MASB Massbank Corp Read Mass (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant þ
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Check the appropriate box:

o Preliminary Proxy Statement þ Definitive Proxy Statement o Definitive Additional Materials o Soliciting Material Pursuant to §240.14a-12		o    Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

MASSBANK CORP.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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MASSBANK Corp.
123 Haven Street
Reading, Massachusetts 01867

 

June 6, 2008

 

Dear Stockholder:

 

On behalf of our board of directors, you are cordially invited to attend a special meeting of stockholders of MASSBANK Corp. to be held at the Andover Country Club, located at 60 Canterbury Street, Andover, Massachusetts 01810, on Tuesday, July 15, 2008, at 11:00 a.m., local time.

 

At the special meeting, you will be asked to consider and vote upon a proposal to approve a merger agreement that MASSBANK Corp., MASSBANK, a wholly owned subsidiary of MASSBANK Corp., Eastern Bank Corporation, Eastern Bank, a wholly owned subsidiary of Eastern, and Minuteman Acquisition Corp., a wholly owned subsidiary of Eastern, have entered into. If the merger is consummated, MASSBANK Corp. will become a wholly-owned subsidiary of Eastern, and each outstanding share of our common stock will be converted into the right to receive $40.00 in cash, without interest. You should carefully read the merger agreement, a copy of which is attached as Annex A to the accompanying proxy statement.

 

Our board unanimously adopted the merger agreement and approved the merger and determined that the merger agreement and the merger were advisable and in the best interests of our stockholders, and accordingly recommends that our stockholders vote “FOR” approval of the merger agreement. In reaching its determination, our board considered a number of factors, including the opinion of our financial advisor, which is attached as Annex B to the accompanying proxy statement, and which you are urged to read in its entirety.

The accompanying proxy statement provides you with a detailed summary of the merger agreement and additional information about the parties involved and their interests.

 

The affirmative vote of holders of a majority of the outstanding shares of our common stock entitled to vote at the special meeting is necessary to approve the merger agreement. Holders of approximately 9% of these shares have already agreed with Eastern to vote in favor of approval of the merger agreement.

 

Your vote is very important. Because approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote, a failure to vote will have the same effect as a vote against approval of the merger agreement.

Please give all of this information your careful attention. Whether or not you plan to attend the special meeting in person, please complete, sign and date the enclosed proxy card and return it in the envelope provided as soon as possible or submit a proxy through the Internet or by telephone as described on the enclosed proxy card. This will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting.

 

Thank you for your cooperation and your continued support of MASSBANK.

 

Sincerely,

 

Gerard H. Brandi

Chairman of the Board, Chief Executive Officer and President

 

IMPORTANT

 

Your vote is important regardless of the number of shares you own. Please complete, sign, date and return your proxy card at your earliest convenience. No postage is required if mailed in the United States. You may also vote your shares through the Internet or by telephone.

 

Stockholders with questions or requiring assistance voting their shares may call Laurel Hill Advisory Group, LLC, which is assisting us, toll-free at (888) 742-1305.

 

This proxy statement is dated June 6, 2008, and was first mailed to stockholders of MASSBANK Corp. on or about June 6, 2008.

 

MASSBANK Corp.
123 Haven Street
Reading, Massachusetts 01867
(781) 662-0100

 

 

Notice of Special Meeting of Stockholders

of MASSBANK Corp.

 

 

To Be Held on July 15, 2008

 

To the Stockholders of

MASSBANK Corp.:

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of MASSBANK Corp., a Delaware corporation, will be held at the Andover Country Club, located at 60 Canterbury Street, Andover, Massachusetts 01810, on Tuesday, July 15, 2008 at 11:00 a.m., local time, for the following purposes:

 

1. To consider and vote upon a proposal to approve the agreement and plan of merger, dated as of March 10, 2008, by and among Eastern Bank Corporation, Eastern Bank, a wholly owned subsidiary of Eastern, Minuteman Acquisition Corp., a wholly owned subsidiary of Eastern, MASSBANK Corp. and MASSBANK, a wholly owned subsidiary of MASSBANK Corp. (a copy of the merger agreement is attached as Annex A to the accompanying proxy statement);

 

2. To consider and vote upon a proposal to approve one or more adjournments of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting, or at any adjournment or postponement of that meeting, to approve the merger agreement; and

 

3. To consider and act upon any other business that may properly come before the special meeting or at any adjournments or postponements of that meeting.

 

Only holders of record of our common stock at the close of business on June 3, 2008 are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of that meeting. The affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote is required to approve the merger agreement. A form of proxy and a proxy statement containing more detailed information with respect to matters to be considered at the special meeting accompany and form a part of this notice.

 

MASSBANK Corp. stockholders have the right to dissent from the merger and obtain payment in cash of the fair value of their shares of our common stock as determined by the Delaware Court of Chancery under applicable provisions of Delaware law. A copy of the applicable Delaware statutory provisions is included as Annex D to the accompanying proxy statement, and a summary of these provisions can be found under the section entitled “Appraisal Rights” beginning on page 63 in the accompanying proxy statement.

 

If you fail to vote by proxy or in person, it will have the same effect as a vote against approval of the merger agreement. If you return a properly signed proxy card but do not indicate how you want to vote, your proxy will be counted as a vote “ FOR ” approval of the merger agreement.

 

The MASSBANK Corp. board unanimously recommends that stockholders vote “FOR” approval of the merger agreement.

 

By Order of the Board of Directors

 

Robert S. Cummings

Secretary

 

Reading, Massachusetts

June 6, 2008

 

 

 

 

Please do not send your stock certificates at this time. If the merger is consummated, you will be sent instructions regarding the surrender of your stock certificates.

 

TABLE OF CONTENTS

 

 

ANNEXES

 

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

Q:		Why am I receiving this proxy statement?
A:		Eastern Bank Corporation and MASSBANK Corp. have agreed to the acquisition of MASSBANK Corp. by Eastern under the terms of a merger agreement that is described in this proxy statement. A copy of the merger agreement is attached to this proxy statement as Annex A . In order to complete the merger, MASSBANK Corp. stockholders must vote to approve the merger agreement. MASSBANK Corp. will hold a special meeting of its stockholders to obtain this approval. This proxy statement contains important information about the merger, the merger agreement, the special meeting of stockholders, and other related matters, and you should read it carefully. The enclosed voting materials for the special meeting allow you to vote your shares of our common stock without attending the special meeting.
Q:		Who is soliciting my proxy?
A:		This proxy is being solicited by our board of directors.
Q:		When and where is the special meeting?
A:		The special meeting will be held at the Andover Country Club, located at 60 Canterbury Street, Andover, Massachusetts 01810, on Tuesday, July 15, 2008, at 11:00 a.m., local time.
Q:		What will I be asked to vote upon at the special meeting?
A:		You are being asked to vote on the approval of the merger agreement that we have entered into with Eastern Bank Corporation, Eastern Bank, a wholly-owned subsidiary of Eastern, Minuteman Acquisition Corp., a wholly-owned subsidiary of Eastern, and MASSBANK, our wholly-owned subsidiary, which provides for the merger of Minuteman Acquisition Corp. with and into MASSBANK Corp. After the merger, MASSBANK Corp., as the surviving corporation, will be a wholly-owned subsidiary of Eastern.
		We also are asking you to authorize the named proxies to approve one or more adjournments, if necessary, of the special meeting in order to solicit additional proxies in favor of approval of the merger agreement at the time of the special meeting.
Q:		Who is entitled to vote at the special meeting?
A:		Holders of record of our common stock as of the close of business on June 3, 2008 are entitled to vote at the special meeting.
Q:		How do I vote?
A:		Indicate on your proxy card how you want to vote, sign and date your proxy card, and mail it in the enclosed, postage-paid envelope or vote your shares through the Internet or by telephone as soon as possible, so that your shares will be represented at the special meeting. Instructions for voting your shares through the Internet or by telephone are located on the enclosed proxy card. You may also attend the special meeting and vote your shares in person, rather than voting by proxy. In addition, you may withdraw your proxy at any time up to and including the time the polls are closed on the vote on the merger agreement at the special meeting and either change your vote, cast a new vote through the Internet or by telephone, or attend the special meeting and vote in person.
Q:		If my shares are held in “street name” by my broker, will my broker vote my shares for me?
A:		Your broker will be permitted to vote your shares only if you instruct your broker how to vote. You should follow the procedures provided by your broker regarding the voting of your shares. If you do not

		provide instructions to your broker, your shares will not be voted, which will have the same effect as a vote against the proposal to approve the merger agreement.
Q:		May I vote in person?
A:		Yes. You may attend the special meeting and vote your shares in person. If you hold shares in “street name” you must provide a legal proxy executed by your bank or broker to vote your shares at the special meeting.
Q:		What if I do not vote?
A:		The failure to vote, by proxy or in person, an abstention from voting or a broker “non-vote” will have the same effect as a vote against the proposal to approve the merger agreement. If you return a properly signed proxy card but do not indicate how you want to vote, your proxy will be counted as a vote “ FOR ” approval of the merger agreement. Your vote is important regardless of the number of shares that you own.
Q:		What should I do now?
A:		After carefully reading and considering the information contained in this proxy statement, please vote your shares by returning the enclosed proxy or submitting a proxy through the Internet or by telephone. You may also attend the special meeting and vote in person. Do not enclose or return your stock certificate(s) with your proxy card.
Q:		When should I send in my proxy card?
A:		You should send in your proxy card as soon as possible so that your shares will be voted at the special meeting.
Q:		May I change my vote after I have mailed my signed proxy card?
A:		Yes. You may change your vote at any time before your proxy card is voted at the special meeting. You may do this in one of three ways. First, you may send a written, dated notice to the Secretary of MASSBANK Corp. stating that you would like to revoke your proxy. Second, you may complete, sign, date and submit a new proxy card or submit a new vote through the Internet or by telephone. Third, you may attend the special meeting and vote in person. Your attendance alone will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow the directions received from your broker relating to changing those instructions.

Q:		What will happen in the merger?
A:		Upon consummation of the merger, Minuteman Acquisition Corp. will be merged with and into MASSBANK Corp., with MASSBANK Corp. being the surviving corporation. MASSBANK Corp. will become a wholly-owned subsidiary of Eastern and cease to be a publicly traded company.
Q:		What will I receive in the merger?
A:		As a stockholder of MASSBANK Corp., you will receive $40.00 in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own (which we sometimes refer to as the merger consideration). For example, if you own 100 shares of our common stock, upon consummation of the merger, you will receive $4,000 in cash.
Q:		What vote is required to approve the merger agreement?
A:		Approval of the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of our common stock entitled to vote on the matter. We urge you to complete, sign, date, and return the enclosed proxy card or to vote your shares through the Internet or by telephone to ensure the representation of your shares at the special meeting.

Q:		What rights do I have if I oppose the merger?
A:		You can vote against approval of the merger agreement by completing, signing, dating and returning your proxy card or by voting against approval of the merger agreement through the Internet, by telephone or in person at the special meeting.
Q:		Am I entitled to appraisal rights in connection with the merger?
A:		Yes. To exercise appraisal rights, you must satisfy each of the following conditions:
		• before the vote on the proposal to approve the merger agreement is taken, deliver to MASSBANK Corp. a written demand, separate from your proxy, of your intent to demand appraisal for your shares of common stock;
		•  not vote in favor of the proposal to approve the merger agreement; and
		• comply with other procedures required by Section 262 of the Delaware General Corporation Law.
		A copy of Section 262 of the Delaware General Corporation Law is attached to this proxy statement as Annex D .
Q:		If the merger is consummated, when can I expect to receive the merger consideration for my shares of common stock?
A:		After the merger is consummated, you will receive detailed instructions from the paying agent regarding the surrender of your stock certificates. You should not send your stock certificates to us or anyone else until you receive these instructions. The paying agent will arrange for the payment of the merger consideration to be sent to you promptly following receipt of your stock certificates and other documents required by the paying agent.
Q:		Why is the MASSBANK Corp. board recommending the merger?
A:		Our board believes that the merger and the merger agreement are advisable and in the best interests of our stockholders and unanimously recommends that you approve the merger agreement. To review our board’s reasons for recommending the merger, see the section entitled “The Merger — Recommendation of Our Board and Reasons for the Merger” beginning on page 29 of this proxy statement.
Q:		What are the tax consequences of the merger to me?
A:		Your receipt of the merger consideration will be a taxable transaction for federal income tax purposes. To review the tax consequences to you in greater detail, see the section entitled “Federal Income Tax Consequences” beginning on page 66 of this proxy statement. Your tax consequences will depend on your personal situation. You should consult your personal tax advisors for a full understanding of the tax consequences of the merger to you.
Q:		When do you expect the merger to be consummated?
A:		We are working towards consummating the merger as quickly as possible. We currently expect to consummate the merger during the third quarter of 2008. We cannot, however, require Eastern to consummate the merger until three business days after all of the conditions to the merger described in the merger agreement that can be satisfied prior to the closing are satisfied or waived, including the approval of the merger agreement by our stockholders. The merger requires regulatory approvals including the approvals of the Board of Governors of the Federal Reserve System (which we sometimes refer to as the Federal Reserve) and the Massachusetts banking regulators. We cannot assure you as to when or if all the conditions to the merger will be met, and it is possible the parties will not complete the merger. For a further summary of the conditions of the Merger, please see “The Merger Agreement — Conditions to the Merger” beginning on page 52 of this proxy statement.

