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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-24131
ENTERBANK HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 43-1706259
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
150 NORTH MERAMEC, CLAYTON, MO 63105
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 314-725-5500
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of Form 10-K [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 1, 2000: Common Stock, par value $.01, $102,580,595
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of March 1, 2000: Common Stock, par value $ .01, 7,152,024
shares outstanding
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ENTERBANK HOLDINGS, INC.
1999 ANNUAL REPORT ON FORM 10-K
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<CAPTION>
Page
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Business........................................................................ 1
Properties...................................................................... 5
Legal Proceedings............................................................... 6
Submission of Matters to Vote of Security Holders............................... 6
Market for Common Stock and Related Stockholder Matters......................... 6
Selected Financial Data......................................................... 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 9
Quantitative and Qualitative Disclosures About Market Risk...................... 22
Financial Statements and Supplementary Data..................................... 32
Management...................................................................... 32
Beneficial Ownership of Securities.............................................. 32
Certain Related Party Transactions.............................................. 33
Independent Auditors' Report.................................................... 34
Consolidated Financial Statements............................................... 35
Signatures ..................................................................... 61
Exhibit Index ................................................................. 63
</TABLE>
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Readers should note that in addition to the historical information contained
herein, some of the information in this report contains forward-looking
statements within the meaning of the federal securities laws. Forward-looking
statements typically are identified with use of terms such as "may," "will,"
"expect," "anticipate," "estimate" and similar words, although some
forward-looking statements are expressed differently. You should be aware that
the Company's actual results could differ materially from those contained in the
forward-looking statements due to a number of factors, including burdens imposed
by federal and state regulation of banks, credit risk, exposure to local
economic conditions, risks associated with rapid increase or decrease in
prevailing interest rates and competition from banks and other financial
institutions, all of which could cause the Company's actual results to differ
from those set forth in the forward-looking statements.
PART I
ITEM 1: BUSINESS
GENERAL
Enterbank Holdings, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on December 30, 1994, for the purpose of providing a holding
company structure for the ownership of Enterprise Bank, a Missouri banking
corporation, (the "Bank"). The Company acquired the Bank in May 1995 through a
tax-free exchange with Bank shareholders. The bank holding company ownership
structure gives the Bank a source of capital and financial strength and allows
the organization some flexibility in expanding the products and services offered
to clients.
The Bank began operations on May 9, 1988 as a newly formed and chartered
Missouri banking corporation. From 1988 through 1996, the Bank provided
commercial banking services to its customers from a single location in the City
of Clayton, St. Louis County, Missouri. During 1996, the Bank received
regulatory approval for two additional facilities located in St. Charles County,
Missouri and the St. Louis County City of Sunset Hills which opened in their
permanent facilities in July and September 1997, respectively. During 1998, the
Bank opened an operations facility in St. Louis County, Missouri.
The Company organized Enterprise Merchant Banc, Inc. ("Merchant Banc") (formerly
Enterprise Capital Resources, Inc.) in 1995 as a wholly owned subsidiary to
provide merchant banking services to closely-held businesses and their owners.
Merchant Banc's current operations include a minority interest in Enterprise
Merchant Banc, LLC, which focuses on providing equity capital and equity-linked
debt investments to growing companies in need of additional capital to finance
internal and acquisition-related growth. Additionally, Merchant Banc receives
fee income for its role as a financial advisor in capital raising transactions
as well as mergers and acquisitions. It focuses on "second stage" and mezzanine
financing for established companies rather than "seed money" for start-up
operations.
Enterprise Financial Advisors ("EFA"), a division of the Bank, was organized in
October of 1997 to provide fee-based personal financial planning, estate
planning, trust services, and corporate planning services to the Company's
target market. As part of the organization of EFA, the Company entered into
solicitation and referral agreements with Moneta Group, Inc. ("Moneta"). These
agreements were renegotiated with the introduction of trust services by EFA.
These agreements call for Moneta to provide assistance in staffing, training,
marketing and regulatory compliance for EFA. Moneta refers customers, when
appropriate, to the Bank and receives a share of the revenue generated in the
form of options in the Company's common stock and a percent of the gross margin
generated in EFA as compensation. The agreements with Moneta also allow EFA to
offer a full range of products and services with the depth and expertise of a
large planning firm. EFA will continue to expand products and services available
to customers as the division develops.
As used herein, unless the context indicates otherwise, Enterbank Holdings, Inc.
and all of its subsidiaries are referred collectively as the "Organization" or
"Company."
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The Company's executive offices are located at 150 North Meramec, Clayton,
Missouri 63105. The Company's telephone number is (314) 725-5500.
MERGER AGREEMENT
On January 5, 2000 the Company announced that it had executed a merger agreement
with Commercial Guaranty Bancshares, Inc. ("CGB"). CBG, located in Overland
Park, Kansas, is a bank holding company which owns all of the outstanding stock
of First Commercial Bank, N.A., a national bank headquartered in Overland Park.
Pursuant to the Merger Agreement, CGB would be merged with a newly formed
subsidiary of the Company and would become a wholly-owned subsidiary of the
Company. Each outstanding share of CGB common stock would be converted into
2.1429 shares of Company common stock in a tax-free transaction which would be
accounted for as a pooling of interests. An aggregate of approximately 1,793,300
Company shares would be issued in the transaction and an additional
approximately 254,700 Company shares would be subject to stock options exchanged
for options to purchase CGB shares. Consummation of the merger is subject to
approval by the shareholders of both the Company and CGB, approval by the Board
of Governors of the Federal Reserve System and certain other customary
conditions. Overland Park is an affluent, fast-growing suburb of Kansas City,
Missouri, which the Company believes will provide the Company an attractive
opportunity to expand its banking and related businesses. At December 31, 1999,
CGB had assets of $128 million and deposits of $107 million.
STRATEGY
The Company's strategy is to provide a complete range of financial services
designed to appeal to closely-held businesses, their owners, and to
professionals in the St. Louis metropolitan area, which encompasses the city of
St. Louis, Missouri, the Missouri counties of St. Louis, St. Charles, Jefferson,
Franklin, Lincoln and Warren and the Illinois county of St. Clair. The merger
with CGB will allow the Company to also serve Johnson County and the greater
Kansas City area. The Company's merchant banking operation targets a larger
geographic area, which includes all of Missouri and the adjoining states. The
Company's goal is to grow its operations within its defined market niche by
being well-managed, well-capitalized and disciplined in its approach to managing
and expanding its operations as growth opportunities arise. The Company believes
its goals can be achieved while providing attractive returns to shareholders.
Growth, net income, earnings per share, and return on shareholders' equity are
the financial performance indicators the Company considers most critical in
measuring success.
Through the Bank, the Company currently delivers a full range of commercial
banking services to the closely-held business market. Merchant banking and
venture capital services are conducted through the Merchant Banc. Financial
planning and trust services are offered through Financial Advisors. The Company
plans to continue to expand the range of services it provides within its market
niche while expanding the base of customers. If consummated, the merger with CGB
will allow the Company to serve customers on both sides of Missouri and in
Kansas. This expansion is in line with the Company's strategic plan.
THE BANK
The Bank offers a broad range of commercial and personal banking services to its
customers. Loans include commercial, commercial real estate, financial and
industrial development, real estate construction and development, residential
real estate and a small amount of consumer loans. Other services include cash
management, safe-deposit boxes, and lock boxes.
The Company's primary source of funds has historically been customer deposits.
The Company offers a variety of accounts for depositors designed to attract both
short-term and long-term deposits. These accounts include certificates of
deposit, savings accounts, money market accounts, checking and negotiable order
of withdrawal accounts, and individual retirement accounts. Interest-bearing
accounts earn interest at rates established by management based on competitive
market factors and management's desire to increase or decrease certain types of
deposits. The Company believes that its ability to solicit deposits will be
enhanced as a result of the merger.
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Management believes the Bank is able to compete effectively in its market
because the Company's officers and senior management maintain close working
relationships with their commercial customers and their businesses; the Bank's
management structure enables it to react to customer requests for loan and
deposit services more quickly than larger competitors; the Bank's management and
officers have significant experience in the communities serviced by the Bank;
and the Company continues to target the closely-held business and professional
market. Additionally, industry consolidation has resulted in fewer independent
banks and fewer banks serving the Bank's target market niche. Management
believes the Bank is the only bank in its market area whose primary strategy is
to focus on closely-held businesses, their owners and the professional market.
The Bank's historical growth strategy has been both customer and asset driven.
The Bank continuously seeks to add customers that fit its target market. This
strategy has enabled the Bank to attract customers whose borrowing needs have
grown along with the Bank's increasing capacity to fund its customers' loan
requests. Additionally, the Bank has increased its loan portfolio based on
lending opportunities developed by relationship officers. The Bank funds its
loan growth by attracting deposits from its business and professional customers,
by borrowing from the Federal Home Loan Bank and by attracting wholesale
deposits which are considered stable deposit sources and which are priced or
below the Bank's all-in alternative cost of borrowing funds.
The Bank's operating strategy results in operating ratios comparable to peer
banks despite its increasing investment in sales personnel whose goal is to
expand the number and depth of the Bank's customer relationships. The Bank can
expand its customer relationships and control operating costs by: operating a
small number of offices with a high per office asset base; emphasizing
commercial loans which tend to be larger than retail loans; employing an
experienced staff, all of whom are rewarded on the basis of performance and
customer service; improving data processing and operational systems to increase
productivity and control risk; leasing facilities so that capital can be
deployed more effectively to support growth in earning assets; and outsourcing
services where possible.
The Bank has a strong orientation toward commercial banking, with a specific
focus on closely-held businesses, their owners, and professionals located in its
target service areas. The Bank stresses personal service, flexibility in
structuring loan and deposit relationships which meet customers' needs and
timely responsiveness to the needs of customers. Senior management of the Bank
makes it a practice to maintain close working relationships and personal contact
with each of its commercial customers.
The Bank's Board of Directors is comprised primarily of business owners and
professionals who fit the current and target customer profile of the Bank. The
Board of Directors takes an active role in the Bank's business development
activities and the credit review process. Its input and understanding of the
needs of the Bank's current and target customers has been critical in the Bank's
past success and will be critical in the Bank's plans for future growth.
The Bank has historically had low turnover of relationship officers, and its
policy is to keep officers assigned to accounts for long periods of time. This
practice improves each officer's understanding of clients' businesses resulting
in knowledgeable credit assessments and superior customer service.
Relationship officers are supported by credit analysts and other support
personnel who are familiar with each assigned customer, creating a team approach
to serving customers' needs. A significant portion of the Bank's new business
results from referrals from existing customers.
The Bank's growth in loans has been due in large measure to its strategy of
targeting closely-held businesses and to the relationships and experience of the
Bank's management and directors in the St. Louis community.
The loan authority and approval process of the Bank units consists of several
committee reviews. The Presidents of each geographic banking unit, the Bank's
Chief Financial Officer, and the unit's Chief Executive Officer review and vote
on any aggregate loan relationships greater than the Banks's Internal Lending
Limit and all insider loans. Any aggregate loan relationships greater than the
Bank's Internal Lending Limit are reviewed and examined by each banking unit's
Director Loan Committee consisting
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of all members of the unit's Board of Directors. These directors serve on a
rotating basis at their respective banking units. Notwithstanding the required
approvals for insider loans, all such loans are subsequently ratified by the
full Board of Directors of the Company at the Quarterly Board Meeting.
MARKET AREAS AND APPROACH TO EXPANSION
Recent expansion efforts include the establishment of banking facilities in St.
Charles County and the City of Sunset Hills based on the high expectations for
growth in those markets and the high concentration of closely-held businesses
and professionals in those markets, and the establishment of an operations
facility in St. Louis County. As mentioned above, the Company believes that
local management and the involvement of a Board of Directors comprised of local
business persons and professionals are key ingredients for success. Management
believes that credit decisions, pricing matters, business development
strategies, etc. should be made locally by managers who have an equity stake in
the Company (see "Management."). The Company, as part of its expansion effort,
plans to continue its strategies of operating a small number of offices with a
high per office asset base, emphasizing commercial loans, and employing
experienced staff who are rewarded on the basis of performance and customer
service.
The Company recently signed the merger agreement with CGB. Johnson County is one
of the fastest growing counties in the Midwest and has demographical
characteristics consistent with those of the Company's current areas of
operation. CGB shares the same business philosophies concerning service and the
same target market as the Company making it a good strategic fit for the
organization as a whole.
ENTERPRISE MERCHANT BANC
The Merchant Banc was established in 1995 to provide merchant banking services
to closely held businesses and their owners. Its current operations include a
minority investment in Enterprise Merchant Banc, LLC, which focuses on providing
equity capital and equity-linked debt investments to growing companies in need
of additional capital to finance internal and acquisition-related growth.
Additionally, the Merchant Banc receives fee income for its role as a financial
advisor in capital raising transactions as well as mergers and acquisitions. It
focuses on "second stage" and mezzanine financing for established companies
rather the "seed money" for start up organizations.
The Company recently restructured its ownership and control positions of various
merchant banking operations. As a result of this restructuring, the Company
maintains 100% ownership the Merchant Banc which in turn has a minority interest
in Enterprise Merchant Banc, LLC. The minority interest in the LLC includes a
4.9% voting and common stock ownership interest with a 24.9% economic interest.
The new structure provides the ability to achieve economic benefits comparable
to those available under the previous structure, yet satisfies Federal Reserve
regulations concerning ownership and control.
ENTERPRISE FINANCIAL ADVISORS
Enterprise Financial Advisors was organized as a division of Enterprise Bank in
late 1997 to provide fee-based personal and corporate financial consulting and
trust services to the Company's target market. Personal financial consulting
includes estate planning, investment management, retirement planning, trust
services and custodial services. Corporate consulting services are focused in
the areas of retirement plans, management compensation and management succession
issues. Some investment management services are provided through Argent Capital
Management, a money management company that invests principally in large
capitalization companies. The Company owns approximately an 8% interest in
Argent Capital Management.
As a part of the organization of Enterprise Financial Advisors, the Company
entered into solicitation and referral agreements with Moneta Group, Inc., a
nationally recognized firm in the financial planning industry. Under the
agreements, Moneta provides assistance in staffing, training, marketing and
regulatory compliance and in return receives a share of the gross margin
generated by Enterprise Financial Advisors for planning and trust services. In
exchange for customer referrals, Moneta receives compensation in the form of
Enterbank stock options. The agreements are intended to leverage the trust
powers of Enterprise Bank with the established expertise and marketing power of
Moneta, thereby
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enabling Enterprise Financial Advisors to offer a full range of products and
services with the depth and expertise of a large financial planning firm.
INVESTMENTS
The Company's investment policy is designed to enhance net income and return on
equity through prudent management of risk; ensure liquidity to meet cash-flow
requirements; help manage interest rate risk; ensure collateral is available for
public deposits, advances and repurchase agreements; and manage asset
diversification. The Company, through the Asset/Liability Management Committee
("ALCO"), monitors investment activity and manages its liquidity by structuring
the maturity dates of its investments to meet anticipated customer funding
needs. However, the primary goal of the Company's investment policy is to
maintain an appropriate relationship between assets and liabilities while
maximizing interest rate spreads. Accordingly, the ALCO monitors the sensitivity
of its assets and liabilities with respect to changes in interest rates and
maturities and directs the overall acquisition and allocation of funds.
EMPLOYEES
At December 31, 1999, the Company had approximately 151 full time equivalent
employees. None of the Company's employees are covered by a collective
bargaining agreement. Management believes that its relationship with its
employees is good.
ITEM 2: PROPERTIES
All of the Company's banking facilities are leased under agreements that expire
in 2004, 2003, 2011 and 2016, for Clayton, St. Louis County, the City of Sunset
Hills, and St. Charles County, respectively. The Company has the option to renew
the Clayton facility lease for one additional five-year periods with future
rentals to be agreed upon. One section of the Clayton facility is sublet and the
proceeds are used to reduce the Company's occupancy expenses. The Company has
the option to renew the St. Louis County facility lease for three additional
five-year periods with future rentals to be agreed upon. The Company has the
option to renew the Sunset Hills facility lease for two additional five-year
periods with future rentals to be agreed upon. The Company has no future rental
options for the St. Charles County facility; however, during the term of the
lease, the monthly rentals are adjusted periodically based on then-current
market conditions and inflation. The Merchant Banc facility in Kansas is leased
under an agreement that expires in 2003. A portion of the Merchant Banc facility
is sublet for the same amount as the lease and the proceeds are used to reduce
the Company's occupancy expense. The Company has no future rental options for
the Kansas office. The Company's aggregate rent expense totaled $814,538,
$749,086 and $436,524 in 1999, 1998 and 1997, respectively, and sublease rental
income totaled $60,550, $42,816 and $35,422 in 1999, 1998 and 1997,
respectively. The Company leases its Clayton facility from a partnership in
which a director, Robert E. Saur, and an officer, Fred H. Eller, have an
ownership interest.
The future aggregate minimum rental commitments required under the leases are as
follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
2000 $ 1,034,379
2001 1,043,145
2002 1,053,740
2003 1,019,589
2004 955,437
2005 and thereafter 3,784,092
</TABLE>
For leases that renew or are subject to periodic rental adjustments, the monthly
rental payments will be adjusted based on then-current market conditions and
rates of inflation.
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The following is a list of the Company's current facilities:
<TABLE>
<CAPTION>
Operating Unit Address Description
- -------------- ------- -----------
<S> <C> <C>
Enterprise Bank, Clayton 150 North Meramec Commercial and Retail
Clayton, Missouri 63105 Banking
Enterprise Bank, St. Charles 300 St. Peters Centre Blvd. Commercial and Retail
St. Peters, Missouri 63376 Banking
Enterprise Bank, Sunset Hills 3890 South Lindbergh Blvd. Commercial and Retail
Sunset Hills, Missouri 63127 Banking
Enterprise Bank, St. Louis 1281 North Warson Road Operations Offices
St. Louis, Missouri 63132
Enterprise Merchant Banc, Kansas City 7400 W. 110th Street' 5th Floor Merchant Banking
Overland Park, Kansas 66210
</TABLE>
ITEM 3: LEGAL PROCEEDINGS
The Company and its subsidiaries are, from time to time, parties to various
legal proceedings arising out of their businesses. Management believes that
there are no such proceedings pending or threatened against the Company or its
subsidiaries which, if determined adversely, would have a material adverse
effect on the business, financial condition, results of operations or cash flows
of the Company or any of its subsidiaries.
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to vote of security holders in the quarter ended
December 31, 1999.
ITEM 5: MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of March 1, 2000, the Company had approximately 607 common stock shareholders
of record and a market price of $18.00. The common stock has not been traded on
an exchange or in any established public trading market, although there have
been a limited number of transactions in the common stock that have been
reported to the National Association of Securities Dealers ("NASD"). Based
solely on the sales reported to the NASD, the Company believes the high and low
sale prices for the common stock and dividends declared were as follows in the
quarters indicated:
<TABLE>
<CAPTION>
Dividends
Market Price (1) Declared (1)
-------------------------- ----------------
High Low
1999 ------------- ------------
<S> <C> <C> <C>
First Quarter $ 12.50 $ 10.33 .0100
Second Quarter 14.00 12.50 .0100
Third Quarter 15.17 14.00 .0100
Fourth Quarter 18.25 15.17 .0100
1998
First Quarter $ 8.58 $ 7.00 .0083
Second Quarter 10.00 8.58 .0083
Third Quarter 10.67 9.33 .0083
Fourth Quarter 10.33 9.83 .0083
</TABLE>
(1) Adjusted to give retroactive effect to a 3 for 1 stock split effective
September 29, 1999.
There may have been other transactions at other prices not known to the Company.
Since the Company does not expect to list its common stock on any exchange or
seek quotation of common stock on the National Association of Securities Dealers
Automated Quotation System (NASDAQ) in the near future, no established public
trading market for the common stock is expected to develop in the foreseeable
future.
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DIVIDENDS
The holders of shares of common stock of the Company are entitled to receive
dividends when, as, and if declared by the Company's Board of Directors out of
funds legally available for the purpose of paying dividends. The primary source
for the payment of dividends by the Company is dividends payable to the Company
by the Bank. The amount of dividends, if any, that may be declared by the
Company will be dependent on many factors, including future earnings, bank
regulatory capital requirements and business conditions as they affect the Bank.
As a result, no assurance can be given that dividends will be paid in the future
with respect to the common sock.
COMMON STOCK
On August 18, 1999 the Board of Directors approved a 3 for 1 stock split, in the
form of a stock dividend, of the Company's common stock for shareholders of
record on September 29, 1999. On September 29, 1999, the Company's shareholders
approved the 3 for 1 stock split and an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of common stock
from 3,500,000 to 20,000,000. All share and per share amounts in this Annual
Report have been restated to reflect the split.
The authorized capital stock of the Company consists of 20,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"). Holders of Common
Stock are entitled to one vote per share on all matters on which the holders of
Common Stock are entitled to vote. In all elections of directors, holders of
Common Stock have the right to cast votes equaling the number of shares of
Common Stock held by such stockholder multiplied by the number of directors to
be elected. All of such votes may be cast for a single director or may be
distributed among the number of directors to be elected, or any two or more
directors, as such stockholder may deem fit. Holders of Common Stock have no
preemptive, conversion, redemption, or sinking fund rights. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common Stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company.
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ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
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1999 1998 1997 1996 1995
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(Dollars and number of shares in thousands, except per share data)(1)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Interest income $ 32,137 $ 25,414 $ 18,759 $ 12,554 $ 10,914
Interest expense 14,352 11,869 8,582 5,569 4,887
---------- ---------- ---------- ---------- ----------
Net interest income 17,785 13,545 10,177 6,985 6,027
Provision for loan losses 1,021 711 775 345 631
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 16,764 12,834 9,402 6,640 5,396
Noninterest income 2,565 2,079 476 1,239 836
Noninterest expense 13,386 10,052 6,339 5,146 4,187
---------- ---------- ---------- ---------- ----------
Income before income tax expense 5,943 4,861 3,539 2,733 2,045
Income tax expense 2,244 1,850 1,317 1,031 741
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of a
change in accounting principle 3,699 3,011 2,222 1,702 1,304
========== ========== ========== ========== ==========
Cumulative effect on prior years of a
change in asset classification 121 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income 3,820 3,011 2,222 1,702 1,304
========== ========== ========== ========== ==========
Basic earnings per share(1) 0.54 0.43 0.35 0.37 0.30
Diluted earnings per share(1) 0.50 0.40 0.33 0.32 0.26
Cash dividends per common share(1) 0.04 0.033 0.030 0.027 0.023
Basic weighted average common
shares and common stock
equivalents outstanding(1) 7,136 7,053 6,285 4,614 4,389
Diluted weighted average common
shares and common stock
equivalents outstanding(1) 7,705 7,545 6,675 5,252 5,056
- ---------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Cash and due from banks $ 14,798 $ 29,701 $ 13,897 $ 9,261 $ 8,110
Federal funds sold 54,825 14,250 32,825 23,250 16,230
Investments in debt and equity securities:
Trading, at fair value 910 -- -- -- --
Available for sale 23,808 45,592 12,515 14,006 16,065
Held to maturity 680 699 919 1,240 842
---------- ---------- ---------- ---------- ----------
Total investments 25,398 46,291 13,434 15,246 16,907
---------- ---------- ---------- ---------- ----------
Loans, net of unearned loan fees (2) 385,102 273,818 225,560 134,133 110,464
Allowance for loan losses 4,235 3,200 2,510 1,765 1,400
Total assets 488,001 375,304 291,365 184,584 153,706
Total deposits 435,798 339,180 264,301 168,961 141,140
Guaranteed preferred beneficial interests
in EBH-subordinated debentures 11,000 -- -- -- --
Borrowings 6,920 6,000 -- 300 --
Shareholders' equity 32,764 29,240 26,067 14,758 12,052
Book value per common share(1) 4.59 4.11 3.78 2.96 2.75
Tangible book value per common share(1) 4.59 4.11 3.77 2.95 2.73
- ----------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on average assets 0.94% 0.94% 0.97% 1.12% 0.99%
Return on average equity 12.31 10.86 9.78 12.73 11.13
Total capital to risk-weighted assets 11.82 10.97 12.28 11.53 11.40
Leverage ratio 10.74 9.16 11.42 9.62 9.11
Net yield on average earning assets 8.39 8.59 8.84 8.90 9.00
Cost of interest-bearing liabilities 4.49 4.88 5.03 4.89 4.94
Net interest margin 4.66 4.59 4.79 4.96 4.98
Nonperforming loans as a percent of loans 0.08 0.00 0.02 0.12 0.10
Nonperforming assets as a percent of assets 0.14 0.22 0.29 0.56 0.64
Net loan charge offs (recoveries)
as a percent of average loans (0.00) 0.01 0.02 (0.02) 0.24
Allowance for loan losses as a percent
of loans, net of unearned loan fees 1.10 1.17 1.11 1.32 1.27
Dividend payout ratio 7.41 7.81 8.49 7.21 7.87
Average equity to average assets ratio 7.60 8.70 9.97 8.76 8.89
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted to give retroactive effect to a 3 for 1 stock split effective
September 29, 1999.
(2) Excludes mortgage loans held for sale.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis is intended to review the significant
factors of the financial condition and results of operations of the Company for
the three-year period ended December 31, 1999. Reference should be made to the
accompanying consolidated financial statements and the selected financial data
presented elsewhere and herein for an understanding of the following review.
FISCAL 1999 COMPARED TO FISCAL 1998
The Company has a history of approximately 30% growth in total assets for the
last several years. This has been accomplished for several reasons. The St.
Peters and Sunset Hills banking units started in 1997 experienced 29% and 75%
growth, respectively in 1999. The Company also grows with the addition of
business development officers. The Company hired 7 business development officers
during 1999. In addition, the economy in which the Company conducts business has
been very good for the past several years. These factors have contributed to the
Company's continued growth.
FINANCIAL CONDITION
Total assets at December 31, 1999 were $488 million, an increase of $113
million, or 30%, over total assets of $375 million at December 31, 1998. Loans
were $385 million, an increase of $111 million, or 41%, over total loans of $274
million at December 31, 1998. Federal funds sold and investment securities were
$80 million, an increase of $19 million, or 31%, from total federal funds sold
and investment securities of $61 million at December 31, 1998.
Total deposits at December 31, 1999 were $436 million, an increase of $97
million, or 29%, over total deposits of $339 million at December 31, 1998. Most
of the deposit growth occurred in the money market deposits, and certificates of
deposit. Money market deposits grew $49 million, or 33%, during 1999.
Certificates of deposit grew $38 million or 37% during 1999. Growth in
transaction and money market deposit accounts is attributed primarily to direct
calling efforts by relationship officers. Growth in certificates of deposit is
also due to an enhanced presence in the marketplace and an increase of 55% in
network CDs. The Company belongs to a national network of time depositors
(primarily credit unions) who place time deposits with the Company, typically in
increments of $99,000. The Company refers to such deposits as network CDs.
Total shareholders equity at December 31, 1999 was $32.8 million, an increase of
$3.6 million over total shareholders equity of $29.2 million at December 31,
1998. The increase in equity is due to an increase in retained earnings of $3.5
million for the twelve months ended December 31, 1999, and the exercise of
incentive stock options by employees, less dividends paid to shareholders.
RESULTS OF OPERATIONS
Net income was $3.8 million for the year ended December 31, 1999, an increase of
27% over net income of $3.0 million for the same period in 1998. Diluted
earnings per share for the years ended December 31, 1999 and 1998 were $0.50 and
$0.40, respectively. The Company's net income increased due to growth in
interest earning assets and an increase in noninterest income offset by an
increase in interest bearing liabilities and noninterest expenses.
NET INTEREST INCOME
The largest component of the Company's income is net interest income. Net
interest income (presented on a tax equivalent basis) was $17.9 million, which
yielded a net interest margin of 4.66%, for the year ended December 31, 1999,
compared to net interest income and net interest margin of $13.6 million and
4.59%, for the same period in 1998.
9
<PAGE> 12
The $4.3 million, or 32%, increase in net interest income was driven by a 30%,
or $88 million, increase in average earning assets, a change in the mix of
earning assets and a decrease in the yield on interest bearing liabilities.
Average earning assets increased to $385 million for the year ended December 31,
1999. The mix of earning assets shifted from lower earning investment securities
and federal funds sold to higher yielding loans. The increase in the earning
assets and shift in mix is attributable to the continued calling efforts of the
Company's relationship officers and sustained economic growth in the local
market served by the Company. Some of the increase was offset by a lower average
earning asset yield and growth in interest bearing deposits.
Average loans as a percent of average total assets increased to 83.92% in 1999
from 79.06% in 1998. For the same periods, the yield on average loans was 8.80%
and 9.16%, respectively. The decrease in loan yield in 1999 compared to 1998
partially offset the margin benefits obtained by increasing the loan to asset
ratio during the same period.
The yield on average earning assets decreased to 8.39% for the year ended
December 31, 1999 from 8.59% for the same period in 1998. The decrease in asset
yield was primarily due to a general decrease in average yield on loans and
federal funds sold.
The yield on interest bearing liabilities decreased to 4.49% for the year ended
December 31, 1999 from 4.88% for the same period in 1998. The yield on all
deposits decreased in 1999 as compared to 1998. This drop is due to a concerted
effort by the Asset/Liability Committee to decrease the interest paid on
deposits. This general drop in yields was partially offset by deposits shifting
to higher yielding money market accounts.
FISCAL 1998 COMPARED TO FISCAL 1997
FINANCIAL CONDITION
Total assets at December 31, 1998 were $375 million, an increase of $84 million,
or 29%, over total assets of $291 million at December 31, 1997. Loans were $274
million, an increase of $48 million, or 21%, over total loans of $226 million at
December 31, 1997. Federal funds sold and investment securities were $61
million, an increase of $15 million, or 33%, from total federal funds sold and
investment securities of $46 million at December 31, 1997.
Total deposits at December 31, 1998 were $339 million, an increase of $75
million, or 28%, over total deposits of $264 million at December 31, 1997. Most
of the deposit growth occurred in the money market deposits, demand deposits and
certificates of deposit $100,000 and over. Money market deposits grew $51
million, or 51%, during 1998. Certificates of deposit $100,000 and over grew $11
million or 32% during 1998. Demand deposits grew $15 million, or 33%, during
1998. Growth in transaction and money market deposit accounts is attributed
primarily to direct calling efforts of relationship officers and $16 million in
money market accounts referred by Moneta. Growth in certificates of deposit is
also due to an established presence in the marketplace.
Total shareholders' equity increased $3.2 million primarily due to retained
earnings of $2.8 million for the year and the exercise of incentive stock
options by employees.
RESULTS OF OPERATIONS
Net income was $3.0 million for the year ended December 31, 1998, an increase of
36% over net income of $2.2 million for the same period in 1997. Diluted
earnings per share for the years ended December 31, 1998 and 1997 were $0.40 and
$0.33, respectively.
NET INTEREST INCOME
The largest component of the Company's net income is net interest income. Net
interest income (presented on a tax equivalent basis) was $13.6 million, which
yielded a net interest margin of 4.59%, for the year ended December 31, 1998,
compared to net interest income and net interest margin of $10.2 million and
4.79%, for the same period in 1997.
10
<PAGE> 13
The $3.4 million, or 33%, increase in net interest income was driven primarily
by a 39%, or $84 million, increase in average earning assets to $297 million for
the year ended December 31, 1998 compared to $71 million of earning asset growth
during the same period in 1997. The increase in the earning assets is
attributable to the continued calling efforts of the Company's relationship
officers and sustained economic growth in the local market served by the
Company. Some of the increase was offset by a lower average earning asset yield
and growth in interest bearing deposits.
The yield on average earning assets decreased to 8.59% for the year ended
December 31, 1998 from 8.84% for the same period in 1997. The decrease in asset
yield was primarily due to three 0.25% drops in the prime rate during the third
and fourth quarters of 1998 and a general decrease in average yield on loans.
Average loans as a percent of average total assets increased to 79.06% in 1998
from 77.89% in 1997. For the same periods, the yield on average loans was 9.16%
and 9.48%, respectively. The decrease in loan yield in 1998 compared to 1997
offset the margin benefits obtained by increasing the loan to asset ratio during
the same period.
The yield on interest bearing liabilities decreased to 4.88% for the year ended
December 31, 1998 from 5.03% for the same period in 1997. The yield on all
deposits decreased in 1998 as compared to 1997. This drop is due to the above
mentioned drops in the prime rate and a concerted effort by the ALCO committee
to decrease the interest paid on deposits. This general drop in yields was
offset by deposits shifting to higher yielding money market accounts.
The following table sets forth on a tax-equivalent basis, certain information
relating to the Company's average balance sheet, and reflects the average yield
earned on interest-earning assets, the average cost of interest-bearing
liabilities and the resulting net interest income for each of the three years
ended December 31, 1999.
11
<PAGE> 14
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------------
1999 1998
------------------------------------- --------------------------------------
Percent Interest Average Percent Interest Average
Average of Total Income/ Yield/ Average of Total Income/ Yield/
Balance Assets Expense Rate Balance Assets Expense Rate
-------- -------- -------- ------- -------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) $342,565 83.92% $30,134 8.80% 251,916 79.06% $23,084 9.16%
Taxable investments in debt securities 18,687 4.58 979 5.24 15,887 4.99 878 5.53
Non-taxable investments in debt securities(2) 622 0.15 40 6.43 619 0.19 40 6.46
Federal funds sold 22,637 5.54 1,113 4.92 27,679 8.69 1,469 5.31
Interest earning deposits 20 - 1 5.00 795 0.25 40 5.03
-------- ------ ------- -------- ------ -------
Total interest-earning assets 384,531 94.19 32,267 8.39 296,896 93.18 25,511 8.59
Non-interest-earning assets:
Cash and due from banks 18,178 4.45 17,422 5.47
Office equipment & leasehold improvements 3,068 0.75 2,686 0.84
Minority interest in EMB LLC 175 0.04
Prepaid expenses and other assets 5,846 1.43 4,609 1.45
Allowance for possible loan losses (3,530) (0.86) (2,985 (0.94)
-------- ------ -------- ------
Total assets $408,268 100.00% $318,628 100.00%
======== ====== ======== ======
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 26,430 6.47% $ 491 1.86% 20,503 6.43% $ 492 2.40%
Money market 178,423 43.70 7,833 4.39 117,027 36.74 5,361 4.58
Savings 1,789 0.44 44 2.46 1,496 0.47 37 2.47
Certificates of deposit 102,277 25.05 5,386 5.27 102,897 32.29 5,912 5.75
Notes payable 1,029 0.25 79 7.68 - - - -
Federal funds purchased 27 0.01 2 5.83 - - - -
Federal Home Loan Bank advances 6,788 1.66 331 4.88 1,447 0.45 67 4.63
Guaranteed preferred beneficial interests
in EBH-Subordinated Debentures 1,978 0.48 186 9.40 - - - -
-------- ------ ------- -------- ------ -------
Total interest-bearing liabilities 318,741 78.06 14,352 4.50 243,370 76.38 11,869 4.88
Noninterest-bearing liabilities:
Demand deposits 56,568 13.86 46,326 14.54
Other liabilities 1,930 0.47 1,213 0.38
-------- ------ -------- ------
Total liabilities 377,239 92.40 290,909 91.30
Shareholders' equity 31,029 7.60 27,719 8.70
-------- ------ -------- ------
Total liabilities & shareholders' equity $408,268 100.00% 318,628 100.00%
======== ====== ======== ======
Net interest income $17,915 $13,642
======= =======
Net interest margin 4.66% 4.59%
==== ====
<CAPTION>
Year ended December 31,
-----------------------------------------
1997
-----------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) 177,532 77.89% $16,834 9.48%
Taxable investments in debt securities 17,859 7.84 1,018 5.70
Non-taxable investments in debt securities(2) 805 0.35 52 6.46
Federal funds sold 16,679 7.32 909 5.45
Interest earning deposits 38 0.02 2 5.26
-------- ------ -------
Total interest-earning assets 212,913 93.42 18,815 8.84
Non-interest-earning assets:
Cash and due from banks 11,580 5.08
Office equipment & leasehold improvements 1,677 0.74
Minority interest in EMB LLC
Prepaid expenses and other assets 3,829 1.68
Allowance for possible loan losses (2,085) (0.91)
-------- ------
Total assets $227,914 100.00%
======== ======
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts 15,840 6.95% $ 452 2.85%
Money market 77,198 33.87 3,604 4.67
Savings 1,270 0.56 32 2.52
Certificates of deposit 77,081 33.82 4,521 5.87
Notes payable 25 0.01 3 12.00
Federal funds purchased - - - -
Federal Home Loan Bank advances 105 0.05 11 10.48
Guaranteed preferred beneficial interests
in EBH-Subordinated Debentures - - - -
-------- ------ -------
Total interest-bearing liabilities 171,519 75.26 8,623 5.03
Noninterest-bearing liabilities:
Demand deposits 33,247 14.59
Other liabilities 426 0.19
-------- ------
Total liabilities 205,192 90.03
Shareholders' equity 22,722 9.97
-------- ------
Total liabilities & shareholders' equity 227,914 100.00%
======== ======
Net interest income $10,192
=======
Net interest margin 4.79%
====
</TABLE>
(1) Average balances include non-accrual loans and loans held for sale. The
income on such loans is included in interest but is recognized only upon
receipt. Loan fees included in interest income are approximately $961,000,
$625,000 and $671,000, for 1999, 1998 and 1997, respectively.
(2) Non-taxable investment income is presented on a fully tax-equivalent basis
assuming a tax rate of 34%.
<PAGE> 15
During 1999, an increase in the average volume of earning assets resulted in an
increase in interest income of $7,863,000,partially offset by a decrease of
$1,107,000 due to a decrease in rates on earning assets. Increases in the
average volume of interest-bearing demand deposits, savings and money market
accounts, and notes payable and other borrowing resulted in an increase in
interest expense of $3,193,000. Changes in interest rates on the average volume
of interest-bearing liabilities resulted in a decrease in interest expense of
$710,000. The increase in the volume of both earning assets and interest bearing
liabilities are due to the previously mentioned 30% growth the Company
experienced during 1999. The decrease in the average rate of earning assets was
a result of interest rate pressures and competition in the Company's market. The
decrease in the average rate of interest bearing liabilities was a result of a
concerted effort by the Asset/Liability Committee to decrease the interest paid
on deposits. The net effect of the volume and rate changes associated with all
categories of interest-earning assets during 1999 as compared to 1998 increased
interest income by $6,756,000 while the net effect of the volume and rate
changes associated with all categories of interest-bearing liabilities increased
interest expense by $2,483,000.
During 1998, an increase in the average volume of earning assets resulted in an
increase in interest income of $7,335,000, partially offset by a decrease of
$639,000 due to a decrease in rates on earning assets. Increases in the average
volume of interest-bearing demand deposits, savings and money market accounts,
time deposits and notes payable resulted in an increase in interest expense of
$3,463,000. Changes in interest rates on the average volume of interest-bearing
liabilities resulted in a decrease in interest expense of $217,000. The net
effect of the volume and rate changes associated with all categories of
interest-earning assets during 1998 as compared to 1997 increased interest
income by $6,696,000 while the net effect of the volume and rate changes
associated with all categories of interest-bearing liabilities increased
interest expense by $3,246,000.
The following table sets forth, on a tax-equivalent basis for the periods
indicated, a summary of the changes in interest income and interest expense
resulting from changes in yield/rates and volume:
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- ------------------------------
Volume(1) Rate(2) Net Volume(1) (Rate(2) Net
--------- ------- --- --------- -------- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $ 8,007 $ (957) $ 7,050 $ 6,834 $ (584) $ 6,250
Taxable investments in debt
and equity securities 149 (48) 101 (111) (29) (140)
Nontaxable investments in debt
and equity securities (3) -- -- -- (12) -- (12)
Federal funds sold (254) (102) (356) 584 (24) 560
Certificates of deposit (39) -- (39) 40 (2) 38
------- ------- ------- ------- ------- -------
Total interest-earning assets $ 7,863 $(1,107) $ 6,756 $ 7,335 $ (639) $ 6,696
------- ------- ------- ------- ------- -------
Interest paid on:
Interest-bearing demand deposits $ 124 $ (125) $ (1) $ 119 $ (79) $ 40
Money market rate deposits 2,704 (232) 2,472 1,826 (69) 1,757
Savings deposits 7 -- 7 6 (1) 5
Time deposits (35) (491) (526) 1,485 (94) 1,391
Notes payable 39 40 79 (2) (1) (3)
Federal Home Loan Bank Advances 260 4 264 34 33 56
Federal funds purchased 1 1 2 (5) (6) (11)
Guaranteed Preferred Debt 93 93 186 -- -- --
------- ------- ------- ------- ------- -------
Total $ 3,193 $ (710) $ 2,483 $ 3,463 $ (217) $ 3,246
------- ------- ------- ------- ------- -------
Net interest income $ 4,670 $ (397) $ 4,273 $ 3,872 $ (422) $ 3,450
======= ======= ======= ======= ======= =======
</TABLE>
(1) Change in volume multiplied by yield/rate of prior period.
(2) Change in yield/rate multiplied by volume of prior period.
(3) Nontaxable investments in debt securities are presented on a fully
tax-equivalent basis assuming a tax rate of 34%.
NOTE: The change in interest due to both rate and volume has been allocated to
rate and volume changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
13
<PAGE> 16
LOAN PORTFOLIO
Loans, as a group, are the largest asset and the primary source of interest
income for the Company. Diversification among different categories of loans
reduces the risks associated with any single type of loan. The following table
sets forth the composition of the Company's loan portfolio by type of loans at
the dates indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ---------------- ---------------- --------------- ----------------
Percent Percent Percent Percent Percent
of Total of Total of Total of Total of Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 99,646 25.86% $ 81,346 29.70% $ 69,490 30.81% $ 43,876 32.71% $ 43,728 39.59%
Real estate:
Commercial 51,756 13.43 33,242 12.14 37,349 16.56 24,946 18.60 25,507 23.09
Construction 88,237 22.90 76,739 28.03 47,771 21.18 23,362 17.42 11,634 10.53
Residential 72,311 18.76 69,978 25.56 63,772 28.27 37,449 27.92 24,537 22.21
Consumer and other 73,152 19.05 12,513 4.57 7,178 3.18 4,500 3.35 5,058 4.58
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans $385,102 100.00% $273,818 100.00% $225,560 100.00% $134,133 100.00% $110,464 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
The Company's subsidiary bank grants commercial, residential and consumer loans
primarily in the St. Louis metropolitan area. The Company has a diversified loan
portfolio, with no particular concentration of credit in any one economic
sector; however, a substantial portion of the portfolio is secured by real
estate. As of December 31, 1999, $212 million in loans, or 55% of the loan
portfolio, involved real estate as part or all of the collateral package, as
compared to $180.0 million or 66% and $148.9 million or 66% in 1998 and 1997,
respectively. Of these loans, $90.0 million or 42%, for 1999, were personal and
business loans and loans on owner-occupied properties as compared to $75.6
million or 28% and $55.2 million or 37% for 1998 and 1997, respectively.
Management views these types of loans as having less risk than traditional real
estate loans because the primary source of repayment for these loans is not
dependent upon the cash flow or sale of the real estate securing the loans. When
evaluating the appropriateness of the allowance for loan losses, these loans are
evaluated based on commercial considerations such as the financial condition,
cash flow and income of the borrower as well as the value of all collateral
securing the loans, including the market value of any real estate securing the
loan. During 1999, the Company reexamined its loan classifications. The result
was a movement of approximately $50 million from the real estate category into
the consumer and other loan category. Going forward the Company intends to
report its loans with this new classification.
14
<PAGE> 17
The following table sets forth the interest rate sensitivity of the loan
portfolio at December 31, 1999:
<TABLE>
<CAPTION>
Loans Maturing or Repricing
---------------------------------------------------------------------
After One
In One Through After
Year or Less Five Years Five Years Total
---------------- -------------- ----------- --------------
(Dollars in Thousands)
FIXED RATE LOANS (1)
<S> <C> <C> <C> <C>
Commercial and industrial $ 6,368 $ 30,822 $ 873 $ 38,063
Real estate:
Commercial 5,568 28,280 2,237 36,085
Construction 6,822 15,302 1,771 23,895
Residential 9,103 26,305 804 36,212
Consumer and other 3,035 24,735 12 27,782
---------------- -------------- ----------- -------------
Total $ 30,896 $ 125,444 $ 5,697 $ 162,037
=============== ============= ========== ============
VARIABLE RATE LOANS (1)
Commercial and industrial $ 61,583 $ -- $ -- $ 61,583
Real estate:
Commercial 15,672 -- -- 15,672
Construction 64,342 -- -- 64,342
Residential 36,100 -- -- 36,100
Consumer and other 45,368 -- -- 45,368
---------------- -------------- ----------- -------------
Total $ 223,065 $ -- $ -- $ 223,065
=============== ============= ========== =============
TOTAL LOANS (1)
Commercial and industrial $ 67,951 $ 30,822 $ 873 $ 99,646
Real estate:
Commercial 21,240 28,280 2,237 51,757
Construction 71,164 15,302 1,771 88,237
Residential 45,203 26,305 804 72,312
Consumer and other 48,403 24,735 12 73,150
---------------- -------------- ----------- -------------
Total $ 253,961 $ 125,444 $ 5,697 $ 385,102
=============== ============= ========== =============
</TABLE>
(1) Loan balances are shown net of unearned loan fees and loans held for sale.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $1,021,000, $711,000, and $775,000 in 1999,
1998, and 1997 respectively. During 1999, the increase in provision reflects
loan growth of $111 million during 1999 versus loan growth of $48 million during
the same period in 1998. The provision for loan losses did not increase with the
loan growth because the Company experience continued quality of the loan
portfolio and net recoveries of $14,000.
During 1998, the decrease in provision reflects a decrease in net loan
charge-offs to $21,000 as compared to net charge-offs of $30,000 for the year
ended December 31, 19997. In addition, the Company experienced loan growth of
$48 million during 1998 versus loan growth of $92 million during the same period
in 1997.
The Company has charged off a total of $473,000 in loans from January 1, 1995
through December 31, 1999. Total recoveries for the same period are $225,000,
resulting in a five-year net charge-off experience of $248,000, or 0.05% per
year of average loans for the same period.
