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The Lowell Five Cent Savings Bank

April 8, 1997

Board of Trustees
The Lowell Five Cent Savings Bank
34 John Street
Lowell, Massachusetts 01852

Members of the Board:

We have reviewed your request to indirectly continue activities through the bank's whoily-owned subsidiary, Merrimack Properties, Inc. ("MPI") that may not be permissible for a subsidiary of a national bank. Specifically, you have requested to allow MPI to continue holding a 22.7 acre parcel of land in Pepperell, Massachusetts, until orderly divestiture may occur, but in no event beyond June 30, 1998. The application, dated February 3, 1997, was filed pursuant to Section 362.4(d)(4)(iii) of the Federal Deposit Insurance Corporation (FDIC) Rules and Regulations and was received in the FDIC's Boston Regional Office on February 6, 1997.

The FDIC had previously granted conditional approval, on February 20, 1996, for the Lowell Five Cent Savings Bank ("Bank") to conduct indirect real estate investment activities at MPI and other subsidiaries, including Merrimack Industries, Inc. ("MII"), which owns the Olde Market House and Olde Depot commercial properties. In considering your request for an extension on the Pepperell property, we also reviewed the restrictions contained in the prior approval and determined that several of those restrictions are not relevant, given the Bank's current real estate investment activities. Therefore, the requirements contained in the February 20, 1996 approval are hereby superseded by those reflected in this document and the Statement attached hereto.

For the reasons set forth in the attached Statement, your application was approved today subject to the following conditions:

(1) That the Bank shall take the necessary steps to operate its real estate investment subsidiaries in a manner so as to ensure their separate corporate existence as wholly- owned and second-tier subsidiaries that:

(a) are adequately capitalized,

(b) are separate and distinct in their operations from the operations of the Bank,

(c) maintain separate accounting and other corporate records,

(d) observe separate formalities such as separate board of directors' meetings,

(e) maintain a board of directors with management expertise capable of conducting activities in a safe and sound manner,

(f) contract with the Bank for any service on terms and conditions comparable to those available to or from independent entities, and

(g) conduct business pursuant to separate policies and procedures designed to inform customers and prospective customers of the subsidiaries that they are separate organizations from the Bank, including the placement of specific language on any debt instrument or contract with a third party disclosing that the Bank itself is not responsible for payment or performance;

(2) That the Bank's indirect real estate investment activities, including equity interests, debt obligations of the subsidiaries held by the Bank, Bank guaranties of debt obligations issued by the subsidiaries, extensions of credit or commitments of credit to the subsidiaries or to any third party for the purpose of making a direct investment in the subsidiaries, or making an investment in any investment in which the subsidiaries have an interest, shall be limited to that which is currently held.

(3) That full divestiture of the Pepperell property be accomplished on or before June 30, 1998;

(4) That full divestiture of the Olde Market House and Olde Depot properties be accomplished on or before February 20, 2001;

(5) That if the Bank has not divested itself of the Olde Market House and Olde Depot properties by February 20, 1999, the Bank shall submit a written divestiture plan describing the means by which it shall comply with the above condition;

(6) That the Bank shall not condition any loan on the purchase of real estate from any subsidiary;

(7) That the Bank shall not extend credit to any borrower to fund the purchase of any asset from any subsidiary unless it is consistent with safe and sound banking practices, does not involve more than a normal degree of risk of repayment, and is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions;

(8) That all future transactions between the Bank and any subsidiary shall be made in accordance with the restrictions of Section 23A and 23B of the Federal Reserve Act, 12 U. S. C. 371c and 371c-1, to the same extent as though the subsidiary were an affiliate of the Bank, except that the amount and collateral limitations of Section 23A shall not apply to loans made by the Bank to facilitate the sale of the real estate investments held by any subsidiary, provided the loans are consistent with safe and sound banking practices, do not present more than the normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions;

(9) That the Bank and any subsidiary shall not engage in any transaction with insiders of the Bank or their related interests which relate to a subsidiary's real estate investment activities without the prior written consent of the appropriate DOS Regional Director; and,

(10) That consent is granted based on the facts and circumstances presented or otherwise known to the FDIC in connection with this request. The Bank shall notify the FDIC of any significant change in facts or circumstances, and the FDIC shall have the right to alter, suspend, or withdraw its approval.

Questions relating to this matter may be referred to Assistant Regional Director Richard C. Barringer or Review Examiner Teresa M. Coggins in the Boston Regional Office at (617) 320-1600.

Sincerely,

Steven K. Scholzen
Acting Associate Director


FEDERAL DEPOSIT INSURANCE CORPORATION

RE. The Lowell Five Cent Savings Bank Lowell, Massachusetts

Application Pursuant to Section 24 of the Federal Deposit Insurance Act to Indirectly Continue Activity That May Not Be Permissible for a National Bank

STATEMENT

Pursuant to the provisions of Section 24 of the Federal Deposit Insurance Act, an application has been filed with the Federal Deposit Insurance Corporation by the Lowell Five Cent Savings Bank, Lowell, Massachusetts ("the Bank"). The Bank requests FDIC consent to extend the divestiture period on certain investment interests in realty property located in the State of Massachusetts and owned by the Bank's subsidiaries

The FDIC has previously granted conditional approval, on February 20, 1996, for the Bank to conduct indirect real estate investment activities through its wholly-owned and secondtier subsidiaries. In considering the Bank's request, the FDIC also reviewed the prior conditional approval and determined that several of the restrictions contained therein are not relevant, given the Bank's current real estate investment activities. Therefore, the requirements contained in the February 20, 1996 approval are hereby superseded by those reflected in this document.