Q:		What will happen to my shares of common stock in MASSBANK Corp. after the merger?
A:		From and after the effective time of the merger, your shares of our common stock will represent solely the right to receive the merger consideration and trading in our common stock on the NASDAQ Global Select Market will cease. Price quotations for our common stock will no longer be available and we will cease filing periodic reports under the Securities Exchange Act of 1934, as amended (which we sometimes refer to as the Exchange Act).
Q:		What happens if I sell my shares before the special meeting?
A:		The record date for the special meeting is earlier than the expected effective time of the merger. If you held your shares of common stock on the record date but have transferred those shares after the record date and before the merger, you may retain your right to vote at the special meeting but not the right to receive the merger consideration. This right to receive the merger consideration will pass to the person who owns the shares of our common stock as of the effective time of the merger.
Q:		Should I send in my MASSBANK Corp. stock certificates now?
A:		No. After the merger is consummated, the paying agent will send you written instructions for exchanging your MASSBANK Corp. stock certificates. You must return your MASSBANK Corp. stock certificates as described in the instructions. You will receive your cash payment promptly after the paying agent receives your MASSBANK Corp. stock certificates and any completed documents required in the instructions.

Q:		What should I do if I have questions?
A:		If you have questions about the special meeting, the merger or this proxy statement, or would like additional copies of this proxy statement or the proxy card, you should contact Laurel Hill Advisory Group, LLC, our proxy solicitor, toll-free at (888) 742-1305.

 

SUMMARY

 

Parties to the Merger (Page 15)

 

The Merger (Page 21)

 

What You Will Receive in the Merger (Page 48)

 

The Special Meeting (Page 17)

 

Record Date and Voting Power (Page 18)

 

Quorum and Vote Required (Page 18)

	•	the presence, in person or by proxy, of the holders of a majority of the shares of our common stock outstanding and entitled to vote at the special meeting in order to constitute a quorum; and
	•	the affirmative vote of holders of a majority of the shares of our common stock outstanding and entitled to vote at the special meeting in order to approve the merger agreement.

 

Proxies and Voting (Page 19)

 

Revocability of Proxy (Page 19)

	•	delivering to our Secretary a written notice of revocation bearing a later date than the proxy;
	•	duly completing, signing, dating and returning a subsequent proxy;
	•	properly casting a new vote through the Internet or by telephone at any time before the closure of the Internet or telephone voting facilities; or
	•	attending the special meeting and voting in person.

 

Recommendation of Our Board and Reasons for the Merger (Page 29)

 

Opinion of Financial Advisor (Page 31)

 

Appraisal Rights (Page 63)

 

Exchange of Stock Certificates (Page 48)

 

Source of Funds (Page 62)

 

Conditions to the Merger (Page 52)

	•	our stockholders must have approved the merger agreement;
	•	all required regulatory approvals must have been received, any waiting periods required by law must have passed, and none of the regulatory approvals must impose any burdensome condition upon Eastern;
	•	there must be no order, decree or injunction in effect, nor any law, statue or regulation enacted or adopted, preventing consummation of the merger;
	•	Eastern must receive from the Company all material third-party consents to the merger;
	•	the representations and warranties of each of the Company and Eastern in the merger agreement must be accurate, subject, in most cases, to exceptions that would not have a material adverse effect;
	•	the Company and Eastern must have each performed in all material respects all obligations required to be performed by it under the merger agreement;
	•	there must not have been a material adverse effect on the Company since March 10, 2008; and
	•	the total number of dissenting shares must not exceed 15% of the issued and outstanding shares of our common stock.

 

Solicitation of Proposals from Other Parties (Page 56)

 

Termination of the Merger Agreement (Page 58)

	•	the parties mutually agree in writing to terminate the merger agreement;
	•	there has been either (1) a breach by the other party of any of its representations or warranties in the merger agreement or (2) a material breach by the other party of any of the covenants or agreements in the merger agreement and, in each case, the breach cannot be or has not been cured within 30 days

		after written notice of the breach (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement);

	•	the merger is not consummated by November 1, 2008, unless the failure to consummate the merger is due to the failure by the terminating party to perform its obligations under the merger agreement;
	•	the approval of any governmental authority required for consummation of the merger and the other transactions contemplated by the merger agreement has been denied by final nonappealable action of such governmental authority, or any governmental entity of competent jurisdiction has issued a final nonappealable order, injunction or decree enjoining or otherwise prohibiting the consummation of the transactions contemplated by the merger agreement, provided that the terminating party has used its reasonable best efforts to have such order, injunction or decree lifted;
	•	our stockholders do not approve the merger agreement at the special meeting; or
	•	a vote on the approval of the merger agreement has not been taken by our stockholders at the special meeting by November 1, 2008.

	•	our board:

	•	modifies, qualifies, withholds or withdraws its approval or recommendation to our stockholders that they vote in favor of approval of the merger agreement (including taking a neutral position or no position with respect to an acquisition proposal);
	•	makes any statement, filing or release, in connection with the special meeting or otherwise, inconsistent with its approval or recommendation to our stockholders that they vote in favor of approval of the merger agreement;
	•	breaches its obligations to call, give notice of and commence the special meeting;
	•	approves or recommends an acquisition proposal;
	•	fails to publicly recommend against a publicly announced acquisition proposal within five business days of being requested to do so by Eastern; or
	•	resolves or otherwise determines to take, or announces an intention to take, any of the foregoing actions; or

	•	there has been a material breach by us of the no solicitation provisions of the merger agreement, as discussed in the section entitled “The Merger Agreement — Solicitation of Proposals from Other Parties” beginning on page 56 of this proxy statement.

	•	our board withdraws, qualifies or modifies its recommendation with respect to the merger agreement and we have otherwise complied in all material respects with the no solicitation provisions of the merger agreement, as discussed in the section entitled “The Merger Agreement — Solicitation of Proposals from Other Parties” beginning on page 56 of this proxy statement;
	•	we concurrently pay Eastern a termination fee of $5 million, as discussed in the section entitled “The Merger Agreement — Termination Fee; Expenses” beginning on page 59 of this proxy statement; and
	•	our board concurrently approves, and we concurrently enter into, a definitive agreement with respect to such superior proposal.

 

Termination Fee; Expenses (Page 59)

	•	the merger agreement is terminated by Eastern

	•	pursuant to Eastern’s unilateral termination rights, as discussed in the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 58 of this proxy statement;
	•	because we have either (1) breached our representations or warranties in the merger agreement or (2) materially breached our covenants or agreements in the merger agreement and, in each case, the breach is incapable of being cured or, if capable of being cured, has not been cured within 30 days after written notice of the breach is given to us and Eastern is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement, as discussed in the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 58 of this proxy statement, and on or before the date of such termination,

	•	an acquisition proposal with respect to the Company has been publicly disclosed or announced and not withdrawn before the applicable breach by the Company; and
	•	within one year of such termination, the Company enters into a definitive agreement with respect to, or the Company has consummated, an acquisition transaction;

	•	because the merger has not been consummated by November 1, 2008 (other than because of a breach of the merger agreement caused by Eastern), as discussed in the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 58 of this proxy statement, and on or before the date of such termination,

	•	an acquisition proposal with respect to the Company has been publicly disclosed or announced and not withdrawn before November 1, 2008; and
	•	within one year of such termination, the Company enters into a definitive agreement with respect to, or the Company has consummated, an acquisition transaction;

	•	the merger agreement is terminated by Eastern or us

	•	because our stockholders fail to approve the merger agreement at the special meeting, or any adjournment thereof, and on or before the date of such termination,

	•	an acquisition proposal with respect to the Company has been publicly disclosed or announced and not withdrawn at least 10 days before the special meeting; and
	•	within one year of such termination, the Company enters into a definitive agreement with respect to, or the Company has consummated, an acquisition transaction;

	•	because a vote on the approval of the merger agreement has not been taken at the special meeting by November 1, 2008, and on or before the date of such termination,

	•	an acquisition proposal with respect to the Company has been publicly disclosed or announced and not withdrawn by November 1, 2008; and
	•	within one year of such termination, the Company enters into a definitive agreement with respect to, or the Company has consummated, an acquisition transaction; or

	•	we terminate the merger agreement because we have received a superior proposal and our board

	•	withdraws, qualifies or modifies its recommendation with respect to the merger agreement and we have otherwise complied in all material respects with the no solicitation provisions of the merger agreement, as discussed in the section entitled “The Merger Agreement — Solicitation of Proposals from Other Parties” beginning on page 56 of this proxy statement; and

	•	concurrently approves, and the Company concurrently enters into, a definitive agreement with respect to such superior proposal.

	•	we have either (1) breached our representations or warranties in the merger agreement or (2) materially breached our covenants or agreements in the merger agreement and, in each case, the breach is incapable of being cured or, if capable of being cured, has not been cured within 30 days after written notice of the breach is given to us and Eastern is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement, as discussed in the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 58 of this proxy statement;
	•	our stockholders fail to approve the merger agreement at the special meeting, or any adjournment thereof; or
	•	a vote on the approval of the merger agreement has not been taken by our stockholders at the special meeting by November 1, 2008.

 

Interests of Certain Persons in the Merger (Page 42)

	•	The executive officers’ employment agreements provide for the payment of severance benefits to the executive officers of the Company and/or the Company Bank, as the case may be, if the executive officer’s employment is terminated within two years following a change in control of the Company (which stockholder approval of the merger would constitute) either by (1) the Company and/or the Company Bank, as the case may be, for any reason other than for cause, or (2) the executive officer for good reason.
	•	Stock options held by our directors and executive officers will be treated in the same manner as all other stock options in the merger. For a discussion regarding the treatment of stock options generally, see the section entitled “The Merger Agreement — Treatment of Stock Options” beginning on page 61 of this proxy statement. Our directors and executive officers holding in-the-money stock options, whether vested or unvested, as of May 30, 2008 will receive cash payments upon the consummation of the merger in an aggregate amount (before withholding for applicable taxes) of approximately $1,422,765.
	•	In addition, under the terms of the merger agreement, our directors and executive officers will be entitled to indemnification in specified circumstances.

 

Voting Agreements (Page 45)

	•	appear and cause all of his, her or its shares of our common stock to be counted as present for purposes of calculating a quorum;
	•	vote in favor of approval of the merger agreement;
	•	vote against any action or agreement that would reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company contained in the merger agreement or of such stockholder in the voting agreement;
	•	vote against any acquisition proposal or any other action that is intended, or could reasonably be expected to, materially impede, interfere or be inconsistent with, delay, discourage or materially and adversely affect consummation of the transactions contemplated by the merger agreement or any of such stockholder’s obligations under the voting agreement; and
	•	appoint Eastern as his, her or its proxy with respect to the voting of his, her or its shares if the stockholder is unable to perform his, her or its obligations under the respective voting agreement.

 

Treatment of Stock Options (Page 61)

 

Effective Time of the Merger (Page 47)

 

Litigation Related to the Merger (Page 40)

 

Federal Income Tax Consequences (Page 66)

 

Regulatory Approvals and Other Information (Page 67)

 

This proxy statement contains forward-looking statements about our plans, objectives, expectations and intentions. Forward-looking statements are statements that contain predictions or projections of future events or performance, and often contain words such as “anticipates,” “can,” “estimates,” “believe,” “expects,” “projects,” “will,” “might,” or other words indicating a statement about the future. You should read statements that contain these words carefully. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to:

 

 

other risks detailed in our current filings with the Securities and Exchange Commission, including our most recent filings on Forms 10-Q and 10-K. For details about obtaining these documents, see the section entitled “Where You Can Find More Information” beginning on page 72 of this proxy statement.

 

The factors referred to above include many, but not all, of the factors that could impact our ability to achieve the results described in any forward-looking statement. You should not place undue reliance on forward-looking statements. We cannot guarantee that the merger will be consummated or our future results, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

MASSBANK Corp.
123 Haven Street
Reading, Massachusetts 01867
(781) 662-0100
www.massbank.com

 

MASSBANK Corp. is a Delaware corporation that is registered as a bank holding company under the BHC Act, and is subject to regulation by the Federal Reserve. We have not elected “Financial Holding Company” status under the BHC Act. The Company, which was organized in 1986, has its main office in Reading, Massachusetts. Our common stock is publicly traded and we are registered as an issuer of publicly-traded securities with the Securities and Exchange Commission. Our common stock is quoted on the NASDAQ Global Select Market under the symbol “MASB.”

 

Through our subsidiaries, we provide a broad range of financial services to individuals and businesses and we do not engage in any business activity at the holding company level.

Our sole nonbank direct subsidiary is Knabssam LLC, a Delaware limited liability company wholly-owned by us and headquartered in Reading, Massachusetts. Knabssam was formed in 2006, and it holds a parcel of land that was acquired as bank premises and that is excess land adjacent to, but not necessary for the efficient operation of, the Company Bank’s Westford branch.

