OF APPRAISAL RIGHTS
SECTION 13.20. NOTICE OF APPRAISAL RIGHTS. - (a) If proposed corporate action
described in subsection (a) of section 13.02 is to be submitted to a vote at a
shareholders' meeting or through the solicitation of written consents, the
meeting notice or solicitation of consents shall state that the corporation has
concluded that shareholders are, are not or may be entitled to assert appraisal
rights under this chapter and refer to the necessity of the shareholder
delivering, before the vote is taken, written notice of his intent to demand
payment and to the requirement that he not vote his shares in favor of the
proposed action. If the corporation concludes that appraisal rights are or may
be available, a copy of this chapter shall accompany the meeting notice sent to
those record shareholders entitled to exercise appraisal rights.
(b) In a merger pursuant to section 11.05, the parent corporation shall
notify in writing all record shareholders of the subsidiary who are entitled to
assert appraisal rights that the corporate action became effective. Such notice
shall be sent within 10 days after the corporate action became effective and
include the materials described in section 13.22.
SECTION 13.21. NOTICE OF INTENT TO DEMAND PAYMENT. - (a) If proposed corporate
action requiring appraisal rights under section 13.02 is submitted to vote at a
shareholders' meeting, a shareholder who wishes to assert appraisal rights with
respect to any class or series of shares:
(1) shall deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment if the
proposed action is effectuated; and
(2) shall not vote, or cause or permit to be voted, any shares of such
class or series in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment under this chapter.
SECTION 13.22. APPRAISAL NOTICE AND FORM. - (a) If proposed corporate
action requiring appraisal rights under subsection (a) of section 13.02 becomes
effective, the corporation shall deliver a written appraisal notice and form
required by clause (1) of subsection (b) to all shareholders who satisfied the
requirements of section 13.21 or, if the action was taken by written consent,
did not consent. In the case of a merger under section 11.05, the parent shall
deliver a written appraisal notice and form to all record shareholders who may
be entitled to assert appraisal rights.
(b) The appraisal notice shall be sent no earlier than the date the
corporate action became effective and no later than 10 days after such date and
must:
(1) supply a form that specifies the date of the first announcement to
shareholders of the principal terms of the proposed corporate
action and requires the shareholder asserting appraisal rights to
certify (A) whether or not beneficial ownership of those shares for
which appraisal rights are asserted was acquired before that date
and (B) that the shareholder did not vote for the transaction;
(2) state:
(i) where the form shall be sent and where certificates for
certificated shares shall be deposited and the date by which
those certificates shall be deposited, which date
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may not be earlier than the date for receiving the required
form under subclause (ii);
(ii) a date by which the corporation shall receive the form which
date may not be fewer than 40 nor more than 60 days after the
date the subsection (a) appraisal notice and form are sent,
and state that the shareholder shall have waived the right to
demand appraisal with respect to the shares unless the form
is received by the corporation by such specified date;
(iii) the corporation's estimate of the fair value of the shares;
(iv) that, if requested in writing, the corporation will provide,
to the shareholder so requesting, within 10 days after the
date specified in clause (ii) the number of shareholders who
return the forms by the specified date and the total number
of shares owned by them; and
(v) the date by which the notice to withdraw under section 13.23
shall be received, which date shall be within 20 days after
the date specified in subclause (ii) of this subsection; and
(3) be accompanied by a copy of this chapter.
SECTION 13.23. PERFECTION OF RIGHTS; RIGHT TO WITHDRAW. - (a) A
shareholder who receives notice pursuant to section 13.22 and who wishes to
exercise appraisal rights shall certify on the form sent by the corporation
whether the beneficial owner of the shares acquired beneficial ownership of the
shares before the date required to be set forth in the notice pursuant to
clause (1) of subsection (b) of section 13.22. If a shareholder fails to make
this certification, the corporation may elect to treat the shareholder's shares
as after-acquired shares under section 13.25. In addition, a shareholder who
wishes to exercise appraisal rights shall execute and return the form and, in
the case of certificated shares, deposit the shareholder's certificates in
accordance with the terms of the notice by the date referred to in the notice
pursuant to subclause (ii) of clause (2) of subsection (b) of section 13.22.
Once a shareholder deposits that shareholder's certificates or, in the case of
uncertificated shares, returns the executed forms, that shareholder loses all
rights as a shareholder, unless the shareholder withdraws pursuant to said
subsection (b).
