SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-A
For Registration of Certain Classes of Securities
Pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
ENTERPRISE BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Massachusetts 04-3308902
(State of Incorporation or Organization) (I.R.S. Employer
Identification no.)
222 Merrimack Street
Lowell, Massachusetts 01852
(Address of principal executive office) (zip code)
If this form relates to the If this Form relates to the
registration of a class of registration of a class of
debt securities and is effective debt securities and is to become
upon filing pursuant to General effective simultaneously with the
Instruction A(c)(1) please check effectiveness of a concurrent
the following box / / registration statement under the
Securities Act of 1933 pursuant
to General Instruction A(c)(2)
please check the following box / /
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
(Title of Class)
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Item 1. Description of Registrant's Securities to be Registered.
General
Pursuant to an Agreement and Plan of Reorganization dated as of February
29, 1996 (the "Plan of Reorganization") between Enterprise Bank and Trust
Company, a Massachusetts trust company (the "Bank"), and Enterprise Bancorp,
Inc., a newly-formed Massachusetts corporation organized at the direction of the
Bank (the "Company"), the Company will acquire all of the outstanding common
stock, par value $1.00 per share, of the Bank other than shares held by
stockholders, if any, exercising dissenters' appraisal rights, in a
share-for-share exchange for the common stock, par value $.01 per share, of the
Company ("Common Stock"). The Bank will thereby become a wholly-owned subsidiary
of the Company and the Bank's stockholders will become, subject to their
exercise of dissenters' appraisal rights, stockholders of the Company. Under the
Restated Articles of Organization of the Company (the "Articles"), as amended
prior to the consummation of the Plan of Reorganization, the Company will be
authorized to issue up to 5,000,000 shares of Common Stock and up to 1,000,000
shares of preferred stock, par value $0.01 per share.
Preferred Stock
The Board of Directors of the Company is authorized to issue shares of
preferred stock in series and to fix the voting powers, designations,
preferences, or other special rights of the shares of each such series and the
qualifications, limitations, and restrictions thereon. The issuance of preferred
stock by the Company is subject to the approval of a majority vote of the Board
of Directors of the Company. Preferred stock issued by the Company may rank
prior to the Common Stock as to dividend rights, or liquidation preferences, or
both, may have full or limited voting rights (including multiple voting rights
and voting rights as a class), and may be convertible into shares of Common
Stock.
Common Stock
Voting Rights. Stockholders are entitled to one vote per share on any
matters subject to stockholder approval, including the election of Directors.
The Articles do not provide for cumulative voting in connection with the
election of Directors, and therefore holders of a majority of the Common Stock
will be able to elect all of the Directors standing for election in each year,
subject to the rights of the holders of shares of preferred stock, if and when
issued.
Preemptive Rights. Holders of Common Stock have no preemptive rights as to
the purchase of any shares issued in the future. Therefore, the Board of
Directors may sell shares of capital stock without first offering them to the
then stockholders of the Company.
Assessability. Under Massachusetts law, Common Stock is non-assessable.
Dividend Rights; Repurchase or Redemption of Shares. A Massachusetts
business corporation, such as the Company, may pay dividends or repurchase or
redeem its shares of capital stock; however, a director who votes to authorize a
dividend, repurchase or redemption which is in violation of the corporation's
articles of organization or which renders the corporation insolvent may be
jointly and severally liable for such improper dividend, repurchase or
redemption. Stockholders to whom a corporation makes any such distribution
(except a distribution of stock of the corporation), if the corporation is, or
is thereby rendered, insolvent, are liable to the corporation for the amount of
such distribution made, or for the amount of such distribution which exceeds
that which could have been made without rendering the corporation insolvent, but
in either event only to the extent of the amount paid or distributed to them,
respectively.
It is the policy of the Federal Reserve Board that bank holding companies
should pay cash dividends on common stock only out of the past year's net
income, and only if prospective earnings retention is consistent with the
organization's expected future needs. The policy further provides that a bank
holding company should not maintain a level of cash dividends that undermines
the bank holding company's ability to serve as a source of strength to its
subsidiary banks. The Federal Reserve Board also requires by regulation that a
bank holding company seeking to purchase or redeem any of its equity securities
must provide prior notice to the appropriate regional Federal Reserve
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Bank, which may disapprove of such proposed purchase or redemption, if the gross
consideration for such purchase or redemption, when aggregated with the net
consideration paid by the holding company for all such purchases or redemptions
during the preceding twelve months, exceeds 10% of the holding company's
consolidated net worth, except that such prior notice requirements do not apply
to any holding company that is "well capitalized" in accordance with Federal
Reserve Board regulations, has received a composite "1" or "2" rating in its
most recent examination and is not subject to any unresolved regulatory issues.
Any issuance of preferred stock with a preference over Company Common Stock
as to dividends may affect the dividend rights of Common Stock holders.
Directors
Number and Staggered Terms. The By-laws of the Company (the "By-laws")
provide that, subject to the rights of holders of preferred stock, if and when
issued, a majority of the Board of Directors of the Company shall fix from time
to time the number of Directors of the Company, which number shall not be less
than three, unless at the time there is an Interested Stockholder in which case
a majority vote of the Continuing Directors is also required to fix such number.
The Board of Directors of the Company will initially be composed of 13
Directors. The Articles provide for three classes of Directors with one class
elected each year for three year staggered terms, so that ordinarily no more
than approximately one-third of the Directors will stand for election in any one
year, and that there will be no cumulative voting in the election of Directors.
The term "Interested Stockholder" is defined in the Articles to mean generally
any beneficial owner 10% or more of the outstanding voting stock of the Company
and certain assignees of such Interested Stockholder. The term "Continuing
Directors" is defined in the Articles to mean generally Directors who are not
affiliates of any Interested Stockholder and who were Directors prior to the
time that any Interested Stockholder became an Interested Stockholder and
certain successor Directors.
Removal. The Articles provide that Directors may be removed from office,
but only for cause, and then only by the affirmative vote of not less than
two-thirds of the outstanding shares entitled to vote at a duly constituted
meeting of stockholders or two-thirds of the members of the Board of Directors
then in office, unless at the time of such removal there shall be an Interested
Stockholder, in which case the affirmative vote of not less than two-thirds of
the Continuing Directors then in office shall instead be required for such
removal by vote of the Board of Directors. The Articles define cause to mean
only the following: (i) conviction of a felony, (ii) acceptance of immunity to
testify where another has been so convicted, (iii) a court determination of
liability for negligence or misconduct in the performance of directorial duties
in an important matter or (iv) a determination or direction by such governmental
agency or authority as may exercise proper jurisdiction that an individual
should not be a Director.
Vacancies. The By-laws provide that any vacancy occurring on the Board of
Directors of the Company, including vacancies resulting from an enlargement of
the Board, shall be filled solely by the affirmative vote of a majority of the
remaining Directors, unless at the time there is an Interested Stockholder, in
which case the affirmative vote of a majority of the Continuing Directors is
also required. Any Director of the Company so chosen would hold office for the
remainder of the term of the class of Directors to which the Director has been
elected.
Meetings of Stockholders
The Articles provide that a special meeting of stockholders may be called
only by the Chairman of the Board and Chief Executive Officer, or by a majority
of the Directors then in office, provided that if at the time of any such call
there is an Interested Stockholder, such call shall also require the affirmative
vote of a majority of the Continuing Directors then in office. The Articles also
provide that only those matters set forth in the call of the special meeting may
be considered or acted upon at such special meeting, unless otherwise provided
by law.
The Articles and By-laws set forth certain advance notice and informational
requirements and time limitations on any Director nomination or any new business
which a stockholder wishes to propose for consideration at an annual meeting of
stockholders. Any such nomination or new business, to be timely, shall be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than 60 days nor more than 150 days prior to the
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annual meeting, provided that in the event that less than 70 days' notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made must be given. A stockholder's notice must be delivered in
writing to the Clerk of the Company and must satisfy various informational
requirements pertaining to such director nomination or other proposal sought to
be presented by the stockholder as well as the identity and stock ownership of
such stockholder. Stockholder nominations of directors or proposals of new
business that do not satisfy all of the procedural and informational
requirements contained in the Articles and By-laws may be rejected by the Board
of Directors.
Stockholder Vote Required to Approve Certain Transactions
Massachusetts law provides that certain agreements of merger or
consolidation, or the sale, lease or exchange of all or substantially all of the
property and assets, of a Massachusetts corporation must be approved by the
affirmative vote of holders of two-thirds of the shares of each class of stock
outstanding and entitled to vote thereon or, if the articles of organization so
provide, the vote of a lesser proportion, but not less than a majority.
Additionally, Massachusetts law provides that no vote of the stockholders of the
surviving Massachusetts corporation is required, unless its articles of
organization otherwise provide, to approve a merger if (i) the agreement of
merger does not amend in any respect the corporation's articles of organization,
(ii) the number of shares of the surviving corporation's stock to be issued in
the merger does not exceed 15% of the shares of the same class outstanding
immediately prior to the effective date of the merger and (iii) the issuance of
authorized but unissued stock pursuant to a merger by vote of the directors has
been authorized by the by-laws or a vote of the stockholders. A Massachusetts
corporation owning at least 90% of the outstanding shares of each class of stock
of another corporation may merge such corporation into itself without a vote of
the stockholders.
The Articles provide that any Business Combination (as defined below)
involving the Company and an Interested Stockholder must be approved by the
holders of at least 80% of the outstanding shares of the Company's voting stock
voting together as a single class (the "Voting Requirement"). The Voting
Requirement does not apply and only such vote as is required by law is required,
if (i) the Business Combination is approved by an affirmative vote of at least
two-thirds of the Continuing Directors or (ii) certain "fair price" (defined
generally to mean, among other things, that the consideration to be received by
stockholders in such Business Combination shall be in the same form and kind as
the consideration paid by the Interested Stockholder for the Company's capital
stock owned by such person and shall be at least equal to the highest of the
following: (A) the highest per share price paid by such Interested Stockholder
in acquiring any of its holdings of Common Stock within the two year period
immediately prior to the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or in the transaction through
which such person became an Interested Stockholder; (B) the highest Fair Market
Value (as defined in the Articles) per share of Common Stock on any date during
the one-year period prior to and including the Announcement Date; and (C) the
price per share equal to (1) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested Stockholder became
an Interested Stockholder, multiplied by (2) a fraction (x) the numerator of
which is the highest per share price paid by the Interested Stockholder for any
share of Common Stock acquired by it within the two-year period immediately
prior to and including the Announcement Date and (y) the denominator of which is
the Fair Market Value per share of Common Stock on the first day in such
two-year period on which the Interested Stockholder acquired any shares of
Common Stock) and other criteria are met. As defined in the Articles, a
"Business Combination" includes, among other things (i) any merger or
consolidation of the Company with an Interested Stockholder or affiliate
thereof, (ii) the sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Company of assets having a fair market value of $2,500,000 or
more to or with an Interested Stockholder or an affiliate thereof, (iii) the
purchase, exchange, lease or other acquisition by the Company of all or
substantially all the assets or business of any Interested Stockholder or
affiliate thereof, (iv) the issuance or transfer by the Company of any
securities of the Company to an Interested Stockholder or any affiliate thereof
in exchange for cash, securities or other property (or a combination thereof)
having a fair market value of $2,500,000 or more, (v) the adoption of a plan or
proposal for the liquidation or dissolution of the Company proposed by or on
behalf of an Interested Stockholder or an affiliate thereof and (vi) any
transaction that has the effect of increasing the proportionate share of any
class of equity security of the Company that is beneficially owned by an
Interested Stockholder or any affiliate thereof.
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Exercise of Business Judgment by Board of Directors
The Articles provide that the Board of Directors, when evaluating any
tender or exchange offer, merger, acquisition or similar offer of another
person, shall in connection with the exercise of its judgment in determining
what is in the best interests of the Company and its stockholders, give due
consideration to all relevant factors including, without limitation, the social
and economic effects of acceptance of such an offer on the Company's present and
future account holders, borrowers and employees, on the communities in which the
Company operates or is located and on the ability of the Company to fulfill its
objectives under applicable statutes and regulations.
Beneficial Ownership Limitation
The Articles contain a prohibition against any person directly or
indirectly offering to acquire, or acquiring, beneficial ownership (as defined
in the Articles) of more than 10% of any class of outstanding equity securities
of the Company. The Articles contains exceptions from this limitation for (A)
any acquisition of shares of capital stock of the Company which has been
expressly approved in advance by an affirmative vote of not less than two-thirds
of the Continuing Directors then in office, (B) any offer to the Company made by
any underwriters selected by the Company in connection with a public offering by
the Company of the Company's capital stock, or (C) any Employee Stock Ownership
Plan established by the Company.
Amendment of Articles
The Articles provide that an amendment must first be approved by a majority
of the Directors of the Company then in office and thereafter by an affirmative
vote of at least eighty percent (80%) of the voting power of the then
outstanding voting stock of the Company (except that certain provisions may be
amended by a majority vote of the stockholders). In addition, if, at any time
within a sixty-day period prior to the meeting of stockholders at which such
amendment is to be considered there is an Interested Stockholder, the amendment
must also be approved by an affirmative vote of a majority of the Continuing
Directors then in office, prior to approval by the stockholders.
Amendment of By-laws
The Articles provide that the By-laws may be adopted or amended either by
the Board of Directors or the stockholders of the Company. Such action by the
Board of Directors shall require the affirmative vote of at least two-thirds of
the Directors then in office at a duly constituted meeting of the Board of
Directors, unless at the time of such action there shall be an Interested
Stockholder, in which case such action shall also require the affirmative vote
of at least two-thirds of the Continuing Directors then in office, at such a
meeting. Such action by the stockholders of the Company shall require (i)
approval by the affirmative vote of a majority of the Board of Directors then in
office at a duly constituted meeting of the Board of Directors, unless at the
time of such action there shall be an Interested Stockholder, in which case such
action shall also require the affirmative vote at such meeting of at least
two-thirds of the Continuing Directors then in office, (ii) unless waived by the
affirmative vote of the Board of Directors (and, if applicable, Continuing
Directors) specified in the preceding sentence, the submission by the
stockholders of written proposals for adopting, altering, amending, changing or
repealing the By-laws at least 60 days prior to the meeting at which they are to
be considered, and (iii) the affirmative vote of at least two-thirds of the
votes eligible to be cast by stockholders at a duly constituted meeting of
stockholders called expressly for such purpose.
Anti-Takeover Provisions
Certain provisions of the Articles and By-laws may be deemed to have an
"anti-takeover" effect. For example: (i) the Board of Directors' authority to
fix the designations, powers, preferences and relative rights of the authorized
and unissued shares of preferred stock could be used in the event of an attempt
by an unsolicited third party to gain control of the Company to impede such
attempt to acquire control; (ii) the three-year staggered terms for Directors,
the Board of Directors' authority to fix the number of Directors who may serve
from time to time, the ability to remove Directors only for cause, and the
advanced notice and informational requirements pertaining to the nomination by
shareholders of candidates for election to the Board of Directors all may make
it more difficult to change a majority of the Board of
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Directors; (iii) the requirements that special meetings of shareholders may be
called only by the Chairman of the Board and Chief Executive Officer or by a
majority of the Directors and that shareholder proposals must satisfy certain
advance notice and informational requirements to be considered at any meeting
may make it more difficult for shareholders to take action independent of the
Board of Directors; (iv) the requirements that Business Combinations that are
not approved by the Continuing Directors must either satisfy certain "fair
price" provisions or be approved by a "super majority" stockholder vote may make
it more difficult to effect any such transaction that is not supported by the
Board of Directors; (v) the provisions relating to the Board of Directors'
exercise of their business judgment may provide the Directors with a stronger
position to oppose certain transactions that may otherwise appear economically
attractive to stockholders; (vi) the prohibition against any person directly or
indirectly acquiring or offering to acquire beneficial ownership of more than
10% of any class of the equity securities of the Company without the approval of
the Continuing Directors precludes on its face any such acquisition transaction
without the support of the Board of Directors; and (vii) the requirement that
shareholder action to amend the Articles or By-laws must generally be preceded
by the approval of the Board of Directors of such proposed amendment may limit
shareholders' ability to effect such amendments without the support of the Board
of Directors.
In addition to the various provisions of the Articles and By-laws, certain
provisions of the Massachusetts General Laws may also have the effect of
discouraging future acquisitions of the Company. Chapters 110D and 110F of the
Massachusetts General Laws cover "control share acquisitions" and certain
business combinations with interested shareholders, respectively.
Chapter 110D of the Massachusetts General Laws covers "control share
acquisitions" affecting corporations incorporated in Massachusetts that have at
least 200 stockholders and possess certain statutory indicia reflecting
additional substantial ties to Massachusetts (as would be the case with the
Company). Chapter 110D limits the voting rights of shares held by persons who
have acquired 20% or more of the voting power of the target corporation. Under
this statute, shares acquired in a control share acquisition retain the same
voting rights as all other shares of the same class or series only to the extent
authorized by a vote of the majority of all shares entitled to vote for the
election of directors, excluding such acquired shares. A corporation that is
otherwise subject to Chapter 110D may expressly provide in its articles of
organization or bylaws that the statute does not apply. Chapter 110D by its
terms would apply to the Company. The Company has not included any "opt out"
provision in either the Articles or By-laws of the Company.
Chapter 110F of the Massachusetts General Laws provides that if any
acquiror buys 5% or more of a target company's stock, where the target company
has at least 200 stockholders and possesses certain statutory indicia reflecting
substantial ties or nexus to Massachusetts, without the prior approval of the
target company's board of directors, such acquiror generally may not, for a
period of three years, (i) complete the acquisition of the target company
through a merger, (ii) pledge or sell any assets of the target company or (iii)
engage in other self-dealing transactions with the target company. The prior
board of directors approval requirement does not apply if the acquiror buys at
least 90% of the target company's outstanding stock in the transaction in which
it crosses the 5% threshold or if the acquiror, after crossing the threshold,
obtains the approval of the target company's board of directors and two-thirds
of the target company's stock held by persons other than the acquiror. A
corporation that would otherwise be covered by Chapter 110F may expressly
provide in its articles of organization that the statute does not apply. Chapter
110F by its terms would apply to the Company. The Articles do not contain any
such "opt out" provision.
Item 2. Exhibits.
The following exhibits are filed as a part of this Registration Statement:
Exhibit Number Description
99.1 Restated Articles of Organization of the Registrant
99.2 Bylaws of the Registrant
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99.3 Annual Report on F.D.I.C. Form F-2 of Enterprise Bank and
Trust Company (the "Bank") for the fiscal year ended
December 31, 1995
99.4 Notice and Proxy Statement dated March 29, 1996 for the Annual
Meeting of Shareholders of the Bank
99.5 Quarterly Report on F.D.I.C. Form F-4 of the Bank for the
fiscal quarter ended March 31, 1996
99.6 1995 Annual Report to the Bank's Stockholders
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
ENTERPRISE BANCORP, INC.
Date: July 10, 1996 By: /s/George L. Duncan
George L. Duncan
Chairman and Chief Executive Officer
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FEDERAL IDENFITICATION
NO. Applied For
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
We, Richard W. Main, President and Arnold S. Lerner, Clerk of Enterprise
Bancorp, Inc. located at 222 Merrimack Street, Lowell, Massachusetts 01852, do
hereby certify that the following Restatement of the Articles of Organization
was duly adopted at a meeting held on March 22, 1996 by a vote of the sole
incorporator in accordance with the rights and powers accorded thereto under Ch.
156B M.G.L. SS. 44.
ARTICLE I
The name of the corporation is:
Enterprise Bancorp, Inc.
ARTICLE II
The purpose of the corporation is to engage
in the following business activities:
See Exhibit A attached hereto and made a part hereof.
<PAGE>
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
WITHOUT PAR VALUE WITH PAR VALUE
- ------------------------------ ------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---- ---------------- ---- ---------------- ---------
Common: Common: 500,000 $.01
Preferred: Preferred: 100,000 $.01
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See Exhibit B attached hereto and made a part hereof.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
See Exhibit C attached hereto and made a part hereof.
ARTICLE VI
Other lawful provisions, if any, for the conduct and regulation of the business
and affairs of the corporation, for its voluntary dissolution, or for limiting,
defining, or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders:
See Exhibit D attached hereto and made a part hereof.
<PAGE>
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
The information contained in Article VII is not a permanent part of the Articles
of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
222 Merrimack Street, Lowell, Massachusetts 01852
b The name, residential address and post office address of each director and
officer of the corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
Chairman: George L. Duncan 710 Andover Street Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
President: Richard W. Main 1 Overlook Drive "
Chelmsford, MA 01824
Treasurer: John P. Clancy, Jr. 11 Tanglewood Drive "
Chelmsford, MA 01824
Clerk: Arnold S. Lerner 155 Pine Hill Road "
Hollis, NH 03049
Directors: See Exhibit E attached hereto and made a part hereof.
</TABLE>
c. The fiscal year (i.e., tax year) of the corporation shall end on the last
day of the month of: December.
d. The name and business address of the resident agent, if any, of the
corporation is: N/A
We further certify that the foregoing Restated Articles of Organization affect
no amendments to the Articles of Organization of the corporation as heretofore
amended, except amendments to the following articles. Briefly describe
amendments below
See Exhibit C hereto containing new additional provisions to Article V
pertaining to Certain Business Combinations.
SIGNED UNDER THE PENALTIES OF PERJURY, this 25th day of March, 1996
/s/Richard W. Main, President
Richard W. Main
/s/Arnold S. Lerner, Clerk
Arnold S. Lerner
<PAGE>
The Commonwealth of Massachusetts
RESTATED ARTICLE OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within Restated Articles of Organization and, the filing
fee in the amount of $____________ having been paid, said articles are deemed to
have been filed with me this ________ day of _______________ , 19 __.
Effective Date: ________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Stephen J. Coukos, Esq.
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2912
<PAGE>
ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT A
ARTICLE II: Purposes
To acquire, invest in or hold stock in any subsidiary permitted under
the Bank Holding Company Act of 1956 or Chapter 167A of the Massachusetts
General Laws, as such statutes may be amended from time to time, and to engage
in any activity or enterprise permitted to a bank holding company under said
statutes or other applicable law.
To engage generally in any business activity which may be lawfully
carried on by a corporation organized under Chapter 156B of the Massachusetts
General Laws.
<PAGE>
ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT B
ARTICLE IV: Capital Stock
The shares of the Corporation's authorized capital stock may be issued by
the Corporation from time to time by a vote of its Board of Directors without
the approval of its stockholders, except as may be otherwise provided in this
Article. Upon payment of lawful consideration therefor and issuance, all shares
of the capital stock of the Corporation shall be deemed to be fully paid and
nonassessable. No holder of any of the capital stock of the Corporation shall
have any preemptive right to purchase or subscribe for the purchase of any
additional shares issued by the Corporation. In the case of a stock dividend,
that part of the surplus account or undivided profits account of the Corporation
which is transferred to stated capital upon the issuance of shares as a stock
dividend shall be deemed to be the consideration for the issuance of such stock
dividend.
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the designations and the relative
rights, preferences and limitations of the shares of each class and series (if
any) of capital stock are as follows:
SECTION 1. Common Stock. Except as provided by law or in this Article (or in any
supplementary sections hereto) or in any certificate of establishment of a
series of preferred stock, the holders of the Common Stock shall exclusively
possess all voting power. Each holder of outstanding shares of Common Stock
shall be entitled to one vote for each share held by such holder.
Holders of the Common Stock shall be entitled to the payment of dividends
out of any assets of the Corporation legally available for the payment thereof,
but only as and when declared by the Board of Directors.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, after there shall have been paid to or set aside
for the holders of any class having preferences over the Common Stock in the
event of liquidation, dissolution or winding up of the Corporation, of the full
preferential amounts to which they are respectively entitled, the holders of the
Common Stock and of any class or series of stock entitled to participate, in
whole or in part, therewith, as to distribution of assets shall be entitled,
after payment or provision for payment of all debts and liabilities of the
Corporation, to receive the remaining assets of the Corporation available for
distribution, in cash or in kind, in proportion to their holdings.
SECTION 2. Preferred Stock. The Board of Directors of the Corporation is
authorized by vote
<PAGE>
or votes, from time to time adopted, to provide for the issuance of preferred
stock in one or more series and to fix and state the voting powers,
designations, preferences and relative participating, optional or other special
rights of the shares of each series and the qualifications, limitations and
restrictions thereof, including, but not limited to, determination of one or
more of the following:
(1) The distinctive serial designation and the number of shares
constituting such series;
(2) The dividend rates or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date or dates, the payment date or dates for dividends and the participating or
other special rights, if any, with respect to dividends;
(3) The voting powers, full or limited, if any, of shares of such series;
(4) Whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions on which, such shares may
be redeemed;
(5) The amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Bank;
(6) Whether the shares of such series shall be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such fund;
(7) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corporation, and if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(8) The price or other consideration for which the shares of such series
shall be issued; and
(9) Whether the shares of such series which are redeemed or converted shall
have the status of authorized but unissued shares of preferred stock and whether
such shares may be reissued as shares of the same or any other series of stock.
Unless otherwise provided by law, any such vote shall become effective when
the Corporation files with the Secretary of State of the Commonwealth of
Massachusetts a certificate of establishment of one or more series of preferred
stock signed by the Chairman of the Board and Chief Executive Officer or the
President and by the Clerk of the Corporation, setting forth a copy of the vote
of the Board of Directors establishing and designating the series and fixing and
determining the relative rights and preferences thereof, the date of adoption of
such vote and a certification that such vote was duly adopted by the Board of
Directors.
<PAGE>
ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT C
ARTICLE V: Certain Business Combinations
SECTION 1. Vote Required for Certain Business Combinations.
A. Required Vote for Certain Business Combinations. In addition to any
affirmative vote required by the Massachusetts General Laws or by these Articles
of Organization, and except as otherwise expressly provided in Section 2 of this
Article V:
(1) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation or
entity (whether or not itself an Interested Stockholder) which is, or
after such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Stockholder;
(2) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any Subsidiary having
an aggregate Fair Market Value (as hereinafter defined) of $2,500,000
or more;
(3) the purchase, exchange, lease or other acquisition by the
Corporation or any Subsidiary (in a single transaction or a series of
related transactions) of all or substantially all of the assets or
business of any Interested Stockholder or any Affiliate of any
Interested Stockholder; or
(4) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate Fair Market Value of $2,500,000 or more;
(5) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
(6) any reclassification of the securities of the Corporation
(including any reverse stock split), any merger or consolidation of
the Corporation with any of its Subsidiaries or any other transaction
(whether or not with or into or otherwise involving any Interested
Stockholder) which has the effect, directly or indirectly, of
increasing the proportion of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
<PAGE>
Subsidiary which is directly or indirectly owned by any Interested
Stockholder or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the Voting Stock (as hereinafter defined) voting together as a single
class. Such affirmative vote shall be required notwithstanding the fact that no
vote may be required or that a lesser percentage may be specified by law.
B. Definition of "Business Combination". The term "Business
Combination" as used in this Article shall mean any transaction which is
referred to in any one or more of the clauses (1) through (6) of Paragraph A of
this Section 1.
SECTION 2. When Higher Vote is Not Required.
The provisions of Section 1 of this Article V shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other provision
of these Articles of Organization, if all of the conditions specified in either
of the following paragraphs A or B are met:
A. Approval by Continuing Directors. The Business Combination shall have
been approved by two-thirds of the Continuing Directors (as hereinafter
defined); or
B. Price and Procedure Requirements. All of the following conditions shall
have been met:
(1) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination (the
"Consummation Date") of any consideration other than cash to be
received per share by holders of the Common Stock in such Business
Combination shall be at least equal to the highest of the following:
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and
soliciting dealers fees) paid by the Interested
Stockholder for any shares of the Common Stock of the
Corporation acquired by it (i) within the two year
period immediately prior to the first public
announcement of the proposal of the Business
Combination (the "Announcement Date") or (ii) in the
transaction in which it became an Interested
Stockholder, whichever is higher;
(b) the highest Fair Market Value per share of the Common
Stock of the Corporation on any date during the
one-year period prior to and including the Announcement
Date; and
(c) (if applicable) the price per share equal to the
product of (i) the Fair Market Value per share of the
Common Stock of the Corporation on the Announcement
Date or on the date on which the Interested Stockholder
became an Interested Stockholder (such latter date is
referred to in this
<PAGE>
Article V as the "Determination Date"), whichever is
higher, and (ii) a fraction, (x) the numerator of which
is the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares
of the Common Stock acquired by it within the two year
period immediately prior to and including the
Announcement Date, and (y) the denominator of which is
the Fair Market Value per share of the Common Stock on
the first day in such two-year period upon which the
Interested Stockholder acquired any shares of the
Common Stock.
(2) The aggregate amount of the cash and the Fair Market Value as of
the Consummation Date of the Business Combination of consideration other than
cash to be received per share by holders of shares of any other class of
outstanding Voting Stock shall be at least equal to the highest of the following
(it being intended that the requirements of this paragraph B(2) shall be
required to be met with respect to every other class of outstanding Voting
Stock, whether or not the Interested Stockholder has previously acquired any
shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and
soliciting dealers fees) paid by the Interested
Stockholder for any shares of such class of Voting
Stock acquired by it (i) within the two year period
immediately prior to the Announcement Date or (ii) in
the transaction in which it became an Interested
Stockholder, whichever is higher;
(b) (if applicable) the highest preferential amount per
share which the holders of shares of such class of
Voting Stock are entitled to receive from the
Corporation in the event of any voluntary or
involuntary liquidation, dissolution or winding up of
the Corporation;
(c) (if applicable) the highest Fair Market Value per share
of such class of Voting Stock on any date during the
one year period prior to and including the Announcement
Date; and
(d) (if applicable) the price per share equal to the
product of (i) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on
the Determination Date, whichever is higher, and (ii) a
fraction, (x) the numerator of which is the highest per
share price (including any brokerage commission,
transfer taxes and soliciting dealers fees paid by the
Interested Stockholder for any shares of such class of
Voting Stock acquired by it within the two year period
immediately prior to and including the Announcement
Date, and (y) the denominator of which is the Fair
Market Value per share of such class of Voting Stock on
the first day in such two year period upon which the
Interested Stockholder acquired any shares of such
class of Voting Stock.
<PAGE>
(3) The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be in cash or in the
same form as the Interested Stockholder has previously paid for shares
of such class of Voting Stock. If the Interested Stockholder has paid
for shares of any class of Voting Stock with varying forms of
consideration, the form of consideration for such class of Voting Stock
shall be either cash or the form used to acquire the largest number of
such class of Voting Stock previously acquired by such Interested
Stockholder.
(4) After becoming an Interested Stockholder and prior to the
consummation of any such Business Combination: (a) there shall have
been (i) no failure to declare and pay at regular dates therefor the
full amount of any dividends (whether or not cumulative) payable on the
Common Stock and any other class or series of stock entitled to
dividends; (ii) no reduction in the annual rate of dividends paid on
the Common Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the Continuing
Directors; and (iii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual rate is
approved by a majority of the Continuing Directors; and (b) such
Interested Stockholder shall not have become the beneficial owner of
any additional shares of Voting Stock except as part of the transaction
which results in such Interested Stockholder's becoming an Interested
Stockholder.
(5) After becoming an Interested Stockholder, such Interested
Stockholder shall not have received the benefit, directly or indirectly
except proportionately as a stockholder, of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or
other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise, unless such transaction shall have been approved or ratified
by a majority of the Continuing Directors after such person shall have
become an Interested Stockholder.
(6) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the
rules and regulations of the Securities and Exchange Commission (the
"SEC"), or any successor agency thereto, thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
stockholders of the Corporation at least 20 days prior to consummation
of such Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions).
SECTION 3. Certain Definitions.
A. A "person" shall mean an individual, a Group Acting in Concert, a
corporation, a partnership, an association, a joint stock company, a trust, a
business trust, a government or political subdivision, any unincorporated
organization and any similar association or entity.
<PAGE>
B. "Interested Stockholder" shall mean any person (other than any
Employee Stock Ownership Plan established by the Board of Directors, the
Corporation or any Subsidiary thereof formed at the direction of the
Corporation) who or which:
(1) is the beneficial owner, directly or indirectly, of ten
percent (10%) or more of the voting power of the then outstanding
shares of Voting Stock;
(2) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of ten percent (10%) or more
of the voting power of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock which were are any
time within the two-year period immediately prior to the date in
question beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933, as amended, and such
assignment of succession was not approved by a majority of the
Continuing Directors.
C. A person shall be a "beneficial owner" of any shares of "Voting
Stock":
(1) which such person or any of its Affiliates or Associates,
directly or indirectly, has or shares with respect to such Voting
Stock (a) the right to acquire or direct the acquisition of (whether
such right is exercisable immediately or only after the passage of
time or on the satisfaction of any conditions or both), pursuant to
any agreement, arrangement or understanding or upon the exercise of
any conversion rights, warrants, or options or otherwise; (b) the
right to vote, or direct the voting of, pursuant to any agreement,
arrangement or understanding or otherwise; or (c) the right to dispose
of or transfer or direct the disposition or transfer of pursuant to
any agreement, arrangement, understanding or otherwise; or
(2) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
D. For the purpose of determining whether a person is an Interested
Stockholder pursuant to paragraph B of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned by such
person through application of paragraph C of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options or otherwise.
E. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the SEC's General Rules and Regulations
under the 1934 Act.
<PAGE>
F. "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph B of this Section 3, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
G. "Continuing Director" means any member of the Board of Directors of
the Corporation (the "Board") who is not an Interested Stockholder, or an
Affiliate or an Associate of any Interested Stockholder and was a member of the
Board prior to the time that any Interested Stockholder became an Interested
Stockholder, and any successor of a Continuing Director who is not an Interested
Stockholder, or an Affiliate or an Associate of any Interested Stockholder and
is recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
H. "Fair Market Value" for the purpose of these Articles of
Organization means:
(1) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of
a share of such stock on the principal United States securities
exchange registered under the 1934 Act on which such stock is listed,
or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National
Association of Securities Dealers Automated Quotation System or a
comparable system then in use, or if not such quotations are available,
the fair market value on the date in question of a share of such stock
as determined by at least a majority of the Continuing Directors of the
Board in good faith; and
(2) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by
at least a majority of the Continuing Directors of the Board in good
faith.
I. "Group Acting in Concert" shall mean persons seeking to combine or
pool their voting or other interests in the securities of the Corporation for a
common purpose, pursuant to any contract, understanding, relationship, agreement
or other arrangement, whether written, oral or otherwise, or any "group of
persons' as defined under Section 13(d) of the 1934 Act. When persons act
together for any such purpose, their group is deemed to have acquired their
stock.
J. "Voting Stock" shall mean the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors.
K. In the event of any Business Combination in which the Corporation
survives, the phrase "other consideration to be received" as used in paragraphs
B(1) and (2) of Section 2 of this Article V shall include the shares of common
stock and/or the shares of any other class of outstanding voting stock retained
by the holders of such shares.
<PAGE>
SECTION 4. Powers of the Board of Directors.
A majority of the Directors of the Corporation (or, if there is an
Interested Stockholder, a majority of the Continuing Directors then in office)
shall have the power to determine for the purposes of this Article V, on the
basis of information known to them after reasonable inquiry, including without
limitation, (A) whether a person is an Interested Stockholder, (B) the number of
shares of Voting Stock beneficially owned by any person, (C) whether a person is
an Affiliate or Associate of or is affiliated or associated with another, (D)
whether the requirements of Section 2 of this Article V have been met with
respect to any Business Combination, (E) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination has, an aggregate Fair Market Value of $2,500,000 or
more, and (F) any other matters of interpretation arising under this Article V
or under Section 2 of Article VI. The good faith determination of a majority of
the Directors (or, if there is an Interested Stockholder, a majority of the
Continuing Directors then in office) on such matters shall be conclusive and
binding for all purposes of this Article V and of Section 2 of Article VI.
SECTION 5. No Effect on Fiduciary Obligations of Interested
Stockholders.
Nothing contained in this Article V shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
<PAGE>
ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT D
ARTICLE VI: Other Lawful Provisions
SECTION 1. Standards for Board of Directors Evaluation of Offers. The Board
of Directors of the Corporation, when evaluating any offer of another person to
(A) make a tender or exchange offer for any equity security of the Corporation,
(B) merge or consolidate the Corporation with another institution, or acquire
all of the Voting Stock of the Corporation, or (C) purchase or otherwise acquire
all or substantially all of the properties and assets of the Corporation, shall,
in connection with the exercise of its judgment in determining what is in the
best interests of the Corporation and its stockholders, give due consideration
to all relevant factors including, without limitation, the social and economic
effects of acceptance of such offer on the Corporation's present and future
account holders, borrowers and employees; on the communities in which the
Corporation operates or is located; and on the ability of the Corporation to
fulfill the objectives of a bank holding company under applicable statutes and
regulations.
SECTION 2. Beneficial Ownership Limitation. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than ten
percent ( 10%) of the outstanding shares of any class of equity securities of
the Corporation. This limitation shall not apply (A) to any acquisition of
shares of capital stock of the Corporation which has been expressly approved in
advance by an affirmative vote of not less than two-thirds of the Continuing
Directors then in office, (B) to any offer to the Corporation made by any
underwriters selected by the Corporation in connection with a public offering by
the Corporation of the Corporation's capital stock, or (C) to any Employee Stock
Ownership Plan established by the Corporation.
For the purposes of determining the number of shares of equity securities
owned hereunder by any person, the number of shares of equity securities deemed
to be outstanding shall include shares deemed owned by such person through the
application of paragraph C of Section 3 of Article V of these Articles of
Organization but shall not include any other shares of equity securities which
may be issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options or otherwise.
In the event that any class of equity securities is acquired in violation
of this Section 2, (I) all shares of Common Stock or Preferred Stock
beneficially owned by any person in excess of ten percent ( 10%) of the total
number of outstanding shares of such class shall be considered "excess shares"
and such shares shall not be counted as shares entitled to vote, shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to the stockholders for a vote, and shall not be counted as
outstanding for purposes of determining the affirmative vote necessary to
approve any matter submitted to the stockholders for a vote, and (ii) the Board
of Directors may cause such excess shares to be transferred to an independent
trustee for sale on the open market or otherwise, with the expenses of such
trustee to be paid out of the proceeds from such sale. The term "offer" as it is
used in this Article includes every offer to buy or acquire, solicitation
<PAGE>
of an offer to sell, tender offer for or request or invitation for tender of, a
security or interest in a security for value.
SECTION 3. Directors. The Corporation shall be under the direction of a
Board of Directors. The number of Directors shall not be fewer than three (3) or
as required by law. The Board of Directors shall be divided into three classes
(Class I, Class II and Class III) as nearly equal in number as possible, with
one class to be elected annually.
The directors of the Corporation as of and from the effective date of these
Articles of Organization shall be those persons identified in Article VIII and
they shall hold office as follows: the directors initially elected to Class I
shall hold office for a term expiring at the annual meeting of stockholders to
be held in 1997, the directors initially elected to Class II shall hold office
for a term expiring at the annual meeting of stockholders to be held in 1998,
and the directors initially elected to Class III shall hold office for a term
expiring at the annual meeting of stockholders to be held in 1999, with the
members of each such class to hold office until their respective successors are
duly elected and qualified. At each annual meeting, or special meeting in lieu
thereof, of stockholders of the Corporation, the successors to the class of
directors whose term expires at the meeting shall be elected by a plurality vote
of all votes cast at such meeting to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election and until their respective successors are elected and qualified.
Any Director (including persons elected by Directors to fill vacancies in
the Board of Directors) may be removed from office only for Cause (as
hereinafter defined), by an affirmative vote of not less than (i) the holders of
two-thirds of the total votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders called expressly for such purpose, or (ii)
two-thirds of the members of the Board of Directors then in office, unless at
the time of such removal there shall be an Interested Stockholder, in which case
the affirmative vote of not less than two-thirds of the Continuing Directors
then in office shall also be required for removal by vote of the Board of
Directors. At least thirty days prior to such meeting of stockholders, written
notice shall be sent to the Director whose removal will be considered at the
meeting.
For purposes of this Section 3, "Cause" shall be defined as (i) conviction
of a felony; (ii) acceptance of immunity to testify where another has been so
convicted; (iii) a court determination of liability for negligence or misconduct
in the performance of directorial duties in an important matter; or (iv) a
determination or direction by such governmental agency or authority as may
exercise proper jurisdiction that an individual should not be a Director.
SECTION 4. Indemnification of Directors. The Corporation shall indemnify any
person who was or is a party to any threatened, pending or completed action,
suit or proceeding (other than actions based upon a violation of the duty of
loyalty), whether civil, criminal, derivative, administrative or investigative
by reason of the fact that the person is or was a Director, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him if he acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Corporation. The termination of any action, suit or proceeding by judgment,
order or settlement shall not, of itself, create a presumption that the person
did not act in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Corporation. The provisions of this Section
4 shall not limit any other rights of
<PAGE>
indemnification from the Corporation that a person may be entitled to by law or
the By-laws of the Corporation.
SECTION 5. Transactions with Interested Persons.
5.1. Unless entered into in bad faith, no contract or transaction by the
Corporation shall be void, voidable or in any way affected by reason of the fact
that it is with an Interested Person.
5.2. For the purposes of this Section 5, "Interested Person" means any
person or organization in any way interested in the Corporation whether as a
director, officer, stockholder, employee or otherwise, and any other entity in
which any such person or organization of the Corporation is in any way
interested.
5.3. Unless such contract or transaction was entered into in bad faith, no
Interested Person, because of such interest, shall be liable to the Corporation
or to any other person or organization for any loss or expense incurred by
reason of such contract or transaction or shall be accountable for any gain or
profit realized from such contract or transaction.
5.4. The provisions of this Section 5 shall be operative notwithstanding
the fact that the presence of an Interested Person was necessary to constitute a
quorum at a meeting of Directors or stockholders of the Corporation at which
such contract or transaction was authorized or that the vote of an Interested
Person was necessary for the authorization of such contract or transaction.
SECTION 6. Acting as a Partner. The Corporation may be a partner in any
business enterprise which it would have power to conduct by itself.
SECTION 7. Stockholders Meetings. Meetings of stockholders may be held at
such place in the Commonwealth of Massachusetts or, if permitted by applicable
law, elsewhere in the United States as the Board of Directors may determine.
SECTION 8. Notice of Stockholder Business at Annual Meeting. At an annual
meeting of stockholders, only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the Board of
Directors (unless there is an Interested Stockholder, in which case the
affirmative vote of a majority of the Continuing Directors then in office shall
also be required) or (b) by any stockholder of the Corporation who complies with
the notice procedures set forth in this Section 8. For business to be properly
brought before an annual meeting by the stockholder, the stockholder must have
given timely notice thereof in writing to the Clerk of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than sixty days nor
more than one hundred and fifty days prior to the meeting; provided, however,
that in the event that less than seventy days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the close
of business on the tenth day following the day on which such notice of the date
of the annual meeting was mailed or such public disclosure was made must be
given. A stockholder's notice to the Clerk shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and
<PAGE>
address, as they appear on the Corporation's books, of the stockholder proposing
such business and any other stockholder known by such stockholder to be
supporting such proposal, (c) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and any other stockholder known
by such stockholder to be supporting such proposal, and (d) any financial
interest of the stockholder in such business. Notwithstanding anything in these
Articles of Organization to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
Section 8 or as provided in the By-Laws of the Corporation. The Chairman of the
Board and Chief Executive Officer at an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section 8,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before this meeting shall not be transacted.
SECTION 9. Call of Special Meetings. Special meetings of the stockholders
for any purpose or purposes may be called at any time only by the Chairman of
the Board and Chief Executive Officer, or by the affirmative vote of a majority
of the Directors then in office; provided, however, that if at the time of such
call there is an Interested Stockholder, any such call shall also require the
affirmative vote of a majority of the Continuing Directors then in office. Only
those matters set forth in the call of the special meeting may be considered or
acted upon at such special meeting, unless otherwise provided by law.
SECTION 10. Amendment of By-Laws. The By-Laws of the Corporation may be
adopted, altered, amended, changed or repealed by the Board of Directors or the
stockholders of the Corporation. Such action by the Board of Directors shall
also require the affirmative vote of at least two-thirds of the Directors then
in office at a duly constituted meeting of the Board of Directors, unless if at
the time of such action there shall be an Interested Stockholder, in which case
such action shall also require the affirmative vote of at least two-thirds of
the Continuing Directors then in office, at such a meeting. Such action by the
stockholders shall (i) first require approval by the affirmative vote of a
majority of the Board of Directors of the Corporation then in office at a duly
constituted meeting of the Board of Directors, unless at the time of such action
there shall be an Interested Stockholder, in which case such action shall also
require the affirmative vote of at least a two-thirds majority of the Continuing
Directors then in office, at such meeting, (ii) unless waived by the affirmative
vote of the Board of Directors (and if applicable, the Continuing Directors)
specified in the preceding sentence, require the submission by the stockholders
of written proposals for adopting, altering, amending, changing or repealing the
By-Laws at least sixty days prior to the meeting at which they are to be
considered, and (iii) shall further require the affirmative vote of at least
two-thirds of the total votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders called expressly for such purpose.
SECTION 11. Amendment to Articles of Organization. No amendment, addition,
alteration, change or repeal of these Articles of Organization shall be made,
unless the same is first approved by the affirmative vote of at least two-thirds
of the Board of Directors of the Corporation then in office, and thereafter
approved by the stockholders by not less than 80% of the total votes eligible to
be cast at a duly constituted meeting, or, in the case of Articles I, II and III
of these Articles of Organization, by not less than a majority of the total
votes eligible to be cast, and if, at any time within the sixty-day period
immediately preceding the meeting at which the stockholder vote is to be taken
there is an Interested Stockholder, such amendment, addition, alteration,
change, or repeal
<PAGE>
shall also require the affirmative vote of at least two-thirds of the Continuing
Directors then in office, prior to approval by the stockholders. Unless
otherwise provided by law, any amendment, addition, alteration, change or repeal
so acted upon shall be effective on the date it is filed with the Secretary of
State of the Commonwealth of Massachusetts or on such other date as specified in
such amendment, addition, alteration, change or repeal or as the Secretary of
State may specify.
SECTION 12. Director's Liability. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of such director's fiduciary duty as a director of the
Corporation, notwithstanding any provision of law imposing such liability;
provided, however, that, to the extent required by applicable law, this
provision shall not eliminate the liability of a director of the Corporation (i)
for any breach of such director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law (iii) under provisions of
the Massachusetts General Laws imposing liabilities on directors in respect of
distributions to the stockholders of the Corporation or loans to officers or
directors of the Corporation, or (iv) any transaction from which such director
derived any improper personal benefit. This provision shall not eliminate the
liability of a director for any act or omission occurring prior to the date upon
which this provision becomes effective. No amendment to or repeal of this
provision shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to the date of such amendment or
repeal.
<PAGE>
ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT E
ARTICLE VIII: List of Directors
<TABLE>
<CAPTION>
Name Residential Address Post Office Address
<S> <C> <C>
Kenneth S. Ansin 5 Wyman Road Enterprise Bancorp, Inc.
West Townsend, MA 01474 222 Merrimack Street
Lowell, MA 01852
Walter L. Armstrong 50 Marshall Avenue Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
Gerald G. Bousquet, M.D. 1 New Towne Way Enterprise Bancorp, Inc.
Chelmsford, MA 01824 222 Merrimack Street
Lowell, MA 01852
Kathleen M. Bradley 17 Bradley Lane Enterprise Bancorp, Inc.
Westford, MA 01886 222 Merrimack Street
Lowell, MA 01852
James F. Conway, III 23 Stonybrook Circle Enterprise Bancorp, Inc.
Andover, MA 01810 222 Merrimack Street
Lowell, MA 01852
Nancy L. Donahue 52 Belmont Avenue Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
George L. Duncan 710 Andover Street Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
<PAGE>
Eric W. Hanson 3 Boardwalk Enterprise Bancorp, Inc.
Chelmsford, MA 01824 222 Merrimack Street
Lowell, MA 01852
John P. Harrington 53 Trull Lane Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
Arnold S. Lerner 155 Pine Hill Road Enterprise Bancorp, Inc.
Hollis, NH 03049 222 Merrimack Street
Lowell, MA 01852
Richard W. Main 1 Overlook Drive Enterprise Bancorp, Inc.
Chelmsford, MA 01824 222 Merrimack Street
Lowell, MA 01852
Charles P. Sarantos 132 Lincoln Parkway Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
Michael A. Spinelli 6 Lakewood Road Enterprise Bancorp, Inc.
Windham, NH 03087 222 Merrimack Street
Lowell, MA 01852
</TABLE>
<PAGE>
[FORM OF ARTICLES OF AMENDMENT
TO BE FILED PRIOR TO REORGANIZATION]
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
We Richard W. Main, President and Arnold S. Lerner, Clerk of Enterprise Bancorp,
Inc. located at 222 Merrimack Street, Lowell, Massachusetts 01852, do hereby
certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: 3 of the
Articles of Organization were duly adopted at a meeting held on __________ 1996,
by vote of: the sole incorporator in accordance with the rights and powers
accorded thereto under Ch. 156B M.G.L. ss.44.
<PAGE>
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fillin the
following:
The total presently authorized is:
WITHOUT PAR VALUE WITH PAR VALUE
- ------------------------------ ------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---- ---------------- ---- ---------------- ---------
Common: Common: 500,000 $.01
Preferred: Preferred: 100,000 $.01
CHANGE the total authorized to:
WITHOUT PAR VALUE WITH PAR VALUE
- ------------------------------ ------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---- ---------------- ---- ---------------- ---------
Common: Common: 5,000,000 $.01
Preferred: Preferred: 1,000,000 $.01
<PAGE>
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. LATER EFFECTIVE DATE:
________________________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this day of , in the year 1996.
____________________________________________________________ President
Richard W. Main
_____________________________________________________________ Clerk
Arnold S. Lerner
<PAGE>
The Commonwealth of Massachusetts
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and, the filing fee in the
amount of $____________ having been paid, said articles are deemed to have been
filed with me this ________ day of _______________ , 19 __.
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO: Stephen J. Coukos, Esq.
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2912
BY-LAWS
of
ENTERPRISE BANCORP, INC.
ARTICLE I
ORGANIZATION
The name of this Corporation is "Enterprise Bancorp, Inc.". The main
office of the Corporation shall be located in Lowell, Massachusetts and may be
changed from time to time by the Directors of the Corporation. Other Offices
hereafter established shall be located and operated in accordance with law. The
Corporation shall have and may exercise all powers and authority, express and
implied, available to it under applicable law.
ARTICLE II
STOCKHOLDERS
SECTION l. Annual Meeting. The annual meeting of shareholders shall be held
on the first Tuesday in May at 4:00 p.m. at the main office of the Corporation
in Massachusetts, unless a different hour, date or place within Massachusetts
(or elsewhere in the United States) is fixed by the Board of Directors or the
Chairman of the Board and Chief Executive Officer. If no annual meeting has been
held on the date fixed as above provided, a special meeting in lieu thereof may
be held, and such special meeting shall be treated for all purposes as an annual
meeting.
SECTION 2. Stockholder Notice of Matters to be considered at Annual
Meeting. If the Board of Directors, or a designated committee thereof,
determines that the information provided in a stockholder's notice, given
pursuant to the requirements of Section 8 of Article VI of the Articles of
Organization, does not satisfy the informational requirements of said Section 8
of Article VI in any material respect, the Clerk of the Corporation shall
promptly notify such stockholder of the deficiency in the notice. The
stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Clerk within such period of time, not to exceed
five days from the date such deficiency notice is mailed to the stockholder, as
the Board of Directors or such committee shall reasonably determine. If the
deficiency is not cured within such period, or if the Board of Directors or such
committee determines that the additional information provided by the
stockholder, together with information previously provided, does not satisfy the
requirements of Section 8 of Article IV in any material respect, then the Board
of Directors may reject such stockholder's proposal. The Clerk of the
Corporation shall notify a stockholder in writing whether his proposal has been
made in accordance with the time and informational requirements of Section 8 of
Article VI. Notwithstanding the procedure set forth in this paragraph, if
neither the Board of Directors nor such committee makes a determination as to
the validity of any stockholder proposal, the Chairman shall
<PAGE>
determine and declare at the annual meeting whether the stockholder proposal was
made in accordance with the terms of Section 8 of Article VI of the Articles of
Organization. If the Chairman of the Board and Chief Executive Officer
determines that a stockholder proposal was made in accordance with the terms of
Section 8 of Article VI, he shall so declare at the annual meeting and ballots
shall be provided for use at the meeting with respect to any such proposal. If
the Chairman of the Board and Chief Executive Officer determines that a
stockholder proposal was not made in accordance with the terms of Section 8 of
Article VI, he shall so declare at the annual meeting and any such proposal
shall not be acted upon at the annual meeting. If there is an Interested
Stockholder, any determinations to be made by the Board of Directors or a
designated committee thereof pursuant to the provisions of this paragraph shall
also require the concurrence of a majority of the Continuing Directors then in
office.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, Directors and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed and
received as herein provided.
As used in these By-Laws, the terms "Interested Stockholder", "Affiliate"
and "Continuing Director" shall have the same respective meanings assigned to
them in the Articles of Organization, as amended from time to time. Any
determination of beneficial ownership of securities under these By-Laws shall be
made in the manner specified in the Articles of Organization, as amended from
time to time.
SECTION 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes shall be called as provided for in the Articles of
Organization.
SECTION 4. Notice of Meetings; Adjournments. A written notice of all annual
and special meetings of shareholders stating the hour, date, place and purposes
of such meetings shall be given at least eleven days before the meeting to each
stockholder entitled to vote or to each stockholder who, under the Articles of
Organization or under these By-Laws, is entitled to such notice by mailing it
addressed to such stockholder at the address of such stockholder as it appears
on the stock transfer books of the Corporation. Such notice shall be given by
the Clerk or an Assistant Clerk, by any other officer or by a person designated
either by the Clerk, an Assistant Clerk, by the person or persons calling the
meeting, or by the Board of Directors. Such notice shall be deemed to be
delivered when deposited in the mail so addressed, with postage prepaid. When
any shareholders meeting, either annual or special, is adjourned for thirty days
or more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the hour, date
or place of any meeting adjourned for less than thirty days or of the business
to be transacted thereat, other than an announcement at the meeting at which
such adjournment is taken of the hour, date and place to which the meeting is
adjourned. A written waiver of notice, executed before or after a meeting by a
stockholder or by an authorized attorney of a stockholder and filed with the
records of the meeting, shall be deemed equivalent to notice of the meeting. The
Chairman of the Board and Chief Executive Officer or in his absence, the Vice
Chairman or in his absence, the President, shall preside at all stockholder
meetings and shall have the power, among other things, to adjourn such
<PAGE>
meeting at any time and from time to time, subject to Section 5 of this Article
II.
SECTION 5. Quorum. The holders of a majority in interest of all stock
issued, outstanding and entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders; but if less than a
quorum is present at a meeting, a majority in interest of the shareholders
present may adjourn the meeting from time to time, and the meeting may be held
as adjourned without further notice, except as provided in Section 4 of this
Article II. At such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 6. Voting and Proxies. Stockholders, unless otherwise provided by
law, shall have such voting rights as are provided in the Articles of
Organization. Stockholders may vote either in person or by written proxy dated
not more than six months before the meeting named therein. Proxies shall be
filed with the clerk of the meeting, or of any adjournment thereof, before being
voted. Except as otherwise limited therein, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting, but they shall
not be valid after final adjournment of such meeting. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by or
on behalf of any one of them unless at or prior to the exercise of the proxy the
Corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger.
SECTION 7. Action at Meeting. When a quorum is present, any matter properly
before the meeting shall be decided by a vote of the holders of a majority of
the shares of stock present and voting on such matter, except where a larger
vote is required by law, by the Articles of Organization or by these By-Laws.
Any election by shareholders shall be determined by a plurality of the votes
cast, except where a larger vote is required by law, by the Articles of
Organization or by these ByLaws. No ballot shall be required for elections
provided, however, that any stockholder personally present at a meeting may
request a ballot to register the vote of such stockholder.
SECTION 8. No Stockholder Action by Written Consent. Subject to the rights
of the holders of any series of preferred stock as set forth in the Articles of
Organization to elect additional directors under specific circumstances or to
consent to specific actions taken by the Corporation, any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
an annual or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders.
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. Powers. The business and affairs of the Corporation shall be
managed by a Board of Directors who may exercise all the powers and authority of
the Corporation except as otherwise provided by law, by the Articles of
Organization or by these By-Laws.
SECTION 2. Composition and Term. The Board of Directors shall be composed
of: (a) those persons designated in the Articles of Organization of the
Corporation, such persons to serve as Directors until the respective expiration
dates of their terms as set forth therein and until their successors are elected
and qualified; and (b) such other persons who may be elected as Directors from
time to time as provided herein. Subject to the rights of the holders of any
series of preferred stock as set forth in the Articles of Organization to elect
Directors under specified circumstances, the number of Directors shall be fixed
from time to time exclusively pursuant to a resolution adopted by a majority of
the Board of Directors (provided that if at any time of such action there is an
Interested Stockholder, a majority vote of the Continuing Directors then in
office shall also be required), but shall consist of not fewer than three
individuals . The Board of Directors shall be divided into three classes, such
classes to be as nearly equal in number as practicable. One of such classes of
Directors shall be elected annually by the shareholders. Except as otherwise
provided in accordance with these By-Laws, the members of each class shall be
elected for a term of three years and until their successors are elected and
qualified. The staggered terms of office of the three classes of Directors will
result in only approximately one-third of the Directors being elected each year.
SECTION 3. Director Nominations. Nominations of candidates for election as
Directors at any annual meeting of shareholders may be made (a) by, or at the
direction of, a majority of the Board of Directors (unless there is an
Interested Stockholder, in which case the affirmative vote of a majority of the
Continuing Directors shall also be required); (b) by or at the direction of the
Chairman of the Board and Chief Executive Officer; or (c) by any stockholder
entitled to vote at such annual meeting. Only persons nominated in accordance
with the procedures set forth in this Section 3 shall be eligible for election
as Directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors (or by the Continuing Directors, if required) or by the Chairman of
the Board and Chief Executive Officer, shall be made pursuant to timely notice
in writing to the Clerk of the Corporation as set forth in this Section 3. To be
timely, a stockholder's notice shall be delivered to, or mailed and received at,
the principal executive offices of the Corporation not less than sixty days nor
more than one hundred and fifty days prior to the date of the scheduled annual
meeting, regardless of postponements, deferrals or adjournments of that meeting
to a later date; provided, however, that if less than seventy days notice or
prior public disclosure of the date of the scheduled annual meeting is given or
made, notice by the stockholder to be timely must be so delivered or received
not later than the close of business on the tenth day following the earlier of
the day on which such notice of the date of the scheduled annual meeting was
mailed or the day on which such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election
<PAGE>
or re-election as a Director and as to the stockholder giving the notice (i) the
name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the Corporation's capital stock which are beneficially owned by such
person on the date of such stockholder notice, and (iv) any other information
relating to such person that is required to be disclosed in solicitations of
proxies with respect to nominees for election as Directors, pursuant to
regulations promulgated by the Securities and Exchange Commission ("SEC"), or
any successor agency thereto, under the Securities Exchange Act of 1934, as
amended, including, but not limited to, such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected; and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such stockholder and any
other shareholders known by such stockholder to be supporting such nominees and
(ii) the class and number of shares of the Corporation's capital stock which are
beneficially owned by such stockholder on the date of such stockholder notice
and by any other shareholders known by such stockholder to be supporting such
nominees on the date of such stockholder notice. At the request of the Board of
Directors, any person nominated by, or at the direction of, the Board of
Directors for election as a Director at an annual meeting shall furnish to the
Clerk of the Corporation that information required to be set forth in the
stockholder's notice of nomination which pertains to the nominee.
Notwithstanding the foregoing, the Board of Directors shall have the right to
conduct a due diligence investigation relating to the qualifications of any
nominee proposed for election to Board of Directors, the relationship of that
nominee to the stockholder and any relationship such person may have with any
entity other than the Corporation (i) in which such person holds an equity
interest of 2% or more; (ii) from whom such person has any indemnification or
other agreement with respect to the actions such person will take as a Director
of the Corporation; (iii) at whose instance such person has agreed to be a
nominee for election as a Director of the Corporation (a "Related Entity"), and
to require an undertaking by such person that if elected as a Director of the
Corporation, such person will abstain from voting on any matter in which any
entity described in subsections has a direct, material, pecuniary interest.