15
<PAGE> 18
The following table summarizes changes in the allowance for loan losses arising
from loans charged-off and recoveries on loans previously charged-off, by loan
category, and additions to the allowance that have been charged to expense:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- --------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 3,200 $ 2,510 $ 1,765 $ 1,400 $ 1,000
-------- -------- -------- -------- --------
Loans charged off:
Commercial and industrial 19 30 90 -- 19
Real estate:
Commercial -- 19 45 -- 118
Construction -- -- -- -- --
Residential -- -- 27 -- 106
Consumer and other -- -- -- -- --
-------- -------- -------- -------- --------
Total loans charged off 19 49 162 -- 243
-------- -------- -------- -------- --------
Recoveries of loans previously
charged off:
Commercial and industrial 18 18 44 -- --
Real estate:
Commercial 15 10 50 4 12
Construction -- -- -- -- --
Residential -- -- 38 15 --
Consumer and other -- -- -- 1 --
-------- -------- -------- -------- --------
Total recoveries of
loans previously
charged off 33 28 132 20 12
-------- -------- -------- -------- --------
Net loans charged
off (recovered) (14) 21 30 (20) 231
-------- -------- -------- --------- --------
Provisions charged to operations 1,021 711 775 345 631
-------- -------- -------- -------- --------
Allowance at end of period $ 4,235 $ 3,200 $ 2,510 $ 1,765 $ 1,400
======== ======== ======== ======== ========
Average loans $342,565 $251,916 $177,532 $120,849 $ 94,737
Total loans 385,102 273,818 225,560 134,133 110,464
Nonperforming loans 294 2 50 161 107
Net charge-offs (recoveries)
to average loans (0.00)% 0.01% 0.02% (0.02)% 0.24%
Allowance for loan losses to loans 1.10 1.17 1.11 1.32 1.27
</TABLE>
The Company's credit management policy and procedures focus on identifying,
measuring and controlling credit exposure. These procedures employ a
lender-initiated system of rating credits, which is ratified in the loan
approval process and subsequently tested in internal loan reviews, external
audits and regulatory bank examinations. Basically, the system requires rating
all loans at the time they are made.
Adversely rated credits, including loans requiring close monitoring which would
not normally be considered criticized credits by regulators, are included on a
monthly loan watch list. Loans may be added to the watch list for reasons which
are temporary and correctable, such as the absence of current financial
statements of the borrower, or a deficiency in loan documentation. Other loans
are added whenever any adverse circumstance is detected which might affect the
borrower's ability to meet the terms of the loan. This could be initiated by the
delinquency of a scheduled loan payment, a deterioration in the borrower's
financial condition identified in a review of periodic financial statements, a
decrease in the value of the collateral securing the loan, or a change in the
economic environment within which the borrower operates. Loans on the watch list
require detailed loan status reports prepared by the responsible officer every
four months, which are then discussed in formal meetings with the loan review
and loan administration staffs. Downgrades of loan risk ratings may be initiated
by the
16
<PAGE> 19
responsible loan officer at any time. However, upgrades of risk ratings may only
be made with the concurrence of the loan review and credit administration staffs
generally at the time of the formal watch list review meetings.
Each month, loan administration provides management with detailed lists of loans
on the watch list and summaries of the entire loan portfolio by risk rating.
These are coupled with analyses of changes in the risk profiles of the
portfolios, changes in past due and nonperforming loans and changes in watch
list and classified loans over time. In this manner, the overall increases or
decreases in the levels of risk in the portfolios are monitored continually.
Factors are applied to the loan portfolios for each category of loan risk to
determine acceptable levels of allowance for possible loan losses. These factors
are derived primarily from the actual loss experience and from published
national surveys of norms in the industry. The calculated allowances required
for the portfolios are then compared to the actual allowance balances to
determine the provisions necessary to maintain the allowances at appropriate
levels. In addition, management exercises judgment in its analysis of
determining the overall level of the allowance for possible loan losses. In its
analysis, management considers the change in the portfolio, including growth and
composition, and the economic conditions of the region in which the Company
operates. Based on this quantitative and qualitative analysis, the allowance for
possible loan losses is adjusted. Such adjustments are reflected in the
consolidated statements of income.
The Company does not engage in foreign lending. Additionally, the Company does
not have any concentrations of loans exceeding 10% of total loans, which are not
otherwise disclosed in the loan portfolio composition table. The Company does
not have a material amount of interest-bearing assets which would have been
included in nonaccrual, past due or restructured loans if such assets were
loans.
Management believes the allowance for loan losses is adequate to absorb probable
losses in the loan portfolio. While management uses available information to
recognize loan losses, future additions to the allowance may be necessary based
on changes in economic conditions. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the allowance
for loan losses. Such agencies may require the Company to increase the allowance
for loan losses based on their judgments and interpretations about information
available to them at the time of their examinations.
While the Company has benefited from very low historical net charge-offs during
an extended period of rapid loan growth, management remains cognizant that
historical loan loss and non-performing asset experience may not be indicative
of future results. If the experience were to deteriorate and additional
provisions for loan losses were required, future operating results would be
negatively impacted. Both management and the Board of Directors continually
monitor changes in asset quality, market conditions, concentration of credit and
other factors, all of which impact the credit risk associated with the Company's
loan portfolio.
As of December 31, 1999, 1998, and 1997, the Company had twelve, thirteen, and
eleven impaired loans in the aggregate amounts of $1,064,000, $1,087,000, and
$967,000 respectively, all of which are considered potential problem loans.
Non-performing assets decreased from $808,000 as of December 31, 1998 to
$690,000 as of December 31, 1999. The Company sold half of its foreclosed
property in December 1999. Non-performing assets decreased from $856,000 as of
December 31, 1997 to $808,000 as of December 31, 1998.
17
<PAGE> 20
The following table sets forth information concerning the Company's
nonperforming assets as of the dates indicated:
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- --------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 294 $ 2 $ 50 $ 131 $ 107
Loans past due 90 days or more
and still accruing interest -- -- -- 30 --
Restructured loans -- -- -- -- --
--------- -------- --------- --------- ----------
Total nonperforming loans 294 2 50 161 107
Foreclosed property 396 806 806 874 881
-------- -------- --------- --------- ----------
Total nonperforming assets $ 690 $ 808 $ 856 $ 1,035 $ 988
======== ======== ========= ========= ==========
Total assets $488,001 $375,304 $ 291,365 $ 184,584 $ 153,706
Total loans, net of unearned
loan fees 385,102 273,818 225,560 134,133 110,464
Total loans plus foreclosed property 385,498 274,624 226,366 135,007 111,345
Nonperforming loans to total loans 0.08% 0.00% 0.02% 0.12% 0.10%
Nonperforming assets to total loans
plus foreclosed property 0.18 0.29 0.38 0.77 0.89
Nonperforming assets to total assets 0.14 0.22 0.29 0.56 0.64
</TABLE>
The Company's policy is to discontinue the accrual of interest on loans when
principal or interest is due and has remained unpaid for 90 days or more.
The following table sets forth the allocation of the allowance for loan losses
by loan category as an indication of the estimated risk of loss for each loan
type. The unallocated portion of the allowance is intended to cover loss
exposure related to potential problem loans for which no specific allowance has
been estimated and for the possible risks in the remainder of the loan
portfolio.
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ---------------- ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of of of of of
Category Category Category Category Category
Total Total Total Total Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- ----- --------- ----- --------- ------ --------- ------ ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $1,404 25.86% $ 848 29.70% $ 656 30.81% $ 423 32.71% $ 348 39.59%
Real estate:
Commercial 494 13.43 447 12.14 316 16.56 253 18.60 265 23.09
Construction 763 22.90 679 28.03 465 21.18 413 17.42 93 10.53
Residential 817 18.76 798 25.56 605 28.27 381 27.92 510 22.21
Consumer and other 592 19.05 112 4.57 82 3.18 56 3.35 44 4.58
Not allocated 165 -- 316 -- 386 -- 239 -- 140 --
------ ----- ------- ------ ------- ------ ------ ------ ------ ------
Total $4,235 100.00% $ 3,200 100.00% $ 2,510 100.00% $1,765 100.00% $1,400 100.00%
====== ====== ======= ====== ======= ====== ====== ====== ====== ======
</TABLE>
The above allocation by loan category does not mean that actual loan charge-offs
will be incurred in the categories indicated. The risk factors considered in
determining the above allocation are the same as those used when determining the
overall level of the allowance.
18
<PAGE> 21
NONINTEREST INCOME
The following table depicts the annual changes in various noninterest income
categories:
<TABLE>
<CAPTION>
December 31, December 31,
1999 versus 1998 1998 versus 1997
------------------------------------------ -------------------------------------
$ Change 1999 1998 $ Change 1998 1997
---------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Merchant Banc management fee $ (101,600) $ 90,000 $ 191,600 $ 33,000 $ 191,600 $ 158,600
Merchant Banc consulting fees (220,000) 12,500 232,500 224,500 232,500 8,000
Financial Advisory Income 594,810 594,810 -- N/A -- --
Gain on trading assets 202,454 202,454 -- N/A -- --
Service charges on deposit accounts 368,599 621,472 252,873 79,421 252,873 173,452
Gain on sale of ORE 130,050 130,050 -- N/A -- --
Gain on sale of mortgage loans (433,759) 809,110 1,242,869 1,163,921 1,242,869 78,948
Loss on investment in the Enterprise
Fund L.P. (5,564) (7,763) (2,199) 2,705 (2,199) (4,904)
Other noninterest income (47,966) 113,103 161,069 99,190 161,069 61,879
------- ------- ------- ------ ------- ------
Total noninterest income $ 487,024 $2,565,736 $2,078,712 $ 1,602,737 $2,078,712 $ 475,975
========== ========== ========== =========== ========== ==========
</TABLE>
Total noninterest income was $2,565,736 in 1999, representing a $487,024
increase from 1998. The increase was primarily the result of increases in
Financial advisory income, service charges on deposit accounts, gain on trading
assets and a gain on the sale of ORE property. The Company began offering
financial advisory and trust services in October 1998. The $594,810 increase in
fees was the result of several life insurance and financial planning transaction
fees. The $368,599 increase in service charges on deposit accounts was due to a
concerted effort by the Company's management to alter service charges and other
fees to stay competitive in the marketplace. In connection with the adoption of
SFAS 133, the Company elected to reclassify an equity investment from
held-to-maturity to trading. The Company recorded a $197,546 gain on marking the
asset to market during the second quarter of 1999, which is treated as a
cumulative effect of change in account principle. In the fourth quarter of 1999
the Company obtained a purchase agreement for the equity investment which
resulted in a $202,454 gain in the fair value. This gain was recognized as
noninterest income. The asset was subsequently sold on February 2, 2000. The
$130,050 gain on sale of ORE was a result of the sale on foreclosed property the
company has owned since 1992. The above mentioned increases were offset by a
$321,600 decrease in Merchant Banc income, a $433,759 decrease on the sale of
mortgage loans and a $47,966 decrease in other income. The decrease in Merchant
Banc fees were a result of the aforementioned restructuring. The decrease in the
gain on sale of mortgages was due to an increase in interest rates during 1999.
Over half of the gain on sale of mortgage loans in 1998 were due to refinancing.
The demand for refinanced mortgage loans dramatically decreased with the rise in
interest rates. Most of the mortgage loans originated during 1999 were from the
purchase of new or existing homes.
Total noninterest income was $2,078,712 in 1998, representing a $1,602,737
increase from 1997. The increase was primarily the result of a $1,163,921
increase on the gain on sale of mortgage loans. The company started offering
mortgage products during the third quarter of 1997. In addition, Merchant Banc
consulting fees increased $224,500 in 1998 as compared to 1997. These fees were
a result of increased business activity in this company from the new office in
Kansas. Noninterest income, excluding Merchant Banc consulting fees and gain on
sale of mortgage loans increased $214,316 in 1998 as compared to 1997. This
increase was due to an increase in service charges on a larger deposit base and
other fees.
NONINTEREST EXPENSE
Total noninterest expense was $13,386,172 in 1999 representing a $3,334,470 or
33% increase from 1998. The increase in noninterest expenses were primarily
attributable to: 1) the new financial advisory services started in 1998, 2)
growth in the new banking facilities opened during 1997 in St. Peters and Sunset
Hills; and 3) expenses related to growth in the Company. During 1999, the
Company's financial advisory division increased its staff and other expenses to
support the Company's growth in this business segment. The Company added 35
employees to support its growth and established market presence.
19
<PAGE> 22
The following table depicts changes in noninterest expenses in the above
mentioned operations:
<TABLE>
<CAPTION>
December 31, December 31,
---------------------------------------- -------------------------------------
1999 versus 1998 1998 versus 1997
---------------------------------------- -------------------------------------
$ Change 1999 1998 $ Change 1998 1997
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Merchant banking division $ (123,959) $ 467,778 $ 591,737 $ 409,361 $ 591,737 $ 182,376
St. Peters and Sunset Hills banking
units 1,317,255 5,246,240 3,928,985 1,871,666 3,928,985 2,057,319
Mortgage operations (37,986) 817,419 855,405
724,830 855,405 130,575
Enterprise Financial Advisors 953,434 1,163,497 210,063 210,063 210,063 --
Other operations 1,225,726 5,691,238 4,465,512 497,206 4,465,512 3,968,306
----------- ----------- ----------- ----------- ----------- ----------
Total noninterest expense $ 3,334,470 $13,386,172 $10,051,702 $ 3,713,126 $10,051,702 $6,338,576
=========== =========== =========== =========== =========== ==========
</TABLE>
The increases were primarily due to increases in salaries and benefits expense,
occupancy and equipment expense and other operating expenses related to the
above mentioned operations and staff additions.
Total noninterest expense was $10,051,702 in 1998 representing a $3,713,126 or
59% increase from 1997. The increase in noninterest expenses were primarily
attributable to: 1) a new merchant bank office in Kansas City opened in March,
1998 2) new banking facilities opened during 1997 in St. Peters and Sunset
Hills, 3) the new financial advisory services started in 1998; and 4) expenses
related to the origination and sale of mortgage loans. The increases were
primarily due to increases in salaries and benefits expense, occupancy and
equipment expense and other operating expenses related to the above mentioned
operations. Noninterest expenses attributable to other operations increased 13%
in 1998 as compared to 1997 which was due to normal increases related to growth.
INCOME TAXES
Income tax expense was $2,244,404, $1,850,275 and $1,316,590 for 1999, 1998, and
1997, respectively. The effective tax rate was 38%, 38% and 37% for the years
ended December 31, 1999, 1998, and 1997, respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is provided by the Company's earning assets, including short-term
investments in federal funds sold, maturities in the loan portfolio, maturities
in the investment portfolio, amortization of term loans, and by the Company's
deposit inflows, proceeds from borrowings, and retained earnings.
20
<PAGE> 23
The following table reflects the Company's GAP analysis (rate sensitive assets
minus rate sensitive liabilities) as of December 31, 1999:
<TABLE>
<CAPTION>
Over Over After
3 Months 1 Year 5 Years
3 Months Through 12 Through or No Stated
or Less Months 5 Years Maturity Total
-------------- ------------ ------------- -------- -------------
(Dollars in Thousands)
Assets:
<S> <C> <C> <C> <C> <C>
Investments in debt and
equity securities $ 151 $ 18,729 $ 4,462 $ 2,055 $ 25,397
Interest-bearing deposits 1 -- -- -- 1
Loans, net of unearned loan fees 231,188 22,773 125,444 5,697 385,102
Federal funds sold 54,825 -- -- -- 54,825
-------------- ------------- ---------- -------- -------------
Total interest-sensitive
assets $ 286,165 $ 41,502 $ 129,906 $ 7,752 $ 465,325
-------------- ------------- ---------- -------- -------------
Liabilities:
Interest-bearing transaction
accounts $ 31,533 -- -- -- 31,533
Money market and savings
accounts 200,672 -- -- -- 200,672
Certificates of deposit 32,264 91,030 17,786 26 141,106
Guaranteed preferred
beneficial interests in
EBH-subordinated
debentures -- -- -- 11,000 11,000
Federal Home Loan Bank
advances -- -- 6,000 920 6,920
-------------- ------------- ---------- -------- -------------
Total interest-sensitive
liabilities $ 264,469 $ 91,030 $ 23,786 $ 11,946 $ 391,231
============== ============= ========== ======== =============
Interest-sensitivity GAP
GAP by period $ 21,696 $ (49,528) $ 106,120 $ (4,194) $ 74,094
============== ============= ========== ======== =============
Cumulative GAP $ 21,696 $ (27,832) $ 78,288 $ 74,094 $ 74,094
============== ============= ========== ======== =============
Ratio of interest-sensitive assets
to interest-sensitive liabilities:
Periodic 1.08 0.46 5.46 0.65 1.19
Cumulative GAP 1.08 0.92 1.21 1.19 1.19
============== ============= ========== ======== ============
</TABLE>
The Company made certain assumptions in preparing the table above. These
assumptions included: Loans will repay at historic repayment speeds;
interest-bearing demand accounts and savings accounts are interest sensitive due
to immediate repricing of remaining balance for each period presented; and fixed
maturity deposits will not be withdrawn prior to maturity. A significant
variance in actual results from one or more of these assumptions could
materially affect the results reflected in the table.
As indicated in the preceding table, the Company was asset sensitive on a
cumulative basis for all periods except the 3 to 12 month period at December 31,
1999 based on contractual maturities. In this regard, a decrease in the general
level of interest rates would generally have a negative effect on the Company's
net interest income as the repricing of the larger volume of interest sensitive
assets would create a larger reduction in interest income as compared to the
reduction in interest expense created by the repricing of the smaller volume of
interest sensitive liabilities. Likewise, an increase in the general level of
interest rates would have a positive effect on net interest margin.
As a policy, the Company focuses more attention to the cumulative GAP ratios
than any specific periods ratios since the cumulative GAP takes into account the
repricing nature of the assets and liabilities for a specific period plus all
previous periods which would have been affected by interest rate movements.
21
<PAGE> 24
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the balance sheet to minimize the inherent risk while at the same time
maximizing income. Management realizes certain risks are inherent and that the
goal is to identify and minimize those risks. Tools used by management include
the standard GAP report subject to different rate shock scenarios. At December
31, 1999, the rate shock scenario models indicated that annual net interest
income would change by less than 5% should rates rise or fall within 200 basis
points from their current level over a one year period.
22
<PAGE> 25
The following tables present the scheduled maturity of market risk sensitive
instruments at December 31, 1999:
<TABLE>
<CAPTION>
Beyond 5
Years or
No
Stated
Year 1 Year 2 Year 3 Year 4 Year 5 Maturity Total
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investment in debt and
equity securities $ 19,792 $ 4,459 $ -- $ -- $ -- $ 1,146 $ 25,397
Interest-bearing
deposits 1 -- -- -- -- -- 1
Federal funds sold 54,825 -- -- -- -- -- 54,825
Loans, net of unearned
loan fees 248,863 25,970 44,079 21,746 36,562 7,882 385,102
------- -------- ------ ------- -------- -------- ---------
Total $323,481 $ 30,429 $ 44,079 $21,746 $ 36,562 $ 9,028 $ 465,325
======= ======== ====== ======= ======= ======== =========
Liabilities:
Savings, Now,
Money Market deposits $232,206 $ -- $ -- $ -- $ -- $ -- $ 232,206
Certificates of deposit 123,294 15,278 1,013 1,417 78 26 141,106
Guaranteed preferred
beneficial interests
in EBH-subordinated
debentures -- -- -- -- -- 11,000 11,000
Federal Home Loan
Bank advances -- 3,000 -- 3,000 -- 920 6,920
-------- -------- ---------- ------- -------- -------- ---------
Total $355,500 $ 18,278 $ 1,013 $ 4,417 $ 78 $ 11,946 $ 391,232
======== ======== ========== ======= ======== ======== =========
<CAPTION>
Average Estimated
Total Interest Rate Fair Value
----- ------------- ----------
<S> <C> <C> <C>
Assets:
Investment in debt and
equity securities $25,397 5.28% $ 25,394
Interest-bearing
deposits 1 5.00 1
Federal funds sold 54,825 4.92 54,825
Loans, net of unearned
loan fees 385,102 8.80 384,491
------- ----------
Total $ 465,325 $ 464,711
Liabilities:
Savings, Now, Money
Market deposit $ 232,206 4.05% $ 232,206
Certificates of deposit 141,106 5.27 141,438
Guaranteed preferred
Beneficial interests
in EBH-subordinated
debentures 11,000 9.40% 11,000
Federal Home Loan
Bank advances 6,920 4.88 6,925
----- -----
Total $ 391,232 $ 391,569
</TABLE>
23
<PAGE> 26
BALANCE SHEET TREND
The following table summarizes certain trends in the Company's balance sheet
during the three-year period ended December 31, 1999:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1999 1998 1997
------------- ------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Total assets $ 488,001 $ 375,304 $ 291,365
Earning assets 465,325 334,364 271,967
Deposits 435,798 339,180 264,301
Loans to deposits 88.37% 80.73% 85.34%
Loans to total assets 78.91 72.96 77.41
Investment securities to total assets 5.20 12.33 4.61
Earning assets to total assets 95.35 89.09 93.34
============= ============= =============
Loans $ 385,146 $ 273,915 $ 225,608
Unearned loan fees (44) (97) (48)
------------- ------------- -------------
Net loans $ 385,102 $ 273,818 $ 225,560
============= ============= =============
Investment securities - HFT $ 910 $ -- $ --
Investment securities - AFS 23,807 45,592 12,515
Investment securities - HTM 680 699 919
------------- ------------- -------------
Total investments $ 25,397 $ 46,291 $ 13,434
============= ============= =============
Investment securities - AFS $ 23,807 $ 45,592 $ 12,515
Investment securities - HTM 680 699 919
Investment securities - HFT 910 -- --
Federal funds sold 54,825 14,250 32,825
Interest-bearing deposits 1 5 148
Net loans 385,102 273,818 225,560
------------- ------------- --------------
Total earning assets $ 465,325 $ 334,364 $ 271,967
============= ============= ==============
</TABLE>
The ratio of earning assets was 95.35%, 89.09% and 93.34% for years ending
December 31, 1999, 1998 and 1997, respectively. Earning assets increased
$130,961,000 and $62,397,000, or 39% and 23%, for the years ended December 31,
1999 and 1998, respectively. Total assets increased $112,697,000 and
$83,939,000, or 30% and 29%, during the same periods, respectively.
The following table shows, for the periods indicated, the average annual amount
and the average rate paid by type of deposit:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- --------------------------- ---------------------------
(Dollars in Thousands)
Average Interest Average Interest Average Interest
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- -------- ---- -------- -------- ---- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 56,568 $ -- --% $ 46,326 $ -- --% $ 33,247 $ -- --%
Interest-bearing transaction
accounts 26,430 491 1.86 20,503 492 2.40 15,840 452 2.85
Money market accounts 178,423 7,833 4.39 117,027 5,361 4.58 77,198 3,604 4.67
Savings accounts 1,789 44 2.46 1,496 37 2.47 1,270 32 2.52
Certificates of deposit 102,277 5,386 5.27 102,897 5,912 5.75 77,081 4,521 5.87
-------- -------- ---- -------- -------- ---- -------- ------ ----
$365,487 $ 13,754 3.76% $288,249 $ 11,802 4.09% $204,636 $8,609 4.21%
======== ======== ==== ======== ======== ===== ======== ====== ====
</TABLE>
24
<PAGE> 27
Since inception, the Company has experienced rapid loan and deposit growth
primarily due to aggressive direct calling efforts of relationship officers and
sustained economic growth in the local market served by the Company. Recent
growth is also attributed to the new locations in St. Charles County and the
City of Sunset Hills. Management has pursued closely-held businesses whose
management desires a close working relationship with a locally-managed,
full-service bank. Due to the relationships developed with these customers,
management views large deposits from this source a stable deposit base.
Additionally, the Company belongs to a national network of time depositors
(primarily credit unions) who place time deposits with the Company, typically in
increments of $99,000. The Company has used this source of deposits for over
five years and considers it to be a stable source of deposits that allows the
Company to acquire funds at a cost below its alternative cost of funds. There
were $45 million at December 31, 1999, $29 million at December 31, 1998 and $31
million at December 31, 1997 and 1996 in deposits from the national network.
The following table sets forth the amount and maturity of certificates of
deposit that had balances of more than $100,000 at December 31, 1999:
<TABLE>
<CAPTION>
Remaining Maturity Amount
------------------ ------
(Dollars in Thousands)
<S> <C>
Three months or less $ 10,188
Over three through six months 10,522
Over six through twelve months 28,799
Over twelve months 6,812
----------
$ 56,321
==========
</TABLE>
The table below sets forth the carrying value of investment securities held by
the Company at the dates indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
Percent Percent Percent
of Total of Total of Total
Amount Securities Amount Securities Amount Securities
--------- ---------- ------- ---------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 22,685 89.33% $ 44,720 96.61% $ 11,963 89.05%
Municipal bonds 656 2.58 669 1.45 881 6.56
Mortgage-backed securities 24 0.09 30 0.06 38 0.28
Federal Home Loan Bank stock 1,122 4.42 872 1.88 552 4.11
Trading securities 910 3.58 -- N/A -- N/A
-------- -------- -------- --------- --------- --------
$ 25,397 100.00% $ 46,291 100.00% $ 13,434 100.00%
======== ======== ======== ========= ========= ========
</TABLE>
As of December 31 1999, debt securities with an amortized cost of $679,806 were
classified as held to maturity securities and debt and equity securities with an
amortized cost of $23,913,796 were classified as available for sale securities.
The market valuation account for the available for sale securities was adjusted
to approximately $106,000 to decrease the recorded balance of such securities at
December 31, 1999 to fair value on that date. The Company had one security
classified as a trading asset with a fair value of $910,000 at December 31,
1999. The trading asset was sold at for $910,500 on February 2, 2000.
As of December 31 1998, debt securities with an amortized cost of $698,609 were
classified as held to maturity securities, and debt and equity securities with
an amortized cost of $45,576,239 were classified as available for sale
securities. The market valuation account for the available for sale securities
was adjusted to approximately $16,088 to increase the recorded balance of such
securities at December 31, 1998 to fair value on that date.
25
<PAGE> 28
As of December 31, 1997, debt securities with an amortized cost of $919,163 were
classified as held-to-maturity securities; debt and equity securities with an
amortized cost of $12,516,952 were classified as available-for-sale securities;
the market valuation account for the available-for-sale securities was adjusted
to approximately $2,231 to decrease the recorded balance of such securities at
December 31, 1997 to fair value on that date.
The following table summarizes maturity and yield information on the investment
portfolio at December 31, 1999:
<TABLE>
<CAPTION>
Carrying
Value Yield (1)
--------------- ------------
(Dollars in Thousands)
<S> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies:
0 to 1 year $ 18,729 5.63%
1 to 5 years 3,956 5.36
5 to 10 years -- --
No stated maturity -- --
-------------- -------------
Total $ 22,685 5.58%
============== =============
Municipal bonds:
0 to 1 year $ 150 6.75%
1 to 5 years 506 5.27
5 to 10 years -- --
No stated maturity -- --
-------------- -------------
Total $ 656 5.61%
============== =============
Mortgage-backed securities:
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 24 5.85%
-------------- -------------
Total 24 5.85%
============== =============
Federal Home Loan Bank stock:
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 1,122 6.71%
-------------- -------------
Total $ 1,122 6.71%
============== =============
Trading Securities
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 910 33.00%
-------------- -------------
Total $ 910 6.10%
============== =============
Total
0 to 1 year $ 18,880 5.64%
1 to 5 years 4,462 5.35
5 to 10 years -- --
No stated maturity 2,056 18.34
-------------- -------------
Total $ 25,397 6.61%
============== =============
</TABLE>
(1) Weighted average tax-equivalent yield
26
<PAGE> 29
The asset/liability management process, which involves management of the
components of the balance sheet to allow assets and liabilities to reprice at
approximately the same time, is an ever-changing process essential to minimizing
the effect of interest rate fluctuations on net interest income.
CAPITAL ADEQUACY
Risk-based capital guidelines for financial institutions were adopted by
regulatory authorities effective January 1, 1991. These guidelines were designed
to relate regulatory capital requirements to the risk profile of the specific
institution and to provide for uniform requirements among the various
regulators. Currently, the risk-based capital guidelines require the Company to
meet a minimum total capital ratio of 8.0% of which at least 4.0% must consist
of Tier 1 capital. Tier 1 capital generally consists of (a) common shareholders'
equity (excluding the unrealized market value adjustments on the
available-for-sale securities), (b) qualifying perpetual preferred stock and
related surplus subject to certain limitations specified by the FDIC, and (c)
minority interests in the equity accounts of consolidated subsidiaries less (d)
goodwill, (e) mortgage servicing rights within certain limits, and (f) any other
intangible assets and investments in subsidiaries that the FDIC determines
should be deducted from Tier 1 capital. The FDIC also requires a minimum
leverage ratio of 3.0%, defined as the ratio of Tier 1 capital to average total
assets for banking organizations deemed the strongest and most highly rated by
banking regulators. A higher minimum leverage ratio is required of less highly
rated banking organizations. Total capital, a measure of capital adequacy,
includes Tier 1 capital, allowance for possible loan losses, and debt considered
equity for regulatory capital purposes.
The following table summarizes the Company's risk-based capital and leverage
ratios at the dates indicated:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Tier 1 capital to risk weighted assets 10.78% 9.89% 11.20%
Total capital to risk weighted assets 11.82 10.97 12.28
Leverage ratio (Tier 1 capital to
average assets) 10.74 9.16 11.42
Tangible capital to tangible assets 6.71 8.63 9.79
</TABLE>
At December 31, 1999, the Company's Tier 1 capital was $43.8 million compared to
$29.2 million and $26.0 million at December 31, 1998 and 1997, respectively. At
December 31, 1999, the Company's total capital was $48.1 million compared to
$32.4 million and $28.6 million at December 31, 1998 and 1997, respectively.
YEAR 2000
Overview
The Year 2000 ("Y2K") issue refers to the ability of a date-sensitive computer
program to recognize a two-digit date field designated "00" as the year 2000.
Mistaking "00" for 1900 could result in a system failure or miscalculations
causing a disruption to operations and normal business activities. This is a
significant issue for many companies, including banks, and the implications of
the Y2K issue cannot be predicted with any high degree of certainty.
The Cost of Y2K Compliance:
The total cost to the Company to assess, correct and verify Y2K issues was
approximately $185,000, consisting of $125,000 in salaries and benefit costs
allocated to Y2K projects and $60,000 in software and hardware expenses required
for upgrading and testing of the Company's systems. This cost estimate does not
include the cost associated with regulatory reporting, legal review of
regulatory requirements, auditing requirements or other costs incurred related
only to the disclosure requirements and not actual software or hardware issues.
Such costs are difficult to determine as these requirements change
27
<PAGE> 30
frequently. If these non-systems related costs become significant and
quantifiable, they will be disclosed at that time.
What Risks Exist for the Company
The most likely risk the Company faces with respect to Y2K issues is in the core
banking software. This system identifies and calculates payments due the
Company's subsidiary bank for loans made to customers and amounts due to the
bank's customers for deposits. The loss of these records or inability to
accurately perform these calculations could cause the bank to incur additional
expenses such as loan losses, underpayments of amounts due on loans,
overpayments of amounts due to depositors or increased personnel expenses
required to track this information manually. Such expenses are not currently
quantifiable, but could be material to the operations and financial performance
of the Company and its subsidiaries. As of March 1, 2000 the Company had
encountered no significant Y2K related problems.
IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1999, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
standards for derivative instruments embedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value.
In connection with the adoption of SFAS 133, the Company elected to reclassify
an equity investment from held-to-maturity to trading. The Company recorded a
$197,546 gain on marking the asset to market during the second quarter of 1999,
which is treated as a cumulative effect of change in account principal. In the
fourth quarter of 1999 the Company obtained a purchase agreement for the equity
investment which resulted in a $202,454 gain in the fair value. This gain was
recognized as noninterest income. The asset was sold on February 2, 2000 for
$910,500.
EFFECT OF INFLATION
Persistent high rates of inflation can have a significant effect on the reported
financial condition and results of operations of all industries. However, the
asset and liability structure of commercial banks is substantially different
from that of an industrial company in that virtually all assets and liabilities
of commercial banks are monetary in nature. Accordingly, changes in interest
rates may have a significant impact on a commercial bank's performance. Interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services. Inflation does have an impact on the growth of
total assets in the banking industry, often resulting in a need to increase
equity capital at higher than normal rates to maintain an appropriate
equity-to-assets ratio.
SUPERVISION AND REGULATION
The Company and the Bank are subject to state and federal banking laws and
regulations which impose specific requirements or restrictions on and provide
for general regulatory oversight with respect to virtually all aspects of
operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
the Company. The numerous regulations and policies promulgated by the regulatory
authorities creates a difficult and ever-changing atmosphere in which to
operate. The Company and the Bank commit substantial resources in order to
comply with these statutes, regulations and policies. The Company is unable to
predict the nature or the extent of the effect on its business and earnings that
fiscal or monetary policies, economic control, or new federal or state
legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a bank holding company under the definition of the Bank Holding
Company Act of 1956 (the "BHCA"). Under the BHCA, the Company is subject to
periodic examination by the Federal Reserve and is required to file periodic
reports of its operations and such additional information as the
28
<PAGE> 31
Federal Reserve may require. The Company's and the Bank's activities are limited
to banking, managing or controlling banks, furnishing services to or performing
services for its subsidiaries, or engaging in any other activity that the
Federal Reserve determines to be closely related to banking.
Investments, Control and Activities. With certain limited exceptions, the BHCA
requires every bank holding company to obtain the prior approval of the Federal
Reserve before (i) acquiring substantially all the assets of any bank, (ii)
acquiring direct or indirect ownership or control of any voting shares of any
bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company. Federal legislation permits bank holding companies to acquire control
of banks throughout the United States.
In addition, and subject to certain exceptions, the BHCA and the Change in Bank
Control Act, together with regulations thereunder, require Federal Reserve
approval (or, depending on the circumstances, no notice of disapproval) prior to
any person or company acquiring "control" of a bank holding company, such as the
Company. Control is conclusively presumed to exist if an individual or company
acquires 25% or more of any class of voting securities of the bank holding
company. Under Federal Reserve regulations applicable to the Company, control
will be refutably presumed to exist if a person acquires at least 10% of the
outstanding shares of any class of voting securities once the Company registers
the common stock under the Securities and Exchange Act of 1934. The regulations
provide a procedure for challenge of the rebuttable control presumption.
Under the BHCA, the Company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in, nonbanking activities, unless the Federal Reserve, by order
of regulation, has found those activities to be so closely related to banking or
managing or controlling banks as to be a related activity. Some of the
activities that the Federal Reserve has determined by regulation to be proper
incidents to the business of banking include investment in and management of
Small Business Investment Companies, making or servicing loans and certain types
of leases, engaging in certain insurance and brokerage activities, performing
data processing services, acting in certain circumstances as a fiduciary or
investment or financial advisor, owning savings associations, and making
investments in limited projects designed primarily to promote community welfare.
Recent Developments: The Gramm-Leach-Bliley Act ("GLBA") was signed into law on
November 12, 1999. This major banking legislation now permits affiliation among
depository institutions and entities whose activities are considered "financial
in nature" or incidental or complementary to such activities. Activities which
are expressly considered financial in nature include, among other things,
securities and insurance underwriting and agency, investment management and
merchant banking. With certain exceptions, GLBA similarly expanded the
authorized activities of subsidiaries of national banks (and indirectly through
the wild card powers provisions of state law, Missouri banks). These provisions
become effective March 11, 2000.
In general, these expanded powers are reserved to bank holding companies, to be
known as financial holding companies ("FHC") and banks, where all depository
institutions affiliated with them are well capitalized and well managed based on
applicable banking regulations and meet specified Community Reinvestment Act
ratings. GLBA authorizes the Federal Reserve and the United States Treasury, in
cooperation with one another, to determine what additional activities are
permissible as financial in nature. Maintenance of activities which are
financial in nature will require FHC's and banks to continue to satisfy
applicable well capitalized and well managed requirements. Bank holding
companies which do not qualify for FHC status are limited to non-banking
activities deemed closely related to banking prior to adoption of GLBA.
To become an FHC, the Company would file a declaration with the Federal Reserve
electing to engage in activities permissible for an FHC and certifying that it
is eligible to do so because it meets the requirements outlined above. The
Company currently meets the requirements to make an election to become a FHC;
however, the Company's management has not determined at this time whether it
will seek such an election. The Company is examining its strategic business plan
to determine whether, based on market conditions, the relative financial
conditions of Company and its subsidiaries, regulatory
29
<PAGE> 32
capital requirements, general economic conditions, and other factors, Company
desires to utilize any of its expanded powers provided in GLBA.
In addition to the creation of FHC's, GLBA establishes a scheme of "functional
regulation" of financial services businesses which is intended to reflect the
primacy of regulation over activities and entities by regulators routinely
responsible for such activities and entities and with the appropriate expertise
in the area of regulation. This applies both in allocating responsibility for
supervising different companies within an FHC and in supervising different
activities within the same company. In this connection, GLBA clarifies the
regulation by states of insurance products sold by depository institutions,
repeals some of the exemptions enjoyed by banks under federal securities laws
relation to securities offered by banks and licensing of broker-dealers and
investment advisors.
GLBA also adopts restrictions on financial institutions regarding the sharing of
customer non-public personal information with non-affiliated third parties
unless the customer has had an opportunity to opt out of the disclosure. GLBA
also imposes periodic disclosure requirements concerning the financial
institution's policies and practices regarding data sharing with affiliated and
non-affiliated parties.
This act will be the subject of extensive rule making by federal banking
regulators and others. The effects of this legislation will only begin to be
understood over the next several years and at this time cannot be predicted with
any certainty.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve policy,
the Company is expected to act as a source of financial strength to the Bank and
to commit resources to support the Bank in circumstances in which the Company
might not otherwise do so. Under the BHCA, the Federal Reserve may require a
bank holding company to terminate any activity or relinquish control of a
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness or stability of any subsidiary depository institution
of the bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
BANK REGULATION
General. As of December 31, 1999, the Company is the holding company for a
single state bank. The Bank is not a member of the Federal Reserve system. The
Missouri Division of Finance and the FDIC are primary regulators for the Bank.
These regulatory authorities regulate or monitor all areas of the Bank's
operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuance of securities, payment of dividends, interest rates payable on
deposits, interest rates or fees chargeable on loans, establishment of branches,
corporate reorganizations, maintenance of books and records, and adequacy of
staff training to carry on safe lending and deposit gathering practices. The
Bank must maintain certain capital ratios and is subject to limitations on
aggregate investments in real estate, bank premises, and furniture and fixtures.
All insured institutions must undergo regular on-site examinations by their
appropriate banking agency. The cost of examinations of insured depository
institutions and any affiliates may be assessed by the appropriate agency
against each institution or affiliate as it deems necessary or appropriate.
Insured institutions are required to submit annual and quarterly reports to the
FDIC and the appropriate agency and the state supervisor.
Once the merger with CGB is complete, the Company will control FCB N.A., a
nationally chartered bank. If the Company maintains their charter they will also
be subject to regulation by the Office of the Comptroller of Currency ("OCC").
Transactions With Affiliates and Insiders. The Bank is subject to the provisions
of Section 23A of the Federal Reserve Act, which place limits on the amount of
loans or extensions of credit to, investments in, or certain other transactions
with, affiliates and on the amount of advances to third parties collateralized
by the securities or obligations of affiliates. In addition, most of these loans
and certain other
30
<PAGE> 33
transactions must be secured in prescribed amounts. The Bank is also subject to
the provisions of Section 23B of the Federal Reserve Act that, among other
things, prohibit an institution from engaging in certain transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with nonaffiliated companies.
The Bank is subject to certain restrictions on extensions of credit to executive
officers, directors, certain principal shareholders, and their related
interests. Such extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties and (ii) must not involve more
than the normal risk of repayment or present other unfavorable features.
Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
that, in connection with examinations of financial institutions within its
jurisdiction, the FDIC shall evaluate the record of the financial institutions
in meeting the credit needs of their local communities, including low and
moderate income neighborhoods, consistent with the safe and sound operation of
those institutions. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility. The company has a
satisfactory rating under CRA.
Other Regulations. Interest and certain other charges collected or contracted
for by the Bank are subject to state usury laws and certain federal laws
concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves; the Equal Credit Opportunity
Act prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit; the Fair Credit Reporting Act of 1978 governing
these and provision of information to credit reporting agencies; the Fair Debt
Collection Act governing the manner in which consumer debts may be collected by
collection agencies; and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. The
deposit operations of the Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve Board to implement that act, which
governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Deposit Insurance. The deposits of the Bank are currently insured by the FDIC to
a maximum of $100,000 per depositor, subject to certain aggregation rules. The
FDIC establishes rates for the payment of premiums by federally insured banks
for deposit insurance. An insurance fund (BIF) is maintained for commercial
banks, with insurance premiums from the industry used to offset losses from
insurance payouts when banks and thrifts fail. The FDIC has adopted a risk-based
deposit insurance premium system for all insured depository institutions,
including the Bank, which requires premiums from a depository institution based
upon its capital levels and risk profile, as determined by its primary federal
regulator on a semiannual basis.
DIVIDENDS
The principal source of the Company's cash revenues comes from dividends
received from the Bank. The amount of dividends that may be paid by the Bank to
the Company depends on the Bank's earnings and capital position and is limited
by federal and state law, regulations, and policies.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance-sheet exposure,
and minimize disincentives for holding liquid assets. The resulting capital
ratios represent qualifying capital as a percentage of total risk-weighted
assets and off-balance-sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies
31
<PAGE> 34
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio,
a portion of which must be Tier 1 capital. Tier 1 capital includes common
shareholders' equity, qualifying perpetual preferred stock, and minority
interests in equity accounts of consolidated subsidiaries, but excludes goodwill
and most other intangibles and excludes the allowance for loan and lease losses.
Tier 2 capital includes the excess of any preferred stock not included in Tier 1
capital, mandatory convertible securities, hybrid capital instruments,
subordinated debt and intermediate term-preferred stock, and general reserves
for loan and lease losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50% or 100%. In addition, certain off-balance-sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply. These computations
result in the total risk-weighted assets. Most loans are assigned to the 100%
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstance, residential construction loans, both
of which carry a 50% rating. Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% rating,
and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a leverage ratio,
which is Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included on pages 35 through 40, below.
PART III
MANAGEMENT
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to
pages [4] through [10] of the Company's Proxy Statement for its annual meeting
to be held April 19, 2000.
All Directors of the Company are elected at the annual meeting of shareholders
and serve until their successors are duly elected and qualified or until their
earlier resignation or removal.
The Bank's entire Board of Directors performs the functions of audit and
compensation committees.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
pages [4] through [6] of the Company's Proxy Statement for its annual meeting to
be held April 19, 2000.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is incorporated herein by reference to
pages [8] through [10] of the Company's Proxy Statement for its annual meeting
to be held April 19, 2000.
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<PAGE> 35
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company and the Bank have and expect to continue to have banking and other
transactions in the ordinary course of business with directors and executive
officers of the Company and their affiliates, including members of their
families or corporations, partnerships or other organizations in which such
directors or executive officers have a controlling interest, on substantially
the same terms (including price, or interest rates and collateral) as those
prevailing at the time for comparable transactions with unrelated parties. Such
transactions are not expected to involve more than the normal risk of
collectibility nor present other unfavorable features to the Company and the
Bank. The Bank is subject to limits on the aggregate amount it can lend to the
Bank's and the Company's directors and officers as a group. This limit is
currently equal to two times the applicable entity's unimpaired capital and
surplus. Loans to individual directors and officers must also comply with the
Bank's lending policies and statutory lending limits, and directors with a
personal interest in any loan application are excluded from the consideration of
such loan application.
The Company's Clayton banking facility is leased from a limited partnership in
which Fred H. Eller, the Company's Chief Executive Officer, is a limited partner
and Robert E. Saur, a director of the Company, is a general partner. Terms of
the lease were negotiated by parties other than Fred H. Eller or Robert E. Saur
and based on the fair market value at origination. Rent expense, net of income
from the sublet portions of the premises, amounted to $279,725 in 1999.
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED OR INCORPORATED BY REFERENCE AS PART OF
THIS REPORT:
<TABLE>
<CAPTION>
ENTERBANK HOLDINGS INC. AND SUBSIDIARIES
<S> <C> <C>
1. Financial Statements: Page Number
--------------------- -----------
Independent auditors report 34
Consolidated Balance Sheets
at December 31, 1999 and December 31, 1998 35
Consolidated Statements of Income for the years
ended December 31, 1999, 1998 and 1997 36
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997 38
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997 39
Consolidated Statements of Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997 40
Notes to Consolidated Financial Statements 41
2. Financial Statement Schedules
-----------------------------
None other than those included in the Notes to Consolidated
Financial Statements.
3. Exhibits
See Exhibit Index
</TABLE>
(B) REPORTS ON FORM 8-K
On October 7, 1999 Registrant filed a report on Form 8-K to report, under
Item 5, completion of its $10 million cumulative Preferred Securities
offering and to report its third quarter results.
33
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Enterbank Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Enterbank
Holdings, Inc. and subsidiaries (the Company) as of December 31, 1999 and
1998, and the related consolidated statements of income, shareholders'
equity, cash flows, and comprehensive income for each of the years in the
three-year period ended December 31, 1999. 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
Enterbank Holdings, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting standards No. 133,
Accounting for Derivative Instruments and Hedging Activities.