In general, real estate investment may not be a permissible activity for a national bank or a subsidiary of a national bank. Subsidiaries of state-chartered, FDIC-insured banks may not engage as principal in an activity prohibited to subsidiaries of nationally chartered banks unless they obtain consent from the FDIC. Consent may not be granted unless the bank is in compliance with applicable capital standards and the FDIC determines that the activity poses no significant risk to the deposit insurance fund. Massachusetts banking statutes permit the holding of subject real estate investment.

The Bank has made a reasonable effort to sell the realty properties; however, zoning issues have impeded disposition of certain properties. These issues are currently under review by state and local govr agencies. After resolution of the issues, Bank management expects to effect an orderly divestiture of its remaining indirect real estate investments. The Bank does not engage in real estate activities beyond the interests of its subsidiaries, and Bank management has indicated that it has no intention of engaging in additional real estate activities.

The Bank meets the definition of "Well capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations. The Bank's net consolidated investment in subsidiaries engaged in real estate investment activities represents approximately 8.9% of the Bank's Tier I capital as of December 31, 1996, and the Bank would continue to be "Well capitalized" in the event its entire investment in said subsidiaries was deducted from capital. In connection with this application, the FDIC has also taken into consideration the favorable financial and managerial resources and future earnings prospects of the Bank.

Real estate investment is subject to a high degree of market risk and other specialized risks specific to real estate ownership and may also be of questionable benefit in the diversification of a financial institution's portfolio of assets. Due to these risks, real estate investment activities appear suitable to a financial institution only on a very limited scale and under restrictive conditions designed to control the various risks posed to the financial institution and the deposit insurance fund.

As prudential limitations and restrictions addressing the risks posed by real estate investment activities will be imposed, the subsidiary's real estate investment activities will not constitute a significant risk to the Bank Insurance Fund or present material safety and soundness concerns.

Based upon careful evaluation of all available facts and information, the Acting Associate Director, acting under delegated authority, has concluded that approval of the application is appropriate subject to the restrictions discussed below. The following conditions are imposed for prudential reasons due to the volatility and other risks which are inherent in the subject real estate activity as well as to mitigate any potential insider conflicts of interests or risks associated with transactions between the Bank and its subsidiaries.

That the Bank shall take the necessary steps to operate its real estate investment subsidiaries in a manner so as to ensure their separate corporate existence as wholly-owned and second tier subsidiaries that:

(a) are adequately capitalized,

(b) are separate and distinct in their operations from the operations of the Bank,

(c) maintain separate accounting and other corporate records,

(d) observe separate formalities such as separate board of directors' meetings,

(e) maintain a board of directors with management expertise capable of conducting activities in a safe and sound manner,

(f) contract with the Bank for any service on terms and conditions comparable to those available to or from independent entities, and

(g) conduct business pursuant to separate policies and procedures designed to inform- customers and prospective customers of the subsidiaries that they are separate organizations from the Bank, including the placement of specific language on any debt instrument or contract with a third party disclosing that the Bank itself is not responsible for payment or performance;

That the Bank's indirect real estate investment activities, including equity interests, debt obligations of the subsidiaries held by the Bank, Bank guaranties of debt obligations issued by the subsidiaries, extensions of credit or commitments of credit to the subsidiaries or to any third party for the purpose of making a direct investment in the subsidiaries, or making an investment in any investment in which the subsidiaries have an interest, shall be limited to that which is currently held;

That full divestiture of the Pepperell property be accomplished on or before June 30, 1998;

That full divestiture of the Olde Market House and Olde Depot properties be accomplished on or before February 20, 2001;

That if the Bank has not divested itself of the Olde Market House and Olde Depot properties by February 20, 1999, the Bank shall submit a written divestiture plan describing the means by which it shall comply with the above condition;

That the Bank shall not condition any loan on the purchase of real estate from any subsidiary;

That the Bank shall not extend credit to any borrower to fund the purchase of any asset from any subsidiary unless it is consistent with safe and sound banking practices, does not nvolve more than a normal degree of risk of repayment, and is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions;

That all future transactions between the Bank and any subsidiary shall be made in accordance with the restrictions of Section 23 A and 23B of the Federal Reserve Act, 12 U. S. C. 371c and 371c-1, to the same extent as though the subsidiary were an affiliate of the Bank, except that the amount and collateral limitations of Section 23A shall not apply to loans made by the Bank to facilitate the sale of the real estate investments held by any subsidiary, provided the loans are consistent with safe and sound banking practices, do not present more than the normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions;

That the Bank and any subsidiary shall not engage in any transaction with insiders of the Bank or their related interests which relate to a subsidiary's real estate investment activities without the prior written consent of the appropriate DOS Regional Director; and,

That consent is granted based on the facts and circumstances presented or otherwise known to the FDIC in connection with this request. The Bank shall notify the FDIC of any significant change in facts or circumstances, and the FDIC shall have the right to alter, suspend, or withdraw its approval.

Finally, FDIC notes that the foregoing approval is unique to this application, that it was significantly influenced by subsidiary's acquisition of the subject real estate interest prior to the effective date of Section 24, and that its view of de novo acquisition of such interest might well be different.

ACTING ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION



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