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CEO succession matters sparked Bar Harbor-Lake Sunapee Bank deal

Newport,N.H.-based Lake Sunapee Bank Groupinitially reached out to eventual mergerpartner Bar Harbor, Maine-based BarHarbor Bankshares not about a potential deal, but to discussmatters related to CEO succession.

In thebackground of the two institutions' deal included in a Form S-4 filed July 19, LakeSunapee Vice Chairman, President and CEO Stephen Theroux reached out to BarHarbor President and CEO Curtis Simard in October 2015 as part of an effort togather information on succession planning experiences of peer institutions, asSimard had succeededBar Harbor's previous CEO in 2013.

Discussionsbetween the two institutions eventually led to the broaching of the possibilityof a merger. Bar Harbor was considered a potential merger partner during a LakeSunapee December 2015 meeting to discuss strategic options, and during anothersimilar meeting in January. Among the factors that prompted the review ofstrategic alternatives were perceived challenges related to growth, the needfor additional capital and looming succession matters — as Theroux would turn66 within the year.

In March,Bar Harbor and Lake Sunapee determined to conduct preliminary due diligence tofacilitate discussions regarding the terms of the transaction, spurred on bythe similarity of their customer profiles, lack of geographic overlap, and thepotential succession solution for Lake Sunapee posed by a merger. Discussionsbetween the two continued through the month.

On April 1,Bar Harbor submitted preliminary deal terms, which included 100% stockconsideration and offered a preliminary price range of $17.00 to $17.25 pershare, up to four seats on the board of the resulting institution, thecontinuation of Lake Sunapee Senior Executive Vice President and COO WilliamMcIver as a regional president for the New Hampshire and Vermont markets, and acommitment to maintain the Lake Sunapee brand in its markets, all of whichterms were non-binding and contingent upon satisfactory completion of duediligence and the negotiation of a definitive agreement.

Duediligence efforts and more talks continued. Among the issues discussed weretechnology, efficiencies, wealth management opportunities and staffing, as wellas compensation matters given that Bar Harbor required that any new employmentagreements and severance agreements be agreed upon by all parties and affectedexecutives before the merger agreement was executed.

Bar Harborproposed to use its closing trading price to establish an exchange ratio basedon an offer of $17.00 per share of Lake Sunapee common stock, which would haveresulted in a proposed exchange ratio of 0.4895 per Lake Sunapee common share,based upon the closing price May 2. Lake Sunapee proposed that the exchangeratio be calculated based on the 10-day average closing price of Bar Harbor forthe period ended May 4. Bar Harbor agreed, and after the market closed on May4, the 10-day average price of Bar Harbor was calculated to be $34.207 pershare, resulting in a proposed exchange ratio of 0.4970. After separatemeetings and subsequent board approval for the proposed terms, the two executedtheir merger agreement on May 5, announcing the after market close of the same day.