/s/ KPMG LLP
February 18, 2000
34
<PAGE> 37
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------ ------------- -------------
<S> <C> <C>
Cash and due from banks $ 14,798,216 $ 29,701,018
Federal funds sold 54,825,000 14,250,000
Interest-bearing deposits 469 5,035
Investments in debt and equity securities:
Trading, at fair value 910,000 --
Available for sale, at estimated fair value 23,807,572 45,592,327
Held to maturity, at amortized cost
(estimated fair value of $676,851 in 1999
and $704,723 in 1998) 679,806 698,609
------------ ------------
Total investments in debt and equity securities 25,397,378 46,290,936
------------ ------------
Loans held for sale 1,438,335 6,272,124
Loans, less unearned loan fees 385,101,759 273,817,522
Less allowance for loan losses 4,235,000 3,200,000
------------ ------------
Loans, net 380,866,759 270,617,522
------------ ------------
Other real estate owned 396,072 806,072
Office equipment and leasehold improvements 3,228,256 3,063,123
Accrued interest receivable 2,473,781 1,648,775
Investment in Enterprise Merchant Banc LLC 572,009 --
Investment in Enterprise Fund, L.P. 546,710 424,484
Prepaid expenses and other assets 3,458,459 2,224,829
------------ ------------
Total assets $ 488,001,444 $ 375,303,918
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 62,486,092 $ 61,114,961
Interest-bearing transaction accounts 31,532,705 24,234,717
Money market accounts 197,935,760 149,177,922
Savings 2,736,638 1,471,647
Certificates of deposit:
$100,000 and over 56,321,178 43,326,061
Other 84,785,457 59,854,862
------------ ------------
Total deposits 435,797,830 339,180,170
Guaranteed preferred beneficial interests in
EBH-subordinated debentures 11,000,000 --
Federal Home Loan Bank advances 6,920,386 6,000,000
Accrued interest payable 962,205 608,056
Accounts payable and accrued expenses 557,338 275,563
------------ ------------
Total liabilities 455,237,759 346,063,789
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; authorized 20,000,000 shares; issued and
outstanding 7,143,636 shares at December
31, 1999 and 7,115,511 shares at December 31, 1998 71,436 71,155
Surplus 19,285,957 19,216,564
Retained earnings 13,476,400 9,941,792
Accumulated other comprehensive gain (loss) (70,108) 10,618
------------ ------------
Total shareholders' equity 32,763,685 29,240,129
------------ ------------
Total liabilities and shareholders' equity $ 488,001,444 $ 375,303,918
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 38
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 30,018,530 $ 23,001,165 $ 16,795,887
Interest on debt and equity securities:
Taxable 978,651 878,147 1,017,897
Nontaxable 26,102 26,565 34,630
Interest on federal funds sold 1,112,929 1,468,652 909,326
Interest on interest bearing deposits 697 39,740 1,289
-------------- -------------- --------------
Total interest income 32,136,909 25,414,269 18,759,029
-------------- -------------- --------------
Interest expense:
Interest-bearing transaction accounts 490,791 492,581 410,915
Money market accounts 7,833,783 5,361,463 3,604,225
Savings 43,942 36,918 32,357
Certificates of deposit:
$100,000 and over 2,160,871 2,189,803 1,658,554
Other 3,224,838 3,722,039 2,862,256
Federal funds purchased 1,597 -- 11,035
Guaranteed preferred debenture expense 186,605 -- --
Federal Home Loan Bank advances 331,042 66,527 --
Notes payable 78,650 -- 2,888
-------------- -------------- --------------
Total interest expense 14,352,119 11,869,331 8,582,230
-------------- -------------- --------------
Net interest income 17,784,790 13,544,938 10,176,799
Provision for loan losses 1,021,256 710,899 775,064
-------------- -------------- --------------
Net interest income after
provision for loan losses 16,763,534 12,834,039 9,401,735
-------------- -------------- --------------
Noninterest income:
Service charges on deposit accounts 621,472 252,873 173,452
Gain on sale of ORE 130,050 -- --
Financial advisory income 594,810 -- --
Gain on trading assets 202,454 -- --
Other service charges and fee income 212,669 585,169 228,479
Gain on sale of mortgage loans 809,110 1,242,869 78,948
Income from investments in EMB, LLC 2,934 -- --
Loss on investment in Enterprise Fund, L.P. (7,763) (2,199) (4,904)
-------------- -------------- --------------
Total noninterest income 2,565,736 2,078,712 475,975
-------------- -------------- --------------
Noninterest expense:
Salaries 6,748,905 5,103,863 3,221,147
Payroll taxes and employee benefits 1,386,603 999,579 620,438
Occupancy 977,422 879,046 552,063
Furniture and Equipment 431,005 389,274 227,061
FDIC insurance 30,139 40,638 21,846
Data processing 457,529 306,691 237,248
Other 3,354,569 2,332,611 1,458,773
-------------- -------------- --------------
Total noninterest expense 13,386,172 10,051,702 6,338,576
-------------- -------------- --------------
Income before income tax expense 5,943,098 4,861,049 3,539,134
Income tax expense 2,244,404 1,850,275 1,316,590
-------------- -------------- --------------
Income before cumulative effect of a change
income accounting principle $ 3,698,694 $ 3,010,774 $ 2,222,544
============== -------------- --------------
Cumulative effect on prior years of a change in
asset classification, net of taxes 121,491 -- --
-------------- -------------- --------------
Net income $ 3,820,185 $ 3,010,774 $ 2,222,544
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 39
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Per share amounts (1)
Basic earnings per share:
Income before cumulative effect of
change in accounting principle $ 0.52 $ 0.43 $ 0.35
Cumulative effect on prior years of a
change in asset classification $ 0.02 $ -- $ --
================ =============== ===============
Net income $ 0.54 $ 0.43 $ 0.35
================ =============== ===============
Basic weighted average common shares
common stock equivalents
outstanding 7,135,697 7,052,289 6,286,077
Diluted earnings per share:
Income before cumulative effect of a
change in accounting principle $ 0.48 $ 0.40 $ 0.33
Cumulative effect on prior years of a
change in asset classification $ 0.02 $ -- $ --
================ =============== ===============
Net income $ 0.50 $ 0.40 $ 0.33
================ =============== ===============
Diluted weighted average common
shares and common stock
equivalents outstanding 7,704,800 7,544,820 6,674,901
</TABLE>
- -----------------------------------------------------------
See accompanying notes to consolidated financial statements.
37
<PAGE> 40
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Net
unrealized
holding
gains
(losses) on Total
Common Stock available- share-
------------------------- Retained for-sale holders'
Shares Amount Surplus earnings securities equity
------------------------- -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,987,080 $ 49,870 $ 9,562,710 $ 5,138,612 $ 6,701 $ 14,757,893
Net income -- -- -- 2,222,544 -- 2,222,544
Dividends declared
($.03 per share) -- -- -- (195,085) -- (195,085)
Stock options exercised 160,500 1,605 265,895 -- -- 267,500
Issuance of Common Stock 1,747,656 17,477 9,004,637 9,022,114
Other comprehensive income -- -- -- -- (8,174) (8,174)
----------- ------------ -------------- ------------- ------------- --------------
Balance, December 31, 1997 6,895,236 68,952 18,833,242 7,166,071 (1,473) 26,066,792
Net income -- -- -- 3,010,774 -- 3,010,774
Dividends declared
($.03 per share) -- -- -- (235,053) -- (235,053)
Stock options exercised 220,275 2,203 383,322 -- -- 385,525
Other comprehensive income -- -- -- -- 12,091 12,091
----------- ------------ -------------- ------------- ------------ -------------
Balance, December 31, 1998 7,115,511 71,155 19,216,564 9,941,792 10,618 29,240,129
Net income -- -- -- 3,820,185 -- 3,820,185
Dividends declared
($.04 per share) -- -- -- (285,577) -- (285,577)
Stock options exercised 28,125 281 69,393 69,674
Other comprehensive income -- -- -- -- (80,726) (80,726)
----------- ------------ -------------- ------------- ------------- --------------
Balance, December 31, 1999 7,143,636 $ 71,436 $ 19,285,957 $ 13,476,400 $ (70,108) $ 32,763,685
=========== ============ ============== ============= ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE> 41
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,820,185 $ 3,010,774 $ 2,222,544
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle, net of taxes (121,491) -- --
Depreciation and amortization 592,101 488,790 311,132
Provision for loan losses 1,021,256 710,899 775,064
Write-downs and losses on other real estate owned, net -- -- 24,259
Gain on sale of other real estate owned (130,050) (26,546) --
Net accretion of debt and equity securities (188,295) (288,951) (207,715)
Net increase in trading securities asset (788,509) -- --
Loss on investment in Enterprise Fund, L.P. 7,763 2,199 4,904
Mortgage loans originated (56,541,117) (94,433,924) (8,455,878)
Proceeds from mortgage loans sold 62,184,016 90,728,913 7,210,582
Gain on sale of mortgage loans (809,110) (1,242,869) (78,948)
Increase in accrued interest receivable (825,006) (200,432) (512,479)
Increase in accrued interest payable 354,149 58,997 239,549
Other, net (951,856) (526,545) (700,997)
------------ ------------ -------------
Net cash provided by (used in) operating activities 7,624,036 (1,718,695) 832,017
------------ ------------ -------------
Cash flows from investing activities:
Purchases of interest-bearing deposits -- -- (148,349)
Proceeds from maturity of interest-bearing deposits 4,566 143,314 --
Purchases of available for sale debt securities (27,241,172) (49,683,878) (18,788,955)
Purchases of available for sale equity securities (250,700) (320,000) (90,500)
Purchases of held to maturity debt securities (100,000) (256,689) (101,076)
Proceeds from maturities of available for sale debt securities 49,400,000 17,250,000 20,580,000
Proceeds from maturities and principal paydowns on
held to maturity debt securities 103,000 460,785 407,956
Net increase in loans (111,270,493) (48,275,994) (91,597,180)
Proceeds from sale of other real estate owned 540,050 24,327 184,095
Purchases of office equipment and leasehold improvements (757,234) (1,225,736) (1,520,563)
Write-down of office equipment and leasehold improvements -- 2,522 --
Investment in Enterprise Merchant Banc LLC (572,009) -- --
Investment in Enterprise Fund, L.P. (129,989) (201,000) 319,500
------------ ------------ -------------
Net cash used in investing activities (90,273,981) (82,082,349) (90,755,072)
------------ ------------ -------------
Cash flows from financing activities:
Net increase in demand and savings accounts 58,691,948 67,358,128 65,187,192
Net increase in certificates of deposit 37,925,712 7,521,408 30,152,353
Increase in Federal Home Loan Bank Advances 920,386 6,000,000 --
Proceeds from issuance of guaranteed preferred subordinated debentures 11,000,000 -- --
Decrease increase in notes payable -- -- (300,000)
Cash dividends paid (285,577) (235,053) (195,085)
Proceeds from the issuance of common stock -- -- 9,022,114
Proceeds from the exercise of stock warrants and common stock options 69,674 385,525 267,500
------------ ------------ -------------
Net cash provided by financing activities 108,322,143 81,030,008 104,134,074
------------ ------------ -------------
Net increase (decrease) in cash and due from banks 25,672,198 (2,771,036) 14,211,019
Cash and cash equivalents, beginning of year 43,951,018 46,722,054 32,511,035
------------ ------------ -------------
Cash and cash equivalents, end of year $ 69,623,216 $ 43,951,018 $ 46,722,054
============ ============ =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 14,003,833 $ 11,810,334 $ 8,342,681
Income taxes 2,239,000 2,014,266 1,509,322
============ ============ =============
Noncash transactions:
Transfers to other real estate owned in settlement of loans -- 97,781 140,000
Loans made to facilitate the sale of other real estate owned 515,240 100,000 --
Transfer of held to maturity security to trading 510,000 -- --
============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 42
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
Net income $ 3,820,185 $ 3,010,774 $ 2,222,544
Other comprehensive income, before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period (122,312) 18,319 (12,385)
------------- -------------- --------------
Other comprehensive income, before tax (122,312) 18,319 (12,385)
Income tax benefit (expense) related to items of
other comprehensive income 41,586 (6,228) 4,211
------------- -------------- --------------
Other comprehensive income, net of tax (80,726) 12,091 (8,174)
------------- -------------- --------------
Comprehensive income $ 3,739,459 $ 3,022,865 $ 2,214,370
============= ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 43
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
NOTE 1--ORGANIZATION
On May 9, 1995, Enterbank Holdings, Inc. (the "Company") was formed as a bank
holding company. Enterbank Holdings, Inc. exchanged 4,390,200 shares of
Enterbank Holdings, Inc. for all 73,170 (100%) of outstanding shares of
Enterprise Bank in a sixty-for-one stock exchange. The merger represented a
combination of entities under common control and, accordingly, was accounted for
in a manner similar to a pooling of interest.
Additionally, Enterprise Capital Resources, Inc. ("ECR") was formed as a small
business investment company in 1995 and, on May 11, 1995, Enterbank Holdings,
Inc. acquired 100% of the outstanding shares of ECR. Subsequent to December 31,
1997, ECR changed its name to Enterprise Merchant Banc, Inc. ("Merchant Banc").
In 1997, the Company organized Enterprise Financial Advisors ("Financial
Advisors") as a division of the Bank to provide fee-based personal financial
planning, estate planning, and corporate planning services to the Company's
target market. The Company entered into solicitation and referral agreements
with Moneta Group, Inc., a financial planning company, as part of the
organization of Financial Advisors. In 1998, Financial Advisors obtained trust
powers. The Company renegotiated the agreements with Moneta with the
introduction of trust services.
In 1999, the Company formed EBH Capital Trust I ("EBH Trust"). EBH Trust is a
Delaware business trust created for the single purpose of offering trust
preferred securities and purchasing the junior subordinated debentures of
Enterbank Holdings.
On January 5, 2000, the Company signed a merger agreement with Commercial
Guaranty Bancshares, Inc. located in Overland Park, Kansas. Commercial Guaranty
("CGB") is the bank holding company for First Commercial Bank, N.A. ("FCB"). The
Company expects the merger to be completed sometime in the middle of 2000. The
agreement provides for CGB shareholders to receive 2.1429 shares of Enterbank
common stock in a tax-free exchange utilizing the pooling of interests method of
accounting.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company provides a full range of banking services to individual and
corporate customers located within St. Louis, Missouri and the surrounding
communities through its subsidiary, Enterprise Bank (the Bank). The Company is
subject to competition from other financial and nonfinancial institutions
providing financial services in the markets served by the Company's
subsidiaries. Additionally, the Company and its subsidiaries are subject to the
regulations of certain federal and state agencies and undergo periodic
examinations by those regulatory agencies.
The more significant accounting policies used by the Company in the preparation
of the consolidated financial statements are summarized below:
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements of the Company and its subsidiaries have
been prepared in conformity with generally accepted accounting principles and
conform to predominant practices within the banking industry. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions which significantly affect the reported amounts in the consolidated
financial statements. Estimates which are particularly susceptible to change in
a short period of time include the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of amounts due from borrowers on loans. Actual amounts could
differ from those estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company; its
banking subsidiary, Enterprise Bank (100% owned) and its merchant banking
company, Merchant Banc (100% owned). All significant intercompany accounts and
transactions have been eliminated.
41
<PAGE> 44
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company currently classifies investments in debt and equity securities as
follows:
Trading - includes securities which the Company has bought and held
principally for the purpose of selling them in the near term.
Held to maturity - includes debt securities which the company has the
positive intent and ability to hold until maturity.
Available for sale - includes debt and marketable equity securities not
classified as held-to-maturity or trading (i.e., investments which the
company has no present plans to sell but may be sold in the future
under different circumstances).
Debt securities classified as held to maturity are carried at amortized cost,
adjusted for the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses for held-to-maturity securities are excluded from
earnings and shareholders' equity. Debt and equity securities classified as
available for sale are carried at estimated fair value. Unrealized holding gains
and losses for available-for-sale securities are excluded from earnings and
reported as a net amount in a separate component of shareholders' equity until
realized. All previous fair value adjustments included in the separate component
of shareholders' equity are reversed upon sale. Debt and equity securities
classified as trading are carried at estimated fair value. The realized and
unrealized gains and losses on trading securities are included in noninterest
income.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains or losses associated with transfers
of securities from the held-to-maturity category to the available-for-sale
category are recorded as a separate component of shareholders' equity.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary results in a charge to
earnings and the establishment of a new cost basis for the security.
For securities in the held to maturity and available for sale categories,
premiums and discounts are amortized or accreted over the lives of the
respective securities as an adjustment to yield using the interest method.
Dividend and interest income is recognized when earned. Realized gains and
losses for securities classified as trading, available for sale and held to
maturity are included in earnings and are derived using the
specific-identification method for determining the cost of securities sold.
LOANS HELD FOR SALE
During 1997, the Company began mortgage banking operations. Mortgage banking
activities include the origination of residential mortgage loans for sale to
various investors. Mortgage loans are originated and intended for sale in the
secondary market, principally under programs with the Government National
Mortgage Association (GNMA) or the Federal National Mortgage Association (FNMA).
Mortgage loans held for sale are carried at the lower of cost or fair value,
which is determined on a specific identification method. Mortgage banking
revenues, including origination fees, net gains on sales of servicing rights,
net gains or losses on sales of mortgages and other fee income, which is
determined on a specific identification method, were less than five percent of
the Company's total revenue for the year ended December 31, 1999. The Company
does not retain servicing on any loans originated and sold, nor did the Company
have any purchased mortgage servicing rights at December 31, 1999.
INTEREST AND FEES ON LOANS
Interest income on loans is accrued and credited to income based on the
principal amount outstanding. The recognition of interest income is discontinued
when a loan becomes 90 days past due or a significant deterioration in the
borrower's credit has occurred which, in management's opinion, negatively
impacts the collectibility of the loan. Subsequent interest payments received on
such loans are applied to principal if any doubt exists as to the collectibility
of such principal; otherwise, such receipts are recorded as interest income.
Loans are returned to accrual status when management believes full
collectibility of principal and interest is expected.
42
<PAGE> 45
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company defers the recognition of loan origination fees, net of the cost
associated with originating such loans. Deferred loan fees are accreted into
income over the contractual life of the loan using the straight-line method,
which approximates the interest method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense and
is available to absorb charge-offs, net of recoveries. Management utilizes a
systematic, documented approach in determining the appropriate level of the
allowance for loan losses. Management's approach, which provides for general and
specific allowances, is based on current economic conditions, past losses,
collection experience, risk characteristics of the portfolio, assessments of
collateral values by obtaining independent appraisals for significant
properties, and such other factors which, in management's judgment, deserve
current recognition in estimating loan losses.
Management believes the allowance for loan losses is adequate to absorb possible
losses in the loan portfolio. While management uses available information to
recognize losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions and other factors. In addition, various
regulatory agencies, as an integral part of the examination process,
periodically review the Bank's loan portfolio. Such agencies may require the
Bank to add to the allowance for loan losses based on their judgments and
interpretations of information available to them at the time of their
examinations.
ACCOUNTING FOR IMPAIRED LOANS
A loan is considered impaired when it is probable the Bank will be unable to
collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the expected
future cash flows of an impaired loan are discounted at the loan's effective
interest rate. Alternatively, impairment is measured by reference to an
observable market price, if one exists, or the fair value of the collateral for
a collateral-dependent loan. Regardless of the measurement method used,
historically, the Bank measures impairment based on the fair value of the
collateral when foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future cash flow
at the loan's effective rate of interest as stated in the original loan
agreement. The Bank recognizes interest income on nonaccrual loans only when
received and on impaired loans continuing to accrue interest as earned.
OTHER REAL ESTATE OWNED
Other real estate owned represents property acquired through foreclosure or
deeded to the Company's subsidiary bank in lieu of foreclosure on loans on which
the borrowers have defaulted as to the payment of principal and interest. Other
real estate owned is recorded on an individual asset basis at the lower of cost
or fair value less estimated costs to sell. Subsequent reductions in fair value
are expensed or recorded in a valuation reserve account through a provision
against income. Subsequent increases in the fair value are recorded through a
reversal of the valuation reserve, but not below zero.
Gains and losses resulting from the sale of other real estate owned are credited
or charged to current period earnings. Costs of maintaining and operating other
real estate owned are expensed as incurred, and expenditures to complete or
improve other real estate owned properties are capitalized if the expenditures
are expected to be recovered upon ultimate sale of the property.
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Office equipment and leasehold improvements are stated at cost less accumulated
depreciation and amortization is computed using the straight-line method over
their respective estimated useful lives. Bank equipment is depreciated over
three to ten years and leasehold improvements over ten to 30 years.
43
<PAGE> 46
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INCOME TAXES
The Company and its subsidiaries file consolidated federal income tax returns.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled.
CASH FLOW INFORMATION
For purposes of reporting cash flows, the Company considers cash and due from
banks and federal funds sold to be cash and cash equivalents.
RECLASSIFICATION
Certain reclassifications have been made to the prior year amounts to conform to
the present year presentation.
STOCK OPTIONS
The Corporation accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the Company
adopted Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation,
which permits entities to expense the fair value of stock-based awards, as
measured on the date of grant, over their vesting period. Alternatively, SFAS
123 also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma net income per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS 123.
NEW ACCOUNTING STANDARDS
Effective April 1, 1999, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
standards for derivative instruments embedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value.
NOTE 3--EARNINGS PER SHARE
Basic earnings per share data is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share gives effect to the increase in the average shares
outstanding which would have resulted from the exercise of dilutive stock
options and warrants. All share and per share calculations have been adjusted to
give retroactive effect to a 3 for 1 stock split effective September 29, 1999.
44
<PAGE> 47
ENTEBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of basic earnings per share are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
BASIC
Net income attributable to
common shareholders' equity $ 3,820,185 $ 3,010,774 $ 2,222,544
============== ============== ==============
Weighted average common
shares outstanding 7,135,697 7,052,289 6,286,077
============== ============== ==============
Basic earnings per share $ 0.54 $ 0.43 $ 0.35
==== ==== ====
The components of diluted earnings per share are as follows:
1999 1998 1997
-------------- -------------- --------------
DILUTED
Net income attributable to
common shareholders' equity $ 3,820,185 $ 3,010,774 $ 2,222,544
============== ============== ==============
Weighted average common
shares outstanding 7,135,697 7,052,289 6,286,077
Stock options 569,103 492,531 388,824
-------------- -------------- --------------
Diluted weighted average
common shares outstanding $ 7,704,800 $ 7,544,820 $ 6,674,901
============== ============== ==============
Diluted earnings per share $ 0.50 $ 0.40 $ 0.33
==== ==== ====
</TABLE>
NOTE 4--REGULATORY RESTRICTIONS
The Company's subsidiary bank is subject to regulations by regulatory
authorities, which require the maintenance of minimum capital standards, which
may affect the amount of dividends the Company's subsidiary bank can pay.
At December 31, 1999 and 1998, approximately $849,000 and $8,001,000,
respectively, of cash and due from banks represented required reserves on
deposits maintained by the Bank in accordance with Federal Reserve Bank
requirements. During 1999, the Company restructured its deposit categories to
reduce the required reserves.
45
<PAGE> 48
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 5--INVESTMENTS IN DEBT AND EQUITY SECURITIES
A summary of the amortized cost and estimated fair value of debt and equity
securities classified as available for sale at December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
U. S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 22,791,596 $ 612 $ 106,836 $ 22,685,372
Federal Home Loan Bank stock 1,122,200 -- -- 1,122,200
-------------- -------------- -------------- ---------------
$ 23,913,796 $ 612 $ 106,836 $ 23,807,572
============== ============== ============== ===============
<CAPTION>
1998
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
U. S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 44,704,739 $ 24,142 $ 8,054 $ 44,720,827
Federal Home Loan Bank stock 871,500 -- -- 871,500
-------------- -------------- -------------- ---------------
$ 45,576,239 $ 24,142 $ 8,054 $ 45,592,327
============== ============== ============== ===============
</TABLE>
The amortized cost and estimated fair value of debt and equity securities
classified as available for sale at December 31, 1999, by contractual maturity,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
-------------- ---------------
<S> <C> <C>
Due in one year or less $ 18,823,017 $ 18,729,091
Due after one year through five years 3,968,579 3,956,281
Securities with no stated maturity 1,122,200 1,122,200
-------------- ---------------
$ 23,913,796 $ 23,807,572
============== ===============
</TABLE>
A summary of the amortized cost and estimated fair value of debt and equity
securities classified as held to maturity at December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 23,538 $ 44 $ -- $ 23,582
Municipal bonds 656,268 353 3,352 653,269
-------------- -------------- -------------- ---------------
$ 679,806 $ 397 $ 3,352 $ 676,851
============== ============== ============== ===============
<CAPTION>
1998
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 30,106 $ 245 $ -- $ 30,351
Municipal bonds 668,503 5,908 39 674,372
-------------- -------------- -------------- ---------------
$ 698,609 $ 6,153 $ 39 $ 704,723
============== ============== ============== ===============
</TABLE>
46
<PAGE> 49
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The amortized cost and estimated fair value of debt and equity securities
classified as held to maturity at December 31, 1999, by contractual maturity,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---- ----------
<S> <C> <C>
Due in one year or less $ 150,670 $ 150,283
Due after one year through five years 505,598 502,986
Mortgage-backed securities 23,538 23,582
-------------- ---------------
$ 679,806 $ 676,851
============== ===============
</TABLE>
There were no sales of investments in debt and equity securities in 1999, 1998
or 1997. Debt and equity securities having a carrying value of $4,362,575 and
$6,941,888 at December 31, 1999 and 1998, respectively, were pledged as
collateral to secure public deposits and for other purposes as required by law.
As a member of the Federal Home Loan Bank system administered by the Federal
Housing Finance Board, the Bank is required to maintain an investment in the
capital stock of the Federal Home Loan Bank of Des Moines (FHLB) in an amount
equal to the greater of 1% of the aggregate outstanding balance of loans secured
by dwelling units at the beginning of each year or .3% of its total assets. The
FHLB stock is recorded at cost which represents redemption value.
In connection with the adoption of SFAS 133, the Company elected to reclassify
an equity investment from held-to-maturity to trading. The Company recorded a
$197,546 gain on marking the asset to market during the second quarter of 1999,
which is treated as a cumulative effect of change in accounting principle. In
the fourth quarter of 1999 the Company obtained a purchase agreement for the for
the equity investment which resulted in a $202,454 gain in the fair value. This
gain was recognized as noninterest income. The asset was subsequently sold on
February 2, 2000 for $910,500.
NOTE 6--LOANS
A summary of loans by category at December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Commercial and industrial $ 99,646,173 $ 81,346,004
Loans secured by real estate 212,304,020 179,959,303
Other 73,195,370 12,609,494
--------------- --------------
385,145,563 273,914,801
Less unearned loan fees 43,804 97,279
--------------- --------------
$ 385,101,759 $ 273,817,522
=============== ==============
</TABLE>
The breakdown of loans secured by real estate at December 31, 1999 and 1998 is
as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Business and personal loans $ 68,065,594 $ 65,011,812
Income-producing properties 67,443,642 55,283,273
Owner-occupied properties 21,946,035 10,628,492
Real estate development properties 54,848,749 49,035,726
--------------- --------------
$ 212,304,020 $ 179,959,303
=============== ==============
</TABLE>
The Company's subsidiary bank grants commercial, residential, and consumer
loans throughout its service area, which consists primarily of the immediate
area in which the Bank is located. The Company has a diversified loan portfolio,
with no particular concentration of credit in any one economic sector; however,
a substantial portion of the portfolio is concentrated in and secured by real
estate. The ability of the Company's borrowers to honor their contractual
obligations is dependent upon the local economy and its effect on the real
estate market.
47
<PAGE> 50
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Following is a summary of activity for the year ended December 31, 1999 of
loans to executive officers and directors or to entities in which such
individuals had beneficial interests as a shareholder, officer, or director.
Such loans were made in the normal course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other customers and did not involve more than
the normal risk of collectibility.
<TABLE>
<S> <C>
Balance, January 1, 1999 $ 7,633,721
New loans 24,047,408
Payments and other reductions (3,716,500)
---------------
Balance, December 31, 1999 $ 27,964,629
===============
</TABLE>
A summary of activity in the allowance for loan losses for the years ended
December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $ 3,200,000 $ 2,510,000 $ 1,765,000
Provisions charged to operations 1,021,256 710,899 775,064
Loans charged off (19,243) (48,854) (161,799)
Recoveries of loans previously
charged off 32,987 27,955 131,735
----------------- --------------- ---------------
Balance at end of year $ 4,235,000 $ 3,200,000 $ 2,510,000
================= =============== ===============
</TABLE>
A summary of impaired loans, which include nonaccrual loans, at December 31,
1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Nonaccrual loans $ 293,750 $ 2,000 $ 50,000
Impaired loans continuing
to accrue interest 770,455 1,084,658 916,803
------------- ------------ -------------
Total impaired loans $ 1,064,205 $ 1,086,658 $ 966,803
============= ============ =============
Allowance for losses on specific
impaired loans $ 245,095 $ 157,870 $ 191,804
Impaired loans with no related
allowance for loan losses -- -- --
Average balance of impaired
loans during the year $ 1,034,744 $ 915,260 $ 563,943
============= ============ =============
</TABLE>
If interest on nonaccrual loans had been accrued, such income would have been
$6,953, $31 and $1,537 for the years ended December 31, 1999, 1998 and 1997,
respectively. The amount recognized as interest income on nonaccrual loans was
$10,621, $138 and $4,864 for the years ended December 31, 1999, 1998 and 1997,
respectively. The amount recognized as interest income on impaired loans
continuing to accrue interest was $125,097, $126,355 and $94,801 for the years
ended December 31, 1998, 1997 and 1996, respectively.
48
<PAGE> 51
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7--OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
A summary of office equipment and leasehold improvements at December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
Data processing equipment $ 1,325,003 $ 903,851
Furniture, fixtures and equipment 2,439,009 2,299,995
Leasehold improvements 1,825,613 1,633,585
Automobile 29,023 29,023
----------------- ----------------
5,618,648 4,866,454
Less accumulated depreciation
and amortization 2,390,392 1,803,331
----------------- ----------------
Office equipment and leasehold improvements, net $ 3,228,256 $ 3,063,123
================= ================
</TABLE>
Depreciation and amortization of office equipment and leasehold improvements
included in occupancy expense amounted to $592,101 in 1999, $488,790 in 1998 and
$311,132 in 1997.
All of the Company's banking facilities are leased under agreements that expire
in various years through 2016. The Company's aggregate rent expense totaled
$814,538, $749,086 and $436,524 in 1999, 1998 and 1997, respectively, and
sublease rental income totaled $60,550, $42,816 and $35,422 in 1999, 1998 and
1997, respectively. The Company leases its Clayton facility from a partnership
in which a director and an officer have an ownership interest.
The future aggregate minimum rental commitments required under the leases are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
2000 $1,034,379
2001 1,043,145
2002 1,053,740
2003 1,019,589
2004 955,437
2005 and thereafter 3,784,092
</TABLE>
For leases which renew or are subject to periodic rental adjustments, the
monthly rental payments will be adjusted based on then current market conditions
and rates of inflation.
NOTE 8--INVESTMENT IN ENTERPRISE FUND, L.P.
The Company and its subsidiaries have a combined 10% interest in a limited
liability small business investment partnership, The Enterprise Fund L.P., for
which a subsidiary of the company serves as the general partner. The Company has
no additional future capital commitments. The Company had a total commitment of
$1,005,000. The Company had made contributions of $502,500 and was released from
any future capital commitments with the restructuring of the Merchant Banking
Business. This investment, which is accounted for using the equity method of
accounting, had a carrying value of $546,710 and $424,484 at December 31, 1999
and 1998, respectively.
NOTE 9--FEDERAL HOME LOAN BANK ADVANCES
During 1998, the Bank maintained a $2 million line of credit from the Federal
Home Loan Bank of Des Moines. The Bank chose not to renew the line of credit at
the maturity date in February 1999. As a member of the Federal Home Loan Bank,
the Bank has access to Federal Home Loan Bank advances. Federal Home Loan Bank
advances are secured under a blanket agreement which assigns all Federal Home
Loan Bank stock, and one to four family mortgage loans equal to 130% of the
outstanding balance.
49
<PAGE> 52
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes the type, term and rate of the Company's Federal
Home Loan Bank advances at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding
Type of Advance Balance Issue Date Term Rate
- --------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Long term non-amortized advance $3,000,000 10/05/98 3 years 4.68%
Long term non-amortized advance 3,000,000 10/05/98 5 years 4.72
Mortgage matched advance 481,864 02/15/99 15 years 5.62
Mortgage matched advance 194,470 04/22/99 15 years 6.15
Mortgage matched advance 244,052 05/14/99 15 years 6.32
----------
Total Federal Home Loan Bank Advances $6,920,386 05/14/99 15 years 6.32%
==========
</TABLE>
NOTE 10--MATURITY OF CERTIFICATES OF DEPOSIT
Following is a summary of certificates of deposit maturities at December 31,
1999:
<TABLE>
<CAPTION>
$100,000
Maturity Period and Over Other Total
--------------- -------------- ------------- -------------
<S> <C> <C> <C>
Less than 1 year $ 49,509,046 $ 73,784,584 $ 123,293,630
Greater than 1 year and less than 2 years 6,507,132 8,770,941 15,278,073
Greater than 2 years and less than 3 years 100,000 912,932 1,012,932
Greater than 3 years and less than 4 years 205,000 1,212,280 1,417,280
Greater than 4 years and less than 5 years -- 78,399 78,399
Over 5 years -- 26,321 26,321
-------------- ------------- -------------
$ 56,321,178 $ 84,785,457 $ 141,106,635
============== ============= =============
</TABLE>
NOTE 11--NOTE PAYABLE
In March 1999, the Company obtained a $2,500,000 unsecured bank line of credit.
In July 1999, the Company increased the line to $5,000,000. The line of credit
matures on March 31, 2000 and is an interest only note, accruing interest at a
variable rate of Prime minus 0.50%. The Company used a portion of the proceeds
from the Preferred Securities offering to pay off the $5,000,000 outstanding
balance on the note. On October 22, 1999 the Company reduced the line of credit
to $2,000,000 and paid off the remaining balance on October 22, 1999. For the
year ended December 31, 1999, the average balance and maximum month-end balance
of the note payable were $1,029,167 and $5,000,000, respectively. The Company
had no outstanding principal balance on the loan as of December 31, 1999.
As an extra safety liquidity precaution to shareholders and customers, the
Company obtained a secured line of credit from the Federal Reserve Bank of St.
Louis under a Y2K program. As of December 31, 1999, $109,567,935 was available
under this line. The Company did not draw on the line for any reason as it did
not experience any unusual liquidity demands with the rollover to the Year 2000.
NOTE 12--INCOME TAXES
The components of income tax expense (benefit) for the years ended December 31,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
Current:
<S> <C> <C> <C>
Federal $ 2,347,084 $ 1,821,571 $ 1,407,463
State and local 389,987 289,415 217,479
Deferred (492,667) (260,711) (308,352)
----------------- ----------------- -----------------
$ 2,244,404 $ 1,850,275 $ 1,316,590
================= ================= =================
</TABLE>
50
<PAGE> 53
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of expected income tax expense, computed by applying the
statutory federal income tax rate of 34% in 1999, 1998 and 1997, to income
before income taxes and the amounts reflected in the consolidated statements of
income is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income tax expense at statutory rate $ 2,020,653 $ 1,652,757 $ 1,203,306
Increase (reduction) in income taxes
resulting from:
Tax-exempt income (75,868) (55,510) (31,828)
State and local income tax
expense 257,391 191,014 143,536
Other, net 42,228 62,014 1,576
----------------- ----------------- -----------------
Total tax expense $ 2,244,404 $ 1,850,275 $ 1,316,590
================= ================= =================
</TABLE>
A net deferred income tax asset of $1,567,339 and $1,033,086 is included in
prepaid expenses and other assets in the consolidated balance sheets at December
31, 1999 and 1998, respectively. The tax effect of temporary differences that
gave rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses $ 1,480,735 $ 1,098,172
Unrealized losses on securities
available for sale 36,116 --
Deferred compensation 134,192 --
Other -- 8,297
---------------- ---------------
Total deferred tax assets 1,651,043 1,106,469
---------------- ---------------
Deferred tax liabilities:
Deferred loan fees 775 1,709
Office equipment and leasehold
improvements 81,557 66,204
Unrealized gains on securities
available for sale -- 5,470
Other 1,372 --
---------------- ---------------
Total deferred tax liabilities 83,704 73,383
---------------- ---------------
Net deferred tax asset $ 1,567,339 $ 1,033,086
================ ===============
</TABLE>
A valuation allowance would be provided on deferred tax assets when it is more
likely than not that some portion of the assets will not be realized. The
Company has not established a valuation allowance as of December 31, 1999, due
to management's belief that all criteria for recognition have been met,
including the existence of a history of taxes paid sufficient to support the
realization of the deferred tax assets.
NOTE 13-- REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possible additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification 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 Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1
capital to average assets. Management believes, as of December 31, 1999, that
the Bank meets all
51
<PAGE> 54
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to risk
weighted assets)
Enterbank Holdings, Inc. $ 48,068,793 11.82% $ 32,538,625 8.00% $ 40,673,282 10.00%
Enterprise Bank 41,215,654 10.22 32,253,615 8.00 40,317,018 10.00
Tier 1 Capital (to risk
weighted assets)
Enterbank Holdings, Inc. $ 43,833,793 10.78% $ 16,269,313 4.00% $ 24,403,969 6.00%
Enterprise Bank 36,980,654 9.17 16,126,807 4.00 24,190,211 6.00
Tier 1 Capital (to average
assets)
Enterbank Holdings, Inc. $ 43,833,793 10.74% $ 12,248,031 3.00% $ 20,413,385 5.00%
Enterprise Bank 36,980,654 9.09 12,201,701 3.00 20,336,168 5.00
As of December 31, 1998:
Total Capital (to risk
weighted assets)
Enterbank Holdings, Inc. $ 32,400,862 10.97% $ 23,618,397 8.00% $ 29,522,997 10.00%
Enterprise Bank 30,809,159 10.48 23,520,774 8.00 29,400,967 10.00
Tier 1 Capital (to risk
weighted assets)
Enterbank Holdings, Inc. $ 29,200,862 9.89% $ 11,809,199 4.00% $ 17,713,798 6.00%
Enterprise Bank 27,609,159 9.39 11,760,387 4.00 17,640,580 6.00
Tier 1 Capital (to average
assets)
Enterbank Holdings, Inc. $ 29,200,862 9.16% $ 9,558,703 3.00% $ 15,931,172 5.00%
Enterprise Bank 27,609,159 8.69 9,526,209 3.00 15,877,015 5.00
</TABLE>
NOTE 14--GUARANTEED PREFERRED BENEFICIAL INTEREST IN EBH-SUBORDINATED DEBENTURES
On October 25, 1999, EBH Capital Trust I ("EBH Trust"), a newly-formed Delaware
business trust subsidiary of Enterbank Holdings, issued 1,375,000 shares of
9.40% Cumulative Trust Preferred Securities ("Preferred Securities") at $8 per
share in an unwritten public offering.
The debentures are the sole asset of EBH Trust. In connection with the issuance
of the Preferred Securities, Enterbank Holdings made certain guarantees and
commitments that, in the aggregate, constitute a full and unconditional
guarantee by Enterbank Holdings of the obligations of EBH Trust under the
Preferred Securities. Enterbank Holdings' proceeds from the issuance of the
Subordinated Debentures to EBH Trust, net of underwriting fees and offering
expenses, were $10.28 million. The Trust Preferred Securities are classified as
debt for reporting purposes a capital for regulatory reporting purposes.
NOTE 15--SHAREHOLDERS' EQUITY
On February 14, 1997, the Company completed a stock offering of 1,354,836
shares of common stock registered under the Securities Act of 1933 on Form S-1.
These shares were offered to the public at $5.17 per share. The offering allowed
for the sale of a minimum of 580,644 shares or $3,000,000, and a maximum of
1,354,836 shares
52
<PAGE> 55
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
or $7,000,000 in common stock. The maximum number of shares were sold at $5.17
per share.
As part of the organization of Financial Advisors, the Company entered into
solicitation and referral agreements with Moneta Group, Inc. (Moneta). These
agreements call for Moneta to provide planning services for Financial Advisors'
customers. Moneta will refer customers, when appropriate, to the Bank and
receive a share of the revenue generated in the form of options in the Company's
common stock. The agreements with Moneta also allow Financial Advisors to
immediately begin offering a full range of products and services with the depth
and expertise of a large planning firm. Financial Advisors will continue to
expand products and services available to customers as the division develops.
On October 31, 1997, the Company completed a private placement of its common
stock of 392,820 shares of common stock exempt from registration under the
Securities Act of 1933 pursuant to Regulation D thereunder. These shares were
offered a $5.58 per share. These shares were offered in a private sale to Moneta
principals related to the previously mentioned agreements with Moneta. The
offering allowed for the sale of minimum of 179,103 shares, or $1,000,000, and a
maximum of 394,029 shares, or $2,200,000, in common stock. The Company sold
392,820 shares at $5.58 per share.
On September 29, 1999 the Company completed a 3 for 1 stock split in the form
of a stock dividend. All share and per share data have been restated to reflect
this stock split.
NOTE 16--COMPENSATION PLANS
STOCK OPTIONS PLANS
At December 31, 1999, the Company had four qualified incentive stock option
plans for the benefit of the employees of Enterbank Holdings and it's
subsidiaries. Plan I was adopted on April 20, 1988 with 432,000 options. As of
December 31, 1999, Plan I had 30,000 options outstanding and no options
available for future grant. Plan II was adopted on April 25, 1990 with 225,000
options. Plan II had 214,200 options outstanding and no options available for
grant. Plan III was adopted on June 19, 1996 with 600,000 options. Plan III has
556,800 options outstanding and 41,400 options available for future grants. Plan
IV was adopted on April 28, 1999 with 600,000 options Plan IV has no options
outstanding and 600,000 available for future grants.
In 1998, the Company adopted by Board Approval a nonqualified stock option plan
("the Nonqualified Plan"), which sets aside up to 105,000 shares of company
Common Stock to grant options to certain key employees of the Company or any of
its subsidiaries. There are limitations as to the number of options which my be
granted to any individual and additional restrictions for options which may be
granted to any individual who is also a ten percent shareholder. The purchase
price for any options granted under the Nonqualified Plan will be determined
based upon the market value of the Common Stock at the time such options are
granted. At December 31, 1999, the Nonqualified Plan had 84,000 options
outstanding and 21,000 options available for future grants.
53
<PAGE> 56
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Following is a summary of the various stock option plan transactions:
<TABLE>
<CAPTION>
Number Price
of shares per share Total
--------- -------------- ------------
<S> <C> <C> <C>
December 31, 1996 639,000 $ 1.67 - 3.08 $ 1,251,500
Granted 606,000 5.33 - 5.58 3,233,500
Exercised 160,500 1.67 267,500
Forfeited 25,500 5.33 136,000
--------- -------------- ------------
December 31, 1997 1,059,000 $ 1.67 -5.58 $ 4,081,500
Granted 86,400 8.33-10.67 863,425
Exercised 220,275 1.67-5.33 385,525
Forfeited 36,000 3.08-5.33 186,600
--------- -------------- ------------
December 31, 1998 889,125 $ 1.67 -10.67 $ 4,372,800
Granted 33,600 10.33-15.17 386,280
Exercised 28,125 1.67-5.33 69,674
Forfeited 9,600 5.33 51,200
--------- -------------- ------------
December 31, 1999 885,000 $ 1.67-15.17 $ 4,638,204
========= ============== ============
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method contained in
SFAS No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ------------
<S> <C> <C> <C>
Net income
As reported $ 3,820 $ 3,011 $ 2,222
Pro forma 3,527 2,762 2,025
Earnings per share:
Basic:
As reported $ 0.54 $ 0.43 $ 0.35
Pro forma 0.49 0.39 0.32
Diluted:
As reported $ 0.50 $ 0.40 $ 0.33
Pro forma 0.46 0.37 0.30
</TABLE>
The fair value of each option granted in 1999 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions; a risk-free interest rate of 4.72%, 5.18%, 5.79% and 6.11% for
January, April, July and October, respectively; a dividend yield of 0.67%;
vesting period for 5 years; expected lives of 10 years; and volatility of
24.13%. The weighted average fair value of the options granted in 1999 was
$4.93.
The fair value of each option granted in 1998 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: a risk-free interest rate of 5.50%, 5.46%, 5.40% and 4.67% for
February, June, August and September, respectively; a dividend yield of 0.67%;
vesting period for 5 years; expected lives of 10 years; and volatility of
27.23%. The weighted average fair value of the options granted in 1998 was
$4.56.
On April 1, 1999, the Company adopted a Stock Appreciation Rights ("SAR") Plan.
This Plan replaces the previous form of cash compensation for directors of the
Company and its subsidiaries and awards/vests based upon attendance and unit
performance. Under the plan, the Company has the option to pay vested SARs
either in the form of cash or Enterbank Common Stock. As of December 31, 1999
there were 88,800 SARs outstanding.
54
<PAGE> 57
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective January 1, 1993, the company adopted a 401(k) thrift plan which
covers substantially all full-time employees over the age of 21. The amount
charged to expense for contributions to the plan was $170,152 for 1999, $153,621
for 1998, and $78,948 for 1997.
NOTE 17--LITIGATION
Various legal claims have arisen during the normal course of business which, in
the opinion of management, after discussion with legal counsel, will not result
in any material liability.
NOTE 18--DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Bank issues financial instruments with off-balance-sheet risk in the normal
course of the business of meeting the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments may involve, to varying degrees, elements of credit
and interest-rate risk in excess of the amounts recognized in the consolidated
balance sheets.
The Company's extent of involvement and potential exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the
contractual amount of these instruments. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for financial
instruments included on its balance sheets.
The contractual amount of off-balance-sheet financial instruments as of
December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Commitments to extend credit $ 221,296,117 $ 164,012,297
Standby letters of credit 12,002,773 10,368,944
============= ============
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
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. Of the total commitments to extend credit at December
31, 1999, approximately $12,363,487 represents fixed rate loan commitments.
Since certain of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the borrower. Collateral
held varies, but may include accounts receivable, inventory, premises and
equipment, and real estate.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These standby letters
of credit are primarily issued to support contractual obligations of Bank
customers. The credit risk involved in issuing letters of credit is essentially
the same as the risk involved in extending loans to customers.
SFAS 107, Disclosures about Fair Value of Financial Instruments, extends
existing fair value disclosure for some financial instruments by requiring
disclosure of the fair value of such financial instruments, both assets and
liabilities recognized and not recognized in the consolidated balance sheets.
55
<PAGE> 58
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Following is a summary of the carrying amounts and fair values of the Company's
financial instruments on the consolidated balance sheets at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Amount fair value Amount fair value
<S> <C> <C> <C> <C>
Balance sheet assets:
Cash and due from banks $ 14,798,216 $ 14,798,216 $ 29,701,018 $ 29,701,017
Federal funds sold 54,825,000 54,825,000 14,250,000 14,250,000
Interest-bearing deposits 469 469 5,035 5,035
Investments in securities 25,397,378 25,394,423 46,290,936 46,297,050
Loans held for sale 1,438,335 1,438,335 6,272,124 6,362,197
Loans, net 380,866,759 384,490,862 270,617,522 270,920,794
Accrued interest receivable 2,473,781 2,473,781 1,648,775 1,648,775
================ =============== ================ ===============
Balance sheet liabilities:
Deposits $ 435,797,830 $ 436,129,197 $ 339,180,170 $ 339,696,164
FHLB advances 6,920,386 6,925,250 6,000,000 6,004,397
Guaranteed preferred
beneficial interests in EBH
subordinated debentures 11,000,000 11,000,000 -- --
Accrued interest payable 962,205 962,205 608,056 608,056
================ =============== ================ ===============
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate such
value:
CASH AND OTHER SHORT-TERM INSTRUMENTS
For cash and due from banks, federal funds sold, and accrued interest
receivable (payable), the carrying amount is a reasonable estimate of fair
value, as such instruments reprice in a short time period.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Fair values are based on quoted market prices or dealer quotes.