(b) A shareholder who has complied with subsection (a) may nevertheless
decline to exercise appraisal rights and withdraw from the appraisal process by
so notifying the corporation in writing by the date set forth in the appraisal
notice pursuant to subclause (v) of clause (2) of subsection (b) of section
13.22. A shareholder who fails to so withdraw from the appraisal process may
not thereafter withdraw without the corporation's written consent.
(c) A shareholder who does not execute and return the form and, in the
case of certificated shares, deposit that shareholder's share certificates
where required, each by the date set forth in the notice described in
subsection (b) of section 13.22, shall not be entitled to payment under this
chapter.
SECTION 13.24. PAYMENT. - (a) Except as provided in section 13.25, within 30
days after the form required by subclause (ii) of clause (2) of subsection (b)
of section 13.22 is due, the corporation shall pay in cash to those
shareholders who complied with subsection (a) of section 13.23 the amount the
corporation estimates to be the fair value of their shares, plus interest.
(b) The payment to each shareholder pursuant to subsection (a) shall be
accompanied by:
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(1) financial statements of the corporation that issued the shares to
be appraised, consisting of a balance sheet as of the end of a
fiscal year ending not more than 16 months before the date of
payment, an income statement for that year, a statement of changes
in shareholders' equity for that year, and the latest available
interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the
shares, which estimate shall equal or exceed the corporation's
estimate given pursuant to subclause (iii) of clause (2) of
subsection (b) of section 13.22; and
(3) a statement that shareholders described in subsection (a) have the
right to demand further payment under section 13.26 and that if any
such shareholder does not do so within the time period specified
therein, such shareholder shall be deemed to have accepted the
payment in full satisfaction of the corporation's obligations under
this chapter.
SECTION 13.25. AFTER-ACQUIRED SHARES. - (a) A corporation may elect to withhold
payment required by section 13.24 from any shareholder who did not certify that
beneficial ownership of all of the shareholder's shares for which appraisal
rights are asserted was acquired before the date set forth in the appraisal
notice sent pursuant to clause (1) of subsection (b) of section 13.22.
(b) If the corporation elected to withhold payment under subsection (a),
it must, within 30 days after the form required by subclause (ii) of clause (2)
of subsection (b) of section 13.22 is due, notify all shareholders who are
described in subsection (a):
(1) of the information required by clause (1) of subsection (b) of
section 13.24;
(2) of the corporation's estimate of fair value pursuant to clause (2)
of subsection (b) of said section 13.24;
(3) that they may accept the corporation's estimate of fair value, plus
interest, in full satisfaction of their demands or demand appraisal
under section 13.26;
(4) that those shareholders who wish to accept the offer shall so
notify the corporation of their acceptance of the corporation's
offer within 30 days after receiving the offer; and
(5) that those shareholders who do not satisfy the requirements for
demanding appraisal under section 13.26 shall be deemed to have
accepted the corporation's offer.
(c) Within 10 days after receiving the shareholder's acceptance pursuant
to subsection (b), the corporation shall pay in cash the amount it offered
under clause (2) of subsection (b) to each shareholder who agreed to accept the
corporation's offer in full satisfaction of the shareholder's demand.
(d) Within 40 days after sending the notice described in subsection (b),
the corporation must pay in cash the amount if offered to pay under clause (2)
of subsection (b) to each shareholder deserved in clause (5) of subsection (b).
SECTION 13.26. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. - (a) A shareholder paid pursuant to section 13.24 who is dissatisfied
with the amount of the payment shall notify the corporation in writing of that
shareholder's estimate of the fair value of the shares and demand payment of
that estimate plus interest, less any payment under section 13.24. A
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shareholder offered payment under section 13.25 who is dissatisfied with that
offer shall reject the offer and demand payment of the shareholder's stated
estimate of the fair value of the shares plus interest.
(b) A shareholder who fails to notify the corporation in writing of that
shareholder's demand to be paid the shareholder's stated estimate of the fair
value plus interest under subsection (a) within 30 days after receiving the
corporation's payment or offer of payment under section 13.24 or section 13.25,
respectively, waives the right to demand payment under this section and shall
be entitled only to the payment made or offered pursuant to those respective
sections.
SUBDIVISION C.
