U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required] For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required] For the transition period from
_____________ to _______________
Commission file number 0-21021
Enterprise Bancorp, Inc.
(Name of small business issuer in its charter)
Massachusetts 04-3308902
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
222 Merrimack Street, Lowell, Massachusetts, 01852
(Address of principal executive offices) (Zip code)
(Issuer's telephone number, including area code) (978) 459-9000
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ..X.... No......
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year. $25,214,000
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $25,732,906 as of February 28, 1998
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: February 28, 1998, Common Stock - Par
Value $0.01: 1,580,217 shares outstanding
DOCUMENTS INCORPORATED BY REFERENCE
(1) any annual report to security holders; (2) any proxy or information
statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the
Securities Act of 1933 ("Securities Act"). Portions of the issuer's proxy
statement for its annual meeting of stockholders to be held on May 5, 1998 are
incorporated by reference in Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes .......... No X
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
TABLE OF CONTENTS
Page Number
<S> <C> <C>
PART I
Item 1 Description of Business 3
Item 2 Description of Property 16
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 18
Item 6 Management's Discussion and Analysis or Plan of Operation 19
Item 7 Financial Statements 27
Item 8 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 55
Part III
Item 9 Directors, Executive Officers, Promoters and Control Persons 55
Item 10 Executive Compensation 56
Item 11 Security Ownership of Certain Beneficial Owners and Management 56
Item 12 Certain Relationships and Related Transactions 56
Item 13 Exhibits List and Reports on Form 8-K 56
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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. Enterprise
Bancorp, Inc. (the "company") wishes to caution readers that the following
important factors, among others, may have affected and could in the future
affect the company's results and could cause the company's results for
subsequent periods to differ materially from those expressed in any
forward-looking statement made herein: (i) the effect of changes in laws and
regulations, including federal and state banking laws and regulations, with
which the company or its subsidiaries must comply, and the associated costs of
compliance with such laws and regulations 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 company's organization, compensation and
benefit plans; (iii) the effect on the company's competitive position within its
market area of the increasing competition from larger regional and out-of-state
banking organizations as well as non-bank providers of various financial
services; (iv) the effect of unforeseen changes in interest rates; (v) the
effect of changes in the business cycle and downturns in the local, regional or
national economies; and (vi) the potential for the company to materially
underestimate the cost to be incurred and/or the time required in connection
with systems preparation for year 2000 compliance.
2
<PAGE>
PART I
Item 1. Description of Business
THE COMPANY
General
Enterprise Bancorp, Inc. (the "company") is a Massachusetts corporation, which
was organized on February 29, 1996, at the direction of Enterprise Bank and
Trust Company, a Massachusetts trust company (the "bank"), for the purpose of
becoming the holding company for the bank. On July 26, 1996, the bank became the
wholly owned subsidiary of the company and the former shareholders of the bank
became shareholders of the company. The business and operations of the company
are subject to the regulatory oversight of the Board of Governors of the Federal
Reserve System. To the extent that this report contains information as of a date
or for a period prior to July 26, 1996, such information pertains to the bank.
The company had no material assets or operations prior to completion of the
holding company reorganization on July 26, 1996.
Substantially all of the company's operations are conducted through the bank.
The bank is a Massachusetts trust company which commenced banking operations on
January 3, 1989. 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 company's headquarters and the bank's main office are located at 222
Merrimack Street in Lowell, Massachusetts. Additional branch offices are located
in the Massachusetts cities and towns of Chelmsford, Leominster, Billerica,
Tewksbury and Dracut. The bank's deposit gathering and lending activities are
conducted primarily in the city of Lowell and the surrounding Massachusetts
towns of Andover, Billerica, Chelmsford, Dracut, Tewksbury, Tyngsboro, and
Westford and in the cities of Leominster and Fitchburg. The bank offers a range
of commercial, consumer and trust services with a goal of satisfying the needs
of consumers, small and medium-sized businesses and professionals.
Lending
The bank specializes in lending to small and medium-sized businesses,
corporations, partnerships and individuals. Loans made by the bank to businesses
include commercial mortgage loans, loans guaranteed by the Small Business
Association (SBA), construction loans, revolving lines of credit, working
capital loans, equipment financing and letters of credit. Loans made by the bank
to individuals include residential mortgage loans, home equity loans,
residential construction loans, unsecured and secured personal lines of credit
and mortgage loans on investment and vacation properties.
At December 31, 1997, the bank had gross loans outstanding of $181.7 million,
which represented approximately 56.3% of the company's total assets. The
interest rates charged on these loans vary with the degree of risk, maturity and
amount, and are further subject to competitive pressures, market rates, the
availability of funds, and legal and regulatory requirements.
At December 31, 1997, the bank's statutory lending limit, based on 20% of
capital, to any single borrower was approximately $4.6 million, subject to
certain exceptions provided under applicable law. At December 31, 1997, the bank
had no outstanding lending relationships or commitments in excess of the legal
lending limit.
3
<PAGE>
The following table sets forth the loan balances for certain loan categories at
the dates indicated and the percentage of each category to total gross loans.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------ ---------------- ------------------ ----------------
($ in thousands) Amount % Amount % Amount % Amount % Amount %
--------- ------- --------- ------ -------- ------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Comm'l real estate $ 66,836 36.8% $ 52,378 36.1% $ 42,514 36.0% $ 40,267 34.9% $37,375 41.8%
Commercial 42,202 23.2% 38,202 26.3% 28,353 24.0% 25,980 22.5% 19,242 21.5%
Residential mortgages 42,648 23.5% 35,918 24.7% 32,872 27.8% 33,748 29.3% 18,119 20.2%
Home equity 12,203 6.7% 8,255 5.7% 5,250 4.4% 5,877 5.1% 6,276 7.0%
Construction 13,149 7.2% 6,474 4.4% 5,844 4.9% 5,930 5.1% 4,860 5.4%
Other 4,657 2.6% 4,043 2.8% 3,379 2.9% 3,543 3.1% 3,677 4.1%
-------- -------- -------- -------- -------
Gross loans 181,695 100.0% 145,270 100.0% 118,212 100.0% 115,345 100.0% 89,549 100.0%
Less: Deferred fees 1,111 950 549 555 518
Allowance for
loan losses 4,290 3,895 4,107 4,341 4,133
-------- -------- -------- -------- -------
Net loans $176,294 $140,425 $113,556 $110,449 $84,898
======== ======== ======== ======== =======
</TABLE>
Commercial, Commercial Real Estate and Construction Loans
The following table sets forth scheduled maturities of commercial, construction
and commercial real estate loans in the bank's portfolio at December 31, 1997.
Loans having no stated maturity are reported as due in one year or less. The
following table also sets forth the dollar amount of loans which are scheduled
to mature after one year which have fixed or adjustable rates.
<TABLE>
<CAPTION>
Commercial
($ in thousands) Commercial Construction Real Estate
- ---------------- ---------- ------------ -----------
<S> <C> <C> <C>
Amounts due:
One year or less $ 6,047 $10,883 $ 1,881
After one year through five years 14,106 1,732 3,967
Beyond five years 22,049 534 60,988
------- ------- -------
$42,202 $13,149 $66,836
======= ======= =======
Interest rate terms on amounts due after one year:
Fixed $ 6,149 $ 50 $ 9,686
Adjustable 30,006 2,216 55,269
</TABLE>
Scheduled contractual maturities may not reflect the actual maturities of loans.
The average maturity of loans is likely to be substantially shorter than their
contractual terms principally due to prepayments.
Commercial loans include working capital loans, equipment financing, standby
letters of credit, term loans and revolving lines of credit. Construction loans
include construction loans to both individuals and businesses. Included in
commercial loans are loans under various Small Business Administration programs
amounting to $5.0 million, $3.9 million, and $3.1 million as of December 31,
1997, 1996 and 1995, respectively.
Commercial, commercial real estate and construction loans secured by apartment
buildings, office facilities, shopping malls, raw land or other commercial
property, were $122.2 million at December 31, 1997, representing an increase of
$25.1 million, or 25.9%, from the previous year. This compares to an increase of
$20.3 million or 26.5% from 1995 to 1996. The growth in 1997 is a reflection of
the bank's continued aggressive customer-call efforts, additional lenders hired
during 1996 and 1997, an increase in marketing and advertising and increased
penetration in the markets surrounding the bank's newer branches.
4
<PAGE>
Commercial real estate lending may entail significant additional risks compared
to residential mortgage lending. Loan size is typically larger and payment
experience on such loans can be more easily influenced by adverse conditions in
the real estate market or in the economy in general. Construction financing
involves a higher degree of risk than long term financing on improved occupied
real estate. Property values at completion of construction or development can be
influenced by underestimation of the construction costs that are actually
expended to complete the project. Thus, the bank may be required to advance
funds beyond the original commitment in order to finish the development. If
projected cash flows to be derived from the loan collateral or the values of the
collateral prove to be inaccurate, for example because of unprojected additional
costs or slow unit sales, the collateral may have a value which is insufficient
to assure full repayment. Funds for construction projects are disbursed as
pre-specified stages of construction are completed.
Approximately 14% of loans in this category are at fixed rates while 86% have
adjustable features. Rates generally adjust based on changes in the prime rate
at various times during the loan's life.
The bank has an independent loan review function that assesses the compliance of
loan originations with the bank's internal policies and underwriting guidelines.
The bank also contracts with an external loan review company to review loans in
the loan portfolio, on a pre-determined schedule, based on the type, size,
rating, and overall risk of the loan. In addition, a loan review committee,
consisting of senior lending officers and loan review personnel, meets on a
periodic basis to discuss loans on the internal "watch list" and classified loan
report. The overdue loan review committee, consisting of seven members of the
board of directors (two of which are officers of the bank), also meets quarterly
to review and assess all loan delinquencies.
Residential Loans
The bank makes conventional mortgage loans on single family residential
properties with original loan-to-value ratios generally up to 95% of the
appraised value of the property securing the loan. These residential properties
serve as the primary homes of the borrowers. The bank also originates loans on
one to four family dwellings and loans for the construction of owner-occupied
residential housing, with original loan-to-value ratios generally up to 80% of
the property's appraised value.
Residential mortgage loans made by the bank have traditionally been long-term
loans made for periods of up to 30 years at either fixed or adjustable rates of
interest. Depending on the current interest rate environment, management
projections of future interest rates and a review of the asset/liability
position of the bank, management may elect to sell or hold for the bank's
portfolio fixed rate residential loan production. The bank generally sells all
fixed rate residential mortgage loans with maturities greater than 15 years. The
bank may retain or sell the servicing when selling the loans. The decision to
hold or sell new loan production is made in conjunction with the overall
asset/liability management program of the bank. Long-term fixed rate residential
mortgage loans are generally originated using underwriting standards and
standard documentation allowing their sale in the secondary market. All loans
sold are currently sold without recourse.
Residential mortgage loans were $42.6 million at December 31, 1997, representing
an increase of $6.7 million, or 18.7%, from the previous year. This compares to
an increase of $3.0 million, or 9.3%, in 1996, from the previous year. The
growth in 1997 is a reflection of an increase in loan volume combined with the
decision of the bank to hold in its portfolio a portion of 15 and 30 year
residential fixed rate mortgage loans originated.
5
<PAGE>
Home Equity Loans
Home equity loans are originated for the bank's portfolio for single family
residential properties with maximum original loan-to-value ratios generally up
to 80% of the appraised value of the property securing the loan. Home equity
loans generally have fixed interest rates for a period of one year and
subsequently adjust monthly based on changes in the prime rate.
Home equity loans were $12.2 million at December 31, 1997, representing an
increase of $3.9 million, or 47.8%, from the previous year. This compares to an
increase of $3.0 million, or 57.2%, in 1996 compared to the previous year. The
growth in 1996 and 1997 is a reflection of continued strong acceptance by
consumers of a competitive equity loan product introduced by the bank in 1996.
Other Loans
The category "Other Loans" consists of secured or unsecured personal loans,
credit cards and overdraft protection lines extended to individual customers.
Other loans were $4.7 million at December 31, 1997, representing an increase of
$.6 million or 15.2%, from the previous year. This compares to an increase of
$.7 million, or 19.7%, in 1996 compared to the previous year. The growth in 1997
is a result of the increased penetration in the markets surrounding the newer
branches and the general increase in relationships in more established markets.
Risk Elements
Non-performing assets consist of non-accruing loans, loans past due greater than
90 days and still accruing and other real estate owned ("OREO"). Loans on which
the accrual of interest has been discontinued, including impaired loans, are
designated as non-accrual 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. In certain instances, loans that have become
90 days past due may remain on accrual status if the value of the collateral
securing the loan is sufficient to cover principal and interest and the loan is
in the process of collection or if the principal and interest is guaranteed by
the federal government or an agency thereof. Other real estate owned consists of
real estate acquired through foreclosure proceedings and real estate acquired
through acceptance of a deed in lieu of foreclosure. Non-performing loans
include both non-accrual loans and loans past due 90 days or more but still
accruing. Loans in which management considers it probable that not all
contractual principal and interest will be collected are designated as impaired
loans.
Restructured loans are those where interest rates and/or principal payments have
been restructured to defer or reduce payments as a result of financial
difficulties of the borrower. Total restructured loans outstanding as of
December 31, 1997 and 1996 were $838,000, and $0, respectively. Accruing
restructured loans as of December 31, 1997 and 1996 were $260,000 and $0,
respectively.
Additional information regarding these risk elements is contained in Item 6,
Management Discussion and Analysis, and Item 7, Financial Statements, contained
in this report and the "Allowance for Loan Losses and OREO Activity" below.
6
<PAGE>
Allowance for Loan Losses and OREO Activity
<TABLE>
<CAPTION>
The following table summarizes the activity in the allowance for loan losses for
the periods indicated:
Years Ended December 31,
-----------------------------------------------------------
($ in thousands) 1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average loans outstanding $ 162,594 $ 128,572 $ 118,248 $ 98,033 $ 86,636
========= ========= ========= ========= =========
Balance at beginning of year $ 3,895 $ 4,107 $ 4,341 $ 4,133 $ 4,209
Charged-off loans:
Commercial 165 60 87 -- 496
Commercial real estate 125 112 265 7 558
Construction -- -- -- -- --
Residential mortgage -- -- 33 -- 57
Home equity -- 55 -- 41 --
Other 11 17 20 8 21
--------- --------- --------- --------- ---------
Total charged-off 301 244 405 56 1,132
--------- --------- --------- --------- ---------
Recoveries on loans previously charged-off:
Commercial 52 2 24 54 8
Commercial real estate 155 21 39 -- 3
Construction -- -- 1 185 --
Residential mortgage 2 1 100 5 3
Home equity 40 4 3 1 --
Other 127 4 4 19 12
--------- --------- --------- --------- ---------
Total recoveries 376 32 171 264 26
--------- --------- --------- --------- ---------
Net loans charged-off (recovered) (75) 212 234 (208) 1,106
Provision charged to income 320 -- -- -- 1,030
--------- --------- --------- --------- ---------
Balance at December 31 $ 4,290 $ 3,895 $ 4,107 $ 4,341 $ 4,133
========= ========= ========= ========= =========
Net loans charged-off (recovered) to
average loans (.05%) .16% .20% (.21%) 1.28%
Net loans charged-off (recovered) to
allowance for loan losses (1.75%) 5.44% 5.70% (4.79%) 26.76%
Allowance for loan losses to
ending gross loans 2.36% 2.68% 3.47% 3.76% 4.62%
Allowance for loan losses to
non-performing loans 384.06% 165.25% 202.02% 231.64% 217.99%
Recoveries to charge-offs 124.92% 13.11% 42.22% 471.43% 2.30%
</TABLE>
The following table represents the allocation of the bank's allowance for loan
losses and the percentage of loans in each category to total loans for the
periods ending as indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------ ---------------- ------------------ ----------------
($ in thousands) Amount % Amount % Amount % Amount % Amount %
--------- ------- --------- ------ -------- ------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 844 23.2% $ 723 26.3% $ 908 24.0% $1,067 22.5% $ 771 21.5%
Comm'l real estate 2,161 36.8% 2,171 36.1% 2,371 36.0% 2,411 34.9% 2,722 41.8%
Construction 338 7.2% 209 4.4% 143 4.9% 187 5.1% 194 5.4%
Residential mortgage 525 23.5% 372 24.7% 364 27.8% 365 29.3% 191 20.2%
Consumer 167 9.3% 244 8.5% 162 7.3% 138 8.2% 118 11.1%
Unallocated 255 176 159 173 137
------ ------ ------ ------ ------
Total $4,290 100.0% $3,895 100.0% $4,107 100.0% $4,341 100.0% $4,133 100.0%
====== ====== ====== ====== ======
</TABLE>
The allocation of the allowance for loan losses above reflects management's
judgment of the relative risks of the various categories of the bank's loan
portfolio. This allocation should not be considered an indication of the future
amounts or types of possible loan charge-offs.
7
<PAGE>
The following table sets forth information regarding non-performing assets,
restructured loans and delinquent loans 30-89 days past due as to interest or
principal, held by the bank at the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Non-accrual loans* $1,043 $2,237 $2,021 $1,871 $1,895
Accruing loans > 90 days past due 74 120 12 3 1
------ ------ ------ ------ ------
Total non-performing loans 1,117 2,357 2,033 1,874 1,896
Other real estate owned 393 83 417 390 525
------ ------ ------ ------ ------
Total non-performing assets $1,510 $2,440 $2,450 $2,264 $2,421
====== ====== ====== ====== ======
Restructured loans $ 260 $ -- $ -- $ 742 $ 779
Delinquent loans 30-89 days past due 2,074 2,280 2,356 534 680
Non-performing loans : Gross loans .61% 1.62% 1.72% 1.62% 2.12%
Non-performing assets : Total assets .47% 0.86% 1.09% 1.32% 1.65%
Delinquent loans 30-89 days past due :
Gross loans 1.14% 1.57% 1.99% 0.46% 0.76%
<FN>
* Impaired loans included in non-accrual loans as of December 31, 1997 and 1996 were $.9 million and $1.3 million, respectively.
</FN>
</TABLE>
Non-accrual loans decreased by $1.2 million, from $2.2 million at December 31,
1996, to $1.0 million at December 31, 1997. The reduction was primarily
attributable to a reduction in commercial real estate loans on non-accrual. The
level of non-performing assets is largely a function of economic conditions and
the overall banking environment, as well as the strength of the bank's loan
underwriting. Adverse changes in the local, regional and national economic
conditions could negatively impact this ratio in the future, despite prudent
loan underwriting.
Investment Activities
The investment activity of the bank is an integral part of the overall
asset/liability management program of the bank. The investment function provides
readily available funds to support loan growth as well as to meet withdrawals
and maturities of deposits and attempts to provide maximum return consistent
with liquidity constraints and general prudence, including diversity and safety
of investments. The securities in which the bank may invest are subject to
regulation and are limited to securities which are considered "investment grade"
securities. In addition, the bank has an internal investment policy which
restricts investments to the following categories: U.S. treasury securities,
U.S. government agencies, U.S. Agency mortgage-backed securities("MBSs") and
collateralized mortgage obligations ("CMOs"), Federal Home Loan Bank of Boston
("FHLB") stock, federal funds, and state, county, and municipal securities
("Municipals"), all of which must be considered investment grade by a recognized
rating service. The effect of changes in interest rates and resulting impact on
a CMO's principal repayment speed and the effect on yield are considered when
purchasing CMOs. Typically management purchases PAC CMOs or closely similar and
predictable structures to reduce the effect on expected yield and prepayment.
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
credit rating of each security or obligation in the portfolio is closely
monitored and reviewed at least annually by the bank's investment committee. See
note 2 to the consolidated financial statements in Item 7 for further
information.
8
<PAGE>
At December 31, 1997, 1996, and 1995 all investment securities were classified
as available for sale and were carried at fair value. The net unrealized gains
at December 31, 1997, net of tax effects, are shown as a separate component of
stockholders' equity in the amount of $.6 million. The following table
summarizes the fair value of investments at the dates indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------
($ in thousands) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
U.S. treasuries and agencies $ 82,831 $ 92,185 $ 53,648
CMOs and MBSs 12,464 11,760 10,972
Municipals 14,630 12,490 9,999
Privately-issued MBSs collateralized by U.S. agency
mortgage-backed
obligations -- -- 1,232
FHLB stock 2,961 2,961 2,961
-------- -------- --------
Total investments available-for-sale $112,886 $119,396 $ 78,812
======== ======== ========
</TABLE>
The contractual maturity distribution, as of December 31, 1997, of the total
bonds and obligations above with the weighted average yield for each category is
as follows:
<TABLE>
<CAPTION>
Under 1 Year 1 - 3 Years 3 - 5 Years 5 - 10 Years Over 10 Years
--------------- ----------------- --------------- -------------- ---------------
($ in thousands) Balance Yield Balance Yield Balance Yield Balance Yield Balance Yield
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. treasuries
and agencies $4,972 4.47% $28,107 5.93% $18,335 6.62% $25,434 6.92% $ 5,983 7.23%
CMOs and MBSs 42 5.38% - - - - 5,703 6.98% 6,719 6.50%
Municipals* 3,196 7.21% 4,105 7.11% 2,681 7.31% 4,648 7.31% - -
------ ------- ------- ------- -------
$8,210 5.54% $32,212 6.08% $21,016 6.71% $35,785 6.98% $12,702 6.84%
====== ======= ======= ======= =======
<FN>
* Municipal security yields and total yields are shown on a tax equivalent basis.
</FN>
</TABLE>
Scheduled contractual maturities may not reflect the actual maturities of the
investments. MBSs and CMOs are shown at their final maturity. However, due to
prepayments and normal amortization the actual cash flows are expected to be
faster than presented above. Similarly, included in the U.S. treasuries and
agencies category is $43.5 million in securities (including step-up bonds) which
can be "called" before maturity. Actual maturity of these callable securities
will be faster in a falling rate environment versus a rising rate environment.
Management considers these factors when evaluating the net interest margin in
the bank's asset/liability management program.
See "Interest Margin Sensitivity Analysis" below for additional information
regarding the bank's callable bonds.
Interest Margin Sensitivity Analysis
The company's primary market risk is interest rate risk, specifically, changes
in the interest rate environment. The bank's investment committee is responsible
for establishing policy guidelines on acceptable exposure to interest rate risk
and liquidity. The investment committee is comprised of certain members of the
Board of Directors and certain members of management. The primary objectives of
the company's asset/liability policy is to preserve the integrity and safety of
the company's capital base; to reach and sustain a strong and consistent net
interest margin level; to manage the interest rate risk of the company's balance
sheet as a whole; and to ensure sufficient liquidity. The investment committee
establishes and/or monitors guidelines for net interest margin sensitivity,
equity to capital ratios, the statutory liquidity ratio, Federal Home Loan Bank
borrowing capacity and loan to deposit ratio. The asset/liability strategies are
reviewed continually by management and presented and discussed with the
investment committee on at least a quarterly basis. The asset/liability
strategies are revised based on changes in interest rate levels, general
economic conditions, competition in the marketplace, the current position of the
bank, anticipated growth of the bank and other factors.
9
<PAGE>
One of the principal factors in maintaining planned levels of net interest
income is the ability to design effective strategies to cope with the impact on
future net interest income because of changes in interest rates. The balancing
of the changes in interest income from interest earning assets and the interest
expense of interest bearing liabilities is done through the asset/liability
management program. The bank's simulation model analyzes various interest rate
scenarios. Varying future interest rate environments affects prepayment speeds,
maturities of investments due to call provisions, changes in interest rates on
various asset and liability accounts based on different indices, and other
factors which vary under the different scenarios. The bank's asset/liability
policy is designed to limit the impact on net interest income to 7.5% in the 24
month period following the date of the analysis, in a rising and falling rate
shock analysis of 100 and 200 basis points.
The following table summarizes the net interest income for a 24 month period of
the company's interest bearing assets and liabilities as of December 31, 1997
resulting from a 200 basis point upward shift in the prime rate, 200 basis point
downward shift in the prime rate and no change in the prime rate scenarios from
the bank's asset/liability simulation model.
It should be noted that the interest rate scenarios used do not necessarily
reflect management's view of the "most likely" change in interest rates over the
next 24 months. Furthermore, since a static balance sheet is assumed, the
results do not reflect the anticipated future net interest income of the
company.
<TABLE>
<CAPTION>
Rates Rise Rates Rates Fall
($ in thousands) 200 BP Unchanged 200 BP
---------- --------- ----------
<S> <C> <C> <C>
Interest Earning Assets:
Callable securities $ 5,994 $ 5,471 $ 5,378
Fixed maturity treasury and agency securities 3,911 3,798 3,787
Other investment securities 5,084 4,816 4,768
Variable rate loans 29,732 25,963 22,193
Fixed rate loans 7,215 6,952 6,283
------- ------- -------
Total interest income 51,936 47,000 42,409
------- ------- -------
Interest Earning Liabilities:
NOW, money market, savings 6,099 5,186 4,285
Time deposits 14,303 11,525 9,674
Short term borrowings 1,148 919 739
------- ------- -------
Total interest expense 21,550 17,630 14,698
------- ------- -------
Net interest income $30,386 $29,370 $27,711
======= ======= =======
</TABLE>
As of December 31, 1997, analysis indicated that the sensitivity of the net
interest margin was in compliance with policy. Management estimates that, in a
falling rate environment, there would be a reduction of the net interest income
due to historically slower reductions in rates paid on deposits and increased
flows from the company's loan and investment portfolio, which would be
reinvested at lower marginal rates as rates fall, assuming a static balance
sheet. Management estimates that net interest income will remain relatively flat
in a rising rate environment, assuming a static balance sheet, due to the
extension of the duration of the investment portfolio and loan portfolio and
rising cost of funds.
Maturity information of the loan portfolio, investment portfolio, certificates
of deposit, and short-term borrowings is contained in Part I, Item 1 and in Part
II, Item 7 in Notes 7 and 8 of the financial statements. Management uses this
information in the simulation model along with other information about the
bank's assets and liabilities. Management makes certain prepayment assumptions,
based on an analysis of market consensus and management projections, regarding
how the factors discussed above will affect the assets and liabilities of the
bank as rates change. One of the more significant changes in the maturity of
assets, not discussed elsewhere in this report, occurs in the investment
portfolio, specifically how the bank's callable securities will react as rates
change.
10
<PAGE>
The following table reflects management's estimates of when the principal, shown
at fair value, of the bank's callable securities will be repaid and the
securities' weighted average interest rates as of December 31, 1997 under three
scenarios: interest rates up 200 basis points (BP), down 200 basis points and no
change.
<TABLE>
<CAPTION>
Up 200 BP No Change Down 200 BP
------------------ ------------------ ------------------
Fair Yield Fair Yield Fair Yield
($ in thousands) Value Rate Value Rate Value Rate
-------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
0 - 12 Months $ -- -- $23,921 6.95% $26,875 6.88%
13 - 24 Months -- -- 7,048 6.56% 7,048 6.56%
25 - 36 Months 4,013 6.53% 4,410 7.07% 4,410 7.07%
37 - 48 Months 998 6.98% 3,114 7.25% 3,114 7.25%
Over 48 Months 38,484 6.93% 5,002 6.71% 2,048 7.21%
------- ---- ------- ---- ------- ----
Total $43,495 6.89% $43,495 6.89% $43,495 6.89%
======= ==== ======= ==== ======= ====
</TABLE>
Management also assesses sensitivity of the change in the net value of assets
and liabilities (MVPE) under different scenarios. As interest rates rise, the
value of interest-bearing assets generally declines while the value of
interest-bearing liabilities increases. Management monitors the MVPE on a
quarterly basis. Although management does consider the effect on the MVPE when
making asset/liability strategy decisions, the primary focus is on managing the
effect on the net interest margin under changing rate environments.
Source of Funds
Deposits
Deposits have traditionally been the principal source of the bank's funds. The
bank offers a broad selection of deposit products to the general public,
including NOW accounts, savings accounts, money market accounts, individual
retirement accounts (IRA) and certificates of deposit. The bank also offers
commercial checking, money market, Keogh retirement and business IRA accounts
and repurchase agreements to its commercial business customers. The bank does
not currently use brokered deposits. The bank has from time to time offered
premium rates on specially designated products in order to promote new branches
and to attract customers and longer term deposits.
Management determines the interest rates offered on deposit accounts based on
current and expected economic conditions, competition, liquidity needs, the
volatility of the existing deposits, the asset/liability position of the bank
and the overall objectives of the bank regarding the growth of relationships.
The table below shows the comparison of the bank's average deposits and average
rates paid for the periods indicated. The annualized average rate on total
deposits reflects both interest bearing and non-interest bearing deposits.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Average % of Average % of Average % of
Amount Rate Deposits Amount Rate Deposits Amount Rate Deposits
--------- ------- -------- --------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand $ 45,371 -- 17.16% $ 34,884 -- 15.86% $ 28,215 -- 18.15%
Savings 19,237 2.23% 7.27% 17,037 2.22% 7.75% 15,100 2.22% 9.71%
NOW 53,782 2.14% 20.34% 43,929 2.09% 19.97% 31,128 2.11% 20.02%
Money market 31,422 2.76% 11.88% 24,402 2.56% 11.09% 24,104 2.90% 15.51%
-------- ------ -------- ------ -------- ------
104,441 2.35% 39.49% 85,368 2.25% 38.81% 70,332 2.42% 45.24%
Time deposits 114,656 5.45% 43.35% 99,696 5.63% 45.33% 56,904 5.47% 36.61%
-------- ------ -------- ------ -------- ------
Total $264,468 3.29% 100.00% $219,948 3.42% 100.00% $155,451 3.10% 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
See note 7 to the consolidated financial statements in Item 7 for further
information.
11
<PAGE>
Borrowings
The bank is a member of the Federal Home Loan Bank of Boston (FHLB). This
membership enables the bank to borrow funds from the FHLB. The bank utilizes
borrowings from the FHLB to fund short term liquidity needs and is an integral
component of the bank's asset/liability management program. At December 31,
1997, the bank had the capacity to borrow up to approximately $77.5 million from
the FHLB with actual outstanding balances of $1.4 million with a rate of 7.05%.
The bank also borrows funds from customers secured by the bank's investment
securities. These repurchase agreements represent a cost competitive funding
source for the bank. Interest rates paid by the bank on these transactions are
based on market conditions and the bank's need for additional funds at the time
of the transaction. As of December 31, 1997 the bank had $11.0 million in
repurchase agreements outstanding with a weighted average interest rate of
3.35%.
See note 8 to the consolidated financial statements in Item 7 for further
information.
Trust
The bank provides a range of investment management services to individuals,
family groups, trusts, foundations and retirement plans. These services include
management of equity, fixed income, balanced and strategic cash management
portfolios. Portfolios are managed based on the investment objectives of each
client. At December 31, 1997, the bank had $165.7 million in assets under
management.
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, credit unions
and savings and loan associations have one or more offices in Greater Lowell and
in the Leominster/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, factors, mortgage brokers, insurance
companies, securities brokerage firms, money market mutual funds and private
lenders. Advances in and the increased use of technology, such as internet
banking and PC banking, is expected to have a significant impact on the future
competitive landscape of financial institutions.
As a general matter, regulation of the banking industry continues to undergo
significant changes, including changes in the products and services banks are
permitted to offer, the nature and degree of banks' involvement, directly or
indirectly through affiliates, in non-banking activities, 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 regulations 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,
management believes that the bank has established a market niche in Greater
Lowell and the Leominster/Fitchburg area which has been enhanced in recent years
by the acquisition of other independent banks by major bank holding companies,
and the resultant consolidation of competitors' banking operations and services
within the bank's market area.
12
<PAGE>
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
highly responsive personal and professional service.
Supervision and Regulation
General
Bank holding companies and banks are subject to extensive government regulation
through federal and state statutes and related regulations, which is subject to
changes that can significantly affect the way in which financial service
organizations conduct business. Both legislation enacted in recent years and
regulatory initiatives undertaken by various governmental agencies have
substantially increased the level of competition among commercial banks, thrift
institutions and non-banking financial service companies, including brokerage
firms, investment banks, insurance companies and mutual funds. In addition, the
enactment of the federal Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 has affected the banking industry by, among other things, enabling
banks and bank holding companies to expand the geographic area in which they may
provide banking services. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any changes in applicable
law or regulation may have a material effect on the business and prospects of
the bank and the company.
See note 9 in Item 7 for further information regarding regulatory capital
requirements for both the company and the bank.
Regulation of the Holding Company
The company is a registered bank holding company under the federal Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"). It is subject
to the supervision and examination of the Board of Governors of the Federal
Reserve System (Federal Reserve Board) and files reports with the Federal
Reserve Board as required under the Bank Holding Company Act. Under applicable
Massachusetts law, the company is also subject to the supervisory jurisdiction
of the Commissioner.
The Bank Holding Company Act requires prior approval by the Federal Reserve
Board of the acquisition by the company of substantially all the assets or more
than five percent of the voting stock of any bank. The Bank Holding Company Act
also authorizes the Federal Reserve Board to determine (by order or by
regulation) what activities are so closely related to banking as to be a proper
incident of banking, and thus, whether the company, either directly or
indirectly through non-bank subsidiaries, can engage in such activities. The
Bank Holding Company Act prohibits the company and the bank from engaging in
certain tie-in arrangements in connection with any extension of credit, sale of
property or furnishing of services. There are also restrictions on extensions of
credit and other transactions between the bank, on the one hand, and the
company, or other affiliates of the bank, on the other hand.
Regulation of the Bank
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 Commissioner and the FDIC.
13
<PAGE>
The regulations of these agencies govern many aspects of the bank's business,
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. The Federal
Reserve Board also requires the bank to maintain minimum reserves on its
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 company's board of directors is generally empowered
to pay dividends on the company's capital stock out of its net profits to the
extent that the board of directors considers such payment advisable.