 

For more information on the business of the Company and our subsidiaries, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. Please refer to the section entitled “Where You Can Find More Information” beginning on page 72 of this proxy statement in order to find out where you can obtain copies of our Annual Report as well as other documents that we file with the Securities and Exchange Commission.

 

MASSBANK
123 Haven Street
Reading, Massachusetts 01867
(781) 662-0100
www.massbank.com

 

MASSBANK, our sole banking subsidiary, is a Massachusetts-chartered savings bank that was founded in 1872 as the Melrose Savings Bank. In 1983, the Reading Savings Bank was merged with and into the Melrose Savings Bank, and the name of the surviving institution was changed to “MASSBANK for Savings.” In 1986, MASSBANK for Savings converted from a mutual to a stock form of ownership, and in 1996, MASSBANK for Savings changed its name to “MASSBANK.”

 

MASSBANK has its main office in Reading, Massachusetts and has 14 additional full-service branch offices in Melrose (2), Stoneham, Wilmington (2), Medford, Chelmsford (2), Tewksbury, Westford, Dracut, Lowell (2) and Everett, Massachusetts. MASSBANK and its subsidiaries (described below) offer a broad range of deposit accounts, loans and other financial products for consumers, businesses, government agencies and nonprofit organizations.

 

MASSBANK deposits are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (which we sometimes refer to as the FDIC) to the maximum extent permitted by law and by the Depositors Insurance Fund for amounts in excess of FDIC coverage limits.

 

MASSBANK has three subsidiaries, all of which are wholly-owned, direct subsidiaries. The subsidiaries include Readibank Properties, Inc., a Massachusetts corporation that is currently inactive, but that holds certain bank premises; Readibank Investment Corporation, a Massachusetts-chartered corporation that holds, as a passive investor, a portfolio of bank eligible securities; and Melbank Investment Corporation, a Massachusetts-chartered corporation that, in a manner similar to Readibank Investment Corporation, holds, as a passive investor, a portfolio of bank eligible securities.

 

EASTERN BANK CORPORATION
265 Franklin Street
Boston, Massachusetts 02110
(800) 327-8376
www.easternbank.com

 

Eastern is a mutual holding company corporation organized under the laws of the Commonwealth of Massachusetts. Eastern, through its wholly-owned subsidiary Eastern Bank, a Massachusetts-chartered trust company, engages in a retail, commercial and correspondent banking business, primarily in eastern Massachusetts. Eastern’s principal executive offices are located in Boston, Massachusetts.

EASTERN BANK
265 Franklin Street
Boston, Massachusetts 02110
(800) 327-8376
www.easternbank.com

 

Eastern Bank, a Massachusetts-chartered trust company and wholly-owned subsidiary of Eastern, operates 74 banking offices and in-store locations in Massachusetts. Eastern Bank offers retail and commercial banking products, as well as correspondent banking services for area community banks and offers a full range of financial products for consumers, businesses, investors, government agencies and nonprofit organizations located primarily in eastern Massachusetts. Eastern Bank’s principal executive offices are located in Boston, Massachusetts.

 

Eastern Bank’s deposits are insured by the FDIC to the maximum extent permitted by law but are not insured by the Depositors Insurance Fund.

 

MINUTEMAN ACQUISITION CORP.
265 Franklin Street
Boston, Massachusetts 02110
(800) 327-8376
www.easternbank.com

 

Merger Sub is a corporation organized under the laws of the State of Delaware and a wholly-owned subsidiary of Eastern. Eastern organized Merger Sub for the sole purpose of entering into the merger agreement and consummating the merger. Merger Sub has not conducted any business. The principal executive office of Merger Sub is located in Boston, Massachusetts.

 

We are furnishing this proxy statement to you, as a stockholder of MASSBANK Corp., as part of the solicitation of proxies by our board for use at the special meeting of stockholders.

 

The special meeting will be held at the Andover Country Club, located at 60 Canterbury Street, Andover, Massachusetts 01810, on Tuesday, July 15, 2008, at 11:00 a.m., local time.

 

At the special meeting, you will be asked to consider and vote on the following proposals:

 

 

Our board has unanimously determined that the merger agreement and the merger are advisable and in the best interests of our stockholders, and has adopted the merger agreement and approved the merger. Our board unanimously recommends that our stockholders vote “FOR” approval of the merger agreement.

Even though a quorum may be present at the special meeting, it is possible that we may not have received sufficient votes to approve the merger agreement by the time of the special meeting. To allow the proxies that have been received by us at the time of the special meeting to be voted for one or more adjournments of the special meeting for purposes of soliciting additional proxies to obtain the requisite stockholder vote, we are submitting a proposal to approve one or more adjournments to you for consideration. Our board recommends that you vote “FOR” the adjournment proposal so that proxies may be used for that purpose only, should it become necessary. Properly executed proxies will be voted “FOR” the adjournment proposal, unless otherwise indicated on the proxies. If the special meeting is adjourned for 30 days or less, we are not required to give notice of the time and place of the adjourned meeting unless our board fixes a new record date for the special meeting.

 

The matters to be considered at the special meeting are of great importance to you. Accordingly, we urge you to read and carefully consider the information presented in this proxy statement and to complete, sign, date and promptly return the enclosed proxy card in the enclosed postage-paid envelope or to vote your shares through the Internet or by telephone.

 

You should not send any stock certificates with your proxy cards. A letter of transmittal with instructions for the surrender of the Company’s stock certificates will be mailed to stockholders. For more information regarding the procedures for exchanging the Company’s stock certificates, see the section entitled “The Merger Agreement — Exchange of Stock Certificates” beginning on page 48 of this proxy statement.

 

Our board has fixed the close of business on June 3, 2008 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting. At the close of business on the record date, 4,233,079 shares of our common stock were outstanding and entitled to receive notice of, and vote at, the special meeting. On the record date, our shares were held of record by approximately 667 stockholders. Our common stock is our only outstanding class of stock. Stockholders of record on the record date will be entitled to one vote per share of our common stock on any matter that properly comes before the special meeting and any adjournment or postponement of that meeting.

 

Our charter and bylaws and Delaware law require the presence, in person or by duly executed proxy, of the holders of a majority of the voting power of shares of our common stock outstanding and entitled to vote at the special meeting to constitute a quorum. Both abstentions and broker “non-votes” will be counted as present for purposes of determining the existence of a quorum. If a quorum is not present and if the adjournment proposal has the necessary majority, we expect to adjourn or postpone the special meeting to solicit additional proxies and intend to vote any proxies we have received at the time of the special meeting in favor of an adjournment or postponement.

 

Our charter and bylaws and Delaware law require the affirmative vote of holders of a majority of the shares of our common stock outstanding and entitled to vote at the special meeting to approve the merger agreement. On the record date, our directors and executive officers and their affiliates owned 384,971 shares of our common stock, or approximately 9% of our total outstanding shares, all of which are subject to voting agreements with Eastern. Pursuant to these voting agreements, our directors and executive officers and their affiliates have agreed, among other things, to vote in favor of approval of the merger agreement, as discussed in the section entitled “Interests of Certain Persons in the Merger — Voting Agreements” beginning on page 45 of this proxy statement.

 

The proposal to approve one or more adjournments of the special meeting requires the affirmative vote of holders of a majority of the shares of our common stock present or represented at the special meeting and entitled to vote on the proposal.

 

For purposes only of determining the presence or absence of a quorum for the transaction of business at the special meeting, we intend to count abstentions and broker “non-votes” as present at the special meeting. Abstentions and broker “non-votes” are not, however, counted as favorable votes and, therefore, have the same effect as a vote against approval of the merger agreement. If you fail to vote or abstain from voting, it will have the effect of a vote against the proposal to approve the merger agreement. Broker “non-votes” are shares held by brokers or nominees as to which (1) voting instructions have not been received from the beneficial owners or the persons entitled to vote those shares, and (2) the broker or nominee does not have discretionary voting power. The proposal to approve the merger agreement is not an item on which brokerage firms may vote in their discretion on behalf of their clients. Accordingly, we urge you to return the enclosed proxy card marked to indicate your vote, to vote your shares through the Internet or by telephone or to give your broker proper instructions.

 

To approve the adjournment proposal, a majority of the outstanding shares of our common stock present or represented at the special meeting and entitled to vote, which includes abstentions, must vote in favor of the proposal. Broker “non-votes” will have no effect on the outcome of this proposal.

 

Stockholders may vote their shares by attending the special meeting and voting their shares in person or by completing, signing and dating the accompanying proxy card and promptly returning it to us. All properly executed proxies received prior to taking the vote at the special meeting and not revoked will be voted as instructed on the proxy card. If the proxy is signed and returned without indicating any voting instructions, the shares represented by that proxy will be voted “FOR” approval of the merger agreement, “FOR” the approval of one or more adjournments or postponements of the special meeting, if necessary, and in the discretion of the individuals named as proxies as to any and all other matters that may come before the special meeting.

 

In addition, stockholders may vote their shares through the Internet or by telephone by following the instructions included on the accompanying proxy card. If you vote your shares through the Internet or by telephone, please do not return the proxy card. You should be aware that in delivering a vote through the Internet or by telephone, you may incur costs such as telephone and Internet access charges for which you will be responsible. The Internet voting facility and the telephone voting facility for stockholders of record will close at 11:59 p.m., Eastern Time, on July 14, 2008.

 

Stockholders who have questions or requests for assistance in completing and submitting proxy cards should contact Laurel Hill Advisory Group, LLC, our proxy solicitor, toll-free at (888) 742-1305.

 

Stockholders who hold their shares of our common stock in “street name,” meaning in the name of a bank, broker or other person who is the record holder, must either direct the record holder of their shares of our common stock how to vote their shares or obtain a proxy from the record holder to vote their shares at the special meeting.

 

If you have not submitted a proxy through your broker or other nominee, you may revoke your proxy at any time before it is voted at the special meeting by:

 

 

 

Attendance at the special meeting will not, in and of itself, constitute revocation of a proxy.

 

If your shares are held in “street name,” you should follow the voter instruction form provided by your broker or other nominee regarding revocation of proxies. If the holder of record of your shares is your broker, bank or other nominee and you wish to vote at the special meeting, you must bring a legal proxy from your broker, bank or other nominee authorizing you to vote those shares.

 

You should send any notice of revocation of your proxy card to:

 

MASSBANK Corp.
123 Haven Street
Reading, Massachusetts 01867
Attention: Robert S. Cummings, Secretary

 

In addition to solicitation by mail, our directors, officers and employees may solicit proxies by telephone, other electronic means or in person. These people will not receive any additional compensation for their services, but we will reimburse them for their out-of-pocket expenses. We will reimburse banks, brokers, nominees, custodians and fiduciaries for their reasonable expenses in forwarding copies of this proxy statement to the beneficial owners of shares of our common stock and in obtaining voting instructions from those owners. We will pay all expenses of filing, printing and mailing this proxy statement.

 

We have retained Laurel Hill Advisory Group, LLC to assist in the solicitation of proxies by mail, telephone or other electronic means, or in person, for a fee of approximately $6,000 plus reasonable out-of-pocket expenses relating to the solicitation.

 

We are not currently aware of any business to be acted upon at the special meeting other than the matters discussed in this proxy statement. Under our bylaws, business transacted at the special meeting is limited to matters relating to the purposes stated in the notice of special meeting, which is provided at the beginning of this proxy statement, unless otherwise properly brought before the special meeting by our board or a stockholder. If other matters do properly come before the special meeting, or at any adjournment or postponement of the special meeting, we intend that shares of our common stock represented by properly submitted proxies will be voted by and at the discretion of the persons named as proxies on the proxy card. The grant of a proxy will confer discretionary authority on the persons named as proxies on the proxy card to vote in accordance with their best judgment on other matters that are properly presented at the special meeting.

 

(Proposal 1)

 

This discussion of the merger is qualified by reference to the merger agreement, which is attached to this proxy statement as Annex A. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

The merger agreement provides for the merger of Merger Sub with and into the Company. We will be the surviving corporation in the merger and will continue our existence under the laws of the State of Delaware as a wholly-owned subsidiary of Eastern. After the effective time of the merger, on a date selected by Eastern, Company Bank will merge with and into Eastern Bank, which is a wholly-owned subsidiary of Eastern, and Eastern Bank will be the surviving entity (which we sometimes refer to as the bank merger). As a result of the merger, we will cease to exist as a separate company and our common stock will no longer be listed on the NASDAQ Global Select Market. The merger will be consummated when the certificate of merger has been filed with the Secretary of State of the State of Delaware in accordance with Delaware General Corporation Law, which is expected to occur as soon as practicable after the special meeting and the satisfaction or waiver of all other conditions to closing, unless another effective time is specified in the certificate of merger. However, under the merger agreement, Eastern will not be required to consummate the merger until three business days after all of the conditions to the merger that can be satisfied prior to the closing are satisfied or waived.

 

As of the effective time of the merger, holders of shares of our common stock will have no further ownership interest in the surviving corporation. Instead, each holder of our common stock outstanding immediately prior to the effective time of the merger will be entitled to receive $40.00 in cash per share, without interest and less any applicable withholding taxes (which we sometimes refer to as the merger consideration). At the effective time of the merger, each outstanding option, whether vested or unvested, to purchase shares of our common stock will be canceled and the holder of such stock option will receive an amount in cash equal to the number of shares of common stock underlying the stock option multiplied by the excess, if any, between the merger consideration and the exercise price applicable to that stock option (which we sometimes refer to as the option consideration).