LOANS HELD FOR SALE
Loans held for sale are recorded at the lower of cost or fair value, using the
specific identification method.
LOANS
The fair value of adjustable-rate loans approximates cost. The fair value of
fixed-rate loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
DEPOSITS
The fair value of demand deposits, interest-bearing transaction accounts, money
market accounts and savings deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.
FEDERAL HOME LOAN BANK ADVANCES
The fair value of Federal Home Loan Bank advances is based on the discounted
value of contractual cash flows. The discount rate is estimated using rates on
borrowed money with similar remaining maturities.
56
<PAGE> 59
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN EBH SUBORDINATED DEBENTURES
Fair value of guaranteed preferred beneficial interests in EBH subordinated
debentures is assumed to equal carrying amount since the offering was completed
in the fourth quarter of 1999.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit and standby letters of credit
are estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements, the likelihood of the
counterparties drawing on such financial instruments, and the present
creditworthiness of such counterparties. The Company believes such commitments
have been made on terms which are competitive in the markets in which it
operates; however, no premium or discount is offered thereon and accordingly,
the Company has not assigned a value to such instruments for purposes of this
disclosure.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are 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 are based on existing on- and off-balance-sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. 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 many of the estimates.
NOTE 19-LINE OF BUSINESS RESULTS
Management of the Company reviews the financial performance of its operating
segments on an after-tax basis. The company's three major operating segments in
1999 include Enterbank Holdings, Enterprise Bank and Enterprise Merchant Banc.
Enterbank Holdings includes general corporate expenses not allocated to the
operating segments as well as assets and income items related to EBH Trust.
Enterprise Bank provides a full range of commercial banking services. These
services include but are not limited to loans, demand and interest earning
accounts, safe deposit boxes, lock boxes and cash management services.
Enterprise Financial Advisors, a division of Enterprise Bank, offers financial
planning and trust services. The Merchant Banc segment offers merchant banking
and venture capital services. Following are the financial results for the
Company's operating segments.
57
<PAGE> 60
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Enterbank Enterprise Bank Enterprise
Holdings Financial
Advisors
<S> <C> <C> <C>
For the year ended December 31, 1999
Interest income $ -- $ 32,136,909 $ --
Interest expense 265,265 14,086,864 --
Net interest margin (265,265) 18,050,045 --
Provision for loan losses -- 1,021,256 --
Gross income prior to direct expenses 199,859 1,618,766 789,236
Direct expenses -- -- 140,572
Noninterest income 199,859 1,618,766 648,664
Noninterest expense 873,176 10,937,845 1,107,373
Income (loss) before income tax expense
(benefit) (938,582) 7,709,710 (458,709)
Income tax expense (benefit) (268,458) 2,870,422 (192,911)
-------- --------- --------
Income (loss) before cumulative effect of a
change in accounting principle (670,124) 4,839,288 (265,798)
Cumulative effect on prior years of a
change in asset classification 121,491 -- --
----------- ------------ ----------
Net income (loss) $ (548,633) $ 4,839,288 $ (265,798)
=========== ============ ==========
Total Assets $17,541,430 $484,731,647 $ 47,622
----------- ------------ ----------
For the year ended December 31, 1998
Interest income $ -- $ 25,414,269 --
Interest expense -- 11,869,335 --
Net interest margin -- 13,544,934 --
Provision for loan losses 710,899 --
Gross income prior to direct expenses 13,670 1,636,215 6,983
Direct expenses -- -- 717
Noninterest income 13,670 1,636,215 6,266
Noninterest expense 8,337,970 208,419
Income (loss) before income tax expense
(benefit) (901,876) 6,132,280 (202,153)
Income tax expense (benefit) 2,301,744 (75,000)
----------- ------------ ----------
Income (loss) before cumulative effect of
a change in accounting principle (587,402) 3,830,536 (127,153)
Cumulative effect on prior years of
a change in asset classification -- -- --
Net income (loss) 3,830,536 (127,153)
=========== ============ ==========
Total Assets $ 1,465,870 $374,052,914 $ 2,057
----------- ------------ ----------
For the year ended December 31, 1997
Interest income $ -- $ 18,759,029 $ --
Interest expense 8,580,451 --
Net interest margin (2,888) 10,178,578 --
Provision for loan losses 775,064 --
Gross income prior to direct expenses 13,441 300,241 --
Direct expenses -- -- --
Noninterest income 13,441 300,241 --
Noninterest expense 5,417,758 --
Income (loss) before income tax expense
(benefit) (732,018) 4,285,997
Income tax expense (benefit) 1,605,229 --
----------- ------------ ----------
Income (loss) before cumulative effect of a
change in accounting principle (449,124) 2,680,768 --
Cumulative effect on prior years of a
change in asset classification -- -- --
----------- ------------ ----------
Net income (loss) (449,124) 2,680,768 --
=========== ============ ==========
Total Assets $ 2,605,055 $290,505,483 $ --
----------- ------------ ----------
<CAPTION>
Merchant Banc Eliminations Consolidated
<S> <C> <C> <C>
For the year ended December 31, 1999
Interest income $ 10 $ (10) $ 32,136,909
Interest expense -- (10) 14,352,119
Net interest margin 10 -- 17,784,790
Provision for loan losses -- -- 1,021,256
Gross income prior to direct expenses 98,447 -- 2,706,308
Direct expenses -- -- 140,572
Noninterest income 98,447 -- 2,565,736
Noninterest expense 467,778 -- 13,386,172
Income (loss) before income tax expense
(benefit) (369,321) -- 5,943,098
Income tax expense (benefit) (164,649) -- 2,244,404
Income (loss) before cumulative effect of a ------------- ------------- --------------
change in accounting principle (204,672) -- 3,698,694
Cumulative effect on prior years of a
change in asset classification -- -- 121,491
------------- ------------- --------------
Net income (loss) $ (204,672) $ -- $ 3,820,185
============= ============= ==============
Total Assets $ 979,970 $ (15,299,225) $ 488,001,444
------------- ------------- --------------
For the year ended December 31, 1998
Interest income $ 4 $ (4) $ 25,414,269
Interest expense -- (4) 11,869,331
Net interest margin 4 -- 13,544,938
Provision for loan losses -- -- 710,899
Gross income prior to direct expenses 422,561 -- 2,079,429
Direct expenses -- -- 717
Noninterest income 422,561 -- 2,078,712
Noninterest expense 589,767 -- 10,051,702
Income (loss) before income tax expense
(benefit) (167,202) -- 4,861,049
Income tax expense (benefit) (61,995) -- 1,850,275
------------- ------------- --------------
Income (loss) before cumulative effect of
a change in accounting principle (105,207) -- 3,010,774
Cumulative effect on prior years of
a change in asset classification -- -- --
Net income (loss) (105,207) -- 3,010,774
============= ============= ==============
Total Assets $ 425,291 $ (642,214) $ 375,303,918
------------- ------------- --------------
For the year ended December 31, 1997
Interest income $ 1,109 $ (1,109) $ 18,759,029
Interest expense -- (1,109) 8,582,230
Net interest margin 1,109 -- 10,176,799
Provision for loan losses -- -- 775,064
Gross income prior to direct expenses 162,293 -- 475,975
Direct expenses -- -- --
Noninterest income 162,293 -- 475,975
Noninterest expense 178,247 -- 6,338,576
Income (loss) before income tax expense
(benefit) (14,845) -- 3,539,134
Income tax expense (benefit) (5,745) -- 1,316,590
------------- ------------- --------------
Income (loss) before cumulative effect of a
change in accounting principle (9,100) -- 2,222,544
Cumulative effect on prior years of a
change in asset classification -- -- --
------------- ------------- --------------
Net income (loss) (9,100) -- 2,222,544
============= ============= ==============
Total Assets $ 134,799 $($25,392,992) $ 291,364,856
------------- ------------- --------------
</TABLE>
58
<PAGE> 61
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As demonstrated in the table, Enterprise Bank experienced asset growth of $113
million during 1999 and $83.5 million during 1998. The bank is also providing a
majority of the income for the Company. The Merchant Banc had increased activity
in 1999 and 1998 with the opening of the Kansas office. Enterbank Holdings has
some assets in the form of small investments and the $11 million in Trust
Preferred Securities. Enterbank Holdings also has noninterest expenses related
to items for the consolidated entity.
NOTE 20--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
--------------------------------------
Assets 1999 1998
------ ---------------- ----------------
<S> <C> <C>
Cash $ 3,886,277 $ 437,727
Investment in Enterprise Bank 36,910,546 27,619,778
Investment in Enterprise Merchant Banc 1,221,542 403,089
Investment in Enterprise Fund, L.P. 546,710 380,129
Other assets 1,768,235 648,014
---------------- ---------------
Total assets $ 44,333,310 $ 29,488,737
================ ===============
Liabilities and Shareholders' Equity
Accounts payable and other liabilities $ 569,625 $ 248,608
Guaranteed preferred beneficial interests
in EBH-subordinated debentures 11,000,000 $ --
Shareholders' equity 32,763,685 29,240,129
----------------- ----------------
Total liabilities and shareholders' equity $ 44,333,310 $ 29,488,737
================= ================
Condensed Statements of Income
<CAPTION>
December 31,
--------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Income:
Gain on trading asset $ 202,454 $ -- $ --
Other income 5,168 13,670 13,441
--------- --------- ---------
Total income 207,622 13,670 13,441
--------- --------- ---------
Expenses:
Loss on investment in Enterprise Fund, L.P. 7,763 1,969 4,391
Interest expense-Guaranteed preferred
debenture expense 192,468 -- --
Interest expense-notes payable 78,650 -- --
Other expenses 873,176 913,577 741,068
--------- --------- ---------
Total expenses 1,152,057 915,546 745,459
--------- --------- ---------
Loss before tax benefit and equity
in undistributed earnings of subsidiaries (944,435) (901,876) (732,018)
Income tax benefit 268,458 314,474 282,894
--------- --------- ---------
Loss before equity in undistributed
earnings of subsidiaries (675,977) (587,402) (449,124)
--------- --------- ---------
Equity in undistributed earnings of subsidiaries 4,374,671 3,598,176 2,671,668
Cumulative effect on prior years of a change in
asset classification 121,491 -- --
--------- --------- ---------
Net income $3,820,185 $3,010,774 $ 2,222,544
========= ========= =========
</TABLE>
59
<PAGE> 62
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Statements of Cash Flow
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1999 1998 1997
-------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 3,820,185 $ 3,010,774 $ 2,222,544
Adjustments to reconcile net income to
net cash used in operating activities:
Undistributed net income
of subsidiaries (4,374,671) (3,598,176) (2,761,668)
Other, net (967,061) 123,160 (271,854)
-------------- ------------ --------------
Net cash used in operating
activities (1,521,547) (464,242) ( 810,978)
Cash flows from investing activities:
Capital contributions to subsidiaries (5,814,000) (900,000) (6,150,000)
Investment in Enterprise Fund L.P. -- (180,000) (90,000)
-------------- ------------ --------------
Net cash used in investing activities (5,814,000) (1,080,000) (6,240,000)
Cash flows from financing activities:
Proceeds from purchased funds and other
short-term borrowings $ 5,000,000 -- --
Repayments of purchased funds and other
short-term borrowings (5,000,000) -- --
Proceeds from issuance of guaranteed
preferred subordinated debentures 11,000,000 -- --
Payment of dividends (285,577) (235,053) (195,085)
Proceeds from issuance of common stock 69,674 385,525 9,289,614
(Decrease) increase in notes payable -- -- (300,000)
------------- ------------ --------------
Net cash provided by
financing activities 10,784,097 150,472 8,794,529
Net increase(decrease) in cash and cash
equivalents 3,448,550 (1,393,770) 1,743,551
Cash and cash equivalents, beginning of year 437,727 1,831,497 87,946
------------- ------------ --------------
Cash and cash equivalents, end of year $ 3,886,277 $ 437,727 $ 1,831,497
=============== ============ ===============
</TABLE>
60
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15d of the Securities Act of 1934,
the undersigned Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Clayton,
State of Missouri, on 16th of February, 2000.
ENTERBANK HOLDINGS, INC.
By: /s/ Fred H. Eller
-----------------
Fred H. Eller
Chief Executive Office
Pursuant to the requirements of the Securities Act of 1934, this Report on Form
10-K has been signed by the following persons in the capacities and on the 16th
day of February 2000.
SIGNATURES TITLE
---------- -----
/s/ Fred H. Eller
- ---------------------------
Fred H. Eller Chief Executive Officer
and Director
/s/ Ronald E. Henges*
- ---------------------------
Ronald E. Henges Chairman of the Board
of Directors
/s/ Kevin C. Eichner
- ---------------------------
Kevin C. Eichner Vice Chairman of the
Board of Directors
/s/ Paul R. Cahn
- ---------------------------
Paul R. Cahn Director
/s/ Birch M. Mullins*
- ---------------------------
Birch M. Mullins Director
/s/ Robert E. Saur*
- ---------------------------
Robert E. Saur Director
/s/ James A. Williams*
- ---------------------------
James A. Williams Director
/s/ Henry D. Warshaw
- ---------------------------
Henry D. Warshaw Director
/s/ James L. Wilhite
- ---------------------------
James L. Wilhite Director
/s/ Ted C. Wetterau*
- ---------------------------
Ted C. Wetterau Director
/s/ Randall D. Humphreys*
- ---------------------------
Randall D. Humphreys Director
/s/ Paul L. Vogel
- ---------------------------
Paul L. Vogel Director
/s/ William B. Moskoff
- ---------------------------
William B. Moskoff Director
* By Fred H. Eller, James C. Wagner and Stacey Tate, as Attorney-in-Part
pursuant to Powers of Attorney executed by the persons listed above, which
Powers of Attorney and filed as Exhibit 24.1 hereto.
61
<PAGE> 64
/s/ James C. Wagner
- --------------------
James C. Wagner Chief Financial Officer, Treasurer
and Vice President
/s/ Fred H. Eller /s/ James C. Wagner /s/ Stacey Tate
- -------------------- ---------------------- ------------------------
Fred H. Eller James C. Wagner Stacey Tate
Attorney-in-Part Attorney-in-Part Attorney-in-Part
62
<PAGE> 65
EXHIBIT INDEX
-------------
Exhibit
No. Exhibit
--- -------
3.1 Certificate of Incorporation of the Registrant, as amended (incorporated
herein by reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form S-1 dated December 19, 1996 (File No. 333-14737)).
3.2 Amendment to the Certificates of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 dated July 1, 1999 (File No.
333-82082)).
3.3 Amendment to the Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 of the Registrant's
Quarterly Report on Form 10-Q for the period ending September 30, 1999).
3.4(1) Bylaws of the Registrant, as amended.
3.5(1) Amendment to the Bylaws of the Registrant.
4.1 Enterprise Bank Incentive Stock Option Plan (incorporated herein by
reference to Exhibit 4.3 of the Registrant's Registration Statement on
Form S-8 dated December 29, 1997 (File No. 333-43365)).
4.2 Enterprise Bank Second Incentive Stock Option Plan (incorporated herein
by reference to Exhibit 44.4 of the Registrant's Registration Statement
on Form S-8 dated December 29, 1997 (File No. 333-43365)).
4.3 Enterbank Holdings, Inc. Third Incentive Stock Option Plan (incorporated
herein by reference to Exhibit 4.5 of the Registrant's Registration
Statement on Form S-8 dated December 29, 1997 (File No. 333-43365)).
4.4 Enterbank Holdings, Inc., Qualified Incentive Stock Option Plan
(incorporated herein by reference to the Registrant's 1998 Proxy
Statement on Form 14-A).
4.5 Enterbank Holdings Stock Appreciation Rights (SAR) Plan and Agreement
(incorporated herein by reference to Exhibit 4.5 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1999).
10.2 Customer Referral Agreement by and among Enterbank Holdings, Inc.,
Enterprise Bank and Moneta Group Investment Advisors, Inc. (incorporated
herein by reference to Exhibit 10 of the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1997).
10.3 Revised Customer Referral Agreement by and among Enterbank Holdings,
Inc., Enterprise Bank and Moneta Group Investment Advisors, Inc.
(incorporated herein by reference to Exhibit 10.3 of the Registrant's
Annual Report on Form 10-K for the period ended December 31, 1998).
10.4(1) Agreement and Plan of Merger date January 5, 2000 between Enterbank
Holdings, Inc. and Commercial Guaranty Bancshares, Inc.
11.1(1) Statement regarding computation of per share earnings.
- --------
(1) Filed herewith.
63
<PAGE> 66
21.1(1) Subsidiaries of the Registrant.
23.1(1) Consent of KPMG, LLP.
24.1(1) Power of Attorney.
27.1(1) Financial Data Schedule. (EDGAR only)
- --------
(1) Filed herewith
64
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
ENTERBANK HOLDINGS, INC.
(A Delaware Corporation)
As used in these Bylaws, unless the context otherwise requires, the term:
1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "Bylaws" means the initial bylaws of the Corporation, as amended
from time to time.
1.5 "Certificate of Incorporation" means the initial certificate of
incorporation of the Corporation, as amended, supplemented or restated from
time to time.
1.6 "Corporation" means Enterbank Holdings, Inc.
1.7 "Directors" means directors of the Corporation.
1.8 "General Corporation Law" means the General Corporation Law of the
State of Delaware, as amended from time to time.
1.9 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.10 "President" means the President of the Corporation.
1.11 "Secretary" means the Secretary of the Corporation.
1.12 "Stockholders" means stockholders of the Corporation.
<PAGE> 2
1.13 "Total number of directors" means the total number of directors
determined in accordance with Section 141(b) of the General Corporation Law
and Section 3.2 of the Bylaws.
1.14 "Treasurer" means the Treasurer of the Corporation.
1.15 "Vice President" means a Vice President of the Corporation.
1.16 "Whole Board" means the total number of directors of the Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 Time and Place. All meetings of the stockholders for the
election of Directors or for any other purpose shall be held at such time and
place, within or without the State of Missouri, as shall be designated by the
Board of Directors. In the absence of any such designation by the Board of
Directors, each such meeting shall be held at the principal office of the
Corporation.
2.2 Annual Meetings. An annual meeting of stockholders shall be
held for the purpose of electing Directors and transacting such other business
as may properly be brought before the meeting. The date of the annual meeting
shall be determined by the Board of Directors.
2.3 Deferred Meeting for Election of Directors, Etc. If the annual
meeting of stockholders for the election of directors and the transaction of
other business is not held within the month specified in Section 2.2, the
Board shall call a meeting of stockholders for the election of directors and
the transaction of other business as soon thereafter as convenient.
2.4 Other Special Meetings. A special meeting of stockholders (other
than a special meeting of the election of directors), unless otherwise
prescribed by statute, may be called at any time by the President, by a
majority of the Board or upon written request of the holders of at least
fifty percent (50%) of all of the issued and outstanding shares entitled to
vote, provided they
2
<PAGE> 3
shall make written application to the Secretary stating the time, place, and
purpose or purposes, and the Secretary shall thereupon call the meeting and
issue notice as herein provided. At any special meeting of stockholders,
only such business may be transacted as is related to the purpose or purposes
of such meeting set forth in the notice thereof given pursuant to Section 2.6
of the Bylaws or in any waiver of notice thereof given pursuant to Section
2.7 of the Bylaws.
2.5 Fixing Record Date. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, or for the purpose of any other lawful action, the
Board may fix, in advance, a date as the record date for any such determination
of stockholders. Such date shall not be more than fifty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. If no such record date is fixed:
2.5.1 The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close
of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held;
2.5.2 The record date for determining stockholders entitled to
express consent to corporation action in writing without a meeting,
when no prior action by the Board is necessary, shall be the day on which
the first written consent is expressed;
3
<PAGE> 4
2.5.3 The record date for determining stockholders for any purpose
other than those specified in Sections 2.5.1 and 2.5.2 shall be at the
close of business on the day on which the Board adopts the resolution
relating thereto.
When a determination of stockholders entitled to notice of or to vote at any
meeting of stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof, unless the Board fixes
a new record date for the adjourned meeting.
2.6 Notice of Meetings of Stockholders. Except as otherwise provided in
Sections 2.5 and 2.7 of the Bylaws, whenever under the General Corporation Law
or the Certificate of Incorporation or the Bylaws, stockholders are required
or permitted to take any action at a meeting, written notice shall be given
stating the place, date and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. A copy of
the notice of any meeting shall be given, personally or by mail, not less than
ten nor more than fifty days before the date of the meeting, to each stockholder
entitled to notice of or to vote at such meeting. If mailed, such notice shall
be deemed to be given when deposited in the United States mail, with postage
prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent of the Corporation that the notice required
by this section has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken, and at the adjourned meeting any business may be transacted that might
have been transacted at the meeting as originally called. If, however, the
adjournment is for more than thirty days, or if after
4
<PAGE> 5
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.7 Waivers of Notice. Whenever notice is required to be given to any
stockholder under any provision of the General Corporation Law or the
Certificate of Incorporation or the Bylaws, a written waiver thereof, signed
by the stockholder entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a
stockholder at a meeting shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice.
2.8 List of Stockholders. The Secretary shall prepare and make, or
cause to be prepared and made, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at
least ten days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
5
<PAGE> 6
2.9 Quorum of Stockholders; Adjournment. The holders of a majority of
the shares of stock entitled to vote at any meeting of stockholders, present
in person or represented by proxy, shall constitute a quorum for the
transaction of any business at such meeting. When a quorum is once present to
organize a meeting of stockholders, it is not broken by the subsequent
withdrawal of any stockholders. The holders of a majority of the shares of
stock present in person or represented by proxy at any meeting of stockholders,
including an adjourned meeting, whether or not a quorum is present, may adjourn
such meeting to another time and place.
2.10 Voting; Proxies. Unless otherwise provided in the Certificate of
Incorporation, every stockholder of record shall be entitled at every meeting
of stockholders to one vote for each share of capital stock standing in his
name on the record of stockholders determined in accordance with Section 2.5
of the Bylaws. If the Certificate of Incorporation provides for more or less
than one vote for any share, on any matter, every reference in the Bylaws
or the General Corporation Law to a majority of other proportion of stock
shall refer to such majority or other proportion of the votes of such stock.
The provisions of Sections 212 and 217 of the General Corporation Law shall
apply in determining whether any shares of capital stock may be voted and the
persons, if any, entitled to vote such shares; but the Corporation shall be
protected in treating the persons in whose names shares of capital stock stand
on the record of stockholders as owners thereof for all purposes. At any
meeting of stockholders (at which a quorum was present to organize the
meeting), all matters, except as otherwise provided by law or by the
Certificate of Incorporation or by the Bylaws, shall be decided by a majority
of the votes cast at such meeting by the holders of shares present in person
or represented by proxy and entitled to vote thereon, whether or not a quorum
is present when the vote is taken. All elections of directors shall be by
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written ballot unless otherwise provided in the Certificate of Incorporation. In
all elections for directors, each stockholder shall have as many votes as shall
equal the number of voting shares held by such stockholder in the Corporation,
multiplied by the number of directors to be elected, and such stockholder may
cast all his votes, either in person or by proxy, for one candidate or
distribute then among two or more candidates. In voting on any other question on
which a vote by ballot is required by law or is demanded by any stockholder
entitled to vote, the voting shall be by ballot. Each ballot shall be signed by
the stockholder voting or by his proxy, and shall state the number of shares
voted. On all other questions, the voting may be by viva voce. Every stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy. The validity and enforceability of any proxy
shall be determined in accordance with Section 212 of the General Corporation
Law.
2.11 Denial of Preemptive Rights. No shareholder of the Corporation shall
have any preemptive right to subscribe for or to purchase, or to have offered
to him for subscription or purchase, any additional securities of the
Corporation.
2.12 Selection and Duties of Inspectors at Meetings of Stockholders.
The Board, in advance of any meeting of stockholders, may appoint one or more
inspectors to act at the meeting or any adjournment thereof. If inspectors
are not so appointed, the person presiding at such meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint one or
more inspectors. In case any person appointed fails to appear or act, the
vacancy may be filled by appointment made by the Board in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector,
before entering upon the discharge of his duties, shall
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take and sign an oath faithfully to execute the duties of inspector at such
meeting with strict impartiality and according to the best of his ability.
The inspector or inspectors shall determine the number of shares outstanding
and the voting power of each, the shares represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request
of the person presiding at the meeting or any stockholder entitled to vote
thereat, the inspector or inspectors shall make a report in writing of any
challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them. Any report or certificate made
by the inspector or inspectors shall be prima facie evidence of the facts
stated and of the vote as certified by him or them.
2.13 Organization. At every meeting of stockholders, the President, or
in the absence of the President, a Vice President, and in case more than one
Vice President shall be present, that Vice President designated by the Board
(or in the absence of any such designation, the most senior Vice President,
based on age, present), shall act as chairman of the meeting. The Secretary,
or in his absence one of the Assistant Secretaries, shall act as secretary
of the meeting. In case none of the officers above designated to act as
chairman or secretary of the meeting, respectively, shall be present, a
chairman or a secretary of the meeting, respectively, shall be present, a
chairman or a secretary of the meeting, as the case may be, shall be chosen
by a majority of the votes cast at such meeting by the holders of shares of
capital stock present in person or represented by proxy and entitled to vote
at the meeting.
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2.14 Order of Business. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present
may be changed by a majority of the votes cast at such meeting by the holders
of shares of capital stock present in person or represented by proxy and
entitled to vote at the meeting.
2.15 Written Consent of Stockholders Without a Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in
writing.
ARTICLE 3
DIRECTORS
3.1 General Powers. Except as otherwise provided in the Certificate of
Incorporation, the business and affairs of the Corporation shall be managed
by or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or the
Bylaws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred
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by the Bylaws, the Board may exercise all powers and perform all acts which
are not required, by the Bylaws or the Certificate of Incorporation or by law,
to be exercised and performed by the stockholders.
3.2 Number; Qualification; Term of Office. The Board shall initially
consist of four members. Thereafter, the number of directors and the classes of
directors shall be determined from time to time by the Board of Directors of
the Corporation. Directors need not be stockholders. Each director
shall hold office until his successor is elected and qualified or until his
earlier death, resignation or removal.
3.3 Election. Directors shall, except as otherwise required by law or
by the Certificate of Incorporation, be elected by a plurality of the votes
cast at a meeting of stockholders by the holders of shares entitled to vote
in the election.
3.4 Newly Created Directorships and Vacancies. Unless otherwise provided
in the Certificate of Incorporation, newly created directorships resulting from
an increase in the number of directors and vacancies occurring in the Board
for any other reason, including the removal of directors without cause, may
be filled by vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director, or may be elected by a
plurality of the votes cast by the holders of shares of capital stock entitled
to vote in the election at a special meeting of stockholders called for that
purpose. A director elected to fill a vacancy shall be elected to hold office
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
3.5 Resignations. Any director may resign at any time by written notice
to the Corporation. Such resignation shall take effect at the time therein
specified, and, unless
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otherwise specified, the acceptance of such resignation shall not be necessary
to make it effective.
3.6 Removal of Directors. Subject to the provisions of Section 141(k)
of the General Corporation Law, any or all of the directors may be removed
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
3.7 Compensation. Each director, in consideration of his service as such,
shall be entitled to receive from the Corporation such amount per annum or such
fees for attendance at directors' meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by him in connection with the performance of his duties. Each director
who shall serve as a member of any committee of directors in consideration of
his serving as such shall be entitled to such additional amount per annum or
such fees for attendance at committee meetings, or both, as the Board may
from time to time determine, together with reimbursement for the reasonable
expenses incurred by him in the performance of his duties. Nothing contained
in this section shall preclude any director from serving the Corporation or
its subsidiaries in any other capacity and receiving proper compensation
therefor.
3.8 Place and Time of Meetings of the Board. Meetings of the Board,
regular or special, may be held at any place within or without the State of
Delaware. The times and places for holding meetings of the board may be fixed
from time to time by resolution of the Board or (unless contrary to resolution
of the Board) in the notice of the meeting.
3.9 Annual Meetings. On the day when and at the place where the annual
meeting of stockholders for the election of directors is held, and as soon as
practicable thereafter, the Board
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may hold its annual meeting, without notice of such meeting, for the purposes
of organization, the election of officers and the transaction of other business.
The annual meeting of the Board may be held at any other time and place
specified in a notice given as provided in Section 3.11 of the Bylaws for
special meetings of the Board or in a waiver of notice thereof.
3.10 Regular Meetings. Regular meetings of the Board may be held at such
times and places as may be fixed from time to time by the Board. Unless
otherwise required by the Board, regular meetings of the Board may be held
without notice. If any day fixed for a regular meeting of the Board shall be
a Saturday or Sunday or a legal holiday at the place where such meeting is
to be held, then such meeting shall be held at the same hour at the same place
on the first business day thereafter which is not a Saturday, Sunday or legal
holiday.
3.11 Special Meetings. Special meetings of the Board shall be held
whenever called by the President or the Secretary or by a majority of the
directors. Notice of such special meeting of the Board shall, if mailed, be
addressed to each director at the address designated by him for the purpose
or, if none is designated, at his last known address at least three days
before the date on which the meeting is to be held; or such notice shall be
sent to each director at such address by telegraph, cable or wireless, or be
delivered to him personally, not later than the day before the date on which
such meeting is to be held. Every such notice shall state the time and place
of the meeting but need not state the purposes of the meeting, except to the
extent required by law. If mailed, each notice shall be deemed given when
deposited, with postage thereon prepaid, in a post office or official
depository under the exclusive care and custody of the United States post
office department. Such mailing shall be by first class mail.
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3.12 Adjourned Meetings. A majority of the directors present at any
meeting of the Board, including an adjourned meeting, whether or not a
quorum is present, may adjourn such meeting to another time and place. Notice
of any adjourned meeting of the Board need not be given to any director whether
or not present at the time of the adjournment. Any business may be transacted
at any adjourned meeting that might have been transacted at the meeting as
originally called.
3.13 Waiver of Notice. Whenever notice is required to be given to any
director or member of a committee of directors under any provision of the
General Corporation Law or of the Certificate of Incorporation or Bylaws, a
written waiver thereof, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the directors, or members of a committee of directors, need be
specified in any written waiver of notice.
3.14 Organization. At each meeting of the Board, the President of the
Corporation, or in the absence of the President, a chairman chosen by a majority
of the directors present, shall preside. The Secretary shall act as secretary
at each meeting of the Board. In case the Secretary shall be absent from any
meeting of the Board, an Assistant Secretary shall perform the duties of
secretary at such meeting; and in the absence from any such meeting of the
Secretary and all
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Assistant Secretaries, the person presiding at the meeting may appoint any
person to act as secretary of the meeting.
3.15 Quorum of Directors. The lowest number of directors that constitutes
more than one half (1/2) of the elected Board of Directors shall constitute a
quorum, and the affirmative vote of not less than such number shall be required
in order to constitute the act of the Board of Directors.
3.16 Action by the Board. All corporate action taken by the Board or any
committee thereof shall be taken at a meeting of the Board, or of such
committee, as the case may be, except that any action required or permitted to
be taken at any meeting of the Board, or of any committee thereof, may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee. Members of the Board, or
any committee designated by the Board, may participate in a meeting of the
Board, or of such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 3.16 shall constitute presence in person at
such meeting. Except as otherwise provided by the Certificate of Incorporation
or by law, the vote of a majority of the directors present (including those
who participate by means of conference telephone or similar communications
equipment) at the time of the vote, if a quorum is present at such time, shall
be the act of the Board.
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ARTICLE 4
COMMITTEES OF THE BOARD
The Board may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of one or more
of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
to act at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board,
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and,
unless the resolution designating it expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
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ARTICLE 5
OFFICERS
5.1 Officers. The Board shall elect a President, a Secretary and a
Treasurer, and may elect or appoint a Chief Executive Officer, one or more
Vice Presidents and such other officers as it may determine. The Board may
designate one or more Vice Presidents as Executive Vice Presidents, and may
use descriptive words or phrases to designate the standing, seniority or area
of special competence of the Vice Presidents elected or appointed by it. Each
officer shall hold his office until his successor is elected and qualified or
until his earlier death, resignation or removal in the manner provided in
Section 5.2 of the Bylaws. Any two or more offices may be held by the same
person. The Board may require any officer to give a bond or other security for
the faithful performance of his duties, in such amount and with such sureties
as the Board may determine. All officers as between themselves and the
Corporation shall have such authority and perform such duties in the
management of the Corporation as may be provided in the Bylaws or as the Board
may from time to time determine.
5.2 Removal of Officers. Any officer elected or appointed by the Board
may be removed by the Board with or without cause. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
5.3 Resignations. Any officer may resign at any time by so notifying the
Board, the President or the Secretary in writing. Such resignation shall take
effect at the date of receipt of such notice or at such later time as is therein
specified, and, unless otherwise specified, the
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acceptance of such resignation shall not be necessary to make it effective.
The resignation of an officer shall be without prejudice to the contract
rights of the Corporation, if any.
5.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled for the unexpired
portion of the term in the manner prescribed in the Bylaws for the regular
election or appointment to such office.
5.5 Compensation. Salaries or other compensation of the officers may be
fixed from time to time by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that he is
also a director.
5.6 Chief Executive Officer. The Chief Executive Officer of the Company
shall exercise general supervision, direction, management and control over all
the business and affairs of the Company, subject at all times to the control
of the Board of Directors. Subject to the provisions of Article 2, the Chief
Executive Officer shall act as chairman of each meeting of the shareholders.
The Chief Executive Officer shall also act as chairman of each meeting of the
Board of Directors when he is present, and in general shall perform all duties
incident to the Office of Chief Executive Office and such other duties as
from time to time may be assigned to him by the Board.
5.7 President. If there is no Chief Executive Officer elected or
appointed, then the President shall assume the duties of the Chief Executive
Officer as set forth above and as stated herein. If the Chief Executive
Officer is elected but is unable to act, then the President shall become
Acting Chairman of the Board and in that capacity perform all of the duties
of the Chief Executive Officer, unless some other officer is designated by
the Board of Directors to perform those duties. The President shall convene
meetings of the stockholders pursuant to Article 2. He
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may, with the Secretary or the Treasurer or an Assistant Secretary or an
Assistant Treasurer, sign certificates for shares of the capital stock of the
Corporation and, in general, he shall perform all duties incident to the office
of President and such other duties as from time to time may be prescribed by
the Board of Directors or by the Chief Executive Officer.
5.8 Vice Presidents. At the request of the President, or in his absence,
at the request of the Board, the Vice President shall (in such order as may be
designated by the Board or, in the absence of any such designation, in order
of seniority based on age) perform all of the duties of the President and so
acting shall have all the powers of and be subject to all restrictions upon
the President. Any Vice President may also, with the Secretary or the Treasurer
or an Assistant Secretary or an Assistant Treasurer, sign certificates for
shares of capital stock of the Corporation; may sign and execute in the name
of the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board, except in cases where the signing and execution
thereof shall be expressly delegated by the Board or by the Bylaws to some other
officer or agent of the Corporation, or shall be required by law otherwise to
be signed or executed; and shall perform such other duties as from time to time
may be assigned to him by the Board or by the President.
5.9 Secretary. The Secretary, if present, shall act as secretary of all
meetings of the stockholders and of the Board, and shall keep the minutes
thereof in the proper book or books to be provided for that purpose; he shall
see that all notices required to be given by the Corporation are duly given
and served; he may, with the President or a Vice President, sign certificates
for shares of capital stock of the Corporation; he shall be custodian of the
seal of the Corporation and may seal with the seal of the Corporation, or a
facsimile thereof, all certificates for shares of
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the capital stock of the Corporation and all documents the execution of which
on behalf of the Corporation under its corporate seal is authorized in
accordance with the provisions of the Bylaws; he shall have charge of the
stock ledger and also of the other books, records and papers of the
Corporation relating to its organization and management as a Corporation,
and shall see that the reports, statements and other documents required by law
are properly kept and filed; and shall, in general, perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Board or by the President.
5.10 Treasurer. The Treasurer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive
and give receipts for moneys due and payable to the Corporation from any
sources whatsoever; deposit all such moneys in the name of the Corporation in
such banks, trust companies or other depositaries as shall be selected in
accordance with these Bylaws; against proper vouchers, cause such funds to be
disbursed by checks or drafts on the authorized depositaries of the Corporation
signed in such manner as shall be determined in accordance with any
provisions of the Bylaws, and be responsible for the accuracy of the amounts of
all moneys so disbursed; regularly enter or cause to be entered in books to
be kept by him or under his direction full and adequate account of all moneys
received or paid by him for the account of the Corporation; have the right to
require, from time to time, reports or statements giving such information as
he may desire with respect to any and all financial transactions of the
Corporation from the officers or agents transacting the same; render to the
President or the Board, whenever the President or the Board, respectively,
shall require him so to do, an account of the financial condition of the
Corporation and of all his transactions as Treasurer; exhibit at all
reasonable times his books of account and other records to any of the
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directors upon application at the office of the Corporation where such books
and records are kept; and, in general, perform all the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the Board or by the President; and he may sign with the President
or a Vice President certificates for shares of capital stock of the
Corporation.
5.11 Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers, if any, shall perform such duties as
shall be assigned to them by the Secretary or by the Treasurer, respectively,
or by the Board or by the President. Assistant Secretaries and Assistant
Treasurers may, with the President or a Vice President, sign certificates for
shares of capital stock of the Corporation.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Execution of Contracts. The Board may authorize any officer,
employee or agent, in the name and on behalf of the Corporation, to enter into
any contract or execute and satisfy any instrument, and any such authority may
be general or confined to specific instances or otherwise limited.
6.2 Loans. The President or any other officer, employee or agent
authorized by the Bylaws or by the Board may effect loans and advances at any
time for the Corporation from any bank, trust company or other institutions or
from any firm, corporation or individual and for such loans and advances may
make, execute and deliver promissory notes, bonds or other certificates or
evidences of indebtedness of the Corporation, and, when authorized by the
Board so to do, may pledge and hypothecate or transfer any securities or other
property of the
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Corporation as security for any such loans or advances. Such authority
conferred by the Board may be general or confined to specific instances or
otherwise limited.
6.3 Checks, Drafts, Etc.. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board.
6.4 Deposits. The funds of the Corporation not otherwise employed shall
be deposited from time to time to the order of the Corporation in such banks,
trust companies or other depositaries as the Board may select or as may be
selected by an officer, employee or agent of the Corporation to whom such
power may from time to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of capital stock of the
Corporation shall be represented by certificates in such form (consistent
with the provisions of Section 158 of the General Corporation Law) as shall be
approved by the Board. Such certificate shall be signed by the President or a
Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and may be sealed with the seal of the Corporation
or a facsimile thereof. The signatures of the officers upon a certificate may
be facsimiles, if the certificate is countersigned by a transfer agent or
registrar other than the Corporation itself or its employee. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon any certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may, unless otherwise ordered by the
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Board, be issued by the Corporation with the same effect as if such person
were such officer, transfer agent or registrar at the date of issue.
7.2 Transfer of Shares. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by his duly authorized attorney appointed by a power of attorney
duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment
of all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Cancelled," with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation. No transfer of shares of capital stock shall be valid as against
the Corporation, its stockholders and creditors for any purpose, except to
render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books of
the Corporation by an entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of
any shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a
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new certificate to replace the certificate alleged to have been lost, destroyed,
stolen or mutilated. The Board may, in its discretion, as a condition to the
issue of any such new certificate, require the owner of the lost, destroyed,
stolen or mutilated certificate, or his legal representatives, to make proof
satisfactory to the Board of such loss, destruction, theft or mutilation and
to advertise such fact in such manner as the Board may require, and to give
the Corporation and its transfer agents and registrars, or such of them as
the Board may require, a bond in such form, in such sums and with such surety
or sureties as the Board may direct, to indemnify the Corporation and its
transfer agents and registrars against any claim that may be made against any
of them on account of the continued existence of any such certificate so
alleged to have been lost, destroyed, stolen or mutilated and against any
expense in connection with such claim.
7.5 Regulations. The Board may make such rules and regulations as it may
deem expedient, not inconsistent with the Bylaws or with the Certificate of
Incorporation, concerning the issue, transfer and registration of
certificates representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction on the
transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 202 of the General Corporation Law and noted conspicuously
on the certificate representing such capital stock, may be enforced against
the holder of the restricted capital stock or any successor or transferee
of the holder including an executor, administrator, trustee, guardian or
other fiduciary entrusted with like responsibility for the person or estate
of the holder. Unless noted conspicuously on the certificate representing
such capital stock, a restriction, even though permitted by Section 202 of
the General Corporation Law, shall be ineffective except against a person with
actual knowledge of the restriction. A restriction on the transfer or
registration of
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transfer of capital stock of the Corporation may be imposed either by the
Certificate of Incorporation or by an agreement among any number of stockholders
or among such stockholders and the Corporation. No restriction so imposed
shall be binding with respect to capital stock issued prior to the adoption
of the restriction unless the holders of such capital stock are parties to an
agreement or voted in favor of the restriction.
7.7 Dividends, Surplus, Etc. Subject to the provisions of the Certificate
of Incorporation and of law, the Board:
7.7.1 May declare and pay dividends or make other distributions on
the outstanding shares of capital stock in such amounts and at such time
or times as, in its discretion, the condition of the affairs of the
Corporation shall render advisable;
7.7.2 May use and apply, in its discretion, any of the surplus of
the Corporation in purchasing or acquiring any shares of capital stock of
the Corporation, or warrants therefore, or any of its bonds, debentures,
notes, scrip or other securities or evidences of indebtedness in
accordance with law;
7.7.3 May set aside from time to time out of such surplus or net
profits such sum or sums as, in its discretion, it may think proper,
as a reserve fund to meet contingencies, or for equalizing dividends or
for the purpose of maintaining or increasing the property or business of
the Corporation, or for any purpose it may think conducive to the best
interests of the Corporation.
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ARTICLE 8
INDEMNIFICATION
8.1 Indemnification of Officers and Directors. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he is or was a director or any officer of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding to the fullest extent and in the manner set forth in and
permitted by the General Corporation Law, and any other applicable law, as
from time to time in effect. Such right of indemnification shall not be deemed
exclusive of any other rights to which such director or officer may be
entitled apart from the foregoing provisions. The foregoing provisions of
this Section 8.1 shall be deemed to be a contract between the Corporation and
each director and officer who serves in such capacity at any time while this
Article 8 and the relevant provisions of the General Corporation Law and other
applicable law, if any, are in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought or threatened based in whole or in part
upon any such state of facts.
8.2 Indemnification of Other Persons. The Corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was an employee or agent of the Corporation, or is or was serving at the
25
<PAGE> 26
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the extent and in the manner set forth in and
permitted by the General Corporation Law, and any other applicable law, as
from time to time in effect. Such right of indemnification shall not be
deemed exclusive of any other rights to which any such person may be entitled
apart from the foregoing provisions.
8.3 Insurance. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Sections 8.1
and 8.2 of the Bylaws or under Section 145 of the General Corporation Law or
any other provision of law.
ARTICLE 9
BOOKS AND RECORDS
9.1 Books and Records. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep at the office designated in the Certificate of Incorporation or at the
office of the transfer agent or registrar of the Corporation, a
26
<PAGE> 27
record containing the names and addresses of all stockholders, the number and
class of shares held by each and the dates when they respectively became the
owners of record thereof.
9.2 Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, micro-photographs, or any other information storage device,
provided that the records so kept be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records
so kept under the request of any person entitled to inspect the same.
9.3 Inspection of Books and Records. Except as otherwise provided by
law, the Board shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations, the accounts, books, minutes and
other records of the Corporation, or any of them, shall be open to the
inspection of the stockholders.
ARTICLE 10
SEAL
The Board may adopt a corporate seal which shall be in the form of a
circle and shall bear the name of the Corporation and the word "Delaware."
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be for such period of twelve (12)
months as the Board shall determine.
27
<PAGE> 28
ARTICLE 12
VOTING OF SHARES HELD
Unless otherwise provided by resolution of the Board, or the President
may, from time to time, appoint one or more attorneys or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of stock or other securities of such
other corporation, or to consent in writing to any action by any such other
corporation, or to consent in writing to any action by any such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause
to be executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies, consents, waivers or other instruments as he
may deem necessary or proper in the premises; or the President may himself
attend any meeting of the holders of the stock or other securities of any
such other corporation and thereat vote or exercise any or all other powers of
the Corporation as the holder of such stock or other securities of such other
corporation.
ARTICLE 13
AMENDMENTS
The Bylaws may be altered, changed, added to or repealed, amended, or
new Bylaws may be adopted, as set forth in the Articles of Incorporation.
28
<PAGE> 1
EXHIBIT 3.5
WHEREAS, it has come to the attention of the Board of Directors of the
Corporation that there is an ambiguity in Section 3.2 of the Corporation's
Bylaws;
WHEREAS, the Board of Directors of the Corporation hereby finds,
declares and determines that it is advisable to clarify the intent of Section
3.2 of the Corporation's Bylaws and to take such additional actions in
connection with the foregoing as may be necessary or advisable.
NOW, THEREFORE, BE IT RESOLVED that Section 3.2 of the Corporation's
Bylaws be and hereby is amended to read in its entirety as follows:
"3.2 Number; Qualification; Term of Office. The Board shall
initially consist of four members. Thereafter, the number of
directors and the classes of directors shall be determined from
time to time by the Board of Directors of the Corporation.
Directors need not be stockholders. Each director shall hold
office until his successor is elected and qualified or until his
earlier death, resignation or removal."
FURTHER RESOLVED, that the Board of Directors hereby confirms that the
current number of Members of the Board of Directors is thirteen and that the
undersigned are the duly elected and acting members of the Board of Directors.
<PAGE> 1
EXHIBIT 10.4
AGREEMENT AND PLAN OF MERGER
BETWEEN
ENTERBANK HOLDINGS, INC.
AND
COMMERCIAL GUARANTY BANCSHARES, INC.