JUDICIAL APPRAISAL OF SHARES
SECTION 13.30. COURT ACTION. - (a) If a shareholder makes demand for
payment under section 13.26 which remains unsettled, the corporation shall
commence an equitable proceeding within 60 days after receiving the payment
demand and petition the court to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within
the 60-day period, it shall pay in cash to each shareholder the amount the
shareholder demanded pursuant to section 13.26 plus interest.
(b) The corporation shall commence the proceeding in the appropriate
court of the county where the corporation's principal office, or, if none, its
registered office, in the commonwealth is located. If the corporation is a
foreign corporation without a registered office in the commonwealth, it shall
commence the proceeding in the county in the commonwealth where the principal
office or registered office of the domestic corporation merged with the foreign
corporation was located at the time of the transaction.
(c) The corporation shall make all shareholders, whether or not residents
of the commonwealth, whose demands remain unsettled parties to the proceeding
as an action against their shares, and all parties shall be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law or otherwise as ordered by the court.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint 1 or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers shall have the powers described in the
order appointing them, or in any amendment to it. The shareholders demanding
appraisal rights are entitled to the same discovery rights as parties in other
civil proceedings.
(e) Each shareholder made a party to the proceeding is entitled to
judgment (i) for the amount, if any, by which the court finds the fair value of
the shareholder's shares, plus interest, exceeds the amount paid by the
corporation to the shareholder for such shares or (ii) for the fair value, plus
interest, of the shareholder's shares for which the corporation elected to
withhold payment under section 13.25.
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SECTION 13.31. COURT COSTS AND COUNSEL FEES. -(a) The court in an
appraisal proceeding commenced under section 13.30 shall determine all costs of
the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess cost against all or some of the
shareholders demanding appraisal, in amounts the court finds equitable, to the
extent the court finds such shareholders acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this chapter.
(b) The court in an appraisal proceeding may also assess the fees and
expenses of counsel and experts for the respective parties, in amounts the
court finds equitable:
(1) against the corporation and in favor of any or all shareholders
demanding appraisal if the court finds the corporation did not
substantially comply with the requirements of sections 13.20,
13.22, 13.24 or 13.25; or
(2) against either the corporation or a shareholder demanding
appraisal, in favor of any other party, if the court finds that the
party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to the
rights provided by this chapter.
(c) If the court in an appraisal proceeding finds that the services of
counsel for any shareholder were of substantial benefit to other shareholders
similarly situated, and that the fees for those services should not be assessed
against the corporation, the court may award to such counsel reasonable fees to
be paid out of the amounts awarded the shareholders who were benefited.
(d) To the extent the corporation fails to make a required payment
pursuant to sections 13.24, 13.25, or 13.26, the shareholder may sue directly
for the amount owed and, to the extent successful, shall be entitled to recover
from the corporation all costs and expenses of the suit, including counsel
fees.
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(Front)
REVOCABLE PROXY WESTBOROUGH FINANCIAL SERVICES, INC.
100 E. Main Street, Westborough, MA 01581
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints [______] as proxies, each with the power
to appoint his substitute, and hereby authorizes them to represent and to vote,
as designated below, all the shares of common stock of Westborough Financial
Services, Inc. held of record by the undersigned on [_____], 2007, at the
annual meeting of shareholders to be held on [____], 2007, or any adjournment
thereof.
- --------------------------------------------------------------------------------
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER DATED AS OF NOVEMBER 13,
2006 AMONG ASSABET VALLEY BANCORP, HUDWEST FINANCIAL SERVICES, INC.,
HUDSON SAVINGS BANK AND WESTBOROUGH BANCORP, MHC, WESTBOROUGH FINANCIAL
SERVICES, INC. AND THE WESTBOROUGH BANK
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
2. ELECTION OF DIRECTORS
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as marked to the contrary to vote for all nominees
below) listed below
For terms of three years: Nancy M. Carlson, Benjamin H. Colonero, Jr.,
Jeffrey B. Leland and Joseph F. MacDonough.
(INSTRUCTION: To withhold authority to vote for an individual nominee write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Our board of directors unanimously recommends that you vote "FOR" approval of
the merger agreement and "FOR" each of the nominees for director.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted "FOR" Proposals 1 and 2.
Please sign exactly as name appears below. When shares are
held by joint tenants, both should sign. When signing as
an attorney, as executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
DATED:______________________________________________ ,2007
Signature_________________________________________________
Signature if held jointly_________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.