 

Our management and board of directors, with the assistance of our financial advisors and outside legal counsel, have periodically reviewed the various strategic alternatives available to the Company, including, among other things, continued independence, acquisitions of other institutions, and mergers with and acquisitions by larger institutions. Our management and board also prepare and update a strategic business plan and budget on an annual basis. At least once a year, our management and board compare quantitative measures of the Company’s performance with those of other financial institutions and review the banking industry environment, including the trend towards consolidation, and potential strategies for enhancing our competitive position in our industry. In addition, our board periodically discusses issues relating to its fiduciary duties with our outside legal counsel, Goodwin Procter LLP .

 

In the ordinary course of business, and consistent with these goals, our chairman, chief executive officer and president, Gerard H. Brandi, has been involved, from time to time, in informal discussions with representatives of other financial institutions regarding banking industry issues and exploratory discussions of the potential benefits and issues arising from possible combinations. Any conversations concerning a more substantial alliance between the parties were always general in nature and did not result in the parties engaging in more significant discussions.

 

On January 9, 2007, the chief executive officer of Company A had a dinner meeting with Mr. Brandi. During this meeting, the chief executive officer of Company A expressed his opinion that a combination of Company A and the Company would be competitively advantageous given, among other reasons, their

complementary geographic footprints, and, as he had done in previous years, suggested to Mr. Brandi that, if our board ever decided to consider in a serious fashion the sale of the Company, it should contact Company A.

 

Between April 4, 2007 and April 6, 2007, we held our annual strategic planning conference where we, among other things, reviewed the banking industry environment, including the trend towards consolidation, the Company’s performance as compared with those of our peers, and the current mergers and acquisition environment in the banking industry. These discussions included a review of the various strategic alternatives available to the Company, including, among other things, continued independence, acquisitions of other institutions, and mergers with and acquisitions by larger institutions. At this conference, Mr. Brandi discussed the limitations facing the Company, including, among other things, industry consolidation, continued competition from non-banks as well as other community banks, the continued loss of market share to credit unions, mega-banks and mortgage companies, margin compression due to the inverted yield curve, the lack of noninterest income, facility limitations, unprofitable products, and employee retention issues. Also at this conference, at the suggestion of members of our board, a financial advisor provided, among other things, an overview of the banking industry environment and the current mergers and acquisition environment in the banking industry.

 

On August 7, 2007, Lawrence B. Seidman and certain affiliates filed a Schedule 13D with the Securities and Exchange Commission in which Mr. Seidman stated a desire to meet with our board and management to review ways to maximize stockholder value, including the possibility of a sale of the Company to a larger institution.

 

On August 20, 2007, the chief executive officer of Company A contacted Mr. Brandi to discuss the possibility of a strategic transaction. The parties concluded this discussion by agreeing to meet in person on August 29, 2007 to engage in further discussions.

 

On August 22, 2007, at a regularly scheduled joint meeting of the executive committee of our board and the executive committee of the Company Bank board, with Goodwin Procter in attendance at the request of the executive committees, Mr. Brandi updated the executive committees on the discussions with Company A. The executive committees also discussed the possibility of a strategic transaction with other parties. Mr. Brandi suggested that Company B may have an interest in a strategic transaction with the Company. At the conclusion of this meeting, the executive committees authorized Mr. Brandi to begin discussions with Company A regarding the terms of a potential transaction, including pricing. The executive committees also authorized Mr. Brandi to contact the chief executive officer of Company B regarding its interest in evaluating a potential strategic transaction between the parties.

 

On August 29, 2007, Mr. Brandi and the chief executive officer of Company A met in person in Boston to follow up on their August 20 ^th discussion. During this meeting, they continued to express a mutual interest in a potential strategic transaction and discussed, in general terms, the potential merits and challenges of a strategic transaction between the two companies. The chief executive officer of Company A also expressed preliminary interest in pursuing a potential transaction at a price of up to $44.00 per share of our common stock in a combination of cash and Company A common stock.

 

On August 31, 2007, the Company entered into a customary confidentiality agreement with Company A.

 

On September 3, 2007, at Mr. Brandi’s initiative, Mr. Brandi had a breakfast meeting with the chief executive officer of Company B to discuss the possibility of a strategic transaction. The chief executive officer of Company B expressed an interest in a strategic transaction with the Company and the parties concluded this meeting by expressing an interest to engage in further discussions.

 

Between September 3, 2007 and September 5, 2007, Mr. Brandi and the chief executive officer of Company B engaged in several communications to follow up on their September 3 ^rd discussion.

 

On September 5, 2007, the chief executive officer of Company B informed Mr. Brandi that Company B was not in a position to continue discussions with the Company regarding a potential strategic transaction at that time.

On September 12, 2007, at a regularly scheduled meeting of the Company Bank board, with Goodwin Procter in attendance at the request of the Company Bank board, Mr. Brandi, together with Goodwin Procter, updated the Company Bank board on the status of discussions with Company A and with Company B.

 

Also on September 12, 2007, the chief executive officer of Company A had a dinner meeting with Mr. Brandi and Goodwin Procter to continue discussions regarding a potential strategic transaction between the parties. The parties continued to discuss the possibility of a transaction at a price of up to $44.00 per share of our common stock in a combination of cash and Company A common stock. The chief executive officer of Company A stated that the exchange ratio for determining the number of shares of Company A common stock to be paid per share of our common stock would float so as to provide a fixed market value within a range to be determined. The chief executive officer of Company A also indicated that this proposal was preliminary and subject to Company A performing confirmatory due diligence and negotiating a mutually satisfactory definitive merger agreement.

 

Also on September 12, 2007, and in response to the on-going discussions with Company A and Company B, the Company requested that FBR, with which the Company had no prior relationship, assist our board in these discussions.

 

Between September 12, 2007 and September 19, 2007, the chief executive officer of Company A engaged in several communications with Mr. Brandi regarding the general terms of a potential transaction between the companies. Also during this period, Company A’s financial advisor engaged in several communications with FBR regarding the general terms of a potential transaction between the companies, including valuation issues.

 

During this same period, Company A’s financial advisor delivered to the Company a draft term sheet outlining the basic structure of Company A’s proposal to pay up to $44.00 per share for the Company’s common stock in a combination of cash and Company A common stock with the exchange ratio for determining the number of shares of Company A common stock floating so as to provide a fixed market value within a range to be determined.

 

Beginning on September 17, 2007 and throughout the rest of September, Company A and its financial advisor and legal counsel conducted financial and legal due diligence on the Company.

 

On September 19, 2007, the chief executive officer of Company A and two members of the board of directors of Company A met in Boston with Mr. Brandi, Allan S. Bufferd, a member of our board, and Robert S. Cummings, the Company’s Secretary and a member of the Company Bank board, regarding the general terms of a potential transaction between the companies, including, among other things, the structure of the transaction, valuation issues, the anticipated role of Mr. Brandi with the combined company and potential seats on Company A’s board of directors for Company representatives as well as the business and operating models of their respective companies.

 

On September 20, 2007, we formally engaged FBR as our financial advisor to assist our board in assessing the strategic alternatives available to the Company, including the proposal submitted by Company A, which engagement was confirmed in a letter dated September 20, 2007.

 

Also on September 20, 2007, legal counsel to Company A furnished an initial draft of the merger agreement to the Company.

 

Between September 20, 2007 and September 24, 2007, Company A and its financial advisor and legal counsel continued to conduct financial and legal due diligence on the Company. During this same period, the Company, FBR and Goodwin Procter began financial and legal due diligence on Company A.

 

Also during this period, Mr. Brandi and FBR engaged in several communications with Company A’s financial advisor regarding the form of consideration that Company A would pay for the Company’s common stock, whether the exchange ratio would be set at signing or at closing, and if the exchange ratio was set at signing, whether there would be any adjustments to the exchange ratio as a result of fluctuations in the value of Company A’s common stock at closing. Throughout these discussions, Company A’s financial advisor stated that the exchange ratio would be set at closing.

On September 24, 2007, after consulting with FBR and Goodwin Procter, Mr. Brandi called the chief executive officer of Company A and told him that setting the exchange ratio at closing was unacceptable.

 

On September 25, 2007, legal counsel for Company A furnished a draft term sheet outlining the basic structure and terms of Company A’s proposal to pay up to $44.00 per share of our common stock in a combination of cash and Company A common stock with the exchange ratio being set at closing and with no adjustments to the exchange ratio as a result of fluctuations in the value of Company A’s common stock.

 

Between September 25, 2007 and September 28, 2007, Mr. Brandi discussed the draft term sheet with FBR and Goodwin Procter.

 

Also on September 25, 2007, after a regularly scheduled dinner of present and former banking industry executives, Mr. Brandi and a member of the board of directors of Company A, who were both present at the dinner, discussed the general terms of a potential transaction, including, among other things, structure and valuation issues. The parties concluded this discussion by agreeing that the chief executive officer of Company A and two members of the board of directors of Company A would meet with Mr. Brandi and a member of our board in person on September 27, 2007 to discuss the general terms of a potential transaction, including, structure and valuation issues.

 

On September 26, 2007, at a regularly scheduled joint meeting of the executive committee of our board and the executive committee of the Company Bank board, with Goodwin Procter in attendance at the request of the executive committees, Mr. Brandi, together with Goodwin Procter, updated the executive committees on the discussions with Company A and discussed whether other parties would have a strong interest in acquiring the Company. Mr. Brandi indicated that Company C may be interested in such a transaction. At the conclusion of this meeting, the executive committees authorized Mr. Brandi to continue discussions with Company A regarding the terms of a potential transaction, including pricing, and authorized Mr. Brandi to initiate discussions with Company C.

 

On September 27, 2007, Mr. Brandi and Robert S. Cummings, the Company’s Secretary and a member of the Company Bank board, met with the chief executive officer of Company A and a member of the board of directors of Company A to discuss the general terms of a potential transaction, including, among other things, the transaction structure and valuation of a potential transaction. At this meeting, Company A provided the Company with a revised draft term sheet that outlined these discussions.

 

On September 28, 2007, FBR provided a revised draft term sheet to Company A’s financial advisor, which provided for the exchange ratio being set at signing, with adjustments, subject to certain collars, to the exchange ratio based on fluctuations in the value of Company A’s common stock through closing.

 

Between September 28, 2007 and October 2, 2007, FBR engaged in several discussions with Company A’s financial advisor regarding whether the exchange ratio would be set at signing or at closing and whether there would be any adjustments to the exchange ratio as a result of fluctuations in the value of Company A’s common stock at closing.

 

Due to the inability of Company A to propose acceptable definitive merger terms, including, principally, whether the exchange ratio would be set at signing or at closing and whether there would be any adjustments to the exchange ratio based on fluctuations in the value of Company A’s common stock through closing, on October 2, 2008, Mr. Brandi instructed Goodwin Procter to deliver a letter to Company A’s legal counsel asking Company A, pursuant to the terms of the confidentiality agreement between the parties, to either destroy or return any of the Company’s confidential information that Company A had in its possession. The letter was sent by Goodwin Procter but Company A did not return any documents to the Company.

 

On October 4, 2007, the chief executive officer of Company A delivered to Mr. Brandi an outline of a written proposal to acquire the Company for $44.00 per share, with 40% of the total consideration to consist of Company A common stock and 60% of the total consideration to consist of cash. The written proposal also stated that the exchange ratio for determining the number of shares of Company A common stock to be delivered at closing would float, to provide an agreed upon market value, within a +/- range of 10% relative to the 10-day trailing average stock price of Company A’s common stock at the signing of the definitive merger

agreement, with each party having the right to terminate the definitive merger agreement if the 10-day trailing average stock price of Company A’s common stock was less than an agreed upon dollar amount per share. The written offer also stated that two members of our board would be asked to join the board of directors of Company A, one of whom would also be asked to join the board of directors of Company A’s banking subsidiary. The proposal was subject to Company A performing confirmatory due diligence and negotiating a mutually satisfactory definitive merger agreement and expired on October 16, 2008.

 

On October 9, 2007, Mr. Brandi met with the chief executive officer of Company C to discuss a potential strategic transaction between their respective companies, which meeting was arranged by FBR. Mr. Brandi and the chief executive officer of Company C discussed general industry trends and opportunities facing companies in the banking industry as well as their respective business models. The chief executive officer of Company C expressed an interest in a strategic transaction with the Company; however, no specific acquisition prices were discussed.

 

Between October 9, 2007 and October 16, 2007, FBR engaged in several preliminary discussions with Company C’s financial advisor regarding valuation matters related to a potential strategic transaction between the parties.

 

On October 10, 2007, at a regularly scheduled meeting of the Company Bank board, Mr. Brandi updated the Company Bank board on the status of discussions with Company A, Company B and Company C.

 

Also on October 10, 2007, Mr. Brandi had a discussion with the chief executive officer of Company B and inquired as to whether Company B had any interest in re-engaging in discussions concerning a potential strategic transaction between the parties. The chief executive officer of Company B informed Mr. Brandi that Company B was not in a position to engage in any such discussions at that time. Thereafter, discussions with Company B ceased.