No person shall be elected as a Director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 3. Ballots
bearing the names of all the persons who have been nominated for election as
Directors at an annual meeting in accordance with the procedures set forth in
this Section 3 shall be provided for use at the annual meeting.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Section 3. If the Board
of Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Section 3 in any material respect, the Clerk of the
Corporation shall promptly notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Clerk within such period of time, not to
exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee reasonably determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Section 3 in any material
respect, then
<PAGE>
the Board of Directors may reject such stockholder's nomination. The Clerk of
the Corporation shall notify a stockholder in writing whether his nomination has
been made in accordance with the time and informational requirements of this
Section 3. Notwithstanding the procedure set forth in this paragraph, if neither
the Board of Directors nor such committee makes a determination as to the
validity of any nominations by a stockholder, the presiding officer of the
annual meeting shall determine and declare at the annual meeting whether a
nomination was made in accordance with the terms of this Section 3. If the
presiding officer determines that a nomination was made in accordance with the
terms of this Section 3, he shall so declare at the annual meeting and ballots
shall be provided for use at the meeting with respect to such nominee. If the
presiding officer determines that a nomination was not made in accordance with
the terms of this Section 3, he shall so declare at the annual meeting and such
nomination shall be disregarded. If there is an Interested Stockholder, any
determinations to be made by the Board of Directors or a designated committee
thereof pursuant to the provisions of this paragraph shall also require the
concurrence of a majority of the Continuing Directors then in office.
SECTION 4. Qualification. Each Director shall have such qualifications as
are required by applicable law. To the extent required by law, each Director,
when appointed or elected, shall take an oath that he will faithfully perform
the duties of his office. Any such oath shall be taken before a notary public or
justice of the peace, who is not an officer of the Corporation, and a record of
such oath shall be made a part of the records of the Corporation. Each Director
shall be a citizen and a resident of the Commonwealth of Massachusetts or the
State of New Hampshire. Three-fourths of the Board of Directors shall be
citizens and residents of the Commonwealth of Massachusetts.
SECTION 5. Resignation. Any Director may resign at any time by written
notice to the Chairman of the Board and Chief Executive Officer or the Board of
Directors. A resignation shall be effective when accepted by the Board of
Directors.
SECTION 6. Removal. Any Director may be removed from office as provided in
the Articles of Organization.
SECTION 7. Vacancies. Any vacancy occurring on the Board of Directors as a
result of resignation, removal, death or increase in the authorized number of
Directors may be filled by vote of a majority of the remaining Directors (unless
there is an Interested Stockholder, in which case the affirmative vote of a
majority of the Continuing Directors shall also be required). A Director elected
to fill such a vacancy shall be elected to serve for the remainder of the full
term of the class of Directors in which the vacancy occurred or the new
directorship was created and until such director's successor has been elected
and qualified.
SECTION 8. Compensation. The members of the Board of Directors and the
members of either standing or special committees shall receive such compensation
as the Board of Directors may determine. Directors who are also employees of the
Corporation shall not receive compensation for serving on the Board of
Directors.
SECTION 9. Regular Meetings. A regular meeting of the Board of Directors
shall be held
<PAGE>
without other notice than this By-Law on the same date and at the same place as
the annual meeting of shareholders following such meeting of shareholders. The
Board of Directors may provide the hour, date and place for the holding of
regular meetings by resolution without other notice than such resolution. The
Board of Directors shall meet at least once in each calendar month at a place or
places fixed from time to time by the Board of Directors or the Chairman of the
Board, if one is elected.
SECTION 10. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board or if there is
an Interested Stockholder, a majority of the Continuing Directors, or else by a
majority of the Directors. The person or persons authorized to call special
meetings of the Board of Directors may fix the hour, date and place for holding
a special meeting.
SECTION 11. Notice of Special Meetings. Notice of the hour, date and place
of all special meetings of the Board of Directors shall be given to each
Director by the Clerk or an Assistant Clerk, or in the case of the death,
absence, incapacity or refusal of such persons, by the officer or one of the
Directors calling the meeting. Notice of any special meeting of the Board of
Directors shall be given to each Director in person, by telephone, sent to his
business or home address by telegram at least twenty-four hours in advance of
the meeting or by written notice mailed to his business or home address at least
5 days in advance of such meeting. Such notice shall be deemed to be delivered
when deposited in the mail so addressed, with postage thereon prepaid if mailed,
or when delivered to the telegraph company if sent by telegram. When any Board
of Directors meeting, either regular or special, is adjourned for thirty days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the hour, date
or place of any meeting adjourned for less than thirty days or of the business
to be transacted thereat, other than an announcement at the meeting at which
such adjournment is taken of the hour, date and place to which the meeting is
adjourned. A written waiver of notice executed before or after a meeting by a
Director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting to the transaction of any
business because such meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
SECTION 12. Quorum. A majority of the number of Directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than a quorum is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section I I of this Article III. Any business which might have been
transacted at the meeting as originally noticed may be transacted at such
adjourned meeting at which a quorum is present.
SECTION 13. Action at a Meeting. The act of the majority of the Directors
present at a meeting
<PAGE>
at which a quorum is present shall be the act of the Board of Directors, unless
a greater number is prescribed by law, by the Articles of Organization or by
these By-Laws.
SECTION 14. Action by Consent. Any action required or permitted to be taken
by the Board of Directors at any meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the Directors. Such written consents shall be filed with the records of the
meetings of the Board of Directors and shall be treated for all purposes as a
vote at a meeting of the Board of Directors.
SECTION 15. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a written dissent to such action with the person
acting as the Clerk of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Clerk of the Corporation within
five days after the date a copy of the minutes of the meeting is received. Such
right to dissent shall not apply to a Director who voted in favor of such
action.
SECTION 16. Committees. The Board of Directors may, by resolution adopted
by a majority of the Board of Directors, designate one or more committees,
including without limitation an executive committee, each committee to consists
of not fewer than three members elected by the Board of Directors from among its
members. The Board of Directors may delegate to an executive committee or such
other committees some or all of its powers except those which by law, by the
Articles of Organization or by these By-Laws may not be delegated. Except as the
Board of Directors may otherwise determine, any such committee may make rules
for the conduct of its business, but unless otherwise provided by the Board of
Directors or in such rules, its business shall be conducted so far as possible
in the same manner as is provided by these By-Laws for the Board of Directors.
All members of such committees shall hold such offices at the pleasure of the
Board of Directors. The Board of Directors may abolish any such committee at any
time, subject to applicable law. Any committee to which the Board of Directors
delegates any of its powers or duties shall keep written records of its meetings
and shall report its actions to the Board of Directors. The Board of Directors
shall have power to rescind any action of any committee, but no such rescission
shall have retroactive effect.
SECTION 17. Manner of Participation. Members of the Board of Directors or
of committees elected by the Board pursuant to Section 16 of this Article III
may participate in meetings of the Board or of such committees by means of
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other. Such participation shall
constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 8 of this Article III, unless the
Board of Directors by resolution so provides.
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. Enumeration. The officers of the Corporation shall consist of a
Chairman of the Board and Chief Executive Officer, a Vice Chairman, a President,
a Treasurer, a Clerk and such other officers, including, without limitation, one
or more Executive Vice Presidents, Senior Vice Presidents, Vice-Presidents,
Assistant Vice Presidents, Assistant Treasurers and Assistant Clerks as the
Board of Directors may determine to be necessary for the management of the
Corporation.
SECTION 2. Election. All officers shall be elected by the Board of
Directors at the meeting of the Board of Directors following the annual meeting
of the shareholders.
SECTION 3. Qualification. Any two or more offices may be held by any
person. Any officer may be required by the Board of Directors to give bond for
the faithful performance of his duties in such amount and with such sureties as
the Board of Directors may determine.
SECTION 4. Tenure. All officers shall hold office until the first meeting
of the Board of Directors following the next annual meeting of shareholders, or
for such shorter terms as the Board of Directors may fix at the time such
officers are chosen. Any officer may resign at any time by written notice to the
Chairman of the Board and Chief Executive Officer or the Board of Directors.
Such resignation shall be effective upon receipt unless the resignation
otherwise provides. Election or appointment of an officer, employee or agent
shall not of itself create contract rights. The Board of Directors may, however,
authorize the Corporation to enter into an employment contract with any officer
in accordance with law, but no such contract right shall impair the right of the
Board of Directors to remove any officer at any time in accordance with Section
5 of this Article IV.
SECTION 5. Removal. The Board of Directors may remove any officer with or
without cause by a vote of a majority of the entire number of Directors then in
office; provided, however, that if at the time of such action there is an
Interested Stockholder, such action shall in addition require a majority vote of
the Continuing Directors then in office; and further provided, that such
removal, other than for cause, shall be without prejudice to the contract
rights, if any, of the persons involved.
SECTION 6. Absence or Disability. In the event of the absence or disability
of any officer, the Board of Directors may designate another officer to act
temporarily in place of such absent or disabled officer.
SECTION 7. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 8. Chairman of the Board and Chief Executive Officer. The Chairman
of the Board and Chief Executive Officer shall, subject to the direction of the
Board of Directors, have general supervision and control of the Corporation's
business and shall preside, when present, at all meetings
<PAGE>
of the shareholders. The Chairman of the Board and Chief Executive Officer shall
preside at all meetings of the Board of Directors.
SECTION 9. Vice Chairman. If the Chairman of the Board and Chief Executive
Officer is absent, the Vice Chairman shall preside at all meetings of the Board
of Directors.
SECTION 10. The President. The President shall preside at all meetings of
the Board of Directors if the Chairman of the Board and Chief Executive Officer
and the Vice Chairman are absent. The President shall also have such powers and
perform such duties as the Chairman of the Board and Chief Executive Officer may
from time to time designate.
SECTION 11. Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Treasurer and Other Officers. Any Executive Vice President, any
Senior Vice President, any Vice President, the Treasurer and any other Officers
whose powers and duties are not otherwise specifically provided for herein shall
have such powers and shall perform such duties as the Chairman of the Board and
Chief Executive Officer may from time to time designate.
SECTION 12. Clerk and Assistant Clerks. The Clerk or, in the absence of the
Clerk, any Assistant Clerk (if one or more is elected by the shareholders or the
Board of Directors) shall keep a record of the meetings of shareholders and a
record of the meetings of the Board of Directors. Otherwise a Temporary Clerk
designated by the person presiding at the meeting shall perform the Clerk's
duties.
ARTICLE V
CAPITAL STOCK
SECTION 1. Certificates of Stock. Unless otherwise provided by the Board of
Directors, each stockholder shall be entitled to a certificate of the capital
stock of the Corporation in such form as may from time to time be prescribed by
the Board of Directors. Such certificate shall be signed by the Chairman of the
Board and Chief Executive Officer or the President and by the Treasurer or an
Assistant Treasurer. Such signatures may be facsimile if the certificate is
signed by a transfer agent or by a registrar, other than a Director, officer or
employee of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the time of its
issue. Every certificate for shares of stock which are subject to any
restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
otherwise provided by the Board of Directors, shares of stock may be transferred
on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate therefore properly endorsed or
<PAGE>
accompanied by a written assignment and power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. Record Holders. Except as otherwise required by law, by the
Articles of Organization or by these By-Laws, the Corporation shall be entitled
to treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to
vote, regardless of any transfer, pledge or other disposition of such stock,
until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws. It shall be the duty of each
stockholder to notify the Corporation of his post office address.
SECTION 4. Record Date. The Board of Directors may fix in advance a time of
not more than sixty days before the date of any meeting of the shareholders as
the date for the payment of any dividend or the making of any distribution to
shareholders or the last day on which the consent or dissent of shareholders may
be effectively expressed for any purpose, as the record date for determining the
shareholders having the right to notice of and to vote at such meeting, and any
adjournment thereof, or the right to receive such dividend or distribution or
the right to give such consent or dissent. In such case, only shareholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Corporation after the record date. Without fixing
such record date, the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period. If no record date is fixed
and the transfer books are not closed, (a) the record date for determining
shareholders having the right to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, and (b) the record date for determining shareholders
for any other purpose shall be at the close of business on the date on which the
Board of Directors acts with respect thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
SECTION 6. Issuance of Capital Stock. Except as provided by law, the Board
of Directors shall have the authority to issue or reserve for issue from time to
time the whole or any part of the capital stock of the Corporation which may be
authorized from time to time, to such persons or organizations, for such
consideration, whether cash, property, services or expenses and on such terms as
the Board of Directors may determine, including, without limitation, the
granting of options, warrants or conversion or other rights to subscribe to said
capital stock.
SECTION 7. Dividends. Subject to applicable law, the Articles of
Organization and these ByLaws, the Board of Directors may from time to time
declare, and the Corporation may pay, dividends on shares of its capital stock
entitled to dividends.
<PAGE>
ARTICLE VI
INDEMNIFICATION
SECTION 1. Definitions. For purposes of this Article: (a) "Officer" means
any person who serves or has served as a Director of the Corporation or in any
other office filled by election or appointment by the shareholders or the Board
of Directors and any heirs or personal representatives of such person; (b)
"Non-Officer Employee" means any person who serves or has served as an employee
of the Corporation but who is not or was not an Officer and any heirs or
personal representatives of such person; (c) "Proceeding" means any action, suit
or proceeding, whether civil, criminal, derivative, administrative or
investigative, brought or threatened in or before any court, tribunal,
administrative or legislative body or agency and any claim which could be the
subject of a Proceeding; and (d) "Expenses" means any liability fixed by a
judgment, order, decree or award in a Proceeding, any amount reasonably paid in
settlement of a Proceeding and any professional fees or other disbursements
reasonably incurred in a Proceeding.
SECTION 2. Officers. Except as provided in Sections 4 and 5 of this Article
VI, each Officer of the Corporation shall be indemnified by the Corporation
against all Expenses incurred by such Officer in connection with any Proceedings
in which such Officer is involved as a result of serving or having served (a) as
an Officer or employee of the Corporation; (b) as a director, officer or
employee of any corporation, organization, partnership, joint venture, trust or
other entity the majority of the equity of which is owned by the Corporation; or
(c) in any capacity with any other corporation, organization, partnership, joint
venture, trust or other entity at the request or direction of the Board of
Directors.
SECTION 3. Non-Officer Employees. Except as provided in Sections 4 and 5 of
this Article VI, each Non-Officer Employee of the Corporation may, in the
discretion of the Board of Directors, be indemnified against any or all Expenses
incurred by such Non-Officer Employee in connection with any Proceeding in which
such Non-Officer Employee is involved as a result of serving or having served
(a) as a Non-Officer Employee of the Corporation; (b) as a director, officer or
employee of any corporation, organization, partnership, joint venture, trust or
other entity the majority of the equity of which is owned by the Corporation; or
(c) in any capacity with any other corporation, organization, partnership, joint
venture, trust or other entity at the request or direction of the Corporation.
SECTION 4. Service at the Request or Direction of the Board of Directors.
No indemnification shall be provided to an Officer or Non-Officer Employee with
respect to serving or having served in any of the capacities described in
Section 2(c) or 3(c) above unless the following two conditions are met: (a) such
service was requested or directed in each specific case by vote of the Board of
Directors prior to the occurrence of the event to which the indemnification
relates, and (b) the Corporation maintains insurance coverage for the type of
indemnification sought. In no event shall the Corporation be liable for
indemnification under Section 2(c) or 3(c) for any amount in excess of the
proceeds of insurance received with respect to such coverage as the Corporation
in its discretion may elect to carry. The Corporation may but shall not be
required to maintain insurance coverage with respect to indemnification under
Section 2(c) or 3(c) above. Notwithstanding any other provision
<PAGE>
of this Section 4, the Board of Directors may provide an Officer or Non-Officer
Employee with indemnification under Section 2(c) or 3(c) above as to a specific
Proceeding even if one or both of the two conditions specified in this Section 4
have not been met and even if the amount of the indemnification exceeds the
amount of the proceeds of any insurance which the Corporation may have elected
to carry, provided that the Board of Directors in its discretion determines it
to be in the best interests of the Corporation to do so.
SECTION 5. Good Faith. Notwithstanding the foregoing, no indemnification
shall be provided to an Officer or to a Non-Officer Employee with respect to a
matter as to which such person shall have been adjudicated in any Proceeding not
to have acted in good faith in the reasonable belief that the action of such
person was in or not opposed to the best interests of the Corporation. In the
event that a Proceeding is compromised or settled so as to impose any liability
or obligation upon an Officer or Non-Officer Employee, no indemnification shall
be provided to said Officer or Non- Officer Employee with respect to a matter if
there be a determination that with respect to such matter such person did not
act in good faith in the reasonable belief that the action of such person was in
or not opposed to the best interests of the Corporation. The determination shall
be made by a majority vote of those Directors who are not involved in such
Proceeding. However, if more than half of the Directors are involved in such
Proceeding, the determination shall be made by a majority vote of a committee of
three disinterested Directors chosen by the disinterested Directors at a regular
or special meeting. If there are less than three disinterested Directors, the
determination shall be based upon the opinion of the Corporation's regular
outside counsel.
SECTION 6. Prior to Final Disposition. To the extent authorized by the Board
of Directors, by the committee of Directors referred to in Section 5 of this
Article VI or by the opinion of the Corporation's regular outside counsel, any
indemnification provided for under this Article IX may include payment by the
Corporation of Expenses incurred in defending a Proceeding in advance of the
final disposition of such Proceeding upon receipt of an undertaking by the
Officer or Non-Officer Employee seeking indemnification to repay such payment if
such Officer or Non-Officer Employee shall be adjudicated or determined to be
not entitled to indemnification under this Article VI.
SECTION 7. Insurance. The Corporation may purchase and maintain insurance
to protect itself and any Officer or Non-Officer Employee against any liability
of any character asserted against or incurred by the Corporation or any such
Officer or Non-Officer Employee, or arising out of any such status, whether or
not the Corporation would have the power to indemnify such person against such
liability by law or under the provisions of this Article VI.
SECTION 8. Other Indemnification Rights. Nothing in this Article VI shall
limit any lawful rights to indemnification existing independently of this
Article VI.
SECTION 9. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article VI with respect to any Proceeding arising out of
or relating to any actions, transactions or facts occurring at or prior to the
date of such merger or consolidation.
<PAGE>
SECTION 10. Savings Clause. If this Article VI or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and advance expenses to each indemnitee
as to any expenses (including reasonable attorneys' fees), judgments, fines,
liabilities, losses, and amounts paid in settlement in connection with any
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including an action by or in the right of the Corporation, to
the fullest extent permitted by any applicable portion of this Article VI that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
SECTION 11. Subsequent Legislation. If the Massachusetts General Laws are
amended after adoption of this Article VI to expand further the indemnification
permitted to an indemnitee, then the Corporation shall indemnify all such
persons to the fullest extent permitted by the Massachusetts General Laws, as so
amended.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 1. Amendment of By-Laws. These By-Laws may be adopted, altered,
amended, changed or repealed as provided in the Articles of Organization.
SECTION 2. Fiscal Year. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall be the twelve months ending
December 31 or on such other date as may be required by law.
SECTION 3. Seal. The Board of Directors shall have power to adopt and alter
the seal of the Corporation.
SECTION 4. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Board of Directors'
action may be executed on behalf of the Corporation by the Chairman of the Board
and Chief Executive Officer, the President, the Treasurer or any other officer,
employee or agent of the Corporation as the Board of Directors or the Executive
Committee may authorize.
SECTION 5. Voting of Securities. Unless otherwise provided by the Board of
Directors, the Chairman of the Board and Chief Executive Officer, the President
or the Treasurer may waive notice of and act on behalf of the Corporation, or
appoint another person or persons to act as proxy or attorney in fact for the
Corporation with or without discretionary power and/or power of substitution, at
any meeting of shareholders of any other organization, any of whose securities
are held by the Corporation. Any person or persons authorized or otherwise
designated in the manner provided herein shall have full right, power and
authority to vote any shares of stock issued by another corporation in the name
of the Corporation.
<PAGE>
SECTION 6. Articles of Organization. All references in these By-Laws to the
Articles of Organization shall be deemed to refer to the Articles of
Organization of the Corporation, as may be amended and/or restated and otherwise
in effect from time to time.
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
------------------------------------
FORM F-2
ANNUAL REPORT UNDER SECTION 13 OF
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year FDIC Certificate
ended December 31, 1995 Number: 27408
------------------------------------
ENTERPRISE BANK AND TRUST COMPANY
(Exact name of bank as specified in its charter)
Massachusetts 04-2993547
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
222 Merrimack Street 01852
Lowell, MA (Zip Code)
(address of principal
executive offices)
(508) 459-9000
(Bank's telephone number, including area code)
------------------------------------
Securities registered under Section 12 (b) of the Act: None
Securities registered under Section 12 (g) of the Act:
Common Stock, $1.00 par value
(Title of Class)
------------------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to
item 10 is not contained herein and will not be contained, to the best of the
bank's knowledge, in definitive proxy or information statements incorporated by
reference in part III of this Form F-2 or any amendment of this Form F-2 [X]
Indicate by check mark whether the bank (1) has filed all reports
required to be filed by Section 12 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the bank was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
1
<PAGE>
There is no active trading market for the bank's Common Stock. Although
there have been some private trades of the bank's Common Stock, the bank cannot
state with absolute certainty the sales price at which all such transactions
occurred. The bank believes the most recent sales of stock have been at prices
of $13.00 - $14.00 per share. Based on a value of $13.50 per share, the
aggregate market value on December 31, 1995, of the bank's Common Stock was
$21,274,542.
The number of shares outstanding of the bank's Common Stock (the
"Common Stock") as of March 1, 1996, was 1,575,892.
Exhibits begin on Page 14
DOCUMENTS INCORPORATED BY REFERENCE
Certain information called for by Parts I and II (Items 1, 4, 5, 6, 7,
8, 9 and 10) of this form is incorporated by reference from the bank's Annual
Report to Stockholders for the year ended December 31, 1995 (the "Annual
Report").
CAUTIONARY STATEMENT FOR PURPOSES OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The bank desires to take advantage of the new "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. This Report contains
certain "forward-looking statements" including statements concerning plans,
objectives, future events or performance and assumptions and other statements
which are other than statements of historical fact. The bank wishes to caution
readers that the following important factors, among others, may have affected
and could in the future affect the bank's actual results and could cause the
bank's actual results for subsequent periods to differ materially from those
expressed in any forward-looking statement made by or on behalf of the bank
herein: (i) the effect of changes in laws and regulations, including federal and
state banking laws and regulations, with which the bank must comply, the cost of
such compliance and the potentially material adverse effects if the bank were
not in substantial compliance either currently or in the future as applicable;
(ii) the effect of changes in accounting policies and practices, as may be
adopted by the regulatory agencies as well as by the Financial Accounting
Standards Board, or of changes in the bank's organization, compensation and
benefit plans; (iii) the effect on the bank's competitive position within its
market area of increasing consolidation within the banking industry and
increasing competition from larger regional and out-of-state banking
organizations as well as nonbank providers of various financial services; (iv)
the effect of unforeseen changes in interest rates; and (v) the effect of
changes in the business cycle and downturns in the local, regional or national
economies.
PART I
ITEM 1. BUSINESS
Partial response to this item is incorporated herein by reference from
the section entitled "Financial Review" as well as the notes to consolidated
financial statements of the bank's Annual Report.
2
<PAGE>
Competition
The bank faces strong competition to attract deposits and to generate
loans. Several major commercial banks are headquartered in neighboring Boston,
and numerous other commercial banks, savings banks, cooperative banks and
savings and loan associations have one or more offices in the City of Lowell or
its surrounding communities and in the Leominster and Fitchburg, Massachusetts,
area. The major commercial banks have several competitive advantages over the
bank, including the ability to make larger loans to a single borrower than is
possible for the bank. The greater financial resources of these banks also
allows them to offer a broad range of automated banking services, to maintain
numerous branch offices and to mount extensive advertising and promotional
campaigns. Competition for loans and deposits also comes from other businesses
which provide financial services, including consumer finance companies, credit
unions, factors, mortgage brokers, insurance companies, securities brokerage
firms, money market mutual funds and private lenders.
As a general matter, banking regulations continue to undergo
significant changes, including changes in the products and services banks are
permitted to offer, the nature and degree of involvement in non-banking
activities directly or indirectly by bank holding companies and other
contemplated legislative and regulatory proposals that could, if adopted, alter
the structure, regulation and competitive relationships of financial
institutions. To the extent that changes in banking regulation may further
increase competition, any such changes could result in the bank paying increased
interest rates to obtain deposits while receiving lower interest rates on its
loans. Under such circumstances, the bank's net interest margin would decline.
In addition, any increase in the extent of regulation imposed upon the banking
industry generally could result in the bank incurring additional operating costs
which could impede profitability.
Notwithstanding the substantial competition with which the bank is
faced, the bank believes that it has established a market niche in Greater
Lowell and the Leominster/Fitchburg area which has been enhanced in recent years
by the acquisition of independent banks by major bank holding companies, and the
resultant consolidation of banking operations and services.
Patents, Trademarks, etc.
The bank holds no patents, registered trademarks, licenses (other than
licenses required to be obtained from appropriate banking regulatory agencies),
franchises or concessions.
Employees
As of December 31, 1995, the bank employed 96 persons (90 full-time and
6 part-time), including 10 principal officers and a total of 29 other officers.
None of the bank's employees are presently represented by a union or covered by
a collective bargaining agreement. Management believes its employee relations to
be excellent.
3
<PAGE>
Seasonal Nature of the Bank's Business
Considering the results of the first seven years of operations, it is
not anticipated by management that the bank's business will be materially
affected by seasonal trends or factors.
Subsidiaries
In March, 1991, a subsidiary corporation, entitled Enterprise
Securities Corp., Inc., was formed solely for the purpose of purchasing and
selling investment securities.
Supervision and Regulations
As a trust company organized under Chapter 172 of the Massachusetts
General Laws, the deposits of which are insured by the FDIC, the bank is subject
to regulation, supervision and examination by the Massachusetts Commissioner of
Banks and the FDIC.
The regulations of these agencies govern many aspects of the bank's
business, including required reserves on deposits, permitted investments, the
opening and closing of branches, the amount of loans which can be made to a
single borrower, mergers, appointment and conduct of officers and directors,
capital levels and terms of deposits. Federal and state regulators can impose
sanctions on the bank and its management if the bank engages in unsafe or
unsound practices or otherwise fails to comply with regulatory standards.
Various other federal and state laws and regulations, such as truth-in-lending
statutes, the Equal Credit Opportunity Act, the Real Estate Settlement
Procedures Act and the Community Reinvestment Act, also govern the bank's
activities.
Under Massachusetts law, the bank's board of directors is generally
empowered to pay dividends on the bank's capital stock out of its net profits to
the extent that the board of directors considers such payment advisable.
Massachusetts law also imposes various specific restrictions upon the payment of
dividends, including the requirement that, absent certain exceptions on the day
a dividend is declared, a bank's capital and surplus must equal at least 10% of
its deposit liability or a sufficient amount be transferred from net profits to
surplus prior to payment of such dividend. The Federal Deposit Insurance Act
also prohibits a bank from paying any dividends on its capital stock in the
event that the bank is in default on the payment of any assessment to the FDIC.
At the April 21, 1992, meeting of the board of directors, the first
annual dividend of $.10 per share was declared. The record date was June 15,
1992, and the dividend was paid July 1, 1992. At the April 20, 1993, meeting of
the board of directors, a dividend of $.20 per share was declared. The record
date was June 15, 1993, and the dividend was paid July 1, 1993. At the April 19,
1994, meeting of the board of directors, a $.25 per share was declared. The
record date was June 15, 1994, and the dividend was paid July 1, 1994. At the
April, 1995, meeting of the board of directors, a dividend of $.275 per share
was declared. The record date was June 15, 1995, and the dividend was paid July
1, 1995. The payment of future dividends will be considered on an annual basis
by the board of directors.
4
<PAGE>
The laws and regulations governing the banking industry and the
competition between banks and non-bank financial services institutions continue
to be the subject of ongoing political debate as evidenced on the federal level.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
included significant legislative and regulatory requirements for banks. On
December 19, 1991, the FDIC Improvement Act of 1991 (FDICIA) was signed into
law. The act mandates specific types of regulatory supervision based on capital
levels, contains numerous provisions increasing regulatory scrutiny and provides
for various accounting, auditing and reporting provisions. For further
discussion, see "Regulatory Legislation" at page 28 of the bank's Annual Report.
No prediction can be made as to what effect, if any, such legislation might have
on the bank's business.
Monetary and fiscal policies of the United States Government and its
instrumentalities, including the Board of Governors of the Federal Reserve
System, can also significantly influence the level and type of the bank's loans,
investments, and deposits. As inflation and employment rates respond to monetary
and fiscal stimuli, the business of the bank is affected.
For further information, see Note 9 of Notes to Consolidated Financial
Statements at page 36 and "Financial Review" at the section titled "Financial
Condition, Interest Rate Risk, Liquidity and Capital Resources" at pages 22 to
23 of the bank's Annual Report.
ITEM 2. PROPERTIES
Partial response to this item is incorporated herein by reference from
note 13 contained at page 49 of the bank's annual report.
The bank's main office is in a building located at 222 Merrimack
Street, Lowell, Massachusetts. The building provides approximately 12,415 square
feet of interior space and has private customer parking along with off-street
parking facilities. The bank leases its main office from First Holding Trust.
George L. Duncan, the chairman and chief executive officer, is a general partner
of Old City Hall Limited Partnership (which is, in turn, the beneficiary of
First Holding Trust). Walter L. Armstrong, John P. Clancy, Jr., Robert R. Gilman
and Richard W. Main, all principal officers of the bank, are limited partners of
Old City Hall Limited Partnership. Mr. Duncan has 17% ownership interest, and
each of the Messrs. Armstrong, Clancy, Gilman and Main have a 5% ownership
interest in Old City Hall Limited Partnership. The directors believe that the
lease terms are substantially the same as those prevailing for comparable
transactions entered into with unrelated parties.
The bank also leases space at 170 Merrimack Street, Lowell,
Massachusetts. The building provides approximately 1,458 square feet of interior
space and houses two departments of the bank. The bank leases the space from
Merrimack Realty Trust. George L. Duncan, Richard W. Main, Walter L. Armstrong,
Robert R. Gilman, and Daniel G. Leahy, all officers of the bank, are limited
partners of Merrimack Realty Trust. Michael A. Spinelli, Arnold S. Lerner, and
Gerald G. Bousquet, all directors of the bank, are also limited partners of
Merrimack Realty Trust. Mr. Duncan has a 23% ownership interest; Messrs.
Spinelli, Lerner,
5
<PAGE>
Main and Bousquet have a 5% ownership interest; and Messrs. Armstrong, Gilman
and Leahy have a 3% ownership interest in Merrimack Realty Trust. The directors
believe that the lease terms are substantially the same as those prevailing for
comparable transactions entered into with unrelated parties. The bank also
leases space occupied by the mortgage center at 21-27 Palmer Street
(approximately 4,375 square feet) from Merrimack Realty Trust. The lease has a
term of 5 years which began May 1, 1993, and expires April 30, 1998.
In April, 1993, the bank purchased the branch building at 185 Littleton
Road, Chelmsford, Massachusetts. The first floor of the building contains
approximately 3,552 square feet of space with a full basement and a canopy area
of 945 square feet. The facility was purchased at a cost of approximately 20% of
what it would have cost to build a similar facility.
In March, 1995, the bank purchased a branch building at 674 Boston
Road, Billerica, Massachusetts. The building previously served as a bank branch
and contains approximately 3,700 square feet of above-grade space and is
constructed on a cement slab. It is handicapped accessible. The building was
purchased for approximately 40% of its replacement value.
The bank leases space at 2-6 Central Street, Leominster, Massachusetts.
The building provides approximately 3,960 square feet of interior space and has
seven private customer parking spaces. The bank leases the building from North
Central Investment Limited Partnership. The bank has the option to purchase the
premises on the last day of the basic term or at any time during any extended
term at the price of $550,000 as adjusted for increases in the producer's price
index.
ITEM 3. LEGAL PROCEEDINGS
The bank is involved in various legal proceedings incidental to its
business. After review with legal counsel, management does not believe
resolution of any present litigation will have a material effect on the
financial condition of the bank.
Various other legal claims may arise from time to time against the bank
in the course of business, none of which are expected to have a material adverse
effect on the financial condition of the bank.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS:
SECURITIES OWNERSHIP OF MANAGEMENT
Response to Item 4 is incorporated herein by reference from the bank's
proxy statement for the annual meeting of stockholders (at pages 56 and 57) to
be held on May 7, 1996.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE BANK'S COMMON STOCK & RELATED SECURITY HOLDER MATTERS
The Common Stock is not listed on any exchange. There has been a very
limited private trading market of the Common Stock since the bank commenced
operations. The bank cannot state with any certainty the sales price at which
such transactions have occurred. As of March 1, 1996, there were 1,575,892
shares of Common Stock outstanding and held of record by shareholders.
A summary of sales of the bank's stock is contained at the section
titled "Quarterly Common Stock Information", on the inside back cover of the
bank's Annual Report. The frequency and amount of dividends declared information
can be incorporated by reference herein from the bank's Annual Report to
stockholders for the year ended December 31, 1995, at page 15.
ITEM 6. SELECTED FINANCIAL DATA
Information called for by Item 6 of this form is incorporated by
reference herein from the section captioned "Selected Consolidated Financial
Data" contained at pages 13 to 14 of the bank's Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS
A portion of the information called for by Item 7 of this form is
incorporated by reference herein from the section captioned "Financial Review"
contained at pages 15 to 29 of the bank's Annual Report. The remainder of the
information is contained at pages 7A to 7C.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by Item 8 of this form is incorporated by
reference herein from pages 30 to 52 of the bank's Annual Report as follows:
Independent Auditors Report.
Consolidated Balance Sheets as of December 31, 1994, and 1995.
Consolidated Statements of Income for each of the years in the three
year period ended December 31, 1995.
Consolidated Statements of Changes in Stockholders' Equity for each of
the years in the three year period ended December 31, 1995.
Notes to Consolidated Financial Statements.
7
<PAGE>
II. Investment Portfolio
<TABLE>
<CAPTION>
1995
----
Amortized Unrealized Unrealized Market
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. agency obligations $ 37,322,750 253,678 296,351 37,280,077
U.S. treasury obligations 16,151,314 215,674 - 16,366,988
U.S. agency mortgage-backed
securities 11,042,750 81,690 151,974 10,972,466
Municipal obligations 9,809,137 223,716 33,528 9,999,325
Privately-issued mortgage-backed
securities collateralized by U.S.
agency mortgage-backed obligations 1,261,427 - 29,094 1,232,333
------------------------------- -----------------------------
Total bonds and obligations 75,587,378 774,758 510,947 75,851,189
Federal Home Loan Bank stock, at cost 2,961,300 - - 2,961,300
------------------------------- -----------------------------
Total investment securities $ 78,548,678 774,758 510,947 78,812,489
=============================== =============================
<CAPTION>
1994
----
Amortized Unrealized Unrealized Market
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. agency obligations $ 23,953,833 17,993 1,429,420 22,542,406
U.S. agency mortgage-backed
securities 11,596,674 6,696 915,484 10,687,886
Municipal obligations 9,389,336 11,531 427,428 8,973,439
Privately-issued mortgage-backed
securities collateralized by U.S.
agency mortgage-backed obligations 1,497,652 - 48,450 1,449,202
------------------------------- -----------------------------
Total bonds and obligations 46,437,495 36,220 2,820,782 43,652,933
Federal Home Loan Bank stock, at cost 2,086,700 - - 2,086,700
------------------------------- -----------------------------
Total investment securities $ 48,524,195 36,220 2,820,782 45,739,633
=============================== =============================
<CAPTION>
1993
----
Amortized Unrealized Unrealized Market
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. agency obligations $ 21,003,950 486,991 16,300 21,474,641
U.S. agency mortgage-backed
securities 13,728,230 176,704 31,164 13,873,770
Municipal obligations 9,008,336 368,545 486 9,376,395
Privately-issued mortgage-backed
securities collateralized by U.S.
agency mortgage-backed obligations 1,725,061 9,442 - 1,734,503
------------------------------- -----------------------------
Total investment securities $ 45,465,577 1,041,682 47,950 46,459,309
=============================== =============================
</TABLE>
7A
<PAGE>
II. Investments(continued)
The contractual maturity distribution of total bonds and obligations
at December 31, is as follows:
<TABLE>
<CAPTION>
1995
Amortized Market
Cost Percent Value Percent
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 1,501,905 2% $ 1,519,688 2%
After one but within three years 16,006,226 21% 15,946,347 21%
After three but within five years 25,789,153 34% 25,967,476 34%
After five but within ten years 13,448,951 18% 13,719,602 18%
After ten years 18,841,143 25% 18,698,076 25%
--------------------------- --------------------------
$75,587,378 100% $75,851,189 100%
=========================== ==========================
<CAPTION>
1994
Amortized Market
Cost Percent Value Percent
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 256,713 1% $ 254,613 1%
After one but within three years 3,647,009 8% 3,590,941 8%
After three but within five years 15,833,820 34% 14,737,304 34%
After five but within ten years 10,978,077 23% 10,286,958 23%
After ten years 15,721,876 34% 14,783,117 34%
--------------------------- --------------------------
$46,437,495 100% $43,652,933 100%
=========================== ==========================
<CAPTION>
1993
Amortized Market
Cost Percent Value Percent
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 0 0% $ 0 0%
After one but within three years 4,772,555 10% 4,970,529 11%
After three but within five years 11,754,779 26% 11,851,076 26%
After five but within ten years 13,551,489 30% 13,992,476 30%
After ten years 15,386,754 34% 15,645,228 34%
--------------------------- --------------------------
$45,465,577 100% $46,459,309 100%
=========================== ==========================
</TABLE>
7B
<PAGE>
<TABLE>
<CAPTION>
III. Maturity and Repricing data for Loans
- ----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
3 months over 3 months over one year over five
or less through 12 months through five years years total
--------- ------------------ ------------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Fixed $153 797 3,153 8,451 12,554
<CAPTION>
Every five years or
quarterly or annually or more more frequently, but Less frequently
more frequently, but less less frequently than than every
frequently frequently than annually annually five years total
----------- ------------------------ --------------------- --------------- -------
<S> <C> <C> <C> <C> <C>
Variable $35,445 63,055 4,247 889 103,636
--------
$116,190
========
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
3 months over 3 months over one year over five
or less through 12 months through five years years total
--------- ------------------ ------------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Fixed $131 961 2,419 13,199 16,710
<CAPTION>
quarterly or annually or more more frequently, but Less frequently
more frequently, but less less frequently than than every
frequently frequently than annually annually five years total
----------- ------------------------ --------------------- --------------- -------
<S> <C> <C> <C> <C> <C>
Variable $35,367 55,154 2,502 3,546 96,569
--------
$113,279
========
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
3 months over 3 months over one year over five
or less through 12 months through five years years total
--------- ------------------ ------------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Fixed $335 840 1,829 12,177 15,181
quarterly or annually or more more frequently, but Less frequently
more frequently, but less less frequently than than every
frequently frequently than annually annually five years total
----------- ------------------------ --------------------- --------------- -------
<S> <C> <C> <C> <C> <C>
Variable $39,704 29,225 3,400 144 72,473
---------
$ 87,654
<FN>
=========
Total loans does not include net deferred origination fees, allowance for
possible loan losses, and nonaccrual loans.
</FN>
</TABLE>
7C
<PAGE>
PART III
ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK
Partial response to Item 9 is incorporated herein by reference from the
bank's proxy statement for the annual meeting of stockholders to be held on May
7, 1996, at pages 46 to 47.
Principal Officers
The following table sets forth certain information regarding the
principal officers of the bank each serving at the pleasure of the board of
directors.
<TABLE>
<CAPTION>
Name Age Position Held with the Bank
- ---- --- ----------------------------
<S> <C> <C>
Walter L. Armstrong 59 Executive vice president, business
development
Brian H. Bullock 38 Senior vice president and commercial
lending officer
John P. Clancy, Jr. 38 Senior vice president, chief financial
officer, treasurer and investment
manager
George L. Duncan 55 Chairman of the board, chief executive officer
and chief investment officer
Robert R. Gilman 50 Senior vice president, human resources
officer and commercial lending officer
Stephen J. Irish 41 Senior vice president and chief
information officer
Richard W. Main 48 President, chief operating officer and
chief lending officer
Diane J. Silva 38 Senior vice president and mortgage
lending officer
D. Eric Thomson 63 Senior vice president and senior trust
officer
Janice R. Villanucci 43 Senior vice president and manager
customer support department
The principal occupation of Mr. Bullock, Mr. Clancy, Mr. Gilman, Mr.
Irish, Ms. Silva, Mr. Thomson, and Ms. Villanucci during the past five years is
as follows:
8
<PAGE>
Name Principal Occupation for the Past Five Years
- ---- --------------------------------------------
Brian H. Bullock Senior vice president, commercial lending since July,
1989.
John P. Clancy, Jr. Senior vice president, chief financial officer, treasurer
and investment manager of the bank since June, 1988.
Robert R. Gilman Senior vice president, human resources officer, and
commercial lending officer of the bank since November,
1989.
Stephen J. Irish Senior vice president and chief information officer of
the bank since November, 1988.
Diane J. Silva Senior vice president and mortgage lending officer of
the bank since January, 1989.
D. Eric Thomson Senior vice president and senior trust officer of the
bank since May, 1992. Prior to joining the bank in May,
1992, Mr. Thomson served as chief executive officer of
Central Savings Bank, Lowell, Massachusetts.
Janice R. Villanucci Senior vice president and manager customer support of
the bank since November, 1988.
ITEM 10. MANAGEMENT COMPENSATION AND TRANSACTIONS
Response to Item 10 is incorporated herein by reference from the bank's
proxy statement for the annual meeting of stockholders to be held on May 7,
1996, (at pages 49 to 50).
ITEM 11. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES & REPORTS
ON FORM F-3 & EXHIBITS
(a) Financial Statements and Schedules
(1) Financial Statements. See Item 8 of this Report.
(2) Financial Schedules. The following financial schedules of the
bank are included in response to Part II, Item 8, of this
Report:
Schedule I - U.S. Treasury Securities, Obligations of Other
U.S. Government Agencies & Corporations, Obligations of States
& Political Subdivisions, & Other Bonds, Notes & Debentures -
See Note 2 to the Consolidated Financial Statements.
Schedule II - Loans to Officers, Directors, Principal Security
Officers, & Associates of the Foregoing Persons - See Note 3
to the Consolidated Financial Statements. Schedule III - Loans
- See Note 3 to the Consolidated Financial Statements.
9
<PAGE>
Schedule IV - Bank Premises & Equipment - See Note 4 to the
Consolidated Financial Statements.
Schedule V - Not applicable.
Schedule VI - Allowance for Possible Loan Losses - See Note 3
to the Consolidated Financial Statements.
(b) Reports on Form F-3. There were no current reports on Form F-3 filed by
the bank at any time during the year ended December 31, 1995.
(c) Exhibits Exhibit #
(1) Articles of Organization of the bank and By-Laws of *
the bank are incorporated by reference herein from the
bank's Registration Statement on Form F-1.
(2) The bank's specimen stock certificate for shares of *
Class A Common Stock is incorporated by reference herein
from the bank's Registration Statement on Form F-1.
(3) a. Lease agreement dated July 22, 1988, between the *
bank and First Holding Trust relating to the premises
at 222 Merrimack Street, Lowell, Massachusetts, for
10,315 square feet and amendments hereto are
incorporated by reference herein from the bank's
Registration Statement on Form F-1.
b. Amendment to lease dated December 28, 1990, between *
the bank and First Holding Trust for 1,300 square
feet relating to the premises at 222 Merrimack
Street, Lowell, Massachusetts, is incorporated by
reference herein from the bank's Form F-2 for the
year ended December 31, 1990.
c. Amendment to lease dated August 15, 1991, between *
the bank and First Holding Trust for 851 square feet
relating to the premises at 222 Merrimack Street,
Lowell, Massachusetts, is incorporated by reference
herein from the bank's Form F-2 for the year ended
December 31, 1991.
d. Lease Agreement dated May 26, 1992, between the bank *
and Shawmut Bank, N.A., for 1,458 square feet
relating to the premises at 170 Merrimack Street,
Lowell, Massachusetts, is incorporated by reference
herein from the bank's Form F-2 for the year ended
December 31, 1992.
10
<PAGE>
e. Lease Agreement dated April 7, 1993, between the bank *
and Merrimack Realty Trust for 4,375 square feet
relating to the premises at 27 Palmer Street, Lowell,
Massachusetts, is incorporated by reference herein
from the bank's Form F-2 for the year ended December
31, 1993.
f. Employment Agreement between the bank and George L. *
Duncan dated November 15, 1988, is incorporated
herein by reference from the bank's Registration
Statement on Form F-1.
g. Lease agreement dated March 14, 1995, between the 1
bank and North Central Investment Limited
Partnership for square feet relative to the premises
at 2-6 Central Street, Leominster, MA.
h. Amended employment agreement between the bank and 2
George L. Duncan dated December 31, 1995.
i. Employment agreement between the bank and Richard 3
W. Main dated December 13, 1995.
(4) A statement regarding the computation of per share earnings ---
is included in Item 8 of this Report.
(5) As the bank does not have any debt securities registered under ---
Section 12 of the Securities Exchange Act of 1934, no ratio
of earnings to fixed charges appear in this Report.
(6) Annual Report to Stockholders for the Fiscal Year ended 4
December 31, 1995, which is furnished for the information of
the Federal Deposit Insurance Corporation only, is not deemed
to be "filed" as part of this Report except to the extent
expressly incorporated by reference herein.
(7) None ---
(8) None ---
(9) Enterprise Securities Corp, Inc., a Massachusetts ---
corporation, incorporated in March, 1991.
*Previously submitted (Appendix and Exhibits not included.)
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the bank has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Enterprise Bank and Trust Company
/s/John P. Clancy, Jr.
John P. Clancy, Jr., Chief Financial Officer/Treasurer/Investment Manager
3/12/96
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the bank and in the
capacities and on the dates indicated.
/s/George L. Duncan
George L. Duncan, Chairman of the Board/Chief Executive Officer/
Chief Investment Officer
3/14/96
Date
/s/Kenneth S. Ansin
Kenneth S. Ansin, Director
3/19/96
Date
/s/Walter L. Armstrong
Walter L. Armstrong, Executive Vice President, Business Development
3/19/96
Date
/s/Gerald G. Bousquet
Gerald G. Bousquet, Director
3/19/96
Date
/s/Kathleen M. Bradley
Kathleen M. Bradley, Director
3/19/96
Date
12
<PAGE>
/s/James F. Conway, III
James F. Conway, III, Director
3/19/96
Date
/s/Nancy L. Donahue
Nancy L. Donahue, Director
3/19/96
Date
/s/Eric W. Hanson
Eric W. Hanson, Director
3/19/96
Date
/s/John P. Harrington
John P. Harrington, Director
3/19/96
Date
/s/Arnold S. Lerner
Arnold S. Lerner, Vice Chairman/Clerk
3/19/96
Date
/s/Richard W. Main
Richard W. Main, Chief Operating Officer/Chief Lending Officer/Director
3/19/96
Date
/s/Charles P. Sarantos
Charles P. Sarantos, Director
3/19/96
Date
/s/Michael A. Spinelli
Michael A. Spinelli, Director/Assistant Clerk
3/19/96
Date
13
</TABLE>
ENTERPRISE BANK AND TRUST COMPANY
222 MERRIMACK STREET
LOWELL, MASSACHUSETTS 01852
TELEPHONE: (508) 459-9000
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on Tuesday, May 7, 1996
---------------
Lowell, Massachusetts
March 29, 1996
To the Holders of Common Stock of
Enterprise Bank and Trust Company
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Enterprise Bank and Trust Company (the "Bank") will be held at the Sheraton Inn
Riverfront, 50 Warren Street, Lowell, Massachusetts at 4:00 p.m. local time on
Tuesday, May 7, 1996 for the following purposes:
1. To approve the formation of a holding company for the Bank pursuant to
the Agreement and Plan of Reorganization dated as of February 29, 1996
(the "Plan of Reorganization"), a copy of which is attached as
Appendix A to the Proxy Statement-Prospectus accompanying this Notice,
between the Bank and Enterprise Bancorp, Inc. (the "Company"), a
newly-formed Massachusetts corporation organized at the direction of
the Bank. Pursuant to the Plan of Reorganization the Company would
acquire all the outstanding common stock, par value $1.00 per share,
of the Bank (the "Bank Common Stock"), other than shares held by
stockholders, if any, exercising dissenters' appraisal rights, in a
share-for-share exchange for the common stock, par value $0.01 per
share, of the Company (the "Company Common Stock"). The Bank will
thereby become a wholly-owned subsidiary of the Company (the
"Reorganization") (Proposal One);
2. To elect Kenneth S. Ansin, Eric W. Hanson, Arnold S. Lerner and
Richard W. Main as Directors of the Bank, each to serve for a
three-year term (Proposal Two);
3. To elect Arnold S. Lerner as Clerk of the Bank (Proposal Three);
4. To elect Michael A. Spinelli as Assistant Clerk of the Bank (Proposal
Four);
5. To ratify the Board of Directors' appointment of KPMG Peat Marwick LLP
as the Bank's independent auditors for the fiscal year ending December
31, 1996 (Proposal Five); and
6. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
<PAGE>
If the Plan of Reorganization is approved by the stockholders at the
Annual Meeting and effected by the Bank, any stockholder (i) who files with the
Bank before the taking of the vote on the approval of the Plan of Reorganization
a written objection to the Plan of Reorganization, stating that he or she
intends to demand payment for his or her shares if the Reorganization is
consummated, and (ii) whose shares are not voted in favor of the Plan of
Reorganization, has the right to demand in writing from the Bank, within twenty
days after the date of mailing to him of notice in writing that the
Reorganization has become effective, payment for his shares and an appraisal of
the value thereof. The Bank and any such stockholder shall in such cases have
the rights and duties and shall follow the procedure set forth in Sections 85
through 98, inclusive, of Chapter 156B of the General Laws of Massachusetts, a
copy of which is attached as Appendix B to the Proxy Statement-Prospectus
accompanying this Notice.
The Board of Directors has fixed the close of business on March 11,
1996 as the record date for determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting and any adjournments or postponements
thereof. Only holders of Bank Common Stock of record at the close of business on
that date will be entitled to notice of and to vote at the Annual Meeting and
any adjournments thereof.
In the event there are not sufficient votes to approve any one or more
of the foregoing proposals at the time of the Annual Meeting, the Annual Meeting
may be adjourned in order to permit further solicitation of proxies by the Bank.
By Order of the Board of Directors
/s/Arnold S. Lerner
Arnold S. Lerner
Clerk
IMPORTANT
EVEN THOUGH YOU MAY PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING AND DESIRE TO WITHDRAW YOUR PROXY AND VOTE IN
PERSON, YOU MAY DO SO.
-2-
<PAGE>
ENTERPRISE
BANK AND TRUST COMPANY
222 MERRIMACK STREET
LOWELL, MASSACHUSETTS 01852
PROXY STATEMENT OF ENTERPRISE BANK AND TRUST COMPANY
ANNUAL MEETING OF SHAREHOLDERS
May 7, 1996
---------------
PROSPECTUS
OF ENTERPRISE BANCORP, INC.
Shares of Common Stock
$0.01 par value per share
This Proxy Statement-Prospectus serves as a Proxy Statement in
connection with the solicitation of proxies by the Board of Directors of
Enterprise Bank and Trust Company (the "Bank") for the 1996 Annual Meeting of
Stockholders of the Bank (the "Annual Meeting"), to be held on Tuesday, May 7,
1996 at 4:00 p.m. local time, at the Sheraton Inn Riverfront, 50 Warren Street,
Lowell, Massachusetts and at any adjournments or postponements thereof. This
Proxy Statement-Prospectus, the accompanying Notice of Annual Meeting and the
accompanying proxy card are first being mailed to stockholders on or about March
29, 1996.
The Annual Meeting has been called for the following purposes: (1) to
consider and vote upon the formation of a holding company for the Bank by the
approval of the Agreement and Plan of Reorganization dated as of February 29,
1996 (the "Plan of Reorganization"), between the Bank and Enterprise Bancorp,
Inc. (the "Company") pursuant to which the Bank will become a wholly-owned
subsidiary of the Company and each issued and outstanding share of common stock
of the Bank, par value $1.00 per share (other than shares held by stockholders,
if any, exercising dissenters' appraisal rights) will be exchanged for one share
of common stock of the Company, par value $0.01 per share (the
"Reorganization"); (2) to elect a class of four Directors of the Bank for a
three-year term; (3) to elect a Clerk of the Bank; (4) to elect an Assistant
Clerk of the Bank; (5) to ratify the appointment of KPMG Peat Marwick LLP as the
Bank's independent auditors; and (6) to transact such other business as may
properly come before the Annual Meeting or any adjournments or postponements
thereof.
This document also serves as the Prospectus of the Company with respect
to the issuance of a maximum of 1,650,542 shares of the Company's common stock,
par value $0.01 per share ("Company Common Stock"), to the stockholders of the
Bank in exchange for shares of the Bank's common stock, par value $1.00 per
share ("Bank Common Stock"), upon consummation of the Reorganization. The number
of shares of Company Common Stock to be issued will be based upon the exchange
ratio of one share of Company Common Stock for each share of Bank Common Stock.
The maximum number of shares of Company Common Stock referred to above is based
on the 1,575,892 shares of Bank Common Stock that are outstanding as of the
Record Date and the 74,650 shares of Bank Common Stock that are subject as of
the Record Date to vested options to purchase such shares. Shares of Bank Common
Stock held by stockholders, if any, exercising dissenters' appraisal rights will
not be exchanged as part of the Reorganization.
<PAGE>
THE SECURITIES TO BE ISSUED BY ENTERPRISE BANCORP, INC. IN THE REORGANIZATION
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF BANKS OF THE
COMMONWEALTH OF MASSACHUSETTS OR BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSIONER OR THE FDIC
OR THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
IN RELIANCE UPON THE EXEMPTION PROVIDED BY SECTION 3(a)(12) OF THE SECURITIES
ACT OF 1933, AS AMENDED, THE SECURITIES OF ENTERPRISE BANCORP, INC. TO BE ISSUED
IN THE REORGANIZATION HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR WITH ANY OTHER GOVERNMENTAL AGENCY.
------------------
THE SHARES OF COMPANY COMMON STOCK OFFERED HEREBY ARE NOT DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
------------------
The date of this Proxy Statement-Prospectus is March 29, 1996.
-2-
<PAGE>
AVAILABLE INFORMATION
The Bank is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as administered by the
Federal Deposit Insurance Corporation (the "FDIC"), and in accordance therewith
files reports and other information with the FDIC. Reports, proxy statements and
other information filed by the Bank pursuant to the informational requirements
of the Exchange Act can be inspected and copied at the public reference
facilities maintained by the FDIC at 550 Seventeenth Street, N.W., Washington,
D.C. 20429. The Company has been formed at the direction of the Bank solely for
the purpose of effecting the Reorganization. The Company has not issued any
shares of its capital stock to date and is not subject to the requirements of
the Exchange Act. If the Reorganization is consummated, the Company will become
subject to the reporting and proxy statements requirements of the Exchange Act
and, in accordance therewith, will file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). In
addition, in connection with the annual meeting of shareholders of the Company,
proxy statements accompanied or preceded by annual reports to shareholders will
contain financial statements that have been examined and reported upon, with an
opinion expressed by an independent auditor.
No person has been authorized to give any information or to make any
representation not contained in this Proxy Statement-Prospectus, and, if given
or made, such information or representation must not be relied upon as having
been authorized by the Company. Neither the delivery hereof nor any distribution
of securities hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of the Company or the Bank since
the date hereof or that the information in this Proxy Statement- Prospectus is
correct as of any time subsequent to the date hereof.
Information contained herein is subject to completion or amendment.
This Proxy Statement- Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
A copy of the Bank's Annual Report to Stockholders for the year ended
December 31, 1995 accompanies this Proxy Statement-Prospectus. Additional copies
of such Annual Report may be obtained without charge by any stockholder of the
Bank upon written request to Investor Relations, Enterprise Bank and Trust
Company, 222 Merrimack Street, Lowell, Massachusetts 01852.
This Proxy Statement-Prospectus hereby incorporates by reference the
Bank's Annual Report on Form F-2, as filed with the FDIC and included with this
Proxy Statement-Prospectus mailed to stockholders, for the fiscal year ended
December 31, 1995.
CAUTIONARY STATEMENT FOR PURPOSES OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company and the Bank desire to take advantage of the new "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. This
Proxy Statement-Prospectus contains certain "forward-looking statements"
including statements concerning plans, objectives, future events or performance
and assumptions and other statements which are other than statements of
historical fact. The Company and the Bank wish to caution readers that the
following important factors, among others, may have affected and could in the
future affect the Bank's and the Company's actual results and could cause the
Bank's and/or the
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Company's actual results for subsequent periods to differ materially from those
expressed in any forward- looking statement made by or on behalf of the Bank
and/or the Company herein: (i) the effect of changes in laws and regulations,
including federal and state banking laws and regulations, with which the Company
and the Bank must comply, the cost of such compliance and the potentially
material adverse effects if the Bank and/or the Company were not in substantial
compliance either currently or in the future as applicable; (ii) the effect of
changes in accounting policies and practices, as may be adopted by the
regulatory agencies as well as by the Financial Accounting Standards Board, or
of changes in the Bank's and/or the Company's organization, compensation and
benefit plans; (iii) the effect on the Bank's or the Company's competitive
position within its market area of increasing consolidation within the banking
industry and increasing competition from larger regional and out-of-state
banking organizations as well as nonbank providers of various financial
services; (iv) the effect of unforeseen changes in interest rates; and (v) the
effect of changes in the business cycle and downturns in the local, regional or
national economies.
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TABLE OF CONTENTS
Section Page
SUMMARY OF PROXY STATEMENT-PROSPECTUS.......................................8
VOTING, REVOCATION AND SOLICITATION OF PROXIES.............................13
Annual Meeting....................................................13
Record Date.......................................................13
Proxies .........................................................13
Quorum; Vote Required.............................................14
PROPOSAL ONE - FORMATION OF HOLDING COMPANY................................15
Recommendation of Directors.......................................15
Description of the Plan of Reorganization.........................15
Reasons for the Holding Company Formation.........................17
Financial Resources of the Company................................18
Conditions of the Reorganization..................................18
Rights of Dissenting Stockholders.................................19
Income Tax Consequences...........................................20
COMPARISON OF STOCKHOLDER RIGHTS...........................................22
Capital Stock.....................................................22
Common Stock......................................................23
Preferred Stock...................................................24
Directors.........................................................24
Meetings of Stockholders..........................................25
Stockholder Vote Required to Approve Certain Transactions.........26
Provisions Relating to Exercise of Business Judgment by
Board of Directors..............................................27
Beneficial Ownership Limitation...................................27
Indemnification and Limitation of Liability.......................27
Amendment of Articles of Organization.............................28
Amendment of By-laws..............................................28
Legal Investments.................................................29
Anti-Takeover Provisions..........................................29
CAPITALIZATION.............................................................30
MARKET FOR STOCK AND DIVIDENDS.............................................32
DESCRIPTION OF COMPANY CAPITAL STOCK.......................................33
General .........................................................33
Common Stock......................................................33
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Section Page
Preferred Stock...................................................33
Transfer Agent and Registrar......................................34
Changes in Control................................................34
BUSINESS OF THE COMPANY....................................................35
General .........................................................35
Property .........................................................36
Competition.......................................................36
Employees.........................................................36
REGULATION.................................................................36
Holding Company Regulation........................................36
Other Regulatory Considerations...................................38
Federal Securities Laws...........................................42
MANAGEMENT OF THE COMPANY..................................................42
Directors.........................................................42
Committees........................................................43
Executive Officers................................................43
Compensation......................................................44
Employee Benefit Plans............................................44
PROPOSAL TWO - ELECTION OF CLASS OF DIRECTORS..............................44
Recommendation of Directors.......................................45
MANAGEMENT OF THE BANK.....................................................45
Directors and Nominees............................................45
Meetings of Board of Directors and Committees ....................47
Executive Compensation............................................49
Director Compensation.............................................50
Employment Agreements.............................................50
Stock Option Plan.................................................51
Retirement Plan...................................................54
Insurance and Other Benefits......................................54
Transactions with Certain Related Persons ........................54
SECURITIES OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS..............56
PROPOSALS THREE AND FOUR - ELECTION OF CLERK AND ASSISTANT CLERK...........58
Recommendation of Directors.......................................58
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Section Page
PROPOSAL FIVE RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS..........58
Recommendation of Directors.......................................58
STOCKHOLDER PROPOSALS......................................................59
OTHER MATTERS..............................................................59
Appendix A Agreement and Plan of Reorganization............................A-1
Appendix B Provisions of Massachusetts General Laws Relating to Rights of
Dissenting Stockholders.........................................B-1
Appendix C Restated Articles of Organization and By-laws of Enterprise
Bancorp, Inc....................................................C-1
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SUMMARY OF PROXY STATEMENT-PROSPECTUS
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement- Prospectus. This summary is not intended to
be a complete statement of all material features of the matters being considered
and voted on by the stockholders of the Bank and is qualified in its entirety by
reference to the full text of this Proxy Statement-Prospectus, including the
Appendices hereto, and the documents referred to herein.
Date, Time and Place of Annual Meeting
The Annual Meeting of Stockholders (the "Annual Meeting") of Enterprise
Bank and Trust Company (the "Bank") will be held at the Sheraton Inn Riverfront,
50 Warren Street, Lowell, Massachusetts at 4:00 p.m. local time on Tuesday, May
7, 1996.