Massachusetts banking law also imposes various specific restrictions upon the
payment of dividends by the bank, including the requirement that the bank's
capital and surplus must equal at least 10% of its deposit liability or a
sufficient amount must be transferred from net profits to surplus prior to
payment of such dividend. The Federal Deposit Insurance Act of 1991 ("FDICIA")
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
or if the payment of any such dividend would otherwise cause the bank to become
undercapitalized.
Capital Resources
Capital planning by the company and 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.
See note 9 in Item 7 for further information regarding regulatory capital
requirements for both the company and the bank.
The Company
The Federal Reserve Board has adopted capital adequacy guidelines that generally
require bank holding companies to maintain total capital equal to 8% of total
risk-weighted assets, with at least one-half of that amount consisting of core
or Tier 1 capital. Tier 1 capital for the company consists of common
stockholders' equity. Total capital for the company consists of Tier 1 capital
and supplementary or Tier 2 capital. Supplementary capital for the company
includes a portion of the general allowance for loan losses. Assets are adjusted
under the risk-based capital guidelines to take into account different levels of
credit risk, with the categories ranging from 0% (requiring no additional
capital) for assets such as cash, to 100% for the bulk of assets that, by their
nature in the ordinary course of business, pose a direct credit risk to a bank
holding company, including commercial real estate loans, commercial business
loans and consumer loans.
In addition to the risk-based capital requirements, the Federal Reserve Board
requires bank holding companies to maintain a minimum "leverage" ratio of Tier 1
capital to total assets of 3%, with most bank holding companies required to
maintain at least a 4% ratio.
14
<PAGE>
The Bank
The bank is subject to separate capital adequacy requirements of the FDIC, which
are substantially similar to the requirements of the Federal Reserve Board
applicable to the company. Under the FDIC requirements, the minimum total
capital requirement is 8% of assets and certain off-balance sheet items,
weighted by risk. For example, cash and government securities are placed in a 0%
risk category, most home mortgage loans are placed in a 50% risk category and
commercial loans are placed in a 100% risk category. 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.
Under the applicable FDIC capital requirements, the bank is also required to
maintain a minimum leverage ratio. The ratio is determined by dividing Tier _1
capital by quarterly average total assets, less intangible assets and other
adjustments. FDIC rules 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.
Depository institutions, such as the bank, are also subject to the prompt
corrective action framework for capital adequacy established by FDICIA. Under
FDICIA, the federal banking regulators are required to take prompt supervisory
and regulatory actions against undercapitalized depository institutions. FDICIA
establishes five capital categories: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized", and
"critically capitalized". A "well capitalized" institution has a total capital
to total risk-weighted assets ratio of at least ten percent, a Tier 1 capital to
total risk-weighted assets ratio of at least six percent, a leverage ratio of at
least five percent and is not subject to any written order, agreement or
directive; an "adequately capitalized" institution has a total capital to total
risk-weighted assets ratio of at least eight percent, a Tier 1 capital to total
risk-weighted assets ratio of at least four percent, and a leverage ratio of at
least four percent (three percent if given the highest regulatory rating and not
experiencing significant growth), but does not qualify as "well capitalized". An
"undercapitalized" institution fails to meet one of the three minimum capital
requirements. A "significantly undercapitalized" institution has a total capital
to total risk-weighted assets ratio of less than six percent, a Tier 1 capital
to total risk-weighted assets ratio of less than three percent, and a leverage
ratio of less than three percent. A "critically capitalized" institution has a
ratio of tangible equity to assets of two percent or less. Under certain
circumstances, a "well capitalized", "adequately capitalized" or
"undercapitalized" institution may be required to comply with supervisory
actions as if the institution was in the next lowest category.
Failure to meet applicable minimum capital requirements, including a depository
institution being classified as less than "adequately capitalized" within
FDICIA's prompt corrective action framework, may subject a bank holding company
or its subsidiary depository institution(s) to various enforcement actions,
including substantial restrictions on operations and activities, dividend
limitations, issuance of a directive to increase capital and, for a depository
institution, termination of deposit insurance and the appointment of a
conservator or receiver.
Patents, Trademarks, etc.
The company 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, 1997, the bank employed 127 persons (111 full-time and 16
part-time), including 46 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.
15
<PAGE>
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 Interest Margin Sensitivity
Analysis contained in Item 1 and other maturity and repricing information of the
bank's assets and liabilities in this report contain additional information.
Year 2000 Compliance
The company is currently in the process of determining and remediating the
impact of the so-called "millenium problem"(i.e., that many existing computer
programs use only two digits to identify a year in the date field and if such
programs are not corrected many computer applications could fail or create
erroneous results by or beginning in the year 2000). Management is working with
its software vendors, developing a plan to identify both the bank's internal
systems deficiencies as well as potential credit exposures caused by borrowers'
systems deficiencies. Management is designing a program for both internal
systems remediation and for customer information regarding the potential
significance of the year 2000 problem. The company anticipates completing
testing of internal systems for year 2000 compliance by June 30, 1999.
Management does not anticipate that the company will incur significant operating
expenses or be required to invest heavily in computer system improvements to
achieve year 2000 compliance.
Notwithstanding any of the company's efforts, however, there can be no assurance
that the systems of other companies on which the company's, the company's
vendors' or the company's customers' systems rely will be timely remediated.
Therefore, the company's operations and/or financial condition could be
negatively impacted as a result of the failure of such other entities to
properly address the year 2000 issue in a timely manner. Costs incurred in
connection with year 2000 compliance will be treated as period costs and will be
expensed as incurred. The need for additional provisions to the bank's allowance
for loan losses resulting from borrowers' year 2000 compliance problems will be
considered, on an ongoing basis, based on management's assessment of the
potential exposure of its customer base to such problems.
Item 2. Description of Property
The company's and the bank's main office is located at 222 Merrimack Street,
Lowell, Massachusetts. The building provides approximately 12,366 square feet of
interior space and has private customer parking along with public parking
facilities in close proximity. The bank leases space at 170 Merrimack Street,
Lowell, Massachusetts. The building provides approximately 1,458 square feet of
interior space which houses the accounting department of the bank.
The bank leases approximately 4,375 square feet of space which is occupied by
the mortgage center at 21-27 Palmer Street, Lowell, Massachusetts. The bank
leases 3,415 square feet of space at 129 Middle Street, Lowell, Massachusetts,
which contains the bank's training facility and credit department.
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.
16
<PAGE>
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
branch office provides approximately 3,960 square feet of interior space and has
seven private customer parking spaces. 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.
The bank leases space at 910 Andover Street, Tewksbury, Massachusetts. The
branch office provides approximately 4,800 square feet of interior space and has
ample parking that is shared with other tenants of the building.
The bank leases space at 1168 Lakeview Avenue, Dracut, Massachusetts. The branch
office provides approximately 4,922 square feet of interior space and has ample
parking that is shared with other tenants of the building.
Item 3. Legal Proceedings
The company is involved in various routine legal proceedings incidental to its
business. Management does not believe resolution of any present litigation will
have a material effect on the financial condition of the company.
Various other legal claims may arise from time to time against the company or
the bank in the course of business, none of which are expected to have a
material adverse effect on the financial condition of either the company or the
bank.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter
ended December 31, 1997.
17
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market for Common Stock
There is no active trading market for the company's common stock. Although there
are periodically private trades of the company's common stock, the company
cannot state with certainty the sales price at which such transactions occur.
The following table sets forth sales volume and price information, to the best
of management's knowledge, for the common stock of the company for the periods
indicated.
Share Share
Trading Price Price
Fiscal year Volume High Low
----------- ------- --------- ---------
1997:
1st Quarter 2,075 $ 17.00 $ 17.00
2nd Quarter 1,000 17.00 17.00
3rd Quarter 1,775 17.00 17.00
4th Quarter -- -- --
1996:
1st Quarter 1,525 $ 14.00 $ 14.00
2nd Quarter -- -- --
3rd Quarter 2,000 15.00 14.00
4th Quarter -- -- --
Based on a value of $23 per share, which management believes approximates the
current fair market value of the common stock, the aggregate market value on
December 31, 1997, of the company's common stock was $36,344,991.
The number of shares outstanding of the company's common stock and number of
shareholders of record as of March 1, 1998, were 1,580,217 and 593,
respectively.
Dividends
The company declared and paid annual cash dividends of $.325 per share and $.30
per share in 1997 and 1996, respectively. Although the company intends to
continue to pay an annual dividend, the amount and timing of any declaration and
payment of dividends by the board of directors will depend on a number of
factors, including capital requirements, regulatory limitations, the company's
operating results and financial condition, anticipated growth of the company and
general economic conditions. As the principal asset of the company, the bank
currently provides the only source of payment of dividends by the company. Under
Massachusetts law, trust companies such as the bank may pay dividends only out
of "net profits" and only to the extent that such payments will not impair the
bank's capital stock and surplus account. These restrictions on the ability of
the bank to pay dividends to the company may restrict the ability of the company
to pay dividends to the holders of its common stock.
Although Massachusetts law does not define what constitutes "net profits", it is
generally assumed that the term includes a bank's undivided profits account
(retained earnings) and does not include its surplus account (additional paid-in
capital). At December 31, 1997, the bank's undivided profits account had a
balance of $12.9 million and its surplus account had a balance of $8.6 million.
18
<PAGE>
Item 6. Management Discussion and Analysis or Plan of Operation
Management's discussion and analysis should be read in conjunction with the
company's consolidated financial statements and notes thereto contained in Item
7, and other financial and statistical information contained in this annual
report. In addition, prevailing economic conditions, as well as government
policies and regulations concerning, among other things, monetary and fiscal
affairs, could significantly affect the operations of the company. The
reorganization of the bank as a subsidiary of the company was completed July 26,
1996. The company had no material assets or operations prior to completion of
the reorganization. Information at a date or from a period prior to July 26,
1996 pertains to the bank.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Financial Condition
Total Assets
Total assets increased $39.6 million, or 14.0%, to $322.6 million at December
31, 1997 from $283.0 million at December 31, 1996. The increase, funded by
deposit growth, was primarily from an increase in gross loans of $36.4 million,
or 25.1%.
Loans
Total gross loans were $181.7 million, or 56.3% of total assets, at December 31,
1997, compared with $145.3 million, or 51.3% of total assets, at December 31,
1996. The increase of $36.4 million was attributed to continued customer-call
efforts, as well as increased marketing and advertising, and increased
penetration in newer markets. During 1997, commercial real estate loans
increased $14.5 million, or 27.6%, other loans secured by real estate increased
by $13.4 million, or 31.6%, commercial loans increased by $4.0 million, or
10.5%, home equity loans increased $3.9 million, or 47.8%, and consumer loans
increased $.6 million, or 15.2%.
Asset Quality
The non-performing asset balance declined from the previous year and has
declined as a percentage of gross loans. Delinquencies in the 30-89 day category
have improved from 1.57% at December 31, 1996 to 1.14% at December 31, 1997.
Delinquencies in the 30-89 day category decreased from $2.3 million at December
31, 1996 to $2.1 million at December 31, 1997. The improvement in the level of
non-performing assets was due to management's continued efforts to work out
existing problem assets and limited additions to this category.
The balance of other real estate owned ("OREO") at December 31, 1997 of $393,000
consisted of commercial and residential real estate properties and represents an
increase of $310,000 compared to the prior year. The increase was primarily due
to the bank acquiring property securing a bank loan as part of a foreclosure and
other properties owned by the debtors which were sold at auction. The bank
anticipates full recovery of the original loan amount through the purchase of
these additional properties. See also Note 6 to the consolidated financial
statements contained in Item 7.
The bank uses an asset classification system which classifies loans depending on
risk of loss characteristics. The most severe classifications are "substandard"
and "doubtful". At December 31, 1997, the bank classified $1.5 million and $0 as
substandard and doubtful loans, respectively. Included in the substandard
category is $1.0 million in non-performing loans. The balance of substandard
loans that are performing possess potential weaknesses, and as a result could
become non-performing loans in the future.
19
<PAGE>
Allowance for 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, the ability of the borrowers
to adapt to changing technology, the continuity of the borrowers' management
teams and the credit management process.
The allowance for loan losses is maintained through the provision for loan
losses, which is a charge to earnings. The adequacy of the provision and the
resulting allowance for 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 hired by the bank, comparisons to peer group ratios, an assessment of
current and expected economic conditions, and review of 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 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 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 non-accrual 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
determines the adequacy of its allowance for 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 ratio of the reserve to total gross loans outstanding was 2.36% at December
31, 1997 versus 2.68% at December 31, 1996. At year-end 1997, the allowance for
loan losses represented 384.06% of non-performing loans compared to 165.25% at
December 31, 1996. The allowance for loan losses, as a percentage of loans, was
intentionally allowed to decline due to favorable national, regional and local
economic trends as well as favorable charge-off history during the previous
years. While the bank believes that its allowance for loan losses is adequate to
cover losses in its loan portfolio, there are uncertainties regarding the future
of the national, New England, Greater Lowell and Leominster economies and real
estate markets. The loan portfolio, particularly the real estate portion, could
be negatively impacted by economic conditions as well as the real estate market
throughout the region. As a result, there is no assurance that the level of
non-accrual loans, restructured loans and real estate acquired by foreclosure
will not increase.
The classification of a loan or other asset as non-performing does not
necessarily indicate that loan principal and interest will be ultimately
uncollectable. 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 loan
losses.
Based on the foregoing, as well as management's judgment as to the risks
inherent in the loan portfolio, the bank's allowance for loan losses is deemed
adequate to absorb all reasonably anticipated losses on specifically known and
other credit risks associated with the portfolio as of December 31, 1997.
20
<PAGE>
Investments
Investments (including federal funds sold) totaled $116.7 million, or 36.2% of
total assets, at December 31, 1997, compared to $119.4 million, or 42.2% of
total assets, at December 31, 1996. The decrease in the balance was attributed
to loan growth keeping pace with deposit growth during the year and an increase
in cash balances of $5.3 million. As of December 31, 1997, the net unrealized
gain in the investment portfolio was $1.1 million compared to a net unrealized
loss of $.2 million at December 31, 1996. The net unrealized gain/loss in the
portfolio fluctuates as interest rates rise and fall. Due to the fixed rate
nature of the bank's investment portfolio, as rates rise the value of the
portfolio declines, and as rates fall the value of the portfolio rises.
Liquidity
Liquidity is the ability to meet cash needs arising, amongst other things, from
fluctuations in loans, investments, deposits and borrowings. 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.
The bank does not have any brokered deposits. The bank has the ability to borrow
funds from the Federal Home Loan Bank of Boston. Management believes that the
bank has adequate liquidity to meet its commitments.
The company's primary source of funds is dividends from the bank.
Deposits and Borrowings
Deposits, including escrow deposits, increased $40.0 million, or 16.4%, to
$283.9 million, at December 31, 1997, from $243.8 million, at December 31, 1996.
The increase was largely attributed to the Tewksbury office which was opened in
October of 1997 and strong growth in our existing more established branches.
Total borrowings consisting of securities sold under agreements to repurchase
(repurchase agreements) and FHLB borrowings decreased by $4.3 million, or 25.5%,
from December 31, 1996 to December 31, 1997. The decrease was attributed to a
decrease in FHLB borrowings of $3.5 million and a decrease in repurchase
agreements of $.8 million. Management from time to time will take advantage of
opportunities to fund asset growth with borrowings, but on a long-term basis,
the bank intends to replace a portion of its borrowings with lower cost core
deposits.
Capital Adequacy
The company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can result in certain mandatory, and possible additional discretionary,
supervisory actions by regulators, which, if undertaken, could have a material
adverse effect on the company's consolidated financial statements. At December
31, 1997 the capital levels of both the company and the bank complied with all
applicable minimum capital requirements of the Federal Reserve Board and the
FDIC, respectively, and qualified as "well-capitalized" under applicable Federal
Reserve Board and FDIC regulations. For additional information regarding the
capital requirements applicable to the company and the bank and their respective
capital levels at December 31, 1997, see note 9, "Stockholders' Equity", in the
notes to the accompanying consolidated financial statements of the company.
21
<PAGE>
Results of Operations
The company's results of operations depend primarily on the results of
operations of the bank. 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 provision for 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 loan losses is primarily
affected by individual problem loan situations, overall loan portfolio quality,
the level of net 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 the bank's non-interest income,
which consists primarily of deposit account fees, trust fees, and gains and
losses on sales of securities and loans, and the bank's level of non-interest
expense and income taxes.
General
The company had net income during 1997 of $2.9 million or $1.85 per share and
$1.81 per share on a basic basis and fully diluted basis, respectively, compared
with net income for 1996 of $2.4 million, or $1.53 per share and $1.51 per share
on a basic basis and fully diluted basis, respectively. The increase of net
income of $.5 million, or 20.7%, was primarily a result of an increase in net
interest income of $2.6 million caused by an increase in interest earning
assets. The increase in net interest income was partially offset by increases in
non-interest expenses of $1.8 million which was primarily due to the increased
costs associated with operating the Tewksbury branch for the first full year,
the start up of the Dracut branch in November of 1997 and the increased overhead
associated with the overall growth of the bank.
Net Interest Income
The table on the following page presents the bank's average balance sheet, net
interest income and average rates for the years ended December 31, 1997, 1996
and 1995.
The following table sets forth, among other things, the extent to which changes
in interest rates and changes in the average balances of interest-earning assets
and interest-bearing liabilities have affected interest income and expense
during the year ended December 31, 1997, and 1996. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (1) changes in volume (change in average
portfolio balance multiplied by prior year average rate); (2) changes in
interest rates (change in average interest rate multiplied by prior year average
balance); and (3) changes in rate and volume (the remaining difference).
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
--------------------------------------- -----------------------------------------
Rate/ Rate/
($ in thousands) Volume Rate Volume Total Volume Rate Volume Total
------ -------- -------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans $ 3,299 $ (133) $ (35) $ 3,131 $ 986 $ 173 $ 15 $ 1,174
Investments 709 143 (21) 831 3,549 (13) (107) 3,429
Federal funds 8 (4) (1) 3 (363) (6) 4 (365)
------- ------- ------- ------- ------- ------- ------- -------
Total 4,016 6 (57) 3,965 4,172 154 (88) 4,238
------- ------- ------- ------- ------- ------- ------- -------
Interest Expense
Savings/NOW/MM 429 83 19 531 364 (121) (26) 217
Time deposits 842 (172) (26) 644 2,339 92 70 2,501
Other borrowings 175 (4) (1) 170 (91) (124) 13 (202)
------- ------- ------- ------- ------- ------- ------- -------
Total 1,446 (93) (8) 1,345 2,612 (153) 57 2,516
------- ------- ------- ------- ------- ------- ------- -------
Change in net
interest income $ 2,570 $ 99 $ (49) $ 2,620 $ 1,560 $ 307 $ (145) $ 1,722
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST AND AVERAGE INTEREST RATES
Year Ended December 31, 1997 Year Ended December 31, 1996 Year Ended December 31, 1995
----------------------------- ----------------------------- -----------------------------
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 (1)(2) $162,594 $ 15,597 9.59% $128,572 $ 12,466 9.70% $118,248 $ 11,292 9.55%
Investment securities (4) 121,401 7,584 6.54 110,338 6,753 6.41 55,140 3,324 6.43
Federal funds sold 2,615 141 5.39 2,476 138 5.57 8,918 503 5.64
-------- -------- -------- -------- -------- --------
Total interest earnings assets 286,610 23,322 8.26% 241,386 19,357 8.15% 182,306 15,119 8.41%
-------- -------- --------
Other assets (3) 19,987 14,367 9,255
-------- -------- --------
Total assets $306,597 $255,753 $191,561
======== ======== ========
Liabilities and stockholders' equity:
Savings, NOW and money market $104,441 $ 2,452 2.35% $ 85,368 $ 1,921 2.25% $ 70,332 $ 1,704 2.42%
Time deposits 114,656 6,255 5.46 99,696 5,611 5.63 56,904 3,110 5.47
Short-term borrowings 18,290 815 4.46 14,392 645 4.48 16,125 847 5.25
-------- -------- -------- -------- -------- --------
Total deposits and borrowings 237,387 9,522 4.01% 199,456 8,177 4.10% 143,361 5,661 3.95%
-------- -------- --------
Non-interest bearing deposits 45,371 34,884 28,215
Other liabilities 2,069 1,766 1,792
-------- -------- --------
Total liabilities 284,827 236,106 173,368
Stockholders' equity 21,770 19,647 18,193
-------- -------- --------
Total liabilities and
stockholders' equity $306,597 $255,753 $191,561
======== ======== ========
Net interest rate spread 4.25% 4.05% 4.46%
Net interest income $ 13,800 $ 11,180 $ 9,458
======== ======== ========
Net yield on average earning assets 4.94% 4.76% 5.31%
<FN>
(1) Average loans include non-accrual 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 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>
The bank manages its earning assets by fully using available capital resources
within what management believes are prudent credit and leverage parameters.
Loans, investment securities, and federal funds sold comprise the bank's earning
assets.
23
<PAGE>
The bank's net interest income was $13.8 million for the year ended December 31,
1997, an increase of $2.6 million or 23.4% from $11.2 million in the year ended
December 31, 1996, primarily a result of an increased interest expense from an
increase in certificate of deposit, savings, NOW, money market account and other
borrowing balances.
Interest income on loans increased in the year ended December 31, 1997 to $15.6
million from $12.5 million for the year ended December 31, 1996. The increase
was primarily due to an increase in the average balance from $128.6 million in
fiscal 1996 to $162.6 million in fiscal 1997. Partially offsetting the increase
was a decrease in the average interest rate earned on the loan balances from
9.70% in 1996 to 9.59% in 1997. The decrease in the interest rate earned was
attributed primarily to increased competition in the marketplace and reduction
in balances in higher yielding loans.
Interest income on investments increased for the year ended December 31, 1997 to
$7.6 million from $6.8 million for the year ended December 31, 1996. The
increase was primarily due to an increase in the average balance from $110.3
million in fiscal 1996 to $121.4 million in fiscal 1997. Also contributing to
the increase was an increase in the average interest rate earned on the
investment balances from 6.41% in 1996 to 6.54% in 1997, both on a tax
equivalent basis.
Interest expense on savings, NOW and money market accounts increased to $2.4
million for the year ended December 31, 1997 compared to $1.9 million for the
year ended December 31, 1996. The increase was primarily due to the increase in
the average balance from $85.4 million in fiscal 1996 to $104.4 million in
fiscal 1997. Also contributing to the increase was an increase in the average
interest rate paid from 2.25% in 1996 to 2.35% in 1997. The increase in rate was
due to a change in deposit mix and an overall increase in competition.
Interest expense on time deposits increased to $6.3 million for the year ended
December 31, 1997 compared to $5.6 million for the year ended December 31, 1996.
The increase was due to an increase in the average balance from $99.7 million in
fiscal 1996 to $114.7 million in fiscal 1997. The increase was primarily a
result of a full year of certificates of deposit associated with the Tewksbury
branch, as well as increased volume generated from the more established
branches. The decrease in rate from 5.63% in 1996 to 5.46% in 1997 partially
offset the above increase. The decline in rate was primarily a result of the
run-off of higher rate certificates. Management will, from time to time, offer
special programs with interest rates slightly higher than market on certificates
of deposit to generate market share and penetration at the newer branches.
Interest expense on short term borrowings, including borrowings from the Federal
Home Loan Bank and repurchase agreements, increased to $815,000 in fiscal 1997
from $645,000 in fiscal 1996. The increase was primarily due to an increase in
the average balance. Interest rates paid on these accounts are driven by
changing rates due to economic conditions as well as competition in the
marketplace.
The net interest rate spread and net yield on average earning assets both
increased to 4.25% and 4.94%, respectively, for the year ended December 31,
1997, from 4.05% and 4.76%, respectively, for the year ended December 31, 1996.
The increase in these rates was a result of the increase in yields in the
investment portfolio, an increase in the loan to deposit ratio and a decline in
the bank's cost of funds.
24
<PAGE>
The provision for loan losses amounted to $320,000 and $0 at December 31, 1997
and 1996, respectively. The provision reflects management's assessment of real
estate values and economic conditions in New England and in Greater Lowell, in
particular, the level of non-accrual 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. The provision
for loan losses is a significant factor in the bank's operating results. The
bank's allowance for loan losses was $4.3 million at December 31, 1997. Also see
discussion under "Financial Condition - Allowance for Loan Losses".
Non-Interest Income
Non-interest income, exclusive of net gains or losses on sales of securities,
increased by $211,000 to $1.9 million for the year ended December 31, 1997,
compared to $1.7 million for the year ended December 31, 1996. This increase was
a result of an increase in deposit service fees and trust fees. The increase was
partially offset by a decline in gains on sales of loans of $33,000.
Deposit fees increased approximately 27.1% in the year ended December 31, 1997,
compared to the year ended December 31, 1996. The 1997 growth was primarily the
result of an increase in transaction deposit accounts and activity volume.
Trust fees increased by $79,000, or 12.5%, due to an increase in trust assets
under management.
Other income for the year ended December 31, 1997, was $284,000, a decrease of
8.7% or $27,000 from $311,000 in the year ended December 31, 1996, due primarily
to a decline in letter of credit fees and a loss on sale of real estate owned of
$23,000.
Gains (Losses) on Sales of Securities
Net losses from the sales of investment securities totaled $37,000 in 1997
versus net gains of $2,000 in 1996. The net loss was from sales of securities
based on management's decision to take advantage of certain investment
opportunities. The loss incurred will be fully recovered in 1998, through an
increase in investment income.
Non-Interest Expense
Salaries and benefits expense totaled $6.4 million in the year ended December
31, 1997, compared with $5.2 million in 1996, an increase of $1.2 million, or
23.0%. This increase was primarily the result of the addition of staff for the
Dracut branch in the third quarter of 1996, a full year's expense for the
Tewksbury branch, an increase in benefit expenses and annual salary increases.
Occupancy expense was $1.6 million for the year ended December 31, 1997,
compared with $1.3 million in 1996, an increase of $223,000 or 16.8% primarily
due to the opening of the Tewksbury branch, in November of 1996, the Dracut
branch, in October of 1997 and the leasing of additional space for the bank's
training center and credit department, beginning in September of 1997.
Audit, legal and other professional expenses increased by $182,000, or 64.5%, in
1997 primarily due to the extra costs in 1997 associated with the outsourcing of
the internal audit function and consulting services related to future
technology, product, and growth initiatives of the bank, which were not incurred
in 1996.
Advertising and public relations expenses decreased to $435,000 for the year
ended December 31, 1997 from $482,000 in 1996. The decrease was primarily due to
various marketing studies performed by an independent agency in 1996 which were
not repeated in 1997.
Office and data processing supplies expense increased by $80,000, or 28.3%, in
the year ended December 31, 1997, primarily due to additional costs incurred in
1997 relating to the opening of the Tewksbury and Dracut branches and overall
growth of the bank.
25
<PAGE>
Trust professional and custodial expenses increased by $5,000, or 2.2%, due to
an increase in trust assets under management.
Other operating expenses increased from $1,225,000 in 1996 to $1,354,000 in
1997, or 10.5%. The increase is related to increased expenses associated with
the bank's training program, insurance, maintenance costs for computer
equipment, and FDIC insurance expense.
Proposed Accounting Rule Changes
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards of reporting and displaying
comprehensive income, which is defined as all changes to equity except
investments and distributions to shareholders. Net income is a component of
comprehensive income, with all other components referred to in the aggregate as
other comprehensive income. This statement is effective for 1998 financial
statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which establishes standards for
reporting information about operating segments. An operating segment is defined
as a component of a business for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and evaluate performance. This statement
requires a company to disclose certain income statement and balance sheet
information by operating segment, as well as provide a reconciliation of
operating segment information to the company's consolidated balances. This
statement is effective for 1998 financial statements. The company intends to
report as one operating segment.
26
<PAGE>
Item 7. Financial Statements
Index to Consolidated Financial Statements
Page
Independent Auditors' Report 28
Consolidated Balance Sheets as of December 31, 1997 and 1996 29
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 30
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995 31
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 32
Notes to the Consolidated Financial Statements 34
27
<PAGE>
Independent Auditors' Report
The Board of Directors
Enterprise Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Enterprise
Bancorp, Inc. and subsidiary (the "Company") as of December 31, 1997 and 1996,
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, 1997. 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 Bancorp,
Inc. and subsidiary at December_31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
January 8, 1998
Boston, Massachusetts
28
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
December 31, 1997 and 1996
($ in thousands) 1997 1996
-------- --------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks (Note 14) $ 19,779 14,508
Daily federal funds sold 3,775 --
-------- --------
Total cash and cash equivalents 23,554 --
-------- --------
Investment securities at fair value (Notes 2 and 8) 112,886 119,396
Loans, less allowance for loan losses of $4,290
in 1997 and $3,895 in 1996 (Notes 3 and 8) 176,294 140,425
Premises and equipment (Note 4) 4,079 3,389
Accrued interest receivable (Note 5) 2,971 2,700
Prepaid expenses and other assets 645 491
Income taxes receivable 220 140
Real estate acquired by foreclosure (Note 6) 393 83
Deferred income taxes, net (Note 12) 1,581 1,884
-------- --------
Total assets $322,623 283,016
======== ========
Liabilities and Stockholders' Equity
Deposits (Note 7) $283,249 243,429
Short-term borrowings (Notes 2 and 8) 12,467 16,737
Escrow deposits of borrowers 612 411
Accrued expenses and other liabilities 1,884 1,285
Accrued interest payable 566 506
-------- --------
Total liabilities 298,778 262,368
-------- --------
Commitments and contingencies (Notes 4, 8, 13 and 14)
Stockholders' equity (Notes 1, 9 and 10):
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued -- --
Common stock $.01 par value; 5,000,000 shares
authorized; 1,580,217 and 1,576,192 shares issued and
outstanding at December 31, 1997 and December 31, 1996,
respectively 16 16
Additional paid-in capital 15,531 15,477
Retained earnings 7,663 5,263
Net unrealized gain (loss) on investment
securities, net of applicable income taxes 635 (108)
-------- --------
Total stockholders' equity 23,845 20,648
-------- --------
Total liabilities and stockholders' equity $322,623 283,016
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
($ in thousands, except per share data) 1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Interest and dividend income:
Loans $ 15,597 12,466 11,292
Investment securities 7,584 6,753 3,324
Federal funds sold 141 138 503
--------- --------- ---------
Total interest income 23,322 19,357 15,119
--------- --------- ---------
Interest expense:
Deposits 8,707 7,532 4,814
Borrowed funds 815 645 847
--------- --------- ---------
Total interest expense 9,522 8,177 5,661
--------- --------- ---------
Net interest income 13,800 11,180 9,458
Provision for loan losses (Note 3) 320 -- --
--------- --------- ---------
Net interest income after provision for
loan losses 13,480 11,180 9,458
--------- --------- ---------
Non-interest income:
Deposit service fees 900 708 559
Trust fees 710 631 602
Net gains (losses) on sales of investment
securities (Note 2) (37) 2 --
Gains on sales of loans 35 68 251
Other income 284 311 229
--------- --------- ---------
Total non-interest income 1,892 1,720 1,641
--------- --------- ---------
Non-interest expense:
Salaries and employee benefits (Note 11) 6,421 5,219 4,538
Occupancy expenses (Note 4 and 13) 1,550 1,327 1,184
Audit, legal and other professional fees 464 282 328
Advertising and public relations 435 482 304
Office and data processing supplies 363 283 425
Trust professional and custodial expenses 228 223 183
Other operating expenses 1,354 1,225 1,286
--------- --------- ---------
Total non-interest expense 10,815 9,041 8,248
--------- --------- ---------
Income before income taxes 4,557 3,859 2,851
Income tax expense (Note 12) 1,645 1,447 1,085
--------- --------- ---------
Net income $ 2,912 2,412 1,766
========= ========= =========
Basic earnings per share $ 1.85 1.53 1.12
========= ========= =========
Diluted earnings per share $ 1.81 1.51 1.11
========= ========= =========
Basic weighted average common shares outstanding 1,576,462 1,576,023 1,575,109
========= ========= =========
Diluted weighted average common shares outstanding 1,612,027 1,596,864 1,586,671
========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
Net Unrealized
Gain (Loss) on
Investment
Securities,
Additional Net of Total
Common Stock Paid-in Retained Applicable Stockholders'
($ in thousands) Shares Amount Capital Earnings Taxes Equity
---------- --------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 1,574,792 $ 1,575 $ 13,902 $1,991 $(1,608) $ 15,861
Net income -- -- -- 1,766 -- 1,766
Common stock dividend declared ($.275 per share) -- -- -- (433) -- (433)
Stock options exercised (Note 10) 1,100 1 11 -- -- 12
Change in net unrealized gain (loss) on investment
securities, net of applicable income taxes -- -- -- -- 1,760 1,760
---------- -------- -------- ------ ------- --------
Balance at December 31, 1995 1,575,892 1,576 13,913 3,324 152 18,966
Net income -- -- -- 2,412 -- 2,412
Common stock dividend declared ($.30 per share) -- -- -- (473) -- (473)
Stock options exercised before reorganization
(Note 10) 125 -- 1 -- -- 1
Exchange of Enterprise Bank and Trust stock for
Enterprise Bancorp, Inc. stock (Note 1) (1,576,017) (1,576) (13,914) -- -- (15,491)
Issuance of $.01 par Enterprise Bancorp, Inc.
stock (Note 1) 1,576,017 16 15,475 -- -- 15,491
Stock options exercised after reorganization
(Note 10) 175 -- 2 -- -- 2
Change in net unrealized gain (loss) on investment
securities, net of applicable income taxes -- -- -- -- (260) (260)
---------- -------- -------- ------ ------- --------
Balance at December 31, 1996 1,576,192 16 15,477 5,263 (108) 20,648
Net income -- -- -- 2,912 -- 2,912
Common stock dividend declared ($.325 per share) -- -- -- (512) -- (512)
Stock options exercised (Note 10) 4,025 -- 54 -- -- 54
Change in net unrealized gain (loss) on investment
securities, net of applicable income taxes -- -- -- -- 743 743
---------- -------- -------- ------ ------- --------
Balance at December 31, 1997 1,580,217 $ 16 $ 15,531 $7,663 $ 635 $ 23,845
========== ======== ======== ====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
($ in thousands) 1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,912 2,412 1,766
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 320 -- --
Depreciation and amortization 945 874 658
Loss (gain) on sale of investments 37 (2) --
Gain on sale of loans (35) (68) (251)
Loss on sale of real estate 23 -- --
Decrease in loans held for sale, net of gain 109 1,849 115
Increase in accrued interest receivable (271) (877) (555)
(Increase) decrease in prepaid expenses and
other assets (154) (200) (83)
Provision (benefit) for deferred
income taxes (208) 47 89
Increase in accrued expenses and
other liabilities 599 84 100
Increase (decrease) in accrued
interest payable 60 (43) 307
Change in income taxes payable/receivable (80) (314) 106
-------- -------- --------
Net cash provided by operating activities 4,257 3,762 2,252
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of investment securities 9,269 5,920 --
Proceeds from maturities, calls and paydowns
of investment securities 13,901 9,237 11,488
Purchase of investment securities (15,505) (56,306) (41,523)
Proceeds from sales of real estate acquired
by foreclosure 200 28 50
Net increase in loans (36,696) (28,344) (3,047)
Additions to premises and equipment, net (1,573) (1,681) (1,562)
Purchase of real estate owned as a result of
foreclosure/workout activities (100) -- --
-------- -------- --------
Net cash used in investing activities (30,504) (71,146) (34,594)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits 39,820 47,412 62,138
Net increase (decrease) in short-term borrowings (4,270) 9,756 (12,637)
Net increase (decrease) in escrow deposits
of borrowers 201 33 (17)
Cash dividends declared on common stock (512) (473) (433)
Net proceeds from exercise of stock options 54 2 12
-------- -------- --------
Net cash provided by financing activities 35,293 56,730 49,063
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 9,046 (10,654) 16,721
Cash and cash equivalents at beginning of year 14,508 25,162 8,441
-------- -------- --------
Cash and cash equivalents at end of year $ 23,554 14,508 25,162
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
(Continued)
32
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
(Continued)
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Supplemental financial data:
Cash paid for:
Interest on deposits and short-term borrowings $9,480 8,233 5,355
Income taxes 1,933 1,714 890
Transfers from real estate acquired by
foreclosure to loans -- 312 --
Transfers from loans to real estate acquired
by foreclosure 433 5 78
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Holding Company Formation - Agreement and Plan of Reorganization
Enterprise Bancorp, Inc. (the "company") was organized on February 29,
1996 at the direction of Enterprise Bank and Trust Company (the "bank") for the
purpose of becoming the holding company of the bank. The company entered into an
Agreement and Plan of Reorganization with the bank dated as of February 29, 1996
(the "Plan of Reorganization"). On July 26, 1996, pursuant to the Plan of
Reorganization, the company acquired all of the outstanding common stock, $1.00
par value, of the bank in a share-for-share exchange for common stock of the
company (the "Reorganization"). Upon the effectiveness of the Reorganization,
the bank became the wholly owned subsidiary of the company and the former
shareholders of the bank became the shareholders of the company.
At the time of its organization the company's Articles of Organization
provided for 500,000 shares of common stock, $.01 par value, and 10,000 shares
of preferred stock, $.01 par value. On July 17, 1996, the Articles of
Organization of the company were amended to increase the company's authorized
capital to 1,000,000 shares of preferred stock, $.01 par value, and 5,000,000
shares of common stock, $.01 par value.
(b) Basis of Presentation
The consolidated financial statements of Enterprise Bancorp, Inc.
include the accounts of the company and its wholly owned subsidiary, the bank,
Enterprise Bank and Trust Company including its wholly owned subsidiary,
Enterprise Securities Corporation, Inc., which was incorporated on March 1,
1991. All significant intercompany accounts and transactions have been
eliminated in consolidation. The accounting and reporting policies of the
company conform to generally accepted accounting principles and to prevailing
practices within the banking industry.
The business and operations of the company are subject to the
regulatory oversight of the Board of Governors of the Federal Reserve System.
The Massachusetts Commissioner of Banks also retains supervisory jurisdiction
over the company. To the extent that the accompanying financial statements
contain information as of a date or for a period prior to July 26, 1996, such
information pertains to the bank. The company had no material assets or
operations prior to completion of the Reorganizations on July 26, 1996.
Enterprise Bank and Trust Company is a Massachusetts trust company
which commenced banking operations on January 3, 1989. The bank's main office is
located at 222 Merrimack Street in Lowell, Massachusetts. The bank began
offering trust services in June of 1992. Branch offices were opened in
Chelmsford, Massachusetts in June of 1993, Leominster, Massachusetts in May of
1995, Billerica, Massachusetts in June of 1995, Tewksbury, Massachusetts in
October of 1996 and Dracut, Massachusetts in November of 1997. The bank's
deposit-gathering and lending activities are conducted primarily in Lowell and
the surrounding Massachusetts cities and towns of Andover, Billerica,
Chelmsford, Dracut, Tewksbury, Tyngsboro, Westford, 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.
(Continued)
34
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
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 loan
losses may differ significantly from these estimates.
(c) Investment 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 fair value. Net
unrealized gains and losses on investments available for sale, 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
company'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 company has the positive intent to hold
to maturity, investment securities will be classified as held to maturity and
carried at amortized cost. At December 31, 1997 and 1996, all of the company's
investment securities were classified as available for sale and carried at fair
value.
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.
(d) Loans
The company grants single family and multi-family residential loans,
commercial real estate loans, commercial loans and a variety of consumer loans.
In addition, the company grants loans for the construction of residential homes,
multi-family properties, commercial real estate properties and for land
development. Most loans granted by the company are collateralized by real estate
or equipment and/or are 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.
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 non-accrual 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 non-accrual 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
collectability of both principal and interest is reasonably assured. Payments
received on loans in a non-accrual status are generally applied to principal.
(Continued)
35
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
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.
Effective January 1, 1997, the company adopted SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." This Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is applied prospectively. However, SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of SFAS No. 125", requires the deferral of
implementation as it relates to repurchase agreements, dollar-rolls, securities
lending and similar transactions until years beginning after December 31, 1997.
Earlier or retrospective application of this Statement is not permitted. SFAS
No. 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. Those standards are
based on an approach that focuses on control, whereby after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
This Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. The
adoption of SFAS No. 125 did not have a significant effect on the company's
financial position or results of operations. The adoption of SFAS No. 127 is not
expected to have a material effect on the company's financial statements.
(e) Allowance for Loan Losses
The allowance for loan losses is established through a provision for
loan losses charged to operations. Loan losses are charged against the allowance
when management believes that the collectability 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 non-performing 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 management's perception as to how these conditions affect the debtors'
economic prospects.
Management believes that the allowance for 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 company's allowance for loan losses. Such agencies may require the company
to recognize additions to the allowance based on judgments different from those
of management.
(Continued)
36
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Impaired loans are individually significant commercial and commercial
real estate loans for which it is probable that the company will not be able to
collect all amounts due in accordance with contractual terms. Impaired loans are
accounted for, 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 or, as a practical
expedient, in the case of collateralized loans, the difference between the fair
value of the collateral and the recorded amount of the loans. Impaired loans
exclude 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 collectability of the loan's
principal is remote.
(f) 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:
Leasehold improvements 10 years
Computer software and equipment 3 to 5 years
Furniture, fixtures and equipment 3 to 5 years
(g) 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 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.
(h) Income Taxes
The company uses 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.
(i) Stock Options
The company measures compensation cost for stock-based compensation
plans under Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees." Under APB 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 company's common stock.
(Continued)
37
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(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 company. Trust assets under management at December 31, 1997 and 1996
totaled $165.7 million and $126.3 million, respectively. Income from trust
activities is reported on an accrual basis.
(k) Earnings Per Share
For 1997, the company adopted Statement of Financial Accounting
Standard ("SFAS") No. 128, "Earnings per Share". SFAS No. 128 specifies the
computation, presentation and disclosure requirements for earnings per share
("EPS"). SFAS No. 128 simplifies the standard for computing EPS previously found
in APB Opinion No. 15 and makes them comparable to international EPS standards.
The statement replaces the presentation of primary EPS with basic EPS, requires
dual presentation of basic and diluted EPS on the face of the statement of
income, and requires a reconciliation or explanation of the numerator and
denominator of the diluted EPS computation. The adoption of this pronouncement
also requires restatement of all prior years EPS data presented.
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share reflects the effect on weighted average shares outstanding of
the number of additional shares outstanding if dilutive stock options were
converted into common stock using the treasury stock method. The increase in
average shares outstanding, using the treasury stock method, for the diluted
earnings per share calculation were 35,565, 20,841 and 11,562 for the years
ended December 31, 1997, 1996 and 1995, respectively.
(l) Other Accounting Rule Changes
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 129, "Disclosure of Information about Capital Structure", which
is effective for 1997 financial statements. These financial statements currently
comply with the provisions of this statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards of reporting and displaying
comprehensive income, which is defined as all changes to equity except
investments and distributions to shareholders. Net income is a component of
comprehensive income, with all other components referred to in the aggregate as
other comprehensive income. This statement is effective for the 1998 financial
statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which establishes standards
for reporting information about operating segments. An operating segment is
defined as a component of a business for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and evaluate performance. This statement
requires a company to disclose certain income statement and balance sheet
information by operating segment, as well as provide a reconciliation of
operating segment information to the company's consolidated balances. This
statement is effective for 1998 financial statements. The company intends to
report as one operating segment.
(Continued)
38
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(2) Investment Securities
The amortized cost and estimated fair values of investment securities
at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
Amortized Unrealized Unrealized Fair
($ in thousands) cost gains losses value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. agency obligations $ 53,998 616 117 54,497
U.S. treasury obligations 28,100 242 8 28,334
U.S. agency mortgage-backed securities 12,416 126 78 12,464
Municipal obligations 14,344 287 1 14,630
-------- -------- -------- --------
Total bonds and obligations 108,858 1,271 204 109,925
Federal Home Loan Bank stock, at cost 2,961 -- -- 2,961
-------- -------- -------- --------
Total investment securities $111,819 1,271 204 112,886
======== ======== ======== ========
<CAPTION>
1996
--------------------------------------------------------
Amortized Unrealized Unrealized Fair
($ in thousands) cost gains losses value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. agency obligations $ 61,156 437 638 60,955
U.S. treasury obligations 31,232 156 158 31,230
U.S. agency mortgage-backed securities 11,854 80 174 11,760
Municipal obligations 12,380 165 55 12,490
-------- -------- -------- --------
Total bonds and obligations 116,622 838 1,025 116,435
Federal Home Loan Bank stock, at cost 2,961 -- -- 2,961
-------- -------- -------- --------
Total investment securities $119,583 838 1,025 119,396
======== ======== ======== ========
</TABLE>
Included in U.S. agency securities are investments with callable
features that can be called prior to final maturity with fair values of
$43,495,000 and $48,821,000, at December 31, 1997 and 1996, respectively.
Included in U.S. agency mortgage-backed securities are collateralized
mortgage-backed obligations with fair values of $12,003,000 and $11,139,000 at
December 31, 1997 and 1996, respectively.
At December 31, 1997, securities with a fair value of $13,024,000 were
pledged as collateral for short-term borrowings (Note 8) and securities with a
fair value of $1,570,000 were pledged as collateral for treasury, tax and loan
deposits. At December 31, 1996, securities with a fair value of $15,740,000 were
pledged as collateral for short-term borrowings (Note_8) and securities with a
fair value of $2,007,000 were pledged as collateral for treasury, tax and loan
deposits.
The contractual maturity distribution of total bonds and obligations at
December 31, 1997 is as follows:
Amortized Fair
($ in thousands) Cost Percent Value Percent
--------- ------- ---------- --------
Within one year $ 8,181 7.5% 8,210 7.5%
After one but within three years 32,115 29.5 32,212 29.3
After three but within five years 20,638 19.0 21,016 19.1
After five but within ten years 35,198 32.3 35,785 32.5
After ten years 12,726 11.7 12,702 11.6
-------- ----- ------ -----
$108,858 100.0% 109,925 100.0%
======== ===== ====== =====
(Continued)
39
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Mortgage-backed securities are shown at their final maturity but are
expected to have shorter average lives due to principal repayments. U.S. agency
obligations are shown at their final maturity but are expected to have shorter
lives because issuers of certain bonds reserve the right to call or prepay the
obligations without call or prepayment penalties and certain U.S. agency lives
may be shorter based on mortgage prepayment rates.
Sales and calls of investment securities for the years ended December
31, 1997, 1996, and 1995 are summarized as follows:
($ in thousands) 1997 1996 1995
---- ---- ----
Book value of securities sold or called $ 19,725 11,059 --
Gross realized gains on sales/calls 16 50 --
Gross realized losses on sales/calls (53) (48) --
-------- ------- ----
Total proceeds from sales or
calls of investment securities $ 19,688 11,061 --
======== ======= ====
(3) Loans and Loans Held for Sale
Major classifications of loans and loans held for sale at December 31,
are as follows:
($ in thousands) 1997 1996
---- ----
Real estate:
Commercial $ 66,836 52,378
Construction 13,149 6,474
Residential 42,648 35,844
Residential loans held for sale -- 74
--------- ---------
Total real estate 122,633 94,770
Commercial 42,202 38,202
Home equity 12,203 8,255
Consumer 4,657 4,043
--------- ---------
Total loans 181,695 145,270
Deferred loan origination fees (1,111) (950)
Allowance for loan losses (4,290) (3,895)
--------- ---------
Net loans and loans held for sale $ 176,294 140,425
========= =========
Directors, officers, principal stockholders and their associates are
credit customers of the company 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 collectability or present other unfavorable features. As
of December 31, 1997, and 1996, the outstanding loan balances to directors and
officers of the company and their associates was $2,315,000 and $1,815,000,
respectively. Unadvanced portions of lines of credit available to directors and
officers were $1,422,000 and $850,000, as of December 31, 1997 and 1996,
respectively. During 1997, new loans and net increases in loan balances on lines
of credit under existing commitments of $963,000 were made and principal
paydowns of $463,000 were received. All loans to these related parties are
current.
(Continued)
40
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Non-accrual loans at December 31, are summarized as follows:
($ in thousands) 1997 1996
------- ------
Real estate $ 360 1,258
Commercial 400 491
Consumer, including home equity 283 488
------ ------
Total non-accrual $1,043 2,237
====== ======
There were no commitments to lend additional funds to those borrowers
whose loans were classified as non-accrual at December 31, 1997, 1996 and 1995.
The reduction in interest income for the years ended December 31, associated
with non-accruing loans is summarized as follows:
($ in thousands) 1997 1996 1995
---- ---- ----
Income in accordance with original loan terms $427 428 316
Income recognized 185 122 90
---- ---- ----
Reduction in interest income $242 306 226
==== ==== ====
At December 31, 1997 and 1996, total impaired loans were $1,567,000 and
$1,296,000, respectively. In the opinion of management, impaired loans with a
book value of $295,000 required allocated reserves of $50,000 at December 31,
1997, and impaired loans with a book value $211,000 required allocated reserves
of $50,000, at December 31, 1996. All of the $1,567,000 of impaired loans have
been measured using the fair value of the collateral method. During the years
ended December 31, 1997 and 1996, the average recorded value of impaired loans
was $1,823,000 and $1,197,000, respectively. Included in the reduction in
interest income in the table above is $105,000 and $141,000 of interest income
that was not recognized on loans that were deemed impaired as of December 31,
1997 and 1996, respectively. All payments received on non-accrual loans deemed
to be impaired loans are applied to principal. The company is not committed to
lend additional funds on any loans that are considered impaired
Changes in the allowance for loan losses for the years ended December
31, are summarized as follows:
($ in thousands) 1997 1996 1995
------- ------ ------
Balance at beginning of year $ 3,895 4,107 4,341
Provision charged to operations 320 -- --
Loan recoveries 376 32 171
Loans charged-off (301) (244) (405)
------- ------ ------
Balance at end of year $ 4,290 3,895 4,107
======= ====== ======
At December 31, 1997, 1996 and 1995, the bank was servicing mortgage
loans sold to investors amounting to $27,307,000, $29,427,000 and $32,013,000,
respectively.
(Continued)
41
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(4) Premises and Equipment
Premises and equipment at December 31, are summarized as follows:
($ in thousands) 1997 1996
------- -------
Land $ 270 270
Buildings and leasehold improvements 3,676 2,831
Computer software and equipment 3,061 2,548
Furniture, fixtures and equipment 1,701 1,486
------- -------
8,708 7,135
Less accumulated depreciation and amortization (4,629) (3,746)
------- -------
$ 4,079 3,389
======= =======
The company is obligated under various non-cancelable operating leases
some of which provide for periodic adjustments. At December 31, 1997 minimum
lease payments for these operating leases were as follows:
($ in thousands)
Payable in:
1998 $ 369
1999 374
2000 229
2001 121
Thereafter 97
--------
Total minimum lease payments $ 1,190
========
Total rent expense for the years ended December 31, 1997, 1996 and 1995
amounted to $292,000, $240,000, and $198,000, respectively.
(5) Accrued Interest Receivable
Accrued interest receivable consists of the following at December 31:
($ in thousands) 1997 1996
------ ------
Investments $1,756 1,802
Loans and loans held for sale 1,215 898
------ ------
$2,971 2,700
====== ======
(6) Real Estate Acquired by Foreclosure
Real estate acquired by foreclosure is comprised of commercial real
estate properties of $393,000 and $83,000 at December 31, 1997 and 1996,
respectively. An analysis of real estate acquired by foreclosure for the years
ended December 31, is as follows:
($ in thousands) 1997 1996
------ ------
Balance at beginning of year $ 83 418
Acquisitions as a result of foreclosures 533 5
Sales proceeds and principal repayments,
net of loss on sale (223) (28)
Transfer to loans -- (312)
----- -----
Balance at end of year $ 393 83
===== =====
(Continued)
42
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(7) Deposits
Deposits at December 31, are summarized as follows:
($ in thousands) 1997 1996
-------- --------
Demand $ 51,411 42,528
Savings 19,909 18,436
NOW 66,634 51,944
Money market 29,943 26,290
Time deposits less than $100,000 73,907 75,499
Time deposits of $100,000 or more 41,445 28,732
-------- --------
$283,249 243,429
======== ========
Interest expense on time deposits with balances of $100,000 or more
amounted to $2,097,000 in 1997, $1,560,000 in 1996, and $913,000 in 1995.
The following table shows the scheduled maturities of time deposits
with balances less than $100,000 and greater than $100,000 at December 31, 1997:
Less Greater
than than
($ in thousands) $100,000 $100,000 Total
-------- -------- -------
Due in less than three months $22,327 27,280 49,607
Due in over three through twelve months 36,044 11,542 47,586
Due in twelve months through thirty months 15,536 2,623 18,159
------- ------- -------
$73,907 41,445 115,352
======= ======= =======
(8) Short-Term Borrowings
Borrowed funds at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ---------------- -----------------
Average Average Average
($ in thousands) Amount Rate Amount Rate Amount Rate
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Securities sold under agreements to
repurchase, due on demand $11,047 3.35% $11,824 3.81% $6,982 3.70%
Federal Home Loan Bank of Boston
borrowings 1,420 7.05% 4,913 7.32% -- --
------- ------- ------
$12,467 3.77% $16,737 4.84% $6,982 3.70%
======= ======= ======
</TABLE>
Securities sold under agreement to repurchase averaged $13,864,000,
$7,855,000, and $6,763,000 during 1997, 1996 and 1995, respectively. Maximum
amounts outstanding at any month end during 1997, 1996, and 1995 were
$19,398,000, $11,824,000, and $9,451,000, respectively. The average cost of
repurchase agreements was 4.07%, 3.54%, and 3.70% during fiscal 1997, 1996, and
1995, respectively.
(Continued)
43
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
The bank became a member of the Federal Home Loan Bank of Boston
("FHLB") in March, 1994. FHLB borrowings averaged $4,426,000, $6,537,000, and
$9,363,000 during 1997, 1996, and 1995, respectively. Maximum amounts
outstanding at any month end during 1997, 1996, and 1995 were $10,372,000,
$13,043,000, and $20,958,000, respectively. The average cost of FHLB borrowings
was 5.68%, 5.62% and 6.37% during fiscal 1997, 1996, and 1995, respectively.
Borrowings from the FHLB are secured by FHLB stock, 1-4 family owner occupied
residential loans and the bank's investment portfolio not otherwise pledged.
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 the capacity to
borrow an amount up to the value of its qualified collateral, as defined by the
FHLB. At December 31, 1997, the bank had the capacity to borrow up to
approximately $77,500,000 from the FHLB.
FHLB borrowings outstanding at December 31, 1997 consisted entirely of
overnight borrowings.
(9) Stockholders' Equity
Holders of 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 common stock may be subject to the rights
of any outstanding Preferred Stock.
Applicable regulatory requirements require the company to maintain Tier
1 capital (which in the case of the company is composed of common equity) equal
to 4.00% of assets (leverage capital ratio), total capital equal to 8.00% of
risk-weighted assets (total capital ratio) and Tier 1 capital equal to 4.00% of
risk-weighted assets (Tier 1 capital ratio). Total capital includes Tier 1
capital plus Tier 2 capital (which in the case of the company is composed of the
general valuation allowance up to 1.25% of risk-weighted assets). The company
met all regulatory capital requirements at December 31, 1997.
The company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate or result in certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a material adverse effect on the company's financial statements. Under
applicable capital adequacy requirements and the regulatory framework for prompt
corrective action applicable to the bank, the company must meet specific capital
guidelines that involve quantitative measures of the company's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The company's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the company to maintain the minimum capital amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined). Management believes, as of
December 31, 1997, that the company meets all capital adequacy requirements to
which it is subject.
As of December 31, 1997, both the company and the bank qualify as "well
capitalized" under applicable Federal Reserve Board and FDIC regulations. To be
categorized as well capitalized, the company and the bank must maintain minimum
total, Tier 1 and, in the case of the bank, leverage capital ratios as set forth
in the table below.
(Continued)
44
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
The company's actual capital amounts and ratios are presented in the
table below. The bank's capital amounts and ratios do not differ materially from
the amounts and ratios presented.
<TABLE>
<CAPTION>
Minimum Capital Minimum Capital
For Capital To Be
Actual Adequacy Purposes Well Capitalized
------------------- ------------------ ------------------
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
------- ------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to risk weighted assets) $25,686 13.23% $15,536 8.0% $19,420 10.0%
Tier 1 Capital
(to risk weighted assets) 23,183 11.94% 7,768 4.0% 11,652 6.0%
Tier 1 Capital*
(to average assets) 23,183 7.21% 12,868 4.0% 16,086 5.0%
<CAPTION>
Minimum Capital Minimum Capital
For Capital To Be
Actual Adequacy Purposes Well Capitalized
------------------- ------------------ ------------------
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
------- ------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to risk weighted assets) $24,591 15.43% $12,751 8.0% $15,939 10.0%
Tier 1 Capital
(to risk weighted assets) 20,696 12.98% 6,375 4.0% 9,563 6.0%
Tier 1 Capital*
(to average assets) 20,696 7.42% 11,155 4.0% 13,944 5.0%
<FN>
* For the bank to qualify as "well capitalized", it must also maintain a leverage capital ratio (Tier 1 capital to average
assets) of at least 5%. This requirement does not apply to the company and is reflected in the table merely for
informational purposes with respect to the bank.
</FN>
</TABLE>
Neither the company or the bank may declare or pay dividends on its
stock if the effect thereof would cause stockholders' equity to be reduced below
applicable regulatory capital requirements or if such declaration and payment
would otherwise violate regulatory requirements.
(10) Stock Option Plan
The board of directors of the bank 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 common stock. Any shares of common stock reserved for
issuance pursuant to options granted under the 1988 plan which are returned to
the company unexercised shall remain available for issuance under the 1988 plan.
The 1988 plan was assumed by and became effective under the company after the
completion of the Reorganization discussed in Note 1.
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 company's outstanding 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.
(Continued)
45
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
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:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- -------------------- -------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 127,650 $12.14 102,050 $ 11.65 78,100 $11.04
Granted 25,450 18.00 26,300 14.00 25,650 13.50
Exercised (4,025) 13.44 (300) 11.34 (1,100) 11.00
Forfeited (700) 13.57 (400) 12.00 (600) 12.00
------- ------- -------
Outstanding at end of year 148,375 13.10 127,650 12.14 102,050 11.65
======= ======= =======
Exercisable at end of year 92,675 11.52 81,562 11.22 74,650 11.01
Shares reserved for future grants 102 24,852 50,752
</TABLE>
A summary of options outstanding and exercisable by exercise price as
of December 31, 1997 follows:
Outstanding Exercisable
---------------------------- -----------
Wtd. Avg.
Remaining
Exercise Price # Shares Life # Shares
-------------- -------- --------- --------
$11.00 73,500 2.51 73,500
$12.00 2,300 6.35 2,031
$13.50 21,450 7.52 10,725
$14.00 25,675 8.51 6,419
$18.00 25,450 9.50 --
------- ---- -------
148,375 5.53 92,675
======= ==== =======
The company applies APB Opinion No. 25 in accounting for stock options
and, accordingly, no compensation expense has been recognized in the financial
statements. Had the company determined compensation expense based on the fair
value at the grant date for its stock options under SFAS 123, the company's net
income would have been reduced to the pro forma amounts indicated below:
($ in thousands, except per share data) 1997 1996 1995
------- ------ -----
Net income as reported $ 2,912 2,412 1,766
Pro forma net income 2,840 2,371 1,755
Basic earnings per share as reported 1.85 1.53 1.12
Pro forma basic earnings per share 1.80 1.50 1.11
Fully diluted earnings per share as reported 1.81 1.51 1.11
Pro forma fully diluted earnings per share 1.76 1.49 1.11
Pro forma net income reflects only options granted in 1997, 1996 and
1995. Therefore, the full impact of calculating the compensation expense for
stock options under SFAS 123 is not reflected in the pro forma net income
amounts above since options granted prior to January 1, 1995 are not considered.
The per share weighted average fair value of stock options issued in 1997, 1996
and 1995, was determined to be $5.76, $4.48, and $4.32, respectively. The fair
value of the options was determined to be 32% of the market value of the stock
at the date of grant. The value was based on consultation with compensation
consultants hired by the company and subsequent validation by management using a
binomial distribution model in 1997. The assumptions used in the model for
risk-free interest rate, expected volatility and expected life in years were
5.8%, 15.0%, and 8 years, respectively.
(Continued)
46
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(11) Employee Benefit Plans
401(k) Defined Contribution Plan
The company 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
company. No company contributions are made for supplemental contributions made
by participants. The percentage matched for the 1997, 1996 and 1995 calendar
years was 84%, 50% and 50%, respectively, up to the first 6% contributed by the
employee. The increase from 50% in 1996 to 84% in 1997 was a result of an
additional match due to favorable performance in the Employee Bonus Program as
discussed below. The company's expense for the 401(k) plan match for the years
ended December 31, 1997, 1996 and 1995 was $186,000, $87,000 and $92,000,
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 returned to the bank.
Employee Bonus Program
The company implemented a bonus program, which includes all employees,
beginning in 1995. Bonuses are paid to the employees based on the accomplishment
of certain goals and objectives that are determined at the beginning of the
fiscal year and approved by the compensation committee of the board of
directors. The goals and objectives include certain ratios such as return on
assets, return on equity, net interest margin, non-interest expense and income
to assets, non-accrual loans to total loans and the overall growth of the bank's
loan and deposit balances. Participants are paid a share of the bonus pool,
based on a pre-determined allocation depending in which group the employee falls
into including: vice presidents and above, officers, and non-officer employees.
In 1997, 1996 and 1995, gross payments charged to salaries and benefits expense
under the plan were $589,000, $402,000 and $363,000, respectively. In addition
to the $589,000 increase in gross salaries, the bank also increased the employer
contribution to the 401(k) plan by $79,000, or an additional 34% of employee
contributions up to the first 6% contributed by the employee. The $79,000
increase on employer match on the company's 401(k) plan is also included in
salaries and benefits for 1997.
Supplemental Cash Bonus Plan
The company established a supplemental cash bonus plan for certain
executive officers. The goals, objectives and pay-out schedule of this plan were
approved by the compensation committee. The plan provides for payment of cash
bonuses based on the achievement of a bonus pay-out to all employees in the
employee bonus program discussed in the previous paragraph and the achievement
of certain earnings per share goals. In 1997 and 1996, $70,000 and $52,000,
respectively, was charged to salaries and benefits under this plan.
Split-Dollar Plan
The company adopted a Split-Dollar Plan for the company's chief
executive officer in 1996. This plan provides for the company to fund the
purchase of a cash value life insurance policy owned by the executive. The
company accounts for the premiums paid as an interest free loan. Annual premiums
are paid by the company until the executive retires. At the time of retirement
of the executive, annuity payments are made to the executive. The aggregate
amount of the premiums funded is returned to the company at the time of the
executive's death. Annual premiums of $144,000 are due until 2004 under the
current plan. The amount charged to expense for these benefits was $31,000 and
$11,518, in 1997 and 1996, respectively.
(Continued)
47
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(12) Income Taxes
The components of income tax expense for the years ended December 31
were calculated using the liability method as follows:
($ in thousands) 1997 1996 1995
------- ------- -------
Current tax expense:
Federal $ 1,389 1,033 733
State 464 367 263
------- ------- -------
Total current tax expense 1,853 1,400 996
------- ------- -------
Deferred tax expense (benefit):
Federal (155) 35 (12)
State (53) 12 101
------- ------- -------
Total deferred tax expense (benefit) (208) 47 89
------- ------- -------
Total income tax expense $ 1,645 1,447 1,085
======= ======= =======
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate (34%) as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ -------------------- ------------------
($ in thousands) Amount % Amount % Amount %
-------- ------ -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Computed income tax expense
at statutory rate $ 1,549 34.0% $ 1,312 34.0% $ 969 34.0%
State income taxes, net of
federal tax benefit 271 5.9% 250 6.5% 240 8.4%
Municipal bond interest (215) (4.7%) (195) (5.1%) (139) (4.8%)
Other 40 .9% 80 2.1% 15 0.5%
-------- ------ -------- ------ ------- ------
Income tax expense $ 1,645 36.1 $ 1,447 37.5% $ 1,085 38.1%
======== ====== ======== ====== ======= ======
</TABLE>
At December 31, 1997 and December 31, 1996, the tax effects of each
type of income and expense item that give rise to deferred taxes are:
($ in thousands) 1997 1996
------- -------
Deferred tax asset:
Allowance for loan losses $1,611 1,473
Depreciation 316 242
Deferred loan fees 61 61
Net unrealized loss on investment securities -- 79
Other 25 29
------ ------
Total 2,013 1,884
Deferred tax liability:
Net unrealized gain on investment securities 432 --
------ ------
Net deferred tax asset $1,581 1,884
====== ======
At December 31, 1997, the net Federal deferred tax asset of $1,157,000
is supported by recoverable income taxes of approximately $3,196,000. The
company needs to generate approximately $4,089,000 of future net taxable income
to realize the state deferred tax asset of $424,000 as of December 31, 1997.
There was no valuation allowance for the deferred tax asset at December 31, 1997
and 1996. Management believes that the net deferred income tax asset at December
31, 1997 is an amount that will more likely than not be realized.
(Continued)
48
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(13) Related Party Transactions
The company's offices in Lowell, Massachusetts, are leased from realty
trusts, the beneficiaries of which include 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 for the years ended December
31, 1997, 1996 and 1995, were $230,000, $170,000 and $221,000, respectively.
(14) Commitments, Contingencies and Financial Instruments with Off-Balance
Sheet Risk and Concentrations of Credit Risk
The company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to originate loans,
standby letters of credit and unadvanced lines of credit.
The instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the balance sheets. The contract amounts of
those instruments reflect the extent of involvement the company has in the
particular classes of financial instruments.
The company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amounts of those
instruments. The company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Financial instruments with off-balance sheet credit risk at December
31, 1997 and 1996, are as follows:
($ in thousands) 1997 1996
------- -------
Commitments to originate loans $15,577 12,640
Standby letters of credit 3,267 3,709
Unadvanced portions of consumer loans
(including credit card loans) 4,502 3,975
Unadvanced portions of construction loans 7,204 2,363
Unadvanced portions of home equity loans 10,046 6,624
Unadvanced portions of commercial lines of credit 24,345 18,036
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 some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the company 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.
(Continued)
49
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Standby letters of credit are conditional commitments issued by the
company 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 company originates residential mortgage loans under agreements to
sell such loans, generally with servicing released. At December_31, 1997 and
1996, the company had commitments to sell loans totaling $0 and $492,000,
respectively.
The company 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 $5,887,000 at December 31, 1997,
and approximately $2,861,000 at December_31, 1996.
The company 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 company.
(15) Fair Values of Financial Instruments
The following methods and assumptions were used by the company 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. The carrying
amount of FHLB stock reported approximates fair value. If the FHLB stock is
redeemed, the company will receive an amount equal to the par value of the
stock.
Loans: The fair values of loans, was determined using discounted cash
flow analysis, using interest rates currently being offered by the company. The
incremental credit risk for non-accrual 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 time deposits were estimated
using discounted cash flow analysis using rates offered by the bank on December
31, 1997 for similar instruments.
(Continued)
50
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Limitations: The estimates of fair value of financial instruments were
based on information available at December 31, 1997 and 1996 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 active 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, including 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 company.
1997 1996
------------------- -------------------
Carrying Fair Carrying Fair
($ in thousands) Amount Value Amount Value
-------- ------- -------- --------
Financial assets:
Cash and cash equivalents $ 23,554 23,554 14,508 14,508
Investment securities 112,886 112,886 119,396 119,396
Loans, net 176,294 180,280 140,425 143,802
Accrued interest receivable 2,971 2,971 2,700 2,700
Financial liabilities:
Non-interest bearing demand deposits 51,411 51,411 42,528 42,528
Savings, NOW and money market 116,486 116,486 96,670 96,670
Time deposits 115,352 115,653 104,231 104,758
Short-term borrowings 12,467 12,467 16,737 16,737
Escrow deposit of borrowers 612 612 411 411
Accrued interest payable 566 566 506 506
(Continued)
51
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(16) Parent Company Only Financial Statements
A statement of income and statement of cash flows for 1995 is not
presented as the company was formed on July 26, 1996.
Balance Sheet
December 31,
----------------------
($ in thousands) 1997 1996
------- -------
Assets
Cash and due from subsidiary $ 106 52
Investment in subsidiary 23,739 20,596
------- -------
Total assets $23,845 20,648
======= =======
Liabilities and Stockholders' Equity
Preferred stock, par value $.01 per share,
1,000,000 shares authorized No shares
issued $ -- --
Common stock, par value $.01 per share,
5,000,000 shares authorized; 1,580,217 and
1,576,192 shares issued and outstanding at
December 31, 1997 and 1996, respectively 16 16
Additional paid-in capital 15,531 15,477
Retained earnings 7,663 5,263
Net unrealized gain (loss) on investment
securities available for sale, net 635 (108)
------- -------
Total liabilities and stockholder's equity $23,845 20,648
======= =======
Statement of Income
For the years ended
December 31,
----------------------
($ in thousands) 1997 1996
------ ------
Undistributed equity in net income of
subsidiary $2,400 2,412
Dividends received from subsidiary 512 --
------ ------
Net income $2,912 2,412
====== ======
(Continued)
52
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Statement of Cash Flows
For the years ended
December 31,
-------------------
($ in thousands) 1997 1996
------- --------
Cash flows from operating activities:
Net income $ 2,912 2,412
Undistributed equity in net income of subsidiary (2,400) (2,412)
------- -------
Net cash provided by operating activities 512 --
------- -------
Cash flows from financing activities:
Net proceeds from exercise of stock options 54 2
Initial capitalization of holding company
from the bank -- 50
Dividends paid (512) --
------- -------
Net cash provided by financing activities (458) 52
------- -------
Net increase in cash and cash equivalents 54 52
Cash and cash equivalents, beginning of period 52 --
------- -------
Cash and cash equivalents, end of period $ 106 52
======= =======
Cash and cash equivalents includes cash and due from subsidiary.
(Continued)
53
<PAGE>
(17) Recent Developments - Adoption of Shareholders Rights Plan
On January, 13, 1998, the company's Board of Directors declared a
dividend of one Preferred Share Purchase Right (a "Right") for each outstanding
share of common stock, pursuant to a Rights Agreement dated January 13, 1998
between the company and the bank as rights agent. The distribution was payable
to stockholders of record as of the close of business on January 20, 1998. Each
Right entitles the holder thereof to purchase under certain circumstances
one-one hundredth of a share of a new Series A Junior Participating Preferred
Stock, par value $0.01 per share, or, in certain circumstances, to receive cash,
property, shares of common stock or other securities of the company, at a
purchase price of $75 per one-one hundredth of a preferred share, subject to
adjustment.
The Rights are not exercisable and remain attached to the shares of
common stock until the earlier of (i) 10 business days (or such later date as
the company's Board of Directors may determine) following public announcement by
the company that a person or group of affiliated or associated persons, with
certain exceptions (an "Acquiring Person"), has acquired, or has obtained the
right to acquire, beneficial ownership of 10% or more of the outstanding shares
of common stock (the date of such announcement being the "Stock Acquisition
Date") or (ii) 10 business days (or such later date as the company's Board of
Directors may determine) following the commencement of a tender offer or
exchange offer that would result in a person becoming an Acquiring Person.
In the event that a person becomes an Acquiring Person (except persuant
to a tender or exchange offer for all outstanding shares of common stock at a
price and on terms which a majority of the company's Outside Directors (as
defined in the Rights Agreement) determines to be fair to and otherwise in the
best interest of the company and its shareholders (a "fair offer")), each holder
of a Right (other than the Acquiring Person) will thereafter have the right to
receive, upon exercise of such Right, shares of common stock (or in certain
circumstances, cash, property or other securities of the company) having a
current market price equal to two times the exercise price of the Right. In the
event that, at any time on or after a Stock Acquisition Date, (i) the company
takes part in a merger or other business combination transaction (other than
certain mergers that follow a fair offer) and the company is not the surviving
entity or (ii) the company takes part in a merger or other business combination
transaction in which the shares of common stock are changed or exchanged (other
than certain mergers that follow a fair offer) or (iii) 50% or more of the
company's assets or earning power are sold or transferred, each holder of a
Right (other than an Acquiring Person) shall thereafter have the right to
receive, upon exercise, a number of shares of common stock of the acquiring
company having a current market price equal to two times the exercise price of
the Right. At any time until 10 business days following a Stock Acquisition
Date, the company may redeem the Rights in whole, but not in part, at a price of
$0.01 per Right. The Rights will expire at the close of business of January 13,
2008 unless earlier redeemed or exchanged by the company. The Rights have no
voting or dividend privileges and, until they become exercisable, have no
dilutive effect on the earnings of the company. Any future holders of shares of
Series A Junior Participating Preferred Stock would be entitled to preferred
rights with respect to dividends, voting and liquidation.
54
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure None
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons
(a) Certain information regarding directors and executive officers and
identification of significant employees of the company in response to this item
is incorporated herein by reference from the discussion under the captions
"Information Regarding Executive Officers and Other Significant Employees" and
"Proposal One Election of Class of Directors" of the proxy statement for the
company's annual meeting of stockholders to be held May 5, 1998, which it
expects to file with the Securities and Exchange Commission within 120 days of
the end of the fiscal year covered by this report.
Directors of the Company
George L. Duncan
Chairman and Chief Executive Officer of the Company and the Bank
Richard W. Main
President of the Company; President, Chief Operating Officer and
Chief Lending Officer of the Bank
Walter L. Armstrong
Executive Vice President of the Bank
Kenneth S. Ansin
President and Chief Executive Officer, L.B. Evans Company;
President and Chief Executive Officer of Ansewn Shoe Company
Gerald G. Bousquet, M.D.
Physician; director and partner in several health care facilities
Kathleen M. Bradley
Former owner, Westford Sports Center, Inc.
James F. Conway, III
Chairman, Chief Executive Officer and President
Courier Corporation, a commercial printing company
Nancy L. Donahue
Chair of the Board of Trustees, Merrimack Repertory Theatre
Lucy A. Flynn
Senior Vice President, Wang Laboratories, a computer service company
Eric W. Hanson
Chairman and President, D.J. Reardon Company, Inc., a beer distributorship
Arnold S. Lerner
Partner in WLLH Radio (Lowell) and in several other radio stations; Director,
Courier Corporation, a commercial printing company
Charles P. Sarantos
Chairman, C&I Electrical Supply Co., Inc.
Michael A. Spinelli
Owner, Merrimac Travel and Action Six Travel Network
55
<PAGE>
Additional Executive Officers of the Company
Name Position
John P. Clancy, Jr. Treasurer of the Company; Senior Vice President,
Chief Financial Officer, Treasurer and Chief
Investment Officer of the Bank
Robert R. Gilman Executive Vice President, Administration, and
Commercial Lender of the Bank
Stephen J. Irish Senior Vice President, Chief Information Officer
and Chief Operations Officer of the Bank
Items 10, 11 and 12.
The information required in Items 10, 11 and 12 of this part is incorporated
herein by reference to the company's definitive proxy statement for its annual
meeting of stockholders to be held May 5, 1998, which it expects to file with
the Securities and Exchange Commission within 120 days of the end of the fiscal
year covered by this report.
Item 13. Exhibits List and Reports on Form 8-K
Exhibit # Exhibit Description
3.1a Articles of Incorporation of the company dated February 29, 1996, filed
as an exhibit to the company's registration statement on Form 8-A filed
on July 16, 1996 relating to its common stock.
3.1b Amendment to Articles of Incorporation of the company dated July 17,
1996 incorporated by reference to the form thereof filed as an exhibit
to the company's registration statement of Form 8-A filed on July 16,
1996 relating to its common stock.
3.2a Bylaws of the company filed as an exhibit to the company's registration
statement on Form 8-A filed on July 16, 1996 relating to its common
stock.
3.2b Amended and Restated Bylaws of the company filed as an exhibit to the
company's 10-QSB for the quarter ended June 30, 1997.
4.1 Rights Agreement dated as of January 13, 1998 between Enterprise
Bancorp, Inc. and Enterprise Bank and Trust Company, as Rights Agent,
filed as an exhibit to the company's registration statement on Form 8-A
filed on January 14, 1998.
4.2 Terms of Series A Junior Participating Preferred Stock, included as
Exhibit A to Rights Agreement, as filed with Form 8-A registration
statement on January 14, 1998.
4.3 Summary of Rights to Purchase Shares of Series A Junior Participating
Preferred Stock, included as Exhibit B to Rights Agreement, as filed
with Form 8-A registration statement on January 14, 1998.
4.4 Form of Rights Certificate, included as Exhibit C to Rights Agreement,
as filed with Form 8-A registration statement on January 14, 1998.
10.1 Lease agreement dated July 22, 1988, between the bank and First Holding
Trust relating to the premises at 222 Merrimack Street, Lowell,
Massachusetts filed with the company's 10-QSB for the quarter ended
June 30, 1996.
56
<PAGE>
10.2 Amendment to lease dated December 28, 1990, between the bank and First
Holding Trust for and relating to the premises at 222 Merrimack Street,
Lowell, Massachusetts filed with the company's 10-QSB for the quarter
ended June 30, 1996.
10.3 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 filed with the company's 10-QSB
for the quarter ended June 30, 1996.
10.4 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 filed with the company's 10-QSB for the
quarter ended June 30, 1996.
10.5 Lease agreement dated March 14, 1995, between the bank and North
Central Investment Limited Partnership for 3,960 square feet related to
the premises at 2-6 Central Street, Leominster, Massachusetts filed
with the company's 10-QSB for the quarter ended June 30, 1996.
10.6 Amended employment agreement between the bank and George L. Duncan
dated December 13, 1995 filed with the company's 10-QSB for the quarter
ended June 30, 1996.
10.7 Employment agreement between the bank and Richard W. Main dated
December 13, 1995 filed with the company's 10-QSB for the quarter ended
June 30, 1996.
10.8 Lease agreement dated June 20, 1996, between the bank and Kevin C.
Sullivan and Margaret A. Sullivan for 4,800 square feet related to the
premises at 910 Andover Street, Tewksbury, Massachusetts filed with the
company's 10-KSB for the year ended December 31, 1996.
10.9 Amendment to employment agreement between the bank and George L. Duncan
dated December 4, 1996 filed with the company's 10-KSB for the year
ended December 31, 1996.
10.10 Amendment to employment agreement between the bank and Richard W. Main
dated December 4, 1996 filed with the company's 10-KSB for the year
ended December 31, 1996.
10.11 Split Dollar Agreement for George L. Duncan filed with the company's
10-KSB for the year ended December 31, 1996.
10.12 Lease agreement dated July 4, 1993 between the bank and Merrimack
Realty Trust for 4,375 square feet relating to premises at 27 Palmer
Street, Lowell, Massachusetts.
10.13 Lease agreement dated September 1, 1997, between the bank and Merrimack
Realty Trust to premises at 129 Middle Street, Lowell, Massachusetts.
10.14 Lease agreement dated May 2, 1997 between the bank and First Lakeview
Avenue Limited Partnership to premises at 1168 Lakeview Avenue, Dracut,
Massachusetts.
10.15 Enterprise Bancorp, Inc. 1988 Stock Option Plan.
21.0 Subsidiaries of the Registrant.
(b)Reports on Form 8-K
The company filed an 8-K on January 14, 1998 reporting the adoption of
a shareholders rights plan.
57
<PAGE>
ENTERPRISE BANCORP, INC.
SIGNATURES
In accordance with Section 15(d) of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: March 19, 1998 /s/ John P. Clancy, Jr.
John P. Clancy, Jr.
Treasurer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities on the dates
indicated.
/s/ George L. Duncan Chairman, March 19, 1998
George L. Duncan Chief Executive Officer
and Director
/s/ Richard W. Main President, Chief March 19, 1998
Richard W. Main Operating Officer and Director
/s/ John P. Clancy, Jr. Treasurer March 19, 1998
John. P. Clancy Jr. (Principal Financial Officer)
/s/ Todd A. Klibansky (Principal Accounting Officer) March 19, 1998
Todd A. Klibansky
/s/ Kenneth S. Ansin Director March 19, 1998
Kenneth S. Ansin
/s/ Walter L. Armstrong Director March 19, 1998
Walter L. Armstrong
/s/ Gerald G. Bousquet, M.D. Director March 19, 1998
Gerald G. Bousquet, M.D.
/s/ Kathleen M. Bradley Director March 19, 1998
Kathleen M. Bradley
/s/ James F. Conway, III Director March 19, 1998
James F. Conway, III
/s/ Nancy L. Donahue Director March 19, 1998
Nancy L. Donahue
/s/ Lucy A. Flynn Director March 19, 1998
Lucy A. Flynn
/s/ Eric W. Hanson Director March 19, 1998
Eric W. Hanson
/s/ John P. Harrington Director March 19, 1998
John P. Harrington
/s/ Arnold S. Lerner Director, March 19, 1998
Arnold S. Lerner Vice Chairman and Clerk
/s/ Charles P. Sarantos Director March 19, 1998
Charles P. Sarantos
/s/ Michael A. Spinelli Director March 19, 1998
Michael A. Spinelli
58
EXHIBIT 10.12
STANDARD FORM COMMERCIAL LEASE
1. PARTIES (fill in)
Merrimack Realty Trust LESSOR, which expression shall include its
heirs, successors and assigns where the context so admits, does hereby lease to
Enterprise Bank and Trust Company
2. PREMISES (fill in and include, if applicable, suite number, and square feet)
LESSEE, which expression shall include its successors, executors,
administrators and assigns where the context so admits, and the LESSEE hereby
leases the following described premises: 4,375+/-sq ft. of office space on the
ground floor of 21-27 Palmer Street and as more particularly described by the
attached Schedule A.
Together with the right to use in common, with others entitled thereto,
the hallways, stairways, and elevators, necessary for access to said leased
premises, and lavatories nearest thereto.
3. TERM (fill in)
The term of this lease shall be for five (5 years commencing on May 1,
1993 and ending on April 30, 1998. Beginning December 31, 1994, and annually
thereafter, on the 31st day of December during any year of the term and any year
of the extended term, Lessee shall have the option to terminate its lease upon
90 days written notice to Lessor. Such notice to be sent Certified Mail. In
addition, the Lessee will have the option to extend its lease for three
additional five (5) year terms.
4. RENT (fill in)
The LESSEE shall pay to the LESSOR rent at the rate of $19,007.40
dollars per year, payable in advance in monthly installments of $1,583.95 for
year one through five as described in Schedule B. Each option period's annual
rent will be calculated as per the attached Schedule C.
5. SECURITY DEPOSIT (fill in)
Upon the execution of this lease, the LESSEE shall pay to the LESSOR
the amount of $0 dollars, which shall be held as a security for the LESSEE's
performance as herein provided and refunded to the LESSEE at the end of this
lease subject to the LESSEE's satisfactory compliance with the conditions
hereof.
6. RENT ADJUSTMENT (fill in)
The LESSEE shall pay to the LESSOR as additional rent N/A percent of an
increase in operating expenses, defined for the purposes of this agreement as
N/A and N/A percent of any increase in real estate taxes levied against the land
and building, of which the leased premises are a part, over those incurred or
levied during the calendar year ending N/A. This increase shall be prorated
should this lease terminate before the end of any calendar year. The LESSEE
shall make payment within thirty (30) days of written notice from the LESSOR
that such operating expenses, or increased taxes, are payable by the LESSOR.
<PAGE>
7. UTILITIES (fill in or delete) and services
The LESSOR shall provide and LESSEE shall pay for all LESSEE's
utilities, water and sewer use charges, except for heat.
LESSOR agrees to furnish reasonable heat to the leased premises, the
hallways, stairways, elevators, and lavatories during normal business hours on
regular business days of the heating season of each year, to furnish elevator
service and to light passageways and stairways during business hours, and to
furnish such cleaning service as is customary in similar buildings in said city
or town, all subject to interruption due to any accident, to the making of
repairs, alterations or improvements, to labor difficulties, to trouble in
obtaining fuel, electricity, service or supplies from the sources from which
they are usually obtained for said building, or to any cause beyond the LESSOR's
control.
8. USE OF LEASED PREMISES (fill in)
The LESSEE shall use the leased premises only for the purpose of
general banking and mortgage company and all related activities.
9. COMPLIANCE WITH LAWS
The LESSEE acknowledges that no trade or occupation shall be conducted
in the leased premises or use made thereof which will be unlawful, improper,
noisy or offensive, or contrary to any law or any municipal by-law or ordinance
in force in the city or town in which the premises are situated.
10. FIRE INSURANCE
The LESSEE shall not permit any use of the leased premises which will
make voidable any insurance on the property of which the leased premises are a
part, or on the contents of said property or which shall be contrary to any law
or regulation from time to time established by the New England Fire Insurance
Rating Association, or any similar body succeeding to its powers. The LESSEE
shall on demand reimburse the LESSOR, and all other tenants, all extra insurance
premiums caused by the LESSEE's use of the premises.
11. MAINTENANCE OF PREMISES
The LESSEE agrees to maintain the leased premises in the same condition
as they are at the commencement of the term or as they may be put in during the
term of this lease, reasonable wear and tear, damage by fire and other casualty
only excepted, and whenever necessary, to replace plate glass and other glass
therein acknowledging that the leased premises are now in good order and the
glass whole. The LESSEE shall not permit the leased premises to be overloaded,
damaged, stripped, or defaced, nor suffer any waste. LESSEE shall obtain written
consent of LESSOR before erecting any sign on the premises.
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<PAGE>
12. ALTERATIONS-ADDITIONS
The LESSEE shall make alterations to the leased premises as described
in Schedule D. All work will be completed in a good and workmanlike manner. With
respect to such alterations, LESSEE agrees to hold LESSOR harmless as described
in Schedule E. All such allowed alterations shall be at LESSEE's expense except
as otherwise described in Schedule B, and shall be in quality at least equal to
the present construction. LESSEE shall not permit any mechanics' liens, or
similar liens, to remain upon the leased premises for labor and material
furnished to LESSEE or claimed to have been furnished to LESSEE in connection
with work of any character performed or claimed to have been performed at the
direction of LESSEE and shall cause any such lien to be released of record
forthwith without cost to LESSOR. Any alterations or improvements made by the
LESSEE shall become the property of the LESSOR at the termination of occupancy
as provided herein.
13. ASSIGNMENT-SUBLEASING
The LESSEE shall not assign or sublet the whole or any part of the
leased premises without LESSOR's prior written consent, which consent shall not
unreasonably withheld or delayed. Notwithstanding such consent, LESSEE shall
remain liable to LESSOR for the payment of all rent and for the full performance
of the covenants and conditions of this lease.
14. SUBORDINATION
This lease shall be subject and subordinate to any and all mortgages,
deeds of trust and other instruments in the nature of a mortgage, now or at any
time hereafter, a lien or liens on the property of which the leased premises are
a part and the LESSEE shall, when requested, promptly execute and deliver such
written instruments as shall be necessary to show the subordination of this
lease to said mortgages, deeds of trust or other such instruments in the nature
of a mortgage.
15. LESSOR'S ACCESS
The LESSOR or agents of the LESSOR may, at reasonable times, enter to
view the leased premises and may remove placards and signs not approved and
affixed as herein provided, and make repairs and alterations as LESSOR should
elect to do and may show the leased premises to others, and at any time within
three (3) months before the expiration of the term, may affix to any suitable
part of the leased premises a notice for letting or selling the leased premises
or property of which the leased premises are a part and keep the same so affixed
without hindrance or molestation.
16. INDEMNIFICATION AND LIABILITY
The LESSEE shall save the LESSOR harmless from all loss and damage
occasioned by the use or escape of water or by the (fill in) bursting of pipes,
as well as from any claim or damage resulting from neglect in not removing snow
and ice from the roof of the building or from the sidewalks bordering upon the
premises so
-3-
<PAGE>
leased, or by any nuisance made or suffered on the leased premises, unless such
loss is caused by the neglect of the LESSOR. The removal of snow and ice from
the sidewalks bordering upon the leased premises shall be LESSOR responsibility.
17. LESSEE'S LIABILITY INSURANCE (fill in)
The LESSEE shall maintain with respect to the leased premises and the
property, of which the leased premises are a part, comprehensive public
liability insurance in the amount of $1,000,000 with property damage insurance
in limits of $100,000 in responsible companies qualified to do business in
Massachusetts and in good standing therein insuring the LESSOR as well as LESSEE
against injury to persons or damage to property as provided. The LESSEE shall
deposit with the LESSOR certificates for such insurance at or prior to the
commencement of the term, and thereafter within thirty (30) days prior to the
expiration of any such policies. All such insurance certificates shall provide
that such policies shall not be cancelled without at least ten (10) days prior
written notice to each assured named therein.
18. FIRE CASUALTY-EMINENT DOMAIN
Should a substantial portion of the leased premises, or of the property
of which they are a part, be substantially damaged by fire or other casualty, or
be taken by eminent domain, the LESSOR may elect to terminate this lease. When
such fire, casualty, or taking renders the leased premises substantially
unsuitable for their intended use, a just and proportionate abatement of rent
shall be made, and the LESSEE may elect to terminate this lease if:
(a) The LESSOR fails to give written notice within thirty (30)
days of intention to restore leased premises, or
(b) The LESSOR fails to restore the leased premises to a condition
substantially suitable for their intended use within ninety
(90) days of said fire, casualty, or taking.
The LESSOR reserves and the LESSEE grants to the LESSOR, all rights which the
LESSEE may have for damages or injury to the leased premises or any taking by
eminent domain except for damage to the LESSEE's fixtures, property or
equipment.
19. DEFAULT AND BANKRUPTCY
In the event that:
(a) The LESSEE shall default in the payment of any installment of
rent or other sum herein specified and such default shall
continue for ten (10) days after written notice thereof; or
(b) The LESSEE shall default in the observance or performance of
any other of the LESSEE's covenants, agreements, or
obligations hereunder and such default shall not be corrected
within thirty (30) days after written notice thereof; or
-4-
<PAGE>
(c) The LESSEE shall be declared bankrupt or insolvent according
to law, or, if any assignment shall be made of LESSEE's
property for the benefit of creditors,
then the LESSOR shall have the right thereafter, while such default continues,
to re-enter and take complete possession of the leased premises, to declare the
terms of this lease ended, and remove the LESSEE's effects, without prejudice to
any remedies which might be otherwise used for arrears of rent or other default.
The LESSEE shall indemnify the LESSOR against all loss of rent and other
payments which the LESSOR may incur by reason of such termination during the
residue of the term. If the LESSEE shall default, after reasonable notice
thereof, in the observance or performance of any conditions or covenants on
LESSEE's part to be observed or performed under or by virtue of any of the
provisions in any article of this lease, the LESSOR, without being under any
obligation to do so and without thereby waiving such default, may remedy such
default for the account and at the expense of the LESSEE. If the LESSOR makes
any expenditures or incurs any obligations for the payment of money in
connection therewith, including but not limited to, reasonable attorney's fees
instituting, prosecuting or defending any action or proceeding, such sums paid
or obligations insured, with interest at the rate of six (6) percent per annum
and costs, shall be paid to the LESSOR by the LESSEE as additional rent.
20. NOTICE (fill in)
Any notice from the LESSOR to the LESSEE relating to the leased
premises or to the occupancy thereof, shall be deemed duly served, if left at
the leased premises addressed to the LESSEE, or, if mailed to the leased
premises, registered or certified mail, return receipt requested, postage
prepaid, addressed to the LESSEE. Any notice from the LESSEE to the LESSOR
relating to the leased premises or to the occupancy thereof, shall be deemed
duly served, if mailed to the LESSOR by registered or certified mail, return
receipt requested, postage prepaid, addressed to the LESSOR at such address as
the LESSOR may from time to time advise in writing. All rent and notices shall
be paid and sent to the LESSOR at
Merrimack Realty Trust
222 Merrimack Street, Suite 210
Lowell, MA 01852
21. SURRENDER
The LESSEE shall at the expiration or other termination of this lease
remove all LESSEE's goods and effects from the leased premises, (including,
without hereby limiting the generality of the foregoing, all signs and lettering
affixed or painted by the LESSEE, either inside or outside the leased premises).
LESSEE shall deliver to the LESSOR the leased premises and all keys, locks
thereto, and other fixtures connected therewith and all
-5-
<PAGE>
alterations and additions made to or upon the leased premises, in the same
condition as they were at the commencement of the term, or as they were put in
during the term hereof, reasonable wear and tear and damage by fire or other
casualty only excepted. In the event of the LESSEE's failure to remove any of
LESSEE's property from the premises, LESSOR is hereby authorized, without
liability to LESSEE for loss or damage thereto, and at the sole risk of LESSEE,
to remove and store any of the property at LESSEE's expense, or to retain same
under LESSOR's control or to sell at public or private sale, without notice any
or all of the property not so removed and to apply the net proceeds of such sale
to the payment of any sum due hereunder, or to destroy such property.
22. OTHER PROVISION
IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands
and common seals this 4th day of July, 1993.
/s/ Michael T. Putziger, Trustee
LESSOR: Merrimack Realty Trust
/s/ John P. Clancy, Jr., CFO and Treasurer
LESSEE: Enterprise Bank and Trust Company
-6-
<PAGE>
SCHEDULE A
[Diagram of Floor Plan]
<PAGE>
SCHEDULE B
The annual base rent for the first five years of the lease will be $33,906.20
annually. The Lessee, however, will receive an annual credit ("credit") of
$14,898.80 for years 1-5 for undertaking certain improvements on behalf of the
Lessor as described below. The net annual rent will be $19,007.40 for years 1-5.
Lessor Related Cost
Demolition and Dumpster $ 6,635.00
Stud Outside Walls and Sheetrock 16,284.00
Ramp Hallway Entrance 5,657.60
White Grid Ceiling Tile 4,881.00
Plumbing 2,273.10
Sprinkler Heads 2,590.00
Air Conditioning Unit 17,679.30
Replace & Relocate Other A/O Unit 9,000.00
Lost Use of Funds 9,494.00
------------
$74,494.00
As stated in Section 3 of the lease, Lessee shall have the right to terminate
its lease on December 31, 1994 and annually thereafter, upon 90 days' notice. It
is understood and agreed to between Lessor and Lessee that in the event of a
termination prior to the end of year five that any portion of the credit (as
described above) not yet realized by Lessee will be forfeited.
<PAGE>
SCHEDULE C
a. The annual rent for the first option period (year 6) will be
established by taking the sum of $33,906.20 plus the product of
$33,906.20 multiplied by the amount expressed as a percentage equal to
the increase, if any, in the CPI-U for the preceding 60 month period.
For years 2 through 5 of the first option period (years 7-10 overall),
the rent shall be adjusted annually. The annual rent will be calculated
by taking the sum of the annual rent for the preceding 12 month period
plus the product of the annual rent for the preceding 12 month period
multiplied by the amount expressed as a percentage equal to the
increase if any in the CPI-U for the preceding 12 month period. The
increase in the CPI-U shall be calculated by comparing the CPI-U
published on or most recently prior to the commencement of the
preceding period with the CPI-U published on or most recently prior to
the end of the preceding period. In the event in any yearly period, the
CPI-U, or any substitute index decreases, the rent shall never be less
than the previous annual figure.
The annual rent for the first year of the second option period (year 11
overall) shall be calculated by taking the sum of the annual rent for
the preceding 12 month period plus the product of the annual rent for
the preceding 12 month period multiplied by the amount, expressed as a
percentage equal to the increase, if any, in the CPI-U for the
preceding 12 month period. For years 2 through 5 of the second option
period (years 12-15 overall), the rent shall be adjusted annually. The
annual rent will be calculated by taking the sum of the annual rent for
the preceding 12 month period plus the product of the annual rent for
the preceding 12 month period multiplied by the amount expressed as a
percentage equal to the increase if any in the CPI-U for the preceding
12 month period. In the event in any yearly period, the CPI-U, or any
substitute index decreases, the rent shall never be less than the
previous annual figure. The increase in the CPI-U shall be calculated
by comparing the CPI- U published on or most recently prior to the
commencement of the preceding period with the CPI-U published on or
most recently prior to the end of the preceding period. In the event in
any period, the CPI-U, or any substitute index decreases, the rent
shall never be less than the previous yearly figure.
The annual rent for the first year of the third option period (year 16
overall) shall be calculated by taking the sum of the annual rent for
the preceding 12 month period plus the product of the annual rent for
the preceding 12 month period multiplied by the amount, expressed as a
percentage equal to the increase, if any, in the CPI-U for the
preceding 12 month period. For years 2 through 5 of the third option
period (years 17-20 overall), the rent shall be adjusted annually. The
annual rent will be calculated by taking the sum of the annual rent for
the preceding 12 month period plus the product of the annual rent for
the preceding 12 month period multiplied by the amount expressed as a
percentage equal to the increase if any in the CPI-U for the preceding
12 month period. In the event in any yearly period, the CPI-U, or any
substitute index decreases, the rent shall never be less than the
previous annual figure. The increase in the CPI-U shall be calculated
by comparing the CPI- U published on or most recently prior to the
commencement of the preceding period with the CPI-U published on or
most recently prior to the end of the preceding period. In the event in
any period, the CPI-U, or any substitute index decreases, the rent
shall never be less than the previous yearly figure.
b. Rate determined by utilizing the Consumer Price Index published by
Bureau of Labor Statistics of the U.S. Dept. of Labor.
<PAGE>
SCHEDULE D
Demolition of the existing partitions
Dumpster for construction
Stud walls and sheetrock
Supply and install millwork
Supply solid core doors
Necessary door hardware
Glass for the store fronts and doors
Kitchen cabinets and countertop
Ramp hallway and 1" plywood O/F1
Move archway in brick wall
Painting of walls and doors
New white grid and ceiling tiles
Rework sprinkler heads
Plumbing
Plumbing for 3 H/C bathrooms
Bathroom hardware/exhaust fan
Air conditioning 1 - 7 1/2 ton unit
2 - 5 ton unit split system (one for the doctors' area)
Add doors to the stairwell and relocate pipes
Carpet and tile, using existing carpet, plus additional carpet
Electrical:
Necessary electrical outlets
Isolated grounded outlets
Light switches
New acrylic lense fixtures
Exit and emergency lighting
One new sub panel
Telephone outlets 4 C/pairs
Data outlets Level 5
Kitchen outlet on separate circuit
Connecting the new A/C units
Cut in door and necessary ramp for H/C entrance
Adding 10 recessed wall washes
Using three year lamps in exit
Light fixtures
Remove 10 ton AC unit
Supply new carpet
Supply janitor sink in closet
Install radiator in office #1
Install radiator in conference room
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SCHEDULE E
INDEMNIFICATION AGREEMENT
BY AND BETWEEN
LESSOR: MERRIMACK REALTY TRUST
LESSEE: ENTERPRISE BANK AND TRUST COMPANY
This agreement is entered into as of April 7, 1993, between Enterprise
Bank and Trust Company (Lessee) and Merrimack Realty Trust (Lessor). Whereas
Lessee wishes to enter the premises as defined on the attached Exhibit A prior
to the execution of a definitive lease agreement for such premises, for the
purpose of commencing alterations to said premises; and whereas Lessor is
willing to allow such access to said premises subject to the following
indemnification whereby Lessee will hold Lessor absolutely harmless as a result
of any and all actions as further defined below.
LESSEE agrees to save LESSOR harmless and shall exonerate, defend and
indemnify LESSOR from and against, any and all claims, liabilities, losses,
damages, costs, expenses and penalties, of whatsoever nature, arising from any
act, omission, or negligence of LESSEE or LESSEE's employees, agents,
contractors, suppliers, licensees, customers, or visitors, or arising from any
accident, injury or damage whatsoever caused to any person, including death, or
to the property of any person, which shall occur during the term of the proposed
Lease and/or resulting from LESSOR allowing LESSEE to begin alterations (as
defined in Exhibit B) to the premises, in or about the premises, or which shall
arise from any accident, injury or damage occurring outside of the premises but
in or about the building (and, without limiting the generality of the foregoing,
on or about the elevators, staircases, public corridors, sidewalks, approaches,
roof, or other appurtenances and facilities used in connection with the building
or the premises), where such accident, damage or injury result or is claimed to
have resulted from an act, omission, misconduct, or negligence on the part of
LESSEE or LESSEE's agents, servants, employees, suppliers, licensees, visitors,
or customers; and LESSEE shall save LESSOR harmless and shall indemnify LESSOR
from and against any and all costs and expenses (including reasonable attorney's
fees) incurred by LESSOR by reason of any failure of LESSEE to observe any of
LESSEE's obligations, covenants, and agreements hereunder.