 

On October 11, 2007, Company A’s legal counsel delivered a letter to Mr. Brandi indicating that Company A’s written proposal dated October 4, 2008 was extended from October 16, 2008 to October 18, 2008.

 

On October 15, 2007, Mr. Brandi had a dinner meeting with Company A’s financial advisors to discuss the status of the Company’s discussions with Company A regarding a potential strategic transaction.

 

On October 16, 2007, the chief executive officer of Company C delivered to FBR a written preliminary proposal to acquire the Company for a price between $42.00 and $43.00 per share in a combination of a cash and Company C common stock. The proposal also stated that the mix of the total consideration would be in the range of 50% stock/50% cash to 70% stock/30% cash with final percentages to be determined after further discussions between the parties. The written proposal further indicated that the exchange ratio for determining the number of shares of Company C common stock that would be delivered at closing would be fixed at signing. The proposal was subject to Company C performing confirmatory due diligence and negotiating a mutually satisfactory definitive merger agreement

 

On October 16, 2007, at a regularly scheduled meeting of our board, with FBR and Goodwin Procter in attendance at the request of our board, Mr. Brandi, together with FBR and Goodwin Procter, updated our board on, among other things, the discussions with Company A and Company C and the Company’s strategic alternatives and opportunities in general. FBR reviewed the terms of the preliminary proposals received from each of Company A and Company C. Following these discussions, our board authorized FBR to request a full proposal, including price and terms, from Company C’s financial advisor and to continue negotiations with Company A.

 

On October 17, 2007, at the request of Company A’s legal counsel, Goodwin Procter furnished Company A’s legal counsel with comments to the initial draft of the merger agreement that we had originally received on September 20, 2007.

 

On October 19, 2007, Company C’s financial advisor provided FBR with a term sheet for a consulting agreement between Company C and Mr. Brandi, which term sheet was never discussed between Company C and Mr. Brandi.

During the period from October 9, 2007 to October 23, 2007, the market price of Company C’s common stock declined more than 18%. On October 23, 2007, Company C’s financial advisor informed FBR that, in light of the precipitous decline in Company C’s stock price, Company C was not in a position to continue discussions with the Company regarding a potential strategic transaction at that time.

 

On October 24, 2007, the chief executive officer of Company C contacted Mr. Brandi to reiterate the conversation between Company C’s financial advisor and FBR on October 23 ^rd and stated that, in light of the precipitous decline in Company C’s stock price, Company C was not in a position to continue discussions with the Company regarding a potential strategic transaction at that time. Thereafter, discussions with Company C ceased.

 

On October 25, 2007, the chief executive officer of Company A sent a letter to Mr. Brandi asking Mr. Brandi for a response to Company A’s written offer dated October 4, 2008.

 

On November 1, 2007, Mr. Brandi sent the chief executive officer of Company A a letter stating that the Company had not heard from Company A or its legal counsel regarding the revised draft merger agreement Goodwin Procter had sent to Company A’s legal counsel on October 17, 2008.

 

During the period from August 31, 2007 to November 7, 2007, the market price of Company A’s common stock declined more than 23%. On November 7, 2007, the chief executive officer of Company A contacted Mr. Brandi and indicated that, in light of the steep fall in Company A’s stock price, the proposed transaction with the Company would be excessively dilutive to the stockholders of Company A and, therefore, Company A had determined to not proceed with the proposed transaction at that time.

 

On January 16, 2008, Mr. Brandi and the chief executive officer of Company A had a dinner meeting. During this meeting, Mr. Brandi discussed with the chief executive officer of Company A whether Company A was interested in re-engaging in discussions concerning a potential strategic transaction between the parties. The chief executive officer of Company A indicated that he would have to discuss the matter with Company A’s board of directors and financial advisors.

 

On January 22, 2008, FBR had a discussion with Company A’s financial advisor and inquired as to whether Company A had any interest in re-engaging in discussions concerning a potential strategic transaction between the parties. Company A’s financial advisor informed FBR that Company A was not in a position to pursue a viable transaction at that time. Thereafter, discussions with Company A ceased.

 

On January 25, 2008, at a special meeting of our board, with FBR and Goodwin Procter in attendance at the request of our board, our board discussed, among other things, the possibility of exploring a strategic transaction. The process and criteria for screening possible strategic partners and evaluating a potential strategic transaction were discussed. Following these discussions, our board authorized FBR to informally contact a number of local, regional and national banks which likely would have an interest in a strategic transaction with the Company.

 

In late January and early February, FBR contacted 14 institutions regarding their interest in evaluating a potential strategic transaction. Eastern and Company D expressed interest in learning more about the potential strategic transaction, including the identity of the Company, which was withheld by FBR.

 

During this same period, FBR had separate preliminary discussions with Richard E. Holbrook, the chairman and chief executive officer of Eastern, regarding valuation matters related to a potential strategic transaction between the parties and the chief executive officer of Company D and its financial advisor regarding valuation matters related to a potential strategic transaction between the parties.

 

On February 6, 2008, the Company entered into a customary confidentiality agreement with Eastern.

 

Also on February 6, 2008, Mr. Brandi contacted Mr. Holbrook regarding the discussions about a possible strategic transaction between the parties and the due diligence process.

 

Also on February 6, 2008, Mr. Brandi contacted the chief executive officer of Company D regarding the discussions about a possible strategic transaction between the parties and the due diligence process.

On February 7, 2008, at a special meeting of our board, with FBR and Goodwin Procter in attendance at the request of our board, FBR made a presentation to our board on the current status of the mergers and acquisition market in the banking industry in general and the Company’s performance as compared to our peers. As part of these discussions, FBR noted that there have been fewer merger and acquisition transactions completed in the recent past because of the substantial credit and subprime disruption, which also resulted in the pricing of completed transactions being significantly depressed. FBR also updated our board on the results of FBR’s informal discussions with the 14 potential strategic partners. FBR noted that, of the 14 potential strategic partners contacted, only two indicated an interest in proceeding with discussions. FBR stated that the other 12 potential strategic partners were either not interested or not able, at that time, to pursue a viable transaction. Our board, with the participation of FBR and Goodwin Procter, discussed the possibility of strategic transactions with either Eastern or Company D and authorized FBR to continue discussions with both parties and to discuss, among other things, valuation and the due diligence process.

 

After the February 7 ^th board meeting, FBR informed both Mr. Holbrook and the chief executive officer of Company D and its financial advisor of the process our board was undertaking to move forward.

 

On February 8, 2008, the Company entered into a customary confidentiality agreement with Company D.

 

Between February 11, 2008 and February 22, 2008, FBR engaged in several discussions with the chief financial officer of Company D and the general counsel of Company D regarding the due diligence process.

 

On February 13, 2008, at a regularly scheduled meeting of the Company Bank board, Mr. Brandi updated the Company Bank board on, among other things, the discussions with Eastern and Company D.

 

Also on February 13, 2008, Mr. Holbrook delivered to FBR a written offer to acquire the Company for cash consideration of $40.00 for each share of our outstanding common stock, subject to Eastern performing confirmatory due diligence and negotiating a mutually satisfactory definitive merger agreement.

 

On February 14, 2008, Mr. Brandi and the chief executive officer of Company D discussed the on-going due diligence process.

 

Between February 14, 2008 and February 25, 2008, Eastern began conducting financial and legal due diligence on the Company.

 

Between February 22, 2008 and February 29, 2008, Company D and its financial advisor and legal counsel conducted financial and legal due diligence on the Company.

 

On February 25, 2008, Mr. Holbrook delivered to FBR a letter confirming the February 13 ^th written offer to acquire the Company for cash consideration of $40.00 for each share of our outstanding common stock, subject to Eastern performing confirmatory due diligence and negotiating a mutually satisfactory definitive merger agreement. In addition, Eastern requested that we negotiate exclusively with them for a period of time to be determined. The Company refused to agree to negotiate exclusively with Eastern and did not sign the proposed exclusivity agreement.

 

Between February 26, 2008 and February 29, 2008, FBR engaged in a series of discussions with the chief executive officer of Company D and its financial advisor regarding Company D’s ability to make a viable proposal for the acquisition of the Company.

 

On February 28, 2008, Mr. Brandi and Mr. Holbrook met to discuss a potential strategic transaction between the parties. Mr. Brandi and Mr. Holbrook discussed the written offer that Mr. Holbrook had delivered on February 25, 2008 as well as the potential benefits to our stockholders and the customers of both companies that could result from such a transaction. Mr. Brandi and Mr. Holbrook also discussed general industry trends and opportunities facing companies in the banking industry as well as their respective business and operating models.

 

On February 29, 2008, the chief executive officer of Company D informed FBR that Company D was not in a position to continue discussions with the Company regarding a viable strategic transaction at that time. Thereafter, discussions with Company D ceased.

From February 25, 2008 through March 10, 2008, our management and financial and legal advisors and Eastern’s management and financial and legal advisors facilitated the exchange of business, financial, accounting, tax and legal due diligence and participated in discussions with each other on various issues relating to the proposed transaction.

 

On February 29, 2008, legal counsel to Eastern furnished an initial draft of the merger agreement to the Company.

 

On March 3, 2008, Mr. Brandi and Goodwin Procter met with Mr. Holbrook, Terence A. McGinnis, senior vice president and general counsel of Eastern, and Eastern’s outside legal counsel at Goodwin Procter’s offices in Boston to discuss and negotiate various issues in the draft merger agreement, including the representations and warranties to be made by the Company, the treatment of the Company’s employees in the merger, the conduct of the Company’s business between signing and closing of the merger, the parties’ respective conditions to closing, the rights of the parties to abandon the merger, the ability of the Company to consider competing proposals, the amount of the termination fee to be paid by the Company to Eastern, and the voting agreement to be entered into by the Company’s directors and officers pursuant to which such individuals would agree to vote their shares of Company common stock in favor of the merger.

 

On March 4, 2008, at a special joint meeting of our board and the Company Bank board, with FBR and Goodwin Procter in attendance at the request of our board and the Company Bank board, Mr. Brandi, together with FBR and Goodwin Procter, updated our board and the Company Bank board on the status of discussions with Company D and Eastern. FBR made a presentation to our board and the Company Bank board on the financial analysis of the proposed terms of the transaction with Eastern. Goodwin Procter advised our board and the Company Bank board as to its fiduciary duties in responding to Eastern’s proposal. In addition, Goodwin Procter reviewed for our board and the Company Bank board the terms of the merger agreement and the form of voting agreement, indicated the unresolved issues and informed our board and the Company Bank board as to the parties’ respective positions with respect to those issues, and updated our board and the Company Bank board on the status of due diligence. The directors commented and raised a number of issues, which were addressed by Goodwin Procter. At the conclusion of the meeting, our board and the Company Bank board directed management, FBR and Goodwin Procter to continue negotiations with Eastern and our board and the Company Bank board agreed to meet on March 7, 2008 to consider the proposed merger with Eastern, provided that all the remaining issues were resolved by that time.

 

Between March 4, 2008 and March 5, 2008, the parties continued negotiating the terms of the merger agreement and exchanging drafts between the parties.

 

On March 5, 2008, Mr. Brandi, Donna H. West, the Company’s Senior Vice President, Community Banking, and Chief Operating Officer, met with Mr. Holbrook to discuss the Company’s operating model, personnel and related matters.

 

On March 6, 2008, Mr. Brandi, FBR and Goodwin Procter met with Mr. Holbrook, Mr. McGinnis and Eastern’s outside legal counsel at Goodwin Procter’s offices in Boston to continue to discuss and negotiate various issues in the draft merger agreement.

 

On March 7, 2008, at a special joint meeting of our board and the Company Bank board, with FBR and Goodwin Procter in attendance at the request of our board and the Company Bank board, Mr. Brandi, together with FBR and Goodwin Procter, updated our board and the Company Bank board on the status of negotiations with Eastern. FBR reviewed for our board and the Company Bank board, its financial analysis of Eastern’s proposal. Goodwin Procter reviewed for our board and the Company Bank board the updated terms of the merger agreement, indicated the unresolved issues that had been agreed upon since the prior joint board meeting, subject to approval by our board and the Company Bank board, indicated the remaining unresolved issues, informed our board and the Company Bank board as to the parties’ respective positions with respect to those issues, and updated our board and the Company Bank board on the status of due diligence. The directors commented and raised a number of issues, which were addressed by Goodwin Procter. At the conclusion of the meeting, our board and the Company Bank board directed management, FBR and Goodwin Procter to continue negotiations with Eastern and our board and the Company Bank board agreed to meet on March 10,

2008 to consider the proposed merger with Eastern, provided that all the remaining issues were resolved by that time.

 

Between March 7, 2008 and March 10, 2008, the parties continued negotiating the terms of the merger agreement and exchanging drafts between the parties.