Purposes of the Annual Meeting
The purposes of the Annual Meeting are to consider and vote upon
proposals: (1) to consider and vote upon the formation of a holding company for
the Bank by the approval of the Agreement and Plan of Reorganization dated as of
February 29, 1996 (the "Plan of Reorganization"), between the Bank and
Enterprise Bancorp, Inc. (the "Company"), pursuant to which the Bank will become
a wholly-owned subsidiary of the Company and each issued and outstanding share
of common stock of the Bank, par value $1.00 per share ("Bank Common Stock"),
other than shares held by stockholders, if any, exercising dissenters' appraisal
rights, will be exchanged for one share of common stock of the Company, par
value $0.01 per share ("Company Common Stock"); (2) to elect a class of four
Directors of the Bank for a three-year term; (3) to elect a Clerk of the Bank;
(4) to elect an Assistant Clerk of the Bank; (5) to ratify the appointment of
KPMG Peat Marwick LLP as the Bank's independent auditors; and (6) to transact
such other business as may properly come before the Annual Meeting or any
adjournments or postponements thereof.
Record Date
The Board of Directors has fixed the close of business on March 11,
1996 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof. Only holders of record of Bank Common Stock at the close
of business on the Record Date will be entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof. At the close of business on the
Record Date there were 1,575,892 shares of Bank Common Stock issued and
outstanding, and each such outstanding share is entitled to one vote. As of such
date there were approximately 594 holders of record of the Bank Common Stock. On
the Record Date, the Directors and principal officers of the Bank beneficially
owned in the aggregate 461,030 shares of Bank Common Stock or 29.26% of the
issued and outstanding shares of Bank Common Stock which may be voted at the
Annual Meeting, all of which are expected to be voted at the Annual Meeting in
favor of the Reorganization and the Board of Directors' recommendations
regarding the election of Directors, Clerk and Assistant Clerk of the Bank and
the ratification of the appointment of independent auditors.
Stockholder Vote Required
The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of Bank Common Stock is necessary to
constitute a quorum at the Annual Meeting for the transaction of
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business. A quorum being present, the affirmative vote of two-thirds of the
issued and outstanding shares of Bank Common Stock eligible to be cast by
stockholders of record of the Bank at the close of business on the Record Date
is required to approve the Plan of Reorganization (Proposal One). The
affirmative vote of a plurality of the votes cast at the Annual Meeting is
necessary to approve the election of a class of four Directors of the Bank
(Proposal Two) and the election of a Clerk and an Assistant Clerk of the Bank
(Proposals Three and Four). The affirmative vote of a majority of the shares
present and voting, in person or by proxy, is necessary for the ratification of
the appointment of independent auditors (Proposal Five).
PROPOSAL ONE - FORMATION OF HOLDING COMPANY
Proposal to Stockholders
At the Annual Meeting, stockholders of the Bank are being asked to
approve the formation of a holding company for the Bank, to be accomplished by
approving the Plan of Reorganization pursuant to which the Company, a
newly-formed Massachusetts corporation organized at the direction of the Bank,
will acquire all of the issued and outstanding shares of Bank Common Stock in
exchange for an equal number of shares of Company Common Stock. Upon the
effective date of the transactions contemplated by the Plan of Reorganization,
the outstanding Bank Common Stock, other than shares held by stockholders, if
any, exercising dissenters' appraisal rights, will be exchanged for Company
Common Stock on a one-for-one basis (the "Reorganization"). The Bank will then
be a wholly-owned subsidiary of the Company and the stockholders of the Bank
will then be stockholders of the Company. A copy of the Plan of Reorganization
is attached to this Proxy Statement-Prospectus as Appendix A and should be read
in its entirety. See "Proposal One -- Formation of Holding Company."
Recommendation of Directors
The Board of Directors of the Bank has approved the Plan of
Reorganization and recommends that the stockholders vote FOR approval of the
Plan of Reorganization.
Parties to the Plan of Reorganization
Enterprise Bank and Trust Company. The Bank is a Massachusetts trust
company, which commenced banking operations in January of 1989 and is
headquartered in Lowell, Massachusetts. As of the date of this Proxy
Statement-Prospectus, the Bank had authorized capital of 3,000,000 shares of
common stock, par value $1.00 per share, of which there were 1,575,892 shares
issued and outstanding, and 1,000,000 shares of preferred stock, par value $1.00
per share, none of which was issued and outstanding. The Bank is engaged
principally in the business of attracting deposits from the general public and
investing those deposits in real estate mortgage, consumer and commercial loans,
and in various securities. The Bank conducts its business from its main office
in Lowell and from a network of 3 branches in the communities of Chelmsford,
Billerica and Leominster.
Enterprise Bancorp, Inc. The Company is a newly-formed Massachusetts
corporation organized at the direction of the Bank. Pursuant to the Plan of
Reorganization, the Company will acquire all of the issued and outstanding
shares of Bank Common Stock in exchange for an equal number of shares of Company
Common Stock. As of the date of this Proxy Statement-Prospectus, the Company had
authorized capital of 500,000 shares of common stock, par value $0.01 per share,
and 10,000 shares of preferred stock, par value $0.01 per share, none of which
was issued and outstanding. Prior to the effective time of the Reorganization,
and as a condition thereto, the Company will amend its existing articles of
organization to increase its
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authorized capital to 5,000,000 shares of common stock, par value $0.01 per
share, and 1,000,000 shares of preferred stock, par value $0.01 per share. Upon
completion of the Reorganization, the Bank will be a wholly-owned subsidiary of
the Company. See "Business of the Company."
The principal executive offices of both the Bank and the Company are
located at 222 Merrimack Street, Lowell, Massachusetts 01852. The telephone
number for both offices is (508) 459-9000.
Reasons for Formation of Holding Company
The Board of Directors of the Bank believes that the holding company
structure will better suit the current and future interests of the Bank's
shareholders and customers. The Board of Directors has determined that the
establishment of a bank holding company will provide additional flexibility to
respond to the changing and expanding needs of the Bank's present and future
customers for financial services, thereby improving the Bank's competitive
position. Moreover, it is expected that formation of a bank holding company will
facilitate expansion and entry into other financial areas either through the
creation of new subsidiaries or through the acquisition of, or affiliation with,
other companies, including banks. The Board of Directors believes that such
growth should result in enhanced long-term shareholder value. See "Proposal One
- -- Formation of Holding Company -- Reasons for Holding Company Formation."
Regulation and Supervision
After the holding company formation, the Company and the Bank will be
subject to extensive regulation. The Company will be subject to regulation by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board"),
the Massachusetts Secretary of State and the SEC, and may, in certain
circumstances, be subject to regulation by the Commissioner of Banks of the
Commonwealth of Massachusetts (the "Commissioner of Banks"). The Bank will
continue to be subject to federal and state law, including regulation by the
FDIC and the Commissioner of Banks. Company Common Stock will be registered with
the SEC pursuant to the Exchange Act. If the Bank abandons the Reorganization,
the Bank Common Stock would continue to be registered with the FDIC. See
"Regulation."
Required Regulatory Approvals
An application will be submitted to the Commissioner of Banks to obtain
his approval of the Plan of Reorganization and the formation of the holding
company. In addition, the Company is required to provide prior notice to the
Federal Reserve Bank of Boston (the "Reserve Bank") of its proposed acquisition
of all of the issued and outstanding capital stock of the Bank in accordance
with the Plan of Reorganization. See "Proposal One--Formation of Holding
Company--Conditions of the Reorganization."
The Bank and the Company have the right under the terms of the Plan of
Reorganization to abandon the Reorganization if, among other things, the
necessary regulatory approvals cannot be obtained or if the conditions or
obligations associated with any such regulatory approval make the Reorganization
inadvisable in the opinion of the Bank or the Company. Any delays which are
encountered in seeking any of the foregoing regulatory approvals could result in
a delay in the consummation of the Reorganization. See "Proposal One--Formation
of Holding Company--Regulation."
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Market for Stock and Dividends
The Bank Common Stock is not traded on any stock exchange or other
market system. The Company has no present plan or intention to list or otherwise
qualify the shares of Company stock to be issued in the Reorganization on any
stock exchange or with any other trading market. The Bank has paid an annual
dividend in each of the last four years and the Company expects to continue
payment of annual dividends.
Tax Consequences
The Bank has received an opinion from its independent public
accountants to the effect that neither the Company, the Bank nor the
stockholders of the Bank (except dissenting stockholders) will recognize gain or
loss for federal income tax purposes as a result of the holding company
formation. Stockholders of the Bank who exercise dissenters' rights will
recognize gain or loss on the transaction for federal income tax purposes. See
"Proposal One--Formation of Holding Company--Income Tax Consequences."
Dissenters' Rights
Pursuant to Massachusetts law, holders of Bank Common Stock have
dissenters' appraisal rights in connection with the formation of the holding
company. The Bank and any such stockholder shall in such cases have the rights
and duties and shall follow the procedure set forth in Sections 85 to 98,
inclusive, of Chapter 156B of the General Laws of Massachusetts, a copy of which
is attached to this Proxy Statement-Prospectus as Appendix B and should be read
in its entirety. Stockholders of the Bank who exercise dissenters' appraisal
rights must carefully follow the procedures described therein. See "Proposal
One--Formation of Holding Company--Rights of Dissenting Stockholders."
Comparison of Stockholder Rights
The Bank, as a Massachusetts trust company, is regulated under
Massachusetts banking laws. The Company, as a Massachusetts business
corporation, is governed by the corporate laws of Massachusetts. Although the
Articles of Organization and By-laws of the Company and the Articles of
Organization and Bylaws of the Bank are similar, there are certain important
differences of which stockholders of the Bank should be aware. Copies of the
Articles of Organization and By-laws of the Company are attached to this Proxy
Statement-Prospectus as Appendix C and should be read in their entirety. See
"Comparison of Stockholder Rights."
PROPOSAL TWO - ELECTION OF CLASS OF DIRECTORS
Proposal to Stockholders
The Bank's Articles of Organization and By-laws provide that the Board
of Directors shall be divided into three classes as nearly equal in size as
possible, with the Directors in each class serving for a term of three years. As
the term of one class expires, a successor class is elected at each annual
meeting of stockholders.
At the Annual Meeting, stockholders of the Bank are being asked to
elect Kenneth S. Ansin, Eric W. Hanson, Arnold S. Lerner and Richard W. Main,
the four nominees proposed by the Board of Directors of the Bank, as Directors
of the Bank to serve until the 1999 annual meeting of stockholders and until
their successors are elected and qualified. See "Proposal Two -- Election of
Class of Directors."
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Recommendation of Directors
The Board of Directors of the Bank recommends that the stockholders
vote FOR the election of each of Kenneth S. Ansin, Eric W. Hanson, Arnold S.
Lerner and Richard W. Main, the nominees proposed by the Board of Directors of
the Bank, as Directors of the Bank.
PROPOSALS THREE AND FOUR - ELECTION OF CLERK AND ASSISTANT CLERK
Proposal to Stockholders
Under Massachusetts law, the Clerk of the Bank is required to be
elected by the stockholders at the Annual Meeting. In addition, although there
is no requirement that the Bank's stockholders elect the Assistant Clerk of the
Bank, stockholders are being asked to do so. At the Annual Meeting, stockholders
of the Bank are being asked to elect Arnold S. Lerner and Michael A. Spinelli,
the nominees proposed by the Board of Directors, as the Clerk and the Assistant
Clerk of the Bank, respectively, each to serve until the 1997 annual meeting of
stockholders and until his successor is elected and qualified. See "Proposals
Three and Four -- Election of Clerk and Assistant Clerk."
Recommendation of Directors
The Board of Directors of the Bank recommends that the stockholders
vote FOR the election of Arnold S. Lerner as Clerk of the Bank and Michael A.
Spinelli as Assistant Clerk of the Bank.
PROPOSAL FIVE - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Proposal to Stockholders
Although there is no requirement that the Bank's stockholders ratify
the Board of Directors' appointment of independent auditors, stockholders are
being asked at the Annual Meeting to ratify the Board of Directors' appointment
of KPMG Peat Marwick LLP to serve as the Bank's independent auditors for the
fiscal year ending December 31, 1996. See "Proposal Five -- Ratification of
Appointment of Independent Auditors."
Recommendation of Directors
The Board of Directors of the Bank recommends that the stockholders
vote FOR the ratification of the Board of Directors' appointment of KPMG Peat
Marwick LLP to serve as the Bank's independent auditors for the fiscal year
ending December 31, 1996.
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ENTERPRISE BANK AND TRUST COMPANY
ENTERPRISE BANCORP, INC.
VOTING, REVOCATION AND SOLICITATION OF PROXIES
Annual Meeting
This Proxy Statement-Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of the Bank for use at the
Annual Meeting of Stockholders to be held at the Sheraton Inn Riverfront, 50
Warren Street, Lowell, Massachusetts at 4:00 p.m. local time on Tuesday, May 7,
1996, and any adjournments thereof.
As more fully described in this Proxy Statement-Prospectus, the Annual
Meeting has been called (1) to consider and vote upon a proposal to form a
holding company for the Bank by the approval of the Plan of Reorganization
pursuant to which the Bank will become a wholly-owned subsidiary of the Company
and each issued and outstanding share of Bank Common Stock, other than shares
held by stockholders, if any, exercising dissenters' appraisal rights, will be
exchanged for one share of Company Common Stock, (2) to elect a class of four
Directors of the Bank for a three-year term, (3) to elect a Clerk of the Bank,
(4) to elect an Assistant Clerk of the Bank, (5) to ratify the appointment of
independent auditors, and (6) to transact such other business as may properly
come before the Annual Meeting or any adjournments or postponements thereof. See
"Proposal One--Formation of Holding Company."
Record Date
The Board of Directors of the Bank has fixed the close of business on
March 11, 1996 as the Record Date for the determination of stockholders entitled
to notice of and to vote at the Annual Meeting and any adjournments thereof.
Only holders of record of Bank Common Stock at the close of business on the
Record Date will be entitled to notice of and to vote at the Annual Meeting and
any adjournments thereof. At the close of business on the Record Date, there
were 1,575,892 shares of Bank Common Stock issued and outstanding and entitled
to vote at the Annual Meeting and any adjournments thereof. As of such date
there were approximately 594 holders of record of Bank Common Stock. The holders
of each share of Bank Common Stock outstanding as of the close of business on
the Record Date will be entitled to one vote for each share held of record upon
each matter properly submitted to the Annual Meeting or any adjournments
thereof.
Proxies
Holders of Bank Common Stock are requested to complete, date, sign and
promptly return the accompanying proxy card in the enclosed envelope which
requires no postage if mailed in the United States. If the enclosed form of
proxy is properly executed and returned to the Bank in time to be voted at the
Annual Meeting, the shares represented thereby will, unless such proxy has
previously been revoked, be voted in
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accordance with the instructions marked thereon. Executed proxies with no
instructions indicated thereon will be voted (1) FOR the approval of the Plan of
Reorganization, (2) FOR the election of Kenneth S. Ansin, Eric W. Hanson, Arnold
S. Lerner and Richard W. Main, the four nominees of the Board of Directors of
the Bank, as Directors of the Bank, (3) FOR the election of Arnold S. Lerner as
Clerk of the Bank, (4) FOR the election of Michael A. Spinelli as Assistant
Clerk of the Bank, (5) FOR the ratification of the Board of Directors'
appointment of KPMG Peat Marwick LLP as the Bank's independent auditors for the
fiscal year ending December 31, 1996 and (6) in such manner as management's
proxy-holders shall decide on such other matters as may properly come before the
Annual Meeting.
The presence of a stockholder at the Annual Meeting will not
automatically revoke a stockholder's proxy. A stockholder may, however, revoke a
proxy at any time prior to the voting thereof on any matter (without, however,
affecting any vote taken prior to such revocation) by filing with the Clerk of
the Bank a written notice of revocation, by delivering to the Bank a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person. All written notices of revocation and other communications
with respect to revocation of proxies in connection with the Annual Meeting
should be addressed as follows: Enterprise Bank and Trust Company, 222 Merrimack
Street, Lowell, Massachusetts 01852, Attention: Arnold S. Lerner, Clerk.
It is not anticipated that any matters other than those set forth in
proposals (1)-(5) contained in this Proxy Statement-Prospectus will be brought
before the Annual Meeting. If any other matters properly come before the Annual
Meeting, the persons named as proxies will vote upon such matters in their
discretion in accordance with their best judgment.
In addition to use of the mails, proxies may be solicited personally or
by telephone or telegraph by officers, Directors and employees of the Bank who
will not be specially compensated for such solicitation activities. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for forwarding solicitation materials to the beneficial owners of
shares held of record by such persons, and the Bank will reimburse such persons
for their reasonable out-of-pocket expenses incurred in that connection. The
cost of soliciting proxies will be borne by the Bank.
Quorum; Vote Required
The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of Bank Common Stock is necessary to
constitute a quorum at the Annual Meeting for the transaction of business.
Abstentions and "broker non-votes" (as defined below) will be counted as present
for purposes of determining the presence or absence of a quorum for the
transaction of business at the Annual Meeting. A quorum being present, the
affirmative vote of a plurality of the votes cast at the Annual Meeting is
required to elect a class of four Directors of the Bank (Proposal Two) and to
elect a Clerk and Assistant Clerk of the Bank (Proposals Three and Four).
Abstentions and broker non-votes will not be counted as "votes cast" for
purposes of electing a class of four Directors and a Clerk and an Assistant
Clerk of the Bank and, therefore, will not affect the election of Directors, a
Clerk and an Assistant Clerk of the Bank. Approval of the proposal to ratify the
appointment of independent auditors (Proposal Five) requires the affirmative
vote of a majority of the shares present and voting, in person or by proxy, at
the Annual Meeting. Abstentions and broker non-votes will not be included among
the votes deemed to be cast at the Annual Meeting for purposes of approving the
proposal to ratify the appointment of independent auditors and, therefore, will
not have the effect of either votes "for" or votes "against" this proposal.
Approval of the Plan of Reorganization (Proposal One) requires the affirmative
vote of the holders of two-thirds of the issued and outstanding shares of Bank
Common Stock eligible to be cast by stockholders of record at the close of
business on the Record Date. By
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voting for the Plan of Reorganization, stockholders of the Bank shall be deemed
to authorize the Bank to take all appropriate action to implement the Plan of
Reorganization. Abstentions and broker non-votes will not be counted as votes
"for" the proposal to approve the Plan of Reorganization and, therefore, will
have the affect of votes against this proposal.
A "broker non-vote" is a proxy from a broker or other nominee
indicating that such person has not received instructions from the beneficial
owner or other person entitled to vote the shares which are the subject of the
proxy on a particular matter with respect to which the broker or other nominee
does not have discretionary voting power.
The Directors and principal officers of the Bank have indicated that
they intend to vote all shares of Bank Common Stock which they are entitled to
vote in favor of each of the Proposals presented herein. On the Record Date, the
Directors and principal officers of the Bank in the aggregate had the right to
vote approximately 461,030 shares of Bank Common Stock representing
approximately 29.26% of the outstanding Bank Common Stock as of such date. See
"Management of the Bank."
PROPOSAL ONE - FORMATION OF HOLDING COMPANY
The following descriptions are qualified in their entirety by reference
and are made subject to the Plan of Reorganization attached hereto as Appendix
A, certain provisions of the General Laws of Massachusetts relating to the
rights of dissenting stockholders attached hereto as Appendix B, and the
Articles of Organization and By-laws of the Company attached hereto as Appendix
C.
Recommendation of Directors
The Boards of Directors of the Bank and of the Company have each
approved the Plan of Reorganization, which provides for the acquisition of all
outstanding shares of Bank Common Stock by the Company in exchange for an equal
number of shares of Company Common Stock pursuant to the provisions of Section
26B of Chapter 172 of the General Laws of Massachusetts. The Plan of
Reorganization will not take effect unless it is approved by the affirmative
vote of two-thirds of the total votes eligible to be cast by stockholders of
record as of the close of business on the Record Date. Unless authority to do so
has been limited in a proxy, it is the intention of the persons named as proxies
to vote the shares to which the proxy relates for the approval of the Plan of
Reorganization.
The Board of Directors of the Bank believes that the Plan of
Reorganization is in the best interests of the Bank and its stockholders.
Accordingly, the Board of Directors recommends that the stockholders vote FOR
approval of the Plan of Reorganization.
Description of the Plan of Reorganization
The Company has been organized as a Massachusetts corporation at the
direction of the Bank for the purpose of becoming the holding company of the
Bank. The Company and the Bank have entered into the Plan of Reorganization.
Under the Plan of Reorganization, the Company will become the owner of
all of the outstanding shares of Bank Common Stock, and each stockholder of the
Bank who does not exercise dissenters' appraisal
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rights with respect to the Plan of Reorganization will become the owner of one
share of Company Common Stock for each share of Bank Common Stock held
immediately prior to the consummation of the Reorganization. Upon the effective
date of the Reorganization, each share of Bank Common Stock will be
automatically exchanged for one share of Company Common Stock. The
Reorganization will become effective (the "Effective Date") on the first
business day following the date on which the Bank and the Company advise the
Commissioner of Banks in writing that all the conditions precedent to the
Reorganization becoming effective have been satisfied and that the Plan of
Reorganization has not been abandoned by the Bank or the Company. As a condition
to the consummation of the Reorganization, the Company and the Bank must receive
certain regulatory approvals. See "-- Conditions of the Reorganization." Neither
the Company nor the Bank can predict whether such approvals will be obtained or
whether such approvals will be on terms satisfactory to the Company and the
Bank. Accordingly, the consummation of the Reorganization may be subject to a
delay which may, under certain circumstances, be significant. If the
stockholders approve the Plan of Reorganization at the Annual Meeting, the
Company and the Bank shall have the right to consummate the Reorganization,
subject to the satisfaction of the conditions contained in the Plan of
Reorganization, at any time thereafter.
The number of shares of Company Common Stock to be issued on the
Effective Date will be equal the number of shares of Bank Common Stock issued
and outstanding immediately prior thereto, less the number of shares of Bank
Common Stock, if any, held by dissenting stockholders. Shares of Company Common
Stock which would have been issued had dissenting stockholders not dissented
will remain as authorized but unissued shares of Company Common Stock. Any
shares of Company Common Stock which are outstanding prior to the Effective
Date, all of which, if any, would be held by the Bank, will be redeemed at par
value as part of the Reorganization and retired to the status of authorized and
unissued shares.
The outstanding stock certificates of Bank Common Stock which, prior to
the Reorganization, represented shares of Bank Common Stock, will thereafter for
all purposes represent an equal number of shares of Company Common Stock, except
for certificates held by dissenting stockholders and as set forth below. After
the Effective Date, the Company will issue and deliver to the transfer agent
(the "Transfer Agent") for the Bank and the Company certificates representing
the number of shares of Company Common Stock issuable in connection with the
Reorganization. The Company and the Bank will notify the stockholders by mail at
their addresses as shown on the Bank's records and, as may be required, by
publication that they may present their certificates to the Transfer Agent for
exchange. Stockholders may exchange their present stock certificates
representing Bank Common Stock for new certificates representing Company Common
Stock by surrendering their Bank Common Stock certificates to the Transfer
Agent. They will then receive in exchange therefor a certificate representing an
equal number of shares of Company Common Stock. Until so exchanged,
stockholders' present stock certificates representing Bank Common Stock will for
all purposes represent an equal number of shares of Company Common Stock and the
holders of those certificates will have all the other rights of stockholders of
the Company. However, the Company at any time may withhold any dividends that
may be declared on shares of Company Common Stock until stockholders present
their Bank Common Stock certificates to the Transfer Agent for exchange. In such
case, upon delivery of such certificates or as soon thereafter as practicable,
such persons shall be entitled to receive from the Company or the Transfer Agent
an amount equal to all accrued dividends (without interest thereon and less the
amount of taxes, if any, which may have been imposed or paid thereon or which
are required by law to be withheld in respect thereof) on the shares represented
thereby.
After consummation of the Reorganization, the Bank, as a subsidiary of
the Company, will continue to serve the communities it presently serves from its
existing office locations. The assets, property, rights and powers, debts,
liabilities, obligations and duties of the Bank will not be changed by the
Reorganization, except for the proposed initial transfer of $50,000 from the
Bank's stockholders' equity to the Company. See
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"Financial Resources of the Company." Similarly, the Articles of Organization,
By-laws and name of the Bank will not be affected by consummation of the
Reorganization. Pursuant to the Plan of Reorganization, upon consummation of the
Reorganization the employee incentive stock option plan of the Bank (the "Stock
Option Plan") will become the employee incentive stock option plan of the
Company. Certain officers of the Bank will initially serve as the principal
officers of the Company. See "Management of the Company."
The Reorganization will be accounted for in a method similar to the
"pooling of interests" method for accounting purposes.
Reasons for the Holding Company Formation
The Board of Directors of the Bank believes that a holding company
structure will improve the competitive position of the Bank in an evolving and
consolidating market and provide increased long-term value to stockholders. The
holding company structure should facilitate the acquisition of or affiliation
with other banks as well as other companies engaged in bank-related activities.
In its present form, the only practical way for the Bank to affiliate with
another banking institution is by merger with, or acquisition of substantially
all the assets of, the other institution. In such case, the acquired entity is
absorbed by the acquirer and ceases to operate as an ongoing business
organization. A holding company structure, however, would permit an acquired
entity to operate on a more autonomous basis as a wholly-owned subsidiary of the
Company. For example, the acquired institution could retain its own directors,
officers, corporate name and local identity. This more autonomous operation may
be decisive in acquisition negotiations. The Board of Directors of the Bank
believes that if the Company can build a multibank franchise composed of
well-established community banks with strong ties to local consumers and small
businesses, then the consolidated Company, by benefitting from improved
economies of scale and expanded managerial and financial resources, should be
able to provide in a cost effective manner an expanded range of superior quality
products and services, which will, in turn, enable the Company to compete more
effectively with the larger regional and out-of-state banking organizations
operating within the Company's market area. While the Bank, from time to time,
explores acquisition and affiliation possibilities, neither the Bank nor the
Company has any current agreements or understandings for the acquisition of or
affiliation with any financial institution or other company and there are no
assurances that any such acquisitions or affiliations will occur.
A holding company structure will also provide greater flexibility for
meeting the future financial needs of the Bank or other subsidiaries of the
Company. The Company, unlike the Bank, will not generally be subject to any
regulatory limitations on the amounts which it can invest in its subsidiaries
and other businesses. In addition, the Company, unlike the Bank, will not be
required to obtain the prior approval of the Commissioner of Banks before
issuing shares of its capital stock. The Company will also be permitted, in
accordance with applicable regulations of the Federal Reserve Board, to purchase
or redeem its equity securities. Although current Massachusetts banking laws
would permit the Bank to purchase its own stock, federal limitations on the
permissible activities and investments of state-chartered banks imposed by the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") may
prohibit such purchases by the Bank. See "Regulation." With a parent holding
company as a potential source of additional capital, the Bank should be better
able to undertake necessary capital expenditures and/or grow its assets, both of
which may improve the Bank's competitive position within its market area. There
are no current agreements or understandings with respect to any investments or
the issuance (other than pursuant to the Stock Option Plan) of any additional
shares of capital stock by either the Bank or the Company.
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It is recognized that some increased costs, including administrative
expenses and franchise and other taxes, will be incurred in the formation and
operation of the Company. However, such increased costs are not expected to have
a material adverse effect on the consolidated financial results of the Company
and the Bank.
Financial Resources of the Company
The Bank currently intends to transfer $50,000 as a capital
contribution to the Company immediately prior to the effective time of the
Reorganization. Upon consummation of the Reorganization, the shares of the
Company to be issued to the Bank in connection with such capital contribution,
will be redeemed at par value and retired to the status of authorized and
unissued shares. See "Capitalization." Immediately following the Reorganization,
therefore, the assets of the Company, on an unconsolidated basis, will consist
of the initial transfer of funds by the Bank and all of the then outstanding
shares of Bank Common Stock. See "Capitalization." A transfer of $50,000 to the
Company would reduce the Bank's stockholders' equity as of December 31, 1995, to
approximately $18,915,714 on an unconsolidated basis. If this transfer to the
Company had been made on December 31, 1995, the Bank's tier 1 leverage capital
ratio, tier 1 risk-based capital ratio and total risk-based capital ratio would
have been approximately 8.34%, 15.05% and 16.30%, respectively, each of which is
in excess of the Bank's minimum regulatory requirements and would permit the
Bank to qualify as a "well capitalized" depositary institution for the purposes
of current FDIC capital regulations.
The actual amount of funds which may be transferred, however, is
subject to change and may be greater or less, depending on a number of factors,
including the Company's future financial requirements and applicable regulatory
restrictions. In this regard, the Bank may also lend funds to the Company,
either as part of or in addition to the transfer of funds being made at the time
of the Reorganization or thereafter. The funds provided to the Company by the
Bank may be used by the Company for various corporate purposes, including the
payment of expenses to be incurred by the Company in the ordinary course of
business.
Additional financial resources may be available to the Company in the
future through borrowings, debt or equity financings, or dividends from the
Bank, other acquired entities or new businesses. Some or all of the foregoing
will be subject to compliance with certain regulatory restrictions. In addition,
the Bank may lend amounts to the Company. Any such loans would be subject to
certain restrictions on transactions with affiliates of a bank holding company
under Section 23A the Federal Reserve Act, as amended, and other regulatory
limitations. There can be no assurance, however, as to the amount of additional
financial resources which will be available to the Company. Dividends from the
Bank to the Company will also be subject to tax and regulatory limitations and
requirements. See "-- Income Tax Consequences" and "Market for Stock and
Dividends."
Conditions of the Reorganization
The Plan of Reorganization provides that it shall not become effective
until all of the following first shall have occurred: (i) the Plan of
Reorganization shall have been approved by a vote of the holders of two-thirds
of the outstanding shares of Bank Common Stock, (ii) the Plan of Reorganization
shall have been approved by the Commissioner of Banks under Section 26B of
Chapter 172 of the General Laws of Massachusetts, (iii) the Company shall have
provided notice to the Reserve Bank of its proposed acquisition of all of the
capital stock of the Bank in accordance with the Plan of Reorganization as
required under the regulations of the Federal Reserve Board contained at 12
C.F.R. ss. 225.15 and neither the Reserve Bank nor the Federal Reserve Board
shall have objected to the Reorganization within thirty days after the date of
the Reserve Bank's receipt of such notice, (iv) the Bank and the Company shall
have received a favorable opinion
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from its independent public accountants concerning the federal income tax
consequences of the Reorganization, (v) the shares of Company Common Stock to be
issued in exchange for Bank Common Stock pursuant to the Reorganization shall be
registered or qualified for issuance to the extent required under applicable
state securities laws, and (vi) the Bank and the Company shall have obtained all
other necessary consents, permissions and approvals and taken all other actions
required or otherwise deemed to be necessary or appropriate, including the
amendment of the Company's articles of organization to increase its authorized
capital to 5,000,000 shares of common stock, par value $0.01 per share, and
1,000,000 shares of preferred stock, par value $0.01 per share, for the holding
company formation.
It is expected that an application will be filed with the Commissioner
of Banks promptly after the date of this Proxy Statement-Prospectus to obtain
approval of the Plan of Reorganization. The Commissioner of Banks will not
approve the Plan of Reorganization unless and until the Plan of Reorganization
has been approved by the Bank's stockholders. The Company will also file the
required notice of the Reorganization with the Reserve Bank at approximately the
same time as the application to the Commissioner of Banks is submitted. See
"Regulation--Holding Company Regulation." The Bank has received an opinion of
its independent public accountants regarding the federal income tax consequences
of the Reorganization. See "Income Tax Consequences."
If the Plan of Reorganization is approved by the Bank's stockholders at
the Annual Meeting, the holding company formation is expected to become
effective as soon thereafter as the required regulatory approvals are received.
The Bank and the Company have the right under the terms of the Plan of
Reorganization to abandon the Reorganization if, among other things, the
necessary regulatory approvals cannot be obtained or if the conditions or
obligations associated with any such regulatory approval make the Reorganization
inadvisable in the opinion of the Bank or the Company.
If the Plan of Reorganization is not approved at the Annual Meeting or
all of the necessary regulatory approvals are not obtained, the Bank will
continue to operate without a holding company structure. All expenses in
connection with the Reorganization will be paid by the Bank whether or not the
Plan of Reorganization is approved by its stockholders or the Reorganization is
consummated.
In addition, the Plan of Reorganization also provides that it may be
abandoned by the Board of Directors of the Bank or the Company if, among other
things (i) the number of shares of Bank Common Stock owned by dissenting
stockholders will make consummation of the Reorganization inadvisable in the
opinion of the Bank or the Company, (ii) any action, suit, proceeding or claim
has been instituted, made or threatened relating to the proposed Reorganization
which will make consummation of the Reorganization inadvisable in the opinion of
the Bank or the Company, or (iii) for any other reason consummation of the
Reorganization is inadvisable in the opinion of the Bank or the Company.
Rights of Dissenting Stockholders
Any holder of Bank Common Stock (i) who files with the Bank before the
taking of the vote on the approval of the Plan of Reorganization, written
objection to the Plan of Reorganization, stating that he intends to demand
payment for his shares if the Reorganization is consummated, and (ii) whose
shares are not voted in favor of the Plan of Reorganization, has or may have the
right to demand in writing from the Bank, within 20 days after the date of
mailing to him of notice in writing that the Reorganization has become
effective, payment for his shares and an appraisal of the value thereof. The
Bank and any such stockholder shall follow the procedure set forth in Sections
85 to 98, inclusive, of Chapter 156B of the General Laws of Massachusetts. A
brief summary of the applicable sections of the General Laws of Massachusetts is
set forth
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below. However, this summary does not purport to be a complete statement of the
procedures to be followed by stockholders desiring to exercise their rights to
dissent from the Reorganization and is qualified in its entirety by express
reference to such sections, which are included in this Proxy
Statement-Prospectus as Appendix B.
A holder of Bank Common Stock intending to exercise his dissenter's
right to receive payment for his shares must file with the Bank, before the
Annual Meeting or at the Annual Meeting but before the vote on the Plan of
Reorganization, written objection to the Plan of Reorganization stating that he
intends to demand payment for his shares if the Reorganization is consummated
and must not vote in favor of the Reorganization at the Annual Meeting. Within
10 days after the Reorganization becomes effective, the Bank will give written
notice of such effectiveness by registered or certified mail to each holder of
Bank Common Stock who filed such written objection and who did not vote in favor
of the Plan of Reorganization. Such written notice of effectiveness will be
addressed to the stockholder at his last known address as it appears in the
stock record books of the Bank. Within 20 days after the mailing of such notice,
any holder of Bank Common Stock to whom the Bank was required to give such
notice may make written demand for payment for his shares from the Bank and in
such event, the Bank will be required to pay to him the fair value of his shares
within 30 days after the expiration of the period during which such demand may
be made. If during such 30-day period the Bank and the dissenting stockholder
fail to agree as to the fair value of such shares, the Bank or such stockholder
may have the fair value of the stock of all dissenting stockholders determined
by judicial proceedings by filing a bill in equity in the Superior Court in
Middlesex County, Massachusetts, within four months after such 30-day period.
For the purposes of any such Superior Court determination, the value of the
shares of the Bank is to be determined as of the day preceding the date of the
vote of the stockholders approving the Plan of Reorganization and shall be
exclusive of any element of value arising from the expectation or accomplishment
of the Reorganization. Upon making such written demand for payment, the
dissenting stockholder will not thereafter be entitled to notices of meetings of
stockholders, to vote, or to dividends unless no suit is filed within four
months to determine the value of the stock, any such suit is dismissed as to
that stockholder, or the stockholder withdraws his objection in writing with the
written approval of the Bank.
Failure to affirmatively vote against the Plan of Reorganization does
not constitute a waiver of a dissenting stockholder's right to receive payment
for his shares of Bank Common Stock, provided that such dissenting stockholder
has furnished the requisite notice of objection prior to the stockholders' vote
on the Plan of Reorganization and such stockholder does not in fact
affirmatively vote in favor of the Plan of Reorganization. Likewise, an
affirmative vote against the Plan of Reorganization does not entitle a
stockholder to receive payment for his shares of Bank Common Stock unless such
stockholder has also furnished the requisite notice of objection and undertaken
the additional steps (summarized in the preceding paragraph) required to perfect
his dissenters' rights of appraisal.
The enforcement by a dissenting stockholder of his right to receive payment
for his Bank Common Stock in the manner provided by Sections 85 through 98 of
Chapter 156B of the General Laws of Massachusetts will be his exclusive remedy,
except that a stockholder shall not be excluded from bringing or maintaining an
appropriate proceeding to obtain relief on the ground that consummation of the
Reorganization will be or is illegal or fraudulent as to him.
Income Tax Consequences
The Bank will not seek a ruling from the Internal Revenue Service
concerning the federal income tax consequences of the proposed holding company
formation, but will instead rely on an opinion of its
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independent public accountants, KPMG Peat Marwick LLP. Unlike a private letter
ruling from the Internal Revenue Service, such an opinion has no binding effect
on the Internal Revenue Service. The Bank has been advised by KPMG Peat Marwick
LLP in substance that:
1. No gain or loss will be recognized by the stockholders of the Bank
upon the transfer of their shares of Bank Common Stock to the Company
solely in exchange for shares of Company Common Stock (Section 351(a)
of the Internal Revenue Code of 1986, as amended (the "Code")).
2. No gain or loss will be recognized by the Bank as a result of the
Reorganization.
3. No gain or loss will be recognized by the Company upon the receipt of
shares of Bank Common Stock solely in exchange for Company Common
Stock (Section 1032(a)(1) of the Code).
4. The basis of the shares of Company Common Stock to be received by the
shareholders of the Bank in the Reorganization will, in each case, be
the same as the basis of the shares of Bank Common Stock surrendered
in exchange therefor (Section 358(a)(1) of the Code).
5. The holding period of the shares of Company Common Stock to be
received by the shareholders of the Bank will, in each case, include
the period during which the shares of Bank Common Stock exchanged
therefor were held, provided the shares of Bank Common Stock were
held as a capital asset by the Bank's shareholders on the date of the
exchange (Section 1223(1) of the Code).
6. The basis of the shares of Bank Common Stock to be received by the
Company will, in each case, be the same as the basis of such stock in
the hands of the exchanging Bank shareholders (Section 362(a) of the
Code).
7. The holding period of the shares of Bank Common Stock to be received
by the Company will, in each instance, include the period during
which such shares were held by the shareholders of the Bank (Section
1223(2) of the Code).
8. Provided the Company and the Bank file a consolidated federal income
tax return, the earnings and profits of the Company, as new common
parent of the affiliated group, will be adjusted to reflect the
earnings and profits of the Bank (see Section 1.1502-31(a)(1) and
1.1502-33(f)(1) of the Treasury Regulations).
9. Provided the Company and the Bank file a consolidated federal income
tax return, the affiliated group of which the Bank was the common
parent prior to the Reorganization will continue in existence with
the Company as the new common parent.
10. Stockholders of the Bank who exercise their dissenters' rights and
receive cash in the exchange for their shares of Bank Common Stock
will recognize taxable income or loss for federal income tax purposes
in connection with the Reorganization. The amount of that income or
loss and the tax treatment of that income or loss (e.g., whether it
constitutes ordinary income or loss, short-term capital gain or loss
or long-term capital gain or loss) will depend upon a number of
factual considerations peculiar to the individual stockholder.
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Any stockholder of the Bank considering exercising his dissenter's
appraisal rights with respect to any shares of Bank Common Stock should consult
his personal income tax advisor for specific advice with respect to the federal
income tax consequences of that exercise.
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the holding company formation, stockholders of the Bank,
whose rights are presently governed by the Massachusetts banking laws, will
become stockholders of the Company, a Massachusetts business corporation, and as
such their rights will be governed by the Massachusetts Business Corporation
Law. Certain differences in the rights of stockholders arise from this change in
governing law. In addition, although the Articles of Organization and the
By-laws of the Bank (such Articles of Organization being referred to herein as
the "Bank Articles") and the Articles of Organization, as they will be amended
prior to the Effective Time to increase the Company's authorized capital stock,
and the By-laws of the Company (such Articles of Organization, as so amended,
being referred to herein as the "Company Articles") are similar in substance,
there are certain differences in their respective provisions. The material
differences and some of the important similarities of the rights of stockholders
of the Bank and the Company are discussed below. The following discussion does
not purport to be a complete statement of such similarities and differences
affecting the rights of stockholders of the Bank but is intended as a summary
only. The Articles of Organization and By-laws of the Company, copies of which
are attached as Appendix C to this Proxy Statement-Prospectus, should be
reviewed carefully by each stockholder.
Capital Stock
Authorized and Issued Stock. The Bank has 3,000,000 shares of authorized
common stock, par value $1.00 per share, of which 1,575,892 shares were issued
and outstanding as of the Record Date and 152,802 shares in the aggregate were
reserved for issuance under the Stock Option Plan. The Bank also has 1,000,000
shares of authorized but unissued preferred stock, par value $1.00 per share.
The Company Articles provide for 5,000,000 shares of common stock, par value
$0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per
share, of which no shares are currently issued and outstanding. After the
consummation of the Reorganization, the Company will have the same number of
issued and outstanding shares, subject to the exercise of dissenters' appraisal
rights, and shares reserved for issuance under its stock option plan as are
presently so issued and reserved by the Bank. See "Description of Company
Capital Stock."
Issuance of Stock. Under the provisions of Massachusetts banking law, the
issuance of capital stock by the Bank requires the prior approval of the
Commissioner of Banks. In contrast, the Company is able to issue shares of
capital stock without obtaining prior approval of the Commissioner of Banks. The
issuance of capital stock by the Company, however, would be subject to
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless such issuance was not in connection with a public offering or was
otherwise subject to an exemption from such registration requirements, whereas
the capital stock of the Bank is exempt in all cases from such registration.
There are no current agreements or understandings with respect to the issuance
of any additional shares of the Company capital stock.
Pre-emptive Rights. The stockholders of the Company, like the stockholders
of the Bank, will not be entitled to pre-emptive rights with respect to any
shares of capital stock which may be issued.
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Rights of Issuer to Repurchase Stock. Under applicable state and federal
banking laws, the Bank is authorized to purchase shares of its own stock if such
purchase is undertaken in accordance with certain regulatory requirements,
including the prior approval of the FDIC. Under the Massachusetts Business
Corporation Law, the Company will be allowed to purchase shares of its own stock
in the open market or otherwise. Any purchase by the Company will be subject to
applicable law, including prior notice to the Federal Reserve Board under
certain circumstances. See "Regulation -- Holding Company Regulation."
Common Stock
Dividend Rights. The stockholders of the Bank are entitled to dividends
when and as declared by the Bank's Board of Directors. Under applicable
Massachusetts law and FDIC regulations governing the payment of dividends by
stock form banks, such as the Bank, the board of directors is generally
empowered to pay dividends out of the bank's net profits, to the extent that the
board of directors considers such payment advisable, and the bank remains
adequately capitalized. Massachusetts law also imposes various specific
restrictions upon a bank's payment of dividends, including the requirement that
on the date a dividend is declared the bank's capital and surplus must equal at
least 10% of its deposit liabilities or a sufficient amount must be transferred
from net profits to surplus so that the surplus account shall equal one hundred
percent of the capital stock account prior to the payment of such dividend. The
Bank is not subject to any regulatory agreement, order or directive that would
restrict its ability to pay dividends to the fullest extent otherwise permitted
by applicable law and regulation.
A Massachusetts business corporation, such as the Company, may pay
dividends or repurchase or redeem its shares of capital stock; however, a
director who votes to authorize a dividend, repurchase or redemption which is in
violation of the corporation's articles of organization or which renders the
corporation insolvent may be jointly and severally liable for such improper
dividend, repurchase or redemption. Stockholders to whom a corporation makes any
such distribution (except a distribution of stock of the corporation), if the
corporation is, or is thereby rendered, insolvent, are liable to the corporation
for the amount of such distribution made, or for the amount of such distribution
which exceeds that which could have been made without rendering the corporation
insolvent, but in either event only to the extent of the amount paid or
distributed to them, respectively.
It is the policy of the Federal Reserve Board that bank holding companies
should pay cash dividends on common stock only out of the past year's net
income, and only if prospective earnings retention is consistent with the
organization's expected future needs. The policy further provides that bank
holding companies should not maintain a level of cash dividends that undermines
the bank holding company's ability to serve as a source of strength to its
subsidiary banks. The Federal Reserve Board also requires by regulation that a
bank holding company seeking to purchase or redeem any of its equity securities
must provide prior notice to the appropriate regional Federal Reserve Bank,
which may disapprove of such proposed purchase or redemption, if the gross
consideration for such purchase or redemption, when aggregated with the net
consideration paid by the holding company for all such purchases or redemptions
during the preceding twelve months, exceeds 10% of the holding company's
consolidated net worth, except that such prior notice requirements do not apply
to any holding company that is "well capitalized" in accordance with Federal
Reserve Board regulations, has received a composite "1" or "2" rating in its
most recent examination and is not subject to any unresolved regulatory issues.
Principal sources of revenues for the Company will be dividends received
from the Bank and other subsidiaries and interest earned on short-term
investments and advances to subsidiaries. See "Market for Stock and Dividends."
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Any issuance of preferred stock with a preference over Company Common Stock
as to dividends may affect the dividend rights of common stockholders.
Voting Rights. All voting rights in the Bank are currently vested in the
holders of the issued and outstanding Bank Common Stock. Each share of Bank
Common Stock is entitled to one vote on all matters, without any right to
cumulative voting in the election of Directors. Following the formation of the
holding company structure, all voting rights in the Company will be vested in
the holders of Company Common Stock and each share of Company Common Stock will
be entitled to one vote on all matters, without any right to cumulative voting
in the election of Directors. In each case, any issuance of preferred stock with
voting rights may affect the voting rights of common stockholders.
Preferred Stock
Under both the Bank Articles and the Company Articles, the respective
Boards of Directors of the Bank and the Company are authorized to issue
preferred stock in series and to fix the powers, designations, preferences, or
other rights of the shares of each such series and the qualifications,
limitations, and restrictions thereon. The issuance of preferred stock by the
Bank and by the Company is subject to the approval of a majority vote of the
Board of Directors of the Bank or the Company, as the case may be. The issuance
of preferred stock by the Bank is also subject to approval by the Commissioner
of Banks. Preferred stock issued by the Company after the Reorganization may
rank prior to the Company Common Stock as to dividend rights, or liquidation
preferences, or both, may have full or limited voting rights (including multiple
voting rights and voting rights as a class), and may be convertible into shares
of Company Common Stock. The Company has no present plans or understandings for
the issuance of any preferred stock.
Directors
Number and Staggered Terms. The Articles of Organization and By-laws of the
Bank provide that the Board of Directors shall consist of not less than seven
nor more than 15 members. The Articles of Organization and By-laws of the
Company provide that the number of Directors of the Company shall consist of not
less than three. The Board of Directors of the Company will initially be
composed of the 13 persons currently serving as the Board of Directors of the
Bank. Both the Bank Articles and the Company Articles provide for three classes
of Directors with one class elected each year for three year staggered terms, so
that ordinarily no more than approximately one-third of the Directors will stand
for election in any one year and that there will be no cumulative voting in the
election of Directors.
Removal. The Bank Articles and the Company Articles both provide that
Directors may be removed from office, but only for cause, and then only by the
affirmative vote of either not less than two-thirds of the outstanding shares
entitled to vote at a duly constituted meeting of stockholders or two-thirds of
the members of the Board of Directors then in office, unless at the time of such
removal there shall be an Interested Stockholder (as defined below), in which
case the affirmative vote of not less than two-thirds of the Continuing
Directors (as defined below) then in office shall instead be required for such
removal by vote of the Board of Directors. The term "Interested Stockholder" is
defined in both the Bank Articles and the Company Articles to mean generally any
beneficial owner of more than 10% of the outstanding stock of the Bank or the
Company, as the case may be, and certain assignees of such Interested
Stockholder. The term "Continuing Directors" is defined in both the Bank
Articles and the Company Articles to mean generally Directors and certain
successor Directors who are not affiliates of an Interested Stockholder and who
were Directors prior to the time that an Interested Stockholder became an
Interested Stockholder. Both the Bank Articles and the Company Articles define
cause to mean only the following: (i) conviction of a felony, (ii)
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acceptance of immunity to testify where another has been so convicted, (iii) a
court determination of liability for negligence or misconduct in the performance
of directorial duties in an important matter or (iv) a determination or
direction by such governmental agency or authority as may exercise proper
jurisdiction that an individual should not be a Director.
Vacancies. The By-laws of the Bank provide that any vacancy occurring on
the Board of Directors caused by resignation, removal or death of a Director,
may be filled by the vote of a majority of the remaining Directors unless there
is an Interested Stockholder in which case the affirmative vote of a majority of
the Continuing Directors then in office is also required. Any vacancy caused by
an increase in the size of the Bank's Board of Directors may be filled by the
existing Directors. All Directors of the Bank elected to fill vacancies shall
serve until the next election of Directors by the stockholders. The By-laws of
the Company provide that any vacancy occurring on the Board of Directors of the
Company, including vacancies resulting from an enlargement of the Board, shall
be filled solely by the affirmative vote of a majority of the remaining
Directors, unless at the time there is an Interested Stockholder, in which case
the affirmative vote of a majority of the Continuing Directors is also required.
In contrast to the Bank, any Director of the Company so chosen would hold office
for the remainder of the term of the class of Directors to which the Director
has been elected, not just until the next annual meeting of stockholders. The
By-laws of the Bank also provide that a maximum of two additional Directors may
be elected in any fiscal year by vote of a majority of the Directors then in
office. The By-laws of the Company has no such limitation on the election of
additional Directors during any period by such action of the Directors then in
office.
Meetings of Stockholders
The Bank Articles provide that a special meeting of stockholders may be
called only by the Chairman and Chief Executive Officer or by the affirmative
vote of a majority of the Directors then in office except that if at the time of
such call there is an Interested Stockholder, the call of such a meeting shall
also require the affirmative vote of a majority of the Continuing Directors then
in office. The Bank Articles and the Company Articles both also provide that
only those matters set forth in the call of the special meeting may be
considered or acted upon at such special meeting, unless otherwise provided by
law.
The Bank's Articles of Organization and By-laws set forth certain advance
notice and informational requirements and time limitations on any Director
nomination or any new business which a stockholder wishes to propose for
consideration at an annual meeting of stockholders. Any such nomination or new
business, to be timely, shall be delivered to, or mailed and received at, the
principal executive offices of the Bank not less than 60 days nor more than 150
days prior to the annual meeting, provided that in the event that less than
seventy days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made must be given. A stockholder's notice
must be delivered in writing to the Clerk of the Bank and must satisfy various
informational requirements pertaining to such director nomination or other
proposal sought to be presented by the stockholder as well as the identity and
stock ownership of such stockholder. Stockholder nominations of directors or
proposals of new business that do not satisfy all of the procedural and
informational requirements contained in the Bank's Articles of Organization and
By-laws may be rejected by the Board of Directors. The Articles of Organization
and By-laws of the Company contain substantially the same provisions for
director nominations and new business proposals by stockholders.
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Stockholder Vote Required to Approve Certain Transactions
Massachusetts law provides that certain agreements of merger or
consolidation, or the sale, lease or exchange of all or substantially all of the
property and assets, of a Massachusetts trust company or corporation must be
approved by the affirmative vote of holders of two-thirds of the shares of each
class of stock outstanding and entitled to vote thereon or, if the articles of
organization so provide, the vote of a lesser proportion, but not less than a
majority. Additionally, Massachusetts law provides that no vote of the
stockholders of the surviving Massachusetts bank or corporation is required,
unless its articles of organization otherwise provide, to approve a merger if
(i) the agreement of merger does not amend in any respect the bank's or the
corporation's articles of organization, (ii) the number of shares of the
surviving bank's or corporation's stock to be issued in the merger does not
exceed 15% of the shares of the same class outstanding immediately prior to the
effective date of the merger and (iii) the issuance of authorized but unissued
stock pursuant to a merger by vote of the directors has been authorized by the
by-laws or a vote of the stockholders. A Massachusetts corporation owning at
least 90% of the outstanding shares of each class of stock of another
corporation may merge such corporation into itself without a vote of the
stockholders.
The Bank Articles provide that any Business Combination (as defined below)
involving the Bank and an Interested Stockholder must be approved by the holders
of at least 80% of the outstanding shares of the Bank's voting stock (the "Bank
Voting Requirement") voting together as a single class. The Bank Voting
Requirement does not apply and only such affirmative vote as is required by law
(which is currently two-thirds of the outstanding shares of voting stock) is
necessary if (i) the Business Combination is approved by an affirmative vote of
at least two-thirds of the Continuing Directors or (ii) certain "fair price"
(defined generally to mean, among other things, that the consideration to be
received by stockholders in such Business Combination shall be in the same form
and kind as the consideration paid by the Interested Stockholder for the Bank's
capital stock owned by such person and shall be at least equal to the highest of
the following: (A) the highest per share price paid by such Interested
Stockholder in acquiring any of its holdings of Bank Common Stock within the two
year period immediately prior to the first public announcement of the proposal
of the Business Combination (the "Announcement Date") or in the transaction
through which such person became an Interested Stockholder; (B) the highest Fair
Market Value (as defined in the Bank Articles) per share of Bank Common Stock on
any date during the one-year period prior to and including the Announcement
Date; and (C) the price per share equal to (1) the Fair Market Value per share
of common stock on the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder, multiplied by (2) a fraction (x)
the numerator of which is the highest per share price paid by the Interested
Stockholder for any share of Bank Common Stock acquired by it within the
two-year period immediately prior to and including the Announcement Date and (y)
the denominator of which is the Fair Market Value per share of Bank Common Stock
on the first day in such two-year period on which the Interested Stockholder
acquired any shares of Bank Common Stock) and other criteria are met. Under the
Bank Articles, a "Business Combination" is defined as (i) any plan of
acquisition pursuant to Section 4A of Chapter 167A of the Massachusetts General
Laws (which statute is no longer applicable) or merger or consolidation of the
Bank with an Interested Stockholder or affiliate thereof, (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition by the Bank of assets
having a fair market value of $2,500,000 or more to or with an Interested
Stockholder or an affiliate thereof, (iii) the issuance or transfer by the Bank
of any securities of the Bank to an Interested Stockholder or any affiliate
thereof in exchange for cash, securities or other property (or a combination
thereof) having a fair market value of $2,500,000 or more, (iv) the adoption of
a plan or proposal for the liquidation or dissolution of the Bank proposed by or
on behalf of an Interested Stockholder or an affiliate thereof and (v) any
transaction that has the effect of increasing the proportionate share of any
class of equity or convertible securities of the Bank that is beneficially owned
by an Interested Stockholder or any affiliate thereof.
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<PAGE>
The Company Articles address Business Combinations involving Interested
Stockholders in substantially the same manner as the Bank Articles, except that
the definition of Business Combination also includes the purchase, exchange,
lease or other acquisition by the Company of all or substantially all of the
assets or business of any Interested Stockholder or any affiliate thereof.
Provisions Relating to Exercise of Business Judgment by Board of Directors
The Bank Articles provide that its Board of Directors, when evaluating any
tender or exchange offer, merger, acquisition or similar offer of another
person, shall in connection with the exercise of its judgment in determining
what is in the best interests of the Bank and its stockholders, give due
consideration to all relevant factors including, without limitation, the social
and economic effects of acceptance of such an offer on the Bank's present and
future account holders, borrowers and employees, on the communities in which the
Bank operates or is located and on the ability of the Bank to fulfill its
objectives under applicable statutes and regulations. The Company Articles
contain a provision that is substantially the same.
Beneficial Ownership Limitation
Both the Bank Articles and the Company Articles contain a prohibition
against any person directly or indirectly offering to acquire, or acquiring,
beneficial ownership (as defined in the Bank Articles and the Company Articles)
10% of any class of outstanding equity securities of the Bank or the Company, as
the case may be, except that the prohibition in the Bank Articles expired by its
terms in 1994 and the prohibition in the Company Articles continues
indefinitely. Both the Bank Articles and the Company Articles contain an
exception from this limitation for (i) any offer to the Bank or the Company, as
the case may be, made by the underwriters acting on behalf of the Bank or the
Company in connection with a public offering by the Bank or the Company of its
capital stock, (ii) any acquisition of shares of capital stock which has been
approved by an affirmative vote of not less than two-thirds of the Continuing
Directors then in office, and (iii) any acquisition of shares acquired by an
employee stock ownership plan established by the Bank or the Company, as the
case may be. The Bank Articles also contain an exception from this limitation
for the formation by the Bank of a holding company.
Indemnification and Limitation of Liability
The Articles of Organization and By-laws of the Bank provide for the
indemnification of each director, officer and employee against all expenses and
liabilities reasonably incurred by or imposed on him in connection with any
proceeding or threatened proceeding in which he may become involved by reason of
his being or having been a director or officer, so long as such person acted in
good faith and in a manner he reasonably believed to be in best interests of the
Bank. The Articles of Organization and By-laws of the Company contain
substantially similar provisions, except that a person's indemnification rights
depend upon such person having acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company. The
By-laws of the Company further provide that (i) if the Company is merged into or
consolidated with another corporation and the Company is not the surviving
corporation, the surviving corporation shall assume the indemnification
obligations of the Company under the By-laws with respect to any action, suit,
proceeding or investigation arising out of or relating to any actions,
transactions or facts occurring at or prior to the date of such merger or
consolidation; (ii) if the By-laws are invalidated on any ground by any court of
competent jurisdiction, the Company shall nevertheless indemnify and advance
expenses to each indemnitee as to any expenses (including reasonable attorneys'
fees), judgments, fines, liabilities, losses, and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Company,
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<PAGE>
to the fullest extent permitted by any applicable portion of the By-laws that
have not been invalidated and to the fullest extent permitted by applicable law;
and (iii) if the Massachusetts General Laws are amended after adoption of the
Company's By-laws to expand further the indemnification permitted to an
indemnitee, the Company shall indemnify all such persons to the fullest extent
permitted by the Massachusetts General Laws, as so amended.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
The Company Articles provide that its directors shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for any unlawful distributions to stockholders or loans
to officers or directors, or (iv) for any transaction from which the director
derived an improper personal benefit. The Bank Articles do not contain any such
provisions.
Amendment of Articles of Organization
The Bank Articles and the Company Articles each provide that an amendment
to either of the respective documents must first be approved by two-thirds of
the Directors of the Bank or the Company then in office, respectively, and
thereafter by an affirmative vote of at least eighty percent of the voting power
of the then outstanding voting stock of the Bank or the Company, as the case may
be (except that certain provisions may be amended by a majority vote of the
stockholders). In addition, if, at any time within a sixty-day period prior to
the meeting of stockholders at which such amendment is to be considered there is
an Interested Stockholder, the amendment must also be approved by an affirmative
vote of a majority of the Continuing Directors then in office, prior to approval
by the stockholders.
Amendment of By-laws
The Bank Articles and the Company Articles provide that the By-laws may be
adopted or amended either by the Board of Directors or the stockholders of the
Bank or the Company as the case may be. Such action by the Board of Directors
shall require the affirmative vote of at least two-thirds of the Directors then
in office at a duly constituted meeting of the Board of Directors, unless at the
time of such action there shall be an Interested Stockholder, in which case such
action shall also require the affirmative vote of at least two-thirds of the
Continuing Directors then in office, at such a meeting. Such action by the
stockholders of the Bank or the Company, as the case may be, shall require (i)
approval by the affirmative vote of a majority of its Board of Directors then in
office at a duly constituted meeting of such Board of Directors, unless at the
time of such action there shall be an Interested Stockholder, in which case such
action shall also require the affirmative vote at such meeting of at least a
majority of the Continuing Directors then in office, (ii) unless waived by the
affirmative vote of such Board of Directors (and, if applicable, Continuing
Directors) specified in the preceding sentence, the submission by the
stockholders of written proposals for adopting, altering, amending, changing or
repealing the By-laws that comply in all respects with the provisions of the
By-laws governing such submissions and (iii) the affirmative vote of at least
two-thirds of the votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders called expressly for such purpose.
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<PAGE>
Legal Investments
Under the laws of some jurisdictions, shares of Bank Common Stock may be
legal investments for certain institutions and fiduciaries, whereas shares of
Company Common Stock may not be legal investments for such investors.