DATED JANUARY 5, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I - THE MERGER............................................................................................1
1.1 Effective Time of the Merger....................................................................1
1.2 Closing.........................................................................................1
1.3 Effects of the Merger...........................................................................2
1.4 Alternative Structure...........................................................................2
1.5 Absence of Control..............................................................................3
ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES...................................................................3
2.1 Effect on Capital Stock of the Constituent Corporations.........................................3
(a) Conversion of CGB Common Stock.........................................................3
(b) Enterbank Capital Stock................................................................3
2.2 No Further Ownership Rights in CGB Common Stock.................................................4
2.3 Fractional Shares...............................................................................4
2.4 Surrender of Shares of CGB Common Stock.........................................................4
2.5 Adjustments.....................................................................................5
2.6 Options.........................................................................................6
2.7 Dissenters' Rights..............................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES......................................................................7
3.1 Representations and Warranties of CGB...........................................................7
(a) Organization, Standing and Power.......................................................7
(b) Capital Structure; Ownership of CGB Common Stock.......................................9
(c) Authority; No Violation...............................................................10
(d) Financial Statements..................................................................11
(e) CGB Information Supplied..............................................................12
(f) Compliance with Applicable Laws.......................................................12
(g) Litigation............................................................................13
(h) Taxes.................................................................................13
(i) Certain Agreements....................................................................14
(j) Benefit Plans.........................................................................15
(k) Subsidiaries..........................................................................17
(l) Agreements with Bank or Other Regulators..............................................17
(m) Absence of Certain Changes or Events..................................................18
(n) Undisclosed Liabilities...............................................................18
(o) Governmental Reports..................................................................18
(p) Environmental Liability...............................................................19
(q) Properties............................................................................21
(r) Transactions with Affiliates..........................................................21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
(s) Brokers or Finders....................................................................22
(t) Intellectual Property.................................................................22
(u) Pooling of Interests..................................................................22
(v) Opinion of Financial Advisor..........................................................22
(w) Community Reinvestment Act Compliance.................................................22
(x) Year 2000 Readiness...................................................................22
(y) Insurance.............................................................................23
(z) Loans and Other Assets................................................................23
(aa) Restrictions on Investments...........................................................24
(bb) No Brokered Deposits..................................................................24
(cc) Derivatives Contracts; Structured Notes; Etc..........................................24
(dd) Labor Matters.........................................................................25
3.2 Representations and Warranties of Enterbank....................................................25
(a) Organization, Standing and Power......................................................25
(b) Capital Structure; Ownership of Enterbank Common Stock................................26
(c) Authority; No Violation...............................................................27
(d) Financial Statements..................................................................28
(e) Enterbank SEC Documents...............................................................28
(f) Enterbank Information Supplied........................................................29
(g) Compliance with Applicable Laws.......................................................29
(h) Litigation............................................................................30
(i) Taxes.................................................................................30
(j) Certain Agreements....................................................................31
(k) Benefit Plans.........................................................................32
(l) Subsidiaries..........................................................................34
(m) Agreements with Bank or Other Regulators..............................................34
(n) Absence of Certain Changes or Events..................................................34
(o) Undisclosed Liabilities...............................................................34
(p) Governmental Reports..................................................................35
(q) Environmental Liability...............................................................35
(r) Properties............................................................................37
(s) Transactions with Affiliates..........................................................37
(t) No Broker or Finder...................................................................38
(u) Intellectual Property.................................................................38
(v) Pooling of Interests..................................................................38
(w) Community Reinvestment Act Compliance.................................................38
(x) Year 2000 Readiness...................................................................38
(y) Insurance.............................................................................38
(z) Loans and Other Assets................................................................39
(aa) Derivatives Contracts; Structured Notes; Etc..........................................40
(bb) Labor Matters.........................................................................40
(cc) Status of Enterbank Common Stock to be Issued.........................................41
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE IV - COVENANTS RELATING TO CONDUCT OF BUSINESS...........................................................41
4.1 Covenants of CGB...............................................................................41
4.2 Covenants of Enterbank.........................................................................44
ARTICLE V - ADDITIONAL AGREEMENTS................................................................................46
5.1 Regulatory Matters.............................................................................46
5.2 Access to Information..........................................................................47
5.3 Shareholders' Meetings.........................................................................48
5.4 No Solicitations...............................................................................49
5.5 Legal Conditions...............................................................................50
5.6 Employee Benefit Plans.........................................................................51
5.7 Additional Agreements..........................................................................52
5.8 Fees and Expenses..............................................................................52
5.9 Cooperation....................................................................................53
5.10 Affiliates.....................................................................................53
5.11 Advice of Changes..............................................................................53
5.12 Subsequent Interim and Annual Financial Statements; Certain Reports............................53
5.13 Dissenters' Rights.............................................................................54
5.14 Retention of FCB Officers and Directors........................................................54
5.15 Indemnification; Directors' and Officers' Insurance............................................54
5.16 Conforming Entries.............................................................................55
ARTICLE VI - CONDITIONS PRECEDENT................................................................................56
6.1 Conditions to Each Party's Obligation..........................................................56
(a) Shareholder Approvals.................................................................56
(b) Other Approvals.......................................................................56
(c) No Injunctions or Restraints..........................................................56
(d) S-4...................................................................................56
(e) Pooling...............................................................................56
(f) Burdensome Condition..................................................................57
(g) Dissenters' Rights....................................................................57
(h) Average Enterbank Closing Price.......................................................57
6.2 Conditions to Obligations of Enterbank.........................................................58
(a) Representations and Warranties........................................................58
(b) Performance of Obligations............................................................58
(c) Corporate Action......................................................................58
(d) Tax Opinion...........................................................................58
(e) Material Adverse Effect...............................................................58
(f) Closing Documents.....................................................................59
(g) Fairness Opinion......................................................................59
6.3 Conditions to Obligations of CGB...............................................................59
(a) Representations and Warranties........................................................59
(b) Performance of Obligations............................................................59
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
(c) Corporate Action......................................................................59
(d) Tax Opinion...........................................................................59
(e) Material Adverse Effect...............................................................60
(f) Closing Documents.....................................................................60
(g) Additions to Enterbank Board of Directors.............................................60
(h) Fairness Opinion......................................................................60
ARTICLE VII - TERMINATION AND AMENDMENT..........................................................................60
7.1 Termination....................................................................................60
7.2 Effect of Termination..........................................................................63
7.3 Amendment......................................................................................63
7.4 Extension; Waiver..............................................................................63
ARTICLE VIII - GENERAL PROVISIONS................................................................................63
8.1 Survival of Representations, Warranties and Covenants..........................................63
8.2 Notices........................................................................................64
8.3 Interpretation.................................................................................65
8.4 Counterparts...................................................................................65
8.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership............................65
8.6 Governing Law..................................................................................65
8.7 Severability...................................................................................66
8.8 Assignment.....................................................................................66
8.9 Publicity......................................................................................66
8.10 Attorneys' Fees................................................................................66
EXHIBITS
Exhibit A................................................................................................1
Exhibit B-1.............................................................................................53
Exhibit B-2.............................................................................................53
SCHEDULES
CGB Disclosure Schedule......................................................................................9
Section 3.1(b)(iii)......................................................................................9
Section 3.1(c)(ii)......................................................................................10
Section 3.1(d)..........................................................................................12
Section 3.1(g)..........................................................................................13
Section 3.1(h)..........................................................................................13
</TABLE>
iv
<PAGE> 6
Section 3.1(i)................................................14
Section 3.1(j)................................................43
Section 3.1(j)(i).............................................15
Section 3.1(j)(ii)............................................16
Section 3.1(j)(iii)...........................................16
Section 3.1(j)(iv)............................................17
Section 3.1(j)(v).............................................17
Section 3.1(k)................................................11
Section 3.1(l)................................................17
Section 3.1(m)................................................18
Section 3.1(n)................................................18
Section 3.1(o)................................................18
Section 3.1(p)................................................19
Section 3.1(p)(vii)...........................................20
Section 3.1(q)................................................21
Section 3.1(r)................................................21
Section 3.1(t)................................................22
Section 3.1(u)................................................22
Section 3.1(aa)...............................................24
Section 3.1(aa)(ii)...........................................24
Section 3.1(bb)...............................................24
Section 3.1(cc)...............................................24
Section 4.1(d)................................................42
Section 4.1(q)................................................44
Section 4.1(r)................................................44
Enterbank Disclosure Schedule.....................................26
Section 3.2(b)(ii)............................................26
Section 3.2(b)(iii)...........................................26
Schedule 3.2(b)(iv)...........................................26
Section 3.2(c)(ii)............................................27
Section 3.2(h)................................................30
Section 3.2(i)................................................30
Section 3.2(j)................................................31
Section 3.2(k)................................................32
Section 3.2(k)(ii)............................................32
Section 3.2(k)(iv)............................................33
Section 3.2(k)(v).............................................33
Section 3.2(l)................................................34
Section 3.2(m)................................................34
Section 3.2(n)................................................34
Section 3.2(o)................................................34
Section 3.2(p)................................................35
v
<PAGE> 7
Section 3.2(q)................................................35
Section 3.2(q)(vii)...........................................37
Section 3.2(r)................................................37
Section 3.2(s)................................................37
Section 3.2(u)................................................38
Section 3.2(v)................................................38
Section 3.2(z)(ii)............................................40
Section 3.2(aa)...............................................40
Schedule 5.6(d)........................................................52
vi
<PAGE> 8
DEFINITIONS
Page
Acquisition Sub..........................................................2
Action..................................................................66
Actual Expenses.........................................................52
Affiliate .......................................................9
Agreement................................................................1
Agreement of Merger......................................................1
Average Enterbank Closing Price.........................................56
Bank Regulators.........................................................13
Benefit Plans...........................................................16
BHC Act..................................................................7
BIF......................................................................7
Burdensome Condition....................................................57
Business................................................................20
Business Day.............................................................1
CGB......................................................................1
CGB Benefit Plans.......................................................16
CGB Certificates.........................................................4
CGB Consolidated Financial Statements...................................11
CGB Designees............................................................2
CGB Disclosure Schedule..................................................9
CGB Dissenting Shares....................................................6
CGB Intellectual Property...............................................22
CGB Interim Financial Statements........................................12
CGB Option...............................................................6
CGB Permits.............................................................12
CGB Preferred Stock......................................................9
CGB Shareholder Approval................................................10
CGB Shareholders' Meeting...............................................12
CGB Stock Option Plans...................................................6
CGB Termination Fee.....................................................50
Closing..................................................................1
Closing Date.............................................................1
Code.....................................................................1
Confidentiality Agreement...............................................48
Consents................................................................56
Constituent Corporations.................................................2
CRA.....................................................................22
date hereof..............................................................1
DGCL.....................................................................1
vii
<PAGE> 9
Derivatives Contract...............................................24
Determination Date.................................................57
DPC Shares.........................................................10
Effective Time......................................................1
Enterbank...........................................................1
Enterbank Benefit Plans............................................32
Enterbank Common Stock..............................................3
Enterbank Consolidated Financial Statements........................28
Enterbank Disclosure Schedule......................................26
Enterbank Dissenting Shares.........................................7
Enterbank Interim Financial Statements.............................28
Enterbank Intellectual Property....................................38
Enterbank Instrument................................................5
Enterbank Permits..................................................29
Enterbank SEC Reports..............................................28
Enterbank Shareholder Approval.....................................27
Enterbank Shareholders' Meeting....................................29
Enterbank Termination Fee..........................................50
Enterprise..........................................................4
Environmental Law..................................................20
ERISA..............................................................15
Exchange Act.......................................................28
Exchange Agent......................................................4
Exchange Ratio......................................................3
FCB.................................................................7
FDIC................................................................7
Federal Reserve....................................................11
GAAP...............................................................12
Governmental Entity................................................11
Hazardous Substances...............................................20
Indemnified Party..................................................54
Injunction.........................................................56
KGCC................................................................3
knowledge...........................................................9
Litigation.........................................................13
material............................................................8
material adverse effect.............................................8
Merger..............................................................1
Moneta..............................................................6
OCC................................................................11
OREO...............................................................23
PBGC...............................................................16
person..............................................................9
viii
<PAGE> 10
Proxy Statement.......................................................11
Real Property.........................................................21
Reportable Quantity...................................................21
Representatives.......................................................49
Requisite Regulatory Approvals........................................56
S-4...................................................................12
SARs...................................................................6
SEC...................................................................11
SEC Fees..............................................................52
Securities Act........................................................22
SFAS No. 5.............................................................8
Significant Subsidiary................................................49
Subsidiary..........................................................3, 8
Superior Proposal.....................................................50
Surviving Corporation...............................................2, 3
Takeover Proposal.....................................................49
Tax return............................................................14
taxable...............................................................14
taxes.............................................................13, 14
to the best knowledge of...............................................9
Transaction Agreements.................................................8
Trust Account Shares..................................................10
Violation.............................................................11
ix
<PAGE> 11
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of January 5, 2000 (the "date hereof"), between ENTERBANK
HOLDINGS, INC., a Delaware corporation ("Enterbank") and COMMERCIAL GUARANTY
BANCSHARES, INC., a Kansas corporation ("CGB").
WHEREAS, the Board of Directors of Enterbank has approved this
Agreement, declared it advisable and deems it advisable and in the best
interests of the shareholders of Enterbank to consummate the transactions
provided for herein in which, inter alia, CGB would merge with and into
Enterbank pursuant to an Agreement of Merger substantially in the form attached
hereto as Exhibit A (the "Merger");
WHEREAS, the Board of Directors of CGB has approved this Agreement and
declared it advisable and deems it advisable and in the best interests of the
shareholders of CGB to consummate the Merger;
WHEREAS, it is the intention of the parties that the Merger qualify as
a tax-free reorganization pursuant to section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that the Merger shall be accounted
for as a "pooling of interests"; and
WHEREAS, the Boards of Directors of Enterbank and CGB have each
determined that the Merger and the other transactions contemplated by this
Agreement are consistent with, and will contribute to the furtherance of, their
respective business strategies and goals.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 EFFECTIVE TIME OF THE MERGER. Subject to the terms and conditions
of this Agreement, the Merger shall become effective upon the occurrence of the
filing of an agreement of merger in substantially the form of Exhibit A hereto
(the "Agreement of Merger") and officers' certificates prescribed by Section 252
of the Delaware General Corporation Law ("DGCL") with the Secretary of State of
the State of Delaware, or at such time thereafter as is provided by mutual
agreement in the Agreement of Merger (the "Effective Time").
1.2 CLOSING. The closing of the Merger (the "Closing") will take place
at 10:00 a.m., St. Louis time, on the first Friday which is at least ten
Business Days after receipt of all Requisite Regulatory Approvals and the
expiration of all requisite waiting periods (subject to the satisfaction of the
condition set forth in Section 6.1(a)), but in no event shall such date be later
than July 31, 2000, unless otherwise agreed in writing by the parties hereto or
as provided in Section 7.1(c) (the "Closing Date"). The Closing shall be held at
the offices of Armstrong Teasdale LLP, One Metropolitan Square, St. Louis,
Missouri 63102 or at such other location as is agreed to in writing by the
parties hereto. As used in this Agreement, "Business Day" shall mean any day
that is not a
<PAGE> 12
Saturday, Sunday or other day on which banks are required or authorized by law
to be closed in Missouri.
1.3 EFFECTS OF THE MERGER.
(a) At the Effective Time (i) CGB shall be merged with and
into Enterbank and the separate corporate existence of CGB shall cease, (ii) the
Certificate of Incorporation of Enterbank as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, (iii) the By-laws of Enterbank as in effect immediately prior to
the Effective Time shall be the By-laws of the Surviving Corporation, (iv) the
directors of Enterbank at the Effective Time shall be the directors of the
Surviving Corporation (except that the Board of Directors of Enterbank shall
take all necessary action to appoint four other representatives of CGB
(collectively, the "CGB Designees"), who shall be existing directors of CGB, to
serve on the Surviving Corporation's board of directors as of and after the
Effective Time, such CGB Designees to serve as directors until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be; provided that the Board of Directors
of Enterbank or the nomination committee thereof shall nominate and recommend
the election of each of the CGB Designees for reelection as directors of
Enterbank at the conclusion of their respective terms as necessary in order that
each such CGB Designee shall serve as an Enterbank director for at least three
years after the Effective Time; provided further, however, that in the event any
such CGB Designee resigns, is removed (other than by a vote of the shareholders
of Enterbank) or otherwise terminates service, the remaining CGB Designees may
select a person as his or her replacement and Enterbank shall nominate for
election such replacement so selected to serve as a director of Enterbank for at
least the remainder of the term of the CGB Designee being replaced (as such term
may be required to be extended as provided in the second proviso above)), and
(v) the officers of Enterbank immediately prior to the Effective Time shall be
the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
(b) As used in this Agreement, "Constituent Corporations"
shall mean each of Enterbank and CGB, and "Surviving Corporation" shall mean
Enterbank, at and after the Effective Time, as the surviving corporation in the
Merger.
(c) At and after the Effective Time, the Merger will have the
effects set forth in the DGCL.
1.4 ALTERNATIVE STRUCTURE. Notwithstanding anything contained in this
Agreement to the contrary, upon receipt of CGB's prior written consent (which
consent shall not be unreasonably withheld), Enterbank may specify, for any
reasonable business, tax or regulatory purpose, that, before the Merger,
Enterbank and CGB shall enter into transactions other than those described
herein in order to effect the purposes of this Agreement, or may form an
acquisition subsidiary (an "Acquisition Sub") to be merged with CGB, and the
parties hereto shall take all action necessary and appropriate to effect, or
cause to be effected, such transactions; provided, however, that no such
2
<PAGE> 13
specification may (a) materially and adversely affect the timing of the
consummation of the transactions contemplated herein, or (b) adversely affect
the economic benefits, the form of consideration or the tax effect of the Merger
to the holders of CGB Common Stock. If Enterprise forms an Acquisition Sub, the
Acquisition Sub will be a "Subsidiary" of Enterbank for all purposes under this
Agreement (including Section 3.2), will be a "Constituent Corporation" and,
depending on the structure of the Merger, either Acquisition Sub or CGB will be
the "Surviving Corporation."
1.5 ABSENCE OF CONTROL. Subject to any specific provisions of this
Agreement, it is the intent of the parties hereto that neither Enterbank nor CGB
by reason of this Agreement shall be deemed (until consummation of the
transactions contemplated hereby) to control, directly or indirectly, the other
party and shall not exercise, or be deemed to exercise, directly or indirectly,
a controlling influence over the management or policies of such other party.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS. At the
Effective Time, by virtue of the Merger and without any action on the part of
the holder of any shares of CGB or Enterbank capital stock:
(a) CONVERSION OF CGB COMMON STOCK. Subject to Sections 2.3,
2.5 and 7.1(h), each of the shares of CGB Common Stock issued and outstanding
immediately prior to the Effective Time (other than CGB Dissenting Shares
perfected in accordance with K.S.A. 17-6712 of the Kansas General Corporation
Code (the "KGCC")) shall be converted into the right to receive 2.1429 shares
(the "Exchange Ratio") of fully paid and nonassessable shares of Common Stock,
$.01 par value per share (the "Enterbank Common Stock"), of Enterbank. All such
shares of CGB Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such shares shall thereafter represent
the right to receive (i) a certificate representing the number of whole shares
of Enterbank Common Stock into which such CGB Common Stock has been converted
and, if applicable, (ii) cash in lieu of fractional shares as provided in
Section 2.3 hereof. Certificates previously representing shares of CGB Common
Stock shall be exchanged for certificates representing whole shares of Enterbank
Common Stock issued in consideration therefor (and, if applicable, cash in lieu
of fractional shares as provided in Section 2.3 hereof) upon the surrender of
such certificates.
(b) ENTERBANK CAPITAL STOCK. At and after the Effective Time,
each share of Enterbank Common Stock issued and outstanding immediately prior to
the Effective Time shall remain an issued and outstanding share of capital stock
of Enterbank and shall not be affected by the Merger.
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2.2 NO FURTHER OWNERSHIP RIGHTS IN CGB COMMON STOCK. All shares of
Enterbank Common Stock issued upon conversion of shares of CGB Common Stock in
accordance with the terms hereof shall be deemed to represent all rights
pertaining to such shares of CGB Common Stock, and, after the Effective Time,
there shall be no further registration of transfers on the stock transfer books
of CGB of the shares of CGB Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, certificates formerly
representing shares of CGB Common Stock are presented to Enterbank for any
reason, they shall be canceled and, if applicable, exchanged as provided in this
Article II.
2.3 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Enterbank Common Stock shall be issued to holders of shares
of CGB Common Stock. In lieu thereof, each such holder entitled to a fraction of
a share of Enterbank Common Stock (after taking into account all shares of CGB
Common Stock held at the Effective Time by such holder) shall receive, at the
time of surrender of the certificates representing such holder's CGB Common
Stock, an amount in cash equal to the Average Enterbank Closing Price (as
hereinafter defined), multiplied by the fraction of a share of Enterbank Common
Stock to which such holder would otherwise be entitled. No such holder shall be
entitled to dividends, voting rights, interest on the value of, or any other
rights in respect of a fractional share.
2.4 SURRENDER OF SHARES OF CGB COMMON STOCK.
(a) Prior to the Effective Time, Enterbank shall appoint
Enterprise Bank ("Enterprise") or its successor, or any other bank or trust
company (having capital of at least $10 million) mutually acceptable to CGB and
Enterbank, as exchange agent (the "Exchange Agent") for the purpose of
exchanging certificates representing the Enterbank Common Stock which are to be
issued pursuant to Section 2.1, and at and after the Effective Time, Enterbank
shall issue and deliver to the Exchange Agent certificates representing the
shares of Enterbank Common Stock, as shall be required to be delivered to
holders of shares of CGB Common Stock pursuant to Section 2.1 hereof. As soon as
practicable after the Effective Time, each holder of shares of CGB Common Stock
converted pursuant to Section 2.1, upon surrender to the Exchange Agent of one
or more CGB share certificates (the "CGB Certificates") for cancellation, will
be entitled to receive a certificate representing the number of shares of
Enterbank Common Stock determined in accordance with Section 2.1 and a payment
in cash with respect to fractional shares, if any, determined in accordance with
Section 2.3.
(b) No dividends or other distributions of any kind which are
declared payable to shareholders of record of the shares of Enterbank Common
Stock after the Effective Time will be paid to persons entitled to receive such
certificates for shares of Enterbank Common Stock until such persons surrender
their CGB Certificates. Upon surrender of such CGB Certificate, the holder
thereof shall be paid, without interest, any dividends or other distributions
with respect to the shares of Enterbank Common Stock as to which the record date
and payment date occurred on or after the Effective Time and on or before the
date of surrender.
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(c) If any certificate for shares of Enterbank Common Stock is
to be issued in a name other than that in which the CGB Certificate surrendered
in exchange therefor is registered, it shall be a condition of such exchange
that the person requesting such exchange shall pay to the Exchange Agent any
transfer costs, taxes or other expenses required by reason of the issuance of
certificates for such shares of Enterbank Common Stock in a name other than the
registered holder of the CGB Certificate surrendered, or such persons shall
establish to the satisfaction of Enterbank and the Exchange Agent that such
costs, taxes or other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid in
lieu of fractional shares pursuant to Section 2.3, if held by the Exchange Agent
for payment or delivery to the holders of unsurrendered CGB Certificates
representing shares of CGB Common Stock and unclaimed at the end of one year
from the Effective Time, shall (together with any interest earned thereon) at
such time be paid or redelivered by the Exchange Agent to Enterbank, and after
such time any holder of a CGB Certificate who has not surrendered such CGB
Certificate to the Exchange Agent shall, subject to applicable law, look as a
general creditor only to Enterbank for payment or delivery of such dividends or
distributions or cash, as the case may be.
(e) Neither Enterbank nor the Surviving Corporation shall be
liable to any holder of CGB Common Stock for such shares (or dividends or
distributions thereon) or cash payable in lieu of fractional shares pursuant to
Section 2.3 delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
2.5 ADJUSTMENTS. In the event Enterbank changes (or establishes a
record date for changing) the number of shares of Enterbank Common Stock issued
and outstanding prior to the Effective Time as a result of an issuance of shares
of Enterbank Common Stock, or a recapitalization, reclassification, split-up,
combination, exchange, readjustment, reorganization, merger, consolidation,
distribution, stock split, stock or other dividend, or similar transaction with
respect to the outstanding Enterbank Common Stock and the record date therefor,
if applicable, shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted with the result that the holders of CGB Common Stock
shall receive the same economic benefit set forth in Section 2.1. Further, in
the event Enterbank, prior to the Effective Time, grants, issues, delivers,
sells or otherwise distributes any warrant, option, security, right or other
instrument convertible into or exchangeable for any shares of Enterbank Common
Stock (collectively, an "Enterbank Instrument"), then (i) the Exchange Ratio
shall be proportionately adjusted in the manner prescribed above as if the
shares of Enterbank Common Stock issuable pursuant to such Enterbank Instrument
were outstanding prior to the Effective Time or, (ii) in the sole discretion of
Enterbank, Enterbank shall provide, at or prior to the Effective Time, for the
holders of the CGB Common Stock whose shares are to be converted into shares of
Enterbank Common Stock pursuant to the Merger proportionately equivalent
Enterbank Instruments upon consummation of the Merger; provided, however, that
no adjustment hereunder shall be made for the grant or exercise of options
under: (x) the Enterbank Incentive Stock Option Plan I, II, III or IV; (y) the
Enterbank Holdings, Inc. Non-Qualified Incentive Stock Option Plan; or (z)
options granted to employees of Moneta Group Investment Advisors, Inc.
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("Moneta") pursuant to the Agreement among Enterbank, Enterprise Bank and Moneta
made by the Board of Directors of Enterbank in its sole discretion; and no
adjustments shall be made hereunder for the grant in accordance with past
practice of stock appreciation rights ("SARs") to members or advisory members of
the Board of Directors of Enterbank or of any of its Subsidiaries who have not
heretofore received grants of SARs or for shares of Enterbank Common Stock
issued to members of the Boards of Directors of Enterbank or any its
subsidiaries upon vesting of SARs granted prior to the date hereof.
2.6 OPTIONS. At the Effective Time, each option granted by CGB to
purchase shares of CGB Common Stock (each, an "CGB Option") which is outstanding
and unexercised immediately prior thereto shall cease to represent a right to
acquire shares of CGB Common Stock and shall be converted automatically into an
option to purchase shares of Enterbank Common Stock in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
of the stock option plans of CGB (the "CGB Stock Option Plans") and the
agreements evidencing grants thereunder: (a) the number of shares of Enterbank
Common Stock to be subject to the new option shall be equal to the product of
the number of shares of CGB Common Stock subject to the original option and the
Exchange Ratio, provided that any fractional shares of Enterbank Common Stock
resulting from such multiplication shall be rounded down to the nearest share;
and (b) the exercise price per share of Enterbank Common Stock under the new
option shall be equal to the exercise price per share of CGB Common Stock under
the original option divided by the Exchange Ratio, provided that such exercise
price shall be rounded up to the nearest cent. In the case of any options which
are "incentive stock options" (as defined in section 422 of the Code), the
exercise price, the number of shares purchasable pursuant to such options and
the terms and conditions of exercise of such options shall be determined in
order to comply with section 424(a) of the Code. The duration and other terms of
the new option shall be the same as the original option except that all
references to CGB shall be deemed to be references to Enterbank.
2.7 DISSENTERS' RIGHTS.
(a) Notwithstanding anything in this Agreement to the
contrary, shares of CGB Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by shareholders that
have not voted such shares in favor of the Merger and have delivered a written
demand for the valuation of such shares in the manner provided in the laws of
the State of Kansas (such shares, the "CGB Dissenting Shares") shall not be
converted into or represent the right to receive Enterbank Common Stock as
provided in Section 2.1 and the holders thereof shall only be entitled to such
rights as are granted by K.S.A. 17-6712 of the KGCC. Each holder of CGB
Dissenting Shares that becomes entitled to payment for such shares pursuant to
K.S.A. 17-6712 of the KGCC shall receive payment therefor from the Surviving
Corporation in accordance with the KGCC; provided, however, that (i) if any such
holder of CGB Dissenting Shares shall have failed to establish that such holder
is entitled to dissenters' rights as provided in K.S.A. 17-6712 of the KGCC, or
(ii) if any such holder of CGB Dissenting Shares shall have effectively
withdrawn the demand for valuation of such shares or lost the right to valuation
and payment of such shares under K.S.A. 17-6712 of the KGCC, or (iii) if neither
the Surviving Corporation nor such holder of CGB
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Dissenting Shares shall have filed a petition demanding a determination of the
value of all CGB Dissenting Shares within the time provided in K.S.A. 17-6712 of
the KGCC, such holder's or holders' (as the case may be) shares of CGB Common
Stock shall thereupon be deemed to have been converted, as of the Effective
Time, into and represent the right to receive from the Surviving Corporation the
shares of Enterbank Common Stock as provided in Section 2.1 hereof.
(b) Notwithstanding anything in this Agreement to the
contrary, if Enterbank is the Surviving Corporation, holders of shares of
Enterbank Common Stock which are issued and outstanding immediately prior to the
Effective Time that have not voted such shares in favor of the Merger and have
delivered a written demand for the valuation of such shares in the manner
provided in the laws of the State of Delaware (such shares, the "Enterbank
Dissenting Shares") shall be entitled to such rights as are granted by Section
262 of the DGCL. In such event, each holder of Enterbank Dissenting Shares that
becomes entitled to payment for such shares pursuant to Section 262 of the DGCL
shall receive payment therefor from the Surviving Corporation in accordance with
Section 262 of the DGCL; provided, however, that (i) if any such holder of
Enterbank Dissenting Shares shall have failed to establish that such holder is
entitled to dissenters' rights as provided in Section 262 of the DGCL, or (ii)
if any such holder of Enterbank Dissenting Shares shall have effectively
withdrawn the demand for valuation of such shares or lost the right to valuation
and payment of such shares under Section 262 of the DGCL, or (iii) if neither
the Surviving Corporation nor such holder of Enterbank Dissenting Shares shall
have filed a petition demanding a determination of the value of all Enterbank
Dissenting Shares within the time provided in Section 262 of the DGCL, each
share of Enterbank Common Stock held by such holder or holders (as the case may
be) immediately prior to the Effective Time shall remain an issued and
outstanding share of capital stock of Enterbank held by such holder or holders
(as the case may be) and shall not be affected by the Merger. If the Constituent
Corporations in the Merger are CGB and an Acquisition Sub, holders of Enterbank
Common Stock will not be entitled to the rights provided by Section 260 of the
DGCL.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF CGB. CGB hereby represents and
warrants to Enterbank as follows:
(a) ORGANIZATION, STANDING AND POWER. CGB is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). First Commercial Bank, N.A. ("FCB") is a wholly owned Subsidiary of
CGB and is a national banking association organized under the laws of the United
States. The deposit accounts of FCB are insured by the Bank Insurance Fund
("BIF") of the Federal Deposit Insurance Corporation ("FDIC") to the fullest
extent permitted by law, and all premiums and assessments required in connection
therewith have been paid when due. CGB and each of its Subsidiaries is a bank or
corporation duly organized,
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validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, other than in such
jurisdictions where the failure so to qualify would not, either individually or
in the aggregate, have a material adverse effect on CGB. The Articles of
Incorporation or Association and By-laws of each of CGB, and each Subsidiary of
CGB, copies of which were previously made available to Enterbank, are true,
complete and correct. The minute books of CGB and its Subsidiaries which have
been made available to Enterbank contain a complete (except for certain portions
thereof relating to the Merger and the transactions contemplated hereby) and
accurate record of all meetings of the respective Boards of Directors (and
committees thereof) and shareholders.
As used in this Agreement,
(i) the term "Subsidiary" when used with respect to
any party means any corporation or other organization, whether incorporated or
unincorporated, (x) of which such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a majority
of the voting interests in such partnership), or (y) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries,
(ii) any reference to any event, change or effect
being "material" with respect to any entity means an event, change or effect
which is material in relation to the condition (financial or otherwise),
properties, assets, liabilities, businesses, results of operations or prospects
of such entity and its Subsidiaries taken as a whole,
(iii) the term "material adverse effect" means, with
respect to any entity, a material adverse effect (whether or not required to be
accrued or disclosed under Statement of Financial Accounting Standards No. 5
("SFAS No. 5")) (A) on the condition (financial or otherwise), properties,
assets, liabilities, businesses, results of operations or prospects of such
entity and its Subsidiaries taken as a whole (but does not include any such
effect resulting from or attributable to any action or omission by CGB or
Enterbank or any Subsidiary of either of them taken with the prior written
consent of the other parties hereto, in contemplation of the transactions
contemplated hereby), or (B) on the ability of such entity to perform its
obligations under the Transaction Agreements (as defined below) on a timely
basis,
(iv) the term "Transaction Agreements" shall mean
this Agreement and the Agreement of Merger,
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(v) the term "knowledge" or "to the best knowledge of" a
party hereto means the actual knowledge of a director or executive officer of a
party after reasonable inquiry under all the circumstances,
(vi) the term "Affiliate" means, as to any person, a person
which controls, is controlled by or is under common control with such person,
and
(vii) the term "person" shall mean an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
(b) CAPITAL STRUCTURE; OWNERSHIP OF CGB COMMON STOCK.
(i) The authorized capital stock of CGB consists of
2,000,000 shares of CGB Common Stock, par value $1.00 per share and 50,000
shares of preferred stock, par value $100 per share (the "CGB Preferred Stock"),
of which (A) as of December 27, 1999, 836,854 shares of CGB Common Stock were
outstanding (none having been issued thereafter except from the exercise of CGB
Options) and (B) as of December 27, 1999, no shares of CGB Preferred Stock were
outstanding and none have been issued thereafter. All outstanding shares of CGB
Common Stock have been duly authorized and validly issued and are fully paid and
non-assessable and not subject to preemptive rights.
(ii) The authorized capital stock of FCB consists of
1,000,000 shares of FCB Common Stock, $60 par value per share, of which 66,900
shares are outstanding. All outstanding shares of FCB Common Stock have been
duly authorized and validly issued and are fully paid and non-assessable (except
to the extent provided in the National Bank Act) and not subject to preemptive
rights.
(iii) Except for this Agreement and except as set forth in
Section 3.1(b)(iii) of the disclosure schedule of CGB delivered to Enterbank on
the date hereof (the "CGB Disclosure Schedule"), (A) there are no options,
warrants, calls, rights, commitments or agreements of any character to which CGB
or any of its Subsidiaries or Affiliates (as defined herein) is a party or by
which any of the foregoing are bound obligating CGB or any of its Subsidiaries,
including FCB, or Affiliates to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of CGB or any of its
Subsidiaries or obligating CGB or any of its Subsidiaries or Affiliates to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement, (B) there are no outstanding contractual obligations of CGB or any of
its Subsidiaries or Affiliates to repurchase, redeem or otherwise acquire any
shares of capital stock of CGB or any of its Subsidiaries and (C) there are no
outstanding securities of any kind convertible into or exchangeable for the
capital stock of CGB or any of its Subsidiaries (or any interest therein).
Except as set forth in Section 3.1(b)(iii) of the CGB Disclosure Schedule, there
is no agreement of any kind to which CGB or FCB is a party and, to the knowledge
of CGB (without inquiry), no other agreement of any kind, in each case that
gives any person any right to participate in the equity, value or income of, or
to vote
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(x) in the election of directors or officers of, or (y) otherwise with respect
to the affairs of, CGB or any of its Subsidiaries.
(iv) Neither CGB nor any of its Subsidiaries or, to the best
knowledge of CGB, its Affiliates, beneficially owns, directly or indirectly, any
shares of capital stock of Enterbank, securities of Enterbank convertible into,
or exchangeable for, such shares, or options, warrants or other rights to
acquire such shares (regardless of whether such securities, options, warrants or
other rights are then exercisable or convertible), nor is CGB or any of such
Subsidiaries or Affiliates a party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of
shares of capital stock of Enterbank or any such other securities, options,
warrants or other rights.
(v) No shares of CGB Common Stock are held directly or
indirectly by CGB or its Subsidiaries in trust accounts, managed accounts and
the like or otherwise held in a fiduciary or nominee capacity (any such shares,
and shares of Enterbank Common Stock which are similarly held, whether held
directly or indirectly by CGB or Enterbank or any of their respective
Subsidiaries, as the case may be, being referred to herein as "Trust Account
Shares") and no shares of CGB Common Stock are held by CGB or its Subsidiaries
in respect of a debt previously contracted (any such shares and shares of
Enterbank Common Stock which are similarly held, whether held directly or
indirectly by CGB or Enterbank or any of their respective Subsidiaries, as the
case may be, being referred to herein as "DPC Shares").
(c) AUTHORITY; NO VIOLATION.
(i) CGB has all requisite corporate power and authority to
enter into this Agreement and the other Transaction Agreements and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the other Transaction Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of CGB, other than the approval of this
Agreement and the Agreement of Merger by the holders of a majority of the
outstanding shares of CGB Common Stock (the "CGB Shareholder Approval"). The CGB
Shareholder Approval is the only vote of any class or series of CGB capital
stock necessary to approve this Agreement and the other Transaction Agreements
and the consummation of the transactions contemplated hereby and thereby. This
Agreement and the other Transaction Agreements have been duly executed and
delivered by CGB, and (assuming due authorization, execution and delivery by
Enterbank) constitute the valid and binding obligations of CGB, enforceable
against CGB in accordance with their terms, subject, as to enforceability, to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(ii) Except as set forth in Section 3.1(c)(ii) of the CGB
Disclosure Schedule, the execution and delivery by CGB of this Agreement and the
other Transaction Agreements does not or will not when delivered, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or constitute
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a default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on any assets (any such conflict,
violation, default, right of termination, cancellation or acceleration, loss or
creation, a "Violation") pursuant to, (x) any provision of the Articles of
Incorporation or Association or By-laws or comparable organizational documents
of CGB or any Subsidiary of CGB, or (y) subject to obtaining or making the
consents, approvals, orders, authorizations, registrations, declarations and
filings referred to in paragraph (iii) below, any loan or credit agreement,
note, mortgage, indenture, lease, CGB Benefit Plan (as defined in Section
3.1(k)) or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to CGB or any Subsidiary of CGB or its properties or
assets, which Violation, in the case of clause (y), individually or in the
aggregate, would have a material adverse effect on CGB.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign (a "Governmental Entity"), is required by or with respect to CGB or any
of its Subsidiaries in connection with the execution and delivery of this
Agreement or the other Transaction Agreements or the consummation by CGB of the
transactions contemplated hereby or thereby, which, if not made or obtained,
would have a material adverse effect on CGB or on the ability of CGB to perform
its obligations hereunder or thereunder on a timely basis, or on Enterbank's
ability to own, possess or exercise the rights of an owner with respect to the
business and assets of CGB and its Subsidiaries, except for (A) the filing of
applications and notices with the Board of Governors of the Federal Reserve
System (the "Federal Reserve") under the BHC Act and approval of same, (B) the
filing by Enterbank with the Securities and Exchange Commission (the "SEC") of a
joint proxy statement (the "Proxy Statement") in definitive form relating to the
meetings of the shareholders of CGB and Enterbank to be held to approve and
adopt this Agreement and the transactions contemplated hereby, (C) such
applications, filings, authorizations, orders and approvals as may be required
by the Office of the Comptroller of the Currency ("OCC") and the Kansas
Department of Banking and (D) the filing with the Secretaries of States of
Delaware and Kansas of the Agreement of Merger.
(d) FINANCIAL STATEMENTS. CGB has previously delivered to
Enterbank copies of (a) the consolidated statements of financial condition of
CGB and its Subsidiaries, as of December 31, for the fiscal years 1997 and 1998,
and the related consolidated statements of operations, comprehensive income
(loss), shareholders' equity and cash flows for the fiscal years 1996 through
1998, inclusive, in each case accompanied by the report of Deloitte & Touche LLP
(of KPMG LLP with respect to 1996), independent auditors with respect to CGB
(the consolidated financial statements of CGB and its Subsidiaries referred to
in this clause being hereinafter sometimes referred to as the "CGB Consolidated
Financial Statements") and (b) the unaudited condensed consolidated statement of
financial position of CGB and its Subsidiaries as of September 30, 1999 and the
unaudited condensed consolidated statements of operations of CGB and its
Subsidiaries for the nine-month periods ended September 30, 1998 and 1999 (the
unaudited
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condensed consolidated financial statements of CGB and its Subsidiaries referred
to in this clause being sometimes hereinafter referred to as the "CGB Interim
Financial Statements"). Each of the financial statements referred to in this
Section 3.1(d) (including the related notes, where applicable) fairly present,
and the financial statements referred to in Section 5.12 hereof will fairly
present (subject, in the cases of the CGB Interim Financial Statements, to
normal recurring and year-end audit adjustments, none of which are expected to
be material in nature or amount and the fact that the CGB Interim Financial
Statements do not contain footnotes), the results of the consolidated operations
and changes in shareholders' equity and consolidated financial condition of CGB
and its Subsidiaries for the respective fiscal periods or as of the respective
dates therein set forth. Each of such statements (including the related notes,
where applicable) complies, and the financial statements referred to in Section
5.12 hereof will comply, in all material respects, with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto and each of such statements (including the related notes, where
applicable) has been, and the financial statements referred to in Section 5.12
will be, prepared, in all material respects, in accordance with United States
generally accepted accounting principles ("GAAP") consistently applied during
the periods involved, except in each case as indicated in such statements or in
the notes thereto or, in the case of the CGB Interim Financial Statements
(subject to normal recurring and year-end audit adjustments), as permitted by
Form 10-Q. The books and records of CGB and its Subsidiaries have been, and are
being, maintained where required in all material respects in accordance with
GAAP and any other applicable legal and accounting requirements and, where such
books and records purport to reflect any transactions, the transactions so
reflected are actual transactions.
(e) CGB INFORMATION SUPPLIED. None of the information supplied
or to be supplied by CGB for inclusion or incorporation by reference in the
Proxy Statement relating to the meeting of the shareholders of CGB (the "CGB
Shareholders' Meeting") at which the CGB Shareholder Approval will be sought or
for inclusion in a registration statement on Form S-4 (the "S-4") will, at the
date of mailing to shareholders of CGB and at the time of the CGB Shareholders'
Meeting, (i) contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading or (ii) at the time and in the light of the circumstances
under which it is made, be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of a proxy for the
CGB Shareholders' Meeting which has become false or misleading.
(f) COMPLIANCE WITH APPLICABLE LAWS. CGB and its Subsidiaries
hold, and at all relevant times have held, all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities which are material
to the operation of the businesses of CGB and its Subsidiaries, taken as a whole
(the "CGB Permits"). CGB and its Subsidiaries are in compliance and have
complied with the terms of the CGB Permits, except where the failure so to
comply, individually or in the aggregate, would not have a material adverse
effect on CGB. The businesses of CGB and its Subsidiaries are not being
conducted in violation of any law, ordinance or regulation
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of any Governmental Entity, except for possible violations which, individually
or in the aggregate, do not, and, insofar as reasonably can be foreseen, in the
future will not, have a material adverse effect on CGB. Except for routine
examinations by Federal or state Governmental Entities charged with the
supervision or regulation of banks or bank holding companies or engaged in the
insurance of bank deposits ("Bank Regulators"), no investigation by any
Governmental Entity with respect to CGB or any of its Subsidiaries is pending or
threatened, and no proceedings by any Bank Regulator are pending or threatened
which seek to revoke or materially limit any of the CGB Permits. CGB and its
Subsidiaries do not offer or sell insurance and/or securities products,
including but not limited to annuity products, for their own account or the
account of others.
(g) LITIGATION. Except as set forth in Section 3.1(g) of the
CGB Disclosure Schedule, to the best knowledge of CGB, there is no suit, action,
proceeding, arbitration or investigation ("Litigation") pending to which CGB or
any Subsidiary of CGB is a party or by which any of such persons or their
respective assets may be bound or, to the best knowledge of CGB, threatened
against or affecting CGB or any Subsidiary of CGB, or challenging the validity
or propriety of the transactions contemplated hereby which, if adversely
determined, would, individually or in the aggregate, have or reasonably be
expected to have a material adverse effect on CGB or on the ability of CGB to
perform its obligations under this Agreement in a timely manner, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against CGB or any Subsidiary of CGB.
(h) TAXES. CGB and each of its Subsidiaries have timely filed
all tax returns required to be filed by any of them and all such tax returns
were, when filed, correct and complete in all material respects. CGB and each of
its Subsidiaries have timely paid (or CGB has paid on their behalf), or have set
up an adequate reserve for the payment of, all taxes required to be paid
(whether or not shown as due on such returns), and the most recent financial
statements that have been delivered to Enterbank reflect an adequate reserve
(other than reserves for deferred taxes established to reflect differences
between tax and book basis of assets and liabilities) for all taxes accrued but
not yet due and owing, by CGB and its Subsidiaries accrued through the date of
such financial statements. CGB and its Subsidiaries file tax returns in all
jurisdictions where required to file tax returns. No material deficiencies for
any taxes have been asserted or assessed against CGB or any of its Subsidiaries
that are not adequately reserved for (other than reserves for deferred taxes
established to reflect differences between tax and book basis of assets and
liabilities). Except as set forth in Section 3.1(h) of the CGB Disclosure
Schedule: (i) there are no liens with respect to taxes upon any of the assets or
properties of CGB and its Subsidiaries, other than with respect to taxes not yet
due and payable, (ii) no material issue relating to taxes of CGB and its
Subsidiaries has been raised in writing by any taxing authority in any audit or
examination which can result in a proposed adjustment or assessment by a
governmental authority in a taxable period (or portion thereof) ending on or
before the Closing Date nor, to the best knowledge of CGB, does any basis exist
for the raising of any such issue, (iii) CGB and its Subsidiaries have duly and
timely withheld from all payments (including employee salaries, wages and other
compensation) and paid over to the appropriate taxing authorities all amounts
required to be so withheld and paid over for all periods for which the statute
of limitations has not expired under all applicable laws and regulations, (iv)
as of the Closing Date,
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none of CGB nor any of its Subsidiaries shall be a party to, be bound by or have
any obligation under, any tax sharing agreement or similar contract or
arrangement or any agreement that obligates any of them to make any payment
computed by reference to the taxes, taxable income or taxable losses of any
other person, (v) except as set forth on Section 3.1(h) of the CGB Disclosure
Schedule, there is no contract or agreement, plan or arrangement by CGB or any
of its Subsidiaries covering any person that, individually or collectively,
could give rise to the payment of any amount that would not be deductible by CGB
or any of its Subsidiaries by reason of section 280G of the Code, (vi) CGB and
its Subsidiaries have collected all material sales and use taxes required to be
collected, and have remitted, or will remit on a timely basis, such amounts to
the appropriate governmental authorities, or have been furnished properly
completed exemption certificates and have maintained all such records and
supporting documents in all material respects in the manner required by all
applicable sales and use tax statutes and regulations for all periods for which
the statute of limitations has not expired, (vii) neither CGB nor any of its
Subsidiaries has been a United States real property holding corporation within
the meaning of section 897(c)(2) of the Code during the applicable period
specified in section 897(c)(1)(A)(ii) of the Code, and (viii) none of CGB nor
any of its Subsidiaries (A) has been a member of an affiliated group (other than
the group to which they are currently members) filing a consolidated federal
income tax return or (B) has any liability for the taxes of any person (other
than the members of such current group) under Treasury Regulation section
1.1502-6(a) (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise. For the purpose of this
Agreement, the term "tax" (including, with correlative meaning, the terms
"taxes" and "taxable") shall include, except where the context otherwise
requires, all Federal, state, local and foreign income, profits, franchise,
gross receipts, payroll, sales, employment, use, property, withholding, excise,
occupancy, custom, duty, capital stock, ad valorem, value added, estimated,
stamp, alternative, environmental, any taxes imposed under Subchapter H of
Chapter I of Subtitle A of the Code, and other taxes, duties or assessments of
any nature whatsoever, together with all interest, penalties and additions
imposed with respect to such amounts. As used in this Agreement, the term "Tax
return" shall mean any return, declaration, report, claim for refund or
information return or statement relating to taxes, including any schedule or
attachment thereto, and including any amendment thereof. None of CGB nor any of
its Subsidiaries has filed a consent to the application of section 341(f) of the
Code.
(i) CERTAIN AGREEMENTS. Section 3.1(i) of the CGB Disclosure
Schedule sets forth a listing of all of the following contracts and other
agreements, oral or written (which are currently in force or which may in the
future be operative in any respect) to which CGB or any of its Subsidiaries is a
party or by or to which CGB or any of its Subsidiaries or any of their
respective assets or properties are bound or subject: (i) consulting agreements
not terminable on six months or less notice involving the payment of more than
$25,000 per annum, or union, guild or collective bargaining agreements covering
any employees in the United States, (ii) agreements with any officer or other
key employee of CGB or any of its Subsidiaries (x) providing any term of
employment or (y) the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving CGB of
the nature contemplated by this Agreement, (iii) any agreement or plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this
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Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement, (iv) contracts
and other agreements for the sale or lease (other than where CGB or any of its
Subsidiaries is a lessor) of any assets or properties (other than in the
ordinary course of business) or for the grant to any person (other than to CGB
or any of its Subsidiaries) of any preferential rights to purchase any assets or
properties, (v) contracts and other agreements relating to the acquisition by
CGB or any of its Subsidiaries of any operating business or entity or any
interest therein, (vi) contracts or other agreements under which CGB or any of
its Subsidiaries agrees to indemnify any party, other than in the ordinary
course of business, consistent with past practice, or to share a tax liability
of any party, (vii) contracts and other agreements containing covenants
restricting CGB or any of its Subsidiaries from competing in any line of
business or with any person in any geographical area or requiring CGB or any of
its Subsidiaries to engage in any line of business, (viii) contracts or other
agreements (other than contracts in the ordinary course of their banking
business) relating to the borrowing of money by CGB or any of its Subsidiaries,
or the direct or indirect guaranty by CGB or any of its Subsidiaries of any
obligation for, or an agreement by CGB or any of its Subsidiaries to service,
the repayment of borrowed money, or any other contingent obligations of CGB or
any of its Subsidiaries in respect of indebtedness of any other person, and (ix)
any other material contract or other agreement whether or not made in the
ordinary course of business, including any contract which would be required to
be filed pursuant to Item 601(b)(10) of Regulation S-K of the SEC. There have
been delivered or made available to Enterbank true and complete copies of all of
the contracts and other agreements set forth in Section 3.1(i) of the CGB
Disclosure Schedule and in any other Section of the CGB Disclosure Schedule.
Except as set forth in Section 3.1(i) of the CGB Disclosure Schedule, each such
contract and other agreement is in full force and effect and constitutes a
legal, valid and binding obligation of CGB or its Subsidiaries, as the case may
be, and to the best knowledge of CGB, each other party thereto, enforceable in
accordance with its terms subject, as to enforceability, to bankruptcy,
insolvency, and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. Neither CGB nor any
Subsidiary of CGB has received any notice, whether written or oral, of
termination or intention to terminate from any other party to such contract or
agreement. None of CGB or any of its Subsidiaries or (to the best knowledge of
CGB) any other party to any such contract or agreement is in violation or breach
of or default under any such contract or agreement (or with or without notice or
lapse of time or both, would be in violation or breach of or default under any
such contract or agreement), which violation, breach or default has had or would
have, individually or in the aggregate, a material adverse effect on CGB.
(j) BENEFIT PLANS.
(i) Section 3.1(j)(i) of the CGB Disclosure Schedule
contains a true and complete list of each "employee benefit plan" (within the
meaning of section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), including, without limitation, multiemployer plans
(within the meaning of ERISA section 3(37)), and all stock purchase, stock
option, severance, employment, change-in-control, fringe benefit, collective
bargaining, bonus, incentive, deferred compensation, employee stock ownership,
retirement, profit sharing and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not
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subject to ERISA, and whether formal or informal, oral or written (all the
foregoing being herein called "Benefit Plans"), that are sponsored or are being
maintained or contributed to, or required to be contributed to, by CGB or any of
its Subsidiaries (the "CGB Benefit Plans"). No CGB Benefit Plan is a
multiemployer plan or is subject to a collective bargaining agreement.
(ii) With respect to each CGB Benefit Plan, CGB has
delivered to Enterbank a current, accurate and complete copy (or, to the extent
no such copy exists, an accurate description) thereof and, to the extent
applicable, (A) any related trust agreement or other funding instrument; (B) the
most recent determination letter; (C) any summary plan description and other
written communications (or a description of any oral communications) by CGB or
any of its Subsidiaries to any of their respective employees concerning the
extent of the benefits provided under any CGB Benefit Plan; and (D) except as
described in Section 3.1(j)(ii) of the CGB Disclosure Schedule, for the two most
recent years (I) the Form 5500 and attached schedules; (II) audited financial
statements; and (III) actuarial valuation reports.
(iii) Except as set forth in Section 3.1(j)(iii) of the
CGB Disclosure Schedule, (A) each CGB Benefit Plan has been established and
administered in accordance with its terms, and in compliance in all material
respects with the applicable provisions of ERISA, the Code and other applicable
laws, rules and regulations; (B) each CGB Benefit Plan which is intended to be
qualified within the meaning of Code section 401(a) is so qualified and has
received a favorable determination letter as to its qualification and nothing
has occurred, whether by action or failure to act, which would cause the loss of
such qualification; (C) with respect to any CGB Benefit Plan, no audits,
actions, suits or claims (other than routine claims for benefits in the ordinary
course) are pending or threatened, and no facts or circumstances exist which
could give rise to any such audits, actions, suits or claims; (D) neither CGB
nor any other party has engaged in a prohibited transaction which could subject
CGB or any of its Subsidiaries, or the Surviving Corporation, to any taxes,
penalties or other liabilities under Code section 4975 or ERISA sections 409 or
502(i); (E) no event has occurred and no condition exists that could subject CGB
or any of its Subsidiaries, or the Surviving Corporation, either directly or by
reason of any such entity's affiliation with any member of any such entity's
Controlled Group (defined as any organization which is a member of a controlled
group of organizations within the meaning of Code sections 414(b), (c), (m) or
(o)), to any tax, fine, liability or penalty imposed by ERISA, the Code or other
applicable laws, rules and regulations; (F) all insurance and Pension Benefit
Guaranty Corporation ("PBGC") premiums required to be paid with respect to CGB
Benefit Plans through the Closing Date have been or will be paid prior thereto
and adequate reserves will have been provided for on CGB's consolidated
statement of financial condition as of the month end immediately prior to the
Closing Date for any premiums (or portions thereof) attributable to service on
or prior to the Closing Date; (G) all contributions required to be made prior to
the Closing Date under the terms of each CGB Benefit Plan, the Code, ERISA or
other applicable laws, rules and regulations have been or will be timely made
and adequate reserves will have been provided for on CGB's consolidated
statement of financial condition as of the month end immediately prior to the
Closing Date for all benefits attributable to service on or prior to the Closing
Date; (H) no CGB Benefit Plan has incurred any "accumulated funding deficiency"
as such term is defined in ERISA section 302 and (including, but not limited to
the voting of any securities
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held pursuant to an CGB Benefit Plan) Code section 412 (whether or not waived);
(I) the consummation of this Agreement will not result in a nonexempt prohibited
transaction or a breach of fiduciary duty under ERISA; and (J) no CGB Benefit
Plan provides health coverage beyond the termination of employment except as
provided under Code section 4980B.
(iv) Except as set forth in Section 3.1(j)(iv) of the CGB
Disclosure Schedule, with respect to each of the CGB Benefit Plans which is
subject to Title IV of ERISA, as of the Closing Date, the assets of each such
Plan shall be at least equal in value to the present value of the accrued
benefits (vested and unvested) of the participants in such Plan on a termination
and projected basis, based on the actuarial methods and assumptions indicated in
the most recent actuarial valuation reports.
(v) Except as set forth on Section 3.1(j)(v) of the CGB
Disclosure Schedule, no CGB Benefit Plan exists which provides for an increase
in benefits on or after the Closing Date or could result in the payment to any
employee of CGB or any of its Subsidiaries of any money or other property or
rights or accelerate or provide any other rights or benefits to any such
employee as a result of the transactions contemplated by this Agreement. The
aggregate amount of payments due from CGB under all such contracts and the
amount due under each such contract, at the Effective Time, are as set forth in
the schedule included in Section 3.1(j)(v) of the CGB Disclosure Schedule.
Except as set forth in Section 3.1(j)(v) of the CGB Disclosure Schedule, none of
such payments will constitute an "excess parachute" payment within the meaning
of Code section 280G.
(k) SUBSIDIARIES. Section 3.1(k) of the CGB Disclosure
Schedule lists all the Subsidiaries of CGB. CGB owns, directly or indirectly,
beneficially and of record 100% of the issued and outstanding voting securities
of each such Subsidiary. All of the shares of capital stock of each of the
Subsidiaries held by CGB or by another of its Subsidiaries are fully paid and
nonassessable and are owned by CGB or one of its Subsidiaries free and clear of
any lien, claim or other encumbrance. Neither CGB nor any of its Subsidiaries
owns any shares of capital stock or other equity securities of any person (other
than, in the case of CGB, the capital stock of its Subsidiaries and, in the case
of such Subsidiaries, shares or equity securities acquired in satisfaction of
debts previously contracted in good faith in the ordinary course of their
banking business).
(l) AGREEMENTS WITH BANK OR OTHER REGULATORS. Except as set
forth in Section 3.1(l) of the CGB Disclosure Schedule, neither CGB nor any
Subsidiary of CGB is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, or has adopted any board resolutions at
the request of, any Bank Regulator which restricts materially the conduct by CGB
or its Subsidiaries of their businesses, or in any manner relates to their
capital adequacy, credit policies, community reinvestment, loan underwriting or
documentation or management, nor has CGB or any such Subsidiary been advised by
any Bank Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of
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understanding, extraordinary supervisory letter, commitment letter or similar
submission, or any such board resolutions.
(m) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in Section 3.1(m) of the CGB Disclosure Schedule, since September 30, 1999, (i)
there has not been any change, or any event involving a prospective change, in
the business, financial condition or results of operations or prospects of CGB
or any of its Subsidiaries which has had, or would be reasonably likely to have,
a material adverse effect on CGB, and (ii) CGB and each of its Subsidiaries have
conducted their respective businesses in the ordinary course consistent with
their past practices and neither CGB nor any of its Subsidiaries has taken any
action or entered into any transaction, and no event has occurred, that would
have required Enterbank's consent pursuant to Section 4.1 of this Agreement if
such action had been taken, transaction entered into or event had occurred, in
each case, after the date of this Agreement, nor has CGB or any of its
Subsidiaries entered into any agreement, plan or arrangement to do any of the
foregoing.
(n) UNDISCLOSED LIABILITIES. Except as set forth in Section
3.1(n) of the CGB Disclosure Schedule, and except (i) for those liabilities or
obligations that are fully reflected or reserved against in the condensed
consolidated statement of financial condition at September 30, 1999 of CGB
referred to in Section 3.1(d) or (ii) for liabilities or obligations incurred in
the ordinary course of business consistent with past practice since September
30, 1999 and which are not material to CGB and its Subsidiaries taken as a
whole, none of CGB or any of its Subsidiaries has incurred any liability or
obligation of any nature whatsoever (whether absolute, accrued or contingent or
otherwise and whether due or to become due) that, either alone or when combined
with all similar liabilities or obligations, has had, or would have, a material
adverse effect on CGB. No agreement pursuant to which any loans or other assets
have been or will be sold by CGB or any Subsidiary entitle the buyer of such
loans or other assets, unless there is material breach of a representation or
covenant by CGB or its Subsidiaries not relating to the payment or other
performance by an obligor of such loan or other asset of its obligations
thereunder, to cause CGB or its Subsidiaries to repurchase such loan or other
asset or the buyer to pursue any other form of recourse against CGB or its
Subsidiaries.
(o) GOVERNMENTAL REPORTS. CGB and each of its Subsidiaries
have timely filed all material reports, registrations and statements, together
with any amendments required to be made with respect thereto, that they were
required to file since January 1, 1995 with any Governmental Entity and have
paid all fees and assessments due and payable in connection therewith. Except as
set forth in Section 3.1(o) of the CGB Disclosure Schedule and except for normal
examinations conducted by a Governmental Entity in the regular course of
business of CGB and its Subsidiaries, no Governmental Entity has initiated any
proceeding or, to the best knowledge of CGB, investigation into the business or
operations of CGB or any of its Subsidiaries since January 1, 1995. Except as
set forth in Section 3.1(o) of the CGB Disclosure Schedule, there is no material
unresolved violation, criticism or exception by any Governmental Entity with
respect to any report or statement relating to any examinations of CGB or any of
its Subsidiaries.
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(p) ENVIRONMENTAL LIABILITY.
(i) Except as set forth in Section 3.1(p) of the CGB
Disclosure Schedule, to the best knowledge of CGB, there are no pending or
threatened claims, actions or proceedings against CGB or FCB relating to:
(A) any asserted liability of CGB or any of its
Affiliates or any current or prior owner, operator, occupier or user of any Real
Property (as defined herein) under any Environmental Law (as defined herein),
including without limitation, the terms and conditions of any permit, license,
authority, settlement or other obligation arising under any Environmental Law;
(B) any handling, storage, use or disposal of
Hazardous Substances (as defined herein) on, under or within any Real Property
or any transportation or removal of Hazardous Substances to or from any Real
Property;
(C) any actual or threatened discharge, release or
emission of Hazardous Substances from, on, under or within any Real Property
into the air, water, surface water, groundwater, land surface or subsurface
strata; or
(D) any actual or asserted claims for personal
injuries, illness or damage to real or personal property related to or arising
out of exposure to Hazardous Substances discharged, released or emitted from,
on, under, within or into, or transported from or to, any Real Property.
(ii) Except as set forth in Section 3.1(p) of the CGB
Disclosure Schedule, to the best knowledge of CGB, no Hazardous Substances are
present on, under or within any Real Property (except those Hazardous Substances
used in the normal course of operating or maintaining the business of CGB or any
Subsidiary of CGB) and, except as set forth in Section 3.1(p) of the CGB
Disclosure Schedule, the presence of these Hazardous Substances does not violate
any Environmental Law. Except as set forth in Section 3.1(p) of the CGB
Disclosure Schedule, to the best knowledge of CGB, there are no storage tanks
underground or otherwise present on any Real Property and all such tanks set
forth in Section 3.1(p) of the CGB Disclosure Schedule comply in all material
respects with applicable law, all permits in respect thereof are in full force
and effect and there have been no releases or discharges of Hazardous Substances
from such tanks to the environment.
(iii) To the best knowledge of CGB, except as set forth in
Section 3.1(p) of the CGB Disclosure Schedule, no Hazardous Substances have
been, or have been threatened to be, discharged, released or emitted in a
Reportable Quantity (as defined herein) into the air, water, surface water,
groundwater, land surface or subsurface strata or transported to or from the
Real Property except in accordance with Environmental Laws (in particular, but
without limitation, in accordance with any permits issued pursuant thereto). To
the best knowledge of CGB, all notifications, remediation, removal or other
response actions of any kind whatsoever, in respect of
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such discharges, releases and emissions which are required by Environmental
Laws, and by applicable agreements with third parties, have been made within the
time limits prescribed by such Environmental Laws and such third party
agreements. Copies of all such notifications or documents relating to any
remediation, removal or response action have previously been provided to
Enterbank.
(iv) To the best knowledge of CGB, except as set forth in
Section 3.1(p) of the CGB Disclosure Schedule, CGB and its Affiliates are in
compliance, in all material respects, with all Environmental Laws related to the
ownership, operation, use and occupation of the Real Property.
(v) To the best knowledge of CGB, except as set forth in
Section 3.1(p) of the CGB Disclosure Schedule, no part of any Real Property is
listed on CERCLIS or the National Priorities List created pursuant to the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, as a site containing Hazardous Substances.
(vi) CGB has provided Enterbank with copies of all material
notices posted by it under any Environmental Law with respect to the Real
Property at which the business of CGB or its Subsidiaries is conducted.
(vii) All properties held by CGB or its Subsidiaries under
leases are held by them under valid, binding and enforceable leases, with such
exceptions as are not material and do not interfere with the conduct of the
business of CGB, and CGB enjoys quiet and peaceful possession of such leased
property. CGB and its Subsidiaries are not in default in any material respect
under any material lease, agreement or obligation regarding their properties to
which they are a party or by which they are bound.
(viii) Except as set forth in Section 3.1(p) of the CGB
Disclosure Schedule, all of CGB's and its Subsidiaries' rights and obligations
under the leases referred to in Section 3.1(p)(vii) above do not require the
consent of any other party to the transactions contemplated by this Agreement.
(ix) For purposes of this Section 3.1(p) and Section 3.2(p)
only, the following terms shall have the indicated meaning:
"Business" means the business conducted at any Real Property (as
defined below).
"Environmental Law" means any and all applicable federal, state and
local laws (whether under common law, statute, rule, regulation or otherwise),
requirements under permits issued with respect thereto, and other orders,
decrees, judgments, directives or other requirements of any governmental
authority relating to the environment, or to any Hazardous Substances.
"Hazardous Substances" means any chemical, compound, material, mixture,
living organism or substance that is now defined or listed in, or otherwise
classified or regulated in any way pursuant
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to, any Environmental Laws as a "hazardous waste," "hazardous substance,"
"hazardous material," "extremely hazardous waste," "infectious waste," "toxic
substance," or "toxic pollutants," such materials, including without limitation,
oil, waste oil, petroleum, waste petroleum, polychlorinated biphenyls ("PCBs"),
asbestos, radon, natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel (or mixtures of natural gas and such synthetic
gas).
"Real Property" means all interests in real property of CGB or its
Subsidiaries (with respect to Section 3.1) or Enterbank or its Subsidiaries
(with respect to Section 3.2), including without limitation, interests in fee,
leasehold, interest as mortgagee or secured party, or option or contract to
purchase or acquire.
"Reportable Quantity" means the quantity set forth in 40 C.F.R. Part
302 as it is in effect on the effective date of this Agreement for the
particular Hazardous Substances set forth therein. With respect to Hazardous
Substances not listed in that part, if any, "reportable quantity" means that
quantity which, if released, would be required to be reported to a Governmental
Entity pursuant to applicable Environmental Law. "Reportable Quantity" shall be
determined based on a single release or series of related releases or threatened
releases.
(q) PROPERTIES. Except as set forth in Section 3.1(q) of the
CGB Disclosure Schedule, CGB or its Subsidiaries (i) has good and marketable
title to all Real Property owned in fee, and good title to all other properties
and assets reflected in the CGB Consolidated Financial Statements as being owned
by CGB or its Subsidiaries or acquired after the date thereof which are material
to the business of CGB on a consolidated basis (except properties sold or
otherwise disposed of since the date thereof in the ordinary course of
business), free and clear of all claims, liens, charges, security interests or
encumbrances of any nature whatsoever except (A) statutory liens securing
payments not yet delinquent, (B) liens on assets of FCB securing deposits
incurred in the ordinary course of its banking business and (C) such
imperfections or irregularities of title, claims, liens, charges, security
interests or encumbrances as do not materially affect the use of the properties
or assets subject thereto or affected thereby or otherwise materially impair
business operations at such properties and (ii) is the lessee of all leasehold
estates reflected in the CGB Consolidated Financial Statements or acquired after
the date thereof which are material to its business on a consolidated basis
(except for leases that have expired by their terms since the date thereof) and
is in possession of the properties purported to be leased thereunder, and each
such lease is valid without material default thereunder by the lessee or, to the
best knowledge of CGB, the lessor. Except as set forth in Section 3.1(q) of the
CGB Disclosure Schedule, all real properties owned by CGB or its Subsidiaries
are owned in accordance in all material respects with all requirements of
applicable rules, regulations and policies of the Bank Regulators.
(r) TRANSACTIONS WITH AFFILIATES. Except as set forth in
Section 3.1(r) of the CGB Disclosure Schedule and except for those arrangements,
contracts, agreements or transactions which were entered into in the ordinary
course of business, since December 31, 1998, neither CGB nor FCB has extended
credit, committed to extend credit or transferred any asset to or assumed or
guaranteed any liability of or entered into any other transactions with the
employees or directors of
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CGB or FCB, or any spouse or child of any of them, or to any of their
"affiliates" or "associates" as such terms are defined in Rule 405 under the
Securities Act of 1933 (the "Securities Act"). Any such transactions, including
those in the ordinary course of business, have been on terms no less favorable
than those which would prevail in an arm's-length transaction with an
independent third party.
(s) BROKERS OR FINDERS. No agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement.
(t) INTELLECTUAL PROPERTY. Except as set forth in Section
3.1(t) of the CGB Disclosure Schedule, CGB and its Subsidiaries own or have a
valid license to use all trademarks, service marks and trade names (including
any registrations or applications for registration of any of the foregoing)
(collectively, the "CGB Intellectual Property") necessary to carry on their
business substantially as currently conducted, except for such CGB Intellectual
Property the failure of which to own or validly license, individually or in the
aggregate, would not reasonably be expected to have a material adverse effect on
CGB. Neither CGB nor any such Subsidiary has received any notice of infringement
of or conflict with, and, to the best knowledge of CGB, there are no
infringements of or conflicts with, the rights of others with respect to the use
of any CGB Intellectual Property that, individually or in the aggregate, in
either such case, would reasonably be expected to have a material adverse effect
on CGB.
(u) POOLING OF INTERESTS. Except as set forth in Section
3.1(u) of the CGB Disclosure Schedule, as of the date of this Agreement, CGB has
no reason (in respect to matters pertaining to CGB existing as of the date
hereof or expected to exist as of the Closing Date) to believe that CGB will not
qualify for pooling of interests treatment for accounting purposes under GAAP as
presently in effect.
(v) OPINION OF FINANCIAL ADVISOR. CGB has received the written
opinion of Fister & Associates, Inc. dated the date hereof, to the effect that,
as of such date, subject to the limitations and conditions contained therein,
the consideration to be received by the holders of CGB Common Stock pursuant to
the Merger is fair to such holders from a financial point of view.
(w) COMMUNITY REINVESTMENT ACT COMPLIANCE. FCB is in
substantial compliance with the applicable provisions of the Community
Reinvestment Act of 1977 and the regulations promulgated thereunder
(collectively, the "CRA") and has received a CRA rating of "satisfactory" from
the OCC in its most recent examination, and neither CGB nor FCB has any
knowledge of the existence of any fact or circumstance or set of facts or
circumstances which could be reasonably expected to result in FCB failing to be
in substantial compliance with such provisions or having its current rating
lowered.
(x) YEAR 2000 READINESS. There have been no material adverse
effects on either CGB or its Subsidiaries as a result of the date change for any
date on or after January 1, 2000, including leap year calculations, and that, to
the extent applicable to normal operating specifications,
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CGB's and its Subsidiaries' computer systems and equipment have in all material
respects accurately accepted, stored, retrieved, calculated, compared and
otherwise processed dates of January 1, 2000 and later.
(y) INSURANCE. CGB has previously delivered to Enterbank a
list identifying all insurance policies maintained on behalf of CGB and its
Subsidiaries (other than mortgage, title and other similar policies for the
benefit of CGB or its Subsidiaries as mortgagees under residential mortgage
loans). All of the material insurance policies and bonds maintained by or for
the benefit of CGB and its Subsidiaries are in full force and effect, to the
best knowledge of CGB, CGB and its Subsidiaries are not in default thereunder,
and all material claims thereunder have been filed in due and timely fashion,
and neither CGB nor any of its Subsidiaries has received notice that any of such
material claims have been or will be denied. The insurance policies and bonds
maintained by CGB and its Subsidiaries are written by reputable insurers and are
in such amounts, cover such risks and have such other terms as is customary for
banks and bank holding companies comparable in size and operations to CGB and
its Subsidiaries. Since December 31, 1998, there has not been any damage to,
destruction of, or loss of any assets of CGB and its Subsidiaries (whether or
not covered by insurance) that could have a material adverse effect on CGB.
Neither CGB nor any of its Subsidiaries has received any notice of a premium
increase or cancellation with respect to any of its insurance policies or bonds,
and within the last three years, neither CGB nor any of its Subsidiaries has
been refused any insurance coverage sought or applied for, and CGB has no reason
to believe that existing insurance coverage cannot be renewed as and when the
same shall expire, upon terms and conditions as favorable as those presently in
effect, other than possible increases in premiums or unavailability in coverage
that have not resulted from an extraordinary loss experience of CGB or any CGB
Subsidiary.
(z) LOANS AND OTHER ASSETS.
(i) CGB has disclosed to Enterbank prior to the date
hereof the amounts of all loans, leases, other extensions of credit, commitments
or other interest-bearing assets presently owned by CGB or any of its
Subsidiaries that have been classified by any Bank Regulator, CGB's independent
auditors, or the management of CGB or any Subsidiary of CGB as "Other Loans
Especially Mentioned," "Substandard," "Doubtful," or "Loss", or classified using
categories with similar import, and will have disclosed promptly to Enterbank
prior to the Closing Date all such items which will be so classified hereafter
and prior to the Closing Date. All such assets or portions thereof classified
"Loss", or which are subsequently so classified, have been (or will be) charged
off on a timely basis in full, collected or otherwise placed in a bankable
condition. CGB regularly reviews and appropriately classifies its and its
Subsidiaries' loans and other assets in accordance in all material respects with
all applicable legal and regulatory requirements and GAAP. CGB has disclosed to
Enterbank the amounts and identities of all other real estate owned ("OREO")
that has been classified as such as of the date hereof by CGB's independent
auditors, management of CGB or any Bank Regulator and will have promptly
disclosed to Enterbank prior to the Closing Date all such assets which will be
so classified hereafter and prior to the Closing Date. As of the date hereof and
the Closing Date, the recorded values of all OREO on the books of CGB and its
Subsidiaries
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<PAGE> 34
accurately reflect and will reflect the net realizable values of each OREO
parcel thereof in compliance with GAAP. CGB and its Subsidiaries have recorded
on a timely basis all expenses associated with or incidental to its OREO,
including but not limited to taxes, maintenance and repairs as required by GAAP.
(ii) All loans, leases, other extensions of credit,
commitments or other interest-bearing assets and investments of CGB and its
Subsidiaries are legal, valid and binding obligations enforceable in accordance
with their respective terms and are not subject to any setoffs, counterclaims or
disputes known to CGB (subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general applicability), except as previously disclosed
to Enterbank in Section 3.1(aa)(ii) of the CGB Disclosure Schedule or reserved
for in the consolidated statement of financial condition of CGB as of December
31, 1998 referred to in Section 3.1(d) in accordance with GAAP, and were duly
authorized under and made in compliance with applicable federal and state laws
and regulations. CGB and its Subsidiaries do not have any extensions or letters
of credit, investments, guarantees, indemnification agreements or commitments
for the same (including without limitation commitments to issue letters of
credit, to create acceptances, or to repurchase securities, federal funds or
other assets) other than those documented on the books and records of CGB and
its Subsidiaries.
(aa) RESTRICTIONS ON INVESTMENTS. Except for pledges to secure
public and trust deposits and repurchase agreements in the ordinary course of
business and except as described in Section 3.1(aa) of the CGB Disclosure
Schedule, none of the investments reflected in the condensed consolidated
statement of financial condition of CGB as of September 30, 1999 referred to in
Section 3.1(d), and none of the investments made by CGB and its Subsidiaries
since September 30, 1999, is subject to any restriction, whether contractual or
statutory, which materially impairs the ability of CGB or its Subsidiaries
freely to dispose of such investment at any time.
(bb) NO BROKERED DEPOSITS. Except as described in Section
3.1(bb) of the CGB Disclosure Schedule, as of the date hereof, neither CGB nor
any of its Subsidiaries now has any "brokered deposits" as such deposits are
defined by applicable regulations of the OCC as of the date hereof.
(cc) DERIVATIVES CONTRACTS; STRUCTURED NOTES; ETC. Except as
set forth in Section 3.1(cc) of the CGB Disclosure Schedule, neither CGB nor any
Subsidiary is a party to or has agreed to enter into an exchange traded or
over-the-counter equity, interest rate, foreign exchange or other swap, forward,
future, option, cap, floor or collar or any other contract that is not included
on the balance sheet and is a derivatives contract (including various
combinations thereof) (each, a "Derivatives Contract") or owns securities that
(1) are referred to generically as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating rate mortgage
derivatives" or (2) are likely to have changes in value as a result of interest
or exchange rate changes that significantly exceed normal changes in value
attributable to interest or exchange rate changes, except for those Derivatives
Contracts and other instruments legally purchased or entered into in the
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ordinary course of their banking business, consistent with safe and sound
banking practices and regulatory guidance, and with counterparties reasonably
believed by CGB to be financially responsible. All of such Derivatives Contracts
or other instruments are legal, valid and binding obligations of CGB or one of
its Subsidiaries and, to the best knowledge of CGB, each of the other
counterparties thereto, enforceable in accordance with their terms (except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally), and are in full force and
effect. CGB and each of its Subsidiaries and, to the best knowledge of CGB, each
of the other counterparties thereto, have duly performed in all material
respects all of their material obligations thereunder to the extent that such
obligations to perform have accrued; and there are no breaches, violations or
defaults or allegations or assertions of such by any party thereunder which
would have or would reasonably be expected to have a material adverse effect on
CGB.
(dd) LABOR MATTERS. Neither CGB nor any of its Subsidiaries is
a party to, or is bound by, any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor
is it or any of its Subsidiaries the subject of a proceeding asserting that it
or any such Subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel it or such
Subsidiary to bargain with any labor organization as to wages and conditions of
employment, nor is there any strike or other labor dispute involving it or any
of its Subsidiaries pending or, to the best of its knowledge, threatened, nor is
it aware of any activity involving it or any of its Subsidiaries' employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
3.2 REPRESENTATIONS AND WARRANTIES OF ENTERBANK. Enterbank
represents and warrants to CGB as follows:
(a) ORGANIZATION, STANDING AND POWER. Enterbank is a bank
holding company registered under the BHC Act. The deposit accounts of
Enterbank's bank Subsidiaries are insured by the BIF of the FDIC to the fullest
extent permitted by law, and all premiums and assessments required in connection
therewith have been paid when due. Enterbank and each of its Subsidiaries is a
bank or corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation or organization, has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary, other
than in such jurisdictions where the failure so to qualify would not, either
individually or in the aggregate, have a material adverse effect on Enterbank.
The Certificate or Articles of Incorporation or Association and By-laws of each
of Enterbank, and each Subsidiary of Enterbank, copies of which were previously
made available to CGB, are true, complete and correct. The minute books of
Enterbank and its Subsidiaries which have been made available to CGB contain a
complete (except for certain portions thereof relating to the Merger and the
transactions contemplated hereby) and accurate record of all meetings of the
respective Boards of Directors (and committees thereof) and shareholders.
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<PAGE> 36
(b) CAPITAL STRUCTURE; OWNERSHIP OF ENTERBANK COMMON STOCK.
(i) The authorized capital stock of Enterbank consists
of 20,000,000 shares of Enterbank Common Stock, par value $.01 per share, of
which as of December 27, 1999, 7,143,636 shares of Enterbank Common Stock were
outstanding (none having been issued thereafter except from the exercise of
Enterbank Options). All outstanding shares of Enterbank Common Stock have been
duly authorized and validly issued and are fully paid and non-assessable and not
subject to preemptive rights. At the Effective Time, the Enterbank Common Stock
to be issued hereunder will be, when issued in accordance with the terms hereof,
duly authorized, validly issued, fully paid and non-assessable and not subject
to preemptive rights.
(ii) Except for this Agreement and except as set forth in
Section 3.2(b)(ii) of the disclosure schedule of Enterbank delivered to CGB on
the date hereof (the "Enterbank Disclosure Schedule"), (A) there are no options,
warrants, calls, rights, commitments or agreements of any character to which
Enterbank or any of its Subsidiaries or Affiliates is a party or by which any of
the foregoing are bound obligating Enterbank or any of its Subsidiaries or
Affiliates to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock of Enterbank or any of its Subsidiaries or
obligating Enterbank or any of its Subsidiaries or Affiliates to grant, extend
or enter into any such option, warrant, call, right, commitment or agreement,
(B) there are no outstanding contractual obligations of Enterbank or any of its
Subsidiaries or Affiliates to repurchase, redeem or otherwise acquire any shares
of capital stock of Enterbank or any of its Subsidiaries and (C) there are no
outstanding securities of any kind convertible into or exchangeable for the
capital stock of Enterbank or any of its Subsidiaries (or any interest therein).
Except as set forth in Section 3.2(b)(ii) of the Enterbank Disclosure Schedule,
there is no agreement of any kind to which Enterbank is a party and, to the
knowledge of Enterbank (without inquiry), no other agreement of any kind, in
each case that gives any person any right to participate in the equity, value or
income of, or to vote (x) in the election of directors or officers of, or (y)
otherwise with respect to the affairs of, Enterbank or any of its Subsidiaries.
(iii) Neither Enterbank nor any of its Subsidiaries or, to
the best knowledge of Enterbank, its Affiliates, beneficially owns, directly or
indirectly, any shares of capital stock of CGB, securities of CGB convertible
into, or exchangeable for, such shares, or options, warrants or other rights to
acquire such shares (regardless of whether such securities, options, warrants or
other rights are then exercisable or convertible), nor, except as set forth in
Section 3.2(b)(iii) of the Enterbank Disclosure Schedule, is Enterbank or any of
such Subsidiaries or Affiliates a party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of
shares of capital stock of CGB or any such other securities, options, warrants
or other rights.
(iv) Except as set forth in Section 3.2(b)(iv) of the
Disclosure Schedule, no shares of Enterbank Common Stock held directly or
indirectly by Enterbank are Trust Account Shares or DPC Shares.
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(c) AUTHORITY; NO VIOLATION.
(i) Enterbank has all requisite corporate power and
authority to enter into this Agreement and the other Transaction Agreements and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the other Transaction Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Enterbank, other
than the approval of this Agreement and the Agreement of Merger by the holders
of a majority of the outstanding shares of Enterbank Common Stock (the
"Enterbank Shareholder Approval"). The Enterbank Shareholder Approval is the
only vote of any class or series of Enterbank capital stock necessary to approve
this Agreement and the other Transaction Agreements and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the other
Transaction Agreements have been duly executed and delivered by Enterbank and
(assuming due authorization, execution and delivery by CGB) constitute the valid
and binding obligation of Enterbank enforceable against Enterbank in accordance
with their terms, subject, as to enforceability, to bankruptcy, insolvency and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(ii) Except as set forth in Section 3.2(c)(ii) of the
Enterbank Disclosure Schedule, the execution and delivery by Enterbank of this
Agreement and the other Transaction Agreements does not or will not when
delivered, and the consummation of the transactions contemplated hereby and
thereby will not, result in any Violation pursuant to, (x) any provision of the
Certificate or Articles of Incorporation or Association or By-laws or comparable
organizational documents of Enterbank or any Subsidiary of Enterbank, or (y)
subject to obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii) below,
any loan or credit agreement, note, mortgage, indenture, lease, Enterbank
Benefit Plan (as defined in Section 3.2(k)(i)) or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Enterbank or any
Subsidiary of Enterbank or its properties or assets, which Violation, in the
case of clause (y), individually or in the aggregate, would have a material
adverse effect on Enterbank.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Enterbank or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the other
Transaction Agreements or the consummation by Enterbank of the transactions
contemplated hereby or thereby, which, if not made or obtained, would have a
material adverse effect on Enterbank or on the ability of Enterbank to perform
its obligations hereunder or thereunder on a timely basis, or on Enterbank's
ability to own, possess or exercise the rights of an owner with respect to the
business and assets of CGB and its Subsidiaries, except for (A) the filing of
applications and notices with the Federal Reserve under the BHC Act and approval
of same, (B) the filing by Enterbank with the SEC of the Proxy Statement in
definitive form relating to the meetings of the shareholders of CGB and
Enterbank to be held to approve and adopt this Agreement and the transactions
contemplated hereby, (C) the filing by Enterbank with the SEC of the S-4 with
respect to the Enterbank Common Stock
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issuable pursuant hereto, (D) compliance with applicable state blue sky laws,
and (E) the filing with the Secretaries of State of the States of Delaware and
Kansas of the Agreement of Merger.
(d) FINANCIAL STATEMENTS. Enterbank has previously delivered
to CGB copies of (a) the consolidated statements of financial condition of
Enterbank and its Subsidiaries, as of December 31, for the fiscal years 1996,
1997 and 1998, and the related consolidated statements of income, comprehensive
income, shareholders' equity and cash flows for the fiscal years 1996 through
1998, inclusive, as reported in Enterbank's Annual Reports on Form 10-K for the
relevant fiscal years filed with the SEC under the Securities Exchange Act of
1934 (the "Exchange Act"), in each case accompanied by the report of KPMG LLP,
independent auditors with respect to Enterbank (the consolidated financial
statements of Enterbank and its Subsidiaries referred to in this sentence being
hereinafter sometimes referred to as the "Enterbank Consolidated Financial
Statements") and (b) the condensed consolidated balance sheet of Enterbank and
its Subsidiaries as of September 30, 1999 and the condensed consolidated
statements of income, comprehensive income and cash flows for the nine months
ended September 30, 1998 and 1999, inclusive, as reported in Enterbank's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 filed
with the SEC under the Exchange Act (the condensed consolidated financial
statements of Enterbank and its Subsidiaries referred to in this clause being
sometimes hereinafter referred to as the "Enterbank Interim Financial
Statements"). Each of the financial statements referred to in this Section
(including the related notes, where applicable) fairly present, and the
consolidated financial statements referred to in Section 5.12 hereof will fairly
present (subject in the cases of the unaudited statements, to normal recurring
and year-end audit adjustments, none of which are expected to be material in
nature or amount), the results of the consolidated operations and changes in
shareholders' equity and consolidated financial condition of Enterbank and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth. Each of such statements (including the related notes, where
applicable) complies, and the financial statements referred to in Section 5.12
hereof will comply, in all material respects, with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto and each of such statements (including the related notes, where
applicable) has been, and the financial statements referred to in Section 5.12
will be, prepared, in all material respects, in accordance with GAAP
consistently applied during the periods involved, except in each case as
indicated in such statements or in the notes thereto or, in the case of the
unaudited statements (subject to normal recurring and year-end audit
adjustments), as permitted by Form 10-Q. The books and records of Enterbank and
its Subsidiaries have been, and are being, maintained where required in all
material respects in accordance with GAAP and any other applicable legal and
accounting requirements and, where such books and records purport to reflect any
transactions, the transactions so reflected are actual transactions.
(e) ENTERBANK SEC DOCUMENTS. Enterbank has made available to
CGB a true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by Enterbank with the SEC pursuant to the
Securities Act or the Exchange Act (other than reports filed pursuant to section
13(g) of the Exchange Act), since October 24, 1996 (as such documents have since
the time of their filing been amended, the "Enterbank SEC Reports"), which are
all the documents (other than preliminary material and reports required pursuant
to section 13(g)
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of the Exchange Act) that Enterbank was required to file with the SEC since such
date. As of their respective dates of filing with the SEC, the Enterbank SEC
Reports complied as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Enterbank SEC Reports, and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Enterbank included in the Enterbank SEC
Reports (including any related notes and schedules thereto) complied as to form,
as of their respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared, in all material
respects, in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements (subject to normal recurring and year-end audit
adjustments), as permitted by Form 10-Q of the SEC) and fairly present in all
material respects the consolidated financial position of Enterbank and its
consolidated Subsidiaries as at the dates thereof and the consolidated results
of operations, changes in shareholders' equity and cash flows of such companies
for the periods then ended.
(f) ENTERBANK INFORMATION SUPPLIED. None of the information
supplied or to be supplied by Enterbank for inclusion or incorporation by
reference in the Proxy Statement relating to the meeting of shareholders of
Enterbank (the "Enterbank Shareholders' Meeting") at which the Enterbank
Shareholder Approval will be sought or for inclusion in the S-4 will, at the
date of mailing to shareholders of Enterbank and of CGB and at the time of the
Enterbank Shareholders' Meeting, (i) contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading or (ii) at the time and in the light
of the circumstances under which it is made, be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the Enterbank Shareholders' Meeting which has become false or
misleading.
(g) COMPLIANCE WITH APPLICABLE LAWS. Enterbank and its
Subsidiaries hold, and at all relevant times have held, all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities which
are material to the operation of the businesses of Enterbank and its
Subsidiaries, taken as a whole (the "Enterbank Permits"). Enterbank and its
Subsidiaries are in compliance and have complied with the terms of the Enterbank
Permits, except where the failure so to comply, individually or in the
aggregate, would not have a material adverse effect on Enterbank. The businesses
of Enterbank and its Subsidiaries are not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity, except for possible
violations which, individually or in the aggregate, do not, and, insofar as
reasonably can be foreseen, in the future will not, have a material adverse
effect on Enterbank. Except for routine examinations by Bank Regulators, no
investigation by any Governmental Entity with respect to Enterbank or any of its
Subsidiaries is pending or threatened, and no proceedings by any Bank Regulator
are pending or
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threatened which seek to revoke or materially limit any of the Enterbank
Permits. Enterbank and its Subsidiaries do not offer or sell insurance and/or
securities products, including but not limited to annuity products, for their
own account or the account of others.
(h) LITIGATION. Except as set forth in Section 3.2(h) of the
Enterbank Disclosure Schedule, to the best knowledge of Enterbank, there is no
Litigation pending to which Enterbank or any Subsidiary of Enterbank is a party
or by which any of such persons or their respective assets may be bound or, to
the best knowledge of Enterbank, threatened against or affecting Enterbank or
any Subsidiary of Enterbank, or challenging the validity or propriety of the
transactions contemplated hereby which, if adversely determined, would,
individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on Enterbank or on the ability of Enterbank to perform
its obligations under this Agreement in a timely manner, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Enterbank or any Subsidiary of Enterbank.
(i) TAXES. Enterbank and each of its Subsidiaries have timely
filed all tax returns required to be filed by any of them and all such tax
returns were, when filed, correct and complete in all material respects.
Enterbank and each of its Subsidiaries have timely paid (or Enterbank has paid
on their behalf), or have set up an adequate reserve for the payment of, all
taxes required to be paid (whether or not shown as due on such returns), and the
most recent financial statements that have been delivered to CGB reflect an
adequate reserve (other than reserves for deferred taxes established to reflect
differences between tax and book basis of assets and liabilities) for all taxes
accrued but not yet due and owing, by Enterbank and its Subsidiaries accrued
through the date of such financial statements. Enterbank and its Subsidiaries
file tax returns in all jurisdictions where required to file tax returns. No
material deficiencies for any taxes have been asserted or assessed against
Enterbank or any of its Subsidiaries that are not adequately reserved for (other
than reserves for deferred taxes established to reflect differences between tax
and book basis of assets and liabilities). Except as set forth in Section 3.2(i)
of the Enterbank Disclosure Schedule: (i) there are no liens with respect to
taxes upon any of the assets or properties of Enterbank and its Subsidiaries,
other than with respect to taxes not yet due and payable, (ii) no material issue
relating to taxes of Enterbank and its Subsidiaries has been raised in writing
by any taxing authority in any audit or examination which can result in a
proposed adjustment or assessment by a governmental authority in a taxable
period (or portion thereof) ending on or before the Closing Date nor, to the
best knowledge of Enterbank, does any basis exist for the raising of any such
issue, (iii) Enterbank and its Subsidiaries have duly and timely withheld from
all payments (including employee salaries, wages and other compensation) and
paid over to the appropriate taxing authorities all amounts required to be so
withheld and paid over for all periods for which the statute of limitations has
not expired under all applicable laws and regulations, (iv) as of the Closing
Date, none of Enterbank nor any of its Subsidiaries shall be a party to, be
bound by or have any obligation under, any tax sharing agreement or similar
contract or arrangement or any agreement that obligates any of them to make any
payment computed by reference to the taxes, taxable income or taxable losses of
any other person, (v) except as set forth on Section 3.2(i) of the Enterbank
Disclosure Schedule, there is no contract or agreement, plan or arrangement by
Enterbank or any of its Subsidiaries covering any
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person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by Enterbank or any of its Subsidiaries by
reason of section 280G of the Code, (vi) Enterbank and its Subsidiaries have
collected all material sales and use taxes required to be collected, and have
remitted, or will remit on a timely basis, such amounts to the appropriate
governmental authorities, or have been furnished properly completed exemption
certificates and have maintained all such records and supporting documents in
all material respects in the manner required by all applicable sales and use tax
statutes and regulations for all periods for which the statute of limitations
has not expired, (vii) neither Enterbank nor any of its Subsidiaries has been a
United States real property holding corporation within the meaning of section
897(c)(2) of the Code during the applicable period specified in section
897(c)(1)(A)(ii) of the Code, and (viii) none of Enterbank nor any of its
Subsidiaries (A) has been a member of an affiliated group (other than the group
to which they are currently members) filing a consolidated federal income tax
return or (B) has any liability for the taxes of any person (other than the
members of such current group) under Treasury Regulation section 1.1502-6(a) (or
any similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise. None of Enterbank nor any of its
Subsidiaries has filed a consent to the application of section 341(f) of the
Code.
(j) CERTAIN AGREEMENTS. Section 3.2(j) of the Enterbank
Disclosure Schedule sets forth a listing of all of the following contracts and
other agreements, oral or written (which are currently in force or which may in
the future be operative in any respect) to which Enterbank or any of its
Subsidiaries is a party or by or to which Enterbank or any of its Subsidiaries
or any of their respective assets or properties are bound or subject: (i)
consulting agreements not terminable on six months or less notice involving the
payment of more than $25,000 per annum, or union, guild or collective bargaining
agreements covering any employees in the United States, (ii) agreements with any
officer or other key employee of Enterbank or any of its Subsidiaries (x)
providing any term of employment or (y) the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving Enterbank of the nature contemplated by this Agreement, (iii) any
agreement or plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement, (iv) contracts and other agreements for the sale
or lease (other than where Enterbank or any of its Subsidiaries is a lessor) of
any assets or properties (other than in the ordinary course of business) or for
the grant to any person (other than to Enterbank or any of its Subsidiaries) of
any preferential rights to purchase any assets or properties, (v) contracts and
other agreements relating to the acquisition by Enterbank or any of its
Subsidiaries of any operating business or entity or any interest therein, (vi)
contracts or other agreements under which Enterbank or any of its Subsidiaries
agrees to indemnify any party, other than in the ordinary course of business,
consistent with past practice, or to share a tax liability of any party, (vii)
contracts and other agreements containing covenants restricting Enterbank or any
of its Subsidiaries from competing in any line of business or with any person in
any geographical area or requiring Enterbank or any of its Subsidiaries to
engage in any line of business, (viii) contracts or other agreements (other than
contracts in the ordinary course of their banking business) relating to the
borrowing of money by Enterbank or any of its Subsidiaries, or the direct or
indirect
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guaranty by Enterbank or any of its Subsidiaries of any obligation for, or an
agreement by Enterbank or any of its Subsidiaries to service, the repayment of
borrowed money, or any other contingent obligations of Enterbank or any of its
Subsidiaries in respect of indebtedness of any other person, and (ix) any other
material contract or other agreement whether or not made in the ordinary course
of business, including any contract required to be filed by Enterbank pursuant
to Item 601(b)(10) of Regulation S-K of the SEC. There have been delivered or
made available to CGB true and complete copies of all of the contracts and other
agreements set forth in Section 3.2(j) of the Enterbank Disclosure Schedule and
in any other Section of the Enterbank Disclosure Schedule. Except as set forth
in Section 3.2(j) of the Enterbank Disclosure Schedule, each such contract and
other agreement is in full force and effect and constitutes a legal, valid and
binding obligation of Enterbank or its Subsidiaries, as the case may be, and to
the best knowledge of Enterbank, each other party thereto, enforceable in
accordance with its terms subject, as to enforceability, to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. Neither Enterbank nor any
Subsidiary of Enterbank has received any notice, whether written or oral, of
termination or intention to terminate from any other party to such contract or
agreement. None of Enterbank or any of its Subsidiaries or (to the best
knowledge of Enterbank) any other party to any such contract or agreement is in
violation or breach of or default under any such contract or agreement (or with
or without notice or lapse of time or both, would be in violation or breach of
or default under any such contract or agreement), which violation, breach or
default has had or would have, individually or in the aggregate, a material
adverse effect on Enterbank.
(k) BENEFIT PLANS.
(i) Section 3.2(k) of the Enterbank Disclosure
Schedule contains a true and complete list of each Benefit Plan that is
sponsored or is being maintained or contributed to, or required to be
contributed to, by Enterbank or any of its Subsidiaries (the "Enterbank Benefit
Plans"). No Enterbank Benefit Plan is a multiemployer plan or is subject to a
collective bargaining agreement.
(ii) With respect to each Enterbank Benefit Plan,
Enterbank has delivered to CGB a current, accurate and complete copy (or, to the
extent no such copy exists, an accurate description) thereof and, to the extent
applicable, (A) any related trust agreement or other funding instrument; (B) the
most recent determination letter; (C) any summary plan description and other
written communications (or a description of any oral communications) by
Enterbank or any of its Subsidiaries to any of their respective employees
concerning the extent of the benefits provided under any Enterbank Benefit Plan;
and (D) except as described in Section 3.2(k)(ii) of the Enterbank Disclosure
Schedule, for the two most recent years (I) the Form 5500 and attached
schedules; (II) audited financial statements; and (III) actuarial valuation
reports.
(iii) Except as set forth in Section 3.2(k) of the
Enterbank Disclosure Schedule, (A) each Enterbank Benefit Plan has been
established and administered in accordance with its terms, and in compliance in
all material respects with the applicable provisions of ERISA, the Code and
other applicable laws, rules and regulations; (B) each Enterbank Benefit Plan
which is
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intended to be qualified within the meaning of Code section 401(a) is so
qualified and has received a favorable determination letter as to its
qualification and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification; (C) with respect to any
Enterbank Benefit Plan, no audits, actions, suits or claims (other than routine
claims for benefits in the ordinary course) are pending or threatened, and no
facts or circumstances exist which could give rise to any such audits, actions,
suits or claims; (D) neither Enterbank nor any other party has engaged in a
prohibited transaction which could subject Enterbank or any of its Subsidiaries,
or the Surviving Corporation, to any taxes, penalties or other liabilities under
Code section 4975 or ERISA sections 409 or 502(i); (E) no event has occurred and
no condition exists that could subject Enterbank or any of its Subsidiaries, or
the Surviving Corporation, either directly or by reason of any such entity's
affiliation with any member of any such entity's Controlled Group (defined as
any organization which is a member of a controlled group of organizations within
the meaning of Code sections 414(b), (c), (m) or (o)), to any tax, fine,
liability or penalty imposed by ERISA, the Code or other applicable laws, rules
and regulations; (F) all insurance and PBGC premiums required to be paid with
respect to Enterbank Benefit Plans through the Closing Date have been or will be
paid prior thereto and adequate reserves will have been provided for on
Enterbank's consolidated statement of financial condition as of the month end
immediately prior to the Closing Date for any premiums (or portions thereof)
attributable to service on or prior to the Closing Date; (G) all contributions
required to be made prior to the Closing Date under the terms of each Enterbank
Benefit Plan, the Code, ERISA or other applicable laws, rules and regulations
have been or will be timely made and adequate reserves will have been provided
for on Enterbank's consolidated statement of financial condition as of the month
end immediately prior to the Closing Date for all benefits attributable to
service on or prior to the Closing Date; (H) no Enterbank Benefit Plan has
incurred any "accumulated funding deficiency" as such term is defined in ERISA
section 302 and (including, but not limited to the voting of any securities held
pursuant to an Enterbank Benefit Plan) Code section 412 (whether or not waived);
(I) the consummation of this Agreement will not result in a nonexempt prohibited
transaction or a breach of fiduciary duty under ERISA; and (J) no Enterbank
Benefit Plan provides health coverage beyond the termination of employment
except as provided under Code section 4980B.
(iv) Except as set forth in Section 3.2(k)(iv) of the
Enterbank Disclosure Schedule, with respect to each of the Enterbank Benefit
Plans which is subject to Title IV of ERISA, as of the Closing Date, the assets
of each such Plan shall be at least equal in value to the present value of the
accrued benefits (vested and unvested) of the participants in such Plan on a
termination and projected basis, based on the actuarial methods and assumptions
indicated in the most recent actuarial valuation reports.
(v) Except as set forth on Section 3.2(k)(v) of the
Enterbank Disclosure Schedule, no Enterbank Benefit Plan exists which provides
for an increase in benefits on or after the Closing Date or could result in the
payment to any employee of Enterbank or any of its Subsidiaries of any money or
other property or rights or accelerate or provide any other rights or benefits
to any such employee as a result of the transactions contemplated by this
Agreement. The aggregate amount of payments due from Enterbank under all such
contracts and the amount due under each
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such contract, at the Effective Time, are as set forth in the schedule included
in Section 3.2(k)(v) of the Enterbank Disclosure Schedule. Except as set forth
in Section 3.2(k)(v) of the Enterbank Disclosure Schedule, none of such payments
will constitute an "excess parachute" payment within the meaning of Code section
280G.
(l) SUBSIDIARIES. Section 3.2(l) of the Enterbank Disclosure
Schedule lists all the Subsidiaries of Enterbank. Enterbank owns, directly or
indirectly, beneficially and of record 100% of the issued and outstanding voting
securities of each such Subsidiary. All of the shares of capital stock of each
of the Subsidiaries held by Enterbank or by another of its Subsidiaries are
fully paid and nonassessable and are owned by Enterbank or one of its
Subsidiaries free and clear of any lien, claim or other encumbrance. Neither
Enterbank nor any of its Subsidiaries owns any shares of capital stock or other
equity securities of any person (other than, in the case of Enterbank, the
capital stock of its Subsidiaries and, in the case of such Subsidiaries, shares
or equity securities acquired in satisfaction of debts previously contracted in
good faith in the ordinary course of their banking business).
(m) AGREEMENTS WITH BANK OR OTHER REGULATORS. Except as set
forth in Section 3.2(m) of the Enterbank Disclosure Schedule, neither Enterbank
nor any Subsidiary of Enterbank is a party to any written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of, any Bank Regulator which restricts materially the conduct by
Enterbank or its Subsidiaries of their businesses, or in any manner relates to
their capital adequacy, credit policies, community reinvestment, loan
underwriting or documentation or management, nor has Enterbank or any such
Subsidiary been advised by any Bank Regulator that it is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar submission, or any such board
resolutions.
(n) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in Section 3.2(n) of the Enterbank Disclosure Schedule, since September 30,
1999, (i) there has not been any change, or any event involving a prospective
change, in the business, financial condition or results of operations or
prospects of Enterbank or any of its Subsidiaries which has had, or would be
reasonably likely to have, a material adverse effect on Enterbank, and (ii)
Enterbank and each of its Subsidiaries have conducted their respective
businesses in the ordinary course consistent with their past practices and
neither Enterbank nor any of its Subsidiaries has taken any action or entered
into any transaction, and no event has occurred, that would have required CGB's
consent pursuant to Section 4.2 of this Agreement if such action had been taken,
transaction entered into or event had occurred, in each case, after the date of
this Agreement, nor has Enterbank or any of its Subsidiaries entered into any
agreement, plan or arrangement to do any of the foregoing.
(o) UNDISCLOSED LIABILITIES. Except as set forth in Section
3.2(o) of the Enterbank Disclosure Schedule, and except (i) for those
liabilities or obligations that are fully
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reflected or reserved against in the consolidated statement of financial
condition at September 30, 1999 of Enterbank referred to in Section 3.2(d) or
(ii) for liabilities or obligations incurred in the ordinary course of business
consistent with past practice since September 30, 1999 and which are not
material to Enterbank and its Subsidiaries taken as a whole, none of Enterbank
or any of its Subsidiaries has incurred any liability or obligation of any
nature whatsoever (whether absolute, accrued or contingent or otherwise and
whether due or to become due) that, either alone or when combined with all
similar liabilities or obligations, has had, or would have, a material adverse
effect on Enterbank. No agreement pursuant to which any loans or other assets
have been or will be sold by Enterbank or any Subsidiary entitle the buyer of
such loans or other assets, unless there is material breach of a representation
or covenant by Enterbank or its Subsidiaries not relating to the payment or
other performance by an obligor of such loan or other asset of its obligations
thereunder, to cause Enterbank or its Subsidiaries to repurchase such loan or
other asset or the buyer to pursue any other form of recourse against Enterbank
or its Subsidiaries.
(p) GOVERNMENTAL REPORTS. Enterbank and each of its
Subsidiaries have timely filed all material reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file since January 1, 1995 with any
Governmental Entity and have paid all fees and assessments due and payable in
connection therewith. Except as set forth in Section 3.2(p) of the Enterbank
Disclosure Schedule and except for normal examinations conducted by a
Governmental Entity in the regular course of business of Enterbank and its
Subsidiaries, no Governmental Entity has initiated any proceeding or, to the
best knowledge of Enterbank, investigation into the business or operations of
Enterbank or any of its Subsidiaries since January 1, 1995. Except as set forth
in Section 3.2(p) of the Enterbank Disclosure Schedule, there is no material
unresolved violation, criticism or exception by any Governmental Entity with
respect to any report or statement relating to any examinations of Enterbank or
any of its Subsidiaries.
(q) ENVIRONMENTAL LIABILITY.
(i) Except as set forth in Section 3.2(q) of the
Enterbank Disclosure Schedule, to the best knowledge of Enterbank, there are no
pending or threatened claims, actions or proceedings against Enterbank relating
to:
(A) any asserted liability of Enterbank or
any of its Affiliates or any current or prior owner, operator, occupier or user
of any Real Property under any Environmental Law, including without limitation,
the terms and conditions of any permit, license, authority, settlement or other
obligation arising under any Environmental Law;
(B) any handling, storage, use or disposal
of Hazardous Substances on, under or within any Real Property or any
transportation or removal of Hazardous Substances to or from any Real Property;
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(C) any actual or threatened discharge,
release or emission of Hazardous Substances from, on, under or within any Real
Property into the air, water, surface water, groundwater, land surface or
subsurface strata; or
(D) any actual or asserted claims for
personal injuries, illness or damage to real or personal property related to or
arising out of exposure to Hazardous Substances discharged, released or emitted
from, on, under, within or into, or transported from or to, any Real Property.
(ii) Except as set forth in Section 3.2(q) of the
Enterbank Disclosure Schedule, to the best knowledge of Enterbank, no Hazardous
Substances are present on, under or within any Real Property (except those
Hazardous Substances used in the normal course of operating or maintaining the
business of Enterbank or any Subsidiary of Enterbank) and, except as set forth
in Section 3.2(q) of the Enterbank Disclosure Schedule, the presence of these
Hazardous Substances does not violate any Environmental Law. Except as set forth
in Section 3.2(q) of the Enterbank Disclosure Schedule, to the best knowledge of
Enterbank, there are no storage tanks underground or otherwise present on any
Real Property and all such tanks set forth in Section 3.2(q) of the Enterbank
Disclosure Schedule comply in all material respects with applicable law, all
permits in respect thereof are in full force and effect and there have been no
releases or discharges of Hazardous Substances from such tanks to the
environment.
(iii) To the best knowledge of Enterbank, except as
set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, no Hazardous
Substances have been, or have been threatened to be, discharged, released or
emitted in a Reportable Quantity into the air, water, surface water,
groundwater, land surface or subsurface strata or transported to or from the
Real Property except in accordance with Environmental Laws (in particular, but
without limitation, in accordance with any permits issued pursuant thereto). To
the best knowledge of Enterbank, all notifications, remediation, removal or
other response actions of any kind whatsoever, in respect of such discharges,
releases and emissions which are required by Environmental Laws, and by
applicable agreements with third parties, have been made within the time limits
prescribed by such Environmental Laws and such third party agreements. Copies of
all such notifications or documents relating to any remediation, removal or
response action have previously been provided to Enterbank.
(iv) To the best knowledge of Enterbank, except as
set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, Enterbank and
its Affiliates are in compliance, in all material respects, with all
Environmental Laws related to the ownership, operation, use and occupation of
the Real Property.
(v) To the best knowledge of Enterbank, except as set
forth in Section 3.2(q) of the Enterbank Disclosure Schedule, no part of any
Real Property is listed on CERCLIS or the National Priorities List created
pursuant to the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, as a site containing Hazardous Substances.
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(vi) Enterbank has provided CGB with copies of all
material notices posted by it under any Environmental Law with respect to the
Real Property at which the business of Enterbank or its Subsidiaries is
conducted.
(vii) All properties held by Enterbank or its
Subsidiaries under leases are held by them under valid, binding and enforceable
leases, with such exceptions as are not material and do not interfere with the
conduct of the business of Enterbank, and Enterbank enjoys quiet and peaceful
possession of such leased property. Enterbank and its Subsidiaries are not in
default in any material respect under any material lease, agreement or
obligation regarding their properties to which they are a party or by which they
are bound.
(viii) Except as set forth in Section 3.2(q) of the
Enterbank Disclosure Schedule, all of Enterbank's and its Subsidiaries' rights
and obligations under the leases referred to in Section 3.2(q)(vii) above do not
require the consent of any other party to the transactions contemplated by this
Agreement.
(r) PROPERTIES. Except as set forth in Section 3.2(r) of the
Enterbank Disclosure Schedule, Enterbank or its Subsidiaries (i) has good and
marketable title to all Real Property owned in fee, and good title to all other
properties and assets reflected in the Enterbank Consolidated Financial
Statements as being owned by Enterbank or its Subsidiaries or acquired after the
date thereof which are material to the business of Enterbank on a consolidated
basis (except properties sold or otherwise disposed of since the date thereof in
the ordinary course of business), free and clear of all claims, liens, charges,
security interests or encumbrances of any nature whatsoever except (A) statutory
liens securing payments not yet delinquent, (B) liens on assets of Enterprise
securing deposits incurred in the ordinary course of its banking business and
(C) such imperfections or irregularities of title, claims, liens, charges,
security interests or encumbrances as do not materially affect the use of the
properties or assets subject thereto or affected thereby or otherwise materially
impair business operations at such properties and (ii) is the lessee of all
leasehold estates reflected in the Enterbank Consolidated Financial Statements
or acquired after the date thereof which are material to its business on a
consolidated basis (except for leases that have expired by their terms since the
date thereof) and is in possession of the properties purported to be leased
thereunder, and each such lease is valid without material default thereunder by
the lessee or, to the best knowledge of Enterbank, the lessor. Except as set
forth in Section 3.2(r) of the Enterbank Disclosure Schedule, all real
properties owned by Enterbank or its Subsidiaries are owned in accordance in all
material respects with all requirements of applicable rules, regulations and
policies of the Bank Regulators.
(s) TRANSACTIONS WITH AFFILIATES. Except as set forth in
Section 3.2(s) of the Enterbank Disclosure Schedule and except for those
arrangements, contracts, agreements or transactions which were entered into in
the ordinary course of business, since September 30, 1999, Enterbank has not
extended credit, committed to extend credit or transferred any asset to or
assumed or guaranteed any liability of or entered into any other transactions
with the employees or directors of Enterbank, or any spouse or child of any of
them, or to any of their "affiliates" or "associates" as such terms are defined
in Rule 405 under the Securities Act. Any such transactions, including those
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in the ordinary course of business, have been on terms no less favorable than
those which would prevail in an arm's-length transaction with an independent
third party.
(t) NO BROKER OR FINDER. No agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement
(u) INTELLECTUAL PROPERTY. Except as set forth in Section
3.2(u) of the Enterbank Disclosure Schedule, Enterbank and its Subsidiaries own
or have a valid license to use all trademarks, service marks and trade names
(including any registrations or applications for registration of any of the
foregoing) (collectively, the "Enterbank Intellectual Property") necessary to
carry on their business substantially as currently conducted, except for such
Enterbank Intellectual Property the failure of which to own or validly license,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on Enterbank. Neither Enterbank nor any such Subsidiary
has received any notice of infringement of or conflict with, and, to the best
knowledge of Enterbank, there are no infringements of or conflicts with, the
rights of others with respect to the use of any Enterbank Intellectual Property
that, individually or in the aggregate, in either such case, would reasonably be
expected to have a material adverse effect on Enterbank.
(v) POOLING OF INTERESTS. Except as set forth in Section
3.2(v) of the Enterbank Disclosure Schedule, as of the date of this Agreement,
Enterbank has no reason (in respect to matters pertaining to Enterbank existing
as of the date hereof or expected to exist as of the Closing Date) to believe
that Enterbank will not qualify for pooling of interests treatment for
accounting purposes under GAAP as presently in effect.
(w) COMMUNITY REINVESTMENT ACT COMPLIANCE. Enterprise is in
substantial compliance with the applicable provisions of the CRA and has
received a CRA rating of "satisfactory" from the OCC in its most recent
examination, and Enterbank has no knowledge of the existence of any fact or
circumstance or set of facts or circumstances which could be reasonably expected
to result in Enterprise failing to be in substantial compliance with such
provisions or having its current rating lowered.
(x) YEAR 2000 READINESS. There have been no material adverse
effects on either Enterbank or its Subsidiaries as a result of the date change
for any date on or after January 1, 2000, including leap year calculations, and
that, to the extent applicable to normal operating specifications, Enterbank's
and its Subsidiaries' computer systems and equipment have in all material
respects accurately accepted, stored, retrieved, calculated, compared and
otherwise processed dates of January 1, 2000 and later.
(y) INSURANCE. Enterbank has previously delivered to CGB a
list identifying all insurance policies maintained on behalf of Enterbank and
its Subsidiaries (other than mortgage, title and other similar policies for the
benefit of Enterbank or its Subsidiaries as mortgagees under residential
mortgage loans). All of the material insurance policies and bonds maintained by
or for
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the benefit of Enterbank and its Subsidiaries are in full force and effect, to
the best knowledge of Enterbank, Enterbank and its Subsidiaries are not in
default thereunder, and all material claims thereunder have been filed in due
and timely fashion, and neither Enterbank nor any of its Subsidiaries has
received notice that any of such material claims have been or will be denied.
The insurance policies and bonds maintained by Enterbank and its Subsidiaries
are written by reputable insurers and are in such amounts, cover such risks and
have such other terms as is customary for banks and bank holding companies
comparable in size and operations to Enterbank and its Subsidiaries. Since
September 30, 1999, there has not been any damage to, destruction of, or loss of
any assets of Enterbank and its Subsidiaries (whether or not covered by
insurance) that could have a material adverse effect on Enterbank. Neither
Enterbank nor any of its Subsidiaries has received any notice of a premium
increase or cancellation with respect to any of its insurance policies or bonds,
and within the last three years, neither Enterbank nor any of its Subsidiaries
has been refused any insurance coverage sought or applied for, and Enterbank has
no reason to believe that existing insurance coverage cannot be renewed as and
when the same shall expire, upon terms and conditions as favorable as those
presently in effect, other than possible increases in premiums or unavailability
in coverage that have not resulted from an extraordinary loss experience of
Enterbank or any Enterbank Subsidiary.
(z) LOANS AND OTHER ASSETS.
(i) Enterbank has disclosed to CGB prior to the date
hereof the amounts of all loans, leases, other extensions of credit, commitments
or other interest-bearing assets presently owned by Enterbank or any of its
Subsidiaries that have been classified by any Bank Regulator, Enterbank's
independent auditors, or the management of Enterbank or any Subsidiary of
Enterbank as "Other Loans Especially Mentioned," "Substandard," "Doubtful," or
"Loss", or classified using categories with similar import, and will have
disclosed promptly to CGB prior to the Closing Date all such items which will be
so classified hereafter and prior to the Closing Date. All such assets or
portions thereof classified "Loss," or which are subsequently so classified,
have been (or will be) charged off on a timely basis in full, collected or
otherwise placed in a bankable condition. Enterbank regularly reviews and
appropriately classifies its and its Subsidiaries' loans and other assets in
accordance in all material respects with all applicable legal and regulatory
requirements and GAAP. Enterbank has disclosed to CGB the amounts and identities
of all OREO that has been classified as such as of the date hereof by
Enterbank's independent auditors, management of Enterbank or any Bank Regulator
and will have promptly disclosed to CGB prior to the Closing Date all such
assets which will be so classified hereafter and prior to the Closing Date. As
of the date hereof and the Closing Date, the recorded values of all OREO on the
books of Enterbank and its Subsidiaries accurately reflect and will reflect the
net realizable values of each OREO parcel thereof in compliance with GAAP.
Enterbank and its Subsidiaries have recorded on a timely basis all expenses
associated with or incidental to its OREO, including but not limited to taxes,
maintenance and repairs as required by GAAP.
(ii) All loans, leases, other extensions of credit,
commitments or other interest-bearing assets and investments of Enterbank and
its Subsidiaries are legal, valid and binding
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obligations enforceable in accordance with their respective terms and are not
subject to any setoffs, counterclaims or disputes known to Enterbank (subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of general
applicability), except as previously disclosed to CGB in Section 3.2(z)(ii) of
the Enterbank Disclosure Schedule or reserved for in the consolidated statement
of financial condition of Enterbank as of December 31, 1998 referred to in
Section 3.2(d) in accordance with GAAP, and were duly authorized under and made
in compliance with applicable federal and state laws and regulations. Enterbank
and its Subsidiaries do not have any extensions or letters of credit,
investments, guarantees, indemnification agreements or commitments for the same
(including without limitation commitments to issue letters of credit, to create
acceptances, or to repurchase securities, federal funds or other assets) other
than those documented on the books and records of Enterbank and its
Subsidiaries.
(aa) DERIVATIVES CONTRACTS; STRUCTURED NOTES; ETC. Except as
set forth in Section 3.2(aa) of the Enterbank Disclosure Schedule, neither
Enterbank nor any Subsidiary is a party to or has agreed to enter into a
Derivatives Contract or owns securities that (1) are referred to generically as
"structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (2) are likely to have
changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes, except for those Derivatives Contracts and other
instruments legally purchased or entered into in the ordinary course of their
banking business, consistent with safe and sound banking practices and
regulatory guidance, and with counterparties reasonably believed by Enterbank to
be financially responsible. All of such Derivatives Contracts or other
instruments are legal, valid and binding obligations of Enterbank or one of its
Subsidiaries and, to the best knowledge of Enterbank, each of the other
counterparties thereto, enforceable in accordance with their terms (except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally), and are in full force and
effect. Enterbank and each of its Subsidiaries and, to the best knowledge of
Enterbank, each of the other counterparties thereto, have duly performed in all
material respects all of their material obligations thereunder to the extent
that such obligations to perform have accrued; and there are no breaches,
violations or defaults or allegations or assertions of such by any party
thereunder which would have or would reasonably be expected to have a material
adverse effect on Enterbank.
(bb) LABOR MATTERS. Neither Enterbank nor any of its
Subsidiaries is a party to, or is bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization, nor is it or any of its Subsidiaries the subject of a proceeding
asserting that it or any such Subsidiary has committed an unfair labor practice
(within the meaning of the National Labor Relations Act) or seeking to compel it
or such Subsidiary to bargain with any labor organization as to wages and
conditions of employment, nor is there any strike or other labor dispute
involving it or any of its Subsidiaries pending or, to the best of its
knowledge, threatened, nor is it aware of any activity involving it or any of
its Subsidiaries'
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employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
(cc) STATUS OF ENTERBANK COMMON STOCK TO BE ISSUED. The shares
of Enterbank Common Stock into which the CGB Common Stock are to be exchanged or
converted pursuant to this Agreement will be, when delivered as specified in
this Agreement, validly authorized and issued, fully paid and nonassessable, and
registered pursuant to an effective registration statement under the Securities
Act.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 COVENANTS OF CGB. During the period from the date of this Agreement
and continuing until the Effective Time (except as expressly contemplated or
permitted by this Agreement or to the extent that Enterbank shall otherwise
consent in writing, which consent shall not be unreasonably withheld) CGB agrees
that it will and will cause each of its Subsidiaries to carry on the business of
CGB and each of its Subsidiaries in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and use all reasonable
efforts to preserve intact the present business organizations of CGB and each of
its Subsidiaries, maintain the rights and franchises of, and preserve the
relationships with customers, suppliers and others having business dealings
with, CGB and each of its Subsidiaries to the end that their goodwill and
ongoing businesses shall not be impaired in any material respect at the
Effective Time. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time, CGB shall not, and
shall not permit any of its Subsidiaries to, without the prior consent of
Enterbank in writing:
(a) (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock, except for cash dividends
in an amount per share not greater than, and consistent with the manner and
frequency of, dividends paid by CGB in the past 12 months and dividends by a
wholly owned Subsidiary of CGB to CGB, (ii) set any record or payment dates for
the payment of any dividends or distribution on its capital stock except in the
ordinary course of business consistent with past practice, (iii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for, shares of its capital stock or (iv) repurchase, redeem or otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, any shares
of its capital stock or the capital stock of any other Subsidiary of CGB or any
securities convertible into or exercisable for any shares of such capital stock;
(b) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares, or enter into any agreement with respect to
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any of the foregoing, other than issuances of CGB Common Stock pursuant to the
exercise of CGB Options;
(c) except as required to perform its obligations under this
Agreement, amend or propose to amend its Certificate or Articles of
Incorporation or its By-laws or other organizational documents or that of any
Subsidiary;
(d) (i) enter into any new material line of business, (ii)
change its lending, investment, liability management and other material banking
policies in any respect which is material to CGB, except as required by law or
by policies imposed by a Bank Regulator, or (iii) except as set forth in Section
4.1(d) of the CGB Disclosure Schedule, incur or commit to any capital
expenditures or any obligations or liabilities in connection therewith other
than capital expenditures and obligations or liabilities incurred or committed
to in the ordinary course of business consistent with past practice but in no
event for more than $25,000 as to any one such item or $75,000 as to all such
items in the aggregate;
(e) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other means, any business or any corporation,
partnership, association or other business organization or division thereof;
provided, however, that the foregoing shall not prohibit foreclosures and other
debt-previously-contracted acquisitions in the ordinary course of business
consistent with past practice;
(f) sell, lease, encumber or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of, any of its assets (including
capital stock of Subsidiaries of CGB), which are material, individually or in
the aggregate, to CGB, other than in the ordinary course of business consistent
with past practice;
(g) incur any long-term indebtedness for borrowed money or
guarantee any such long-term indebtedness or issue or sell any long-term debt
securities or warrants or rights to acquire any long-term debt securities of CGB
or any of its Subsidiaries or guarantee any long-term debt securities of others
other than (i) indebtedness of any Subsidiary of CGB to CGB or to another
Subsidiary of CGB, (ii) deposits taken in the ordinary course of business
consistent with past practice, or (iii) renewals or extensions of existing
long-term indebtedness without any change in the material terms thereof;
(h) intentionally take or fail to take any action that would,
or reasonably might be expected to, result in any of the representations and
warranties set forth in this Agreement being or becoming untrue in any material
respect, or in any of the conditions to the Closing set forth in Article VI
(including without limitation the conditions set forth in Sections 6.1(f) and
6.3(d)) not being satisfied, or (unless such action is required by applicable
law or sound banking practice) which would adversely affect the ability of
Enterbank or CGB to obtain any of the Requisite Regulatory Approvals without
imposition of a condition or restriction of the type referred to in Section
6.1(g);
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(i) change the methods of accounting of CGB or any of its
Subsidiaries, except as required by changes in GAAP as concurred in by such
party's independent auditors;
(j) (i) enter into, adopt, amend (except for technical
amendments and such amendments as may be required by law) or terminate any CGB
Benefit Plan or any other Benefit Plan or any agreement, arrangement, plan or
policy between CGB or any of its Subsidiaries and one or more of its directors
or officers, increase in any manner the compensation or fringe benefits of any
director, officer or employee of CGB or any of its Subsidiaries without
obtaining the prior written consent of Enterbank (which consent shall not be
unreasonably withheld)) or pay or grant any benefit not required by any plan and
arrangement as in effect as of the date hereof (including, without limitation,
the granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares or any similar awards) or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing, (ii) enter into or renew any contract, agreement, commitment or
arrangement providing for the payment to any director, officer or employee of
CGB or any of its Subsidiaries of compensation or benefits contingent, or the
terms of which are materially altered, upon the occurrence of any of the
transactions contemplated by this Agreement, or (iii) with respect to any CGB
Benefit Plan which is a defined benefit or defined contribution pension plan,
permit or cause (A) a consolidation or merger of any such CGB Benefit Plan, (B)
a spin-off involving any such CGB Benefit Plan, (C) a transfer of assets and/or
liabilities from or to any such CGB Benefit Plan, or (D) any similar transaction
involving any such CGB Benefit Plan;
(k) enter into any contract that would be required to be
disclosed on Section 3.1(j) of the CGB Disclosure Schedule or renew or terminate
any contract listed in Section 3.1(j) of the CGB Disclosure Schedule through any
volitional conduct, other than renewals of contracts or leases for a term of one
year or less without material adverse changes to the terms thereof;
(l) commit to or renew any real estate secured or
construction loan with a principal amount exceeding $1,500,000, or any
commercial loan which is referred to the Loan Committee of the FCB Board of
Directors for approval or with a principal amount exceeding $650,000; provided,
however, that if any new loan commitment or loan renewal involves a loan to a
borrower (or his associates (as defined in Rule 405 under the Securities Act)
and Affiliates) who has (A) any other classified or criticized asset or (B) a
renewal involving a classified or criticized asset, then the relevant loan
amount subject to this subsection shall be $250,000; provided, further, however,
that any such loan or renewal which is in excess of the applicable amount
specified in this subsection shall not be made or committed to be made unless
CGB shall have given Enterbank at least one Business Day's advance written
notice of the proposal to make such loan commitment or renewal, which written
notice shall provide Enterbank the same information provided to the relevant
loan committee (or loan officer, if no committee approval is required) of CGB or
the applicable CGB Subsidiary, and shall have furnished Enterbank with such
other information as Enterbank may reasonably have requested;
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(m) issue or agree to issue any letters of credit or otherwise
guarantee the obligations of any other persons except in the ordinary course of
business consistent with past practice;
(n) engage or participate in any material transaction or incur
or sustain any material obligation not in the ordinary course of business
consistent with past practice;
(o) settle any claim, action or proceeding involving money
damages involving a payment in excess of $50,000 as to any such matter, or
settle any other matter not involving money damages which is material to CGB;
(p) except as required by GAAP or applicable law or
regulation, change or make any tax elections, change any method of accounting
with respect to taxes, file any amended tax return, or settle or compromise any
federal, state, local or foreign material tax liability;
(q) except as set forth in Section 4.1(q) of the CGB
Disclosure Schedule, relocate or close any branch or loan production office;
(r) except as described in Section 4.1(r) of the CGB
Disclosure Schedule, enter into any securitization or similar transactions with
respect to any loans, leases or other assets of CGB or any of its Subsidiaries;
or
(s) agree to, or make any commitment to, take any of the
actions prohibited by this Section 4.1.
4.2 COVENANTS OF ENTERBANK.
(a) During the period from the date of this Agreement and
continuing until the Effective Time, Enterbank agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or to the extent that CGB shall otherwise consent in writing, which
consent shall not be unreasonably withheld), Enterbank will and will cause each
of its Subsidiaries to carry on its respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted and
use all reasonable efforts to preserve intact its present business
organizations, maintain its rights and franchises and preserve its relationships
with customers, suppliers and others having business dealings with them to the
end that their goodwill and ongoing businesses shall not be impaired in any
material respect at the Effective Time. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time, Enterbank shall not, and shall not permit any of its Subsidiaries to,
without the prior consent of CGB in writing:
(i) except as required to perform its obligations
under this Agreement, amend or propose to amend its Articles of Incorporation or
its By-laws in a manner that would materially and adversely affect its ability
to perform its obligations under this Agreement or
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consummate the transactions contemplated hereunder, or otherwise materially and
adversely affect the rights, powers and privileges of the shares of Enterbank
Common Stock to be issued in the Merger;
(ii) (A) declare or pay any dividends on or make
other distributions in respect of any of its capital stock, except for cash
dividends in an amount substantially equivalent to dividends paid in the year
prior to the date hereof and dividends by a wholly owned Subsidiary of Enterbank
to Enterbank, (B) set any record or payment dates for the payment of any
dividends or distribution on its capital stock except in the ordinary course of
business consistent with past practice, (C) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock or (D) repurchase, redeem or otherwise acquire, or permit any
Subsidiary to purchase or otherwise acquire, any shares of its capital stock or
the capital stock of any other Subsidiary of Enterbank or any securities
convertible into or exercisable for any shares of such capital stock;
(iii) change the methods of accounting of Enterbank
or any of its Subsidiaries (including any changes in accounting with respect to
taxes), except as required by changes in GAAP as concurred in by such party's
independent auditors;
(iv) intentionally take or fail to take any action
that would, or reasonably might be expected to, result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions to the Closing set
forth in Article VI (including without limitation the conditions set forth in
Sections 6.1(f) and 6.2(d)) not being satisfied, or (unless such action is
required by applicable law or sound banking practice) which would adversely
affect the ability of Enterbank or CGB to obtain any of the Requisite Regulatory
Approvals without imposition of a condition or restriction of the type referred
to in Section 6.1(g); or
(v) agree to, or make any commitment to, take any of
the actions prohibited by this Section 4.2(a).
(b) Enterbank shall use all commercially reasonable efforts to
publish as soon as practicable after the end of the quarter in which there are
at least thirty (30) days of post-Merger combined operations, combined sales and
net income figures as contemplated by and in accordance with the terms of SEC
Accounting Release No. 135.
(c) If during the period from the date of this Agreement and
continuing until the Effective Time (i) Enterbank receives a Takeover Proposal
(as defined in Section 5.4(a), however, references therein to CGB shall be
deemed for purposes of this Section 4.2(c) to refer to Enterbank) and (ii)
Enterbank's Board of Directors determines that it is advisable to pursue
consummation of the Takeover Proposal, Enterbank shall immediately provide
written notice to CGB of the Takeover Proposal, with such notice (x) indicating
that Enterbank's Board of Directors intends to pursue consummation of the
Takeover Proposal, (y) specifying the material terms and conditions of the
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Takeover proposal and (z) identifying the Person making the Takeover Proposal.
CGB shall provide written notice to Enterbank, no later than the tenth Business
Day following CGB's receipt of Enterbank's written notice, signifying that CGB
is (A) in favor of the Takeover Proposal, in which event this Agreement shall
continue in full force and effect, subject to Enterbank's right to terminate
this Agreement pursuant to the penultimate sentence of this Section 4.2(c), or
(B) not in favor of the Takeover Proposal and elects to terminate this
Agreement, in which event this Agreement shall be deemed terminated as of the
date on CGB's notice to Enterbank. If CGB fails to provide written notice to
Enterbank within the time period set out in the immediately preceding sentence,
then CGB shall be deemed to be favorable to the Takeover Proposal as set out in
this Section 4.2(c)(A). If CGB's notice to Enterbank signifies that CGB is
favorable to the Takeover Proposal, Enterbank nevertheless may elect to
terminate this Agreement after the fifth Business Day following CGB's receipt of
a written notice advising CGB that the Board of Directors of Enterbank proposes
to enter into an agreement with respect to the Takeover Proposal pursuant to
Section 7.1(e)(ii). If either Enterbank elects to terminate this Agreement
pursuant to the immediately preceding sentence or CGB elects to terminate this
Agreement under Section 4.2(c)(B), and Enterbank proposes to enter into an
agreement with respect to the Takeover Proposal pursuant to Section 7.1(e)(ii),
Enterbank shall concurrently with entering into such agreement pay, or cause to
be paid, to CGB the Enterbank Termination Fee in accordance with the provisions
of Section 7.1(e)(ii). If the Takeover Proposal is not consummated, CGB
indicated that it was in favor of the Takeover Proposal, and Enterbank has not
terminated this Agreement in accordance with the provisions of this Section 4.2
and Section 7.1(e)(ii), this Agreement shall continue in existence between
Enterbank and CGB, subject to the terms and conditions contained in this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGULATORY MATTERS.
(a) CGB and Enterbank shall promptly prepare and file with the
SEC a Proxy Statement, and Enterbank shall promptly prepare and file with the
SEC the S-4, in which the Proxy Statement will be included as a prospectus, and
one or more registration statements or amendments to existing registration
statements under the Securities Act for the purpose of registering the maximum
number of shares of Enterbank Common Stock to which the option holders of CGB
may be entitled pursuant to Section 2.6 at or after the Effective Time. Each of
Enterbank and CGB shall use all reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such filing,
and CGB and Enterbank shall thereafter promptly mail the Proxy Statement to
their respective shareholders.
(b) The parties hereto shall cooperate with each other and use
their reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals
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and authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement and the other Transaction Agreements (including without limitation the
Merger). Enterbank and CGB shall have the right to review in advance and to the
extent practicable each will consult the other on, in each case subject to
applicable laws relating to the exchange of information, all the information
relating to CGB or Enterbank, as the case may be, and any of their respective
Subsidiaries which appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto shall act reasonably and as promptly as practicable.
The parties hereto agree that they will consult with each other with respect to
the obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement (including without limitation the
Merger) and each party will keep the other apprised of the status of matters
relating to completion of the transactions contemplated herein.
(c) Enterbank and CGB shall, upon request, furnish each other
with all information concerning themselves, their Subsidiaries, directors,
officers and shareholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of Enterbank, CGB
or any of their respective Subsidiaries to any Governmental Entity in connection
with the Merger and the other transactions contemplated by this Agreement.
(d) Enterbank and CGB shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval (as defined in Section 6.1(b))
will not be obtained or that the receipt of any such approval will be materially
delayed.
5.2 ACCESS TO INFORMATION. Upon reasonable notice, CGB and Enterbank
shall (and shall cause each of their respective Subsidiaries to) afford to the
other and their representatives and advisors access, during normal business
hours during the period prior to the Closing Date, to all the properties, books,
contracts, commitments and records of CGB (in the case of CGB) and of Enterbank
(in the case of Enterbank) and, during such period, each of CGB and Enterbank
shall (and shall cause each of their respective Subsidiaries to) make available
to the other and their representatives and advisors (a) a copy of each report,
schedule, registration statement and other document filed or received by CGB or
Enterbank, as the case may be, during such period pursuant to the requirements
of Federal securities laws or Federal or state banking laws (other than reports
or documents which such party is not permitted to disclose under applicable law
or reports or documents which are subject to an attorney-client privilege or
which constitute attorney work product) and (b) all other information concerning
the business, properties and personnel of CGB or of Enterbank, as the case may
be, as such other party may reasonably request. Enterbank will hold any such
information with respect to CGB and its Subsidiaries which is nonpublic in
confidence to
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the extent required by, and in accordance with, the provisions of the letter
dated November 12, 1999, between CGB and Enterbank (the "Confidentiality
Agreement"). CGB will hold all such information with respect to Enterbank and
its Subsidiaries which is nonpublic in confidence and will otherwise deal with
such information to the extent required by, and in accordance with, the
provisions of the Confidentiality Agreement, deeming, for purpose of this
sentence, such information to be subject to the provisions of the
Confidentiality Agreement as if such provisions applied by their terms to such
information of Enterbank and its Subsidiaries, as well as to such information of
CGB and its Subsidiaries. No investigation by either Enterbank, on the one hand,
or CGB, on the other hand, shall affect the representations and warranties of
the other.
5.3 SHAREHOLDERS' MEETINGS.
(a) CGB shall call a meeting of its shareholders for the
purpose of voting upon the adoption of this Agreement. CGB will, through its
Board of Directors, recommend to its shareholders adoption of this Agreement
unless the Board of Directors of CGB determines in good faith, based upon the
written advice of outside counsel, that making such recommendation, or failing
to withdraw, modify or amend any previously made recommendation, would
constitute a breach of fiduciary duty by CGB's Board of Directors under
applicable law. In addition, nothing in this Section 5.3 or elsewhere in this
Agreement shall prohibit accurate disclosure by CGB of information that is
required to be disclosed in the Proxy Statement, or any other document required
to be filed with the SEC (including without limitation a
Solicitation/Recommendation Statement on Schedule 14D-9) or otherwise required
to be disclosed by applicable law or regulation or the rules of any securities
exchange or automated quotation system on which the securities of CGB may then
be traded.
(b) Enterbank shall call a meeting of its shareholders for the
purpose of voting upon the adoption of this Agreement. Enterbank will, through
its Board of Directors, recommend to its shareholders adoption of this Agreement
unless the Board of Directors of Enterbank determines in good faith, based upon
the written advice of outside counsel, that making such recommendation, or
failing to withdraw, modify or amend any previously made recommendation, would
constitute a breach of fiduciary duty by Enterbank's Board of Directors under
applicable law. In addition, nothing in this Section 5.3 or elsewhere in this
Agreement shall prohibit accurate disclosure by Enterbank of information that is
required to be disclosed in the Proxy Statement, the S-4 or any other document
required to be filed with the SEC (including without limitation a
Solicitation/Recommendation Statement on Schedule 14D-9) or otherwise required
to be disclosed by applicable law or regulation or the rules of any securities
exchange or automated quotation system on which the securities of Enterbank may
then be traded.
(c) Each of CGB and Enterbank shall use all commercially
reasonable efforts to cause such meetings of their respective shareholders to
take place as soon as is reasonably practicable after the S-4 is declared
effective by the SEC. CGB and Enterbank shall coordinate and cooperate with
respect to the timing of said meetings and the date on which the CGB
Shareholders' Meeting shall be held.
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5.4 NO SOLICITATIONS.
(a) From the date hereof until the earlier of the Effective
Time or the termination of this Agreement, CGB agrees that neither it, nor any
of its Subsidiaries, Affiliates or agents shall, nor shall it authorize or
permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative or agent
(collectively, "Representatives") retained by it or any of its Subsidiaries,
Affiliates or agents to, solicit, initiate or knowingly encourage the submission
of, or enter into discussions or negotiations with or provide information to any
person or group of persons (other than the respective parties to this Agreement)
concerning, any Takeover Proposal (as defined below) or enter into any agreement
with a third party relating to a Takeover Proposal or assist, participate in,
facilitate or encourage any effort or attempt by any other person to do or seek
to do any of the foregoing. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding sentence by
any director, officer or Affiliate of CGB or any of its Subsidiaries or any
investment banker, attorney or other advisor or Representative of CGB or any of
its Subsidiaries or Affiliates, whether or not such Person is purporting to act
on behalf of CGB or any of its Subsidiaries or otherwise, shall be deemed to be
a breach of this Section 5.4(a) by CGB. As used in this Agreement, "Takeover
Proposal" shall mean any inquiry, proposal or offer to acquire in any manner 20%
or more of any class of equity securities of, or a merger, consolidation,
business combination, sale, recapitalization, liquidation, dissolution or other
disposition or similar transaction involving 20% or more of the assets of, CGB
or any Significant Subsidiary of CGB, or any tender offer or exchange offer that
if consummated would result in any person beneficially owning 20% or more of any
class of equity securities of CGB or any Significant Subsidiary of CGB (other
than pursuant to the transactions contemplated by this Agreement). A
"Significant Subsidiary" means any Subsidiary of a person that would constitute
a Significant Subsidiary of such person within the meaning of Rule 1-02 of
Regulation S-X of the SEC.
(b) Except as set forth herein, neither the Board of Directors
of CGB nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Enterbank, the approval or
recommendation by the Board of Directors of CGB or any such committee of this
Agreement or the Merger, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal, or (iii) enter into any agreement with respect
to any Takeover Proposal. Notwithstanding the foregoing, the Board of Directors
of CGB, to the extent required by its fiduciary obligations, as determined in
good faith by the Board of Directors of CGB based on the advice of independent
counsel, may (subject to the following sentences) withdraw or modify its
approval or recommendation of this Agreement or the Merger, approve or recommend
any Superior Proposal (as defined herein), enter into an agreement with respect
to such Superior Proposal or terminate this Agreement, in each case at any time
after the fifth Business Day following Enterbank's receipt of a written notice
advising Enterbank that the Board of Directors of CGB has received a Superior
Proposal, specifying the material terms and conditions of such Superior Proposal
and identifying the Person making such Superior Proposal (it being understood
that any amendment to a Superior Proposal shall necessitate an additional five
(5) Business Day period). In addition, if CGB proposes to enter into an
agreement with respect to any Takeover Proposal, it shall concurrently with
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entering into such agreement pay, or cause to be paid, to Enterbank the CGB
Termination Fee in accordance with the provisions of Section 5.4(d). For
purposes hereof, "Superior Proposal" shall mean any bona fide written Takeover
Proposal by a third party on terms determined in good faith by the Board of
Directors of CGB to be reasonably capable of being completed, taking into
account all legal, financial, regulatory and other aspects of the proposal and
the Person making the proposal and (based on the advice of a financial advisor
of nationally recognized reputation), if consummated to be more favorable to the
shareholders of CGB from a financial point of view than the Merger.
(c) In addition to the obligation of CGB set forth in
paragraph (b) above, CGB promptly shall advise Enterbank orally and in writing
of any request for information or of any Takeover Proposal, or any inquiry with
respect to or which could lead to any Takeover Proposal, the material terms and
conditions of such request, Takeover Proposal or inquiry and the identity of the
Person making any such request, Takeover Proposal or inquiry. CGB shall keep
Enterbank fully informed of the status and details (including amendments or
proposed amendments) of any such request, Takeover Proposal or inquiry.
(d) If this Agreement is terminated by CGB pursuant to Section
5.4(b), CGB shall pay promptly, but in no event later than two Business Days
after the occurrence of such termination, by wire transfer of immediately
available Federal Funds to such account as Enterbank shall designate, One
Million Dollars $1,000,000.00 (the "CGB Termination Fee") as liquidated damages
to Enterbank for such breach minus any Actual Expenses that have been paid by
CGB pursuant to the penultimate sentence of Section 5.8. If this Agreement is
terminated by Enterbank pursuant to Section 4.2(c) and Section 7.1(e)(ii),
Enterbank shall pay promptly, but in no event later than two Business Days after
the occurrence of such termination, by wire transfer of immediately available
Federal Funds to such account as CGB shall designate, One Million Dollars
$1,000,000.00 (the "Enterbank Termination Fee") as liquidated damages to CGB for
such breach minus any Actual Expenses that have been paid by Enterbank pursuant
to the penultimate sentence of Section 5.8.
5.5 LEGAL CONDITIONS.
(a) Each of CGB and Enterbank shall, and shall cause its
respective Subsidiaries to, use all reasonable efforts (i) to take, or cause to
be taken, all actions necessary to comply promptly with all legal requirements
which may be imposed on such party or its Subsidiaries with respect to the
transactions contemplated by this Agreement and as promptly as practicable, (ii)
to obtain (and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity and or any other public or private third party which is required to be
obtained or made by such party or any of its Subsidiaries in connection with the
Merger and the other transactions contemplated by this Agreement. Each of CGB
and Enterbank will promptly cooperate with and furnish information to the other
in connection with any such burden suffered by, or requirement imposed upon, any
of them or any of their Subsidiaries in connection with the foregoing.
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(b) Each of CGB and Enterbank agrees to use all reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary and proper or advisable to consummate, as soon as
practicable after the date of this Agreement, the transactions contemplated
hereby, including, without limitation, using all reasonable best efforts to (i)
lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby, (ii) defend any Litigation seeking to enjoin, prevent or delay the
consummation of the transactions contemplated hereby or seeking material
damages, (iii) provide to counsel to the other party hereto representations and
certifications as to such matters as such counsel may reasonably request in
order to render the opinions referred to in Sections 6.2(d) and 6.3(c), and (iv)
to obtain the letters of the independent accountants referred to in Section
6.1(f).
5.6 EMPLOYEE BENEFIT PLANS.
(a) For purposes of all employee benefit plans of Enterbank or
its Subsidiaries in which the employees of CGB who shall remain in the
employment of Enterbank or its Subsidiaries after the Closing Date shall
participate from and after such date (including all policies and employee fringe
benefit programs, including vacation policies), and under which an employee's
benefit depends, in whole or in part, on length of service, credit will be given
to employees of CGB for vesting and eligibility purposes only for service
previously credited with CGB or its Subsidiaries prior to the Effective Time to
the extent that such crediting of service does not result in duplication of
benefits; provided, however, that Enterbank shall determine each employee's
length of service in a manner consistent with the customary practice with
respect to the employees of the Enterbank Subsidiary by which they shall be
employed. Enterbank shall also cause each employee benefit plan in which
employees of CGB participate from and after the Effective Time to waive (i) any
preexisting condition restriction which was waived under the terms of any
analogous Benefit Plan immediately prior to the Effective Time or (ii) any
waiting period limitation which would otherwise be applicable to an employee of
CGB on or after the Effective Time to the extent such employee of CGB had
satisfied any similar waiting period limitation under an analogous Benefit Plan
prior to the Effective Time.
(b) Notwithstanding the foregoing, except as otherwise
expressly provided in this Agreement, Enterbank shall, and shall cause its
Subsidiaries to, honor in accordance with their terms all Benefit Plans, each as
amended to the date hereof and as otherwise amended prior to the Closing Date,
and other contracts, arrangements, commitments or understandings described in
the CGB Disclosure Schedule; provided, however, that this paragraph (b) shall be
subject to the provisions of paragraph (d) hereof.
(c) Except as otherwise provided herein, nothing in this
Section 5.6 shall be interpreted as preventing Enterbank or its Subsidiaries
after the Effective Time from amending, modifying or terminating any of the
Plans, or other contracts, arrangements, commitments or understandings, in
accordance with their terms and applicable law.
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(d) CGB shall terminate all Benefit Plans that Enterbank
requests CGB to terminate, which will not include the Benefit Plans described in
Schedule 5.6(d), effective as of the Closing Date in accordance with all
applicable requirements of law. Notwithstanding the preceding sentence, the CGB
401(k) Plan and the CGB Flexible Benefits Plan shall be frozen as of the Closing
Date. As soon as practical after the Closing Date, the assets of the CGB 401(k)
Plan and CGB Flexible Benefits Plan shall be merged with the Enterprise Bank
Incentive Savings Plan and Enterprise Bank Section 125 Premium Conversion Plan,
respectively.
5.7 ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. Subject to the mutual intent of the
parties that the Merger will be accounted for under the pooling of interests
method, CGB shall take any and all actions necessary or appropriate to ensure
that the Merger will be accounted for under the pooling of interests method,
including without limitation, causing Deloitte & Touche LLP to issue the
"poolability" letter required as a condition to close in Section 6.1(f).
5.8 FEES AND EXPENSES. Unless otherwise agreed by the parties in
writing or as otherwise provided herein, each party hereto shall bear and pay
all costs and expenses incurred by it incident to preparing, entering into and
carrying out this Agreement and to consummating the Merger, including fees and
expenses of its own financial advisors, accountants and counsel, all printing,
filing, mailing and other incidental fees, costs and expenses related thereto
associated with the S-4 and the Proxy Statement (collectively, the "SEC Fees").
Notwithstanding the foregoing provisions of this Section 5.8 and notwithstanding
the payment of any Termination Fee pursuant to Section 5.4, if this Agreement is
terminated by either party pursuant to Section 7.1(d) or (e) hereof because of a
willful breach by the other party of any representation, warranty, covenant or
agreement as set forth in Section 7.1(d) or (e), and provided that the
terminating party shall not have been in breach (in any material respect) of any
representation and warranty, covenant or agreement contained herein, then the
breaching party shall bear and pay all the costs and expenses incurred by the
non-breaching party, with respect to the fees and expenses of financial and
other advisors, investment bankers, accountants, counsel, printers and persons
involved in the transactions contemplated by this Agreement, including SEC Fees.
Notwithstanding the foregoing provisions of this Section 5.8, if this Agreement
is terminated pursuant to Sections 7.1(f)(i)(2) or 7.1(f)(i)(3), 7.1(f)(ii)(2)
or 7.1(h)(1), then CGB shall pay promptly by wire transfer of immediately
available funds to such account as Enterbank shall designate the amount of all
costs and expenses incurred by Enterbank incident to preparing, entering into
and carrying out this Agreement and to consummating the Merger, including
without limitation, fees and expenses incurred by Enterbank for its accountants
and counsel and all SEC Fees, and fees and expenses of Stifel, Nicolaus &
Company, Incorporated which amount shall not exceed $250,000 (collectively, the
"Actual Expenses"). Notwithstanding the foregoing provisions of this Section
5.8, if this Agreement is terminated pursuant to Section 7.1(h)(2) or
7.1(g)(iii), then Enterbank shall pay promptly by wire transfer of immediately
available funds to such account as CGB shall designate the amount of all Actual
Expenses incurred by CGB (including any and all fees and expenses of Fister &
Associates, Inc.), which amount of Actual Expenses shall not exceed $250,000.
Final settlement with respect to the payment of such fees and expenses by the
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parties shall be made within thirty days of the termination of this Agreement.
Except as otherwise expressly provided herein, whether or not the transactions
contemplated hereby are consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expense.
5.9 COOPERATION. During the period from the date of this Agreement to
the Effective Time, each of CGB and Enterbank shall, (i) confer on a regular and
frequent basis with the other, report on operational matters, policies and
banking practices and promptly advise the other orally and in writing of any
change or event having, or which, insofar as can reasonably be foreseen, could
have, a material adverse effect on CGB or Enterbank, as the case may be, or
which would cause or constitute a material breach of any of the representations,
warranties or covenants of such party contained herein, (ii) cause each
Subsidiary of CGB and Enterbank that is a bank to file all call reports with the
appropriate Bank Regulators and all other reports, applications and other
documents required to be filed with the applicable Governmental Entities between
the date hereof and the Effective Time and (iii) coordinate with the other the
declaration of any dividends in respect of Enterbank Common Stock and CGB Common
Stock and the record dates and payment dates relating thereto, it being the
intention of the parties hereto that holders of Enterbank Common Stock or CGB
Common Stock shall not receive two dividends, or fail to receive one dividend,
for any single calendar quarter with respect to their shares of Enterbank Common
Stock and/or CGB Common Stock and any shares of Enterbank Common Stock any such
holder receives in exchange therefor in the Merger.
5.10 AFFILIATES. Each of Enterbank and CGB shall use its commercially
reasonable efforts to cause each director, executive officer and other person
who is an "affiliate" (for purposes of Rule 145 under the Securities Act, in the
case of affiliates of CGB, and for purposes of qualifying the Merger for pooling
of interests accounting treatment, in the case of affiliates of either Enterbank
or CGB) of such party to execute and deliver, as soon as practicable after the
date of this Agreement, and in any event on or prior to the date the Proxy
Statements are mailed to the shareholders of CGB and Enterbank, a written
agreement, substantially in the form attached hereto as Exhibit B-1 with respect
to CGB and Exhibit B-2 with respect to Enterbank. CGB shall instruct CGB's
transfer agent regarding stop transfer instructions required in connection with
shares of CGB Common Stock owned by "affiliates" of CGB, as described in Exhibit
B-1 hereto.
5.11 ADVICE OF CHANGES. Enterbank and CGB shall promptly advise the
other party of any change or event which, individually or in the aggregate with
other such changes or events, has a material adverse effect on it or which it
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants contained herein.
5.12 SUBSEQUENT INTERIM AND ANNUAL FINANCIAL STATEMENTS; CERTAIN
REPORTS. As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal quarter (other than the fourth quarter of a fiscal
year) or 90 days after December 31, 1999, or the end of each fiscal year ending
after the date of this Agreement, each party will deliver to the other party its
financial statements or any Quarterly Report on Form 10-Q or its Annual Report
on Form 10-K, as the case
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may be, as filed with the SEC under the Exchange Act, and each party will
furnish to the other party copies of their management's monthly interim reports
(which do not comply with the published rules and regulations of the SEC or
GAAP) to their respective Boards of Directors within two days after such reports
are so furnished to the Boards. As soon as reasonably available, but in no event
more than 90 days after December 31, 1999, or the end of each fiscal year ending
after the date of this Agreement, CGB will deliver to Enterbank its financial
statements.
5.13 DISSENTERS' RIGHTS. CGB and (if Enterbank will be the Surviving
Corporation) Enterbank shall include in the notice of shareholder's meeting
required by Section 5.3 hereof a description of appraisal rights as contained in
K.S.A. 17-6712 of the KGCC and, if required, Section 262 of the DGCL.
5.14 RETENTION OF FCB OFFICERS AND DIRECTORS. It is the intention of
the parties hereto that immediately following the Closing Date the current
officers and directors of FCB shall continue to serve FCB in their respective
present capacities and on such terms and conditions as are presently in effect.
5.15 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) The Surviving Corporation shall indemnify, defend, and
hold harmless the present directors, officers, employees, and agents of CGB and
its Subsidiaries (each, an "Indemnified Party") after the Effective Time against
all damages in connection with any action arising out of actions or omissions
occurring at or prior to the Effective Time (including the transactions
contemplated by this Agreement) to the full extent permitted under Kansas Law
and by CGB's Certificate of Incorporation and Bylaws as in effect as of the date
hereof, including any provisions relating to advances of expenses incurred in
the defense of any action, suit or proceeding. Enterbank shall cause the
Surviving Corporation and all other relevant Enterbank Subsidiaries to apply
such rights of indemnification in good faith and to the fullest extent permitted
by applicable Law.
(b) With respect to all persons who are currently covered by
CGB's directors' and officers' liability insurance, or will become covered by
such insurance prior to the Effective Time, the Surviving Corporation shall
maintain in effect for a period of not less than three years following the
Effective Time the current directors' and officers' liability insurance
maintained by CGB (provided that the Surviving Corporation may substitute
therefor policies of at least equivalent coverage containing terms and
conditions and coverages which are no less advantageous to the current directors
and officers of the Company) with respect to matters occurring prior to the
Effective Time.
(c) If the Surviving Corporation or any of its successors or
assigns shall consolidate with or merge into any other corporation or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or shall transfer all or substantially all of its assets
to any person, corporation or entity, then in each case, proper provision shall
be made
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so that the successors and assigns of the Surviving Corporation shall assume the
obligations set forth in this Section 5.15.
(d) The provisions of this Section 5.15 are intended to be for
the benefit of and shall be enforceable by, each Indemnified Party, his or her
heirs and representatives, and shall survive the consummation of the Merger and
be binding on all successors and assigns of the Surviving Corporation.
5.16 CONFORMING ENTRIES.
(a) Notwithstanding that CGB believes that CGB and its
Subsidiaries have established all reserves and taken all provisions for possible
loan losses required by GAAP and applicable laws, rules and regulations, CGB
recognizes that Enterbank may have adopted different loan, accrual and reserve
policies (including loan classifications and levels of reserves for possible
loan losses). From and after the date of this Agreement, CGB and Enterbank shall
consult and cooperate with each other with respect to conforming the loan,
accrual and reserve policies of CGB and its Subsidiaries to those policies of
Enterbank, as specified in each case in writing to CGB, based upon such
consultation and as hereinafter provided.
(b) In addition, from and after the date of this Agreement,
CGB and Enterbank shall consult and cooperate with each other with respect to
determining appropriate accruals, reserves and charges to establish and take in
respect of excess equipment write-off or write-down of various assets and other
appropriate charges and accounting adjustments taking into account the parties'
business plans following the Merger, as specified in each case in writing to
CGB, based upon such consultation and as hereinafter provided.
(c) CGB and Enterbank shall consult and cooperate with each
other with respect to determining the amount and timing for recognizing for
financial accounting purposes CGB's expenses of the Merger and the restructuring
charges, if any, related to or to be incurred in connection with the Merger.
(d) With respect to clauses (a) through (c) of this Section
5.16, it is the objective of CGB that such reserves, accruals, charges and
divestitures, if any, to be taken shall be consistent with GAAP.
(e) No action taken by CGB at the request of Enterbank
pursuant to this Section 5.16 to conform the appropriate policies of CGB and its
Subsidiaries to those of Enterbank shall, in and of itself, constitute a breach
of any representation or warranty of CGB contained in Section 3.1(d) or 3.1(z)
hereof or provide a basis on which Enterbank may assert a breach of any
representation or warranty made by CGB in this Agreement.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations
of each party to consummate the transactions contemplated by this Agreement
shall be subject to the satisfaction on or prior to the Closing Date of the
following conditions:
(a) SHAREHOLDER APPROVALS. The CGB Shareholder Approval and
the Enterbank Shareholder Approval shall have been obtained.
(b) OTHER APPROVALS. All authorizations, consents, orders or
approvals of, or declarations or filings with, and all expirations of waiting
periods imposed by, any Governmental Entity (all the foregoing, "Consents")
which are necessary pursuant to the Merger, other than immaterial Consents
which, if not obtained, would have no material adverse effect on the
consummation of the transactions contemplated by this Agreement and the
Agreement of Merger or on either Enterbank or the Surviving Corporation, shall
have been filed, have occurred or been obtained (all such permits, approvals,
filings and consents and the lapse of all such waiting periods being referred to
as the "Requisite Regulatory Approvals") and all such Requisite Regulatory
Approvals shall be in full force and effect.
(c) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the transactions contemplated by this Agreement
or the Transaction Agreements shall be in effect. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the transactions contemplated by this Agreement or the
Transaction Agreements, by any Federal, state or foreign Governmental Entity of
competent jurisdiction which makes the consummation of the transactions
contemplated by this Agreement or the Transaction Agreements illegal.
(d) S-4. The S-4 shall become effective under the Securities
Act, no stop orders suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) POOLING. Enterbank shall have received a letter from KPMG
LLP, independent public accountants to Enterbank, dated the Closing Date, in
form and substance reasonably acceptable to Enterbank and CGB, respectively, to
the effect that the Merger will qualify for "pooling of interests" accounting
treatment; provided, however, that Deloitte & Touche LLP shall deliver to the
CGB Board of Directors a "poolability letter" dated the Closing Date in a form
reasonably acceptable to Enterbank and CGB and in accordance with Statement on
Auditing Standards No. 50; provided further, however, that if either party shall
have knowingly taken or omitted to take any action within the control of such
party which shall have prevented such party's
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independent public accountants from rendering such letter, then this condition
shall not be applicable to such party.
(f) BURDENSOME CONDITION. There shall not be any action taken,
or any statute, rule, regulation, order or decree enacted, entered, enforced or
deemed applicable to the Merger or the other Transaction Agreements by any
Federal, state or foreign Governmental Entity which, in connection with the
grant of a Requisite Regulatory Approval or otherwise, imposes any condition or
restriction (a "Burdensome Condition") upon Enterbank or CGB or their respective
Subsidiaries or Affiliates which would reasonably be expected to (i) have a
material adverse effect after the Effective Time on the present or prospective
consolidated financial condition, business, operating results or prospects of
Enterbank or the Surviving Corporation (including, without limitation, any
requirement to dispose of any material assets or businesses or restrict in any
significant way any material operations or activities), (ii) prevent Enterbank
or CGB or their respective Subsidiaries from realizing all or a substantial
portion of the economic benefits of the transactions contemplated by this
Agreement, or (iii) materially impair Enterbank's or CGB's ability to exercise
and enforce its rights under the Transaction Agreements.
(g) DISSENTERS' RIGHTS. The aggregate number of shares of CGB
Common Stock or (if Enterbank is the Surviving Corporation) of Enterbank Common
Stock held by persons who have taken all of the steps required at or prior to
the Enterbank Shareholders' Meeting and the CGB Shareholders' Meeting to perfect
their right (if any) to be paid the value of such shares under Section 262 of
the DGCL and K.S.A. 17-6712 of the KGCC shall not exceed 9.9% of the outstanding
shares of CGB Common Stock when combined with tainted treasury shares held by
CGB and fractional shares for which cash will be distributed.
(h) AVERAGE ENTERBANK CLOSING PRICE. CGB and Enterbank agree
that if the Average Enterbank Closing Price (as hereinafter defined) on the
second Business Day prior to the Closing Date (the "Determination Date") is
either less than $15.50 or greater than $23.00, then Enterbank and CGB shall in
good faith attempt to negotiate a mutually acceptable revised Exchange Ratio;
provided, however, that if a mutually acceptable revised Exchange Ratio is not
negotiated within five (5) Business Days following the Determination Date, then
either CGB (if the Average Enterbank Closing Price is less than $15.50) or
Enterbank (if the Average Enterbank Closing Price is greater than $23.00)may
terminate this Agreement by providing the other party with written notice of
such termination within two (2) Business Days following the fifth Business Day
after the Determination Date. If the applicable party does not elect to
terminate this Agreement pursuant to this Section 6.1(h), then the Closing Date
shall be the seventh Business Day following the Determination Date. For purposes
of this Agreement, "Average Enterbank Closing Price" means the average closing
sale price of the Enterbank Common Stock for the twenty (20) days on which the
New York Stock Exchange is open for trading preceding the second Business Day
prior to the Closing Date as reported by J.A. Glynn & Co. or another firm making
a market in the Enterbank Common Stock. For each of such twenty (20) Business
Days on which there is no reported sale of Enterbank Common Stock, the reported
closing price at which shares of Enterbank Common Stock were sold on the most
recent Business Day prior thereto on which there was a reported sale of
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Enterbank Common Stock shall be deemed to be the closing sale price. For
purposes of this Section 6.1(h), all trades on days on which fewer than an
aggregate of 500 shares are traded shall be disregarded. In the event of any
termination pursuant to this Section 6.1(h), this Agreement shall be of no
further force or effect whatsoever and neither party hereto shall have any
further obligation or liability hereunder.
6.2 CONDITIONS TO OBLIGATIONS OF ENTERBANK. The obligation of Enterbank
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions unless waived by Enterbank:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of CGB set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, and Enterbank shall
have received a certificate signed on behalf of CGB by its President and Chief
Executive Officer to such effect.
(b) PERFORMANCE OF OBLIGATIONS. CGB shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Enterbank shall have received a
certificate signed on behalf of CGB by its President and Chief Executive Officer
and Chief Financial Officer to such effect.
(c) CORPORATE ACTION. Enterbank shall have received a copy of
the resolution or resolutions duly adopted by the Board of Directors (or a duly
authorized committee thereof) of CGB and of the holders of the CGB Common Stock
authorizing the execution, delivery and performance by CGB of this Agreement and
the other Transaction Agreements, certified by the Secretary or an Assistant
Secretary of CGB.
(d) TAX OPINION. Enterbank shall have received the opinion of
Armstrong Teasdale LLP, counsel to Enterbank, dated the Closing Date, to the
effect that (i) the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Code and (ii)
Enterbank and CGB will each be a party to that reorganization within the meaning
of section 368(b) of the Code. In rendering such opinion, such counsel may
require and rely upon representations and covenants contained in certificates of
officers of Enterbank, CGB and others. If the opinion referred to in this
Section 6.2(d) is not delivered, such condition shall be deemed to be satisfied
if Enterbank shall have received an opinion to the effect of subsections (i) and
(ii) above from Deloitte & Touche LLP or another accounting firm or law firm
selected by CGB and reasonably acceptable to Enterbank. Enterbank will cooperate
in obtaining such opinion.
(e) MATERIAL ADVERSE EFFECT. Except as disclosed to Enterbank
in writing prior to the date hereof, no material adverse effect upon CGB shall
have occurred since September 30, 1999, and CGB shall not be a party to or so
far as CGB is aware, threatened with, and to CGB's knowledge there is no
reasonable basis for, any legal action or other proceeding before any court,
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any arbitrator of any kind or any government agency, which in the reasonable
judgment of Enterbank, could have a material adverse effect upon CGB, and
Enterbank shall have received a certificate signed on behalf of CGB by its
President and Chief Executive Officer to such effect.
(f) CLOSING DOCUMENTS. Enterbank shall have received from CGB
such certificates and other closing documents as counsel for Enterbank shall
reasonably request.
(g) FAIRNESS OPINION. Enterbank shall have received a written
"bring-down" opinion of Stifel, Nicolaus & Company, Incorporated, dated as of
the date of Enterbank's Proxy Statement, to the effect that, as of such date,
the consideration to be received by the holders of the Enterbank Common Stock in
the Merger is fair to the holders of the Enterbank Common Stock from a financial
point of view.
6.3 CONDITIONS TO OBLIGATIONS OF CGB. The obligation of CGB to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions unless waived by CGB:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Enterbank set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, and CGB shall have
received a certificate signed on behalf of Enterbank by its President and Chief
Executive Officer and its Chief Financial Officer to such effect.
(b) PERFORMANCE OF OBLIGATIONS. Enterbank shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and CGB shall have received a
certificate signed on behalf of Enterbank by its President and Chief Executive
Officer and its Chief Financial Officer to such effect.
(c) CORPORATE ACTION. CGB shall have received a copy of the
resolution or resolutions duly adopted by the Board of Directors (or a duly
authorized committee thereof) of Enterbank and of the holders of the Enterbank
Common Stock authorizing the execution, delivery and performance by Enterbank of
this Agreement and the other Transaction Agreements, certified by the Secretary
or an Assistant Secretary of Enterbank.
(d) TAX OPINION. CGB shall have received the opinion of
Stinson, Mag & Fizzell, independent counsel to CGB (or other accounting or law
firm reasonably acceptable to Enterbank), dated the Closing Date, to the effect
that (i) the Merger should be treated for Federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Code, (ii) Enterbank
and CGB should each be a party to that reorganization within the meaning of
section 368(b) of the Code and (iii) (1) except for any cash received in lieu of
any fractional share, no gain or loss should be recognized by holders of CGB
Common Stock who receive Enterbank Common Stock in exchange for the CGB Common
Stock which they hold; (2) the holding period of Enterbank
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Common Stock exchanged for CGB Common Stock should include the holding period of
the CGB Common Stock for which it is exchanged, assuming the shares of CGB
Common Stock are capital assets in the hands of the holder thereof at the
Effective Time; and (3) the basis of the Enterbank Common Stock received in the
exchange should be the same as the basis of the CGB Common Stock for which it
was exchanged, less any basis attributable to fractional shares for which cash
is received. In rendering such opinion, such independent accountants ( or law
firm) may require and rely upon representations and covenants contained in
certificates of officers of Enterbank, CGB and others. If the opinion referred
to in this Section 6.3(d) is not delivered, such condition shall be deemed
satisfied if CGB shall have received an opinion to the effect of subsections (i)
and (ii) above from Armstrong Teasdale LLP or another law or accounting firm
selected by Enterbank and reasonably acceptable to CGB. CGB will cooperate in
obtaining such opinion.
(e) MATERIAL ADVERSE EFFECT. Except as disclosed to CGB in
writing prior to the date hereof, no material adverse effect upon Enterbank
shall have occurred since September 30, 1999, and Enterbank shall not be a party
to or so far as Enterbank is aware, threatened with, and to Enterbank's
knowledge there is no reasonable basis for, any legal action or other proceeding
before any court, any arbitrator of any kind or any governmental agency, which
in the reasonable judgment of CGB, could have a material adverse effect upon
Enterbank, and CGB shall have received a certificate signed on behalf of
Enterbank by its President and Chief Executive Officer and its Chief Financial
Officer to such effect.
(f) CLOSING DOCUMENTS. CGB shall have received from Enterbank
such certificates and other closing documents as counsel for CGB shall
reasonably request.
(g) ADDITIONS TO ENTERBANK BOARD OF DIRECTORS. Enterbank shall
have amended its Bylaws or taken any other action necessary to increase the
number of authorized directors on its Board of Directors to permit the
appointment of the four CGB Designees (pursuant to Section 1.3(a)(iv)) at least
five (5) Business Days prior to the Closing Date.
(h) FAIRNESS OPINION. CGB shall have received a written
"bring-down" opinion of Fister & Associates, Inc., dated as of the date of CGB's
Proxy Statement, to the effect that, as of such date, the consideration to be
received by the holders of the CGB Common Stock in the Merger is fair to the
holders of the CGB Common Stock from a financial point of view.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, by action taken or authorized by the Board of Directors of
the terminating party or parties, whether before or after adoption of the
Agreement by the shareholders of CGB or Enterbank:
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(a) by mutual consent of Enterbank and CGB in a written
instrument;
(b) by either Enterbank or CGB (i) upon written notice to the
other party if any Bank Regulator shall have issued an order denying approval of
the Merger and the other material aspects of the transactions contemplated by
this Agreement or if any Governmental Entity of competent jurisdiction shall
have issued a final permanent order enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement or (ii) if any
Governmental Entity of competent jurisdiction shall have issued an order in
connection with the transactions contemplated hereby imposing a Burdensome
Condition on Enterbank or the Surviving Corporation, and in any such case the
time for appeal or petition for reconsideration of any such order referred to in
clauses (i) or (ii) shall have expired without such appeal or petition being
granted;
(c) by either Enterbank or CGB if the Merger shall not have
been consummated on or before July 31, 2000; provided that if the Merger shall
not have been consummated on or before such date, such termination date may be
extended by up to 60 days thereafter (i) at the election of the non-breaching
party, if the Merger shall not have been consummated due to the volitional
breach of any material representation, warranty or covenant in this Agreement by
Enterbank or CGB, or (ii) at the election of the party who has requested any
Requisite Regulatory Approval, in the event that the Merger shall not have been
consummated due to the fact that any such Requisite Regulatory Approvals shall
not yet have been received;
(d) by Enterbank in the event of a breach by CGB of any
representation, warranty or covenant contained in this Agreement, which breach
(i) either is not cured within 45 days after the giving of written notice to
CGB, or is of a nature which cannot be cured prior to the Closing and (ii) would
entitle the non-breaching party to elect not to consummate the transactions
contemplated hereby pursuant to Article VI; provided, however, that Enterbank
may immediately terminate this Agreement upon notice to CGB in the event that
CGB shall breach the covenant provided for in Section 5.4 hereof;
(e) (i) by CGB in the event of a breach by Enterbank of any
representation, warranty or covenant contained in this Agreement, which breach
(1) either is not cured within 45 days after the giving of written notice to
Enterbank or is of a nature which cannot be cured prior to the Closing and (2)
would entitle the non-breaching party to elect not to consummate the
transactions contemplated hereby pursuant to Article VI; provided, however, that
CGB may terminate this Agreement within ten (10) Business Days after notice to
Enterbank in the event that Enterbank shall breach the covenant provided for in
Section 4.2(c) hereof and such breach shall not have been cured within such ten
(10) Business Day period and, upon such termination, Enterbank shall pay to CGB
the Enterbank Termination Fee as liquidated damages to CGB for such breach,
which sum shall be paid by wire transfer of immediately available Federal Funds,
to such account as CGB shall designate;
(ii) by Enterbank, in the event that, notwithstanding its
obligations in Section 4.2(c), a third party makes a written offer regarding a
Takeover Proposal of Enterbank in
61
<PAGE> 72
which such third party indicates that they would not be willing to consummate
such a Takeover Proposal unless this Agreement is terminated, and the Board of
Directors of Enterbank determines in good faith, based upon the written advice
of outside counsel, that failing to accept such Takeover Proposal would
constitute a breach of fiduciary duty by Enterbank's Board of Directors under
applicable law; provided, however, that upon such termination, Enterbank shall
pay to CGB the Enterbank Termination Fee as liquidated damages to CGB for such
termination, which sum shall be paid in the manner described in subsection
7.1(e)(i) above;
(f) (i) by Enterbank (1) if, in accordance with Section 5.3,
the Board of Directors of CGB fails to recommend adoption of this Agreement by
the shareholders of CGB, or amends or modifies such recommendation in a manner
materially adverse to Enterbank or withdraws such recommendation to the
shareholders of CGB, (2) if the condition set forth in Section 6.2(q) is not
satisfied, or (3) if Deloitte & Touche LLP fails to deliver the "poolability
letter" required by Section 6.1(e);
(ii) by CGB (1) if, in accordance with Section 5.3, the
Board of Directors of Enterbank fails to recommend adoption of this Agreement by
the shareholders of Enterbank, or amends or modifies such recommendation in a
manner materially adverse to CGB or withdraws such recommendation to the
shareholders of Enterbank, or (2) if the condition set forth in Section 6.3(h)
is not satisfied;
(g) by Enterbank or CGB, if (i) the CGB Shareholder Approval
or the Enterbank Shareholder Approval shall not have been obtained at a duly
held meeting of shareholders of CGB or Enterbank, as appropriate, held for such
purpose or at any adjournment, postponement or continuation thereof, or (ii) the
condition set forth in Section 6.1(h) is not satisfied, or (iii) KPMG LLP fails
to deliver the letter required by Section 6.1(f) (although Deloitte & Touche LLP
has delivered the "poolability letter" required by Section 6.1(f));
(h) (1) by Enterbank in the event there has been a change, or
any event involving a prospective change, in the business, financial condition,
results of operations or prospects of CGB or any of its Subsidiaries which has
had, or would be reasonably likely to have, a material adverse effect on CGB;
provided, however, that termination pursuant to this subsection (1) shall be
effective 45 days after the giving of written notice to CGB if the change or
event described in said notice has not been cured; and provided, further that
termination under this subsection (1) shall be effective immediately after the
giving of written notice if said change or event cannot be cured prior to the
Closing; and (2) by CGB in the event there has been a change, or any event
involving a prospective change, in the business, financial condition, results of
operations or prospects of Enterbank or any of its Subsidiaries which has had,
or would be reasonably likely to have, a material adverse effect on Enterbank;
provided, however, that termination pursuant to this subsection (2) shall be
effective 45 days after the giving of written notice to Enterbank if the change
or event described in said notice has not been cured; and provided, further that
termination under this subsection (2) shall be effective immediately after the
giving of written notice if said change or event cannot be cured prior to
Closing.
62
<PAGE> 73
7.2 EFFECT OF TERMINATION. Termination of this Agreement shall not
terminate or affect the obligations of the parties under Section 4.2(c), 5.4,
5.8 or 8.10 or otherwise to pay expenses as provided elsewhere herein, to
maintain the confidentiality of the other party's information pursuant to
Section 5.2 or the provisions of this Section 7.2 or of Section 8.2 or 8.6, and
shall not affect any agreement after such termination. The parties agree that
any termination of this Agreement shall not in any manner release or be
construed as so releasing the nonterminating party or parties or their
respective officers or directors from any liability or damage to the other party
or parties arising out of, in connection with or otherwise relating to, directly
or indirectly, such parties willful breach of its covenants, agreements,
representations or warranties hereunder, except to the extent expressly provided
herein.
7.3 AMENDMENT. This Agreement may be amended by the parties hereto at
any time before or after approval of this Agreement by the shareholders of CGB
and Enterbank, but after any such approval, no amendment shall be made which by
law requires further approval by such shareholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
7.4 EXTENSION; WAIVER. At any time prior to the Closing Date, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. No
investigation by Enterbank or CGB made before or after the date hereof shall
affect the representations and warranties which are contained in this Agreement;
provided that all representations, warranties, covenants and agreements in this
Agreement or in any instrument delivered pursuant hereto or thereto shall expire
on, and be terminated and extinguished at, the Effective Time other than
covenants and agreements that by their terms are to survive or be performed, in
whole or in part, after the Effective Time; provided that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive Enterbank or CGB (or any director or officer
thereof) of any defense in law or equity which otherwise would be available
against the claims of any person, including, without limitation, any shareholder
or former shareholder of either Enterbank or CGB, the aforesaid representations,
warranties, covenants and agreements being material inducements to the
consummation by Enterbank and CGB of the transactions contemplated herein.
63
<PAGE> 74
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the fifth Business Day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice.
(a) if to CGB, to:
Commercial Guaranty Bancshares, Inc.
12695 Metcalf Avenue
Overland Park, Kansas 66213
Attention: Mr. Joe C. Morris
Chairman
Fax: (913) 663-4172
with a copy to:
Stinson, Mag & Fizzell
1201 Walnut, Suite 2800
Kansas City, Missouri 64106-2150
Attention: C. Robert Monroe
Fax: (816) 691-3495
and
(b) if to Enterbank, to:
Enterbank Holdings, Inc.
150 N. Meramec Avenue
St. Louis, Missouri 63105
Attention: Mr. James C. Wagner
Chief Financial Officer
Fax: (314) 727-3239
64
<PAGE> 75
with a copy to:
Armstrong Teasdale LLP
One Metropolitan Square, Suite 2600
St. Louis, Missouri 63102
Attention: John L. Gillis, Esq.
Fax: (314) 621-5065
8.3 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available.
8.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP. This Agreement (including the documents and the instruments referred
to herein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, other than the Confidentiality Agreement,
which shall survive the execution and delivery of this Agreement, and (b) is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder except as otherwise expressly provided in Section 5.7. The
parties hereby acknowledge that, except as hereinafter agreed to in writing, no
party shall have the right to acquire or shall be deemed to have acquired shares
of common stock of the other party pursuant to the Merger until consummation
thereof. No current or former employee of CGB, Enterbank, or any of their
respective Subsidiaries, shall be construed as a third party beneficiary under
this Agreement, and no provision in this Agreement shall create any right in any
such employee (or his or her beneficiary or dependent) for any reason,
including, without limitation, in respect of employment, continued employment,
or resumed employment with the Surviving Corporation, CGB or Enterbank (or any
of their respective Affiliates) or in respect of any benefits that may be
provided, directly or indirectly, under any Benefit Plan maintained by the
Surviving Corporation, CGB or Enterbank (or any of their respective Affiliates).
8.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri without giving effect to the
principles of conflicts of law.
65
<PAGE> 76
8.7 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability and, unless the
effect of such invalidity or unenforceability would prevent the parties from
realizing the major portion of the economic benefits of the Merger that they
currently anticipate obtaining therefrom, shall not render invalid or
unenforceable the remaining terms and provisions of this Agreement or affect the
validity or enforceability of any of the terms or provisions of this Agreement
in any other jurisdiction. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
8.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties, and any attempt to make any such assignment without such consent shall
be null and void. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
8.9 PUBLICITY. Enterbank, FCB, and CGB shall consult with each other
before issuing any press release with respect to the Merger or this Agreement
and shall not issue any such press release or make any such public statement
without the prior consent of the other parties, which shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of the
other parties (but after prior consultation, to the extent practicable in the
circumstances) issue such press release or make such public statement as may
upon the advice of outside counsel be required by law. Without limiting the
reach of the preceding sentence, Enterbank and CGB shall cooperate to develop
all public announcement materials and make appropriate management available at
presentations related to the transactions contemplated by this Agreement as
reasonably requested by the other party. In addition, CGB and its Subsidiaries
shall (a) consult with Enterbank regarding communications with customers,
shareholders, prospective investors and employees related to the transactions
contemplated hereby, (b) provide Enterbank with shareholders lists of CGB and
(c) allow and facilitate Enterbank contact with shareholders of CGB and other
prospective investors.
8.10 ATTORNEYS' FEES. In the event of any dispute between the parties
arising out of or relating to this Agreement, the prevailing party in any
litigation (whether at law or in equity), arbitration or other proceeding with
respect to such dispute, including any appeal thereof (collectively, an
"Action"), shall be entitled to recover such party's reasonable attorneys' fees
and all other reasonable costs and expenses incurred in connection with such
Action from the non-prevailing party.
66
<PAGE> 77
IN WITNESS WHEREOF, Enterbank and CGB have caused this Agreement to be
executed by their respective officers thereunto duly authorized, all as of date
first above written.
ENTERBANK HOLDINGS, INC.
By: /s/ Fred H. Eller
--------------------------------
Name: Fred H. Eller
Title:
By: /s/ James C. Wagner
--------------------------------
Name: James C. Wagner
Title: Secretary
COMMERCIAL GUARANTY
BANCSHARES, INC.
By: /s/ Joe C. Morris
--------------------------------
Name: Joe C. Morris
Title:
By: /s/ Scott A. Woods
--------------------------------
Name: Scott A. Woods
Title: Secretary
67
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING CALCULATION OF EARNINGS PER SHARE (1)
<TABLE>
<CAPTION>
Basic Diluted
EPS number EPS number Net Basic Diluted
of shares of shares Income EPS EPS
---------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
812 months ended December 31, 1998 7,052,289 7,544,288 $3,010,774 $0.43 $0.40
12 months ended December 31, 1999 7,135,697 7,704,800 $3,820,185 $0.54 $0.50
<CAPTION>
12 MONTHS ENDED DECEMBER 31, 1998 Basic Diluted
----------- ---------
<S> <C> <C>
Average Shares Outstanding 7,052,289 7,052,289
Options - Plan 1 130,197
Average Option Price $2.00
Total Exercise Cost $260.394
Shares Repurchased 28,141
Net Shares from Option - Plan 1 102,056
Options - Plan 2 220,563
Average Option Price $2.54
Total Exercise Cost $560,230
Shares Repurchased 60,544
Net Shares from Option - Plan 2 160,019
Options - Plan 3 543,669
Average Option Price $5.34
Total Exercise Cost $2,903,192
Shares Repurchased 313,746
Net Shares from Option - Plan 3 229,923
----------- ---------
Gross Shares 7,052,289 7,544,288
Price $9.25
<CAPTION>
12 MONTHS ENDED DECEMBER 31, 1999 Basic Diluted
----------- ---------
<S> <C> <C>
Average Shares Outstanding 7,135,697 7,135,697
Options - Plan 1 34,477
Average Option Price $2.30
Total Exercise Cost $79,297
Shares Repurchased 5,526
Net Shares from Option - Plan 1 28,951
Options - Plan 2 217,521
Average Option Price $2.55
Total Exercise Cost $554,679
Shares Repurchased 38,654
Net Shares from Option - Plan 2 178,867
Options - Plan 3 553,240
Average Option Price $5.63
Total Exercise Cost $3,114,741
Shares Repurchased 217,055
Net Shares from Option - Plan 3 336,185
Options - Plan 4 83,959
Average Option Price $10.06
Total Exercise Cost $844,628
Shares Repurchased 58,859
Net Shares from Option - Plan 4 25,100
----------- ---------
Gross Shares 7,135,697 7,704,800
Price $14.35
</TABLE>
(1) Adjusted to give retroactive effect to a 3-for-1 stock split effective
September 29, 1999
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Company State of Organization
- ------- ---------------------
Enterbank Holdings, Inc. Delaware
Enterprise Bank Missouri
Charford, Inc. Missouri
Enterprise Premium Finance Corp. Missouri
Enterprise Merchant Banc, Inc. Missouri
Enterprise Capital Management, Inc. Missouri
EBH Capital Trust I Delaware
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Enterbank Holdings, Inc.:
We consent to the incorporation by reference in Enterbank Holdings, Inc. and
subsidiaries (Enterbank) registration statement No. 333-43365 on Form S-8 of
our report dated February 18, 2000, relating to the consolidated balance sheets
of Enterbank as of December 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, cash flows, and comprehensive
income for each of the years in the three-year period ended December 31, 1999,
which report appears in the December 31, 1999 annual report on Form 10-K of
Enterbank.
/s/ KPMG LLP
St. Louis, Missouri
March 9, 2000
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY PRESENT, that each person whose signature appears below
constitutes and appoints James C. Wagner, Fred H. Eller, and Stacey Tate and
each of them, and substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign these 10-K, S-4 and Y-3
Reports, and any and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
ENTERBANK HOLDINGS, INC.
<TABLE>
<S> <C> <C>
By: /s/ James C. Wagner By: /s/ Fred H. Eller By: /s/ Stacey Tate
--------------------------- --------------------------- -------------------------
James C. Wagner Fred H. Eller Stacey Tate
Chief Financial Officer Chief Executive Officer Controller
</TABLE>
Pursuant to the requirements of the Securities Act of 1934, these 10-K,
S-4, and Y-3 Reports have been signed by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
- ---------------------------------
Fred H. Eller Chief Executive Officer
and Director February _, 2000
/s/ Ronald E. Henges
- ---------------------------------
Ronald E. Henges Chairman of the Board
of Directors February 24, 2000
- ---------------------------------
Kevin C. Eichner Vice Chairman of the February _, 2000
Board of Directors
- ---------------------------------
Paul R. Cahn Director February _, 2000
/s/ Birch M. Mullins
- ---------------------------------
Birch M. Mullins Director February 24, 2000
/s/ Robert E. Saur
- ---------------------------------
Robert E. Saur Director February 24, 2000
/s/ James A. Williams
- ---------------------------------
James A. Williams Director February 24, 2000
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
- ---------------------------------
Henry D. Warshaw Director February _, 2000
- ---------------------------------
James L. Wilhite Director February _, 2000
/s/ Ted C. Wetterau
- ---------------------------------
Ted C. Wetterau Director February 24, 2000
/s/ Randall D. Humphreys
- ---------------------------------
Randall D. Humphreys Director February 24, 2000
- ---------------------------------
Paul L. Vogel Director February _, 2000
- ---------------------------------
William B. Moskoff Director February _, 2000
/s/ James C. Wagner
- ---------------------------------
James C. Wagner Chief Financial Officer, February 24, 2000
Secretary, and Treasurer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001025835
<NAME> ENTERBANK HOLDINGS INC. 10-K
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,798,216
<INT-BEARING-DEPOSITS> 469
<FED-FUNDS-SOLD> 54,825,000
<TRADING-ASSETS> 210,000
<INVESTMENTS-HELD-FOR-SALE> 23,807,572
<INVESTMENTS-CARRYING> 679,806
<INVESTMENTS-MARKET> 676,851
<LOANS> 386,540,094
<ALLOWANCE> 4,235,000
<TOTAL-ASSETS> 488,001,444
<DEPOSITS> 435,797,830
<SHORT-TERM> 0
<LIABILITIES-OTHER> 557,338
<LONG-TERM> 17,920,386
0
0
<COMMON> 71,436
<OTHER-SE> 32,689,249
<TOTAL-LIABILITIES-AND-EQUITY> 488,001,444
<INTEREST-LOAN> 30,018,530
<INTEREST-INVEST> 1,004,753
<INTEREST-OTHER> 1,113,626
<INTEREST-TOTAL> 32,136,909
<INTEREST-DEPOSIT> 13,754,225
<INTEREST-EXPENSE> 14,352,119
<INTEREST-INCOME-NET> 17,784,790
<LOAN-LOSSES> 1,021,256
<SECURITIES-GAINS> 202,454
<EXPENSE-OTHER> 13,386,172
<INCOME-PRETAX> 5,943,098
<INCOME-PRE-EXTRAORDINARY> 3,698,694
<EXTRAORDINARY> 0
<CHANGES> 121,491
<NET-INCOME> 3,820,185
<EPS-BASIC> 0.54
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 8.39
<LOANS-NON> 293,750
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 770,455
<ALLOWANCE-OPEN> 3,200,000
<CHARGE-OFFS> 19,000
<RECOVERIES> 33,000
<ALLOWANCE-CLOSE> 4,235,000
<ALLOWANCE-DOMESTIC> 4,070,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 165,000
</TABLE>