 

On March 10, 2008, our board and the Company Bank board held a special joint meeting, with FBR and Goodwin Procter in attendance at the request of our board and the Company Bank board, to consider approving the merger agreement and the merger. At this meeting, Mr. Brandi, together with FBR and Goodwin Procter, updated our board and the Company Bank board on all of the material terms of the transaction and the resolution of all significant issues. Goodwin Procter made a presentation in which the fiduciary duties of the directors in connection with the proposed transaction were again reviewed and the terms of the merger agreement, including the merger consideration, closing conditions, the ability of the Company to consider competing proposals, termination rights and termination fee, were summarized. The directors commented and raised a number of issues, which were addressed by Goodwin Procter. FBR made an updated presentation to our board and the Company Bank board regarding the financial analysis of the proposed terms of the transaction. At the conclusion of FBR’s update, FBR delivered an oral opinion concerning the fairness, from a financial point of view, of the proposed merger consideration to be received by holders of our common stock as set forth in the merger agreement, which opinion was later confirmed in writing. Our board and the Company Bank board then continued to discuss at length the terms of the proposed merger and a variety of positive and negative considerations concerning the transaction. The factors considered are described in more detail below under the heading “— Recommendation of Our Board and Reasons for the Merger” beginning on page 29 of this proxy statement. Based on these deliberations, by the unanimous vote of all directors, our board and the Company Bank board approved the merger agreement and the merger, authorized management to enter into the merger agreement and other related agreements and recommended that the stockholders vote their shares in favor of approving the merger agreement.

 

Following this joint meeting, on the evening of March 10, 2008, the parties executed the definitive merger agreement and issued a joint press release announcing the execution of the merger agreement after the closing of the markets.

 

Recommendation of Our Board

 

Our board unanimously determined that the merger agreement and the merger were advisable and in the best interests of our stockholders, adopted the merger agreement and approved the merger, and recommended that our stockholders approve the merger agreement. In connection with the foregoing, our board considered the opinion of FBR, our company’s financial advisor, in making its recommendation. For more information on the opinion of FBR, see the section entitled “— Opinion of Financial Advisor” beginning on page 31 of this proxy statement. Our board unanimously recommends that our stockholders vote “FOR” approval of the merger agreement.

 

Reasons for the Merger

 

In reaching its determination, our board consulted with senior management and our financial and legal advisors, drew on their knowledge of the business, operations, properties, assets, financial condition, operating results, historical market prices and prospects of our company, and considered the following factors in favor of the merger:

 

 

 

 

 

In the course of its deliberations, our board also considered a variety of risks and other countervailing factors, including:

 

 

 

 

The foregoing discussion of the factors considered by our board is not intended to be exhaustive, but does set forth the principal factors considered by our board. Our board collectively reached the unanimous conclusion to adopt the merger agreement and approve the merger in light of the various factors described above and other factors that each member of our board felt was appropriate. In view of the wide variety of factors considered by our board in connection with its evaluation of the merger and the complexity of these matters, our board did not consider it practical and did not attempt to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, our board made its recommendation based on the totality of information presented to and the investigation conducted by it. In considering the factors discussed above, individual directors may have given different weights to different factors.

 

After evaluating these factors and consulting with our legal counsel and financial advisors, our board determined that the merger agreement was advisable and in the best interests of our stockholders. Accordingly, our board has unanimously adopted the merger agreement and approved the merger. Our board unanimously recommends that you vote “FOR” approval of the merger agreement.

 

We retained FBR as our financial advisor due to FBR’s qualifications, expertise, and reputation and its knowledge of our business and the banking industry. Pursuant to our engagement letter with FBR, dated September 20, 2007 and as amended March 8, 2008, we requested that FBR evaluate the fairness, from a financial point of view, of the merger consideration to be received by holders of our common stock.

On March 10, 2008, FBR delivered its oral opinion and subsequently confirmed in writing on the same date to our board that, based on and subject to the factors, limitations and assumptions set forth in the opinion, the merger consideration to be received by the holders of our common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

The full text of the written opinion of FBR, dated March 10, 2008, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement and is incorporated in this proxy statement by reference. You are urged to, and should, read the FBR opinion carefully and in its entirety. FBR provided its opinion for the information and assistance of our board in connection with its consideration of the transactions contemplated by the merger agreement. The FBR opinion was limited solely to the fairness to our stockholders of the merger consideration from a financial point of view as of the date of the opinion. Neither the FBR opinion nor the related analyses constituted a recommendation of the merger to our board. FBR makes no recommendation to any of our stockholders as to how to vote at the special meeting. FBR was not requested to consider, and its opinion does not address, the relative merits of the merger compared to any alternative business strategies that might exist for the Company or the effect of any other transaction in which the Company might engage. This summary of the FBR opinion is qualified in its entirety by reference to the full text of the opinion.

 

In arriving at its opinion, FBR, among other things:

 

 

In preparing its opinion, FBR, with the consent of our board, relied upon and assumed the accuracy and completeness of all of the financial, accounting, legal, tax and other information it reviewed, and did not assume any responsibility for the independent verification of any of such information. With respect to the

financial forecasts provided to or discussed with FBR by our management and other financial information provided to FBR by our management, FBR assumed that they were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company. FBR assumed no responsibility for the assumptions, estimates and judgments on which such forecasts and other financial information were based and did not make any independent verification of any such information. In addition, FBR was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities (contingent, derivative, off-balance sheet or otherwise) of the Company or any of its subsidiaries or of Eastern or any of its subsidiaries, independently or combined, nor was FBR furnished with any such evaluations or appraisals, and, accordingly, FBR expressed no opinion as to the future prospects, plans or viability of the Company or Eastern, independently or combined.

 

FBR also assumed that there has been no change in the assets, liabilities, business, condition (financial or otherwise), results of operations or prospects of the Company or of Eastern since the date of the most recent financial statements made available to FBR that would be material to its analysis. FBR also assumed that the merger agreement, when executed, conformed to the draft reviewed by FBR in all respects material to its analyses, that in the course of obtaining any necessary regulatory and third party consents, approvals and agreements for the merger, no modification, delay, limitation, restriction or condition will be imposed that will have a material adverse effect on the merger and that the merger will be consummated in accordance with the terms of the merger agreement, without waiver, modification or amendment of any term, condition or agreement that is material to FBR’s analysis, including that Eastern will have sufficient funds available at closing to consummate the merger.

 

The FBR opinion is necessarily based on financial, economic, market and other circumstances and conditions as they exist on and the information made available to FBR as of the date of its opinion. The FBR opinion can be evaluated only as of March 10, 2008 and any change in such circumstances and conditions would require a reevaluation of the opinion, which FBR is under no obligation to undertake. FBR assumes no responsibility to update or revise its opinion based upon events or circumstances occurring after the date of the opinion.

 

The following is a summary explanation of the various sources of information and valuation methodologies employed by FBR in rendering its opinion. These analyses were presented to our board at its meeting on March 10, 2008. This summary includes the financial analyses used by FBR and deemed to be material, but does not purport to be a complete description of analyses performed by FBR in arriving at its opinion. This summary of financial analyses includes information presented in tabular format. In order to fully understand the financial analyses used by FBR, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. As discussed below, in these analyses, FBR utilized a normalized tangible equity to tangible assets capital ratio for the Company of 8% (and assumed that a buyer would value excess equity on a dollar for dollar basis), and generally considered comparable companies with a tangible equity to tangible assets capital ratios of less than 10%, in each case to provide comparability to peer companies for analytical purposes. The Company’s tangible equity to tangible assets capital ratio at December 31, 2007 was 13.47%.

 

FBR assessed the fairness of the merger consideration to the holders of our common stock in connection with the merger by assessing the value of the Company using several methodologies, including:

 

 

each of which is described in more detail below. Each of these methodologies was used to generate imputed valuation ranges that were then compared to the $40.00 per share merger consideration.

The following table shows the ranges of imputed valuation per share of our common stock derived using each of these methodologies. No company or transaction reviewed was directly comparable to the Company or the merger. Accordingly, these analyses involved complex considerations and judgments concerning differences in financial and operating characteristics of the Company relative to the selected companies and to the targets in the selected transactions and other factors that would affect their values. The table should be read together with the more detailed summary of each of the valuation analyses discussed below.

 

 

In the book value and tangible book value analyses, FBR assumed:

 

 

Comparable Companies Analysis

 

FBR compared the financial and operating performance of the Company with publicly available information of selected thrifts (1) located in the New England market and (2) nationwide, in each case, with similar operating characteristics, in order to derive multiples that indicate the value public equity markets place on companies in a particular market segment. In order to perform this analysis, FBR compared financial information of the Company with publicly available information for the companies included in the applicable markets. For this analysis, as well as other analyses, FBR examined publicly available information.

 

No company utilized in the comparable companies analysis as a comparison to the Company is identical to the Company. In evaluating the comparables, FBR made numerous assumptions with respect to the thrift industry’s performance and general economic conditions, many of which are beyond the control of the Company. Mathematical analysis, such as determining the median, average or range, is not in itself a meaningful method of using comparable company data.

The companies included in the New England-based thrifts market were:

 

 

These companies were selected, among other reasons, for their size, target market, focus and performance. All companies had a tangible equity to tangible assets ratio of less than 10%.

 

The companies included in the nationwide thrifts market were:

 

 

These companies were selected, among other reasons, for their size, target market, focus and performance. All companies had a tangible equity to tangible assets ratio of less than 10%.

 

For each selected company, using publicly available information, FBR calculated the ratio of

 

 

in each case, to the applicable company’s stock price as of March 7, 2008. The following table presents, based on closing prices as of March 7, 2008, the minimum, median and maximum multiples based on the applicable metric for both the New England-based thrifts comparable companies and the nationwide based thrift comparable companies:

 

 

The comparables imply the following minimum, median and maximum per share value for the Company:

 

 

 

 

Comparable Acquisitions Analysis

 

FBR considered ratios of equity purchase price to selected historical and projected operating results in order to indicate multiples strategic and financial acquirers have been willing to pay for companies in a particular market segment. In order to perform this analysis, FBR reviewed a number of transactions, including those involving companies deemed by FBR to be comparable to the Company based on financial performance, market focus, business model and size. FBR reviewed 12 comparable merger and acquisition transactions within the thrifts industry announced from January 1, 2003 through March 7, 2008 where the target was a thrift headquartered in Massachusetts and had a tangible equity to tangible assets ratio less than 10%. FBR also reviewed 29 comparable merger and acquisition transactions within the thrifts industry announced from January 1, 2003 through March 7, 2008 where the target was a thrift headquartered in the United States, had total assets between $500 million and $1.5 billion and had a tangible equity to tangible assets ratio less than 10%. For this analysis, as well as other analyses, FBR examined publicly available information.

 

No transaction reviewed was directly comparable to the merger. In evaluating the comparables, FBR made numerous assumptions with respect to the thrift industry’s performance and general economic conditions, many of which are beyond the control of the Company. Accordingly, this analysis involved complex considerations and judgments concerning differences in financial and operating characteristics of the Company relative to the targets in the selected transactions and other factors that would affect the acquisition values in the precedent transactions. Mathematical analysis, such as determining the median, average or range, is not in itself a meaningful method of using comparable company data.

The 12 comparable merger and acquisition transactions within the thrifts industry announced from January 1, 2003 through March 7, 2008 where the target was a thrift headquartered in Massachusetts and had a tangible equity to tangible assets ratio less than 10% consisted of the following acquisitions:

 

 

The 29 comparable merger and acquisition transactions within the thrifts industry announced from January 1, 2003 through March 7, 2008 where the target was a thrift headquartered in the United States, had total assets between $500 million and $1.5 billion and had a tangible equity to tangible assets ratio less than 10% consisted of the following acquisitions:

 

For each of the transactions, FBR analyzed the price:

 

 

The following table presents the results of this analysis for the transactions reviewed, based on information available as of March 7, 2008:

 

 

The comparables imply the following minimum, median and maximum value per share for the Company:

 

 

 

 

Discounted Dividend Analysis

 

A discounted dividend analysis is a method of evaluating a company using estimates of the future theoretical dividends and taking into consideration the time value of money with respect to those future theoretical dividends by calculating their “present value.” “Present value” refers to the current value of one or more future cash dividends from a company and is obtained by discounting those dividends back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of equity capital, capitalized returns and other appropriate factors. “Terminal value” refers to the capitalized value of all dividends from a company for periods beyond the final forecast period.

 

FBR conducted discounted dividend analyses to calculate ranges of implied per share values of the Company using projections FBR had prepared and had reviewed and discussed with the management of the Company, who agreed that these projections were reasonable. These projections are based upon various factors and assumptions, many of which are beyond the control of the Company. These projections are, by their nature, forward-looking and may differ materially from the actual future values or actual future results. Actual future values or results may be significantly more or less favorable than suggested by such projections.

FBR performed the discounted dividend analysis of the Company to calculate the estimated present value of the dividends that the Company could generate in 2008 and beyond. FBR assumed an annual growth rate of 2% for both assets and net income in the forecast period of 2008 through 2012, based on discussions with the Company’s management. FBR calculated a range of terminal values by applying assumed forward net income terminal value multiples of 19.0x to 31.0x to the Company’s calendar year 2012 estimated net income. The dividends and terminal values were then discounted to present value using assumed discount rates ranging from 9.5% to 15.5%. The range of terminal values and discount rates were based on FBR’s analysis of numerous bank and thrift industry metrics over three-, five- and ten-year periods. Based on a level of equity capital for the Company deemed appropriate for purposes of this analysis, FBR maintained a tangible equity to tangible capital ratio of 8%. The discounted dividend analysis, together with FBR’s estimate of excess capital per share, indicated an implied range of values for each share of the Company’s common stock of $33.58 to $55.57.