Anti-Takeover Provisions
Certain provisions of the Articles of Organization and By-laws of the Bank
and the Company, as described above, may be deemed to have an "anti-takeover"
effect. For example: (i) the Board of Directors' authority to fix the
designations, powers, preferences and relative rights of the authorized and
unissued shares of preferred stock could be used in the event of an attempt by
an unsolicited third party to gain control of the Bank or the Company, as the
case may be, to impede such attempt to acquire control; (ii) the three-year
staggered terms for Directors, the Board of Directors' authority to fix the
number of directors who may serve from time to time, the ability to remove
directors only for cause, and the advanced notice and informational requirements
pertaining to the nomination by shareholders of candidates for election to the
Board of Directors all may make it more difficult to change a majority of the
Board of Directors; (iii) the requirements that special meetings of shareholders
may be called only by the Chairman of the Board and Chief Executive Officer or
by a majority of the directors and that shareholder proposals must satisfy
certain advance notice and informational requirements to be considered at any
meeting may make it more difficult for shareholders to take action independent
of the Board of Directors; (iv) the requirements that Business Combinations that
are not approved by the Continuing Directors must either satisfy certain "fair
price" provisions or be approved by a "super majority" stockholder vote may make
it more difficult to effect any such transaction that is not supported by the
Board of Directors; (v) the provisions relating to the Board of Directors'
exercise of their business judgment may provide the directors with a stronger
position to oppose certain transactions that may otherwise appear economically
attractive to stockholders; (vi) the prohibition against any person directly or
indirectly acquiring or offering to acquire beneficial ownership of more than
10% of any class of the equity securities of the Bank or the Company, as the
case may be, without the approval of the Continuing Directors precludes on its
face any such acquisition transaction without the support of the Board of
Directors; and (vii) the requirement that shareholder action to amend the
Articles of Organization or By-laws must generally be preceded by the approval
of the Board of Directors of such proposed amendment may limit shareholders'
ability to effect such amendments without the support of the Board of Directors.
In addition to the various provisions of the Articles of Organization and
By-laws of the Bank and the Company, certain provisions of the Massachusetts
General Laws may also have the effect of discouraging future acquisitions of the
Company or the Bank, as applicable. Chapters 110D and 110F of the Massachusetts
General Laws cover "control share acquisitions" and certain business
combinations with interested shareholders, respectively.
Chapter 110D of the Massachusetts General Laws covers "control share
acquisitions" affecting corporations incorporated in Massachusetts that have at
least 200 stockholders and possess certain statutory indicia reflecting
additional substantial ties to Massachusetts (as would be the case with the
Company). Chapter 110D limits the voting rights of shares held by persons who
have acquired 20% or more of the voting power of the target corporation. Under
this statute, shares acquired in a control share acquisition retain the same
voting rights as all other shares of the same class or series only to the extent
authorized by a vote of the majority of all shares entitled to vote for the
election of directors, excluding such acquired shares. A corporation that is
otherwise subject to Chapter 110D may expressly provide in its articles of
organization or bylaws that the statute does not apply. Chapter 110D by its
terms would apply to the Company, but not
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<PAGE>
apply to the Bank. The Company has not included any "opt out" provision in
either the Articles or By-laws of the Company.
Chapter 110F of the Massachusetts General Laws provides that if any
acquirer buys 5% or more of a target company's stock, where the target company
has at least 200 stockholders and possesses certain statutory indicia reflecting
substantial ties or nexus to Massachusetts, without the prior approval of the
target company's board of directors, such acquirer generally may not, for a
period of three years, (i) complete the acquisition of the target company
through a merger, (ii) pledge or sell any assets of the target company or (iii)
engage in other self-dealing transactions with the target company. The prior
board of directors approval requirement does not apply if the acquirer buys at
least 90% of the target company's outstanding stock in the transaction in which
it crosses the 5% threshold or if the acquirer, after crossing the threshold,
obtains the approval of the target company's board of directors and two-thirds
of the target company's stock held by persons other than the acquirer. A
corporation that would otherwise be covered by Chapter 110F may expressly
provide in its articles of organization that the statute does not apply. Chapter
110F by its terms would apply to both the Bank and the Company. Neither the Bank
Articles nor the Company Articles contains any such "opt out" provision.
The foregoing does not purport to be a complete description of the
differences between the statutory and other rights of stockholders of the Bank
and the Company. Such differences can be determined more completely by reference
to the Massachusetts Business Corporation Law and various applicable banking
laws, the Company's Articles of Organization and By-laws and the Bank's Articles
of Organization and By-laws.
CAPITALIZATION
The following tables set forth (i) the consolidated capitalization of the
Bank at December 31, 1995; (ii) the pro forma consolidated capitalization of the
Bank as of December 31, 1995 after giving effect to the Reorganization (which
reflects the transfer of $50,000 from the Bank's retained earnings to the
Company), and (iii) the pro forma capitalization of the Company on a
consolidated basis after giving effect to the Reorganization. The pro forma
consolidated capitalization of the Company as of December 31, 1995 will be
substantially the same (with certain differences resulting from the Company's
lower par value on its capital stock) as the consolidated capitalization of the
Bank as of that date. This pro forma capitalization of the Company assumes no
exercise of dissenters' appraisal rights. The pro forma capitalization of the
Bank however, is changed as a result of the $50,000 proposed transfer by the
Bank to the Company.
As of December 31, 1995
-----------------------
Bank Bank
(Actual (Pro Forma)
(Consolidated) (Consolidated)
Deposits........................................ $196,317,743 $196,317,743
Short Term borrowings........................... 6,981,783 6,981,783
------------ ------------
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As of December 31, 1995
-----------------------
Bank Bank
(Actual (Pro Forma)
(Consolidated) (Consolidated)
Total deposits and short-term
borrowings...................................... $203,299,526 $203,299,526
============ ============
Stockholder's equity:
Preferred stock ($1.00 par value;
1,000,000 shares authorized; none
issued and outstanding)...................... $ -- $ --
Common stock ($1.00 par value;
3,000,000 shares authorized;
1,575,892 shares issued and
outstanding.................................. $ 1,575,892 $ 1,575,892
Additional paid-in capital................... 13,913,325 13,913,325
Retained earnings............................ 3,324,225 3,274,225 (1)
Unrealized gain on investment
securities available for sale, net of tax
effect....................................... 152,272 152,272
------------ ------------
Total stockholders' equity................... $ 18,965,714 $ 18,915,714
============ ============
As of December 31, 1995
-----------------------
Company
(Pro Forma Consolidated)
Deposits........................................ $ 196,317,743
Short-term borrowings........................... 6,981,783
-------------
- --------
(1) Reflects transfer of $50,000 from the Bank's retained earnings to the
Company.
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<PAGE>
As of December 31, 1995
-----------------------
Company
(Pro Forma Consolidated)
Total deposits and short-term borrowings........ $ 203,299,526
=============
Stockholder's equity:
Preferred stock ($0.01 par value; 1,000,000
shares authorized; none issued and
outstanding)................................. $ ---
Common stock ($0.01 par value; 5,000,000
shares authorized; 1,575,892 shares issued
and outstanding)............................. 15,759(2)
Additional paid-in capital................... 15,473,458(2)
Retained earnings............................ 3,324,225
Plus:
Unrealized gain on investment securities
available for sale, net of tax effect........ 152,272
------------
Total stockholders' equity................... $ 18,965,714
============
MARKET FOR STOCK AND DIVIDENDS
The Bank Common Stock is not listed or otherwise qualified for trading
on any stock exchange or other market system. Trading in the shares of Bank
Common Stock is limited to privately negotiated purchases and sales, which occur
from time to time at prices that are not ordinarily publicly disclosed. The
Company has no present plan or intention to list or otherwise qualify the shares
of Company Common Stock to be issued in the Reorganization on any stock exchange
or with any other trading market.
As of the Record Date, the Bank had approximately 594 stockholders of
record who held 1,575,892 outstanding shares of Bank Common Stock. This does not
reflect the number or persons or entities who held their shares of Bank Common
Stock in nominee or "street" name through various brokerage firms.
The Bank has paid an annual dividend on the Bank Common Stock in each
of the last four years. The Company intends to continue the payment of annual
dividends for the foreseeable future following the Reorganization.
- --------
(2) Reflects the change from $1.00 par value common stock of the Bank to $0.01
par value common stock of the Company.
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<PAGE>
DESCRIPTION OF COMPANY CAPITAL STOCK
General
Under the Company Articles, the Company is authorized to issue up to
5,000,000 shares of common stock, par value $0.01 per share, and up to 1,000,000
shares of preferred stock, par value $0.01 per share. No shares of Company
Common Stock are currently issued and outstanding. Pursuant to the Plan of
Reorganization, the Company is deemed to have agreed to reserve 153,902 shares
of Company Common Stock in the aggregate for future issuance under the Stock
Option Plan, subject to any future amendments of the Stock Option Plan that may
increase the number of shares of Company Common Stock that may be issued in
accordance with the terms thereof. The Plan of Reorganization provides that upon
consummation of the Reorganization, the Stock Option Plan will become the
employee incentive stock option plan of the Company, and as a result thereof the
Company shall assume all of the Bank's obligations under the Stock Option Plan
in accordance with the terms thereof. See "Comparison of Stockholder Rights" for
a discussion of the rights of holders of Company Common Stock as compared to the
rights of holders of Bank Common Stock.
Common Stock
Voting Rights. Stockholders are entitled to one vote per share on any
matters subject to stockholder approval, including the election of Directors.
The Company Articles do not provide for cumulative voting in connection with the
election of Directors, and therefore holders of a majority of the Company Common
Stock will be able to elect all of the Directors standing for election in each
year, subject to the rights of the holders of shares of preferred stock, if and
when issued. The By-laws of the Company provide, subject to the rights of the
holders of shares of preferred stock, if and when issued, that the number of
Directors shall be fixed by the Board of Directors, which number shall not in
any case be less than three, unless at the time there is an Interested
Stockholder, in which case a majority vote of the Continuing Directors then in
office is also required to fix such number of Directors. The terms "Interested
Stockholder" and "Continuing Directors" are defined in the Company Articles.
Each Director will serve for a term of three years, with approximately one-third
of the Directors being elected annually on a staggered basis.
Pre-emptive Rights. Holders of Company Common Stock have no pre-emptive
rights as to the purchase of any shares issued in the future. Therefore, the
Board of Directors may sell shares of capital stock without first offering them
to the then stockholders of the Company.
Assessability. Under Massachusetts law, Company Common Stock is
non-assessable.
Preferred Stock
The Board of Directors of the Company is authorized to issue shares of
preferred stock in series and to fix the voting powers, designations,
preferences, or other special rights of the shares of each such series and the
qualifications, limitations, and restrictions thereon. Such preferred stock
issued by the Company after the Reorganization may rank prior to Company Common
Stock as to dividend rights, liquidation preferences, or both, may have full or
limited voting rights, and may be convertible into shares of Company Common
Stock.
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Transfer Agent and Registrar
It is presently contemplated that the transfer agent and registrar for
Company Common Stock shall be the Bank.
Changes in Control
Articles and By-Laws. A number of provisions of the Company's Articles
of Organization and By-laws deal with matters of corporate governance and the
rights of stockholders. Certain provisions of the Articles of Organization and
By-laws of the Company relating to stock ownership and transfer, the Board of
Directors and business combinations may be deemed to have an "anti-takeover"
effect, and may discourage takeover attempts not first approved by the Directors
(including takeovers which certain stockholders might deem to be in their
interests). These provisions, like the comparable provisions in the Articles of
Organization and By-laws of the Bank, affect stockholder rights and should be
given careful attention. Although the Board of Directors of the Company is not
aware of any effort that might be made to gain control of the Company after the
Reorganization, the Board of Directors believes that these provisions are
appropriate to protect the interests of the Company and its stockholders from
hostile takeovers that the Board of Directors believes would not be in the best
interests of the Company and all of its stockholders. A general summary of
certain of these provisions can be found under the heading "Comparison of
Stockholder Rights." That description is necessarily general and reference
should be made in each case to the Articles of Organization and By-laws of the
Company, copies of which are attached to this Proxy Statement-Prospectus as
Appendix C.
Massachusetts Law: Chapters 110D and 110F of the Massachusetts General
Laws, which are summarized above under the caption "Comparison of Stockholder
Rights--Anti-takeover Provisions", provide certain statutory limitations, in
addition to those contained in the Company's Articles of Organization and
By-laws, on offers to acquire and acquisitions of certain threshold percentages
of the outstanding voting stock of the Company under circumstances in which such
transactions have not been previously approved by the Company's Board of
Directors.
Federal Law. The Change in Bank Control Act, as amended, and
regulations adopted thereunder by the Federal Reserve Board generally requires
persons who at any time intend to acquire control, directly or indirectly, of
the Company to give 60 days' prior written notice to the Federal Reserve Board.
"Control" for the purpose of the Change in Bank Control Act and related Federal
Reserve Board regulations exists in situations in which the acquiring party has
voting control of at least 25% of any class of the Company's voting stock,
control in any manner over the election of a majority of the Company's directors
or the power to direct the management or policies of the Company. "Control" is
presumed to exist where the acquiring party will acquire voting control of 10%
or more of any class of the Company's voting stock if (i) the class of voting
securities is registered under Section 12 of the Exchange Act or (ii) no other
person will own a greater percentage of that class of voting stock immediately
after the transaction. The Company Common Stock will be registered under Section
12 of the Exchange Act following the Reorganization. The Change in Bank Control
Act and underlying regulations authorize the Federal Reserve Board to disapprove
a proposed acquisition of control on certain specified grounds. Acquisitions of
control of the Company that would be subject to the prior approval of the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended
(the "BHCA"), which are described in the following paragraph, are not also
subject to the prior notice requirements of the Change in Bank Control Act.
The BHCA and regulations adopted thereunder require prior Federal
Reserve Board approval before any company or other entity may acquire control of
the Company. "Control" for this purpose involves
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<PAGE>
ownership, control or possession of power to vote or proxies with respect to 25%
or more of any class of the voting stock of the Company, control in any manner
of the election of a majority of the directors of the Company or a determination
by the Federal Reserve Board, after a hearing, that the person or entity
exercises a controlling influence over the management or policies of the
Company. In the latter instance, the Federal Reserve Board presumes that
acquisition of 5% or more of the voting stock of a bank holding company
constitutes acquisition of control, absent other considerations, and therefore
is likely to require prior Federal Reserve Board approval.
The Exchange Act requires that a purchaser of any class of the
Company's securities registered under the Exchange Act notify the SEC and the
Company within ten days after its purchases exceed 5% of the outstanding shares
of the security. This statement must disclose the background and identity of the
purchaser, the source and amount of funds for the purchase, the number of shares
owned and, if the purpose of the transaction is to acquire control of the
Company, any plans to materially alter the Company's business or corporate
structure. In addition, any tender offer to acquire Company Common Stock is
subject to the limitations and disclosure requirements of the Exchange Act.
For further information on certain of these matters, see "Regulation"
and "Proposal One--Formation of Holding Company--Comparison of Stockholder
Rights."
BUSINESS OF THE COMPANY
General
The Company is a business corporation organized under the laws of The
Commonwealth of Massachusetts on February 29, 1996. The only office of the
Company, and its principal place of business, is located at the main office of
the Bank at 222 Merrimack Street, Lowell, Massachusetts 01852 and its telephone
number is (508) 459-9000.
The Company was organized for the sole purpose of becoming the holding
company of the Bank. Upon completion of the holding company formation, the Bank
will be a wholly-owned subsidiary of the Company, which will thereby become a
bank holding company. Each stockholder of the Bank, upon completion of the
holding company formation, will become a stockholder of the Company without
change in the number of shares owned or in respective ownership percentages,
subject to dissenters' appraisal rights.
The Company has not yet undertaken any business activities and there
are no operating business activities currently proposed for the Company. In the
future, following the consummation of the Reorganization, the Company may become
an operating company or acquire commercial banks or thrift institutions or
companies engaged in bank-related activities. There are no current agreements or
understandings with respect to any acquisition and no assurance can be given
that any such acquisitions will occur. Upon formation of the holding company,
the Company will own all of the outstanding Bank Common Stock and will have
received a transfer of approximately $50,000 in funds from the Bank. Pending use
of these funds for other corporate purposes, the Company intends to invest these
funds in U.S. government securities or other short-term investments permitted by
law. See "Proposal One -- Formation of Holding Company -- Financial Resources of
the Company." The Company may enter into a management agreement for the purpose
of rendering certain services to the Bank after completion of the holding
company formation. No proposal and no terms of any agreement, however, have been
considered.
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Property
Initially, the Company will neither own nor lease any real or personal
property. Instead, the Company intends to utilize the premises, equipment and
furniture of the Bank without the direct payment of any rental fees to the Bank.
Competition
It is expected that for the near future the primary business of the
Company will be the ongoing business of the Bank. Therefore, the competitive
conditions to be faced by the Company will be the same as those faced by the
Bank. In addition, many banks and financial institutions have formed holding
companies or may form holding companies in the future. It is likely that these
holding companies will attempt to acquire commercial banks, thrift institutions
or companies engaged in bank-related activities. The Company, therefore, will
face competition in undertaking any such acquisitions and in operating
subsequent to any such acquisitions.
Employees
At the present time, the Company does not intend to employ any persons
other than its management. See "Management of the Company." It will utilize the
support staff of the Bank from time to time without the payment of any fees,
except to the extent as may be required by applicable law. If the Company
acquires other financial institutions or pursues other lines of business, it may
at such time hire additional employees.
REGULATION
Holding Company Regulation
General. Upon consummation of the Reorganization, the Company, as the
sole shareholder of the Bank, will become a bank holding company and will
register as such with the Federal Reserve Board. Bank holding companies are
subject to comprehensive regulation by the Federal Reserve Board under the BHCA
and the regulations of the Federal Reserve Board. As a bank holding company, the
Company will be required to file with the Federal Reserve Board annual reports
and such additional information as the Federal Reserve Board may require and
will be subject to regular examinations by the Federal Reserve Board. The
Federal Reserve Board also has extensive enforcement authority over bank holding
companies, including, among other things, the ability to assess civil money
penalties to issue cease and desist or removal orders and to require that a
holding company divest subsidiaries (including its bank subsidiaries). In
general, enforcement actions may be initiated for violations of law and
regulations and unsafe or unsound practices.
Under the BHCA, a bank holding company must obtain Federal Reserve
Board approval before: (1) acquiring, directly or indirectly, ownership or
control of any voting shares of another bank or bank holding company if, after
such acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or (3)
merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than those
of banking,
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managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve Board regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the Federal Reserve
Board includes, among other things, operating a savings institution, mortgage
company, finance company, credit card company or factoring company, performing
certain data processing operations, providing certain investment and financial
advice; underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers. The Company has no present plans to engage in
any of these activities.
Dividends. The Federal Reserve Board has issued a policy statement on
the payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Board's view that a bank holding company should pay cash
dividends only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the company's capital needs, asset quality and overall
financial condition. The Federal Reserve Board also indicated that it would be
inappropriate for a company experiencing serious financial problems to borrow
funds to pay dividends. Furthermore, under the prompt corrective action
regulations adopted by the Federal Reserve Board pursuant to FDICIA, the Federal
Reserve Board may prohibit a bank holding company from paying any dividends if
the holding company's bank subsidiary is classified as "undercapitalized."
Bank holding companies are required to give the Federal Reserve Board
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration of the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve Board may disapprove such a purchase or
redemption of it determines that the proposal would constitute an unsafe or
unsound practice or would violate any law, regulation, Federal Reserve Board
order, or any condition imposed by, or written agreement with, the Federal
Reserve Board. This prior notice requirement does not apply to bank holding
companies that are "well capitalized" in accordance with applicable Federal
Reserve Board regulations, have received a "1" or "2" rating in their most
recent examination and that have no unresolved regulatory issues.
Capital Requirements. The Federal Reserve Board has established capital
requirements for bank holding companies that generally parallel the capital
requirements applicable to state non-member banks, such as the Bank, under
regulations promulgated by the FDIC. If the Federal Reserve Board's capital
guidelines were applied to the Company, assuming the consummation of the
Reorganization, the Company's levels of consolidated regulatory capital would
exceed the Federal Reserve Board's minimum requirements, as follows:
Amount Percent
------ -------
Tier 1 Leverage Capital $ 18,743,715 8.36%
Minimum Tier 1 (leverage) requirement(1) $ 6,727,969 3.00%
Excess $ 12,015,746 5.36%
Tier 1 Risk-based Capital $ 18,743,715 15.09%
Minimum Tier 1 (risk-based) requirement $ 4,967,786 4.00%
Excess $ 13,775,929 11.09%
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Amount Percent
------ -------
Total Risk-based capital $ 20,296,148 16.34%
Minimum total risk-based capital requirement $ 9,935,572 8.00%
Excess $ 10,360,576 8.34%
- -----------------
(1) Applicable capital adequacy guidelines require a minimum leverage ratio
of 3% for the highest rated banks and bank holding companies that are
neither experiencing nor anticipating significant growth. All other
banking organizations are expected to operate with a leverage ratio of
at least 100-200 basis points above the stated minimum.
The Company would be deemed to be "well capitalized" under applicable Federal
Reserve Board regulations on the basis of the capital measures set forth above.
Other Regulatory Considerations
Banks, thrifts and bank holding companies are subject to extensive
government regulation through Federal and state statutes and regulations which
are subject to changes that may have significant impact on the way in which such
entities may conduct business. The likelihood and potential effects of any such
changes cannot be predicted. Legislation enacted in recent years has
substantially increased the level of competition among commercial banks, thrift
institutions and nonbanking institutions, including insurance companies,
brokerage firms, mutual funds, investment banks and major retailers. In
addition, the enactment of recent banking legislation such as FDICIA and the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") have affected the banking industry by, among other things,
broadening the regulatory powers of the federal banking agencies in a number of
areas and enabling banks and bank holding companies to expand the geographic
area in which they may provide banking services. The following summary is
qualified in its entirety by the text of the relevant statutes and regulations.
Interstate Banking Legislation
On September 29, 1994 the Interstate Act became law. Under the new law,
different types of interstate transactions and activities will be permitted,
each with different effective dates. Interstate transactions and activities
provided for under the new law include: (i) bank holding company acquisitions of
separately held banks in a state other than a bank holding company's home state;
(ii) mergers between insured banks with different home states, including
consolidations of affiliated insured banks; (iii) establishment of interstate
branches either de novo or by branch acquisition; and (iv) affiliated banks
acting as agents for one another for certain banking functions without regard to
state law prohibitions on interstate branching or unauthorized banking. In
general, nationwide interstate bank acquisitions became permissible one year
after the date of enactment, irrespective of state law limitations. Interstate
mergers will be permissible on July 1, 1997, unless a state either passes
legislation either to prevent or to permit the earlier occurrence of interstate
mergers. States may at any time enact legislation permitting interstate de novo
branching. Banks may act as agents for affiliated depository institutions
beginning within one year after enactment. Each of the transactions and
activities must be approved by the appropriate federal bank regulator, with
separate and specific criteria established for each category.
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Once the applicable effective date has occurred (and, in the case of
interstate mergers and de novo branching, subject to applicable state law
"opt-out" or "opt-in" provisions), the appropriate federal bank regulator may
approve the respective interstate transactions only if certain criteria are met.
First, in order for a banking institution (a bank or bank holding company) to
receive approval for an interstate transaction, it must be "adequately
capitalized" and "adequately managed." The phrase "adequately capitalized" is
generally defined as meeting or exceeding all applicable federal regulatory
capital standards, while the phrase "adequately managed" is left undefined.
Second, the appropriate federal bank regulator must consider the applicant's and
its affiliated institutions' records under the CRA, as well as the applicant's
record under applicable state community reinvestment laws.
The new law applies deposit "concentration limits" to interstate
acquisition and merger transactions. Specifically, a banking institution may not
receive federal approval for interstate expansion if it and its affiliates would
control (i) more than 10% of the deposits held by all insured depository
institutions in the United States, or (ii) 30% or more of the deposits of all
insured depository institutions in any state in which the banks or branches
involved in the transactions (or any affiliated depository institution) overlap.
States may, by statute, regulation or order, raise or lower the 30% limit. In
addition, the new law preempts certain existing state law restrictions on
interstate banking (such as regional compacts and reciprocity requirements),
effective one year after enactment. However, in order to receive federal
approval for an interstate merger or de novo branching transaction, an applicant
still also must comply with any non-discriminatory host state filing and other
requirements.
FDICIA
FDICIA, which was enacted on December 19, 1991, provides for, among
other things, increased funding for the Bank Insurance Fund ("BIF") of the FDIC
and expanded regulation of depository institutions and their affiliates,
including parent holding companies. A summary of certain provisions of FDICIA
and its implementing regulations is provided below.
Risk Based Deposit Insurance Assessments. A significant portion of the
additional funding to the BIF is in the form of borrowings to be repaid by
insurance premiums assessed on BIF members. FDICIA also provides authority for
special assessments against insured deposits and for the development of a
general risk- based assessment system.
As of January 1, 1996, the FDIC has set assessment rates for
BIF-insured institutions ranging from 0.00% to 0.27% of deposits (subject to
payment by each institution of an annual statutory minimum amount of $2,000),
based on a risk assessment of the institution.
Each financial institution is assigned to one of three capital groups
- -- "well capitalized", "adequately capitalized" or "undercapitalized" -- and
further assigned to one of three subgroups within each capital group, on the
basis of supervisory evaluations, the institution's financial condition and the
risk posed to the applicable insurance fund. A well capitalized institution is
one that has a total risk-based capital ratio of 10% or more, a Tier 1
risk-based capital ratio of 6% or more, and a leverage ratio of 5% or more. An
adequately capitalized institution has a total risk-based capital ratio of 8% or
more, a Tier 1 risk-based capital ratio of 4% or more, and a leverage ratio of
4% or more, but does not qualify as a well-capitalized institution.
An undercapitalized institution is one that does not meet either of the
foregoing definitions. The actual assessment rate applicable to a particular
institution, therefore, depends in part upon the risk assessment classification
so assigned to the institution by the FDIC. As of December 31, 1995, the Bank
was classified as "well capitalized" under these provisions.
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Prompt Corrective Actions. FDICIA also provides the federal banking
agencies with broad powers to take prompt corrective action to resolve problems
of insured depository institutions, depending upon a particular institution's
level of capital. FDICIA establishes five tiers of capital measurement for
regulatory purposes ranging from "well capitalized" to "critically
undercapitalized." Under prompt corrective action regulations adopted by the
federal banking agencies in December 1992, a depository institution is (a) "well
capitalized" if it has a total risk-based capital ratio of 10% or more, a Tier 1
risk-based capital ratio of 6% or more, a leverage ratio of 5% or more and is
not subject to any written agreement, order or capital directive or prompt
corrective action directive issued by the primary regulator to meet and maintain
a specific capital measure; (b) "adequately capitalized" if it is not well
capitalized and has a total risk-based capital ratio of 8% or more, a Tier 1
risk-based capital ratio of 4% or more and a leverage ratio of 4% or more (3% or
more if the bank is rated composite 1 under the CAMEL rating system in its most
recent examination and is not experiencing or anticipating significant growth);
(c) "undercapitalized" if it has a total risk-based capital ratio that is less
than 8%, a Tier 1 risk-based capital ratio that is less than 4% or a leverage
ratio that is less than 4% (less than 3% if the bank is rated composite 1 under
the CAMEL rating system in its most recent examination and is not experiencing
or anticipating significant growth); (d) "significantly undercapitalized" if the
bank has a total risk-based capital ratio that is less than 6%, a Tier 1
risk-based capital ratio that is less than 3% or a leverage ratio that is less
than 3%; and (e) "critically undercapitalized" if the depository institution has
a ratio of tangible equity to total assets that is equal to or less than 2%. A
depository institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position under certain
circumstances. At December 31, 1995, the Bank had capital ratios sufficient to
be characterized as "well capitalized" under the prompt corrective action
regulations.
Undercapitalized and significantly undercapitalized depository
institutions must submit capital restoration plans to their federal regulator
and may be subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets and cessation of receipt of deposits from
correspondent banks. In addition, significantly undercapitalized depository
institutions also are prohibited from awarding bonuses or increasing
compensation of senior executive officers until approval of a capital
restoration plan. Critically undercapitalized depository institutions are
subject to appointment of a receiver or conservator.
Brokered Deposits and Pass-Through Deposit Insurance Limitations.
FDICIA also imposed limits on depository institutions, except well capitalized
depository institutions, accepting, renewing or rolling over brokered deposits.
A depository institution that is adequately capitalized may not accept, renew or
roll over any brokered deposit unless it obtains a waiver of FDICIA's
limitations from the FDIC. Even if an adequately capitalized institution
receives such a waiver, it may offer yields on brokered deposits only within
specified limits. An undercapitalized depository institution may not accept
brokered deposits. The definitions of "well capitalized", "adequately
capitalized" and "undercapitalized" generally conform to the definitions
described above for prompt corrective action.
In addition, "pass-through" insurance coverage may not be available for
certain employee benefit accounts and eligible deferred compensation plans
maintained by depository institutions that cannot accept brokered deposits.
Safety and Soundness Guidelines. FDICIA also required the federal
banking agencies to develop regulations for all insured depository institutions
and depository institutions holding companies prescribing standards relating to
internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, and such other operational and managerial
standards as the banking agencies deem appropriate. The Community Development
and Regulatory Improvement Act of 1994 amended FDICIA by
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allowing the federal banking agencies to publish guidelines rather than
regulations concerning safety and soundness.
In August, 1995, the federal banking agencies issued guidelines
establishing standards for safety and soundness. These interagency guidelines
relate to the management policies of financial institutions and are designed to
implement the safety and soundness criteria outlined in FDICIA. If the relevant
federal banking agency determines that an institution fails to meet any standard
established by such guidelines, such agency may require the institution to
submit to the agency an acceptable plan to achieve compliance with the standard.
If an institution fails to submit an acceptable plan within the time allowed by
the relevant agency or fails to implement an accepted plan, the agency must
require the institution to correct the deficiency and, until the deficiency has
been corrected, the agency may, and in some cases must, take other supervisory
actions. Action taken by a federal banking agency under these guidelines may be
taken independently of, in conjunction with, or in addition to any other
enforcement action available to such agency. At this time, management does not
believe that the safety and soundness guidelines will have any material effect
on the current practices of the Bank.
FDICIA also contains a variety of other provisions that may affect the
Bank's respective operations, including reporting requirements, regulatory
guidelines for real estate lending, "truth in savings" provisions, and the
requirements that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch. Certain of the
provisions in FDICIA have recently been or will be implemented through the
adoption of regulations by the various federal banking agencies and, therefore,
their precise impact cannot be addressed at this time.
The federal banking agencies continue to indicate their desire to raise
capital requirements applicable to banking organizations, and have amended their
risk-based capital regulations to provide for the consideration of,
concentration of credit rate risk and non-traditional banking activities in the
determination of a bank's minimum capital requirements. The amendments are
intended to require that banks effectively measure and monitor these credit
risks and that they maintain capital adequate for that risk. The federal bank
regulators intend to consider these risks when assessing a bank's capital
adequacy, and the new regulations may require banks to maintain additional
capital beyond that otherwise required.
Failure to meet the minimum regulatory capital requirements could
subject a banking institution to a variety of enforcement remedies available for
federal regulatory authorities, including the termination of deposit insurance
by the FDIC and seizure of the institution.
CRA Regulations
The federal bank regulatory agencies have jointly issued amendments to
the regulations implementing the CRA that substantially revises the current CRA
framework effective July 1, 1995. They rely more than the previous CRA
regulations upon objective criteria of the performance of institutions under
three key assessment tests: a lending test, a service test and an investment
test.
At this time it is not known what effect this amendment to the CRA
regulations will have upon the current practices of the Bank.
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Federal Securities Laws
Following consummation of the Reorganization, the Company will register
the shares of Company Common Stock to be issued in the Reorganization under the
Exchange Act. Accordingly, the Company will be required to file periodic and
other reports with the SEC, and will be subject to the insider trading, proxy
solicitation and other requirements of the SEC under the Exchange Act on the
same basis as the Bank is currently subject through regulation by the FDIC.
Following consummation of the Reorganization, the Bank Common Stock will no
longer be registered under the Exchange Act and, as a consequence, the Bank will
no longer be required to comply with the reporting and proxy requirements of the
Exchange Act.
Shares of the Company Common Stock received in the Reorganization by
persons who are not affiliates of the Bank or the Company may be resold without
registration or other limitation under the Securities Act. Shares received by
affiliates of the Bank may be resold only if registered or if they qualify for
an exemption from registration under the Securities Act. The possible exemptions
include those provided in Rules 144 and 145 under the Securities Act. The
conditions imposed by the exemption under Rule 145 are substantially the same as
the conditions imposed by Rule 144 discussed below other than the holding period
requirement, which is not required under Rule 145. The Rule 145 conditions cease
to be applicable after two years, but resales by any affiliate of the Bank who
remains an affiliate of the Company will continue to require an exemption from
registration, such as Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Company Common Stock that constitute restricted securities and have been
outstanding and not held by any "affiliate" of the Company for a period of two
years is entitled to sell within any three-month period a number of shares that
does not exceed the greater of one percent of the then outstanding shares of
Company Common Stock or the average weekly reported trading volume of the
Company Common Stock during the four calendar weeks preceding the date on which
notice of such sale is given, provided certain requirements as to the manner of
sale, notice of sale and the availability of current public information are
satisfied (which requirements as to the availability of current public
information are expected to be satisfied commencing within 90 days after the
consummation of the Reorganization). Affiliates of the Company must comply with
the foregoing restrictions and requirements of Rule 144 as to both restricted
and non-restricted securities, except that the two-year holding period
requirement generally does not apply to shares of Company Common Stock that are
not "restricted securities". Under Rule 144(k), a person who is not deemed an
"affiliate" of the Company at any time during the three months preceding a sale
by such person, and who has beneficially owned shares of Company Common Stock
that were not acquired from the Company or an "affiliate" of the Company within
the previous three years, would be entitled to sell such shares without regard
to volume limitation, manner of sale provisions, notification requirements or
the availability of current public information concerning the Company. As
defined in Rule 144, an "affiliate" of an issuer is a person that directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, such issuer.
MANAGEMENT OF THE COMPANY
Directors
The initial Directors of the Company consist of the 13 persons who
currently serve as Directors of the Bank. The Directors of the Company are
divided into three classes, as nearly equal in number as possible, with one
class elected each year at the annual meeting of stockholders. The Directors in
each class serve for
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a term of three years and until their successors are duly elected and qualified.
As the term of one class expires, a successor class is elected at each annual
meeting of stockholders to serve until the annual meeting to be held in the
third year following the election of such class and until their successors are
duly elected and qualified. The names of the initial Directors of the Company
and their terms are set forth below (See also "Management of the Bank"):
Term of Office
Names Expires
----- -------------
Class I:
Gerald G. Bousquet 1997
Kathleen M. Bradley 1997
James F. Conway, III 1997
Nancy L. Donahue 1997
Class II:
Walter L. Armstrong 1998
George L. Duncan 1998
John P. Harrington 1998
Charles P. Sarantos 1998
Michael A. Spinelli 1998
Class III:
Kenneth S. Ansin 1999
Eric W. Hanson 1999
Arnold S. Lerner 1999
Richard W. Main 1999
Committees
The By-laws of the Company provide that the Company's Board of
Directors may establish various Committees from time to time. Upon the
consummation of the Reorganization, the Committees of the Company's Board of
Directors and their respective memberships are expected to be: (i) the Executive
Committee: Messrs. Duncan and Lerner, together with two additional members
chosen to serve on a three- month rotating basis; and (ii) the Audit Committee:
Ms. Bradley and Messrs. Hanson, Harrington and Spinelli.
Executive Officers
The initial officers of the Company are: George L. Duncan, Chairman and
Chief Executive Officer; Richard W. Main, President; John P. Clancy, Jr.,
Treasurer; and Arnold S. Lerner, Clerk. All of these persons hold similar
positions with the Bank. Information concerning their principal occupations and
business experience during the past five years and other biographical data is
set forth under "Management of the Bank- -Executive Officers."
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Compensation
It is expected that until the Company becomes actively involved in the
acquisition of additional banks or other businesses, no separate compensation
will be paid to the officers and Directors of the Company. However, the Company
may determine that such compensation is appropriate in the future. See
"Management of the Bank--Compensation."
Employee Benefit Plans
Upon completion of the Reorganization, the Stock Option Plan will
become the employee incentive stock option plan of the Company with officers and
other employees of the Bank and the Company eligible to participate according to
the terms of such plans. As the officers and Directors of the Company will not
initially be compensated by the Company but will continue to serve and be
compensated by the Bank, no separate holding company benefit plans are
anticipated at this time. The Bank intends to continue to maintain its other
benefit programs.
PROPOSAL TWO - ELECTION OF CLASS OF DIRECTORS
The Bank's By-Laws provide that the number of Directors shall be set by
a majority vote of the entire Board of Directors, which has been set at 13.
Under the Bank's Articles of Organization and By-Laws, this number shall be
divided into three classes, as nearly equal in number as possible, with the
Directors in each class serving a term of three years and until their respective
successors are duly elected and qualified, or until his or her earlier
resignation, death or removal. As the term of one class expires, a successor
class is elected at the annual meeting of stockholders for that year.
At the 1996 Annual Meeting, there are four Directors to be elected to
serve until the 1999 Annual Meeting and until their respective successors are
duly elected and qualified, or until his earlier resignation, death or removal.
The Board of Directors of the Bank has nominated each of Kenneth S. Ansin, Eric
W. Hanson, Arnold S. Lerner and Richard W. Main, for election as a Director for
a three-year term. For information with respect to the nominees and the other
Directors of the Bank whose terms do not expire in 1996, including their
business experience, compensation paid by the Bank, and participation on
committees of the Board of Directors, see "Management of the Bank."
Unless authority to do so has been withheld or limited in the proxy, it
is the intention of the persons named in the proxy to vote the shares
represented by each properly executed proxy for the election as a Director each
of the nominees named above. The Board of Directors believes that all of the
nominees will stand for election and will serve if elected as Director. However,
if any person nominated by the Board of Directors fails to stand for election or
is unable or refuses to accept election, the proxies will be voted for the
election of such other person or persons as the Board of Directors may
recommend.
If the Reorganization is consummated, the Bank will become a
wholly-owned subsidiary of the Company and thereafter, so long as the Company
remains the sole stockholder of the Bank, the Directors of the Bank will be
elected by the Company. Stockholders of the Bank, who will become stockholders
of the Company upon the consummation of the Reorganization, will in the future
elect the Directors of the Company. If, however, the Reorganization is not
consummated, the Directors of the Bank will continue to be elected by the
stockholders of the Bank.
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Recommendation of Directors
The Board of Directors recommends that the stockholders vote FOR the
election of Kenneth S. Ansin, Eric W. Hanson, Arnold S. Lerner and Richard W.
Main, the four nominees proposed by the Board of Directors of the Bank, as
Directors of the Bank to serve until the 1999 annual meeting of stockholders and
until their successors are elected and qualified.
MANAGEMENT OF THE BANK
Directors and Nominees
Formation of the holding company will not change the Directors of the
Bank. The Directors of the Bank are divided into three classes, as nearly equal
in number as possible, with one class elected each year at the annual meeting of
stockholders. The Directors in each class serve for a term of three years and
until their successors are duly elected and qualified. As the term of one class
expires, a successor class is elected at each annual meeting of stockholders to
serve until the next annual meeting.
The following table sets forth certain information as of February 29,
1996 for each of the four nominees for election as Directors at the Annual
Meeting and for those continuing Directors whose terms expire at the annual
meetings of the Bank's stockholders in 1997 and 1998. Each individual has been
engaged in his or her principal occupation for at least five years, except as
otherwise indicated.
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Nominees
(Term to Expire in 1999)
Director
Name, Age and Principal Occupation Since
- ---------------------------------- --------
Kenneth S. Ansin (31) 1994
President, L.B. Evans Company
Eric W. Hanson (52) 1991
Chairman and President
D.J. Reardon Company, Inc.
Arnold S. Lerner (66) 1988
Partner in WLLH Radio (Lowell)
and in several other radio stations;
Director, Courier Corporation
Richard W. Main (48) 1989
President, Chief Operating Officer and
Chief Lending Officer
Enterprise Bank and Trust Company
Continuing Directors
(Term to Expire in 1997)
Name, Age and Principal Occupation Director Since
- ---------------------------------- --------------
Gerald G. Bousquet, M.D. (62) 1988
Physician; director and partner in
several health care facilities
Kathleen M. Bradley (71) 1988
Former Owner, Westford Sports Center, Inc.
James F. Conway, III (43) 1989
Chairman, Chief Executive Officer and President
Courier Corporation
Nancy L. Donahue (65) 1988
Chair of the Board of Trustees, Merrimack Repertory Theatre
-46-
<PAGE>
Continuing Directors
(Term to Expire in 1998)
Name, Age and Principal Occupation Director Since
- ---------------------------------- --------------
Walter L. Armstrong (59) 1989
Executive Vice President
Enterprise Bank and Trust Company
George L. Duncan (55) 1988
Chairman, Chief Executive Officer and
Chief Investment Officer
Enterprise Bank and Trust Company
John P. Harrington (53) 1989
Since February 1995, Senior Vice President,
Colonial Gas Company; prior thereto, Vice
President, Colonial Gas Company
Charles P. Sarantos (70) 1991
Chairman, C&I Electrical Supply Co., Inc.
Michael A. Spinelli (63) 1988
Owner, Merrimac Travel and Action Six
Travel Network
Meetings of Board of Directors and Committees
There were twelve (12) meetings of the Board of Directors held during
the year ended December 31, 1995. During such year, all directors attended more
than 75% in the aggregate of such total number of meetings held by the Board of
Directors and the total number of meetings of each of the committees of the
Board of Directors on which he or she served, except for Nancy L. Donahue who
attended 74% of the total number of such meetings.
The Bank's Board of Directors has an executive committee, audit
committee, compensation/personnel committee, investment and asset/liability
committee, marketing committee, banking technology committee, trust committee,
overdue loan review committee and ECOA (Equal Credit Opportunity Act) committee.
All of the committees keep minutes of their meetings which are reported to the
full board of directors. Philip S. Nyman, outside general counsel to the Bank,
attends board of directors meetings and meetings of subcommittees, as requested.
George Leahey, outside trust counsel to the Bank, attends trust committee
meetings as requested.
Executive Committee. The executive committee is authorized to manage
and transact the business of the Bank. In addition, loans over certain amounts
must be pre-approved by at least two members of the executive committee. Messrs.
Duncan (chairman of the committee) and Lerner serve as permanent members of the
executive committee, while two members are chosen to serve on a three-month
rotating basis from among the remaining members of the Board of Directors. The
committee also consults with the other
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<PAGE>
members of the Board of Directors with respect to executive committee matters.
The committee held sixteen (16) meetings in 1995.
Audit Committee. The audit committee recommends to the Board of
Directors the appointment of an independent certified public accounting firm to
serve as independent auditors to the Bank, oversees and reviews all internal
audit examinations and reports and reviews all reports of examination of the
Bank prepared by bank regulatory authorities. The current members of the
committee are Ms. Bradley and Messrs. Hanson, Harrington and Spinelli (chairman
of the committee). The committee also consults with the other members of the
Board of Directors with respect to audit committee matters. The committee held
five (5) meetings in 1995.
Compensation/Personnel Committee. The compensation/personnel committee
is responsible for overseeing the administration of the employee benefit and
compensation programs of the Bank. Messrs. Conway (chairman of the committee),
Hanson and Lerner serve on the committee. The committee also consults with the
other members of the Board of Directors with respect to compensation/personnel
committee matters. The committee held eleven (11) meetings in 1995.
Investment and Asset/Liability Committee. The investment and
asset/liability committee is authorized to develop and refine the strategic
investment portfolio objectives of the Bank to ensure that the Bank maintains a
portfolio consistent with sound investment and banking practices. Messrs.
Conway, Duncan, Lerner (chairman of the committee) and Main serve on the
committee. Two additional members are chosen to serve on a three-month rotating
basis from among the remaining members of the Board of Directors. The committee
also consults with the other members of the Board of Directors with regard to
investment matters.
The committee held sixteen (16) meetings in 1995.
Marketing Committee. The marketing committee reviews the Bank's
marketing activities. The current members of the committee are Messrs. Ansin,
Armstrong, Duncan, Harrington, Lerner, Main, and Ms. Donahue (chairperson of the
committee). The committee also consults with other members of the Board of
Directors with respect to marketing committee matters. The committee held two
(2) meetings in 1995.
Banking Technology Committee. The banking technology committee is
responsible for overseeing the administration of the Bank's data processing
function. Messrs. Ansin, Bousquet, Main and Sarantos (chairman of the committee)
serve on the committee. The committee also consults with other members of the
Board of Directors with respect to data processing matters. The committee held
four (4) meetings in 1995.
Trust Committee. The trust committee is responsible for overseeing
trust activities including administering trust policy and reviewing trust
accounts. Messrs. Conway, Duncan, Lerner (chairman of the committee) and Main
serve on the committee. The committee also consults with other members of the
Board of Directors on a regular basis with respect to trust matters. The
committee held thirteen (13) meetings in 1995.
Overdue Loan Review Committee. The overdue loan review committee
reviews and assesses all loan delinquencies. The current members of the
committee are Messrs. Armstrong, Bousquet (chairman of the committee),
Harrington, Main, Sarantos, and Mesdames Bradley and Donahue. The committee also
consults with the other members of the Board of Directors with respect to loan
review committee matters. The committee held eight (8) meetings in 1995.
-48-
<PAGE>
ECOA Committee. The ECOA committee is responsible for reviewing,
enhancing and developing policies and procedures to combat possible
discrimination in lending. Mr. Ansin and Ms. Donahue (chairperson of the
committee) serve on the committee which held one (1) meeting in 1995.
Executive Compensation
Summary Compensation Table. The following table sets forth the
compensation paid by the Bank for services rendered in all capacities during the
year ended December 31, 1995, to the chief executive officer and each of the
four most highly compensated principal officers of the Bank (the "Named
Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Long-Term
Compensation Compensation
Awards
----------------------------------------------- ------------ --------------
Name and Principal Position Year Salary Bonus Other Securities
($) ($) Annual Underlying All Other
Compensation($) Options(#) Compensation 1
- --------------------------- ------- --------- -------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
George L. Duncan 1995 $156,250 $ 50,387 - 0 - 5,500 $ 4,625
Chairman, Chief Executive 1994 $156,250 $ 19,180 - 0 - - 0 - $ 3,854
Officer and Chief
Investment Officer 1993 $156,250 $ 31,250 - 0 - - 0 - $ 3,741
Richard W. Main 1995 $124,345 $ 39,950 - 0 - 2,750 $ 4,625
President, Chief Operating 1994 $124,345 $ 15,232 - 0 - - 0 - $ 3,908
Officer and Chief Lending
Officer 1993 $124,345 $ 6,217 - 0 - - 0 - $ 3,257
Walter L. Armstrong 1995 $115,943 - 0 - - 0 - 1,000 $ 4,625
Executive Vice President 1994 $118,960 - 0 - - 0 - - 0 - $ 3,472
and Business Development
Officer 1993 $115,762 - 0 - - 0 - - 0 - $ 3,457
D. Eric Thompson 1995 $108,150 $ 20,008 - 0 - 3,900 $ 4,425
Senior Vice President and 1994 $108,150 $ 13,248 - 0 - - 0 - $ 3,489
Senior Trust Officer 1993 $106,605 $ 5,408 - 0 - - 0 - $ 2,982
Robert R. Gilman 1995 $ 96,180 $ 17,793 - 0 - 1,000 $ 3,892
Senior Vice President,
Commercial Lending 1994 $ 96,180 $ 11,782 - 0 - - 0 - $ 2,803
Officer and Human
Resources Officer 1993 $ 93,458 $ 9,618 - 0 - - 0 - $ 1,636
- -----------------
<FN>
1 Reflects the Bank's matching contributions on behalf of the Named Executive Officers to the Bank's existing 401(k) plan.
</FN>
</TABLE>
-49-
<PAGE>
Report on Executive Compensation. The Compensation/Personnel Committee
of the Board of Directors of the Bank is composed exclusively of outside
directors and is responsible for developing the compensation strategy,
principles and recommendations for executive officers and all employees. The
philosophy of the compensation committee is to align compensation with
shareholder value to have an officer's or employee's compensation reflect that
employee's performance in implementing the Bank's business strategies and
management initiatives. A basic compensation principle is to encourage a
performance-oriented environment which rewards officers and employees for
long-term high performance with a higher-than-average compensation package which
includes a base salary plus a bonus based on achievement as compared to
predetermined goals. Peer group data, individual performance and total bank
performance are used in establishing individual recommendations.
Director Compensation
The Bank pays $200 to directors for Board of Directors meetings, $200
to directors for executive committee meetings, $150 to directors for all other
committee meetings, a $100 monthly retainer to all directors and a $100 monthly
retainer to executive committee members. The Bank also pays a $100 monthly
retainer to the vice-chairman of the Board of Directors, a $200 monthly retainer
to the Clerk of the Bank and $200 to the chairpersons of the investment and
asset/liability, trust, banking technology, ECOA, compensation/personnel,
overdue loan review, audit and marketing committees for each meeting attended.
Directors who are also salaried employees or officers of the Bank are not paid
for attending Board of Directors or committee meetings.
Employment Agreements
The Bank has entered into employment agreements with each of Messrs.
Duncan and Main.
The term of Mr. Duncan's agreement is a "rolling" three (3) years until
and unless terminated based on the occurrence of any of the following events:
(i) thirty-six (36) months after notice is given by the Bank to Mr. Duncan that
it no longer desires to extend the agreement; (ii) the death of Mr. Duncan;
(iii) the termination of Mr. Duncan by the Bank for cause; (iv) sixty (60) days
after notice is given by Mr. Duncan to the Bank at any time after the occurrence
of a Business Combination as defined in the Bank Articles; and (v) sixty (60)
days after notice is given by Mr. Duncan to the Bank following the Board of
Directors' failure to re-elect Mr. Duncan as the chief executive officer of the
Bank.
Mr. Duncan receives a minimum annual base salary under the agreement of
$156,250, which is subject to periodic upward adjustments as determined by the
Board of Directors. In addition to his base salary, Mr. Duncan is entitled to
participate in all other benefit plans and otherwise receive all other fringe
benefits that the Bank from time to time makes available to its officers.
Following the occurrence of any Business Combination, Mr. Duncan has
the option, upon 60 days advance written notice to the Bank, to terminate the
agreement, in which event the Bank is obligated to pay Mr. Duncan three (3)
times his previous highest annual earnings under the agreement. If Mr. Duncan
exercises the option to terminate under such circumstances, he is relieved of
the non-competition restrictions that would otherwise apply upon his termination
of the agreement.
-50-
<PAGE>
If the Board of Directors fails to re-elect Mr. Duncan chief executive
officer at any time during the period of the agreement, then Mr. Duncan has the
options, upon sixty (60) days advance written notice to the Bank to (i) remain
as a full-time employee; (ii) terminate the agreement; or (iii) serve the Bank
as a consultant in lieu of serving in another capacity. In the event Mr. Duncan
elects to terminate the agreement because he is no longer the chief executive
officer, he shall receive compensation from the Bank for two (2) years. The
compensation shall equal the highest annual earnings paid to Mr. Duncan during
any year of the agreement. During the two-year period he is receiving payments
under the agreement and in consideration of the compensation to be paid to him,
Mr. Duncan is prohibited from competing with the Bank. In the event Mr. Duncan
elects to serve as a consultant to the Bank, he would be required to devote
approximately one-half of his time to the business and affairs of the Bank and
would receive as compensation a salary equal to one-half of the highest annual
earnings paid to him during the period in which he served the Bank in the
capacity of chief executive officer.
If Mr. Duncan becomes disabled during the term of the agreement, then
the Bank may elect to stop paying Mr. Duncan his regular annual earnings and,
upon notice, pay Mr. Duncan during the period of his disability an amount equal
to seventy-five percent of the highest annual earnings paid to him during the
term of the agreement less any amounts payable to him under the Bank's group
disability plan. If Mr. Duncan dies while the agreement is in effect, then the
Bank will continue to provide health insurance coverage under its group plan to
Mr. Duncan's spouse and children in accordance with certain conditions specified
in the agreement.
Under the terms of the agreement, Mr. Duncan is prohibited from
competing with the Bank during the two-year period from the date on which the
agreement is terminated for any reason, except as described above in the event
of Mr. Duncan's termination of the agreement following a Business Combination.
During each year of the two-year non-compete period, Mr. Duncan would be
entitled to receive salary payments at least equal to seventy percent of the
highest annual earnings paid to him during any year of the term of the
agreement.
The terms of Mr. Main's employment agreement are substantially
equivalent to those of Mr. Duncan's employment agreement, except that (i) the
term of Mr. Main's agreement is for a "rolling" two (2) years; (ii) Mr. Main's
minimum annual base salary is $124,345; (iii) the office which the agreement
contemplates will be held by Mr. Main is the office of president; and (iv) Mr.
Main's potential termination payment following a Business Combination is two (2)
times his previous highest annual earnings under the agreement.
Stock Option Plan
The Stock Option Plan serves as a performance incentive for the Bank's
officers and other employees. The Bank does not maintain any "long-term
incentive plans" as such term is used for purposes of the SEC's Regulation S-K.
The Stock Option Plan is administered by the compensation/personnel
committee. The compensation/personnel committee has complete authority to
administer the Stock Option Plan, which includes the authority to determine the
persons to whom options should be granted, the number of shares and the types of
options to be offered, and other terms and conditions of the options.
Under the Stock Option Plan, the compensation/personnel committee is
authorized to grant options without further stockholder approval to officers and
other employees of the bank to purchase up to 153,902
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<PAGE>
shares of the Bank Common Stock at the fair market value of such shares at the
date of grant. Shares of Bank Common Stock subject to an option granted under
the Stock Option Plan which are not exercised prior to expiration of the option
may be used for purposes of granting subsequent options. Neither the Stock
Option Plan nor any other employee benefit plan maintained by the Bank provides
for the granting of "stock appreciation rights (SARs)" as such term is used for
purposes of the SEC's Regulation S-K.
Both "incentive stock options" and "non-qualified stock options" may be
granted pursuant to the Stock Option Plan. The Bank intends that the "incentive
stock options" granted under the Stock Option Plan will qualify under Section
422A of the Internal Revenue Code of 1986, as amended. The market value of all
common stock available for the first time in any year under all such incentive
stock options granted to any person under the Stock Option Plan is limited to
$100,000. For this purpose, the value of the Bank Common Stock is determined at
the date of grant of each such option. No gain or loss will be recognized by the
Bank or the employee as a result of the grant or exercise of an incentive stock
option, and any gain realized by an optionee at the time of sale of the shares
acquired upon exercise of an incentive stock option will be treated as a capital
gain, provided that such shares are held by the optionee for at least one year
after the date of exercise and two years after the date of grant. Only in the
event that an optionee disposes of these shares prior to the close of the
holding period will the Bank be entitled to claim a tax deductible expense in an
amount equal to the difference between the exercise price and the fair market
value of the shares on the date of exercise.
In the case of non-qualified stock options, an optionee will be deemed
to receive income taxable at ordinary income rates upon exercise of a
non-qualified stock option in an amount equal to the difference between the
exercise price and the fair market value of the common stock on the date of
exercise. The amount of such taxable income will be a tax deductible expense to
the Bank.
All options granted under the Stock Option Plan are required to have an
exercise price per share equal to a least the fair market value of a share of
the Bank Common Stock on the date the option is granted. No option granted under
the Stock Option Plan is exercisable after the date on which the optionee ceases
to be employed by the Bank (except that if employment is terminated as a result
of death or disability, options may be exercisable for up to one year
thereafter), or if the optionee continues to be employed by the Bank, after the
tenth anniversary of the date on which the option was granted. Payment for
shares purchased pursuant to an option may be made in cash or check.
As of February 29, 1996, options to purchase a total of 102,050 shares
were outstanding. A total of 25,650 options were granted in 1995. All options
granted to date are classified as incentive stock options. Options to purchase
50,752 shares remain to be granted. The exercise price for all of the options
granted to date under the Stock Option Plan ranges from $11.00 to $13.50. The
options are exercisable at the rate of 25% a year starting from the employee's
date of hire. As of February 29, 1996, of the options that have been granted
under the Stock Option Plan, options to purchase 1,100 shares have been
exercised. The following table shows individual grants of stock options to the
Named Executive Officers during the year ended December 31, 1995.
-52-
<PAGE>
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants in 1995
Number of
Securities Percent of Total
Underlying Options Granted to
Options Employee in Fiscal Exercise or Base Price
Name Granted (#) Year ($/Sh ) Expiration Date
- ---- ----------- ------ --------- ---------------
<S> <C> <C> <C> <C>
George L. Duncan 5,500 21.44% $13.50 07/05/2005
Richard W. Main 2,750 10.72% $13.50 07/05/2005
Walter L. Armstrong 1,000 3.90% $13.50 07/05/2005
D. Eric Thompson 3,900 15.20% $13.50 07/05/2005
Robert R. Gilman 1,000 3.90% $13.50 07/05/2005
</TABLE>
The following table shows each exercise of stock options by the Named
Executive Officers during the year ended December 31, 1995 and the unexercised
stock options held by such persons as of such date:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Value of
Underlying Unexercised Unexercised In-the-
Options at Fiscal Year- Money Options at
End (#) Fiscal Year-End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable(1)
- ----- -------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
George L. Duncan - 0 - --- 19,800/5,500 $40,500/0
Richard W. Main - 0 - --- 9,900/2,750 $24,750/0
Walter L. Armstrong - 0 - --- 9,900/1,000 $24,750/0
D. Eric Thompson - 0 - --- 75/3,925 $188/$62
Robert R. Gilman - 0 - --- 4,000/1,000 $10,000/0
- ---------------------
<FN>
(1) The dollar values shown equal the product of (x) the difference
between $13.50 (which the Board of Directors believes represents the current per
share fair market value of the Bank Common Stock) and the exercise price of the
options and (y) the number of shares subject to the options.
</FN>
</TABLE>
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<PAGE>
Retirement Plan
The Bank maintains a 401(k) plan (the "Plan"). For the year ended
December 31, 1995, the Bank's expense for contributions to the Plan totaled
$91,806 The Bank does not offer any other pension plan to its employees.
Eligible employees under the Plan may direct the Bank to reduce their
current compensation, and contribute to the Plan, up to 15% of such compensation
(the participant's "pre-tax contributions"). The Bank also makes contributions
matching the portion of each participant's pre-tax contributions not exceeding
6% of such participant's compensation. The precise percentage amount of the
Bank's pre-tax matching contributions is determined annually by the Board of
Directors. The percentage match for the years 1990 through 1995 was 50% of the
participants' first 6% of contributions. Participant pre-tax and matching
contributions are invested according to participant's instructions in a limited
number of investment funds.
Amounts allocated to a participant's accounts under the Plan generally
are not distributable prior to termination of employment, except that a
participant's pre-tax contributions may be withdrawn by the participant on
account of financial hardship and participants may borrow within limits from the
Plan. Upon termination of employment, a participant is always entitled to a
distribution of the value of his or her pre-tax contributions, but unless
termination occurs after attainment of age 65, or on account of death or
disability, a participant may be entitled to only a percentage of the value of
his or her matching contributions.
Insurance and Other Benefits
The Bank's full-time officers and employees have the option to be
covered by the Bank's group health and dental insurance, long-term disability
insurance and life insurance which are available on the same terms to all
employees who meet the required minimum hours. The Bank pays for a portion of
the cost. The Bank also provides tuition reimbursement for certain education
programs.
Transactions with Certain Related Persons
The Bank leases its headquarters from First Holding Trust. Mr. Duncan
is a trustee of First Holding Trust and is a general partner of Old City Hall
Limited Partnership which is, in turn, the beneficiary of First Holding Trust.
Messrs. Main, Armstrong, Gilman and Clancy are limited partners of Old City Hall
Limited Partnership. Mr. Duncan has a 17% ownership interest, and Messrs. Main,
Armstrong, Gilman and Clancy each have a 5% ownership interest in Old City Hall
Limited Partnership. Under the terms of the bank's lease with First Holding
Trust, the Bank paid $178,684 in rent, parking fees, taxes and maintenance for
the year ended December 31, 1995. In addition, the Bank leases space at 170
Merrimack Street and 27 Palmer Street from Merrimack Realty Trust. Messrs.
Duncan, Main, Armstrong, Gilman and Leahy, all officers of the Bank, are limited
partners of Merrimack Realty Trust. Messrs. Spinelli, Lerner and Bousquet, all
directors of the Bank, are also limited partners of Merrimack Realty Trust. Mr.
Duncan has a 23% ownership interest; Messrs. Spinelli, Lerner, Main and Bousquet
have a 5% ownership interest; and Messrs. Armstrong, Gilman and Leahy have a 3%
ownership interest in Merrimack Realty Trust. Under the terms of the bank's
lease with Merrimack Realty Trust, the Bank paid $42,698 in rent for the year
ended December 31, 1995.
Certain directors and officers of the Bank are also customers of the
bank and have entered into loan transactions with the bank in the ordinary
course of business. In addition, certain directors are also directors, officers
or stockholders of corporations, non profit entities or members of partnerships
which are customers
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<PAGE>
of the Bank and which have transactions with the Bank in the ordinary course of
business. Such loan transactions with directors and officers of the Bank and
with such corporations and partnerships are on such terms, including interest
rates, repayment terms and collateral, as those prevailing at the time for
comparable transactions with persons who are not affiliated with the Bank and do
not involve more than a normal risk of collectibility or present other features
unfavorable to the Bank.
In the future, the Bank may retain the services of, or enter into other
business transactions with, members of the Board of Directors, the Bank's
officers, or with persons or entities with whom or which any such persons may be
affiliated, if such transactions are deemed to be in the best interests of the
Bank. Such transactions would be entered into on arms-length terms and if other
than in the ordinary course of business, would be approved by the Board of
Directors.
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<PAGE>
SECURITIES OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to directors,
directors and officers as a group and persons known to the Bank who are known to
be the beneficial owners of more than five percent (5%) of the Bank Common Stock
as of February 29, 1996. Information includes the total number of shares known
by the Bank to be beneficially owned by each such person and group and the
percentage of such stock each such person and group beneficially owns. All
shares are owned of record and beneficially, and each person and group
identified has sole voting and investment power with respect to such shares,
except as otherwise noted.
Directors(1) Shares of Bank Common Stock Percent of Total
---------- Beneficially Owned Bank Common Stock
--------------------------- -----------------
Kenneth S. Ansin 11,000 .70%
Walter L. Armstrong(2) 13,000 .82%
Gerald G. Bousquet 7,000 .44%
Kathleen M. Bradley 6,000 .38%
James F. Conway, III 91 --
Nancy L. Donahue 5,000 .32%
George L. Duncan(3) 132,879 8.43%
710 Andover Street
Lowell, MA 01852
- --------
(1) The information as to the Bank Common Stock beneficially owned has been
furnished by each such stockholder. All persons having sole voting and
investment power over the shares, unless otherwise indicated.
(2) Includes 9,900 options to purchase the Bank Common Stock which are
currently vested, but which have not been exercised. This figure does
not include an option to purchase up to 25,000 shares of Bank Common
Stock owned by Mr. Duncan, which option was granted to Mr. Armstrong by
Mr. Duncan.
(3) Includes 19,800 options to purchase the Bank Common Stock which are
currently vested but which have not been exercised, 2,500 shares owned
by Mr. Duncan's wife and 2,500 shares owned by Mr. Duncan's children.
Includes 50,000 shares owned by Mr. Duncan, which are subject to
options granted by Mr. Duncan to Mr. Armstrong and Mr. Main.
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<PAGE>
Directors Shares of Bank Common Stock Percent of Total
--------- Beneficially Owned Bank Common Stock
--------------------------- -----------------
Eric W. Hanson(4) 94,350 5.99%
Three Boardwalk
Chelmsford, MA 01824
John P. Harrington 100 --
Arnold S. Lerner(5) 131,000 8.31%
155 Pine Hill Road
Hollis, NH 03049
Richard W. Main(6) 23,200 1.47%
Charles P. Sarantos(7) 9,600 .61%
Michael A. Spinelli 60,000 3.81%
All Directors and Principal 461,030 29.26%
Officers as a Group
(20 Persons)(8)
Non-Directors
Ronald M. Ansin 156,000 9.90%
132 Littleton Road
Harvard, MA 01451
- --------
(4) Includes 90,350 shares owned jointly with Mr. Hanson's wife and 4,000
shares owned by Mr. Hanson's children, with respect to which Mr. Hanson
or his wife are the custodians.
(5) Includes 50,000 shares owned by Mr. Lerner's wife and 15,000 shares
owned by Mr. Lerner's children as to which Mr. Lerner disclaims
beneficial ownership.
(6) Includes 9,900 options to purchase Bank Common Stock which are
currently vested but which have not been exercised, 3,900 shares owned
jointly with Mr. Main's wife and 800 shares owned by Mr. Main's
children, with respect to which Mr. Main is the custodian. This figure
does not include an option to purchase up to 25,000 shares of Bank
Common Stock owned by Mr. Duncan, which option was granted to Mr. Main
by Mr. Duncan.
(7) Includes 4,000 shares owned jointly with Mr. Sarantos' wife and 1,000
shares owned jointly by Mr. Sarantos' wife and daughter.
(8) Includes options to purchase shares of Bank Common Stock which are
currently exercisable.
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<PAGE>
PROPOSALS THREE AND FOUR - ELECTION OF
CLERK AND ASSISTANT CLERK
At the Annual Meeting, a Clerk and an Assistant Clerk of the Bank will
be elected to serve until the 1997 annual meeting and until their successors are
elected and qualified.
The Board of Directors of the Bank has selected Arnold S. Lerner as the
nominee for Clerk and Michael A. Spinelli as the nominee for Assistant Clerk.
Unless otherwise specified in the proxy, it is the intention of the
persons named in the proxy to vote the shares represented by each properly
executed proxy for the election of Arnold S. Lerner as Clerk of the Bank and
Michael A. Spinelli as Assistant Clerk of the Bank. The Board of Directors
believes that Messrs. Lerner and Spinelli will stand for election and will serve
if elected. However, if either fails to stand for election or is unable or
refuses to accept election, the proxies will be voted for the election(s) of
such other person(s) as the Board of Directors may recommend.
Recommendation of Directors
The Board of Directors recommends that the stockholders vote FOR the
election of Arnold S. Lerner as Clerk of the Bank and Michael A. Spinelli as
Assistant Clerk of the Bank.
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP to serve as
independent auditors of the Bank for the fiscal year ending December 31, 1996.
The Bank is not required to submit the ratification and approval of the
Board of Directors' appointment of independent auditors to a vote of
stockholders. In the event a majority of the votes cast are against the
appointment of KPMG Peat Marwick LLP, the Board of Directors may consider the
vote and the reasons therefor in future decisions on its appointment of
independent auditors.
Representatives of KPMG Peat Marwick LLP are expected to attend the
annual meeting at which time they will have an opportunity to make a statement
if they wish to do so and will be available to answer any appropriate questions
from stockholders.
Recommendation of Directors
The Board of Directors recommends that the stockholders vote FOR the
ratification of the Board of Directors' appointment of KPMG Peat Marwick LLP as
independent auditors of the Bank for the fiscal year ending December 31, 1996.
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<PAGE>
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Bank intended to be presented at the
1997 Annual Meeting of the Bank must be received by the Bank no later than
December 31, 1996 to be included in the Bank's proxy statement and form of proxy
relating to that meeting; provided, however, if the Reorganization is completed
prior to the 1997 Annual Meeting any such stockholder proposal must be received
by the Company no later than December 1, 1996 in accordance with the applicable
SEC rules that would govern such matters pertaining to the Company. In addition,
the Bank's, as well as the Company's, Articles of Organization and By-Laws
provide that any stockholder wishing to have any director nominations or a
stockholder proposal considered at an annual meeting must provide written notice
of said nomination or stockholder proposal to the Clerk of the Bank as set forth
in the Articles of Organization and By-Laws of the Bank at its principal
executive offices not less than 60 days nor more than 150 days prior to the date
of the scheduled annual meeting; provided, however, that in the event that less
than 70 days notice or prior public disclosure of the schedule date of the
meeting is given or made to stockholders, notice by the stockholder must be
received not later than the close of business on the 10th day following the day
on which such notice of the scheduled date of the meeting was mailed or such
disclosure was made, whichever first occurs. Any stockholder desiring to submit
a nomination or proposal must comply with all of the procedural and
informational requirements contained in the Articles of Organization and By-Laws
of the Bank or the Company as applicable.
OTHER MATTERS
Shares represented by proxies in the enclosed form will be voted as
stockholders direct. Subject to applicable rules regarding broker non-votes,
proxies that contain no directions to the contrary will be voted in favor of the
proposal to approve the Plan of Reorganization, the election of the four
nominees to serve as Directors of the Bank, the election of the nominees to
serve as Clerk and Assistant Clerk of the Bank and the ratification of the
appointment of independent auditors. At the time of preparation of this Proxy
Statement- Prospectus, the Board of Directors of the Bank knows of no other
matters to be presented for action at the Annual Meeting. As stated in the
accompanying proxy card, if any other business should properly come before the
Annual Meeting, proxies have discretionary authority to vote the shares
according to their best judgment or the Company as applicable.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW ANY PROXY GIVEN
BY YOU AND VOTE YOUR SHARES IN PERSON.
March 29, 1996
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
Pursuant to Section 26B of Chapter 172
of the General Laws of Massachusetts
This Agreement and Plan of Reorganization (this "Plan") is dated as of
February 29, 1996 and made between Enterprise Bank and Trust Company, a trust
company organized under Chapter 172 of the General Laws of Massachusetts (the
"Bank") and Enterprise Bancorp, Inc., a Massachusetts business corporation (the
"Holding Company"). This Plan constitutes the plan of acquisition between the
Bank and the Holding Company for purposes of Section 26B of Chapter 172 of the
General Laws of Massachusetts.
The Bank is a trust company, duly organized and validly existing under
the laws of the Commonwealth of Massachusetts, with its principal office at 222
Merrimack Street, Lowell, Massachusetts 01852. As of the date hereof, the
authorized capital stock of the Bank consists of 3,000,000 shares of common
stock, par value $1.00 per share (the "Bank Common Stock"), of which 1,575,892
shares are issued and outstanding and 152,802 shares are reserved for issuance
under the Enterprise Bank and Trust Company 1988 Stock Option Plan (the "Stock
Option Plan"), and 450,000 shares of preferred stock, par value $1.00 per share,
none of which shares are issued and outstanding.
The Holding Company is a corporation, duly organized and validly
existing under the laws of the Commonwealth of Massachusetts, with its principal
office at 222 Merrimack Street, Lowell, Massachusetts 01852. As of the date
hereof, the authorized capital stock of the Holding Company consists of 500,000
shares of common stock, par value $0.01 per share (the "Holding Company Common
Stock"), and 100,000 shares of preferred stock, par value $0.01 per share, none
of which shares are issued and outstanding. Prior to the Effective Time, as such
term is defined in Subsection 2.1 hereof, the Holding Company shall cause its
articles of organization to be amended to increase the authorized capital stock
of the Holding Company from its current number of shares to a level consisting
of 5,000,000 shares of common stock, par value $0.01 per share, and 1,000,000
shares of preferred stock, par value $0.01 per share.
The Bank and the Holding Company have agreed that the Holding Company
will acquire all of the issued and outstanding shares of Bank Common Stock in
exchange for shares of Holding Company Common Stock pursuant to the provisions
of Section 26B of Chapter 172 of the General Laws of Massachusetts and of this
Plan. This Plan has been adopted and approved by a vote of at least a majority
of all the members of the Board of Directors of the Bank, and by a vote of at
least a majority of all the members of the Board of Directors of the Holding
Company. The officers of the Bank and of the Holding Company whose respective
signatures appear below have been duly authorized to execute and deliver this
Plan.
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NOW THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledge, the Bank and the Holding Company agree as follows:
SECTION 1. Approval and Filing of Plan
1.1 This Plan shall be submitted for approval by the holders of Bank
Common Stock at a meeting to be duly called and held in accordance with the
by-laws of the Bank and all applicable laws and regulations. Notice of such
meeting shall be mailed directly to all stockholders and published at least once
a week for two successive weeks in a newspaper of general circulation in the
County of Middlesex, Commonwealth of Massachusetts. Both of said newspaper
publications shall be at least fifteen days prior to the date of the meeting.
1.2 Subject to the approval of this Plan by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Bank Common Stock as
required by law, the Bank and the Holding Company shall submit this Plan to the
Commissioner of Banks of the Commonwealth of Massachusetts (the "Bank
Commissioner") for his approval and filing in accordance with the provisions of
Section 26B of Chapter 172 of the General Laws of Massachusetts. This Plan shall
be accompanied by such certificates of the respective officers of the Bank and
the Holding Company as may be required by law and a written request from the
Bank that this Plan not be filed by the Bank Commissioner until such future time
as the Bank Commissioner shall have received from the Bank and the Holding
Company the written notice described in Subsection 2.1 hereof.
1.3 If the requisite approval of this Plan is obtained at the meeting
of holders of Bank Common Stock referred to in Subsection 1.1 hereof, thereafter
and until the Effective Time, as hereinafter defined, the Bank shall issue
certificates for Bank Common Stock, whether upon transfer or otherwise, only if
such certificates bear a legend indicating that this Plan has been approved and
that shares of Bank Common Stock evidenced by such certificates are subject to
the acquisition by the Holding Company pursuant to this Plan.
SECTION 2. Definition of Effective Time
2.1 The transactions contemplated by this Plan shall become effective
at 12:01 A.M. on the first business day following the date on which the Bank
Commissioner duly files this Plan in accordance with the provisions of Section
26B of Chapter 172 of the General Laws of Massachusetts, which filing shall be
preceded by written notice to the Bank Commissioner from the Bank and the
Holding Company advising the Bank Commissioner that (i) all the conditions
precedent to this Plan becoming effective specified in Section 5 hereof, other
than the condition described in Subsection 5.2, have been satisfied and (ii) the
Plan has not been abandoned by the Bank or the Holding Company in accordance
with the provisions of Section 6 hereof. Such time is hereinafter referred to as
the "Effective Time."
SECTION 3. Actions at the Effective Time
3.1 At the Effective Time, the Holding Company shall, without any
further action on its part or on the part of the holders of Bank Common Stock,
automatically and by operation of law acquire and become the owner for all
purposes of all shares of Bank Common Stock issued and
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outstanding immediately prior to the Effective Time, and the Holding Company
shall be entitled to have issued to it by the Bank a certificate or certificates
representing such shares. Thereafter, the Holding Company shall have full and
exclusive power to vote such shares of Bank Common Stock, to receive dividends
thereon and to exercise all rights of an owner thereof.
3.2 At the Effective Time, any shares of Holding Company Common Stock
which may have been previously issued and are outstanding immediately prior to
the Effective Time shall be redeemed and retired and shall thereafter constitute
authorized and unissued shares of Holding Company Common Stock.
3.3 At the Effective Time, the holders of the shares of Bank Common
Stock issued and outstanding immediately prior to the Effective Time shall,
without any further action on their part or on the part of the Holding Company,
automatically and by operation of law cease to own such shares and shall instead
become owners of one share of Holding Company Common Stock for each share of
Bank Common Stock held by them immediately prior to the Effective Time.
Thereafter, such persons shall have full and exclusive power to vote such shares
of Holding Company Common Stock, to receive dividends thereon, except as
otherwise provided herein, and to exercise all rights of an owner thereof.
3.4 At the Effective Time, all previously issued and outstanding
certificates representing shares of Bank Common Stock (the "Old Certificates")
shall automatically and by operation of law cease to represent shares of Bank
Common Stock or any interest therein and each Old Certificate shall instead
represent the ownership by the holder thereof of an equal number of shares of
Holding Company Common Stock. No holder of an Old Certificate shall be entitled
to vote the shares of Bank Common Stock formerly represented by such
certificate, or to receive dividends thereon, or to exercise any other rights of
ownership in respect thereof.
3.5 Notwithstanding any of the foregoing, any Dissenting Stockholder,
as such term is defined in Subsection 8.1 hereof, shall have such rights as are
provided by Subsection 8.2 hereof and by the laws of the Commonwealth of
Massachusetts.
SECTION 4. Actions After the Effective Time
As soon as practicable and in any event not more than thirty days after
the Effective Time:
4.1 The Holding Company shall deliver to the transfer agent for the
Bank and the Holding Company (the "Transfer Agent"), as agent for the then
holders of the Old Certificates (other than Old Certificates representing shares
of Bank Common Stock as to which dissenters' appraisal rights shall have been
effected), a certificate or certificates for the aggregate number of shares of
Holding Company Common Stock (the "New Certificates"), to which said holders
shall be entitled. The parties acknowledge and agree that the Bank may serve as
the Transfer Agent for all purposes under this Plan. Each such holder of an Old
Certificate shall surrender his Old Certificate to the Transfer Agent and
receive in exchange therefor a New Certificate for an equal number of shares of
Holding Company Common Stock. Until so surrendered, each Old Certificate shall
be deemed, for all corporate purposes, to evidence the ownership of the number
of shares of Holding Company Common Stock which the holder thereof would be
entitled to receive upon its surrender, except that the Holding Company may, in
its sole discretion, withhold from the holder of shares represented by
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such Old Certificate, distribution of any or all dividends declared by the
Holding Company on such shares until such time as such Old Certificate shall be
surrendered in exchange for one or more New Certificates, at which time
dividends so withheld by the Holding Company with respect to such shares shall
be delivered (without interest thereon and less the amount of taxes, if any,
which may have been imposed or paid thereon or which are required by law to be
withheld in respect thereof), to the stockholder to whom such New Certificate(s)
are issued.
4.2 The Holding Company shall publish, to the extent required in
accordance with applicable law, a notice to the holders of all Old Certificates,
specifying the Effective Time of the transactions contemplated by this Plan and
notifying such holders that they may, or if required to do so by the Holding
Company in its sole discretion, shall, present their Old Certificates to the
Transfer Agent for exchange. The Holding Company shall also provide notice,
together with any transmittal materials that may be necessary or appropriate, by
mail directly to such holders at their last known addresses as contained in the
Bank's stockholder records.
SECTION 5. Conditions Precedent
This Plan and the transactions provided for herein shall not become
effective unless all of the following shall have occurred:
5.1 This Plan and the transactions contemplated hereby shall have been
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Bank Common Stock at a meeting of such stockholders duly
called and held for such purpose in accordance with the by-laws of the Bank and
all applicable laws and regulations.
5.2 This Plan shall have been approved by the Bank Commissioner and a
copy of this Plan with his approval endorsed thereon shall have been filed in
his office, all as provided in Section 26B of Chapter 172 of the General Laws of
Massachusetts.
5.3 The Holding Company shall have provided notice of this Plan to the
Federal Reserve Bank of Boston (the "Reserve Bank") in accordance with 12 C.F.R.
Section 225.15 and the Reserve Bank shall not have objected to the parties'
consummation of the transactions contemplated hereby within thirty days after
the date of the Reserve Bank's receipt of such notice or, alternatively, the
Reserve Bank or the Board of Governors of the Federal Reserve System, acting
pursuant to Section 3(a)(1) of the Bank Holding Company Act of 1956, as amended,
shall have approved an application of the Holding Company to become a bank
holding company upon the consummation of the transactions contemplated by this
Plan and a period of thirty days shall have elapsed after the date of such
approval.
5.4 The Bank shall have received a favorable opinion from its counsel,
satisfactory in form and substance to the Bank, with respect to the federal
income tax consequences of this Plan and the transactions contemplated hereby.
5.5 To the extent legally required, if at all, the shares of Holding
Company Common Stock to be issued to the holders of Bank Common Stock pursuant
to this Plan shall have been registered or qualified for such issuance under the
Securities Act of 1933, as amended, and all applicable state securities laws.
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5.6 The Bank and the Holding Company shall have obtained all other
consents, permissions and approvals and taken all actions required by law and
agreement, or otherwise deemed necessary or appropriate by the Bank or the
Holding Company, including the amendment of the Holding Company's articles of
organization to increase its authorized capital stock as contemplated by this
Plan, prior to the consummation of the transactions provided for by this Plan
and the Holding Company's having and exercising all rights of ownership with
respect to all of the outstanding shares of Bank Common Stock to be acquired by
it hereunder.
SECTION 6. Abandonment of Plan
6.1 This Plan may be abandoned by either the Bank or the Holding
Company at any time before the Effective Time in the event that:
(a) The number of shares of Bank Common Stock owned by Dissenting
Stockholders, as defined in Subsection 8.1 hereof, shall make
consummation of the transactions contemplated by this Plan
inadvisable in the opinion of the Bank or the Holding Company;
(b) Any action, suit, proceeding or claim has been instituted,
made or threatened relating to this Plan which shall make
consummation of the transactions contemplated by this Plan
inadvisable in the opinion of the Bank or the Holding Company;
or
(c) For any other reason consummation of the transactions
contemplated by this Plan is inadvisable in the opinion of the
Bank or the Holding Company.
Such abandonment shall be effected by written notice by either the Bank
or the Holding Company to the other of them, and shall be authorized or approved
by the Board of Directors of the party giving such notice. Upon the giving of
such notice, this Plan shall be terminated and shall be of no further force or
effect and there shall be no liability hereunder or on account of such
termination on the part of the Bank or the Holding Company or the Directors,
officers, employees, agents or stockholders of either of them. In the event of
such abandonment of this Plan, the Bank shall pay the fees and expenses incurred
by itself and the Holding Company in connection with this Plan and the proposed
transactions contemplated hereby. If either party hereto gives written notice of
termination to the other party pursuant to this Section 6, the party giving such
written notice shall simultaneously furnish a copy thereof to the Bank
Commissioner.
SECTION 7. Amendment of Plan
7.1 This Plan may be amended or modified at any time by mutual
agreement of the Boards of Directors of the Holding Company and the Bank (i)
prior to its approval by the stockholders of the Bank, in any respect, and (ii)
subsequent to such approval, in any respect, provided that the Bank Commissioner
shall approve of such amendment or modification.
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SECTION 8. Rights of Dissenting Stockholders
8.1 The term "Dissenting Stockholders" shall mean those holders of Bank
common stock who file with the Bank before the taking of the vote on this Plan
written objection to this Plan, pursuant to Section 86 of Chapter 156B of the
General Laws of Massachusetts, stating that they intend to demand payment for
their shares of Bank Common Stock if this Plan is consummated and whose shares
are not voted in favor of this Plan.
8.2 Dissenting Stockholders who comply with the provisions of Sections
85 through 98, inclusive, of Chapter 156B of the General Laws of Massachusetts
and all other applicable provisions of law shall be entitled to receive from the
Bank payment of the fair value of their shares of Bank Common Stock upon
surrender by such holders of the certificates which previously represented such
shares of Bank Common Stock. Certificates so obtained by the Bank, upon payment
of the fair value of such shares as provided by law, shall be canceled. Shares
of Holding Company Common Stock, to which Dissenting Stockholders would have
been entitled had they not dissented, shall be deemed to constitute authorized
and unissued shares of Holding Company Common Stock and may thereafter be issued
or otherwise disposed of by the Holding Company at the discretion of, and on
such terms as may be fixed by, its Board of Directors.
SECTION 9. Stock Options
By the Holding Company's having executed and delivered this Plan and by
the parties' subsequent consummation of the transactions contemplated hereby,
the Holding Company shall be deemed to have approved the Stock Option Plan, as
may be amended from time to time, as the employee incentive stock option plan of
the Holding Company and shall be deemed to have agreed to issue Holding Company
Common Stock in lieu of Bank Common Stock pursuant to stock options outstanding
under the Stock Option Plan. As of the Effective Time, the unexercised portions
of the options outstanding under the Stock Option Plan shall be assumed by the
Holding Company and thereafter shall be exercisable only for shares of Holding
Company Common Stock, with each such option being exercisable for a number of
shares of Holding Company Common Stock equal to the number of shares of Bank
Common Stock that were available thereunder immediately prior to the Effective
Time, and with no change in the exercise price or any other term or condition of
such option. To the extent deemed necessary or appropriate, the Holding Company
and the Bank shall make appropriate amendments to the Stock Option Plan to
reflect the adoption of the Stock Option Plan as the employee incentive stock
option plan of the Holding Company without adverse effect upon the options
outstanding under the Stock Option Plan.
SECTION 10. Governing Law
This Plan shall take effect as a sealed instrument and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
SECTION 11. Counterparts
This Plan may be executed in several identical counterparts, each of
which when executed and delivered by the parties hereto shall be an original,
but all of which together shall constitute a
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single instrument. In making proof of this Plan, it shall not be necessary to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Reorganization to be duly executed and delivered as of the date first
above written and their corporate seals to be hereunto affixed.
ENTERPRISE BANK AND TRUST COMPANY
By: /s/ Richard W. Main
Name: Richard W. Main
Title: President
ATTEST:
/s/ John P. Clancy, Jr.
Name: John P. Clancy, Jr.
Title: Treasurer
ENTERPRISE BANCORP, INC.
By: /s/ George L. Duncan
Name: George L. Duncan
Title: Chief Executive Officer
ATTEST:
/s/ John P. Clancy, Jr.
Name: John P. Clancy, Jr.
Title: Treasurer
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EXHIBIT B
PROVISIONS OF MASSACHUSETTS GENERAL LAWS
RELATING TO RIGHTS OF DISSENTING STOCKHOLDERS
(Sections 85 to 98 of Chapter 156B of the Massachusetts General Laws)
Section 85. Dissenting Stockholder; Right to Demand Payment for Stock;
Exception. A stockholder in any corporation organized under the laws of
Massachusetts which shall have duly voted to consolidate or merge with another
corporation or corporations under the provisions of sections seventy-eight or
seventy-nine who objects to such consolidation or merger may demand payment for
his stock from the resulting or surviving corporation and an appraisal in
accordance with the provisions of sections eighty-six to ninety-eight,
inclusive, and such stockholder and the resulting or surviving corporation shall
have the rights and duties and follow the procedure set forth in those sections.
This section shall not apply to the holders of any shares of stock of a
constituent corporation surviving a merger if, as permitted by subsection (c) of
section seventy-eight, the merger did not require for its approval a vote of the
stockholders of the surviving corporation.
Section 86. Selection Applicable to Appraisal;Prerequisites. If a
corporation proposes to take a corporate action as to which any section of this
chapter provides that a stockholder who objects to such action shall have the
right to demand payment for his shares and an appraisal thereof, sections
eighty-seven to ninety-eight, inclusive, shall apply except as otherwise
specifically provided in any section of this chapter. Except as provided in
sections eighty-two and eighty-three, no stockholder shall have such right
unless (1) he files with the corporation before the taking of the vote of the
shareholders on such corporate action, written objection to the proposed action
stating that he intends to demand payment for his shares if the action is taken
and (2) his shares are not voted in favor of the proposed action.
Section 87. Statement of Rights of Objecting Stockholders in Notice of
Meeting; Form. The notice of the meeting of stockholders at which the approval
of such proposed action is to be considered shall contain a statement of the
rights of objecting stockholders. The giving of such notice shall not be deemed
to create any rights in any stockholder receiving the same to demand payment for
his stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such
action, written objection to the proposed action stating that he
intends to demand payment for his shares if the action is taken and (2)
whose shares are not voted in favor of such action has or may have the
right to demand in writing from the corporation (or, in the case of a
consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of
mailing to him of notice in writing that the corporate action has
become effective, payment for his shares and an appraisal of the value
thereof. Such corporation and any such stockholder shall in such cases
have the rights and duties and shall follow the procedure set forth in
sections 88 to 98, inclusive, of chapter 156B of the General Laws of
Massachusetts."
Section 88. Notice of Effectiveness of Action Objected To. The
corporation taking such action, or in the case of a merger or consolidation the
surviving or resulting corporation, shall, within ten days after the date on
which such corporate action became effective, notify each stockholder who filed
a
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written objection meeting the requirements of section eighty-six and whose
shares were not voted in favor of the approval of such action, that the action
approved at the meeting of the corporation of which he is a stockholder has
become effective. The giving of such notice shall not be deemed to create any
rights in any stockholder receiving the same to demand payment for his stock.
The notice shall be sent by registered or certified mail, addressed to the
stockholder at his last known address as it appears in the records of the
corporation.
Section 89. Demand for Payment; Time for Payment. If within twenty days
after the date of mailing of a notice under subsection (e) of section eighty-two
, subsection (f) of section eighty-three, or section eighty-eight, any
stockholder to whom the corporation was required to give such notice shall
demand in writing from the corporation taking such action, or in the case of a
consolidation or merger from the resulting or surviving corporation, payment for
his stock, the corporation upon which such demand is made shall pay to him the
fair value of his stock within thirty days after the expiration of the period
during which such demand may be made.
Section 90. Demand for Determination of Value; Bill in Equity; Venue.
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
Section 91. Parties to Suit to Determine Value; Service. If the bill is
filed by the corporation, it shall name as parties respondent all stockholders
who have demanded payment for their shares and with whom the corporation has not
reached agreement as to the value thereof. If the bill is filed by a
stockholder, he shall bring the bill in his own behalf and in behalf of all
other stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof, and service of
the bill shall be made upon the corporation by subpoena with a copy of the bill
annexed. The corporation shall file with its answer a duly verified list of all
such other stockholders, and such stockholders shall thereupon be deemed to have
been added as parties to the bill. The corporation shall give notice in such
form and returnable on such date as the court shall order to each stockholder
party to the bill by registered or certified mail, addressed to the last known
address of such stockholder as shown in the records of the corporation, and the
court may order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-nine
shall be deemed to have consented to the provisions of this section relating to
notice, and the giving of notice by the corporation to any such stockholder in
compliance with the order of the court shall be a sufficient service of process
on him. Failure to give notice to any stockholder making demand shall not
invalidate the proceedings as to other stockholders to whom notice was properly
given, and the court may at any time before the entry of a final decree make
supplementary orders of notice.
Section 92. Decree Determining Value and Ordering Payment; Valuation
Date. After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment of their shares, and shall order the corporation to make payment of such
value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
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Section 93. Reference to Special Master. The court in its discretion
may refer the bill or any question arising thereunder to a special master to
hear the parties, make findings and report the same to the court, all in
accordance with the usual practice in suits in equity in the superior court.
Section 94. Notation on Stock Certificates of Pendency of Bill. On
motion the court may order stockholder parties to the bill to submit their
certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
Section 95. Costs; Interest. The costs of the bill, including the
reasonable compensation and expenses of any master appointed by the court, but
exclusive of fees of counsel or of experts retained by any party, shall be
determined by the court and taxed upon the parties to the bill, or any of them,
in such manner as appears to be equitable, except that all costs of giving
notice to stockholders as provided in this chapter shall be paid by the
corporation. Interest shall be paid upon any award from the date of the vote
approving the proposed corporate action, and the court may on application of any
interested party determine the amount of interest to be paid in the case of any
stockholder.
Section 96. Dividends and Voting Rights after Demand for Payment. Any
stockholder who has demanded payment for his stock as provided in this chapter
shall not thereafter be entitled to notice of any meeting of stockholders or to
vote such stock for any purpose and shall not be entitled to the payment of
dividends or other distribution on the stock (except dividends or other
distributions payable to stockholders of record at a date which is prior to the
date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the
resulting or surviving corporation, deliver to it a written
withdrawal of his objections to and an acceptance of such
corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
Section 97. Status of Shares Paid For. The shares of the corporation
paid for by the corporation pursuant to the provisions of this chapter shall
have the status of treasury stock, or in the case of a consolidation or merger
the shares or the securities of the resulting or surviving corporation into
which the shares of such objecting stockholder would have been converted had he
not objected to such consolidation or merger shall have the status of treasury
stock or securities.
Section 98. Exclusive Remedy; Exception. The enforcement by a
stockholder of his right to receive payment for his shares in the manner
provided in this chapter shall be an exclusive remedy except that this chapter
shall not exclude the right of such stockholder to bring or maintain an
appropriate proceeding to obtain relief on the ground that such corporate action
will be or is illegal or fraudulent as to him.
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EXHIBIT C-1
FEDERAL IDENFITICATION
NO. Applied For
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
We, Richard W. Main, President and Arnold S. Lerner, Clerk of Enterprise
Bancorp, Inc. located at 222 Merrimack Street, Lowell, Massachusetts 01852, do
hereby certify that the following Restatement of the Articles of Organization
was duly adopted at a meeting held on March 22, 1996 by a vote of the sole
incorporator in accordance with the rights and powers accorded thereto under Ch.
156B M.G.L. SS. 44.
ARTICLE I
The name of the corporation is:
Enterprise Bancorp, Inc.
ARTICLE II
The purpose of the corporation is to engage
in the following business activities:
See Exhibit A attached hereto and made a part hereof.
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ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
WITHOUT PAR VALUE WITH PAR VALUE
- ------------------------------ ------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---- ---------------- ---- ---------------- ---------
Common: Common: 500,000 $.01
Preferred: Preferred: 100,000 $.01
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See Exhibit B attached hereto and made a part hereof.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
See Exhibit C attached hereto and made a part hereof.
ARTICLE VI
Other lawful provisions, if any, for the conduct and regulation of the business
and affairs of the corporation, for its voluntary dissolution, or for limiting,
defining, or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders:
See Exhibit D attached hereto and made a part hereof.
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ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
The information contained in Article VII is not a permanent part of the Articles
of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
222 Merrimack Street, Lowell, Massachusetts 01852
b The name, residential address and post office address of each director and
officer of the corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
Chairman: George L. Duncan 710 Andover Street Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
President: Richard W. Main 1 Overlook Drive "
Chelmsford, MA 01824
Treasurer: John P. Clancy, Jr. 11 Tanglewood Drive "
Chelmsford, MA 01824
Clerk: Arnold S. Lerner 155 Pine Hill Road "
Hollis, NH 03049
Directors: See Exhibit E attached hereto and made a part hereof.
</TABLE>
c. The fiscal year (i.e., tax year) of the corporation shall end on the last
day of the month of: December.
d. The name and business address of the resident agent, if any, of the
corporation is: N/A
We further certify that the foregoing Restated Articles of Organization affect
no amendments to the Articles of Organization of the corporation as heretofore
amended, except amendments to the following articles. Briefly describe
amendments below
See Exhibit C hereto containing new additional provisions to Article V
pertaining to Certain Business Combinations.
SIGNED UNDER THE PENALTIES OF PERJURY, this 25th day of March, 1996
/s/Richard W. Main, President
Richard W. Main
/s/Arnold S. Lerner, Clerk
Arnold S. Lerner
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<PAGE>
The Commonwealth of Massachusetts
RESTATED ARTICLE OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within Restated Articles of Organization and, the filing
fee in the amount of $____________ having been paid, said articles are deemed to
have been filed with me this ________ day of _______________ , 19 __.
Effective Date: ________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Stephen J. Coukos, Esq.
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2912
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<PAGE>
ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT A
ARTICLE II: Purposes
To acquire, invest in or hold stock in any subsidiary permitted under
the Bank Holding Company Act of 1956 or Chapter 167A of the Massachusetts
General Laws, as such statutes may be amended from time to time, and to engage
in any activity or enterprise permitted to a bank holding company under said
statutes or other applicable law.
To engage generally in any business activity which may be lawfully
carried on by a corporation organized under Chapter 156B of the Massachusetts
General Laws.
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<PAGE>
ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT B
ARTICLE IV: Capital Stock
The shares of the Corporation's authorized capital stock may be issued by
the Corporation from time to time by a vote of its Board of Directors without
the approval of its stockholders, except as may be otherwise provided in this
Article. Upon payment of lawful consideration therefor and issuance, all shares
of the capital stock of the Corporation shall be deemed to be fully paid and
nonassessable. No holder of any of the capital stock of the Corporation shall
have any preemptive right to purchase or subscribe for the purchase of any
additional shares issued by the Corporation. In the case of a stock dividend,
that part of the surplus account or undivided profits account of the Corporation
which is transferred to stated capital upon the issuance of shares as a stock
dividend shall be deemed to be the consideration for the issuance of such stock
dividend.
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the designations and the relative
rights, preferences and limitations of the shares of each class and series (if
any) of capital stock are as follows:
SECTION 1. Common Stock. Except as provided by law or in this Article (or in any
supplementary sections hereto) or in any certificate of establishment of a
series of preferred stock, the holders of the Common Stock shall exclusively
possess all voting power. Each holder of outstanding shares of Common Stock
shall be entitled to one vote for each share held by such holder.
Holders of the Common Stock shall be entitled to the payment of dividends
out of any assets of the Corporation legally available for the payment thereof,
but only as and when declared by the Board of Directors.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, after there shall have been paid to or set aside
for the holders of any class having preferences over the Common Stock in the
event of liquidation, dissolution or winding up of the Corporation, of the full
preferential amounts to which they are respectively entitled, the holders of the
Common Stock and of any class or series of stock entitled to participate, in
whole or in part, therewith, as to distribution of assets shall be entitled,
after payment or provision for payment of all debts and liabilities of the
Corporation, to receive the remaining assets of the Corporation available for
distribution, in cash or in kind, in proportion to their holdings.
SECTION 2. Preferred Stock. The Board of Directors of the Corporation is
authorized by vote
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or votes, from time to time adopted, to provide for the issuance of preferred
stock in one or more series and to fix and state the voting powers,
designations, preferences and relative participating, optional or other special
rights of the shares of each series and the qualifications, limitations and
restrictions thereof, including, but not limited to, determination of one or
more of the following:
(1) The distinctive serial designation and the number of shares
constituting such series;
(2) The dividend rates or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date or dates, the payment date or dates for dividends and the participating or
other special rights, if any, with respect to dividends;
(3) The voting powers, full or limited, if any, of shares of such series;
(4) Whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions on which, such shares may
be redeemed;
(5) The amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Bank;
(6) Whether the shares of such series shall be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such fund;
(7) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corporation, and if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(8) The price or other consideration for which the shares of such series
shall be issued; and
(9) Whether the shares of such series which are redeemed or converted shall
have the status of authorized but unissued shares of preferred stock and whether
such shares may be reissued as shares of the same or any other series of stock.
Unless otherwise provided by law, any such vote shall become effective when
the Corporation files with the Secretary of State of the Commonwealth of
Massachusetts a certificate of establishment of one or more series of preferred
stock signed by the Chairman of the Board and Chief Executive Officer or the
President and by the Clerk of the Corporation, setting forth a copy of the vote
of the Board of Directors establishing and designating the series and fixing and
determining the relative rights and preferences thereof, the date of adoption of
such vote and a certification that such vote was duly adopted by the Board of
Directors.
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<PAGE>
ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT C
ARTICLE V: Certain Business Combinations
SECTION 1. Vote Required for Certain Business Combinations.
A. Required Vote for Certain Business Combinations. In addition to any
affirmative vote required by the Massachusetts General Laws or by these Articles
of Organization, and except as otherwise expressly provided in Section 2 of this
Article V:
(1) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation or
entity (whether or not itself an Interested Stockholder) which is, or
after such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Stockholder;
(2) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any Subsidiary having
an aggregate Fair Market Value (as hereinafter defined) of $2,500,000
or more;
(3) the purchase, exchange, lease or other acquisition by the
Corporation or any Subsidiary (in a single transaction or a series of
related transactions) of all or substantially all of the assets or
business of any Interested Stockholder or any Affiliate of any
Interested Stockholder; or
(4) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate Fair Market Value of $2,500,000 or more;
(5) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
(6) any reclassification of the securities of the Corporation
(including any reverse stock split), any merger or consolidation of
the Corporation with any of its Subsidiaries or any other transaction
(whether or not with or into or otherwise involving any Interested
Stockholder) which has the effect, directly or indirectly, of
increasing the proportion of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
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Subsidiary which is directly or indirectly owned by any Interested
Stockholder or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the Voting Stock (as hereinafter defined) voting together as a single
class. Such affirmative vote shall be required notwithstanding the fact that no
vote may be required or that a lesser percentage may be specified by law.
B. Definition of "Business Combination". The term "Business
Combination" as used in this Article shall mean any transaction which is
referred to in any one or more of the clauses (1) through (6) of Paragraph A of
this Section 1.
SECTION 2. When Higher Vote is Not Required.
The provisions of Section 1 of this Article V shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other provision
of these Articles of Organization, if all of the conditions specified in either
of the following paragraphs A or B are met:
A. Approval by Continuing Directors. The Business Combination shall have
been approved by two-thirds of the Continuing Directors (as hereinafter
defined); or
B. Price and Procedure Requirements. All of the following conditions shall
have been met:
(1) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination (the
"Consummation Date") of any consideration other than cash to be
received per share by holders of the Common Stock in such Business
Combination shall be at least equal to the highest of the following:
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and
soliciting dealers fees) paid by the Interested
Stockholder for any shares of the Common Stock of the
Corporation acquired by it (i) within the two year
period immediately prior to the first public
announcement of the proposal of the Business
Combination (the "Announcement Date") or (ii) in the
transaction in which it became an Interested
Stockholder, whichever is higher;
(b) the highest Fair Market Value per share of the Common
Stock of the Corporation on any date during the
one-year period prior to and including the Announcement
Date; and
(c) (if applicable) the price per share equal to the
product of (i) the Fair Market Value per share of the
Common Stock of the Corporation on the Announcement
Date or on the date on which the Interested Stockholder
became an Interested Stockholder (such latter date is
referred to in this
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<PAGE>
Article V as the "Determination Date"), whichever is
higher, and (ii) a fraction, (x) the numerator of which
is the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares
of the Common Stock acquired by it within the two year
period immediately prior to and including the
Announcement Date, and (y) the denominator of which is
the Fair Market Value per share of the Common Stock on
the first day in such two-year period upon which the
Interested Stockholder acquired any shares of the
Common Stock.
(2) The aggregate amount of the cash and the Fair Market Value as of
the Consummation Date of the Business Combination of consideration other than
cash to be received per share by holders of shares of any other class of
outstanding Voting Stock shall be at least equal to the highest of the following
(it being intended that the requirements of this paragraph B(2) shall be
required to be met with respect to every other class of outstanding Voting
Stock, whether or not the Interested Stockholder has previously acquired any
shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and
soliciting dealers fees) paid by the Interested
Stockholder for any shares of such class of Voting
Stock acquired by it (i) within the two year period
immediately prior to the Announcement Date or (ii) in
the transaction in which it became an Interested
Stockholder, whichever is higher;
(b) (if applicable) the highest preferential amount per
share which the holders of shares of such class of
Voting Stock are entitled to receive from the
Corporation in the event of any voluntary or
involuntary liquidation, dissolution or winding up of
the Corporation;
(c) (if applicable) the highest Fair Market Value per share
of such class of Voting Stock on any date during the
one year period prior to and including the Announcement
Date; and
(d) (if applicable) the price per share equal to the
product of (i) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on
the Determination Date, whichever is higher, and (ii) a
fraction, (x) the numerator of which is the highest per
share price (including any brokerage commission,
transfer taxes and soliciting dealers fees paid by the
Interested Stockholder for any shares of such class of
Voting Stock acquired by it within the two year period
immediately prior to and including the Announcement
Date, and (y) the denominator of which is the Fair
Market Value per share of such class of Voting Stock on
the first day in such two year period upon which the
Interested Stockholder acquired any shares of such
class of Voting Stock.
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<PAGE>
(3) The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be in cash or in the
same form as the Interested Stockholder has previously paid for shares
of such class of Voting Stock. If the Interested Stockholder has paid
for shares of any class of Voting Stock with varying forms of
consideration, the form of consideration for such class of Voting Stock
shall be either cash or the form used to acquire the largest number of
such class of Voting Stock previously acquired by such Interested
Stockholder.
(4) After becoming an Interested Stockholder and prior to the
consummation of any such Business Combination: (a) there shall have
been (i) no failure to declare and pay at regular dates therefor the
full amount of any dividends (whether or not cumulative) payable on the
Common Stock and any other class or series of stock entitled to
dividends; (ii) no reduction in the annual rate of dividends paid on
the Common Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the Continuing
Directors; and (iii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual rate is
approved by a majority of the Continuing Directors; and (b) such
Interested Stockholder shall not have become the beneficial owner of
any additional shares of Voting Stock except as part of the transaction
which results in such Interested Stockholder's becoming an Interested
Stockholder.
(5) After becoming an Interested Stockholder, such Interested
Stockholder shall not have received the benefit, directly or indirectly
except proportionately as a stockholder, of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or
other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise, unless such transaction shall have been approved or ratified
by a majority of the Continuing Directors after such person shall have
become an Interested Stockholder.
(6) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the
rules and regulations of the Securities and Exchange Commission (the
"SEC"), or any successor agency thereto, thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
stockholders of the Corporation at least 20 days prior to consummation
of such Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions).
SECTION 3. Certain Definitions.
A. A "person" shall mean an individual, a Group Acting in Concert, a
corporation, a partnership, an association, a joint stock company, a trust, a
business trust, a government or political subdivision, any unincorporated
organization and any similar association or entity.
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B. "Interested Stockholder" shall mean any person (other than any
Employee Stock Ownership Plan established by the Board of Directors, the
Corporation or any Subsidiary thereof formed at the direction of the
Corporation) who or which:
(1) is the beneficial owner, directly or indirectly, of ten
percent (10%) or more of the voting power of the then outstanding
shares of Voting Stock;
(2) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of ten percent (10%) or more
of the voting power of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock which were are any
time within the two-year period immediately prior to the date in
question beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933, as amended, and such
assignment of succession was not approved by a majority of the
Continuing Directors.
C. A person shall be a "beneficial owner" of any shares of "Voting
Stock":
(1) which such person or any of its Affiliates or Associates,
directly or indirectly, has or shares with respect to such Voting
Stock (a) the right to acquire or direct the acquisition of (whether
such right is exercisable immediately or only after the passage of
time or on the satisfaction of any conditions or both), pursuant to
any agreement, arrangement or understanding or upon the exercise of
any conversion rights, warrants, or options or otherwise; (b) the
right to vote, or direct the voting of, pursuant to any agreement,
arrangement or understanding or otherwise; or (c) the right to dispose
of or transfer or direct the disposition or transfer of pursuant to
any agreement, arrangement, understanding or otherwise; or
(2) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
D. For the purpose of determining whether a person is an Interested
Stockholder pursuant to paragraph B of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned by such
person through application of paragraph C of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options or otherwise.
E. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the SEC's General Rules and Regulations
under the 1934 Act.
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F. "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph B of this Section 3, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
G. "Continuing Director" means any member of the Board of Directors of
the Corporation (the "Board") who is not an Interested Stockholder, or an
Affiliate or an Associate of any Interested Stockholder and was a member of the
Board prior to the time that any Interested Stockholder became an Interested
Stockholder, and any successor of a Continuing Director who is not an Interested
Stockholder, or an Affiliate or an Associate of any Interested Stockholder and
is recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
H. "Fair Market Value" for the purpose of these Articles of
Organization means:
(1) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of
a share of such stock on the principal United States securities
exchange registered under the 1934 Act on which such stock is listed,
or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National
Association of Securities Dealers Automated Quotation System or a
comparable system then in use, or if not such quotations are available,
the fair market value on the date in question of a share of such stock
as determined by at least a majority of the Continuing Directors of the
Board in good faith; and
(2) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by
at least a majority of the Continuing Directors of the Board in good
faith.
I. "Group Acting in Concert" shall mean persons seeking to combine or
pool their voting or other interests in the securities of the Corporation for a
common purpose, pursuant to any contract, understanding, relationship, agreement
or other arrangement, whether written, oral or otherwise, or any "group of
persons' as defined under Section 13(d) of the 1934 Act. When persons act
together for any such purpose, their group is deemed to have acquired their
stock.
J. "Voting Stock" shall mean the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors.
K. In the event of any Business Combination in which the Corporation
survives, the phrase "other consideration to be received" as used in paragraphs
B(1) and (2) of Section 2 of this Article V shall include the shares of common
stock and/or the shares of any other class of outstanding voting stock retained
by the holders of such shares.
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SECTION 4. Powers of the Board of Directors.
A majority of the Directors of the Corporation (or, if there is an
Interested Stockholder, a majority of the Continuing Directors then in office)
shall have the power to determine for the purposes of this Article V, on the
basis of information known to them after reasonable inquiry, including without
limitation, (A) whether a person is an Interested Stockholder, (B) the number of
shares of Voting Stock beneficially owned by any person, (C) whether a person is
an Affiliate or Associate of or is affiliated or associated with another, (D)
whether the requirements of Section 2 of this Article V have been met with
respect to any Business Combination, (E) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination has, an aggregate Fair Market Value of $2,500,000 or
more, and (F) any other matters of interpretation arising under this Article V
or under Section 2 of Article VI. The good faith determination of a majority of
the Directors (or, if there is an Interested Stockholder, a majority of the
Continuing Directors then in office) on such matters shall be conclusive and
binding for all purposes of this Article V and of Section 2 of Article VI.
SECTION 5. No Effect on Fiduciary Obligations of Interested
Stockholders.
Nothing contained in this Article V shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
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ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT D
ARTICLE VI: Other Lawful Provisions
SECTION 1. Standards for Board of Directors Evaluation of Offers. The Board
of Directors of the Corporation, when evaluating any offer of another person to
(A) make a tender or exchange offer for any equity security of the Corporation,
(B) merge or consolidate the Corporation with another institution, or acquire
all of the Voting Stock of the Corporation, or (C) purchase or otherwise acquire
all or substantially all of the properties and assets of the Corporation, shall,
in connection with the exercise of its judgment in determining what is in the
best interests of the Corporation and its stockholders, give due consideration
to all relevant factors including, without limitation, the social and economic
effects of acceptance of such offer on the Corporation's present and future
account holders, borrowers and employees; on the communities in which the
Corporation operates or is located; and on the ability of the Corporation to
fulfill the objectives of a bank holding company under applicable statutes and
regulations.
SECTION 2. Beneficial Ownership Limitation. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than ten
percent ( 10%) of the outstanding shares of any class of equity securities of
the Corporation. This limitation shall not apply (A) to any acquisition of
shares of capital stock of the Corporation which has been expressly approved in
advance by an affirmative vote of not less than two-thirds of the Continuing
Directors then in office, (B) to any offer to the Corporation made by any
underwriters selected by the Corporation in connection with a public offering by
the Corporation of the Corporation's capital stock, or (C) to any Employee Stock
Ownership Plan established by the Corporation.
For the purposes of determining the number of shares of equity securities
owned hereunder by any person, the number of shares of equity securities deemed
to be outstanding shall include shares deemed owned by such person through the
application of paragraph C of Section 3 of Article V of these Articles of
Organization but shall not include any other shares of equity securities which
may be issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options or otherwise.
In the event that any class of equity securities is acquired in violation
of this Section 2, (I) all shares of Common Stock or Preferred Stock
beneficially owned by any person in excess of ten percent ( 10%) of the total
number of outstanding shares of such class shall be considered "excess shares"
and such shares shall not be counted as shares entitled to vote, shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to the stockholders for a vote, and shall not be counted as
outstanding for purposes of determining the affirmative vote necessary to
approve any matter submitted to the stockholders for a vote, and (ii) the Board
of Directors may cause such excess shares to be transferred to an independent
trustee for sale on the open market or otherwise, with the expenses of such
trustee to be paid out of the proceeds from such sale. The term "offer" as it is
used in this Article includes every offer to buy or acquire, solicitation
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of an offer to sell, tender offer for or request or invitation for tender of, a
security or interest in a security for value.
SECTION 3. Directors. The Corporation shall be under the direction of a
Board of Directors. The number of Directors shall not be fewer than three (3) or
as required by law. The Board of Directors shall be divided into three classes
(Class I, Class II and Class III) as nearly equal in number as possible, with
one class to be elected annually.
The directors of the Corporation as of and from the effective date of these
Articles of Organization shall be those persons identified in Article VIII and
they shall hold office as follows: the directors initially elected to Class I
shall hold office for a term expiring at the annual meeting of stockholders to
be held in 1997, the directors initially elected to Class II shall hold office
for a term expiring at the annual meeting of stockholders to be held in 1998,
and the directors initially elected to Class III shall hold office for a term
expiring at the annual meeting of stockholders to be held in 1999, with the
members of each such class to hold office until their respective successors are
duly elected and qualified. At each annual meeting, or special meeting in lieu
thereof, of stockholders of the Corporation, the successors to the class of
directors whose term expires at the meeting shall be elected by a plurality vote
of all votes cast at such meeting to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election and until their respective successors are elected and qualified.
Any Director (including persons elected by Directors to fill vacancies in
the Board of Directors) may be removed from office only for Cause (as
hereinafter defined), by an affirmative vote of not less than (i) the holders of
two-thirds of the total votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders called expressly for such purpose, or (ii)
two-thirds of the members of the Board of Directors then in office, unless at
the time of such removal there shall be an Interested Stockholder, in which case
the affirmative vote of not less than two-thirds of the Continuing Directors
then in office shall also be required for removal by vote of the Board of
Directors. At least thirty days prior to such meeting of stockholders, written
notice shall be sent to the Director whose removal will be considered at the
meeting.
For purposes of this Section 3, "Cause" shall be defined as (i) conviction
of a felony; (ii) acceptance of immunity to testify where another has been so
convicted; (iii) a court determination of liability for negligence or misconduct
in the performance of directorial duties in an important matter; or (iv) a
determination or direction by such governmental agency or authority as may
exercise proper jurisdiction that an individual should not be a Director.
SECTION 4. Indemnification of Directors. The Corporation shall indemnify any
person who was or is a party to any threatened, pending or completed action,
suit or proceeding (other than actions based upon a violation of the duty of
loyalty), whether civil, criminal, derivative, administrative or investigative
by reason of the fact that the person is or was a Director, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him if he acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Corporation. The termination of any action, suit or proceeding by judgment,
order or settlement shall not, of itself, create a presumption that the person
did not act in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Corporation. The provisions of this Section
4 shall not limit any other rights of
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<PAGE>
indemnification from the Corporation that a person may be entitled to by law or
the By-laws of the Corporation.
SECTION 5. Transactions with Interested Persons.
5.1. Unless entered into in bad faith, no contract or transaction by the
Corporation shall be void, voidable or in any way affected by reason of the fact
that it is with an Interested Person.
5.2. For the purposes of this Section 5, "Interested Person" means any
person or organization in any way interested in the Corporation whether as a
director, officer, stockholder, employee or otherwise, and any other entity in
which any such person or organization of the Corporation is in any way
interested.
5.3. Unless such contract or transaction was entered into in bad faith, no
Interested Person, because of such interest, shall be liable to the Corporation
or to any other person or organization for any loss or expense incurred by
reason of such contract or transaction or shall be accountable for any gain or
profit realized from such contract or transaction.
5.4. The provisions of this Section 5 shall be operative notwithstanding
the fact that the presence of an Interested Person was necessary to constitute a
quorum at a meeting of Directors or stockholders of the Corporation at which
such contract or transaction was authorized or that the vote of an Interested
Person was necessary for the authorization of such contract or transaction.
SECTION 6. Acting as a Partner. The Corporation may be a partner in any
business enterprise which it would have power to conduct by itself.
SECTION 7. Stockholders Meetings. Meetings of stockholders may be held at
such place in the Commonwealth of Massachusetts or, if permitted by applicable
law, elsewhere in the United States as the Board of Directors may determine.
SECTION 8. Notice of Stockholder Business at Annual Meeting. At an annual
meeting of stockholders, only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the Board of
Directors (unless there is an Interested Stockholder, in which case the
affirmative vote of a majority of the Continuing Directors then in office shall
also be required) or (b) by any stockholder of the Corporation who complies with
the notice procedures set forth in this Section 8. For business to be properly
brought before an annual meeting by the stockholder, the stockholder must have
given timely notice thereof in writing to the Clerk of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than sixty days nor
more than one hundred and fifty days prior to the meeting; provided, however,
that in the event that less than seventy days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the close
of business on the tenth day following the day on which such notice of the date
of the annual meeting was mailed or such public disclosure was made must be
given. A stockholder's notice to the Clerk shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and
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address, as they appear on the Corporation's books, of the stockholder proposing
such business and any other stockholder known by such stockholder to be
supporting such proposal, (c) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and any other stockholder known
by such stockholder to be supporting such proposal, and (d) any financial
interest of the stockholder in such business. Notwithstanding anything in these
Articles of Organization to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
Section 8 or as provided in the By-Laws of the Corporation. The Chairman of the
Board and Chief Executive Officer at an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section 8,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before this meeting shall not be transacted.
SECTION 9. Call of Special Meetings. Special meetings of the stockholders
for any purpose or purposes may be called at any time only by the Chairman of
the Board and Chief Executive Officer, or by the affirmative vote of a majority
of the Directors then in office; provided, however, that if at the time of such
call there is an Interested Stockholder, any such call shall also require the
affirmative vote of a majority of the Continuing Directors then in office. Only
those matters set forth in the call of the special meeting may be considered or
acted upon at such special meeting, unless otherwise provided by law.
SECTION 10. Amendment of By-Laws. The By-Laws of the Corporation may be
adopted, altered, amended, changed or repealed by the Board of Directors or the
stockholders of the Corporation. Such action by the Board of Directors shall
also require the affirmative vote of at least two-thirds of the Directors then
in office at a duly constituted meeting of the Board of Directors, unless if at
the time of such action there shall be an Interested Stockholder, in which case
such action shall also require the affirmative vote of at least two-thirds of
the Continuing Directors then in office, at such a meeting. Such action by the
stockholders shall (i) first require approval by the affirmative vote of a
majority of the Board of Directors of the Corporation then in office at a duly
constituted meeting of the Board of Directors, unless at the time of such action
there shall be an Interested Stockholder, in which case such action shall also
require the affirmative vote of at least a two-thirds majority of the Continuing
Directors then in office, at such meeting, (ii) unless waived by the affirmative
vote of the Board of Directors (and if applicable, the Continuing Directors)
specified in the preceding sentence, require the submission by the stockholders
of written proposals for adopting, altering, amending, changing or repealing the
By-Laws at least sixty days prior to the meeting at which they are to be
considered, and (iii) shall further require the affirmative vote of at least
two-thirds of the total votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders called expressly for such purpose.
SECTION 11. Amendment to Articles of Organization. No amendment, addition,
alteration, change or repeal of these Articles of Organization shall be made,
unless the same is first approved by the affirmative vote of at least two-thirds
of the Board of Directors of the Corporation then in office, and thereafter
approved by the stockholders by not less than 80% of the total votes eligible to
be cast at a duly constituted meeting, or, in the case of Articles I, II and III
of these Articles of Organization, by not less than a majority of the total
votes eligible to be cast, and if, at any time within the sixty-day period
immediately preceding the meeting at which the stockholder vote is to be taken
there is an Interested Stockholder, such amendment, addition, alteration,
change, or repeal
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shall also require the affirmative vote of at least two-thirds of the Continuing
Directors then in office, prior to approval by the stockholders. Unless
otherwise provided by law, any amendment, addition, alteration, change or repeal
so acted upon shall be effective on the date it is filed with the Secretary of
State of the Commonwealth of Massachusetts or on such other date as specified in
such amendment, addition, alteration, change or repeal or as the Secretary of
State may specify.
SECTION 12. Director's Liability. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of such director's fiduciary duty as a director of the
Corporation, notwithstanding any provision of law imposing such liability;
provided, however, that, to the extent required by applicable law, this
provision shall not eliminate the liability of a director of the Corporation (i)
for any breach of such director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law (iii) under provisions of
the Massachusetts General Laws imposing liabilities on directors in respect of
distributions to the stockholders of the Corporation or loans to officers or
directors of the Corporation, or (iv) any transaction from which such director
derived any improper personal benefit. This provision shall not eliminate the
liability of a director for any act or omission occurring prior to the date upon
which this provision becomes effective. No amendment to or repeal of this
provision shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to the date of such amendment or
repeal.
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<PAGE>
ENTERPRISE BANCORP, INC.
RESTATED ARTICLES OF ORGANIZATION
EXHIBIT E
ARTICLE VIII: List of Directors
<TABLE>
<CAPTION>
Name Residential Address Post Office Address
<S> <C> <C>
Kenneth S. Ansin 5 Wyman Road Enterprise Bancorp, Inc.
West Townsend, MA 01474 222 Merrimack Street
Lowell, MA 01852
Walter L. Armstrong 50 Marshall Avenue Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
Gerald G. Bousquet, M.D. 1 New Towne Way Enterprise Bancorp, Inc.
Chelmsford, MA 01824 222 Merrimack Street
Lowell, MA 01852
Kathleen M. Bradley 17 Bradley Lane Enterprise Bancorp, Inc.
Westford, MA 01886 222 Merrimack Street
Lowell, MA 01852
James F. Conway, III 23 Stonybrook Circle Enterprise Bancorp, Inc.
Andover, MA 01810 222 Merrimack Street
Lowell, MA 01852
Nancy L. Donahue 52 Belmont Avenue Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
George L. Duncan 710 Andover Street Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
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<PAGE>
Eric W. Hanson 3 Boardwalk Enterprise Bancorp, Inc.
Chelmsford, MA 01824 222 Merrimack Street
Lowell, MA 01852
John P. Harrington 53 Trull Lane Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
Arnold S. Lerner 155 Pine Hill Road Enterprise Bancorp, Inc.
Hollis, NH 03049 222 Merrimack Street
Lowell, MA 01852
Richard W. Main 1 Overlook Drive Enterprise Bancorp, Inc.
Chelmsford, MA 01824 222 Merrimack Street
Lowell, MA 01852
Charles P. Sarantos 132 Lincoln Parkway Enterprise Bancorp, Inc.
Lowell, MA 01852 222 Merrimack Street
Lowell, MA 01852
Michael A. Spinelli 6 Lakewood Road Enterprise Bancorp, Inc.
Windham, NH 03087 222 Merrimack Street
Lowell, MA 01852
</TABLE>
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<PAGE>
[FORM OF ARTICLES OF AMENDMENT
TO BE FILED PRIOR TO REORGANIZATION]
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
We Richard W. Main, President and Arnold S. Lerner, Clerk of Enterprise Bancorp,
Inc. located at 222 Merrimack Street, Lowell, Massachusetts 01852, do hereby
certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: 3 of the
Articles of Organization were duly adopted at a meeting held on __________ 1996,
by vote of: the sole incorporator in accordance with the rights and powers
accorded thereto under Ch. 156B M.G.L. ss.44.