4/7/93 /s/ Michael T. Putziger
Date By: Michael T. Putziger, Trustee and
not individually
Merrimack Realty Trust
4/7/93 /s/ John P. Clancy, Jr.
Date By: John P. Clancy, Jr., Treasurer and
Chief Financial Officer
Enterprise Bank and Trust Company
EXHIBIT 10.13
LEASE
BASIC LEASE PROVISIONS
1.01 Date and Parties. This lease (Lease) is made the 1ST day of September,
1997, between, Michael T. Putziger as Trustee of Merrimack Realty Trust
(Landlord) and Enterprise Bank and Trust Company (Tenant). Landlord is a Nominee
Trust with a principal office at 170 Merrimack Street ,Lowell, Massachusetts
01852. Tenant is a Massachusetts corporation with a principal office at 222
Merrimack Street, Lowell, Massachusetts 01852.
ARTICLE II
Leased Premises and Term
2.1 Leased Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, for the term hereinafter set forth and subject to and with the
benefit of the terms, covenants, conditions and provisions of this Lease, the
Leased Premises which is located in the office building located at 129 Middle
Street in Lowell. The office building has three addresses, namely 23 Palmer
Street, 129 Middle Street and 170 Merrimack Street. The Leased Premises consists
of 3415 square feet of interior space and is located on the third floor of the
Building.
2.2.1. Appurtenant Rights. The Leased Premises shall also include all
appurtenant rights now or at any time hereafter during the term of this Lease
necessary for the continued use and enjoyment thereof by Tenant and shall
specifically include as appurtenant thereto the right for Tenant and all his
agents, employees, guests and invitees to use (in common with others entitled to
the use thereof) (a) all entrances, lobbies, walkways, corridors, stairways and
elevators, which now or hereafter afford access to the Leased Premises and the
Building of which it is part and (b) the common pipes, ducts, conduits, wires
and appurtenant equipment serving the Leased Premises and the building. The term
Leased Premises wherever used herein, shall include any and all structures,
parking facilities and common facilities built therein.
2.3 Term. TO HAVE AND TO HOLD the Leased Premises for an Initial Term as set
forth below (hereinafter the "Initial Term") subject to the agreements, terms
and conditions herein contained. The Initial Term is to commence on September 1,
1997 (hereinafter the "Commencement Date") for the Leased Premises and
continuing
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thereafter for the Lease Term unless sooner terminated as hereinafter provided.
Notwithstanding anything to the contrary herein contained the Tenant may enter
upon the Leased Premises on September 1, 1997 and begin to renovate and remodel
the Leased Premises.
2.3.1 Initial Term and Extensions. Initial Term. For a term of thirty (30)
months (hereinafter referred to as the "Initial Term"), or until and unless
sooner terminated as provided herein, said Initial Term to commence on the
Commencement Date and terminate at the close of the day preceding the thirty
(30) month anniversary of the Commencement Date.
Extension Options Eleven options of thirty months each.
Tenant shall have the option, at its election, to extend the Initial
Term for an additional term of thirty (30) months (hereinafter referred to as
the ("First Option Term") to commence on the day next following the end of the
Initial Term and to end at the close of the day preceding the thirty (30) month
anniversary of the commencement of the First Option Term.
Tenant shall have the option, at its election, to extend the First
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Second Option Term") to commence on the day next following the end
of the First Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Second Option Term.
Tenant shall have the option, at its election, to extend the Second
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Third Option Term") to commence on the day next following the end of
the Second Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Third Option Term.
Tenant shall have the option, at its election, to extend the Third
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Fourth Option Term") to commence on the day next following the end
of the Third Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Fourth Option Term.
Tenant shall have the option, at its election, to extend the Fourth
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Fifth Option Term") to commence on the day next following the end of
the Fourth Option Term and
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to end at the close of the day preceding the thirty month anniversary of the
commencement of the Fifth Option Term.
Tenant shall have the option, at its election, to extend the Fifth
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Sixth Option Term") to commence on the day next following the end of
the Fifth Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Sixth Option Term.
Tenant shall have the option, at its election, to extend the Sixth
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Seventh Option Term") to commence on the day next following the end
of the Sixth Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Seventh Option Term.
Tenant shall have the option, at its election, to extend the Seventh
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Eighth Option Term") to commence on the day next following the end
of the Seventh Option Term and to end at the close of the day preceding the
thirty (30) month anniversary of the commencement of the Eighth Option Term.
Tenant shall have the option, at its election, to extend the Eighth
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Ninth Option Term") to commence on the day next following the end of
the Eighth Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Ninth Option Term.
Tenant shall have the option, at its election, to extend the Ninth
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Tenth Option Term") to commence on the day next following the end of
the Ninth Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Tenth Option Term.
Tenant shall have the option, at its election, to extend the Tenth
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the ("Eleventh Option Term") to commence on the day next following the end
of the Tenth Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Eleventh Option Term.
2.3.2 Automatic Exercise of Extension Options. The extension options shall
automatically be deemed exercised unless Tenant
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notifies the Landlord, in writing, of its intention not to so exercise an
extension option, said notice to be given not less than 90 days from the end of
the then current term. Tenant shall have no right to exercise future extension
options if Tenant chooses not to exercise an earlier extension option. Any
extension option shall not be automatically deemed exercised if Tenant is
notified in writing that it is in material default or breach of any provisions
of this lease.
2.3.3 Commencement Date/Termination Date. When the dates of the beginning and
end of the Initial Term relative to the Leased Premises have been determined
(hereinafter referred to as the Commencement Date and the Termination Date),
such dates shall be evidenced by a document in the form of Notice of Lease for
recording and executed by Landlord and Tenant and delivered each to the other.
2.3.4 First Refusal/Initial Option Terms. In the event Tenant exercises its
rights of first refusal as described in Section 10.11 below to rent more space
in the Leased Premises the rental of additional space shall be for a term agreed
to between Landlord and Tenant which agreement shall not be unreasonably delayed
or withheld.
2.3.5 Title Warranty to Defend. Landlord represents and warrants that it owns
the Building in fee simple free from all encumbrances except those specified in
this Lease as noted on Exhibit A. Landlord, to the extent possible, using all
good faith efforts, will defend its title at its own expense and will not suffer
any liens to attach to the Building which would interfere with the Tenant's use
hereof.
ARTICLE III
Improvements
3.1 Performance of Work and Approval of Landlord's Work. Landlord is delivering
the Leased Premises to Tenant in as is condition. Landlord represents and
warrants that the Building has been constructed in compliance with all laws
applicable at the time of construction, including without limitation the State
Building Code of the Commonwealth of Massachusetts (hereinafter the "Code") and
the Zoning Ordinance of the City of Lowell, Massachusetts. Upon discovering that
the Building is not in compliance with the Code, the Tenant shall give prompt
written notice thereof to Landlord, specifying the noncompliance. Landlord
agrees to repair and correct any such noncompliance which will not be fixed or
removed as part of the Tenant's renovations within a reasonable period of time.
In the event that Landlord fails to correct any noncompliance to the Leased
Premises within a reasonable period but in no event not less than forty five
days, Tenant may at its option, correct said noncompliance and bill Landlord its
reasonable and direct costs of repair.
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ARTICLE IV
RENT
4.1 The Rent. Tenant covenants and agrees to pay rent, to Landlord or to such
agent as designated by Landlord, at Landlord's Original Address or to such other
address as Landlord may by notice in writing to Tenant from time to time direct.
The Landlord directs that payments be made to Landlord at the following rates
and times:
4.1.a. Annual Fixed Rent. For the first thirty (30) months of the Initial Term
as that term is defined in Article 2.3 above, Annual Fixed Rent shall be as
follows: $16,221.25 annually, $1,351.77 monthly, payable in advance beginning on
the Commencement Date (being pro-rated for any portion of a month) and being
payable on the first day of each month thereafter during the term of this Lease,
as extended.
4.1.b. Annual Fixed Rent. With respect to months 31 through 60 Annual Rent for
the Leased Premises shall be the sum of (a) the Annual Fixed Rent being paid
during the preceding thirty month period (The Initial Term or any one of the
extended terms) and (b) the product of (I) the Annual Fixed Rent being charged
during the preceding thirty month period multiplied by (ii) the amount,
expressed as a percentage equal to 75% per cent of the increase, if any, in the
index now known as the Consumer's Price Index for All Urban Consumers, All
Items, for the Boston Area as published by the Bureau of Labor Statistics,
United States Department of Labor ("CPI") for the thirty month period next
preceding the commencement of the current extended term or the preceding thirty
month period of the Initial Term. The Initial CPI shall be the CPI published on
or most recently prior to the Commencement Date and the CPI utilized to
calculate the increase shall be the CPI published on or most recently prior to
the commencement of the current extended term or the preceding thirty month
period of the Initial Term. If publication of the CPI shall be discontinued, the
Landlord will select a reasonably comparable index for use thereafter and
provide notice thereof to the Tenant. In no event will Annual Fixed Rent during
the Initial Term or any extended term be less than the Annual Fixed Rent during
the preceding thirty month period.
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In the event that Tenant or Tenant's corporate parent is the subject of
a change in control notice or merger or new bank holding company application the
effect of which would be to transfer directly or indirectly control of Tenant,
then the percentage increase in CPI used in calculating prospective changes in
subsequent lease extension payments shall be 100% instead of 75%.
4.1.c. Annual Fixed Rent. With respect to months 61 through 90 Annual Fixed Rent
for the Leased Premises shall be the sum of (a) the Annual Fixed Rent being paid
during the preceding thirty month period and (b) the product of (I) the Annual
Fixed Rent being charged during the preceding thirty month period multiplied by
(ii) the amount, expressed as a percentage equal to 75% per cent of the
increase, if any, in the index now known as the Consumer's Price Index for All
Urban Consumers, All Items, for the Boston Area as published by the Bureau of
Labor Statistics, United States Department of Labor ("CPI") for the thirty month
period next preceding the commencement of the current extended term or the
preceding thirty month period of the Initial Term. The Initial CPI shall be the
CPI published on or most recently prior to the Commencement Date and the CPI
utilized to calculate the increase shall be the CPI published on or most
recently prior to the commencement of the current extended term or the preceding
thirty month period of the Initial Term. If publication of the CPI shall be
discontinued, the Landlord will select a reasonably comparable index for use
thereafter and provide notice thereof to the Tenant. In no event will Annual
Fixed Rent during the Initial Term or any extended term be less than the Annual
Fixed Rent during the preceding thirty month period.
In the event that Tenant or Tenant's corporate parent is the subject of
a change in control notice or merger or new bank holding company application the
effect of which would be to transfer directly or indirectly control of Tenant,
then the percentage increase in CPI used in calculating prospective changes in
subsequent lease extension payments shall be 100% instead of 75%.
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4.1.d The annual rent for the months 91 through 120 month of the original term
of this Lease shall be the market rent of the Premises based on general office
space in Lowell of similar quality and condition as of the end of the ninetieth
(90th) month of the lease and determined as follows: Landlord and Tenant shall
attempt to agree upon such market rent. If the parties have not agreed in
writing as to the rent on or before 85th month of this lease, then the market
rent shall be determined by arbitration as provided herein. Such arbitration
shall be conducted, upon request of either the Landlord or the Tenant, before
three arbitrators (unless the Landlord or the Tenant agree to one arbitrator)
designated by the American Arbitration Association and in accordance with the
rules of such Association. The arbitrators designated and acting under this
lease shall make their award in strict conformity with such rules and shall have
no power to depart from or change any of the provisions thereof. The expense of
arbitration proceedings conducted hereunder shall be borne equally by the
parties. All arbitration proceedings hereunder shall be conducted in the county
in which the leased property is located.
Upon the determination of such "market rent" the Landlord shall use
such in the calculation of the Base Rent as set forth in this Lease. If, for any
reason, the decision of the appraiser or the appraisers pursuant to this Exhibit
shall not be determined before the commencement of the extension period, then
the Tenant shall continue to pay Minimum Annual Rent in monthly installments at
the rate in effect immediately prior to the commencement of such extension
period until such decision of the appraiser(s) shall be made, and upon the
decision by the appraiser(s) an appropriate adjustment shall be made,
retroactive to the first day of such extension.
4.1.e. Annual Fixed Rent. With respect to months 121 through 150 and
every succeeding thirty months during the Initial Term and all extension options
as set forth in Article II, Annual fixed rent during such period and all
extended terms, for each portion of the Leased Premises shall be the sum of (a)
the Annual Fixed Rent being paid during the preceding thirty month period and
(b) the product of (I) the Annual Fixed Rent being
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charged during the preceding thirty month period multiplied by (ii) the amount,
expressed as a percentage equal to 75% percent of the increase, if any, in the
index now known as the Consumer Index for All Urban Consumers, All Items, for
the Boston Area as published by the Bureau of Labor Statistics, United States
Department of Labor ("CPI") for the thirty month period next preceding the
commencement of the current extended term or the preceding thirty month period
of the Initial Term. The Initial CPI shall be the CPI published on or most
recently prior to the Commencement Date and the CPI utilized to calculate the
increase shall be the CPI published on or most recently prior to the
commencement of the current extended term or the preceding thirty month period
of the Initial Term. If publication of the CPI shall be discontinued, the
Landlord will select a reasonably comparable index for use thereafter and
provide notice thereof to the tenant. In no event will Annual Fixed Rent during
the Initial Term or any extended term be less than the Annual Fixed Rent during
the preceding thirty month period.
In the event that Tenant or tenant's corporate parent is the subject of
a change in control notice or merger or new bank holding company application the
effect of which would be to transfer directly or indirectly control of Tenant,
then the percentage increase in CPI used in calculating prospective changes in
subsequent lease extension payments shall be 100% instead of 75%.
4.1.f. Annual Fixed Rent shall be payable in advance, in equal monthly
installments of 1/12th of the Annual Fixed Rent on the first day of each
calendar month from and after the Commencement Date.
ARTICLE V
5.1 Landlord's Repair and Maintenance Responsibilities/ Fire Insurance with
respect to the Building.
5.1.1 Repairs. Notwithstanding anything to the contrary herein, Landlord shall
be responsible for the maintenance and/or repair of (a) the exterior of the
Building including the roof
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and structural elements (meaning those portions of the Building used to support
the Building)and (b) the interior directory signs; (c) the driveways and parking
lot, including plowing and, lighting (d) plumbing, utility, HVAC and/or
electrical services to be furnished by Landlord except as modified by Tenant
during renovations pursuant to this Lease except repairs as are necessitated by
the Tenant's negligence.
5.1.2 Maintenance. Landlord shall maintain the common areas of the Building in
good order and repair and regular cleaning of the common areas.
5.1.3 Snow Removal. Landlord shall remove snow and ice from the Common Areas,
the parking lot, sidewalks and passageways and shall have said areas plowed and
accessible to Tenant's employees, customers and patrons no later than 7:30 a.m.
on all business days, subject to weather conditions.
5.1.5 Fire Insurance and Liability Insurance. Landlord shall, throughout the
term of this Lease, at its expense, keep the Building insured against all loss
or damage by fire with extended coverage in such amount as any mortgagee(s) may
require but in no event less than the full replacement value of the Building. In
addition to and not in limitation of the provisions of Section 7, Landlord
agrees to maintain comprehensive public liability insurance naming Tenant as
insured in an amount not less than $500,000.00 with respect to injuries or
damages to any one person and not less than $1,000,000 with respect to injuries
suffered in any one accident and not less than $1,000,000 with respect to
property damage occurring upon, in, or about the common areas which form a
portion of the Leased Premises. All Liability Insurance shall provide coverage
for all persons who enter the property including but not limited to the Landlord
and the Tenant, their employees, agents, contractors, subcontractors and
employees, and agents of contractors and subcontractors as well as customers and
invitees to the Leased Premises.
5.2 Tenant's Repair and Maintenance Responsibilities.
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5.2.1 Repairs. Notwithstanding anything to the contrary herein, Tenant shall be
responsible for the maintenance and/or repair of (a) the Leased Premises,
including the interior, but excluding building structural elements, but
including plumbing, utilities, HVAC and/or electrical services excepting such
repairs as are necessitated by the Landlord's negligence.
ARTICLE VI
Utilities and Services
6.1 Installation of Utilities and Services Provided by Landlord. Landlord has
provided as part of the original installations leading to the Leased Premises
the necessary mains, conduits, facilities and fixtures in order that all utility
services required to satisfy Tenant's specifications and requirements and shall
furnish access to the Tenant to the mains, conduits, facilities and fixtures for
the Tenant's use. The Tenant acknowledges that said installations fulfill its
commercial needs and accept same in as is condition Landlord will, without extra
charge, except as provided below, during the period the Tenant shall occupy the
Leased Premises under the terms hereof and in accordance with existing standards
for like office buildings as established from time to time by the National
Association of Building Owners and Managers, furnish such hot water for heat and
hot and cold running water as may be reasonably required for the comfortable use
and occupation thereof; maintain and repair the structure, except as otherwise
specified herein, exterior and Common Areas of the Building; furnish electricity
for lighting and lights for the Common Areas but not for the Leased Premises.
6.2 Utilities and Charges Therefor. Tenant agrees to pay or cause to be paid
directly to the provider of or party charged with the collection of all charges
for electricity, light, power, telephone, or other service used, rendered or
supplied to or for the Tenant upon or in connection with the Leased Premises
throughout the term of this Lease, and to indemnify Landlord and save it
harmless against any liability or damages on such account. Landlord has
installed separate utility meters throughout the Building and shall, in any
lease or other rental
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agreements for space within the Building, require each tenant to be responsible
for the payment of all utility charges incurred by it. Landlord however is
responsible to furnish hot water for heating purposes and to pay for all heating
expenses.
ARTICLE VII
Tenant's Additional Covenants
7.1 Affirmative Covenants. Tenant covenants at its expense, at all times during
the Lease Term and such further time as Tenant occupies the Leased Premises, of
the building or any part thereof as follows:
7.1.1 Permitted Uses. To use the Leased Premises for banking purposes including
all uses permitted for a federally insured bank or lending institution and other
financial service business uses or as may be allowed banking institutions by law
and for general professional office space.
7.1.2 Compliance with Law. To make all repairs, alterations, additions or
replacements to the Leased Premises and necessitated or required by any law or
ordinance or any order or regulation of any governmental authority except for
environmental and Americans with Disabilities Act which shall be the
responsibilities of landlord applicable on account of Tenant's use of the Leased
Premises and Existing Building; to keep the Leased Premises and Existing
Building equipped with all safety appliances so required because of such use; to
procure any licenses and permits required for any such use; to pay all
municipal, county or state taxes assessed against the leasehold interest
hereunder, or personal property of any kind owned by or placed in, upon or about
the Leased Premises and the Building by Tenant; and to comply with the orders
and regulations of all governmental authorities except as aforesaid, except that
Tenant may defer compliance so long as the validity of any such law, ordinance,
order or regulation shall be contested by Tenant in good faith and by
appropriate legal proceedings, if Tenant first gives Landlord written notice
thereof. In the event of such contest, Tenant shall indemnify and hold harmless
the Landlord
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from any fines, penalties, or other liability arising therefrom. Notwithstanding
anything in this paragraph to the contrary the Tenant shall be responsible to
make all repairs, alterations, additions or replacements to the Leased premises
which are required for compliance with the American with Disabilities Act
applicable to the sole use of the Leased premises by the Tenant and limited to a
service provided by the Tenant and further limited only to the 129 Middle Street
building and 19 Palmer Street building.
7.1.3 Payment for Tenant Work. To pay promptly when due the entire cost of any
work to the Leased Premises and undertaken by Tenant and to bond against or
discharge any liens for labor or materials within 10 days after written request
by Landlord; to procure all necessary permits before undertaking such work; and
to do all of such work in a good and workmanlike manner, employing materials of
good quality and complying with all governmental requirements except as are the
responsibilities of landlord.
7.1.4 Liability Insurance. To maintain with responsible companies qualified to
do business in Massachusetts and in good standing therein and workmen's
compensation insurance with statutory limits covering all of Tenant's employees
working in the Leased Premises and Existing Building, and to deposit promptly
with Landlord certificates for such insurance, and all renewals thereof, bearing
the endorsement that the policies will not be canceled until after 10 days'
written notice to Landlord.
Tenant will maintain general comprehensive public liability insurance
with respect to the Leased Premises naming Landlord and Tenant as insureds on an
occurrence basis, in amounts not less than $500,000 with respect to injuries or
damages to any one person and not less than $1,000,000 with respect to injuries
suffered in any one accident, and not less than $1,000,000 with respect to
property damage, occurring upon, in or about the Leased Premises or arising out
of the Tenant's use of the Leased Premises. Tenant shall deliver to Landlord the
policies of such insurance, or certificates thereof for the Existing Building,
for the Leased Premises at least fifteen (15) days prior to the
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Commencement Date and for each renewal policy or certificate thereof, at least
fifteen (15) days prior to the expiration of the policy it renews. Each such
policy shall provide that it may not be modified or canceled without at least
twenty (20) days' written notice to Landlord. All policies of insurance to be
maintained by Tenant under this Lease shall be written by responsible insurance
companies authorized to do business in the Commonwealth of Massachusetts and
shall name Landlord and Tenant as insureds as their respective interests may
appear. All Liability Insurance shall provide coverage for all persons who enter
the property including but not limited to Landlord and the Tenant, their
employees, agents, contractors, subcontractors and employees, and agents of
contractors and subcontractors as well as customers and invitees to the Leased
Premises.
7.1.5 Tenant Conformance to Property Insurance Requirements. Tenant shall not do
or permit to be done any act or thing upon the Leased Premises or elsewhere in
the Building, or the Real Property which will invalidate or be in conflict with
the Massachusetts standard form of fire, boiler, water damage or other insurance
policies covering the Leased Premises, Building, or Real Property, and will not
bring or keep anything on the Leased Premises, Existing Building or Real
Property which shall increase the rate of any such insurance policy or obstruct
or interfere with the rights of other tenants of the Building or in any way
injure or annoy them or those having business with them. Tenant shall comply, in
the conduct of its business and in the making of any alterations, with all
rules, orders, regulations or requirements of the local Board of Fire
Underwriters and the New England Fire Insurance Rating Association or any other
body having a similar function and exercising jurisdiction over the Real
Property, the Leased Premises, the Building or the Existing Building.
7.1.6 Landlord's Right to Enter. Landlord shall have the right to enter upon the
Leased Premises or any part of either thereof, without charge, at all reasonable
times while the tenant is open for business and, in case of emergency, at any
time, to examine, inspect or protect the same, to show the Leased Premises to
prospective purchasers or tenants, to make or facilitate any
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repairs, alterations, additions or improvements to the Leased Premises,
including, but without limitation, to install and maintain in and remove from
the Leased Premises and the pipes, wires and other conduits, and Tenant shall
not be entitled to any abatement or reduction of rent or damages by reason of
any of the foregoing. Except in case of emergency, any such access shall be
performed in such a manner so as to interfere as little as reasonably possible
with the operation of the business being conducted in the Leased Premises and
only upon reasonable advance written notice.
In cases where Landlord shall have the right to enter the Leased
Premises and it is understood that Landlord shall comply with any security
arrangements established from time to time by Tenant, and Tenant agrees that it
will always provide Landlord entry upon the Leased Premises and Existing
Building upon reasonable notice, under general supervision by an employee of
Tenant and, in case of emergency, immediate entry into the Leased Premises under
such supervision.
7.1.7 Insurance of Tenant's Personal Property. All personal property of the
Tenant (including furnishings, fixtures and equipment) in the Leased Premises,
in the Building or shall be at the risk of the Tenant and Tenant shall,
throughout the Term of this Lease, keep the same insured against all loss or
damage by fire or other casualty.
7.1.8 Yield Up of the Leased Premises. At the Termination Date of the Lease
Term, and on surrender, Tenant shall remove from the Leased Premises, its
personal property, trade fixtures and repair any damage to the Leased Premises
caused by the removal. Any items not removed by Tenant as required above, shall
be considered abandoned. Landlord may dispose of abandoned items as Landlord
chooses. The Landlord shall bill the Tenant for its reasonable and direct costs
of removal and repair. The Tenant shall not be responsible for Landlord's
removal of walls permanently installed or built into the Leased Premises by
Tenant. It is understood that all personal property and trade fixtures brought
onto the Leased Premises or which are on the Leased Premises even if affixed to
the Leased Premises, shall be
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considered personal property for which the Tenant shall have the absolute right
to remove same, subject to its obligations to repair set forth in this
paragraph. Prior to the commencement date the Landlord and the holder of all
mortgages shall execute a landlord's waiver acknowledging and consenting to the
contents of this paragraph.
The foregoing notwithstanding if the Tenant shall terminate this lease
in or within the first 90 months of the Lease, at the option of the Landlord and
with notice to Tenant, the Tenant shall restore the premises to a condition
where the premises are divided into the same number of offices which existed
prior to the renovation, provided however, that the cost for such restoration
will not exceed $15,000, present valued to the date of the lease or adjusted for
inflation in determining such present value.
7.2 Negative Covenants. Tenant covenants at all times during the Lease Term and
Extended Term and such further time as Tenant occupies the Leased Premises or
the Existing Building or any part of either thereof as follows:
7.2.1 Assignment, Subletting, Etc. Tenant shall have absolute and unrestricted
right to assign, transfer, encumber, mortgage or pledge this Lease in whole or
in part all or any part of the Leased Premises, so long as each such assignment
or transfer shall be for a Permitted Use and shall be expressly subject to and
subordinate to the terms, provisions and conditions of this Lease. Tenant shall
have the right with Landlord's consent, such consent not to be unreasonably
withheld or delayed, to enter into subleases, for all or any portion of the
Leased Premises on terms and conditions to be negotiated by the Tenant above, so
long as each such sublease shall be for a Permitted Use and shall be expressly
subject to and subordinate to the terms, provisions and conditions of this
Lease. However, in no case shall the Tenant be relieved of any liability under
this Lease by virtue of any assignment, transfer, encumbrance, mortgage, pledge
or sublease.
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7.2.2 Overloading, Nuisance, Etc. Not to injure, overload, deface or otherwise
harm the Leased Premises; nor suffer any waste; nor commit any nuisance; nor
permit the emission of any objectionable noise or odor; nor burn any trash or
refuse within the Building, nor make any use of the Leased Premises which is
improper, offensive or contrary to any law or ordinance or which will invalidate
or increase the cost of any of Landlord's insurance.
7.2.3 Installation, Alteration or Additions. Not to make any structural repairs,
installations, alterations, improvements, or additions (except only the
installation of office furniture dividers, partitions, drapery and rugs or of
fixtures necessary for the conduct of its business and initially agreed upon
repairs and alterations), without on each occasion obtaining prior written
consent of Landlord excluding initial construction which consent shall not be
unreasonably withheld or delayed, and then only pursuant to plans and
specifications approved by Landlord in advance in each instance, which approval
shall not be unreasonably withheld or delayed.
All such repairs, alterations, installations, improvements and
additions shall become the property of the Landlord, provided, however, all
articles of personal property, and all business machinery and equipment and
appurtenances thereto and furniture owned or placed by Tenant in the Leased
Premises or Building shall remain the property of Tenant and may be removed by
Tenant at any time, provided that Tenant, at its expense, shall repair to the
reasonable satisfaction of Landlord any damage to the Leased Premises or
Building caused by such removal. Any items not removed by Tenant as required
above, shall be considered abandoned. Landlord may dispose of abandoned items as
Landlord chooses. The Landlord shall bill the Tenant for its reasonable and
direct costs of removal and repair. The Tenant shall not be responsible for
Landlord's removal of walls affixed to the Building by the Tenant permanently
installed or built into the Leased Premises by the Tenant.
Tenant will procure all necessary permits before making any repairs,
installations, alterations, additions, improvements or
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removals. Landlord agrees that it will cooperate with Tenant in obtaining such
permits. Tenant agrees that all repairs, installations, alterations,
improvements and removals done by it or anyone claiming under it shall be done
in a good and workmanlike manner, that the same shall be done in conformity with
all laws, ordinances and regulations of all public authorities and all insurance
inspection or rating bureaus having jurisdiction, that the structure of the
Leased Premises, or Building will not be endangered or impaired and that Tenant
will repair any and all damage caused by or resulting from any such repairs
installations, alterations, additions, improvements or removals, including, but
without limitation, the filling of holes. Tenant agrees to pay promptly when due
all charges for labor and materials in connection with any work done by Tenant
or anyone claiming under Tenant upon the Leased Premises, or Building so that
the Leased Premises, and Building shall at all times be free of liens. Tenant
agrees to save Landlord harmless from, and indemnify Landlord against, any and
all claims for injury, loss or damage to person or property caused by or
resulting from the doing of any such work.
ARTICLE VIII
Casualty or Taking
8.1 Landlord to Repair or Rebuild. In case the Leased Premises or any part
thereof shall be damaged or destroyed by fire or other casualty, or ordered to
be demolished by the action of any public authority in consequence of a fire or
other casualty, or taken by any exercise of the right of eminent domain, this
Lease shall, unless it is terminated as provided below in Article 8.2 or Article
8.3, remain in full force and effect and Landlord shall at its expense,
proceeding with all reasonable dispatch, repair or rebuild the Leased Premises,
or what may remain thereof, so as to restore them (not including Tenant's
fixtures, furniture, furnishings, floor coverings and equipment) as nearly as
practicable to the condition they were in immediately prior to such damage,
destruction, or taking, but Landlord shall not be required to expend in such
repair or rebuilding more than the proceeds of insurance or award of damages, if
any, recovered or recoverable with respect to such damage, destruction or
taking,
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less Landlord's reasonable expenses incurred in collecting such proceeds or
award, as the case may be. If the Landlord's restoration has not been completed
within one hundred eighty (180 ) days from the date of the casualty, Tenant
shall have the right to terminate this Lease in the manner set forth below in
Article 8.2.
8.2 Right to Terminate in Event of Casualty. In case the Building in which the
Leased Premises are situated is destroyed or so damaged by fire or other
casualty insured under any fire and extended coverage insurance policy carried
by Landlord so as to render the Leased Premises untenantable; then in such case,
Tenant may at its election, exercisable by written notice, given to Landlord 180
days after such destruction or damage, and If the Landlord's restoration has not
been completed within one hundred eighty (180 ) days from the date of the
casualty, terminate this Lease as of the date designated by Tenant in such
notice, which designated date shall be not less than 15 days nor more than 30
days after the date of such notice.
8.3 Termination in Event of Taking. If all the Leased Premises are taken by
eminent domain, this Lease shall terminate when Tenant is required to vacate the
Leased Premises. If by a taking the floor area of the Leased Premises is reduced
by more than 20 percent thereof, this Lease may at the option of the Tenant be
terminated, as of the date when Tenant is required to vacate the portion of the
Leased Premises so taken, by written notice given to the Landlord not more than
thirty (30) days after the date on which the Tenant receives notice of the
taking.
8.3.1 Restoration. In the event of a casualty or taking and so long as this
Lease does not terminate as aforesaid, Landlord shall, within a reasonable time,
restore what may remain of the Leased Premises to substantially the same
condition they were in prior thereto, subject to reduction in size thereof,
consistent, however, with zoning laws and building codes then in existence. A
just proportion of the all rent payments, according to the nature and extent of
the injury to the Leased Premises, shall be abated until what may remain of the
Leased Premises shall be restored as aforesaid.
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Tenant shall at its own expense proceed with all reasonable dispatch,
and in any event less than one hundred (120) days after Landlord's restoration
shall have been completed, repair or replace such of its fixtures, furniture,
furnishings, floor coverings and equipment as may be required as a result of
such damage, destruction or taking.
8.4 Landlord Reserves Award. Landlord reserves and excepts all rights to awards
for damages to the Leased Premises or Building and the leasehold estate hereby
created now accrued or hereafter accruing (not including awards for damages, to
Tenant's trade fixtures, interior partitions installed by Tenant and other
installations made by Tenant which Tenant is entitled to remove upon termination
of this Lease) by reason of any exercise of the right of eminent domain, or by
reason of anything lawfully done in pursuance of any public or other authority;
and by way of confirmation Tenant grants to Landlord all Tenant's rights to such
awards and covenants to execute and deliver such further instruments of
assignment thereof as Landlord may from time to time request. It is further
agreed and understood, however, that Landlord does not reserve to itself and
Tenant does not assign to Landlord, any damages payable for any special fixtures
installed by Tenant at its own cost and expense, or any damages which are
considered "special damages" to Tenant, including without limitation any moving
or relocation expenses the Tenant may be entitled to by law or damages arising
from the Tenant's loss of its leasehold interest.
8.5 Abatement of Rent. In the event of any casualty or taking, a just proportion
of the all the rent payments (as defined in Article 4.1) payable hereunder,
according to the nature and extent of the injury, shall be abated until
completion of repairs or rebuilding or termination of this Lease, as the case
may be; and in the case of a taking which permanently reduces the area of the
Leased Premises, a just proportion The Rent (as defined in Article 4.1) shall be
abated for the remainder of the Lease Term or Extended Term, as the case may be.
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ARTICLE IX
Defaults
9.1 Events of Default. If Tenant shall default in performance of any of its
obligations to pay rent, Annual Fixed Rent, and if such default shall continue
for fifteen days after written notice from Landlord then, and in any such case,
Landlord lawfully may, in addition to and not in derogation of any remedies for
any preceding breach of covenant, mail a notice of termination addressed to
Tenant at Tenant's Original Address as specified in Article 1.1, and repossess
the same as of Landlord's former estate and expel Tenant and those claiming
through or under Tenant without prejudice to any remedies which might otherwise
be used for arrears of rent or preceding breach of covenant, and upon such entry
or mailing as aforesaid this Lease shall terminate.
If within thirty days after written notice from Landlord to Tenant
specifying any other default or defaults, Tenant has not commenced diligently to
correct the default or defaults so specified or has not thereafter diligently
pursued such correction to completion, in either case subject to the provisions
of Article 7, then, and in any such case, Landlord lawfully may, in addition to
and not in derogation of any remedies for any preceding breach of covenant, or
mail a notice of termination addressed to Tenant at Tenant's Original Address as
specified in Article ____, and repossess the same as of Landlord's former estate
and expel Tenant and those claiming through or under Tenant without prejudice to
any remedies which might otherwise be used for arrears of rent or preceding
breach of covenant, and upon such entry or mailing as aforesaid this Lease shall
terminate. There shall be due to Landlord a late charge for failure of Tenant to
pay rent, annual fixed rent, at the rate of 7% computed until the date the
default is cured and commencing on the date the payment is due.
9.2 Remedies. In the event that this Lease is terminated under any of the
provisions contained in Article 9.1 or shall be otherwise terminated for breach
of any obligation of Tenant, Tenant covenants to pay punctually to Landlord all
sums and perform all the obligations which Tenant covenants in this Lease to pay
and to perform in the same manner and to the same extent and at the same time as
if this Lease had not been terminated.
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In calculating the amounts to be paid by Tenant under the next foregoing
covenant, Tenant shall be credited with any amount paid to Landlord as net
proceeds of any rent obtained by Landlord by reletting the Leased Premises,
after deducting all Landlord's expenses in connection with such reletting,
including, without limitation, all repossession costs, brokerage commissions,
fees for legal services and expenses of repairing the Leased Premises for such
reletting, it being agreed by Tenant that Landlord may but is not obligated to
(i) relet the Leased Premises or any part or parts thereof, for a term or terms
which may, at Landlord's option, be equal to or less than or exceed the period
which would otherwise have constituted the balance of the Lease Term, and (ii)
make such removals and repairs in the Leased Premises as Landlord in its
reasonable judgment considers advisable or necessary to relet the same, and no
action of Landlord in accordance with the foregoing or failure to relet or to
collect rent under any reletting shall operate or be construed, to the extent
permitted by law, to release or reduce the Tenant's liability as aforesaid.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
9.3 Remedies Cumulative. The specific rights or remedies to which Landlord or
Tenant may resort under the terms of this Lease are cumulative and are not
intended to be exclusive of any other remedies or means of redress to which
Landlord or Tenant, as the case may be, may be lawfully entitled to in case of
any breach or threatened breach by either of them of any provisions of this
Lease. No mention in this Lease of any specific right or remedy shall preclude
either party from exercising any other right or from having any other remedy or
from maintaining any other action to which it may otherwise be entitled either
at law or equity.
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9.4 Landlord's Right to Cure Defaults. Landlord may, but shall not be obligated
to, cure, at any time, following thirty days' prior written notice to Tenant,
except in cases of emergency when no notice shall be required, any default by
Tenant under this Lease; and whenever Landlord so elects, all costs and expenses
incurred by Landlord, including reasonable attorneys' fees, in curing a default
shall be paid by Tenant to Landlord on demand.
9.5 Effect of Waivers of Default. The failure of either party to seek redress
for violation of, or to insist upon the strict and literal performance of any
term, covenant or condition of this Lease, shall not be deemed a waiver of such
violation or a relinquishment for the future of such covenant, right or option,
nor prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation, but
the same shall remain in full force and effect. The receipt by Landlord of rent,
with or without knowledge of the breach of any term, covenant or condition
hereof shall not be deemed a waiver of such breach. No provisions of this Lease
shall be deemed to have been waived by either party unless such waiver be in
writing.
9.6 Landlord's Default. Except for breach by Landlord of the covenant of quiet
enjoyment, Landlord shall not be deemed to be in default in the performance of
any of its obligations hereunder unless it shall fail to perform such
obligations and such failure shall continue for a period of thirty (30) days
after written notice has been given by Tenant to Landlord specifying the nature
of Landlord's default. In the event of any such default if Landlord has not
commenced to cure any such default on or before the expiration of said thirty
(30) days, Tenant may elect either: (a) to terminate this Lease entirely or as
to any portion of the Leased Premises affected by the default by giving written
notice thereof to Landlord, whereupon this Lease shall be terminated for those
portions of the Leased Premises specified in the notice and the obligations of
Tenant hereunder shall thereupon cease or (b) may cure such defaults at the
Landlord's expense.
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ARTICLE X
Miscellaneous Provisions
10.1 Notice from One Party to the Other. Any notice from Landlord to Tenant or
from Tenant to Landlord shall be deemed duly served if mailed by registered or
certified mail addressed, if to Tenant, at the Tenant's Original Address or such
other address as Tenant shall have last designated by notice in writing to
Landlord and, if to Landlord, at the Landlord's Original Address or such other
address as Landlord shall have last designated by notice in writing to Tenant.
10.2 Quiet Enjoyment. Landlord covenants and agrees that upon Tenant's paying
the Annual Fixed Rent, and performing and observing the agreements, conditions
and other provisions on its part to be performed and observed, Tenant shall and
may peaceably and quietly have, hold and enjoy the Leased Premises during the
Lease Term without any manner of hindrance or molestation from Landlord or
anyone claiming under Landlord, subject, however, to the terms of this Lease and
to any mortgage which may be superior to this Lease.
10.3 Notice of Lease Lease not to be Recorded. Both parties shall, upon the
request of either, execute, acknowledge and deliver a notice of this Lease, in
recordable form, setting forth, inter alia the Commencement Date and the
Termination Date for the Leased Premises. If this Lease is terminated before the
Term expires under the terms hereof, the parties shall execute, acknowledge and
deliver and record an instrument acknowledging such fact and the actual date of
termination of this Lease.
10.4 Limitation of Landlord's Liability/Joint and Several Liability. No owner of
the Leased Premises shall be liable under this Lease except for breaches of
Landlord's obligations occurring while owner of the Leased Premises, and, if
Landlord is a trust, Landlord's obligations hereunder shall not be binding upon
the Trustees of said Trust individually nor upon the shareholders or
beneficiaries of said Trust, but only upon the Trustees as trustees and upon
their trust estate. In the event that two or more individuals, corporations,
partnerships or other business associations (or any combination of two or more
thereof)
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shall sign this Lease as Tenant, the liability of each such individual,
corporation, partnership or other business association to pay rent and perform
all other obligations hereunder shall be deemed to be joint and several. In the
event that the Tenant named in this Lease shall be a partnership or other
business association the members of which are, by virtue of statute or general
law not subject to personal liability then, and in such event, the liability of
each such member shall be deemed to be joint and several notwithstanding such
statute or general law.
10.5 Acts of God. In any case where either party hereto is required to do any
act, delays caused by or resulting from Acts of God, war, civil commotion, fire
or other casualty, labor difficulties, shortages of labor, materials or
equipment, government regulations or other causes, to the extent that any of
which are beyond such party's reasonable control, shall not be counted in
determining the time during which work shall be completed, whether such time be
designated by a fixed date, a fixed time or "a reasonable time." "Financial
inability" is expressly excluded as a cause for such delay in performance.
10.6 Waiver of Subrogation. The Landlord hereby releases the Tenant, to the
extent of the Landlord's insurance coverage,, from any and all liability for any
loss or damage caused by fire or any of the extended coverage casualties or any
other casualty insured against, even if such fire or other casualty shall be
brought about by the fault or negligence of the Tenant or its agents, provided,
however, this release shall be in full force and effect only with respect to
loss or damage occurring during such time as the Landlord's policies covering
such loss or damage shall contain a clause to the effect that this release shall
not affect said policies or the right of the Landlord to recover thereunder. The
Landlord agrees that its fire and other casualty insurance policies will include
such a clause so long as the same is includable without extra cost, or if extra
cost is chargeable therefor, so long as the Tenant pays such extra cost. If
extra cost is chargeable therefor, the Landlord will advise the Tenant thereof
and of the amount thereof. The Tenant at its election may pay the same, but
shall not be obligated to do so.
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The Tenant hereby releases the Landlord to the extent of the Tenant's
insurance coverage, from any and all liability for any loss or damage caused by
fire or other casualty insured against, even if such fire or other casualty
shall be brought about by the fault or negligence of the Landlord or its agents,
provided, however, this release shall be in force and effect only with respect
to loss or damage occurring during such time as the Tenant's policies covering
such loss or damage shall contain a clause to the effect that this release shall
not affect said policies or the right of Tenant to recover thereunder. The
Tenant agrees that its fire and other casualty insurance policies will include
such a clause so long as same is includable without extra cost, or if extra cost
is chargeable therefor, so long as the Landlord pays such extra cost. If extra
cost is chargeable therefor, the Tenant will advise the Landlord thereof and of
the amount thereof. The Landlord at its election, may pay the same, but shall
not be obligated to do so.
Each party hereby waives all rights of recovery against the other. for
loss or injury against which the waiving party is protected by insurance
containing said provisions, reserving, however, any rights with respect to any
excess of loss of injury over the amount recovered by such insurance. Neither
party shall acquire as insured under any insurance carried by the other any
right to participate in the adjustment of loss or to receive insurance proceeds
and agrees upon request promptly to endorse and deliver to the other party any
checks or other instruments in payment of loss in which it is named a payee.
10.7 Status Certificate. Each party agrees from time to time, upon not less than
fifteen (15) days prior written request, to execute, acknowledge and deliver to
each other a statement in writing certifying that this Lease is unmodified and
in full force and effect and that Tenant has no defenses, offsets or
counterclaims against its obligations to pay the Annual Fixed Rent, and to
perform its other covenants under this Lease and that there are no uncured
defaults of Landlord or Tenant under this Lease (or, if there have been any
modifications that the
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same is in full force and effect as modified and stating the modifications and,
if there are any defenses, offsets, counterclaims, or defaults, setting them
forth in reasonable detail), and the dates to which the Annual Fixed Rent have
been paid. Any such statement delivered pursuant to this Article 10.7 may be
relied upon by any prospective purchaser or prospective Mortgagee of the Leased
Premises or of the Building or any prospective assignee of any such Mortgage.
10.8 Rights of Mortgagee and Subordination
10.8.1 Unless Landlord exercises the option set forth in Article 10.8.2 below,
this Lease shall be superior to and shall not be subordinated to any mortgage or
other voluntary lien or other encumbrance on the Leased Premises, Real Property
or the Building, hereinafter in this Article 10.8 referred to as "the mortgaged
Leased Premises." No holder of a mortgage shall be liable either as mortgagee or
as assignee, to perform, or be liable in damages for failure to perform many of
the obligations of Landlord unless and until such holder shall have entered as
mortgagee in possession or until such holder shall have acquired indefeasible
title to the Real Property and the Building and then only subject to and with
the benefit of the provisions of Article 10.5. No Annual Fixed Rent, shall be
paid more than ten days prior to the due dates thereof and payments made in
violation of this provision shall (except to the extent that such payments are
actually received by a mortgagee in possession or in the process of foreclosing
its mortgage) be a nullity as against such mortgagee and Tenant shall be liable
for the amount of such payments to such mortgagee. The covenants and agreements
contained in this Lease with respect to the rights, powers and benefits of a
mortgagee (particularly, without limitation thereby, the covenants and
agreements contained in this Article (10.8.1) constitute a continuing offer to
any person, corporation or other entity becoming the mortgagee of the mortgaged
Leased Premises, and such mortgagee is hereby constituted an obligee of Tenant
to the same extent as though its name was written hereon as such; and such
mortgagee shall be entitled to enforce such provisions in its own name. Tenant
agrees on request of Landlord to execute and deliver from time to time any
agreement which may be necessary to implement the provisions of this Article
10.8.1.
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10.8.2 Tenant agrees at the request of Landlord to subordinate this Lease to any
mortgage placed upon the mortgaged Leased Premises by Landlord, provided that
the holder of such mortgage enters into an agreement with Tenant binding upon
the successors and assigns of the parties thereto by the terms of which such
holder agrees not to disturb the possession and other rights of Tenant under
this Lease including all rights of first refusal so long as Tenant continues to
perform its obligations hereunder and in the event of acquisition of title by
said holder through foreclosure proceedings or otherwise, to accept Tenant as
tenant of the Leased Premises under the terms and conditions hereunder or to
sell said Leased Premises and/or the Building subject to this Lease, and Tenant
agrees to recognize such holder or any other person acquiring title to the
Leased Premises as Landlord. Tenant and Landlord agree to execute and deliver
any appropriate instruments necessary to carry out the agreements in this
Article 10.8 contained. Any such mortgage to which this Lease shall be
subordinated may contain such terms, provisions and conditions as the mortgagee
deems usual or customary.
10.9 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum than
the Annual Fixed Rent then due shall be deemed to be other than on account of
the earliest installment of such rent or charge due, nor shall any endorsement
or statement on this Lease is capable of two constructions, one of which would
render the provision void and the other of which would render the provision
valid, then the provision shall have the meaning which renders it valid.
10.10 Parking. There are no parking spaces in connection with this lease.
10.11 Right of First Refusal Purchase. If at any time during any term of this
lease, Landlord shall receive and be willing to accept the bone fide offer from
a third party to purchase the office building or if Landlord shall offer to sell
the office building to any third party, Landlord shall, if there is no event of
default, promptly transmit to Tenant its offer to sell the
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property to Tenant upon same terms and conditions as those offered by or to the
third party, together with a true copy of such original offer. If Tenant shall
not accept such offer within fortyfive (45) days after it is made, Landlord may,
after the expiration of such fortyfive (45) day period, sell such interest to a
third party upon terms and conditions as those offered to the Tenant. If Tenant
accepts such offer by notice to Landlord within the time permitted, the offer
and acceptance shall constitute a contract for the sale by Landlord and the
purchase by Tenant of the property at a closing to be held within thirty (30)
days following the receipt by Landlord by Tenants notice of acceptance. On the
date of such purchase, the Landlord shall convey the Leased Premises in
consideration of the payment of the purchase price. by quitclaim deed, conveying
good clear record and marketable title to the Leased Premises free of all liens
and encumbrances except this lease and except for easements and restrictions of
record which are listed on Exhibit D attached hereto. The Landlord may use the
purchase price to pay off mortgage liens and like encumbrances. If Landlord
shall be unable to give title, the Landlord shall use reasonable efforts to
remove such defects in title. All remaining conditions of sale shall be as found
in the current Greater Boston Real Estate Board form purchase and sale agreement
as reasonably adjusted for this transaction.
10.12. Right of First Refusal(a.) If at any time during any term of this lease,
the Landlord shall receive and be willing to accept the bona fide offer from a
third party to lease any space on the third floor or any other space in the
entire building which is adjacent to space leased to Tenant or if Landlord shall
offer to lease the space to any third party, Landlord shall, if there is no
event of default, promptly transmit to Tenant its offer to lease the said space
to Tenant upon terms and conditions as those offered by or to the third party,
together with a true copy of such original offer. If Tenant shall not accept
such offer within thirty (30) days after it is made, Landlord may, after the
expiration such thirty (30) day period, lease such interest to a third party
upon terms and conditions as those offered to the Tenant.
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If Tenant accepts such offer by notice to Landlord within the time
permitted, the offer and acceptance shall constitute a contract for lease by
Landlord and by Tenant of the property to be executed within thirty (30) days
following the receipt by Landlord by Tenants notice of acceptance. On the date
of such leasing, Landlord shall lease the Leased Premises free of all tenants
and occupants . The Landlord shall have a continuing obligation to offer the
same for lease to the Tenant throughout any term of this lease before it enters
into a lease for same with any other person.
10.13 Intentionally Omitted.
10.14 Signage. Tenant shall be allowed to maintain and erect all signage it
deems to be necessary. The nature and location of any sign to be erected by
Tenant shall be subject to consent of the Landlord which shall not be
unreasonably withheld or delayed. The Landlord shall install and maintain a
building directory sign in the main lobby of the building.
Tenant agrees to obtain any necessary municipal permits for the
erection and maintenance of such signage and to pay the cost thereof. In the
event the sign is in violation of any town of governmental ordinance, Tenant
shall immediately correct such violation at its own cost and expense and
indemnify Landlord for any cost, penalty, loss or damage incurred by Landlord as
a result of said sign(s).
10.15 Satellite Dish. Tenant shall be allowed to install and maintain a
satellite dish and antenna on the roof of the Building. All costs of
installation and maintenance shall be borne by the Tenant. The installation
shall be made so as not to damage the Building or Building systems. Tenant shall
indemnify Landlord for any and all damages caused to the building or building
systems by the dish or antenna or the maintenance thereof.
ARTICLE XI
11.0. Lease as Entire Agreement. This Lease contains the entire and only
agreement between the parties and all prior
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negotiations, representations, statements, warranties, understandings and
agreements whether written or oral with respect to the Leased Premises, the
Building, the Real Property or this Lease are merged in this Lease and any such
statements, representations, warranties, understandings or agreements, whether
oral or written, not referred to or contained in this Lease shall have no force
or effect. Tenant acknowledges that all representations, statements, warranties,
agreements, and understandings upon which Tenant relied in executing this Lease
are contained herein and that Tenant in no way relied upon any other
representations, statements, warranties, agreements, or understandings whether
written or oral.. This Lease may not be changed, modified or discharged in any
way, and no executory agreement shall be effective to change, modify or
discharge, in whole or in part, this Lease or any obligations under this Lease,
unless such agreement is set forth in a written instrument signed by the
parties.
ARTICLE XII
12.0. Captions. All headings used herein are for convenience only and do not
constitute a part of this Lease and in no way do they limit or amplify the terms
and provisions of this Lease.
ARTICLE XIII
13. ARBITRATION. Any disagreement between the parties with respect to the
interpretation or application of this lease or the obligations of the parties
hereunder shall be determined by arbitration. Such arbitration shall be
conducted, upon request of either the Landlord or the Tenant, before three
arbitrators (unless the Landlord or the Tenant agree to one arbitrator)
designated by the American Arbitration Association and in accordance with the
rules of such Association. The arbitrators designated and acting under this
lease shall make their award in strict conformity with such rules and shall have
no power to depart from or change any of the provisions thereof. The expense of
arbitration proceedings conducted hereunder shall be borne equally by the
parties. All arbitration proceedings hereunder shall be conducted in the county
in which the leased property is
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located. It is agreed that if at any time a dispute shall arise as to any amount
or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
make payment "under protest" and such payment shall not be regarded as a
voluntary payment and there shall survive the right on the part of said party to
institute suit for the recovery of such sum, and if it shall be adjudged that
there was no legal obligation on the part of said party to pay such sum or any
part thereof, said party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
lease; and if at any time a dispute shall arise between the parties hereto as to
any work to be performed by either of them under the provisions hereof, the
party against whom the obligation to perform the work is asserted may perform
such work and pay the cost thereof "under protest" and the performance of such
work shall in no event be regarded as a voluntary performance, and there shall
survive the right on the part of said party to institute suit for the recovery
of the cost of such work, and, if it shall be adjudged that there was no legal
obligation on the part of such party to perform the same or any part thereof,
said party shall be entitled to recover the cost of such work or the cost of so
much thereof as said party was not legally required to perform under the
provisions of this lease.
ARTICLE XIV
14.0 This instrument shall be binding upon the parties and their respective
successors and assigns
WITNESS the execution hereof in triplicate and under seal on
the day and year first above written.
- ------------------------- ---------------------------
Witness Witness
LANDLORD:
MERRIMACK REALTY TRUST
By: /s/ George L. Duncan
George L. Duncan
Trustee as aforesaid and
not individually
By: /s/ Michael T. Putziger
Michael T. Putziger
Trustee as aforesaid and
not individually
TENANT:
ENTERPRISE BANK AND TRUST COMPANY
By: /s/ John P. Clancy, Jr.
Senior Vice President
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EXHIBIT 10.14
LEASE DATE MAY 2, 1997
FRED FAUST TRUSTEE 1168 LAKEVIEW AVENUE
REALTY TRUST TO ENTERPRISE BANK AND TRUST COMPANY
ARTICLE I
Reference Data and Exhibits
1.1 Data.
Date: May 2, 1997
Location of Building: 1168 Lakeview Avenue
Dracut, MA 01826
Landlord: 1168 Lakeview Avenue Realty Trust
Suite No.210
Original Address: 222 Merrimack Street
Lowell, MA 01852
Tenant: Enterprise Bank and Trust Company
Original Address: 222 Merrimack Street
Lowell, MA 01852
Original Rent Payable: First Lakeview Avenue Limited Partnership
The land with the building thereon, located and known as 1168 Lakeview
Avenue, Dracut, MA and more particularly described in a deed from FMV Realty
Corporation recorded with the Middlesex North district Registry of deeds, Book
4328, Page 274.
Ground Area:
That portion of the Real Estate occupied by the Building and the drive up area
and canopy area appurtenant thereto, and as shown on Exhibit A.
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Leased Premises:
4922 square feet of interior space in the Building (as shown as Exhibit B) and
7955 square feet of canopy area and drive-up area (as shown on Exhibit "A") at
1168 Lakeview Avenue, Dracut, MA
Building:
The office building, of which the Premises are a part at 1168 Lakeview Avenue,
Dracut, Massachusetts and as shown on Exhibit A, and the improvements, repairs,
alterations and additions thereto.
Commencement Date: January 1, 1998
Initial Term: 30 months
Extended Term: Seven (7) options to extend for periods of Thirty (30 ) Months
each as provided in Article 4.1(b)
Annual Fixed Rent: (a) Annual Fixed Rent. For the first thirty (30) months of
the Initial Term as that term is defined for each portion of the Leased Premises
as set forth in Article 2.3.1 Annual Fixed Rent as follows: (I) Interior Space
$59,064.00 annually, $4,922.00 monthly, payable in advance beginning on the
Commencement Date (being pro-rated for any portion of a month) and being payable
on the first day of each month thereafter during the term of this Lease, as
extended. (ii) Drive Up/and Parking Area $13,364.00 annually, $1,113.67 monthly,
payable in advance beginning on the Commencement Date (being prorated for any
portion of a month) and being payable on the first day of each month thereafter
during the term of this Lease, as extended.
Permitted Uses: To use the Leased Premises for banking purposes including all
uses permitted for a federally insured bank or lending institution and other
financial service business uses, including operation of automatic teller
machines, as may be allowed banking institutions by law and for general
professional office space.
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Public Liability Insurance Limits:
Bodily Injury $500,000/$1,000,000
Termination Date:
As defined in Article 2.3.1
Mortgage:
a Mortgage, deed of trust, trust indenture or other security instruments of
record creating an interest in or affecting title to the Real Property, or any
part thereof, including a leasehold mortgage, and any and all renewals,
modifications, consolidations, or extensions of any such instrument.
1.2 Effect of Reference to Data. Each reference in this Lease to any of the
titles contained in Article 1.1 shall be construed to incorporate the data
stated under Article 1.1.
1.3 Exhibits The exhibits listed below in this Article are incorporated in this
Lease by reference and are to be construed as a part of this Lease.
Exhibit A
Site Plan showing the Real Property,the Existing Building, and Ground Area, that
portion of the Real Estate occupied by the Building and the drive up area and
canopy area appurtenant thereto, and 4922 square feet of interior space in the
Building(as shown as Exhibit B) and 7955 square feet of canopy area of drive-up
area (as shown on Exhibit "A") at 1168 Lakeview Avenue, Dracut, MA.
Exhibit B
Plan showing the Leased Premises.
Exhibit C: Schedule of Personalty
Exhibit D: List of encumbrances
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LEASE
BASIC LEASE PROVISIONS
1.01 Date and Parties. This lease (Lease) is made the 2nd day of May 1997,
between, Fred Faust as he is the Trustee of 1168 Lakeview Avenue Trust
(Landlord) and Enterprise Bank and Trust Company (Tenant). Landlord is a real
estate trust with a principal office at 222 Merrimack Street ,Lowell,
Massachusetts 01852. Tenant is a Massachusetts corporation with a principal
office at 222 Merrimack Street, Lowell, Massachusetts 01852.
ARTICLE II
Leased Premises and Term
2.1 Leased Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, for the term hereinafter set forth and subject to and with the
benefit of the terms, covenants, conditions and provisions of this Lease, the
Leased Premises, free standing building located at 1168 Lakeview Avenue, Dracut,
Massachusetts and the Ground Area as shown on Exhibit A. The Leased Premises
consist of 4,922 square feet of interior space in the Building, and 7,955 square
feet of drive up and canopy area. The Ground Area consists of the land occupied
by the Building.
2.2.1. Appurtenant Rights. The Leased Premises and Ground Area shall also
include all appurtenant rights now or at any time hereafter during the term of
this Lease necessary for the continued use and enjoyment thereof by Tenant and
shall specifically include as appurtenant thereto the right for Tenant and all
his agents, employees, guests and invitees to use (in common with others
entitled to the use thereof) (a) all entrances, lobbies, walkways, corridors,
which now or hereafter afford access to the Leased Premises and the Building of
which it is part and (b) the common pipes, ducts, conduits, wires and
appurtenant equipment serving the Leased Premises and the Existing Building. The
term Leased Premises wherever used herein, shall include any and all structures,
parking facilities and common facilities built therein, or as they may, from
time to time, be reduced by eminent domain takings or dedications to public
authorities.Tenant shall also have the right as appurtenant to the Leased
Premises to the exclusive access as can be reasonably enforced by the Landlord
for motor vehicles to drive around the southerly side of the Building for access
to a driveup facility on the easterly side of the Building and exit on Lakeview
Avenue as shown in Exhibit A. It will be fully understood by all other tenants
that such area shall be for the exclusive use of the Tenant, except that loading
docks or loading operations of other tenants may take place in this area on days
Tenant is closed for business and on days Tenant is open for business, if prior
to 8:00 A.M. or after Tenant's closing for retail business, all such load
operations to be pursuant to such regulations established by Landlord which will
attempt to minimize interference with the normal operation of a banking
facility. Landlord shall inform all subsequent tenants either by lease or
separate letter of Tenant's exclusive use of the drive up access and facility,
subject to loading dock and loading operation rights. Tenant shall also have the
right as appurtenant to the Ground Area to the use of access for motor vehicles
for access to the drive up facility attached to the Existing Building. Tenant
shall also have the nonexclusive right, as appurtenant to the Leased Premises to
use the parking spaces as described in Article 10.10 hereinbelow. Tenant agrees
that it shall cause its employees to use eight of the tandem parking spaces as
shown on Exhibit A and any other parking spaces as may be assigned by Landlord.
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2.2.2. Lobby and ATM Accessibility. Landlord agrees to allow the ATM lobby area
to be accessable through a pass card entry system, designed, maintained and paid
for by Tenant, on a twenty four hour basis. In addition, Landlord agrees to keep
the lobby area of the Building open during the tenant's normal business hours.
Should Tenant change its business hours, it shall so notify Landlord so that
Landlord can make the appropriate arrangements to keep the lobby area open
during the Tenant's normal business hours.
2.3 Term. TO HAVE AND TO HOLD for an Initial Term the Leased Premises as set
forth below (hereinafter the "Initial Term") subject to the agreements, terms
and conditions herein contained. The Initial Term is to commence on January 1,
1998 (hereinafter the "Commencement Date") for the Leased Premises and
continuing thereafter for the Lease Term unless sooner terminated as hereinafter
provided. Notwithstanding anything to the contrary herein contained the tenant
may enter upon the Leased Premises on September 1, 1997 and begin to renovate
and remodel the Leased Premises. If the Tenant shall open for business prior to
December 31, 1997, Tenant shall not pay to the Landlord the rent, pro-rata
common charges or real estate taxes prior to January 1, 1998. It shall however
pay in lieu thereof the sum of Five Thousand Dollars ($5,000) on the first day
it commences business prior to January 1, 1998
2.3.1 Initial Term and Extensions. Initial Term. For a term of thirty (30)
months (hereinafter referred to as the "Initial Term"), or until and unless
sooner terminated as provided herein, said Initial Term to commence on the
Commencement Date and terminate at the close of the day preceding the thirtieth
(30th) month anniversary of the Commencement Date.
Extension Options Seven options of thirty months each.
Tenant shall have the option, at its election, to extend the Initial
Term for an additional term of thirty (30) months (hereinafter referred to as
the "First Option Term") to commence on the day next following the end of the
Initial Term and to end at the close of the day preceding the thirty (30) month
anniversary of the commencement of the First Option Term.
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Tenant shall have the option, at its election, to extend the First
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the "Second Option Term") to commence on the day next following the end of
the First Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Second Option Term.
Tenant shall have the option, at its election, to extend the Second
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the "Third Option Term") to commence on the day next following the end of
the Second Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Third Option Term.
Tenant shall have the option, at its election, to extend the Third
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the "Fourth Option Term") to commence on the day next following the end of
the Third Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Fourth Option Term.
Tenant shall have the option, at its election, to extend the Fourth
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the "Fifth Option Term") to commence on the day next following the end of
the Fourth Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Fifth Option Term.
Tenant shall have the option, at its election, to extend the Fifth
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the "Sixth Option Term") to commence on the day next following the end of
the Fifth Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Sixth Option Term.
Tenant shall have the option, at its election, to extend the Sixth
Option Term for an additional term of thirty (30) months (hereinafter referred
to as the "Seventh Option Term") to commence on the day next following the end
of the Sixth Option Term and to end at the close of the day preceding the thirty
month anniversary of the commencement of the Seventh Option Term.
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2.3.2 Automatic Exercise of Extension Options. The extension options shall
automatically be deemed exercised unless Tenant notifies the Landlord, in
writing, of its intention not to so exercise an extension option, said notice to
be given not less than 90 days from the end of the then current term. Tenant
shall have no right to exercise future extension options if Tenant chooses not
to exercise an earlier extension option. Any extension option shall not be
automatically deemed exercised if Tenant is notified in writing that it is in
material default or breach of any provisions of this lease.
2.3.3 Commencement Date/Termination Date. When the dates of the beginning and
end of the Initial Term relative to the Leased Premises have been determined
(hereinafter referred to as the Commencement Date and the Termination Date),
such dates shall be evidenced by a document in the form of Notice of Lease for
recording and executed by Landlord and Tenant and delivered each to the other.
2.3.4 First Refusal/Initial Option Terms. In the event Tenant exercises its
rights of first refusal as described in Section 10.12 below to rent more space
in the Leased Premises the rental of additional space shall be for a term
coextant with the then current term and the exercise of any option term shall be
deemed to be for both the Leased Premises and the additional space, they being
considered as part of the initial Leased Premises for all purposes under this
Lease.
2.3.5 Title Warranty to Defend. Landlord represents and warrants that it owns
the Ground Area in fee simple free from all encumbrances except those specified
in this Lease as noted on Exhibit A. Landlord will defend its title at its own
expense and will not suffer any liens to attach to the Building which would
interfere with the Tenant's use hereof.
ARTICLE III Improvements
3.1 Performance of Work and Approval of Landlord's Work. Landlord is delivering
the Leased Premises to Tenant in as is condition. Landlord represents and
warrants that the Building has been constructed in compliance with all laws
applicable at the time of construction, including without limitation the State
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Building Code of the Commonwealth of Massachusetts (hereinafter the "Code") and
the Zoning ByLaws of the Town of Dracut, Massachusetts. Upon discovering that
the Building is not in compliance with the Code, the Tenant shall give prompt
written notice thereof to Landlord, specifying the noncompliance. Landlord
agrees to repair and correct any such noncompliance within a reasonable period
of time. In the event that Landlord fails to correct any noncompliance to the
Leased Premises within a reasonable period but in no event not less.than forty
five days, Tenant may at its option, correct said noncompliance and bill
Landlord its reasonable and direct costs of repair.
ARTICLE IV Rent
4.1 The Rent. Tenant covenants and agrees to pay rent, to Landlord or to such
agent as designated by Landlord, at Landlord's Original Address or to such other
address as Landlord may by notice in writing to Tenant from time to time direct,
The Landlord directs that payments be made to First Lakeview Avenue Limited
Partnership at the following rates and times:
(a) Annual Fixed Rent. For the first thirty (30) months of the Initial
Term as that term is defined for each portion of the Leased Premises as set
forth in Article 2.3.1 above, Annual Fixed Rent as follows: (i) Interior Space
$59,064.00 annually, $4,922.00 monthly, payable in advance beginning on the
Commencement Date (being pro-rated for any portion of a month) and being payable
on the first day of each month thereafter during the term of this Lease, as
extended. (ii) Drive Up/and Parking Area $13,364.00 annually, $1,113.67 monthly,
payable in advance beginning on the Commencement Date (being prorated for any
portion of a month) and being payable on the first day of each month thereafter
during the term of this Lease, as extended.
(b) Annual Fixed Rent. With respect to months 31 through 60 and every
succeeding thirty months during the Initial Term and all extension options as
set forth in Article 2.3, and 2.3.1, Annual Fixed Rent during such period and
all extended terms, for each portion of the Leased Premises shall be the sum of
(a) the Annual Fixed Rent being paid during the preceding thirty month period
(whether Initial Term or any one of the extended terms)
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and (b) the product of (i) the Annual Fixed Rent being charged during the
preceding thirty month period multiplied by (ii) the amount, expressed as a
percentage equal to 50 per cent of the increase, if any, in the index now known
as the Consumer's Price Index for All Urban Consumers, All Items, for the Boston
Area as published by the Bureau of Labor Statistics, United States Department of
Labor ("CPI") for the thirty month period next preceding the commencement of the
current extended term or the preceding thirty month period of the Initial Term.
The Initial PPI shall be the PPI published on or most recently prior to the
Commencement Date and the PPI utilized to calculate the increase shall be the
PPI published on or most recently prior to the commencement of the current
extended term or the preceding thirty month period of the Initial Term. If
publication of the PPI shall be discontinued, the Landlord will select a
reasonably comparable index for use thereafter and provide notice thereof to the
Tenant. In no event will Annual Fixed Rent during the Initial Term or any
extended term be less than the Annual Fixed Rent during the preceding thirty
month period.
In the event that Tenant or Tenant's corporate parent is the subject of
a change in control notice or merger or new bank holding company application the
effect of which would be to transfer directly or indirectly control of Tenant,
then the percentage increase in PPI used in calculating prospective changes in
subsequent lease extension payments shall be 100% instead of 50%.
(c) Annual Fixed Rent shall be payable in advance, in equal monthly
installments of 1/12th of the Annual Fixed Rent on the first day of each
calendar month from and after the Commencement Date.
(d) Proration of Annual Fixed Rent for Partial Months. For any period
that the Tenant is in possession of the Leased Premises at the expiration of any
term, Annual Fixed Rent and, Additional Rent and shall be prorated on a per diem
basis for such period.
4.2 (a) Real Estate Taxes. Tenant covenants and agrees to pay, as Additional
Rent, with respect to each calendar or other tax year beginning or ending during
the term hereof, an amount equal to 44.50 per cent the (Tenant's Proportionate
Share), being that portion of the real estate taxes and betterment assessments
which may be assessed, as of the first day of each tax year during this Lease
upon or payable for or in respect of the Building and Real Property, which is
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the result from multiplying the same by a fraction, the numerator of which is
the number of square feet of area of the Leased Premises (the Leased Premises
Square Footage as set forth in Article 1.1), and the denominator of which shall
be the total leaseable square footage of floor area of the Building (the
Building Rentable Area as set forth in Article 1.1). Tenant's share of such real
estate taxes shall be adjusted for and with respect to any partial tax years on
a per diem basis. The real estate taxes for any tax year shall mean such amounts
as shall be finally determined to be the real estate taxes payable for said tax
year; that is, the real estate taxes assessed for said tax year less any
abatements, refunds or rebates made thereof.
(b) Tenant shall pay Additional Rent attributable to real estate taxes
within 30 days of Tenant's receipt of a copy of the tax bill from the Landlord.
If Tenant does not pay the Additional Rent attributable to real estate taxes on
time as set forth above, then Tenant shall be subject to provisions of paragraph
9.1 of this Lease.
(c) If the Landlord does not give the Tenant notice of its intent to
file for an abatement or if the Landlord does not file for an abatement, then
Tenant shall have the right to apply at its sole cost and expense for an
abatement of real estate taxes assessed against the Building, Real Property, at
any time and from time to time, in its own name or the name of the Landlord. If
at least thirty (30) days prior to the last day for filing application for
abatement of real estate taxes for any tax year, Landlord shall give notice to
Tenant that it (Landlord) desires to file an application for abatement of real
estate taxes for said tax year and if within twenty (20) days after the receipt
of said notice Tenant shall not give notice to Landlord that it (Tenant) shall
file such application, Landlord shall have the right, at its own cost and
expense, to file the same prior to the expiration of the time for filing at its
own cost and expense. In any event, notwithstanding the foregoing, if any
abatement of real estate taxes on the Building, or Real Property, by whomever
prosecuted, shall be obtained, the cost and expense of obtaining the abatement
shall be a first charge upon the said abatement. If Landlord shall file an
application for abatement pursuant to this paragraph, Landlord will prosecute it
to final determination with due diligence. If Tenant shall file an application
for abatement for any tax year after having received notice from Landlord that
Landlord desires to file an application for abatement for said tax year, Tenant
shall prosecute the same to final determination with due diligence. If either
party shall prosecute an application for an abatement, the other will cooperate
and furnish any pertinent information in its files reasonably required by the
prosecuting party.
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ARTICLE V
5.1 Landlord's Repair and Maintenance Responsibilities/ Fire Insurance
with respect to the Building.
5.1.1 Repairs. Notwithstanding anything to the contrary herein, Landlord shall
be responsible for the maintenance and/or repair of (a) the exterior of the
Building including the canopy and roof and structural elements (meaning those
portions of the Building used to support the Building) of the Leased Premises,
and the windows for the Leased Premises on the first floor and the large window
for the Leased Premises which is two stories high and the Building and the
directory signs; (b) the driveways and parking lot including plowing, lighting
and landscaping; (c.) plumbing, utility, HVAC and/or electrical services to be
furnished by Landlord pursuant to this Lease excepting such repairs as are
necessitated by the Tenant's negligence and except for normal plumbing
maintenance which shall be the responsibility of the Tenant.
5.1.2 Maintenance. Landlord shall maintain the common areas of the Building in
good order and repair and shall furnish receptacles for trash storage for the
Tenant, (ie, a dumpster) and shall provide regular trash removal to and from the
shopping center and daily cleaning of the common areas.
5.1.3 Snow Removal. Landlord shall remove snow and ice from the Common Areas and
with respect to the parking lot shall have said area plowed and accessible to
Tenant's employees, customers and patrons no later than 7:30 a.m. on all
business days. Should Landlord fail to perform the snow and ice removal Tenant
shall have the right to do the same and bill Landlord for the cost of the
removal. If Landlord does not pay the bill within forty-five days, or send
notice to Tenant that it, in good faith, contests the amount of such bill,
Tenant may offset the amount of the bill from its next rental payment.
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5.1.4 Parking Lot Maintenance. Landlord shall be responsible for maintaining the
parking lot and driveup lanes in good order which shall include the obligation
to clean and sweep the lot, sealing the parking surface at least once every five
years, maintaining lighting, maintaining visible white or yellow lines
designating parking spaces, painting the same at least once every three years,
maintenance of shrubberies, holiday decorations and maintaining the parking lot
drainage system in good working order and repair.
5.1.5 Fire Insurance and Liability Insurance. Landlord shall, throughout the
term of this Lease, at its expense, keep the Building insured against all loss
or damage by fire with extended coverage in such amount as any mortgagee(s) may
require but in no event less than the full replacement value of the Building. In
addition to and not in limitation of the provisions of Section 7.1.6, Landlord
agrees to maintain comprehensive public liability insurance naming Tenant as
insured in an amount not less than $500,000.00 with respect to injuries or
damages to any one person and not less than $1,000,000 with respect to injuries
suffered in any one accident and not less than $1,000,000 with respect to
property damageoccurring upon, in, or about the parking lot which forms a
portion of the Leased Premises. All Liability Insurance shall provide coverage
for all persons who enter the property including but not limited to the Landlord
and the Tenant, their employees, agents, contractors, subcontractors and
employees, and agents of contractors and subcontractors as well as customers and
invitees to the Leased Premises.
5.1.6 Tenant's Obligation to Pay ProRata Share. Tenant shall reimburse Landlord
for a prorata portion which is agreed to be 44.50% of the cost described in
Article V Sections 4.2.b., 5.1.1(b)(c), 5.1.2, 5.1.3, 5.1.4 and 5.1.5, thereof
which is agreed to be based upon the area of the Leased Premises compared with
the total occupied building area of the Building. Landlord shall furnish Tenant
with a breakdown of the costs and if Tenant requests, Tenant may inspect the
bills, invoices or other documents
5.2 Tenant's Repair and Maintenance Responsibilities.
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5.2.1 Repairs. Notwithstanding anything to the contrary herein, Tenant shall be
responsible for the maintenance and/or repair of (a) the leased Leased Premises,
including the interior and exterior thereof, including structural elements,
plumbing, utilities, HVAC and/or electrical services;(b) the drive up windows
exclusively reserved for the use of the Tenant as an appurtenant right to the
Building excepting such repairs as are necessitated by the Landlord's
negligence.
ARTICLE VI Utilities and Services .
.
6.1 Installation of Utilities and Services Provided by Landlord. Landlord has
provided as part of the original installations leading to the Leased Premises
the necessary mains, conduits, facilities and fixtures in order that all utility
services required to satisfy Tenant's specifications and requirements and shall
furnish access to the Tenant to the mains, conduits, facilities and fixtures for
the Tenant's use. The Tenant acknowledges that said installations fulfill its
commercial needs and accept same in as is condiition Landlord will, without
extra charge, except as provided below, during the period the Tenant shall
occupy the Leased Premises under the terms hereof and in accordance with
customary standards for firstclass office buildings as established from time to
time by the National Association of Building Owners and Managers, furnish such
hot and cold running water as may be reasonably required for the comfortable use
and occupation thereof; maintain and repair the structure, exterior and Common
Areas of the Building; furnish electricity for lighting and lights for the
Common Areas but not for the Leased Premises, and remove snow from the parking
area and driveup lanes and from the access to the Building.
6.2 Utilities and Charges Therefor. Tenant shall reimburse Landlord for a
prorata portion of the cost of water/sewer, gas, electricity, light, heat and
power, or other service used, rendered or supplied to or for the Common Areas of
the Building based upon the area of the Leased Premises compared with the total
occupied building area of the Building which its prorata share is agreed to be
44.50%. Tenant agrees to pay or cause to be paid directly to the provider of or
party charged with the collection of all charges for water, gas, electricity,
light, heat, and power, telephone, or other service used, rendered or supplied
to or for the Tenant upon or in connection with the Leased Premises throughout
the term of this Lease, and to indemnify Landlord and save it harmless against
any liability or damages on such account. Landlord has installed separate
utility meters throughout the Building and shall, in any lease or other rental
agreements for space within the Building, require each tenant to be responsible
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for the payment of all utility charges incurred by it. It is understood and
agreed that, notwithstanding the fact that Landlord shall supply and furnish
such utilities to the Leased Premises, Landlord shall not be liable for any
interruption or failure in the supply of any such utilities to the Leased
Premises. If a charge shall be made from time to time by the public authority
having jurisdiction of the Leased Premises for the use of the sanitary sewer
system, Tenant shall pay its Proportionate Share thereof. Tenant shall pay to
Landlord, as billed, Tenant'a Proportionate Share of water bills. In case any
such water rates and sewer charges are not paid by Tenant at the time when the
same are payable, if to city officials, Landlord may nevertheless pay the same
to such officials and charge Tenant the cost thereof, which charge shall become
payable on the first day of the following month as additional rent. For the
purposes of this Article, Tenant's Proportionate Share shall mean of 44.50%
percent of the total common area building charges.
6.3 Tenant's Obligation to Pay ProRata Share. Tenant shall reimburse Landlord
for a prorata portion of the cost thereof based upon the net rentable area of
the Leased Premises compared with the Building rentable area which prorata share
is agreed to be 44.50 per cent.
ARTICLE VII Tenant's Additional Covenants
7.1 Affirmative Covenants. Tenant covenants at its expense, at all times during
the Lease Term and such further time as Tenant occupies the Leased Premises and
Existing Building or any part thereof as follows:
7.1.1 Permitted Uses. To use the leased Leased Premises for banking purposes
including all uses permitted for a federally insured bank or lending institution
and other financial service business uses, including operation of automatic
teller machines, as may be allowed banking institutions by law and for general
professional office space.
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7.1.2 Intentionally omitted.
7.1.3 Compliance with Law. To make all repairs, alterations, additions or
replacements to the Leased Premises and necessitated or required by any law or
ordinance or any order or regulation of any governmental authority except for
environmental and Americans for Disabilty Act which shall be the
responsibilities of landlord applicable on account of Tenant's use of the Leased
Premises and Existing Building; to keep the Leased Premises and Existing
Building equipped with all safety appliances so required because of such use; to
procure any licenses and permits required for any such use; to pay all
municipal, county or state taxes assessed against the leasehold interest
hereunder, or personal property of any kind owned by or placed in, upon or about
the Leased Premises and the Building by Tenant; and to comply with the orders
and regulations of all governmental authorities, except that Tenant may defer
compliance so long as the validity of any such law, ordinance, order or
regulation shall be contested by Tenant in good faith and by appropriate legal
proceedings, if Tenant first gives Landlord written notice thereof. In the event
of such contest, Tenant shall indemnify and hold harmless the Landlord from any
fines, penalties, or other liability arising therefrom. 7.1.4 Payment for Tenant
Work. To pay promptly when due the entire cost of any work to the Leased
Premises and undertaken by Tenant and to bond against or discharge any liens for
labor or materials within 10 days after written request by Landlord; to procure
all necessary permits before undertaking such work; and to do all of such work
in a good and workmanlike manner, employing materials of good quality and
complying with all governmental requirements except as are the responsibilities
of landlord.
7.1.5 Liability Insurance. To maintain with responsible companies qualified to
do business in Massachusetts and in good standing therein and workmen's
compensation insurance with statutory limits covering all of Tenant's employees
working in the Leased Premises and Existing Building, and to deposit promptly
with Landlord certificates for such insurance, and all renewals thereof, bearing
the endorsement that the policies will not be cancelled until after 10 days'
written notice to Landlord.
Tenant will maintain general comprehensive public liability insurance
with respect to the Leased Premises naming Landlord and Tenant as insureds on an
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occurrence basis, in amounts not less than $500,000 with respect to injuries or
damages to any one person and not less than $1,000,000 with respect to injuries
suffered in any one accident, and not less than $1,000,000 with respect to
property damage, occurring upon, in or about the Leased Premises or arising out
of the Tenant's use of the Leased Premises. Tenant shall deliver to Landlord the
policies of such insurance, or certificates thereof for the Existing Building,
for the Leased Premises at least fifteen (15) days prior to the Commencement
Date and for each renewal policy or certificate thereof, at least fifteen (15)
days prior to the expiration of the policy it renews. Each such policy shall
provide that it may not be modified or cancelled without at least twenty (20)
days' written notice to Landlord. All policies of insurance to be maintained by
Tenant under this Lease shall be written by responsible insurance companies
authorized to do business in the Commonwealth of Massachusetts and shall name
Landlord and Tenant as insureds as their respective interests may appear. All
Liability Insurance shall provide coverage for all persons who enter the
property including but not limited to Landlord and the Tenant, their employees,
agents, contractors, subcontractors and employees, and agents of contractors and
subcontractors as well as customers and invitees to the Leased Premises.
7.1.6 Tenant Conformance to Property Insurance Requirements. Tenant shall not do
or permit to be done any act or thing upon the Leased Premises or elsewhere in
the Building, or the Real Property which will invalidate or be in conflict with
the Massachusetts standard form of fire, boiler, water damage or other insurance
policies covering the Leased Premises, Building, or Real Property, and will not
bring or keep anything on the Leased Premises, Existing Building or Real
Property which shall increase the rate of any such insurance policy or obstruct
or interfere with the rights of other tenants of the Building or in any way
injure or annoy them or those having business with them. Tenant shall comply, in
the conduct of its business and in the making of any alterations, with all
rules, orders, regulations or requirements of the local Board of Fire
Underwriters and the New England Fire Insurance Rating Association or any other
body having a similar function and exercising jurisdiction over the Real
Property, the Leased Premises, the Building or the Existing Building.
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7.1.7 Landlord's Right to Enter. Landlord shall have the right to enter upon the
Leased Premises or any part of either thereof, without charge, at all reasonable
times while the tenant is open for business and, in case of emergency, at any
time, to examine, inspect or protect the same, to show the Leased Premises to
prospective purchasers or tenants, to make or facilitate any repairs,
alterations, additions or improvements to the Leased Premises, including, but
without limitation, to install and maintain in and remove from the Leased
Premises and the pipes, wires and other conduits, and Tenant shall not be
entitled to any abatement or reduction of rent or damages by reason of any of
the foregoing. Except in case of emergency, any such access shall be performed
in such a manner so as to interfere as little as reasonably possible with the
operation of the business being conducted in the Leased Premises and only upon
reasonable advance written notice. In cases where Landlord shall have the right
to enter the Leased Premises and it is understood that Landlord shall comply
with any security arrangements established from time to time by Tenant, and
Tenant agrees that it will always provide Landlord entry upon the Leased
Premises and Existing Building upon reasonable notice, under general supervision
by an employee of Tenant and, in case of emergency, immediate entry into the
Leased Premises under such supervision.
7.1.8 Insurance of Tenant's Personal Property. All personal property of the
Tenant (including furnishings, fixtures and equipment) in the Leased Premises,
in the Building or shall be at the risk of the Tenant and Tenant shall,
throughout the Term of this Lease, keep the same insured against all loss or
damage by fire or other casualty. Landlord shall furnish and maintain builders
risk insurance while renovating and remodeling under paragraph 2.3 of this
Lease.
7.1.9 Yield Up of the Leased Premises. At the Termination Date of the Lease
Term, and on on surrender, Tenant shall remove from the Leased Premises, its
personal property, trade fixtures and repair any damage to the Leased Premises
caused by the removal. Any items not removed by Tenant as required above, shall
be considered abandoned. Landlord may dispose of abandoned items as Landlord
chooses. The Landlord shall bill the Tenant for its reasonable and direct costs
of removal and repair. The vault shall not be removed and if removed, the Tenant
shall not be billed for its removal or for any repair caused by its removal. The
Tenant shall not be responsible for Landlord's removal of wallspermanently
installed or built into the Leased Premises by Tenant. It is understood that all
personal property and trade fixtures brought onto the Leased Premises or which
are on the Leased Premises and which were acquired from the Landlord as set
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forth in Exhibit C of this Lease by the Tenant even if affixed to the Leased
Premises, including but not limited to vault components, security systems, ATM
machines, night deposit systems, driveup teller components, teller counter and
undercounter equipment furniture, furnishings and the like, shall be considered
personal property for which the Tenant shall have the absolute right to remove
same, subject to its obligations to repair set forth in this paragraph. Prior to
the commencement date the Landlord and the holder of all mortgages shall execute
a landlord's waiver acknowledging and consenting to the contents of this
paragraph.
7.2 Negative Covenants. Tenant covenants at all times during the Lease Term and
Extended Term and such further time as Tenant occupies the Leased Premises or
the Existing Building or any part of either thereof as follows:
7.2.1 Assignment, Subletting, Etc. Tenant shall have absolute and unrestricted
right to assign, transfer, encumber, mortgage or pledge this Lease in whole or
in part all or any part of the Leased Premises, so long as each such assignment
or transfer shall be for a Permitted Use and shall be expressly subject to and
subordinate to the terms, provisions and conditions of this Lease. Tenant shall
have the right with Landlord's consent, such consent not to be unreasonably
withheld, to enter into subleases, for all or any portion of the Leased Premises
on terms and conditions to be negotiated by the Tenant above, so long as each
such sublease shall be for a Permitted Use and shall be expressly subject to and
subordinate to the terms, provisions and conditions of this Lease. However, in
no case shall the Tenant be relieved of any liability under this Lease by virtue
of any assignment, transfer, encumbrance, mortgage, pledge or sublease.
7.2.2 Overloading, Nuisance, Etc. Not to injure, overload, deface or otherwise
harm the Leased Premises; nor suffer any waste; nor commit any nuisance; nor
permit the emission of any objectionable noise or odor; nor burn any trash or
refuse within the Building, nor make any use of the Leased Premises which is
improper, offensive or contrary to any law or ordinance or which will invalidate
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or increase the cost of any of Landlord's insurance; nor use any advertising
medium that may constitute a nuisance, such as loudspeakers, sound amplifiers,
phonographs or radio or television broadcasts in a manner to be heard outside
the Leased Premises; nor sell or display merchandise on, or store or dispose of
trash or refuse, on, or otherwise obstruct, the driveways, walks, malls, parking
areas and other common areas in the Building except that four times a year of
each year of the term as extended the Landlord shall be allowed to use the
sidewalks and portions of the parking area for a promotional cookout or like
event and to use in connection therewith loudspeakers, sound amplifiers,
phonographs or radio or television broadcasts in a manner to be heard outside
the Leased Premises; ; nor park trucks or delivery vehicles outside the Leased
Premises so as to interfere unreasonably with the use of any driveways, walks,
malls or parking areas.
7.2.3 Installation, Alteration or Additions. Not to make any structural repairs,
installations, alterations, improvements, or additions (except only the
installation of office furniture dividers, partitions, drapery and rugs or of
fixtures necessary for the conduct of its business), without on each occasion
obtaining prior written consent of Landlord which consent shall not be
unreasonable withheld or delayed, and then only pursuant to plans and
specifications approved by Landlord in advance in each instance, which approval
shall not be unreasonably withheld or delayed.
All such repairs, alterations, installations, improvements and
additions shall become the property of the Landlord, provided, however, all
articles of personal property including office systems, checkwriting desks,
Sunar Hauserman wall systems and the like, and all business machinery and
equipment and appurtenances thereto and furniture owned or placed by Tenant in
the Leased Premises or Building shall remain the property of Tenant and may be
removed by Tenant at any time, provided that Tenant, at its expense, shall
repair to the reasonable satisfaction of Landlord any damage to the Leased
Premises or Building caused by such removal. Any items not removed by Tenant as
required above, shall be considered abandoned. Landlord may dispose of abandoned
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items as Landlord chooses. The Landlord shall bill the Tenant for its reasonable
and direct costs of removal and repair. The vault shall not be removed and if
removed, the Tenant shall not be billed for its removal or for any repair caused
by its removal. The Tenant shall not be responsible for Landlord's removal of
walls affixed to the Building by the Tenant permanently installed or built into
the Leased Premises by the Tenant.
Tenant will procure all necessary permits before making any repairs,
installations, alterations, additions, improvements or removals. Landlord agrees
that it will cooperate with Tenant in obtaining such permits. Tenant agrees that
all repairs, installations, alterations, improvements and removals done by it or
anyone claiming under it shall be done in a good and workmanlike manner, that
the same shall be done in conformity with all laws, ordinances and regulations
of all public authorities and all insurance inspection or rating bureaus having
jurisdiction, that the structure of the Leased Premises, or Building will not be
endangered or impaired and that Tenant will repair any and all damage caused by
or resulting from any such repairs installations, alterations, additions,
improvements or removals, including, but without limitation, the filling of
holes. Tenant agrees to pay promptly when due all charges for labor and
materials in connection with any work done by Tenant or anyone claiming under
Tenant upon the Leased Premises, or Building so that the Leased Premises, and
Building shall at all times be free of liens. Tenant agrees to save Landlord
harmless from, and indemnify Landlord against, any and all claims for injury,
loss or damage to person or property caused by or resulting from the doing of
any such work.
ARTICLE VIII Casualty or Taking
8.1 Landlord to Repair or Rebuild. In case the Leased Premises or any part
thereof shall be damaged or destroyed by fire or other casualty, or ordered to
be demolished by the action of any public authority in consequence of a fire or
other casualty, or taken by any exercise of the right of eminent domain, this
Lease shall, unless it is terminated as provided below in Article 8.2 or Article
8.3, remain in full force and effect and Landlord shall at its expense,
proceeding with all reasonable dispatch, repair or rebuild the Leased Premises,
or what may remain thereof, so as to restore them (not including Tenant's
fixtures, furniture, furnishings, floor coverings and equipment) as nearly as
practicable to the condition they were in immediately prior to such damage,
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destruction, or taking, but Landlord shall not be required to expend in such
repair or rebuilding more than the proceeds of insurance or award of damages, if
any, recovered or recoverable with respect to such damage, destruction or
taking, less Landlord's reasonable expenses incurred in collecting such proceeds
or award, as the case may be. If the Landlord's restoration has not been
completed within one hundred eighty (180 ) days from the date of the casualty,
Tenant shall have the right to terminate this Lease in the manner set forth
below in Article 8.2.
8.2 Right to Terminate in Event of Casualty. In case the Building in which the
Leased Premises are situated is destroyed or so damaged by fire or other
casualty insured under any fire and extended coverage insurance policy carried
by Landlord so as to render the Leased Premises untenantable; then in such case,
Tenant may at its election, exercisable by written notice, given to Landlord 180
days after such destruction or damage, and If the Landlord's restoration has not
been completed within one hundred eighty (180 ) days from the date of the
casualty, terminate this Lease as of the date designated by Tenant in such
notice, which designated date shall be not less than 15 days nor more than 30
days after the date of such notice.
8.3 Termination in Event of Taking. If all the Leased Premises are taken by
eminent domain, this Lease shall terminate when Tenant is required to vacate the
Leased Premises. If by a taking the floor area of the Leased Premises is reduced
by more than 20 percent thereof, this Lease may at the option of the Tenant be
terminated,as of the date when Tenant is required to vacate the portion of the
Leased Premises so taken, by written notice given to the Landlord not more than
thirty (30) days after the date on which the Tenant receives notice of the
taking. Floor area shall not include the loss of more than 25% of the parking
area and parking spaces and material reduction in the traffic flow area for
access to the drive up facility.
8.3.1 Restoration. In the event of a casualty or taking and so long as this
Lease does not terminate as aforesaid, Landlord shall, within a reasonable time,
restore what may remain of the Leased Premises to substantially the same
condition they were in prior thereto, subject to reduction in size thereof,
consistent, however, with zoning laws and building codes then in existence. A
just proportion of the all rent payments, according to the nature and extent of
the injury to the Leased Premises, shall be abated until what may remain of the
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Leased Premises shall be restored as aforesaid. Tenant shall at its own expense
proceed with all reasonable dispatch, and in any event less than one hundred
(120) days after Landlord's restoration shall have been completed, repair or
replace such of its fixtures, furniture, furnishings, floor coverings and
equipment as may be required as a result of such damage, destruction or taking.
8.4 Landlord Reserves Award. Landlord reserves and excepts all rights to awards
for damages to the Leased Premises or Building and the leasehold estate hereby
created now accrued or hereafter accruing (not including awards for damages, to
Tenant's trade fixtures, interior partitions installed by Tenant and other
installations made by Tenant which Tenant is entitled to remove upon termination
of this Lease) by reason of any exercise of the right of eminent domain, or by
reason of anything lawfully done in pursuance of any public or other authority;
and by way of confirmation Tenant grants to Landlord all Tenant's rights to such
awards and covenants to execute and deliver such further instruments of
assignment thereof as Landlord may from time to time request. It is further
agreed and understood, however, that Landlord does not reserve to itself and
Tenant does not assign to Landlord, any damages payable for any special fixtures
installed by Tenant at its own cost and expense, or any damages which are
considered "special damages" to Tenant, including without limitation any moving
or relocation expenses the Tenant may be entitled to by law or damages arising
from the Tenant's loss of its leasehold interest. 8.5 Abatement of Rent. In the
event of any casualty or taking, a just proportion of the all the rent payments
(as defined in Article 4.1) payable hereunder, according to the nature and
extent of the injury, shall be abated until completion of repairs or rebuilding
or termination of this Lease, as the case may be; and in the case of a taking
which permanently reduces the area of the Leased Premises, a just proportion The
Rent (as defined in Article 4.1) shall be abated for the remainder of the Lease
Term or Extended Term, as the case may be.
ARTICLE IX Defaults
9.1 Events of Default. If Tenant shall default in performance of any of its
obligations to pay rent, Annual Fixed Rent, Common Area Rental Charges and Tax
Reimbursements, hereunder, and if such default shall continue for fifteen days
after written notice from Landlord then, and in any such case, Landlord lawfully
may, in addition to and not in derogation of any remedies for any preceding
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breach of covenant, mail a notice of termination addressed to Tenant at Tenant's
Original Address as specified in Article 1.1, and repossess the same as of
Landlord's former estate and expel Tenant and those claiming through or under
Tenant without prejudice to any remedies which might otherwise be used for
arrears of rent or preceding breach of covenant, and upon such entry or mailing
as aforesaid this Lease shall terminate.
If within thirty days after written notice from Landlord to Tenant
specifying any other default or defaults, Tenant has not commenced diligently to
correct the default or defaults so specified or has not thereafter diligently
pursued such correction to completion, in either case subject to the provisions
of Article 10.6, then, and in any such case, Landlord lawfully may, in addition
to and not in derogation of any remedies for any preceding breach of covenant,
or mail a notice of termination addressed to Tenant at Tenant's Original Address
as specified in Article 1.1, and repossess the same as of Landlord's former
estate and expel Tenant and those claiming through or under Tenant without
prejudice to any remedies which might otherwise be used for arrears of rent or
preceding breach of covenant, and upon such entry or mailing as aforesaid this
Lease shall terminate. There shall be due to Landlord a late charge for failure
of Tenant to pay rent, annual fixed rent, common area rental charges and tax
reimbursement at the rate of 7% computed until the date the default is cured and
commencing on the date the payment is due.
9.2 Remedies. In the event that this Lease is terminated under any of the
provisions contained in Article 9.1 or shall be otherwise terminated for breach
of any obligation of Tenant, Tenant covenants to pay punctually to Landlord all
sums and perform all the obligations which Tenant covenants in this Lease to pay
and to perform in the same manner and to the same extent and at the same time as
if this Lease had not been terminated. In calculating the amounts to be paid by
Tenant under the next foregoing covenant, Tenant shall be credited with any
amount paid to Landlord as net proceeds of any rent obtained by Landlord by
reletting the Leased Premises, after deducting all Landlord's expenses in
connection with such reletting, including, without limitation, all repossession
costs, brokerage commissions, fees for legal services and expenses of repairing
the Leased Premises for such reletting, it being agreed by Tenant that Landlord
may but is not obligated to (i) relet the Leased Premises or any part or parts
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thereof, for a term or terms which may, at Landlord's option, be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the Lease Term, and (ii) make such removals and repairs in the Leased
Premises as Landlord in its reasonable judgment considers advisable or necessary
to relet the same, and no action of Landlord in accordance with the foregoing or
failure to relet or to collect rent under any reletting shall operate or be
construed, to the extent permitted by law, to release or reduce the Tenant's
liability as aforesaid.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amount of the loss or damages
referred to above. 9.3 Remedies Cumulative. The specific rights or remedies to
which Landlord or Tenant may resort under the terms of this Lease are cumulative
and are not intended to be exclusive of any other remedies or means of redress
to which Landlord or Tenant, as the case may be, may be lawfully entitled to in
case of any breach or threatened breach by either of them of any provisions of
this Lease. No mention in this Lease of any specific right or remedy shall
preclude either party from exercising any other right or from having any other
remedy or from maintaining any other action to which it may otherwise be
entitled either at law or equity.
9.4 Landlord's Right to Cure Defaults. Landlord may, but shall not be obligated
to, cure, at any time, following thirty days' prior written notice to Tenant,
except in cases of emergency when no notice shall be required, any default by
Tenant under this Lease; and whenever Landlord so elects, all costs and expenses
incurred by Landlord, including reasonable attorneys' fees, in curing a default
shall be paid by Tenant to Landlord on demand.
9.5 Effect of Waivers of Default. The failure of either party to seek redress
for violation of, or to insist upon the strict and literal performance of any
term, covenant or condition of this Lease, shall not be deemed a waiver of such
violation or a relinquishment for the future of such covenant, right or option,
nor prevent a subsequent act, which would have originally constituted a
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violation, from having all the force and effect of an original violation, but
the same shall remain in full force and effect. The receipt by Landlord of rent,
with or without knowledge of the breach of any term, covenant or condition
hereof shall not be deemed a waiver of such breach. No provisions of this Lease
shall be deemed to have been waived by either party unless such waiver be in
writing.
9.6 Landlord's Default. Except for breach by Landlord of the covenant of quiet
enjoyment, Landlord shall not be deemed to be in default in the performance of
any of its obligations hereunder unless it shall fail to perform such
obligations and such failure shall continue for a period of thirty (30) days
after written notice has been given by Tenant to Landlord specifying the nature
of Landlord's default. In the event of any such default which prevents the
Tenant or its subtenant(s) from conducting their usual business, if Landlord has
not commenced to cure any such default on or before the expiration of said
thirty (30) days, Tenant may elect either: (a) to terminate this Lease entirely
or as to any portion of the Leased Premises affected by the default by giving
written notice thereof to Landlord, whereupon this Lease shall be terminated for
those portions of the Leased Premises specified in the notice and the
obligations of Tenant hereunder shall thereupon cease or (b) may cure such
defaults at the Landlord's expense.
ARTICLE X Miscellaneous Provisions
10.1 Notice from One Party to the Other. Any notice from Landlord to Tenant or
from Tenant to Landlord shall be deemed duly served if mailed by registered or
certified mail addressed, if to Tenant, at the Tenant's Original Address or such
other address as Tenant shall have last designated by notice in writing to
Landlord and, if to Landlord, at the Landlord's Original Address or such other
address as Landlord shall have last designated by notice in writing to Tenant.
10.2 Quiet Enioyment. Landlord covenants and agrees that upon Tenant's paying
the Annual Fixed Rent, Additional Rent and Common Area Rental Charges, and
performing and observing the agreements, conditions and other provisions on its
part to be performed and observed, Tenant shall and may peaceably and quietly
have, hold and enjoy the Leased Premises during the Lease Term without any
manner of hindrance or molestation from Landlord or anyone claiming under
Landlord, subject, however, to the terms of this Lease and to any mortgage which
may be superior to this Lease.
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10.3 Notice of Lease Lease not to be Recorded. Both parties shall, upon the
request of either, execute, acknowledge and deliver a notice of this Lease, in
recordable form, setting forth, inter alia the Commencement Date and the
Termination Date for the Leased Premises. If this Lease is terminated before the
Term expires under the terms hereof, the parties shall execute, acknowledge and
deliver and record an instrument acknowledging such fact and the actual date of
termination of this Lease.
10.4 Limitation of Landlord's Liability/Joint and Several Liability. No owner of
the Leased Premises shall be liable under this Lease except for breaches of
Landlord's obligations occurring while owner of the Leased Premises, and, if
Landlord is a trust, Landlord's obligations hereunder shall not be binding upon
the Trustees of said Trust individually nor upon the shareholders or
beneficiaries of said Trust, but only upon the Trustees as trustees and upon
their trust estate. In the event that two or more individuals, corporations,
partnerships or other business associations (or any combination of two or more
thereof) shall sign this Lease as Tenant, the liability of each such individual,
corporation, partnership or other business association to pay rent and perform
all other obligations hereunder shall be deemed to be joint and several. In the
event that the Tenant named in this Lease shall be a partnership or other
business association the members of which are, by virtue of statute or general
law not subject to personal liability then, and in such event, the liability of
each such member shall be deemed to be joint and several notwithstanding such
statute or general law.
10.5 Acts of God. In any case where either party hereto is required to do any
act, delays caused by or resulting from Acts of God, war, civil commotion, fire
or other casualty, labor difficulties, shortages of labor, materials or
equipment, government regulations or other causes, to the extent that any of
which are beyond such party's reasonable control, shall not be counted in
determining the time during which work shall be completed, whether such time be
designated by a fixed date, a fixed time or 'a reasonable time." "Financial
inability" is expressly excluded as a cause for such delay in performance.
10.6 Waiver of Subrogation. The Landlord hereby releases the Tenant, to the
extent of the Landlord's insurance coverage, from any and all liability for any
loss or damage caused by fire or any of the extended coverage casualties or any
other casualty insured against, even if such fire or other casualty shall be
brought about by the fault or negligence of the Tenant or its agents, provided,
however, this release shall be in full force and effect only with respect to
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loss or damage occurring during such time as the Landlord's policies covering
such loss or amage shall contain a clause to the effect that this release shall
not affect said policies or the right of the Landlord to recover thereunder. The
Landlord agrees that its fire and other casualty insurance policies will include
such a clause so long as the same is includable without extra cost, or if extra
cost is chargeable therefor, so long as the Tenant pays such extra cost. If
extra cost is chargeable therefor, the Landlord will advise the Tenant thereof
and of the amount thereof. The Tenant at its election may pay the same, but
shall not be obligated to do so.
The Tenant hereby releases the Landlord to the extent of the Tenant's
insurance coverage, from any and all liability for any loss or damage caused by
fire or other casualty insured against, even if such fire or other casualty
shall be brought about by the fault or negligence of the Landlord or its agents,
provided, however, this release shall be in force and effect only with respect
to loss or damage occurring during such time as the Tenant's policies covering
such loss or damage shall contain a clause to the effect that this release shall
not affect said policies or the right of Tenant to recover thereunder. The
Tenant agrees that its fire and other casualty insurance policies will include
such a clause so long as same is includable without extra cost, or if extra cost
is chargeable therefor, so long as the Landlord pays such extra cost. If extra
cost is chargeable therefor, the Tenant will advise the Landlord thereof and of
the amount thereof. The Landlord at its election, may pay the same, but shall
not be obligated to do so.
Each party hereby waives all rights of recovery against the other. for
loss or injury against which the waiving party is protected by insurance
containing said provisions, reserving, however, any rights with respect to any
excess of loss of injury over the amount recovered by such insurance. Neither
party shall acquire as insured under any insurance carried by the other any
right to participate in the adjustment of loss or to receive insurance proceeds
and agrees upon request promptly to endorse and deliver to the other party any
checks or other instruments in payment of loss in which it is named a payee.
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10.7 Status Certificate. Each party agrees from time to time, upon not less than
fifteen (15) days prior written request, to execute, acknowledge and deliver to
each other a statement in writing certifying that this Lease is unmodified and
in full force and effect and that Tenant has no defenses, offsets or
counterclaims against its obligations to pay the Annual Fixed Rent, Common Area
Rental Charges, Ground Rent, Additional Rent and Additional Ground Area Rent,
and any other charges and to perform its other covenants under this Lease and
that there are no uncured defaults of Landlord or Tenant under this Lease (or,
if there have been any modifications that the same is in full force and effect
as odified and stating the modifications and, if there are any defenses,
offsets, counterclaims, or defaults, setting them forth in reasonable detail),
and the dates to which the Annual Fixed Rent, Cormnon Area Rental Charges,
Ground Rent, Additional Rent and Additional Ground Rent and any other charges
have been paid. Any such statement delivered pursuant to this Article 10.7 may
be relied upon by any prospective purchaser or prospective Mortgagee of the
Leased Premises or of the Building or any prospective assignee of any such
Mortgage.
10.8 Rights of Mortgagee and Subordination
10.8.1 Unless Landlord exercises the option set forth in Article 10.8.2 below,
this Lease shall be superior to and shall not be subordinated to any mortgage or
other voluntary lien or other encumbrance on the Leased Premises, Real Property
or the Building, hereinafter in this Article 10.8 referred to as "the mortgaged
Leased Premises." No holder of a mortgage shall be liable either as mortgagee or
as assignee, to perform, or be liable in damages for failure to perfor many of
the obligations of Landlord unless and until such holder shall have entered as
mortgagee in possession or until such holder shall have acquired indefeasible
title to the Real Property and the Building and then only subject to and with
the benefit of the provisions of Article 10.5. No Annual Fixed Rent, Common Area
Rental Charges, Additional Rent or any other charge shall be paid more than ten
days prior to the due dates thereof and payments made in violation of this
provision shall (except to the extent that such payments are actually received
by a mortgagee in possession or in the process of foreclosing its mortgage) be a
nullity as against such mortgagee and Tenant shall be liable for the amount of
such payments to such mortgagee. The covenants and agreements contained in this
Lease with respect to the rights, powers and benefits of a mortgagee
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(particularly, without limitation thereby, the covenants and agreements
contained in this Article (10.8.1) constitute a continuing offer to any person,
corporation or other entity becoming the mortgagee of the mortgaged Leased
Premises, and such mortgagee is hereby constituted an obligee of Tenant to the
same extent as though its name was written hereon as such; and such mortgagee
shall be entitled to enforce such provisions in its own name. Tenant agrees on
request of Landlord to execute and deliver from time to time any agreement which
may be necessary to implement the provisions of this Article 10.8.1.
10.8.2 Tenant agrees at the request of Landlord to subordinate this Lease to any
mortgage placed upon the mortgaged Leased Premises by Landlord, provided that
the holder of such mortgage enters into an agreement with Tenant binding upon
the successors and assigns of the parties thereto by the terms of which such
holder agrees not to disturb the possession and other rights of Tenant under
this Lease including all rights of first refusal so long as Tenantcontinues to
perform its obligations hereunder and in the event of acquisition of title by
said holder through foreclosure proceedings or otherwise, to accept Tenant as
tenant of the Leased Premises under the terms and conditions hereunder or to
sell said Leased Premises and/or the Building subject to this Lease, and Tenant
agrees to recognize such holder or any other person acquiring title to the
Leased Premises as Landlord. Tenant and Landlord agree to execute and deliver
any appropriate instruments necessary to carry out the agreements in this
Article 10.8 contained. Any such mortgage to which this Lease shall be
subordinated may contain such terms, provisions and conditions as the mortgagee
deems usual or customary.
10.9 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum than
the Annual Fixed Rent, Common Area Rental Charge, Additional Rent or any other
charge then due shall be deemed to be other than on account of the earliest
installment of such rent or charge due, nor shall any endorsement or statement
on this Lease is capable of two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the meaning which renders it valid.
10.10 Parking. As of the commencement date and during the remainder of the term
hereof, Landlord shall provide at least 50 unreserved parking spaces for the
Building and will not reserve any parking spaces in the front of the Building
for Tenant, or any other tenant in the Building. In addition, Tenant agrees to
cause its employees to park only in the spaces designated in the rear of the
Building. Landlord agrees that it will, in its leases of the Building with other
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tenants, include a provision requiring their employees to park in the parking
spaces in the rear of the Building. At the option of the Tenant 15 spaces shall
be reserved for the exclusive use of the customers of the Tenant and to be
located in front of the Leased Premises. In addition the Landlord agrees that
Tenant shall, during the term hereof, with others, have the nonexclusive right
to use the parking facilities of ground area for the accommodation and parking
of such automobiles of Tenant, its officers, agents and employees, and its
customers. All parking area shall be designated on Exhibit A attached hereto. At
no time may the parking spaces be reduced below that which is presenly located
on the area designated on Exhibit A, except as provided for in Section 8.3.
10.11 Right of First Refusal Purchase. If at any time during any term of this
lease, Landlord shall receive and be willing to accept the bone fide offer from
a third party to purchase the shopping center or if Landlord shall offer to sell
the property to any third party, Landlord shall, if there is no event of
default, promptly transmit to Tenant its offer to sell the property to Tenant
upon same terms and conditions as those offered by or to the third party,
together with a true copy of such original offer. If Tenant shall not accept
such offer within fortyfive (45) days after it is made, Landlord may, after the
expiration of such fortyfive (45) day period, sell such interest to a third
party upon terms and conditions as those offered to the Tenant. If Tenant
accepts such offer by notice to Landlord within the time permitted, the offer
and acceptance shall constitute a contract for the sale by Landlord and the
purchase by Tenant of the property at a closing to be held within thirty (30)
days following the receipt by Landlord by Tenants notice of acceptance. On the
date of such purchase, the Landlord shall convey the Leased Premises in
consideration of the payment of the purchase price. by quitclaim deed, conveying
good clear record and marketable title to the Leased Premises free of all liens
and encumbrances except this lease and except for easements and restrictions of
record which are listed on Exhibit D attached hereto. The Landlord may use the
purchase price to pay off mortgage liens and like encumbrances. If Landlord
shall be unable to give title, the Landlord shall use reasonable efforts to
remove such defects in title. All remaining conditions of sale shall be as found
in the current Greater Boston Real Estate Board form purchase and sale agreement
as reasonably adjusted for this transaction.
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10.12. Right of First Refusal Adjacent Property Lease. (a.) If at any time
during any term of this lease, the Landlord shall receive and be willing to
accept the bona fide offer from a third party to lease any other building or
portion of a building located in the shopping center, or if Landlord shall offer
to lease the property to any third party, Landlord shall, if there is no event
of default, promptly transmit to Tenant its offer to lease the property to
Tenant upon terms and conditions as those offered by or to the third party,
together with a true copy of such original offer. If Tenant shall not accept
such offer within thirty (30) days after it is made, Landlord may, after the
expiration such thirty (30) day period, lease such interest to a third party
upon terms and conditions as those offered to the Tenant. If Tenant accepts such
offer by notice to Landlord within the time permitted, the offer and acceptance
shall constitute a contract for lease by Landlord and by Tenant of the property
to be executed within thirty (30) days following the receipt by Landlord by
Tenants notice of acceptance. On the date of such leasing, Landlord shall lease
the Leased Premises free of all tenants and occupants. . The Landlord shall have
a continuing obligation to offer the same for lease to the Tenant throughout any
term of this lease before it enters into a lease for same with any other person.
10.13 Intentionally Omitted.
10.14 Signage. Tenant shall be allowed to maintain and erect all signage it
deems to be necessary. The nature and location of any sign to be erected by
Tenant shall be subject to consent of the Landlord which shall not be
unreasonably withheld or delayed. The Landlord shall install and maintain a
building directory sign in the main lobby of the building. Tenant agrees to
obtain any necessary municipal permits for the erection and maintenance of such
signage and to pay the cost thereof. In the event the sign is in violation of
any town of governmental ordinance, Tenant shall immediately correct such
violation at its own cost and expense and indemnify Landlord for any cost,
penalty, loss or damage incurred by Landlord as a result of said sign(s).
10.15 Satellite Dish. Tenant shall be allowed to install and maintain a
satellite dish and antenna on the roof of the Building. All costs of
installation and maintenance shall be borne by the Tenant. The installation
shall be made so as not to damage the Building or Building systems. Tenant shall
indemnify Landlord for any and all damages caused to the building or building
systems by the dish or antenna or the maintenance thereof.
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11.0. Lease as Entire Agreement. This Lease contains the entire and only
agreement between the parties and all prior negotiations, representations,
statements, warranties, understandings and agreements whether written or oral
with respect to the Leased Premises, the Building, the Real Property or this
Lease are merged in this Lease and any such statements, representations,
warranties, understandings or agreements, whether oral or written, not referred
to or contained in this Lease shall have no force or effect. Tenant acknowledges
that all representations, statements, warranties, agreements, and understandings
upon which Tenant relied in executing this Lease are contained herein and that
Tenant in no way relied upon any other representations, statements, warranties,
agreements, or understandings whether written or oral.. This Lease may not be
changed, modified or discharged in any way, and no executory agreement shall be
effective to change, modify or discharge, in whole or in part, this Lease or any
obligations under this Lease, unless such agreement is set forth in a written
instrument signed by the parties.
12.0. Captions. All headings used herein are for convenience only and do not
constitute a part of this Lease and in no way do they limit or amplify the terms
and provisions of this Lease.
13.01 Tenant's Contingency. The Tenant's obligations under this lease shall be
contingent upon its obtaining all approvals from the Commissioner of Banks of
the Commonwealth of Massachusetts and the Federal Deposit Insurance Corporation
so as to enable the Tenant to operate a branch of a commercial bank and trust
company in and upon the Leased Premises. The Tenant agrees to make all the
necessary applications as soon as this lease is executed and to proceed with
such application in a good faith manner. If such approvals are not obtained by
September 1, 1997, Landlord at its option may terminate this lease unless the
Tenant elects to proceed with the Lease without such approvals.. If there is a
termination hereunder, Tenant at its sole cost and expense shall remove any
items of personal property from the Leased Premises and shall repair and restore
the Leased Premises to their previous condition prior to Tenant fit up, in a
timely and expeditious manner.
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13.02 The Tenant shall pay to the Landlord the sum of Two Hundred Fourteen
Thousand Six Hundred-Fifty ($214,650.00) Dollars and the Landlord will deliver
to the Tenant a Bill of Sale for the personal property and Leasehold
Improvements ( "Personalty") listed in Exhibit C conveying the Personalty to the
Tenant free of all liens and encumbrances. One Hundred Seven Thousand, Three
Hundred Twenty Five Dollars ($ 107,325.00) shall be paid in or within ten days
of the date the Tenant shall receive its regulatory approvals and the balance
shall be paid on the earlier of commencement date of the Lease or on the date
the Bank opens for business. If the Drive-Up Equipment is not in good working
order, when delivered to the Tenant, the Tenant will notify Landlord and
thereafter the Tenant will repair the same and will deduct an amount not to
exceed Ten Thousand Dollars ($10,000.00) for the Drive up equipment repair from
the second installment to be paid to the Landlord.
13.03 In the event the Landlord shall lease any portion of the building and or
the ground area to another financial services company that would compete with
Tenant in a line of Tenant's business, then the base rent due to the Landlord
shall be reduced by fifty percent (50) commencing the commencement date of the
other such financial services lease, unless otherwise agreed to by Landlord and
Tenant.
14. Hazardous Waste: Landlord agrees to indemnify and hold harmless the Tenant
of and from any damages, including but not limited to reimbursement for mandated
clean-up, costs of litigation and the like, arising from any hazardous waste
which may exist on the Leased Premises, either at the time of the commencement
date of the lease or subsequently, unless such release or threat of release is
due to or caused by Tenant activities or persons or entities under its control.
15. ARBITRATION. Any disagreement between the parties with respect to the
interpretation or application of this lease or the obligations of the parties
hereunder shall be determined by arbitration. Such arbitration shall be
conducted, upon request of either the Landlord or the Tenant, before three
arbitrators (unless the Landlord or the Tenant agree to one arbitrator)
designated by the American Arbitration Association and in accordance with the
rules of such Association. The arbitrators designated and acting under this
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lease shall make their award in strict conformity with such rules and shall have
no power to depart from or change any of the provisions thereof. The expense of
arbitration proceedings conducted hereunder shall be borne equally by the
parties. All arbitration proceedings hereunder shall be conducted in the county
in which the leased property is located. It is agreed that if at any time a
dispute shall arise as to any amount or sum of money to be paid by one party to
the other under the provisions hereof, the party against whom the obligation to
pay the money is asserted shall make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said party to institute suit for the recovery of such sum, and if
it shall be adjudged that there was no legal obligation on the part of said
party to pay such sum or any part thereof, said party shall be entitled to
recover such sum or so much thereof as it was not legally required to pay under
the provisions of this lease; and if at any time a dispute shall arise between
the parties hereto as to any work to be performed by either of them under the
provisions hereof, the party against whom the obligation to perform the work is
asserted may perform such work and pay the cost thereof "under protest" and the
performance of such work shall in no event be regarded as a voluntary
performance, and there shall survive the right on the part of said party to
institute suit for the recovery of the cost of such work, and, if it shall be
adjudged that there was no legal obligation on the part of such party to perform
the same or any part thereof, said party shall be entitled to recover the cost
of such work or the cost of so much thereof as said party was not legally
required to perform under the provisions of this lease. 16.0 This instrument
shall be binding upon the parties and their respective succesors and assigns
WITNESS the execution hereof in triplicate and under seal on the day
and year first above written.
- ------------------------------ -----------------------------
Witness Witness
LANDLORD:
1168 LAKEVIEW AVENUE REALTY TRUST
By: /s/ Fred Faust
Fred Faust
Trustee as aforesaid and notindividually
TENANT:
ENTERPRISE BANK AND TRUST COMPANY
By: /s/ Robert R. Gilman
Robert R. Gilman
Senior Vice President
34
EXHIBIT 10.15
ENTERPRISE BANCORP, INC.
Lowell, MA 01852
1988 STOCK OPTION PLAN, as amended and restated as of December 1996
1. Definitions. As used in this 1988 Stock Option Plan of Enterprise
Bancorp, Inc., the following terms shall have the following meanings:
1.1 Board means the Company's Board of Directors.
1.2 Code means the federal Internal Revenue Code of 1986, as
amended.
1.3 Company means Enterprise Bancorp., Inc., a Massachusetts
corporation.
1.4 Continuing Director shall have the meaning defined for such
term in the Company's Articles of Organization, as amended.
1.5 Fair Market Value means the value of a share of Stock of the
Company on any date as determined by the Board (or the
committee, if one is appointed pursuant to Section 5).
1.6 Grant Date means the date as of which an Option is granted, as
determined under Section 7.
1.7 Incentive Option means an Option intended to satisfy the
requirements of Section 422 of the Code.
1.8 Interested Stockholder shall have the meaning defined for such
term in the Company's Articles of Organization, as amended.
1.9 Nonstatutory Option means any Option that is not an Incentive
Option.
1.10 Option means an option to purchase shares of Stock granted
under the Plan.
1.11 Option Agreement means an agreement between the Company and an
Optionee, setting forth the terms and conditions of an Option.
1.12 Option Price means the price to be paid by an Optionee to
acquire Stock under an Option granted pursuant to the Plan.
1.13 Option Share means any share of Stock of the Company to be
transferred to an Optionee upon exercise of an Option pursuant
to the Plan.
1.14 Optionee means a person eligible to receive an Option, as
provided in Section 6, to whom an Option shall have been
granted under the Plan.
1.15 Plan means this 1988 Stock Option Plan of the Company, as
amended from time to time.
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1.16 Stock means Common Stock, par value $0.01 per share, of the
Company.
1.17 Subsidiary means (a) any depository institution or
corporation, a majority of the outstanding voting stock of
which shall at the time be owned by the Company or by one or
more Subsidiaries, or (b) any other entity or enterprise, a
majority of the equity of which shall at the time be owned by
the Company or by one or more Subsidiaries.
1.18 Ten Percent Owner means a person who is deemed. within the
meaning of Section 422(b)(6) of the Code, to own stock
possessing more than 10% of the total combined voting power of
all classes of stock of the Company (or any of its
Subsidiaries).
1.19 Vesting Year for any portion of any Incentive Option means the
calendar year in which that portion of the Option first
becomes exercisable.
2. Purpose. This Plan is intended to provide an incentive for officers and
full-time employees of the Company and its Subsidiaries who are in a
position to contribute materially to the long-term success of the
Company and to induce the continued service of these individuals and to
aid in attracting and retaining individuals of outstanding ability. The
Plan is intended to be an incentive stock option plan within the
meaning of Section 422 of the Code but not all Options granted
hereunder are required to be Incentive Options.
3. Term of the Plan. Options under the Plan may be granted on or after the
Effective Date (as defined in Section 20 hereof), but not later than
June 20, 1998.
4. Stock Subject to the Plan. At no time shall the number of shares of
Stock then outstanding which are attributable to the exercise of
Options granted under the Plan, plus the number of shares then issuable
upon exercise of outstanding Options granted under the Plan exceed
153,902 shares subject, however, to the provisions of Section 16 of the
Plan. Shares to be issued upon the exercise of Options granted under
the Plan shall be authorized but unissued shares of Stock. If any
Option expires or terminates for any reason without having been
exercised in full, the shares not purchased thereunder shall again be
available for Options thereafter to be granted.
5. Administration. Unless the Board appoints a committee, consisting of at
least three members of the Board, to administer the Plan (in which
event such committee shall be substituted for the Board for all
purposes of this Section 5). the Plan shall be administered by the
Board. Subject to the provisions of the Plan, the Board shall have
complete authority, in its discretion, to make or to select the manner
of making the following determinations with respect to each Option to
be granted hereunder: (a) the employee to receive the Option; (b)
whether the Option will be an Incentive Option or a Nonstatutory
Option; (c) the time of granting the Option; (d) the number of shares
subject thereto; (e) the Option Price; (f) the Option period; and (g)
the Option exercise date or dates. In making such determinations, the
Board may take into account the nature of the services rendered by the
respective employees, their present and potential contributions to the
success of the Company and its Subsidiaries. and such other factors as
the Board in its discretion shall deem relevant. Subject to the
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provisions of the Plan, the Board shall also have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of
the respective Option Agreements (which need not be identical), and to
make all other determinations necessary or advisable for the
administration of the Plan. The Board's determinations on the matters
referred to in this Section 5 shall be conclusive. It is the intention
of the Company that the Plan shall be administered in a manner
consistent with the provisions of Rule 16b-3 as promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended (the "1934 Act"). Action by any committee appointed
pursuant to this Section 5 shall require the affirmative vote of a
majority of all its members.
6. Eligibility. An Option may be granted only to an employee of the
Company or its Subsidiaries. A director of one or more of the Company
or its Subsidiaries who is not also an employee of the Company or its
Subsidiaries shall not be eligible to receive an Option.
7. Time of Granting Options. The granting of an Option shall take place at
the time specified in the Option Agreement. Only if expressly so
provided in the Option Agreement, shall the Grant Date be the date on
which an Option Agreement shall have been duly executed and delivered
by the Company and the Optionee.
8. Option Price. The Option Price under each Incentive Option shall be not
less than 100% of the Fair Market Value of the Stock on the Grant Date,
or not less than 110% of the Fair Market Value of the Stock on the
Grant Date if the Optionee is a Ten Percent Owner. The Option Price
under each Nonstatutory Option shall not be so limited solely by reason
of this Section 8.
9. Option Period Exercisability.
(a) No Incentive Option may be exercised later than the tenth
anniversary of the Grant Date (fifth anniversary in the case of an
Optionee who is a Ten Percent Owner). The Option period under each
Nonstatutory Option shall not be so limited solely by reason of this
Section 9. An Option shall be exercisable at such time or times, and in
such installments, cumulative or noncumulative, as the Board may
determine. The Board may accelerate the vesting of any Option at any
time prior to the expiration of such Option, provided the acceleration
of any Incentive Option would not cause the Option to fail to comply
with the provisions of Section 422 of the Code.
(b) In the event of a Change in Control of the Company (as defined in
(c) below), all Options outstanding as of the date of such Change in
Control shall become immediately exercisable.
(c) Change in Control. For purposes of the Plan, a "Change in Control"
shall be deemed to have occurred in either of the following events: (i)
if there has occurred a change in control which the Company would be
required to report in response to Item 1 of a Current Report on Form
8-K as filed by the Company with the Securities and Exchange Commission
pursuant to the requirements of Section 13 or Section 15(d) of the 1934
Act, or, if such reporting obligation is no longer in effect, any
regulations promulgated by the Securities and Exchange Commission
pursuant to the 1934 Act which are intended to serve similar
<PAGE>
-4-
purposes or (ii) when any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as
such term is defined in Rule 13d-3 promulgated under the 1934 Act),
directly or indirectly, of securities of the Company representing
twenty-five percent or more of the total number of votes that may be
cast for the election of directors of the Company, and in the case of
either (i) or (ii) above, the Board has not consented to such event by
a two-thirds vote of all of its members (unless there is an Interested
Stockholder, in which case the affirmative vote of two-thirds of the
Continuing Directors shall also be required). In addition. a Change in
Control shall be deemed to have occurred if, as the result of, or in
connection with, any tender or exchange offer, merger or other business
combination, sale of assets or contested election, or any combination
of the foregoing transactions, the persons who were directors of the
Company before such transaction shall cease to constitute a majority of
the Board or of any successor institution.
10. Limit on Incentive Option Characterization. No Incentive Option shall
be considered an Incentive Option to the extent pursuant to its terms
if it would permit the Optionee to purchase for the first time in any
Vesting Year under that Incentive Option more than the number of shares
of Stock calculated by dividing the current limit by the Option Price.
The current limit for any Optionee for any Vesting Year shall be
$100,000 minus the aggregate Fair Market Value at the date of grant of
the number of shares of Stock available for purchase for the first time
in the Vesting Year under each other Incentive Option granted to the
Optionee under the Plan and each other incentive stock option granted
to the Optionee under any other incentive stock option plan of the
Company (and any of its Subsidiaries).
11. Exercise of Option. An Option may be exercised in accordance with its
terms by written notice of intent to exercise the option, specifying
the number of shares with respect to which the Option is then being
exercised. The notice shall be accompanied by payment in the form of
cash or check. Within 30 days thereafter but subject to the remaining
provisions of the Plan and any other provisions of the Option, the
Company shall deliver or cause to be delivered to the Optionee a
certificate or certificates for the number of shares then being
purchased. Such shares shall be fully paid and nonassessable.
12. Restrictions on Issue of Shares. Notwithstanding any other provision of
the Plan, if at any time in the reasonable opinion of the Company any
law or applicable regulation of the Securities and Exchange Commission
or other public regulatory authority shall require the Company or the
Optionee to register or qualify under the Securities Act of 1933, as
amended, any similar federal statute then in force or any state law
regulating the sale of securities, any Option Shares with respect to
which notice of intent to exercise shall have been delivered to the
Company or to take any other action in connection with such shares, the
delivery of the certificate or certificates for such shares shall be
postponed until completion of the necessary action, which the Company
shall take in good faith and without delay. All such action shall be
taken by the Company at its own expense.
13. Notice of Disposition of Stock Prior to Expiration of Specified Holding
Period; Withholding
(a) Whenever shares are to be issued in satisfaction of an Option
granted hereunder the Company shall have the right to require the
Optionee to remit to the Company an amount sufficient to satisfy
federal, state, local or other withholding tax requirements (whether so
<PAGE>
-5-
required to secure for the Company an otherwise available tax deduction
or otherwise) prior to the delivery of any certificate or certificates
for such shares.
(b) The Company may require as a condition to the issuance of shares
covered by any Incentive Option that the party exercising such Option
give a written representation to the Company which is satisfactory in
form and substance to its counsel and upon which the Company may
reasonably rely, that he or she will report to the Company any
disposition of such shares prior to the expiration of the holding
periods specified by Section 422(a)(1) of the Code. If and to the
extent that the realization of income in such a disposition imposes
upon the Company federal, state, local or other withholding tax
requirements, or any such withholding is required to secure for the
Company an otherwise available tax deduction, the Company shall have
the right to require that the recipient remit to the Company an amount
sufficient to satisfy those requirements; and the Company may require
as a condition to the issuance of shares covered by an Incentive Option
that the party exercising such option give a satisfactory written
representation promising to make such a remittance.
14. Termination of Employment. Except as otherwise provided in this
paragraph or in Section 9(b), the exercise of all or any portion of an
Option granted under the Plan is contingent upon the continued
employment of the Optionee by the Company. In the event the Optionee
shall cease to be employed by the Company for any reason other than
death or physical or mental disability any unexercised portion of each
Option granted the Optionee shall terminate and be of no further force
or effect. In the event the Optionee shall cease to be employed by the
Company on account of death or physical or mental disability, his or
her executor or the Optionee, as the case may be, may exercise any
unexercised but exercisable Option or portion thereof within the period
commencing on the date of the Optionee's death or disability, and
ending on the first anniversary of the Optionee's death or disability.
Military, sick or maternity leave shall not be deemed a termination of
employment provided that it does not exceed the longer of 180 days or
the period during which the absent employee's re-employment rights are
guaranteed by statute or by contract.
15. Transferability of Options. Options shall not be transferable,
otherwise than by will or the laws of descent and distribution, and may
be exercised during the life of the Optionee only by the Optionee.
16. Effect of Corporate Transactions.
(a) Stock Dividends, Reclassifications, Etc. Each Option Agreement
shall provide that in the event of any stock dividend payable in Stock
or any split-up or contraction in the number of shares of the Stock
occurring after the date of the Agreement and prior to the exercise in
full of the Option, the number of remaining shares subject to such
Agreement and the price to be paid for each such share shall be
proportionately adjusted. Each such Agreement shall also provide that
in case of any reclassification or other change of outstanding shares
of the Stock, shares of stock or other securities shall be delivered
equivalent in kind and value to those shares an Optionee would have
received if the Option had been exercised in full immediately prior to
such reclassification or other change and had continued to hold the
Option Shares (together with all other shares, stock and securities
thereafter issued in respect thereof) to the time of the exercise of
the Option. No fraction of a share shall be purchasable
<PAGE>
-6-
or deliverable upon exercise, but in the event any adjustment hereunder
of the number of shares covered by the Option shall cause such number
to include a fraction of a share, such number of shares shall be
adjusted to the nearest smaller whole number of shares. In the event of
changes in the outstanding Stock by reason of any stock dividend,
split-up, contraction, reclassification, or other change of outstanding
shares of the Stock of the nature contemplated by this Section 16, the
number of shares of Stock available for the purpose of the Plan as
stated in Section 4 shall be correspondingly adjusted.
(b) Liquidation. In the case of the dissolution or liquidation of the
Company, the Plan and the Options issued hereunder shall terminate on
the effective date of such transaction. In the event of such
termination, all outstanding options shall be exercisable in full for
at least fifteen days prior to the date of such termination whether or
not otherwise exercisable during such periods.
17. Reservation of Stock. The Company shall at all times during the term of
the Plan reserve or otherwise keep available such number of shares of
Stock as will be sufficient to satisfy the requirements of the Plan and
shall pay all fees and expenses necessarily incurred by the Company in
connection therewith.
18. Limitation of Rights in the Option Shares; No Special Employment or
Other Rights. The Optionee shall not be deemed for any purpose to be a
stockholder of the Company with respect to any of the Option Shares
except to the extent that the Option shall have been exercised with
respect thereto and, in addition, a certificate shall have been issued
therefore and delivered to the Optionee. Any Stock issued pursuant to
the Option shall be subject to all restrictions upon the transfer
thereof which may be now or hereafter imposed by the Articles of
Organization or by the bylaws of the Company. Nothing contained in the
Plan or in any Option shall confer upon any Optionee any right with
respect to the continuation of his or her employment with the Company
or its Subsidiaries, or interfere in any way with the right of the
Company or its Subsidiaries, subject to the terms of any separate
employment agreement or provision of law or the Company's Articles of
Organization or bylaws to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the Optionee
from the rate in existence at the time of the grant of an Option.
19. Termination and Amendment of the Plan. The Board may at any time
terminate the Plan or, from time to time, amend the Plan, subject to
any required regulatory approval and to the limitation that, except as
provided in Sections 13 and 16 hereof, no amendment shall be effective
unless approved by the stockholders of the Company in accordance with
applicable law and regulations (including, without limitation, the
provisions of Rule 16b-3 of the Securities and Exchange Commission) at
an annual or special meeting held within twelve months before or after
the date of adoption of such amendment, where such amendment will:
(a) increase the number of shares of Stock as to which options may be
granted under the Plan;
(b) change in substance Section 6 hereof relating to eligibility to
participate in the Plan;
(c) change the minimum option price;
<PAGE>
-7-
(d) increase the maximum term of options provided herein; or
(e) otherwise materially increase the benefits accruing to participants
under the Plan.
No termination or amendment of the Plan may, without the consent of the
Optionee to whom any Option shall theretofore have been granted,
adversely affect the rights of such Optionee under such Option.
20. Effectiveness of Plan. The Plan shall have become effective as of May
26, 1989 (the "Effective Date").
21. Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor the submission of the Plan or any amendments thereto to the
stockholders of the Company for approval shall be construed as creating
any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific
cases.
22. Government and Other Regulations; Governing Law.
(a) The obligations of the Company to sell and deliver shares of Stock
with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or
appropriate by the Board.
(b) The Plan shall be governed by Massachusetts law, except to the
extent that such is preempted by federal law.
(c) The Plan is intended to comply with the provisions of Rule 16b-3
promulgated by the Securities and Exchange Commission under the 1934
Act. Any provision inconsistent with such rule shall be inoperative and
shall not affect the validity of the Plan.
23. Notices and Other Communications. All notices and other communications
required or permitted under the Plan shall be effective in writing and
if delivered or sent by certified or registered mail, returned receipt
requested (a) if to the Optionee, at his or her residence address last
filed with the Company, and (b) if to the Company, at 222 Merrimack
Street, Lowell, Massachusetts 01852, Attention: George L. Duncan; or to
such other persons or addresses as the Optionee or the Company may
specify by a written notice to the other from time to time.
Enterprise Bancorp, Inc.
Exhibit 21
Name of Subsidiary State Organized
- ------------------ ---------------
Enterprise Bank and Trust Massachusetts
Enterprise Security Corporation Massachusetts
(Subsidiary of Enterprise Bank and Trust)
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