 

This analysis does not purport to be indicative of actual values or expected values or an appraisal range of the shares of the Company’s common stock. The discounted dividend analysis is a widely used valuation methodology, but FBR noted that it relies on numerous assumptions, including dividend payout rates, termination values and discount rates, the future values of which may be significantly more or less than such assumptions. Any variation from actual assumptions used would produce different results.

 

* * * * *

 

In connection with the review of the merger by our board, FBR performed a variety of financial and comparative analyses for the purpose of rendering its opinion. The above summary of these analyses, while describing the material analyses performed by FBR, does not purport to be a complete description of the analyses performed by FBR in arriving at its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, FBR considered the results of all of its analyses as a whole and did not attribute any particular weight to any particular analysis or factor considered by it; rather, FBR made its determination as to fairness on the basis of its experience and professional judgment after considering the result of all such analyses. Furthermore, FBR believes that selecting any portion of its analyses, without considering all of its analyses, would create an incomplete view of the process underlying its analyses and the opinion.

 

In performing its analyses, FBR made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. Any estimates contained in the analyses performed by FBR are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. Such analyses were prepared solely as a part of FBR’s analysis of the fairness from a financial point of view of the consideration to be offered to the holders of the Company’s common stock pursuant to the merger agreement and were provided to our board in connection with the delivery of the FBR opinion. The analyses do not purport to be appraisals of value or to reflect the prices at which the stock of the Company might actually trade. In addition, as described above, the FBR opinion was one of the many factors taken into consideration by our board in making its determination to approve and adopt the merger agreement. The consideration pursuant to the merger agreement was determined through arm’s-length negotiations between the Company and Eastern and was approved by our board. FBR did not recommend any specific consideration to the Company or advise that any given consideration constituted the only appropriate consideration for the merger. Consequently, the FBR analyses as described above should not be viewed as determinative of the opinion of our board with respect to the value of the Company or of whether our board would have been willing to agree to a different consideration.

 

FBR, as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. FBR has acted as financial advisor to the Company in connection with the merger. To date, FBR has received a $100,000 retainer fee and $500,000 fairness opinion fee. FBR will be entitled to receive an additional fee of approximately $1.7 million upon consummation of the merger, less the amount of the opinion fee already paid. In addition, the Company

has agreed to indemnify FBR and certain related parties against certain liabilities and to reimburse FBR for certain expenses arising in connection with or as a result of its engagement.

 

FBR and its affiliates provide a wide range of investment banking and financial services, including financial advisory, securities trading, brokerage and financing services. In that regard, FBR and its affiliates have in the past provided and may in the future provide investment banking and other financial services to the Company, Eastern and their respective affiliates for which FBR and its affiliates would expect to receive compensation. In the ordinary course of business, FBR and its affiliates may trade in the securities and financial instruments of the Company and its affiliates for its and its affiliates’ own accounts and the accounts of customers. Accordingly, FBR may at any time hold a long or short position in such securities and financial instruments.

 

On March 13, 2008, Pennsylvania Avenue Funds, an alleged Company stockholder purportedly representing 817 shares of our common stock, filed a purported class action lawsuit allegedly on behalf of all Company stockholders in the Massachusetts Superior Court against the Company, our board, Eastern, Eastern Bank and Merger Sub. The case is captioned Pennsylvania Avenue Funds v. Brandi, et al. , Civ. Act. No. 08-1057. The complaint generally alleges that our board breached its fiduciary duties by approving the merger agreement because, plaintiff alleges, the merger consideration is inadequate, the merger agreement’s termination fee and no solicitation provisions discourage bids from other sources, the transaction unfairly benefits our board to the disadvantage of our stockholders, Mr. Brandi, our chief executive officer and chairman of the board, during negotiations with Eastern, was also discussing a future position at Eastern, and approval of the merger by our board was a response by our board to a proxy contest that might have resulted in three members of our board being replaced. The complaint also alleges that the Company and Eastern aided and abetted our board’s breach of fiduciary duties.

 

The plaintiff seeks the following relief:

 

 

On April 18, 2008, the defendants filed motions to dismiss the lawsuit in its entirety.

 

On May 6, 2008, the plaintiff filed an amended complaint, individually and as a purported class action on behalf of all Company stockholders. The amended complaint generally makes the same allegations as those contained in the initial complaint in support of its claim of a breach of fiduciary duties by our board, but, in addition, alleges that our board breached its fiduciary duties by failing, in the preliminary proxy statement, to disclose adequate information to our stockholders necessary for them to make a fully informed decision about the merger.

 

Generally, the amended complaint alleges that the preliminary proxy statement fails to:

 

 

 

Like the initial complaint, the amended complaint also alleges that the Company and Eastern aided and abetted our board’s breach of fiduciary duties. The amended complaint seeks the same relief sought in the initial complaint.

 

While we believe the amended complaint is without merit, we and Eastern have reached a settlement in principal with plaintiff’s counsel that will involve a release of all claims contained in the amended complaint in exchange for adding in this proxy statement certain limited disclosures. These limited disclosures have been added and are a part of this proxy statement. A final settlement cannot be assured since it is contingent upon confirmatory discovery, preliminary approval by the court (including the certification of a provisional settlement class), the results of a fairness hearing, and final approval by the court.

 

If the merger is consummated, our stockholders will not have an opportunity to continue their equity interest in the surviving corporation as an ongoing corporation and, therefore, will not have the opportunity to share in its future earnings, dividends or growth, if any.

 

If the merger is consummated, our common stock will be delisted from the NASDAQ Global Select Market and deregistered under the Exchange Act, and we will cease to file periodic reports with the Securities and Exchange Commission.

 

In considering the recommendations of our board with respect to the merger agreement, you should be aware that our directors and executive officers have interests in the merger that may be different from, or in addition to, those of our stockholders generally. These interests may create potential conflicts of interest. Our board was aware of these interests and considered them, among other matters, when it adopted the merger agreement and approved the merger and voted to recommend that our stockholders vote in favor of approving the merger agreement.

Change in Control Payments

 

The Company and the Company Bank have employment agreements with:

 

 

The Company Bank has employment agreements with:

 

 

We sometimes refer to these agreements as the employment agreements.

 

The employment agreements generally provide that if there is a change in control of the Company (which stockholder approval of the merger would constitute), and if at any time during the two-year period following the change in control, either the Company and/or the Company Bank, as the case may be, were to terminate the employment of any of the executive officers for any reason other than for “cause” or if any of the officers were to terminate his or her employment for “good reason,” including a substantial adverse change in his or her title or responsibilities or a reduction in his or her annual base salary, the executive officer would be entitled to receive a change in control payment under his or her respective employment agreements.

 

In the case of Mr. Brandi, his change in control payment would be approximately equal to three times the sum of Mr. Brandi’s current base compensation, most recent bonus (or average bonus if higher), and 20% of the difference between Mr. Brandi’s current compensation and the current year’s compensation limit under Section 401(a)(17) of the Internal Revenue Code, and the continuation of all benefits for a period of three years. These benefits include the continuation of Mr. Brandi’s retirement, health and welfare benefits, incentive compensation, the use of an automobile, membership in health club, and tax and financial planning expenses.

 

In the case of the other executive officers, the change in control payment would be approximately equal to three times his or her average taxable compensation over the five previous years of his or her employment with the Company and/or the Company Bank, as the case may be, and the continuation of benefits for a period of three years. These benefits include the payment of health insurance premiums as may be necessary to provide health insurance coverage to the executive officers substantially similar to the coverage received prior to termination.

Other than for Mr. Brandi, any change in control payments to the executive officers may be subject to reduction if such reduction would result in a higher net after-tax amount to the executive officer. In the case of Mr. Brandi, however, if any payments received by Mr. Brandi become subject to an excise tax as a result of Section 4999 of the Internal Revenue Code, then Mr. Brandi is entitled to an additional gross-up payment from the Company or Company Bank in an amount such that after Mr. Brandi pays all taxes on such gross-up payment, he will retain an amount equal to the excise tax imposed upon the payments.

 

The table below sets forth, for such executive officer, the approximate cash severance payable under the employment agreements, assuming the merger is completed on August 1, 2008:

 

 

 

 

The merger agreement provides that, at the effective time of the merger, each outstanding stock option, whether vested or unvested, to purchase shares of our common stock will be canceled and the holder of such stock option will receive an amount in cash equal to the option consideration.

Our directors and executive officers holding in-the-money stock options, whether vested or unvested, as of May 30, 2008 will receive cash payments upon the consummation of the merger in the approximate amounts (before withholding for applicable taxes) indicated in the following table:

 

 

If an eligible employee of the Company or any of our subsidiaries is terminated by Eastern or Eastern Bank for any reason other than cause within one year following the effective time of the merger, the eligible employee will be provided severance benefits as determined under the Company Bank’s Severance Pay Plan in effect on March 10, 2008. None of our directors or our executive officers is eligible for benefits under this plan.

 

In addition, we have created a change in control retention bonus plan in an aggregate amount of $226,500. Distributions from this plan have been allocated among certain of our employees to be distributed according to the terms of individual letter agreements with these employees.

 

Under the terms of the merger agreement, our directors and executive officers will be entitled to indemnification in specified circumstances, as more fully described in the section entitled “The Merger Agreement — Indemnification and Insurance” on page 62 of this proxy statement.

Director Relationships

 

Paul J. McCarthy, one of our directors, is the Executive Vice President and director of Jobs for Massachusetts, Inc., a non-profit organization whose mission is to promote the economic and social conditions that support job growth in Massachusetts through cooperation among business, government and labor leaders. Currently, there are 36 members on the board of directors for Jobs for Massachusetts, Inc., including the chief executive officer of Eastern, the managing partner of Goodwin Procter, our outside legal counsel, and the managing partner of Nutter McClennen & Fish LLP, outside legal counsel to Eastern. None of these individuals serves on the compensation committee of the board of directors for Jobs for Massachusetts, Inc. Our board was aware of this relationship and considered whether these matters created a conflict of interest for Mr. McCarthy that would prevent him from participating in board deliberations concerning a potential transaction with Eastern. Our board concluded that no material conflict of interest existed that would prevent Mr. McCarthy from participating in any of the discussions or deliberations concerning a potential transaction with Eastern.

 

The following summary of the voting agreements is qualified by reference to the complete text of the form of voting agreement, which is attached to this proxy statement as Annex C and incorporated in this proxy statement by reference.

 

In connection with the merger agreement, Eastern entered into voting agreements with our directors and executive officers, who are also stockholders of our company or hold stock options, consisting of Gerard H. Brandi, Allan S. Bufferd, Kathleen M. Camilli, Stephen W. Carr, Reginald E. Cormier, Alexander S. Costello, O. Bradley Latham, Stephen E. Marshall, Paul J. McCarthy, James L. Milinazzo, Nalin M. Mistry, Joseph P. Orefice, Nancy L. Pettinelli, Thomas J. Queeney, William F. Rivers, William F. Rucci, Jr., Donna H. West, and their affiliates. Pursuant to the voting agreements, each of these stockholders has agreed that, at the special meeting held in connection with the merger agreement or for purposes of any other vote taken in connection with the merger agreement, he, she or it would:

 

 

As of the record date, there were 384,971 shares of our common stock subject to the voting agreements, which represented approximately 9% of our outstanding common stock as of that date. Under the voting agreements, each of the stockholders generally agreed not to sell, assign, transfer or otherwise dispose of any of his, her or its shares of our common stock prior to the merger.

 

Under the voting agreements, each of the stockholders also has agreed not to, and not to permit any of his, her or its affiliates to:

 

 

 

Nothing in the voting agreements will be deemed to apply to, or limit in any manner, the obligations of the stockholders to comply with whatever fiduciary duties they may have as a director, officer or employee of the Company.

 

The voting agreements will terminate on the earliest to occur of (1) the effective time of the merger, (2) the termination of the merger agreement in accordance with its terms, or (3) upon mutual written agreement of the parties to the voting agreement.

 

The following is a summary of the material terms of the merger agreement, a copy of which is attached to this proxy statement as Annex A and incorporated in this proxy statement by reference. This description is qualified in its entirety by, and made subject to, the more complete information set forth in the merger agreement. You should read the merger agreement carefully and in its entirety. This summary may not contain all of the information about the merger agreement that is important to you.

 

Except for the merger agreement’s status as a contractual document that establishes and governs the legal relations of the parties thereto with respect to the merger, we do not intend for its text to be a source of factual, business or operational information about us and our subsidiaries. The representations, warranties and covenants made by the parties in the merger agreement are qualified and limited, including by information in the schedules referenced in the merger agreement that we delivered in connection with the execution of the merger agreement. Representations and warranties may be used as a tool to allocate risks between the respective parties to the merger agreement, including where the parties do not have complete knowledge of all facts, instead of establishing such matters as facts. Furthermore, the representations and warranties may be subject to different standards of materiality applicable to the contracting parties, which may differ from what may be viewed as material by our stockholders. These representations and warranties may or may not have been accurate as of any specific date and do not purport to be accurate as of the date of this proxy statement. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement. Accordingly, the representations and warranties should not be relied upon as statements of factual information. Stockholders are not third-party beneficiaries under the merger agreement and, therefore, may not directly enforce or rely on its terms and conditions and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or our affiliates.