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<PAGE>
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fillin the
following:
The total presently authorized is:
WITHOUT PAR VALUE WITH PAR VALUE
- ------------------------------ ------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---- ---------------- ---- ---------------- ---------
Common: Common: 500,000 $.01
Preferred: Preferred: 100,000 $.01
CHANGE the total authorized to:
WITHOUT PAR VALUE WITH PAR VALUE
- ------------------------------ ------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---- ---------------- ---- ---------------- ---------
Common: Common: 5,000,000 $.01
Preferred: Preferred: 1,000,000 $.01
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<PAGE>
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. LATER EFFECTIVE DATE:
________________________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this day of , in the year 1996.
____________________________________________________________ President
Richard W. Main
_____________________________________________________________ Clerk
Arnold S. Lerner
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<PAGE>
The Commonwealth of Massachusetts
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and, the filing fee in the
amount of $____________ having been paid, said articles are deemed to have been
filed with me this ________ day of _______________ , 19 __.
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO: Stephen J. Coukos, Esq.
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2912
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<PAGE>
EXHIBIT C-2
BY-LAWS
of
ENTERPRISE BANCORP, INC.
ARTICLE I
ORGANIZATION
The name of this Corporation is "Enterprise Bancorp, Inc.". The main
office of the Corporation shall be located in Lowell, Massachusetts and may be
changed from time to time by the Directors of the Corporation. Other Offices
hereafter established shall be located and operated in accordance with law. The
Corporation shall have and may exercise all powers and authority, express and
implied, available to it under applicable law.
ARTICLE II
STOCKHOLDERS
SECTION l. Annual Meeting. The annual meeting of shareholders shall be held
on the first Tuesday in May at 4:00 p.m. at the main office of the Corporation
in Massachusetts, unless a different hour, date or place within Massachusetts
(or elsewhere in the United States) is fixed by the Board of Directors or the
Chairman of the Board and Chief Executive Officer. If no annual meeting has been
held on the date fixed as above provided, a special meeting in lieu thereof may
be held, and such special meeting shall be treated for all purposes as an annual
meeting.
SECTION 2. Stockholder Notice of Matters to be considered at Annual
Meeting. If the Board of Directors, or a designated committee thereof,
determines that the information provided in a stockholder's notice, given
pursuant to the requirements of Section 8 of Article VI of the Articles of
Organization, does not satisfy the informational requirements of said Section 8
of Article VI in any material respect, the Clerk of the Corporation shall
promptly notify such stockholder of the deficiency in the notice. The
stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Clerk within such period of time, not to exceed
five days from the date such deficiency notice is mailed to the stockholder, as
the Board of Directors or such committee shall reasonably determine. If the
deficiency is not cured within such period, or if the Board of Directors or such
committee determines that the additional information provided by the
stockholder, together with information previously provided, does not satisfy the
requirements of Section 8 of Article IV in any material respect, then the Board
of Directors may reject such stockholder's proposal. The Clerk of the
Corporation shall notify a stockholder in writing whether his proposal has been
made in accordance with the time and informational requirements of Section 8 of
Article VI. Notwithstanding the procedure set forth in this paragraph, if
neither the Board of Directors nor such committee makes a determination as to
the validity of any stockholder proposal, the Chairman shall
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<PAGE>
determine and declare at the annual meeting whether the stockholder proposal was
made in accordance with the terms of Section 8 of Article VI of the Articles of
Organization. If the Chairman of the Board and Chief Executive Officer
determines that a stockholder proposal was made in accordance with the terms of
Section 8 of Article VI, he shall so declare at the annual meeting and ballots
shall be provided for use at the meeting with respect to any such proposal. If
the Chairman of the Board and Chief Executive Officer determines that a
stockholder proposal was not made in accordance with the terms of Section 8 of
Article VI, he shall so declare at the annual meeting and any such proposal
shall not be acted upon at the annual meeting. If there is an Interested
Stockholder, any determinations to be made by the Board of Directors or a
designated committee thereof pursuant to the provisions of this paragraph shall
also require the concurrence of a majority of the Continuing Directors then in
office.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, Directors and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed and
received as herein provided.
As used in these By-Laws, the terms "Interested Stockholder", "Affiliate"
and "Continuing Director" shall have the same respective meanings assigned to
them in the Articles of Organization, as amended from time to time. Any
determination of beneficial ownership of securities under these By-Laws shall be
made in the manner specified in the Articles of Organization, as amended from
time to time.
SECTION 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes shall be called as provided for in the Articles of
Organization.
SECTION 4. Notice of Meetings; Adjournments. A written notice of all annual
and special meetings of shareholders stating the hour, date, place and purposes
of such meetings shall be given at least eleven days before the meeting to each
stockholder entitled to vote or to each stockholder who, under the Articles of
Organization or under these By-Laws, is entitled to such notice by mailing it
addressed to such stockholder at the address of such stockholder as it appears
on the stock transfer books of the Corporation. Such notice shall be given by
the Clerk or an Assistant Clerk, by any other officer or by a person designated
either by the Clerk, an Assistant Clerk, by the person or persons calling the
meeting, or by the Board of Directors. Such notice shall be deemed to be
delivered when deposited in the mail so addressed, with postage prepaid. When
any shareholders meeting, either annual or special, is adjourned for thirty days
or more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the hour, date
or place of any meeting adjourned for less than thirty days or of the business
to be transacted thereat, other than an announcement at the meeting at which
such adjournment is taken of the hour, date and place to which the meeting is
adjourned. A written waiver of notice, executed before or after a meeting by a
stockholder or by an authorized attorney of a stockholder and filed with the
records of the meeting, shall be deemed equivalent to notice of the meeting. The
Chairman of the Board and Chief Executive Officer or in his absence, the Vice
Chairman or in his absence, the President, shall preside at all stockholder
meetings and shall have the power, among other things, to adjourn such
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<PAGE>
meeting at any time and from time to time, subject to Section 5 of this Article
II.
SECTION 5. Quorum. The holders of a majority in interest of all stock
issued, outstanding and entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders; but if less than a
quorum is present at a meeting, a majority in interest of the shareholders
present may adjourn the meeting from time to time, and the meeting may be held
as adjourned without further notice, except as provided in Section 4 of this
Article II. At such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 6. Voting and Proxies. Stockholders, unless otherwise provided by
law, shall have such voting rights as are provided in the Articles of
Organization. Stockholders may vote either in person or by written proxy dated
not more than six months before the meeting named therein. Proxies shall be
filed with the clerk of the meeting, or of any adjournment thereof, before being
voted. Except as otherwise limited therein, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting, but they shall
not be valid after final adjournment of such meeting. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by or
on behalf of any one of them unless at or prior to the exercise of the proxy the
Corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger.
SECTION 7. Action at Meeting. When a quorum is present, any matter properly
before the meeting shall be decided by a vote of the holders of a majority of
the shares of stock present and voting on such matter, except where a larger
vote is required by law, by the Articles of Organization or by these By-Laws.
Any election by shareholders shall be determined by a plurality of the votes
cast, except where a larger vote is required by law, by the Articles of
Organization or by these ByLaws. No ballot shall be required for elections
provided, however, that any stockholder personally present at a meeting may
request a ballot to register the vote of such stockholder.
SECTION 8. No Stockholder Action by Written Consent. Subject to the rights
of the holders of any series of preferred stock as set forth in the Articles of
Organization to elect additional directors under specific circumstances or to
consent to specific actions taken by the Corporation, any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
an annual or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders.
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<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. Powers. The business and affairs of the Corporation shall be
managed by a Board of Directors who may exercise all the powers and authority of
the Corporation except as otherwise provided by law, by the Articles of
Organization or by these By-Laws.
SECTION 2. Composition and Term. The Board of Directors shall be composed
of: (a) those persons designated in the Articles of Organization of the
Corporation, such persons to serve as Directors until the respective expiration
dates of their terms as set forth therein and until their successors are elected
and qualified; and (b) such other persons who may be elected as Directors from
time to time as provided herein. Subject to the rights of the holders of any
series of preferred stock as set forth in the Articles of Organization to elect
Directors under specified circumstances, the number of Directors shall be fixed
from time to time exclusively pursuant to a resolution adopted by a majority of
the Board of Directors (provided that if at any time of such action there is an
Interested Stockholder, a majority vote of the Continuing Directors then in
office shall also be required), but shall consist of not fewer than three
individuals . The Board of Directors shall be divided into three classes, such
classes to be as nearly equal in number as practicable. One of such classes of
Directors shall be elected annually by the shareholders. Except as otherwise
provided in accordance with these By-Laws, the members of each class shall be
elected for a term of three years and until their successors are elected and
qualified. The staggered terms of office of the three classes of Directors will
result in only approximately one-third of the Directors being elected each year.
SECTION 3. Director Nominations. Nominations of candidates for election as
Directors at any annual meeting of shareholders may be made (a) by, or at the
direction of, a majority of the Board of Directors (unless there is an
Interested Stockholder, in which case the affirmative vote of a majority of the
Continuing Directors shall also be required); (b) by or at the direction of the
Chairman of the Board and Chief Executive Officer; or (c) by any stockholder
entitled to vote at such annual meeting. Only persons nominated in accordance
with the procedures set forth in this Section 3 shall be eligible for election
as Directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors (or by the Continuing Directors, if required) or by the Chairman of
the Board and Chief Executive Officer, shall be made pursuant to timely notice
in writing to the Clerk of the Corporation as set forth in this Section 3. To be
timely, a stockholder's notice shall be delivered to, or mailed and received at,
the principal executive offices of the Corporation not less than sixty days nor
more than one hundred and fifty days prior to the date of the scheduled annual
meeting, regardless of postponements, deferrals or adjournments of that meeting
to a later date; provided, however, that if less than seventy days notice or
prior public disclosure of the date of the scheduled annual meeting is given or
made, notice by the stockholder to be timely must be so delivered or received
not later than the close of business on the tenth day following the earlier of
the day on which such notice of the date of the scheduled annual meeting was
mailed or the day on which such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election
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<PAGE>
or re-election as a Director and as to the stockholder giving the notice (i) the
name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the Corporation's capital stock which are beneficially owned by such
person on the date of such stockholder notice, and (iv) any other information
relating to such person that is required to be disclosed in solicitations of
proxies with respect to nominees for election as Directors, pursuant to
regulations promulgated by the Securities and Exchange Commission ("SEC"), or
any successor agency thereto, under the Securities Exchange Act of 1934, as
amended, including, but not limited to, such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected; and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such stockholder and any
other shareholders known by such stockholder to be supporting such nominees and
(ii) the class and number of shares of the Corporation's capital stock which are
beneficially owned by such stockholder on the date of such stockholder notice
and by any other shareholders known by such stockholder to be supporting such
nominees on the date of such stockholder notice. At the request of the Board of
Directors, any person nominated by, or at the direction of, the Board of
Directors for election as a Director at an annual meeting shall furnish to the
Clerk of the Corporation that information required to be set forth in the
stockholder's notice of nomination which pertains to the nominee.
Notwithstanding the foregoing, the Board of Directors shall have the right to
conduct a due diligence investigation relating to the qualifications of any
nominee proposed for election to Board of Directors, the relationship of that
nominee to the stockholder and any relationship such person may have with any
entity other than the Corporation (i) in which such person holds an equity
interest of 2% or more; (ii) from whom such person has any indemnification or
other agreement with respect to the actions such person will take as a Director
of the Corporation; (iii) at whose instance such person has agreed to be a
nominee for election as a Director of the Corporation (a "Related Entity"), and
to require an undertaking by such person that if elected as a Director of the
Corporation, such person will abstain from voting on any matter in which any
entity described in subsections has a direct, material, pecuniary interest.
No person shall be elected as a Director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 3. Ballots
bearing the names of all the persons who have been nominated for election as
Directors at an annual meeting in accordance with the procedures set forth in
this Section 3 shall be provided for use at the annual meeting.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Section 3. If the Board
of Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Section 3 in any material respect, the Clerk of the
Corporation shall promptly notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Clerk within such period of time, not to
exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee reasonably determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Section 3 in any material
respect, then
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the Board of Directors may reject such stockholder's nomination. The Clerk of
the Corporation shall notify a stockholder in writing whether his nomination has
been made in accordance with the time and informational requirements of this
Section 3. Notwithstanding the procedure set forth in this paragraph, if neither
the Board of Directors nor such committee makes a determination as to the
validity of any nominations by a stockholder, the presiding officer of the
annual meeting shall determine and declare at the annual meeting whether a
nomination was made in accordance with the terms of this Section 3. If the
presiding officer determines that a nomination was made in accordance with the
terms of this Section 3, he shall so declare at the annual meeting and ballots
shall be provided for use at the meeting with respect to such nominee. If the
presiding officer determines that a nomination was not made in accordance with
the terms of this Section 3, he shall so declare at the annual meeting and such
nomination shall be disregarded. If there is an Interested Stockholder, any
determinations to be made by the Board of Directors or a designated committee
thereof pursuant to the provisions of this paragraph shall also require the
concurrence of a majority of the Continuing Directors then in office.
SECTION 4. Qualification. Each Director shall have such qualifications as
are required by applicable law. To the extent required by law, each Director,
when appointed or elected, shall take an oath that he will faithfully perform
the duties of his office. Any such oath shall be taken before a notary public or
justice of the peace, who is not an officer of the Corporation, and a record of
such oath shall be made a part of the records of the Corporation. Each Director
shall be a citizen and a resident of the Commonwealth of Massachusetts or the
State of New Hampshire. Three-fourths of the Board of Directors shall be
citizens and residents of the Commonwealth of Massachusetts.
SECTION 5. Resignation. Any Director may resign at any time by written
notice to the Chairman of the Board and Chief Executive Officer or the Board of
Directors. A resignation shall be effective when accepted by the Board of
Directors.
SECTION 6. Removal. Any Director may be removed from office as provided in
the Articles of Organization.
SECTION 7. Vacancies. Any vacancy occurring on the Board of Directors as a
result of resignation, removal, death or increase in the authorized number of
Directors may be filled by vote of a majority of the remaining Directors (unless
there is an Interested Stockholder, in which case the affirmative vote of a
majority of the Continuing Directors shall also be required). A Director elected
to fill such a vacancy shall be elected to serve for the remainder of the full
term of the class of Directors in which the vacancy occurred or the new
directorship was created and until such director's successor has been elected
and qualified.
SECTION 8. Compensation. The members of the Board of Directors and the
members of either standing or special committees shall receive such compensation
as the Board of Directors may determine. Directors who are also employees of the
Corporation shall not receive compensation for serving on the Board of
Directors.
SECTION 9. Regular Meetings. A regular meeting of the Board of Directors
shall be held
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without other notice than this By-Law on the same date and at the same place as
the annual meeting of shareholders following such meeting of shareholders. The
Board of Directors may provide the hour, date and place for the holding of
regular meetings by resolution without other notice than such resolution. The
Board of Directors shall meet at least once in each calendar month at a place or
places fixed from time to time by the Board of Directors or the Chairman of the
Board, if one is elected.
SECTION 10. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board or if there is
an Interested Stockholder, a majority of the Continuing Directors, or else by a
majority of the Directors. The person or persons authorized to call special
meetings of the Board of Directors may fix the hour, date and place for holding
a special meeting.
SECTION 11. Notice of Special Meetings. Notice of the hour, date and place
of all special meetings of the Board of Directors shall be given to each
Director by the Clerk or an Assistant Clerk, or in the case of the death,
absence, incapacity or refusal of such persons, by the officer or one of the
Directors calling the meeting. Notice of any special meeting of the Board of
Directors shall be given to each Director in person, by telephone, sent to his
business or home address by telegram at least twenty-four hours in advance of
the meeting or by written notice mailed to his business or home address at least
5 days in advance of such meeting. Such notice shall be deemed to be delivered
when deposited in the mail so addressed, with postage thereon prepaid if mailed,
or when delivered to the telegraph company if sent by telegram. When any Board
of Directors meeting, either regular or special, is adjourned for thirty days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the hour, date
or place of any meeting adjourned for less than thirty days or of the business
to be transacted thereat, other than an announcement at the meeting at which
such adjournment is taken of the hour, date and place to which the meeting is
adjourned. A written waiver of notice executed before or after a meeting by a
Director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting to the transaction of any
business because such meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
SECTION 12. Quorum. A majority of the number of Directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than a quorum is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section I I of this Article III. Any business which might have been
transacted at the meeting as originally noticed may be transacted at such
adjourned meeting at which a quorum is present.
SECTION 13. Action at a Meeting. The act of the majority of the Directors
present at a meeting
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at which a quorum is present shall be the act of the Board of Directors, unless
a greater number is prescribed by law, by the Articles of Organization or by
these By-Laws.
SECTION 14. Action by Consent. Any action required or permitted to be taken
by the Board of Directors at any meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the Directors. Such written consents shall be filed with the records of the
meetings of the Board of Directors and shall be treated for all purposes as a
vote at a meeting of the Board of Directors.
SECTION 15. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a written dissent to such action with the person
acting as the Clerk of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Clerk of the Corporation within
five days after the date a copy of the minutes of the meeting is received. Such
right to dissent shall not apply to a Director who voted in favor of such
action.
SECTION 16. Committees. The Board of Directors may, by resolution adopted
by a majority of the Board of Directors, designate one or more committees,
including without limitation an executive committee, each committee to consists
of not fewer than three members elected by the Board of Directors from among its
members. The Board of Directors may delegate to an executive committee or such
other committees some or all of its powers except those which by law, by the
Articles of Organization or by these By-Laws may not be delegated. Except as the
Board of Directors may otherwise determine, any such committee may make rules
for the conduct of its business, but unless otherwise provided by the Board of
Directors or in such rules, its business shall be conducted so far as possible
in the same manner as is provided by these By-Laws for the Board of Directors.
All members of such committees shall hold such offices at the pleasure of the
Board of Directors. The Board of Directors may abolish any such committee at any
time, subject to applicable law. Any committee to which the Board of Directors
delegates any of its powers or duties shall keep written records of its meetings
and shall report its actions to the Board of Directors. The Board of Directors
shall have power to rescind any action of any committee, but no such rescission
shall have retroactive effect.
SECTION 17. Manner of Participation. Members of the Board of Directors or
of committees elected by the Board pursuant to Section 16 of this Article III
may participate in meetings of the Board or of such committees by means of
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other. Such participation shall
constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 8 of this Article III, unless the
Board of Directors by resolution so provides.
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<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. Enumeration. The officers of the Corporation shall consist of a
Chairman of the Board and Chief Executive Officer, a Vice Chairman, a President,
a Treasurer, a Clerk and such other officers, including, without limitation, one
or more Executive Vice Presidents, Senior Vice Presidents, Vice-Presidents,
Assistant Vice Presidents, Assistant Treasurers and Assistant Clerks as the
Board of Directors may determine to be necessary for the management of the
Corporation.
SECTION 2. Election. All officers shall be elected by the Board of
Directors at the meeting of the Board of Directors following the annual meeting
of the shareholders.
SECTION 3. Qualification. Any two or more offices may be held by any
person. Any officer may be required by the Board of Directors to give bond for
the faithful performance of his duties in such amount and with such sureties as
the Board of Directors may determine.
SECTION 4. Tenure. All officers shall hold office until the first meeting
of the Board of Directors following the next annual meeting of shareholders, or
for such shorter terms as the Board of Directors may fix at the time such
officers are chosen. Any officer may resign at any time by written notice to the
Chairman of the Board and Chief Executive Officer or the Board of Directors.
Such resignation shall be effective upon receipt unless the resignation
otherwise provides. Election or appointment of an officer, employee or agent
shall not of itself create contract rights. The Board of Directors may, however,
authorize the Corporation to enter into an employment contract with any officer
in accordance with law, but no such contract right shall impair the right of the
Board of Directors to remove any officer at any time in accordance with Section
5 of this Article IV.
SECTION 5. Removal. The Board of Directors may remove any officer with or
without cause by a vote of a majority of the entire number of Directors then in
office; provided, however, that if at the time of such action there is an
Interested Stockholder, such action shall in addition require a majority vote of
the Continuing Directors then in office; and further provided, that such
removal, other than for cause, shall be without prejudice to the contract
rights, if any, of the persons involved.
SECTION 6. Absence or Disability. In the event of the absence or disability
of any officer, the Board of Directors may designate another officer to act
temporarily in place of such absent or disabled officer.
SECTION 7. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 8. Chairman of the Board and Chief Executive Officer. The Chairman
of the Board and Chief Executive Officer shall, subject to the direction of the
Board of Directors, have general supervision and control of the Corporation's
business and shall preside, when present, at all meetings
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<PAGE>
of the shareholders. The Chairman of the Board and Chief Executive Officer shall
preside at all meetings of the Board of Directors.
SECTION 9. Vice Chairman. If the Chairman of the Board and Chief Executive
Officer is absent, the Vice Chairman shall preside at all meetings of the Board
of Directors.
SECTION 10. The President. The President shall preside at all meetings of
the Board of Directors if the Chairman of the Board and Chief Executive Officer
and the Vice Chairman are absent. The President shall also have such powers and
perform such duties as the Chairman of the Board and Chief Executive Officer may
from time to time designate.
SECTION 11. Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Treasurer and Other Officers. Any Executive Vice President, any
Senior Vice President, any Vice President, the Treasurer and any other Officers
whose powers and duties are not otherwise specifically provided for herein shall
have such powers and shall perform such duties as the Chairman of the Board and
Chief Executive Officer may from time to time designate.
SECTION 12. Clerk and Assistant Clerks. The Clerk or, in the absence of the
Clerk, any Assistant Clerk (if one or more is elected by the shareholders or the
Board of Directors) shall keep a record of the meetings of shareholders and a
record of the meetings of the Board of Directors. Otherwise a Temporary Clerk
designated by the person presiding at the meeting shall perform the Clerk's
duties.
ARTICLE V
CAPITAL STOCK
SECTION 1. Certificates of Stock. Unless otherwise provided by the Board of
Directors, each stockholder shall be entitled to a certificate of the capital
stock of the Corporation in such form as may from time to time be prescribed by
the Board of Directors. Such certificate shall be signed by the Chairman of the
Board and Chief Executive Officer or the President and by the Treasurer or an
Assistant Treasurer. Such signatures may be facsimile if the certificate is
signed by a transfer agent or by a registrar, other than a Director, officer or
employee of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the time of its
issue. Every certificate for shares of stock which are subject to any
restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
otherwise provided by the Board of Directors, shares of stock may be transferred
on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate therefore properly endorsed or
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<PAGE>
accompanied by a written assignment and power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. Record Holders. Except as otherwise required by law, by the
Articles of Organization or by these By-Laws, the Corporation shall be entitled
to treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to
vote, regardless of any transfer, pledge or other disposition of such stock,
until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws. It shall be the duty of each
stockholder to notify the Corporation of his post office address.
SECTION 4. Record Date. The Board of Directors may fix in advance a time of
not more than sixty days before the date of any meeting of the shareholders as
the date for the payment of any dividend or the making of any distribution to
shareholders or the last day on which the consent or dissent of shareholders may
be effectively expressed for any purpose, as the record date for determining the
shareholders having the right to notice of and to vote at such meeting, and any
adjournment thereof, or the right to receive such dividend or distribution or
the right to give such consent or dissent. In such case, only shareholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Corporation after the record date. Without fixing
such record date, the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period. If no record date is fixed
and the transfer books are not closed, (a) the record date for determining
shareholders having the right to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, and (b) the record date for determining shareholders
for any other purpose shall be at the close of business on the date on which the
Board of Directors acts with respect thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
SECTION 6. Issuance of Capital Stock. Except as provided by law, the Board
of Directors shall have the authority to issue or reserve for issue from time to
time the whole or any part of the capital stock of the Corporation which may be
authorized from time to time, to such persons or organizations, for such
consideration, whether cash, property, services or expenses and on such terms as
the Board of Directors may determine, including, without limitation, the
granting of options, warrants or conversion or other rights to subscribe to said
capital stock.
SECTION 7. Dividends. Subject to applicable law, the Articles of
Organization and these ByLaws, the Board of Directors may from time to time
declare, and the Corporation may pay, dividends on shares of its capital stock
entitled to dividends.
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ARTICLE VI
INDEMNIFICATION
SECTION 1. Definitions. For purposes of this Article: (a) "Officer" means
any person who serves or has served as a Director of the Corporation or in any
other office filled by election or appointment by the shareholders or the Board
of Directors and any heirs or personal representatives of such person; (b)
"Non-Officer Employee" means any person who serves or has served as an employee
of the Corporation but who is not or was not an Officer and any heirs or
personal representatives of such person; (c) "Proceeding" means any action, suit
or proceeding, whether civil, criminal, derivative, administrative or
investigative, brought or threatened in or before any court, tribunal,
administrative or legislative body or agency and any claim which could be the
subject of a Proceeding; and (d) "Expenses" means any liability fixed by a
judgment, order, decree or award in a Proceeding, any amount reasonably paid in
settlement of a Proceeding and any professional fees or other disbursements
reasonably incurred in a Proceeding.
SECTION 2. Officers. Except as provided in Sections 4 and 5 of this Article
VI, each Officer of the Corporation shall be indemnified by the Corporation
against all Expenses incurred by such Officer in connection with any Proceedings
in which such Officer is involved as a result of serving or having served (a) as
an Officer or employee of the Corporation; (b) as a director, officer or
employee of any corporation, organization, partnership, joint venture, trust or
other entity the majority of the equity of which is owned by the Corporation; or
(c) in any capacity with any other corporation, organization, partnership, joint
venture, trust or other entity at the request or direction of the Board of
Directors.
SECTION 3. Non-Officer Employees. Except as provided in Sections 4 and 5 of
this Article VI, each Non-Officer Employee of the Corporation may, in the
discretion of the Board of Directors, be indemnified against any or all Expenses
incurred by such Non-Officer Employee in connection with any Proceeding in which
such Non-Officer Employee is involved as a result of serving or having served
(a) as a Non-Officer Employee of the Corporation; (b) as a director, officer or
employee of any corporation, organization, partnership, joint venture, trust or
other entity the majority of the equity of which is owned by the Corporation; or
(c) in any capacity with any other corporation, organization, partnership, joint
venture, trust or other entity at the request or direction of the Corporation.
SECTION 4. Service at the Request or Direction of the Board of Directors.
No indemnification shall be provided to an Officer or Non-Officer Employee with
respect to serving or having served in any of the capacities described in
Section 2(c) or 3(c) above unless the following two conditions are met: (a) such
service was requested or directed in each specific case by vote of the Board of
Directors prior to the occurrence of the event to which the indemnification
relates, and (b) the Corporation maintains insurance coverage for the type of
indemnification sought. In no event shall the Corporation be liable for
indemnification under Section 2(c) or 3(c) for any amount in excess of the
proceeds of insurance received with respect to such coverage as the Corporation
in its discretion may elect to carry. The Corporation may but shall not be
required to maintain insurance coverage with respect to indemnification under
Section 2(c) or 3(c) above. Notwithstanding any other provision
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<PAGE>
of this Section 4, the Board of Directors may provide an Officer or Non-Officer
Employee with indemnification under Section 2(c) or 3(c) above as to a specific
Proceeding even if one or both of the two conditions specified in this Section 4
have not been met and even if the amount of the indemnification exceeds the
amount of the proceeds of any insurance which the Corporation may have elected
to carry, provided that the Board of Directors in its discretion determines it
to be in the best interests of the Corporation to do so.
SECTION 5. Good Faith. Notwithstanding the foregoing, no indemnification
shall be provided to an Officer or to a Non-Officer Employee with respect to a
matter as to which such person shall have been adjudicated in any Proceeding not
to have acted in good faith in the reasonable belief that the action of such
person was in or not opposed to the best interests of the Corporation. In the
event that a Proceeding is compromised or settled so as to impose any liability
or obligation upon an Officer or Non-Officer Employee, no indemnification shall
be provided to said Officer or Non- Officer Employee with respect to a matter if
there be a determination that with respect to such matter such person did not
act in good faith in the reasonable belief that the action of such person was in
or not opposed to the best interests of the Corporation. The determination shall
be made by a majority vote of those Directors who are not involved in such
Proceeding. However, if more than half of the Directors are involved in such
Proceeding, the determination shall be made by a majority vote of a committee of
three disinterested Directors chosen by the disinterested Directors at a regular
or special meeting. If there are less than three disinterested Directors, the
determination shall be based upon the opinion of the Corporation's regular
outside counsel.
SECTION 6. Prior to Final Disposition. To the extent authorized by the Board
of Directors, by the committee of Directors referred to in Section 5 of this
Article VI or by the opinion of the Corporation's regular outside counsel, any
indemnification provided for under this Article IX may include payment by the
Corporation of Expenses incurred in defending a Proceeding in advance of the
final disposition of such Proceeding upon receipt of an undertaking by the
Officer or Non-Officer Employee seeking indemnification to repay such payment if
such Officer or Non-Officer Employee shall be adjudicated or determined to be
not entitled to indemnification under this Article VI.
SECTION 7. Insurance. The Corporation may purchase and maintain insurance
to protect itself and any Officer or Non-Officer Employee against any liability
of any character asserted against or incurred by the Corporation or any such
Officer or Non-Officer Employee, or arising out of any such status, whether or
not the Corporation would have the power to indemnify such person against such
liability by law or under the provisions of this Article VI.
SECTION 8. Other Indemnification Rights. Nothing in this Article VI shall
limit any lawful rights to indemnification existing independently of this
Article VI.
SECTION 9. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article VI with respect to any Proceeding arising out of
or relating to any actions, transactions or facts occurring at or prior to the
date of such merger or consolidation.
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SECTION 10. Savings Clause. If this Article VI or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and advance expenses to each indemnitee
as to any expenses (including reasonable attorneys' fees), judgments, fines,
liabilities, losses, and amounts paid in settlement in connection with any
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including an action by or in the right of the Corporation, to
the fullest extent permitted by any applicable portion of this Article VI that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
SECTION 11. Subsequent Legislation. If the Massachusetts General Laws are
amended after adoption of this Article VI to expand further the indemnification
permitted to an indemnitee, then the Corporation shall indemnify all such
persons to the fullest extent permitted by the Massachusetts General Laws, as so
amended.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 1. Amendment of By-Laws. These By-Laws may be adopted, altered,
amended, changed or repealed as provided in the Articles of Organization.
SECTION 2. Fiscal Year. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall be the twelve months ending
December 31 or on such other date as may be required by law.
SECTION 3. Seal. The Board of Directors shall have power to adopt and alter
the seal of the Corporation.
SECTION 4. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Board of Directors'
action may be executed on behalf of the Corporation by the Chairman of the Board
and Chief Executive Officer, the President, the Treasurer or any other officer,
employee or agent of the Corporation as the Board of Directors or the Executive
Committee may authorize.
SECTION 5. Voting of Securities. Unless otherwise provided by the Board of
Directors, the Chairman of the Board and Chief Executive Officer, the President
or the Treasurer may waive notice of and act on behalf of the Corporation, or
appoint another person or persons to act as proxy or attorney in fact for the
Corporation with or without discretionary power and/or power of substitution, at
any meeting of shareholders of any other organization, any of whose securities
are held by the Corporation. Any person or persons authorized or otherwise
designated in the manner provided herein shall have full right, power and
authority to vote any shares of stock issued by another corporation in the name
of the Corporation.
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SECTION 6. Articles of Organization. All references in these By-Laws to the
Articles of Organization shall be deemed to refer to the Articles of
Organization of the Corporation, as may be amended and/or restated and otherwise
in effect from time to time.
C-40
FEDERAL DEPOSIT INSURANCE CORPORATION
550 17TH STREET N.W.
WASHINGTON, D.C. 20429
FORM F-4
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: March 31, 1996
FDIC INSURANCE CERTIFICATE NUMBER: 27408
ENTERPRISE BANK AND TRUST COMPANY
(Exact name of bank as specified in its charter)
MASSACHUSETTS 04-2993547
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 MERRIMACK STREET
LOWELL, MA 01852
(Address of principal (Zip Code)
executive offices)
Bank's telephone number, including area code: (508) 459-9000
Indicate by check mark whether the bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO
Indicate the number of shares outstanding of the Bank's common stock, as of the
latest practicable date:
CLASS OUTSTANDING ON March 31, 1996
-------------------------- -----------------------------
Class A Common Stock, par 1,575,917
value $1 per share
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY
Table of Contents
Page
Item 1 - Financial Statements
Balance Sheets -
March 31, 1996 and 1995, December 31, 1995 2
Statements of Income -
Three months ended March 31, 1996 and 1995 3
Statements of Changes in Stockholders' Equity
Three months ended March 31, 1996 and 1995 4
Statement of Cash Flows -
Three months ended March 31, 1996 and 1995 5
Notes to Financial Statements 6
Selected Financial Data 7
Item 2 - Business Review and Management's
Discussion and Analysis of Financial Condition
and Results of Operations 8 - 22
Signatures 23
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANK AND TRUST COMPANY
BALANCE SHEETS
ASSETS March 31, 1996 March 31, 1995 December 31, 1995
-------------- --------------- -----------------
(Unaudited) (Unaudited) (Audited)
-------------- --------------- -----------------
<S> <C> <C> <C>
Cash and due from banks $ 11,483,541 $ 8,003,085 $ 11,562,392
Federal funds sold 0 0 13,600,000
------------- ------------- -------------
Total cash and cash equivalents 11,483,541 8,003,085 25,162,392
------------- ------------- -------------
Investment securities at market value 105,832,180 49,185,192 78,812,489
Loans held for sale at lower of cost or market value 1,125,689 2,389,566 1,855,340
Loans, gross 118,395,894 119,284,305 116,356,270
Less: allowance for possible loan losses (4,046,928) (4,356,403) (4,106,659)
Less: deferred origination fees (661,555) (677,525) (549,398)
------------- ------------- -------------
Loans, net 113,687,411 114,250,377 111,700,213
------------- ------------- -------------
Premises and equipment, net 2,362,878 1,882,232 2,463,592
Accrued interest receivable 2,277,469 1,266,442 1,823,079
Income taxes receivable 0 0 0
Deferred income taxes 2,222,422 2,605,098 1,740,270
Real estate acquired by foreclosure 397,961 376,691 417,172
Prepaid expenses and other assets 373,291 363,701 291,097
------------- ------------- -------------
Total assets $ 239,762,842 $ 180,322,384 $ 224,265,644
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand 30,448,596 27,401,321 33,131,861
Savings and NOW and MMDA 81,203,187 69,409,528 77,294,855
Time 91,382,485 38,999,008 85,967,851
------------- ------------- -------------
Total deposits 203,034,268 135,809,857 196,394,567
Short term borrowings 16,337,757 26,000,641 6,981,783
Accrued interest payable 465,933 179,607 549,673
Income taxes payable 18,228 298,647 173,346
Accrued expenses and other liabilities 1,129,664 1,074,316 1,200,561
------------- ------------- -------------
Total liabilities 220,985,850 163,363,068 205,299,930
------------- ------------- -------------
Shareholders' equity:
Preferred stock, $1.00 par value; 450,000
shares authorized, no shares issued 0 0 0
Class A Common Stock, $1.00 par value;
3,000,000 shares authorized, 1,575,917 shares
issued and outstanding at 3/31/96; 1,574,792 shares
issued and outstanding at 3/31/95 and 12/31/95 1,575,917 1,574,792 1,575,892
Additional paid-in capital 13,913,600 13,902,325 13,913,325
Accumulated (loss) / retained earnings 3,795,307 2,432,775 3,324,225
Net unrealized loss on investment securities, net of
applicable income taxes (507,832) (950,576) 152,272
------------- ------------- -------------
Total shareholders' equity 18,776,992 16,959,316 18,965,714
------------- ------------- -------------
Total liabilities and shareholders' equity $ 239,762,842 $ 180,322,384 $ 224,265,644
============= ============= =============
</TABLE>
2
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY
STATEMENTS OF INCOME
THREE MONTHS ENDED
March 31, 1996 March 31, 1995
-------------- --------------
(Unaudited) (Unaudited)
-------------- --------------
Interest income:
Loans $2,898,706 $2,686,158
Federal funds sold 83,691 9,878
Investment securities 1,408,097 731,879
----------- -----------
Total interest income 4,390,494 3,427,915
----------- -----------
Interest expense:
Savings and NOW and MMDA deposits 444,472 414,865
Time deposits 1,283,468 431,862
Short-term borrowings 73,881 308,774
----------- -----------
Total interest expense 1,801,821 1,155,501
----------- -----------
Net interest income 2,588,673 2,272,414
Provision for possible loan losses 0 0
----------- -----------
Net interest income after provision for
possible loan losses 2,588,673 2,272,414
----------- -----------
Non-interest income:
Trust income 160,910 146,187
Deposit service fees 154,369 128,558
Gains on securities sales 0 0
Other income 97,307 76,257
----------- -----------
Total non-interest income 412,586 351,002
----------- -----------
Income before operating expenses and income taxes 3,001,259 2,623,416
----------- -----------
Non-interest expense:
Salaries and employee benefits 1,197,823 1,081,951
Occupancy expenses 330,669 242,976
FDIC insurance expense 1,000 72,525
Office and data processing supplies 64,961 46,429
Trust professional and custodial expenses 50,050 48,000
Audit, legal and other professional fees 98,226 103,303
Other 505,481 323,326
----------- -----------
Total non-interest expenses 2,248,210 1,918,510
----------- -----------
Income before income taxes 753,049 704,906
----------- -----------
Provision for income taxes 281,967 263,188
----------- -----------
Net income $ 471,082 $ 441,718
=========== ===========
EARNINGS PER SHARE
Net Income per common share $0.30 $0.28
=========== ===========
Weighted average common shares outstanding 1,575,899 1,574,792
=========== ===========
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANK AND TRUST COMPANY
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(unaudited)
Net unrealized gain
on investment
Class A Accumulated securities, net
Common Additional deficit/retained of applicable
Stock paid-in capital earnings income taxes Total
----------- --------------- ---------------- -------------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $1,574,792 $13,902,325 $1,991,057 ($1,607,249) $15,860,925
Dividend declared $0
Net income - - $441,718 - $441,718
Net change in unrealized gain/(loss) on investment
securities, net of applicable income taxes - - - $656,673 $656,673
---------- ----------- ---------- ----------- -----------
Balance at March 31, 1995 $1,574,792 $13,902,325 $2,432,775 ($950,576) $16,959,316
========== =========== ========== =========== ===========
Balance at December 31, 1995 $1,575,892 $13,913,325 $3,324,225 $152,272 $18,965,714
Dividend declared 0
Stock issued (exercise of options) $25 $275 $300
Net income $471,082 471,082
Net change in unrealized gain/(loss) on investment
securities, net of applicable income taxes (660,104) (660,104)
---------- ----------- ---------- ----------- -----------
Balance at March 31, 1996 $1,575,917 $13,913,600 $3,795,307 ($507,832) $18,776,992
========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANK AND TRUST COMPANY
STATEMENTS OF CASH FLOWS
Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 471,082 $ 441,718
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 186,346 132,890
Provision for possible loan losses 0 0
(Increase) decrease in deferred income taxes 1,374 31,707
Net (accretion) amortization on investment securities 12,276 13,578
Gain on sale of investments 0 0
Net (increase) decrease in loans held for sale 729,651 (670,604)
(Increase) decrease in accrued interest receivable (454,390) 1,190
(Increase) decrease in prepaid expenses and other assets (82,194) (155,405)
(Increase) decrease in income taxes receivable 0 0
Increase (decrease) in accrued expenses and other liabilities (70,898) (70,980)
Increase (decrease) in accrued interest payable (83,740) (18,311)
Increase (decrease) in income taxes payable (155,118) 231,481
----------- -----------
Net cash provided by operating activities 554,389 (62,736)
----------- -----------
Cash flows from investing activities:
Proceeds from sales of investment securities 0 0
Proceeds from maturities or paydowns of investment securities 1,223,087 201,901
Purchase of investment securities (29,398,683) (2,523,350)
Proceeds from sales of/additions to real estate acquired by foreclosure 19,211 13,096
Net (increase) decrease in loans, net of chargeoffs (1,987,198) (5,519,884)
Additions to premises and equipment, net (85,632) (465,365)
----------- -----------
Net cash used in investing activities (30,229,215) (8,293,602)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits 6,639,701 1,536,779
Net increase (decrease) in short term borrowings 9,355,974 6,381,611
Proceeds from exercise of stock options 300 0
Dividends paid 0 0
----------- -----------
Net cash provided by financing activities 15,995,975 7,918,390
----------- -----------
Net increase (decrease) in cash and cash equivalents (13,678,851) (437,948)
Cash and cash equivalents at beginning of period 25,162,392 8,441,033
----------- -----------
Cash and cash equivalents at end of period $ 11,483,541 $ 8,003,085
----------- -----------
Disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and short-term borrowings 1,825,560 1,172,812
Income taxes $ 583,399 $ 0
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY
Notes to Financial Statements
(1) Basis of Presentation
The accompanying unaudited financial statements should be read in
conjunction with the December 31, 1995, audited financial statements
and notes thereto.
In the opinion of management, the accompanying financial statements
reflect all necessary adjustments, consisting of normal recurring
accruals, for a fair presentation.
(2) Earnings per share is calculated based on the average number of Class A
common shares outstanding.
The average number of common shares outstanding during the three months
ended March 31, 1996, and 1995, is as follows:
Three Months Ended
------------------
March 31, 1996 March 31, 1995
-------------- --------------
Class A Common Shares 1,575,899 1,574,792
--------- ---------
TOTAL 1,575,899 1,574,792
========= =========
6
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANK AND TRUST COMPANY
SELECTED FINANCIAL DATA
Quarters
ended March 31,
--------------------------------
1996 1995
----------- -----------
EARNINGS (unaudited) (unaudited)
<S> <C> <C>
Net interest income $2,588,673 $2,272,414
Provision for possible loan losses 0 0
---------- ----------
Net interest income after provision for
possible loan losses 2,588,673 2,272,414
Gain on sale of securities 0 0
Non-interest income 412,586 351,002
Non-interest expense 2,248,210 1,918,510
---------- ----------
Income before income taxes 753,049 704,906
Income tax expense 281,967 263,188
---------- ----------
NET INCOME $471,082 $441,718
========== ==========
PER COMMON SHARE DATA
Dividends declared $0.000 $0.000
Book value $11.91 $10.77
Average shares outstanding 1,575,899 1,574,792
RATIOS(ANNUALIZED)
Net income to:
Average total assets 0.83% 1.03%
Average total shareholder's equity 9.88% 10.04%
<CAPTION>
BALANCE SHEET DATA at March 31,1996 at March 31, 1995 at December 31, 1995
---------------- ----------------- --------------------
(unaudited) (unaudited) (audited)
<S> <C> <C> <C>
Total assets $239,762,842 $180,322,384 $224,265,644
Loans held for sale 1,125,689 2,389,566 1,855,340
Loans, net 113,687,411 114,250,377 111,700,213
Allowance for possible loan losses 4,046,928 4,356,403 4,106,659
Investment securities 105,832,180 49,185,192 78,812,489
Deposits 203,034,268 135,809,857 196,394,567
Short - term borrowings 16,337,757 26,000,641 6,981,783
Total stockholders' equity 18,776,992 16,959,316 18,965,714
Mortgage loans serviced 30,280,947 28,970,821 32,013,054
Trust assets under managment 106,451,892 101,901,561 106,342,490
Total assets, trust assets under managment, and mortgage
loans serviced 376,495,681 311,194,766 362,621,188
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
BUSINESS REVIEW
General
Enterprise Bank and Trust Company is a Massachusetts trust company which
commenced banking operations on January 3, 1989.
The bank's main office is at 222 Merrimack Street in Lowell, Massachusetts. The
bank began offering trust services in June of 1992. A branch office was opened
at 185 Littleton Road, Chelmsford, Massachusetts, in June of 1993. The bank
opened a branch office in Leominster, Massachusetts, in May of 1995 and a branch
office in Billerica, Massachusetts, in June of 1995. The bank's
deposit-gathering and lending activities are conducted primarily in the city of
Lowell and the surrounding Massachusetts towns of Billerica, Chelmsford, Dracut,
Tewksbury, Tyngsboro, and Westford and in the cities of Leominster and
Fitchburg. The bank offers a range of commercial and consumer services with a
goal of satisfying the needs of consumers, small and medium-sized businesses and
professionals. The bank's primary goal is to enhance long-term shareholder value
and take advantage of market opportunities.
The bank's deposit accounts are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
provided by law. The FDIC and the Massachusetts Commissioner of Banks (the
"Commissioner") have regulatory authority over the bank.
The bank's outstanding securities consist of 1,575,917 shares of Class A Common
Stock ("Common Stock"), $1.00 par value per share. The common stock is not
listed on any exchange. There has been a limited private trading market in the
common stock since the bank commenced operations. The bank had an initial stock
offering in 1988 and sold 1,026,015 shares of common stock at a price of $10.00
per share. Additionally, the bank sold 446,175 shares of common stock at a price
of $11.00 per share between June, 1989, and November, 1989. Options for 1,100
shares were exercised in 1995 at a price of $11.00 per share. Options for 25
shares were exercised in 1996 at a price of $12.00 per share.
At the April, 1992, meeting of the board of directors, the first annual dividend
of $.10 per share was declared and paid July 1, 1992. At the April, 1993,
meeting of the board of directors, a dividend of $.20 per share was declared and
paid July 1, 1993. At the April, 1994, meeting of the board of directors, a
dividend of $.25 per share was declared, and was paid July 1, 1994. At the
April, 1995, meeting of the board of directors, a dividend of $.275 per share
was declared and was paid July 1, 1995. At the April, 1996, meeting of the board
of directors, a dividend of $.30 per share was declared and will be paid July 1,
1996. The payment of future dividends will be considered on an annual basis by
the board of directors.
The bank's officers and directors have substantial business and personal ties in
Greater Lowell. The bank believes that, because no other locally owned and
operated commercial bank exists in Greater Lowell, the bank has effectively
established a market niche by providing its customers, particularly consumers,
small and privately held businesses and professionals, with prompt and personal
service based on management's familiarity and understanding of such customers'
banking needs. The bank is attempting to establish such a niche in the
Leominster market by staffing the office with local banking professionals who
have
8
<PAGE>
substantial business and personal ties to the local market. The bank's past
and continuing emphasis is to provide responsive personal and professional
service.
As a full-service commercial bank, the bank offers business checking accounts,
NOW checking accounts, savings accounts, money market accounts, certificates of
deposit, commercial, consumer and real estate loans, specialized deposit
services, such as IRA product offerings and other packaged accounts, trust
services and various additional services, such as travelers' checks and
treasurers checks. The bank also participates in an automatic teller machine
("ATM") network with deposit-gathering capabilities. In addition, the bank
offers safe deposit boxes and other types of cash management services.
The bank's results of operations depend primarily on the bank's net interest
income, the difference between income earned on its loan and investment
portfolios and the interest paid on its deposits and borrowed funds, and the
size of the bank's provision for possible loan losses. Net interest income is
primarily affected in the short-term by the level of earning assets as a
percentage of total assets, the level of interest-bearing and
non-interest-bearing deposits, yields earned on assets, rates paid on
liabilities, the level of non-accrual loans and changes in interest rates. The
provision for possible loan losses is primarily affected by individual problem
loan situations, overall loan portfolio quality, the level of charge-offs,
regulatory examinations, an assessment of current and expected economic
conditions, and changes in the character and size of the loan portfolio.
Earnings are also affected by non-interest income, which consists primarily of
deposit account fees, trust fees, and gains and losses on sales of securities,
and the level of non-interest expense and income taxes. The bank's residential
mortgage operations in the first six months of 1995 were negatively impacted by
interest rates and competition. As a result of a rapid increase in interest
rates in 1994, the competition for residential mortgages increased and volume
and profit margins decreased. The mortgage center, beginning in the second
quarter of 1995, has refocused its business away from originating mortgages for
resale into the secondary market to originating construction,
construction-to-permanent and commercial mortgages.
The following is a discussion and analysis of the bank's results of operations
for the three months ended March 31, 1996 and 1995, and its financial condition
at March 31, 1996. The discussion is broken down into the following sections:
(1) Results of Operations Summary; 2) Financial Condition, Interest Rate Risk,
Liquidity and Capital Resources; 3) Risk Elements; 4) Recent Accounting
Pronouncements; and 5) Regulatory Legislation. In order to understand this
section in context, it should be read in conjunction with the bank's
consolidated financial statements.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS SUMMARY
Three MONTHS ENDED March 31, 1996, VS. Three MONTHS ENDED March 31, 1995
The bank reported net income of $471,082 in the three months ended March 31,
1996, versus $441,718 in the three months ended March 31, 1995, an increase of
7%. The bank had earnings per common share of $.30 in the three months ended
March 31, 1996, compared with $.28 in the three months ended March 31, 1995. The
per share results are based on 1,575,899 average common shares outstanding.
The following table highlights changes which affected the bank's earnings for
the three months ended March 31, 1996, and the three months ended March 31,
1995:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Average assets $226,652 $174,712
Average deposits and short-term borrowings $205,638 $155,479
Average loans & loans held for sale $116,586 $116,917
Average loans & loans held for sale to average
deposits & short-term borrowings ratio 56.69% 75.20%
Non interest expenses to average assets 3.98% 4.45%
Non interest income, exclusive of securities
gains to average assets .73% .81%
Average tax equivalent rate earned on interest
earning assets 8.33% 8.39%
Average rate paid on deposits and
short-term borrowings 3.52% 2.98%
Net interest rate spread 4.81% 5.41%
Net interest income $ 2,589 $ 2,272
Provision for possible loan losses $ 0 $ 0
Gain from sale of securities $ 0 $ 0
</TABLE>
10
<PAGE>
Net Interest Income
Net interest income is the difference between the interest earned on assets and
the interest paid on liabilities. Interest income and expense are affected by
changes in earning asset and interest-bearing liability balances, as well as
changes in the level of interest rates. Stable and growing net interest income
is dependent upon effective spread management, asset growth, and maintenance of
strong underwriting and credit standards.
The bank's net interest income was $2,588,673 in the three months ended March
31, 1996, an increase of $316,259 or 14% from $2,272,414 in the three months
ended March 31, 1995, primarily a result of growth in the bank's investment
portfolio.
The average tax equivalent yield on earning assets in the three months ended
March 31, 1996, was 8.33%, down 6 basis points from 8.39% in the three months
ended March 31, 1995. The average rate paid on interest-bearing liabilities in
the three months ended March 31, 1996, was 3.51%, an increase of 53 basis points
from 2.98% in the three months ended March 31, 1995. The principal reason for
the increase in the bank's net interest income and the decrease in the interest
rate spread during the first three months of 1996 is a result of the increase in
investments which has been principally funded by certificates of deposit.
The following table sets forth, among other things, the extent to which changes
in interest rates and changes in the average balances of interest-earning assets
and interest-bearing liabilities have affected interest income and expense
during the three months ended March 31, 1996, and 1995. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (1) changes in volume (change in average
portfolio balance multiplied by prior year average rate) and (2) changes in
interest rates (change in average interest rate multiplied by prior year average
balance).
11
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31
Average Balance Average Rate Interest Variance due to
1996 1995 1996 1995 1996 1995 Total Volume Rate Rate/Vol
---- ---- ---- ---- ---- ---- ----- ------ ---- --------
(Dollars in
Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $116,586 $116,917 9.97% 9.21% $2,899 $2,686 $ 213 $ (8) $ 222 $(1)
Investment
Securities 92,208 49,290 6.41% 6.47% 1,408 732 676 692 (7) (9)
Short-term
Investments 5,835 642 5.75% 6.17% 84 10 74 80 (1) (5)
-------- -------- ----- ----- ------ ------ ------ ------ ------ -----
Total $214,629 $166,849 8.33% 8.39% $4,391 $3,428 $ 963 $ 764 $214 $(15)
======== ======== ===== ===== ====== ====== ====== ====== ===== =====
<FN>
NOTE: Rates are shown on a tax-equivalent basis.
</FN>
<CAPTION>
Average Balance Average Rate Interest Variance due to
1996 1995 1996 1995 1996 1995 Total Volume Rate Rate/Vol
---- ---- ---- ---- ---- ---- ----- ------ ---- --------
(Dollars in
Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EXPENSE
Savings/Now/MMDA $ 78,253 $ 68,660 2.28% 2.42% $ 444 $ 415 $ 29 $ 58 $(25) $ (4)
CODs 88,962 38,956 5.79% 4.45% 1,284 432 852 555 130 167
Short-term
Borrowings 7,683 22,378 3.87% 5.54% 74 309 (235) (203) (93) 61
Other Non-Interest
Bearing Deposits 30,741 25,485 0 0 0 0 0 0 0 0
-------- -------- ----- ----- ------ ------ ------ ------ ----- ----
Total $205,639 $155,479 3.51% 2.98% $1,802 $1,156 $ 646 $ 410 $ 12 $ 224
======== ======== ===== ===== ====== ====== ====== ====== ===== =====
NET INTEREST
INCOME $2,589 $2,272
====== ======
Interest Rate Spread 4.82% 5.41%
===== =====
</TABLE>
The bank manages its earning assets by fully using available capital resources
within what management believes are prudent credit and leverage parameters.
Loans, securities, and short-term investments comprise the bank's earning
assets.
12
<PAGE>
Non Interest Income
Three months ended March 31
--------------------------------------------
Percentage
1996 1995 Change Change
---- ---- ------ --------
Trust Income $160,910 $146,187 $ 14,723 10.07%
Deposit service fees 154,369 128,558 25,811 20.07%
Other 97,307 76,257 21,050 27.60%
-------- -------- -------- -----
Total $412,586 $351,002 61,584 17.55%
======== ======== ======== =====
Trust income increased as a result of an increase in average trust assets under
management.
Deposit fees increased approximately 20.07% in the three months ended March 31,
1996. The 1996 growth was primarily the result of an increase in transaction
deposit accounts, activity volume and increased fees.
Other income for the three months ended March 31, 1996, was $97,307 an increase
of 27.60% from $76,257 in the three months ended March 31, 1995, due primarily
to an increase in gains on mortgage loans sold.
Gains on Sales of Securities
Gains from the sales of investment securities totalled $0 in the first quarter
of 1996 and 1995.
Non Interest Expenses
Three months ended March 31
------------------------------------------------
Percentage
1996 1995 Change Change
---- ---- ------ --------
Salaries & employee benefits $1,197,823 $1,081,951 $ 115,872 10.71%
Occupancy expenses 330,669 242,976 87,693 36.09%
FDIC insurance expense 1,000 72,525 (71,525) (98.62%)
Office & data processing
supplies 64,961 46,429 18,532 39.91%
Trust professional and
custodial expenses 50,050 48,000 2,050 4.27%
Audit, legal and other
professional fees 98,226 103,303 (5,077) (4.91%)
Other operating expenses 505,481 323,326 182,155 56.34%
---------- ---------- ---------- ------
Total $2,248,210 $1,918,510 $ 329,700 17.19%
========== ========== ========== ======
Compensation and benefits expense totalled $1,197,823 in the three months ended
March 31, 1996, compared with $1,081,951 in 1995, an increase of $115,872 or
10.71%. This increase was primarily the result of the granting of pay raises
effective July 1, 1995, accruals for an incentive bonus plan, an increase in
benefit expenses, and increased staff related to the two new branches.
13
<PAGE>
Occupancy expense was $330,669 in the three months ended March 31, 1996,
compared with $242,976 in 1995, an increase of $87,693 or 36.09%. The increase
was primarily a result of the two new branches.
FDIC insurance expense decreased by $71,525 in 1996. The decrease was due to a
decrease in the bank's assessment rate.
Office and data processing supplies expense increased by $18,532 or 39.91%, in
the three months ended March 31, 1996, primarily due to the two new branches.
Trust professional and custodial expenses increased by $2,050 or 4.27% due to an
increase in trust assets.
Other operating expenses increased by $182,155 or 56.34%, due to increases in
various items including loan workout expense, advertising and contributions, and
other operating expenses due to the two new branches.
Provision for Possible Loan Losses
The provision for possible loan losses amounted to $0 in the three months ended
March 31, 1996 and 1995. The provision reflects real estate values and economic
conditions in New England and in Greater Lowell, in particular, the level of
nonaccrual loans, levels of charge-offs and recoveries, levels of outstanding
loans, known and inherent risks in the nature of the loan portfolio and
management's assessment of current risk. It is a significant factor in the
bank's operating results. The bank's allowance for possible loan losses was
$4,046,928 at March 31, 1996 (3.44% of loans net of deferred loan origination
fees). See "Risk Elements" and "Provision and Allowance for Possible Loan
Losses" for further discussion.
14
<PAGE>
FINANCIAL CONDITION, INTEREST RATE RISK, LIQUIDITY AND CAPITAL RESOURCES
Total assets were $239,762,842 at March 31, 1996, compared with $180,332,384 at
March 31, 1995, an increase of approximately 33%. (The increase is primarily due
to investment growth which has been funded primarily by the deposit growth from
the two new branches in Billerica and Leominster, Massachusetts, and borrowings
from the Federal Home Loan Bank.
The following table shows selected balance sheet accounts at March 31:
1996 1995
------------ -------------
Total assets $239,762,842 $180,322,384
Loans & loans held for sale, net 114,813,100 116,639,943
Investment securities 105,832,180 49,185,192
Total deposits 203,034,268 135,809,857
Short-term borrowings 16,337,757 26,000,641
Interest Rate Risk
The bank manages its balance sheet to maximize its net interest margin while
minimizing the impact on the margin of changes in the level of market interest
rates. Management of interest rate risk involves continual monitoring of the
relative interest rate sensitivity of assets and liabilities. The bank's
asset/liability strategy is to closely match the interest rate sensitivity of
its assets and liabilities to moderate the impact on earnings of volatile
changes in market rates of interest.
Trends that may produce differences between asset and liability repricing
sensitivities or alter earnings expectations are reviewed and strategies for
future periods are developed.
Liquidity
Liquidity is the ability to meet cash needs arising from fluctuations in loans,
investments and deposits. Liquidity management is the coordination of activities
so that cash needs are anticipated and met easily and efficiently. Liquidity
policies are set and monitored by the bank's investment and asset/liability
committee. The bank's liquidity is maintained by projecting cash needs, by
balancing maturing assets with maturing liabilities, by the monitoring of
various liquidity ratios, by monitoring deposit flows, and by maintaining
liquidity within the investment portfolio. The bank's liability management
objectives are to maintain liquidity, provide and enhance access to a diverse
and stable source of funds, provide competitively priced and attractive products
to customers, conduct funding at a low cost relative to current market
conditions and to engage in sound balance sheet management strategies. Funds
gathered are used to support current asset levels and to take advantage of
selected leverage opportunities. The bank funds earning assets with deposits,
short-term borrowings and stockholders' equity. All of the bank's deposits are
considered to be core deposits for the purpose of balance sheet management. The
bank does not have any brokered deposits.
15
<PAGE>
Investments
The investment portfolio is managed with the primary objective of maintaining an
appropriate level of liquidity and controlling interest rate risk. Beginning
December 31, 1993, investment securities that are intended to be held for
indefinite periods of time, but which may not be held to maturity or on a
long-term basis, are considered to be "available for sale" and are carried at
market value. Net unrealized gains and losses, net of applicable income taxes,
are reflected in the bank's stockholders' equity. Included as available for sale
are securities that are purchased in connection with the bank's asset/liability
risk management strategy and that may be sold in response to changes in interest
rates, resultant prepayment risk and other related factors. In instances where
the bank has the positive intent to hold to maturity, investment securities will
be classified as held for investment and carried at amortized cost. At March 31,
1996, and March 31, 1995, all of the bank's investment securities were
classified as available for sale and carried at market value. The net unrealized
losses at March 31, 1996, net of tax effects, are shown as a separate component
of stockholders' equity.
The bank's investment securities consist of treasury, agency, and municipal
securities and mortgage-backed and collateralized mortgage obligations (CMOs).
The bank's CMO investments primarily consist of investments in planned
amortization classes (PACs). The yield and maturity of such PAC CMOs are less
susceptible to change, as opposed to non PAC CMOs, due to increasing or
decreasing market rates.
The bank became a member of the Federal Home Loan Bank of Boston ("FHLB") in
March 1994. To obtain loan advances from the FHLB, the bank is required to
invest in certain amounts of FHLB stock per FHLB guidelines. At March 31, 1996,
and March 31, 1995, the bank owned $2,961,300 of FHLB stock. The bank's total
borrowing capacity from the FHLB was approximately $95,000,000 at March 31,
1996.
Capital Resources
Capital planning by the bank considers current needs and anticipated future
growth. Other than the sale of common stock in 1988 and 1989, the primary source
of additional capital has been retention of earnings since the bank commenced
operations.
The bank is subject to capital adequacy guidelines. New risk-based capital
guidelines became effective in 1990 and were fully-phased in as of December 31,
1992. Under the fully phased-in guidelines, the minimum total risk-based capital
requirement was raised to 8% of assets and certain off-balance sheet items,
weighted by risk. At least 4% of the total 8% ratio must consist of Tier 1
capital (primarily common equity including retained earnings), and the remainder
may consist of subordinated debt, cumulative preferred stock and a limited
amount of loan loss reserves. Certain assets and off-balance sheet items
considered to present less risk than others require capital at less than the 8%
ratio. For example, cash and government securities are placed in a 0% risk
category, while most home mortgage loans are placed in a 50% risk category
requiring a 4% ratio, and commercial loans are placed in a 100% risk category
requiring an 8% ratio. As of March 31, 1996, the bank's total risk-based capital
ratio was 16.90% and its Tier 1 capital ratio was 15.65%.
16
<PAGE>
The bank is also subject to minimum leverage ratio guidelines. The ratio is
determined using Tier 1 risk-based capital divided by quarterly average total
assets, less intangible assets and other adjustments. The guidelines require a
minimum of 3% for the highest rated banks. Banks experiencing high growth rates
are expected to maintain capital positions well above minimum levels. At March
31, 1996, the bank's leverage ratio was 9.81%.
It is not possible to predict precisely what effect the new risk-based capital
guidelines and the limitation on leverage will have on the bank in future years.
A relatively large percentage of the bank's assets are assigned to less than
100% risk categories, and the leverage limitations are not more restrictive than
previously applicable capital requirements. The bank does not presently expect
compliance with the risk-based capital or leverage guidelines to have a material
effect upon the business of the bank.
RISK ELEMENTS
The bank reviews, on an ongoing basis, the credit quality of its investment
securities and the banks in which it invests federal funds sold. Federal funds
investments are typically made on an overnight basis.
A primary management objective is to maintain a high quality loan portfolio. The
bank's strategy to achieve this objective is to acquire quality assets through
competitive pricing and service rather than by lowering underwriting criteria.
Its portfolio strategy seeks to acquire loans in markets with which it is
familiar. As such, the majority of the bank's loan portfolio represents
extensions of credit to borrowers located in the Greater Lowell area.
The strength of the bank's commercial portfolio of loans is substantially
dependent on the borrower's ability to repay the loan out of the cash flows of
the borrower's business and the assets underlying the borrower's business, such
as account receivables, equipment, inventory and real property. As a result, the
availability of funds for the repayment of the loans is typically dependent on
the success of the business itself. Further, the collateral securing the loan
may depreciate over time, may not be appraised precisely and may fluctuate in
value based on the level of success of the business.
Provision and Allowance for Possible Loan Losses
Inherent to the lending process is the risk of loss. While the bank endeavors to
minimize this risk, management recognizes that loan losses will occur and that
the amount of these losses will fluctuate depending on the risk characteristics
of the loan portfolio which in turn depends on current and expected economic
conditions, the financial condition of borrowers, and the credit management
process.
The allowance for possible loan losses is maintained through the provision for
possible loan losses, which is a charge to operating earnings. The adequacy of
the provision and the resulting allowance for possible loan losses is determined
after a continuing review of the loan portfolio, including identification and
review of individual problem situations that may affect the borrower's ability
to repay, review of overall portfolio quality through an analysis of current
charge-offs, delinquency and non-performing loan data, review of regulatory
authority examinations and evaluations of loans, review of reports prepared by
an independent loan review firm which the bank has hired, comparisons to peer
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<PAGE>
group ratios, an assessment of current and expected economic conditions, trends
of charge offs and recoveries and changes in the size and character of the loan
portfolio. Thus, the allowance level reflects identified loss potential and
perceived risk in the portfolio.
The bank regularly monitors the real estate market and the bank's asset quality
to determine the adequacy of its allowance for possible loan losses through
ongoing credit reviews by members of senior management, the overdue loan review
committee, the executive committee and the board of directors.
The bank determines the adequacy of its allowance for possible loan losses by
assigning loans to risk categories based on the type of loan and its
classification. Each category is assessed for risk of loss based on historical
experience and management's evaluation of the loans making up the category,
including the level of loans on nonaccrual and other factors, such as general
economic conditions. The bank adjusts its analysis periodically to reflect
changes in historical loss experience and the economy. The bank also determines
the adequacy of its allowance for possible loan losses by comparison to peer
group ratios. Otherwise, in conducting its analysis, the bank applies consistent
criteria to the facts and circumstances then existing as understood by the bank.
The provision for possible loan losses in the three months ended March 31, 1996,
of $-0- was primarily a reflection of an improved New England real estate market
and general economy, the net recoveries realized by the bank in 1994 and to date
in 1995 and reports prepared by an independent loan review firm showing improved
quality in the loan portfolio. After consideration of the above factors, the
ratio of the reserve to total loans outstanding was 3.44% at March 31, 1996, and
3.67% at March 31, 1995. At March 31, 1996, the allowance for possible loan
losses represented 146% of non-accrual loans.
Based on the foregoing, as well as management's judgment as to the risks
inherent in the loan portfolio, the bank's allowance for possible loans losses
is deemed adequate to absorb all reasonably anticipated losses on specifically
known and other possible credit risks associated with the portfolio as of March
31, 1996.
The classification of a loan or other asset as non-performing does not
necessarily indicate that loan principal and interest will be ultimately
uncollectible. However, management recognizes the greater risk characteristics
of these assets and therefore considers the potential risk of loss on assets
included in this category in evaluating the adequacy of the allowance for
possible loan losses.
The loan portfolio, particularly the real estate portion, could be negatively
impacted by worsening economic conditions as well as the real estate market
throughout the region. As a result, there is no assurance that the level of
nonaccrual loans, restructured loans and real estate acquired by foreclosure
will not increase.
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Restructured Loans
A restructured loan is one for which the bank has modified the terms to provide
a reduction in the rate of interest and, in most instances, an extension of time
for payments of principal or interest, or both, because of a deterioration in
the financial position of the borrowers. Restructured loans are considered
performing loans unless concern exists as to the ultimate collection of
principal or interest. At March 31, 1996, restructured loans totalled
approximately $0.
Real Estate Acquired by Foreclosure
Real estate acquired by foreclosure is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Real
estate formally acquired in settlement of loans is initially recorded at the
lower of the carrying value of the loan or the fair value of the property
constructively or actually received less estimated selling costs. Loan losses
arising from the acquisition of such properties are charged against the
allowance for possible loan losses. Operating expenses and any subsequent
provisions to reduce the carrying value to net fair value are charged to real
estate operations in the current period. Gains and losses upon disposition are
reflected in earnings as realized.
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Loan Loss Experience/Non-performing Assets
The following table summarizes the activity in the allowance for possible loan
losses for the years indicated:
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1996 1995
---------- ---------
<S> <C> <C>
Balance at beginning of year $ 4,106,659 $ 4,341,204
----------- -----------
Loans charged off:
Commercial 3,377 --
Real Estate 46,000 --
Consumer 8,143 1,918
Credit Card 5,447 1,033
----------- -----------
Total 62,967 2,951
Recoveries on loans charged off (3,236) ( 18,150)
----------- -----------
Net loans charged off/(recovered) 59,731 (15,199)
----------- -----------
Provision charged to income -0- -0-
----------- -----------
Balance at March 31 $ 4,046,928 $ 4,356,403
=========== ===========
Reserve to loans outstanding 3.44% 3.67%
=========== ===========
Annualized net charge-offs/(recoveries) to
average loans outstanding .20% (.05%)
=========== ===========
<CAPTION>
The following table sets forth non-performing assets at March 31:
1996 1995
----------- -----------
<S> <C> <C>
Loans on nonaccrual:
Commercial $ 610,002 $ 455,184
Residential real estate 119,730 479,297
Commercial real estate 1,502,244 722,297
Construction -- --
Consumer, including home equity 545,102 5,260
----------- -----------
Total loans on nonaccrual 2,777,078 1,662,038
Real estate acquired by foreclosure 397,961 376,691
----------- -----------
Total nonaccrual loans and real $ 3,175,039 $ 2,038,729
=========== ===========
estate acquired by foreclosure
Nonaccrual loans and real estate owned as
percentage of total assets 1.32% 1.13%
=========== ===========
Allowance for possible loan losses to
non accrual loans 146% 262%
=========== ===========
</TABLE>
Impact of Inflation and Changing Prices
A bank's asset and liability structure is substantially different from that of
an industrial company in that virtually all assets and liabilities of a bank are
monetary in nature. Management believes the impact of inflation on financial
results depends upon the bank's ability to react to changes in interest rates
20
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and by such reaction reduce the inflationary impact on performance. Interest
rates do not necessarily move in the same direction or at the same magnitude as
the prices of other goods and services. As discussed previously, management
seeks to manage the relationship between interest-sensitive assets and
liabilities in order to protect against wide net interest income fluctuations,
including those resulting from inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Mortgage Servicing Rights
In May, 1994, the Financial Accounting Standards Board issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights", which amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities". The Statement is effective
for fiscal years beginning after December 15, 1995; however, early adoption is
permitted. The Statement requires that a mortgage banking enterprise recognize
as separate assets rights to service mortgage loans for others regardless of how
those servicing rights are acquired. Additionally, the Statement requires that
the capitalized mortgage servicing rights be assessed for impairment based on
the fair value of those rights, and that impairment be recognized through a
valuation allowance. The bank adopted this Statement on January 1, 1996. The
impact of adoption of the Statement to the bank will be dependent on residential
mortgage sale volumes.
Accounting for Stock-Based Compensation
In October, 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation", which became effective on January 1,
1996. This Statement establishes a fair value based method of accounting for
stock-based compensation plans under which compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. However, the Statement allows a bank to continue to measure compensation
cost for such plans under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees". Under APB Opinion No. 25, no
compensation cost is recorded if, at the grant date, the exercise price of the
options is equal to the fair market value of the bank's common stock. The bank
has elected to continue to follow the accounting in APB Opinion No. 25 and to
disclose in the notes to the financial statements pro forma net income and
earnings per share if the fair value based method of accounting has been
applied.
REGULATORY LEGISLATION
The regulatory environment during 1995 continued to be marked by two distinct
emphases - the continuing implementation of provisions enacted by the Federal
Deposit Insurance Corporation Improvement Act of 1992 ("FDICIA") and a
continuing focus on consumer-oriented initiatives. FDICIA has proven to be
far-reaching and regulation-intensive leaving virtually no insured depository
institution unaffected. The regulatory agencies have become increasingly
concerned with the adequacy of policies and procedures, information systems,
management and their decision-making process, internal controls and regulatory
reporting. At the same time, the consumer-oriented initiatives outlined by the
Clinton Administration continue to garner significant attention. The most
prominent of these initiatives include (1) a revamping of existing regulations
intended to encourage financial
21
<PAGE>
institutions to increase credit availability, (2) increased regulatory scrutiny
of Community Reinvestment Act performance, and (3) proposed legislation to fund
special purpose institutions known as Community Development Financial
institutions.
Significant FDICIA-related regulatory developments during the past several years
included (1) incorporation of interest rate risk, concentration of credit risk,
and risk from nontraditional activities into the proposed risk-based capital
standards, (2) establishment of a permanent risk-based assessment system for
deposit insurance, (3) promulgation of final regulations and guidelines
applicable to annual audits and reporting requirements with respect to the
effectiveness of internal controls over financial reporting an compliance with
designated laws and regulations, (4) implementation of uniform real estate
lending standards, and (5) development of standards to limit interbank
exposures.
The full impact of FDICIA and the various Clinton Administration consumer
initiatives will not be known fully until the complete enactment by the various
federal agencies of the resulting regulations for much of the new legislation.
It is anticipated, however, that FDICIA and the final regulations issued
thereunder will result in increased costs for the banking industry due to higher
costs of compliance and record keeping, and more limitations on the activities
of all but the most well capitalized banks.
On September 29, 1994, a new interstate banking bill was signed into law by
President Clinton. The bill provides for full interstate banking. In the event
the bill causes further consolidation by the larger banks, the bank is of the
belief that it could create further market opportunities for community banks.
HOLDING COMPANY FORMATION
At the Annual Meeting of Stockholders held on May 7, 1996, stockholders of the
bank approved the formation of a holding company for the bank. The holding
company will acquire all of the issued and outstanding shares of bank common
stock in exchange for an equal number of shares of company common stock. The
Board of Directors of the bank believes that the holding company structure will
better suit the current and future interests of the bank's stockholders and
customers. The establishment of a bank holding company will provide additional
flexibility to respond to the changing and expanding needs of the bank's present
and future customers for financial services thereby improving the bank's
competitive position. Moreover, it is expected that formation of a bank holding
company will facilitate expansion and entry into other financial areas either
through the creation of new subsidiaries or through the acquisition of, or
affiliation with, other companies, including banks. The holding company
formation will not be effective until approvals have been received from the
Federal Reserve Bank, the Massachusetts Commissioner of Banks and until other
necessary approvals have been received.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTERPRISE BANK AND TRUST COMPANY
DATE: 5/14/96 /s/George L. Duncan
George L. Duncan
Chairman of the Board, Chief Executive Officer
and Chief Investment Officer
DATE: 5/14/96 /s/John P. Clancy, Jr.
John P. Clancy, Jr.
Senior Vice President, Chief Financial Officer,
Treasurer, and Investment Manager
23
ENTERPRISE BANK AND TRUST COMPANY
ANNUAL REPORT
1995
MAIN OFFICE, LOWELL
[PHOTOGRAPH]
[PHOTOGRAPH] [PHOTOGRAPH]
CHELMSFORD BILLERICA
[PHOTOGRAPH] [PHOTOGRAPH]
MORTGAGE CENTER LEOMINSTER
A YEAR OF GROWTH
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY - BOARD OF DIRECTORS
[PHOTOGRAPH]
SEATED, LEFT TO RIGHT:
Assistant Clerk Michael A. Spinelli; John P. Harrington; Kathleen M. Bradley;
President and Chief Operating Officer Richard W. Main; Chairman and Chief
Executive Officer George L. Duncan; Vice Chairman and Clerk Arnold S. Lerner.
STANDING, LEFT TO RIGHT:
Executive Vice President Walter L. Armstrong; Charles P. Sarantos; Gerald G.
Bousquet, M.D.; Eric W. Hanson; Kenneth S. Ansin; James F. Conway, III; Philip
S. Nyman, Legal Counsel.
Absent when photo was taken, Nancy L. Donahue.
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY
TABLE OF CONTENTS
Message from the Chairman of the Board and the President page 2
Photographs page 9
FINANCIAL SECTION
Selected Consolidated Financial Data page 13
Financial Review page 15
Management's Report page 29
Independent Auditors' Report page 30
Consolidated Balance Sheets page 31
Consolidated Statements of Income page 32
Consolidated Statements of Changes in Stockholders' Equity page 33
Consolidated Statements of Cash Flows page 34
Notes to Consolidated Financial Statements page 36
Corporate Information page 53
List of Officers page 54
List of Directors page 56
<PAGE>
ANNUAL MESSAGE
TO OUR STOCKHOLDERS:
1995 has been a year of unprecedented growth and accomplishment for our bank.
Our board of directors and management team took advantage of business
opportunities expanding our market penetration into both Billerica and
Leominster. After careful analysis, we felt both communities presented
outstanding potential for the future expansion of our bank's customer base. It
is because of our strong earnings and our overall solid financial condition that
we are able to take such actions. Our decision to open branch offices in new
markets was made to further strengthen our ongoing commitment to build long-term
shareholder value.
FINANCIAL RESULTS
We are pleased to report net income for 1995 of $1,766,236, compared to
$1,508,215 in 1994, an increase of 17%. The increase in earnings is primarily
attributable to an increase in the bank's net interest income which is a result
of growth in the bank's assets. This was somewhat offset by increased operating
expenses due to the start-up costs associated with the opening of the Leominster
and Billerica branches late in the second quarter of 1995. As stated in past
quarterly messages, new branches usually operate at a loss for a period of two
to three years. In light of our expansion, we are pleased to continue to report
improved earnings. At December 31, 1995, assets, deposits and loans, including
mortgage loans held for sale, totalled $224,265,644, $196,016,743 and
$117,662,212, respectively, compared to $171,163,412, $133,878,633 and
$114,790,658, respectively, at December 31, 1994. Assets, deposits and loans
increased by 31%, 46%, and 3%, respectively, in 1995. Both asset and deposit
growth are considerably higher than banks in our peer group. Our two new
branches made significant contributions in this regard.
OUR MARKET
The past year has been marked by rapid and unparalleled changes in the financial
services industry. Furthermore, mega-merger fever has swept Massachusetts with
extraordinary force. The bank feels strongly that mergers such as Fleet-Shawmut
and Bank of Boston-Baybank, and the resulting branch closings, present
tremendous opportunities for us. With the consolidation of the larger regional
banks, the contrast to a locally-owned and managed community bank such as
Enterprise becomes much clearer in the customer's mind. Our target market, small
and medium-sized businesses, professionals, and individuals, has become
increasingly aware of the need for personalized, one-on-one financial services
delivered by local banking professionals. Highly competitive loan pricing and
aggressive competition from those outside the commercial banking area, such as
savings banks and credit unions, are two strategic challenges to community banks
in the future. However, we feel Enterprise Bank is poised to successfully meet
these challenges with the type of services and products our bank is able to
provide.
2
<PAGE>
ANNUAL MESSAGE
LENDING
During the past year, we added five highly-skilled and experienced commercial
lenders to assist us in our diversified commercial lending efforts: Steven
Groccia, Anthony Piermarini and Robert Gallo in Leominster, David Nolan in our
Lowell office, and Mary Jane Santos in Chelmsford. Commercial lending activity
in 1995 was marked by the bank's increased efforts in the SBA lending arena. In
1994, Enterprise Bank earned "approved" SBA lender status and in mid-1995, due
to the significant increase in our SBA loan portfolio, the bank was upgraded to
"certified" lender status. This new designation gives the bank distinct
advantages as the Small Business Administration guarantees certified lenders
three-day approval of all SBA loans submitted, while non-certified lenders may
have to wait several weeks for approval and then allow additional time for loan
authorization. In the highly competitive and time-sensitive commercial lending
field, this is a major benefit to offer our customers. No other locally-owned
community bank in Greater Lowell or Leominster has this prestigious designation.
On February 7, 1996, Senior Vice President Brian Bullock represented Enterprise
Bank at State House ceremonies where State Treasurer Joseph Malone, in
conjunction with officials from the New England Regional Office of the Small
Business Administration, cited Enterprise Bank for its commitment to small
business. Treasurer Malone unveiled a special program whereby the Commonwealth
will deposit funds in banks which provide loans to small businesses through SBA
programs. Enterprise Bank was one of two banks in eastern Massachusetts honored.
In recognition of our efforts, the State will open a certificate of deposit at
our bank to match the amount of the SBA loans made in fourth quarter 1995, and
will continue to make such deposits quarterly, equal to the amount of SBA loans
granted. Another significant factor which we anticipate will continue to
increase commercial lending activity is our ongoing customer call and business
referralprograms. Our lending team is making impressive inroads in attracting
new commercial customers to the bank. In cooperation with senior management,
mid-level and junior officers are spending increased amounts of time each week
"on the road" calling on new and existing businesses and aggressively seeking
solid lending opportunities.
CHELMSFORD OFFICE
Our Chelmsford office, which opened in June, 1993, continues to attract
significant new commercial banking relationships. The Chelmsford office has been
warmly received by the local community, and with its low overhead has made a
significant contribution to the bank's bottom line in a relatively short period
of time. In late 1995, the branch launched a targeted program to increase market
share. We will continue to seek out new deposit and loan opportunities in the
Chelmsford-Westford area throughout 1996.
3
<PAGE>
ANNUAL MESSAGE
LEOMINSTER OFFICE
Our Leominster office has proven to be an excellent strategic opportunity for
the bank. Opened in a temporary location in May, the bank moved into its newly
constructed full-service financial services center in mid-September. Staffed by
a highly-skilled team of local banking professionals, our bank has filled a
tremendous niche in the marketplace. The Leominster area also has been
dramatically affected by mega-merger fever. In the past year, numerous banks
have been acquired or merged creating a real need in the market for a true
community bank. With its exemplary personal service and competitive pricing and
products, the bank proved to be a welcome addition to the community. Business in
Leominster exceeded original projections and we are pleased to report that the
Leominster office reached over $32 million in deposits by year end. In a recent
business survey conducted by an outside market research firm, Enterprise Bank
was cited as the leading choice of Leominster businesses as a local commercial
bank. Kenneth Ansin, President of L.B. Evans, Inc. and a member of the bank's
board of directors, has been an invaluable asset to us in Leominster. A talented
businessman and community leader, Ken was born and raised in Leominster and has
strong ties to the region. The bank has greatly benefited from Ken's active
participation in the establishment of our Leominster office.
BILLERICA OFFICE
Three weeks after the opening of our Leominster office, senior management and
the board of directors again gathered to launch the opening of our new Billerica
branch located at 674 Boston Road. Assistant Vice President Sandi Wilson, a
well-known banking professional, moved from her position as branch manager of
our Chelmsford office to assume a similar role in Billerica. Sandi and Senior
Vice President Brian Bullock, a Billerica native, have a combined total of 36
years of banking experience in the Billerica marketplace. An aggressive customer
call effort is ongoing and in light of numerous bank mergers, we are again
finding a very receptive audience to the concept of a locally-owned and managed
community bank. The business development efforts in Billerica are also running
ahead of projections and the Billerica office has exceeded the pace set when we
opened our first branch in Chelmsford.
MORTGAGE CENTER
Under the direction of Senior Vice President Diane J. Silva, our mortgage center
located at 27 Palmer Street, Lowell, continues to offer a wide variety of
mortgage products, both residential and commercial, as well as home equity lines
of credit. In 1995, we focused our efforts on serving the growing needs of area
contractors and small businesses. The action proved successful as we are now
recognized as one of the leading construction lenders in our area.
4
<PAGE>
ANNUAL MESSAGE
TRUST DIVISION
Assets under management in our trust division increased by 10% in 1995. Many
trust customers have come to appreciate the personal service and attention to
detail we provide, and over time have expanded their business. As a result,
significant loan and deposit accounts have been referred to the retail and
commercial side of our bank. In a Massachusetts Bankers Association publication
dated December 1994, (the most recent statistics available to date), Enterprise
Bank's trust division was listed as the twenty-fifth largest in the state, an
increase over its previous ranking. This is a significant achievement for a
trust division that is less than four years in operation.
TECHNOLOGY
Technology is a major challenge, as well as a tremendous opportunity to increase
capability, efficiency and market share. During 1995, our information systems
department successfully brought two new branch offices online, and implemented a
Telebanc system, 1-800-464-BANK, which is widely used by our existing customers,
and a strategic marketing tool for potential new customers. We anticipate adding
several technological enhancements in 1996--such as check imaging, PC-based
banking for corporate financial management and further upgrades to our Telebanc
system.
COMMUNITY REINVESTMENT ACTIVITIES
Community Reinvestment Activity, "CRA", is a major focal point at our bank. Our
directors, officers and employees are driving forces behind a wide range of
civic, educational and social service endeavors in the communities we serve. We
are proud of the role Enterprise Bankers play in activities that cross a wide
spectrum of community interests and concerns: education, homelessness,
low-income housing, youth programs and theatre, to cite several. In the spring
of 1995, the bank established a special award "The Enterprise Way/CRA Award" to
be given several times annually to outstanding participants in the bank's
overall CRA effort (p.11 ). Recognition is determined by one's peers,
acknowledging outstanding efforts to build a strong community while maintaining
high standards of excellence in one's professional work. The bank continues to
earn outstanding ratings from both the Commonwealth of Massachusetts and the
FDIC for our CRA efforts.
5
<PAGE>
ANNUAL MESSAGE
RECOGNITIONS
Throughout 1995, the bank received numerous awards and commendations for
exceptional service and responsiveness to the needs of our customers. In early
spring, the bank was presented the "Blue Chip Enterprise Initiative Award"
recognizing Enterprise Bank as the #1 small business in Massachusetts for our
ability to meet the challenges of our marketplace. This award for service
innovation and excellence was given by the U.S. Chamber of Commerce, Connecticut
Mutual, and Nation's Business magazine. Entrepreneur magazine (April 1995) named
Enterprise Bank the #1 bank in Massachusetts "most likely to give you a small
business loan" and later (June 1995) the same publication cited our bank as the
only bank in Massachusetts amidst the top 100 microfriendly lenders throughout
the country. In addition, in July 1995, the Boston Herald listed Enterprise Bank
as one of the top three SBA LOWDOC lenders in Massachusetts--and the only
community bank so designated. Recognition, as listed above, is a public
affirmation of our continuous commitment to service the needs of small and
medium-sized businesses, professionals and individuals in our marketplace. Each
quarter throughout 1995, the bank maintained the highest ratings for safety and
soundness from various nationwide bank rating services (September 30, 1995 is
the most current quarterly data evaluated): a "Five-Star Award" from Bauer
Financial Services, Inc. and a "Blue Ribbon" designation from Veribanc, Inc.
ECONOMY
On a national level, the economy, during the past year though growing slowly,
has been marked by uncertainty. The budget impasse in Washington is cause for
concern. However, the Massachusetts economy continues its pattern of slow growth
with several bright spots in the high-tech and service industries, key
components of our local economy. The unemployment rate in Greater Lowell
(seasonally adjusted jobless rate) dropped in 1995, nearly one full point below
1994 levels.On a local level, positive signs of economic revitalization are
evident: occupancy rates and job growth at the Cross Point Tower in Lowell;
progress on the Arena project in downtown; the upcoming opening of the Bon
Marche complex soon to bring up to 300 jobs to the downtown area; the
establishment of minor league baseball and hockey franchises in the city; the
American Textile Museum's scheduled opening; the high-tech influx in Billerica
and the dramatic increase in small business start-ups in Leominster are all
extremely encouraging. One key economic component which affects both Greater
Lowell and Leominster, Fort Devens, is making positive strides to re-engineer
itself from a military-dependent economy to one attractive to private sector
development. We feel the rebirth of Fort Devens, with the recentdecision of
Gillette Company to locate a facility there, will contribute in a positive way
to both the local economies in Greater Lowell and Leominster.
6
<PAGE>
ANNUAL MESSAGE
HOLDING COMPANY
On February 20, 1996, at the monthly meeting of our board of directors, it was
unanimously voted to establish a bank holding company, to be named Enterprise
Bancorp, Inc. Enterprise Bank and Trust Company will then become a wholly-owned
subsidiary of Enterprise Bancorp, Inc. It is very common for banks of our size
to form a holding company at this stage in their business cycle. There are
numerous solid business reasons as to why this action is being taken by our
board at this time. (Several reasons are listed below with an indepth analysis
discussed in the proxy statement which accompanies this annual report.) A
holding company structure provides greater flexibility as we meet the future
financial needs of our growing customer base. Secondly, a holding company
provides us the opportunity to offer new and additional financial products and
services which the bank does not currently offer -- products and services which
will allow us to compete more effectively with the larger regional banks and
other financial service providers. Furthermore, as the bank looks to further
expand into new markets, a holding company will give us the flexibility to set
up autonomous local community banks which can retain their own directors,
officers and individual identity. In addition, the holding company can acquire
other banks as well as companies engaged in bank-related activities. Via a
holding company, the bank will also benefit from improved economies of scale,
and expanded managerial financial resources thereby providing us a more
cost-effective manner of doing business. We are excited about the tremendous
potential a holding company will bring to the bank and feel strongly that it
will increase long-term stockholder value.
DIVIDEND
In July of 1995, the fourth consecutive annual dividend was paid out to
stockholders at the rate of 27.5 cents per share, a 10% increase over the
dividend paid in July, 1994. This dividend represents 29% of 1994's net income
and exceeds the average dividend payout percentage of 23% for banks in our
national peer group. Scheduled for May 7, 1996, at 4:00 P.M., our 1996 annual
meeting will be held at the Sheraton Inn Riverfront, 58 Warren Street, Lowell.
We encourage as many stockholders as possible to attend.
7
<PAGE>
ANNUAL MESSAGE
SUMMARY
1995 was indeed a year of tremendous growth. It was also a year marked by
exciting challenges and opportunities. We feel more secure than ever about our
position in the marketplace. We know that a locally owned and managed
full-service community bank can effectively compete - and thrive - in today's
extremely competitive banking environment. We are confident that your decision
to become an Enterprise Bank stockholder was a wise one and that the value of
your investment will continue to grow in the years ahead.
George L. Duncan Richard W. Main
Chairman/Chief Executive Officer/ President/Chief Operating Officer/
Chief Investment Officer Chief Lending Officer
[PHOTOGRAPH OF MR. DUNCAN AND MR. MAIN]
8
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
Much of work of the Board of Directors is done in committee. There are nine
committees which meet throughout the year. Each director has several committee
assignments.
[PHOTOGRAPH] SEVERAL MEMBERS OF THE MARKETING COMMITTEE:
LEFT TO RIGHT:
Nancy L. Donahue, Chair; Arnold S. Lerner;
Mary Ellen Fitzpatrick, Vice President/Business Development;
Standing: Dale A. Marcy, Marketing Officer
SEVERAL MEMBERS OF THE AUDIT COMMITTEE: [PHOTOGRAPH]
LEFT TO RIGHT:
Michael A. Spinelli, Chair; Eric W. Hanson, Vice Chair;
Standing: Lisa M. Freeze, Auditor; and John P. Harrington
9
<PAGE>
RECENT PROMOTIONS
<TABLE>
<CAPTION>
[PHOTOGRAPH] [PHOTOGRAPH]
<S> <C>
Jerome J. Bonnabeau Dale A. Marcy
Assistant Vice President/Commercial Marketing Officer
Lending Officer Nine years banking experience
Six years banking experience
Dale began her association with Enterprise Bank
A member of our commercial lending team, in 1988-1989 while working as an independent
Jerry is an active participant in the bank's marketing consultant. From 1990-1993, Dale
overall business development effort. Jerry worked as the director of marketing for the
has served as the Lowell coordinator of the Merrimack Repertory Theatre in Lowell. After
bank's SBA/LOWDOC loan campaign and joining Enterprise Bank early in 1994, Dale served
manages a constantly growing commercial as director of marketing services at our Mortgage
loan portfolio. Early in 1996, Jerry moved Center and later assumed marketing responsibility
from the main office to assume commercial for our new Leominster office. She now will
lending responsibilities in our Billerica office. concentrate her marketing efforts bankwide.
A cum laude graduate of New York University
at Albany, (B.A. in Business and
Communications), Jerry is presently pursuing
a M.B.A. at Babson College.
</TABLE>
10
<PAGE>
COMMITMENT TO COMMUNITY
THE ENTERPRISE WAY CRA
Four Enterprise Bank employees were honored during 1995 for their dedicated
investment of time and energy to community reinvestment activities. These
employees were selected by a group of their peers in recognition of their
exemplary service.
Sandi, Janice, Mary Jane and Darlene are outstanding examples of the spirit of
enterprise at work, helping to build a stronger community while maintaining a
high standard of excellence in their professional work.
<TABLE>
<CAPTION>
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
<S> <C> <C>
In February, the Enterprise family In June, the Enterprise family In November, the Enterprise
honored Sandi Wilson, manager honored Mary Jane Coneeny, the family was proud to honor Janice
of the bank's Billerica Branch, for bank's switchboard operator, and Villanucci. Senior Vice President
outstanding Community Darlene Hagan, the bank's and Manager of Customer
Reinvestment Activities (CRA). assistant operations manager, for Support Services, for her
Sandi's community outreach has their outstanding Community outstanding Community
benefited numerous Reinvestment Activities (CRA). Reinvestment Activities (CRA).
organizations including the Committing time and unfailing Janice was honored for her long-
Chelmsford Public Library, The energy, Mary Jane and Darlene standing commitment to the Paul
Chelmsford Business recruited a team for the 25th Center for Learning and
Association, YWCA, Big Annual March of Dimes Walk for Recreation, Inc. (formerly known
Brother/Big Sister, the Salvation Healthy Babies held April 30 in as Camp Paul), a school for
Army, the Merrimack Repertory Lowell. Through their enthusiasm exceptional children in
Theatre and many other non- and persistence, 41 Enterprise Chelmsford. Jancie also serves
profit activities. walkers were enlisted, and over as an on-site supervisor for
$3,300 in sponsorship money Merrimack Valley Goodwill
was raised in supports of this Industries.
important endeavor.
</TABLE>
11
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY
FINANCIAL SECTION
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
At or for the years ended December 31,
------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Net interest income $9,458,097 $8,154,324 $7,237,615 $7,136,807 $5,908,101
Provision for possible loan losses -- -- 1,030,000 2,350,000 2,080,000
---------- ---------- ---------- ---------- ----------
Net interest income after provision for
possible loan losses
9,458,097 8,154,324 6,207,615 4,786,807 3,838,101
Non-interest income 1,640,842 1,380,518 1,132,184 630,041 340,856
Net gains on sales of investment
securities -- 47,927 469,712 661,115 587,705
Non-interest expense 8,247,825 7,250,740 6,310,878 4,706,533 3,962,711
---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of change
in accounting principle 2,851,114 2,332,029 1,498,633 1,371,430 793,951
Income tax expense 1,084,878 823,814 472,193 466,409 278,750
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principle 1,766,236 1,508,215 1,026,440 905,021 515,201
Cumulative effect of change in method
of accounting for income taxes
-- -- 460,000 -- --
---------- ---------- ---------- ---------- ----------
Net income $1,766,236 $1,508,215 $1,486,440 $ 905,021 $ 515,201
========== ========== ========== ========== ==========
Percentage increase in net income
before cumulative effect of change
in accounting principle 17% 47% 13% 76% 71%
========== ========== ========== ========== ==========
Percentage increase in net income 17% 1% 64% 76% 71%
========== ========== ========== ========== ==========
COMMON SHARE DATA
Income before cumulative effect of
change in accounting principle $ 1.12 $ .96 $ .65 $ .57 $ .33
Cumulative effect of change in
method of accounting for
income taxes -- -- .29 -- --
---------- ---------- ---------- ---------- ----------
Net income $ 1.12 $ .96 $ .94 $ .57 $ .33
========== ========== ========== ========== ==========
Dividends paid $ .275 $ .25 $ .20 $ .10 $ --
========== ========== ========== ========== ==========
Book value at year-end $ 12.03 $ 10.07 $ 10.75 $ 9.64 $ 9.17
========== ========== ========== ========== ==========
Book value at year-end exclusive
of net unrealized gains (losses)
on investment securities $ 11.94 $ 11.09 $ 10.38 $ 9.64 $ 9.17
========== ========== ========== ========== ==========
Average shares outstanding 1,575,109 1,547,792 1,574,792 1,574,792 1,574,792
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA continued
At or for the years ended December 31,
--------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AND OTHER DATA AT
YEAR-END
Total assets $224,265,644 $171,163,412 $146,320,093 $142,982,260 $149,466,589
Loans held for sale 1,855,340 1,718,962 3,696,715 154,400 78,000
Loans, net of allowance for possible
loan losses 111,700,213 108,730,492 81,201,433 83,497,131 80,507,388
Allowance for possible loan losses 4,106,659 4,341,204 4,132,507 4,209,280 2,914,726
Investment securities at market value 78,812,489 45,739,633 46,459,309 37,365,171 54,155,865
Deposits 196,016,743 133,878,633 121,067,523 123,329,203 126,981,087
Short-term borrowings 6,981,783 19,619,030 7,225,705 3,579,840 6,918,202
Total stockholders' equity 18,965,714 15,860,925 16,927,239 15,182,175 14,434,633
Mortgage loans serviced for others 32,013,054 28,431,684 13,824,387 -- --
Trust assets under management 106,342,490 92,296,187 95,597,247 77,148,489 --
Total assets, trust assets under
management and mortgage
loans serviced for others $362,621,188 $295,891,283 $255,741,727 $220,130,749 $149,466,589
RATIOS
Income before cumulative effect of
change in accounting principle to:
Average total assets .92% .98% .72% .63% .36%
Average total stockholders' equity 9.71% 8.92% 6.41% 6.10% 3.64%
Net income to:
Average total assets .92% .98% 1.04% .63% .36%
Average total stockholders' equity 9.71% 8.92% 9.28% 6.10% 3.64%
Net interest spread on a tax
equivalent basis 5.11% 5.66% 5.35% 5.03% 3.89%
Allowance for possible loan
losses to loans 3.55% 3.84% 4.84% 4.80% 3.49%
Stockholders' equity to assets 8.46% 9.27% 11.57% 10.62% 9.66%
Stockholders' equity to assets exclusive
of the effect of net unrealized
gain (loss) on investment securities 8.40% 10.11% 11.22% 10.62% 9.66%
</TABLE>
14
<PAGE>
FINANCIAL REVIEW
GENERAL
Enterprise Bank and Trust Company commenced banking operations on January 3,
1989.
The bank's main office is at 222 Merrimack Street in Lowell, Massachusetts. The
bank began offering trust services in June of 1992. A branch office was opened
in Chelmsford, Massachusetts in June of 1993. A branch office was opened in
Leominster, Massachusetts in May of 1995 and a branch office was opened in
Billerica, Massachusetts in June of 1995. The bank's deposit-gathering and
lending activities are conducted primarily in the city of Lowell and the
Massachusetts towns of Billerica, Chelmsford, Dracut, Tewksbury, Tyngsboro and
Westford and the cities of Leominster and Fitchburg. The bank offers a range of
commercial and consumer services with a goal of satisfying the needs of
consumers, small- and medium-sized businesses and professionals.
The bank's deposit accounts are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
provided by law. The FDIC and the Massachusetts Commissioner of Banks (the
"Commissioner") have regulatory authority over the bank.
The bank's outstanding securities consist of 1,575,892 shares of common stock,
$1.00 par value per share. The common stock is not listed on any exchange. There
has been a limited private trading market in the common stock since the bank
commenced operations. The bank had an initial stock offering in 1988 and sold
1,026,015 shares of common stock at a price of $10.00 per share. Additionally,
the bank sold 446,175 shares of common stock at a price of $11.00 per share
between June, 1989 and November, 1989. Options for 1,100 shares were exercised
in 1995 at a price of $11.00 per share.
At the April 1992 meeting of the board of directors, the first annual dividend
of $.10 per share was declared and the dividend was paid July 1, 1992. At the
April 1993 meeting of the board of directors, a dividend of $.20 per share was
declared and was paid July 1, 1993. At the April 1994 meeting of the board of
directors, a dividend of $.25 per share was declared and was paid July 1, 1994.
At the April 1995 meeting of the board of directors, a dividend of $.275 per
share was declared and was paid July 1, 1995. The payment of future dividends
will be considered on an annual basis by the board of directors.
The bank's officers and directors have substantial business and personal ties in
the cities and towns in which the bank operates. The bank believes that it has
established a market niche by providing its customers, particularly consumers,
smaller and privately held businesses and professionals, with prompt and
personal service based on management's familiarity and understanding of such
customers' banking needs. The bank's past and continuing emphasis is to provide
responsive personal and professional service. As a full-service commercial bank,
the bank offers business checking accounts, NOW checking accounts, savings
accounts, money market accounts, certificates of deposit, commercial, consumer,
and commercial and residential real estate loans, specialized deposit services
such as IRA product offerings and other packaged accounts, trust services and
various additional services such as traveler's checks and treasurer's checks.
The bank also participates in an automatic teller machine ("ATM") network with
deposit-gathering capabilities. In addition, the bank offers safe deposit boxes
and other types of cash management services.
15
<PAGE>
FINANCIAL REVIEW CONTINUED
EARNINGS OVERVIEW
The bank's results of operations depend primarily on the bank's net interest
income, the difference between income earned on its loan and investment
portfolios and the interest paid on its deposits and borrowed funds, and the
size of the bank's provision for possible loan losses. Net interest income is
primarily affected in the short-term by the level of earning assets as a
percentage of total assets, the level of interest-bearing and
non-interest-bearing deposits, the loan to deposit ratio, yields earned on
assets, rates paid on liabilities, the level of non-accrual loans and changes in
interest rates. The provision for possible loan losses is primarily affected by
individual problem loan situations, overall loan portfolio quality, the level of
charge-offs, regulatory examinations, an assessment of current and expected
economic conditions, and changes in the character and size of the loan
portfolio. Earnings are also affected by non-interest income, which consists
primarily of deposit account fees, trust fees, and gains and losses on sales of
securities, and the level of non-interest expense and income taxes.
The bank had net income of $1,766,236, $1,508,215 and $1,026,440 (exclusive of a
nonrecurring $460,000 benefit from a change in accounting principle) in 1995,
1994 and 1993, respectively. The 17% increase in earnings in 1995 as compared to
1994 was attributable primarily to an increase in the bank's net interest income
which was offset somewhat by an increase in non-interest expenses principally
due to the opening of two branches in the second quarter of 1995. The increased
net interest income was attributable primarily to asset growth.
The bank's residential mortgage operations in 1994 and the first six months of
1995 were impacted negatively by interest rates and competition. Due to the
steep and rapid increase in interest rates in 1994, residential mortgage loan
originations across the country declined sharply from prior years. As a result,
the competition for residential mortgages increased resulting in decreased
volume and reduced profit margins. The mortgage center, beginning in the second
quarter of 1995, refocused its business away from originating mortgages for
resale into the secondary market to originating construction,
construction-to-permanent and commercial mortgages.
The following discussion and analysis of the bank's results of operations for
the last three years and its financial condition at the end of 1995 and 1994 are
broken down into the following five major sections: 1) Results of Operations
Summary; 2) Financial Condition, Interest Rate Risk, Liquidity and Capital
Resources; 3) Risk Elements; 4) Recent Accounting Pronouncements; and 5)
Regulatory Legislation. In order to understand this section in context, it
should be read in conjunction with the bank's consolidated financial statements.
16
<PAGE>
RESULTS OF OPERATIONS SUMMARY
The following table highlights significant changes which affected the bank's
results of operation during the years 1993-1995:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average assets $191,560,510 $154,231,774 $143,439,361
Average deposits and short-term borrowings 171,576,406 136,039,592 126,437,878
Average loans and loans held for sale 118,247,624 98,033,000 86,636,114
Average loans and loans held for sale to
average deposit and short-term
borrowings ratio 68.92% 72.06% 68.52%
Non-interest expense to average assets 4.31% 4.70% 4.40%
Non-interest income, exclusive of securities
gains to average assets .86% .90% .79%
Average rate earned on interest-earning assets
on a tax equivalent basis 8.41% 7.84% 7.60%
Average rate paid on deposits and short-term
borrowings 3.30% 2.18% 2.25%
Net interest rate spread on a tax equivalent basis 5.11% 5.66% 5.35%
Net interest income $9,458,097 $8,154,324 $7,237,615
Net gain on sales of investment securities - 47,927 469,712
Provision for possible loan losses - - 1,030,000
Income tax expense 1,084,878 823,814 472,193
</TABLE>
NET INTEREST INCOME
Net interest income, the difference between income on earning assets and the
cost of funds, is the primary source of income to the bank. The primary factors
to consider in analyzing net interest income are the composition and volume of
earning assets and interest-bearing liabilities, the amount of
non-interest-bearing liabilities and changes in market interest rates. The
bank's net interest income increase in 1995 was due primarily to an increase in
assets. Much of this increase was funded by relatively high rate certificates of
deposit from the two new branches. As a result, the tax equivalent net interest
rate spread decreased to 5.11% in 1995, compared to 5.66% in 1994, and 5.35% in
1993. It is expected that due to increasing competition for loans and due to an
anticipated lower loan to average deposits and short-term borrowings ratio in
1996 versus 1995 that the bank will have a lower net interest rate spread in
1996 as compared to 1995.
The following table sets forth average assets, liabilities and stockholders'
equity, interest income and interest expense, average yields and rates, and the
net interest margin for the years ended December 31, 1995, 1994 and 1993. All
average interest rates are presented on a tax equivalent basis.
17
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST AND AVERAGE INTEREST RATES
1995 1994 1993
--------------------------- ------------------------------ ------------------------------
Average Average Average
Average Interest Average Interest Average Interest
Balance Interest Rate (4) Balance Interest Rate (4) Balance Interest Rate (4)
------- -------- ------- ------- -------- -------- ------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans and loans held for sale(1) (2) $118,248 $11,292 9.55% $98,033 $8,451 8.62% $ 86,636 $ 7,240 8.36%
Investment securities (4) 55,140 3,325 6.43 45,774 2,631 6.28 43,215 2,688 6.67
Federal funds sold 8,918 503 5.64 1,126 42 3.73 5,314 157 2.95
-------- ------- -------- ------ -------- ------
Total interest earning assets 182,306 15,120 8.41% 144,933 11,124 7.84% 135,165 10,085 7.60%
------- ------ ------
Other assets (3) 9,255 9.299 8,274
-------- -------- --------
Total assets $191,561 $154,232 $143,439
======== ======== ========
Liabilities and stockholders' equity:
Non-interest bearing deposits $28,215 -- 24,126 -- 19,475 --
Savings, NOW and money market 70,332 1,704 2.42% 68,708 1,426 2.08% 63,851 1,349 2.11%
Certificate of deposit 56,904 3,111 5.47 33,161 1,171 3.53 37,317 1,369 3.67
Short-term borrowings 16,125 847 5.25 10,045 373 3.71 5,795 129 2.23
-------- ------- -------- ------ -------- ------
Total deposits and borrowings 171,576 5,662 3.30% 136,040 2,970 2.18% 126,438 2,847 2.25%
-------- ------- -------- ------ -------- ------
Other liabilities 1,792 1,293 979
-------- -------- --------
Total liabilities 173,368 137,333 127,417
Stockholders' equity 18,193 16,899 16,022
-------- -------- --------
Total liabilities and stock-
holder's equity $191,561 $154,232 $143,439
======== ======== ========
Net interest rate spread 5.11% 5.66% 5.35%
Net interest income $9,458 $8,154 $7,238
------- ------ ------
Net yield on average earning assets 5.31% 5.76% 5.50%
<FN>
(1) Average loans include nonaccrual loans.
(2) Average loans are net of average deferred loan fees.
(3) Other assets include cash and due from banks, accrued interest receivable, allowance for possible loan losses, real estate
acquired by foreclosure, deferred income taxes and other miscellaneous assets.
(4) Average balances are presented at average amortized cost and average interest rates are presented on a
tax-equivalent basis.
</FN>
</TABLE>
18
<PAGE>
RESULTS OF OPERATIONS SUMMARY CONTINUED
The following table reflects the changes in net interest income stemming from
changes in interest rates and from asset and liability volume.
<TABLE>
<CAPTION>
Changes due to Changes due to
1995 -------------- 1994 --------------
Increase Rate/ Increase Rate/
(Decrease) Volume Rate Volume (Decrease) Volume Rate Volume
---------- -------- ------ -------- ---------- -------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and loans held
for sale $2,841 $1,743 $911 $187 $1,211 $952 $229 $30
Investment securities 694 589 66 39 (57) 171 (165) (63)
Federal funds sold 461 291 22 148 (115) (124) 41 (32)
------ ------ ---- ---- ------ ---- ---- ---
Total interest
income change 3,996 2,623 999 374 1,039 999 105 (65)
------ ------ ---- ---- ------ ---- ---- ---
Interest expense:
Savings, NOW, MM 278 34 239 5 77 103 (24) (2)
Certificate of Deposit 1,940 838 642 460 (198) (152) (52) 6
Short-term borrowings 474 226 155 93 244 95 86 63
------ ------ ---- ---- ------ ---- ---- ---
Total interest
expense change 2,692 1,098 1,036 558 123 46 10 67
------ ------ ----- ----- ------ ---- ---- ---
Net interest income
change $1,304 $1,525 $ (37) $(184) $ 916 $953 $ 95 $(132)
====== ====== ===== ===== ====== ==== ==== =====
</TABLE>
The table above sets forth, among other things, the extent to which changes in
interest rates and changes in the average balances of interest-earning assets
and interest-bearing liabilities have affected interest income and expense
during the years indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) change in volume (change in average portfolio balance multiplied by prior
year's average rate), (2) change in interest rates (change in average interest
rate multiplied by prior years average balance), and (3) change in rate and
volume.
INTEREST INCOME
Interest income was $15,119,395 in 1995, representing a 36%, or $3,995,339
increase from 1994. Interest earned on loans, representing 75% of total interest
income, increased $2,841,294. The increase is due primarily to the higher
average level of loans outstanding. Interest on investments and federal funds
sold increased 43% during 1995 to $3,827,467. The increase is due primarily to
higher average balances of investments and federal funds sold. In 1994, interest
income increased by $1,039,374 to $11,124,056 due primarily to a higher average
balance of loans outstanding.
INTEREST EXPENSE
In 1995, total interest expense increased by $2,691,566, or 91%, from $2,969,732
in 1994, to $5,661,298, in 1995. The increase was due to a higher average level
of deposits and short-term borrowings and higher average rates paid.
In 1994, total interest expense increased by $122,665, or 4%, from $2,847,067 in
1993, to $2,969,732, in 1994 due primarily to the higher average level of
deposits and short-term borrowings.
19
<PAGE>
RESULTS OF OPERATIONS SUMMARY CONTINUED
NON-INTEREST INCOME EXCLUSIVE OF NET GAINS ON SALE OF INVESTMENT
SECURITIES
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Deposit service fees $ 559,338 $ 489,906 $ 448,823
Trust fees 601,716 571,128 500,152
Other 479,788 319,484 183,209
----------- ----------- -----------
Total $ 1,640,842 $ 1,380,518 $ 1,132,184
=========== =========== ===========
Deposit service fees increased approximately 14% in 1995, and 9% in 1994. The
growth has been the result of an increase in the number of checking accounts,
increased per-unit fees and increased transaction volumes.
The increase in trust fees is due to an increase in trust assets under
management.
Other non-interest income increased by $160,304 in 1995, due primarily to year
to year increases of $129,312 in gains on sales of mortgage loans, and $37,334
in fees from the sale of servicing on mortgage loans sold.
NET GAIN ON SALE OF SECURITIES
Net gains from the sale of investment securities totalled $0 in 1995, $47,927 in
1994 and $469,712 in 1993.
NON-INTEREST EXPENSE
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Salaries and employee benefits $ 4,537,601 $ 4,099,963 $ 3,437,598
Occupancy expenses 1,184,135 929,854 898,690
FDIC insurance 151,419 272,666 270,096
Office and data processing supplies 425,242 396,120 335,139
Trust professional and custodial expenses 183,121 181,734 163,350
Audit, legal and other professional fees 327,964 236,966 299,770
Postage 109,063 151,460 94,273
Advertising and public relations 304,016 130,791 102,523
Other operating expenses 1,025,264 851,186 709,439
----------- ----------- -----------
Total $ 8,247,825 $ 7,250,740 $ 6,310,878
=========== =========== ===========
The increase in salary and benefits expense of 11% in 1995 is primarily a result
of the opening of the two new branch offices. The increase from 1993 to 1994 was
a result of a full year of operations for the mortgage center and Chelmsford
branch in 1994 versus a partial year in 1993.
The increase in occupancy expense of 27% in 1995 was due to the opening of the
two new branch offices. The increase from 1993 to 1994 was primarily a result of
a full year of expense for the Chelmsford branch and mortgage center.
FDIC insurance expense decreased by $121,247 in 1995, and increased by $2,570 in
1994. The decrease in 1995 was due to a lower FDIC insurance assessment rate.
Office and data processing supplies expense increased by $29,122 or 7%, in 1995,
due primarily to the opening of the two new branches. The increase from 1993 to
1994 was due to a full year of purchases made for the Chelmsford branch and the
mortgage center.
20
<PAGE>
RESULTS OF OPERATIONS SUMMARY CONTINUED
NON-INTEREST EXPENSE CONTINUED
The increase in trust, professional and custodial expenses for 1995 and 1994 is
associated with an increase in trust revenues.
Audit, legal and other professional expenses increased in 1995, due primarily to
the bank's retaining of the services of a professional consulting firm to review
its operations.
Postage, advertising and public relations and other operating expenses increased
by $304,906 or 27%, due primarily to the opening of the two new branches. The
increase from 1993 to 1994 was due to a full year of expenses associated with
the Chelmsford branch and mortgage center.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses amounted to $0 in 1995 and 1994 and
$1,030,000 in 1993. The provision reflects real estate values and economic
conditions in New England and in Greater Lowell, in particular, the level of
nonaccrual loans, levels of charge-offs, levels of outstanding loans, known and
inherent risks in the nature of the loan portfolio and management's assessment
of current risk. It is a significant factor in the bank's operating results. The
bank's allowance for possible loan losses was $4,106,659 at December 31, 1995
(3.55% of loans net of deferred loan origination fees). See "Risk Elements" and
"Provision and Allowance for Possible Loan Losses" for further discussion.
INCOME TAXES
The bank's income tax expense was $1,084,878, $823,814 and $472,193 in 1995,
1994 and 1993, respectively. The increases in 1995 and 1994 were due to higher
book taxable income.
21
<PAGE>
FINANCIAL CONDITION, INTEREST RATE RISK, LIQUIDITY AND CAPITAL
RESOURCES
Total assets were $224,265,644 at December 31, 1995, compared with $171,163,412
at December 31, 1994, an increase of approximately 31%. The increase is
primarily due to an increase in deposits from the two new branches. Total net
loans and loans held for sale were $113,555,553 at December 31, 1995, compared
with $110,449,454 at December 31, 1994, an increase of approximately 3%. Total
deposits were $196,016,743 at December 31, 1995, compared with $133,878,633 at
December 31, 1994, an increase of approximately 46%. Total short-term borrowings
were $6,981,783 at December 31, 1995, compared with $19,619,030 at December 31,
1994, a decrease of 64%.
The following table shows selected balance sheet accounts at December 31:
1995 1994
---- ----
Total assets $224,265,644 $171,163,412
Loans and loans held for sale, net 113,555,553 110,449,454
Investment securities 78,812,489 45,739,633
Total deposits 196,016,743 133,878,633
Short-term borrowings: 6,981,783 19,619,030
Repurchase agreements 6,981,783 6,386,030
Borrowings from the Federal Home
Loan Bank of Boston - 13,233,000
INTEREST RATE RISK
The following table summarizes the bank's interest rate sensitivity position at
December 31, 1995. Certain assumptions have been made regarding the repricing of
mortgage-backed and callable investment securities, demand deposit, regular
savings, NOW and money market accounts.
Time Interval from Up to Up to Up to
December 31, 1995 Three Months Twelve Months Five Years
- ------------------ ------------ ------------- -------------
Interest sensitive:
Assets $ 84,431,703 $137,539,289 $ 197,201,205
Liabilities 50,903,114 106,032,830 170,244,485
------------ ------------ -------------
Cumulative gap $ 33,528,589 $ 31,506,459 $ 26,956,720
============ ============ =============
Cumulative gap as a
percentage of total assets 14.95% 14.05% 15.75%
============ ============ =============
The bank manages its balance sheet to maximize its net interest margin while
minimizing the impact on the margin of changes in the level of market interest
rates. Management of interest rate risk involves continual monitoring of the
relative interest rate sensitivity of assets and liabilities. A static "gap"
analysis, as presented above, compares the sensitivities of existing assets and
liabilities by grouping balances that are sensitive over various time horizons.
Management also goes beyond "gap" analysis by simulating the effect of changing
interest rates on the bank's assets, liabilities and net interest margin. The
bank's asset/liability strategy is to moderate the impact on earnings of
volatile changes in market rates of interest.
Effective interest rate risk management requires analysis that goes beyond
information contained in the static gap report. Therefore, trends that may
produce differences between asset and liability repricing sensitivities or alter
earnings expectations are reviewed, and strategies for future periods are
developed. Based on these analyses, management formulates strategies to enhance
income while guarding against volatility in earnings caused by market interest
rate movements.
LIQUIDITY
Liquidity is the ability to meet cash needs arising from fluctuations in loans,
investments and deposits. Liquidity management is the coordination of activities
so that cash needs are anticipated and met easily and efficiently. Liquidity
policies are set and monitored by the bank's investment and asset/liability
committee. The bank's liquidity is maintained by projecting cash needs, by
balancing maturing assets with
22
<PAGE>
FINANCIAL CONDITION, INTEREST RATE RISK, LIQUIDITY AND CAPITAL RESOURCES
CONTINUED
LIQUIDITY CONTINUED
maturing liabilities, by the monitoring of various liquidity ratios, by
monitoring deposit flows, and by maintaining liquidity within the investment
portfolio.
The bank's liability management objectives are to maintain liquidity, provide
and enhance access to a diverse and stable source of funds, provide
competitively priced and attractive products to customers, conduct funding at a
low cost relative to current market conditions and to engage in sound balance
sheet management strategies. Funds gathered are used to support current asset
levels and to take advantage of selected leverage opportunities. The bank funds
earning assets with deposits, short-term borrowings and stockholders' equity.
All of the bank's deposits are considered to be core deposits for the purpose of
balance sheet management. The bank does not have any brokered deposits. The bank
has the ability to borrow funds from the Federal Home Loan Bank of Boston.
INVESTMENTS
The investment portfolio is managed with the primary objective of maintaining an
appropriate level of liquidity and controlling interest rate risk. Beginning
December 31, 1993, investment securities that are intended to be held for
indefinite periods of time but which may not be held to maturity or on a
long-term basis are considered to be "available for sale" and are carried at
market value. Net unrealized gains and losses, net of applicable income taxes,
are reflected in the bank's stockholders' equity. Included as available for sale
are securities that are purchased in connection with the bank's asset/liability
risk management strategy and that may be sold in response to changes in interest
rates, resultant prepayment risk and other related factors. In instances where
the bank has the positive intent to hold to maturity, investment securities will
be classified as held for investment and carried at amortized cost. At December
31, 1995 and 1994, all of the bank's investment securities were classified as
available for sale and carried at market value. The net unrealized gain at
December 31, 1995 of $263,811, net of tax effects of $111,539, is shown as an
increase in stockholders' equity in the amount of $152,272.
CAPITAL RESOURCES
Capital planning by the bank considers current needs and anticipated future
growth. Other than the sale of common stock in 1988 and 1989, the primary source
of additional capital has been retention of earnings since the bank commenced
operations.
The bank is subject to capital adequacy guidelines. New risk-based capital
guidelines became effective in 1990 and were fully-phased in as of December 31,
1992. Under the fully phased-in guidelines, the minimum total risk-based capital
requirement was raised to 8% of assets and certain off-balance sheet items,
weighted by risk. At least 4% of the total 8% ratio must consist of Tier 1
capital (primarily common equity including retained earnings) and the remainder
may consist of subordinated debt, cumulative preferred stock and a limited
amount of loan loss reserves. Certain assets and off-balance sheet items
considered to present less risk than others require capital at less than the 8%
ratio. For example, cash and government securities are placed in a 0% risk
category, while most home mortgage loans are placed in a 50% risk category
requiring a 4% ratio, and commercial loans are placed in a 100% risk category
requiring an 8% ratio. As of December 31, 1995, the bank's total risk-based
capital ratio was 16.33% and its Tier 1 capital ratio was
15.08%.
The bank is also subject to minimum leverage ratio guidelines. The ratio is
determined using Tier 1 risk-based capital divided by quarterly average total
assets, less intangible assets and other adjustments. The guidelines require a
minimum of 3% for the highest rated banks that are neither experiencing or
anticipating significant growth. Banks experiencing or anticipating significant
growth are expected to maintain capital positions well above minimum levels. At
December 31, 1995, the bank's leverage ratio was 8.35%.
It is not possible to predict precisely what effect the risk-based capital
guidelines and the limitation on leverage will have on the bank in future years.
A relatively large percentage of the bank's assets are assigned to less than
100% risk categories and the leverage limitations are not more restrictive than
previously applicable capital requirements. The bank does not presently expect
compliance with the risk-based capital or leverage guidelines to have a material
effect upon the business of the bank.
23
<PAGE>
RISK ELEMENTS
The bank reviews, on an ongoing basis, the credit quality of its investment
securities and the banks in which it invests federal funds sold. Federal funds
investments are typically made on an overnight basis.
A primary management objective is to maintain a high quality loan portfolio. The
bank's strategy to achieve this objective is to acquire quality assets through
competitive pricing and service rather than by lowering underwriting criteria.
Its portfolio strategy seeks to acquire loans in markets with which it is
familiar. As such, the majority of the bank's loan portfolio represents
extensions of credit to borrowers located in its market area.
The strength of the bank's commercial portfolio of loans is dependent
substantially on the borrower's ability to repay the loan out of the cash flows
of the borrower's business and the assets underlying the borrower's business,
such as accounts receivable, equipment, inventory and real property. As a
result, the availability of funds for the repayment of the loans is typically
dependent on the success of the business itself. Further, the collateral
securing the loan may depreciate over time, may not be appraised precisely and
may fluctuate in value based on the level of success of the business.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Inherent to the lending process is the risk of loss. While the bank endeavors to
minimize this risk, management recognizes that loan losses will occur and that
the amount of these losses will fluctuate depending on the risk characteristics
of the loan portfolio, which in turn depends on current and expected economic
conditions, the financial condition of borrowers, and the credit management
process.
The allowance for possible loan losses is maintained through the provision for
possible loan losses, which is a charge to operating earnings. The adequacy of
the provision and the resulting allowance for possible loan losses is determined
after a continuing review of the loan portfolio, including identification and
review of individual problem situations that may affect the borrower's ability
to repay, review of overall portfolio quality through an analysis of current
charge-offs, delinquency and nonperforming loan data, review of regulatory
authority examinations and evaluations of loans, review of reports prepared by
an independent loan review firm hired by the bank, comparisons to peer group
ratios, an assessment of current and expected economic conditions, and changes
in the size and character of the loan portfolio. Thus, the allowance level
reflects identified loss potential and perceived risk in the portfolio.
The bank regularly monitors the real estate market and the bank's asset quality
to determine the adequacy of its allowance for possible loan losses through
ongoing credit reviews by members of senior management, the overdue loan review
committee, the executive committee and the board of directors.
The bank determines the adequacy of its allowance for possible loan losses by
assigning loans to risk categories based on the type of loan and its
classification. Each category is assessed for risk of loss based on historical
experience and management's evaluation of the loans making up the category,
including the level of loans on nonaccrual and other delinquency factors
including general economic conditions. The bank adjusts its analysis
periodically to reflect changes in historical loss experience and the state of
the current economy. The bank also evaluates the adequacy of its allowance for
possible loan losses by comparison to peer group ratios. Otherwise, in
conducting its analysis, the bank applies consistent criteria to the facts and
circumstances then existing, as understood by the bank.
After consideration of the above factors, the ratio of the reserve to total
loans outstanding was 3.55% at December 31, 1995, 3.84% at December 31, 1994 and
4.84% at December 31, 1993. At year-end 1995, the allowance for possible loan
losses represented 203% of nonaccrual loans. While the bank believes that the
allowance for possible loan losses is adequate to cover losses in its loan
portfolio, there are continuing uncertainties regarding the future of the New
England, Greater Lowell and Leominster economies and real estate markets.
Based on the foregoing, as well as management's judgment as to the risks
inherent in the loan portfolio, the bank's allowance for possible loan losses is
deemed adequate to absorb all reasonably anticipated losses on specifically
known and other possible credit risks associated with the portfolio as of
December 31, 1995.
24
<PAGE>
RISK ELEMENTS CONTINUED
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES CONTINUED
The classification of a loan or other asset as nonperforming does not
necessarily indicate that loan principal and interest will be ultimately
uncollectible. However, management recognizes the greater risk characteristics
of these assets and therefore considers the potential risk of loss on assets
included in this category in evaluating the adequacy of the allowance for
possible loan losses.
The loan portfolio, particularly the real estate portion, could continue to be
impacted negatively by economic conditions as well as the real estate market
throughout the region. As a result, there is no assurance that the level of
nonaccrual loans, restructured loans and real estate acquired by foreclosure
will not increase.
RESTRUCTURED LOANS
A restructured loan is one for which the bank has modified the terms to provide
a reduction in the rate of interest and, in most instances, an extension of time
for payments of principal or interest, or both, because of a deterioration in
the financial position of the borrower. Restructured loans are considered
performing loans unless concern exists as to the ultimate collection of
principal or interest. At December 31, 1995, the bank did not have any
restructured loans.
REAL ESTATE ACQUIRED BY FORECLOSURE
Real estate acquired by foreclosure is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Real
estate formally acquired in settlement of loans is initially recorded at the
lower of the carrying value of the loan or the fair value of the property
constructively or actually received less estimated selling costs. Loan losses
arising from the acquisition of such properties are charged against the
allowance for possible loan losses. Operating expenses and any subsequent
provisions to reduce the carrying value to net fair value are charged to real
estate operations in the current period. Gains and losses upon disposition are
reflected in earnings as realized.
LOAN LOSS EXPERIENCE/NONPERFORMING ASSETS
The following table summarizes the activity in the allowance for possible loan
losses for the years indicated:
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Balance at beginning of year $ 4,341,204 $ 4,132,507 $ 4,209,280
Loans charged-off:
Commercial (87,073) -- (497,055)
Real estate (297,875) (47,798) (613,492)
Consumer (18,688) (7,402) (20,798)
Credit card (1,377) (415) (770)
----------- ----------- -----------
Total (405,013) (55,615) (1,132,115)
----------- ----------- -----------
Recoveries on loans charged-off 170,468 264,312 25,342
----------- ----------- -----------
Net loans (charged-off)/recovered (234,545) 208,697 (1,106,773)
Provision charged to income -- -- 1,030,000
----------- ----------- -----------
Balance at end of year $ 4,106,659 $ 4,341,204 $ 4,132,507
=========== =========== ===========
Reserve to loans outstanding 3.55% 3.84% 4.84%
Net charge-offs (recoveries) to
average loans outstanding .20% (.21)% 1.28%
25
<PAGE>
RISK ELEMENTS CONTINUED
LOAN LOSS EXPERIENCE/NONPERFORMING ASSETS CONTINUED
The following table sets forth nonperforming assets at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Loans on nonaccrual:
Commercial $ 586,442 $ 565,703 $ 501,397
Residential real estate 119,730 354,757 356,108
Commercial real estate 769,533 601,665 859,558
Construction - - -
Consumer, including home equity 545,779 348,540 178,190
---------- ----------- ----------
Total loans on nonaccural 2,021,484 1,870,665 1,895,253
Real estate acquired by foreclosure 417,172 389,787 525,001
---------- ----------- ----------
Total nonaccrual loans and real
estate acquired by foreclosure $2,438,656 $2,260,452 $2,420,254
========== ========== ==========
Nonaccrual loans as percentage of total assets .90% 1.09% 1.30%
Allowance for possible loan losses to
nonaccrual loans 203% 232% 218%
</TABLE>
At December 31, 1995, loans which were characterized as impaired pursuant to
SFAS No. 114 and 118 totalled $473,325. In the opinion of management, loans with
a book value of $205,676 required specific reserves of $25,676. Impaired loans
have been measured using the fair value of the collateral method. During the
twelve months ended December 31, 1995, the average recorded value of impaired
loans was $528,968.
IMPACT OF INFLATION AND CHANGING PRICES
A bank's asset and liability structure is substantially different from that of
an industrial company in that virtually all assets and liabilities of a bank are
monetary in nature. Management believes the impact of inflation on financial
results depends upon the bank's ability to react to changes in interest rates
and by such reaction, reduce the inflationary impact on performance. Interest
rates do not necessarily move in the same direction, or at the same magnitude,
as the prices of other goods and services. As discussed previously, management
seeks to manage the relationship between interest-sensitive assets and
liabilities in order to protect against wide net interest income fluctuations,
including those resulting from inflation. Various information shown elsewhere in
this annual report will assist in the understanding of how well the bank is
positioned to react to changing interest rates and inflationary trends. In
particular, the summary of net interest income and the data on interest rate
sensitivity should be considered.
26
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS
In May 1994, the Financial Accounting Standards Board issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights," which amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities." The Statement is effective
for fiscal years beginning after December 15, 1995; however, early adoption is
permitted. The Statement requires that a mortgage banking enterprise recognize
as separate assets, rights to service mortgage loans for others, regardless of
how those servicing rights are acquired. Additionally, the Statement requires
that the capitalized mortgage servicing rights be assessed for impairment based
on the fair value of those rights, and that impairment be recognized through a
valuation allowance. The bank adopted this Statement on January 1, 1996. The
impact of adoption of the Statement to the bank will be dependent on residential
mortgage sale volumes.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation," which became effective on January 1,
1996. This Statement establishes a fair value based method of accounting for
stock-based compensation plans under which compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. However, the Statement allows a bank to continue to measure compensation
cost for such plans under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Under APB Opinion No.25, no
compensation cost is recorded if, at the grant date, the exercise price of the
options is equal to the fair market value of the bank's common stock. The bank
has elected to continue to follow the accounting in APB Opinion No. 25 and to
disclose in the notes to the financial statements pro forma net income and
earnings per share if the fair value based method of accounting had been
applied.
27
<PAGE>
REGULATORY LEGISLATION
The regulatory environment during 1995 continued to be marked by two distinct
emphases - the continuing implementation of provisions enacted by the Federal
Deposit Insurance Corporation Improvement Act of 1992 ("FDICIA") and a
continuing focus on consumer-oriented initiatives. FDICIA has proven to be
far-reaching and regulation-intensive, leaving virtually no insured depository
institution unaffected. The regulatory agencies have become increasingly
concerned with the adequacy of policies and procedures, information systems,
management and their decision-making process, internal controls and regulatory
reporting. At the same time, the consumer-oriented initiatives outlined by the
Clinton Administration continue to garner significant attention. The most
prominent of these initiatives include (1) a revamping of existing regulations
intended to encourage financial institutions to increase credit availability,
(2) increased regulatory scrutiny of Community Reinvestment Act performance, and
(3) proposed legislation to fund special purpose institutions known as Community
Development Financial Institutions.
Significant FDICIA-related regulatory developments during the past several years
included (1) incorporation of interest rate risk, concentration of credit risk,
and risk from nontraditional activities into the proposed risk-based capital
standards, (2) establishment of a permanent risk-based assessment system for
deposit insurance, (3) promulgation of final regulations and guidelines
applicable to annual audits and reporting requirements with respect to the
effectiveness of internal controls over financial reporting and compliance with
designated laws and regulations, (4) implementation of uniform real estate
lending standards, and (5) development of standards to limit interbank
exposures.
The full impact of FDICIA and the various Clinton Administration consumer
initiatives will not be known fully until the complete enactment by the various
federal agencies of the resulting regulations for much of the new legislation.
It is anticipated, however, that FDICIA and the final regulations issued
thereunder will result in increased costs for the banking industry due to higher
costs of compliance and recordkeeping, and more limitations on the activities of
all but the most well capitalized banks.
On September 29, 1994, a new interstate banking bill was signed into law by
President Clinton. The bill provides for full interstate banking. In the event
the bill causes further consolidation by the larger banks, the bank is of the
belief that it could create further market opportunities for community banks.
28
<PAGE>
MANAGEMENT'S REPORT
The financial statements of Enterprise Bank and Trust Company have been prepared
by management in accordance with generally accepted accounting principles. The
financial review included in this annual report was prepared by management and
is consistent with the data included in the financial statements.
The bank maintains a system of internal accounting controls intended to provide
reasonable assurance that transactions are executed in accordance with corporate
authorization and are properly recorded and reported in the financial statements
and that assets are safeguarded. The concept of reasonable assurance recognizes
that the cost of a system of internal accounting controls should not exceed the
benefits derived. Such costs and benefits are not usually quantifiable and
accordingly depend upon estimates and judgment.
The financial statements have been audited by KPMG Peat Marwick LLP, whose
report is contained herein.
CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The bank desires to take advantage of the new "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. This report contains certain
"forward-looking statements" including statements concerning plans, objectives,
future events or performance and assumptions and other statements which are
other than statements of historical fact. The bank wishes to caution readers
that the following important factors, among others, may have affected and could
in the future affect the bank's actual results and could cause the bank's actual
results for subsequent periods to differ materially from those expressed in any
forward-looking statement made by or on behalf of the bank herein: (1) the
effect of changes in laws and regulations, including federal and state banking
laws and regulations, with which the bank must comply, the cost of such
compliance and the potentially material adverse effects if the bank were not in
substantial compliance either currently or in the future as applicable; (2) the
effect of changes in accounting policies and practices, as may be adopted by the
regulatory agencies as well as by the Financial Accounting Standards Board, or
of changes in the bank's organization, compensation and benefit plans; (3) the
effect on the bank's competitive position within its market area of increasing
consolidation within the banking industry and increasing competition from larger
regional and out-of-state banking organizations as well as non bank providers of
various financial services; (4) the effect of unforseen changes in interest
rates; and (5) the effect of changes in the business cycle and downturns in the
local, regional or national economies.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP
The Board of Directors
Enterprise Bank and Trust Company:
We have audited the accompanying consolidated balance sheets of Enterprise Bank
and Trust Company and subsidiary (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Enterprise Bank and
Trust Company and subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes" effective January 1, 1993 and Financial Accounting Standards Board
Statement No. 115, "Accounting For Certain Investments in Debt and Equity
Securities", effective December 31, 1993.
KPMG Peat Marwick LLP
January 5, 1996
Boston, Massachusetts
30
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1995 and 1994
1995 1994
------ -----
<S> <C> <C>
Assets
- ------
Cash and cash equivalents:
Cash and due from banks (Note 14) $11,562,392 7,116,033
Daily federal funds sold 13,600,000 1,325,000
------------- ------------
Total cash and cash equivalents 25,162,392 8,441,033
------------- ------------
Investment securities at market value (Notes 2 and 8) 78,812,489 45,739,633
Loans held for sale at lower of cost or market value (Note 3) 1,855,340 1,718,962
Loans, less allowance for possible loan losses of $4,106,659
in 1995 and $4,341,204 in 1994 (Note 3) 111,700,213 108,730,492
Premises and equipment (Note 4) 2,463,592 1,549,757
Accrued interest receivable (Note 5) 1,823,079 1,267,632
Prepaid expenses and other assets 291,097 208,296
Real estate acquired by foreclosure (Note 6) 417,172 389,787
Deferred income taxes, net (Note 12) 1,740,270 3,117,820
------------- ------------
Total assets $ 224,265,644 171,163,412
============= ============
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits (Note 7) 196,016,743 133,878,633
Short-term borrowings (Notes 2 and 8) 6,981,783 19,619,030
Escrow deposits of borrowers 377,824 394,445
Accrued expenses and other liabilities 1,200,561 1,100,294
Income taxes payable (Note 12) 173,346 67,166
Accrued interest payable 549,673 242,919
------------- ------------
Total liabilities 205,299,930 155,302,487
------------- ------------
Commitments and contingencies (Notes 4, 8, 13 and 14)
Stockholders' equity (Notes 9 and 10):
Preferred stock, $1.00 par value;
450,000 shares authorized, no shares issued -- --
Class A Commmon Stock, $1.00 par value;
3,000,000 shares authorized, 1,575,892 shares issued and
outstanding at December 31, 1995 and 1,574,792 shares
issued and outstanding at December 31, 1994
1,575,892 1,574,792
Additional paid-in capital 13,913,325 13,902,325
Retained earnings 3,324,225 1,991,057
Net unrealized gain (loss) on investment securities, net of
applicable income taxes (Note 1) 152,272 (1,607,249)
------------- ------------
Total stockholders' equity 18,965,714 15,860,925
------------- ------------
Total liabilities and stockholders' equity $224,265,644 171,163,412
============= ============
See accompanying notes to consolidated financial statements
</TABLE>
31
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Interest Income:
Loans $11,291,928 8,450,634 7,239,781
Investment securities 3,324,539 2,631,285 2,687,777
Federal funds sold 502,928 42,137 157,124
----------- ----------- -----------
Total interest income 15,119,395 11,124,056 10,084,682
----------- ----------- -----------
Interest expense:
Deposits 4,814,334 2,596,602 2,717,925
Borrowed funds 846,964 373,130 129,142
----------- ----------- -----------
Total interest expense 5,661,298 2,969,732 2,847,067
----------- ----------- -----------
Net interest income 9,458,097 8,154,324 7,237,615
Provision for possible loan losses (Note 3) -- -- 1,030,000
----------- ----------- -----------
Net interest income after provision
for possible loan losses 9,458,097 8,154,324 6,207,615
----------- ----------- -----------
Non-interest income:
Net gains on sales of investment securities (Note 2) -- 47,927 469,712
Deposit service fees 559,338 489,906 448,823
Trust fees 601,716 571,128 500,152
Other income 479,788 319,484 183,209
----------- ----------- -----------
Total non-interest income 1,640,842 1,428,445 1,601,896
----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits (Note 11) 4,537,601 4,099,963 3,437,598
Occupancy expenses (Notes 4 and 13) 1,184,135 929,854 898,690
FDIC insurance 151,419 272,666 270,096
Office and data processing supplies 425,242 396,120 335,139
Trust professional and custodial expenses 183,121 181,734 163,350
Audit, legal and other professional fees 327,964 236,966 299,770
Postage 109,063 151,460 94,273
Advertising and public relations 304,016 130,791 102,523
Other operating expenses 1,025,264 851,186 709,439
----------- ----------- -----------
Total non-interest expense 8,247,825 7,250,740 6,310,878
----------- ----------- -----------
Income before income taxes and cumulative effect
of change in accounting principle 2,851,114 2,332,029 1,498,633
Income tax expense (Note 12) 1,084,878 823,814 472,193
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle 1,766,236 1,508,215 1,026,440
Cumulative effect of change in method of accounting for
income taxes (Note 1) -- -- 460,000
----------- ----------- -----------
Net income $ 1,766,236 1,508,215 1,486,440
=========== =========== ===========
Income per common share before cumulative effect $ 1.12 .96 .65
of change in accounting principle
Cumulative effect of change in accounting principle -- -- .29
----------- ----------- -----------
Net income $ 1.12 .96 .94
=========== =========== ===========
Weighted average common shares outstanding 1,575,109 1,574,792 1,574,792
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
32
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
Net Unrealized
Gain(Loss)
Common Stock on Investment
------------ Securities,
Class A Additional Net of Total
--------- Paid-in Retained Applicable Stockholders'
Shares Amount Capital Earnings Income Taxes Equity
---------- ----------- ------------ ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 1,574,792 $1,574,792 $13,902,325 $ (294,942) $ - $15,182,175
Net income - - - 1,486,440 - 1,486,440
Class A Common Stock dividend declared - - - (314,958) - (314,958)
($.20 per share)
Change in net unrealized gain (loss) on
investment securities, net of
applicable income taxes - - - - 573,582 573,582
---------- ---------- ----------- ---------- ---------- -----------
Balance at December 31, 1993 1,574,792 1,574,792 13,902,325 876,540 573,582 16,927,239
Net income - - - 1,508,215 - 1,508,215
Class A Common Stock dividend declared - - - (393,698) - (393,698)
($.25 per share)
Change in net unrealized gain (loss) on
investment securities, net of
applicable income taxes - - - - (2,180,831) (2,180,831)
---------- ---------- ----------- ---------- ---------- -----------
Balance at December 31, 1994 1,574,792 1,574,792 13,902,325 1,991,057 (1,607,249) 15,860,925
Net income - - - 1,766,236 - 1,766,236
Class A Common Stock dividend declared - - - (433,068) - (433,068)
($.275 per share)
Stock options exercised (Note 10) 1,100 1,100 11,000 - - 12,100
Change in net unrealized gain (loss) on
investment securities, net of
applicable income taxes - - - - 1,759,521 1,759,521
---------- ---------- ----------- ---------- ---------- -----------
Balance at December 31, 1995 $1,575,892 $1,575,892 $13,913,325 $3,324,225 $ 152,272 $18,965,714
========== ========== =========== ========== ========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
33
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,766,236 1,508,215 1,486,440
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 658,388 638,060 659,403
Provision for possible loan losses -- -- 1,030,000
Gain on sale of investments -- (47,927) (469,712)
(Increase) decrease in loans held for sale (136,378) 1,977,753 (3,542,315)
(Increase) decrease in accrued interest
receivable (555,447) (293,586) 68,096
(Increase) decrease in prepaid expenses
and other assets (82,801) 4,015 (83,430)
Decrease (increase) in income taxes receivable -- 66,967 (14,153)
(Increase) decrease in deferred income taxes, net 88,698 (47,117) 8,815
Increase in accrued expenses and other liabilities 100,267 410,846 294,649
Increase (decrease) in accrued interest payable 306,754 66,288 (79,843)
Increase in income taxes payable 106,180 67,166 --
Cumulative effect of change in accounting
principle -- -- (460,000)
------------ ------------ ------------
Net cash provided by (used in) operating
activities 2,251,897 4,350,680 (1,102,050)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales of investment securities -- 5,054,803 14,356,983
Proceeds from maturities and paydowns of
investment securities 11,487,957 3,286,563 6,267,924
Purchase of investment securities (41,523,131) (11,465,093) (28,395,321)
Proceeds from sales of real estate acquired by
foreclosure 50,336 135,214 234,665
Net (increase) decrease in loans, net of chargeoffs (3,047,442) (27,529,059) 631,197
Additions to premises and equipment, net (1,561,532) (298,822) (1,048,753)
------------ ------------ ------------
Net cash used in investing activities (34,593,812) (30,816,394) (7,953,305)
------------ ------------ ------------
Cash flows from financing activities
Net increase (decrease) in deposits 62,138,110 12,811,110 (2,261,680)
Net increase (decrease) in short-term borrowings (12,637,247) 12,393,325 3,645,865
Net increase (decrease) in escrow deposits of
borrowers (16,621) 160,898 (6,222)
Cash dividends declared on common stock (433,068) (393,698) (314,958)
Net proceeds from exercise of stock options 12,100 -- --
------------ ------------ ------------
Net cash provided by financing activities 49,063,274 24,971,635 1,063,005
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 16,721,359 (1,494,079) (7,992,350)
Cash and cash equivalents at beginning of year 8,441,033 9,935,112 17,927,462
------------ ------------ ------------
Cash and cash equivalents at end of year $ 25,162,392 8,441,033 9,935,112
============ ============ ============
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows CONTINUED
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Supplemental financial data:
Cash paid for:
Interest on deposits and short-term borrowings $ 5,354,544 2,903,444 2,926,910
Income taxes 890,000 736,599 465,458
Transfers from loans to real estate acquired by foreclosure 77,721 - 634,501
See accompanying notes to consolidated financial statements.
</TABLE>
35
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Enterprise Bank and Trust Company is a Massachusetts trust company which
commenced banking operations on January 3, 1989. The bank's main office is at
222 Merrimack Street in Lowell, Massachusetts. The bank began offering trust
services in June of 1992. A branch office was opened in Chelmsford,
Massachusetts in June of 1993. A branch office was opened in Leominster,
Massachusetts in May of 1995 and a branch office was opened in Billerica,
Massachusetts in June of 1995. The bank's deposit-gathering and lending
activities are conducted primarily in Lowell and the surrounding Massachusetts
towns of Billerica, Chelmsford, Dracut, Tewksbury, Tyngsboro, Westford and
Leominster. The bank offers a range of commercial and consumer services with a
goal of satisfying the needs of consumers, small and medium-sized businesses and
professionals.
The bank's deposit accounts are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
provided by law. The FDIC and the Massachusetts Commissioner of Banks (the
"Commissioner") have regulatory authority over the bank.
(a) Basis of Presentation
The consolidated financial statements include the accounts of Enterprise Bank
and Trust Company and its wholly owned subsidiary, Enterprise Securities
Corporation, Inc., which was incorporated on March 1, 1991. These entities
collectively hereinafter are referred to as the "bank." All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accounting and reporting policies of the bank conform to generally accepted
accounting principles and to prevailing practices within the banking industry.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported values of assets and liabilities at the
balance sheet date and income and expenses for the years. Actual results,
particularly regarding the estimate of the allowance for possible loan losses
may differ significantly from these estimates.
(b) Investment Securities
Effective December 31, 1993, the bank adopted the provisions of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Investment securities that are intended to be held
for indefinite periods of time but which may not be held to maturity or on a
long-term basis are considered to be "available for sale" and are carried at
market value. Net unrealized gains and losses, net of applicable income taxes,
are reflected as a component of stockholders' equity. Included as available for
sale are securities that are purchased in connection with the bank's
asset/liability risk management strategy and that may be sold in response to
changes in interest rates, resultant prepayment risk and other related factors.
In instances where the bank has the positive intent to hold to maturity,
investment securities will be classified as held for investment and carried at
amortized cost. At December 31, 1995 and 1994, all of the bank's investment
securities were classified as available for sale and carried at market value. At
December 31, 1995, the net unrealized gain of $263,811, net of the related tax
effects of $111,539, is shown as an addition to stockholders' equity in the
amount of $152,272.
36
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Investment securities discounts are accreted and premiums are amortized over the
period of estimated principal repayment using methods which approximate the
interest method.
Gains or losses on the sale of investment securities are recognized at the time
of sale on a specific identification basis.
(c) Loans
Loans are reported at the principal amount outstanding, net of deferred
origination fees and costs. Loan origination fees received are offset with
direct loan origination costs and are deferred and amortized over the life of
the related loans using the level-yield method or, are recognized in income when
the related loans are sold or paid off.
Loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full and timely collection of interest or
principal, or generally when a loan becomes contractually past due by 60 days or
a mortgage loan becomes contractually past due by 90 days with respect to
interest or principal. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current period interest
income. Interest accruals are resumed on such loans only when payments are
brought current and when, in the judgment of management, the collectibility of
both principal and interest is reasonably assured. Payments received on loans in
a nonaccrual status are generally applied to principal.
Loans on which the bank has granted, for economic or legal reasons related to
the borrowers financial difficulties, a concession that the bank would not
otherwise consider are designated as restructured loans. Such loans remain
designated as restructured loans for at least twelve months, until the borrower
has maintained a satisfactory payment history and until the interest rate is
equal to or greater than the rate the bank was willing to accept at the time of
the restructure for a new receivable with comparable risk. Interest income on
restructured loans is accrued at the reduced renegotiated rate.
Mortgage loans held for sale are carried at the lower of aggregate amortized
cost or market value, giving consideration to commitments to originate
additional loans and commitments to sell loans. When loans are sold, a gain or
loss is recognized to the extent that the sales proceeds exceed or are less than
the carrying value of the loans. Gains and losses are determined using the
specific identification method.
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan", which was amended in
October 1994 by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosure." The Statements generally require all
creditors to account for impaired loans, except those loans that are accounted
for at fair value or at lower of cost or fair value, at the present value of the
expected future cash flows discounted at the loan's effective interest rate.
These Statements apply to all creditors and all loans, uncollateralized as well
as collateralized, except large groups of smaller-balance homogeneous loans that
are collectively evaluated for impairment, loans that are measured at fair value
and leases and debt securities as defined in SFAS No. 115. Management considers
the payment status, net worth and earnings potential of the borrower, and the
value and cash flow of the collateral as factors to determine if a loan will be
paid in accordance with its contractual terms. Management does not set any
minimum delay of payments as a factor in reviewing for impaired classification.
Impaired loans are charged-off when management believes that the collectibility
of the loan's principal is remote. In addition, criteria for classification of a
loan as in-substance foreclosure has been modified so that such classification
need be made only when a lender is in possession of the collateral. These
Statements also require impairment of troubled debt restructurings to be
measured using the pre-modification rate of interest. The bank adopted these
Statements on January 1, 1995.
In May 1994, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights", which amends SFAS No. 65, "Accounting for Certain Mortgage Banking
Activities". The Statement is effective for fiscal years beginning after
December 15, 1995; however, early adoption is permitted. The Statement requires
that a mortgage banking enterprise recognize as separate assets, rights to
service mortgage loans for others, regardless of how those servicing rights are
acquired. Additionally, the Statement requires that the capitalized mortgage
servicing rights be assessed for impairment based on the fair value of those
rights, and that impairment be recognized through a valuation allowance. The
bank adopted this statement on January 1, 1996. The impact of adoption of the
Statement on the bank will be dependent on residential mortgage sales volume.
37
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(d) Allowance for Possible Loan Losses
The allowance for possible loan losses is established through a provision for
possible loan losses charged to operations. Loan losses are charged against the
allowance when management believes that the collectibility of the loan principal
is unlikely. Recoveries on loans previously charged-off are credited to the
allowance.
The determination of the adequacy of the allowance is based upon management's
assessment of risk elements in the portfolio, factors affecting loan quality,
and assumptions about the economic environment in which the bank operates. The
process includes identification and analysis of loss potential in various
portfolio segments utilizing a credit risk grading process and specific reviews
and evaluations of significant individual problem loans. In addition, management
reviews overall portfolio quality through an analysis of current levels and
trends in charge-offs, delinquency and nonperforming loan data, peer group data,
forecasts of economic conditions and the overall banking environment. These
reviews are dependent upon estimates, appraisals, and judgments, which can
change quickly because of changing economic conditions and the bank's perception
as to how these conditions affect the debtors' economic prospects.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the bank's allowance for possible loan losses. Such agencies may require the
bank to recognize additions to the allowance based on judgments different from
those of management.
(e) Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives of the related
asset categories as follows:
Buildings and leasehold improvements 10 years
Computer software and equipment 3 to 5 years
Furniture, fixtures and equipment 3 to 5 years
(f) Real Estate Acquired by Foreclosure
Real estate acquired by foreclosure is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Real
estate formally acquired in settlement of loans is initially recorded at the
lower of the carrying value of the loan or the fair value of the property
constructively or actually received less estimated selling costs. Loan losses
arising from the acquisition of such properties are charged against the
allowance for possible loan losses. Operating expenses and any subsequent
provisions to reduce the carrying value to net fair value are charged to real
estate operations in the current period. Gains and losses upon disposition are
reflected in earnings as realized.
(g) Income Taxes
Effective January 1, 1993, the bank began using the asset and liability method
of accounting for income taxes.
Under this method deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities will be adjusted
accordingly through the provision for income taxes.
(h) Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation," which became effective on January 1,
1996. This Statement establishes a fair value based method of accounting for
stock-based compensation plans under which compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period.
38
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
However, the Statement allows a bank to continue to measure compensation cost
for such plans under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Under APB Opinion No.25, no
compensation cost is recorded if, at the grant date, the exercise price of the
options is equal to the fair market value of the bank's common stock. The bank
has elected to continue to follow the accounting in APB Opinion No. 25 and to
disclose in the notes to its financial statements the pro forma net income and
earnings per share as if the fair value based method of accounting had been
applied.
(i) Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and daily federal funds sold.
(j) Trust Assets
Securities and other property held in a fiduciary or agency capacity are not
included in the consolidated balance sheets because they are not assets of the
bank. Trust assets under management at December 31, 1995 and 1994 totalled
$106,342,490 and $96,296,187, respectively. Income from trust activities is
reported on an accrual basis.
(2) INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities at
December 31, are summarized as follows:
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------------
Amortized Unrealized Unrealized Market
cost gains loss value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. agency obligations $37,322,750 253,678 296,351 37,280,077
U.S. treasury obligations 16,151,314 215,674 -- 16,366,988
U.S. agency morgage-backed securities 11,042,750 81,690 151,974 10,972,466
Municipal obligations 9,809,137 223,716 33,528 9,999,325
Privately-issued mortgage-backed
securities collateralized by U.S.
agency mortgage-backed obligations
1,261,427 - 29,094 1,232,333
---------- --------- --------- ----------
Total bonds and obligations 75,587,378 774,758 510,947 75,851,189
Federal Home Loan Bank stock, at cost 2,961,300 - - 2,961,300
---------- --------- --------- ----------
Total investment securities $78,548,678 774,758 510,947 78,812,489
========== ========= ======= ==========
<CAPTION>
1994
---------------------------------------------------------------------
Amortized Unrealized Unrealized Market
cost gains loss value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. agency obligations $23,953,833 17,993 1,429,420 22,542,406
U.S. agency morgage-backed securities 11,596,674 6,696 915,484 10,687,886
Municipal obligations 9,389,336 11,531 427,428 8,973,439
Privately-issued mortgage-backed
securities collateralized by U.S.
agency mortgage-backed obligations
1,497,652 - 48,450 1,449,202
---------- --------- --------- ----------
Total bonds and obligations 46,437,495 36,220 2,820,782 43,652,933
Federal Home Loan Bank stock, at cost 2,086,700 - - 2,086,700
---------- --------- --------- ----------
Total investment securities $48,524,195 36,220 2,820,782 45,739,633
========== ========= ========= ==========
</TABLE>
39
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
At December 31, 1995, securities with a market value of $8,383,258 were pledged
as collateral for short-term borrowings (Note 8) and securities with a book
value of $2,013,680 were pledged as collateral for treasury, tax and loan
deposits. At December 31, 1994, securities with a book value of $11,442,175 were
pledged as collateral for short-term borrowings (Note 8) and securities with a
book value of $2,000,000 were pledged as collateral for treasury, tax and loan
deposits.
The contractual maturity distribution of total bonds and obligations at December
31, is as follows:
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------------
Amortized Market
Cost Percent Value Percent
------------ ------- ----------- -------
<S> <C> <C> <C> <C>
Within one year $ 1,501,905 2% 1,519,688 2%
After one but within three years 16,006,226 21 15,946,347 21
After three but within five years 25,789,153 34 25,967,476 34
After five but within ten years 13,448,951 18 13,719,602 18
After ten years 18,841,143 25 18,698,076 25
------------ ---- ---------- ----
$ 75,587,378 100% 75,851,189 100%
============ ==== ========== ====
<CAPTION>
1994
------------------------------------------------------------------------
Amortized Market
Cost Percent Value Percent
------------ ------- ----------- -------
<S> <C> <C> <C> <C>
Within one year $ 256,713 1% 254,613 1%
After one but within three years 3,647,009 8 3,590,941 8
After three but within five years 15,833,820 34 14,737,304 34
After five but within ten years 10,978,077 23 10,286,958 23
After ten years 15,721,876 34 14,783,117 34
------------ ---- ---------- ----
$ 46,437,495 100% 43,652,933 100%
============ ==== ========== ====
</TABLE>
Mortgage-backed securities are shown at their final maturity but are expected to
have shorter average lives due to principal repayments. U.S. agency obligations
are shown at their final maturity but are expected to have shorter lives because
issuers of certain bonds reservethe right to call or prepay the obligations
without call or prepayment penalties and certain U.S. agency lives may be
shorter based on mortgage prepayment rates.
Sales of investment securities for the years ended December 31, 1995, 1994, and
1993 are summarized as follows:
1995 1994 1993
-------- ------- -------
Book value of securities sold $ -- 5,006,876 13,887,271
Gross realized gains on sales -- 97,201 469,712
Gross realized loss on sales -- (49,274) --
---------- ---------- ----------
Total proceeds from sales of
investment securities $ -- $5,054,803 14,356,983
========== ========== ==========
40
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(3) LOANS AND LOANS HELD FOR SALE
Major classifications of loans and loans held for sale at December 31, are as
follows:
1995 1994
----------- ------------
Real estate:
Commercial $42,513,631 40,267,101
Construction 5,843,646 5,930,314
Residential 31,017,230 32,029,077
Residential loans held for sale 1,855,340 1,718,962
----------- ----------
Total real estate 81,229,847 79,945,454
Commercial 28,353,099 25,980,002
Consumer 3,378,891 3,542,902
Home equity 5,249,773 5,877,287
----------- ----------
Total loans 118,211,610 115,345,645
Deferred loan origination fees (549,398) (554,987)
Allowance for possible loan losses (4,106,659) (4,341,204)
----------- ----------
Net loans and loans held for sale $113,555,553 110,449,454
============ ===========
Directors, officers, principal stockholders and their associates are credit
customers of the bank in the normal course of business. All loans and
commitments included in such transactions are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unaffiliated persons and do not involve more
than a normal risk of collectibility or present other unfavorable features. As
of December 31, 1995, and 1994, the aggregate total of all lines of credit and
outstanding loans to directors and officers of the bank and their associates was
$3,591,278 and $4,049,554, respectively, of which $2,934,907 and $3,248,145,
respectively, constituted outstanding indebtedness. During fiscal 1995, new
loans of $51,564 were made and principal paydowns of $364,802 were received. All
loans to these related parties are current.
At December 31, 1995, 1994 and 1993, the bank was not accruing interest on loans
having an outstanding balance of $2,021,484, $1,870,665, and $1,895,253,
respectively. Also, the bank was accruing interest at a reduced rate on
restructured loans having an outstanding balance of $0, $741,604, and $779,150
at December 31, 1995, 1994 and 1993, respectively. There were no commitments to
lend additional funds to those borrowers whose loans were classified as
restructured or nonaccrual at December 31, 1995, 1994 and 1993. The reduction in
interest income for the years ended December 31 associated with nonaccruing and
reduced rate loans is summarized as follows:
1995 1994 1993
--------- -------- --------
Income in accordance with original loan terms $ 316,462 328,897 244,262
Income recognized 90,371 162,581 61,259
--------- -------- --------
Reduction in interest income $ 226,091 166,316 183,003
========= ======== ========
41
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Nonaccrual and restructured loans at December 31, are summarized as follows:
1995 1994
------------ ----------
Nonaccrual:
Real estate $ 889,263 956,422
Commercial 586,442 565,703
Consumer, including home equity 545,779 348,540
------------ ----------
Total nonaccrual $ 2,021,484 1,870,665
============ ==========
Restructured:
Commercial $ - 741,604
------------ ----------
Total restructured $ - 741,604
============ ==========
The bank's lending activities are conducted principally in the Greater Lowell,
Massachusetts area and to a lesser extent, in Leominster and Fitchburg,
Massachusetts and the rest of eastern Massachusetts and southern New Hampshire.
The bank grants single family and multi-family residential loans, commercial
real estate loans, commercial loans and a variety of consumer loans. In
addition, the bank grants loans for the construction of residential homes,
multi-family properties, commercial real estate properties and for land
development. Most loans granted by the bank are collateralized by real estate
and/or guaranteed by the borrower. The ability and willingness of the single
family residential and consumer borrowers to honor their repayment commitments
is generally dependent on the level of overall economic activity and real estate
values within the borrowers' geographic areas. The ability and willingness of
commercial real estate, commercial and construction loan borrowers to honor
their repayment commitments is generally dependent on the health of the real
estate sector in the borrowers' geographic areas and the general economy.
Changes in the allowance for possible loan losses for the years ended December
31, are summarized as follows:
1995 1994 1993
------------ ----------- -----------
Balance at beginning of year $ 4,341,204 4,132,507 4,209,280
Provision charged to operations - - 1,030,000
Loan recoveries 170,468 264,312 25,342
Loans charged-off (405,013) (55,615) (1,132,115)
----------- --------- ----------
Balance at end of year $ 4,106,659 4,341,204 4,132,507
=========== ========= ==========
At December 31, 1995, 1994 and 1993 the bank was servicing mortgage loans sold
to investors amounting to $32,013,054, $28,431,684 and $13,824,387,
respectively.
42
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
At December 31, 1995, total impaired loans were $473,325. In the opinion of
management, loans with a book value of $205,676 required specific reseves of
$25,676. All of the $473,325 of impaired loans have been measured using the fair
value of the collateral method. During the year ended December 31, 1995, the
average recorded value of impaired loans was $528,968. No interest income was
recognized on the loans once they were deemed impaired. All payments received on
impaired loans are applied to principal.
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, are summarized as follows:
1995 1994
---------- ----------
Land $ 170,906 69,116
Buildings and leasehold improvements 2,214,988 1,527,605
Computer software and equipment 1,701,590 1,363,142
Furniture, fixtures and equipment 1,366,301 932,390
---------- ----------
5,453,785 3,892,253
Less accumulated depreciation and amortization (2,990,193) (2,342,496)
---------- ----------
$2,463,592 1,549,757
========== ==========
The bank is obligated under various non-cancellable operating leases, some of
which provide for periodic adjustments. At December 31, 1995 minimum lease
payments for these operating leases were as follows:
Payable in
1996 $211,529
1997 196,947
1998 184,276
1999 177,940
2000 34,746
Later years -
--------
Total minimum lease payments $805,438
========
Total rent expense for the years ended December 31, 1995, 1994 and 1993 amounted
to $197,532, $179,560, and $157,960, respectively.
(5) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following at December 31:
1995 1994
---------- ----------
Investments $1,006,950 615,066
Loans and loans held for sale 816,129 652,566
---------- ----------
$1,823,079 1,267,632
========== ==========
43
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(6) REAL ESTATE ACQUIRED BY FORECLOSURE
Real estate acquired by foreclosure includes commercial real estate of $417,172
and $389,787 at December 31, 1995 and 1994, respectively.
An analysis of real estate acquired by foreclosure for the years ended December
31, is as follows:
1995 1994
------------- -------------
Balance at beginning of year $ 389,787 525,001
Foreclosures 77,721 --
Sales proceeds and principal repayments,
net of gain/loss on sale (50,336) (135,214)
------------- -------------
Balance at end of year $ 417,172 $ 389,787
============= =============
(7) DEPOSITS
Deposits at December 31, are summarized as follows:
1995 1994
------------- -------------
Demand deposits $ 32,754,037 26,297,674
Savings 15,320,337 14,977,878
NOW accounts 40,777,416 33,369,963
Money market accounts 21,197,102 20,407,388
Time deposits less than $100,000 59,717,943 24,299,183
Time deposits of $100,000 or more 26,249,908 14,596,547
------------- -------------
$ 196,016,743 133,878,633
============= =============
Interest expense on time deposits with balances of $100,000 or more
amounted to $912,651
The following table shows the schedule maturities of time deposits with balances
less than $100,000 at December 31:
1995 1994
------------- -------------
Due less than three months $11,310,414 8,633,648
Due in over three through twelve months 30,027,130 9,391,354
Due in twelve months through thirty months 18,380,399 6,204,181
----------- -----------
$59,717,943 $24,229,183
=========== ===========
44
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The following table shows the scheduled maturities of time deposits with
balances of $100,000 or more at December 31:
1995 1994
----------- ----------
Due in less than three months $14,991,490 10,048,610
Due in over three through twelve months 7,483,103 4,019,375
Due in twelve months through thirty months 3,775,315 528,562
----------- ----------
$26,249,908 14,596,547
=========== ==========
(8) SHORT-TERM BORROWINGS
Borrowed funds at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------- ------------------------
Average Average
Amount Rate Amount Rate
----------- --------- --------- --------
<S> <C> <C> <C> <C>
Securities sold under agreements to
repurchase, due on demand $ 6,981,783 3.70% 6,386,030 3.52%
Federal Home Loan Bank of Boston
borrowings - - 13,233,000 6.33
----------- ----------
$ 6,981,783 3.70% 19,619,030 5.43%
=========== ==========
</TABLE>
Securities sold under agreements to repurchase are collateralized by investment
securities with an amortized cost and a market value of $8,481,564 and
$8,383,258 at December 31, 1995, respectively, and $11,442,175 and $10,749,349
at December 31, 1994, respectively. During the year ended December 31, 1995,
securities sold under agreements to repurchase averaged $6,762,721, the maximum
amount outstanding at any month-end was $9,450,641, and the weighted average
cost was 4.05%. During the year ended December 31, 1994, securities sold under
agreements to repurchase averaged $5,946,644, the maximum amount outstanding at
any month-end was $8,717,055, and the weighted average cost was 2.50%. The
securities underlying the agreements are under the bank's control.
The bank became a member of the Federal Home Loan Bank of Boston ("FHLB") in
March 1994. There were no outstanding advances at December 31, 1995.
As a member of the FHLB, the bank has access to a pre-approved overnight line of
credit for up to 5% of its total assets and above that the capacity to borrow an
amount up to the value of its qualified collateral, as defined by the FHLB. At
December 31, 1995, the bank had the capacity to borrow up to approximately
$74,470,401 from the FHLB.
45
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(9) STOCKHOLDERS' EQUITY
Federal Deposit Insurance Corporation ("FDIC") regulations generally require the
bank to maintain capital equal to 4.00% of assets (leverage capital), risk-based
capital equal to 8.00% of risk-weighted assets and capital equal to 4.00% of
risk-weighted assets (Tier I capital). Risk-based capital includes capital plus
general valuation allowances up to 1.25% of risk-weighted assets. The bank met
all regulatory capital requirements at December 31, 1995. Holders of Class A
Common Stock are entitled to one vote per share, and are entitled to receive
dividends if and when declared by the board of directors. Dividend and
liquidation rights of the Class A Common Stock may be subject to the rights of
any outstanding Preferred Stock.
(10) STOCK OPTION PLAN
The board of directors adopted a 1988 Stock Option Plan (the "1988 plan") which
was approved by the shareholders of the bank in 1989. The 1988 plan permits the
board of directors to grant both incentive and non-qualified stock options to
officers and full-time employees for the purchase of up to 153,902 shares of
Class A Common Stock. Any shares of Class A Common Stock issued pursuant to the
1988 plan which are returned to the bank will be available for future issuance.
Under the terms of the 1988 plan, incentive stock options may not be granted at
less than 100% of the fair market value of the shares on the date of grant and
may not have a term of more than ten years. For participants owning 10% or more
of the bank's outstanding Class A Common Stock, such options may not be granted
at less than 110% of the fair market value of the shares on the date of grant.
Fair market value is considered to be the price of the most recent stock trade.
Class A Common Stock reserved for issuance of shares under the 1988 plan is
153,902 shares.
All options granted thus far are exercisable at the rate of 25% a year and all
such options expire 10 years from the date of grant. All options granted thus
far are categorized as incentive stock options. Stock option transactions are
summarized as follows:
Weighted
average option
Number of options price per share
----------------- ----------------
Options outstanding at December 31, 1993 78,200 $11.03
Granted in 1994 1,600 12.00
Expired in 1994 (1,700) 11.29
-------
Options outstanding at December 31, 1994 78,100 11.04
Granted in 1995 25,650 13.50
Expired in 1995 (600) 12.00
Exercised in 1995 (1,100) 11.00
-------
Options outstanding at December 31, 1995 102,050 $11.65
=======
At December 31, 1995, 74,650 shares were exercisable and 50,752 shares remained
available for future grants.
46
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(11) EMPLOYEE BENEFIT PLAN
The bank has a 401(k) defined-contribution employee benefit plan. The 401(k)
plan allows eligible employees to contribute a base percentage, plus a
supplemental percentage, of their pre-tax earnings to the plan. A portion of the
base percentage, as determined by the board of directors, is matched by the
bank. No bank contributions are made for supplemental contributions made by
participants. The percentage for the 1995, 1994 and 1993 calendar years was 50%
up to the first 6% contributed by the employee. The bank's expense for the
401(k) plan match for the years ended December 31, 1995, 1994 and 1993 was
$91,806, $81,719 and $68,959, respectively.
Employees working a minimum of 20 hours per week and at least 21 years of age
are immediately eligible to participate. Vesting for the bank's 401(k) plan
contribution is based on years of service with participants becoming 20% vested
after 3 years of service, increasing pro-rata to 100% vesting after 7 years of
service. Amounts not distributable to an employee following termination of
employment are allocated to the participants.
(12) INCOME TAXES
The components of income tax expense for the years ended December 31, calculated
using the asset and liability method are as follows:
1995 1994 1993
------ ------ -----
Current tax expense:
Federal $ 733,331 649,122 380,559
State 262,849 221,809 82,819
----------- ----------- -----------
Total current tax expense 966,180 870,931 463,378
----------- ----------- -----------
Deferred tax expense (benefit):
Federal (11,839) (33,141) (6,163)
State 100,537 (13,976) 14,978
----------- ----------- -----------
Total deferred tax expense
(benefit) 88,698 (47,117) 8,815
----------- ----------- -----------
Total income tax expense $ 1,084,878 823,814 472,193
=========== =========== ===========
47
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The components of income taxes receivable and deferred income taxes receivable,
net at December 31, are as follows:
1995 1994
------ ------
Income taxes payable:
Federal $ 149,660 67,166
State 23,686 --
---------- ----------
173,346 67,166
---------- ----------
Deferred income taxes receivable, net:
Federal 1,298,297 2,193,014
State 441,973 924,806
---------- ----------
$1,740,270 3,117,820
========== ==========
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate (34%) as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Computed income tax expense $ 969,379 34.0% $ 792,890 34.0% $ 509,535 34.0%
at statutory rate
State income taxes, net of 239,835 8.4 138,175 5.9 64,546 4.3
federal tax benefit
Municipal bond interest (138,790) (4.8) (140,338) (6.0) (110,191) (7.4)
Other 14,454 .5 33,087 1.4 8,303 .6
----------- ---- ----------- ---- ----------- ----
Income tax expense $ 1,084,878 38.1% $ 823,814 35.3% $ 472,193 31.5%
----------- ---- ----------- ---- ----------- ----
</TABLE>
Income tax expense has increased to reflect the adjustment to the deferred tax
asset for the tax impact of the Massachusetts tax rate reduction as part of the
Bank Tax Reform law signed by the Governor of Massachusetts on July 27, 1995.
48
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
At December 31, 1995 and December 31, 1994, the tax effects of each type of
income and expense item that give rise to deferred taxes are:
1995 1994
----------- ----------
Deferred tax asset:
Allowance for possible loan losses $ 1,451,580 1,523,457
Depreciation 199,278 170,591
Deferred loan fees 39,975 67,024
Net unrealized loss on investment securities - 1,177,313
Other 160,976 179,435
----------- ----------
Total 1,851,809 3,117,820
Deferred tax liability:
Net unrealized gain on investment securities 111,539 -
----------- ----------
Net deferred tax asset $ 1,740,270 3,117,820
=========== ==========
At December 31, 1995, the net Federal deferred tax asset of $1,298,297 is
supported by recoverable income taxes of approximately $1,668,191. The bank
needs to generate approximately $4,209,267 of future net taxable income to
realize the state deferred tax asset of $441,973 as of December 31, 1995. There
was no valuation allowance for the deferred tax asset at December 31, 1995 and
1994. Management believes that the net deferred income tax asset at December 31,
1995 is an amount that will more likely than not be realized.
It should be noted, however, that factors beyond management's control, such as
the general state of the economy and real estate values, can affect future
levels of taxable income and that no assurance can be given that sufficient
taxable income will be generated to fully absorb gross deductible temporary
differences.
(13) RELATED PARTY TRANSACTIONS
The bank's offices in Lowell, Massachusetts, are leased from realty trusts, the
beneficiaries of which are various bank officers and directors. The maximum
remaining term of the leases including options is for 13 years.
Total amounts paid to the realty trusts including operating lease payments,
parking, common area charges and other related lease costs for the years ended
December 31, 1995, 1994 and 1993 were $221,383, $203,348 and $161,645,
respectively.
(14) COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to originate loans, standby letters of
credit and unadvanced lines of credit. The instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
balance sheets. The contract amounts of those instruments reflect the extent of
involvement the bank has in the particular classes of financial instruments.
The bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments and standby letters of
credit is represented by the contractual amounts of those instruments. The bank
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
49
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Financial instruments with off-balance sheet credit risk at December 31, 1995
and 1994, are as follows:
1995 1996
---------- ----------
Commitments to originate loans $7,946,570 5,801,169
Standby letters of credit 3,341,927 2,732,535
Unadvanced portions of consumer loans (including
credit card loans) 2,902,842 2,599,228
Unadvanced portions of construction loans 2,863,282 2,485,143
Unadvanced portions of home equity loans 3,715,526 3,267,641
Unadvanced portions of commercial lines of credit 14,387,535 10,789,689
Commitments to originate loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the bank upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral held varies, but may include
secured interests in mortgages, accounts receivable, inventory, property, plant
and equipment and income-producing properties.
Standby letters of credit are conditional commitments issued by the bank to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The bank originates residential mortgage loans under agreements to
sell such loans, servicing retained and servicing released. At December 31, 1995
and 1994, the bank had commitments to sell loans totalling $984,150 and
$1,089,000, respectively.
The bank manages its loan portfolio to avoid concentration by industry or loan
size to minimize its credit exposure. Commercial loans may be collateralized by
the assets underlying the borrower's business such as accounts receivable,
equipment, inventory and real property. Residential mortgage and home equity
loans are secured by the real property financed. Consumer loans such as
installment loans are generally secured by the personal property financed.
Credit card loans are generally unsecured. Commercial real estate loans are
generally secured by the underlying real property and rental agreements.
As a nonmember of the Federal Reserve System, the bank is required to maintain
in reserve certain amounts of vault cash and/or deposits with the Federal
Reserve Bank of Boston. The amount of this reserve requirement, included in
"Cash and Due from Banks," was approximately $2,686,000 at December 31, 1995,
and approximately $1,998,000 at December 31, 1994.
The bank is involved in various legal proceedings incidental to its business.
After review with legal counsel, management does not believe resolution of any
present litigation will have a material adverse effect on the financial
condition or results of operations of the bank.
50
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
15) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the bank in estimating fair
values of its financial instruments:
The respective carrying values of certain financial instruments approximated
their fair value as they were short-term in nature or payable on demand. These
include cash and due from banks, daily federal funds sold, accrued interest
receivable, repurchase agreements, accrued interest payable and non-certificate
deposit accounts.
Investments: Fair values for investments were based on quoted market prices,
where available. If quoted market prices were not available, fair values were
based on quoted market prices of comparable instruments.
FHLB stock: The carrying amount reported in the
consolidated balance sheet approximates fair value. If the stock is redeemed,
the bank will receive an amount equal to the par value of the stock.
Loans: The fair value of loans was determined using discounted cash flow
analysis, using interest rates currently being offered by the bank. The
incremental credit risk for nonaccrual loans was considered in the determination
of the fair value of the loans.
The fair values of the unused portion of lines of credit and letters of credit
were based on fees currently charged to enter into similar agreements and were
estimated to be the fees charged. Commitments to originate non-mortgage loans
were short-term and were at current market rates and estimated to have no fair
value.
Financial liabilities: The fair values of certificates of deposit were estimated
using discounted cash flow analysis using rates offered by the bank on December
31, 1995 for similar instruments.
Limitations: The estimates of fair value of financial instruments were based on
information available at December 31, 1995 and are not indicative of the fair
market value of those instruments at the date this report is published. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the bank's entire holdings of a particular financial
instrument. Because no market exists for a portion of the bank's financial
instruments, fair value estimates were based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates were based on existing on- and off-balance-sheet financial
instruments without an attempt to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include premises and equipment and
foreclosed real estate. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in any of the estimates.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the bank.
51
<PAGE>
ENTERPRISE BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Carrying Estimated
Amount Fair Value
-------------- -------------
Financial assets:
Cash and cash equivalents $ 25,162,392 25,162,392
Investment securities 75,851,189 75,851,189
Federal Home Loan Bank stock 2,961,300 2,961,300
Mortgage loans held for sale 1,855,340 1,855,732
Loans, net 111,700,213 115,175,081
Accrued interest receivable 1,823,079 1,823,079
Financial liabilities:
Non-interest bearing demand deposits 32,754,037 32,754,037
Savings, NOW and money market 77,294,855 77,294,855
Time certificates of deposit 85,967,851 86,474,481
Repurchase agreements 6,981,783 6,981,783
Escrow deposits of borrowers 377,824 377,824
Accrued interest payable 549,673 549,673
52
<PAGE>
CORPORATE INFORMATION
MAIN OFFICE AND TRUST DIVISION
Enterprise Bank and Trust Company
222 Merrimack Street
Lowell, MA 01852
Telephone: (508) 459-9000
Fax: (508) 441-9083
E-Mail: [email protected]
R/T: 011302742
BRANCH OFFICES
Billerica
674 Boston Road
Billerica, Massachusetts 01821
Telephone: (508) 262-0123
Fax: (508) 262-0101
Chelmsford
185 Littleton Road
Chelmsford, Massachusetts 01824
Telephone: (508) 442-5588
Fax: (508) 442-5581
Leominster
4 Central Street
Leominster, Massachusetts 01453
Telephone: (508) 534-7400
Fax: (508) 534-7444
Mortgage Lending Center
27 Palmer Street
Lowell, Massachusetts 01852
Telephone: (508) 459-9000
Fax: (508) 442-5520
INVESTOR RELATIONS/
STOCKHOLDER INQUIRIES/
TRANSFER AGENT/GENERAL INFORMATION
George L. Duncan
Chairman and Chief Executive Officer
222 Merrimack Street
Lowell, Massachusetts 01852
A copy of Enterprise Bank and Trust Company's Form F-2, filed with the Federal
Deposit Insurance Corporation, is available without charge upon written request
to Investor Relations.
COMMON STOCK/COMMON STOCK LISTING
The bank's stock does not trade on an exchange. As of March 1, 1996, there were
approximately 594 recordholders of the bank's Class A Common Stock.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, Massachusetts 02110
LEGAL COUNSEL
Philip S. Nyman
375 Gorham Street
Lowell, Massachusetts 01852
TRUST COUNSEL
George B. Leahey
16 Pine Street
Lowell, Massachusetts 01851
SPECIAL COUNSEL
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of Enterprise Bank and Trust Company stockholders will be
held at the Sheraton Inn Riverfront, 50 Warren Street, Lowell, Massachusetts on
May 7, 1996, at 4:00 p.m.
QUARTERLY COMMON STOCK INFORMATION
The following table sets forth for the fiscal periods indicated certain
information to the best of management's knowledge, with respect to the sales
transactions of the bank's Class A Common Stock.
Fiscal Year Trading Volume
1995:
First Quarter 5,000
Second Quarter 3,000
Third Quarter 550
Fourth Quarter 282
1994:
First Quarter 32,000
Second Quarter 2,200
Third Quarter 750
Fourth Quarter 23,240
1993:
First Quarter 1,422
Second Quarter 6,000
Third Quarter 7,400
Fourth Quarter 2,000
DIVIDEND INFORMATION
An annual dividend of 27.5 cents per share was paid on July 1, 1995.
An annual dividend of 25 cents per share was paid on July 1, 1994.
An annual dividend of 20 cents per share was paid on July 1, 1993.
An annual dividend of 10 cents per share was paid on July 1, 1992.
53
<PAGE>
OFFICERS
<TABLE>
<CAPTION>
MAIN OFFICE
<S> <C>
George L. Duncan David R. Nolan
Chairman/Chief Executive Officer/ Assistant Vice President/
Chief Investment Officer Commercial Lending Officer
Richard W. Main Helen F. Parent
President/Chief Operating Officer/ Asst. Vice President/Loan Operations
Chief Lending Officer Officer
Walter L. Armstrong Lisa M. Freeze
Executive Vice President/Business Development Auditor
Robert R. Gilman Todd A. Klibansky
Senior Vice President/Commercial Lending/ Controller
Human Resources Manager
John P. Clancy, Jr. Maria Lobao
Senior Vice President/Treasurer/Investment Manager/Chief Branch Manager
Information Officer
Stephen J. Irish Dale A. Marcy
Senior Vice President/Chief Information Officer Marketing Officer
Janice R. Villanucci Susan M. Callery
Senior vice President/Manager Customer Support Asst. Treasurer/Accounting Manager
Mary Ellen Fitzpatrick Darlene S. Hagan
Vice President/Business Development Assistant Operations Officer
Daniel G. Leahy Charles N. LaRock, Jr.
Vice President/Consumer Lending Assistant Loan Operations Officer
Barry W. Pearson Philip J. Ledoux
Vice President/Manager Credit Dept./ Assistant Operations Office
Compliance and Community Reinvestment Officer
William J. Collins, Jr. Brenda A. Richardson
Assistant Vice President/Commercial Lending Officer Assistant Branch Manager
Paul E. Rousseau
Assistant Operations Officer
Jeannette S. Watson
Assistant Human Resources Officer
BILLERICA OFFICE
Sandra A. Wilson Jerome J. Bonnabeau
Assistant Vice President/Branch Manager Assistant Vice President/Commercial
Lending Officer
CHELMSFORD OFFICE
Brian H. Bullock Mary Jane Santos
Senior Vice President/Commercial Lending Assistant vice President/ Commercial
Lending Officer
Clayton D. Mersereau, Jr. Mary Young Eberiel
Vice President/Commercial Lending Officer Branch Manager
54
<PAGE>
LEOMINSTER OFFICE
Steven L. Groccia Robert P. Gallo
Vice President/Commercial Lending, Leominster Administration Assistant Vice President/Commercial
Lending Officer
Anthony L. Piermarini Cheryl A. Gaudreau
Vice President/Commercial Lending Officer Branch Manager
TRUST DIVISION
D. Eric Thomson Paul V. Shaughnessy
Senior Vice President/Senior Trust Officer Vice President/Trust Officer
MORTGAGE CENTER
Diane J. Silva Cheryl. A. Taupier
Senior Vice President/Mortgage Lending Assistant Vice president/Mortgage Lending
Officer
Neila J. Arnold Meredith Boumil-Flynn
Director of Loan Operations Commercial Lending Officer
</TABLE>
55
<PAGE>
DIRECTORS
Kenneth S. Ansin
President, L.B. Evans' Company
Walter L. Armstrong
Executive Vice President/Business Development
Gerald G. Bousquet, M.D.
Partner in several health care facilities
Kathleen M. Bradley
Former owner, Westford Sports Center, Inc.
James F. Conway, III
President and Chief Executive Officer
Courier Corporation
Nancy L. Donahue
Chair of the Board of Trustees Merrimack Repertory Theatre
George L. Duncan
Chairman/Chief Executive Officer/Chief Investment Officer
Eric W. Hanson
Chairman of the Board and President D.J. Reardon Company, Inc.
John P. Harrington
Senior Vice President - Gas Supply, Colonial Gas Company
Arnold S. Lerner
Vice Chairman and Clerk of Enterprise Bank and Trust Company,
Partner in radio station WLLH, Lowell, and in several other radio
stations
Richard W. Main
President/Chief Operating Officer/Chief Lending Officer
Charles P. Sarantos
Chairman of the Board of Directors C&I Electrical Supply
Company, Inc.
Michael A. Spinelli
Assistant Clerk of Enterprise Bank and Trust Company Owner of
Merrimac Travel and action 6, Travel Network
HONORARY DIRECTOR
John M. Handley, Jr.
Retired owner of a chain of gift shops
56
<PAGE>
THE ENTERPRISE FAMILY
[Photograph]
Photo taken September of 1995, at Lowell, Massachusetts
<PAGE>
ENTERPRISE
BANK AND TRUST COMPANY
MAIN OFFICE AND TRUST DIVISION:
222 Merrimack Street, Lowell, MA 01852
Phone: (508) 459-9000
BRANCH OFFICES:
674 Boston Road, Billerica, MA 01821
Phone: (508) 262-0123
185 Littleton Road, Chelmsford, MA 01824
Phone: (508) 442-5588
4 Central Street, Leominster, MA 01453
Phone: (508) 534-7400
MORTGAGE CENTER:
27 Palmer Street, Lowell, MA 01852
Phone: (508) 459-9000
Member FDIC
