FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: Norway Savings Bank  Norway, Maine

Application Pursuant to Section 24 of the Federal Deposit Insurance Act for Consent to Indirectly Engage as Principal Through a Majority-Owned Subsidiary in Investment Activities That May Not Be Permissible for a Subsidiary of a National Bank

ORDER

The Federal Deposit Insurance Corporation (FDIC) has fully considered all available facts and information relevant to the application by the Norway Savings Bank, Norway, Maine (Bank), pursuant to Section 24 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831a, and Part 362 of the FDIC's Rules and Regulations, for consent to indirectly retain through a majority-owned subsidiary $2,486,188 of equity interests in four venture capital and private equity funds managed by Ridgewood Capital, a private money management firm based in Ridgewood, New Jersey. These investments are non-listed private placement investments focused on financing of power generation facilities and venture capital activities. These are activities that may not be permissible for a subsidiary of a national bank.

Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement, that the application submitted by the Bank for consent to indirectly retain through a majority-owned subsidiary (Subsidiary) existing Ridgewood Capital venture capital and private equity funds be and hereby is approved, subject to the following conditions:

(1) The equity investments in non-listed private placements in venture capital and private equity funds currently held by the Bank be held indirectly through a single, majority-owned subsidiary organized for the purpose of holding such investments (the Subsidiary);

(2) The Subsidiary is a corporation that:

i. Meets applicable statutory or regulatory capital requirements and has sufficient operating capital in light of the normal obligations that are reasonably foreseeable for a business of its size and character within the industry;

ii. Maintains separate accounting and other business records;

iii. Observes separate business entity formalities such as separate board of directors' meetings; and

iv. Conducts business pursuant to independent policies and procedures designed to inform third parties that the Subsidiary is a separate organization from the Bank, and that the Bank is not responsible for and does not guarantee the obligations of the Subsidiary.

(3) The Bank shall limit its indirect equity investment activity through the Subsidiary to that which is currently held;

(4) Without prior written approval of the FDIC's Regional Director of the Boston Regional Office, neither the Bank nor any of its subsidiaries may extend credit to the Subsidiary, purchase any debt instruments issued by the Subsidiary, or originate any other transaction that is used to benefit the Subsidiary;

(5) Neither the Bank nor the Subsidiary may enter into any transaction with the Bank's executive officers, directors, principal shareholders, or related interests of such persons which relate; to the Subsidiary's activities unless the transactions are on terms and conditions that are substantially the same as those prevailing at the time for comparable transactions with persons not affiliated with the Bank; and

(6) In the event the facts and circumstances presented or otherwise known to the FDIC in connection with this request change significantly, the FDIC retains the ability to alter, suspend, or withdraw its approval.

Dated at Washington, D.C., this 21st day of August, 2001.

FEDERAL DEPOSIT INSURANCE CORPORATION

John M. Lane
Associate Director
Division of Supervision

FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: Norway Savings Bank  Norway, Maine

Application Pursuant to Section 24 of the Federal Deposit Insurance Act for Consent to Indirectly Engage as Principal Through a Majority-Owned Subsidiary in Investment Activities That May Not Be Permissible for a Subsidiary of a National Bank

STATEMENT

Pursuant to the provisions of Section 24 of the Federal Deposit Insurance Act, Norway Savings Bank, Norway, Maine (Bank), has filed an application with the Federal Deposit Insurance Corporation (FDIC). The Bank requests the FDIC's consent to indirectly retain through a majority-owned subsidiary $2,486,188 of non-listed, privately placed equity security interests in venture capital and private equity funds management Ridgewood Capital, a private money management firm located in Ridgewood, New Jersey. These funds are non-listed, limited liability, private placement investments focused in venture capital activities and power generation facilities. The Bank has held these investments for some time with no adverse affect upon the overall condition of the Bank noted. The Bank's investment represents less than five percent of its Tier 1 capital. These are activities that may not be permissible for a subsidiary of a national bank.

As of March 31, 2001, the Bank had total assets of $374.7 million. Its financial condition, future earnings prospects, and management are regarded as satisfactory. The Bank meets the definition of "well-capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations. The Bank will establish a new, majority-owned subsidiary (Subsidiary) to conduct the activity. The Subsidiary will be organized as a corporation under Maine law, and the proposed investment is permissible under Title 9-B § 419 of the Maine Revised Statutes.

Neither insured state banks nor their subsidiaries may engage as principal in an activity prohibited for national banks unless consent has been obtained 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 funds.

Equity investing may be somewhat riskier than lending, but it requires the application of financial analysis, economic assessment, and business judgment similar to that required for lending. Subject to prudent supervision and judgment, investing in equity securities may not be unduly risky.

The FDIC is imposing a condition that neither the Bank nor any of its subsidiaries may extend credit to the Subsidiary, purchase any debt instruments issued by the Subsidiary, or originate any other transaction that is used to benefit the Subsidiary without the prior written approval of the FDIC's Regional Director of the Boston Region. This does not prohibit the Bank from extending credit to a third party who may do business with the fund company so long as the transactions are carried out on terms and conditions that are substantially similar to those prevailing at the time for comparable transactions with entities other than the fund company.

In order to ensure prudent operational safeguards, the Subsidiary should be operated in a manner to ensure corporate separation between it and the Bank. This is to provide reasonable assurance that the assets of the Bank will not be subject to liability from a party seeking to hold the Bank responsible for the actions of the Subsidiary. Accordingly, the FDIC finds it appropriate to impose separateness conditions.

Finally, in order to prevent potential abuses, the FDIC is imposing a condition that transactions between the Bank or the Subsidiary and any of the Bank's insiders or their related interests must be on an arm's length basis.

The final order does not require that the Bank deduct its investment in the Subsidiary from Tier 1 capital. It is the FDIC's opinion that given the overall circumstances, including the fact that the investment has been held directly by the Bank for several years with no adverse implications noted, the passive nature of the investment, and the fact that the investment will be held by a subsidiary that will maintain corporate separateness from the Bank, it is not necessary to impose a capital deduction in this instance to protect the deposit insurance funds from significant risk.

Based on a careful review of all available facts and information, including the investment limits within the Bank's proposal, the FDIC has concluded that the proposed investment does not pose a significant risk to the Bank Insurance Fund and therefore, approval of the application subject to the conditions in the Order is warranted.

ASSOCIATE DIRECTOR 
DIVISION OF SUPERVISION 
FEDERAL DEPOSIT INSURANCE CORPORATION