 

If all of the conditions to the merger are satisfied or waived in accordance with the merger agreement, Merger Sub, a wholly-owned subsidiary of Eastern and created solely for the purpose of engaging in the transactions contemplated by the merger agreement, will merge with and into the Company, with the Company being the surviving corporation. The Company will cease to exist as a separate company and our common stock will no longer be listed on the NASDAQ Global Select Market and we will no longer file periodic reports with the Securities and Exchange Commission. After the merger, the Company will be a wholly-owned subsidiary of Eastern. We sometimes refer to the Company after the merger as the surviving corporation.

 

The merger will become effective when the certificate of merger has been filed with the Secretary of State of the State of Delaware or such time as is specified in the certificate of merger. We expect the merger to become effective as soon as practicable after the special meeting and the satisfaction or waiver of all of the other conditions to closing the merger. However, under the merger agreement, Eastern will not be required to consummate the merger until three business days after all of the conditions to closing the merger described in the merger agreement are satisfied or waived, except for conditions that by their terms are required to be satisfied or waived at the closing. We refer to the time at which the merger is consummated as the effective time. Although we expect that the merger will be consummated during the third quarter of 2008, we cannot specify when, or assure you that, we and Eastern will satisfy or waive all of the conditions to the merger.

 

The certificate of incorporation of Merger Sub, as in effect immediately prior to the effective time of the merger, will be the certificate of incorporation of the surviving corporation, except the name of the surviving corporation will be MASSBANK Corp. At the effective time of the merger, the bylaws of Merger Sub, as in

effect immediately prior to the effective time of the merger, will become the bylaws of the surviving corporation.

 

The directors of Merger Sub immediately prior to the merger will become the directors of the surviving corporation following the merger. The officers of Merger Sub immediately prior to the merger will become the officers of the surviving corporation following the merger.

 

At the effective time of the merger, each outstanding share of our common stock will be converted into the right to receive $40.00 per share (which we sometimes refer to as the merger consideration), other than shares held by stockholders who properly exercise and perfect their appraisal rights and any shares owned by Eastern or us. No interest will be paid with respect to the merger consideration. Our stockholders are entitled to assert appraisal rights and, if the merger is consummated and all requirements of Delaware law are satisfied, to receive payment equal to the fair value of their shares of our common stock, determined in the manner set forth under the Delaware General Corporation Law. For more information on appraisal rights, see the section entitled “Appraisal Rights” beginning on page 63 of this proxy statement.

 

Shares of our common stock that are held by stockholders who have perfected demands for appraisal of their shares in accordance with Delaware law will not be converted into the right to receive the merger consideration. We have agreed to give Eastern and Merger Sub prompt notice of any demands for appraisal we receive. We have also agreed to give Eastern the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal. We will not, except with the prior written consent of Eastern, make any payment with respect to any demands for appraisals, or settle or offer to settle any demands.

 

Under the merger agreement, Eastern will not have to consummate the merger if stockholders representing more than 15% of the outstanding shares of our common stock exercise their appraisal rights. For more information, see the section entitled “— Conditions to the Merger” beginning on page 52 of this proxy statement.

 

At the effective time of the merger, holders of our common stock will cease to be, and will have no rights as, our stockholders, other than the right to receive the merger consideration and any unpaid dividends with a record date occurring prior to the effective time of the merger. After the merger occurs, there will be no transfers on our stock transfer books of any shares of our common stock.

 

Prior to the effective time of the merger, Eastern will appoint a paying agent that will make payment of the merger consideration in exchange for certificates representing shares of our common stock. Eastern will deposit sufficient cash with the paying agent on or before the effective time of the merger in order to permit the payment of the merger consideration. As soon as reasonably practicable after the effective time of the merger, but in no event later than five business days after the effective time of the merger, the paying agent will mail to each holder of record of a certificate representing shares of our common stock, a letter of transmittal and instructions explaining how to surrender your shares of our common stock in exchange for the merger consideration and instructions for use by holders of shares issued in uncertificated form. The letter of transmittal and instructions will specify that delivery will be effected and risk of loss and title to stock certificates will pass only upon proper delivery of the stock certificate to the paying agent and will specify how to properly surrender your stock certificates for payment.

You should not send your stock certificates for exchange until you receive the letter of transmittal and instructions referred to above. Do not return your stock certificate with the enclosed proxy card.

 

When you deliver your stock certificates to the paying agent along with a properly executed letter of transmittal and any other required documents, you will receive the merger consideration to which you are entitled under the merger agreement for each share of common stock previously represented by your stock certificate, and the stock certificate will be canceled. Eastern, the paying agent and the surviving corporation will be entitled to deduct and withhold from the merger consideration any amounts required to be withheld under the Internal Revenue Code or any provision of federal, state, local or foreign law.

 

You are not entitled to receive any interest on the merger consideration. The paying agent will issue a check for the merger consideration only in the name in which a surrendered stock certificate is registered, unless the stock certificate surrendered is properly endorsed, or otherwise in proper form for transfer, and you show that you paid any applicable stock transfer taxes. Until surrendered in accordance with the provisions stated above, each certificate will, after the effective time of the merger, represent only the right to receive the merger consideration.

 

Beginning one year after the effective time of the merger, Eastern will act as the paying agent and our former stockholders may look to Eastern for any amounts owed to them. None of Eastern, Eastern Bank, Merger Sub, the Company, the Company Bank or the paying agent will be liable to any person in respect of any cash delivered to a public official pursuant to applicable abandoned property, escheat or similar law.

 

After the effective time of the merger, there will be no transfers of certificates that previously represented common stock on our stock record books. If, after the effective time of the merger, stock certificates are presented to Eastern, the surviving corporation or the paying agent for payment, they will be canceled and exchanged for the merger consideration, without interest. However, no holder of a stock certificate will have any greater rights against the surviving corporation than may be accorded to general creditors of the surviving corporation under applicable law.

 

If any of your certificates representing our common stock have been lost, stolen or destroyed, you will be entitled to obtain the merger consideration after you make an affidavit of that fact and, if required by Eastern or the paying agent, post a bond as Eastern or the paying agent may direct as indemnity against any claim that may be made against the surviving corporation with respect to your lost, stolen or destroyed stock certificates.

 

Under the merger agreement, we have agreed that, from the date of the merger agreement through the effective time of the merger or the date, if any, on which the merger agreement is terminated, as discussed in the section entitled “— Termination of the Merger Agreement” beginning on page 58 of this proxy statement, we and our subsidiaries will not, except as expressly permitted by the merger agreement, required by law or to the extent that Eastern otherwise consents in writing:

 

 

 

 

 

 

 

 

 

 

 

 

 

The agreements relating to the conduct of our business contained in the merger agreement are complicated and not easily summarized. You are urged to carefully read Article V of the merger agreement, which is attached to this proxy statement as Annex A .

 

From the date of the merger agreement through the effective time of the merger or the date, if any, on which the merger agreement is terminated, as discussed in the section entitled “— Termination of the Merger Agreement” beginning on page 58 of this proxy statement, Eastern has agreed, and has agreed to cause its subsidiaries, except as permitted by the merger agreement or otherwise consented to by us, not to knowingly take any action that would, or would reasonably be likely to result in (1) any of its representations and warranties in the merger agreement being or becoming untrue in any material respect at any time prior to the effective time of the merger, (2) any of the conditions to the merger set forth in Article VII of the merger agreement not being satisfied, or (3) a material violation of any provision of the merger agreement, except, in every case, as may be required by applicable law.

 

We have agreed to hold as promptly as practicable a meeting of our stockholders to vote on the proposal to approve the merger agreement. We have also agreed to ensure that the special meeting is called, noticed and held in compliance with the Delaware General Corporation Law, our restated certificate of incorporation and bylaws and all other applicable legal requirements.

 

The obligations of the Company and Eastern to consummate the merger are subject to the satisfaction or waiver of the following conditions:

 

 

Our obligation to consummate the merger is subject to the satisfaction of the following additional conditions, any of which can be waived by us:

 

 

 

The obligations of Eastern to consummate the merger are subject to the satisfaction of the following additional conditions, any of which can be waived by Eastern:

 

 

In the merger agreement, we and the Company Bank made customary representations and warranties, subject to exceptions that were disclosed to Eastern, concerning our business and assets. These representations and warranties related to, among other things:

 

 

 

The merger agreement also contains customary representations and warranties of Eastern, Eastern Bank and Merger Sub relating to, among other things:

 

 

Many of our representations and warranties are qualified by a material adverse effect standard. A material adverse effect means, with respect to us, any fact, change, event, development, effect or circumstance that, individually or in the aggregate, (1) are, or would reasonably be expected to be, materially adverse to the business, operations, assets, liabilities, condition (financial or otherwise), results of operations, cash flows, assets or properties of the Company and our subsidiaries, taken as a whole, or (2) would reasonably be expected to prevent us from performing our obligations under the merger agreement or consummating the transactions contemplated by the merger agreement, without including the impact of:

 

 

The representations and warranties included in the merger agreement are complicated and not easily summarized. You are urged to carefully read Articles III and IV of the merger agreement, which is attached to this proxy statement as Annex A .

 

We have agreed that neither we nor our subsidiaries nor any of our respective officers, directors, employees, investment bankers, financial advisors, attorneys, accountants, consultants, affiliates and other of our agents (which we sometimes refer to as our representatives) will, directly or indirectly:

 

 

An acquisition proposal means an offer or proposal (other than an offer or proposal from Eastern), whether or not in writing, contemplating, relating to, or that could reasonably be expected to lead to, an acquisition transaction. An acquisition transaction means:

 

 

If, prior to the approval of the merger agreement by our stockholders, we receive a bona fide unsolicited written acquisition proposal that did not result from a breach by us of any of the no solicitation provisions in the merger agreement, as discussed above, our board may participate in discussions or negotiations regarding the unsolicited acquisition proposal or furnish the third party with, or otherwise afford access to the third party

of, any information with respect to us or any of our subsidiaries or otherwise relating to the acquisition proposal if:

 

 

 

 

A superior proposal means any bona fide written proposal (on its most recently amended or modified terms, if amended or modified) made by a third party to enter into an acquisition transaction on terms that our board determines in its good faith judgment, after consultation with and having considered the advice of outside legal counsel and a nationally recognized, independent financial advisor:

 

 

 

 

in each case taking into account all legal, financial, regulatory and other aspects of the proposal.

 

We have agreed to promptly, and in any event within 24 hours, notify Eastern in writing if any proposals or offers are received by, any information is requested from, or any negotiations or discussions are sought to be initiated or continued with, us or any of our representatives, in each case in connection with any acquisition proposal. Any such notice will indicate the name of the person initiating such discussions or negotiations or making such proposal, offer or information request and the material terms and conditions of any proposals or offers and, in the case of written materials, providing copies of such materials. We are also required to keep Eastern informed, on a current basis, of the status and terms of any such proposal, offer, information request, negotiations or discussions (including any amendments or modifications to such proposal, offer or request). We have also agreed to promptly provide Eastern with any non-public information regarding us or any of our subsidiaries provided to any other person that was not previously provided to Eastern.

 

Under the merger agreement, we agreed that our board would not:

 

 

 

 

However, prior to the approval of the merger agreement by our stockholders, our board may approve or recommend to our stockholders a superior proposal and withdraw, qualify or modify its recommendation with respect to the merger agreement, if our board reasonably determines in good faith, after consultation with and having considered the advice of outside legal counsel and a nationally recognized, independent financial advisor, that the failure to take such actions would be inconsistent with its fiduciary duties to our stockholders under applicable law. In the event that our board makes this determination, we must provide three business days prior written notice to Eastern that our board has decided that a bona fide unsolicited written acquisition proposal that we received (that did not result from a breach of the no solicitation provisions of the merger agreement discussed above) constitutes a superior proposal. During the three business days period after Eastern’s receipt of the notice of a superior proposal, we and our board must cooperate and negotiate in good faith with Eastern to make such adjustments, modifications or amendments to the terms and conditions of the merger agreement as would enable us to proceed with our board’s original recommendation with respect to the merger agreement without requiring us to approve or recommend to our stockholders a superior proposal and withdraw, qualify or modify our board’s recommendation with respect to the merger agreement. At the end of the three business day notice period, and after taking into account any such adjusted, modified or amended terms as may have been proposed by Eastern during such period, our board must, again, determine in good faith, after consultation with and having considered the advice of outside legal counsel and a nationally recognized, independent financial advisor, that

 

 

Either Eastern or the Company may terminate the merger agreement at or prior to the effective time of the merger if any of the following occurs:

 

 

 

In addition, Eastern has the right to unilaterally terminate the merger agreement (we sometimes refer to these termination rights as Eastern’s unilateral termination rights) if:

 

 

 

 

We have the right to terminate the merger agreement if, at any time prior to our stockholders approving the merger agreement, we have received a superior proposal and

 

 

The merger agreement requires us to pay Eastern a termination fee equal to $5 million if: