<PAGE> 1
Registration No. 333-78773
Pursuant to 424(b)(1)
PREMIER BANCSHARES, INC. RIVA BANCSHARES, INC.
MERGER PROPOSED-YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Riva Bancshares, Inc. and Premier
Bancshares, Inc. have agreed on a merger of our two companies. Before we can
complete this merger, the agreement must be approved by each company's
shareholders. We are sending you this Proxy Statement/Prospectus to ask you to
vote in favor of the merger.
Upon completion of the merger, each share of Premier common stock,
other than shares held by Premier shareholders who perfect dissenters' rights,
will be converted into the number of shares of Riva Bancshares common stock
equal to the quotient obtained by dividing $215.136 by the initial public
offering price of one share of Riva Bancshares common stock, rounded to the
nearest third decimal. This is the exchange ratio. Cash will be paid in lieu of
fractional shares. In addition, the shareholders of Premier will receive
warrants to purchase 350,000 shares of Riva Bancshares common stock. Riva
Bancshares has filed a registration statement on Form S-4 pursuant to the
Securities Act of 1933, as amended, for up to 1,100,000 shares of its common
stock to be issued in connection with the merger.
Riva Bancshares' securities are not currently listed on any national
securities exchange or the Nasdaq Stock Market. Riva Bancshares has filed a
registration statement on Form S-1 registering its sale of 3,000,000 shares of
common stock in its initial public offering. Riva Bancshares intends to qualify
its common stock for trading on the Nasdaq National Stock Market following the
initial public offering under the symbol "RIVA."
THIS PROXY STATEMENT/PROSPECTUS PROVIDES DETAILED INFORMATION ABOUT THE
MERGER. YOU SHOULD READ IT CAREFULLY. THE MERGER INVOLVES CERTAIN RISKS. SEE
"RISK FACTORS" ON PAGE __ OF THIS PROXY STATEMENT/PROSPECTUS.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special
meeting, please vote by completing the enclosed proxy card and mailing it to us.
If you sign, date and mail your proxy card without indicating how you want to
vote, we will vote your proxy in favor of the merger. If you do not return your
card, you will in effect vote against the merger.
We are enthusiastic about this merger and the strength and capabilities
we expect from the combined company. We join all the other members of each
company's Board of Directors in recommending that you vote in favor of the
merger.
The dates, times and places of the meetings are:
Riva Bancshares shareholders: Premier shareholders:
August 26, 1999, 11:00 a.m. August 16, 1999, 6:30 p.m.
13004 Starbuck Road 815 West Stadium Boulevard
St. Louis, Missouri 63141 Jefferson City, Missouri 65110
Richard C. Jensen Charles R. Willibrand
President Chairman of the Board
================================================================================
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY
BANK OR NON-BANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
================================================================================
This Proxy Statement/Prospectus is dated August 5, 1999 and was first
mailed to shareholders on or about August 5, 1999.
<PAGE> 2
PREMIER BANCSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 16, 1999
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of Premier
Bancshares, Inc. will be held at 815 West Stadium Boulevard, Jefferson City,
Missouri, on August 16, 1999 at 6:30 p.m., local time, for the
following purposes:
1. To approve the Amended and Restated Agreement and Plan of
Merger, dated as of July 29, 1999 by and between Premier Bancshares, Inc. and
Riva Bancshares, Inc., a Delaware corporation, pursuant to which Premier will
merge with and into Riva Bancshares. Upon consummation of the merger, each
issued and outstanding share of Premier common stock will be converted into the
right to receive shares of Riva Bancshares common stock and stock purchase
warrants, as more fully described in the merger agreement and further described
in the Proxy Statement/Prospectus; and
2. To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
NOTICE OF RIGHT TO DISSENT. If the merger is completed and you strictly
follow the steps required by law, you will have the right to dissent from the
merger and receive the fair value of your shares determined in accordance with
ss.351.455 RSMo. The right of any such shareholder to dissenters' rights is
contingent upon consummation of the merger and upon strict compliance with the
requirements set forth in ss.351.455 RSMo., the full text of which is set forth
as Appendix B to the accompanying Proxy Statement/Prospectus.
Only shareholders of record at the close of business on August 1, 1999
(the "Record Date") will be entitled to receive notice of, and to vote at, the
special meeting and any adjournments or postponements thereof. The affirmative
vote of the holders of two-thirds of the shares of Premier common stock
outstanding on the Record Date is required for the approval of the merger
agreement and the transactions contemplated thereby, including the merger.
THE BOARD OF DIRECTORS OF PREMIER UNANIMOUSLY RECOMMEND THAT THE
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
Charles R. Willibrand
Chairman of the Board
August 5, 1999
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING.
<PAGE> 3
RIVA BANCSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 26, 1999
(unless earlier approved by written consent)
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders
of Riva Bancshares, Inc. will be held at 13004 Starbuck Road, St.
Louis, Missouri, on August 26, 1999 at 11:00 a.m., local time, for the
following purposes:
1. To approve the Amended and Restated Agreement and Plan of
Merger, dated as of July 29, 1999 by and between Premier Bancshares, Inc., a
Missouri corporation, and Riva Bancshares, Inc., pursuant to which Premier will
merge with and into Riva Bancshares. Upon consummation of the merger, each
issued and outstanding share of Premier common stock will be converted into the
right to receive shares of Riva Bancshares common stock and stock purchase
warrants, as more fully described in the merger agreement and further described
in the Proxy Statement/Prospectus; and
2. To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
NOTICE OF RIGHT TO DISSENT. If the merger is completed and you strictly
follow the steps required by law, you will have the right to dissent from the
merger and receive the value of your shares determined in accordance with Title
8, Section 262, of the Delaware General Corporation Law. The right of any such
shareholder to dissenters' rights is contingent upon consummation of the merger
and upon strict compliance with the requirements set forth in Title 8, Section
262, the full text of which is set forth as Appendix C to the accompanying
Proxy Statement/Prospectus.
Only shareholders of record at the close of business on August 16,
1999 (the "Record Date") will be entitled to receive notice of, and to vote at,
the special meeting and any adjournments or postponements thereof. The
affirmative vote of a majority of the shares of Riva Bancshares common stock
outstanding on the Record Date is required for the approval of the merger
agreement and the transactions contemplated thereby, including the merger.
THE BOARD OF DIRECTORS OF RIVA BANCSHARES UNANIMOUSLY RECOMMEND THAT
THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
Richard C. Jensen
President
August 5, 1999
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION AND REPORTS TO SECURITY HOLDERS.............................................................1
SUMMARY...........................................................................................................2
The Companies:..............................................................................................2
The Merger..................................................................................................2
What Premier Shareholders Will Receive......................................................................2
Reasons for the Merger......................................................................................2
The Shareholders Meetings...................................................................................3
Board of Directors Recommendations to Shareholders..........................................................3
Record Date; Voting Power...................................................................................3
Vote Required...............................................................................................3
Interests of Persons Involved in the Merger that are Different from Yours...................................3
Conditions to the Merger....................................................................................3
Termination of the Merger Agreement.........................................................................4
Regulatory Approvals........................................................................................4
Accounting Treatment........................................................................................4
Important Federal Tax Consequences..........................................................................4
Dissenters' Rights..........................................................................................4
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA......................................................................6
PRO FORMA FINANCIAL DATA..........................................................................................8
RISK FACTORS......................................................................................................9
THE SPECIAL MEETING OF RIVA BANCSHARES SHAREHOLDERS..............................................................16
General....................................................................................................16
Matters to be Considered...................................................................................16
Vote Required..............................................................................................16
Voting of Proxies..........................................................................................16
Voting and Revocation of Proxies...........................................................................16
Solicitation of Proxies....................................................................................17
Record Date and Voting Rights..............................................................................17
Recommendation of the Riva Bancshares Board................................................................17
THE SPECIAL MEETING OF PREMIER SHAREHOLDERS......................................................................18
General....................................................................................................18
Matters to be Considered...................................................................................18
Vote Required..............................................................................................18
Voting of Proxies..........................................................................................18
Voting and Revocation of Proxies...........................................................................18
Solicitation of Proxies....................................................................................19
Record Date and Voting Rights..............................................................................19
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Recommendation of the Premier Board........................................................................19
THE MERGER.......................................................................................................20
Description of the Merger..................................................................................20
Effective Time and Closing of the Merger...................................................................21
Exchange of Certificates...................................................................................21
Background of and Reasons for the Merger...................................................................23
Conditions Precedent to the Merger.........................................................................29
Conduct of Business Prior to the Merger....................................................................30
Termination................................................................................................32
Expenses...................................................................................................33
Material Federal Income Tax Consequences...................................................................33
Interests of Certain Persons in the Merger.................................................................34
Dissenters' Rights of Premier Shareholders and Riva Bancshares Shareholders................................36
Accounting Treatment.......................................................................................38
Bank Regulatory Matters....................................................................................38
Status of Regulatory Approvals and Other Information .....................................................39
Restrictions on Resales....................................................................................39
Recommendation of the Premier Board........................................................................40
Recommendation of the Riva Bancshares Board................................................................40
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY..................................................................41
Market Prices..............................................................................................41
Dividend Policy............................................................................................41
INFORMATION ABOUT RIVA BANCSHARES................................................................................42
General....................................................................................................42
Acquisition of Premier Bancshares, Inc.....................................................................43
Strategy of Riva Bancshares................................................................................44
Operations of Riva Bancshares..............................................................................49
Operations of Premier Bancshares, Inc......................................................................50
Asset/Liability Management.................................................................................50
Competition................................................................................................50
Data Processing............................................................................................51
Facilities.................................................................................................51
Employees..................................................................................................51
Legal Proceedings..........................................................................................51
Principal Shareholders of Riva Bancshares..................................................................52
Management of Riva Bancshares..............................................................................53
Certain Transactions.......................................................................................59
INFORMATION ABOUT PREMIER........................................................................................60
General....................................................................................................60
Asset/Liability Management.................................................................................60
Competition................................................................................................60
Security Ownership of Certain Beneficial Owners and Management of Premier..................................60
Facilities.................................................................................................61
</TABLE>
(ii)
<PAGE> 6
<TABLE>
<S> <C>
Employees..................................................................................................61
Legal Proceedings..........................................................................................62
Monetary Policies..........................................................................................62
Certain Transactions.......................................................................................62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................................63
Riva Bancshares, Inc.......................................................................................63
Premier Bancshares, Inc....................................................................................63
Summary....................................................................................................65
Results of Operations......................................................................................69
Financial Condition........................................................................................69
Year 2000 Readiness........................................................................................85
Accounting Pronouncements..................................................................................86
Effects of Inflation and Changing Prices...................................................................87
Monetary Policies..........................................................................................87
DESCRIPTION OF RIVA BANCSHARES CAPITAL STOCK AND PREMIER CAPITAL STOCK...........................................88
Riva Bancshares Capital Stock..............................................................................88
Premier Capital Stock......................................................................................91
COMPARISON OF SHAREHOLDER RIGHTS.................................................................................92
Call of Special Shareholder Meetings.......................................................................92
Shareholder Consent in Lieu of Meeting.....................................................................92
Shareholder Voting ........................................................................................92
Limitation or Elimination of Directors' Personal Liability.................................................93
Indemnification............................................................................................94
Amendments to Articles or Certificate of Incorporation and Bylaws..........................................94
Dissenters' Rights of Appraisal............................................................................95
Inspection of Books, Records and Shareholders List.........................................................95
Dissolution................................................................................................96
Preemptive Rights..........................................................................................96
Interested Director Transactions...........................................................................96
Filling Vacancies on the Board of Directors................................................................96
Dividends and Repurchases of Shares .......................................................................97
Anti-Takeover Statutes.....................................................................................97
LEGAL OPINIONS...................................................................................................99
EXPERTS..........................................................................................................99
OTHER MATTERS....................................................................................................99
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
APPENDIX A - AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER..................................................A-1
</TABLE>
(iii)
<PAGE> 7
<TABLE>
<S> <C>
APPENDIX B - MO. REV. STAT. ss.351.455..........................................................................B-1
APPENDIX C - DEL. CODE ANN., TITLE 8, ss.262....................................................................C-1
APPENDIX D - FAIRNESS OPINION OF GRA THOMPSON, WHITE & COMPANY, P.C.............................................D-1
</TABLE>
(iv)
<PAGE> 8
AVAILABLE INFORMATION AND REPORTS TO SECURITY HOLDERS
Riva Bancshares filed a registration statement on Form S-4 to register
with the Securities and Exchange Commission the Riva Bancshares common stock to
be issued to Premier shareholders in the merger. You may read and copy any
information filed by Riva Bancshares, without charge, at the Securities and
Exchange Commission's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the Public Reference Room. Copies of
the registration statement may be obtained through commercial document retrieval
services and at the Securities and Exchange Commission's internet site through
"http://www.sec.gov."
This joint Proxy Statement/Prospectus is a part of the registration
statement and does not contain all the information included the registration
statement. Neither Riva Bancshares nor Premier is currently subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended. Upon
completion of Riva Bancshares' initial public offering, Riva Bancshares will be
subject to these reporting requirements and will be required to file annual and
quarterly reports with the Securities and Exchange Commission.
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE> 9
SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
merger fully, and for more complete descriptions of the legal terms of the
merger, you should read carefully this entire document and the documents we have
referred you to.
THE COMPANIES:
RIVA BANCSHARES, INC.
13004 Starbuck Road
St. Louis, Missouri 63141
(314) 514-8491
Riva Bancshares was organized under the laws of the state of Delaware
on May 1, 1998. Riva Bancshares is a development stage company with no history
of operations as a bank holding company. Prior to acquiring Premier, Riva
Bancshares will not own any banks. The above address is temporary. We are
currently in the process of negotiating for permanent office space in the St.
Louis metropolitan area.
PREMIER BANCSHARES, INC.
815 West Stadium Boulevard
Jefferson City, Missouri 65110
(573) 893-6000
Premier is a bank holding company. Through its banking subsidiary,
Premier Bank, Premier provides a wide range of banking services in the Jefferson
City and Columbia, Missouri markets.
THE MERGER
The acquisition of Premier by Riva Bancshares is governed by a merger
agreement. We encourage you to read the merger agreement, which is attached as
Appendix A.
FORMATION OF RIVA BANCSHARES AND THE INITIAL PUBLIC OFFERING
We formed Riva Bancshares to create a multi-market bank serving
business customers who are dissatisfied with the impersonal service delivered by
super-regional and national banks. To accelerate the implementation of our
business plan, we have agreed to acquire Premier and its wholly-owned
subsidiary, Premier Bank, an independent state-chartered bank with total assets
of approximately $67 million. Immediately after the closing of the merger, Riva
Bancshares will close on an initial public offering of 3,000,000 shares of its
common stock. An additional 450,000 shares of Riva Bancshares common stock will
be issued if the underwriters exercise their over-allotment option. The
completion of the initial public offering is dependent upon the closing of the
acquisition of Premier. Upon completion of the acquisition, Premier Bank will be
renamed Riva Bank. The proceeds of the offering will be used to support future
growth of Premier Bank and to implement Riva Bancshares' business plan.
WHAT PREMIER SHAREHOLDERS WILL RECEIVE
Premier shareholders will receive in exchange for each one share of
Premier common stock the following:
Riva Bancshares common stock with a value
at the initial public offering price
equal to $215.136
A warrant to purchase 3.605 shares of Riva
Bancshares common stock at the initial
public offering price at any time
within 10 years after the closing of
the merger transaction*
A warrant to purchase 5.020 shares of Riva
Bancshares common stock at 120% of the
initial public offering price at any time
within 10 years after the closing of the
merger transaction
*These warrants will not be received by Bruce W. Wiley. The warrants for shares
of Riva Bancshares common stock at the initial public offering price that would
otherwise have been distributed to him will be divided among the other
shareholders of Premier.
Premier shareholders should not send in their
stock certificates until requested to do so
after the merger is completed.
REASONS FOR THE MERGER
The Board of Directors of Premier believes that the combined entity
will provide a larger capital base and diversified markets for Premier Bank. It
is anticipated that a public market for Riva Bancshares stock will exist,
providing liquidity to Premier shareholders. The Board of Directors of Riva
Bancshares believes that the merger will enable Riva Bancshares
2
<PAGE> 10
to expand its operations by building upon Premier's existing
infrastructure, technology and outsourcing relationships.
THE SHAREHOLDERS MEETINGS
Riva Bancshares Shareholders. We will hold the Riva Bancshares special
meeting at 13004 Starbuck Road St. Louis, Missouri, at 11 a.m. on August 26,
1999. At this meeting, we will ask Riva Bancshares shareholders:
1. To approve the merger agreement; and
2. To act on any other matters that may be put to a vote at the Riva
Bancshares special meeting.
If the consent in favor of the merger can be obtained from the holders
of a majority of the shares of Riva Bancshares common stock, we will not hold a
shareholders meeting for Riva Bancshares.
Premier Shareholders. We will hold the Premier special meeting at 815
West Stadium Boulevard, Jefferson City, Missouri, at 6:30 p.m., on August 16,
1999. At this meeting, we will ask Premier's shareholders:
1. To approve the merger agreement; and
2. To act on any other matters that may be put to a vote at the Premier
special meeting.
BOARD OF DIRECTORS RECOMMENDATIONS TO SHAREHOLDERS
Riva Bancshares Shareholders. The Riva Bancshares Board of Directors
believes that the merger is in the best interests of Riva Bancshares
shareholders and recommends that they vote "for" the proposal to approve the
merger agreement.
Premier Shareholders. The Premier Board of Directors believes that the
merger is fair to the Premier shareholders and in their best interests, and
unanimously recommends that they vote "for" the proposal to approve the merger
agreement.
RECORD DATE; VOTING POWER
Riva Bancshares Shareholders. You may vote at the Riva Bancshares
special meeting if you owned Riva Bancshares shares as of the close of business
on August 16, 1999. You will have one vote for each share of Riva Bancshares
common stock you owned on that date.
Premier Shareholders. You may vote at the Premier special meeting if
you owned Premier shares as of the close of the business on August 1, 1999. You
will have one vote for each share of Premier common stock you owned on
August 1, 1999.
VOTE REQUIRED
The merger must be approved by the holders of a majority of the shares
of Riva Bancshares common stock. The merger must be approved by the holders of
at least two-thirds of the holders of Premier common stock.
INTERESTS OF PERSONS INVOLVED IN THE MERGER THAT ARE DIFFERENT FROM YOURS
Certain executive officers and directors of Riva Bancshares and Premier
have interests in the merger agreement that are different from your interests
generally, including employment and bonus arrangements, as well as stock option
plans.
CONDITIONS TO THE MERGER
The completion of the merger depends on the fulfillment of a number of
conditions, including the following:
- approval of the merger by the shareholders of Riva Bancshares
and Premier;
- the Registration Statement of which this prospectus is a part,
being declared effective by the Securities and Exchange
Commission;
- receipt of the opinion of GRA Thompson, White & Company, P.C.,
as to the fairness from a financial point of view of the
merger to Premier shareholders;
- approval of appropriate regulatory agencies; and
- Riva Bancshares shall have entered into an underwriting
agreement providing for the firm commitment underwriting of
shares of its common stock having an aggregate gross purchase
price of at least $25,000,000.
3
<PAGE> 11
- the underwriters in the initial public offering shall have
given their assurances that they are ready, willing and able
to close on the initial public offering, and have the funds
available to pay for the shares sold in the initial public
offering.
TERMINATION OF THE MERGER AGREEMENT
The two companies can agree at any time to terminate the merger
agreement before completing the merger, even if the shareholders of both
companies have already voted to approve it.
Either company may also terminate the merger agreement if:
- the other party materially violates any of its representations
or warranties under the merger agreement and fails to cure
such violation;
- there is an inaccuracy in any representation or warranty of
the other party contained in the merger agreement which has
not been cured within 30 days after written notice of such
inaccuracy;
- any government body whose approval is necessary to complete
the merger makes a final decision not to approve the merger;
- the Riva Bancshares shareholders or the Premier shareholders
do not approve the merger agreement;
- the merger has not been consummated by September 30, 1999; or
- the conditions to the obligations of a party to complete the
merger cannot be satisfied by September 30, 1999.
The merger agreement can also be terminated by Riva Bancshares if
dissenter's rights are claimed by persons owning, in the aggregate, more than
10% of the issued and outstanding Premier stock. Premier may terminate the
merger agreement if, prior to the effective time of the merger agreement, GRA
Thompson White & Company, P.C. withdraws its fairness opinion or a third party
makes a bona fide acquisition proposal that Premier's Board of Directors
determines is more favorable to Premier shareholders than the merger agreement.
REGULATORY APPROVALS
Riva Bancshares and Premier have filed all required applications for
regulatory review and approval or notice with the Federal Reserve Board and the
Missouri Division of Finance. On June 11, 1999, Riva Bancshares received the
necessary Federal Reserve Board approval of the merger from the Federal Reserve
Bank of St. Louis. On June 3, 1999, the parties received approval from the
Missouri Division of Finance.
ACCOUNTING TREATMENT
The merger will be accounted for as if Premier had acquired Riva
Bancshares, and the consolidated financial statements of Premier will become
the historical consolidated financial statements of Riva Bancshares.
IMPORTANT FEDERAL TAX CONSEQUENCES
We expect that the two companies and their shareholders will not
recognize any gain or loss for U.S. federal income tax purposes in the merger,
except in connection with any cash that Premier shareholders receive instead of
fractional shares. This tax treatment will not apply to any shareholder who
exercises dissenter's rights. The tax treatment will depend on your specific
situation. You should consult your own tax advisor for a full understanding of
the merger's tax consequences.
DISSENTERS' RIGHTS
Premier. Missouri law permits Premier shareholders to dissent from the
merger and to have their shares appraised and the fair value paid to them in
cash. To exercise dissenters' rights, Premier shareholders must follow certain
procedures, including filing notices with Premier and either abstaining from
voting or voting against the merger. If you follow the required formalities,
your Premier shares will not become shares of Riva Bancshares common stock.
Instead, your only right
4
<PAGE> 12
will be to receive the fair value of your Premier shares in cash.
Riva Bancshares. Delaware law permits Riva Bancshares shareholders to
dissent from the merger and to have their shares appraised and the fair value
paid to them in cash. To exercise dissenters' rights, Riva Bancshares
shareholders must follow certain procedures, including filing notices with Riva
Bancshares and either abstaining from voting or voting against the merger.
5
<PAGE> 13
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth the summary of selected consolidated financial
data of Premier Bancshares and Riva Bancshares for the periods indicated.
Premier Bancshares' selected consolidated financial data as of December 31, 1997
and 1998 and for each of the years ended December 31, 1996, 1997, and 1998 are
derived from Premier Bancshares' consolidated financial statements, which have
been audited by KPMG LLP, independent auditors. Riva Bancshares' selected
financial data as of December 31, 1998 and for the period from May 1, 1998 (date
of inception) to December 31, 1998 are derived from Riva Bancshares' financial
statements, which have been audited by KPMG LLP, independent auditors. These
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Riva Bancshares' financial statements and notes and Premier
Bancshares' consolidated financial statements and notes, and financial and other
information included in other parts of this prospectus.
<TABLE>
<CAPTION>
PREMIER BANCSHARES RIVA BANCSHARES
--------------------------------------------------------- -------------------------------
SIX MONTHS PERIOD FROM
PERIOD FROM YEARS ENDED ENDED MAY 1, 1998 SIX MONTHS
APRIL 1- DECEMBER 31, JUNE 30, (DATE OF ENDED
DECEMBER 31, ------------------------ --------------- INCEPTION) TO JUNE 30,
1995 1996 1997 1998 1998 1999 DECEMBER 31, 1998 1999
------------ ------ ------ ------ ------ ------ ----------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Interest income........... $ 515 $1,430 $2,175 $3,440 $1,431 $2,297 $ 21 $ 11
Interest expense.......... 302 883 1,309 2,090 884 1,350 -- --
------- ------ ------ ------ ------ ------ ------- -------
Net interest income....... 213 547 866 1,350 547 947 21 11
Provision for loan
losses.................. 64 80 112 292 74 105 -- --
------- ------ ------ ------ ------ ------ ------- -------
Net interest income after
provision for loan
losses.................. 149 467 754 1,058 473 842 21 11
Noninterest income........ 12 47 90 169 76 87 -- --
Noninterest expense....... 324 627 736 1,196 553 858 143 259
------- ------ ------ ------ ------ ------ ------- -------
Income (loss) before
income tax expense...... (163) (113) 108 31 (4) 71 (122) (248)
Income tax expense........ -- -- 11 9 -- 31 -- --
------- ------ ------ ------ ------ ------ ------- -------
Net income (loss)......... $ (163) $ (113) $ 97 $ 22 $ (4) $ 40 $ (122) $ (248)
======= ====== ====== ====== ====== ====== ======= =======
Basic and dilutive
earnings (loss) per
share................... $ (4.65) $(3.54) $ 2.99 $ 0.55 $(0.11) $ 0.96 $(12.18) $(24.83)
======= ====== ====== ====== ====== ====== ======= =======
PERFORMANCE RATIOS:
Net interest margin(1).... 7.13% 3.05% 3.32% 3.23% 2.95% 3.28%
Efficiency ratio(2)....... 140.00 122.02 87.25 97.48 88.83 82.95
Average shareholders'
equity to average
assets.................. 29.53 16.04 10.88 9.24 9.53 7.11
Return on average
assets.................. (2.04) (0.58) 0.34 0.05 (0.02) 0.13
Return on average
shareholders' equity.... (6.91) (3.60) 3.15 0.53 (0.23) 1.82
</TABLE>
- ---------------------------
(1) Computed by dividing net interest income by average earning assets.
(2) Computed by dividing noninterest expense by the sum of net interest income
and noninterest income.
6
<PAGE> 14
<TABLE>
<CAPTION>
PREMIER BANCSHARES RIVA BANCSHARES
----------------------------------------------------- ---------------------------------
AT DECEMBER 31,
------------------------------------- AT AT AT
1995 1996 1997 1998 JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999
------- ------- ------- ------- ------------- ----------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Investment securities.......... $ 5,398 $ 6,256 $ 5,418 $ 6,478 $ 9,397 $ -- $ --
Loans, net..................... 6,264 15,206 23,342 41,171 49,164 -- --
Earning assets................. 13,808 23,543 31,060 53,170 61,342 712 146
Total assets................... 15,082 25,652 33,717 57,756 66,692 884 864
Noninterest-bearing deposits... 341 2,576 1,478 2,817 3,014 -- --
Total deposits................. 11,507 22,268 28,353 48,816 57,329 -- --
Federal Home Loan Bank
advances..................... -- -- 940 3,445 3,782 -- --
Note payable................... 300 300 1,050 750 925 -- --
Shareholders' equity........... $ 3,191 $ 3,016 $ 3,222 $ 4,438 $ 4,335 $877 $629
======= ======= ======= ======= ======= ==== ====
ASSET QUALITY RATIOS:
Allowance for loan losses to
total loans.................. 1.00% 0.78% 0.89% 1.05% 1.01%
Non-performing loans to total
loans........................ -- -- 0.69 0.23 0.37
Net charge-offs to average
loans........................ -- 0.22 0.12 0.20 0.10
CAPITAL RATIOS:
Shareholders' equity to
assets....................... 21.16% 11.76% 9.56% 7.68% 6.50%
Total capital to risk-weighted
assets....................... 38.75 18.63 18.17 11.62 9.79
Tier 1 capital to risk-weighted
assets....................... 38.00 17.92 17.06 10.57 8.80
Tier 1 capital to average
assets....................... 22.46 12.97 10.05 7.87 6.87
</TABLE>
7
<PAGE> 15
PRO FORMA FINANCIAL DATA
The unaudited pro forma summary income statement data set forth below assumes
that Riva Bancshares was formed on January 1, 1998 and gives effect to the
acquisition of Premier Bancshares as if the acquisition had occurred on January
1, 1998 and was accounted for as a reverse acquisition. The unaudited pro forma
summary balance sheet data set forth below assumes that Riva Bancshares was
formed on the date indicated. The pro forma financial data set forth below does
not include the effects of this offering. The pro forma financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," Riva Bancshares' financial statements and
notes, Premier Bancshares' consolidated financial statements and notes, and
financial and other information included elsewhere in this prospectus. The pro
forma results are not necessarily indicative of the results that would have been
achieved had the acquisition of Premier Bank occurred on January 1, 1998, or of
future operations.
<TABLE>
<CAPTION>
RIVA PREMIER RIVA
BANCSHARES BANCSHARES BANCSHARES
------------------- ------------ -------------
PERIOD FROM
MAY 1, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, PRO FORMA PRO FORMA
DECEMBER 31, 1998 1998 ADJUSTMENTS(1) CONSOLIDATED
------------------- ------------ -------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
SUMMARY INCOME
STATEMENT DATA:
Interest income..... $ 21 $ 3,440 $ -- $ 3,461
Interest expense.... -- 2,090 -- 2,090
------- ------- ----- -------
Net interest
income............ $ 21 1,350 -- 1,371
Provision for loan
losses............ -- 292 -- 292
------- ------- ----- -------
Net interest income
after provision
for loan losses... 21 1,058 -- 1,079
Noninterest
income............ -- 169 -- 169
Noninterest
expense........... 143 1,196 323 1,662
------- ------- ----- -------
Income (loss) before
income tax
expense........... (122) 31 (323) (414)
Income tax
expense........... -- 9 -- 9
------- ------- ----- -------
Net income (loss)... $ (122) $ 22 $(323) $ (423)
======= ======= ===== =======
Basic and dilutive
earnings (loss)
per share......... $(12.18) $ 0.55 $ (0.51)(2)
======= ======= =======
SUMMARY BALANCE SHEET
DATA:
Investment
securities........ $ -- $ 6,478 $ -- $ 6,478
Loans, net.......... -- 41,171 -- 41,171
Earning assets...... 712 53,170 -- 53,882
Intangible asset.... -- -- 588 588
Total assets 884 57,756 588 59,228
Noninterest-bearing
deposits.......... -- 2,817 -- 2,817
Total deposits...... -- 48,816 -- 48,816
Federal Home
Loan Bank advances... -- 3,445 -- 3,445
Note payable........ -- 750 -- 750
Shareholders'
equity............ 877 4,438 588 5,903
<CAPTION>
RIVA PREMIER
BANCSHARES BANCSHARES RIVA BANCSHARES
-------------- -------------- ---------------
SIX MONTHS SIX MONTHS
ENDED ENDED PRO FORMA PRO FORMA
JUNE 30, 1999 JUNE 30, 1999 ADJUSTMENTS(1) CONSOLIDATED
-------------- -------------- -------------- ---------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
SUMMARY INCOME
STATEMENT DATA:
Interest income..... $ 11 $ 2,297 $ -- $ 2,308
Interest expense.... -- 1,350 -- 1,350
------- ------- ---- -------
Net interest
income............ 11 947 -- 958
Provision for loan
losses............ -- 105 -- 105
------- ------- ---- -------
Net interest income
after provision
for loan losses... 11 842 -- 853
Noninterest
income............ -- 87 -- 87
Noninterest
expense........... 259 858 136 1,253
------- ------- ---- -------
Income (loss) before
income tax
expense........... (248) 71 (136) (313)
Income tax
expense........... -- 31 -- 31
------- ------- ---- -------
Net income (loss)... $ (248) $ 40 $(136) $ (344)
======= ======= ==== =======
Basic and dilutive
earnings (loss)
per share......... $(24.83) $ 0.96 $ (0.42)(2)
======= ======= =======
SUMMARY BALANCE SHEET
DATA:
Investment
securities........ $ -- $ 9,397 $ -- $ 9,397
Loans, net.......... -- 49,164 -- 49,164
Earning assets...... 146 61,342 -- 61,488
Intangible asset.... -- -- 588 588
Total assets 864 66,692 588 68,144
Noninterest-bearing
deposits.......... -- 3,014 -- 3,014
Total deposits...... -- 57,329 -- 57,329
Federal Home
Loan Bank advances... -- 3,782 -- 3,782
Note payable........ -- 925 -- 925
Shareholders'
equity............ 629 4,335 588 5,552
</TABLE>
- ---------------------------
(1) In connection with the acquisition of Riva Bancshares by Premier, goodwill
of $587,905 is reflected in the pro forma financial statements. Goodwill
has been established based upon the excess of the purchase price of
$217,799 over the fair value of net liabilities assumed of $370,106 (giving
effect to the assumed redemption of the outstanding Series A Preferred
Stock). The goodwill is being amortized on an accelerated basis over 3
years, the term of the employment contracts of the key members of Riva
Bancshares management. The purchase price of Riva Bancshares is computed
as follows:
- The 100,000 warrants sold to certain investors have been valued at an
aggregate price of $50,000 or $0.50 per warrant, as determined by an
independent appraisal.
- $167,799 relates to the sale of 475,000 shares of common stock and the
granting of 115,798 warrants to the founders of Riva Bancshares. Common
stock has been measured as the difference between the estimated fair value
of $11.00 per share and the sale price of $0.01 per share, as adjusted for
the 465,000 shares of common stock repurchased. The warrants have been
valued at an aggregate price of $57,899, or $0.50 per warrant, as
determined by an independent appraisal.
(2) Pro forma earnings (loss) per share have been computed based on an estimated
828,182 shares of common stock outstanding, which includes 818,182 shares of
common stock to be issued to the shareholders of Premier in connection with
the merger and 10,000 shares of common stock of Riva Bancshares which are
currently outstanding.
8
<PAGE> 16
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks below and other information in this Proxy
Statement/Prospectus before deciding to invest in our common stock. If any of
the following risks actually occur, our business, financial condition or
results of operations could be materially and adversely affected. In this
event, the trading price of our common stock could decline, and you may lose
all or part of your investment.
RIVA BANCSHARES HAS NO OPERATING HISTORY UPON WHICH TO BASE AN ESTIMATE OF OUR
FUTURE PERFORMANCE
We have no operating history on which to base any estimate of future
performance. We incorporated Riva Bancshares on May 1, 1998 and have not engaged
in any banking operations. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stages of development. We are at risk of not successfully addressing the
following:
- expansion into our identified markets;
- building our customer base;
- developing and retaining customer loyalty;
- responding to competitive developments;
- attracting, retaining and motivating qualified management and employees;
- maintaining efficient operations through outsourcing of back office
operations; and
- upgrading our technologies, products and services.
IF WE FAIL TO MANAGE GROWTH AS WE PURSUE OUR EXPANSION STRATEGY, IT COULD
NEGATIVELY AFFECT OUR OPERATIONS
Failure to manage our growth effectively or failure to attract and retain
qualified personnel could have a material adverse effect on our business, future
prospects, financial condition or results of operations, and could adversely
affect our ability to successfully implement our business strategy.
We intend to pursue an aggressive growth strategy and our results of operations
will be affected by our ability to:
- identify suitable markets;
- build our customer base;
- maintain credit quality;
- attract sufficient deposits to fund our anticipated loan growth;
- attract qualified bank management in each of our targeted markets;
- negotiate agreements with acceptable terms for the acquisition of existing
banks; and
- maintain adequate regulatory capital.
WE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THE OFFERING
We will have broad discretion in the application of the net proceeds of this
offering. The timing and specific application of the net proceeds will remain in
the sole discretion of our management. Upon completion of the offering, we
intend to contribute approximately $20 million of the net proceeds to the
capital of Premier Bank to support the growth of its loan portfolio by
increasing its legal lending limit, and to use approximately $1 million to
redeem the outstanding Series A Preferred Stock. The remainder of the net
proceeds will be applied in the future as needed to implement our business plan,
including the opening of a banking center in the St. Louis market. We intend to
accomplish our expansion primarily through the opening of additional banking
centers in our identified markets, but our expansion in our target markets could
include one or more acquisitions of existing financial institutions. You will
not have the opportunity
9
<PAGE> 17
to evaluate the economic, financial and other relevant information which will be
utilized by us in determining the application of such proceeds.
OUR SUCCESS LARGELY DEPENDS UPON THE SKILL AND EXPERIENCE OF OUR SENIOR
MANAGEMENT TEAM
The success of our operations will depend upon the services of Richard C.
Jensen, our President and Chief Executive Officer, as well as other senior
officers and managers. The loss of any of these individuals could have a
material adverse effect on our business, future prospects, financial condition
or results of operations. We do not have key man life insurance with respect to
any of our officers. Our future success also depends on our ability to identify,
attract and retain qualified senior officers and other employees in our
identified markets.
WE WILL BE VERY DEPENDENT ON THIRD PARTY SUPPLIERS
We are dependent on third parties to provide a number of our core processing
functions. Our financial condition may suffer if the third parties we depend on
for outsourcing our back office operations, data processing and other products
and services either increase the cost of their services or fail to maintain the
operational integrity of their networks. As a result, the failure of the systems
of any of our third party providers could adversely affect our business
operations and financial condition.
OUR RESULTS OF OPERATIONS WILL BE SIGNIFICANTLY AFFECTED BY THE ABILITY OF OUR
BORROWERS TO REPAY THEIR LOANS
Lending money is an essential part of the banking business. However, borrowers
do not always repay their loans. The risk of non-payment is affected by:
- credit risks of a particular borrower;
- changes in economic and industry conditions;
- the duration of the loan; and
- in the case of a collateralized loan, uncertainties as to the future value
of the collateral.
Generally, commercial/industrial, construction and commercial real estate loans
present a greater risk of non-payment by a borrower than other types of loans.
Our focus on making these types of loans, especially our concentration in
commercial real estate loans, will make us more susceptible to the risk of non-
payment than other banks with a more diversified loan portfolio.
OUR FINANCIAL CONDITION AND OTHER RESULTS OF OPERATIONS WOULD BE ADVERSELY
AFFECTED IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT SUFFICIENT TO ABSORB ACTUAL
LOSSES
There is no precise method of predicting loan losses. We can give no assurance
that our allowance for loan losses will be sufficient to absorb actual loan
losses. Excess loan losses could have a material adverse effect on our financial
condition and results of operations. We will attempt to maintain an appropriate
allowance for loan losses to provide for potential losses in our loan portfolio.
We will periodically determine the amount of the allowance for loan losses based
upon consideration of several factors, including:
- an ongoing review of the quality, mix and size of the overall loan
portfolio;
- historical loan loss experience;
- evaluation of non-performing loans;
- assessment of economic conditions and their effects on the existing
portfolio; and
- the amount and quality of collateral, including guarantees, securing loans.
OUR FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY OUR INABILITY TO ATTRACT
SUFFICIENT DEPOSITS TO FUND OUR ANTICIPATED LOAN GROWTH
We anticipate that we will need to attract significant levels of deposits to
fund our anticipated loan growth. Our ability to attract and maintain such
deposit levels will depend on our ability to attract new deposit
10
<PAGE> 18
customers. To the extent that funds generated by our deposit customers are
insufficient to fund our loan growth, we may need to raise additional funds
through public or private financings. We can give no assurance that we would be
able to obtain these funds on terms that are favorable to us.
WE MAY NOT BE ABLE TO EXPAND THROUGH BRANCHING OR FIND SUITABLE ACQUISITION
CANDIDATES
We can give no assurance that we will be able to expand our existing market
presence or successfully enter new markets. In entering new markets, we may
encounter competitors with greater financial and operational resources. In our
attempt to establish new branches of Riva Bank, we may be unable to find
attractive locations, negotiate favorable lease terms, or attract customers and
we may encounter additional problems experienced by new branches.
Although we intend to expand primarily through selective branch openings, we
intend to evaluate potential acquisitions that would complement or expand our
business. In doing so, we expect to compete with other potential bidders, many
of which may have greater financial resources than we have. Failure to find
suitable acquisition candidates or expand our market presence would adversely
affect our ability to successfully implement our business strategy.
EVEN IF WE ARE ABLE TO FIND SUITABLE ACQUISITION CANDIDATES, WE MAY NOT BE ABLE
TO INTEGRATE ACQUISITIONS WITH OUR EXISTING OPERATIONS
The process of opening new bank locations and evaluating, negotiating and
integrating acquisition transactions will divert management time and resources.
We can give no assurance that we will be able to integrate successfully or
operate profitably any newly-established banking center or acquired financial
institution. We may experience disruption and incur unexpected expenses in
integrating these acquisitions. Failure to successfully integrate these
acquisitions could negatively affect our operations.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO OBTAIN REGULATORY
APPROVALS IN A TIMELY MANNER
The establishment of branches or the acquisitions of banks in our identified
markets and other market areas will be subject to our receiving the necessary
regulatory approvals. Premier Bank has applied for approval to open a branch in
the St. Louis market. Failure to obtain this approval as well as future
regulatory approvals in a timely manner could have a material adverse effect on
our business, future prospects, financial condition or results of operations.
WE COULD BE ADVERSELY AFFECTED BY CHANGES IN THE LAW, ESPECIALLY CHANGES
DEREGULATING THE BANKING INDUSTRY
We will operate in a highly regulated environment and will be subject to
supervision and regulation by several governmental regulatory agencies,
including the Federal Reserve Board, the FDIC, and the Missouri Division of
Finance. These regulations are generally intended to provide protection for
depositors and customers rather than for the benefit of investors. We will be
subject to changes in federal and state law, regulations, governmental policies,
income tax laws and accounting principles. Deregulation could adversely affect
the banking industry as a whole, including our operations. The effects of these
changes could adversely affect our future operations.
INTEREST RATE VOLATILITY COULD SIGNIFICANTLY HARM OUR BUSINESS
Our results of operations will be materially affected by the monetary and fiscal
policies of the federal government and the regulatory policies of governmental
authorities. Our profitability will be dependent to a large extent on our net
interest income, which is the difference between our income on interest-earning
assets, such as loans, and our expense on interest-bearing liabilities, such as
deposits. A change in market interest rates could adversely affect our earnings.
Consequently, we will be particularly sensitive to interest rate fluctuations.
As we plan to hold most of the loans we originate internally, we will face a
greater risk of rapid changes in interest rates than banks which sell their
loans in secondary markets.
11
<PAGE> 19
WE WILL BE COMPETING WITH MANY LARGER FINANCIAL INSTITUTIONS WHICH HAVE FAR
GREATER FINANCIAL RESOURCES THAN WE HAVE
Competition among financial institutions in the state of Missouri and our
identified markets is intense. We will compete with other bank holding
companies, state and national commercial banks, savings and loan associations,
consumer finance companies, credit unions, securities brokerages, insurance
companies, mortgage banking companies, money market mutual funds, asset-based
non-bank lenders and other financial institutions. Many of these competitors
have greater financial resources and lending limits, larger branch networks, and
are able to offer a broader range of products and services than we can. Failure
to compete effectively for deposit, loan and other banking customers in our
identified markets could have a material adverse effect on our business, future
prospects, financial condition or results of operations.
IF A MARKET FOR OUR COMMON STOCK DOES NOT DEVELOP, YOU MAY NOT BE ABLE TO SELL
YOUR SHARES AS QUICKLY AS YOU MAY LIKE
There is no established public market for our common stock. We can not
guarantee:
- that any market for our common stock will develop;
- that any market for our common stock that develops will be liquid;
- that you will be able to sell the common stock you buy in this offering; or
- that you will be able to sell the common stock you buy in this offering at
any particular price.
Although we expect to have our common stock approved for quotation on The Nasdaq
National Market, an active trading market may not develop or continue after this
offering.
FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS THE PRICE OF OUR COMMON STOCK
Sales of a substantial number of shares of common stock in the public market
following this offering, or the perception that sales could occur, could
adversely affect the market price for our common stock. After the offering, we
will have approximately 3,828,182 shares of common stock outstanding (assuming
no exercise of the underwriters' over-allotment option and assuming that
818,182 shares will be issued in the merger). In addition, we have a stock
option plan under which we have reserved options to purchase 500,000 shares of
our common stock as well as outstanding warrants to purchase 565,798 shares of
common stock. Of the 3,828,182 shares which will be outstanding after the
offering, the 3,000,000 shares being sold in this offering will be eligible for
sale in the open market without restriction, except for shares purchased by
"affiliates" of Riva Bancshares. 10,000 shares of common stock will be
"restricted securities" as that term is defined in Rule 144 of the Securities
Act of 1933 and will become eligible for sale pursuant to Rule 144
approximately 90 days after the closing of the merger. Upon completion of the
merger, our officers and directors will hold an aggregate of approximately
375,000 shares of common stock and have agreed not to sell any of their shares
for 180 days following the closing of the offering without the prior written
consent of the underwriters. Following the expiration of this 180-day lock-up
period, these shares will be eligible for sale in the public market subject to
compliance with certain volume limitations and other conditions of Rule 144.
The market price of the common stock could be materially adversely affected by
the sale or availability for sale of shares now held by our existing
shareholders or of shares which may be issued under our stock option plan.
12
<PAGE> 20
In addition, the directors and executive officers of Premier have agreed not to
sell any of their shares for 180 days following the offering. Following the
expiration of this 180-day lock period, these shares will be eligible for sale
in the public market subject to compliance with certain volume limitations and
other conditions of Rule 145 of the Securities Act of 1933.
OUR SUCCESS WILL BE DEPENDENT UPON ECONOMIC CONDITIONS IN MISSOURI AND THE
SURROUNDING STATES
Our success will significantly depend upon economic conditions in Missouri and
the markets in which we will operate. A prolonged economic downturn or recession
in Missouri or in any of our identified markets, could cause our non-performing
assets to increase, which would cause operating losses, impaired liquidity and
the erosion of capital. Such an economic dislocation or recession could result
from a variety of causes, including a prolonged downturn in various industries
upon which these markets depend, or natural disasters such as floods, tornadoes
or earthquakes. Future adverse changes in the Missouri economy or the local
economies of our identified markets could have a material adverse effect on our
business, future prospects, financial condition or results of operations.
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK FOR THE FORESEEABLE FUTURE
We intend to retain any earnings to enhance Riva Bank's capital structure for
the foreseeable future. As a holding company, Riva Bancshares will have no
significant independent sources of revenue. The principal source of funds to pay
dividends on our common stock, to service indebtedness and to fund operations
will be cash dividends and other payments that we receive from Riva Bank.
Accordingly, any dividends paid to our shareholders will depend on Riva Bank's
earnings, capital requirements, financial conditions and other factors
considered relevant by our board of directors.
WE WILL BE RESTRICTED IN OUR ABILITY TO PAY DIVIDENDS TO OUR SHAREHOLDERS
Premier Bank, which is a Missouri state-chartered bank, is restricted in its
ability to pay dividends under state banking laws and regulations. As of June
30, 1999, Premier Bank was unable to pay cash dividends on its common stock
without regulatory approval. In addition, sound banking practices require the
maintenance of adequate levels of capital. Federal regulatory authorities have
adopted standards for the maintenance of capital of banks, and adherence to such
standards may further limit the ability of banks to pay dividends. Therefore,
any money which is used to provide additional capital for Riva Bank after the
acquisition will be difficult for the holding company to recapture for its own
purposes.
OUR ABILITY TO EFFECTIVELY TARGET THE INTERNET BANKING MARKET WILL LARGELY
DEPEND ON OUR ABILITY TO IMPLEMENT THESE SERVICES AND REMAIN COMPETITIVE WITH
OTHER BANKS OFFERING SUCH SERVICES
The success of our Internet banking products and services will depend in large
part on our ability to implement and maintain the appropriate technology. This
includes finding a competitive provider of these services as well as our ability
to remain competitive with banks that are already using the Internet. If we are
unable to implement and maintain the appropriate technology efficiently, it
could affect our results of operations and our ability to compete with financial
institutions. In addition, as we will specifically target those businesses which
will be more likely to use the Internet for their banking needs, the success of
our Internet banking focus will be linked to the overall success of the
Internet.
IT IS POSSIBLE THAT OUR COMPUTER SYSTEMS, OR THOSE OF OUR DATA PROCESSING
VENDOR OR CUSTOMERS, WILL FAIL TO OPERATE PROPERLY BEGINNING JANUARY 1, 2000
As the year 2000 approaches, an important business issue has emerged regarding
existing application software programs and operating systems. Many existing
application software and operating products were designed to accommodate only a
two-digit year. For example, "99" is stored on the system to represent 1999. As
a result, any computer programs or equipment that are date dependent may
recognize a date
13
<PAGE> 21
using "00" as the year 1900 rather than 2000. The business of many of our
customers may be negatively affected by the Year 2000 issue, and any financial
difficulties incurred by our customers in connection with the century change
could negatively affect such customer's ability to repay loans. External
factors, including electric and telephone service, are beyond our control and
the failure of such systems could have a material adverse effect on us, our
customers and third parties on whom we will rely for our day-to-day operations.
Premier Bank uses Computer Services Incorporated, a third-party vendor, to
provide its primary banking applications, including core processing systems. In
the event that Premier, CSI or its other significant vendors or loan customers
do not successfully and timely achieve Year 2000 compliance, our business,
future prospects, financial condition or results of operations could be
materially adversely affected.
THE MARKET PRICE OF OUR COMMON STOCK AFTER THE OFFERING MAY BE INFLUENCED BY A
NUMBER OF FACTORS WHICH ARE BEYOND OUR CONTROL
If a market develops for our common stock after this offering, the price for the
common stock will be determined in the market and may be influenced by a number
of factors beyond our control. These factors include:
- depth and liquidity of the market;
- investor perceptions of our company;
- changes in conditions or trends in the banking industry or in the industries
of our significant customers;
- publicly traded comparable companies; and
- general economic and political conditions.
ALL OF THE WARRANTS TO BE ISSUED TO PREMIER SHAREHOLDERS ARE EXERCISABLE AT A
PRICE GREATER THAN OR EQUAL TO THE INITIAL PUBLIC OFFERING PRICE
All of the warrants to be issued to the Premier shareholders are exercisable at
a price greater than or equal to the initial public offering price. We can make
no assurance that the market price of the Riva Bancshares common stock will
equal or exceed the initial public offering price after the merger and the
initial public offering. If the market price of the Riva Bancshares does not
exceed the exercise price of the warrants, the warrants will have little
economic value to the Premier shareholders.
OUR RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER WHICH MAY AFFECT THE PRICE OF
OUR COMMON STOCK
The trading price of our common stock could be subject to significant
fluctuations in response to quarterly variations in our actual or anticipated
operating results, changes in general market conditions and other factors. In
particular, our quarterly revenues will be difficult to forecast and our
expected expense levels are based in part on our expansion strategy in
anticipation of loan growth and revenues generated from the new banking centers.
If our revenue levels are below expectations, we may be unable or unwilling to
reduce expenses proportionately and our operating results would likely be
adversely affected. Therefore, prior to the full implementation of our business
strategy, we believe that period to period comparisons of our results may not be
as meaningful as those of a company with a history of operations and should not
be relied upon as indications of future performance. It is possible that in
future quarters our operating results will be below the expectations of public
market analysts and investors. If this happens, the market price of our common
stock would likely be negatively affected. In recent years, significant price
and volume fluctuations have occurred in the stock prices of companies that
often have been unrelated or disproportionate to their operating performance. We
can give no assurance that the market price of our common stock will not decline
below the public offering price.
OUR CERTIFICATE OF INCORPORATION CONTAINS PROVISIONS WHICH COULD SERVE TO DETER
OR PREVENT TAKE-OVER ATTEMPTS BY A POTENTIAL PURCHASER OF SHARES OF OUR COMMON
STOCK WHO WOULD BE WILLING TO PAY A PREMIUM OVER MARKET PRICE
Our Certificate of Incorporation contains provisions which give the board of
directors the ability to deter or prevent a merger with a third party, even if
the owners of a majority of the common stock were to favor such a transaction.
Our Certificate of Incorporation also authorizes the board of directors to issue
a series of preferred stock without shareholder action. The issuance of
preferred stock could discourage a third party from attempting to acquire, or
make it more difficult for a third party to acquire, a controlling interest in
our company, and could adversely affect the voting power or other rights of
holders of the common stock. In addition, our Certificate of Incorporation
establishes a staggered board of directors, which means that only one-third of
the members of our board of directors is elected each year and each
14
<PAGE> 22
director serves for a term of three years. These provisions make it more
difficult for a third party to achieve a change in control in our company
without approval of the board of directors. As a result,
you may be deprived of opportunities to sell some or all of your shares at
prices that represent a premium over market prices.
15
<PAGE> 23
THE SPECIAL MEETING OF RIVA BANCSHARES SHAREHOLDERS
GENERAL
This Proxy Statement/Prospectus is first being furnished to Riva
Bancshares shareholders on or about August 5, 1999, together with the Notice
of Special Meeting and a form of proxy that is solicited by the Riva Bancshares
Board for use at the special meeting and at any adjournments or postponements
thereof. The special meeting will be held at the offices of Riva Bancshares
located at 13004 Starbuck Road, St. Louis, Missouri, on August 26, 1999, at
11:00 a.m. local time. If the consent in favor of the merger can be obtained
from the holders of a majority of the common stock of Riva Bancshares, the
meeting of Riva Bancshares shareholders will not be held.
MATTERS TO BE CONSIDERED
At the special meeting, Riva Bancshares shareholders will be asked to
consider and vote upon a proposal to approve the Amended and Restated Agreement
and Plan of Merger dated as of July 29, 1999, by and between Riva Bancshares
and Premier, pursuant to which Premier will be merged with and into Riva
Bancshares.
VOTE REQUIRED
Under Delaware law, approval of the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of Riva
Bancshares common stock. On the record date, there will be one holder of record
of Riva Bancshares common stock. At the date of this Proxy Statement/Prospectus,
neither Premier nor any of its affiliates owned any of the outstanding shares
of Riva Bancshares common stock.
VOTING OF PROXIES
Shares of Riva Bancshares common stock represented by properly executed
proxies received at or prior to the special meeting will be voted at the special
meeting in the manner specified by the holders of such shares. Properly executed
proxies which do not contain voting instructions will be voted FOR approval and
adoption of the merger agreement. Any shareholder present in person or by proxy
at the Riva Bancshares special meeting who abstains from voting will be counted
for purposes of determining whether a quorum exists. If any other matters are
properly presented at the special meeting, the person or persons named in the
form of proxy enclosed with this Proxy Statement/Prospectus and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment, unless the proxy indicates otherwise. Riva Bancshares has no
knowledge of any matters to be presented at the special meeting, other than the
matters described in this Proxy Statement/Prospectus.
VOTING AND REVOCATION OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
Riva Bancshares shareholder from voting in person or otherwise revoking a proxy.
A Riva Bancshares shareholder may revoke a proxy at any time prior to its
exercise by delivering to the Corporate Secretary of Riva Bancshares a duly
executed revocation or proxy bearing a later date, or by voting in person at the
special meeting. All written notices of revocation and other communications with
respect to the revocation of Premier proxies should be addressed to Riva
Bancshares, Inc., 13004 Starbuck Road, St. Louis, Missouri 63141, attention:
Corporate Secretary. Attendance at the Riva Bancshares special meeting will not,
in and of itself, constitute revocation of a proxy.
16
<PAGE> 24
SOLICITATION OF PROXIES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, or other form of communication by directors, officers and employees
of Riva Bancshares, who will not be specially compensated for such solicitation.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized by Riva Bancshares, Premier or any other person. The delivery of
this Proxy Statement/Prospectus shall not, under any circumstances, create any
implication that there has been no change in the business or affairs of Riva
Bancshares or Premier since the date of the Proxy Statement/Prospectus.
Riva Bancshares will bear all costs of solicitation of proxies from
Riva Bancshares shareholders.
RECORD DATE AND VOTING RIGHTS
The Riva Bancshares Board has fixed the close of business on August 16,
1999 as the record date (the "Record Date") for the determination of the holders
of Riva Bancshares common stock entitled to receive notice of and to vote at the
special meeting. At the close of business on the Record Date, there will be
10,000 shares of Riva Bancshares common stock outstanding and entitled to vote,
with each share entitled to one vote.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE
OF A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF RIVA BANCSHARES COMMON
STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING, ABSTENTIONS WILL HAVE THE SAME
EFFECT AS NEGATIVE VOTES. ACCORDINGLY, THE RIVA BANCSHARES BOARD URGES ALL RIVA
BANCSHARES SHAREHOLDERS TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
RECOMMENDATION OF THE RIVA BANCSHARES BOARD
THE RIVA BANCSHARES BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF RIVA BANCSHARES AND THE RIVA BANCSHARES SHAREHOLDERS AND
RECOMMENDS THAT RIVA BANCSHARES SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
In reaching its decision to approve the merger agreement and the
transactions contemplated thereby, the Riva Bancshares board, among other
things, consulted with its legal advisors regarding the legal terms of the
merger agreement.
Riva Bancshares shareholders should note that certain members of Riva
Bancshares management and directors have certain interests in and may derive
certain benefits as a result of the merger in addition to their interests as
Riva Bancshares shareholders.
RIVA BANCSHARES SHAREHOLDERS SHOULD NOT SEND
ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
17
<PAGE> 25
THE SPECIAL MEETING OF PREMIER SHAREHOLDERS
GENERAL
This Proxy Statement/Prospectus is first being furnished to Premier
shareholders on or about August 5, 1999, together with the Notice of Special
Meeting and a form of proxy that is solicited by the Premier Board for use at
the special meeting and at any adjournments or postponements thereof. The
special meeting will be held at the offices of Premier located at 815 West
Stadium Boulevard, Jefferson City, Missouri, on August 16, 1999, at 6:30 p.m.
local time.
MATTERS TO BE CONSIDERED
At the special meeting, Premier shareholders will be asked to consider
and vote upon a proposal to approve the Amended and Restated Agreement and Plan
of Merger dated as of July 29, 1999, by and between Riva Bancshares and
Premier, pursuant to which Premier will be merged with and into Riva
Bancshares.
VOTE REQUIRED
Under the Missouri Revised Statutes, approval of the merger agreement
requires the affirmative vote of at least two-thirds of the outstanding shares
of Premier common stock. On the record date, there were approximately 48 holders
of record of Premier common stock. On such date, the directors and officers of
Premier beneficially owned, and expressed their intent to vote in favor of the
merger, a total of approximately 47% of the outstanding shares of Premier
common stock. At the date of this Proxy Statement/Prospectus, neither Riva
Bancshares nor any of its affiliates owned any of the outstanding shares of
Premier common stock.
VOTING OF PROXIES
Shares of Premier common stock represented by properly executed proxies
received at or prior to the special meeting will be voted at the special meeting
in the manner specified by the holders of such shares. Properly executed proxies
which do not contain voting instructions will be voted FOR approval and adoption
of the merger agreement. Any shareholder present in person or by proxy at the
Premier special meeting who abstains from voting will be counted for purposes of
determining whether a quorum exists. If any other matters are properly presented
at the special meeting, the person or persons named in the form of proxy
enclosed with this Proxy Statement/Prospectus and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment,
unless the proxy indicates otherwise. Premier has no knowledge of any matters to
be presented at the special meeting, other than the matters described in this
Proxy Statement/Prospectus.
VOTING AND REVOCATION OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
Premier shareholder from voting in person or otherwise revoking a proxy. A
Premier shareholder may revoke a proxy at any time prior to its exercise by
delivering to the Corporate Secretary of Premier a duly executed revocation or
proxy bearing a later date, or by voting in person at the special meeting. All
written notices of revocation and other communications with respect to the
revocation of Premier proxies should be addressed to Premier Bancshares, Inc.,
815 Stadium Boulevard, Jefferson City, Missouri 65110, attention: Corporate
Secretary. Attendance at the Premier special meeting will not, in and of itself,
constitute revocation of a proxy.
18
<PAGE> 26
SOLICITATION OF PROXIES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, or other form of communication by directors, officers and employees
of Premier, who will not be specially compensated for such solicitation.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized by Riva Bancshares, Premier or any other person. The delivery of
this Proxy Statement/Prospectus shall not, under any circumstances, create any
implication that there has been no change in the business or affairs of Riva
Bancshares or Premier since the date of the Proxy Statement/Prospectus.
Premier will bear all costs of solicitation of proxies from Premier
shareholders, except for the costs incurred in printing this Proxy
Statement/Prospectus and related materials, of which Riva Bancshares has agreed
to bear and pay all of such costs.
RECORD DATE AND VOTING RIGHTS
The Premier Board has fixed the close of business on August 1, 1999 as
the record date (the "Record Date") for the determination of the holders of
Premier common stock entitled to receive notice of and to vote at the special
meeting. At the close of business on the Record Date, there were 41,834 shares
of Premier common stock outstanding and entitled to vote, with each share
entitled to one vote.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE
OF A TWO-THIRDS OF THE ISSUED AND OUTSTANDING SHARES OF PREMIER COMMON STOCK
ENTITLED TO VOTE AT THE SPECIAL MEETING, ABSTENTIONS WILL HAVE THE SAME EFFECT
AS NEGATIVE VOTES. ACCORDINGLY, THE PREMIER BOARD URGES ALL PREMIER SHAREHOLDERS
TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
RECOMMENDATION OF THE PREMIER BOARD
THE PREMIER BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF PREMIER AND THE PREMIER SHAREHOLDERS AND RECOMMENDS THAT PREMIER
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
In reaching its decision to approve the merger agreement and the
transactions contemplated thereby, the Premier board, among other things,
consulted with its legal advisors regarding the legal terms of the merger
agreement and its financial advisor, GRA Thompson White & Company, P.C., as to
the financial fairness of the consideration Premier shareholders are to receive
in the merger.
Premier shareholders should note that certain members of Premier
management and directors have certain interests in and may derive certain
benefits as a result of the merger in addition to their interests as Premier
shareholders.
PREMIER SHAREHOLDERS SHOULD NOT SEND ANY
STOCK CERTIFICATES WITH THEIR PROXY CARDS.
19
<PAGE> 27
THE MERGER
The following is a summary of certain terms and provisions of the
merger agreement. This summary is qualified in its entirety by reference to the
merger agreement, which is included as Appendix A to this Proxy Statement/
Prospectus. All shareholders are urged to read carefully the merger agreement
and the other appendices to this Proxy Statement/Prospectus.
FORMATION OF RIVA BANCSHARES AND THE INITIAL PUBLIC OFFERING
We formed Riva Bancshares to create a multi-market bank serving
business customers who are dissatisfied with the impersonal service delivered by
super-regional and national banks. Our strategy is to capitalize on the
opportunities created by widespread consolidation in the banking industry. We
believe we have a significant opportunity to attract and maintain targeted
banking customers within our identified markets. We will offer a broad range of
banking products and services to small and medium-sized businesses, selected
real estate developers and the principals of these businesses. To accelerate the
implementation of our business plan, we have agreed to acquire Premier and its
wholly-owned subsidiary, Premier Bank, an independent state-chartered bank with
total assets of 62.7 million. Immediately after the closing of the merger, Riva
Bancshares will close on an initial public offering of 3,000,000 shares of its
common stock. An additional 450,000 shares of Riva Bancshares common stock will
be issued if the underwriters exercise their over-allotment option. The
completion of the initial public offering is dependent upon the closing of the
acquisition of Premier. Upon completion of the acquisition, Premier Bank will be
renamed Riva Bank. The proceeds of the offering will be used to support future
growth of Premier Bank and to implement Riva Bancshares' business plan.
DESCRIPTION OF THE MERGER
On May 6, 1999, Riva Bancshares and Premier entered into a merger
agreement which will cause Premier to be merged with and into Riva Bancshares.
Riva Bancshares will be the surviving entity in the merger. The merger agreement
was subsequently amended on July 22 and again on July 29, 1999. By virtue of the
merger, Premier Bank will become a wholly-owned banking subsidiary of Riva
Bancshares. After the merger is completed, Premier Bank will be renamed Riva
Bank.
The aggregate purchase price for Premier will be $9 million in Riva
Bancshares common stock. At the effective time of the merger, each outstanding
share of Premier's capital stock (other than shares held by holders who perfect
and do not withdraw their dissenters' rights) will be converted into and
exchanged for the right to receive that number of shares of Riva Bancshares
common stock equal to the quotient obtained by dividing $215.136 by the initial
public offering price of one share of Riva Bancshares common stock, rounded to
the nearest third decimal point. This is the exchange ratio. In addition, for
each share of Premier common stock owned prior to the merger, Premier
Shareholders will receive: (1) a warrant to purchase 3.605 shares of Riva
Bancshares common stock at the initial public offering price at any time within
10 years after the closing of the merger transaction, and (2) a warrant to
purchase 5.020 shares of Riva Bancshares common stock at 120% of the initial
public offering price at any time within 10 years after the closing of the
merger transaction.
The value of the consideration to be paid to Premier shareholders in
the merger was arrived at as a result of Riva Bancshares' due diligence review
of Premier's financial condition and negotiations between management of Riva
Bancshares and Premier. At an assumed initial public offering price of $11.00
for the common stock (the mid-point of the estimated range in Riva Bancshares'
initial public offering) and assuming an aggregate of 41,834 shares of Premier
stock issued and outstanding as of the effective time of the merger, each share
of Premier stock would be convertible into 19.558 shares of common stock, and an
aggregate of 1,000,000 shares of common stock would be issuable upon conversion
and exchange of all shares of Premier stock. Cash will be paid in lieu of
fractional shares. If Riva Bancshares changes the number of shares of common
stock issued and outstanding prior to the effective time of the merger as a
result of a stock split, stock dividend, recapitalization, reclassification, or
similar transaction and the record date (in the case of a stock dividend) or the
effective date (in the case of a stock split or similar recapitalization for
20
<PAGE> 28
which a record date is not established) will be prior to the effective time of
the merger, the exchange ratio will be proportionately adjusted.
Net tangible book value per share represents the amount of our total
assets less intangible assets and total liabilities, divided by the total number
of shares of common stock outstanding. After giving effect to:
- the sale of 3,000,000 shares of common stock in the initial public
offering at an assumed initial public offering price of $11.00 per
share and the use of proceeds from the offering; and
- the issuance of an estimated 818,182 shares in connection with the
acquisition of Premier Bank
our net tangible book value at June 30, 1999 would have been approximately $34.2
million or $8.92 per share. This represents an immediate increase in net
tangible book value of $45.92 per share to existing shareholders, and an
immediate dilution in the net tangible book value of $2.08 per share to
investors purchasing shares in the offering.
To induce Premier to enter into the merger agreement, Premier
shareholders are entitled to the following:
- In addition to any shares received in the merger, all Premier
shareholders will not be limited in the number of shares which they
may purchase in Riva Bancshares' initial public offering. Premier
shareholders' participation in the initial public offering is,
however, subject to any required regulatory approvals for purchases
that result in a Premier shareholder owning more than ten percent
(10%) of the total outstanding shares of Riva Bancshares;
- Upon completion of the initial public offering, Riva Bancshares will
grant to each Premier shareholder (other than Bruce W. Wiley) a
warrant to purchase shares of Riva Bancshares at the initial public
offering price for a period of ten years from the date of such grant.
The number of shares subject to these warrants will not exceed
140,000. The number of shares granted under each Premier shareholder's
warrant will be determined on a pro rata basis, so that each Premier
shareholder will receive a warrant to purchase 3.605 shares of Riva
Bancshares common stock for each share of Premier owned by such
shareholder prior to the merger. Warrants for shares that otherwise
would have been distributed to Mr. Wiley will be distributed pro rata
among all other Premier shareholders. No fractional shares will be
issued upon exercise of the warrants. The number of shares to be
received by each Premier shareholder will be rounded to the nearest
whole number;
- Upon completion of the initial public offering, Riva Bancshares will
grant to each Premier shareholder, including Bruce W. Wiley, a warrant
to purchase shares of Riva Bancshares at 120% of the initial public
offering price for a period of ten years from the date of such grant.
The aggregate number of shares subject to these warrants shall not
exceed 210,000. The number of shares granted under each of these
warrants will be determined on a pro rata basis, so that each Premier
shareholder will receive a warrant to purchase 5.020 shares of Riva
Bancshares common stock for each share of Premier owned by such
shareholder prior to the merger. These warrants will be granted on the
terms and conditions as more fully described in the merger agreement.
No fractional shares will be issued upon exercise of the warrants.
The number of shares to be received by each Premier shareholder will
be rounded to the nearest whole number; and
- For a period of forty-eight (48) months after the closing of the
initial public offering, if any additional options are granted to any
Premier shareholder who serves as a Riva Bancshares advisory director
or to any other non-employee Premier shareholder, then options will be
granted to each Premier shareholder on a pro rata basis. This means
that each Premier shareholder will receive an option to purchase
additional shares in the same proportion as the amount of option
shares granted to each advisory director or non-employee Premier
shareholder relative to the amount of shares owned by such advisory
director or non-employee shareholder at the time of the merger.
For example, if an advisory director or any non-employee Premier
shareholder owned 3,000 shares of Premier at the effective time of the
merger and is granted options to purchase 1,000 shares, then each
Premier shareholder will receive an option for one-third (i.e.,
1,000 / 3,000) of the amount of shares owned by such shareholder at
the time of the merger. Therefore, pursuant to the example above, a
Premier shareholder who owns 1,000 shares of Premier would receive
options to purchase 333 shares of Riva Bancshares.
EFFECTIVE TIME AND CLOSING OF THE MERGER
The effective time of the merger will occur on the date and at the time
the parties receive certification of the merger from the Delaware Secretary of
State (the "Effective Time"). Subject to the terms and conditions of the merger
agreement, Riva Bancshares and Premier have agreed to use their best efforts to
cause the Effective Time to occur on the date of the closing. The parties have
further agreed that the merger closing will occur immediately before the closing
of the Riva Bancshares initial public offering. The closing will take place at a
time, place and date specified by the parties as they, acting through their
chief executive officers or chief financial officers, may agree.
EXCHANGE OF CERTIFICATES
At the Effective Time, Riva Bancshares shall deposit with UMB Bank,
N.A., Kansas City, Missouri (the "Exchange Agent") certificates evidencing the
shares of Riva Bancshares common stock to be exchanged for
21
<PAGE> 29
Premier common stock pursuant to the terms of the merger agreement. Promptly
after the Effective Time, the Exchange Agent shall mail transmittal materials to
each record holder of Premier common stock. Risk of loss to the certificates
shall remain with the holder until proper delivery of such certificates to the
Exchange Agent.
Premier shareholders should not surrender their certificates for
exchange until they receive the letter of transmittal and instructions. After
the Effective Time, each holder of shares of Premier common stock issued and
outstanding at the Effective Time shall surrender the certificate or
certificates representing his or her shares to the Exchange Agent. Upon
surrender of one or more certificates for Premier common stock, each
surrendering Premier shareholder shall promptly receive the consideration they
are entitled to under the merger agreement, together with all undelivered
dividends or distributions in respect of such shares without interest. As
provided in the merger agreement, each record holder of Premier common stock
shall also receive cash in lieu of any fractional share of Riva Bancshares
common stock to which such shareholder may be otherwise entitled, without
interest.
Riva Bancshares shall not be obligated to deliver the consideration to
which any former holder of Premier common stock is entitled until such holder
surrenders his or her certificate or certificates representing the shares for
exchange. The certificate or certificates so surrendered shall be duly endorsed
as the Exchange Agent may require. Neither Riva Bancshares nor the Exchange
Agent shall be liable to a holder of Premier common stock for any amounts paid
or property delivered in good faith to a public official pursuant to any
applicable abandoned property law. In the event that any shareholder of Premier
is unable to surrender a certificate because it is lost or destroyed, the
Exchange Agent may make a distribution to that shareholder upon receipt of such
affidavits and other agreements as are customary in such circumstances.
After the Effective Time (and prior to the surrender of certificates of
Premier common stock), record holders of certificates that represented Premier
common stock immediately prior to the Effective Time will have no rights with
respect to such certificates other than the right to surrender such certificates
and receive the shares of Riva Bancshares common stock to which such holder is
entitled pursuant to the merger agreement, together with a cash payment in lieu
of fractional shares, without interest.
Riva Bancshares shall pay any dividends or make any other distributions
with a record date prior to the Effective Time which have been declared or made
by Premier in respect of such shares of Premier common stock which remain unpaid
at the Effective Time. Whenever a dividend or other distribution is declared by
Riva Bancshares on the Riva Bancshares common stock, the record date for which
is on or after the Effective Time, the declaration shall include dividends or
other distributions on all shares issuable pursuant to the merger agreement.
However, beginning 30 days after the Effective Time, no dividend or other
distribution payable to the holders of record of Riva Bancshares common stock as
of any time subsequent to the Effective Time shall be delivered to the holder of
any unsurrendered Premier certificate until such holder surrenders such Premier
certificate in accordance with the terms of the merger agreement.
Upon surrender of such Premier common stock certificate, both the Riva
Bancshares common stock certificate (together with all such undelivered
dividends or other distributions without interest) and any undelivered dividends
and cash payments to be paid for fractional share interests (without interest)
shall be delivered and paid with respect to each share represented by such
surrendered certificate. Any portion of the consideration which had been made
payable to the Exchange Agent that remain unclaimed by the shareholders of
Premier for six months after the Effective Time shall be paid to Riva
Bancshares. Any shareholders of Premier who have not surrendered their Premier
certificates within six months after the Effective Time shall thereafter look
only to Riva Bancshares for payment of the consideration they are entitled to
under the merger agreement, together with cash in lieu of fractional shares and
unpaid dividends and distributions to which such shareholder would be entitled,
in each case, without any interest.
22
<PAGE> 30
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger
In October 1998, Richard C. Jensen, President and Chief Executive
Officer of Riva Bancshares, met with Bruce W. Wiley, President and Chief
Executive Officer of Premier, to discuss a possible merger transaction. To
accelerate the implementation of Riva Bancshares' business plan, Riva Bancshares
agreed, in May 1999, to acquire Premier and its wholly-owned subsidiary, Premier
Bank.
On July 22, 1999, the parties amended the merger agreement to provide
the Board of Directors of Premier with the opportunity to approve and ratify
the appointment of the five outside directors of Riva Bancshares and to
designate three members of the current Board of Directors as Class III
directors of Riva Bancshares. On July 29, 1999, based on discussions with the
underwriters in Riva Bancshares' initial public offering, the parties entered
into an amended and restated merger agreement to provide for an adjustment to
the purchase price of Premier and for the granting of additional warrants to
the Premier shareholders upon completion of the merger.
Premier Bank offers Riva Bancshares an existing charter as well as
banking centers in two of Riva Bancshares' five initially-targeted markets.
Premier Bank is currently operating its business in a manner similar to Riva
Bancshares' business plan, targeting small and medium-sized businesses and
providing a high level of service. We will use the acquisition of Premier Bank
as a platform to expand our operations by building upon Premier Bank's existing
infrastructure, core processing and outsourcing relationships. We expect to
close the acquisition of Premier Bank immediately prior to the closing of the
offering.
Premier Reasons for the Merger
In reaching its conclusion to approve the merger, the Premier Board
considered its fiduciary duties to act on an informed basis in good faith
without conflict of interest and in a belief that the merger is in the best
interests of Premier and the Premier shareholders. The Premier Board considered
a number of factors, and the Premier Board did not assign any relative or
specific weight to the factors considered. The material factors considered by
the Board of Directors included that the merger:
- will advance the long-term business strategies, goals and
interests of Premier;
- will result in the best value reasonably available to the
shareholders of Premier, considering both its current
operations and its future prospects;
- will result in an entity that is capable of successfully
competing in today's increasingly competitive financial
services marketplace and that will be well capitalized;
- will provide the opportunity to the shareholders of Premier to
participate on a pro-rata basis in a significant premium over
the current value of their common shares of Premier;
- will provide, through the ownership of Riva Bancshares common
shares, for the shareholders of Premier, to participate in
expanded opportunities for growth and profitability, received
on a tax-deferred basis; and
- will provide a public market for the Riva Bancshares common
shares to be received in the exchange.
Opinion of Premiers' Financial Advisor
Premier retained GRA, Thompson, White & Co., P.C. to serve as financial
advisor and to provide the Premier Board with an opinion regarding the fairness
to the Premier shareholders of the exchange ratio provided for in the merger,
from a financial point of view. The following summary of GRA's opinion is
entirely qualified by reference to the full text of the opinion, which is
attached hereto as "Appendix D." Premier shareholders are urged to read
23
<PAGE> 31
such opinion in its entirety. GRA's opinion is directed to the Premier Board and
does not constitute a recommendation regarding how any Premier shareholder
should vote at the special meeting.
GRA has provided accounting and consulting services to Premier since
1995. GRA does not have a present or contemplated future direct financial
interest in Premier, its subsidiary, Premier Bank, or in Riva Bancshares, Inc.
GRA considered the following in the development of its opinion:
- a review of the historical and projected financial performance
of Premier Bank and Premier including audited consolidated
financial statements as of December 31, 1998 and unaudited
financial statements as of June 30, 1999;
- a review of financial information and other information
regarding the stock of Riva Bancshares including audited
financial statements as of December 31, 1998 and unaudited
financial statements as of June 30, 1999;
- a review of the Amended and Restated Agreement and Plan of
Merger dated July 29, 1999 by and between Premier
and Riva Bancshares;
- a review of information regarding other comparable mergers in
Missouri;
- a review of market prices of publicly held bank stocks in the
region;
- a review of the investment characteristics of Premier and
Riva Bancshares; and
- any other factors that were considered necessary to render
their opinion.
In reviewing these items, GRA considered the following items pertaining
to Premier and Riva Bancshares:
- historical financial performance;
- dividend paying record;
- marketability of common stock;
- competition in the banking industry;
- market area for banking companies;
- comparison with other banking organizations;
- comparison with other sales transactions in Missouri and the
region;
- risk areas inherent in banking;
- financial impact of transaction;
- tax consequences of the proposed merger for Premier
shareholders; and
- such other factors as GRA considered necessary.
GRA assumes for the purposes of its opinion that the exchange of shares
in the transaction constitutes a non-taxable reorganization for federal income
tax purposes, and therefore, the shareholders of Premier will incur no federal
tax liability as a result of the exchange.
GRA did not visit with management representatives of Riva Bancshares.
As part of its investigation, GRA visited with management of Premier
concerning the future prospects of Premier as well as its current operating
performance.
GRA reviewed the Amended and Restated Agreement and Plan of Merger
between Premier and Riva Bancshares dated July 29, 1999 and has assumed that the
finally executed version is substantially the same. GRA has discussed
appropriate aspects of the merger agreement with management and counsel for
Premier.
24
<PAGE> 32
The merger agreement stipulates that each shareholder of Premier will
receive a calculated number of common shares of Riva Bancshares stock for each
share of Premier stock. The formula utilizes $215.136 as the quotient. Based
upon the 41,834 outstanding shares of Premier, the total consideration for all
of the outstanding shares of Premier is $9,000,000. The book value of Premier
shares at June 30, 1999 was approximately $103.00. Consequently, the
calculated multiple of June 30, 1999 book value is 2.08.
The merger agreement calls for a closing of Riva Bancshares' public
offering. GRA's opinion is subject to the successful public offering and
dependent upon Premier's shareholders receiving shares which are marketable
subject to certain time restrictions as outlined in Section 8.3 of the merger
agreement and applicable securities laws.
The proposed exchange of shares and public offering provide a market
for shareholders of Premier which is not currently available due to the limited
number of shareholders in Premier. The shares received will be registered with
the Securities and Exchange Commission and will be able to sold on the National
Market of the Nasdaq Stock Market. Also, each Premier common shareholder, other
than Bruce Wiley, will receive warrants to purchase Riva Bancshares common
shares which are exercisable for up to 10 years at the initial public offering
price as described in the merger agreement. Additionally, all Premier
shareholders will receive warrants which are exercisable for up to 10 years at
1.20 times the initial offering price. The time restrictions on sale of the
shares as outlined in Section 8.3 of the merger agreement result in these shares
being partially illiquid for up to 120 days for general shareholders and wholly
illiquid up to 180 days for directors of Premier. Consequently, the shareholder
is not guaranteed a market price equivalent to the value received at the initial
exchange. Our opinion does not extend to any period subsequent to the initial
exchange and public offering.
Financial Review
GRA's review of the financial data for Premier Bank consisted of
information obtained from:
1) The annual Consolidated Reports of Condition and Income as filed with
the FFIEC for the three years ended December 31, 1998 and for the six
months ended June 30, 1999;
2) Uniform Bank Performance Report for December 31, 1998 (peer group
reference only for analysis purposes); and
3) Internally prepared financial statements for the period ended June 30,
1999.
This information was prepared by Premier Bank's management in
accordance with generally accepted accounting principles. GRA accepted this
information without further investigation as being an accurate representation of
Premier Bank's financial condition and results of operations. GRA has assumed
that management (1) is responsible for the integrity and objectivity of the
financial statements and other related information, and (2) maintains a system
of internal controls, policies and procedures to provide reasonable assurance
that Premier Bank's assets are safeguarded and that financial transactions are
fairly reflected in the financial statements. Since these financial statements
also include estimates of value or potential exposure, GRA has also relied upon
management's evaluation of asset quality.
Balance Sheet
As of June 30, 1999, Premier Bank had total assets of $66,526,000
(unaudited). Premier Bank has grown rapidly since its chartering in 1995.
Consequently, there has been a need for additional capital to maintain
compliance with regulatory requirements.
25
<PAGE> 33
Total equity capital at June 30, 1999, aggregated $5,119,000
(unaudited) or 7.69% (unaudited) of total assets. This capital ratio is in
excess of minimum regulatory guidelines of 3% to 6%, and Premier Bank is
considered to be well-capitalized.
Premier Bank's loan-to-deposit ratio varies based upon seasonal demand
but is generally between 80% - 85%. Premier Bank's liquidity position is
adequate to support this level of lending.
The allowance for loan and lease losses was $500,000 (unaudited) at
June 30, 1999, which was 1.01% (unaudited) of total loans. The current allowance
amount is deemed adequate by Premier Bank management.
The market value of Premier Bank's securities portfolio as of June 30,
1999, was $9,397,000 as compared to amortized cost of $9,563,000 for a $166,000
positive variance. Premier Bank carries 100% of its portfolio in an available
for sale category. The portfolio consists primarily of securities issued by the
U.S. Government, U.S. Government Agencies and state and political subdivisions.
Demand deposits represent 4% - 6% of total deposits which is less than
peer group averages of 9% - 10%.
26
<PAGE> 34
Income Statement
Premier Bank's net income (unaudited) history is as follows:
<TABLE>
<S> <C>
1999 $ 126,000 (six months)
1998 $ 187,000
1997 $ 155,000
1996 $ (56,000)
1995 $(129,000)
</TABLE>
Premier Bank has paid no dividends since its initial chartering in
1995.
MARKET INFORMATION
Public Company
The aggregate market value (market capitalization) of publicly traded
banks or bank holding companies can be calculated by multiplying the current
quoted price of the stock by the number of shares outstanding. This value can
then be correlated to readily available data resulting in price-to-earnings and
price-to-equity multiples. However, this calculated value is based upon a price
of a single share of stock and, therefore, represents an estimation of value
from a minority perspective since purchasers of these shares are not able to
influence operations or management decisions. Consequently, adjustments must be
made to reflect an estimated value for a control price valuation.
While the estimated value using public company market data should have
a bearing on the market value of any banking institution, there are other
factors which must be considered. Large publicly held companies generally have
more diverse markets through well-developed branching networks, and they have
also benefitted from certain economies of scale. The subject bank of this
valuation operates in a more localized market area with a smaller shareholder
group.
Even though direct comparisons are impossible, GRA has selected 13
publicly traded multi-bank holding companies which operate in the Midwest for
its guideline company comparable data. Among these companies, the range for
current price to earnings multiple was 11.7 to 26.3, and the range for current
price to book value multiple was .90 to 2.69.
27
<PAGE> 35
Source: Bank INVESTOR - SNL Securities
Specific Transaction
Although the public markets provide a basis for valuation purposes, the
availability of information for other bank sales transactions also serves as a
component for analysis purposes. Such transactions are documented via regulatory
filings and through public disclosure. Various sources provide summaries of this
information. Since these transactions are based upon majority sales, they must
be analyzed in that context and are not comparable to the public company
information presented above. These sales are for whole institutions, therefore,
reported prices likely include elements of synergistic value. When a motivated
buyer observes possibilities of synergistic operations or economies of scale,
the resulting price is likely to be higher than a price arrived at by the
theoretical fair market value standard. Additionally, these transactions include
both cash and stock transactions with the majority of larger transactions being
for stock. The statistics for "all cash" transactions indicates that ratios are
20-30% less than stock transactions and 10-25% less than the overall average.
The following data was used as the basis for the "Specific Transaction" method.
<TABLE>
<CAPTION>
Number of
Fourth Quarter-1998 Transactions Price-to-Earnings Price-to-Equity
- ------------------- ------------ ----------------- ---------------
<S> <C> <C> <C>
All Banks 34 21.51 2.41
Greater than $50 million and 9 17.91 2.22
less than $150 million
Cash Deals 20 19.15 1.91
Stock Deals 14 24.88 3.12
First Quarter-1999
- ------------------
All Banks 26 18.42 2.27
Greater than $50 million and 6 15.94 1.86
less than $150 million
Cash Deals 14 17.87 1.81
Stock Deals 12 19.06 2.80
</TABLE>
Source: The Banking Company Report, Kansas City, Missouri
As mentioned previously, the transaction results in total consideration
of $9,000,000 for the Premier's stock. The calculated multiple of June 30, 1999
book value is 2.08. This is comparable to the multiples shown above for
price-to-equity. Since Premier Bank is only four years old and has expanded
rapidly, it has not established a strong earnings level. Consequently, the
price-to-earnings ratio for this transaction is far in excess of the multiples
shown above.
GRA relied on data available to it which was obtained from or developed
by sources which GRA deems to be reliable without independent verification.
GRA's opinion is for the use and benefit of the Board of Directors of Premier.
The opinion is not intended to be and does not constitute a
28
<PAGE> 36
recommendation to the aforementioned parties as to whether to accept Riva
Bancshares shares in exchange for Premier shares as stipulated in the proposed
transaction.
Based upon GRA's valuation of the proposed merger and exchange of
shares between Premier and Riva Bancshares, it is GRA's opinion that the
exchange ratio for the conversion of Premier common shares into Riva Bancshares
common shares in the proposed transaction is fair from a financial viewpoint to
the shareholders of Premier.
CONDITIONS PRECEDENT TO THE MERGER
The obligations of Premier and Riva Bancshares to consummate the merger
are subject to the satisfaction or waiver (to the extent permitted) of the
following conditions:
(1) the shareholders of Premier and Riva Bancshares shall have
approved the merger agreement and the consummation of the merger as and to the
extent required by law;
(2) the required regulatory approvals described under "Regulatory
Approvals" shall have been received, generally without any conditions or
requirements which would, in the reasonable judgement of the Boards of Directors
of Riva Bancshares or Premier, materially adversely effect the economic or
business benefits of the transaction contemplated by the merger agreement so as
to render inadvisable the consummation of the merger;
(3) each party shall have received all consents required for
consummation of the merger or for the preventing of any default under any
contract or permit of such party which, if not obtained or made, is reasonably
likely to have, individually or in the aggregate, a material adverse effect on
such party;
(4) the Registration Statement, of which this Proxy
Statement/Prospectus is a part, shall have been declared effective by the SEC
and shall not be subject to a stop order, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness of the Registration
Statement shall have been initiated and be continuing, and all necessary
approvals under state securities laws or the 1933 Act or the 1934 Act relating
to the issuance or trading of the shares of Riva Bancshares common stock
issuable pursuant to the merger or the initial public offering shall have been
received;
(5) each of Riva Bancshares and Premier shall have received an
opinion from Smith, Gambrell & Russell, LLP as to the matters set forth under
"Material Federal Income Tax Consequences;"
(6) no court or regulatory authority shall have taken any action
which prohibits, restricts or makes illegal the consummation of the transactions
contemplated by the merger agreement;
(7) Riva Bancshares shall have executed an underwriting agreement
providing for the firm commitment underwriting of shares of Riva Bancshares
common stock having an aggregate gross purchase price of at least $25,000,000;
(8) the shares of Riva Bancshares common stock issuable pursuant to
the merger shall be available for trading on a registered stock exchange or
Nasdaq;
29
<PAGE> 37
(9) the other party's representations and warranties shall remain
accurate, and the other party shall have performed all of the agreements and
covenants to be performed by it pursuant to the merger agreement, and shall have
delivered certificates confirming the satisfaction of the foregoing requirements
and certain other matters;
(10) Riva Bancshares shall have received from each affiliate of
Premier an affiliate agreement, substantially in the form attached to the merger
agreement;
(11) each party shall have received an opinion of the other party's
counsel, dated as of the closing date, as to certain matters;
(12) Premier shall have received from GRA Thompson White & Co.,
P.C. a letter to the effect that, in the opinion of the firm, the exchange ratio
is fair from a financial point of view, to the holders of Premier common stock;
(13) Riva Bancshares shall have delivered to the exchange agent the
consideration to be paid to holders of Premier common stock; and
(14) the underwriters in the initial public offering shall have given
their assurances that they are ready, willing and able to close on the initial
public offering, and have the funds available to deliver the full amount of the
purchase price (less the underwriter's discount) for the shares under the
initial public offering, immediately following the consummation of the merger.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
Under the terms of the merger agreement, Premier has agreed that unless
it obtains prior written consent from Riva Bancshares and except as otherwise
contemplated by the merger agreement, it will: (1) operate its business only in
the usual, regular and ordinary course, (2) use its reasonable best efforts to
preserve intact its business organization and assets and to maintain its rights
and franchises, (3) use its reasonable best efforts to maintain its current
employee relationships and (4) take no action which would materially adversely
affect any party's ability either (a) to obtain any consent required for the
transactions contemplated by the merger agreement without imposition of a
condition or restriction which, in the reasonable judgment of the Premier Board
or the Riva Bancshares Board, would so materially adversely impact the economic
or business benefits of the transactions contemplated by the merger agreement so
as to render inadvisable the consummation of the merger or (b) to perform its
covenants and agreements under the merger agreement.
In addition, Premier has covenanted and agreed that, from the date of
the merger agreement until the earlier of the Effective Time or termination of
the merger agreement Premier will not do, or agree or commit to do, without the
prior written consent of the chief executive officer of Riva Bancshares, any of
the following:
(1) amending the Articles of Incorporation, Bylaws, or other
governing instruments of Premier, except as expressly contemplated by the merger
agreement;
(2) incurring any additional debt obligation or other obligation for
borrowed money that exceeds $50,000 in the aggregate, except in the ordinary
course of the business of Premier consistent with past practices, or allowing
the imposition of a lien to secure an obligation not in excess of $50,000 on any
asset of Premier;
30
<PAGE> 38
(3) acquiring or exchanging (other than exchanges in the ordinary
course under employee benefit plans) any shares or securities convertible into
any shares of the capital stock of Premier, or paying any dividend on Premier
common stock;
(4) subject to certain conditions, issuing, selling or pledging any
additional shares of Premier common stock or any stock appreciation rights, or
any option, warrant, conversion, or other right to acquire any such stock, or
any security convertible into any such stock;
(5) adjusting or reclassifying or paying any dividend or other
distribution on any capital stock of Premier or issuing other securities in
respect of or in substitution for shares of Premier common stock, or disposing
of any shares of Premier common stock or any asset other than in the ordinary
course of business for reasonable and adequate consideration;
(6) purchasing any securities or making any material investment in
any person, or otherwise acquiring direct or indirect control over any person,
with certain exceptions;
(7) granting any increase in compensation or benefits to the officers
or directors of Premier (except that Premier may increase compensation of
non-officer employees by up to 5% of such employee's annual compensation if such
increase is consistent with past practice), paying any severance or termination
pay or any bonus other than pursuant to written policies or written contracts in
effect on the date of the merger agreement and as disclosed, entering into or
amending any severance agreements with officers of Premier, or voluntarily
accelerating the vesting of any stock options or other stock-based compensation
or employee benefits;
(8) entering into or amending any employment contract between Premier
and any person (unless such amendment is required by law) that Premier does not
have the unconditional right to terminate without certain liability;
(9) adopting any new employee benefit plan of Premier or materially
changing any existing employee benefit plans of Premier other than changes
required by law or to maintain a plan's tax-qualified status;
(10) making any significant change in any tax or accounting methods or
systems of internal accounting controls, except for any change required by law
or GAAP;
(11) commencing any litigation other than in accordance with past
practice or settle any litigation involving any liability of Premier which may
have a material adverse effect on Premier or which place restrictions upon the
operations of Premier without first consulting with Riva Bancshares;
(12) except in the ordinary course of business, modifying, amending or
terminating any material contract or waiving, releasing, compromising or
assigning any material rights or claims;
(13) making any investment in excess of $50,000 of any other
individual, corporation or other entity other than a wholly-owned subsidiary of
Premier; or
(14) selling, transferring, mortgaging or disposing of any of its
material properties or assets to any individual, corporation or other entity
other than a direct or indirect wholly-owned subsidiary of Premier, or
cancelling, releasing or assigning any indebtedness to any such person or any
claims held by any such
31
<PAGE> 39
person, except in the ordinary course of business consistent with past practice
or pursuant to contracts or agreements in force at the date of the merger
agreement.
The merger agreement also provides that neither Premier nor its
affiliates will directly or indirectly solicit or have any discussions with any
person relating to any acquisition proposal, as defined in the merger agreement,
except with respect to the merger agreement. Additionally, except to the extent
necessary to comply with the fiduciary duties of the Premier Board, as advised
by counsel, neither Premier nor its affiliates will provide any nonpublic
information that it is not legally obligated to furnish or negotiate with
respect to any acquisition proposal. However, Premier may communicate
information about such acquisition proposal to the Premier shareholders if and
to the extent that it is required to do so in order to comply with its legal
obligations. Premier has agreed to notify Riva Bancshares if it receives any
inquiry or proposal relating to any such transaction. Premier has further agreed
to terminate any negotiations conducted prior to the date of the merger
agreement with any parties other than Riva Bancshares with respect to any of the
foregoing and to use its reasonable efforts to cause its representatives not to
engage in any of the foregoing.
In the merger agreement, Riva Bancshares has agreed that until the
earlier of the Effective Time or termination of the merger agreement, it will
(1) continue to conduct its business in a manner reasonably designed to enhance
the long-term value of the Riva Bancshares common stock and Riva Bancshares'
business prospects and (2) take no action that would materially adversely effect
any party's ability to (a) obtain any consents or approvals required for the
transactions contemplated by the merger agreement without imposition of a
condition or restriction which in the reasonable judgment of the Riva Bancshares
Board or the Premier Board would so materially adversely impact the economic or
business benefits of the transactions contemplated by the merger agreement so as
to render inadvisable the consummation of the merger or (b) perform its
covenants and agreements under the merger agreement. Riva Bancshares may
discontinue or dispose of any of its assets or business if it determines it to
be desirable in the conduct of its business. Riva Bancshares has also agreed
that it will not, without the prior written consent of the chairman and chief
executive officer of Premier, amend the Riva Bancshares Certificate of
Incorporation or the Bylaws in any manner adverse to the Premier shareholders.
Riva Bancshares also agreed that it will not issue additional shares of Riva
Bancshares common stock or make an acquisition proposal to any individual or
entity.
TERMINATION
The merger agreement between Riva Bancshares and Premier may be
terminated and the merger abandoned at any time prior to the Effective Time in
the following ways:
- by mutual written consent of the boards of directors of Riva
Bancshares and Premier;
- by the board of directors of either Premier or Riva Bancshares
for the following reasons:
-- in the event of the inaccuracy of any representation
or warranty of the other party contained in the
merger agreement which cannot or has not been cured
within 30 days after providing written notice of such
inaccuracy and which inaccuracy would provide the
terminating party the ability to refuse to consummate
the merger, provided that the terminating party is
not then in breach of any representation or warranty,
or in material breach of any covenant or agreement,
contained in the merger agreement;
32
<PAGE> 40
-- if the other party has materially breached any
covenant, agreement or obligation under the merger
agreement, and such breach cannot or will not be
cured within 30 days after giving written notice to
the breaching party of the breach;
-- if any application for necessary regulatory approval
consent is denied by final nonappealable action;
-- if Riva Bancshares' or Premier's shareholders fail to
approve the merger agreement;
-- the merger has not been consummated by September 30,
1999; or
-- any of the conditions precedent to the party's
obligations to consummate the merger cannot be
satisfied, or cannot be satisfied or fulfilled by
September 30, 1999;
- by Riva Bancshares if dissenters' rights are claimed by
persons owning in the aggregate more than 10% of the issued
and outstanding Premier Stock; or
- by Premier, if any time prior to the Effective Time:
-- GRA Thompson White & Company, PC withdraws its
fairness opinion; or
-- a third-party makes a bona fide acquisition proposal,
as defined in the merger agreement, that Premier's
Board of Directors determines in its good faith and
in the exercise of its fiduciary duties, is more
favorable to Premier's shareholders than the merger
agreement and that the failure to terminate the
merger agreement and accept such alternative would be
inconsistent with the proper exercise of such
fiduciary duties.
In the event that the merger agreement is terminated by Premier
pursuant to certain triggering events defined in the merger agreement, Riva
Bancshares shall be entitled to a cash payment from Premier of $200,000 upon the
occurrence of certain other events within twelve months following the date of
such termination.
EXPENSES
The merger agreement provides that each party shall be responsible for
its own direct costs and expenses incurred in connection with the negotiation
and consummation of the transactions contemplated by the merger agreement. Riva
Bancshares will bear the costs incurred in the printing of this Proxy
Statement/Prospectus and related materials.
If the merger agreement is terminated prior to the Effective Time by
either party as a result of the other party's failure to satisfy any of its
representations, warranties or covenants set forth in the merger agreement, the
non-terminating party shall reimburse the terminating party for its reasonable
out-of-pocket expenses relating to the merger in an amount not to exceed
$50,000.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Smith, Gambrell & Russell, LLP will deliver to Riva Bancshares and
Premier its opinion that, based upon certain customary assumptions and
representations, under federal law as currently in effect, the merger of Premier
into Riva Bancshares, the issuance of shares of Riva Bancshares common stock
pursuant to the merger agreement and the grant of any warrants to purchase
shares of Riva Bancshares common stock under Sections 8.2(ii) and (iii) of the
merger agreement will constitute a "reorganization" under Section 368(a) of the
Internal Revenue Code.
No gain or loss will be recognized by shareholders of Premier upon the
exchange of
33
<PAGE> 41
Premier common stock solely for Riva Bancshares common stock and
warrants, if any, pursuant to the merger agreement. The aggregate tax basis of
the Riva Bancshares common stock and warrants, if any, received by shareholders
of Premier pursuant to the merger agreement will be the same as the tax basis of
the shares of Premier common stock surrendered in exchange for Riva Bancshares
common stock and warrants, if any. Such tax basis should be allocated between
the common stock and warrants received in proportion to the relative fair values
of such common stock and warrants. The holding period of the shares of Riva
Bancshares common stock and warrants, if any, received by the shareholders of
Premier will include the holding period of the shares of Premier common stock
surrendered, provided that such Premier common stock is held as a capital asset
on the date of consummation of the merger.
A holder of Premier common stock who exercises statutory dissenter's
rights in connection with the merger generally will recognize capital gain or
loss (assuming the common stock is held as a capital asset) equal to the
difference, if any, between such holder's tax basis in the Premier common stock
exchanged and the amount of cash received in exchange therefor. A holder of
Premier common stock who receives cash in lieu of a fractional share of Riva
Bancshares common stock pursuant to the terms of the merger agreement will
recognize capital gain or loss (assuming the fractional share is held as a
capital asset) equal to the difference, if any, between the amount of cash so
received and the holder's tax basis allocable to such fractional share.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE PROPOSED MERGER UNDER THE CODE. THE FOREGOING DISCUSSION
DOES NOT INCLUDE CONSEQUENCES OF STATE, LOCAL, FOREIGN OR OTHER TAX LAWS OR
SPECIAL CONSEQUENCES TO PARTICULAR SHAREHOLDERS HAVING SPECIAL SITUATIONS. YOU
SHOULD CONSULT YOUR OWN TAX ADVISORS REGARDING SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO YOU, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, FOREIGN
AND LOCAL TAX LAWS AND TAX CONSEQUENCES OF SUBSEQUENT SALES OF RIVA BANCSHARES
COMMON STOCK.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General
Certain members of Premier's management and the Board of Directors may
be deemed to have interests in the merger in addition to any interests as
shareholders of Premier generally. These interests include, among others, the
indemnification of Premier directors and officers and certain employee benefits.
Indemnification
The merger agreement provides that Riva Bancshares will, and will cause
the surviving corporation to, indemnify the current and former directors,
officers, employees and agents of Premier against all costs, fees or expenses
(including reasonable attorney's fees), judgments, fines, penalties, losses,
claims, damages, liabilities and amounts paid in settlement of any litigation
arising out of actions or omissions occurring prior
34
<PAGE> 42
to the Effective Time. If Riva Bancshares' approval is required to effectuate
any indemnification, Riva Bancshares will direct, at the indemnified party's
election, for independent counsel mutually agreed upon between Riva Bancshares
and the indemnified party to determine such approval. The merger agreement also
provides that Riva Bancshares shall provide director and officer insurance tail
coverage.
Matters Relating to Premier Employee Benefit Plans
Under the merger agreement, Riva Bancshares has agreed to provide
generally to continuing officers and employees of Premier employee benefits
under employee benefit plans (other than stock option or other plans involving
the potential issuance of Riva Bancshares common stock), on terms and conditions
which are no less favorable than those currently provided by Premier. For
purposes of participation and vesting (but not benefit accrual under any
employee benefit plans of Riva Bancshares other than the Premier benefit plans)
under such employee benefit plans, the service of the employees of Premier prior
to the Effective Time shall be treated as service with Riva Bancshares
participating in such employee benefit plans. Riva Bancshares will honor in
accordance with their terms all employment, severance, consulting, and other
compensation contracts disclosed by Premier pursuant to the merger agreement
between Premier and any current or former director, officer, or employee
thereof, and for all provisions for vested benefits or other vested amounts
earned or accrued through the Effective Time under the Premier benefit plans.
Employment Contract
Negotiations of the merger agreement and employment arrangements
between Bruce W. Wiley and Riva Bancshares occurred simultaneously. The Board of
Directors of Premier considered Mr. Wiley's employment arrangements when
approving the merger agreement. The employment agreement runs for five years
from the date of closing of the initial public offering. The employment
agreement provides for an annual base salary of $150,000 and the grant of
options to purchase up to 70,000 shares of Riva Bancshares common stock at the
initial public offering price. Of these options, 30,000 options will be granted
under Riva Bancshares' stock option plan on the same terms as options issued to
other members of senior management and will vest over three years. The remaining
40,000 options will vest immediately upon closing and will be granted on the
same terms as those warrants which were issued to certain founders of Riva
Bancshares in April 1998 and will be exercisable for 10 years.
In addition to the annual salary and other benefits payable to Mr.
Wiley under the employment agreement, Riva Bancshares will provide to Mr. Wiley,
as deferred compensation, one or more life insurance policies on the life of Mr.
Wiley. These life insurance policies shall be designed to provide Mr. Wiley and
his beneficiaries certain death benefits and nonqualified retirement benefits,
as more fully described in the employment agreement. Mr. Wiley will also be
eligible to participate in any discretionary bonus plan or program adopted by
Riva Bancshares' Board of Directors on the same basis as other executive
officers of Riva Bancshares.
In addition, Mr. Wiley's employment agreement provides that he will
serve as a director of Riva Bancshares and his title following the merger and
the offering will be President of the Mid-Missouri Market. In the event of a
"change in control" of Riva Bancshares (as defined in the employment agreement),
Mr. Wiley may elect to give written notice to Riva Bancshares of the termination
of the agreement and to receive a cash payment equal to approximately 300% of
the compensation received by him in the one year period immediately preceding
the change in control. Mr. Wiley's employment agreement also contains certain
non-compete and non- solicitation provisions which provide that if Mr. Wiley
terminates his employment agreement, he will not,
35
<PAGE> 43
for a period of 12 months, without the consent of Riva Bancshares, serve as an
executive officer of any financial institution in Cole or Boone County,
Missouri.
Board of Directors of Premier
The merger agreement provides that Messrs. Wiley, Remley and Willibrand
will be elected as Class III directors of Riva Bancshares immediately after
consummation of the merger. The merger agreement further provides that the
current members of the Premier Board of Directors will have the right to
nominate persons to stand for election as Class III directors of Riva Bancshares
in 2002 and 2005. In addition, should any Class III director die, resign, be
removed from office, or otherwise not continue to serve as a director of Riva
Bancshares prior to the election of directors in 2008, then the remaining
current Premier directors shall nominate his or her successor.
DISSENTERS' RIGHTS OF PREMIER SHAREHOLDERS AND RIVA BANCSHARES SHAREHOLDERS
Premier Shareholders' Dissenters' Rights.
Holders of Premier common stock will be entitled to assert dissenters'
rights with respect to the merger in accordance with Section 351.455 RSMo, a
copy of which is attached as Appendix B. Any such Premier shareholder who
follows the procedures specified in Section 351.455 RSMo will be entitled to
receive the fair value of his or her shares of Premier common stock.
A shareholder wishing to assert dissenters' rights must follow the
specified procedures which include:
- delivering to Premier prior to or at the special meeting of
shareholders written objection to the plan of merger;
- not voting his or her shares in favor of the plan of merger;
- Within 20 days after the merger is effected, giving written
demand to Riva Bancshares for payment of the fair value of his
or her shares as of the day prior to the date on which the
vote was taken approving the merger.
IN NO EVENT WILL ANY SHAREHOLDER BE ENTITLED TO DISSENTERS' RIGHTS IF
HE OR SHE VOTES "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
Upon receipt of a dissenting shareholder's written demand for fair
value of his or her shares, Riva Bancshares shall pay to such dissenting
shareholder the fair value of his or her shares upon surrender of his or her
certificate or certificates. The dissenting shareholder's demand shall state the
number and class of shares owned by the dissenting shareholder. Any shareholder
failing to make demand within the 20-day period shall be conclusively presumed
to have consented to the merger and shall be bound by the terms of the merger.
If, within 30 days after the date on which the merger was effected, the
fair value of the dissenting shareholder's shares is agreed upon between the
dissenting shareholder and Riva Bancshares, Riva Bancshares shall pay the agreed
upon value within 90 days after the date on which the merger was effected, upon
the surrender of the shareholder's certificate or certificates representing such
shares. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in the shares or in Riva Bancshares.
If, within 30 days after the date on which the merger was effected, the
shareholder and Riva Bancshares do not agreed on the value of the dissenting
shareholder's shares, then the dissenting shareholder may, within 60 days after
the expiration of the 30-day period, file a petition in any court of competent
jurisdiction within the county in which the registered office of Riva Bancshares
is situated, asking for a finding and determination of the fair value of such
shares. The dissenting shareholder shall be entitled to judgment against Riva
Bancshares for the amount of such fair value as of the day prior to the date on
which the vote was taken approving the merger, together with interest to the
date of the judgment. The judgment shall be payable only upon, and
simultaneously with, the surrender to Riva Bancshares of the certificate or
certificates representing the shares. Upon the payment of the judgment, the
dissenting shareholder shall cease to have any interest in the shares or in Riva
Bancshares. Unless the dissenting shareholder files a petition within the time
frame described above, the shareholder and all persons claiming under the
36
<PAGE> 44
shareholder shall be conclusively presumed to have approved and ratified the
merger and shall be bound by the terms of the merger.
Before or after the Closing of the merger, dissenting Premier
shareholders should send any communications regarding their rights to Premier
Bancshares, Inc., 815 West Stadium Boulevard, Jefferson City, Missouri 65110
Attn: Mr. Bruce W. Wiley, President. All communications should be signed by or
on behalf of the dissenting Premier shareholder in the form in which his or her
shares are registered on the books of Premier.
Riva Bancshares Shareholders' Appraisal Rights.
Riva Bancshares shareholders, upon compliance with the applicable
statutory procedures summarized below, may be entitled to appraisal rights under
Section 262 of the Delaware General Corporation Law. This joint Proxy
Statement/Prospectus constitutes notice to the Riva Bancshares shareholders of
the possible availability of appraisal rights under Delaware law and the
applicable statutory provisions are attached to this joint Proxy
Statement/Prospectus as Appendix C. This summary does not intend to be complete
and is qualified in its entirety by reference to Appendix C. Under Delaware law,
a Riva Bancshares shareholder wishing to exercise any available appraisal rights
must be the record holder of his or her shares on the date the written demand
for appraisal is made and must continue to hold such shares through the
Effective Time.
If the Riva Bancshares shareholders were to assert their appraisal
rights with respect to their shares, then within 120 days after the consummation
of the merger, the shareholders or Riva Bancshares would be entitled to file a
petition in the Delaware Chancery Court demanding a determination of the fair
value of the shares as to which a timely demand for appraisal had been made.
Riva Bancshares shareholders who elect to exercise appraisal rights should mail
or deliver their written demands to: Richard C. Jensen, President and Chief
Executive Officer, Riva Bancshares, Inc., 13004 Starbuck Road, St. Louis,
Missouri 63141.
Riva Bancshares shareholders who desire to exercise their appraisal
rights must deliver a written demand for appraisal to Riva Bancshares to the
address set forth in the immediately preceding paragraph, before the taking of
the vote on the approval and adoption of the merger agreement at the special
meeting of stockholders of Riva Bancshares.
A demand for appraisal must be executed by or for the shareholder of
record, fully and correctly, as such stockholder's name appears on the stock
certificates. If such shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, such demand must be executed by or for
the fiduciary. If such shares are owned of record by more than one person, as in
a joint tenancy or tenancy in common, such demand must be executed by or for all
joint owners. A record owner, such as a broker, who holds such shares as a
nominee for others, may exercise appraisal rights with respect to such shares
held for all or less than all beneficial owners of such shares as to which the
holder is the record owner. In such case, the written demand must set forth the
number of shares covered by such demand.
The written demand for appraisal should specify the shareholder's name
and mailing address, the number of shares covered by the demand, and that the
shareholder is thereby demanding appraisal of such shares.
If a petition for an appraisal were timely filed, after a hearing on
such petition, the Delaware Chancery Court would appraise the "fair value" of
the shares, exclusive of any element of value arising
37
<PAGE> 45
from the accomplishment or expectation of the merger, together with a fair rate
of interest, if any, to be paid upon the amount determined to be the fair value.
The Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings. The Delaware Chancery Court would determine the amount of interest,
if any, to be paid upon the amounts to be received in respect of the shares. The
costs of the action may be determined by the Delaware Chancery Court and charged
to the parties as the Delaware Chancery Court deems equitable.
Any shareholders who seek appraisal would not, after the consummation
of the merger, be entitled to vote the shares for any purpose or be entitled to
the payment of dividends or other distributions on the shares (except dividends
or other distributions payable as of a record date prior to the consummation of
the merger).
A stockholder will fail to perfect, or effectively lose or withdraw,
his or her right to appraisal if, among other things, no petition for appraisal
is filed within 120 days after the Effective Time, or if the stockholder
withdraws his or her demand for appraisal. Any withdrawal attempted more than 60
days after the Effective Time would require the written approval of Riva
Bancshares. Moreover, no appraisal proceeding pending in the Delaware Court of
Chancery will be dismissed without the approval of the Court, and any such
approval would be conditioned upon such terms as the Court deems just.
ACCOUNTING TREATMENT
The merger will be accounted for as a reverse acquisition, meaning that
the financial statements of Premier will become the historical financial
statements of Riva Bancshares.
BANK REGULATORY MATTERS
The merger is subject to prior approval by the Federal Reserve Board
and the Missouri Division of Finance. In determining whether to approve a
transaction such as the merger, the Federal Reserve Board and the Missouri
Division of Finance consider the financial and managerial resources (including
the competence, experience and integrity of the officers, directors and
principal shareholders) and future prospects of the existing and proposed
institutions and the convenience and needs of the communities to be served. In
considering financial resources and future prospects, the adequacy of the
capital levels of the parties to a proposed transaction are evaluated.
The Bank Holding Company Act of 1956 ("BHCA") prohibits the Federal
Reserve Board from approving a merger if it would result in a monopoly or if its
effect would be substantially to lessen competition or to tend to create a
monopoly, or if it would result in a restraint of trade. However, a merger can
be approved if the Federal Reserve Board finds that the anti-competitive effects
of a merger are clearly outweighed by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. In addition,
the Community Reinvestment Act of 1977, as amended, obligates the Federal
Reserve Board to take into account the record of performance of the existing
institutions in meeting the credit needs of the entire community, including low-
and moderate-income neighborhoods, served by such institutions.
Applicable federal law provides for the publication of notice and
public comment relating to the federal and state filings noted above. Interested
parties are permitted to intervene in the proceedings. If an
38
<PAGE> 46
interested party is permitted to intervene, such intervention could delay the
regulatory approvals required for consummation of the merger.
The merger generally may not be consummated until between 15 and 30
days following the date of applicable federal regulatory approval, during which
time the United States Department of Justice may challenge the merger on
antitrust grounds. The commencement of an antitrust action would stay the
effectiveness of the regulatory agency's approval unless a court specifically
ordered otherwise. Riva Bancshares and Premier believe that the merger does not
raise substantial antitrust or other significant regulatory concerns.
STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION
Riva Bancshares and Premier have filed all applications and notices and
have taken (or will take) other appropriate action with respect to any requisite
approvals or other actions of any governmental authority. The merger agreement
provides that the obligation of each of Riva Bancshares and Premier to
consummate the merger is conditioned upon the receipt of all requisite
regulatory approvals. There can be no assurance that any governmental agency
will approve or take any other required action with respect to the merger. And,
if approvals are received or action is taken, there can be no assurance as to
the date of such approvals or action, that such approvals or action will not be
conditioned upon matters that would cause the parties to abandon the merger, or
that no action will be brought challenging such approvals or action, including a
challenge by the Department of Justice. On June 11, 1999, Riva Bancshares
received the necessary Federal Reserve Board approval of the merger from the
Federal Reserve Bank of St. Louis. On June 3, 1999, the parties received
approval from the Missouri Division of Finance.
Riva Bancshares and Premier are not aware of any governmental approvals
or actions that may be required for consummation of the merger other than as
described above. Should any other approval or action be required, Riva
Bancshares and Premier currently contemplate that such approval or action would
be sought.
RESTRICTIONS ON RESALES
Shares of Riva Bancshares common stock to be issued to Premier
shareholders in the merger have been registered under the Securities Act and may
be traded freely by shareholders not deemed to be "affiliates" of Premier or
Riva Bancshares, as that term is defined under the Securities Act, except as
described below. Pursuant to the terms of the merger agreement, Premier's
shareholders, except for those shareholders who serve as directors and/or
officers of Premier (who may not sell any shares of Riva Bancshares common stock
for 180 days following the merger and initial public offering), may not sell or
otherwise transfer any shares of common stock which they own, except as
permitted in the schedule set forth below:
39
<PAGE> 47
<TABLE>
<CAPTION>
TIME TABLE AGGREGATE PERCENTAGE OF SHARES PERMITTED
- ---------- FOR SALE BY EACH PREMIER SHAREHOLDER
------------------------------------
<S> <C>
From the date of pricing the initial public offering
through the date of closing the initial public offering No sales are permitted
From 1 to 30 days after closing 10%
From 31 to 60 after closing 20%
From 61 to 90 days after closing 40%
From 91 to 120 days after closing 60%
From 121 days after closing 100%
</TABLE>
Any transfer of shares by any person who is an affiliate of Premier at the time
the merger is submitted for vote or consent of the Premier shareholders will,
under existing law, require either (a) the further registration under the
Securities Act of the shares of Riva Bancshares common stock to be transferred,
(b) compliance with Rule 145 promulgated under the Securities Act (permitting
limited sales under certain circumstances) or (c) the availability of another
exemption from registration.
An "affiliate" of Premier, as defined by the rules promulgated pursuant
to the Securities Act, is a person who directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control with
Premier. The foregoing restrictions are expected to apply to the directors,
executive officers and the beneficial holders of 10% or more of the Premier
common stock (and to certain relatives or the spouse of any such person and any
trusts, estates, corporations or other entities in which any such person has a
10% or greater beneficial or equity interest). Riva Bancshares will provide stop
transfer instructions to the transfer agent with respect to the Riva Bancshares
common stock to be received by persons subject to the restrictions described
above. Premier has agreed that, not later than 30 days prior to the Effective
Time, it will use its best efforts to cause each of those persons identified by
Premier as affiliates to deliver to Riva Bancshares appropriate agreements that
each such individual will not transfer or otherwise dispose of the shares of
Premier common stock held by such person except in accordance with such
agreement or make any further sales or otherwise dispose of shares of Riva
Bancshares common stock received upon consummation of the merger except in
compliance with the restrictions described in this paragraph.
RECOMMENDATION OF THE PREMIER BOARD
THE PREMIER BOARD HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE PREMIER SHAREHOLDERS VOTE TO ADOPT
THE MERGER AGREEMENT.
RECOMMENDATION OF THE RIVA BANCSHARES BOARD
THE RIVA BANCSHARES BOARD HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE RIVA BANCSHARES
SHAREHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT.
40
<PAGE> 48
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
MARKET PRICES
There is no established public market for either the Riva Bancshares or
Premier common stock. As of the Record Date, there will be 10,000 shares of Riva
Bancshares common stock issued and outstanding held by 1 holder of record.
And, as of the Record Date, there were 41,834 shares of Premier common stock
issued and outstanding held by 48 holders of record.
The proposed Nasdaq national market symbol is "RIVA."
DIVIDEND POLICY
Riva Bancshares has not declared or distributed any dividends to its
shareholders since Riva Bancshares incorporated. The Riva Bancshares board of
directors intends, for the foreseeable future, to follow a policy of retaining
any earnings to provide funds to operate and expand the business of Riva
Bancshares. Therefore, it is not likely that any cash dividends on the Riva
Bancshares common stock will be declared for the foreseeable future.
Because Riva Bancshares' principal operations will be conducted through
Riva Bank, if we decide to pay dividends, Riva Bancshares will generate cash to
pay dividends primarily through dividends paid to the holding company from Riva
Bank. Accordingly, any dividends paid to our shareholders will depend on Riva
Bank's earnings, capital requirements, financial conditions and other factors
considered relevant by Riva Bancshares' board of directors. Premier Bank, which
is a Missouri state-chartered bank, is currently restricted in its ability to
pay dividends under state banking laws and regulations. As of June 30, 1999,
Premier Bank was unable to pay cash dividends on its common stock without
regulatory approval. Under Missouri law, a Missouri state bank may not pay
dividends from its capital. All dividends must be paid out of undivided profits,
after deducting expenses and losses. A Missouri state bank whose surplus account
for each dividend period does not equal at least 40% of the amount of its
capital is required to transfer to its surplus account 10% of its net income for
such dividend period. Retained earnings in excess of any such required transfer
to surplus are available for dividends. In addition, sound banking practices
require the maintenance of adequate levels of capital. Federal regulatory
authorities have adopted standards for the maintenance of capital of banks, and
adherence to such standards may further limit the ability of banks to pay
dividends.
41
<PAGE> 49
INFORMATION ABOUT RIVA BANCSHARES
GENERAL
We were incorporated on May 1, 1998 to create a multi-market banking franchise
focusing on small to medium-sized business customers, selected real estate
developers and the principals of these businesses who have become dissatisfied
with the impersonal service delivered by super-regional and national banks. We
formed Riva Bancshares with the intent of acquiring an existing financial
institution which would provide a platform for expansion throughout Missouri.
Immediately prior to the closing of the initial public offering, Riva Bancshares
will acquire Premier Bancshares, Inc., a Missouri bank holding company for
Premier Bank, an independent state-chartered commercial bank, as its entry into
the Jefferson City and Columbia, Missouri market areas. Upon completion of the
merger, Premier Bank will be renamed Riva Bank.
Our strategy is to capitalize on the opportunities created by widespread
consolidation in the banking industry. We believe that this consolidation has
compromised customer relationships as the larger regional financial institutions
increasingly focus on larger corporate customers, standardized loan and deposit
products and other services. More specifically, many financial institutions have
centralized their loan approval practices for small businesses, leaving less
responsibility and authority with the traditional loan officer. By virtue of
their banking experience in Missouri, management believes that the most frequent
customer complaints are based on a lack of personalized service and turnover in
lending personnel, which limits the customer's ability to develop a relationship
with his or her banker. As a result of these factors, we believe there currently
exists a significant opportunity to attract and maintain customers who are
dissatisfied with their banks. We also believe we can attract experienced
management personnel within our identified markets.
To implement our business plan, we have assembled a senior management team with
over 85 years of banking experience in our identified markets. Our management
team is headed by Richard C. Jensen, who has over 25 years of banking experience
in the St. Louis market. Prior to founding the company, Mr. Jensen served as
President of NationsBank St. Louis, formerly Boatmen's National Bank of St.
Louis which, as of June 1998, had approximately $5.3 billion in total deposits
and over 71 branches in the St. Louis market. We believe that the combination of
Mr. Jensen's 25 years of experience in the Missouri banking industry, his
extensive network of contacts throughout the state and his management skills
will provide the leadership necessary for Riva Bancshares to implement its
business strategy. In addition, all members of the senior management team have
worked with Mr. Jensen at either Boatmen's National Bank or NationsBank. The
senior management team shares the same credit culture and will be responsible
for maintaining strict credit policies and procedures as well as managing
administrative functions at the company headquarters in St. Louis. This
management team has gained prominence in servicing small and medium-sized
businesses and their principals throughout Missouri, which should allow them to
continue to provide quality service for these types of customers. We expect that
the familiarity of the senior management team with each other, as well as with
the various Missouri communities, will also provide a strong foundation for
implementing our business plan. In addition, we will have the resources of
management of Premier Bank and their existing relationships in the Columbia and
Jefferson City markets.
We intend to open a banking center in the St. Louis market following the
completion of the offering. Future business plans include further expansion in
the Jefferson City and Columbia markets and entry into the markets of Kansas
City and Springfield. We expect to establish banking centers in each new market
area, primarily through the opening of new branches of Riva Bank. We will also,
however, evaluate opportunities for acquisitions of financial institutions in
Missouri as well as markets in the adjacent states that would complement or
expand our business. Within each of our targeted markets, we expect to offer a
broad range of banking products and services by focusing primarily on small and
medium-sized businesses and their principals. Although we will offer a variety
of loan products, we expect to emphasize commercial/industrial and construction
and commercial real estate lending. We will also promote private banking
services and asset management products for our professional and executive
customers.
42
<PAGE> 50
We will have a community banking approach that emphasizes responsive and
personalized service to our customers. Our expansion strategy includes
attracting strong local management teams who have significant banking
experience, strong community contacts and strong business development potential
in our identified markets. Once local management teams are assembled, we intend
to establish banking centers in each of the identified markets. We currently
have management teams in place in the St. Louis, Columbia and Jefferson City
markets. Each management team will operate one or more banking centers within
its particular market area, will have a high degree of local decision-making and
lending authority and will operate in a manner that provides responsive,
personalized services similar to an independent community bank. In addition,
local management will be compensated based on the performance of their
respective banking centers and the overall financial and market performance of
the bank. We expect that upon our entry into a new market area, we will
undertake a marketing campaign using an officer calling program and
community-based promotions. Each market area will be supported by a local board
of directors, which will be provided with financial incentives to assist in the
development of banking relationships throughout the community.
Riva Bancshares will provide a variety of centralized support services to each
of the banking centers, including:
- accounting and back office support operations;
- investment portfolio management;
- credit administration and review;
- human resources;
- administration;
- training; and
- strategic planning.
Core processing, check clearing and other similar functions will be outsourced
to third-party vendors. As a result, we believe that these operating strategies
will enable us to achieve cost efficiencies, to maintain consistency in policies
and procedures, and to allow the local management teams to concentrate on
developing and enhancing customer relationships.
ACQUISITION OF PREMIER BANCSHARES, INC.
Based upon a business plan developed by T. Stephen Johnson & Associates, Inc., a
financial services consulting firm ("TSJ&A"), TSJ&A and Richard C. Jensen, the
President and Chief Executive Officer of Riva Bancshares, developed the concept
for Riva Bancshares. Riva Bancshares is a Delaware corporation which was
organized on May 1, 1998 to implement this concept. Mr. Jensen and TSJ&A
evaluated potential bank acquisition candidates in various Missouri markets and
identified Premier as an independent financial institution capable of providing
a platform to implement its business strategy. On May 6, 1999, Riva Bancshares
signed a merger agreement with Premier Bancshares, Inc. and agreed to acquire
all of the outstanding capital stock of Premier in exchange for shares of Riva
Bancshares common stock. The merger agreement was subsequently amended on July
22 and again on July 29, 1999. The acquisition of Premier Bank provides us with
an existing charter so that we may immediately commence banking operations upon
completion of the merger in two of our five initially-targeted markets. We
intend to use the acquisition of Premier Bank as a platform to expand our
operations by building upon Premier Bank's existing infrastructure, core
processing and outsourcing relationships.
Other than the acquisition of Premier, we have no understandings or agreements
with respect to any acquisition.
43
<PAGE> 51
STRATEGY OF RIVA BANCSHARES
General
Our business strategy is to create a banking franchise that captures market
share among small and medium-sized businesses, their principals and other
professionals and executives in geographic markets that are familiar to
management. We will implement this strategy by:
- Targeting small and medium-sized business customers who demand high levels
of personalized attention and customer service;
- Establishing a banking center in St. Louis, expanding into Kansas City and
Springfield, while continuing to enhance our current operations in Columbia
and Jefferson City;
- Staffing banking centers with community-minded and responsive management
teams that will have significant local decision-making authority;
- Operating with a few strategically located offices supported by outsourced
core processing and back room operations to increase efficiencies;
- Enhancing private banking relationships by offering a broad spectrum of
products and services, including securities brokerage services and
investment management services; and
- Offering our customers the convenience and advantages offered by Internet
banking while targeting businesses that have been identified as Internet
users to leverage our banking centers.
Our Banking Model
Upon completion of the acquisition of Premier, we will have banking centers in
two of our five initially-targeted markets. We intend to establish a banking
center within each of our identified markets primarily through the branching of
Riva Bank. We may, however, accomplish our expansion strategy by acquiring
existing banks within an identified market if an opportunity for such an
acquisition becomes available. Although each banking center will legally be a
branch of Riva Bank, our business strategy envisions that banking centers
located within each market will operate as if they were independent community
banks.
Local Management Teams. Prior to expanding into a new market area, we will
identify an individual who will serve as the president of that particular market
area, as well as those individuals who will serve on the local board of
directors. Each local president will be primarily responsible for actively
recruiting and assembling a management team, including lending officers, from
the local market area. We believe that a management team familiar with the needs
of its community will provide high quality personalized service to its
customers. The local management team will have a significant amount of
decision-making and lending authority and will be accessible to its customers.
As a result of the consolidation trend in the state of Missouri, we believe
there are significant opportunities to attract experienced bank managers who
would be available to join an institution promoting a community banking concept.
Local Boards of Directors. Each banking center will have a local board of
directors which will be comprised of prominent members of the community,
including business leaders and professionals. These local directors will act as
ambassadors of Riva Bancshares within the community and will be expected to
promote the business development of each banking center.
We will encourage both the members of our local boards of directors as well as
our lending officers to be active in the civic, charitable and social
organizations in their communities. It is anticipated that members of the local
management team will hold leadership positions in a number of community
organizations.
We expect that upon our entry into a new market area, we will undertake a
marketing campaign utilizing an officer calling program, and community-based
promotions and media advertising. Such campaigns will emphasize each banking
center's responsiveness, local management team and special focus on personalized
service.
44
<PAGE> 52
The initial banking center established in an identified market will have the
following banking personnel: a President, a Senior Lender, an Associate Lending
Officer, a Credit Analyst, a Branch/Operations Manager and an appropriate number
of financial service managers and tellers.
Lending Officers with Local Decision-Making Authority. It is expected that the
lending officers will be primarily responsible for the sales and marketing
efforts of the banking centers. We will emphasize relationship banking whereby
each customer will be assigned to a specific officer, with other local officers
serving as backup or in supporting roles. We intend to hire the appropriate
number of lending officers necessary to facilitate the development of strong
customer relationships. Our lending officers will be supported by our
organization's ability to make significantly larger loans than smaller community
banks.
We intend to offer salaries to the lending officers that are competitive with
other financial institutions in each market area. Local management will be
compensated based on the performance of their particular banking centers as well
as the overall financial and market performance of the bank. Lending officers
will be compensated based on an annual base salary plus an incentive payment
structure that will be based upon the achievement of certain loan quality and
production goals. Those goals will be evaluated on an annual basis. We believe
that such a compensation structure will provide greater motivation for
participating officers.
It is anticipated that the banking centers will be strategically located in
areas in each market where the local management team determines that there is
the greatest potential to reach the maximum number of small and medium-sized
businesses. It is expected that these banking centers will develop in the areas
surrounding office complexes and other commercial areas. Such determinations
will depend upon the customer demographics of a particular market area and the
accessibility of a particular location to its customers. We expect to lease our
facilities to avoid investing significant amounts of capital in property and
facilities.
Customers
We believe that the recent bank consolidation within the state of Missouri
provides a community-oriented bank significant opportunities to build a
successful, locally-oriented franchise. We further believe that many of the
larger financial institutions do not emphasize a high level of personalized
service to small and medium-sized businesses and their principals. We intend to
focus our marketing efforts on attracting small and medium-sized businesses and
individuals including: service companies, manufacturing companies, commercial
real estate developers, entrepreneurs and professionals, such as physicians and
attorneys. Because we intend to focus on small and medium-sized businesses, we
believe that the majority of our loan portfolio will be in the commercial area
with an emphasis placed on commercial/industrial, construction and commercial
real estate loans secured by real estate, accounts receivable, inventory, and
property, plant and equipment.
Although we expect to concentrate our lending efforts on commercial businesses,
we also anticipate that we will attract a significant amount of consumer
business. We expect that many of our retail customers will be the principals of
our small and medium-sized business customers. These customers will comprise our
private banking clients, for whom Riva Bank is expected to provide investment
management services, asset management services and securities brokerage
services. We intend to offer these services through strategic alliances with
third-party vendors. We intend to emphasize "relationship banking" in order that
each customer will identify and establish a comfort level with the bank officers
within a banking center. We intend to develop our retail business with
individuals who appreciate a high level of personal service, contact with their
lending officer and responsive decision-making. We expect that most of our
business will be developed through our lending officers and local boards of
directors and by pursuing an aggressive strategy of calling on customers
throughout the market area.
45
<PAGE> 53
Products and Services
We intend to offer and Premier Bank currently offers a broad array of
traditional banking products and services to our customers.
Loans. We intend to offer a wide range of commercial and consumer loans as
follows:
- Commercial/Industrial. We expect that our commercial lending will
consist primarily of loans for the financing of accounts receivable,
inventory and property, plant and equipment. We also expect to offer
Small Business Administration guaranteed loans. In making these loans,
we intend to manage our credit risk by actively monitoring such measures
as advance rate, cash flow, collateral value and other appropriate
credit factors.
- Commercial Construction. We expect to provide loans for the construction
and development of real estate which would be secured by commercial
properties. These loans generally command higher rates and fees
commensurate with the risk warranted in the construction lending field.
The risk in construction lending is dependent upon the performance of
the builder in building the project to the plans and specifications of
the borrower and the bank's ability to administer and control all phases
of the construction disbursements. Upon completion of the construction
period, this type of loan is typically converted to a permanent loan.
- Commercial Real Estate. We anticipate that we will also offer commercial
real estate loans to developers of both commercial and residential
properties. In making these loans, we intend to manage credit risk by
actively monitoring such measures as advance rate, cash flow, collateral
value and other appropriate credit factors.
- Residential Mortgage. We expect that our real estate loans will consist
of residential first and second mortgage loans and residential
construction loans. We expect that we will make mortgage loans with a
variety of terms, including fixed and floating to variable rates and a
variety of maturities. These loans will be made consistent with our
appraisal policy and real estate lending policy which will detail
maximum loan-to-value ratios and maturities. We expect that these loan-
to-value ratios will be sufficient to compensate for fluctuations in the
real estate market to minimize the risk of loss. We believe that many of
our mortgage loans that conform with secondary market criteria will be
sold in the secondary markets.
- Consumer Loans. We expect that our consumer loans will include lines of
credit and term loans secured by second mortgages on the residences of
borrowers for home improvements, education and other personal
expenditures. The remaining consumer loans will consist of installment
loans to individuals for personal, family and household purposes. In
evaluating these loans, we will require our lending officers to review
the borrower's level and stability of income, past credit history and
the impact of these factors on the ability of the borrower to repay the
loan in a timely manner. In addition, we will require that our banking
centers maintain an appropriate margin between the loan amount and
collateral value. We expect that many of our consumer loans will be made
to the principals of the small and medium-sized businesses for whom we
provide banking services.
Private Banking Services. We also expect to provide other fee generating
services for the principals of our business customers. We intend to offer
services such as securities brokerage and investment services, portfolio and
asset management services, insurance products and will consider other
permissible activities. We also expect to offer investment products and cash
management products.
Internet Banking. We believe that there is a strong need within our market
niche for Internet banking. These services, which would be provided through a
third party, would allow customers to access their bank accounts on a
seven-day-a-week, 24-hour-a-day basis from any personal computer, wherever
located, by means of a secure web browser. This technology gives Internet
banking an advantage over PC-based home banking, which utilizes PC-based
software, requires repeated downloading and limits the user to a specific PC. We
believe that Internet banking will encourage our customers to maintain their
total banking
46
<PAGE> 54
relationships with us. We also anticipate using the Internet for direct e-mail
solicitation to small and medium-sized businesses we have identified as current
Internet users. We will market the convenience and advantages of Internet
banking, including on-line bill paying, money transfer and cash management. We
believe that Internet banking will leverage our strategically located banking
centers by attracting customers from within Missouri and adjacent market areas.
We are negotiating with several Internet banking providers about implementing
these services upon completion of the merger and the offering.
Deposits. We intend to offer a broad range of interest-bearing and
noninterest-bearing deposit accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest-bearing savings accounts and certificates of deposit with a range of
maturity date options. We anticipate that the primary sources of deposits will
be small and medium-sized businesses and individuals within an identified
market. In each identified market, senior management will have the authority to
set rates within specified parameters in order to remain competitive with other
financial institutions located in the same market. All deposits will be insured
by the FDIC up to the maximum amount permitted by law. In addition, we expect to
implement a service charge fee schedule which will be competitive with other
financial institutions in a community banking center's market area, covering
such matters as maintenance fees on checking accounts, per item processing fees
on checking accounts, returned check charges and other similar fees.
Specialized Consumer Services. We intend to offer specialized products and
services to our customers, such as travelers checks, safe deposit services,
credit cards and consumer lines of credit. Premier Bank currently offers all of
these services and provides credit cards to its customers through a third party.
Courier Services. We expect to offer courier services to our business
customers. Courier services will be provided through a third party, which will
permit us to provide the convenience and personalized service our customers
require by scheduling pick-ups of deposits.
Automatic Teller Machines ("ATMs"). We expect to establish a limited ATM
network and we intend to make other financial institutions' ATMs available to
our customers.
Market Expansion
Riva Bancshares intends to expand into the attractive and growing communities in
the state of Missouri. Once it has assembled a local management team and local
board of directors for a particular market area, Riva Bancshares intends to
establish one or more banking centers in that market. Upon the completion of the
acquisition of Premier Bank, we will have established banking centers in the
Jefferson City and Columbia market areas. Jefferson City is the capital of
Missouri and Columbia is the site of the main campus of the University of
Missouri. In addition, we have assembled a management team in St. Louis and,
immediately following the offering, will open a banking center in the St. Louis
market. The other markets into which we presently intend to expand are Kansas
City and Springfield. We have identified these markets as providing the most
favorable opportunities for growth and intend to establish banking centers
within these markets as soon as practicable. As opportunities arise, we will
also consider expansion into other selected banking markets in the states
adjacent to Missouri.
The consolidation within the banking industry is evidenced by the following
statistics. According to the FDIC, as of December 31, 1987, 596 depository
institutions were located in Missouri. By December 31, 1998, there were a total
of 383 depository institutions in Missouri, representing a decline of
approximately 36% over the ten-year period. Management attributes this decline
to consolidation resulting from the liberalization of interstate banking and
branching laws allowing the entry into, and expansion in, Missouri by numerous
large banks. The result of this consolidation has been a significant reduction
in the number of community-oriented financial institutions focusing on
personalized service to small and medium-sized business customers. We believe
that our strategy, which incorporates a community banking concept, is better
suited to provide a high level of service to small and medium-sized businesses
than larger financial institutions.
47
<PAGE> 55
We believe that the state of Missouri in general and the identified markets
within Missouri in particular represent an attractive opportunity to build a
multi-market banking franchise. Missouri has a current population of
approximately 5.4 million making it the fifteenth most populous state in the
country. Missouri has experienced growth in the amount of commercial and
consumer deposits.
Certain demographic and deposit information with respect to each of the
identified markets is discussed below.
St. Louis Market. The St. Louis market area includes the city of St. Louis and
the surrounding counties in both Missouri and Illinois. St. Louis' population
increased from approximately 2.49 million in 1990 to approximately 2.56 million
in 1998, representing an increase of approximately 2.7% over that period
compared to the national increase of 8.31% for the same period. The population
is projected to increase to approximately 2.62 million by 2003. Over the period
from 1990 to 1998, average household income in the St. Louis market has
increased 38.9% compared to the national increase of 38.2% for the same period.
As of June 30, 1998, there were 124 financial institutions represented in St.
Louis with aggregate deposits of $36.1 billion. Deposits in St. Louis increased
$7.6 billion from June 30, 1993 through June 30, 1998, at an annual growth rate
of 4.84% for that period.
Kansas City Market. The Kansas City market area includes the city of Kansas
City as well as surrounding counties in Missouri and Kansas. Kansas City's
population increased from approximately 1.58 million in 1990 to approximately
1.72 million in 1998, representing an increase of approximately 8.6% over that
period compared to the national increase of 8.3% for the same period. The
population is projected to increase to approximately 1.79 million by 2003. Over
the period from 1990 to 1998, average household income in the Kansas City market
increased 42.2% compared to the national increase of 38.2% for the same period.
As of June 30, 1998, there were 136 financial institutions represented in the
Kansas City market with aggregate deposits of $24.2 billion. Deposits in the
Kansas City market increased $4.4 billion from June 30, 1993 through June 30,
1998, at an average annual growth rate of 4.10% for that period.
Springfield Market. The Springfield market area includes the city of
Springfield, as well as the counties of Christian, Greene and Webster.
Springfield's population increased from approximately 264,000 in 1990 to
approximately 305,000 in 1998, representing an increase of approximately 15.5%
over that period compared to the national increase of 8.3% for the same period.
The population is projected to increase to approximately 322,000 by 2003. Over
the period from 1990 to 1998, average household income in the Springfield market
increased 51.3% compared to the national increase of 38.2% for the same period.
As of June 30, 1998, there were 34 financial institutions represented in the
Springfield market with aggregate deposits of $3.9 billion. Deposits in the
Springfield market increased $1.1 billion from June 30, 1993 through June 30,
1998, at an average annual growth rate of 6.85% for that period.
Columbia Market. The Columbia market area includes the city of Columbia, as
well as Boone county. Columbia's population increased from approximately 112,000
in 1990 to approximately 130,000 in 1998, representing an increase of
approximately 15.2% over that period compared to the national increase of 8.3%
for the same period. The population is projected to increase to approximately
138,000 by the year 2003. Over the period from 1990 to 1998, average household
income in the Columbia market increased 52.2% compared to the national increase
of 38.2% for the same period. As of June 30, 1998, there were 12 financial
institutions represented in the Columbia market with aggregate deposits of $1.4
billion. Deposits in the Columbia market increased $300 million from June 30,
1993 through June 30, 1998, at an average annual growth rate of 4.94% for that
period.
Jefferson City Market. The Jefferson City market area includes Jefferson City
and Cole County. Jefferson City's population increased from approximately 35,500
in 1990 to approximately 36,200 in 1998, representing an increase of
approximately 2.0% over that period compared to the national increase of 8.3%
for the same period. The population is projected to increase to approximately
36,800 by 2003. Over the period from 1990 to 1998, average household income in
the Jefferson City market increased 51.1% compared to the national increase of
38.2% for the same period. As of June 30, 1998, there were 16 financial
institutions represented in the Jefferson City market with aggregate deposits of
$1.4 billion.
48
<PAGE> 56
Deposits in the Jefferson City market increased $350 million from June 30, 1993
through June 30, 1998, at an average annual growth rate of 5.92% for that
period.
OPERATIONS OF RIVA BANCSHARES
Riva Bancshares will remain in the development stage until the completion of the
acquisition of Premier Bank and the offering. Riva Bancshares' corporate offices
will be located in the St. Louis metropolitan area. Riva Bancshares presently
has six full-time employees.
At the holding company level, Riva Bancshares will provide a variety of support
services for each of the banking centers. These services will include back
office operations, investment portfolio management, credit administration and
review, human resources, training and strategic planning. Riva Bancshares has
hired a Chief Financial Officer, a Chief Credit Officer, and a Senior Vice
President of Commercial Real Estate and the President of the St. Louis market.
Riva Bancshares intends to use Premier Bank's facilities and outsourcing
arrangements for its data processing, operational and back office support
activities. The banking centers will utilize the operational support provided by
Premier Bank to perform account processing, loan accounting, loan support,
network administration and other functions. Premier Bank has developed extensive
procedures for many aspects of its operations, including operating procedures
manuals and compliance procedures. Specific operating procedures for the banking
centers will be developed from the procedures that are currently utilized by
Premier Bank. We believe that Premier Bank's existing operations and support
management are capable of providing continuing operational support for all of
the banking centers.
Outsourcing
We believe that by outsourcing a major portion of our back office operations, we
can realize greater efficiencies and economies of scale. In addition, various
products and services, especially technology-related services, can be offered
through third-party vendors at a substantially lower cost than the costs of
developing these products internally.
Premier Bank is utilizing Computer Services Incorporated to provide its core
data processing and certain customer products. In addition to account level
processing for loans and deposits, Premier Bank also utilizes CSI for computer
network support, proof of deposit processing, on-line support, telephone banking
services, cash management, automated clearing house services and consulting
services.
Credit Administration
We will oversee all credit policy operations at the holding company level while
still granting local lending authority to management in each local market. Our
Chief Credit Officer will be primarily responsible for maintaining a quality
loan portfolio and developing a strong credit culture throughout the entire
organization. The Chief Credit Officer will be responsible for developing and
updating the credit policy and procedures for the organization. In addition, he
will work closely with each lending officer at the banking centers to ensure
that the business being solicited is of the quality and structure that fits our
desired risk profile. Credit quality will be controlled through uniform
compliance to credit policy. Our risk-decision process will be actively managed
in a disciplined fashion to maintain an acceptable risk profile.
Our credit approval process will consist of specific authorities granted to the
lending officers. Loans exceeding a particular lending officer's level of
authority will be reviewed and considered for approval by the next level of
authority. The Chief Credit Officer has ultimate credit decision-making
authority, subject to review by the Chief Executive Officer and our board of
directors. Risk management will require active involvement with our customers
and active management of our portfolio. The Chief Credit Officer will review our
credit policy with the local management teams at least annually but more
frequently if necessary. The results of these reviews will then be presented to
our board of directors. The purpose of these reviews will be to attempt to
ensure that the credit policy remains compatible with our short and
49
<PAGE> 57
long-term business strategies. The Chief Credit Officer will also generally
require all individuals charged with risk management to reaffirm their
familiarity with the credit policy annually.
OPERATIONS OF PREMIER BANCSHARES, INC.
Premier Bancshares, Inc. was incorporated in 1994 as a Missouri corporation.
Premier Bank commenced operations on May 15, 1995, as a full service,
state-chartered commercial bank in Jefferson City, Missouri. Premier Bank opened
its branch office in Columbia in April, 1998. Premier Bank owns both of its
facilities. Premier Bank has received regulatory approval to open an additional
branch in a leased facility in Jefferson City which is expected to open in the
first quarter of 2000.
Premier Bank has applied for a branch location in the St. Louis metropolitan
area which would open following the completion of the offering and the merger.
Premier Bank is currently providing many of the products and services which Riva
Bancshares expects to offer. Premier Bank offers a variety of loan products,
including commercial loans, real estate loans, home equity loans,
consumer/installment loans, SBA loans and offers credit cards through a third
party. Premier Bank also offers a broad range of interest-bearing and
noninterest-bearing deposit accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest-bearing savings accounts and certificates of deposit. In addition,
Premier Bank provides such consumer services as U.S. Savings Bonds, travelers
checks, cashiers checks, safe deposit boxes, bank-by-mail services, direct
deposit and telephone banking. Premier Bank is also offering limited investment
services, such as securities brokerage, through a third party provider.
Premier Bank engages in a broad array of lending activities, including
commercial/industrial, SBA guaranteed loans, consumer and real estate loans. As
of June 30, 1999, Premier Bank had a legal lending limit for loans of
approximately $1.0 million per borrower.
ASSET/LIABILITY MANAGEMENT
Our objective is to manage assets and liabilities to provide a satisfactory
level of consistent operating profitability. Our Chief Financial Officer is
primarily responsible for monitoring policies and procedures that are designed
to maintain an acceptable composition of the asset/liability mix while adhering
to prudent banking practices. Our management philosophy is to support asset
growth primarily through growth of core deposits. We intend to continue to
invest the largest portion of earning assets in commercial industrial and
construction and commercial real estate loans.
Currently, Premier Bank's asset/liability mix is monitored on a daily basis,
with monthly reports presented to Premier Bank's board of directors. The
objective of this policy is to control interest-sensitive assets and liabilities
so as to minimize the impact of substantial movements in interest rates on
Premier Bank's earnings.
COMPETITION
Competition among financial institutions in the state of Missouri and the
markets in which Premier Bank currently operates and into which we may expand is
intense. We will compete with other bank holding companies, state and national
commercial banks, savings and loan associations, consumer finance companies,
credit unions, securities brokerages, insurance companies, mortgage banking
companies, money market mutual funds, asset-based non-bank lenders and other
financial institutions. Many of these competitors have substantially greater
resources and lending limits, larger branch networks and are able to offer a
broader range of products and services than we will be able to offer.
Various legislative actions in recent years have led to increased competition
among financial institutions. With the enactment of the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 and other laws and regulations
affecting interstate bank expansion, financial institutions located outside of
the state of Missouri may now more easily enter our targeted markets. In
addition, recent legislative and regulatory changes and technological advances
have enabled customers to conduct banking activities
50
<PAGE> 58
without regard to geographic barriers through computer and telephone-based
banking and similar services. There can be no assurance that the United States
Congress or the Missouri Legislature or the applicable bank regulatory agencies
will not enact legislation or promulgate rules that may further increase
competitive pressures on Riva Bancshares. Our failure to compete effectively for
deposit, loan and other banking customers in its market areas could have a
material adverse effect on our business, future prospects, financial condition
or results of operations.
DATA PROCESSING
Premier Bank currently has an agreement with CSI to provide its core processing
and certain customer products. We believe that CSI will be able to provide
technologically advanced data processing and customer service-related processing
at a competitive price to support Riva Bancshares' future growth. We believe
that CSI's services are adequate for our business expansion plans.
FACILITIES
Our temporary offices are located at 13004 Starbuck Road, St. Louis, Missouri
63141. We are currently negotiating for office space in the St. Louis
metropolitan area.
EMPLOYEES
We presently have six full-time employees. We will hire additional employees as
needed to support our growth.
Premier Bank presently has 20 full-time employees and one part-time employee,
including 10 officers. Premier Bank will hire additional employees as needed,
including additional tellers and financial service representatives.
LEGAL PROCEEDINGS
From time to time, Riva Bancshares may be involved in litigation relating to
claims arising out of operations in the normal course of business. As of the
date of this prospectus, neither Riva Bancshares nor Premier Bank is engaged in
any legal proceedings that are expected, individually or in the aggregate, to
have a material effect on Riva Bancshares or Premier Bank.
51
<PAGE> 59
PRINCIPAL SHAREHOLDERS OF RIVA BANCSHARES
The following table sets forth information with respect to the beneficial
ownership of shares of the common stock as of July 29, 1999, and as adjusted to
reflect the sale of the shares offered hereby and the shares offered in
connection with the merger, with respect to (1) each director of Riva
Bancshares; (2) each person, including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, who is known by Riva
Bancshares to own beneficially more than five percent of the outstanding shares
of the common stock and (3) all directors and executive officers of Riva
Bancshares as a group. Unless otherwise indicated, each shareholder has sole
voting and investment power with respect to the indicated shares.
<TABLE>
<CAPTION>
OWNERSHIP
OWNERSHIP PRIOR AFTER THE MERGER
TO THE OFFERING AND THE OFFERING
-------------------- -----------------------
NAME OF BENEFICIAL OWNER SHARES(1) PERCENT SHARES(1) PERCENT(2)
------------------------ --------- ------- --------- ----------
<S> <C> <C> <C> <C>
Richard C. Jensen................................... 10,000 100.0% 135,000(3) 3.2%
Allan D. Ivie, IV................................... -- * -- *
John S. Rouse....................................... -- * -- *
Sanford B. Scott.................................... -- * -- *
Daniel R. Sills..................................... -- * -- *
Alan C. Henderson................................... -- * -- *
Gerald G. Kaufman................................... -- * 14,475(4) *
Bruce W. Wiley...................................... -- * 113,733(5) 2.9%
Lewis A. Levey...................................... -- * -- *
Jacob W. Reby....................................... -- * -- *
Harold B. Remley.................................... -- * 84,548(6) 2.1%
Andrew M. Rosen..................................... -- * -- *
Patricia D. Whitaker................................ -- * -- *
Charles R. Willibrand............................... -- * 84,548(7) 2.1%
All executive officers and directors as a group (14
persons).......................................... 10,000 100.0% 432,304(8) 10.6%
</TABLE>
- ---------------------------
* Less than 1%.
(1) Pursuant to the rules of the Commission, the determinations of "beneficial
ownership" of common stock are based upon Rule 13d-3 under the Exchange
Act, which provides that shares will be deemed to be "beneficially owned"
where a person has, either solely or in conjunction with others, the power
to vote or to direct the voting of shares and/or the power to dispose, or
to direct the disposition of, shares or where a person has the right to
acquire any such power within 60 days after the date such "beneficial
ownership" is determined. Shares of common stock that a beneficial owner
has the right to acquire within 60 days pursuant to the exercise of stock
options or warrants are deemed to be outstanding for the purpose of
computing the percentage ownership of such owner but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) The percentages are based upon the aggregate number of shares of common
stock issued and outstanding as of July 29, 1999, as adjusted to reflect
the 3,000,000 shares issuable pursuant to the offering (assuming no
exercise of the underwriters' over-allotment option), 818,182 shares
issuable pursuant to the merger (assuming an $11.00 initial public offering
price of the common stock in the offering, the mid-point of the estimated
range) and the shares to be repurchased at a price of $.01 per share.
(3) Includes 125,000 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of the
offering and excludes the shares to be repurchased at a price of $.01 per
share. Mr. Jensen's business address is 13004 Starbuck Road, St. Louis,
Missouri 63141.
(4) Includes 14,475 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of the
offering.
(5) Includes 55,060 shares issuable upon the exercise of immediately
exercisable warrants to be granted simultaneously with the closing of the
offering and 58,673 shares issuable upon conversion and exchange of shares
of Premier's common stock pursuant to the merger.
(6) Includes 25,875 shares issuable upon exercise of immediately exercisable
warrants and 58,673 shares issuable upon conversion and exchange of shares
of Premier's common stock pursuant to the merger.
(7) Includes 25,875 shares issuable upon exercise of immediately exercisable
warrants and 58,673 shares issuable upon conversion and exchange of shares
of Premier's common stock pursuant to the merger.
(8) Includes 246,285 shares issuable upon the exercise of immediately
exercisable options and warrants to be granted upon completion of the
offering.
52
<PAGE> 60
MANAGEMENT OF RIVA BANCSHARES
Executive Officers and Directors
The following table sets forth information concerning Riva Bancshares'
executive officers and directors upon completion of the offering and of the
merger.
<TABLE>
<CAPTION>
NAME AGE POSITION(1)
- ---- --- -----------
<S> <C> <C>
Richard C. Jensen................................ 54 Chairman of the Board, President, Chief
Executive Officer and Director
Allan D. Ivie, IV................................ 38 President of the St. Louis Market
John S. Rouse.................................... 50 Chief Credit Officer
Sanford B. Scott................................. 38 Senior Vice President of Commercial Real Estate
Daniel R. Sills.................................. 40 Chief Financial Officer
Bruce W. Wiley................................... 42 President of the Mid-Missouri Market and Director(2)
Alan C. Henderson................................ 53 Director
Gerald G. Kaufman................................ 52 Director and Vice President(3)
Lewis Levey...................................... 57 Director
Jacob W. Reby.................................... 51 Director(2)
Harold B. Remley................................. 56 Director(2)
Andrew Rosen..................................... 48 Director
Patricia D. Whitaker............................. 54 Director
Charles R. Willibrand............................ 72 Director(2)
</TABLE>
- ----------------------
(1) Upon amendment to its Certificate of Incorporation, the Board of Directors
of Riva Bancshares will be divided into three classes, designated Class I,
Class II and Class III.
(2) Messrs. Reby, Remley, Wiley and Willibrand will serve as directors of Riva
Bancshares upon completion of the merger and the offering.
(3) Upon completion of the offering, Mr. Kaufman will resign from his position
as Vice President of Riva Bancshares but will continue as a director of
Riva Bancshares.
Each of the following directors and executive officers, with the exception
of Mr. Jensen , Mr. Kaufman, Mr. Wiley and Mr. Reby have been with Riva
Bancshares since May 1999.
Richard C. Jensen has served as Chairman of the Board, President, Chief
Executive Officer and a director of Riva Bancshares since July 1998. Mr. Jensen
served as the President of Royal Banks of Missouri from March 1998 to May 1998.
Since 1980, Mr. Jensen served in various positions at NationsBank, N.A. - St.
Louis, formerly Boatmen's National Bank of St. Louis, most recently as President
since 1997. At
53
<PAGE> 61
NationsBank, Mr. Jensen was responsible for NationsBank's General Bank, which
included over 60 branches in St. Louis, small business, middle market lending
and professional and executive banking. Mr. Jensen has over 25 years of banking
experience in Missouri. Mr. Jensen will serve as a class I director of Riva
Bancshares.
Allan D. Ivie, IV has served as the President of the St. Louis market since
May 1999. Mr. Ivie served in various positions with NationsBank/Boatmen's
National Bank of St. Louis since 1988, most recently as Senior Vice President of
the Private Client Group where he was primarily responsible for implementing the
Private Client Group after NationsBank's acquisition of Boatmen's. From 1995 to
1997, Mr. Ivie served as Vice President and Director of Private Banking. Mr.
Ivie has over 14 years of banking experience in Missouri.
John S. Rouse has served as Chief Credit Officer of Riva Bancshares since
May 1999. Mr. Rouse served in various positions with NationsBank, N.A. and
Boatman's National Bank of St. Louis since 1979. From 1990 to 1995,Mr. Rouse
served as Vice President and Manager of Loan Originations in the Structured
Finance Group and from 1995 to 1997, Mr. Rouse served as Vice President in the
St. Louis Corporate Group with Boatmen's. Since 1997, Mr. Rouse has been the
Senior Vice President/Senior Lender in the Private Client Group with NationsBank
where he was responsible for providing credit approval and administering the
loan portfolio for the Private Client Group with commitments of more than $750
million. Mr. Rouse has over 20 years of banking experience in the Missouri
market.
Sanford B. Scott has served as Senior Vice President of Commercial Real
Estate of Riva Bancshares since May 1999. Prior to joining Riva Bancshares, Mr.
Scott served in various positions with NationsBank since 1988, most recently as
Manager and Senior Commercial Mortgage Originator for the Midwest. Prior to this
position, Mr. Scott was manager of the Commercial Real Estate Division for the
Central Region of Boatmen's National Bank of St. Louis, where he managed a $200
million commercial mortgage and construction loan portfolio. From 1985 to 1988,
Mr. Scott served in various positions with Mark Twain Banks, N.A. Mr. Scott has
over 14 years of banking experience in Missouri.
Daniel R. Sills has served as Chief Financial Officer of Riva Bancshares
since May 1999. Prior to joining Riva Bancshares, Mr. Sills worked in the
financial institutions consulting group as a certified public accountant with
KPMG LLP in St. Louis since 1997. From 1993 to 1997, Mr. Sills served in various
positions at Boatmen's Bancshares (now NationsBank) including Chief Financial
Officer of Boatmen's Credit Card Bank and Boatmen's Merchant Processing Company.
From 1989 to 1993, Mr. Sills was with KPMG LLP in St. Louis where he was
responsible for conducting consulting engagements for a wide range of financial
institution clients.
Bruce W. Wiley is currently President and Chief Executive Officer of
Premier Bancshares, Inc. and Premier Bank. In 1994, Mr. Wiley and other
investors founded Premier. Upon completion of the merger and the offering, Mr.
Wiley will continue with Premier Bank as President of the Mid-Missouri market
and a director and Vice President of Riva Bancshares. Mr. Wiley has over six
years of banking experience in Missouri. Mr. Wiley will serve as a class III
director of Riva Bancshares.
Alan C. Henderson has served as the President, Chief Executive Officer and
as a director of RehabCare Group, Inc., a publicly traded company since June
1998. From 1996 to 1998, Mr. Henderson served as Executive Vice President and
Chief Financial Officer of RehabCare Group, Inc. Mr. Henderson is also a
director of General American Capital Corporation, a registered investment
company and a member of the Health Services Board of Mercantile Bank, N.A.
Mr. Henderson will serve as a class I director of Riva Bancshares.
Gerald G. Kaufman has served as a director and Vice President of Riva
Bancshares since its inception. Since 1997, Mr. Kaufman has served as the
President of T. Stephen Johnson & Associates, Inc. an investment banking firm
located in Atlanta, Georgia. Prior to his service with TSJ&A, Mr. Kaufman was
54
<PAGE> 62
President of Bretton Woods Group, a management consulting and investment banking
firm. From 1980 to 1991, Mr. Kaufman served as the Managing Director for Bank
Earnings International, one of the nation's largest bank consulting firms. Mr.
Kaufman began his banking career with Citizens and Southern National Bank,
Atlanta, Georgia in 1973 as a Vice President in Bank Operations and the
International Banking Division. Mr. Kaufman will serve as a class I director
of Riva Bancshares.
Lewis A. Levey is a private investor engaged in real estate management and
development and real estate consulting. Mr. Levey was a founding partner and
Vice Chairman of Paragon Group, Inc., a fully integrated, self-managed real
estate investment trust operating a multi-billion dollar investment portfolio
in 18 states from 1994 to 1997 until it merged with Camden Property Trust, a
real estate investment trust whose shares are listed on the New York Stock
Exchange. Since 1997, Mr. Levey has served as Trust Manager and a Director of
Camden Property Trust. Mr. Levey is a member of various industry organizations
including the Urban Land Institute and a former member of the Board of
Directors of the National Multi-Housing Council. Mr. Levey also serves on the
Board of Directors of Grand Center, Inc., the St. Louis Psychoanalystic
Institute and other civic, educational and charitable groups. Mr. Levey will
serve as a class II director of Riva Bancshares.
Jacob W. Reby is a member of the law firm of Lewis, Rice & Fingersh in St.
Louis, Missouri specializing in corporate, real estate and banking law since
1991. Prior to 1991 Mr. Reby was a partner with the law firm of Popkin & Stern
in St. Louis, Missouri. Mr. Reby has co-authored several publications including
Acquiring or Selling the Closely Held Business and Banking and Lending
Institution Forms. Mr. Reby has been involved in various charitable
organizations, including the AMC Cancer Research Center Foundation, the Saint
Louis Art Fair and the Clayton Child Center. Mr. Reby will serve as a class II
director of Riva Bancshares.
Harold B. Remley is currently a director of Premier Bancshares and Premier
Bank and upon completion of the merger will serve as a class III director of
Riva Bancshares. Mr. Remley is the owner of Remley's Insurance, Inc. which has
been engaged in the general insurance agency business in Jefferson City,
Missouri since 1968. Mr. Remley is also the President of the R.R.R. Real
Estate, Inc., a family-owned business engaged in the rental of various real
estate properties located in Jefferson City.
Andrew M. Rosen is currently the Senior Vice President and Treasurer of
Brown Group, Inc., one of the largest shoe retailers in the country. Mr. Rosen
has been with Brown Group since 1974. Mr. Rosen has served as past President of
the Financial Executives Institute and the Washington University Business School
Alumni Executive Committee. Mr. Rosen also serves on the boards of Junior
Achievement of Mississippi Valley Inc. and the Harris Stowe College Advisory
Board. Mr. Rosen will serve as a class II director of Riva Bancshares.
Patricia D. Whitaker is the President and Chief Executive Officer of
Interior Space Inc., an interior design firm. Ms. Whitaker serves on the boards
of the Hawthorn Foundation, the March of Dimes, the YMCA, the St. Louis Arts and
Education Council, McKendree College and the St. Louis Forum. Ms. Whitaker will
serve as a class II director of Riva Bancshares.
Charles R. Willibrand is currently the Chairman of the board of directors of
Premier Bancshares and Premier Bank and upon completion of the merger will
serve as a class III director of Riva Bancshares. From 1964 to 1992, Mr.
Willibrand was President and Chief Executive Officer of Play-Mor Trailers, Inc.
in Westphalia, Missouri and he presently serves as a consultant for that
business. Mr. Willibrand is also the President of Mid-America Distributing Co.,
a wholesaler of recreational vehicles parts and accessories. In addition, Mr.
Willibrand has owned and operated Willibrand's Tire and Service in Westphalia,
Missouri since 1951.
Board of Directors
Upon completion of the merger and the offering, the number of directors of
Riva Bancshares will be fixed at ten. The By-Laws provide for the board of
directors to consist of not less than two, nor more than 25 persons, with the
precise number to be determined from time to time by the board of directors.
Upon amendment to the Certificate of Incorporation, the directors will be
divided into three classes, designated Class I, Class II and Class III. Each
class consists, as nearly as may be possible, of one-third of the total number
of directors. The term of Riva Bancshares' initial Class I Directors will expire
at the first annual meeting of shareholders to be held in 2000; the term of Riva
Bancshares' initial Class II Directors will expire at the second annual meeting
of shareholders to be held in 2001; and the term of Riva Bancshares' initial
Class III Directors will expire at the third annual meeting of shareholders to
be held in 2002. At each annual meeting of shareholders, successors to the class
of directors whose term expires at the annual meeting will be elected for a
three-year term. If the number of directors is changed, an increase or decrease
will be apportioned among the classes so as to maintain the number of directors
in each class as equally as possible. Any additional director of any class
elected to fill a vacancy resulting from an increase in such class will hold
office for a term that will expire at the next annual meeting, but in no event
55
<PAGE> 63
will a decrease in the number of directors shorten the term of any incumbent
director. Any director elected to fill a vacancy due to resignation, removal or
death will have the same remaining term as that of his predecessor. In the case
of the removal of a director from office, the resulting vacancy on the board of
directors will be filled by the vote of a majority of the outstanding shares
of common stock. Any other vacancy on the board of directors will be filled by
a majority vote of the remaining directors then in office or by action of the
shareholders. Any director may be removed, with or without cause, at any
regular or special meeting of shareholders called for that purpose. The effect
of the classified board of directors is to make it more difficult for a person,
entity or group to effect a change in control of Riva Bancshares through the
acquisition of a large block of Riva Bancshares' voting stock. The executive
officers of Riva Bancshares serve at the pleasure of the board of directors.
Pursuant to the merger agreement, each of the Premier directors will be
elected as Class III directors and will serve for a term of three years and
until their successors have been elected and qualified. During the initial
term of the Class III directors, if a vacancy is created as a result of the
resignation, removal or death of one of the Class III directors, the remaining
Premier directors will be able to nominate such director's replacement. In
addition, the existing Premier directors will have the ability to nominate the
Class III directors at the next two elections of Class III directors.
The board of directors will have an Executive Committee, an Audit
Committee and a Compensation Committee. The Executive Committee will exercise
the authority of the board of directors in accordance with the company's By-Laws
between regular meetings of the board of directors. The Audit Committee will
review and make recommendations to the board of directors on Riva Bancshares'
audit procedures and independent auditors' report to management and will
recommend to the board of directors the appointment of the independent auditors
for Riva Bancshares. The Compensation Committee will review and make
recommendations to the board of directors with respect to the compensation of
officers of Riva Bancshares and will assist the board in the administration of
Riva Bancshares' stock option plan.
Executive Compensation
The following table provides certain summary information for the fiscal
year ended December 31, 1998 concerning compensation paid or accrued by Riva
Bancshares to or on behalf of its Chief Executive Officer. No other executive
officer of Riva Bancshares had total annual salary and bonus which exceeded
$100,000 during the last fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
----------------------------------- ------------------------------------------------
Number
Restricted of
Name and Principal Position Stock Options All Other
- --------------------------- Year Salary Bonus Awards Awarded Compensation
---- ------ ----- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Jensen
Chairman, President and Chief
Executive Officer 1998 $114,583 $ -- 10,000 -- $ --
</TABLE>
-------------------------------
(1) In August 1998, Riva Bancshares issued 250,000 shares of common stock to
Mr. Jensen at a price of $.01 per share. On April 29, 1999 Riva Bancshares
repurchased 144,727 of these shares at a price of $.01 per share. Prior to
the initial public offering, Riva Bancshares intends to repurchase an
additional 95,273 of these shares at a price of $.01 per share.
Employment Agreements
Riva Bancshares and Richard C. Jensen have entered into an employment
agreement which provides that Mr. Jensen will serve as the President and Chief
Executive Officer of Riva Bancshares and as President and Chief Executive
Officer of Riva Bank upon completion of the merger and the offering. Mr.
Jensen also serves as a member of the board of directors and will serve on
Riva Bank's board of directors after the
56
<PAGE> 64
closing of the merger. Mr. Jensen's employment agreement has a three-year term
and provides for a minimum annual base salary of $250,000. Upon completion of
the offering, Mr. Jensen will receive a payment of $150,000. In addition, the
Board will grant options to Mr. Jensen to purchase up to 125,000 shares of
common stock at the initial public offering price of the common stock sold in
the offering. This option will be exercisable for a period of ten years.
After the closing of the offering, in the event of a "change in control" of
Riva Bancshares (as defined in the employment agreement), Mr. Jensen will be
entitled to give written notice to Riva Bancshares of termination of the
employment agreement and to receive a cash payment equal to approximately 300%
of the compensation received by Mr. Jensen in the one-year period immediately
preceding the change in control. In addition, if Mr. Jensen elects to terminate
the employment agreement pursuant to a change in control, Mr. Jensen will
further be entitled to, in lieu of options, an amount in cash or common stock
equal to the excess of the fair market value of the common stock as of the date
of closing of the transaction effecting the change of control over the per share
exercise price of the options held by Mr. Jensen, times the number of shares of
common stock subject to such options.
If the board of directors determines that Riva Bancshares is unable to
close the offering, then the employment agreement may be terminated by the board
of directors at any time during the term of the employment agreement without
notice with the condition that Mr. Jensen will be entitled to liquidated damages
in the amount of $250,000. If Mr. Jensen is terminated for cause (as that term
is defined in the employment agreement), the employment agreement may be
terminated by the board of directors without notice and without further
obligation than for salary already earned. Upon 30 days' written notice to Mr.
Jensen, Riva Bancshares may terminate the employment agreement without cause
with the condition that Mr. Jensen will be entitled to the same compensation as
he would have been entitled to receive in the event of a change of control of
Riva Bancshares. Likewise, Mr. Jensen may, upon thirty days' written notice to
Riva Bancshares, terminate the employment agreement without cause. In the event
of termination by Mr. Jensen, Riva Bancshares will have no further obligation
other than for salary earned and Riva Bancshares will be entitled to enforcement
of the non-compete and non-solicitation provisions. After the closing of the
offering, in the event of Mr. Jensen's death, Riva Bancshares will pay to Mr.
Jensen's designated beneficiary an amount equal to Mr. Jensen's base salary
through the end of the month in which Mr. Jensen's death occurred. The
employment agreement also contains a non-compete provision which provides that
if Mr. Jensen terminates his employment agreement, he will not, for a period of
12 months, without the prior written consent of Riva Bancshares, either directly
or indirectly, serve as an executive officer of any bank, bank holding company
or other financial institution within St. Louis County, Missouri. The employment
agreement further obligates Mr. Jensen to protect the confidentiality of Riva
Bancshares' information following termination of his employment.
Riva Bancshares has also entered into employment agreements with its
executive officers, including Mr. Ivie, Mr. Rouse, Mr. Scott, and Mr. Sills. All
of these employment agreements provide for a three year term. These employment
agreements provide for annual base salaries to be paid in the following amounts:
Mr. Ivie ($125,000), Mr. Rouse ($130,000), Mr. Scott ($120,000), and Mr. Sills
($125,000). The employment agreements also provide for the grant of options to
purchase shares at the initial public offering price which are exercisable for a
term of 10 years. Messrs. Ivie, Scott, and Rouse will receive options to
purchase up to 30,000 shares and Mr. Sills will receive options to purchase up
to 20,000 shares. Otherwise, these agreements contain similar provisions to
those contained in Mr. Jensen's employment agreement.
Riva Bancshares has entered into an employment agreement with Bruce W.
Wiley, the President of Premier Bank. Mr. Wiley's agreement provides for a five
year term commencing at the closing of the offering. Mr. Wiley's employment
agreement provides for an annual base salary of $150,000 and the grant of
options to purchase up to 70,000 shares of Riva Bancshares common stock at the
initial public
57
<PAGE> 65
offering price. Of these options, 30,000 options will be granted under Riva
Bancshares stock option plan on the same terms as options issued to other
members of senior management and will vest over a period of three years. The
remaining 40,000 options will be granted on the same terms as those warrants
which were issued to certain founders of Riva Bancshares in April 1998 and will
be exercisable for 10 years. In addition, Mr. Wiley's employment agreement
provides that he will serve as a director of Riva Bancshares and his title
following the merger and the offering will be President of the Middle Missouri
Market Area. In the event of a "change in control" of Riva Bancshares (as
defined in the employment agreement), Mr. Wiley may elect to give written notice
to Riva Bankshares of termination of the agreement and to receive a cash payment
equal to approximately 300% of the compensation received by him in the one year
period immediately preceding the change in control. Mr. Wiley's employment
agreement also contains certain non-compete and non-solicitation provisions
which are similar to those described in the employment agreement of Mr. Jensen
discussed above.
Stock Option Plan
On April 29, 1999, the board of directors adopted the 1999 Stock Option
Plan (the "1999 Plan") to promote Riva Bancshares' growth and financial success.
Options may be granted under the 1999 Plan to Riva Bancshares' directors,
officers and employees, as well as certain consultants and advisors. The 1999
Plan contemplates the grant of nonqualified stock options and incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). The 1999 Plan is not qualified under Section 401(a) of the
Code and is not subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended. The 1999 Plan provides for option grants to
purchase up to an aggregate of 500,000 shares of common stock, subject to
adjustment under certain circumstances (the "Option Shares"). The 1999 Plan will
expire upon the earlier to occur of: (1) the date on which all Option Shares
have been issued upon exercise of options under the 1999 Plan; or (2) the tenth
anniversary of the 1999 Plan's effective date. The 1999 Plan will be
administered by the board of directors or by a committee appointed by the board
and consisting of least two non-employee board members.
The exercise price of options granted under the 1999 Plan will be
determined by the board of directors, but will in no event be less than 100% of
the market price of the common stock on the grant date. However, nonqualified
stock options may be granted at an exercise price of no less than 75% of the
market price of the common stock on the date of grant. Vested options under the
1999 Plan may be exercised in whole or in part, but in no event later than 10
years from the grant date. If an optionee during his or her lifetime ceases to
be an officer, director, employee, consultant or advisor of Riva Bancshares or
any subsidiary of Riva Bancshares for any reason other than his or her death or
total disability, any option or unexercised portion thereof which is exercisable
on the date the optionee ceases employment will expire 90 days following the
date the optionee ceases to be an officer, director or employee of Riva
Bankshares or of a subsidiary of Riva Bancshares, but in no event after the term
provided in the optionee's option agreement. If an optionee dies or becomes
totally disabled while he or she is an officer, director or employee of Riva
Bankshares or of a subsidiary of Riva Bancshares, the option may be exercised by
a legatee or legatees of the optionee under his or her last will or by his or
her personal representative or representatives at any time within one year
following his or her death or total disability, but in no event after the term
provided in his or her option agreement. Options granted under the 1999 Plan
will only be assignable or transferable by the optionee by will or the laws of
descent and distribution. During the optionee's lifetime, options are only
exercisable by him or her. The board of directors may at any time terminate,
modify or amend the 1999 Plan in any respect, except that without shareholder
approval the board of directors may not:
o increase the number of Option Shares,
o extend the period during which options may be granted or exercised,
o change the class of 1999 Plan participants, or
58
<PAGE> 66
o otherwise materially modify the requirements as to eligibility for
participation in the 1999 Plan.
In no event will the termination, modification or amendment of the 1999
Plan, without the written consent of an optionee, affect his or her rights under
an option or right previously granted to him or her. The 1999 Plan must be
approved by Riva Bancshares' shareholders within 12 months from the adoption of
the 1999 Plan by the Board of directors.
No stock options were granted during the fiscal year ended December 31,
1998. Upon completion of the offering, Riva Bancshares will grant options to
purchase an aggregate of 329,475 shares to certain of its officers and
directors.
Compensation of Directors
Directors of Riva Bancshares will not receive any compensation based on
their attendance at board meetings until Riva Bank becomes cumulatively
profitable. Upon consummation of the offering, directors of Riva Bancshares will
be entitled to receive stock option awards under the 1999 Plan. The members of
the local boards of directors will receive compensation in a format to be
determined by the board of directors of Riva Bank. Such compensation may be
incentive-based and include cash and options to purchase common stock. Under the
terms of the merger agreement, if, during the four years following the merger,
any options are granted to the former directors of Riva Bank, then we have
agreed to issue a proportionate amount of options to the remaining former
shareholders of Riva Bank.
CERTAIN TRANSACTIONS
TSJ&A has provided consulting services during the organization and
formation of Riva Bancshares. Gerald G. Kaufman, a director and Vice President
of Riva Bancshares, is President of TSJ&A. Specific responsibilities undertaken
by TSJ&A include assisting management of Riva Bancshares in formulating Riva
Bancshares' business plan, conducting a feasibility analysis, drafting proposed
administrative and operational procedures, and preparing the necessary
regulatory filings for approval of the formation of Riva Bancshares and the
acquisition of Premier Bank. As compensation for its services, TSJ&A is being
paid a monthly fee of $25,000 until the closing of the offering and the merger.
In addition, TSJ&A will receive a finder's fee in connection with the
acquisition of Riva Bank of $90,000 (one percent of the aggregate purchase
price), which finder's fee will be paid from the proceeds of the offering.
Once Premier Bank becomes a wholly-owned subsidiary of Riva Bancshares,
Premier Bank will be renamed Riva Bank. Riva Bank may extend loans from time to
time to certain of Riva Bancshares' directors, their associates and members of
the immediate families of the directors and executive officers of Riva
Bancshares. These loans will be made in the ordinary course of business on
substantially the same terms, including interest rates, collateral and repayment
terms, as those prevailing at the time for comparable transactions with persons
not affiliated with Riva Bancshares or Riva Bank, and will not involve more than
the normal risk of collectibility or present other unfavorable features.
59
<PAGE> 67
INFORMATION ABOUT PREMIER
GENERAL
Premier is a Missouri general business corporation organized in November
1994 and owns all of the capital stock of Premier Bank. Premier Bank is a
Missouri state-chartered bank currently operating in Jefferson City and
Columbia, Missouri. Premier Bank offers a wide range of commercial and retail
banking products and services to its customers. Deposit accounts include
certificates of deposit, individual retirement accounts and other time deposits,
checking and other demand deposit accounts, interest-bearing checking accounts,
savings accounts and money market accounts. Premier Bank targets small and
medium sized business and provides a high level of service. Other products and
services include automatic teller machines and safe deposit boxes.
Premier Bank is subject to examination and comprehensive regulation by the
Missouri Division of Finance and the Federal Deposit Insurance Corporation.
ASSET/LIABILITY MANAGEMENT
Premier's objective is to manage assets and liabilities to provide a
satisfactory, consistent level of operating profitability within the framework
of established cash, loan, investment, borrowing and capital policies. The
President of Premier is primarily responsible for monitoring policies and
procedures that are designed to maintain an acceptable composition of the
asset/liability mix, while adhering to prudent banking practices. It is the
overall philosophy of management to support asset growth primarily through
growth of core deposits.
Premier's asset/liability mix is monitored on a daily basis, with monthly
reports presented to the Premier Board. The objective of this policy is to
control interest-sensitive assets and liabilities so as to minimize the impact
of substantial movements in interest rates on Premier's earnings. Management of
Riva Bancshares intends to maintain an asset/liability mix policy similar to
Premier's current policy.
COMPETITION
Premier encounters strong competition, both in attracting deposits and in
the origination of loans. Competition among financial institutions is based upon
interest rates offered on deposit accounts, interest rates charged on loans and
other credit service charges, the quality of the services rendered, and the
convenience of banking facilities. In one or more aspects of its business,
Premier Bank has competed with other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking companies and other financial
intermediaries operating in its market area and elsewhere. Most of these
competitors have substantially greater resources and lending limits than Premier
Bank and may offer certain services that Premier Bank does not provide. Recent
legislative and regulatory changes and technological advances have enabled
customers to conduct banking activities without regard to geographic barriers
through computer and telephone-based banking and similar services. In addition,
many of Premier Bank's non-bank competitors are not subject to the same
extensive federal regulations that govern bank holding companies and
state-chartered and federally insured banks.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PREMIER
The following table sets forth certain information with respect to the
present beneficial ownership of Premier's outstanding common stock (1) each
person known by Premier to own beneficially more than
60
<PAGE> 68
five percent of Premier's common stock, (2) each directors and executive officer
and (3) all directors and executive officers as a group,.
<TABLE>
<CAPTION>
Number
Beneficially
Name of Beneficial Owner Owned(1) Percent
- ------------------------ ----- -------
<S> <C> <C>
Charles R. Willibrand 3,000(2) 7.17%
Bruce W. Wiley 3,000(3) 7.17
Mark W. Naeger 583 1.30
Steven A. Smith 1,192 2.85
Larry R. Bloebaum 3,000(4) 7.17
Donald E. Krattli 3,000(5) 7.17
Harold B. Remley 3,000(6) 7.17
Floyd Trim 3,000(7) 7.17
James M. and Elizabeth R. Huber 3,000(8) 7.17
Steven J. Huber 3,000(9) 7.17
William E. and Pamela H. Stricker 2,148(10) 5.13
John C. and Sandra A. Willibrand 2,148(11) 5.14
------ -----
All directors and executive officers as
a group (8 persons) 19,775 47.27%
</TABLE>
- ---------------------------
(1) Unless otherwise indicated, each person has sole voting and investment
power as to all such shares of common stock shown as beneficially owned by
them. Information as to the beneficial ownership of common stock has been
furnished by the respective persons listed in the above table.
(2) The business address of Mr. Willibrand is 815 W. Stadium Boulevard,
Jefferson City, Missouri 65201.
(3) The business address of Mr. Wiley is 815 W. Stadium Boulevard, Jefferson
City, Missouri 65201.
(4) The business address of Mr. Bloebaum is 815 W. Stadium Boulevard, Jefferson
City, Missouri 65201.
(5) The business address of Mr. Krattli is 815 W. Stadium Boulevard, Jefferson
City, Missouri 65201.
(6) Includes 1,500 shares owned directly by Harold B. Remley and 1,500 shares
owned jointly with Ruth Nandson. The business address of Mr. Remley is 815
W. Stadium Boulevard, Jefferson City, Missouri 65201.
(7) The business address of Mr. Trim is 815 W. Stadium Boulevard, Jefferson
City, Missouri 65201.
(8) The business address James and Elizabeth Huber is 1300 Edgewood Drive,
Jefferson City, Missouri 65109.
(9) The business address of Steven Huber is 1300 Edgewood Drive, Jefferson
City, Missouri 65109.
(10) The business address of William and Pamela Stricker is 2801 Butternut
Court, Columbia, Missouri 65201.
(11) The business address of John and Sandra Willibrand is 425 Valley View Ct.,
Jefferson City, Missouri 65109.
FACILITIES
Premier Bank's main offices, which contain approximately 7,500 square
feet, are located at 815 West Stadium Boulevard, Jefferson City, Missouri 65109.
Premier Bank also operates a branch office, which contains approximately 5,000
square feet of office space at 15 South Fifth Street, Columbia, Missouri 65201.
Premier has received regulatory approval and has entered into an agreement to
lease approximately 1,800 square feet for an additional branch facility in
Jefferson City. This branch is expected to open in the first quarter of 2000.
EMPLOYEES
Premier Bank presently has 20 full-time employees and one part-time
employee, including 10 officers. Premier Bank will hire additional persons as
needed, including additional tellers and financial service representatives.
61
<PAGE> 69
LEGAL PROCEEDINGS
From time to time, Premier may be involved in litigation relating to
claims arising out of operations in the normal course of business. As of the
date of this Proxy Statement/Prospectus, Premier is not engaged in any legal
proceedings that are expected, individually or in the aggregate, to have a
material effect on Premier.
MONETARY POLICIES
The results of operations of Premier are, and the results of operations of
Premier Bank will be, affected by credit policies of monetary authorities,
particularly the Federal Reserve Board. The instruments of monetary policy
employed by the Federal Reserve Board include open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
changes in reserve requirements against member bank deposits and limitations on
interest rates which member banks may pay on time and savings deposits. In view
of changing conditions in the national economy and in the money markets, as well
as the effect of action by monetary and fiscal authorities, including the
Federal Reserve Board, no prediction can be made as to possible future changes
in interest rates, deposit levels, loan demand or the business and earnings of
Premier or Premier Bank, respectively.
CERTAIN TRANSACTIONS
Premier Bank has extended loans from time to time to certain of Premier's
directors, their associates and members of the immediate families of the
directors and executive officers of Premier. These loans were made in the
ordinary course of business on substantially the same terms, including interest
rates, collateral and repayment terms, as those prevailing at the time for
comparable transactions with persons not affiliated with Premier or Premier
Bank, and did not involve more than the normal risk of collectibility or present
other unfavorable features.
62
<PAGE> 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RIVA BANCSHARES, INC.
Riva Bancshares was incorporated on May 1, 1998 to acquire or establish a bank
in Missouri. Prior to the acquisition of Premier, Riva Bancshares will have no
operating activities. The acquisition of Premier will be closed immediately
prior to the closing of the offering. Upon completion of the merger, Premier's
shareholders will own greater than 50% of the outstanding common stock of Riva
Bancshares, excluding the issuance of the shares in connection with the
offering. Accordingly, the merger will be accounted for as if Premier had
acquired Riva Bancshares, the consolidated financial statements of Premier will
become the historical consolidated financial statements of Riva Bancshares.
Riva Bancshares has funded its start-up and organization costs through the sale
of units, consisting of common stock, preferred stock and warrants to purchase
shares of common stock. Riva Bancshares operated as a development company and
had no operating revenue during 1998. Costs incurred by Riva Bancshares during
1998 primarily related to costs associated with its formation, the development
of its business plan and identification of a potential merger candidate. At
December 31, 1998, the assets of Riva Bancshares consisted solely of the
remaining proceeds from the sale of units. Accordingly, Management's Discussion
and Analysis of Financial Condition and Results of Operations of Riva Bancshares
at December 31, 1998 and for the period then ended is not included in this
prospectus.
PREMIER BANCSHARES, INC.
Management believes that the acquisition of Premier will enable Riva Bancshares
to implement its strategy in the Jefferson City, Columbia and St. Louis market
areas and provide a platform for further expansion into other identified
markets. The purpose of the following discussion is to focus on significant
changes in the results of operations and the financial condition of Premier
during the three years ended December 31, 1996, 1997 and 1998. This discussion
and analysis is intended to supplement information contained in the accompanying
consolidated financial statements and the selected financial data and other
financial information presented elsewhere in this prospectus.
SUMMARY
In April, 1998, Premier opened a branch in Columbia, Missouri. Due primarily to
the one-time start-up costs related to this opening, the increased general
expenses associated with operating an additional branch, and additional
provision for loan losses resulting from the growth in Premier's loan portfolio,
Premier's net income for 1998 decreased $75,000, or 76.9%, to $22,000 from
$97,000 in 1997, an increase of $210,000 from the 1996 net loss of $113,000.
Basic and dilutive earnings (loss) per share were $0.55 for 1998, $2.99 for 1997
and $(3.54) in 1996. 1996 was the first full year of operations for Premier.
Losses or reduced earnings are typical for banks during start-up periods. The
basic and dilutive earnings (loss) per share amounts are based upon Premier's
historical weighted average number of shares outstanding and do not reflect any
pro forma adjustments relating to the offering or the exchange of shares upon
consummation of the merger.
The decrease in net income from 1997 to 1998 was primarily attributable to
increased noninterest expense and provision for loan losses, partially offset by
increased net interest income and noninterest income. Noninterest expense
increased $460,000, or 62.6%, from $736,000 in 1997 to $1.2 million in 1998. The
provision for loan losses increased $180,000, or 159.8%, from $112,000 in 1997
to $292,000 in 1998. Net interest income increased $484,000 to $1.4 million in
1998 from $866,000 in 1997. Noninterest income increased $79,000, or 88.7%, to
$169,000 in 1998 from $90,000 in 1997.
Total assets at December 31, 1998 were $57.8 million, an increase of $24.0
million, or 71.3%, over total assets of $33.7 million at December 31, 1997.
Loans, net increased 76.4% to $41.2 million at
63
<PAGE> 71
December 31, 1998, from $23.3 million at December 31, 1997. Total deposits
increased 72.7% to $48.8 million at December 31, 1998 from $28.4 million at
December 31, 1997.
Shareholders' equity increased to $4.4 million at December 31, 1998 from $3.2
million at December 31, 1997. This increase was attributable to the proceeds
from the issuance of 9,231 additional shares of common stock totaling $1.2
million, retained net income of $22,000, and an increase in accumulated other
comprehensive income resulting from unrealized gains on debt and marketable
equity securities available-for-sale of $26,000, partially offset by the
purchase of 240 shares of treasury stock for $32,000.
The operating performance of Premier is reflected in the calculations of net
income as a percentage of average total assets ("Return on Average Assets") and
net income as a percentage of average shareholders' equity ("Return on Average
Equity"). During 1998, the Return on Average Assets and Return on Average Equity
were 0.05% and 0.53%, respectively, compared to 0.34% and 3.15%, respectively,
during 1997. Premier's ratio of total shareholders' equity to total assets
decreased to 7.68% at December 31, 1998 from 9.55% at December 31, 1997.
64
<PAGE> 72
RESULTS OF OPERATIONS
Net Interest Income
The following table sets forth, for the periods indicated, information related
to Premier's average balance sheet, its yields on average earning assets and its
average rates on interest-bearing liabilities. Such yields and rates are derived
by dividing income or expense by the average balance of the corresponding assets
or liabilities. Average balances have been derived from the daily balances
throughout the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1997 1998
--------------------------- --------------------------- ---------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ------ ------- -------- ------ ------- -------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans(1)................. $10,856 $1,008 9.29% $19,212 $1,750 9.11% $31,734 $2,850 8.98%
Securities and interest-
bearing deposits(2).... 5,857 359 6.13 5,670 356 6.29 6,474 408 6.29
Federal funds sold....... 1,225 63 5.12 1,245 69 5.52 3,621 182 5.03
------- ------ ------- ------ ------- ------
Total earning assets... 17,938 1,430 7.97 26,127 2,175 8.33 41,829 3,440 8.22
Cash and due from banks.... 375 571 1,111
Premises and equipment,
net...................... 1,168 1,382 1,895
Other assets............... 204 383 811
Allowance for loan
losses................... (93) (157) (290)
------- ------- -------
Total assets........... $19,592 $28,306 $45,356
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
NOW...................... $ 429 $ 13 3.05% $ 654 $ 20 3.07% $ 828 $ 22 2.69%
Money market deposits.... 1,534 67 4.38 2,339 104 4.43 3,762 149 3.96
Savings deposits......... 1,681 87 5.16 4,615 243 5.26 8,572 402 4.68
Certificates of
deposit................ 11,677 688 5.89 15,382 886 5.76 22,797 1,312 5.75
FHLB advances............ -- -- -- 404 22 5.42 2,134 133 6.21
Note payable............. 300 28 9.25 425 34 7.99 838 72 8.65
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities.......... 15,621 883 5.65 23,819 1,309 5.50 38,931 2,090 5.37
------- ------ ------- ------ ------- ------
Noninterest-bearing demand
deposits................. 721 1,253 1,982
Other liabilities.......... 108 155 251
Shareholders' equity....... 3,142 3,079 4,192
------- ------- -------
Total liabilities and
shareholders'
equity............... $19,592 $28,306 $45,356
======= ======= =======
Net interest income........ $ 547 $ 866 $1,350
====== ====== ======
Net interest spread........ 2.32% 2.83% 2.85%
Net interest margin........ 3.05% 3.32% 3.23%
</TABLE>
- ---------------------------
(1) Nonaccrual loans are included in the average loan amounts outstanding.
Interest on nonaccrual loans is recorded when received.
(2) The yield on securities is computed based upon the average balance of
securities at amortized cost and does not reflect the unrealized gains or
losses on such securities.
Net interest income is the principal component of a financial institution's
income stream and represents the difference or spread between interest and
certain fee income generated from earning assets and the interest expense paid
on deposits and other borrowed funds. Fluctuations in interest rates, as well as
65
<PAGE> 73
volume and mix changes in earning assets and interest-bearing liabilities, can
materially impact net interest income. Premier had no investments in tax-exempt
securities during 1996, 1997 and 1998. Accordingly, no adjustment is necessary
to facilitate comparisons on a taxable equivalent basis.
Net interest income increased $484,000 to $1.4 million in 1998 from $866,000 in
1997. This increase in net interest income can be attributed to the growth in
average earning assets, partially offset by the growth in interest-bearing
deposits, Federal Home Loan Bank advances and the note payable. The trend in net
interest income is commonly evaluated using net interest margin and net interest
spread. The net interest margin, or net yield on average earning assets, is
computed by dividing fully taxable equivalent net interest income by average
earning assets. The net interest margin decreased 9 basis points to 3.23% in
1998 on average earning assets of $41.8 million from 3.32% in 1997 on average
earning assets of $26.1 million. This change is primarily due to a 11 basis
point decrease in the average yield on earning assets to 8.22% in 1998 from
8.33% in 1997, partially offset by a 13 basis point decrease in the average rate
paid on interest-bearing liabilities to 5.37% in 1998 from 5.50% in 1997. The
decreased yield on earning assets was primarily the result of lower market rates
on loans, which decreased from 9.11% in 1997 to 8.98% in 1998. The decrease in
the cost of interest-bearing liabilities is attributable to a decrease in rates
on all interest-bearing deposit categories, partially offset by an increase in
the average rates paid on Federal Home Loan Bank advances and the note payable.
Net interest income increased $319,000 to $866,000 in 1997 from $547,000 in
1996. This increase in net interest income is attributable to the growth in and
yield on average earning assets and the decrease in the average rate paid on
interest-bearing liabilities, partially offset by the growth in interest-bearing
liabilities. Net interest margin increased 27 basis points to 3.32% in 1997 on
average earning assets of $26.1 million from 3.05% in 1996 on average earning
assets of $17.9 million. The increased yield on earning assets was primarily the
result of the growth in average loans from $10.9 million in 1996 to $19.2
million in 1997, partially offset by a decrease in the average rate earned on
loans from 9.29% in 1996 to 9.11% in 1997. The decrease in the cost of
interest-bearing liabilities is attributable to a decrease in the average rates
paid on certificates deposits and the note payable.
The net interest spread increased two basis points to 2.85% in 1998 from the
1997 net interest spread of 2.83% as the cost of interest-bearing liabilities
decreased 13 basis points, which was substantially offset by the decrease in
yield on average earning assets of 11 basis points. The net interest spread
measures the absolute difference between the yield on average earning assets and
the rate paid on average interest-bearing sources of funds. The net interest
spread eliminates the impact of noninterest-bearing funds and gives a direct
perspective on the effect of market interest rate movements. This measurement
allows management to evaluate the variance in market rates and adjust rates or
terms as needed to maximize spreads.
The net interest spread increased 51 basis points to 2.83% in 1997 from a net
interest spread of 2.32% in 1996. The increase resulted from an increase in the
yield on average earning assets of 36 basis points and a 15 basis point decrease
in the cost of average interest-bearing liabilities.
During recent years, the net interest margins and net interest spreads have been
under pressure, due in part to intense competition for funds with non-bank
institutions and changing regulatory supervision for some financial
intermediaries. This pressure on interest rate margins and spreads was
experienced by the banking industry nationwide.
To counter potential declines in the net interest margin and the interest rate
risk inherent in the balance sheet, Premier adjusts the rates and terms of its
interest-bearing liabilities in response to general market rate changes and the
competitive environment. Premier monitors the amounts of Federal funds sold
throughout the year, investing excess funds to maintain appropriate liquidity in
higher yielding investments such as short-term U. S. government and agency
securities. Premier will continue to manage its consolidated balance sheet and
its interest rate risk based on changing market interest rate conditions.
66
<PAGE> 74
Rate/Volume Analysis of Net Interest Income
The table below presents the changes in interest income and interest expense
attributable to volume and rate changes. The effect of a change in average
balance has been determined by applying the average rate in the initial year to
the change in average balance between the two years. The effect of change in
rate has been determined by applying the average balance in the initial year to
the change in the average rate between the two years. The net change
attributable to the combined impact of the volume and rate has been allocated to
both components in proportion to the relationship of the absolute dollar amounts
of the change in each.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998
COMPARED WITH COMPARED WITH
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------------ ----------------------------
INCREASE (DECREASE) DUE TO: INCREASE (DECREASE) DUE TO:
--------------------------- ---------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ----- ------ ------ ---- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Earned On:
Loans............................. $762 $(20) $742 $1,125 $(25) $1,100
Securities and interest bearing
deposits........................ (12) 9 (3) 52 -- 52
Federal funds sold................ 1 5 6 120 (7) 113
---- ---- ---- ------ ---- ------
Total earning assets............ 751 (6) 745 1297 (32) 1,265
---- ---- ---- ------ ---- ------
Interest Paid On:
NOW deposits...................... 7 -- 7 5 (3) 2
Money market deposits............. 36 1 37 57 (12) 45
Savings deposits.................. 154 2 156 188 (29) 159
Certificates of deposit........... 213 (15) 198 428 (2) 426
Federal Home Loan Bank advances... 22 -- 22 111 -- 111
Note payable...................... 10 (4) 6 35 3 38
---- ---- ---- ------ ---- ------
Total interest-bearing
liabilities................... 442 (16) 426 824 (43) 781
---- ---- ---- ------ ---- ------
Net interest income............. $309 $ 10 $319 $ 473 $ 11 $ 484
==== ==== ==== ====== ==== ======
</TABLE>
Provision for Loan Losses
The provision for loan losses is the expense of providing an allowance or
reserve for inherent losses on loans. The amount of the provision for each
period is dependent upon many factors, including loan growth, net charge-offs,
changes in the composition of the loan portfolio, delinquencies, management's
assessment of loan portfolio quality, the value of loan collateral and general
business and economic conditions.
The provision for loan losses charged to operations was $292,000 in 1998
compared to $112,000 in 1997. Net loans charged-off increased to $63,000 in 1998
as compared to $22,000 in 1997. Of the $63,000 in net charge-offs in 1998,
$61,000 was attributable to two real estate loans. Additionally, the balance of
loans outstanding increased 76.7% at December 31, 1998 as compared to December
31, 1997, while the allowance for loan losses increased 109.0%. At December 31,
1998 the allowance for loan losses represented 1.05% of total loans as compared
to 0.89% at December 31, 1997.
The provision for loan losses charged to operations was $112,000 in 1997
compared to $80,000 in 1996. Management's analysis of the allowance for loan
losses during 1997 and 1996 indicated no material changes in the quality of the
loan portfolio, economic outlook or other factors generally considered by
management. Accordingly, the increase in provision for loan losses for 1997 and
1996 was generally due to increases in the amount of loans outstanding.
67
<PAGE> 75
Noninterest Income
The following table presents an analysis of the noninterest income for the
periods indicated with respect to each major category of noninterest income:
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1996 1997 1998 1996-1997 1997-1998
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Service charges on deposits............ $18,889 $34,930 $ 58,958 84.9% 68.8%
Loss on sale of securities, net........ -- (210) -- -- --
Other noninterest income............... 28,383 54,584 109,559 92.3 100.7
------- ------- --------
Total............................. $47,272 $89,304 $168,517 88.9% 88.7%
======= ======= ========
</TABLE>
Noninterest income consists of revenues generated from a broad range of
financial services, products and activities, including service charges on
deposits and other activities.
Noninterest income increased 88.7% to $169,000 in 1998 from $90,000 in 1997.
This increase resulted from the increase in service charges on deposits of
$24,000, or 68.8%, to $59,000 in 1998 from $35,000 in 1997 due to increased
deposit volume. Other noninterest income, which includes various recurring
noninterest income items such as gain on sale of loans, credit life insurance
income, safe deposit box fees and ATM fees, increased $55,000, or 100.7%, to
$110,000 in 1998 from $55,000 in 1997. The increase related primarily to the
increase in gain on sale of loans from $26,000 in 1997 to $70,000 in 1998,
resulting from the increase in the number of residential mortgage loans sold in
the secondary market.
Noninterest income increased 88.9% to $90,000 in 1997 from $47,000 in 1996. This
increase resulted primarily from higher service charges on deposits and an
increase in other income. Deposit volume growth increased service charges on
deposits by $16,000, or 84.9%, to $35,000 in 1997 from $19,000 in 1996. Other
income increased $26,000, or 92.3%, to $55,000 in 1997 from $28,000 in 1996.
Included in other income is gain on sales of loans, which increased 52.9% from
$17,000 in 1996 to $26,000 in 1997.
Noninterest Expense
The following table presents an analysis of the noninterest expense for the
periods indicated with respect to each major category of noninterest expense:
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1996 1997 1998 1996-1997 1997-1998
-------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits..... $298,307 $354,371 $ 598,308 18.8% 68.8%
Occupancy and equipment expense.... 82,030 118,965 188,108 45.0 58.1
Other noninterest expense.......... 247,024 262,315 409,498 6.2 56.1
-------- -------- ----------
Total.................... $627,361 $735,651 $1,195,914 17.3% 62.6%
======== ======== ==========
</TABLE>
Noninterest expense increased 62.6% to $1.2 million in 1998 from $736,000 in
1997 primarily as a result of the costs associated with the opening of the
Columbia branch in April 1998 and the continued growth in the operations in
Jefferson City. Management attributes this increase to an increase in personnel
costs, occupancy and equipment expense, and other operating expenses. Salaries
and employee benefits increased 68.8% to $598,000 in 1998 from $354,000 in 1997.
This increase is attributable to an increase in the number of full-time
equivalent employees from 11 in 1997 to 17 in 1998 reflecting the increase in
business as a result of the opening of the Columbia branch in April 1998, in
addition to normal increases in salaries. Occupancy and equipment expense
increased 58.1% to $188,000 in 1998 from $119,000 in 1997, primarily as a result
of opening of the new branch in Columbia. The increase in other noninterest
expense is attributable primarily to amounts associated with the operation and
promotion of the new Columbia branch, continued growth in the operations of the
Jefferson City location and an increase of $29,000 in directors' fees. Prior to
1998, due to the start-up nature of Premier, directors fees paid were nominal.
68
<PAGE> 76
Noninterest expense increased to $736,000 in 1997 from $627,000 in 1996.
Increases in personnel costs and occupancy expense were the primary factors for
the increase. Salaries and employee benefits expense increased 18.8% to $354,000
in 1997 from $298,000 in 1996. This increase resulted from an increase in the
number of full-time equivalent employees from seven in 1996 to 11 in 1997,
reflecting the increase in business during the second full year of operations,
in addition to normal increases in salaries. Occupancy and equipment expense
increased 45.0% to $119,000 in 1997 from $82,000 in 1996 due to 1997 including a
full year of depreciation on the Jefferson City location, which opened in 1996.
Other noninterest expenses increased 6.2% to $262,000 in 1997 from $247,000 in
1996. The increase in other noninterest expense is attributable primarily to
growth in the operations of the Jefferson City location.
Income Tax Expense
Income tax expense decreased to $9,000 in 1998 from $11,000 in 1997, reflecting
an effective tax rate of 27.6% for 1998, compared to an effective tax rate of
9.9% for 1997. The increase in the effective tax rate is due to a smaller
decrease in the valuation allowance for deferred tax assets of $6,000 in 1998
compared to $39,000 in 1997. A deferred tax asset valuation allowance is
established if it is more likely than not that all or a portion of the deferred
tax assets will not be realized. The deferred tax valuation allowance was
$57,000 and $63,000 at December 31, 1998 and 1997, respectively.
Certain income and expense items are recognized in different periods for
financial reporting purposes and for income tax return purposes. Deferred income
tax assets and liabilities reflect the differences between the values of certain
assets and liabilities for financial reporting purposes and for income tax
purposes, computed at the current tax rates. Deferred income tax expense is
computed as the change in Premier's deferred tax assets, net of deferred tax
liabilities and the valuation allowance. Premier's deferred income tax assets
consist principally of the financial statement reporting amount of the provision
for loan losses in excess of the amount reported for income tax purposes.
Net Income
Net income decreased 76.9% to $22,000 in 1998 from $97,000 in 1997. The decrease
in net income from 1997 to 1998 was primarily attributable to increased
noninterest expense, related primarily to the opening of the Columbia branch,
increased provision for loan losses, related to growth in the loan portfolio,
partially offset by increased net interest income and noninterest income. Basic
and dilutive earnings per share decreased to $0.55 in 1998 from $2.99 in 1997.
Return on Average Assets decreased 29 basis points to 0.05% in 1998 from 0.34%
in 1997. Return on Average Equity decreased 262 basis points to 0.53% in 1998
from 3.15% in 1997.
Net income for 1997 increased $210,000 from the 1996 net loss of $113,000 to net
income in 1997 of $97,000. The increase in net income for 1997 was attributable
to an increase in net interest income and an increase in noninterest income,
which were partially offset by an increase in noninterest expense and in income
tax expense. Basic and dilutive earnings (loss) per share was $2.99 for 1997 and
$(3.54) in 1996. Return on Average Assets increased 92 basis points to 0.34% in
1997 from (0.58%) in 1996. Return on Average Equity increased 675 basis points
to 3.15% in 1997 from (3.60%) in 1996.
FINANCIAL CONDITION
Earning Assets
Average earning assets increased 60.1% to $41.8 million in 1998 from $26.1
million in 1997. During 1998, loans represented 75.9%, securities and interest
bearing deposits comprised 15.5% and Federal funds sold comprised 8.6% of
average earning assets. In 1997, loans comprised 73.5%, securities and interest
bearing deposits comprised 21.7% and Federal funds sold comprised 4.8% of
average earning assets. The variance in the mix of earning assets is primarily
attributable to continued growth of the loan portfolio. Premier manages its
securities portfolio to minimize interest rate fluctuation risk and to provide
liquidity.
69
<PAGE> 77
In 1998, growth in earning assets was funded primarily through an increase in
all deposit categories, Federal Home Loan Bank advances, the note payable and
shareholders' equity.
Loan Portfolio
Premier's total loans outstanding increased 76.7% to $41.6 million at December
31, 1998 from $23.6 million at December 31, 1997. Loan growth for 1998 was
funded primarily through the growth in deposits. The growth in the loan
portfolio primarily was a result of an increase in real estate loans of $15.1
million, or 78.3%, from December 31, 1997 to December 31, 1998. Average total
loans in 1998 were $31.7 million compared to $19.2 million in 1997. Premier
engages in a full complement of lending activities, including commercial, real
estate, installment and residential mortgage loans held for sale.
The following table presents various categories of loans contained in Premier's
loan portfolio for the periods indicated, the total amount of all loans for such
periods, and the percentage of total loans represented by each category for such
periods:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1997 1998
------------------------ ------------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
TYPE OF LOAN
Commercial.............................. $ 2,905,207 12.3% $ 5,292,128 12.7%
Real estate............................. 19,329,657 82.1 34,465,883 82.8
Installment and others.................. 1,317,437 5.6 1,618,363 3.9
Loans held for sale..................... -- -- 233,165 0.6
----------- ----- ----------- -----
Total loans........................ $23,552,301 100.0% 41,609,539 100.0%
===== =====
Allowance for loan losses............... (210,000) (438,841)
----------- -----------
Loans, net......................... $23,342,301 $41,170,698
=========== ===========
</TABLE>
Commercial. This category of loans includes loans made to individual,
partnership or corporate borrowers, and obtained for a variety of business
purposes. At December 31, 1998, commercial loans represented 12.7% of
outstanding loan balances, compared to 12.3% at December 31, 1997.
Real Estate. Real estate loans consist of loans secured by owner-occupied
commercial properties, income producing properties and construction and land
development, as well as first and second mortgage loans on residential
properties. At December 31, 1998, real estate loans represented 82.8% of
outstanding loan balances, compared to 82.1% at December 31, 1997.
Installment and Others. Premier's installment loans consist primarily of loans
to individuals for personal, family and household purposes, education and other
personal expenditures. At December 31, 1998, installment and others represented
3.9% of outstanding loan balances, compared to 5.6% at December 31, 1997.
Loans Held For Sale. This category represents residential real estate loans in
the process of being sold to the secondary market. At December 31, 1998, loans
held for sale represented 0.6% of outstanding loan balances.
Premier's only area of credit concentration is commercial and commercial real
estate loans. Premier has not invested in loans to finance highly leveraged
transactions, such as leveraged buy-out transactions, as defined by the Federal
Reserve Board and other regulatory agencies. In addition, Premier had no foreign
loans or loans to lesser developed countries as of December 31, 1998.
While risk of loss in Premier's loan portfolio is primarily tied to the credit
quality of the borrowers, risk of loss may also increase due to factors beyond
Premier's control, such as local, regional and/or national economic downturns.
General conditions in the real estate market may also impact the relative risk
in
70
<PAGE> 78
Premier's real estate portfolio. Of Premier's target areas of lending
activities, commercial loans are generally considered to have greater risk than
real estate loans or installment loans.
From time to time, management of Premier has originated certain loans which,
because they exceeded Premier's legal lending limit, were sold to other banks.
As a result of the offering, Premier expects to have an increased lending limit.
Accordingly, Premier may, at its discretion, repurchase certain loan
participations, thereby increasing earning assets. Loan participation agreements
allow Premier to repurchase loans at the outstanding principal balance plus
accrued interest, if any, at Premier's discretion.
Premier also purchases participations from other banks. When Premier purchases
these participations, such loans are subjected to Premier's underwriting
standards as if Premier originated the loan. Accordingly, management of Premier
does not believe that loan participations purchased from other banks pose any
greater risk of loss than loans that Premier originates.
The repayment of loans in the loan portfolio as they mature is a source of
liquidity for Premier. The following table sets forth the maturity of Premier's
loan portfolio within specified intervals as of December 31, 1998:
<TABLE>
<CAPTION>
AFTER ONE DUE AFTER
DUE IN ONE THROUGH FIVE
YEAR OR LESS FIVE YEARS YEARS TOTAL
------------ ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
Commercial.................................... $ 1,378 $ 2,020 $1,894 $ 5,292
Real Estate................................... 15,148 16,978 2,340 34,466
Installment and others........................ 642 845 132 1,619
Loans held for sale........................... -- -- 233 233
------- ------- ------ -------
$17,168 $19,843 $4,599 $41,610
======= ======= ====== =======
</TABLE>
The following table presents the maturity distribution as of December 31, 1998
for loans with predetermined fixed interest rates and floating interest rates by
various maturity periods:
<TABLE>
<CAPTION>
AFTER ONE
DUE IN ONE THROUGH DUE AFTER FIVE
YEAR OR LESS FIVE YEARS YEARS TOTAL
------------ ----------------- -------------- -------
(in thousands)
<S> <C> <C> <C> <C>
Interest Category
Predetermined fixed interest rate... $ 4,324 $ 8,928 $2,246 $15,498
Floating interest rate.............. 19,045 6,745 322 26,112
------- ------- ------ -------
Total............................ $23,369 $15,673 $2,568 $41,610
======= ======= ====== =======
</TABLE>
Asset Quality and Nonperforming Assets
At December 31, 1998 nonaccrual loans totaled $94,000, as compared to nonaccrual
loans of $161,000 at December 31, 1997. At December 31, 1998, no loans were past
due 90 days or more. At December 31, 1997, one loan totaling $315,000 was
contractually past due by 90 days or more as to principal and interest payments
and continued to accrue interest. At December 31, 1998 and 1997 there were no
loans classified as "troubled debt restructurings" as that term is defined in
Statement of Financial Accounting Standards No. 15.
At December 31, 1998 and 1997, there were $899,000 and $436,000, respectively,
of loans in addition to those disclosed above that were internally classified as
substandard which (a) represented or resulted from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or (b) represented credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. There are no loans other than those disclosed above where known
71
<PAGE> 79
information about possible credit problems of borrowers causes management to
have serious doubts as to the ability of such borrowers to comply with loan
repayment terms.
Premier has policies, procedures and underwriting guidelines intended to assist
in maintaining the overall quality of its loan portfolio. Premier monitors its
delinquency levels for any adverse trends. Non-performing assets consist of
loans on nonaccrual status, real estate and other assets acquired in partial or
full satisfaction of loan obligations and loans that are past due 90 days or
more.
Premier's policy generally is to place a loan on nonaccrual status when it is
contractually past due 90 days or more as to payment of principal or interest. A
loan may be placed on nonaccrual status at an earlier date when concerns exist
as to the ultimate collections of principal or interest. At the time a loan is
placed on nonaccrual status, interest previously accrued but not collected is
reversed and charged against current earnings. Recognition of any interest after
a loan has been placed on nonaccrual is accounted for on a cash basis. Loans
that are contractually past due 90 days or more which are well secured or
guaranteed by financially responsible third parties and are in the process of
collection generally are not placed on nonaccrual status.
Allowance for Loan Losses and Net Charge-Offs
The allowance for loan losses represents management's estimate of an amount
adequate to provide for potential losses inherent in the loan portfolio. In its
evaluation of the allowance and its adequacy, management considers loan growth,
changes in the composition of the loan portfolio, the loan charge-off
experience, the amount of past due and nonperforming loans, current economic
conditions, underlying collateral values securing loans and other factors. While
it is Premier's policy to charge-off in the current period the loans in which a
loss is considered probable, there are additional risks of future losses that
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because these risks include the state of the economy, management's
judgment as to the adequacy of the allowance is necessarily approximate and
imprecise.
An analysis of Premier's loss experience is furnished in the following table for
the periods indicated, as well as a detail of the allowance for loan losses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998
--------- ---------
<S> <C> <C>
Balance at beginning of period.............................. $120,000 $210,000
Charge-offs
Commercial................................................ (5,807) (1,427)
Real estate............................................... (10,000) (61,159)
Installment and others.................................... (6,833) (2,057)
Loans held for sale....................................... -- --
-------- --------
Total charge-offs...................................... (22,641) (64,643)
Recoveries:
Commercial................................................ -- --
Real estate............................................... -- 1,750
Installment and others.................................... 362 --
Loans held for sale....................................... -- --
-------- --------
Total recoveries....................................... 362 1,750
-------- --------
Net charge-offs............................................. (22,279) (62,893)
Provision for loan losses................................... 112,279 291,734
-------- --------
Balance at end of period.................................... $210,000 $438,841
======== ========
Net charge-offs as a percentage of average loans............ 0.12% 0.20%
Allowance for loan losses as a percentage of total loans.... 0.89 1.05
</TABLE>
72
<PAGE> 80
Net charge-offs were $63,000 or 0.20% of average loans outstanding in 1998 as
compared to $22,000 or 0.12% of average loans outstanding in 1997. The allowance
for loan losses increased 109.0% to $439,000 or 1.05% of loans outstanding at
December 31, 1998 from $210,000 or 0.89% of loans outstanding at December 31,
1997. The allowance for loan losses as a multiple of net loans charged off was
6.98 for the year ended December 31, 1998.
Net charge-offs decreased to $22,000 in 1997, representing 0.12% of average
loans outstanding, from $24,000 in 1996 or 0.22% of average loans outstanding.
The allowance for loan losses increased to $210,000 or 0.89% of loans
outstanding at December 31, 1997, from $120,000 or 0.78% of loans outstanding at
December 31, 1996.
In assessing the adequacy of the allowance for loan losses, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
to ascertain whether there are probable losses which must be charged off and to
assess the risk characteristics of the portfolio as a whole. This review
encompasses the judgment of management, utilizing internal loan rating
standards, guidelines provided by the banking regulatory authorities governing
Premier, and their loan portfolio reviews as part of the bank examination
process
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114") was issued in May 1993. SFAS 114 requires
that impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or the fair value of
the collateral if the loan is collateral dependent. Premier adopted SFAS 114
during 1995, its year of formation. At December 31, 1998, Premier held impaired
loans of $94,000 for which specific allocations of $24,000 have been established
within the allowance for loan losses, based upon the fair value of the
collateral. At December 31, 1997, Premier held impaired loans of $161,000 for
which specific allocations of $28,000 have been established within the allowance
for loan losses, based upon the fair value of the collateral. Forgone interest
on impaired loans totaled $7,000 for both 1998 and 1997. For the periods
indicated, the allowance for loan losses was allocated to the various loan
categories as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1997 1998
------------------------ ------------------------
CATEGORY AS A CATEGORY AS A
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Commercial................................. $ 14,526 12.3% $ 26,461 12.7%
Real estate................................ 188,887 82.1 298,885 82.8
Installment and others..................... 6,587 5.6 8,092 3.9
Loans held for sale........................ -- -- -- 0.6
Unallocated................................ -- -- 105,403 --
-------- ----- -------- -----
Total................................. $210,000 100.0% $438,841 100.0%
======== ===== ======== =====
</TABLE>
In considering the adequacy of Premier's allowance for loan losses, management
has focused on the fact that as of December 31, 1998, 12.7% of outstanding loans
are in the category of commercial loans and 82.8% are in real estate loans.
Commercial loans are generally considered by management to have greater risk
than other categories of loans in Premier's loan portfolio. Generally, such
loans are secured by accounts receivable, marketable securities, deposit
accounts, equipment and other fixed assets, which reduces the risk of loss
inherently present in commercial loans. Real estate loans secured by commercial
real estate inherently have a higher risk due to depreciation of the facilities,
limited purposes of the facilities and the effect of general economic
conditions. Premier attempts to limit this risk by generally lending no more
than 80% of the appraised value of the property held as collateral. A portion of
the real estate portfolio represents residential real estate mortgages where the
amount of the original loan generally does not exceed 85% of the appraised value
of the collateral. These loans are considered by management to be well secured
with a low risk of loss. At December 31, 1998, the majority of Premier's
installment and other loans were secured by collateral primarily consisting of
automobiles, boats and other personal property.
73
<PAGE> 81
Premier's primary regulator, the Missouri Division of Finance, conducts periodic
examinations of the loan portfolio. Upon completion, the Missouri Division of
Finance presents its report of examination to Premier's board of directors and
management of Premier. Procedures are also performed related to the loan
portfolio in conjunction with the year-end audit by Premier's independent
accountants. Procedures performed include analyses of historical performance,
the level of nonconforming and rated loans, loan volume and activity, review of
loan files and consideration of economic conditions and other pertinent
information. Findings are communicated verbally to Premier's management.
Information provided from the above two independent sources, together with
information provided by the management of Premier and other information known to
members of Premier's board of directors, is utilized by Premier's board of
directors to monitor the loan portfolio and the allowance for loan losses.
Specifically, Premier's board of directors attempts to identify risks inherent
in the loan portfolio (e.g., problem loans, potential problem loans and loans to
be charged off), assess the overall quality and collectibility of the loan
portfolio, and determine amounts of the allowance for loan losses and the
provision for loan losses to be reported based on the results of their review.
Investment Portfolio
Total debt and marketable equity securities available-for-sale increased 19.6%
to $6.5 million at December 31, 1998 from $5.4 million at December 31, 1997. At
December 31, 1998, debt and marketable equity securities available-for-sale
totaled $6.4 million, with an unrealized gain of $34,000, net of tax effect. At
December 31, 1997, debt and marketable equity securities available-for-sale
totaled $5.4 million, with an unrealized gain of $8,000, net of tax effect.
Average debt and marketable equity securities as a percentage of average earning
assets decreased to 15.5% in 1998 from 21.7% in 1997.
Premier invests primarily in direct obligations of the United States,
obligations guaranteed as to principal and interest by the United States and
obligations of agencies of the United States. In addition, Premier enters into
Federal funds transactions with its principal correspondent banks, and acts as a
net seller of such funds. The sale of Federal funds amounts to a short-term loan
from Premier to another bank.
Proceeds from maturities of debt and marketable equity securities
available-for-sale increased 38.1% to $3.5 million in 1998 from $2.6 million in
1997. No debt and marketable equity securities available-for-sale were sold
during 1998. In 1997, debt and marketable equity securities available-for-sale
of $553,000 were sold with a resulting loss on sales of $210. Such proceeds are
generally used to reinvest in additional debt and marketable equity securities
available-for-sale.
Other investments primarily represent Federal Home Loan Bank stock that is
required for Premier to be a member of and to conduct business with such
institution. Dividends on such investment are determined by the institutions and
are payable quarterly. Other investments increased 121.3% to $176,000 at
December 31, 1998 from $80,000 at December 31, 1997. Other investments are
carried at cost, as such investments do not have readily determinable fair
values.
During 1998 and 1997, Premier did not invest in collateralized mortgage
obligations ("CMOs"). In addition, at December 31, 1998, the debt and marketable
equity securities available-for-sale portfolio did not include any U.S.
government agency investments that are defined as derivatives or structured
notes.
The following table presents, for the periods indicated, the carrying amount of
Premier's debt and marketable equity securities available-for-sale, including
mortgage-backed securities.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1997 1998
----------------------- -----------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities.................... $ 765,583 14.1% $ 512,810 7.9%
U.S. government corporations and agencies... 3,757,744 69.4 4,893,647 75.6
Obligations of state and political
subdivisions............................. 361,096 6.7 370,159 5.7
Mortgage-backed securities.................. 453,827 8.4 525,429 8.1
---------- ----- ---------- -----
Total debt securities.................... $5,338,250 98.6% $6,302,045 97.3%
---------- ----- ---------- -----
</TABLE>
74
<PAGE> 82
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1997 1998
----------------------- -----------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Equity securities:
Federal Home Loan Bank stock................ $ 77,000 1.4% $ 173,400 2.7%
Other....................................... 2,500 -- 2,500 --
---------- ----- ---------- -----
Total equity securities.................. $ 79,500 1.4% $ 175,900 2.7%
---------- ----- ---------- -----
Total.................................... $5,417,750 100.0% $6,477,945 100.0%
========== ===== ========== =====
</TABLE>
At December 31, 1998, $525,000 or 8.1% of the debt and marketable equity
securities available-for-sale portfolio consisted of mortgage-backed securities
compared to $454,000 or 8.4% at December 31, 1997. Premier has segregated its
debt and marketable equity securities portfolio into securities held-to-maturity
and available-for-sale. Debt and marketable equity securities held-to-maturity
are those securities for which management has both the ability and intent to
hold to maturity and are carried at amortized cost. At December 31, 1998 and
1997, no debt and marketable equity securities were classified as held-to-
maturity. Debt and marketable equity securities available-for-sale are
securities identified by management as securities which may be sold prior to
maturity in response to various factors including liquidity needs, capital
compliance, changes in interest rates or portfolio risk management. The
available-for-sale debt and marketable equity securities provide interest income
and serve as a source of liquidity for Premier.
These securities are carried at fair value, with unrealized gains and losses,
net of tax effect, reported as accumulated other comprehensive income, a
separate component of shareholders' equity.
Debt and marketable equity securities available-for-sale with a carrying value
of approximately $1.4 million and $1.5 million at December 31, 1998 and 1997,
respectively, were pledged to secure public funds and for other purposes as
required or permitted by law.
The maturities and weighted average yields of the debt and marketable equity
securities available-for-sale portfolio at December 31, 1998 are presented in
the following table using primarily the stated maturities, excluding the effects
of prepayments.
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE WEIGHTED
ONE YEAR THROUGH THROUGH AFTER TEN AVERAGE
OR LESS FIVE YEARS TEN YEARS YEARS YIELD(1)
-------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities........... $251,560 $ -- $ 261,250 $ -- 6.24%
U.S. Government corporations and
agencies......................... 501,713 1,352,199 2,784,428 255,307 6.10%
Obligations of states and political
subdivisions..................... -- 370,159 -- -- 6.17%
Mortgage-backed securities......... -- 368,724 156,705 -- 5.96%
-------- ---------- ---------- --------
Total debt securities(2)........... $753,273 $2,091,082 $3,202,383 $255,307 6.10%
======== ========== ========== --------
Weighted average yield............. 6.25% 6.02% 6.20% 5.13%
======== ========== ========== ========
</TABLE>
- ---------------------------
(1) Premier has not invested in any tax-exempt obligations.
(2) As of December 31, 1998, except for the U.S. Government and its agencies,
there was not any issuer within the investment portfolio who represented 10%
or more of the shareholders' equity.
Deposits
Premier's average deposits increased 56.5%, or $13.7 million, to $37.9 million
during 1998 from $24.2 million during 1997. This growth primarily relates to the
Columbia branch opened in April 1998 and the continued growth of the Jefferson
City branch, and resulted in a 52.8% increase in average noninterest-bearing
demand deposits, a 26.6% increase in average NOW accounts, a 60.8% increase in
average money
75
<PAGE> 83
market accounts, an 85.8% increase in average savings accounts and a 48.2%
increase in average certificates of deposit.
Average noninterest-bearing deposits increased 58.2% to $2.0 million in 1998
from $1.3 million in 1997. As a percentage of average total deposits, these
deposits remained constant at 5.2% in 1998 and 1997. Noninterest-bearing
deposits increased 90.6% to $2.8 million at December 31, 1998, from $1.5 million
at December 31, 1997.
Average NOW accounts increased 26.6% to $828,000 in 1998 from $654,000 in 1997.
As a percentage of average total deposits, these deposits decreased to 2.2% of
average total deposits in 1998 as compared to 2.7% in 1997. NOW accounts
increased 72.6% to $1.2 million at December 31, 1998, from $709,000 at December
31, 1997.
Average money market accounts increased 60.8% to $3.8 million in 1998 from $2.3
million in 1997. As a percentage of average total deposits, these deposits
increased to 9.9% of average total deposits in 1998 as compared to 9.6% in 1997.
Money market accounts increased 111.2% to $4.9 million at December 31, 1998,
from $2.3 million at December 31, 1997.
Average savings accounts increased 85.8% to $8.6 million in 1998 from $4.6
million in 1997. As a percentage of average total deposits, these deposits
increase to 22.6% of average total deposits in 1998 as compared to 19.0% in
1997. Savings accounts increased 104.4% to $12.5 million at December 31, 1998,
from $6.1 million at December 31, 1997.
Average certificates of deposit increased 48.2% to $22.8 million in 1998 from
$15.4 million in 1997. As a percentage of average total deposits, these deposits
decreased to 60.1% of average total deposits in 1998 as compared to 63.5% in
1997. Certificates of deposit increased 54.6% to $27.5 million at December 31,
1998, from $17.8 million at December 31, 1997.
The following table presents, for the periods indicated, the average amount of
and average rate paid on each of the following deposit categories:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1998
--------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
DEPOSIT CATEGORY
Noninterest-bearing demand................... $ 1,253,307 --% $ 1,982,363 --%
NOW.......................................... 654,229 3.07 828,494 2.69
Money market deposits........................ 2,339,249 4.43 3,761,926 3.96
Savings deposits............................. 4,614,491 5.26 8,572,118 4.68
Certificates of deposit...................... 15,382,207 5.76 22,796,540 5.75
----------- -----------
Total................................... $24,243,483 5.16% $37,941,441 4.96%
=========== ===========
</TABLE>
76
<PAGE> 84
Certificates of deposit will continue to be a major source of funding for
Premier. However, there is no specific emphasis placed on time deposits of
$100,000 and over. During l998, aggregate average balances of time deposits of
$100,000 and over comprised 4.4% of average total deposits. The average rate on
certificates of deposit of $100,000 or more decreased to 5.40% at December 31,
1998, compared to 5.72% at December 31, 1997. The following table indicates
amounts outstanding of certificates of deposit of $100,000 or more and
respective maturities:
<TABLE>
<CAPTION>
1997 1998
---------------- -----------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------ ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
3 months or less..................................... $1,499 5.53% $ 3,662 5.25%
3-6 months........................................... 1,436 5.69 2,454 5.58
6-12 months.......................................... 1,880 5.80 3,854 5.36
Over 12 months....................................... 1,469 5.85 1,226 5.65
------ -------
Total........................................... $6,284 5.72% $11,196 5.40%
====== ==== ======= ====
</TABLE>
Federal Home Loan Bank Advances and Note Payable
Average Federal Home Loan Bank advances increased to $2.1 million in 1998 from
$404,000 in 1997. Premier is a member of the Federal Home Loan Bank of Des
Moines. At December 31, 1998, Premier had a borrowing capacity from the Federal
Home Loan Bank of $4.9 million. The balance of Federal Home Loan Bank advances
outstanding was $3.4 million and $940,000 at December 31, 1998 and 1997,
respectively. At December 31, 1998, $250,000 of the Federal Home Loan Bank
advance balance had a weighted average interest rate of 6.18% and was due to
mature in one year or less, while the remaining $3.2 million, with a weighted
average interest rate of 5.70%, is due to mature after five years. At December
31, 1998, $2.2 million of the Federal Home Loan Bank advances were used to
"match fund" loans made by Premier to borrowers at interest rates ranging from
2.14% to 2.75% over the rate paid on the Federal Home Loan Bank advance. Terms
of the Federal Home Loan Bank advances generally match term loans to the
borrower. Thus, by match funding long-term loans with long-term advances,
Premier can reduce certain interest rate risks. The remaining $1.2 million in
Federal Home Loan Bank advances were for general funding purposes, and are not
specifically matched to any of Premier's loans or securities. 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 advance balance. The maximum amount of borrowings available pursuant
to Federal Home Loan Bank advances at any month end for 1996, 1997, and 1998 was
$0, $1,500,000, and $3,461,000, respectively.
The average balance of the note payable increased 97.1% to $838,000 in 1998 as
compared to $425,000 in 1997. The outstanding balance of the note payable was
$750,000 and $1,050,000 at December 31, 1998 and 1997, respectively. The note
payable is a term loan with an unaffiliated financial institution that bears
interest at the prime rate (7.75% at December 31, 1998), is due on November 15,
1999 and is secured by 35,020 common shares of Premier Bank stock. The maximum
amount of borrowings available under the note payable at any month end for 1996,
1997, and 1998 was $300,000, $1,050,000, and $1,050,000, respectively.
Capital Resources
Shareholders' equity increased 37.8% to $4.4 million at December 31, 1998 from
$3.2 million at December 31, 1997. This increase was attributable to the
proceeds from the issuance of 9,231 additional shares of common stock totaling
$1.2 million, retained net income of $22,000, and an increase in accumulated
other comprehensive income resulting from unrealized gains on debt and
marketable equity securities available for sale of $26,000, partially offset by
the purchase of 240 shares of treasury stock for $32,000.
77
<PAGE> 85
Average shareholders' equity as a percentage of total average assets is one
measure used to determine capital strength. The ratio of average shareholders'
equity to average assets decreased to 9.24% in 1998 from 10.88% in 1997 and
16.04% in 1996 due to the continued growth of Premier Bank. The actual and
minimum required capital amounts and ratios for Premier Bank at December 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
REGULATORY CAPITAL CALCULATION
-------------------------------------
1997 1998
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Tier 1 risk based:
Actual............................................ $ 4,215 22.40% $ 5,074 12.19%
Minimum required.................................. 753 4.00 1,665 4.00
------- ----- ------- -----
Excess above minimum.............................. $ 3,462 18.40% $ 3,409 8.19%
======= ===== ======= =====
Total risk-based:
Actual............................................ $ 4,425 23.51% $ 5,513 13.24%
Minimum required.................................. 1,505 8.00 3,330 8.00
------- ----- ------- -----
Excess above minimum.............................. $ 2,920 15.51% $ 2,183 5.24%
======= ===== ======= =====
Leverage:
Actual............................................ $ 4,215 13.20% $ 5,074 9.09%
Minimum required.................................. 958 3.00 1,675 3.00
------- ----- ------- -----
Excess above minimum.............................. $ 3,257 10.20% $ 3,399 6.09%
======= ===== ======= =====
Total risked weighted assets................... $18,818 $41,729
======= =======
Total average assets........................... $31,925 $55,848
======= =======
</TABLE>
The various federal bank regulators, including the Federal Reserve and the FDIC,
have risk-based capital requirements for assessing bank capital adequacy. These
standards define capital and establish minimum capital standards in relation to
assets and off-balance sheet exposures, as adjusted for credit risks. Capital is
classified into two tiers. For banks, Tier 1 or "core" capital consists of
common shareholders' equity, qualifying noncumulative perpetual preferred stock
and minority interests in the common equity accounts of consolidated
subsidiaries, reduced by goodwill, other intangible assets and certain
investments in other corporations ("Tier 1 Capital"). Tier 2 Capital consists of
Tier 1 Capital, as well as a limited amount of the allowance for loan losses,
certain hybrid capital instruments (such as mandatory convertible debt),
subordinated and perpetual debt and non-qualifying perpetual preferred stock
("Tier 2 Capital").
At December 31, 1994, a risk-based capital measure and a minimum ratio standard
was fully phased in, with a minimum total capital ratio of 8.00% and Tier 1
Capital equal to at least 50% of total capital. The Federal Reserve also has a
minimum leverage ratio of Tier 1 Capital to total assets of 3.00%. The 3.00%
Tier 1 Capital to total assets ratio constitutes the leverage standard for bank
holding companies and Bank Insurance Fund-insured state chartered non-member
banks, and is used in conjunction with the risk-based ratio in determining the
overall capital adequacy of banking organizations. The FDIC has similar capital
requirements for BIF-insured state chartered non-member banks.
The Federal Reserve and the FDIC have emphasized that the foregoing standards
are supervisory minimums and that an institution would be permitted to maintain
such minimum levels of capital only if it were rated a composite "one" under the
regulatory rating systems for bank holding companies and banks. All other bank
holding companies are required to maintain a leverage ratio of 3.00% plus at
least 1.00% to 2.00% of additional capital. These rules further provide that
banking organizations experiencing internal growth or making acquisitions will
be expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets. The Federal Reserve continues to consider a
"tangible Tier 1 leverage ratio" in evaluation proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 Capital less all intangibles, to total average assets less
all intangibles.
78
<PAGE> 86
Premier Bank's Tier 1 (to risk-weighted assets) capital ratio decreased to
12.19% at December 31, 1998 from 22.40% at December 31, 1997. Premier Bank's
total risk based capital ratio decreased to 13.24% at December 31, 1998 from
23.51% at December 31, 1997. Premier Bank's capital ratios decreased due to the
continued leveraging of existing capital through growth in the loan portfolio.
These ratios exceed the minimum capital adequacy guidelines imposed by
regulatory authorities on banks and bank-holding companies, which are 4.00% for
Tier 1 capital and 8.00% for total risk based capital. The ratios also exceed
the minimum guidelines imposed by the same regulatory authorities to be
considered "well-capitalized," which are 6.00% of Tier 1 capital and 10.00% for
total risk based capital.
Premier does not have any commitments that it believes would reduce Premier
Bank's capital to levels inconsistent with the regulatory definition of a "well
capitalized" financial institution.
Interest Rate Sensitivity and Liquidity Management
Liquidity is the ability of a company to convert assets into cash or cash
equivalents without significant loss and to raise additional funds by increasing
liabilities. Liquidity management involves maintaining Premier's ability to meet
the day-to-day cash flow requirements of its customers, whether they are
depositors wishing to withdraw funds or borrowers requiring funds to meet their
credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for Premier to meet the needs of its customer base,
but to maintain an appropriate balance between interest-sensitive assets and
interest-sensitive liabilities so that Premier can profitably deploy its assets.
Both assets and liabilities are considered sources of liquidity funding and both
are, therefore, monitored on a daily basis.
Interest rate sensitivity is a function of the repricing characteristics of
Premier's portfolio of assets and liabilities. These repricing characteristics
are the time frames within which the interest-earnings assets and
interest-bearing liabilities are subject to change in interest rates either at
replacement, repricing or maturity during the life of the instruments. Interest
rate sensitivity management focuses on repricing relationships of assets and
liabilities during periods of changes in market interest rates. Interest rate
sensitivity is managed with a view to maintaining a mix of assets and
liabilities that respond to changes in interest rates within an acceptable time
frame, thereby managing the effect of interest rate movements on net interest
income. Interest rate sensitivity is measured as the difference between the
volume of assets and liabilities that are subject to repricing at various time
horizons. The differences are interest sensitivity gaps: less than one month,
one to three months, four to 12 months, one to five years, over five years and
on a cumulative basis.
79
<PAGE> 87
The following table shows interest sensitivity gaps for these different
intervals as of December 31, 1998.
<TABLE>
<CAPTION>
ONE ONE- FOUR- OVER NON-
MONTH THREE TWELVE ONE-FIVE FIVE- INTEREST
OR LESS MONTHS MONTHS YEARS YEARS SENSITIVE TOTAL
------- ------- -------- -------- ------ --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Securities and
interest-bearing
deposits.......... $ 435 $ 1,388 $ 2,798 $ 2,057 $ 35 $ 176 $ 6,889
Federal funds sold... 5,111 -- -- -- -- -- 5,111
Loans................ 13,927 2,375 7,067 15,673 2,315 253 41,610
------- ------- -------- ------- ------ ------- -------
Total earning
assets.......... $19,473 $ 3,763 $ 9,865 $17,730 $2,350 $ 429 $53,610
======= ======= ======== ======= ====== ======= =======
LIABILITIES
Interest-bearing
liabilities:
NOW deposits......... $ 1,225 -- -- -- -- -- $ 1,225
Money market
deposits.......... 4,858 -- -- -- -- -- 4,856
Savings deposits..... 12,454 -- -- -- -- -- 12,454
Certificates of
deposit $100,000
or more........... 741 2,921 6,308 1,226 -- -- 11,196
Certificates of
deposits less than
$100,000.......... 2,739 4,144 7,574 1,811 -- -- 16,268
Federal Home Loan
Bank advances..... -- -- 250 -- 3,195 -- 3,445
Note payable......... -- -- 750 -- -- -- 750
------- ------- -------- ------- ------ ------- -------
Total interest-
bearing
liabilities..... $22,015 $ 7,065 $ 14,882 $ 3,037 $3,195 -- $50,194
Non-interest bearing
demand deposits...... -- -- -- -- -- $ 2,817 2,817
------- ------- -------- ------- ------ ------- -------
Total
liabilities..... $22,015 $ 7,065 $ 14,882 $ 3,037 $3,195 $ 2,817 $53,011
======= ======= ======== ======= ====== ======= =======
Interest sensitivity
gap:
Amount............... $(2,542) $(3,302) $ (5,017) $14,693 $ (845) $(2,388)
======= ======= ======== ======= ====== =======
Cumulative amount.... $(2,542) $(5,844) $(10,861) $ 3,832 $2,987 $ 599
Percent of total
earning assets.... (4.74)% (6.16)% (9.36)% 27.41% (1.58)% (4.45)%
Cumulative percent of
total earning
assets............ (4.74)% (10.90)% (20.26)% 7.15% 5.57%
Ratio of rate sensitive
assets to rate
sensitive
liabilities.......... 0.88 0.53 0.66 5.84 0.74
Cumulative ratio of
rate sensitive assets
to rate sensitive
liabilities.......... 0.88 0.80 0.75 1.08 1.06
</TABLE>
In the current interest rate environment, the liquidity and maturity structure
of Premier's assets and liabilities are important to the maintenance of
acceptable performance levels. A decreasing rate environment negatively impacts
earnings as Premier's rate-sensitive assets generally reprice faster than its
rate-sensitive liabilities. Conversely, in an increasing rate environment,
earnings are positively impacted. This asset/liability mismatch in pricing is
referred to as gap ratio and is measured as rate sensitive assets divided by
rate sensitive liabilities for a defined time period. A gap ratio of 1.00 means
that assets and liabilities are perfectly matched as to repricing. Management
has specified gap ratio guidelines for a one-
80
<PAGE> 88
year time horizon of between 0.80 and 1.20. At December 31, 1998, Premier had
gap ratios of approximately 0.80 for the next three month time period and 0.75
for the one year period ending December 31, 1999. Thus, over the next twelve
months, rate-sensitive assets will reprice slightly faster than rate-sensitive
liabilities.
The allocations used for the interest rate sensitivity report above were based
on the maturity schedules for the loans and deposits and the duration schedules
for the investment securities. All interest-bearing demand deposits and savings
deposits were allocated to the one month or less category. Changes in the mix of
earning assets or supporting liabilities can either increase or decrease the net
interest margin without affecting interest rate sensitivity. In addition, the
net interest spread between an asset and its supporting liability can vary
significantly while the timing of repricing for both the asset and the liability
remain the same, thus impacting net interest income. This is referred to as
basis risk and, generally, relates to the possibility that the repricing
characteristics of short-term assets tied to Premier's prime lending rate are
different from those of short-term funding sources such as certificates of
deposit.
Varying interest rate environments can create unexpected changes in prepayment
levels of assets and liabilities, which are not reflected in the interest
sensitivity analysis report. Prepayments may have significant effects on
Premier's net interest margin. Because of these factors and in a static test,
interest sensitivity gap reports may not provide a complete assessment of
Premier's exposure to changes in interest rates. Management utilizes
computerized interest rate simulation analysis to determine Premier's interest
rate sensitivity. The table above indicates Premier is in a liability sensitive
gap position for the first year, then moves into a matched position through the
five-year period. Overall, due to the factors cited, current simulation results
indicate a relatively low sensitivity to parallel shifts in interest rates. A
liability sensitive bank will generally benefit from a falling interest rate
environment as the cost of interest-bearing liabilities falls faster than the
yields on interest-bearing assets, thus creating a widening of the net interest
margin. Conversely, an asset sensitive bank will benefit from a rising interest
rate environment as the yields on earning assets rise faster than the costs of
interest-bearing liabilities. Management also evaluates economic conditions, the
pattern of market interest rates and competition to determine the appropriate
mix and repricing characteristics of assets and liabilities required to produce
a targeted net interest margin. In addition to the gap analysis, management uses
rate shock simulation to measure the rate sensitivity of its investment
portfolio. Rate shock simulation is a modeling technique used to estimate the
impact of changes in rates on the market value of Premier's investment
portfolio. Premier measures its interest rate risk by estimating the changes in
the market value resulting from instantaneous and sustained parallel shifts in
interest rates of plus or minus 300 basis points. Premier's most recent rate
shock simulation analysis which was performed as of December 31, 1998, indicates
that a 300 basis points increase in rates would cause a decrease in market value
of investment securities of $640,000. Conversely, a 300 basis points decrease in
rates would cause an increase in market value of investment securities of
$219,000.
While this simulation is a useful measure of Premier's sensitivity to changing
rates, it is not a forecast of the future results and is based on many
assumptions that, if changed, could cause a different outcome. In addition, a
change in U.S. Treasury rates in the designated amounts accompanied by a change
in the shape of the Treasury yield curve would cause significantly different
changes to net interest income than indicated above.
Generally, Premier's commercial and commercial real estate loans are indexed to
the prime rate. A portion of Premier's investment in mortgage-backed securities
is indexed to U.S. Treasury rates. Accordingly, any changes in these indices
will have a direct impact on Premier's interest income. The majority of
Premier's savings deposits are based on competitive interest rates in the
market. Certificates of deposit are generally priced based upon current market
conditions that include changes in the overall interest rate environment and
pricing of such deposits by competitors. Other interest-bearing deposits are not
priced against any particular index, but rather, reflect changes in the overall
interest rate environment. The Federal funds sold rate and other borrowed funds
are indexed to U.S. Treasury rates. Premier adjusts the rates and terms of its
loans and interest-bearing liabilities in response to changes in the interest
rate environment.
81
<PAGE> 89
Premier does not currently engage in trading activities or use derivative
instruments to manage interest rate risk. December 31, 1998, debt securities
available-for-sale with a carrying value of $2.8 million are scheduled to mature
within the next five years. Of this amount, $753,000 is scheduled to mature
within one year. Premier's main source of liquidity is Federal funds sold.
Average Federal funds sold were $3.6 million in 1998, or 8.8% of average earning
assets, compared to $1.2 million in 1997, or 4.8% of average earning assets.
Federal funds sold totaled $5.1 million at December 31, 1998, or 9.6% of earning
assets, compared to $1.8 million at December 31, 1997, or 5.8% of earning
assets.
At December 31, 1998, loans with a carrying value of approximately $39.0 million
are scheduled to mature or reprice within the next five years. Of this amount,
$23.4 million is scheduled to mature or reprice within one year. At December 31,
1998, certificates of deposit with a carrying value of approximately $26.5
million are scheduled to mature within the next three years. Of this amount,
$20.9 million is scheduled to mature within one year.
Premier's average loan-to-deposit ratio was 83.64% during 1998 and 79.25% during
1997. Management attempts to manage Premier's loan-to-deposit ratio on an
average basis, as opposed to on a daily basis.
Premier has short-term funding available through its membership in the Federal
Home Loan Bank. Further, the Federal Home Loan Bank membership provides the
availability of participation in loan programs with varying maturities and
terms. At December 31, 1998, Premier had availability of borrowing up to an
additional $4.9 million from the Federal Home Loan Bank under a line of credit.
There are no known trends, demands, commitments, events or uncertainties that
will result in or that are reasonably likely to result in liquidity increasing
or decreasing in any material way.
It is not anticipated that Riva Bancshares will find it necessary to raise
additional funds to meet expenditures required to operate the business of Riva
Bancshares and Riva Bank over the next twelve months. All anticipated material
expenditures for such period have been identified and provided for out of the
proceeds of the offering.
82
<PAGE> 90
SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Total assets at June 30, 1999 were $66.7 million, an increase of $8.9 million,
or 15.4%, over total assets of $57.8 million at December 31, 1998. Premier's net
income for the first six months of 1999 was $40,000, an increase of $44,000 from
the net loss for the first six months of 1998 of $4,000. Basic and dilutive
income (loss) per share was ($0.11) and $0.96 for the first six months of 1998
and 1999, respectively. The increase in net income from the first six months of
1998 to the first six months of 1999 was primarily attributable to increased net
interest income, partially offset by increased noninterest expense. Net interest
income increased $400,000, or 73.2%, from $547,000 for the first six months of
1998 to $947,000 for the first six months of 1999. Noninterest expense increased
$305,000, or 55.0%, from $553,000 for the first six months of 1998 to $858,000
for the first six months of 1999.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased $400,000, or 73.2%, from $547,000 for the first
six months of 1998 to $947,000 for the first six months of 1999. Interest income
increased $866,000, or 60.6%, from $1,431,000 for the first six months of 1998
to $2,297,000 for the first six months of 1999, while average earning assets
increased $20,661,000, or 55.7%, during the same time period. Interest expense
increased $466,000, or 52.8%, from $884,000 for the first six months of 1998 to
$1,350,000 for the first six months of 1999, while average earning liabilities
increased $19,774,000, or 46.8%, during the same time period. The primary reason
for the increase in the net interest income during the first six months of 1998
as compared to the first six months of 1999 was an increase in average earning
assets.
Provision for Loan Losses
The provision for loan losses charged to operations was $74,000 and $105,000 for
the first six months of 1998 and 1999, respectively. The allowance for loan
losses as a percentage of total loans was 0.89%, 1.05%, and 1.01% at June 30,
1998, December 31, 1998, and June 30, 1999, respectively. The increase in the
provision for loan losses was generally due to increases in loans outstanding.
Noninterest Income
Noninterest income increased $11,000, or 14.5%, from $76,000 for the first six
months of 1998 to $87,000 for the first six months of 1999.
Noninterest Expense
Noninterest expense increased $305,000, or 55.0%, from $553,000 for the first
six months of 1998 to $858,000 for the first six months of 1999. Salaries and
employee benefits increased $114,000, or 41.4%, occupancy and equipment expense
increased $71,000, or 97.2%, and other noninterest expense increased $120,000,
or 58.4%, during the same time period. The increases were primarily a result of
Premier's continued growth in Jefferson City, Missouri and expansion in
Columbia, Missouri in April 1998.
Income Tax Expense
While no income tax expense was recorded for the first six months of 1998,
income tax expense was $31,000 for the first six months of 1999.
Net Income
Net income (loss) increased $44,000 from ($4,000) for the first six months of
1998 to $40,000 for the first six months of 1999. The increase was a result of
an increase in net interest income of $400,000 and an increase in noninterest
income of $11,000, offset by an increase in noninterest expense of $305,000, an
increase in the provision for loan losses of $31,000, and an increase in income
tax expense of $31,000. Basic and dilutive income (loss) per share was ($0.11)
and $0.96 for the first six months of 1998 and 1999, respectively. Return on
average assets increased 15 basis points from (0.02%) for the first six months
of 1998 to 0.13% for the first six months of 1999. Return on average equity
increased 205 basis points from (0.23%) for the first six months of 1998 to
1.82% for the first six months of 1999.
83
<PAGE> 91
FINANCIAL CONDITION
Earning Assets
Premier increased average earning assets by $20,661,000, or 55.6%, from
$37,095,000 for the first six months of 1998 to $57,756,000 for the first six
months of 1999. This increase is primarily as a result of an increase in average
loans of $20,141,000, or 76.8%, during the same time period.
Loan Portfolio
Premier's total loans outstanding increased $8,054,000, or 19.4%, from December
31, 1998 to June 30, 1999. Loan growth for the first six months of 1999 was
funded primarily through the growth in interest-bearing deposits. The increase
in loans was a result of Premier's continued growth in Jefferson City, Missouri
and expansion in Columbia, Missouri in April 1998.
Asset Quality and Nonperforming Assets
At June 30, 1999, Premier had no nonaccrual loans, while the December 31, 1998
balance totaled $94,000. At June 30, 1999, four loans totaling $9,000 were
contractually past due by 90 days or more as to principal and interest payments
and continued to accrue interest. At June 30, 1999, there were no loans
classified as "troubled debt restructurings" as that term is defined in
Statement of Financial Accounting Standards No. 15.
Allowance for Loan Losses and Net Charge-Offs
Net charge-offs for the first six months of 1998 was $2,000 while net
charge-offs for the first six months of 1999 was $45,000. The allowance for loan
losses to total loans increased from 0.89% at June 30, 1998 and 1.05% at
December 31, 1998 to 1.01% at June 30, 1999.
Investment Portfolio
Total debt and marketable equity securities available-for-sale increased
$2,919,000, or 45.1%, from $6,478,000 at December 31, 1998 to $9,397,000 at June
30, 1999.
Deposits
Total deposits increased $8,513,000, or 17.4%, from $48,816,000 at December 31,
1998 to $57,329,000 at June 30, 1999. During the first six months of 1999, a
targeted effort by Premier resulted in growth of the certificates of deposit
balance of $9,020,000, or 35.3%, from December 31, 1998 to June 30, 1999.
Federal Home Loan Bank Advances and Note Payable
Total Federal Home Loan Bank Advances increased $337,000, or 9.8%, and the note
payable increased $175,000, or 23.3%, from December 31, 1998 to June 30, 1999.
Capital Resources
Shareholders' equity decreased $103,000, or 2.3%, from December 31, 1998 to June
30, 1999. This decrease was attributable to a decrease in accumulated other
comprehensive income (loss) resulting from unrealized losses on debt and
marketable equity securities available-for-sale of $143,000, offset by net
income of $40,000. The ratio of shareholders' equity to assets decreased from
7.68% at December 31, 1998 to 6.50% at June 30, 1999 as a result of an increase
in total assets and a decrease in shareholders' equity.
84
<PAGE> 92
YEAR 2000 READINESS
Riva Bancshares will utilize and will be dependent upon data processing systems
and software to conduct its business. The approach of the Year 2000 presents a
problem in that many computer programs have been written using two digits rather
than four to define the applicable year. Computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000. For example, computer systems may compute payment, interest,
delinquency or other figures important to the operations of Riva Bancshares
based on the wrong date. This could result in internal system failure or
miscalculation, and also creates risk for Riva Bancshares from third parties
with whom we deal on financial transactions.
Following the acquisition of Premier Bank, Riva Bancshares will use Premier
Bank's existing computer and data processing systems and will be dependent upon
these systems for its own operations. Premier Bank is utilizing CSI, a
third-party vendor, to provide its primary banking applications, including core
processing systems. In addition, Premier Bank also uses CSI's software for
certain ancillary computer applications. Premier has received periodic and other
status reports from CSI with respect to CSI's Year 2000 readiness. CSI also
maintains a secure website for its customers regarding CSI's Year 2000 readiness
efforts. Premier has also reviewed the confidential FDIC examination report of
the Year 2000 Phase II Assessment of CSI conducted by the FDIC on October 19,
1998. On the basis of these materials, Premier has determined that CSI meets all
applicable industry standards for Year 2000 readiness.
The FDIC has issued guidelines for insured financial institutions with respect
to Year 2000 compliance. Premier Bank has developed a Year 2000 action plan
based in part on the guidelines and timetables issued by the FDIC. Premier
Bank's action plan focuses on four primary areas: (1) information systems, (2)
embedded systems located at Premier Bank's offices and within its off-site ATM
machines, (3) third party and customer relationships, and (4) contingency
planning. Premier Bank has designated a Year 2000 compliance team, headed by its
Vice President/Cashier, who reports to the board of directors.
Information Systems. Premier Bank has identified all mission critical
information ("IT") systems and has developed a schedule for testing and
remediation of such systems. Testing of key computer hardware has been
completed, and Premier Bank has also completed mission critical hardware
modification or replacement. Premier Bank has completed its inventory of mission
critical software and is in the process of contacting software vendors for
certification of Year 2000 compliance. Testing of internal mission critical
systems was completed and no problems were identified.
Embedded Systems. Premier Bank has performed a comprehensive inventory of its
embedded systems, such as micro-controllers used to operate security systems,
and has completed its inventory of mission critical non-IT systems. Premier Bank
has contacted manufacturers and vendors of those components utilized in
operations to determine whether such components are Year 2000 compliant. Premier
Bank has remediated or replaced, as applicable, any non-compliant components and
expects to complete this process for mission critical systems by June 30, 1999.
Third Party and Customer Relationships. Premier Bank has contacted its
suppliers and vendors to determine the potential impact of such third parties'
failure to remediate their own Year 2000 issues. These third parties include
other financial institutions, office supply vendors and telephone, electric and
other utility companies. Premier Bank is encouraging its counterparties and
customers to conduct their own Year 2000 assessment and take appropriate steps
to become Year 2000 compliant.
Premier Bank outsources its principal data processing activities to CSI, and
Premier Bank is actively communicating with and monitoring the progress of CSI
to assess the impact of Year 2000 issues on CSI and its ability to provide data
processing services. Premier Bank will consider new business relationships with
alternate providers of products and services if necessary.
85
<PAGE> 93
Additionally, Premier Bank has initiated communications with its larger and
commercial borrowers to assess the potential impact of Year 2000 on them and
their ability to remain current on loan repayments.
Contingency Plans. As part of Premier Bank's normal business practice, it
maintains contingency plans to follow in the event of emergency situations, some
of which could arise from Year 2000-related problems. Premier Bank has
formulated a detailed Year 2000 contingency plan, which assesses several
possible scenarios to which Premier Bank may be required to react. Premier
Bank's formal Year 2000 contingency plan was completed in the first quarter of
1999.
Financial Implications. Management of Premier Bank currently does not expect
the amounts required to be expensed to resolve Year 2000 issues to have a
material effect on its financial position or results of operations. Premier Bank
currently estimates that the costs of assessing, testing and remediation of Year
2000 issues totaled approximately $6,500 in 1998 and are expected to total
approximately $9,000 in 1999. The anticipated costs associated with Premier
Bank's Year 2000 compliance program do not include time and costs that may be
incurred as a result of any potential failure of third parties to become Year
2000 compliant or costs to implement Premier Bank's contingency plans.
Potential Risks. The Year 2000 issue presents a number of risks to the business
and financial condition of Premier Bank. External factors, which include but are
not limited to electric and telephone service, are beyond the control of Premier
Bank and the failure of such systems could have a material adverse effect on
Premier Bank, its customers and third parties on whom Premier Bank relies for
its day-to-day operations. The business of many of Premier Bank's customers may
be negatively affected by the Year 2000 issue, and any financial difficulties
incurred by Premier Bank's customers in connection with the century change could
negatively affect such customer's ability to repay loans to Premier Bank. The
failure of Premier Bank's computer system or applications or those operated by
customers or third parties could have a material adverse effect on Premier
Bank's results of operations and financial condition. In addition, as the Year
2000 approaches, Premier Bank may be required to keep higher levels of
noninterest earning assets due to its need to keep extra cash reserves
available.
The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to Premier Bank's Year 2000 compliance
efforts and the impact of Year 2000 issues on Premier Bank's business and
operations. Various factors could cause actual plans and results to differ
materially from those contemplated by such assessments, estimates and
forward-looking statements, many of which are beyond the control of Premier
Bank. Some of these factors include, but are not limited to, representations by
Premier Bank's vendors and counterparties, technological advances, economic
considerations and consumer perceptions. Premier Bank's Year 2000 compliance
program is an ongoing process involving continual evaluation and may be subject
to change in response to new developments.
ACCOUNTING PRONOUNCEMENTS
In June, 1997 the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130") which
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Premier adopted SFAS 130 on January 1,
1998. SFAS 130 is a disclosure requirement and had no impact on Premier's
consolidated financial position and results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information ("SFAS
131") which establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim reports issued to stockholders. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997. As Premier operates as
a single segment, it has no reporting requirements under SFAS 131.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133")
which establishes standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
86
<PAGE> 94
activities. SFAS 133 requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133, which defers the effective date of SFAS 133
from fiscal years beginning after June 15, 1999 to fiscal years beginning after
June 15, 2000. Earlier application of SFAS 133 is encouraged but the
pronouncement should not be applied retroactively to financial statements of
prior periods. Premier is currently evaluating the requirements and impact of
SFAS 133, as amended, but as Premier has not invested in any investments that
are defined as derivatives, SFAS 133, as amended, is expected to have no impact
on its consolidated financial position or results of operations.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the cost of funds and operating overhead, and to
the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation affects
financial institutions through increased cost of goods and services purchased,
the cost of salaries and benefits, occupancy expense, and similar items.
Inflation and related increases in interest rates generally decrease the market
value of investments and loans held and may adversely effect liquidity,
earnings, and shareholders' equity. Mortgage originations and refinancings tend
to slow as interest rates increase, and can reduce Premier's earnings from such
activities and the income from the sale of residential mortgage loans in the
secondary market.
MONETARY POLICIES
The results of operations of Riva Bancshares and Riva Bank will be affected by
credit policies of monetary authorities, particularly the Federal Reserve Board.
The instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of Riva Bancshares or Riva Bank.
87
<PAGE> 95
DESCRIPTION OF RIVA BANCSHARES CAPITAL STOCK AND
PREMIER CAPITAL STOCK
RIVA BANCSHARES CAPITAL STOCK
General
Riva Bancshares is authorized to issue 20,000,000 shares of common stock,
$.01 par value per share, and 1,000,000 shares of preferred stock, $.01 par
value per share, of which 100,000 shares of preferred stock have been
designated as the Series A Preferred Stock. As of the date hereof, 300,000
shares of common stock and 99,900 shares of Series A Preferred Stock are issued
and outstanding, held by 31 and 12 shareholders of record, respectively. Riva
Bancshares has agreed to repurchase 290,000 shares of its common stock at a
purchase price of $.01 per share. Upon completion of the repurchase, Riva
Bancshares will have 10,000 shares of its common stock issued and outstanding,
held by one shareholder of record.
The following summary of the common stock and preferred stock is qualified
in its entirety by reference to the Certificate of Incorporation, the By-Laws,
and the Delaware General Corporation Law, as amended (the "Delaware Law").
Common Stock
Subject to such preferential rights as may be granted by the board of
directors in connection with any issuances of preferred stock, holders of
shares of common stock are entitled to receive such dividends as may be
declared by the board of directors in its discretion from funds legally
available for that purpose. At this time, the board of directors intends to
retain all earnings to support anticipated growth in the current operations of
Riva Bancshares and to finance future expansion. Additional restrictions on the
payment of cash dividends may be imposed in connection with future issuances of
preferred stock and indebtedness by Riva Bancshares. Further declarations and
payments of cash dividends, if any, will also be determined in light of
then-current conditions, including Riva Bancshares earnings, operations,
capital requirements, liquidity, financial condition, restrictions in financing
agreements and other factors deemed relevant by the board of directors. Upon
the liquidation, dissolution or winding up of Riva Bancshares, after payment of
creditors, the remaining net assets of Riva Bancshares will be distributed pro
rata to the holders of common stock, subject to any liquidation preference of
the holders of preferred stock. There are no preemptive rights, conversion
rights, or redemption or sinking fund provisions with respect to the shares of
common stock. All of the outstanding shares of common stock are, and the shares
to be outstanding upon completion of the offering will be, duly and validly
authorized and issued, fully paid and nonassessable.
Holders of common stock are entitled to one vote per share of common stock
held of record on all such matters submitted to a vote of the shareholders.
Holders of common stock do not have cumulative voting rights. As a result, the
holders of a majority of the outstanding shares of common stock voting for the
election of directors can elect all the directors, and, in such event, the
holders of the remaining shares of common stock will not be able to elect any
persons to the board of directors.
Preferred Stock
The board of directors may, without approval of Riva Bancshares'
shareholders, from time to time authorize the issuance of preferred stock in
one or more series for such consideration and, within certain limits, with such
relative rights, preferences and limitations as the board of directors may
determine. The relative rights, preferences and limitations that the board of
directors has the authority to determine as to any such series of preferred
stock include, among other things, dividend rights, voting rights, conversion
rights, redemption rights and liquidation preferences. Because the board of
directors has the power to establish the relative rights, preferences and
limitations of each series of preferred stock, it may afford to the holders of
any such series, preferences and rights senior to the rights of the holders of
shares of common stock. Although the board of directors has no present
intention to do so, it could cause the issuance of preferred stock which could
discourage an acquisition attempt or other transactions that
88
<PAGE> 96
some, or a majority of, the shareholders might believe to be in their best
interests or in which the shareholders might receive a premium for their shares
of common stock over the market price of such shares.
Riva Bancshares presently has 99,900 shares of preferred stock
outstanding, designated as the Series A Preferred Stock. The terms of the
Series A Preferred stock provide that no dividends or other distributions shall
be declared or payable on the Series A Preferred Stock. The terms of the Series
A Preferred Stock provide for a liquidation preference in the event of a
winding up, liquidation or dissolution of Riva Bancshares in the amount of
$10.00 per share for an aggregate liquidation preference of $999,000. Except as
may be required by law, the holders of the Series A Preferred Stock do not have
any voting rights. The terms of the Series A Preferred Stock may be redeemed,
at the option of Riva Bancshares, at a price of $10.00 per share. Riva
Bancshares intends to redeem the outstanding shares of Series A Preferred Stock
with the proceeds of the offering.
Certain Provisions of the Certificate of Incorporation and By-Laws
Supermajority Voting Requirements. Under Delaware Law, the shareholders
have the power to adopt, amend or repeal bylaws; however, the certificate of
incorporation may confer such power upon the board of directors, although in
doing so it may not divest the shareholders of their power to adopt, amend or
repeal the bylaws. Riva Bancshares' Certificate of Incorporation (the
"Certificate") provides that the board of directors is authorized to make,
repeal, alter, amend and rescind Riva Bancshares' By-Laws. The Certificate also
contains a supermajority (75%) voting requirement for amendments to the By-Laws
by the shareholders.
In addition to the supermajority vote required to amend the By-Laws, the
Certificate provides in Article X that the following provisions of the
Certificate may be amended or repealed only by the affirmative vote of the
holders of not less than 75% of the then outstanding common stock of Riva
Bancshares: (i) Article IX, which limits or eliminates the monetary liability
of directors for a breach of their fiduciary duty in certain circumstances;
(ii) Article VI, which provides that elections of directors need not be by
written ballot unless the By-Laws so provide; (iii) Article VII, which allows
the board of directors to amend or repeal any provision of the By-Laws and
requires the affirmative vote of 75% of the shareholders for the shareholders
to adopt, amend, alter or repeal the By-Laws; and (iv) Article VIII, which
eliminates the ability of shareholders to take action by written consent.
Delaware Law provides generally that a corporation's certificate of
incorporation may be amended by a vote of shareholders holding a majority of
the outstanding stock. Where the certificate of incorporation requires a
supermajority vote with respect to a particular matter, however, the
same supermajority vote is required to amend such supermajority voting
requirement of the certificate of incorporation. Therefore, both Delaware Law
and the Certificate provide that in order to amend or repeal the provisions in
the Certificate which require the affirmative vote of the holders of not less
than 75% of the then outstanding common stock, the same 75% vote will be
necessary to amend such provisions.
These supermajority voting provisions could render more difficult or
discourage a merger, tender offer, proxy contest or the assumption of control
of Riva Bancshares by a large stockholder or group of shareholders. To the
extent that these provisions enable the board of directors to resist a takeover
or change in control of Riva Bancshares, it could make it more difficult to
remove the existing board of directors and management.
Certain Business Combinations. In the past several years, a number of
states have adopted special laws designed to make certain kinds of "unfriendly"
corporate takeovers, or other transactions involving a corporation and one or
more of its significant shareholders, more difficult. Under Section 203 of the
Delaware Law ("Section 203") certain "business combinations" with "interested
stockholders" of Delaware corporations are subject to a three-year moratorium
unless specified conditions are met.
89
<PAGE> 97
Section 203 prohibits certain mergers, consolidations, sales of assets and
other transactions with an "interested stockholder" (generally a 15% stockholder
or group of stockholders) for three years following the date the stockholder
became an interested stockholder. This prohibition on business combinations is
subject to certain exceptions, the most significant of which are that the
prohibition does not apply if: (1) the business combination or transaction in
which the stockholder becomes an interested stockholder is approved by the
corporation's board of directors prior to the stockholder becoming an interested
stockholder; (2) the business combination is with an interested stockholder who
became an interested stockholder in a transaction whereby he acquired 85% of the
corporation's voting stock, excluding shares held by directors who are also
officers and certain employee stock plans; or (3) the business combination is
approved by the corporation's board of directors and authorized at a meeting by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, authorized for
quotation on the Nasdaq National Market, or held of record by more than 2,000
shareholders. Because Riva Bancshares' common stock will be presently listed on
the Nasdaq National Market, it is anticipated that Section 203 will be
applicable to Riva Bancshares. A Delaware corporation may elect not to be
governed by Section 203 by including a provision to that effect in its
certificate of incorporation or bylaws. The Certificate does not contain any
such provision and, accordingly, the Company believes Section 203 will apply to
it.
Riva Bancshares expects that Section 203 will have the effect of
encouraging any potential acquiror to negotiate with the board of directors.
Section 203 also might have the effect of limiting the ability of a potential
acquiror to engage in certain tactics (such as "two-tier pricing") that can
result in dissimilar treatment of a corporation's shareholders. At the time
Section 203 was adopted by the Delaware Legislature, a number of corporations
had been subject to tender offers for, or other acquisitions of, more than 15%
but less than 85% of their outstanding stock. In many cases, such purchases
were followed by business combinations in which the purchaser either paid a
lower price for the remaining outstanding shares than the price it paid in
acquiring its original interest in the corporation, or paid a less desirable
form of consideration. Federal securities laws and regulations applicable to
business combinations govern the disclosure required to be made to minority
shareholders in order to consummate such a transaction, but do not assure
shareholders that the terms of the business combination will be fair to them or
that they can effectively prevent its consummation. Moreover, the statutory
right of the remaining shareholders of the corporation to dissent in connection
with certain business combinations and receive the "fair value" of their shares
in cash may involve significant expense to such dissenting shareholders and may
not be meaningful in all cases. Such an appraisal standard as applied under
Delaware Law does not take into account any appreciation of the stock's market
value due to anticipation of the business combination and may not recognize
that the market value of the shares may be adversely influenced by the
interested person's controlling stock ownership. In addition, in the case of
some business combinations, such as a sale of assets or a reclassification or
recapitalization of a corporation's capital stock, the statutory right of
dissent is not available at all. Section 203 was intended to partially close
these "gaps" in federal and state law and to prevent certain of the potential
inequities of business combinations.
Shareholders should note, however, that the application of Section 203 to
Riva Bancshares will confer upon the board of directors the power to reject a
proposed business combination in certain circumstances, even though a potential
acquiror may be offering a substantial premium for Riva Bancshares' shares over
the then-current market price. Section 203 should also discourage certain
potential acquirors unwilling to comply with its provisions.
90
<PAGE> 98
Indemnification
This provision of the Certificate of Incorporation will limit the remedies
available to a shareholder who is dissatisfied with a decision of the Board of
Directors protected by this provision, and such shareholder's only remedy in
that circumstance may be to bring a suit to prevent the action of the Board of
Directors. In many situations, this remedy may not be effective, including
instances when shareholders are not aware of a transaction or an event prior to
action of the Board of Directors in respect of such transaction or event.
Transfer Agent and Registrar
United Missouri Bank, Kansas City will be the Transfer Agent and Registrar
for Riva Bancshares' common stock.
PREMIER CAPITAL STOCK
Common Stock
General. Premier is authorized to issue 100,000 shares of common stock,
$1.00 par value per share. At present, 41,834 shares of common stock are issued
and outstanding. The following is a summary of the respective rights of the
common stock and is qualified in its entirety by Premier's Articles of
Incorporation.
Dividends. The holders of Premier's common stock are entitled to share
ratably in dividends thereon when, as, and if declared by the Board of Directors
out of funds legally available for such purposes.
Voting Rights. The holders of Premier's common stock have one vote for each
share held on matters presented for consideration by the shareholders. In the
election of directors, cumulative voting does not apply.
Preemptive Rights. The holders of Premier's common stock do not have
preemptive rights to purchase additional unissued shares or treasury shares of
Premier in the event that Premier proposes to issue the same.
Liquidation Rights. In the event of liquidation, dissolution, or winding up
of Premier, whether voluntary or involuntary, the holders of common stock will
be entitled to share ratably in any of the assets or funds of Premier available
for distribution after the satisfaction of Premier's liabilities (or after
adequate provision is made therefor) and after satisfaction of all preferences
on any outstanding senior securities of Premier.
91
<PAGE> 99
COMPARISON OF SHAREHOLDER RIGHTS
Premier is incorporated under the laws of the state of Missouri, while
Riva Bancshares is incorporated under the laws of the state of Delaware. The
rights of Premier shareholders are governed by Premier's articles of
incorporation, bylaws and the Missouri Revised Statutes. The rights of Riva
Bancshares shareholders are governed by Riva Bancshares' Certificate of
Incorporation, bylaws and by the Delaware General Corporation Law. At the
Effective Time, the rights of Premier shareholders who receive shares of Riva
Bancshares common stock in the merger will thereafter be governed by the Riva
Bancshares Certificate of Incorporation, the Riva Bancshares Bylaws and Delaware
law. The following discussion compares certain provisions of Delaware and
Missouri law which could materially affect the rights of shareholders of Premier
upon consummation of the merger.
CALL OF SPECIAL SHAREHOLDER MEETINGS
Under Delaware and Missouri law, special shareholders' meetings may be
called by the board of directors or by such other person as may be authorized by
the certificate of incorporation (in the case of a Delaware corporation),
articles of incorporation (in the case of a Missouri corporation) or the bylaws.
Such meetings may be held in or out of the state at a place stated in or fixed
in accordance with a corporation's bylaws. Premier's bylaws provide that special
meetings of the shareholders may be called by the Chairman of the Board, the
President or the Board of Directors. Riva Bancshares' bylaws provide that
special meetings of the shareholders shall be called in accordance with the
certificate of incorporation. Riva Bancshares' certificate provides that special
meetings of the stockholders may be called at any time and only by a majority of
the Board of Directors.
SHAREHOLDER CONSENT IN LIEU OF MEETING
Missouri law permits any action to be taken at a meeting of shareholders
to be taken without a meeting if consents in writing setting forth the action so
taken shall be signed by all of the shareholders entitled to vote on the action.
Delaware law permits any action required or permitted to be taken at a
shareholders' meeting to be taken without a meeting, without prior notice and
without a vote, by action of the shareholders having at least the minimum number
of votes that would be necessary to authorize or take such action at a
shareholders meeting at which shares entitled to vote thereon were present and
voted. To be effective, the action must be evidenced by at least one written
consent describing the action taken, dated and signed by the requisite holders
and delivered to the corporation.
Premier's bylaws provide that any action required to be taken at a meeting
of shareholders, or any other action which may be taken at a meeting of
shareholders, may be taken without a meeting if consents, in writing, setting
forth the action taken shall be signed by all the shareholders entitled to vote
with respect to the subject matter thereof. Upon amendment to its Certificate of
Incorporation, Riva Bancshares' Certificate of Incorporation will provide that
shareholders may not take any action by written consent in lieu of a meeting of
the shareholders.
SHAREHOLDER VOTING
Under Missouri law, a majority of the outstanding shares entitled to vote
at any meeting shall constitute a quorum, unless otherwise provided in the
articles of incorporation or bylaws. Every decision of a majority of shares
entitled to vote on a matter at meeting at which a quorum is present shall be
valid as an action of the shareholders. In addition, unless the corporation's
articles of incorporation provide otherwise, directors are elected by a majority
of the votes cast by the shares entitled to vote when the vote is taken.
However, in the case of cumulative voting, directors shall be elected by a
plurality of votes.
92
<PAGE> 100
Under Delaware law, in the absence of a specification in the corporation's
certificate of incorporation or bylaws, a majority of the votes entitled to be
cast on a particular matter constitutes a quorum. Once a quorum is obtained, the
affirmative vote of a majority of shares present in person or represented by
proxy and entitled to vote on the subject matter is sufficient for stockholder
action; however, directors are elected by a plurality of votes.
Premier's bylaws provide that the holders of a majority of the voting
shares issued and outstanding and entitled to vote for the election of directors
shall constitute a quorum for the transaction of business at all meetings of the
shareholders, except as may be otherwise provided by law or by the articles of
incorporation. Under Riva Bancshares' bylaws, a majority of the outstanding
shares of Riva Bancshares entitled to vote, represented in person or by proxy,
shall constitute a quorum for the transaction of business at such meeting.
Furthermore, directors shall be elected by a plurality of the shares represented
at the meeting and entitled to vote in the election of directors.
With certain exceptions, Missouri law requires that a merger, share
exchange, sale of all or substantially all the corporation's assets or similar
transaction be approved by a vote of two-thirds of the votes entitled to be cast
by each class of shares outstanding. Delaware law generally requires approval by
only a majority of the shares outstanding and does not require such class
voting, except in the case of transactions involving an amendment to the
certificate of incorporation where the amendment would increase or decrease the
aggregate number of authorized shares of such class, increase or decrease the
par value of the shares of such class, or alter or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely. Accordingly, there is a lower threshold for approval of such
transactions in Delaware.
Delaware Law does not require a vote of the stockholders of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if (a) the merger agreement does not amend the
existing certificate of incorporation, (b) each share of the stock of the
surviving corporation outstanding immediately before the effective date of the
merger is an identical outstanding or treasury share after the merger, and (c)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized and unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon conversion
of any other shares, securities or obligations to be issued or delivered under
such plan do not exceed 20% of the shares of common stock of such constituent
corporation outstanding immediately prior to the effective date of the merger.
LIMITATION OR ELIMINATION OF DIRECTORS' PERSONAL LIABILITY
Missouri law does not contain a provision for eliminating or limiting the
personal liability of a director. Under Delaware Law, a corporation's
certificate of incorporation may eliminate or limit a director's liability for
monetary damages for breach of fiduciary duty as a director. However, a
corporation's certificate of incorporation may not limit or eliminate a
director's personal liability (a) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (b) for acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
(c) unlawful distributions, or (d) for any transaction in which the director
received an improper personal benefit.
Under Riva Bancshares' certificate of incorporation, directors' personal
liability to Riva Bancshares or its stockholders for monetary damages for breach
of fiduciary duty has been eliminated.
93
<PAGE> 101
INDEMNIFICATION
In general, Missouri law requires indemnification for a director or
officer who has successfully defended an action, on the merits or otherwise,
when he or she was a party because he or she is or was a director or officer.
Delaware law requires indemnification to the extent any present or former
director or officer has been successful, on the merits or otherwise, in defense
of an action where such person was a party by reason of the fact that he or she
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 entity.
The provisions of Missouri and Delaware Law are substantially similar with
respect to permissive indemnification. In general, both permit indemnification
against expenses reasonably incurred, provided there is a determination by a
majority vote of disinterested directors or a committee thereof, by independent
legal counsel or by a majority vote of a quorum of the shareholders that the
person seeking indemnification acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interest of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe that
the person's conduct was unlawful.
Under Missouri law, expenses incurred by a director, officer, employee or
agent in defending an action may be paid in advance. However, the individual
must undertake to repay any amounts advanced if it is ultimately determined that
he or she is not entitled to indemnification. Similarly, Delaware law provides
that expenses incurred by an individual in defending an action may be paid in
advance, if such individual undertakes to repay all amounts advanced if it is
ultimately determined that such person is not entitled to be indemnified (except
with respect to former directors and officers, and employees and agents, with
respect to whom the corporation need not obtain such undertaking).
In addition, the laws of both states authorize a corporation's purchase of
indemnity insurance for the benefit of its officers, directors, employees and
agents whether or not the corporation would have the power to indemnify against
the liability covered by the policy.
Premier's articles and bylaws provide indemnification to directors and
officers to the fullest extent permitted by Missouri law. Riva Bancshares'
bylaws provide indemnification to the fullest extent authorized by the Delaware
General Corporation Law. In addition, if a claim for indemnification in Delaware
has not been paid in full by the corporation within 60 days after a written
claim has been received by the corporation, the indemnitee may bring a suit
against the corporation to recover the unpaid amount of the claim. However, the
corporation shall indemnify such indemnitee in connection with a proceeding
initiated by the indemnitee only if the proceeding was authorized by the board
of directors of the corporation.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers, or persons
controlling Premier pursuant to the foregoing provisions, Premier has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and therefore unenforceable.
AMENDMENTS TO ARTICLES OR CERTIFICATE OF INCORPORATION AND BYLAWS
Amendments to the articles of incorporation may be approved in Missouri
generally by a majority of the votes cast. Under Delaware Law, amendments to the
certificate of incorporation generally require the affirmative vote of the
holders of a majority of the outstanding stock.
Missouri law provides that a corporation's shareholders have the power to
amend or repeal the corporation's bylaws unless the articles of incorporation
vest such power in the board of directors. Under Delaware Law, stockholders have
the power to adopt, amend or repeal bylaws, although a
94
<PAGE> 102
corporation's certificate of incorporation may confer such power on the board of
directors without divesting the stockholders of their right to act.
Premier's articles of incorporation provide that the Board of Directors
has the power to make, alter, amend or repeal the bylaws of the corporation.
Riva Bancshares' certificate of incorporation provides that the Board of
Directors is authorized to make, repeal, alter, amend and rescind Riva
Bancshares' bylaws. The certificate also contains a supermajority (75%) voting
requirement for amendment to the bylaws by the shareholders. In addition to the
supermajority vote required to amend the bylaws, the certificate provides that
certain provisions of the certificate may be amended or repealed only by the
affirmative vote of the holders of note less than 75% of the outstanding common
stock of Riva Bancshares: (1) article IX, which eliminates or limits the
monetary liability of directors for a breach of their fiduciary duty in certain
circumstances; (2) article VI, which provides that elections of directors need
not be by written ballot unless the bylaws so provide; (3) article VII, which
allows the Board of Directors to amend or repeal any provision of the bylaws and
requires the affirmative vote of 75% of the shareholders for the shareholders to
adopt, amend, alter or repeal the bylaws; (4) article VIII, which eliminates the
ability of the shareholders to take action by written consent; and (5) article
X, which provides that only the Board of Directors can call special meetings of
the shareholders. While the certificate of incorporation requires a
supermajority vote with respect to a particular matter, however, the same
supermajority vote is required to amend such supermajority voting requirements
of the certificate of incorporation. Therefore, both Delaware law and the
certificate provide that, in order to amend or repeal the provisions of the
certificate which require the affirmative vote of the holders of not less than
75% of the outstanding common stock, the same 75% vote will be necessary to
amend such provisions.
DISSENTERS' RIGHTS OF APPRAISAL
Under both Missouri and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which the shareholder
may receive cash in the amount of the fair market value of his or her shares in
lieu of the consideration he or she would otherwise receive in the transaction.
Delaware law does not, in general, afford dissenters' rights of appraisal
with respect to (a) a sale of assets, (b) a merger by a corporation, the shares
of which are either (i) listed on a national securities exchange or designated
as a national market system security or (ii) widely held (by more than 2,000
stockholders) if such stockholders receive shares of the surviving corporation
or of a listed or widely held corporation, or (c) stockholders of a corporation
surviving a merger if no vote of the stockholders is required to approve the
merger under the circumstances set forth above in the section titled
"Shareholder Voting."
Missouri law generally affords dissenters' rights of appraisal with
respect to a merger, share exchange and sale of a corporation's assets. Missouri
law does not contain the exclusion from dissenters' rights for corporations the
shares of which are publicly traded, as described above.
INSPECTION OF BOOKS, RECORDS AND SHAREHOLDERS LIST
Both Missouri and Delaware Law allow any shareholder to inspect the books
and records of the corporation. Missouri law allows inspection of its books and
records at all proper times and under such regulations as may set forth in the
bylaws. Delaware allows inspection of its books, records and shareholder list
for any proper purpose upon a written demand under oath stating the purpose of
the inspection. A proper purpose means a purpose reasonably related to the
shareholder's interest as a stockholder. In both Missouri and Delaware, the
corporation shall make available a complete list of shareholders entitled to
vote at the meeting at least 10 days before every shareholders' meeting. Lack of
access to stockholder records could result in impairment of a stockholder's
ability to coordinate
95
<PAGE> 103
opposition to management proposals, including proposals with respect to a change
in control of the company. Riva Bancshares' bylaws provide that directors shall
have the absolute right to inspect all books and records and the physical
properties of Riva Bancshares and of its subsidiaries. Premier's bylaws provide
that a Premier shareholder may inspect Premier's records during regular business
hours if such shareholder is entitled to inspect the records pursuant to any
statutory or other legal right. To exercise this right of examination, a Premier
shareholder must make written demand upon Premier, stating the specific records
sought to be examined and the purpose of the inspection of the records. No
Premier shareholder shall use or permit to be used any information obtained in
the inspection of the records to the detriment of Premier and no shareholder
shall furnish any information inspected to any competitor or prospective
competitor of Premier. Furthermore, Premier may require the shareholder to
indemnify the corporation against any loss or damage caused from an unauthorized
disclosure of the information obtained in the course of inspecting the records.
Premier may require the shareholder to execute a confidentiality agreement prior
to the inspection of any records. Premier may also require any representative or
personal financial advisor of the shareholder to sign a confidentiality
agreement.
DISSOLUTION
Under Missouri law, a corporation can voluntarily dissolve upon its board
of directors' adopting a resolution setting forth a proposal to dissolve which
proposal is submitted to the shareholders and is approved by two-thirds of the
votes entitled to vote thereon. Under Delaware Law, a corporation can
voluntarily dissolve if its board of directors and stockholders owning a
majority of the shares entitled to vote approve the dissolution or if all of its
stockholders approve such a dissolution.
PREEMPTIVE RIGHTS
Under Delaware Law, stockholders do not have preemptive rights to new
shares unless there is a specific provision granting such rights in the
corporation's certificate of incorporation. Missouri law provides that the
preemptive right of a shareholder to acquire additional shares of a corporation
may be limited or denied to the extent provided in the articles of
incorporation.
Premier's articles contain a denial of preemptive rights. Riva Bancshares'
certificates does not contain a preemptive rights provision.
INTERESTED DIRECTOR TRANSACTIONS
Under the Missouri and Delaware Law, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable solely because of such interest. However, the contract or transaction
must be fair and reasonable at the time it is authorized, is ratified by the
corporation's stockholders after disclosure of the relationship or interest, or
it must be authorized in good faith by a majority of the disinterested members
of the board of directors or a committee thereof after disclosure of the
relationship or interest. In addition, Missouri and Delaware Law permit the
interested director to be counted in determining whether a quorum of the
directors is present at the meeting approving the transaction.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Missouri law provides that, unless a corporation's articles of
incorporation or bylaws specify otherwise, vacancies on the board may be filled
by a majority vote of the remaining directors, though less than a quorum of the
board, or by a sole remaining director. Under Delaware law, vacancies and newly
created directorships may be filled by a majority of the directors then in
office (even though less than a quorum) or by a sole remaining director, unless
otherwise provided in the corporation's certificate of incorporation or bylaws
(or unless the certificate of incorporation directs that a particular class of
stock is to elect such director(s), in which case a majority of the directors
elected by such class, or a sole remaining director so elected, may fill such
vacancy or newly created directorship).
96
<PAGE> 104
In addition to the foregoing, Missouri law provides that the term of a
director who is elected to fill a vacancy expires at the next shareholders'
meeting at which directors are elected. However, if shareholders elect directors
by class, then any director elected to fill a vacancy or to a newly created
directorship is to hold office until the next election of the class for which
the director was chosen. The Delaware Law provides that in the case of a
corporation, the directors of which are divided into classes, any director
elected to fill a vacancy is to hold office until the next election of the class
for which he or she was chosen.
Neither the Riva Bancshares certificate nor bylaws limits the ability of
directors to fill vacancies. Similarly, neither the Premier articles or bylaws
limits the ability of directors to fill vacancies.
DIVIDENDS AND REPURCHASES OF SHARES
Under Missouri law, a corporation may pay dividends in cash, other
property or repurchase its shares so long as the corporation's total net assets
would not be less than its stated capital.
Delaware Law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, the Delaware Law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
ANTI-TAKEOVER STATUTES
Missouri law contains certain provisions applicable to Missouri
corporations which may be deemed to have an anti-takeover effect.
The Missouri Business Combination Statute protects domestic corporations
after hostile takeovers by prohibiting certain transactions once an acquirer has
gained control. The statute restricts certain business combinations between a
corporation and an interested shareholder or affiliates of the interested
shareholder for a period of five years unless certain conditions are met. A
business combination includes a merger or consolidation, certain sales, leases,
exchanges, pledges, similar dispositions of corporate assets or stock, and
certain reclassifications and recapitalizations. An interested shareholder
includes any person or entity which beneficially owns or controls 20 percent or
more of the outstanding voting shares of the corporation.
During the initial five-year restricted period, no business combination
may occur unless such business combination or the transaction in which an
interested shareholder becomes "interested" (the "Acquisition Transaction") was
approved by the board of directors of the corporation on or before the date of
the Acquisition Transaction. Business combinations may occur after the five-year
period following the Acquisition Transaction only if: (1) prior to the stock
acquisition of the interested shareholder, the board of directors approves the
transaction in which the interested shareholder became an interested shareholder
or approves the business combination in question; (2) the holders of a majority
of the outstanding voting stock, other than stock owned by the interested
shareholder, approve the business combination; or (3) the business combination
satisfies certain detailed fairness and procedural requirements.
Missouri law exempts from its provisions: (1) corporations not having a
class of voting stock registered under Section 12 of the Exchange Act; (2)
corporations which adopt provisions in their articles of incorporation or
by-laws expressly electing not to be covered by the statute; and (3) certain
circumstances in which a shareholder inadvertently becomes an interested
shareholder.
97
<PAGE> 105
Missouri law also contains a control share acquisition statute which
provides that an acquiring person who, after any acquisition of shares of a
publicly traded corporation has the voting power, when added to all shares of
the same corporation previously owned or controlled by the acquiring person, to
exercise or direct the exercise of: (1) 20 percent but less than 33-1/3 percent;
(2) 33-1/3 percent or more but less than a majority; or (3) a majority, of the
voting power of outstanding stock of such corporation, must obtain shareholder
approval for the purchase of the control shares. If approval is not given, the
acquiring person's shares lose the right to vote. The statute prohibits an
acquiring person from voting its shares unless certain disclosure requirements
are met and the retention or restoration of voting rights is approved by both:
(1) a majority of the outstanding voting stock, and (2) a majority of the
outstanding voting stock after exclusion of interested shares. Interested shares
are defined as shares owned by the acquiring person, by directors who are also
employees, and by officers of the corporation. Shareholders are given
dissenters' rights with respect to the vote on control share acquisitions and
may demand payment of the fair value of their shares.
A number of acquisitions of shares are deemed not to constitute control
share acquisitions, including good faith gifts, transfers pursuant to wills,
purchases pursuant to an issuance by the corporation, mergers involving the
corporation which satisfy the other requirements of the Missouri law,
transactions with a person who owned a majority of the voting power of the
corporation within the prior year, or purchases from a person who has previously
satisfied the provisions of the control share acquisition statute so long as the
transaction does not result in the purchasing party having voting power after
purchase in a percentage range (such ranges are as set forth in the immediately
preceding paragraph) beyond the range for which the selling party previously
satisfied the provisions of the statute. Additionally, a corporation may exempt
itself from application of the statute by inserting a provision in its articles
of incorporation or by-laws expressly electing not to be covered by the statute.
Delaware law contains a business combination statute similar to that
contained in Missouri. The Delaware business combination statute generally
prohibits a domestic corporation from engaging in mergers or other business
combinations with interested persons (as defined in the Delaware statute) for a
statutory time period. The prohibition can be avoided if the business
combination is approved by the board of directors prior to the date on which the
interested person acquires the requisite percentage of stock or the business
combination is approved by the board of directors and the vote of at least
66-2/3 of the outstanding voting stock of the corporation excluding stock owned
by the interested party. Missouri law imposes a longer prohibition period on
transactions with interested persons (five years) than Delaware (three years),
thereby potentially increasing the period during which a hostile takeover may be
frustrated. In addition, the Delaware statute, unlike its Missouri counterpart,
does not apply if the interested person obtains at least 85% of the
corporation's voting stock upon consummation of the transactions which resulted
in the stockholder becoming an interested person. Thus, a person acquiring at
least 85% of the corporation's voting stock could circumvent the defensive
provisions of the Delaware statute while being unable to do so under Missouri
law. The effect of the Delaware business combination statute may be avoided if
the corporation provides in its certificate of incorporation that the statute
shall not apply to such corporation. Delaware law does not contain a control
share acquisition statute similar to that contained in the Missouri statute.
98
<PAGE> 106
LEGAL OPINIONS
The legality of the shares of Riva Bancshares common stock to be issued to
the holders of Premier common stock pursuant to the Merger will be passed upon
by Smith, Gambrell & Russell, LLP, Atlanta, Georgia. Smith, Gambrell & Russell,
LLP has from time to time acted as counsel in advising Riva Bancshares and its
affiliates with respect to certain matters and in connection with various
transactions. Certain other legal matters will be passed upon for Premier by
Suelthaus & Walsh, P.C.
The merger agreement provides as a condition to each party's obligation to
consummate the merger that Riva Bancshares and Premier receive the opinion of
Smith, Gambrell & Russell, LLP, Atlanta, Georgia, special counsel to Riva
Bancshares, substantially to the effect that the merger will constitute a
"reorganization" under Section 368(a) of the Code.
EXPERTS
The financial statements of Riva Bancshares and the consolidated financial
statements of Premier included in this Proxy Statement/Prospectus have been
audited by KPMG LLP, independent auditors, as stated in their reports appearing
in this Proxy Statement/Prospectus and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
OTHER MATTERS
Premier. As of the date of this Proxy Statement/Prospectus, the Premier
Board knows of no matters that will be presented for consideration at the
special meeting other than as described in this Proxy Statement/Prospectus.
However, if any other matters will properly come before the special meeting or
any adjournments or postponements thereof and be voted upon, the enclosed
proxies will be deemed to confer discretionary authority on the individuals
named as proxies therein to vote the shares represented by such proxies as to
any such matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the management of Premier.
Riva Bancshares. As of the date of this Proxy Statement/Prospectus, the
Riva Bancshares Board knows of no matters that will be presented for
consideration at the special meeting other than as described in this Proxy
Statement/Prospectus. However, if any other matters will properly come before
the special meeting or any adjournments or postponements thereof and be voted
upon, the enclosed proxies will be deemed to confer discretionary authority on
the individuals named as proxies therein to vote the shares represented by such
proxies as to any such matters. The persons named as proxies intend to vote or
not to vote in accordance with the recommendation of the management of Riva
Bancshares.
99
<PAGE> 107
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
FINANCIAL STATEMENTS FOR RIVA BANCSHARES, INC.
Independent Auditors' Report.............................. F-2
Balance Sheet as of December 31, 1998..................... F-3
Statement of Operations for the period from May 1, 1998
(date of inception) through December 31, 1998.......... F-4
Statement of Shareholders' Equity for the period from May
1, 1998 (date of inception) through December 31,
1998................................................... F-5
Statement of Cash Flows for the period from May 1, 1998
(date of inception) through December 31, 1998.......... F-6
Notes to Financial Statements............................. F-7
Balance Sheet as of June 30, 1999 (Unaudited)............. F-12
Statement of Operations for the period from May 1, 1998
(date of inception) through June 30, 1998 and the Six
Months Ended June 30, 1999 (Unaudited)................. F-13
Statement of Shareholders' Equity for the Six Months Ended
June 30, 1999 (Unaudited).............................. F-14
Statement of Cash Flows for the period from May 1, 1998
(date of inception) through June 30, 1998 and the Six
Months Ended June 30, 1999 (Unaudited)................. F-15
Note to Unaudited Financial Statements.................... F-16
FINANCIAL STATEMENTS FOR PREMIER BANCSHARES, INC.
Independent Auditors' Report.............................. F-17
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-18
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998....................... F-19
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the Years Ended December 31,
1996, 1997 and 1998.................................... F-20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998....................... F-21
Notes to Consolidated Financial Statements................ F-22
Consolidated Balance Sheet as of June 30, 1999
(Unaudited)............................................ F-36
Consolidated Statements of Operations for the Six Months
Ended June 30, 1998 and 1999 (Unaudited)............... F-37
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the Six Months Ended June 30,
1999 (Unaudited)....................................... F-38
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1999 (Unaudited)............... F-39
Note to Unaudited Consolidated Financial Statements....... F-40
</TABLE>
F-1
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Riva Bancshares, Inc.:
We have audited the accompanying balance sheet of Riva Bancshares, Inc., a
development stage corporation (the Company), as of December 31, 1998 and the
related statements of operations, shareholders' equity, and cash flows for the
period May 1, 1998 (date of inception) through December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and the results of its operations and its cash flows for the period May 1,
1998 (date of inception) through December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
St. Louis, Missouri
April 8, 1999, except for note 5 for
which the date is July 29, 1999
F-2
<PAGE> 109
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $ 711,515
Other Assets................................................ 172,598
-----------
Total assets........................................... $ 884,113
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued payroll taxes....................................... $ 1,158
Obligation to repurchase common stock....................... 5,650
-----------
Total liabilities...................................... 6,808
-----------
Shareholders' equity:
Series A preferred stock; $0.01 par value; 1,000,000
shares authorized; 99,900 shares issued and
outstanding; redemption price of $10.00................ 999,000
Common stock; $0.01 par value; 20,000,000 shares
authorized; 575,000 shares issued and outstanding...... 5,750
Common stock to be repurchased (565,000 shares at $0.01
per share)............................................. (5,650)
-----------
Common stock outstanding after repurchase.............. 100
-----------
Deficit accumulated during development stage.............. (121,795)
-----------
Total shareholders' equity............................. 877,305
-----------
Total liabilities and shareholders' equity............. $ 884,113
===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 110
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MAY 1, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Income:
Interest income........................................... $ 20,508
Other income.............................................. 52
-----------
Total income...................................... 20,560
-----------
Expenses:
Salary and benefits....................................... 120,761
Other..................................................... 21,594
-----------
Total expenses......................................... 142,355
-----------
Net loss............................................... $ (121,795)
===========
Basic and diluted loss per share............................ $ (12.18)
===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 111
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM MAY 1, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK DURING
------------------- ----------------- DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT STAGE TOTAL
-------- -------- -------- ------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of units........................... 99,900 $999,000 100,000 $1,000 -- 1,000,000
Issuance of common stock.................... -- -- 475,000 4,750 -- 4,750
Common stock to be repurchased.............. -- -- (565,000) (5,650) -- (5,650)
Net loss.................................... -- -- -- -- (121,795) (121,795)
------ -------- -------- ------ ---------- ----------
Balance, December 31, 1998.................. 99,900 $999,000 10,000 $ 100 (121,795) 877,305
====== ======== ======== ====== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 112
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 1, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (121,795)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in other assets............................... (172,598)
Increase in accrued payroll taxes...................... 1,158
Net cash used in operating activities................ (293,235)
Cash flows from financing activities -- proceeds from the
issuance of units and common stock........................ 1,004,750
-----------
Net increase in cash................................. 711,515
Cash, beginning of period................................... --
-----------
Cash, end of period......................................... $ 711,515
===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 113
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Missouri Holdings, Inc. was incorporated on May 1, 1998 for the purpose of
becoming a bank holding company. The name of the corporation was subsequently
changed to Riva Bancshares, Inc. (the Company). The Company is in the
development stage and will remain in the development stage until the
consummation of an acquisition or merger with a banking organization.
Operations through December 31, 1998 relate primarily to expenditures for
incorporating and organizing the Company.
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of
accounting in conformity with generally accepted accounting principles. The
presentation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Organizational Costs
The Company has elected to early adopt the provisions of SOP 98-5, Reporting on
the Costs of Start-Up Activities, which requires that start-up costs (including
organizational costs) be expensed as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Loss Per Share
As the Company has no dilutive instruments, basic loss per share and dilutive
loss per share are equal. Basic loss per share is computed by dividing net loss
by 10,000, the weighted average number of common shares outstanding during the
period after giving effect to the obligation to repurchase 565,000 shares.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
Stock Options
The Company applies the measurement provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
stock options and accordingly, recognizes no compensation expense as the
exercise price of stock options equals the market price of the underlying
F-7
<PAGE> 114
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock at grant date. Pro forma information regarding net income and earnings per
share is required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation related to stock option grants. At
December 31, 1998, the Company had granted no stock options.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS 130), which was issued in June 1997, establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements, and requires an enterprise to (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. The Company has no other comprehensive income for the period
from May 1, 1998 (date of inception) through December 31, 1998.
(2) RELATED PARTY TRANSACTIONS
In 1998, the Company entered into an agreement with T. Stephen Johnson &
Associates to provide consulting services during the development stage of the
Company. The president of T. Stephen Johnson & Associates is a director of the
Company. The consulting agreement provides for a monthly payment of $25,000
until the closing of the offering and a finder's fee for the successful
completion of a bank acquisition equal to 1% of the aggregate purchase price,
plus reimbursement of expenses. Fees paid to T. Stephen Johnson & Associates for
the period from May 1, 1998 (date of inception) through December 31, 1998
amounted to $126,540.
(3) SHAREHOLDERS' EQUITY
Sale of Units
In June 1998, the Company sold 100 units to accredited European investors at the
price of $10,000 per unit plus a distribution fee of $750 per unit paid by the
purchaser to Kelton International Limited. Each unit was comprised of (a) 999
shares of Series A preferred stock, (b) 1,000 shares of common stock, and (c)
warrants to purchase 1,000 shares of common stock at the initial public offering
price for a period of ten years following the initial public offering.
The net proceeds from the sale of units is being used to provide funding for the
operations of the Company during the development stage.
The Series A preferred stock, which the Company contemplates redeeming with a
portion of the proceeds of the initial public offering, is non-voting and, at
the option of the Company, is redeemable at a cash redemption price of $10 per
share.
In July 1999, based on discussions with the underwriters for the initial public
offering, the Company agreed to repurchase the 100,000 shares of common stock
issued to European investors at $0.01 per share.
F-8
<PAGE> 115
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Sale of Founders Shares
In August 1998, the Company sold 475,000 shares of common stock to investors as
founders shares at $0.01 per share. Such investors include the President and
Chief Executive Officer of the Company, certain directors of the Company, T.
Stephen Johnson, and other employees of T. Stephen Johnson & Associates. In
April 1999, based on discussions with the underwriters for the initial public
offering, the Company agreed to repurchase 275,000 founders shares at $0.01 per
share and issue 115,798 warrants to certain non-employee investors. In July
1999, the Company agreed to repurchase 290,000 additional founders shares at
$0.01 per share.
(4) INCOME TAXES
For the period May 1, 1998 through December 31, 1998 no income tax expense or
benefit has been recognized. The primary reconciling difference between the
income tax benefit and the amount of benefit that would be expected by the
result of applying the federal statutory rate of 34% to the loss before income
taxes for the period from May 1, 1998 (date of inception) through December 31,
1998 is as follows:
<TABLE>
<S> <C>
Expected federal income tax benefit......................... $ (41,410)
Establishment of valuation allowance........................ 41,410
-----------
Income tax expense..................................... $ --
===========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets - net operating loss carryforward....... 41,410
Less valuation allowance.................................. 41,410
-----------
Net deferred tax asset................................. $ --
===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers projected
future taxable income and tax planning strategies in making this assessment.
Management does not believe it is more likely than not the Company will realize
the benefits of these deductible differences. Accordingly, a valuation allowance
has been established for the deferred tax asset.
At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $140,000, which is available to
offset future federal taxable income, if any, through 2013.
(5) SUBSEQUENT EVENTS
Acquisition Activity
On May 6, 1999, the Company entered into a definitive agreement with Premier
Bancshares, Inc. (Premier), the bank holding company for Premier Bank, located
in Jefferson City, Missouri. At December 31, 1998, Premier had consolidated
total assets of $57.8 million, loans of $41.2 million, deposits
F-9
<PAGE> 116
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of $48.8 million, and shareholders' equity of $4.4 million. The definitive
agreement was amended on July 22 and July 29, 1999. Under the amended agreement,
the shareholders of Premier will exchange their shares of common stock, in a
tax-free reorganization, for $9.0 million of newly issued shares of common stock
of the Company (valued at the initial public offering price of the common stock
of the Company). The transaction, which requires the approval of bank regulatory
authorities and the shareholders of the Company and Premier, is expected to
close in the third quarter of 1999.
Employment Agreements
The Company and Richard C. Jensen entered into an employment agreement which
provides that Mr. Jensen will serve as the President and Chief Executive Officer
of the Company and as President and Chief Executive Officer of Premier Bank upon
completion of the merger and the initial public offering. Mr. Jensen also serves
as a member of the board of directors of the Company and will serve on Premier
Bank's board of directors after the closing of the initial public offering. Mr.
Jensen's employment agreement has a three-year term and provides for a minimum
annual base salary of $250,000. Upon completion of the initial public offering,
Mr. Jensen will receive a payment of $150,000. In addition, the Board will issue
an option to Mr. Jensen to purchase up to 125,000 shares of common stock at the
initial public offering price of the common stock. This option will be
exercisable for a period of ten years. After the closing of the initial public
offering, in the event of a "change in control" of the Company (as defined in
his employment agreement), Mr. Jensen will be entitled to give written notice to
the Company of termination of the employment agreement and to receive a cash
payment equal to approximately 300% of the compensation received by Mr. Jensen
in the one-year period immediately preceding the change in control. In addition,
if Mr. Jensen elects to terminate the employment agreement pursuant to a change
in control, Mr. Jensen will further be entitled to, in lieu of shares of common
stock issuable upon the exercise of options, an amount in cash or common stock
equal to the excess of the fair market value of the common stock as of the date
of closing of the transaction effecting the change in control over the per share
exercise price of the options held by Mr. Jensen, times the number of shares of
common stock subject to such options. In the event that the board of directors
determines in its sole discretion that the Company is unable to close the
initial public offering, then the employment agreement may be terminated by the
board of directors at any time during the term of the employment agreement
without notice, with the condition that Mr. Jensen will be entitled to
liquidated damages in the amount of $250,000.
In connection with the agreement to acquire Premier Bancshares, Inc., the
Company has agreed entered into an employment agreement with Bruce W. Wiley, the
current President of Premier Bank. Mr. Wiley's employment agreement provides for
a five-year term commencing at the closing of the initial public offering. Mr.
Wiley's employment agreement provides for an annual base salary of $150,000 and
the grant of an option to purchase up to 70,000 shares of Company common stock
at the initial public offering price. 30,000 options will be granted under the
Company's stock option plan on the same terms as options issued to other members
of senior management and will vest over a period of three years. The remaining
40,000 options will be granted on the same terms as those warrants which were
issued to certain founders of the Company in April 1998 and will also be
exercisable for 10 years. In addition, Mr. Wiley's employment agreement provides
that he will serve as a director of the Company and his title following the
merger and the initial public offering will be President of the Mid-Missouri
Market. In the event of a "change in control" of the Company (as defined in his
employment agreement), Mr. Wiley's employment agreement provides that he may
elect to give written notice to the Company of termination of his employment
agreement and to receive a cash payment equal to approximately 300% of the
compensation received by him in the one-year period immediately preceding the
change in control.
F-10
<PAGE> 117
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company has also entered into employment agreements with four
additional executive officers. All of these employment agreements provide for a
three-year term. These employment agreements provide for annual base salaries
and the grant of options to purchase up to an aggregate of 110,000 shares at the
initial public offering price. These options will be exercisable for a period of
ten years.
Stock Option Plan
On April 29, 1999, the board of directors adopted the 1999 Stock Option Plan
(the 1999 Plan) to promote the Company's growth and financial success. Options
may be granted under the 1999 Plan to the Company's directors, officers, and
employees, as well as certain consultants and advisors. The 1999 Plan
contemplates the grant of nonqualified stock options and incentive stock
options. The 1999 Plan provides for option grants to purchase up to an aggregate
of 500,000 shares of common stock, subject to adjustment under certain
circumstances (the Option Shares). The 1999 Plan will expire upon the earlier to
occur of: (a) the date on which all Option Shares have been issued upon exercise
of options under the 1999 Plan; or (b) the tenth anniversary of the 1999 Plan's
effective date. The 1999 Plan will be administered by the board of directors or
by a committee appointed by the board and consisting of at least two
non-employee board members.
The exercise price of incentive stock options granted under the 1999 Plan will
be determined by the board of directors, but will in no event be less than 100%
of the market price of one share of common stock on the option grant date.
Nonqualified stock options under the 1999 Plan may be granted at an exercise
price of no less than 75% of the market price of the common stock on the date of
the grant. Vested options under the 1999 Plan may be exercised in whole or in
part, but in no event later than 10 years from the grant date. The board of
directors may at any time terminate, modify, or amend the 1999 Plan in any
respect, except that without shareholder approval the board of directors may
not:
- - Increase the number of Option Shares,
- - Extend the period during which options may be granted or exercised,
- - Change the class of 1999 Plan participants, or
- - Otherwise materially modify the requirements as to eligibility for
participation in the 1999 Plan.
In no event will the termination, modification, or amendment of the 1999 Plan,
without the written consent of an optionee, affect his or her rights under an
option or right previously granted him or her. The 1999 Plan must be approved by
the Company's shareholders within twelve months from the adoption of the 1999
Plan by the board of directors.
F-11
<PAGE> 118
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $ 145,746
Other assets................................................ 718,215
---------
Total assets........................................... $ 863,961
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued payroll taxes....................................... $ 3,550
Obligation to repurchase common stock....................... 2,900
Accrued expenses............................................ 228,518
---------
Total liabilities...................................... 234,968
---------
Shareholders' equity:
Series A preferred stock; $0.01 par value; 1,000,000
shares authorized; 99,900 shares issued and
outstanding; redemption price of $10.00................ 999,000
Common stock; $0.01 par value; 20,000,000 shares
authorized; 300,000 shares issued and outstanding...... 3,000
Common stock to be repurchased (290,000 shares at $0.01
per share)............................................. (2,900)
---------
Common stock outstanding after repurchase.............. 100
---------
Deficit accumulated during development stage.............. (370,107)
---------
Total shareholders' equity............................. 628,993
---------
Total liabilities and shareholders' equity............. $ 863,961
=========
</TABLE>
See accompanying note to unaudited financial statements.
F-12
<PAGE> 119
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 1, 1998 (DATE OF INCEPTION) THROUGH JUNE 30, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM SIX
MAY 1, 1998 MONTHS
(DATE OF INCEPTION) ENDED
THROUGH JUNE 30, JUNE 30,
1998 1999
------------------- ---------
<S> <C> <C>
Income:
Interest income........................................... $ -- $ 10,381
Other income.............................................. -- 179
-------- ---------
Total income...................................... -- 10,560
-------- ---------
Expenses:
Salary and benefits....................................... -- 227,963
Other..................................................... -- 30,909
-------- ---------
Total expenses......................................... -- 258,872
-------- ---------
Net loss............................................... $ -- $(248,312)
======== =========
Basic and diluted loss per share............................ $ -- $ (24.83)
======== =========
</TABLE>
See accompanying note to unaudited financial statements.
F-13
<PAGE> 120
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK DURING
------------------- --------------- DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT STAGE TOTAL
-------- -------- ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998..................... 99,900 $999,000 10,000 $100 (121,795) $877,305
Net loss....................................... -- -- -- -- (248,312) (248,312)
------ -------- ------ ---- -------- --------
Balance, June 30, 1999......................... 99,900 $999,000 10,000 $100 (370,107) $628,993
====== ======== ====== ==== ======== ========
</TABLE>
See accompanying note to unaudited financial statements.
F-14
<PAGE> 121
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE PERIOD MAY 1, 1998 (DATE OF INCEPTION) THROUGH JUNE 30, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM SIX
MAY 1, 1998 MONTHS
(DATE OF INCEPTION) ENDED
THROUGH JUNE 30, JUNE 30,
1998 1999
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ -- $(248,312)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in other assets............................... -- (317,099)
Increase in accrued payroll taxes...................... -- 2,392
---------- ---------
Net cash used in operating activities................ -- (563,019)
Cash provided by (used in) financing activities:
Proceeds from the issuance of units....................... 1,000,000 --
Repurchase of common stock................................ -- (2,750)
---------- ---------
Net cash provided by (used in) financing
activities........................................ 1,000,000 (2,750)
---------- ---------
Net increase (decrease) in cash........................ 1,000,000 (565,769)
Cash, beginning of period................................... -- 711,515
---------- ---------
Cash, end of period......................................... $1,000,000 $ 145,746
========== =========
</TABLE>
See accompanying note to unaudited financial statements.
F-15
<PAGE> 122
RIVA BANCSHARES, INC.
(A DEVELOPMENTAL STAGE CORPORATION)
NOTE TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE A BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included.
F-16
<PAGE> 123
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Premier Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of Premier
Bancshares, Inc. and subsidiary (the Company) as of December 31, 1997 and 1998,
and the related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. 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
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 Premier Bancshares,
Inc. and subsidiary as of December 31, 1997 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, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
St. Louis, Missouri
February 12, 1999, except for note 17
for which the date is July 29, 1999
F-17
<PAGE> 124
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 514,002 1,156,049
Interest-bearing deposits................................... 497,540 410,774
Federal funds sold.......................................... 1,802,000 5,111,000
----------- ----------
Cash and cash equivalents.............................. 2,813,542 6,677,823
Debt and marketable equity securities available-for-sale, at
fair value................................................ 5,417,750 6,477,945
Loans, net.................................................. 23,342,301 41,170,698
Premises and equipment, net................................. 1,393,233 2,543,762
Accrued interest receivable................................. 268,335 348,624
Other assets................................................ 481,681 536,976
----------- ----------
Total assets........................................... $33,716,842 57,755,828
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing....................................... $ 1,478,183 2,817,137
Interest-bearing.......................................... 26,874,744 45,998,685
----------- ----------
Total deposits......................................... 28,352,927 48,815,822
Federal Home Loan Bank advances............................. 940,000 3,445,153
Note payable................................................ 1,050,000 750,000
Accrued interest payable.................................... 115,715 207,529
Other liabilities........................................... 36,616 99,163
----------- ----------
Total liabilities...................................... 30,495,258 53,317,667
----------- ----------
Commitments and contingencies
Shareholders' equity:
Common stock, $1 par value, 100,000 shares authorized,
32,843 and 41,834 shares issued and outstanding in 1997
and 1998, respectively................................. 32,843 41,834
Surplus................................................... 3,394,172 4,553,421
Accumulated deficit....................................... (213,383) (191,030)
Accumulated other comprehensive income.................... 7,952 33,936
----------- ----------
Total shareholders' equity............................. 3,221,584 4,438,161
----------- ----------
Total liabilities and shareholders' equity............. $33,716,842 57,755,828
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 125
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans................................ $1,008,332 1,750,020 2,849,946
Interest and dividends on debt and marketable equity
securities............................................. 359,220 356,490 407,387
Interest on federal funds sold............................ 62,763 68,702 182,177
---------- --------- ---------
Total interest income.................................. 1,430,315 2,175,212 3,439,510
---------- --------- ---------
Interest expense:
Interest on deposits...................................... 855,131 1,253,198 1,884,612
Interest on Federal Home Loan Bank advances............... -- 21,905 132,748
Interest on note payable.................................. 27,744 33,975 72,140
---------- --------- ---------
Total interest expense................................. 882,875 1,309,078 2,089,500
---------- --------- ---------
Net interest income.................................... 547,440 866,134 1,350,010
Provision for loan losses................................... 80,582 112,279 291,734
---------- --------- ---------
Net interest income after provision for loan losses.... 466,858 753,855 1,058,276
---------- --------- ---------
Noninterest income:
Service charges on deposits............................... 18,889 34,930 58,958
Loss on sale of securities, net........................... -- (210) --
Gain on sale of loans, net................................ 16,922 26,270 70,055
Other noninterest income.................................. 11,461 28,314 39,504
---------- --------- ---------
Total noninterest income............................... 47,272 89,304 168,517
---------- --------- ---------
Noninterest expense:
Salaries and employee benefits............................ 298,307 354,371 598,308
Occupancy and equipment expense........................... 82,030 118,965 188,108
Other noninterest expense................................. 247,024 262,315 409,498
---------- --------- ---------
Total noninterest expense.............................. 627,361 735,651 1,195,914
---------- --------- ---------
Income (loss) before income tax expense................ (113,231) 107,508 30,879
Income tax expense.......................................... -- 10,613 8,526
---------- --------- ---------
Net income (loss)...................................... $ (113,231) 96,895 22,353
========== ========= =========
Basic and diluted earnings (loss) per share................. $ (3.54) 2.99 0.55
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 126
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ACCU- COMPRE- TOTAL
---------------- TREASURY MULATED HENSIVE SHAREHOLDERS'
SHARES AMOUNT SURPLUS STOCK DEFICIT INCOME EQUITY
------ ------- --------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... 35,020 $35,020 3,605,580 (307,530) (189,517) 47,633 3,191,186
Retirement of treasury stock..... (3,000) (3,000) (304,530) 307,530 -- -- --
Transfer from accumulated deficit
to surplus..................... -- -- 7,530 -- (7,530) -- --
Comprehensive income:
Net loss....................... -- -- -- -- (113,231) -- (113,231)
Other comprehensive income --
change in unrealized gain
(loss) on securities
available-for-sale, net of
tax.......................... -- -- -- -- -- (61,756) (61,756)
---------
Total comprehensive income... (174,987)
------ ------- --------- -------- -------- ------- ---------
Balance at December 31, 1996..... 32,020 32,020 3,308,580 -- (310,278) (14,123) 3,016,199
Issuance of common stock......... 823 823 85,592 -- -- -- 86,415
Comprehensive income:
Net income..................... -- -- -- -- 96,895 -- 96,895
Other comprehensive income --
change in unrealized gain
(loss) on securities
available-for-sale, net of
tax and reclassification
amount....................... -- -- -- -- -- 22,075 22,075
---------
Total comprehensive income... 118,970
------ ------- --------- -------- -------- ------- ---------
Balance at December 31, 1997..... 32,843 32,843 3,394,172 -- (213,383) 7,952 3,221,584
Issuance of common stock......... 9,231 9,231 1,190,799 -- -- -- 1,200,030
Purchase of treasury stock....... -- -- -- (31,790) -- -- (31,790)
Retirement of treasury stock..... (240) (240) (31,550) 31,790 -- -- --
Comprehensive income:
Net income..................... -- -- -- -- 22,353 -- 22,353
Other comprehensive income --
change in unrealized gain
(loss) on securities
available-for-sale, net of
tax.......................... -- -- -- -- -- 25,984 25,984
---------
Total comprehensive income... 48,337
------ ------- --------- -------- -------- ------- ---------
Balance at December 31, 1998..... 41,834 $41,834 4,553,421 -- (191,030) 33,936 4,438,161
====== ======= ========= ======== ======== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 127
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (113,231) $ 96,895 $ 22,353
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 59,405 73,823 115,188
Provision for loan losses............................... 80,582 112,279 291,734
Loss on sale of securities.............................. -- 210 --
Gain on sale of loans, net.............................. (16,922) (26,270) (70,055)
Increase in accrued interest receivable................. (15,438) (83,205) (80,289)
Increase in accrued interest payable.................... 25,100 29,768 91,814
Increase in other assets................................ (3,459) (459,880) (55,295)
Other, net.............................................. (9,877) 43,701 49,161
Originations of loans held for sale....................... (1,705,300) (2,060,385) (6,194,486)
Proceed from sales of loans held for sale................. 1,722,222 2,086,655 6,041,376
------------ ----------- ------------
Net cash provided by (used in) operating activities... 23,082 (186,409) 211,501
------------ ----------- ------------
Cash flows from investing activities:
Proceeds from sales of debt and marketable equity
securities available-for-sale........................... -- 553,120 --
Proceeds from maturities and principal payments on debt
and marketable equity securities available-for-sale..... 1,726,054 2,564,969 3,542,196
Purchases of debt and marketable equity securities
available-for-sale...................................... (2,693,239) (2,260,555) (4,575,742)
Net increase in loans..................................... (9,022,096) (8,249,077) (17,896,966)
Purchases of premises and equipment, net.................. (709,899) (67,658) (1,252,996)
------------ ----------- ------------
Net cash used in investing activities................. (10,699,180) (7,459,201) (20,183,508)
------------ ----------- ------------
Cash flows from financing activities:
Net increase in deposits.................................. 10,761,404 6,084,663 20,462,895
Federal Home Loan Bank advances........................... -- 1,940,000 2,805,000
Principal payments on Federal Home Loan Bank advances..... -- (1,000,000) (299,847)
Proceeds from note payable................................ -- 1,050,000 --
Repayment of note payable................................. -- (300,000) (300,000)
Purchase of treasury stock................................ -- -- (31,790)
Proceeds from sale of common stock........................ -- 86,415 1,200,030
------------ ----------- ------------
Net cash provided by financing activities............. 10,761,404 7,861,078 23,836,288
------------ ----------- ------------
Net increase in cash and cash equivalents............. 85,306 215,468 3,864,281
Cash and cash equivalents at beginning of year.............. 2,512,768 2,598,074 2,813,542
------------ ----------- ------------
Cash and cash equivalents at end of year.................... $ 2,598,074 $ 2,813,542 $ 6,677,823
============ =========== ============
Supplemental information -- interest paid................... $ 857,775 $ 1,279,310 $ 1,997,686
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 128
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997, AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Premier Bancshares, Inc. provides a full range of banking services to corporate
and individual customers throughout Jefferson City and Columbia, Missouri,
through its wholly owned subsidiary, Premier Bank (the Bank). Premier
Bancshares, Inc. and the Bank (the Company), which operate as a single business
segment, are subject to competition from other financial and nonfinancial
institutions providing financial products in these Missouri markets.
Additionally, the Company is subject to the regulations of certain federal and
state agencies and undergoes periodic examinations by those regulatory agencies.
The accounting and reporting policies of the Company conform, in all material
respects, to generally accepted accounting principles within the banking
industry.
The more significant of the Company's accounting policies are set forth below:
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions, including the determination of the allowance for
loan losses, that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Premier
Bancshares, Inc. and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash, due from banks, interest-bearing deposits, and
federal funds sold.
Investment Securities
At the time of purchase for the periods covered, all debt and equity
securities were classified as available-for-sale. Unrealized gains and
losses, net of tax, are excluded from earnings and reported as accumulated
other comprehensive income, a separate component of shareholders' equity,
until realized. A decline in the market value of any 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.
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 are included in earnings and are derived using the specific-
identification method for determining the cost of securities sold.
The Bank, as a member of the Federal Home Loan Bank System administered by
the Federal Housing Finance Board, is required to maintain an investment in
the capital stock of the Federal Home Loan Bank (FHLB) in an amount equal
to the greater of 1% of the Bank's total mortgage-related assets at the
beginning of each year, 0.3% of the Bank's total assets at the beginning of
each
F-22
<PAGE> 129
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
year, or 5% of advances from the FHLB to the Bank. This investment is
recorded at cost which represents redemption value.
Loans
Interest on loans is credited to income based upon the principal amount
outstanding. The recognition of interest income is discontinued when, in
management's judgment, the interest will not be collectible in accordance
with the contractual terms of the loan agreement or when either principal
or interest is past due over 90 days. Subsequent payments received on such
loans are applied to principal if there is any doubt 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.
A loan is considered impaired when it is probable the Company 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 historical measurement method used, the Company
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 flows at the loan's
effective rate of interest as stated in the original loan agreement. The
Company uses its nonaccrual policy for recognizing interest income on
impaired loans.
The Company originates certain loans which are sold in the secondary
mortgage market. These long-term, fixed-rate loans are sold on a
note-by-note basis. Immediately upon locking in an interest rate, the
Company enters into an agreement to sell the mortgage loan without
recourse. The Company allocates the entire cost of loans originated to the
mortgage loans, as the Company does not retain servicing. These loans held
for sale are included in loans, net in the consolidated balance sheets.
The allowance for loan losses is available to absorb loan charge-offs. The
allowance is increased by provisions charged to expense and reduced by loan
charge-offs less recoveries. The provision charged to expense is that
amount which management believes is sufficient to bring the balance of the
allowance for loan losses to a level adequate to absorb potential loan
losses, based on their knowledge and evaluation of the current loan
portfolio and the current economic environment in which the borrowers of
the Bank operate.
Management believes the allowance for loan losses is adequate to absorb
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 and changes in the
financial condition of borrowers. Additionally, regulatory agencies, as an
integral part of the examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to increase
its allowance for loan losses based on their judgments and interpretations
about information available to them at the time of their examinations.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, which is 50 years for buildings, and
range from 3 to 10 years for furniture, fixtures, and equipment. Property
additions and betterments are capitalized, while maintenance and repairs
which do not extend the useful life of the asset are expensed as incurred.
F-23
<PAGE> 130
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Premier Bancshares, Inc. and the Bank file consolidated income tax returns.
Income taxes are accounted for under the asset and liability method.
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. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period which includes the enactment date.
Treasury Stock
The purchase of the Company's common stock is recorded at cost. Upon
subsequent reissuance or retirement, the treasury stock account is reduced
by the average cost basis of such common stock.
Earnings (Loss) Per Share
As the Company has no dilutive instruments, basic earnings (loss) per share
and dilutive earnings (loss) per share are equal. Basic earnings (loss) per
share is computed by dividing net income (loss) by 32,020, 32,375, and
40,443, the weighted average number of common shares outstanding during
1996, 1997, and 1998, respectively.
Financial Instruments
Financial instruments are defined as cash, evidence of an ownership
interest in any entity, or a contract that both imposes on one entity a
contractual obligation to deliver cash or another financial instrument to a
second entity, and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flow
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured as the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, during 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements, and requires an
enterprise to (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
The
F-24
<PAGE> 131
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company reports comprehensive income in the consolidated statements of
shareholders' equity and comprehensive income. The adoption of SFAS No. 130
did not have an effect on the financial position or results of operations
of the Company.
(2) REGULATORY RESTRICTIONS AND CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
federal and state banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines, the Bank must
meet specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification of the Bank are
subject to qualitative judgments by the regulators about components,
risk-weightings, and other factors. As of December 31, 1997 and 1998, without
prior approval of the regulatory banking authorities, the Bank was unable to pay
cash dividends on its common stock.
Quantitative measures established by regulations to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital to risk-weighted assets, and of
Tier I capital to adjusted average assets. Management believes, as of December
31, 1998, the Bank meets all capital and adequacy requirements to which it is
subject.
The Bank is also subject to the regulatory framework for prompt corrective
action. The Bank's most recent notification from the Federal Deposit Insurance
Corporation, dated November 30, 1998, categorized it 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 I risk-based,
and Tier I to adjusted average assets ratios as set forth in the following
table. There are no obligations or events since November 30, 1998 that
management believes have changed the Bank's category.
The actual and required capital amounts and ratios for the Bank as of December
31, 1997 and 1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
REQUIREMENTS TO
CAPITAL BE CLASSIFIED AS
ACTUAL REQUIREMENTS WELL CAPITALIZED
-------------- -------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
1997:
Total capital (to risk-weighted
assets).............................. $4,425 23.51% $1,505 8.00% $1,882 10.00%
Tier I capital (to risk-weighted
assets).............................. 4,215 22.40 753 4.00 1,129 6.00
Tier I capital (to average assets)...... 4,215 13.20 958 3.00 1,596 5.00
====== ===== ====== ==== ====== =====
</TABLE>
<TABLE>
<CAPTION>
REQUIREMENTS TO
CAPITAL BE CLASSIFIED AS
ACTUAL REQUIREMENTS WELL CAPITALIZED
-------------- -------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
1998:
Total capital (to risk-weighted
assets).............................. $5,513 13.24% $3,330 8.00% $4,163 10.00%
Tier I capital (to risk-weighted
assets).............................. 5,074 12.19 1,665 4.00 2,498 6.00
Tier I capital (to average assets)...... 5,074 9.09 1,675 3.00 2,792 5.00
====== ===== ====== ==== ====== =====
</TABLE>
F-25
<PAGE> 132
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) DEBT AND MARKETABLE EQUITY SECURITIES
The amortized cost and fair values of debt and marketable equity securities
available-for-sale at December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities....................... $ 759,840 5,743 -- 765,583
U.S. Government corporations and agencies...... 3,753,039 8,394 (3,689) 3,757,744
Obligations of state and political
subdivisions................................ 358,748 3,286 (938) 361,096
Mortgage-backed securities..................... 454,575 2,671 (3,419) 453,827
---------- ------ ------ ---------
5,326,202 20,094 (8,046) 5,338,250
---------- ------ ------ ---------
Marketable equity securities:
Federal Home Loan Bank stock................... 77,000 -- -- 77,000
Other.......................................... 2,500 -- -- 2,500
---------- ------ ------ ---------
79,500 -- -- 79,500
---------- ------ ------ ---------
$5,405,702 20,094 (8,046) 5,417,750
========== ====== ====== =========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities..................... $ 506,230 6,580 -- 512,810
U.S. Government corporations and agencies.... 4,860,592 35,828 (2,773) 4,893,647
Obligations of state and political
subdivisions.............................. 359,279 10,880 -- 370,159
Mortgage-backed securities................... 524,525 3,355 (2,451) 525,429
---------- ------ ------ ---------
6,250,626 56,643 (5,224) 6,302,045
---------- ------ ------ ---------
Marketable equity securities:
Federal Home Loan Bank stock................. 173,400 -- -- 173,400
Other........................................ 2,500 -- -- 2,500
---------- ------ ------ ---------
175,900 -- -- 175,900
---------- ------ ------ ---------
$6,426,526 56,643 (5,224) 6,477,945
========== ====== ====== =========
</TABLE>
F-26
<PAGE> 133
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair values of debt securities available-for-sale at
December 31, 1997 and 1998, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because borrowers have the
right to repay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
1997 1998
----------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less...................... $ 499,372 499,807 750,225 753,273
Due after one year through five years........ 3,765,535 3,770,534 2,231,764 2,091,082
Due after five years through ten years....... 1,061,295 1,067,909 3,010,558 3,202,383
Due after ten years.......................... -- -- 258,079 255,307
---------- --------- --------- ---------
$5,326,202 5,338,250 6,250,626 6,302,045
========== ========= ========= =========
</TABLE>
Debt and marketable equity securities with carrying values aggregating
$1,464,302 and $1,369,034 at December 31, 1997 and 1998, respectively, were
pledged to secure public funds and for other purposes as required or permitted
by law.
(4) LOANS
The composition of the loan portfolio at December 31, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Commercial.................................................. $ 2,905,207 5,292,128
Real estate................................................. 19,329,657 34,465,883
Installment and others...................................... 1,317,437 1,618,363
Loans held for sale......................................... -- 233,165
----------- ----------
23,552,301 41,609,539
Allowance for loan losses................................... (210,000) (438,841)
----------- ----------
Loans, net............................................. $23,342,301 41,170,698
=========== ==========
</TABLE>
The Bank grants commercial, residential mortgage, and installment loans to
customers primarily in their service area of Jefferson City and Columbia,
Missouri. The Company has a diversified loan portfolio, with no particular
concentration of credit in any one economic sector in this service area;
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 economies and their effect
on the real estate market.
Following is a summary of activity for the year ended December 31, 1998, of
loans to executive officers and directors or to entities in which such
individuals had beneficial interest as shareholders, officers, or directors.
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 same
time for comparable transactions with other persons, and did not involve more
than the normal risk of collectibility.
<TABLE>
<S> <C>
Balance at December 31, 1997................................ $273,332
New loans................................................... 886,100
Payments received........................................... (654,098)
--------
Balance at December 31, 1998................................ $505,334
========
</TABLE>
F-27
<PAGE> 134
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions in the allowance for loan losses for the years ended December 31,
1996, 1997, and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- -------
<S> <C> <C> <C>
Balance at January 1........................................ $ 63,430 120,000 210,000
Provision charged to expense................................ 80,582 112,279 291,734
Loans charged-off........................................... (24,012) (22,641) (64,643)
Recoveries of loans previously charged-off.................. -- 362 1,750
-------- ------- -------
Balance at December 31...................................... $120,000 210,000 438,841
======== ======= =======
</TABLE>
A summary of impaired loans at December 31, 1997 and 1998 follows:
<TABLE>
<CAPTION>
1997 1998
-------- ------
<S> <C> <C>
Nonaccrual loans............................................ $161,234 94,072
Impaired loans continuing to accrue interest................ -- --
-------- ------
Total impaired loans................................... $161,234 94,072
======== ======
Allowance for losses on impaired loans...................... $ 27,532 24,072
Impaired loans with no related allowance for loan losses.... -- --
======== ======
</TABLE>
The average balance of impaired loans during 1997 and 1998 was $82,690 and
$158,233, respectively.
There were no nonaccrual or impaired loans as of and for the year ended December
31, 1996. A summary of interest income on nonaccrual and other impaired loans
for 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
IMPAIRED LOANS
NONACCRUAL CONTINUING TO
LOANS ACCRUE INTEREST TOTAL
---------- --------------- -----
<S> <C> <C> <C>
1997:
Income recognized........................................ $ -- -- --
Interest income had interest accrued..................... 7,399 -- 7,399
====== ===== =====
1998:
Income recognized........................................ $ -- -- --
Interest income had interest accrued..................... 7,650 -- 7,650
====== ===== =====
</TABLE>
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Land........................................................ $ 400,000 650,000
Buildings................................................... 872,839 1,552,925
Furniture, fixtures, and equipment.......................... 236,578 545,114
---------- ---------
1,509,417 2,748,039
Less accumulated depreciation............................... 116,184 204,277
---------- ---------
$1,393,233 2,543,762
========== =========
</TABLE>
Amounts charged to occupancy expense for depreciation aggregated $43,769,
$60,193, and $102,467 for the years ended December 31, 1996, 1997, and 1998,
respectively.
F-28
<PAGE> 135
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the Bank had entered into an operating lease for a
facility which begins in February 2000 and expires in 2005. Minimum future lease
payments required are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $ --
2000...................................................... 24,475
2001...................................................... 26,700
2002...................................................... 26,700
2003...................................................... 26,700
2004 and thereafter....................................... 28,925
--------
$133,500
========
</TABLE>
(6) INTEREST-BEARING DEPOSITS
A summary of interest-bearing deposits at December 31, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
NOW and money market demand accounts........................ $ 3,008,584 6,080,659
Savings..................................................... 6,091,624 12,454,092
Other time deposits:
Less than $100,000........................................ 11,490,200 16,267,823
$100,000 and over......................................... 6,284,336 11,196,111
----------- ----------
$26,874,744 45,998,685
=========== ==========
</TABLE>
Interest expense on deposits for the years ended December 31, 1996, 1997, and
1998 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
NOW and money market demand accounts...................... $ 80,291 123,663 171,269
Savings................................................... 86,675 242,812 401,601
Other time deposits....................................... 688,165 886,723 1,311,742
-------- --------- ---------
$855,131 1,253,198 1,884,612
======== ========= =========
</TABLE>
The maturities of other time deposits at December 31, 1998 are show below.
Expected maturities may differ from contractual maturities because depositors
may redeem deposits early.
<TABLE>
<S> <C>
Due in three months or less................................. $ 7,032,398
Due in greater than three months through one year........... 13,901,527
Due in greater than one year through three years............ 5,550,580
Due in greater than three years............................. 979,429
-----------
$27,463,934
===========
</TABLE>
F-29
<PAGE> 136
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1998 and 1997, the Bank has fixed rate advances outstanding with
the Federal Home Loan Bank of Des Moines, with stated maturities as follows:
<TABLE>
<CAPTION>
1997 1998
------------------- ---------------------
WEIGHTED WEIGHTED
INTEREST 1998 INTEREST
AMOUNT RATE AMOUNT RATE
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Due in one year or less..................... $500,000 6.02% $ 250,000 6.18%
Due after five years........................ 440,000 6.43 3,195,153 5.70
-------- ==== ---------- ====
$940,000 $3,445,153
======== ==========
</TABLE>
The Bank maintains an $8.3 million line of credit with the FHLB and had
availability under that line of $4.9 million at December 31, 1998.
FHLB advances are secured under a blanket agreement which assigns all FHLB stock
and one-to-four family mortgage loans equal to 130% of the outstanding advance
balance.
(8) NOTE PAYABLE
The note payable at December 31, 1998 is a term loan between the Company and an
unaffiliated financial institution which bears interest at the prime rate (7.75%
at December 31, 1998), is due on November 15, 1999, and is secured by 35,020
common shares of the Bank.
(9) OTHER COMPREHENSIVE INCOME
The Company's other comprehensive income included the following components:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------ ------
<S> <C> <C> <C>
Net realized and unrealized gain (loss) on securities
available-for-sale, net of tax......................... $(61,756) 22,214 25,984
Less adjustment for net securities loss realized in net
income, net of tax..................................... -- (139) --
-------- ------ ------
$(61,756) 22,075 25,984
======== ====== ======
</TABLE>
(10) INCOME TAXES
The components of income tax expense for the years ended December 31, 1996,
1997, and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- ------
<S> <C> <C> <C>
Current expense:
Federal............................................... $ -- 8,926 --
State................................................. -- 1,687 8,526
Increase(decrease)in the beginning of the year balance
of the valuation allowance for deferred tax
assets............................................. 42,895 (39,038) (6,416)
Deferred -- federal..................................... (42,895) 39,038 6,416
-------- ------- ------
$ -- 10,613 8,526
======== ======= ======
</TABLE>
F-30
<PAGE> 137
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of expected income tax expense to federal income tax expense,
computed by applying the federal statutory rate of 34% to income (loss) before
income tax expense for the years ended December 31, 1996, 1997, and 1998 to
reported income tax expense, is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate......... $(38,499) $ 36,553 $ 10,499
Increase (decrease) in income taxes resulting from:
State income tax, net of federal income tax
benefit........................................... -- 1,113 5,627
Officer's life insurance -- book to tax treatment.... -- 861 (4,222)
Change in the beginning of the year balance of the
valuation allowance for deferred tax assets
allocated to income tax expense................... 42,895 (39,038) (6,416)
Other, net........................................... (4,396) 11,124 3,038
-------- -------- --------
Income tax expense................................ $ -- $ 10,613 $ 8,526
======== ======== ========
</TABLE>
The tax effect of temporary differences which give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Book provision for loan loss in excess of tax............. $ 54,143 $126,213
Deferred compensation..................................... 849 3,818
Available-for-sale securities market valuation............ 4,096 17,483
Organizational costs...................................... 10,258 5,862
Net operating loss carryforward........................... 71,545 16,503
-------- --------
Gross deferred tax assets.............................. 140,891 169,879
Less valuation allowance.................................. (63,311) (56,895)
-------- --------
Net deferred tax assets, net........................... 77,580 112,984
-------- --------
Deferred tax liabilities:
Premises and equipment, basis............................. (25,791) (51,299)
Accrual to cash conversion for book to tax accounting
methods................................................ (44,638) (41,717)
Other..................................................... (3,055) (2,486)
-------- --------
Total gross deferred tax liabilities................... (73,484) (95,502)
-------- --------
Net deferred tax assets................................ $ 4,096 $ 17,482
======== ========
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards (NOLs) of
approximately $50,000. Their utilization is subject to annual limitations. The
NOLs for the Company at December 31, 1998 expire during 2009 through 2011.
The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. A valuation allowance is provided on deferred tax assets
when it is more likely than not that some portion of the assets will not be
realized. The valuation allowance for deferred tax assets as of December 31,
1996 was $102,349. The net change in the total valuation allowance for the years
ended December 31, 1997 and 1998 was a decrease of $39,038 and $6,416,
respectively.
F-31
<PAGE> 138
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) EMPLOYEE BENEFITS
During 1997, the Company adopted a SIMPLE IRA for all employees meeting certain
eligibility requirements. An eligible employee may make a salary reduction
election, expressed as a percentage of compensation, not to exceed $6,000 for
any calendar year. The Company makes contributions to the plan equal to the
employees' salary reduction contributions up to a limit of 3% of the employee's
compensation for the calendar year subject to certain provisions which could
reduce such contributions. All contributions are fully vested and
nonforfeitable; there are no withdrawal restrictions, and no cost or penalty for
transfer to another IRA. Employer matching contributions to the plan totaled
$4,232 and $8,239 in 1997 and 1998, respectively.
In 1997, the Company's Board entered into a Director Deferred Fee Agreement
(Agreement) with five of the six Directors and one Company officer; the
Agreement provides the participants with the opportunity to defer fees and to
accumulate assets for retirement. The Board has determined that it is in the
best interest of the Company to recover the cost of the benefit obligations by
purchasing life insurance. These life insurance policies are owned by the
Company and are designed to insure against the contingent liability associated
with the premature death of any of the Directors. The Company did not make any
contributions related to the Agreement during 1998. The current surrender value
of the life insurance policies, included in other assets in the consolidated
balance sheets, totaled $452,468 and $473,621 at December 31, 1997 and 1998,
respectively. The accrued benefit obligations totaled $2,496 and $11,232 at
December 31, 1997 and 1998, respectively, and is included in other liabilities
in the consolidated balance sheets.
(12) OTHER NONINTEREST EXPENSE
Other noninterest expense for the years ended December 31, 1996, 1997, and 1998
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Data processing........................................ $ 25,599 $ 49,911 $ 61,502
Professional services.................................. 42,206 26,826 44,927
Directors' fees........................................ 5,300 8,650 38,000
Advertising............................................ 45,376 25,484 51,706
Postage and supplies................................... 22,670 20,075 50,231
Other.................................................. 105,873 131,369 163,132
-------- -------- --------
$247,024 $262,315 $409,498
======== ======== ========
</TABLE>
(13) COMMITMENTS AND CONTINGENCIES
During the normal course of business, various legal claims have arisen which, in
the opinion of management, will not result in any material liability to the
Company.
(14) 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
risk in excess of the amount recognized in the consolidated balance sheets.
The contractual amounts of these instruments reflect the extent of involvement
the Bank has in such particular classes of financial instruments.
F-32
<PAGE> 139
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 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 such instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as they do for on-balance-sheet financial instruments included in the
consolidated balance sheets. Following is a summary of off-balance-sheet
financial instruments at December 31, 1997 and 1998, respectively:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Financial instruments whose contractual amounts represent:
Commitments to extend credit.............................. $3,940,969 6,937,356
Standby letters of credit................................. 53,985 53,148
---------- ----------
Total off-balance-sheet financial instruments.......... $3,994,954 6,990,504
========== ==========
</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. At December 31, 1998, $1,461,268 represent 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 creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the borrower. Collateral held varies, but is generally residential or
income-producing commercial property, inventory, accounts receivable, or
equipment.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
(15) PARENT COMPANY FINANCIAL INFORMATION
Condensed balance sheets as of December 31, 1997 and 1998 and the related
condensed schedules of operations and cash flows for the years ended December
31, 1996, 1997, and 1998 of the Company (parent company only) are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Assets:
Cash...................................................... $ 39,903 39,879
Investment in Bank........................................ 4,227,653 5,107,802
Other assets.............................................. 17,297 47,917
---------- ---------
Total assets........................................... $4,284,853 5,195,598
========== =========
Liabilities:
Note payable.............................................. $1,050,000 750,000
Other liabilities......................................... 13,269 7,437
---------- ---------
Total liabilities...................................... 1,063,269 757,437
Total shareholders' equity.................................. 3,221,584 4,438,161
---------- ---------
Total liabilities and shareholders' equity............. $4,284,853 5,195,598
========== =========
</TABLE>
F-33
<PAGE> 140
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED SCHEDULES OF OPERATIONS
<TABLE>
<CAPTION>
1996 1997 1998
--------- ------- --------
<S> <C> <C> <C>
Revenue.................................................... $ -- -- --
Expenses:
Interest expense......................................... 27,744 33,975 72,140
Other operating expenses................................. 29,100 15,485 44,388
--------- ------- --------
Total expenses........................................ 56,844 49,460 116,528
--------- ------- --------
Loss before income tax expense (benefit) and equity in
undistributed income (loss) of Bank................. (56,844) (49,460) (116,528)
Income tax expense (benefit)............................... -- -- --
--------- ------- --------
Loss before equity in undistributed income (loss) of
Bank................................................ (56,844) (49,460) (116,528)
Equity in undistributed income (loss) of Bank.............. (56,387) 146,355 138,881
--------- ------- --------
Net income (loss)..................................... $(113,231) 96,895 22,353
========= ======= ========
</TABLE>
CONDENSED SCHEDULES OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(113,231) 96,895 22,353
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Equity in undistributed (income) loss of Bank....... 56,387 (146,355) (138,881)
Other, net.......................................... 6,450 143 (1,736)
--------- --------- ---------
Net cash used in operating activities............. (50,394) (49,317) (118,264)
--------- --------- ---------
Cash flows from investing activities -- capital
contribution to Bank................................... -- (750,000) (750,000)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from note payable............................. -- 1,050,000 --
Repayment of note payable.............................. -- (300,000) (300,000)
Purchase of treasury stock............................. -- -- (31,790)
Proceeds from sale of common stock..................... -- 86,415 1,200,030
--------- --------- ---------
Net cash provided by financing activities......... -- 836,415 868,240
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................... (50,394) 37,098 (24)
Cash and cash equivalents at beginning of year........... 53,199 2,805 39,903
--------- --------- ---------
Cash and cash equivalents at end of year................. $ 2,805 39,903 39,879
========= ========= =========
</TABLE>
(16) RESTRICTIVE STOCK AGREEMENT
Effective December 1994, all persons who purchase shares of common stock in the
offer and sale of shares of the Company were required to enter into the
Restrictive Stock Agreement which provides that all parties give the Company and
its shareholders a right of first refusal to purchase their shares of common
stock should they decide to transfer them to unrelated third parties (including
involuntary transfers). The purchase price for such shares is the lower of the
book value of the shares of common stock to be transferred or the amount of a
legitimate third party offer; provided that book value shall be increased by (i)
20% if the purchase occurs between January 1, 1997 and December 31, 1997 and
(ii) 25% if the purchase occurs on or after January 1, 1998. Additionally, the
parties to the Restrictive Stock Agreement
F-34
<PAGE> 141
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
may choose to vote to value shares of common stock at a price that is different
than book value, by the affirmative vote of 80% of the shares of common stock
subject to the Restrictive Stock Agreement. Also, under this Restrictive Stock
Agreement, the Company must buy shares of common stock owned by employees who
cease to be employed by the Company. On December 4, 1998, the Restrictive Stock
Agreement was amended to explicitly state that its provisions would not apply to
the pending potential transaction with First Premier Financial Corporation.
(17) ACQUISITION ACTIVITY
On May 6, 1999, the Company entered into a definitive agreement with Riva
Bancshares, Inc. (Riva Bancshares). The definitive agreement was amended on July
22 and July 29, 1999. Under the amended agreement, the shareholders of the
Company will exchange their shares in a tax free reorganization for $9 million
of newly issued shares of common stock of Riva Bancshares, valued at the initial
public offering price of Riva Bancshares' common stock. The transaction is
subject to the receipt of regulatory approval and the approval of the
shareholders of the Company and Riva Bancshares and is expected to close in the
third quarter of 1999. The transaction is contingent upon a number of factors,
including the successful initial public offering of Riva Bancshares' common
stock.
F-35
<PAGE> 142
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1999
-----------
<S> <C>
ASSETS
Cash and due from banks..................................... $ 1,439,432
Interest-bearing deposits................................... 410,774
Federal funds sold.......................................... 2,370,000
-----------
Cash and cash equivalents.............................. 4,220,206
Debt and marketable equity securities available-for-sale, at
fair value................................................ 9,397,026
Loans, net.................................................. 49,163,775
Premises and equipment, net................................. 2,510,978
Accrued interest receivable................................. 462,252
Other assets................................................ 938,116
-----------
Total assets........................................... $66,692,353
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing....................................... $ 3,014,492
Interest-bearing.......................................... 54,314,848
-----------
Total deposits......................................... 57,329,340
Federal Home Loan Bank advances............................. 3,782,227
Note payable................................................ 925,000
Accrued interest payable.................................... 240,368
Other liabilities........................................... 80,317
-----------
Total liabilities...................................... 62,357,252
-----------
Commitments and contingencies
Shareholders' equity:
Common stock, $1 par value, 100,000 shares authorized,
41,834 shares issued and outstanding................... 41,834
Surplus................................................... 4,553,421
Accumulated deficit....................................... (150,779)
Accumulated other comprehensive loss...................... (109,375)
-----------
Total shareholders' equity............................. 4,335,101
-----------
Total liabilities and shareholders' equity............. $66,692,353
===========
</TABLE>
See accompanying note to unaudited consolidated financial statements.
F-36
<PAGE> 143
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans................................ $1,173,686 $1,982,720
Interest and dividends on debt and marketable equity
securities............................................. 188,964 241,872
Interest on federal funds sold............................ 67,867 72,833
---------- ----------
Total interest income.................................. 1,430,517 2,297,425
---------- ----------
Interest expense:
Interest on deposits...................................... 802,739 1,212,635
Interest on Federal Home Loan Bank advances............... 40,079 105,850
Interest on note payable.................................. 40,730 31,524
---------- ----------
Total interest expense................................. 883,548 1,350,009
---------- ----------
Net interest income.................................... 546,969 947,416
Provision for loan losses................................... 74,057 105,000
---------- ----------
Net interest income after provision for loan losses.... 472,912 842,416
---------- ----------
Noninterest income:
Service charges on deposits............................... 24,971 26,999
Gain on sale of loans, net................................ 32,923 24,431
Other noninterest income.................................. 18,184 35,372
---------- ----------
Total noninterest income............................... 76,078 86,802
---------- ----------
Noninterest expense:
Salaries and employee benefits............................ 275,143 388,918
Occupancy and equipment expense........................... 72,971 143,933
Other noninterest expense................................. 205,314 325,116
---------- ----------
Total noninterest expense.............................. 553,428 857,967
---------- ----------
Income (loss) before income tax expense................ (4,438) 71,251
Income tax expense.......................................... -- 31,000
---------- ----------
Net income (loss)...................................... $ (4,438) $ 40,251
========== ==========
Basic and diluted income (loss) per share................... $ (0.11) $ 0.96
========== ==========
</TABLE>
See accompanying note to unaudited consolidated financial statements.
F-37
<PAGE> 144
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ACCU- COMPRE- TOTAL
---------------- MULATED HENSIVE SHAREHOLDERS'
SHARES AMOUNT SURPLUS DEFICIT LOSS EQUITY
------ ------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998............ 41,834 $41,834 $4,553,421 $(191,030) $ 33,936 $4,438,161
Comprehensive income:
Net income............................ -- -- -- 40,251 -- 40,251
Other comprehensive loss -- change in
unrealized gain (loss) on securities
available-for-sale, net of tax...... -- -- -- -- (143,311) (143,311)
----------
Total comprehensive income (loss)... (103,060)
------ ------- ---------- --------- --------- ----------
Balance at June 30, 1999................ 41,834 $41,834 $4,553,421 $(150,779) $(109,375) $4,335,101
====== ======= ========== ========= ========= ==========
</TABLE>
See accompanying note to unaudited consolidated financial statements.
F-38
<PAGE> 145
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (4,438) $ 40,251
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 41,391 92,413
Provision for loan losses.............................. 74,057 105,000
Gain on sale of loans, net............................. (32,923) (24,431)
Increase in accrued interest receivable................ (45,905) (113,628)
Increase in accrued interest payable................... 57,638 32,839
Increase in other assets............................... (44,440) (401,140)
Other, net............................................. 30,073 54,910
------------ ------------
Net cash provided by (used in) operating
activities..................................... 75,453 (213,786)
------------ ------------
Cash flows from investing activities:
Proceeds from maturities and principal payments on debt
and marketable equity securities available-for-sale.... 1,539,241 1,950,685
Purchases of debt and marketable equity securities
available-for-sale..................................... (2,974,966) (5,095,848)
Net increase in loans..................................... (8,027,198) (8,073,646)
Purchases of premises and equipment, net.................. (540,327) (65,486)
Proceeds from sale of premises and equipment, net......... -- 14,872
------------ ------------
Net cash used in investing activities............. (10,003,250) (11,269,423)
------------ ------------
Cash flows from financing activities:
Net increase in deposits.................................. 10,377,917 8,513,518
Federal Home Loan Bank advances........................... 2,100,000 640,000
Principal payments on Federal Home Loan Bank advances..... (258,868) (302,926)
Proceeds from note payable................................ -- 175,000
Repayment of note payable................................. (300,000) --
Proceeds from sale of common stock........................ 1,200,030 --
------------ ------------
Net cash provided by financing activities......... 13,119,079 9,025,592
------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... 3,191,282 (2,457,617)
Cash and cash equivalents at beginning of period............ 2,813,542 6,677,823
------------ ------------
Cash and cash equivalents at end of period.................. $ 6,004,824 $ 4,220,206
============ ============
Supplemental information -- interest paid................... $ 825,910 $ 1,317,161
============ ============
</TABLE>
See accompanying note to unaudited consolidated financial statements.
F-39
<PAGE> 146
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE A BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included.
F-40
<PAGE> 147
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
RIVA BANCSHARES, INC.
AND
PREMIER BANCSHARES, INC.
DATED AS OF JULY 29, 1999
<PAGE> 148
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger.................................................................................1
1.2 Time and Place of Closing..............................................................2
1.3 Effective Time.........................................................................2
ARTICLE 2
TERMS OF MERGER
2.1 Certificate of Incorporation...........................................................2
2.2 Bylaws.................................................................................2
2.3 Directors..............................................................................2
2.4 Premier Directors......................................................................2
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares...................................................................3
3.2 Anti-Dilution Provisions...............................................................4
3.3 Shares Held by Premier.................................................................4
3.4 Fractional Shares......................................................................4
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures....................................................................4
4.2 Rights of Former Premier Shareholders..................................................5
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PREMIER
5.1 Organization, Standing, and Power......................................................6
5.2 Authority; No Breach by Agreement......................................................6
5.3 Capital Stock..........................................................................7
5.4 Premier Subsidiaries...................................................................7
5.5 Regulatory Filings; Financial Statements...............................................8
5.6 Notes and Obligations. ................................................................8
5.7 Absence of Certain Changes or Events...................................................8
5.8 Tax Matters............................................................................8
5.9 Assets.................................................................................9
5.10 Environmental Matters.................................................................10
5.11 Compliance With Laws..................................................................10
5.12 Labor Relations.......................................................................11
5.13 Employee Benefit Plans................................................................11
</TABLE>
i
<PAGE> 149
<TABLE>
<S> <C> <C>
5.14 Material Contracts....................................................................13
5.15 Legal Proceedings.....................................................................13
5.16 Reports...............................................................................14
5.17 Statements True and Correct...........................................................14
5.18 Accounting, Tax and Regulatory Matters................................................14
5.19 Anti-Takeover Provisions..............................................................14
5.20 Derivatives Contracts.................................................................14
5.21 Year 2000.............................................................................15
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF RIVA BANCSHARES
6.1 Organization, Standing, and Power.....................................................15
6.2 Authority; No Breach By Agreement.....................................................15
6.3 Capital Stock.........................................................................16
6.4 Riva Bancshares Subsidiaries..........................................................16
6.5 Financial Statements..................................................................16
6.6 Absence of Certain Changes or Events..................................................17
6.7 Tax Matters...........................................................................17
6.8 Compliance With Laws..................................................................17
6.9 Assets................................................................................18
6.10 Legal Proceedings.....................................................................18
6.11 Reports...............................................................................18
6.12 Statements True and Correct...........................................................19
6.13 Accounting, Tax and Regulatory Matters................................................19
6.14 Environmental Matters.................................................................19
6.15 Derivatives Contracts.................................................................20
6.16 Outstanding Premier Common Stock......................................................20
6.17 Material Contracts....................................................................20
6.18 Employee Benefit Plans................................................................20
6.19 Year 2000.............................................................................22
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Premier......................................................23
7.2 Negative Covenants of Premier.........................................................23
7.3 Covenants of Riva Bancshares..........................................................25
7.4 Adverse Changes In Condition..........................................................25
7.5 Reports...............................................................................25
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Shareholder Approval.........................26
8.2 Share Purchases by and Option Grants to Premier Shareholders..........................26
8.3 Restrictions on Transfer of Shares Held by Premier Directors,
Officers and Shareholders.............................................................27
</TABLE>
ii
<PAGE> 150
<TABLE>
<S> <C>
8.4 Agreement as to Efforts to Consummate.................................................28
8.5 Applications..........................................................................28
8.6 Access to Information; Confidentiality................................................28
8.7 Current Information...................................................................29
8.8 Other Actions.........................................................................29
8.9 Press Releases........................................................................29
8.10 No Solicitation.......................................................................29
8.11 Accounting and Tax Treatment..........................................................30
8.12 Anti-Takeover Provisions..............................................................30
8.13 Agreement of Affiliates...............................................................30
8.14 Employee Benefits and Contracts.......................................................30
8.15 Management Contracts..................................................................30
8.16 Indemnification and Directors' Liability Insurance....................................31
8.17 Filings with State of Missouri........................................................31
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party...............................................32
9.2 Conditions to Obligations of Riva Bancshares..........................................33
9.3 Conditions to Obligations of Premier..................................................34
ARTICLE 10
TERMINATION
10.1 Termination...........................................................................35
10.2 Effect of Termination.................................................................36
10.3 Non-Survival of Representations and Covenants.........................................38
ARTICLE 11
MISCELLANEOUS
11.1 Definitions...........................................................................38
11.2 Expenses..............................................................................44
11.3 Brokers and Finders...................................................................44
11.4 Entire Agreement......................................................................45
11.5 Amendments............................................................................45
11.6 Obligations of Riva Bancshares........................................................45
11.7 Waivers...............................................................................45
11.8 Assignment............................................................................45
11.9 Notices...............................................................................46
11.10 Governing Law.........................................................................46
11.11 Counterparts..........................................................................46
11.12 Captions..............................................................................47
11.13 Severability..........................................................................47
11.14 Enforcement of Agreement..............................................................47
</TABLE>
iii
<PAGE> 151
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
1. Form of agreement of affiliates of Premier Bancshares, Inc.
(Section 8.13)
2. Form of opinion of Suelthaus & Walsh, P.C. (Section 9.2(e))
3. Form of opinion of Smith, Gambrell & Russell, LLP (Section
9.3(f))
</TABLE>
iv
<PAGE> 152
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement") is made and entered into as of July 29, 1999, by and between RIVA
BANCSHARES, INC. ("Riva Bancshares"), a Delaware corporation having its
principal office located in St. Louis, Missouri, and PREMIER BANCSHARES, INC., a
Missouri corporation having its principal office located in Jefferson City,
Missouri ("Premier").
PREAMBLE
The Boards of Directors of Riva Bancshares and Premier are of the
opinion that the acquisition described herein is in the best interests of the
Parties and their respective shareholders. This Agreement provides for the
acquisition of Premier by Riva Bancshares pursuant to the merger of Premier with
and into Riva Bancshares (the "Merger"). At the effective time of such Merger,
the outstanding shares of the capital stock of Premier shall be converted into
the right to receive shares of the common stock of Riva Bancshares (except as
provided herein). As a result, shareholders of Premier shall become shareholders
of Riva Bancshares. The transactions described in this Agreement are subject to
the approvals of the shareholders of Riva Bancshares and Premier, the Board of
Governors of the Federal Reserve System, the Division of Finance of the Missouri
Department of Economic Development, and the satisfaction of certain other
conditions described in this Agreement. It is the intention of the Parties that
the Merger for federal income tax purposes shall qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, and will be a
tax free exchange for the shareholders of Premier except for cash received in
connection with fractional shares and the exercise of dissenters' rights. Unless
expressly stated otherwise herein, this Agreement shall be deemed to supersede
all prior warranties, representations, covenants and agreements between the
parties hereto.
Certain terms used in this Agreement are defined in Section 11.1 of
this Agreement.
WHEREAS, Riva Bancshares and Premier entered into that certain
Agreement and Plan of Merger dated as of May 6, 1999; and
WHEREAS, Riva Bancshares and Premier entered into that certain
Amendment No. 1 to the Agreement and Plan of Merger, dated as of July 22, 1999;
and
WHEREAS, the Boards of Directors of the parties have determined that is
in their respective best interests and the respective best interests of their
shareholders that the Agreement and Plan of Merger be further amended and
restated into one document;
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
Parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time, Premier shall be merged with and into Riva Bancshares in
accordance with the provisions of the General and
A-1
<PAGE> 153
Business Corporation Law of Missouri (the "GBCL") and the Delaware General
Corporation Laws ("DGCL"). The separate existence of Premier shall thereupon
cease, and Riva Bancshares shall be the Surviving Corporation resulting from the
Merger and shall continue to be governed by the DGCL. The Merger shall have the
effects specified in ss. 351.450 RSMo of the GBCL and ss. 251 of the DGCL. The
Merger shall be consummated pursuant to the terms of this Agreement, which has
been approved and adopted by the respective Boards of Directors of Riva
Bancshares and Premier.
1.2 Time and Place of Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") will be immediately prior to the
closing of Riva Bancshares' public offering referred to Section 9.1(g) herein.
The Closing will take place at a time, place and date specified by the Parties
as they, acting through their chief executive officers or chief financial
officers, may mutually agree.
1.3 Effective Time. The Merger and other transactions contemplated
by this Agreement shall become effective as set forth in the certificate of
merger (the "Certificate of Merger") which shall be filed with the office of the
Secretary of State of Delaware. The term "Effective Time" shall mean the date
and time when the Merger becomes effective, as set forth in the Certificate of
Merger. Subject to the terms and conditions hereof, unless otherwise mutually
agreed upon in writing by each Party, the Parties shall use their reasonable
best efforts to cause the Effective Time to occur on the date of Closing.
ARTICLE 2
TERMS OF MERGER
2.1 Certificate of Incorporation. Pursuant to the Merger, the
Certificate of Incorporation of Riva Bancshares in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until otherwise amended or repealed in accordance with applicable
Law.
2.2 Bylaws. Pursuant to the Merger, the Bylaws of Riva Bancshares
in effect immediately prior to the Effective Time shall be the bylaws of the
Surviving Corporation until otherwise amended or repealed, in accordance with
applicable Law.
2.3 Directors. The Board of Directors of Premier hereby approves
and ratifies the selection and appointment of the following individuals to serve
as members of the Board of Directors of Riva Bancshares:
(a) Alan C. Henderson;
(b) Lewis A. Levey;
(c) Jacob W. Reby;
(d) Andrew M. Rosen; and
(e) Patricia D. Whitaker.
2.4 Premier Directors. At the Effective Time, the number of members
of the Board of Directors of Riva Bancshares shall be increased to ten and the
following members of the Board of Directors of Premier (the "Premier Directors")
shall be nominated by the Riva Bancshares Board of Directors and elected to such
Board:
(a) Harold B. Remley;
(b) Bruce W. Wiley; and
(c) Charles R. Willibrand.
A-2
<PAGE> 154
Each of the Premier Directors shall be elected as Class III directors of Riva
Bancshares and shall serve for a term of three years and until their successors
have been elected and qualified; provided, however, that the current members of
the Board of Directors of Premier (the "Current Premier Directors") shall have
the right to nominate the successors to the Premier Directors at the two
elections of Class III directors subsequent to the next election of the Class
III directors and Riva Bancshares agrees to solicit proxies on behalf of such
nominees; provided, further, that in the event that during the first three terms
of the Class III directors, a vacancy is created as a result of the resignation,
removal or death of one of the Premier Directors or their successors, the
Current Premier Directors shall nominate such director's replacement.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any action
on the part of Riva Bancshares or Premier, or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) Each share of Riva Bancshares Capital Stock issued and
outstanding immediately prior to the Effective Time shall remain issued
and outstanding from and after the Effective Time.
(b) Except for Premier Common Stock issued and outstanding
immediately prior to the Effective Time as to which dissenters' rights
have been perfected and not withdrawn, and subject to Section 3.4
relating to fractional shares, each share of Premier Common Stock
issued and outstanding at the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for the number of
shares of Riva Bancshares Common Stock equal to the quotient obtained
by dividing $215.136 by the initial public offering price of one share
of Riva Bancshares Common Stock as determined by Riva Bancshares'
underwriters in the public offering referred to in Section 9.1(g) of
this Agreement, rounded to the nearest third decimal point (the
"Exchange Ratio"). Notwithstanding the foregoing, in no event shall
more than 42,000 shares of Common Stock of Premier be converted to Riva
Bancshares Common Stock.
(c) Notwithstanding Section 3.1(b) of this Agreement, Premier
Common Stock issued and outstanding at the Effective Time which is held
by a holder who has not voted in favor of the Merger and who has
demanded payment of the fair value of such shares ("Dissenting Premier
Shares") in accordance with ss. 351.455 RSMo of the GBCL (the "Dissent
Provisions") shall not be converted into or represent the right to
receive the Riva Bancshares Common Stock payable thereon pursuant to
Section 3.1(b) of this Agreement, and shall be entitled only to such
rights of appraisal as are granted by the Dissent Provisions, unless
and until such holder fails to perfect or effectively withdraws or
otherwise loses the right to appraisal. If, after the Effective Time,
any such holder fails to perfect or effectively withdraws or loses the
right to appraisal, such shares of Premier Common Stock shall be
treated as if they had been converted at the Effective Time into the
right to receive the Riva Bancshares Common Stock payable thereon
pursuant to Section 3.1(b) of this Agreement. Premier shall give Riva
Bancshares prompt notice upon receipt by Premier of any written
objection to the Merger and such written demands for payment of the
fair value of shares of Premier Common Stock, and the withdrawals of
such demands, and any other instruments provided to Premier pursuant to
the Dissent Provisions (any shareholder duly making such demand being
hereinafter called a "Dissenting Shareholder"). Each Dissenting
Shareholder that becomes entitled, pursuant to the Dissent Provisions,
to payment for any shares of Premier Common Stock held by such
Dissenting Shareholder shall receive such payment from Riva Bancshares
(but only after the amount
A-3
<PAGE> 155
thereof shall have been agreed upon or at the times and in the amounts
required by the Dissent Provisions) and all of such Dissenting
Shareholders' shares of Premier Common Stock shall be canceled. Premier
shall not, except with the prior written consent of Riva Bancshares,
voluntarily make any payment with respect to, or settle or offer to
settle, any demand for payment by any Dissenting Shareholder.
(d) All shares of Riva Bancshares issued pursuant to Section
3.1 shall be subject to the restrictions set forth in Section 8.3 and
shall bear an appropriate restrictive legend on the face of the
certificate representing such shares. Riva Bancshares shall instruct
its transfer agent and registrar to issue separate certificates to each
Premier shareholder for each period of restriction on trading with
respect to shares, each certificate to be for the number of shares that
are restricted for each individual period; fractional shares shall not
be represented by such individual certificates, and numbers of shares
shall be rounded down to the next lower whole number, with the final
certificate (representing shares restricted for 120 days after closing)
including any fractional shares omitted from the other certificates due
to this rounding. At such time or times as the restrictions no longer
apply with respect to one or more such certificates, Riva Bancshares
shall promptly assist any former shareholder of Premier in causing such
restrictive legend to be removed, including, but not limited to giving
written authorization to Riva Bancshares' transfer agent and registrar
to permit such shares to be sold.
3.2 Anti-Dilution Provisions. In the event Riva Bancshares changes
the number of shares of Riva Bancshares Common Stock issued and outstanding
prior to the Effective Time as a result of a stock split, stock dividend,
recapitalization, reclassification, or similar transaction with respect to such
stock and the record date therefor (in the case of a stock dividend) or the
effective date thereof (in the case of a stock split or similar recapitalization
for which a record date is not established) shall be prior to the Effective
Time, the Exchange Ratio shall be proportionately adjusted.
3.3 Shares Held by Premier. Each share of Premier Capital Stock, if
any, held by any Premier Company, other than in a fiduciary capacity or as a
result of debts previously contracted, shall be canceled and retired at the
Effective Time and no consideration shall be issued in exchange therefor.
3.4 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Premier Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of Riva Bancshares Common Stock (after taking into account all
certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of Riva
Bancshares Common Stock multiplied by the initial public offering price of one
share of Riva Bancshares Common Stock as determined by Riva Bancshares'
underwriters in the public offering referred to in Section 9.1(g) of this
Agreement.
3.5 Options. There are no outstanding options to purchase Premier
Common Stock ("Premier Options").
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. At the Effective Time, Riva Bancshares
shall deposit or shall cause to be deposited with UMB Bank, N.A., Kansas City,
Missouri (the "Exchange Agent") certificates
A-4
<PAGE> 156
evidencing shares of Riva Bancshares Common Stock in such amount necessary to
provide all consideration required to be exchanged by Riva Bancshares for
Premier Common Stock pursuant to the terms of this Agreement. Promptly after the
Effective Time, Riva Bancshares shall cause the Exchange Agent to mail to the
former shareholders of Premier appropriate transmittal materials (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of Premier Common Stock shall pass,
only upon proper delivery of such certificates to the Exchange Agent). After the
Effective Time, each holder of shares of Premier Common Stock issued and
outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares to the Exchange Agent and shall upon
surrender thereof promptly receive in exchange therefor the consideration
provided in Section 3.1 of this Agreement, together with all undelivered
dividends or distributions in respect of such shares (without interest thereon)
pursuant to Section 4.2 of this Agreement. To the extent required by Section 3.4
of this Agreement, each holder of shares of Premier Common Stock issued and
outstanding at the Effective Time also shall receive, upon surrender of the
certificate or certificates representing such shares, cash in lieu of any
fractional share of Riva Bancshares Common Stock to which such holder may be
otherwise entitled (without interest). Riva Bancshares shall not be obligated to
deliver the consideration to which any former holder of Premier Common Stock is
entitled as a result of the Merger until such holder surrenders such holder's
certificate or certificates representing the shares of Premier Common Stock for
exchange as provided in this Section 4.1. The certificate or certificates of
Premier Common Stock so surrendered shall be duly endorsed as the Exchange Agent
may require. Any other provision of this Agreement notwithstanding, neither Riva
Bancshares nor the Exchange Agent shall be liable to a holder of Premier Common
Stock for any amounts paid or property delivered in good faith to a public
official pursuant to any applicable abandoned property Law. In the event that
any shareholder of Premier is unable to surrender a certificate because it is
lost or destroyed, the Exchange Agent may make distribution to that shareholder
upon receipt of such affidavits, undertakings, indemnity bonds, and other
agreements as are customary in such circumstances.
4.2 Rights of Former Premier Shareholders. At the Effective Time,
the stock transfer books of Premier shall be closed as to holders of Premier
Common Stock immediately prior to the Effective Time and no transfer of Premier
Common Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1 of
this Agreement, each certificate theretofore representing shares of Premier
Common Stock shall from and after the Effective Time represent for all purposes
only the right to receive the consideration provided in Sections 3.1 and 3.4 of
this Agreement in exchange therefor, subject, however, to Riva Bancshares'
obligation to pay any dividends or make any other distributions with a record
date prior to the Effective Time which have been declared or made by Premier in
respect of such shares of Premier Common Stock in accordance with the terms of
this Agreement and which remain unpaid at the Effective Time. Whenever a
dividend or other distribution is declared by Riva Bancshares on the Riva
Bancshares Common Stock, the record date for which is at or after the Effective
Time, the declaration shall include dividends or other distributions on all
shares issuable pursuant to this Agreement, but beginning 30 days after the
Effective Time no dividend or other distribution payable to the holders of
record of Riva Bancshares Common Stock as of any time subsequent to the
Effective Time shall be delivered to the holder of any certificate representing
shares of Premier Common Stock issued and outstanding at the Effective Time
until such holder surrenders such certificate for exchange as provided in
Section 4.1 of this Agreement. However, upon surrender of such Premier Common
Stock certificate, or in the case of lost or destroyed certificates delivery of
the requisite affidavits, undertakings, indemnity bonds and other agreements
customary in such circumstances, both the Riva Bancshares Common Stock
certificate (together with all such undelivered dividends or other distributions
without interest) and any undelivered dividends and cash payments to be paid for
fractional share interests (without interest) shall be delivered and paid with
respect to each share represented by such certificate. Any portion of the
consideration (including the proceeds of any investments thereof) which had been
made payable to the Exchange Agent pursuant to Section 4.1 of this Agreement
that remain unclaimed by the shareholders of Premier for six (6) months after
A-5
<PAGE> 157
the Effective Time shall be paid to Riva Bancshares. Any shareholders of Premier
who have not theretofore complied with this Article 4 shall thereafter look only
to Riva Bancshares for payment of their shares of Riva Bancshares Common Stock
and cash in lieu of fractional shares and unpaid dividends and distributions on
the Riva Bancshares Common Stock deliverable in respect of each Premier share of
Common Stock such shareholder holds as determined pursuant to this Agreement, in
each case, without any interest thereon.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PREMIER
Premier hereby represents and warrants to Riva Bancshares as follows:
5.1 Organization, Standing, and Power. Premier is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Missouri, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its material Assets.
Premier is duly qualified or licensed to transact business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Premier and its Subsidiaries taken
as a whole.
5.2 Authority; No Breach by Agreement.
(a) Premier has the corporate power and authority necessary to
execute and deliver this Agreement and, subject to the approval and
adoption of this Agreement by the shareholders of Premier and the
receipt of the consents sent forth in Section 9.1(b), to perform its
obligations under this Agreement and consummate the transactions
contemplated hereby. The execution, delivery, and performance of this
Agreement by Premier and the consummation by Premier of the
transactions contemplated herein, including the Merger, have been duly
and validly authorized by all necessary corporate action in respect
thereof on the part of Premier, subject to the approval of this
Agreement by its shareholders as contemplated by Section 8.1 of this
Agreement. Subject to such requisite shareholder approval (and assuming
due authorization, execution and delivery by Riva Bancshares and
Premier) and to such Consents of Regulatory Authorities as required by
applicable Law, this Agreement represents a legal, valid, and binding
obligation of Premier, enforceable against Premier in accordance with
its terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting the enforcement of creditors' rights generally
and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the
court before which any proceeding may be brought). The Premier Board of
Directors will have received from GRA Thompson White & Company, PC, a
letter dated on or about the date of the Proxy Statement to the effect
that, in the opinion of such firm, the Exchange Ratio is fair, from a
financial point of view, to the holders of Premier Common Stock.
(b) Neither the execution and delivery of this Agreement by
Premier, nor the consummation by Premier of the transactions
contemplated hereby, nor compliance by Premier with any of the
provisions hereof, will (i) conflict with or result in a breach of any
provision of Premier's Articles of Incorporation or Bylaws, or, (ii)
except as disclosed in Section 5.2(b) of the Disclosure Schedule,
constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any
Premier Company under, any Contract or Permit of any
A-6
<PAGE> 158
Premier Company, where such Default or Lien, or any failure to obtain
such Consent, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Premier and its Subsidiaries
taken as a whole, or, (iii) subject to receipt of the requisite
Consents referred to in Section 9.1(b) of this Agreement, violate any
Law or Order applicable to any Premier Company or any of their
respective material Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws,
and other than notices to or Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, and other than Consents,
filings, or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Premier, no notice to, filing with, or Consent of,
any public body or authority is necessary for the consummation by
Premier of the Merger and the other transactions contemplated in this
Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of Premier consists of 100,000
shares of Premier Common Stock, of which 41,834 shares are issued and
outstanding as of the date of this Agreement and not more than 42,000
shares will be issued and outstanding at the Effective Time. All of the
issued and outstanding shares of capital stock of Premier are duly and
validly issued and outstanding and are fully paid and nonassessable
under the GBCL. None of the outstanding shares of capital stock of
Premier has been issued in violation of any preemptive rights. Premier
has no options or warrants to purchase shares of Premier Common Stock.
(b) Except as set forth in Section 5.3(a) of this Agreement,
there are no shares of Premier Capital Stock or other equity securities
of Premier outstanding and no outstanding Rights relating to Premier
Capital Stock.
5.4 Premier Subsidiaries. Premier has disclosed in Section 5.4 of
the Disclosure Schedule all of the Premier Subsidiaries as of the date of this
Agreement. Except as disclosed in Section 5.4 of the Disclosure Schedule,
Premier or one of its Subsidiaries owns all of the issued and outstanding shares
of capital stock of each Premier Subsidiary. No equity securities of any Premier
Subsidiary are or may become required to be issued (other than to another
Premier Company) by reason of any Rights, and there are no Contracts by which
any Premier Subsidiary is bound to issue (other than to another Premier Company)
additional shares of its capital stock or Rights or by which any Premier Company
is or may be bound to transfer any shares of the capital stock of any Premier
Subsidiary (other than to another Premier Company). There are no Contracts
relating to the rights of any Premier Company to vote or to dispose of any
shares of the capital stock of any Premier Subsidiary. All of the shares of
capital stock of each Premier Subsidiary held by a Premier Company are fully
paid and nonassessable under the applicable corporation or banking Law of the
jurisdiction in which such Subsidiary is incorporated or organized and, except
as set forth in Section 5.4 of the Disclosure Schedule, are owned by the Premier
Company free and clear of any Lien. Each Premier Subsidiary is either a bank or
a corporation, and is duly organized, validly existing, and (as to corporations)
in good standing under the Laws of the jurisdiction in which it is incorporated
or organized, and has the corporate power and authority necessary for it to own,
lease, and operate its Assets and to carry on its business as now conducted.
Each Premier Subsidiary is duly qualified or licensed to transact business as a
foreign corporation in good standing in each jurisdiction where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a
A-7
<PAGE> 159
Material Adverse Effect on Premier and its Subsidiaries taken as a whole. Each
Premier Subsidiary that is a depository institution is an "insured institution"
as defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits of which are insured by the Bank Insurance Fund.
5.5 Regulatory Filings; Financial Statements. Premier has filed and
made available to Riva Bancshares copies of the Premier Financial Statements and
all reports of any outside auditors, consultants or advisors to Premier. Each of
the Premier Financial Statements (including, in each case, any related notes),
including any Premier Financial Statements filed after the date of this
Agreement until the Effective Time, was prepared in accordance with GAAP applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements), and fairly present the
consolidated financial position of Premier and its Subsidiaries at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount and except for the
absence of certain footnote information in the unaudited interim financial
statements.
5.6 Notes and Obligations.
(a) Except as set forth in Section 5.6 of the Disclosure
Schedule, or as provided in the loss reserve described in subparagraph
(b) below, without conducting any independent investigation, to the
Knowledge of Premier no notes receivable or any other obligations owned
by Premier or any Premier Company or due to any of them, shown on the
Premier Financial Statements or any such notes receivable and
obligations on the date hereof and as of the Effective Time have not
been and will not be genuine, legal, valid and collectible obligations
of the respective makers thereof and are not and will not be subject to
any offset or counterclaim. Except as set forth in subparagraph (b)
below, all such notes and obligations are evidenced by written
agreements, true and correct copies of which will be made available to
Riva Bancshares for examination prior to the Effective Time. All such
notes and obligations were entered into by either Premier or a Premier
Company in the ordinary course of its business and in compliance with
all applicable laws and regulations, except as to any non-compliance
which has not and will not have a Material Adverse Effect on Premier.
(b) Premier has established a loss reserve on the Premier
Financial Statements which is adequate to cover anticipated losses
which might result from such items as the insolvency or default of
borrowers or obligors on such loans or obligations, defects in the
notes or evidences of obligation (including losses of original notes or
instruments), offsets or counterclaims properly chargeable to such
reserve, or the availability of legal or equitable defenses which might
preclude or limit the ability of Premier to enforce the note or
obligation, and the representations set forth in subparagraph (a) above
are qualified in their entirety by the aggregate of such loss reserves.
5.7 Absence of Certain Changes or Events. Since December 31, 1998,
except as disclosed in Section 5.7 of the Disclosure Schedule, (i) there have
been no events, changes, or occurrences which have had, or are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on Premier,
and (ii) Premier has not taken any action, or failed to take any action, prior
to the date of this Agreement, which action or failure, if taken after the date
of this Agreement, would represent or result in a material breach or violation
of any of the covenants and agreements of Premier provided in Article 7 of this
Agreement.
A-8
<PAGE> 160
5.8 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of any
Premier Company have been timely filed for periods ended on or before
December 31, 1997, and all Tax Returns filed are complete and accurate
in all material respects to the Knowledge of Premier. All Taxes shown
on filed Tax Returns have been paid. There is no audit examination,
deficiency, or refund Litigation with respect to any Taxes that is
reasonably likely to result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on Premier
and its Subsidiaries taken as a whole, except as reserved against in
the Premier Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 5.8(a) of the Disclosure Schedule.
All Taxes and other Liabilities due with respect to completed and
settled examinations or concluded Litigation have been paid.
(b) No Premier Company has executed an extension or waiver of
any statute of limitations on the assessment or collection of any Tax
due that is currently in effect.
(c) Adequate provision for any Taxes due or to become due for
any Premier Company for the period or periods through and including the
date of the Premier Financial Statements has been made and is reflected
on the Premier Financial Statements.
(d) Deferred Taxes of each Premier Company have been adequately
provided for in the Premier Financial Statements.
(e) Each Premier Company is in compliance with, and its records
contain all information and documents (including properly completed
Internal Revenue Service Forms W-9) necessary to comply with, all
applicable information reporting and Tax withholding requirements under
federal, state, and local Tax Laws, and such records identify with
specificity all accounts subject to backup withholding under Section
3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier
and its Subsidiaries taken as a whole.
(f) Except as disclosed in Section 5.8(f) of the Disclosure
Schedule, no Premier Company has made any payments, is obligated to
make any payments, or is a party to any contract, agreement, or other
arrangement that could obligate any Premier Company to make any
payments that would be disallowed as a deduction under Section 280G or
162(m) of the Internal Revenue Code.
(g) There are no Liens with respect to Taxes upon any of the
Assets of any Premier Company.
(h) No Premier Company has filed any consent under Section
341(f) of the Internal Revenue Code concerning collapsible
corporations.
(i) All material elections with respect to Taxes affecting any
Premier Company as of the date of this Agreement have been or will be
timely made as set forth in Section 5.8 of the Disclosure Schedule.
After the date hereof, other than as set forth in Section 5.8(a) of the
Disclosure Schedule, no election with respect to Taxes will be made
without the prior written consent of Riva Bancshares, which consent
will not be unreasonably withheld.
5.9 Assets. Except as disclosed in Section 5.9 of the Disclosure
Schedule, each Premier Company has good and marketable title, free and clear of
all Liens, to all of its respective Assets. All tangible
A-9
<PAGE> 161
properties used in the businesses of each Premier Company are in good condition,
reasonable wear and tear excepted, and are usable in the ordinary course of
business consistent with Premier's past practices. All Assets which are material
to Premier's business held under leases or subleases by any Premier Company, are
held under valid Contracts which to the Knowledge of Premier are enforceable in
accordance with their respective terms (except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect. Each
Premier Company currently maintains insurance in amounts, scope, and coverage as
disclosed in Section 5.9 of the Disclosure Schedule. No Premier Company has
received written notice from any insurance carrier that (i) such insurance will
be canceled or that coverage thereunder will be reduced or eliminated, or (ii)
premium costs with respect to such policies of insurance will be substantially
increased. Except as disclosed in Section 5.9 of the Disclosure Schedule, there
are presently no claims pending under such policies of insurance and no notices
have been given by any Premier Company under such policies. The Assets of
Premier include all required assets, leases and Permits necessary to operate its
business as presently conducted.
5.10 Environmental Matters.
(a) To the Knowledge of Premier, each Premier Company, its
Participation Facilities, and its Loan Properties are, and have been,
in compliance with all Environmental Laws, except for violations which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Premier and its Subsidiaries taken as a
whole.
(b) To the Knowledge of Premier, there is no Litigation pending
or threatened before any court, governmental agency, or authority or
other forum in which any Premier Company or any of its Loan Properties
or Participation Facilities has been or, with respect to threatened
Litigation, may be named as a defendant or potentially responsible
party (i) for alleged noncompliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material, whether or not occurring at, on,
under, or involving any of its Loan Properties or Participation
Facilities, except for such Litigation pending or threatened that is
not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Premier and its Subsidiaries taken as a
whole.
(c) To the Knowledge of Premier, there is no reasonable basis
for any Litigation of a type described above in subsection (b), except
such as is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Premier.
(d) To the Knowledge of Premier, except as disclosed in Section
5.10(d) of the Disclosure Schedule, during the period of (i) Premier's
ownership or operation of any of their respective properties, (ii)
Premier's participation in the management of any Participation
Facility, or (iii) Premier's holding a security interest in a Loan
Property, there have been no releases of Hazardous Material in, on,
under, or affecting any Participation Facility or Loan Property of any
Premier Company, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier
and its Subsidiaries taken as a whole.
5.11 Compliance With Laws. Premier is duly registered as a bank
holding company under the BHC Act. Except as set forth in Section 5.11 of the
Disclosure Schedule, each Premier Company has in effect all Permits necessary
for it to own, lease, or operate its material Assets and to carry on its
business as now
A-10
<PAGE> 162
conducted, except for those Permits the absence of which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Premier and its Subsidiaries taken as a whole. No Premier Company is presently
in default under any such Permit, other than defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Premier and its Subsidiaries taken as a whole. Except as disclosed in Section
5.11 of the Disclosure Schedule, no Premier Company:
(a) to the Knowledge of Premier, is in violation of any Laws or
Orders, applicable to its business or employees conducting its
business, except for violations which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
Premier and its Subsidiaries taken as a whole; and
(b) has received any written notification or communication from
any agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any
Premier Company is not in substantial compliance with any of the Laws
or Orders which such governmental authority or Regulatory Authority
enforces, where such noncompliance is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier
and its Subsidiaries taken as a whole, (ii) threatening to revoke any
Permits, the revocation of which is reasonably likely to have, a
Material Adverse Effect on Premier and its Subsidiaries taken as a
whole, or (iii) requiring any Premier Company to enter into or consent
to the issuance of a cease and desist order, formal agreement,
directive, commitment, or memorandum of understanding, or to adopt any
Board resolution or similar undertaking, which restricts materially the
conduct of its business, or in any manner relates to its capital
adequacy, its credit or reserve policies, its management, or the
payment of dividends.
5.12 Labor Relations. No Premier Company is the subject of any
Litigation asserting that it has committed an unfair labor practice (within the
meaning of the National Labor Relations Act or comparable state law) or seeking
to compel it or any other Premier Company to bargain with any labor organization
as to wages or conditions of employment, nor is there any strike or other labor
dispute involving any Premier Company, pending or, to the Knowledge of Premier,
threatened, nor is there any activity involving any employees of any Premier
Company seeking to certify a collective bargaining unit or engaging in any other
organization activity.
5.13 Employee Benefit Plans.
(a) Premier has disclosed in Section 5.13(a) of the Disclosure
Schedule and has delivered or made available to Riva Bancshares prior
to the execution of this Agreement, copies in each case of, all
pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus, or
other incentive plans, all other written employee programs,
arrangements, or agreements, all medical, vision, dental, or other
health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" (as
that term is defined in Section 3(3) of ERISA), currently adopted,
maintained by, sponsored in whole or in part by, or contributed to by
Premier for the benefit of employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries and under
which employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries are eligible to participate
(collectively, the "Premier Benefit Plans"). Any of the Premier Benefit
Plans which is an "employee pension benefit plan" (as that term is
defined in Section 3(2) of ERISA), is referred to herein as a "Premier
ERISA Plan." No Premier Benefit Plan is or has been a multiemployer
plan within the meaning of Section 3(37) of ERISA.
A-11
<PAGE> 163
(b) Except as disclosed in Section 5.13(b) of the Disclosure
Schedule, all Premier Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws the breach or violation of which are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
Premier, and each Premier ERISA Plan which is intended to be qualified
under Section 401(a) of the Internal Revenue Code has received a
favorable determination letter from the Internal Revenue Service, and
Premier is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. To the Knowledge
of Premier, it has not engaged in a transaction with respect to any
Premier Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject it to a Tax
imposed by either Section 4975 of the Internal Revenue Code or Section
502(i) of ERISA in amounts which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier.
(c) Except as disclosed in Section 5.13(c) of the Disclosure
Schedule, no Premier ERISA Plan has any "unfunded current liability"
(as that term is defined in Section 302(d)(8)(A) of ERISA) and the fair
market value of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of ERISA,
when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements. Except
as disclosed in Section 5.13(c) of the Disclosure Schedule, since the
date of the most recent actuarial valuation, there has been (i) no
material change in the financial position of any Premier ERISA Plan,
(ii) no change in the actuarial assumptions with respect to any Premier
ERISA Plan, and (iii) no increase in benefits under any Premier ERISA
Plan as a result of plan amendments or changes in applicable Law which
is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Premier or materially adversely affect the
funding status of any such plan. Neither any Premier ERISA Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by Premier, or the
single-employer plan of any entity which is considered one employer
with Premier under Section 4001 of ERISA or Section 414 of the Internal
Revenue Code or Section 302 of ERISA (whether or not waived) (an "ERISA
Affiliate") has an "accumulated funding deficiency" within the meaning
of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which is reasonably likely to have a Material Adverse Effect on
Premier. Premier has not provided, and is not required to provide,
security to an Premier ERISA Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue
Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by Premier with respect to any ongoing, frozen,
or terminated single-employer plan or the single-employer plan of any
ERISA Affiliate, which Liability is reasonably likely to have a
Material Adverse Effect on Premier. Premier has not incurred any
withdrawal Liability with respect to a multiemployer plan under
Subtitle B of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate), which Liability is reasonably
likely to have a Material Adverse Effect on Premier. No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for
which the 30-day reporting requirement has not been waived, has been
required to be filed for any Premier ERISA Plan or by any ERISA
Affiliate within the 12-month period ending on the date hereof.
(e) Except as disclosed in Section 5.13(e) of the Disclosure
Schedule, Premier has no Liability for retiree health and life benefits
under any of the Premier Benefit Plans and there are no restrictions on
the rights of Premier to amend or terminate any such plan without
incurring any
A-12
<PAGE> 164
Liability thereunder, which Liability is reasonably likely to have a
Material Adverse Effect on Premier.
(f) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i)
result in any payment (including severance, unemployment compensation,
golden parachute, or otherwise) becoming due to any director or any
employee of Premier or any of its Subsidiaries from Premier or any of
its Subsidiaries under any Premier Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any Premier Benefit Plan,
or (iii) result in any acceleration of the time of payment or vesting
of any such benefit, where such payment, increase, or acceleration is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Premier.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of
employees and former employees of Premier and their respective
beneficiaries, other than entitlements accrued pursuant to funded
retirement plans subject to the provisions of Section 412 of the
Internal Revenue Code or Section 302 of ERISA, have been fully
reflected on the Premier Financial Statements to the extent required by
and in accordance with GAAP.
5.14 Material Contracts. Except as disclosed in Section 5.14(a) of
the Disclosure Schedule, neither Premier nor any of its Subsidiaries is a party
to or subject to the following: (i) any employment, severance, termination,
consulting, or retirement Contract providing for aggregate payments to any
Person in any calendar year in excess of $50,000, (ii) any Contract relating to
the borrowing of money by Premier or the guarantee by Premier of any such
obligation exceeding $50,000 (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully-secured repurchase agreements,
and Federal Home Loan Bank advances of depository institution Subsidiaries,
trade payables, and Contracts relating to borrowings or guarantees made in the
ordinary course of business), and (iii) any other Contract or amendment thereto
as of the date of this Agreement not made in the ordinary course of business to
which Premier is a party or by which it is bound (together with all Contracts
referred to in Sections 5.9 and 5.13(a) of this Agreement, the "Premier
Contracts"). With respect to each Premier Contract and except as disclosed in
Section 5.14(b) of the Disclosure Schedule: (i) the Contract is in full force
and effect; (ii) neither Premier nor any of its Subsidiaries, as the case may
be, is in Default thereunder, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Premier and its Subsidiaries taken as a whole; (iii) neither Premier nor any of
its Subsidiaries, as the case may be, has repudiated or waived any material
provision of any such Contract; and (iv) no other party to any such Contract is,
to the Knowledge of Premier, in Default in any respect, other than Defaults
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Premier, or has repudiated or waived any material
provision thereunder. Except for Federal Home Loan Bank advances, all of the
indebtedness of Premier and any of its Subsidiaries for money borrowed is
prepayable at any time by Premier or any of its Subsidiaries, as the case may
be, without penalty or premium.
5.15 Legal Proceedings. Except as disclosed in Section 5.15(a) of
the Disclosure Schedule, there is no Litigation instituted or pending, or, to
the Knowledge of Premier, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against Premier, or against any Asset, employee benefit
plan, interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Premier, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any Premier Company, that are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Premier and its Subsidiaries taken as a whole. Section 5.15(b)
A-13
<PAGE> 165
of the Disclosure Schedule includes a summary report of all Litigation as of the
date of this Agreement to which any Premier Company is a party and which names a
Premier Company as a defendant or cross- defendant and where the estimated
maximum exposure to be $10,000 or more.
5.16 Reports. For the three years ended December 31, 1998, 1997 and
1996, and since January 1, 1999, or the date of organization if later, each
Premier Company has timely filed and to the extent permitted by Law has made
available for Riva Bancshares to review, all reports and statements, together
with any amendments required to be made with respect thereto, that it was
required to file with any Regulatory Authorities. As of their respective dates,
each of such reports and documents, including the financial statements,
exhibits, and schedules thereto, complied in all material respects with all
applicable Laws. As of its respective date, each such report and document 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 made
therein, in light of the circumstances under which they were made, not
misleading.
5.17 Statements True and Correct. None of the information supplied
or to be supplied by any Premier Company or any Affiliate thereof for inclusion
in the Registration Statement to be filed by Riva Bancshares with the SEC will,
when the Registration Statement becomes effective, be false or misleading, with
respect to any material fact, or omit to state any material fact necessary to
make the statements therein not misleading. None of the information supplied by
any Premier Company for inclusion in the Proxy Statement to be mailed to
Premier's shareholders in connection with the Shareholders' Meeting, and any
other documents to be filed by a Premier Company with any Regulatory Authority
in connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Proxy Statement, when
first mailed to the shareholders of Premier, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders' Meeting. All documents that
Premier is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
5.18 Accounting, Tax and Regulatory Matters. To the Knowledge of
Premier, neither Premier nor any Affiliate thereof has taken or agreed to take
any action or has any Knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the transactions contemplated hereby, including the
Merger, from qualifying as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code, or (ii) materially impede or delay receipt of any
Consents of Regulatory Authorities referred to in Section 9.1(b) of this
Agreement or result in the imposition of a condition or restriction of the type
referred to in the last sentence of such Section.
5.19 Anti-Takeover Provisions. Each Premier Company has taken all
action so that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated by this Agreement do not and will
not result in any super-majority voting requirement or the grant of any rights
to any Person under its Articles of Incorporation, Bylaws, or any other
governing instruments.
5.20 Derivatives Contracts. Neither Premier nor any of its
Subsidiaries is a party to nor has it agreed to enter into an exchange-traded or
over-the-counter swap, forward, future, option, cap, floor, or collar financial
contract, or any other interest rate or foreign currency protection contract not
included on
A-14
<PAGE> 166
its balance sheet which is a financial derivative contract (including various
combinations thereof) (each a "Derivatives Contract").
5.21 Year 2000. All computer software and hardware necessary for the
conduct of business by any Premier Company (the "Software") is designed to be
used before, on, and after January 1, 2000 and the Software will operate during
each such time period without error relating to the year 2000, specifically
including any error relating to, or the product of, any date data representing
or referring to any particular date. As used in the preceding sentence,
"operate" further includes, but is not limited to, accepting input of dates
without ambiguity, outputting all dates without ambiguity, and performing
calculations, comparisons, extractions, sorting and any other processing or
taking actions or making decisions using dates or time periods without suffering
any abends, aborts, invalid or incorrect results or other interruptions, whether
before, on, or after January 1, 2000. Further, every Premier Company has
received all year 2000 examinations and certifications as required by applicable
Law and will, prior to the Effective Time, make available for Riva Bancshares'
review all such examinations and certifications.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF RIVA BANCSHARES
Riva Bancshares hereby represents and warrants to Premier as follows:
6.1 Organization, Standing, and Power. Riva Bancshares is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Delaware, and has the corporate power and authority to
carry on its business as now conducted and to own, lease, and operate its
material Assets. Riva Bancshares is in good standing in Missouri and such other
states of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Riva Bancshares.
6.2 Authority; No Breach By Agreement.
(a) Riva Bancshares has the corporate power and authority
necessary to execute, deliver, and perform its obligations under this
Agreement and, subject to the approval and adoption of this Agreement
by the shareholders of Riva Bancshares, to consummate the transactions
contemplated hereby. The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of Riva
Bancshares, subject to the approval of this Agreement by its
shareholders. Subject to such requisite shareholder approval (and
assuming due authorization, execution and delivery by Riva Bancshares
and Premier) and to such Consents of Regulatory Authorities as required
by applicable Law, this Agreement represents a legal, valid, and
binding obligation of Riva Bancshares, enforceable against Riva
Bancshares, in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement
of creditors' rights generally and except that the availability of the
equitable remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding may
be brought).
(b) Neither the execution and delivery of this Agreement by
Riva Bancshares nor the consummation by Riva Bancshares of the
transactions contemplated hereby, nor compliance by Riva
A-15
<PAGE> 167
Bancshares with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of the Certificate of Incorporation
or Bylaws of Riva Bancshares or (ii) constitute or result in a Default
under, or require any Consent pursuant to, or result in the creation of
any Lien on any Asset of Riva Bancshares under any Contract or Permit
of Riva Bancshares, where such Default or Lien, or any failure to
obtain such Consent, is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Riva Bancshares, or, (iii)
subject to receipt of the requisite Consents referred to in Section
9.1(b) of this Agreement, violate any Law or Order applicable to Riva
Bancshares or any of its respective material Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws,
and rules of NASDAQ, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, and other than Consents,
filings, or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Riva Bancshares, no notice to, filing with, or
Consent of, any public body or authority is necessary for the
consummation by Riva Bancshares of the Merger and the other
transactions contemplated in this Agreement.
6.3 Capital Stock. The authorized capital stock of Riva Bancshares
consists of 21,000,000 shares of Riva Bancshares Common Stock, of which 10,000
shares will be issued and outstanding as of the Effective Time and (ii)
1,000,000 shares of Riva Bancshares Preferred Stock, of which 99,900 shares were
issued and outstanding as of the date of this Agreement. All of the issued and
outstanding shares of Riva Bancshares Capital Stock are authorized and validly
issued, and all of the Riva Bancshares Common Stock to be issued in exchange for
Premier Common Stock upon consummation of the Merger, will be authorized and
reserved for issuance prior to the Effective Time and, when issued in accordance
with the terms of this Agreement, will be, duly and validly issued and
outstanding and fully paid and nonassessable under the DGCL. Riva Bancshares has
reserved 500,000 shares of Riva Bancshares Common Stock for issuance under the
Riva Bancshares Stock Plans, pursuant to which options to purchase not more than
329,475 shares of Riva Bancshares Common Stock will be outstanding upon
completion of the Merger. Warrants to purchase not more than 215,798 shares of
Riva Bancshares Common Stock are outstanding and, upon completion of the Merger,
warrants to purchase not more than 565,798 shares of Riva Bancshares Common
Stock will be outstanding. None of the shares of Riva Bancshares Common Stock to
be issued under Riva Bancshares Stock Plan or to be issued pursuant to warrants
to purchase shares of Riva Bancshares Common Stock are subject to preemptive
rights of any current or past shareholders of Riva Bancshares. None of the
outstanding shares of Riva Bancshares Capital Stock has been, and none of the
shares of Riva Bancshares Common Stock to be issued in exchange for shares of
Premier Common Stock upon consummation of the Merger will be, issued in
violation of any preemptive rights of the current or past shareholders of Riva
Bancshares. Riva Bancshares will issue no additional Common Stock or Preferred
Stock until the Effective Time.
6.4 Riva Bancshares Subsidiaries. Riva Bancshares has no active or
inactive Subsidiaries as of the date of this Agreement; provided, however, that
pursuant to the Merger and after the Effective Time, Riva Bancshares shall own
those Subsidiaries disclosed in Section 5.4 of the Disclosure Schedule.
6.5 Financial Statements. Riva Bancshares has delivered to Premier
prior to the execution of this Agreement copies of the Riva Bancshares Financial
Statements as of December 31, 1998. Riva Bancshares shall provide Premier with
its unaudited Financial Statements for the stub periods ending March 31, 1999
and June 30, 1999, as soon as practicable after the same become available. The
Riva Bancshares Financial Statements (as of the dates thereof): (i) are, or will
be, in accordance with the books and records of Riva Bancshares, which are
complete and accurate in all material respects and which have been maintained in
A-16
<PAGE> 168
accordance with good business practices, and (ii) present fairly the financial
position of Riva Bancshares as of December 31, 1998 in accordance with GAAP.
6.6 Absence of Certain Changes or Events. Since January 1, 1998,
except as disclosed in the Riva Bancshares Financial Statements delivered prior
to the date of this Agreement, (i) there have been no events, changes or
occurrences which have had, or are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Riva Bancshares, and (ii) Riva
Bancshares has not taken any action, or failed to take any action, prior to the
date of this Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any of
the covenants and agreements of Riva Bancshares provided in Articles 7 or 8 of
this Agreement.
6.7 Tax Matters.
(a) As of the date of this Agreement, no federal, state, local
and foreign Tax Returns have been required to be filed by or on behalf
of Riva Bancshares. There is no audit examination, deficiency, or
refund Litigation with respect to any Taxes that is reasonably likely
to result in a determination that would have, individually or in the
aggregate, a Material Adverse Effect on Riva Bancshares, except as
reserved against in the Riva Bancshares Financial Statements delivered
prior to the date of this Agreement. All Taxes and other liabilities
due with respect to completed and settled examinations or concluded
Litigation have been paid.
(b) Adequate provision for any Taxes due or to become due for
Riva Bancshares for the period or periods through and including the
date of the respective Riva Bancshares Financial Statements has been
made and is reflected on such Riva Bancshares Financial Statements.
(c) Deferred Taxes of Riva Bancshares have been adequately
provided for in the Riva Bancshares Financial Statements.
(d) To the Knowledge of Riva Bancshares, Riva Bancshares is in
compliance with, and its records contain all information and documents
(including properly completed Internal Revenue Service Forms W-9)
necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and
such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Internal Revenue Code, except for
such instances of noncompliance and such omissions as are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Riva Bancshares.
6.8 Compliance With Laws. Prior to the consummation of the
transactions contemplated by this Agreement, Riva Bancshares will become duly
registered as a bank holding company under the BHC Act. Riva Bancshares has in
effect all Permits necessary for it to own, lease, or operate its material
Assets and to carry on its business as now conducted, except for those Permits
the absence of which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Riva Bancshares. Riva Bancshares is not
presently in Default under or in violation of any such Permit, other than
Defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Riva Bancshares. Riva Bancshares:
(a) is not in violation of any Laws, Orders, or Permits
applicable to its business or employees conducting its business, except
for violations which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Riva Bancshares; and
A-17
<PAGE> 169
(b) has not received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that Riva
Bancshares is not in compliance with any of the Laws or Orders which
such governmental authority or Regulatory Authority enforces, where
such noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Riva Bancshares, (ii)
threatening to revoke any Permits, the revocation of which is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Riva Bancshares, or (iii) requiring Riva Bancshares
to enter into or consent to the issuance of a cease and desist order,
formal agreement, directive, commitment, or memorandum of
understanding, or to adopt any board resolution or similar undertaking,
which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit or reserve policies,
its management or the payment of dividends.
6.9 Assets. Except as disclosed in Section 6.9(a) of the Disclosure
Schedule, Riva Bancshares has good and marketable title, free and clear of all
Liens (except for those Liens which are not likely to have a Material Adverse
Effect on Riva Bancshares), to all of its respective material Assets, reflected
in Riva Bancshares Financial Statements as being owned by Riva Bancshares as of
the date hereof. All material tangible properties used in the business of Riva
Bancshares are in good condition, reasonable wear and tear excepted, and are
usable in the ordinary course of business consistent with Riva Bancshares' past
practices. All Assets which are material to Riva Bancshares' business on a
consolidated basis, held under leases or subleases by Riva Bancshares, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect. Riva Bancshares currently maintains
insurance in amounts, scope, and coverage as disclosed in Section 6.9(b) of the
Disclosure Schedule. Riva Bancshares has not received written notice from any
insurance carrier that (i) such insurance will be canceled or that coverage
thereunder will be reduced or eliminated, or (ii) premium costs with respect to
such policies of insurance will be substantially increased. Except as disclosed
in Section 6.9(c) of the Disclosure Schedule, to the Knowledge of Riva
Bancshares there are presently no occurrences giving rise to a claim under such
policies of insurance and no notices have been given by Riva Bancshares under
such policies.
6.10 Legal Proceedings. There is no Litigation instituted or
pending, or, to the Knowledge of Riva Bancshares, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against Riva Bancshares, or
against any Asset, interest, or right of any of them, that is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on Riva
Bancshares, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against Riva Bancshares,
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Riva Bancshares.
6.11 Reports. Since its incorporation, Riva Bancshares has filed all
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with Regulatory Authorities
(except, in the case of state securities authorities, failures to file which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Riva Bancshares). As of their respective dates, each of such
reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document did not, in all
material respects, 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 made therein, in light of the circumstances under which they were
made, not misleading.
A-18
<PAGE> 170
6.12 Statements True and Correct. None of the information supplied
or to be supplied by Riva Bancshares for inclusion in the Registration Statement
to be filed by Riva Bancshares with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
Riva Bancshares for inclusion in the Proxy Statement to be mailed to Premier's
shareholders in connection with the Shareholders' Meeting, and any other
documents to be filed by Riva Bancshares or with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at the
respective time such documents are filed, and with respect to the Proxy
Statement, when first mailed to the shareholders of Premier, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or, in the case of the Proxy Statement or
any amendment thereof or supplement thereto, at the time of the Shareholders'
Meeting, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that Riva Bancshares is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
6.13 Accounting, Tax and Regulatory Matters. To the Knowledge of
Riva Bancshares neither Riva Bancshares nor any affiliate has taken or agreed to
take any action or has any Knowledge of any fact or circumstance that is
reasonably likely to (i) prevent the transactions contemplated hereby, including
the Merger, from qualifying as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, or (ii) materially impede or delay receipt
of any Consents of Regulatory Authorities referred to in Section 9.1(b) of this
Agreement or result in the imposition of a condition or restriction of the type
referred to in the last sentence of such Section.
6.14 Environmental Matters.
(a) To the Knowledge of Riva Bancshares, except as disclosed in
Section 6.14(a) of the Disclosure Schedule, Riva Bancshares, its
Participation Facilities, and its Loan Properties are, and have been,
in compliance with all Environmental Laws, except for violations which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Riva Bancshares.
(b) Except as disclosed in Section 6.14(b) of the Disclosure
Schedule, there is no Litigation pending, or, to the Knowledge of Riva
Bancshares, threatened before any court, governmental agency, or
authority or other forum in which Riva Bancshares or any of its Loan
Properties or Participation Facilities has been or, with respect to
threatened Litigation, may be named as a defendant or potentially
responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release
into the environment of any Hazardous Material, whether or not
occurring at, on, under, or involving any of its Loan Properties or
Participation Facilities, except for such Litigation pending or
threatened that is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Riva Bancshares.
(c) To the Knowledge of Riva Bancshares, except as disclosed in
Section 6.14(c) of the Disclosure Schedule, there is no reasonable
basis for any Litigation of a type described above in
A-19
<PAGE> 171
Section 6.14(b), except such as is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Riva
Bancshares.
(d) To the Knowledge of Riva Bancshares, except as disclosed in
Section 6.14(d) of the Disclosure Schedule, during the period of (i)
Riva Bancshares' ownership or operation of any of their respective
properties, (ii) Riva Bancshares' participation in the management of
any Participation Facility, or (iii) Riva Bancshares' holding a
security interest in a Loan Property, to the Knowledge of Riva
Bancshares there have been no releases of Hazardous Material in, on,
under, or affecting any Participation Facility or Loan Property of Riva
Bancshares, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Riva
Bancshares.
6.15 Derivatives Contracts. Riva Bancshares is not a party to or has
agreed to enter into any Derivatives Contracts.
6.16 Outstanding Premier Common Stock. As of the date of this
Agreement, Riva Bancshares does not beneficially own any shares of Premier
Capital Stock. During the term of this Agreement, Riva Bancshares shall not
purchase or otherwise acquire beneficial ownership of any Premier Common Stock
except pursuant to the terms of this Agreement.
6.17 Material Contracts. Except as disclosed in Section 6.17 of the
Disclosure Schedule, Riva Bancshares is not a party to or subject to the
following: (i) any employment, severance, termination, consulting, or retirement
Contract providing for aggregate payments to any Person in any calendar year in
excess of $50,000, (ii) any Contract relating to the borrowing of money by Riva
Bancshares or the guarantee by Riva Bancshares of any such obligation exceeding
$50,000 (other than Contracts evidencing deposit liabilities, purchases of
federal funds, fully-secured repurchase agreements, and Federal Home Loan Bank
advances of depository institution Subsidiaries, trade payables, and Contracts
relating to borrowings or guarantees made in the ordinary course of business),
and (iii) any other Contract or amendment thereto as of the date of this
Agreement not made in the ordinary course of business to which Riva Bancshares
is a party or by which it is bound (together with all Contracts referred to in
Sections 6.9 and 6.18 of this Agreement, the "Riva Bancshares Contracts"). With
respect to each Riva Bancshares Contract and except as disclosed in Section 6.17
of the Disclosure Schedule: (i) the Contract is in full force and effect; (ii)
Riva Bancshares is not in Default thereunder, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Riva Bancshares; (iii) Riva Bancshares has not repudiated or waived
any material provision of any such Contract; and (iv) no other party to any such
Contract is, to the Knowledge of Riva Bancshares, in Default in any respect,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Riva Bancshares, or has repudiated
or waived any material provision thereunder. Except for Federal Home Loan Bank
advances, all of the indebtedness of Riva Bancshares for money borrowed is
prepayable at any time by Riva Bancshares, without penalty or premium.
6.18 Employee Benefit Plans.
(a) Riva Bancshares has disclosed in Section 6.18(a) of the
Disclosure Schedule and has delivered or made available to Premier
prior to the execution of this Agreement, copies in each case of, all
pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus, or
other incentive plans, all other written employee
A-20
<PAGE> 172
programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee
benefit plans or fringe benefit plans, including "employee benefit
plans" (as that term is defined in Section 3(3) of ERISA), currently
adopted, maintained by, sponsored in whole or in part by, or
contributed to by Riva Bancshares for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents,
spouses, directors, independent contractors, or other beneficiaries are
eligible to participate (collectively, the "Riva Bancshares Benefit
Plans"). Any of the Riva Bancshares Benefit Plans which is an "employee
pension benefit plan" (as that term is defined in Section 3(2) of
ERISA), is referred to herein as a "Riva Bancshares ERISA Plan." No
Riva Bancshares Benefit Plan is or has been a multiemployer plan within
the meaning of Section 3(37) of ERISA.
(b) Except as disclosed in Section 6.18(b) of the Disclosure
Schedule, all Riva Bancshares Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws the breach or violation of which are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
Riva Bancshares, and each Riva Bancshares ERISA Plan which is intended
to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue
Service, and Riva Bancshares is not aware of any circumstances likely
to result in revocation of any such favorable determination letter. To
the Knowledge of Riva Bancshares, it has not engaged in a transaction
with respect to any Riva Bancshares Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, would
subject it to a Tax imposed by either Section 4975 of the Internal
Revenue Code or Section 502(i) of ERISA in amounts which are reasonably
likely to have, individually or in the aggregate, a Material Adverse
Effect on Riva Bancshares.
(c) Except as disclosed in Section 6.18(c) of the Disclosure
Schedule, no Riva Bancshares ERISA Plan has any "unfunded current
liability" (as that term is defined in Section 302(d)(8)(A) of ERISA)
and the fair market value of the assets of any such plan exceeds the
plan's "benefit liabilities," as that term is defined in Section
4001(a)(16) of ERISA, when determined under actuarial factors that
would apply if the plan terminated in accordance with all applicable
legal requirements. Except as disclosed in Section 6.18(c) of the
Disclosure Schedule, since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial
position of any Riva Bancshares ERISA Plan, (ii) no change in the
actuarial assumptions with respect to any Riva Bancshares ERISA Plan,
and (iii) no increase in benefits under any Riva Bancshares ERISA Plan
as a result of plan amendments or changes in applicable Law which is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Riva Bancshares or materially adversely affect the
funding status of any such plan. Neither any Riva Bancshares ERISA Plan
nor any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by Riva
Bancshares, or the single-employer plan of any entity which is
considered one employer with Riva Bancshares under Section 4001 of
ERISA or Section 414 of the Internal Revenue Code or Section 302 of
ERISA (whether or not waived) (an "ERISA Affiliate") has an
"accumulated funding deficiency" within the meaning of Section 412 of
the Internal Revenue Code or Section 302 of ERISA, which is reasonably
likely to have a Material Adverse Effect on Riva Bancshares. Riva
Bancshares has not provided, and is not required to provide, security
to an Riva Bancshares ERISA Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue
Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by Riva Bancshares with respect
A-21
<PAGE> 173
to any ongoing, frozen, or terminated single-employer plan or the
single-employer plan of any ERISA Affiliate, which Liability is
reasonably likely to have a Material Adverse Effect on Riva Bancshares.
Riva Bancshares has not incurred any withdrawal Liability with respect
to a multiemployer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate),
which Liability is reasonably likely to have a Material Adverse Effect
on Riva Bancshares. No notice of a "reportable event," within the
meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any
Riva Bancshares ERISA Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof.
(e) Except as disclosed in Section 6.18(e) of the Disclosure
Schedule, Riva Bancshares has no Liability for retiree health and life
benefits under any of the Riva Bancshares Benefit Plans and there are
no restrictions on the rights of Riva Bancshares to amend or terminate
any such plan without incurring any Liability thereunder, which
Liability is reasonably likely to have a Material Adverse Effect on
Riva Bancshares.
(f) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i)
result in any payment (including severance, unemployment compensation,
golden parachute, or otherwise) becoming due to any director or any
employee of Riva Bancshares, (ii) increase any benefits otherwise
payable under any Riva Bancshares Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit,
where such payment, increase, or acceleration is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
Riva Bancshares.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of
employees and former employees of Riva Bancshares and their respective
beneficiaries, other than entitlements accrued pursuant to funded
retirement plans subject to the provisions of Section 412 of the
Internal Revenue Code or Section 302 of ERISA, have been fully
reflected on the Riva Bancshares Financial Statements to the extent
required by and in accordance with GAAP.
6.19 Year 2000. All computer software and hardware necessary for the
conduct of business by Riva Bancshares (the "Software") is designed to be used
before, on, and after January 1, 2000 and the Software will operate during each
such time period without error relating to the year 2000, specifically including
any error relating to, or the product of, any date data representing or
referring to any particular date. As used in the preceding sentence, "operate"
further includes, but is not limited to, accepting input of dates without
ambiguity, outputting all dates without ambiguity, and performing calculations,
comparisons, extractions, sorting and any other processing or taking actions or
making decisions using dates or time periods without suffering any abends,
aborts, invalid or incorrect results or other interruptions, whether before, on,
or after January 1, 2000. Further, Riva Bancshares has received all year 2000
examinations and certifications as required by applicable Law and will, prior to
the Effective Time, make available for Riva Bancshares' review all such
examinations and certifications.
A-22
<PAGE> 174
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Premier. Unless the prior written
consent of Riva Bancshares shall have been obtained which consent shall not be
unreasonably withheld, and except as otherwise expressly contemplated herein,
Premier shall and shall cause each of its Subsidiaries: (i) operate its business
only in the usual, regular, and ordinary course, (ii) use its reasonable best
efforts to preserve intact its business organization and Assets and maintain its
rights and franchises, (iii) use its reasonable best efforts to maintain its
current employee relationships, and (iv) take no action which would materially
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentence of Section 9.1(b) of
this Agreement, or materially adversely affect the ability of any Party to
perform its covenants and agreements under this Agreement.
7.2 Negative Covenants of Premier. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
Premier covenants and agrees that it will not do or agree or commit to do, any
of the following without the prior written consent of the chief executive
officer of Riva Bancshares:
(a) amend the Articles of Incorporation, Bylaws, or other
governing instruments of any Premier Company, except as expressly
contemplated by this Agreement; or
(b) incur any additional debt obligation or other obligation
for borrowed money in excess of an aggregate of $50,000 (for every
Premier Company on a consolidated basis) except in the ordinary course
of the business of Premier Subsidiaries consistent with past practices
(it being understood and agreed that the incurrence of indebtedness in
the ordinary course of business shall include, without limitation,
creation of deposit liabilities, purchases of federal funds, advances
from the Federal Reserve Bank or Federal Home Loan Bank, and entry into
repurchase agreements fully secured by U.S. government or agency
securities), or impose, or suffer the imposition, on any Asset of any
Premier Company of any Lien or permit any such Lien to exist which Lien
or Liens individually or in the aggregate secure an obligation not in
excess of $50,000 (other than in connection with deposits, repurchase
agreements, bankers acceptances, "treasury tax and loan" accounts
established in the ordinary course of business, the satisfaction of
legal requirements in the exercise of trust powers, and Liens in effect
as of the date hereof that are disclosed in the Disclosure Schedule)
provided, however, that nothing in this paragraph shall prohibit
Premier or any Premier Subsidiary from honoring any contractual
obligation in existence on the date of this Agreement; or
(c) repurchase, redeem, or otherwise acquire or exchange (other
than exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible into
any shares, of the capital stock of any Premier Company, or declare or
pay any dividend or make any other distribution in respect of Premier's
capital stock; or
(d) except for this Agreement, or pursuant to the exercise of
stock options outstanding as of the date hereof and pursuant to the
terms thereof in existence on the date hereof, or as disclosed in
Section 7.2(d) of the Disclosure Schedule, issue, sell, pledge,
encumber, authorize the issuance of, enter into any Contract to issue,
sell, pledge, encumber, or authorize the issuance of, or otherwise
permit to become outstanding, any additional shares of Premier Common
Stock, or any stock
A-23
<PAGE> 175
appreciation rights, or any option, warrant, conversion, or other right
to acquire any such stock, or any security convertible into any such
stock; or
(e) adjust, split, combine, reclassify or declare and pay any
dividend or other distribution on any capital stock of any Premier
Company or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Premier Common Stock, or
sell, lease, mortgage, or otherwise dispose of or otherwise encumber
(x) any shares of capital stock of any Premier Subsidiary, or (y) any
Asset other than in the ordinary course of business for reasonable and
adequate consideration; or
(f) except for purchases of United States Treasury securities
or United States Government agency securities, which in either case
have maturities of five years or less, purchase any securities or make
any material investment, either by purchase of stock or securities,
contributions to capital, Asset transfers, or purchase of any Assets,
in any Person other than a wholly owned Premier Subsidiary, or
otherwise acquire direct or indirect control over any Person, other
than in connection with (i) foreclosures in the ordinary course of
business, (ii) acquisitions of control by a depository institution
Subsidiary, in its fiduciary capacity, or (iii) the creation of new
wholly owned Subsidiaries organized to conduct or continue activities
otherwise permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the
officers or directors of any Premier Company (provided, however, that
Premier may increase the compensation of non-officer employees by not
more than 5% of such employees' annual compensation if such increase is
consistent with past practice); pay any severance or termination pay or
any bonus other than pursuant to written policies or written Contracts
in effect on the date of this Agreement and as disclosed in Section
7.2(g) of the Disclosure Schedule; enter into or amend any severance
agreements with officers of any Premier Company; or voluntarily
accelerate the vesting of any stock options or other stock-based
compensation or employee benefits; or
(h) enter into or amend any employment Contract between any
Premier Company and any Person (unless such amendment is required by
Law) which provides that such Premier Company does not have the
unconditional right to terminate without Liability (other than
Liability for services already rendered), at any time on or after the
Effective Time; or
(i) adopt any new employee benefit plan of any Premier Company
or make any material change in or to any existing employee benefit
plans of any Premier Company other than any such change that is
required by Law or that, in the opinion of counsel, is necessary or
advisable to maintain the tax qualified status of any plan; or
(j) make any significant change in any Tax or accounting
methods or systems of internal accounting controls, except as may be
appropriate to conform to changes in Tax Laws or regulatory accounting
requirements or GAAP; or
(k) commence any Litigation other than in accordance with past
practice or in the ordinary course of business or settle any Litigation
involving any Liability of Premier Company which may have a Material
Adverse Effect on Premier or result in the imposition of restrictions
upon the operations of any Premier Company which may have a Material
Adverse Effect on Premier without first consulting with Riva
Bancshares; or
A-24
<PAGE> 176
(l) except in the ordinary course of business, modify, amend,
or terminate any material Contract other than renewals without material
adverse change of terms, or waive, release, compromise, or assign any
material rights or claims; or
(m) make any investment in excess of $50,000 either by purchase
of stock or securities, contributions to capital, property transfers,
or purchase of any property or assets of any other individual,
corporation or other entity other than a wholly owned Subsidiary
thereof; or
(n) sell, transfer, mortgage, encumber or otherwise dispose of
any of its material properties or assets to any individual, corporation
or other entity other than a direct or indirect wholly owned
Subsidiary, or cancel, release or assign any indebtedness to any such
Person or any claims held by any such Person, except in the ordinary
course of business consistent with past practice or pursuant to
contracts or agreements in force at the date of this Agreement.
7.3 Covenants of Riva Bancshares. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
Riva Bancshares covenants and agrees that it shall (i) continue to conduct its
business and the business of its Subsidiaries in a manner designed in its
reasonable judgment, to enhance the long-term value of the Riva Bancshares
Common Stock and the business prospects of Riva Bancshares, and (ii) take no
action which would (a) materially adversely affect the ability of any Party to
obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentence of Section 9.1(b) of this Agreement, or (b) materially adversely affect
the ability of any Party to perform its covenants and agreements under this
Agreement; provided, that the foregoing shall not prevent Riva Bancshares from
discontinuing or disposing of any of its Assets or business if such action is,
in the judgment of Riva Bancshares, desirable in the conduct of the business of
Riva Bancshares. Riva Bancshares further covenants and agrees that it will not,
without the prior written consent of the Chairman and Chief Executive Officer of
Premier, which consent shall not be unreasonably withheld, amend the Certificate
of Incorporation or Bylaws of Riva Bancshares, in each case in any manner
adverse to the holders of Premier Common Stock, issue additional Common Stock of
Riva Bancshares, or warrants or options to purchase Common Stock of Riva
Bancshares; or make an Acquisition Proposal to any individual or entity.
7.4 Adverse Changes In Condition. Each Party agrees to give written
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it which (i) is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on it or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable best efforts to prevent or promptly to remedy the same.
7.5 Reports. Each Party and their respective Subsidiaries shall
file all reports required to be filed by each of them with Regulatory
Authorities between the date of this Agreement and the Effective Time and shall
deliver to each other copies of all such reports promptly after the same are
filed. If financial statements are contained in any such reports filed with the
SEC, such financial statements will fairly present the consolidated financial
position of the entity filing such statements as of the dates indicated and the
consolidated results of operations, changes in shareholders' equity, and cash
flows for the periods then ended in accordance with GAAP (subject in the case of
Riva Bancshares financial statements to normal recurring year-end adjustments
that are not material and except for the absence of certain footnote information
in the unaudited financial statements). As of their respective dates, such
reports filed with the SEC will comply in all material respects with the
Securities Laws and will not contain any untrue statement of a material fact or
omit to state a 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. Any financial statements
A-25
<PAGE> 177
contained in any other reports to another Regulatory Authority shall be prepared
in accordance with Laws applicable to such reports.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Shareholder Approval.
As soon as practicable after execution of this Agreement (in no event later than
May 31, 1999), Riva Bancshares shall file the Registration Statement related to
Riva Bancshares' proposed Initial Public Offering ("IPO") and Riva Bancshares
and Premier shall file the Registration Proxy Statement in connection with the
Merger with the SEC, and shall use their reasonable best efforts to cause the
Registration Statement and the Registration Proxy Statement to become effective
under the 1933 Act and take any action required to be taken under the applicable
state blue sky or securities Laws in connection with the issuance of the shares
of Riva Bancshares Common Stock upon consummation of the Merger. Premier shall
furnish all information concerning it and the holders of its capital stock as
Riva Bancshares may reasonably request in connection with such action. Premier
shall call a Shareholders' Meeting, to be held on a date that is determined by
the Parties to be a mutually desirable date, which date shall be as soon as
practicable after the Registration Statement is declared effective by the SEC,
for the purpose of voting upon approval of this Agreement and such other related
matters as it deems appropriate. In connection with the Shareholders' Meeting,
(i) Premier shall prepare a Proxy Statement relating to the Merger and mail such
Proxy Statement to its shareholders, (ii) the Parties shall furnish to each
other all information concerning them that they may reasonably request in
connection with the preparation of such Proxy Statement, (iii) the Board of
Directors of Premier shall recommend (subject to compliance with their fiduciary
duties under applicable law as advised by counsel) to its shareholders the
approval of this Agreement, and (iv) the Board of Directors and officers of
Premier shall (subject to compliance with their fiduciary duties under
applicable law as advised by counsel) use their reasonable best efforts to
obtain such shareholders' approval.
8.2 Share Purchases by and Option Grants to Premier Shareholders.
To induce Premier to enter into this Agreement, Premier Shareholders shall be
entitled to the following:
(i) In addition to any shares received in the Merger, Premier
shareholders shall not be limited in the number of shares which they
may purchase in Riva Bancshares' IPO at the initial public offering
price, subject to any required regulatory approvals for purchases that
result in a Premier shareholder owning more than ten percent (10%) of
the total outstanding shares of Riva Bancshares.
(ii) Upon completion of the IPO, Riva Bancshares will grant to
each Premier shareholder (other than Bruce W. Wiley) (collectively, the
"Premier Shareholders") a warrant to purchase shares of Riva Bancshares
at the initial public offering price for a period of ten (10) years
from the date of such grant. These warrants will be granted on the same
terms and conditions as the warrants referenced in Section 6.3 of this
Agreement. The number of shares granted under each Premier
Shareholder's warrant will be determined on a pro rata basis, whereby
each Premier Shareholder will receive a warrant to purchase 3.605
shares of Riva Bancshares Common Stock for each share of Premier owned
by such shareholder prior to the Merger. The aggregate number of shares
subject to these warrants shall not exceed 140,000. Riva Bancshares
shall not be required to issue fractional shares upon the exercise of
such warrants. The amount of shares issuable upon exercise of the
warrants shall be rounded to the nearest whole number.
A-26
<PAGE> 178
(iii) Upon completion of the IPO, Riva Bancshares will grant to
each Premier shareholder, including Bruce W. Wiley, a warrant to
purchase shares of Riva Bancshares at 120% of the initial public
offering price for a period of ten (10) years from the date of such
grant. With the exception of the exercise price, these warrants shall
be granted on the same terms and conditions as the warrants referenced
in Section 6.3 of this Agreement. The number of shares granted under
each of these warrants will be determined on a pro rata basis, whereby
each Premier shareholder will receive a warrant to purchase 5.020
shares of Riva Bancshares Common Stock for each share of Premier owned
by such shareholder prior to the Merger. The aggregate number of shares
subject to these warrants shall not exceed 210,000. Riva Bancshares
shall not be required to issue fractional shares upon the exercise of
such warrants. The amount of shares issuable upon exercise of the
warrants shall be rounded to the nearest whole number.
(iv) for a period of forty-eight (48) months after the closing
of the IPO, if any additional options are granted to any Premier
Shareholder who serves as an advisory director of a banking subsidiary
of Riva Bancshares or to any other non-employee Premier Shareholder;
then warrants will be granted to each Premier Shareholder on a pro rata
basis, whereby each Premier Shareholder will receive a warrant to
purchase additional shares in the same proportion as the amount of
option shares granted to each advisory director or non-employee Premier
Shareholder relative to the amount of shares owned by such advisory
director or non-employee shareholder at the Effective Time of the
Merger. For example, if an advisory director or any non-employee
Premier Shareholder owned 3,000 shares of Premier at the Effective Time
of the Merger and is thereafter granted options to purchase 1,000
shares, then each Premier Shareholder will a warrant for one-third
(i.e., 1,000 / 3,000) of the amount of shares owned by such shareholder
at the Effective Time of the Merger. Therefore, pursuant to the example
above, a Premier Shareholder who owns 1,000 shares of Premier would
receive warrants to purchase 333 shares of Riva Bancshares.
8.3 Restrictions on Transfer of Shares Held by Premier Directors,
Officers and Shareholders.
(a) Premier and its directors will agree that, for a period of
180 days after the effective date of the Company's Registration
Statement on Form S-1 related to the proposed IPO, they shall not
directly or indirectly sell, offer to sell, contract to sell, solicit
an offer to buy, grant any option, right or warrant for the purchase or
sale of, assign, pledge, distribute or otherwise transfer, dispose of,
encumber, (or make any announcement with respect to any of the
foregoing), any shares of common stock received pursuant to Section 3.1
of this Agreement, which such director or officer currently owns, has
the right to dispose of or hereafter acquire, either of record or
beneficially, nor will any director or officer request the registration
of the offer or sale of any of the foregoing.
(b) Premier Shareholders, except for any shareholder who serves
as a director (whose Riva Bancshares shares will be restricted as
described in Section 8.3(a) above) shall not directly or indirectly
sell, offer to sell, contract to sell, solicit an offer to buy, grant
any option, right or warrant for the purchase or sale of, assign,
pledge, distribute or otherwise transfer, dispose of, encumber, (or
make any announcement with respect to any of the foregoing), any shares
of common stock received pursuant to Section 3.1 of this Agreement,
which such shareholder owns, has the right to dispose of or hereafter
acquire, either of record or beneficially, except as permitted in the
schedule set forth below:
A-27
<PAGE> 179
<TABLE>
<CAPTION>
Aggregate Percentage of Shares Issued
to Such Person Pursuant to Section 3.1
TIME TABLE Permitted for Sale by Such Person
- ---------- --------------------------------------
<S> <C>
From the date of pricing of the IPO
through the date of closing of the IPO No sales are permitted
From 1 to 30 days after closing 10%
From 31 to 60 after closing 20%
From 61 to 90 days after closing 40%
From 91 to 120 days after closing 60%
From 121 days after closing and after 100%
</TABLE>
8.4 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including the use of their respective reasonable best efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 9 of this Agreement; provided, that nothing herein shall
preclude either Party from exercising its rights under this Agreement. Each
Party shall use, and shall cause each of its Subsidiaries to use, its reasonable
best efforts to obtain all Permits and Consents necessary or desirable for the
consummation of the transactions contemplated by this Agreement.
8.5 Applications. Riva Bancshares shall promptly prepare and file,
and Premier shall cooperate in the preparation and, where appropriate, filing
of, applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement and
thereafter use its reasonable best efforts to cause the Merger to be consummated
as expeditiously as possible.
8.6 Access to Information; Confidentiality. From the date hereof to
the Effective Time or termination pursuant to Article 10 of this Agreement, upon
reasonable notice and subject to applicable Laws, Riva Bancshares and Premier
shall afford each other, and each other's accountants, counsel, and other
representatives, during normal working hours for the period of time prior to the
Effective Time, reasonable access to all of its and its Subsidiaries'
properties, books, contracts, commitments, and records and, during such period,
each shall furnish promptly to the other party (i) a copy of each report,
schedule, and other document filed or received by it or any of its Subsidiaries
during such period pursuant to the requirements of the Securities Laws, (ii) a
copy of all filings made with any Regulatory Authorities or other governmental
entities in connection with the transactions contemplated by this Agreement and
all written communications received from such Regulatory Authorities and
governmental entities related thereto, and (iii) all other information
concerning its or its Subsidiaries' business, properties and personnel as such
other party may reasonably request, including reports of condition filed with
Regulatory Authorities. In this regard, without limiting the generality of the
foregoing, each of the parties hereto shall notify the other parties hereto
promptly upon the receipt by it of any comments from the SEC, or its staff, and
of any requests by the SEC for amendments or supplements to the Registration
Statement or the Proxy Statement or for additional information and will supply
the other parties hereto with copies of all correspondence between it and its
A-28
<PAGE> 180
representatives, on the one hand, and the SEC or the members of its staff or any
other government official, on the other hand, with respect to the Registration
Statement or the Proxy Statement. Each party hereto shall, and shall cause its
advisors and representatives to (x) conduct its investigation in such a manner
which will not unreasonably interfere with the normal operations, customers or
employee relations of the other and shall be in accordance with procedures
established by the parties having the due regard for the foregoing, and (y)
refrain from using for any purposes other than as set forth in this Agreement,
and shall treat as confidential, all information obtained by each hereunder or
in connection herewith and not otherwise known to them prior to the Effective
Time. Except as otherwise agreed to in writing, Riva Bancshares and Premier
shall be bound by and all information given or received pursuant to this Section
8.5 shall be subject to the terms and conditions of that certain confidentiality
agreement entered into between Riva Bancshares and Premier dated November 19,
1998, which shall survive the termination of this Agreement.
8.7 Current Information. During the period from the date of this
Agreement until the Effective Time or termination of this Agreement pursuant to
Article 10 hereof, each of Premier and Riva Bancshares shall, and shall cause
its representatives to, confer on a regular and frequent basis with
representatives of the other. Each of Premier and Riva Bancshares shall promptly
notify the other of (i) any material change in its business or operations, (ii)
any material complaints, investigations, or hearings (or communications
indicating that the same may be contemplated) of any Regulatory Authority, (iii)
the institution or threat of material Litigation involving such party, or (iv)
the occurrence or nonoccurrence, of an event or condition, the occurrence, or
nonoccurrence, of which would be reasonably expected to cause any of such
party's representations or warranties set forth herein to be false or untrue in
any respect as of the Effective Time; and in each case shall keep the other
fully informed with respect thereto.
8.8 Other Actions. No Party shall, or shall permit any of its
Subsidiaries, if any, to, take any action, except in every case as may be
required by applicable Law, that would or is intended to result in (i) any of
its representations and warranties set forth in this Agreement that are
qualified as to materiality being or becoming untrue, (ii) any of such
representations and warranties that are not so qualified become untrue in any
material manner having a Material Adverse Effect, (iii) any of the conditions
set forth in this Agreement not being satisfied or in a violation of any
provision of this Agreement, or (iv) adversely affecting the ability of any of
them to obtain any of the Consents or Permits from Regulatory Authorities
(unless such action is required by sound banking practice).
8.9 Press Releases. Prior to the Effective Time, Premier and Riva
Bancshares shall consult with each other as to the form and substance of any
press release or other public disclosure materially related to this Agreement or
any other transaction contemplated hereby; provided, that nothing in this
Section 8.9 shall be deemed to prohibit any Party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
8.10 No Solicitation. Except with respect to this Agreement and the
transactions contemplated hereby, from the date of this Agreement until the
Effective Time or termination pursuant to Article 10, neither a Premier Company
nor any Affiliate thereof, shall directly or indirectly solicit any Acquisition
Proposal by any Person. Except to the extent necessary to comply with the
fiduciary duties of Premier's Board of Directors, determined after consultation
with counsel, neither a Premier Company nor any Affiliate thereof, or any
Representative thereof shall furnish any nonpublic information that it is not
legally obligated to furnish or negotiate with respect to, any Acquisition
Proposal, but Premier may communicate information about such an Acquisition
Proposal to its shareholders if and to the extent that it is required to do so
in order to comply with its legal obligations as advised by counsel. Premier
shall promptly notify Riva Bancshares orally and in writing in the event that it
receives any inquiry or proposal relating to any such transaction. Premier shall
(i) immediately cease and cause to be terminated any existing activities,
discussions, or
A-29
<PAGE> 181
negotiations with any Persons conducted heretofore with respect to any of the
foregoing and (ii) direct and use its reasonable best efforts to cause of all
its Representatives not to engage in any of the foregoing.
8.11 Accounting and Tax Treatment. Each of the Parties undertakes
and agrees to use its reasonable best efforts to cause the Merger, and to take
no action which would cause the Merger not, to qualify for treatment as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes.
8.12 Anti-Takeover Provisions. Each Premier Company shall take all
necessary action to ensure that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby do not
and will not result in any super-majority voting requirements or the grant of
any rights to any Person under its Articles of Incorporation, Bylaws, or any
other governing instruments. In addition, each Premier Company shall take all
necessary steps to exempt the transactions contemplated by this Agreement from,
or if necessary challenge the validity or applicability of, ss. 351.459 RSMo of
the GBCL.
8.13 Agreement of Affiliates. Premier has disclosed in Section 8.13
of the Disclosure Schedule all Persons whom it reasonably believes are
"affiliates" of Premier for purposes of Rule 145 under the 1933 Act. Premier
shall use its reasonable best efforts to cause each such Person to deliver to
Riva Bancshares not later than 30 days prior to the Effective Time, a written
agreement, substantially in the form of Exhibit 2 attached hereto, providing
that such Person will not sell, pledge, transfer, or otherwise dispose of the
shares of Premier Common Stock held by such Person, except as contemplated by
such agreement or by this Agreement and will not sell, pledge, transfer, or
otherwise dispose of the shares of Riva Bancshares Common Stock to be received
by such Person upon consummation of the Merger except in compliance with
applicable provisions of the 1933 Act and the rules and regulations thereunder
(and Riva Bancshares shall be entitled to place restrictive legends upon
certificates for shares of Riva Bancshares Common Stock issued to affiliates of
Premier pursuant to this Agreement to enforce the provisions of this Section
8.13). Riva Bancshares shall not be required to maintain the effectiveness of
the Registration Statement under the 1933 Act for the purposes of resale of Riva
Bancshares Common Stock by such affiliates.
8.14 Employee Benefits and Contracts. Following the Effective Time,
Riva Bancshares shall provide generally to continuing officers and employees of
Premier Companies employee benefits under employee benefit plans (other than
stock option or other plans involving the potential issuance of Riva Bancshares
Common Stock), on terms and conditions which when taken as a whole are no less
favorable than those currently provided by Premier. For purposes of
participation and vesting (but not benefit accrual under any employee benefit
plans of Riva Bancshares other than the Premier Benefit Plans) under such
employee benefit plans, the service of the employees of Premier prior to the
Effective Time shall be treated as service with Riva Bancshares participating in
such employee benefit plans. Riva Bancshares shall honor in accordance with
their terms all employment, severance, consulting, and other compensation
Contracts disclosed in Section 8.13 of the Disclosure Schedule between Premier
and any current or former director, officer, or employee thereof, and all
provisions for vested benefits or other vested amounts earned or accrued through
the Effective Time under the Premier Benefit Plans.
8.15 Management Contracts. Riva Bancshares and Bruce W. Wiley have
entered into an employment agreement dated as of the date hereof which agreement
will become effective as of the Closing.
A-30
<PAGE> 182
8.16 Indemnification and Directors' Liability Insurance.
(a) Riva Bancshares shall, and shall cause the Surviving
Corporation (and its successors and assigns) to, indemnify, defend, and
hold harmless the present and former directors, officers, employees,
and agents of Premier (each, an "Indemnified Party") against all costs,
fees or expenses (including reasonable attorneys' fees), judgments,
fines, penalties, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any Litigation 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 applicable Law and by Premier's Articles of
Incorporation and Bylaws as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of
any Litigation. Without limiting the foregoing, in any case in which
approval by Riva Bancshares is required to effectuate any
indemnification, Riva Bancshares shall direct, at the election of the
Indemnified Party, that the determination of any such approval shall be
made by independent counsel mutually agreed upon between Riva
Bancshares and the Indemnified Party.
(b) If Riva Bancshares or the Surviving Corporation or any of
their successors or assigns shall consolidate with or merge into any
other Person and shall not be the continuing or surviving corporation
of such consolidation or merger or shall transfer all or substantially
all of its assets to any Person, then and in each case, proper
provision shall be made so that the successors and assigns of Riva
Bancshares shall assume the obligations set forth in this Section 8.16.
(c) Prior to the Effective Time, Premier shall purchase for,
and on behalf of, its current and former officers and directors,
extended coverage under the current directors' and officers' liability
insurance policy maintained by Premier to provide for continued
coverage of such insurance for a period of five years following the
Effective Time with respect to matters occurring prior to the Effective
Time.
(d) The provisions of this Section 8.16 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 Riva
Bancshares and the Surviving Corporation.
8.17 Filings with State of Missouri. Upon the terms and subject to
the conditions of this Agreement, Premier and Riva Bancshares shall execute
articles of merger (the "Articles of Merger") and Riva Bancshares shall file the
Articles of Merger and a copy thereof with the office of the Secretary of State
of Missouri and Delaware in connection with the Closing. In addition, Riva
Bancshares shall execute and file, pursuant to ss. 351.458 RSMo of the GBCL, (i)
an agreement that Riva Bancshares will promptly pay to any Dissenting
Shareholder the amount, if any, to which such shareholder shall be entitled
under the Dissent Provisions, (ii) an agreement that Riva Bancshares may be
served with process in the State of Missouri and (iii) an irrevocable
appointment of the Secretary of State of Missouri as Riva Bancshares' agent to
accept service of process in any proceeding based upon any cause of action
against Premier arising prior to the Effective Time and any proceeding for the
enforcement of rights of any Dissenting Shareholder under the Dissent
Provisions.
A-31
<PAGE> 183
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to Section
11.7 of this Agreement:
(a) Shareholder Approval. The shareholders of Premier shall
have approved this Agreement and the consummation of the transactions
contemplated hereby, including the Merger, by the requisite 662/3% vote
pursuant to applicable provisions of the GBCL, and applicable Law. In
addition, the shareholders of Riva Bancshares shall have approved this
Agreement and the consummation of the transactions contemplated hereby,
including the Merger, by the requisite majority vote pursuant to
Section 251 of the DGCL, and applicable Law.
(b) Regulatory Approvals. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or
made and shall be in full force and effect and all waiting periods
required by Law shall have expired. No Consent obtained from any
Regulatory Authority which is necessary to consummate the transactions
contemplated hereby shall be conditioned or restricted in a manner
(including requirements relating to the raising of additional capital
or the disposition of Assets) which in the reasonable judgment of the
Board of Directors of either Party would so materially adversely impact
the economic or business benefits of the transactions contemplated by
this Agreement that, had such condition or requirement been known, such
Party would not, in its reasonable judgment, have entered into this
Agreement.
(c) Consents and Approvals. Other than filing the Articles of
Merger and receipt of the Certificate of Merger, each Party shall have
obtained any and all Consents required for consummation of the Merger
(other than those referred to in Section 9.1(b) of this Agreement or
listed in Section 9.1(c) of the Disclosure Schedule) or for the
preventing of any Default under any Contract or Permit of such Party
which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on such
Party.
(d) Legal Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced, or entered any Law or Order (whether temporary,
preliminary, or permanent) or taken any other action which prohibits,
restricts, or makes illegal consummation of any of the transactions
contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall
have been declared effective under the 1933 Act, and no stop orders
suspending the effectiveness of the Registration Statement shall have
been issued, and no action, suit, proceeding, or investigation by the
SEC to suspend the effectiveness thereof shall have been initiated and
be continuing, and all necessary approvals under state securities Laws
or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of Riva Bancshares Common Stock issuable pursuant to the Merger
or the IPO shall have been received.
(f) Tax Matters. Each Party shall have received a written
opinion or opinions from Smith, Gambrell & Russell, LLP, and in a form
reasonably satisfactory to such Parties (the "Tax
A-32
<PAGE> 184
Opinion"), to the effect that (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code and (ii) the exchange in the Merger of Premier Common
Stock for Riva Bancshares Common Stock will not give rise to gain or
loss to the shareholders of Premier with respect to such exchange
(except to the extent of any cash received). In rendering such Tax
Opinion, such counsel shall be entitled to rely upon representations of
officers of Premier and Riva Bancshares reasonably satisfactory in form
and substance to such counsel.
(g) Public Offering. Riva Bancshares shall have executed a
definitive underwriting agreement with a reputable and financially
capable investment banking firm, chosen in the sole discretion of the
Board of Directors of Riva Bancshares, providing for the firm
commitment underwriting of shares of Riva Bancshares Common Stock
having an aggregate gross purchase price of at least $25 million and
such shares shall, upon issuance, be available for trading on a
registered stock exchange or the National Market of the Nasdaq Stock
Market.
9.2 Conditions to Obligations of Riva Bancshares. The obligations
of Riva Bancshares to perform this Agreement and consummate the Merger and the
other transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Riva Bancshares pursuant to Section
11.7(a) of this Agreement:
(a) Representations and Warranties. For purposes of this
Section 9.2(a), the accuracy of the representations and warranties of
Premier set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as
though all such representations and warranties had been made on and as
of the Effective Time (provided that representations and warranties
which are confined to a specified date shall speak only as of such
date). The representations and warranties of Premier set forth in
Section 5.3 of this Agreement shall be true and correct (except for
inaccuracies which are de minimus in amount). The representations and
warranties of Premier set forth in Sections 5.17, 5.18, 5.19, and 5.20
of this Agreement shall be true and correct in all material respects.
There shall not exist inaccuracies in the representations and
warranties of Premier set forth in this Agreement (including the
representations and warranties set forth in Sections 5.3, 5.17, 5.18,
5.19, and 5.20) such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, a Material Adverse Effect on
Premier and its Subsidiaries taken as a whole; provided that, for
purposes of this sentence only, those representations and warranties
which are qualified by references to "material" or "Material Adverse
Effect" shall be deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of Premier to be performed and complied
with pursuant to this Agreement and the other agreements contemplated
hereby prior to the Effective Time shall have been duly performed and
complied with in all respects.
(c) Certificates. Premier shall have delivered to Riva
Bancshares (i) a certificate, dated as of the Effective Time and signed
on its behalf by its chief executive officer and its chief financial
officer acting in their capacities as officers of Premier, to the
effect that the conditions of its obligations set forth in Section
9.2(a) and 9.2(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by Premier's Board of
Directors and shareholders evidencing the taking of all corporate
action necessary to authorize the execution, delivery, and performance
of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Riva Bancshares
and its counsel shall request.
A-33
<PAGE> 185
(d) Affiliates Agreements. Riva Bancshares shall have received
from each affiliate of Premier the affiliates agreements referred to in
Section 8.13 of this Agreement.
(e) Opinion of Counsel. Riva Bancshares shall have received a
written opinion of Suelthaus & Walsh, P.C., counsel to Premier, dated
as of the Effective Time, with respect to such matters and in such form
as shall be agreed upon between such firm and Riva Bancshares in
substantially the form that is attached as Exhibit 2.
9.3 Conditions to Obligations of Premier. The obligations of
Premier to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Premier pursuant to Section 11.7(b) of
this Agreement:
(a) Representations and Warranties. For purposes of this
Section 9.3(a), the accuracy of the representations and warranties of
Riva Bancshares set forth in this Agreement shall be assessed as of the
date of this Agreement and as of the Effective Time with the same
effect as though all such representations and warranties had been made
on and as of the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as
of such date). The representations and warranties of Riva Bancshares
set forth in Section 6.3 of this Agreement shall be true and correct
(except for inaccuracies which are de minimus in amount). The
representations and warranties of Riva Bancshares set forth in Section
6.11 of this Agreement shall be true and correct in all material
respects. There shall not exist inaccuracies in the representations and
warranties of Riva Bancshares set forth in this Agreement (including
the representations and warranties set forth in Sections 6.3 and 6.11)
such that the aggregate effect of such inaccuracies has, or is
reasonably likely to have, a Material Adverse Effect on Riva
Bancshares; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to
"material" or "Material Adverse Effect" shall be deemed not to include
such qualifications.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of Riva Bancshares to be performed and
complied with pursuant to this Agreement and the other agreements
contemplated hereby prior to the Effective Time shall have been duly
performed and complied with in all material respects.
(c) Certificates. Riva Bancshares shall have delivered to
Premier (i) a certificate, dated as of the Effective Time and signed on
its behalf by its chief executive officer and its chief financial
officer, to the effect that the conditions of its obligations set forth
in Section 9.3(a) and 9.3(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by Riva Bancshares'
Board of Directors evidencing the taking of all corporate action
necessary to authorize the execution, delivery, and performance of this
Agreement, and the consummation of the transactions contemplated
hereby, all in such reasonable detail as Premier and its counsel shall
request.
(d) Fairness Opinion. Premier shall have received from GRA
Thompson White & Company, PC, a letter to the effect that, in the
opinion of such firm, the Exchange Ratio is fair, from a financial
point of view, to the holders of Premier Common Stock.
(e) Payment of Consideration. Riva Bancshares shall have
delivered to the Exchange Agent the consideration to be paid to holders
of the Premier Common Stock pursuant to Sections 3.1 and 3.4 of this
Agreement.
A-34
<PAGE> 186
(f) Opinion of Counsel. Premier shall have received a written
opinion of Smith, Gambrell & Russell, LLP, counsel to Riva Bancshares,
dated as of the Effective Time, with respect to such matters and in
such the form as shall be agreed upon between such firm and Premier in
substantially the form that is attached hereto as Exhibit 3.
(g) Underwriters to Perform. The underwriters in the IPO shall
have given their assurances that they are ready, willing, and able to
close on the IPO, and have the funds available to deliver the full
amount of the purchase price (less the underwriters' discount) for the
shares under the IPO, immediately following the consummation of the
Merger.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of Riva Bancshares and Premier, this Agreement may be terminated
and the Merger abandoned at any time prior to the Effective Time:
(a) By mutual written consent of the Board of Directors of Riva
Bancshares and the Board of Directors of Premier; or
(b) By the Board of Directors of either Riva Bancshares or
Premier (provided that the terminating Party is not then in breach of
any representation or warranty contained in this Agreement under the
applicable standard set forth in Section 9.2(a) of this Agreement in
the case of Premier and Section 9.3(a) in the case of Riva Bancshares
or in material breach of any covenant or other agreement contained in
this Agreement) in the event of an inaccuracy of any representation or
warranty of the other Party contained in this Agreement which cannot be
or has not been cured within 30 days after the giving of written notice
to the breaching Party of such inaccuracy and which inaccuracy would
provide the terminating Party the ability to refuse to consummate the
Merger under the applicable standard set forth in Section 9.2(a) of
this Agreement in the case of Premier and Section 9.3(a) of this
Agreement in the case of Riva Bancshares; or
(c) By the Board of Directors of either Riva Bancshares or
Premier in the event of a material breach by the other Party of any
covenant, agreement, or obligation contained in this Agreement which
breach cannot be or has not been cured within 30 days after the giving
of written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Riva Bancshares or
Premier in the event (i) any Consent of any Regulatory Authority
required for consummation of the Merger and the other transactions
contemplated hereby shall have been denied by final nonappealable
action of such authority or if any action taken by such authority is
not appealed within the time limit for appeal; or (ii) the shareholders
of either Riva Bancshares or Premier fail to vote their approval of
this Agreement and the transactions contemplated hereby as required by
the DGCL and GBCL, respectively; or
(e) By the Board of Directors of either Riva Bancshares or
Premier in the event that the Merger shall not have been consummated by
September 30, 1999, if the failure to consummate
A-35
<PAGE> 187
the transactions contemplated hereby on or before such date is not
caused by any breach of this Agreement by the Party electing to
terminate pursuant to this Section 10.1(e); or
(f) By Riva Bancshares in the event appraisal rights are
claimed, pursuant to the Dissent Provisions, by persons owning in the
aggregate more than 10% of the issued and outstanding Premier Common
Stock; or
(g) By the Board of Directors of either Riva Bancshares or
Premier (provided that the terminating Party is not then in breach of
any representation or warranty contained in this Agreement under the
applicable standard set forth in Section 9.2(a) of this Agreement in
the case of Premier and Section 9.3(a) in the case of Riva Bancshares
or in material breach of any covenant or other agreement contained in
this Agreement) in the event that any of the conditions precedent to
the obligations of such Party to consummate the Merger cannot be
satisfied or fulfilled by the date specified in Section 10.1(e) of this
Agreement; or
(h) By Premier, if at any time prior to the Effective Time, the
fairness opinion of GRA Thompson White & Company, PC is withdrawn.
(i) By Premier if prior to the Effective Time, a corporation,
partnership, person, or other entity or group shall have made a bona
fide Acquisition Proposal that the Board of Directors of Premier
determines in its good faith judgment and in the exercise of its
fiduciary duties, with respect to legal matters on the written opinion
of legal counsel and as to financial matters on the written opinion of
GRA Thompson White & Company, PC, or another investment banking firm of
national reputation, is more favorable to the shareholders of Premier
and that the failure to terminate this Agreement and accept such
alternative Acquisition Proposal would be inconsistent with the proper
exercise of such fiduciary duties.
10.2 Effect of Termination.
(a) In the event of the termination and abandonment of this
Agreement pursuant to Section 10.1 of this Agreement, this Agreement
shall become void and have no effect, except that (i) the provisions of
this Section 10.2 and Sections 8.6 and 11.1 of this Agreement shall
survive any such termination and abandonment, and (ii) a termination
pursuant to Sections 10.1(b) or 10.1(c) or 10.1 (f), of this Agreement
shall not relieve the breaching Party from liability for an uncured
willful breach of a representation, warranty, covenant, or agreement
giving rise to such termination; provided, further, that in the event
of any termination of this Agreement following the occurrence of an
Initial Triggering Event (as defined below) other than termination due
to: (A) the failure of Riva Bancshares to satisfy a condition to
closing, (B) determination of Riva Bancshares pursuant to Section
9.2(a) not to perform this Agreement, (C) withdrawal of the fairness
opinion of GRA Thompson White & Company, PC (so long as such withdrawal
is not due to materially inaccurate or fraudulent information provided
by Premier to GRA Thompson White & Company, PC), or (D) the failure to
satisfy the conditions set forth in Section 9.1 paragraphs (b), (d),
(e), (f) and (g), Riva Bancshares shall be entitled to a cash payment
from Premier in an amount equal to $200,000 upon the occurrence of any
Subsequent Triggering Event (as defined below) within twelve (12)
months following the date of such termination. In the event this
Agreement is terminated as a result of Riva Bancshares' or Premier's
failure to satisfy any of its representations, warranties or covenants
set forth herein in addition to any other claims or rights, the
non-terminating party shall reimburse the terminating party for its
reasonable out-of-pocket expenses relating to the Merger in an amount
not to exceed $50,000.
A-36
<PAGE> 188
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date of this
Agreement:
(i) Premier, without having received Riva Bancshares'
prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as hereinafter defined)
with any Person (the term "Person" for purposes of this
Section also having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the 1934 Act, and the rules and
regulations thereunder) other than Riva Bancshares or the
Board of Directors of Premier shall have recommended that the
shareholders of Premier approve or accept any Acquisition
Transaction other than as contemplated by this Agreement. For
purposes of this Agreement, "Acquisition Transaction" shall
mean (x) a merger or consolidation, or any similar
transaction, involving Premier, (y) a purchase, lease or other
acquisition of all or substantially all of the assets or
deposits of Premier, or (z) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or
otherwise) of securities representing 25% or more of the
voting power of Premier;
(ii) Any Person (excluding the officers, directors
and existing shareholders of Premier), other than Riva
Bancshares, acting in a fiduciary capacity, shall have
acquired beneficial ownership or the right to acquire
beneficial ownership of 15% or more of the outstanding Premier
Common Stock (the term "beneficial ownership" for purposes of
this Agreement having the meaning assigned thereto in Section
13(d) of the 1934 Act, and the rules and regulations
thereunder) and such Person does not vote such Premier Common
Stock in favor of this Agreement at the Shareholders' Meeting
or such meeting is not held or is canceled;
(iii) The Shareholders' Meeting shall not have been
held or shall have been canceled prior to termination of this
Agreement, or Premier, without having received Riva
Bancshares' prior written consent, shall have authorized,
recommended, proposed (or publicly announced its intention to
authorize, recommend or propose, or its interest in
authorizing, recommending or proposing) an agreement to engage
in an Acquisition Transaction, with any Person other than Riva
Bancshares;
(iv) Any Person other than Riva Bancshares shall have
made a bona fide proposal to any Premier Company or its
shareholders by public announcement or written communication
(a copy of which shall be provided to Riva Bancshares) to
engage in an Acquisition Transaction, which proposal has an
economic value to the shareholders of Premier equivalent to or
in excess of that of the Merger.
(v) After a proposal is made by a third party to any
Premier Company to engage in an Acquisition Transaction,
Premier shall have willfully and materially breached any
material covenant or obligation contained in this Agreement in
anticipation of engaging in an Acquisition Transaction, and
such breach would entitle Riva Bancshares to terminate this
Agreement and such breach is not cured; or
(vi) Any person other than Riva Bancshares, other
than in connection with a transaction to which Riva Bancshares
has given its prior written consent, shall have filed an
application or notice with the Board of Governors of the
Federal Reserve System or other
A-37
<PAGE> 189
federal or state bank regulatory authority, which application
or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of
the following events or transactions occurring after the date hereof:
(i) The acquisition by any person (excluding the
officers, directors and existing shareholders of Premier) of
beneficial ownership of 50% or more of the then outstanding
Premier Common Stock; or
(ii) The closing of the Acquisition Transaction
described in clause (i) of subsection (b) of this Section 10.2,
except that the percentage referred to in clause (z) shall be
50%.
(d) Premier shall notify Riva Bancshares promptly upon the
occurrence of any Initial Triggering Event or Subsequent Triggering
Event.
10.3 Non-Survival of Representations and Covenants. The respective
representations and warranties of the Parties shall not survive the Effective
Time. All agreements of the Parties to this Agreement which by their terms are
to be performed following the Effective Time shall survive the Effective Time
until performed in accordance with their terms.
ARTICLE 11
MISCELLANEOUS
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms
set forth below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Acquisition Proposal" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger,
acquisition of all of the stock or assets of, or other business
combination involving such Party or any of its Subsidiaries or any
proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, such Party or
any of its material Subsidiaries (other than the transactions
contemplated or permitted by this Agreement).
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person;
(ii) any officer, director, partner, employer, or direct or indirect
beneficial owner of any 10% or greater equity or voting interest of
such Person; or (iii) any other Person for which a Person described in
clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger,
including the Exhibits delivered pursuant hereto and incorporated
herein by reference.
A-38
<PAGE> 190
"Assets" of a Person shall mean all of the assets, properties,
businesses, and rights of such Person of every kind, nature, character,
and description, whether real, personal, or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized
in such Person's business, directly or indirectly, in whole or in part,
whether or not carried on the books and records of such Person, and
whether or not owned in the name of such Person or any Affiliate of
such Person and wherever located.
"BHC Act" shall mean the Bank Holding Company Act of 1956, as
amended.
"Closing" shall have the meaning set forth in Section 1.2 of
this Agreement.
"Certificate of Merger" shall have the meaning set forth in
Section 1.3 of this Agreement.
"Consent" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"Contract" shall mean any written agreement, commitment,
contract, note, bond, mortgage, indenture, instrument, lease,
obligation, license, or plan of any kind or character, or other
document to which any Person is a party or that is binding on any
Person or its capital stock or Assets.
"Default" shall mean (i) any breach or violation of or default
under any Contract, (ii) any occurrence of any event that with the
passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, or (iii) any
occurrence of any event that with or without the passage of time or the
giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate,
increase, or impose any liability under, any Contract where, in any
such event, such default is reasonably likely to have a Material
Adverse Effect on a Party.
"Derivatives Contract" shall have the meaning set forth in
Section 5.20 of this Agreement.
"DGCL" shall have the meaning set forth in Section 1.1 of this
Agreement.
"Dissent Provisions" shall have the meaning set forth in
Section 3.1(d) of this Agreement.
"Dissenting Premier Shares" shall have the meaning set forth in
Section 3.1(d) of this Agreement.
"Dissenting Shareholders" shall have the meaning set forth in
Section 3.1(d) of this Agreement.
"Effective Time" shall have the meaning set forth in Section
1.3 of this Agreement.
"Environmental Laws" shall mean all Laws relating to pollution
or protection of human health or the environment (including ambient
air, surface water, ground water, land surface, or subsurface strata)
and which are administered, interpreted, or enforced by the United
States Environmental Protection Agency and state and local agencies
with jurisdiction over, and including common law in respect of,
pollution or protection of the environment, including the Comprehensive
Environmental Response Compensation and Liability Act, as amended, 42
U.S.C. 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. 6901 et seq., and other Laws
A-39
<PAGE> 191
relating to emissions, discharges, releases, or threatened releases of
any Hazardous Material, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
or handling of any Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section
5.13(c) of this Agreement.
"Exchange Agent" shall have the meaning set forth in Section
4.1 of this Agreement.
"Exchange Ratio" shall have the meaning set forth in Section
3.1(c) of this Agreement.
"Exhibits" 1, 2, and 3 shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are
hereby incorporated by reference herein and made a part hereof, and may
be referred to in this Agreement and any other related instrument or
document without being attached hereto.
"GAAP" shall mean generally accepted accounting principles in
the United States, consistently applied during the periods involved
applicable to banks or bank holding companies, as the case may be.
"GBCL" shall have the meaning set forth in Section 1.1 of this
Agreement.
"Hazardous Material" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance, or toxic
substance (as those terms are defined by any applicable Environmental
Laws) and (ii) any chemicals, pollutants, contaminants, petroleum,
petroleum products, or oil (and specifically shall include asbestos
requiring abatement, removal, or encapsulation pursuant to the
requirements of governmental authorities and any polychlorinated
biphenyls).
"Indemnified Party" shall have the meaning set forth in Section
8.16 of this Agreement.
"Initial Public Offering" shall have the meaning set forth in
Section 8.1 of the Agreement.
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person (including
references to such Person being aware of a particular matter) shall
mean the personal knowledge of the chairman, president, chief financial
officer, chief accounting officer, chief credit officer, general
counsel, any assistant or deputy general counsel, or any senior or
executive vice president of such Person and the knowledge of any such
persons obtained or which would have been obtained from a reasonable
investigation, except as otherwise stated in this Agreement.
"Law" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a
Person or its Assets, Liabilities, or business, including those
promulgated, interpreted, or enforced by any Regulatory Authority.
A-40
<PAGE> 192
f
"Lien" with respect to any Asset, shall mean any conditional
sale agreement, default of title, easement, encroachment, encumbrance,
hypothecation, infringement, lien, mortgage, pledge, reservation,
restriction, security interest, title retention, or other security
arrangement, or any adverse right or interest, charge, or claim of any
nature whatsoever of, on, or with respect to any property or property
interest, other than (i) Liens for current property Taxes not yet due
and payable, (ii) for depository institution Subsidiaries of a Party,
pledges to secure deposits, and (iii) other Liens incurred in the
ordinary course of the banking business.
"Litigation" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, demand letter,
governmental or other examination or investigation, hearing, inquiry,
administrative or other proceeding, or notice by any Person alleging
potential liability.
"Loan Property" shall mean any property owned, leased, or
operated by the Party in question or by any of its Subsidiaries or in
which such Party or its Subsidiary holds a security or other interest
(including an interest in a fiduciary capacity), and, where required by
the context, includes the owner or operator of such property, but only
with respect to such property.
"Material Adverse Effect" on a Party shall mean an event,
change, or occurrence which, individually or together with any other
event, change, or occurrence, (i) would in the aggregate result in an
adverse impact of $125,000 or more on the financial position or results
of operations of such Party, or (ii) would impair the ability of such
Party to perform its obligations under this Agreement or to consummate
the Merger or the other transactions contemplated by this Agreement,
provided that "Material Adverse Effect" shall not be deemed to include
the impact of (a) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental
authorities, (b) changes in GAAP or regulatory accounting principles
generally applicable to banks and their holding companies, (c) actions
and omissions of a Party (or any of its Subsidiaries) taken with the
prior informed consent of the other Party in contemplation of the
transactions contemplated hereby, and (d) the Merger and compliance
with the provisions of this Agreement on the operating performance of
the Parties, (e) changes in the general economic conditions, (f)
changes in the securities markets, or (g) changes generally affecting
the financial institution industry in general, or the banking industry
in Missouri or in the Jefferson City of Columbia, Missouri areas
specifically. When used with respect to Premier, a Material Adverse
Effect shall exist only if it exists with respect to Premier and its
subsidiaries taken as a whole.
"Merger" shall have the meaning set forth in the Preamble of
this Agreement.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ" shall mean the Nasdaq Stock Market, Inc.
"Order" shall mean any decree, injunction, judgment, order,
decision or award, ruling, or writ of any federal, state, local, or
foreign or other court, arbitrator, mediator, tribunal, administrative
agency, or Regulatory Authority.
"Participation Facility" shall mean any facility or property in
which the Party in question or any of its Subsidiaries participates in
the management and, where required by the context, said term means the
owner or operator of such facility or property, but only with respect
to such facility or property.
A-41
<PAGE> 193
"Party" shall mean either Riva Bancshares or Premier, and
"Parties" shall mean collectively, Riva Bancshares and Premier.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of any
Person.
"Person" shall mean a natural person or any legal, commercial,
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in
concert, or any person acting in a representative capacity.
"Premier" shall have the meaning set forth in the first
paragraph of this Agreement.
"Premier Benefits Plans" shall have the meaning set forth in
Section 5.13(a) of this Agreement.
"Premier Capital Stock" shall mean, collectively, Premier
Common Stock and any other class or series of capital stock of Premier.
"Premier Common Stock" shall mean the $1.00 par value common
stock of Premier.
"Premier Companies" shall mean, collectively, Premier and all
Premier Subsidiaries.
"Premier Contracts" shall have the meaning set forth in Section
5.14 of this Agreement.
"Premier ERISA Plan" shall have the meaning set forth in
Section 5.13(a) of this Agreement.
"Premier Financial Statements" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of
Premier as of March 31, 1999, and as of December 31, 1998, 1997 and
1996, and the related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if any)
for the three months ended March 31, 1999, and for each of the three
fiscal years ended December 31, 1998, 1997, and 1996, as filed by
Premier with the Board of Governors of the Federal Reserve System and
(ii) the consolidated balance sheets of Premier (including related
notes and schedules, if any) and related statements of income, changes
in shareholders' equity, and cash flows (including related notes and
schedules, if any) included in Premier's financial statements filed and
published in accordance with applicable federal regulations with
respect to periods ended subsequent to December 31, 1998.
"Proxy Statement" shall mean the proxy statement used by
Premier to solicit the approval of its shareholders of the transactions
contemplated by this Agreement, which shall include the prospectus of
Riva Bancshares relating to the issuance of Riva Bancshares Common
Stock to holders of Premier Common Stock.
"Registration Statement" shall mean the Registration Statement
on Form S-1, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
Riva Bancshares under the 1933 Act with respect to the shares of Riva
Bancshares Common Stock to be issued to the shareholders of Premier in
connection with the transactions contemplated by this Agreement and
with respect to the IPO.
A-42
<PAGE> 194
"Regulatory Authorities" shall mean, collectively, the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the SEC, the Missouri Division of Finance, the NASD,
NASDAQ and all state regulatory agencies having jurisdiction over the
Parties and their respective Subsidiaries.
"Rights" shall mean all arrangements, calls, Contracts,
options, rights to subscribe to, scrip, understandings, warrants, or
other binding obligations of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of
the capital stock of a Person or any Contract, commitments or other
arrangements by which a Person is or may be bound to issue additional
shares of its capital stock or options, warrants, rights to purchase or
acquire any additional shares of its capital stock, or other Rights.
"Riva Bancshares" shall have the meaning set forth in the first
paragraph of this Agreement.
"Riva Bancshares Capital Stock" shall mean, collectively, Riva
Bancshares Common Stock, Riva Bancshares Preferred Stock, and any other
class or series of capital stock of Riva Bancshares.
"Riva Bancshares Common Stock" shall mean the $.01 par value
per share common stock of Riva Bancshares.
"Riva Bancshares Financial Statements" shall mean the (i)
audited consolidated balance sheets (including related notes and
schedules, if any) of Riva Bancshares as of December 31, 1998, and the
related audited statements of income, changes in stockholders' equity,
and cash flows (including related notes and schedules, if any) for the
fiscal year then ended, and (ii) the unaudited consolidated balance
sheets (including related notes and schedules, if any) of Riva
Bancshares as of March 31, 1999, and the related unaudited statements
of income, changes in stockholders' equity, and cash flows (including
related notes and schedules, if any) for the portion of the fiscal year
then ended.
"Riva Bancshares Preferred Stock" shall mean the $.01 par value
per share preferred stock of Riva Bancshares.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall mean all forms, proxy statements,
registration statements, reports, schedules, and other documents filed,
or required to be filed, by a Party or any of its Subsidiaries with any
Regulatory Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act
of 1940, as amended, the Trust Indenture Act of 1939, as amended, and
the rules and regulations of any Regulatory Authority promulgated
thereunder.
"Shareholders' Meeting" shall mean the meeting of the
shareholders of Premier to be held pursuant to Section 8.1 of this
Agreement, including any adjournment or adjournments thereof.
"Subsidiaries" shall mean all corporations, banks,
associations, or other entities of which the entity in question owns or
controls 50% or more of the outstanding equity securities, either
directly
A-43
<PAGE> 195
or through an unbroken chain of entities as to each of which 50% or
more of the outstanding equity securities is owned directly or
indirectly by its parent; provided, however, there shall not be
included in this definition any such entity acquired through
foreclosure or any such entity the equity securities of which are owned
or controlled in a fiduciary capacity.
"Surviving Corporation" shall mean the surviving corporation
resulting from the Merger.
"Tax" or "Taxes" shall mean all federal, state, local, and
foreign taxes, charges, fees, levies, imposts, duties, or other
assessments, including income, gross receipts, excise, employment,
sales, use, transfer, license, payroll, franchise, severance, stamp,
occupation, windfall profits, environmental, federal highway use,
commercial rent, customs duties, capital stock, paid-up capital,
profits, withholding, Social Security, single business and
unemployment, disability, real property, personal property,
registration, ad valorem, value added, alternative or add-on minimum,
estimated, or other tax or governmental fee of any kind whatsoever,
imposed or required to be withheld by the United States or any state,
local, foreign government or subdivision or agency thereof, including
any interest, penalties or additions thereto.
"Tax Opinion" shall have the meaning set forth in Section
9.1(f) of this Agreement.
"Taxable Period" shall mean any period prescribed by any
governmental authority, including the United States or any state,
local, foreign government or subdivision or agency thereof for which a
Tax Return is required to be filed or Tax is required to be paid.
"Tax Return" shall mean any report, return, information return,
or other information required to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or
combined or unitary group that includes a Party or its Subsidiaries.
(b) Any singular term in this Agreement shall be deemed to
include the plural, and any plural term the singular. Whenever the
words "include," "includes," or "including" are used in this Agreement,
they shall be deemed followed by the words "without limitation."
11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2 and in
Section 10.2, each of Riva Bancshares and Premier shall bear and pay
all direct costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including
filing, registration, and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel.
(b) Nothing contained in this Section 11.2 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach
by a Party of the terms of this Agreement or otherwise limit the rights
of the nonbreaching Party.
11.3 Brokers and Finders. Each of the Parties represents and
warrants that neither it nor any of its officers, directors, employees, or
Affiliates has employed any broker or finder in connection with this Agreement
or the transactions contemplated hereby. In the event of a claim by any broker
or finder based upon his or its representing or being retained by or allegedly
representing or being retained by Riva Bancshares or Premier, each of Riva
Bancshares and Premier, as the case may be, agrees to indemnify and hold the
other Party harmless of and from any Liability in respect of any such claim.
A-44
<PAGE> 196
11.4 Entire Agreement. Except for the Confidentiality Agreement and
except as otherwise expressly provided herein, this Agreement constitutes the
entire agreement between the Parties with respect to the transactions
contemplated hereunder and supersedes all prior arrangements or understandings
with respect thereto, written or oral.
11.5 Amendments. To the extent permitted by Law, this Agreement may
be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties, whether before or
after shareholder approval of this Agreement has been obtained; provided, that
after any such approval by the shareholders of either Riva Bancshares or
Premier, there shall be made no amendment that reduces or modifies in any
material respect the consideration to be received by holders of Premier Common
Stock, without the further approval of such shareholders.
11.6 Obligations of Riva Bancshares. Whenever this Agreement
requires Riva Bancshares (including the Surviving Corporation) to take any
action, such requirement shall be deemed to include an undertaking by Riva
Bancshares to cause any future Riva Bancshares Subsidiaries to take such action.
11.7 Waivers.
(a) Prior to or at the Effective Time, Riva Bancshares, acting
through its Board of Directors, chief executive officer, president or
other authorized officer, shall have the right to waive any default in
the performance of any term of this Agreement by Premier, to waive or
extend the time for the compliance or fulfillment by Premier of any and
all of its obligations under this Agreement, and to waive any or all of
the conditions precedent to the obligations of Riva Bancshares under
this Agreement, except any condition which, if not satisfied, would
result in the violation of any Law. No such waiver shall be effective
unless in writing signed by a duly authorized officer of Riva
Bancshares.
(b) Prior to or at the Effective Time, Premier, acting through
its Board of Directors, chief executive officer, president or other
authorized officer, shall have the right to waive any default in the
performance of any term of this Agreement by Riva Bancshares, to waive
or extend the time for the compliance or fulfillment by Riva Bancshares
of any and all of its obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of Premier
under this Agreement, except any condition which, if not satisfied,
would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of
Premier.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right
of such Party at a later time to enforce the same or any other
provision of this Agreement. No waiver of any condition or of the
breach of any term contained in this Agreement in one or more instances
shall be deemed to be or construed as a further or continuing waiver of
such condition or breach or a waiver of any other condition or of the
breach of any other term of this Agreement.
11.8 Assignment. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests, or obligations hereunder shall
be assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. 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 assigns.
A-45
<PAGE> 197
11.9 Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered by hand,
by facsimile transmission, by registered or certified mail, postage pre-paid, or
by courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
Premier: Premier Bancshares, Inc.
815 West Stadium Boulevard
Jefferson City, Missouri 65110
Telephone Number: (573) 893-6000
Telecopy Number: (573) 893-6200
Attention: Charles R. Willibrand, Chairman
and Bruce W. Wiley, President and
Chief Executive Officer
Copy to Counsel: Suelthaus & Walsh, P.C.
7733 Forsyth Boulevard, Twelfth Floor
St. Louis, Missouri 63105
Telephone Number: (314) 727-7676
Telecopy Number: (314) 727-7166
Attention: Kenneth H. Suelthaus, Esq.
Riva Bancshares: Riva Bancshares, Inc.
13004 Starbuck Road
St. Louis, Missouri 63141
Telephone Number: (314) 514-8491
Telecopy Number: (314) 453-0981
Attention: Richard C. Jensen, President and
Chief Executive Officer
Copy to Counsel: Smith, Gambrell & Russell, LLP
Suite 3100, Promenade II
1230 Peachtree Street
Atlanta, Georgia 30309-3592
Telephone Number: (404) 815-3758
Telecopy Number: (404) 685-7058
Attention: Robert C. Schwartz, Esq.
Copies to Counsel shall not constitute notice.
11.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Missouri, without regard
to any applicable principals of conflicts of laws, except to the extent that the
Laws of the United States govern the consummation of the Merger.
11.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
A-46
<PAGE> 198
11.12 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.13 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 without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting 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.
11.14 Enforcement of Agreement. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
[SIGNATURES FOLLOW ON NEXT PAGE]
A-47
<PAGE> 199
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and attested by officers thereunto as of the day and year
first above written.
RIVA BANCSHARES, INC.
By: /s/ Richard C. Jensen
-------------------------------------
Name: Richard C. Jensen
Title: President and Chief Executive Officer
PREMIER BANCSHARES, INC.
By: /s/ Charles R. Willibrand
-------------------------------------
Name: Charles R. Willibrand
Title: Chairman of the Board
A-48
<PAGE> 200
APPENDIX B
MO. REV. STAT. SS.351.455
351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES,
WHEN.--1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall not
vote in favor thereof, and such shareholder, within twenty days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon surrender of
his certificate or certificates representing such shares, the fair value
thereof. Such demand shall state the number and class of the shares owned by
such dissenting shareholder. Any shareholder failing to make demand within the
twenty day period shall be conclusively presumed to have consented to the merger
or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in the
corporation.
3. If within such period of thirty days the shareholder and the
surviving or new corporation do not so agree, then the dissenting shareholder
may, within sixty days after the expiration of the thirty day period, file a
petition in any court of competent jurisdiction within the county in which the
registered office of the surviving or new corporation is situation, asking for a
a finding and determination of the fair value of such shares, and shall be
entitled to judgment against the surviving or new corporation for the amount of
such fair value as of the day prior to the date on which such vote was taken
approving such merger or consolidation, together with interest thereon to the
date of such judgment. The judgment shall be payable only upon and
simultaneously with the surrender to the surviving or new corporations of the
certificate or certificates representing said shares. Upon the payment of the
judgment, the dissenting shareholder shall cease to have any interest in such
shares, or in the surviving or new corporation. Such shares may be held and
disposed of by the surviving or new corporation as it may see fit. Unless the
dissenting shareholder shall file such petition within the time herein limited,
such shareholder and all persons claiming under him shall be conclusively
presumed to have approved and ratified the merger or consolidation, and shall be
bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value
of his shares as herein provided shall cease if and when the corporation shall
abandon the merger or consolidation.
B-1
<PAGE> 201
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SECTION 262 -- APPRAISAL RIGHTS. (a) Any stockholder of a corporation
of this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to ss.228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's shares
of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to ss.251 (other than a merger effected
pursuant to ss.251 (g) of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or
ss.264 of this title:
(1) Provided, however, that no appraisal rights
under this section shall be available for the shares of any
class or series of stock, which stock, or depository receipts
in respect thereof, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by National Association of
Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this
title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant
to ss.ss.251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation
surviving or resulting from such merger or
consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other
corporation, or depository receipts in respect
thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation
will be either listed on a national securities
exchange or designated as a national market system
C-1
<PAGE> 202
security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or
held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the
foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional
shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under ss.253
of this title is not owned by the parent corporation
immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for
which appraisal rights are provided under this section is to
be submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or
(c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or
consented to the merger, or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved
pursuant to ss.228 or ss.253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten days thereafter, shall notify each
of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that
appraisal rights are available for any or all
C-2
<PAGE> 203
shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to
all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights.
Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If
such notice did not notify stockholders of the effective date
of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights
of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after
such effective date; provided, however, that if such second
notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or
after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is
fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office
C-3
<PAGE> 204
of the Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or execution of the merger
or consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
C-4
<PAGE> 205
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-5
<PAGE> 206
APPENDIX D
July 29, 1999
Board of Directors
Premier Bancshares, Inc.
c/o Premier Bank
Jefferson City, Missouri
Board of Directors:
We have been retained by the Board of Directors of Premier Bancshares
Inc. (Premier) to render an opinion of fairness, from a financial viewpoint, of
a transaction whereby common shareholders of Premier would receive common shares
of Riva Bancshares, Inc. (Riva) in a merger.
We have provided accounting and consulting services to Premier since
its inception in 1995. We have no present or contemplated future direct
financial interest in Premier, its subsidiary, Premier Bank or in FPFC. The
compensation for preparation of this letter is not contingent upon any action or
conclusion.
In the development of our opinion, our approach included:
1) A review of the historical and projected financial performance
of Premier Bank and Premier including audited consolidated
financial statements as of December 31, 1998 and unaudited
financial statements as of June 30, 1999.
2) A review of financial information and other information
regarding the stock of Riva including audited financial
statements as of December 31, 1998 and unaudited financial
statements as of June 30, 1999.
3) A review of the Amended and Restated Agreement and Plan of
Merger dated July 29, 1999 by and between Premier and Riva.
4) A review of information regarding other comparable mergers in
Missouri.
5) A review of market prices of publicly held bank stocks in the
region.
6) A review of the investment characteristics of Premier and
Riva.
7) Any other factors that were considered necessary to render
this opinion.
In reviewing these items, we have considered the following items
pertaining to Premier and Riva.
- Historical financial performance
- Dividend paying record
<PAGE> 207
- Marketability of common stock
- Competition in the banking industry
- Market area for banking companies
- Comparison with other banking organizations
- Comparison with other sales transactions in Missouri and the region
- Risk areas inherent in banking
- Financial impact of transaction
- Tax consequences of the proposed merger for Premier shareholders
- Such other factors as we considered necessary
It is our understanding that the law firm of Smith, Gambrell & Russell,
LLP counsel to Riva, will issue opinions that the exchange of shares in the
transaction constitutes a non-taxable reorganization for federal income tax
purposes. Our assumption, for purposes of the opinion, is that the tax opinion
will be upheld by the Internal Revenue Service and therefore, the shareholders
of Premier will incur no federal tax liability as a result of the exchange.
In the performance of this engagement we did not visit with management
representatives of Riva.
We visited with management of Premier during the review concerning the
future prospects of the Company as well as its current operating performance.
We have reviewed the Amended and Restated Agreement and Plan of Merger
between Premier and Riva dated July 29, 1999 and have assumed that the finally
executed version is substantially the same. We have discussed appropriate
aspects of this agreement and memorandum with management and counsel for
Premier.
The Agreement stipulates that each shareholder of Premier will receive
a calculated number of common shares of Riva stock for each share of Premier
stock. The formula utilizes $215.136 as the quotient. Based upon the 41,834
outstanding shares of Premier, the total consideration for all of the
outstanding shares of Premier is $9,000,000. The book value of Premier shares
at June 30, 1999 was $103.00. Consequently, the calculated multiple of
June 30, 1999 book value is 2.08.
The Agreement calls for a closing of Riva's public offering. Our
opinion is subject to the successful public offering and dependent upon
Premier's shareholders receiving shares which are marketable subject to certain
time restrictions as outlined in Section 8.3 of the Agreement and applicable
securities laws.
The proposed exchange of shares and public offering provide a market
for shareholders of Premier which is not currently available due to the limited
number of shareholders in Premier. The shares received will be registered with
the Securities and Exchange Commission and will be able to sold on the National
Market of the Nasdaq Stock Market. Also, each Premier common shareholder, other
than Bruce Wiley, will receive warrants to purchase Riva common shares as
described in the Agreement. Additionally, all Premier shareholders will receive
warrants which are exercisable for up to ten years which allow for purchase of
shares at 1.20 times the initial offering price. The time restrictions on sale
of the shares as outlined in Section 8.3 of the Agreement result in these shares
being partially illiquid for up to
<PAGE> 208
120 days for general shareholders and wholly illiquid up to 180 days for
directors of Premier. Consequently, the shareholder is not guaranteed a market
price equivalent to the value received at the initial exchange. Our opinion does
not extend to any period subsequent to the initial exchange and public offering.
Premier Bancshares, Inc. - Background
Premier Bancshares, Inc. (hereinafter referred to as Company) was
organized in 1995 as a one-bank holding company under the Federal Bank Holding
Company Act of 1956, as amended. The Company's operations are subject to
supervision of the Board of Governors of the Federal Reserve System. The Company
owns 100% of the outstanding shares of Premier Bank. The Company's only assets
are its invested cash at the subsidiary bank and its investment in the
subsidiary which is accounted for on the equity method of accounting. The
Company's value is primarily dependent upon the subsidiary bank.
The Company has a note payable totaling $925,000 to a commercial bank
which bears interest at the prime rate and is secured by the subsidiary's common
stock. The note payable was reduced by $300,000 in 1998 utilizing proceeds from
a new stock offering. The total proceeds were approximately $1.2 million. Of the
total proceeds, $750,000 was contributed as capital to the subsidiary Bank.
There is one class of common stock issued and outstanding. The common
stock consists of 100,000 authorized shares with a par value of $1.00. Issued
and outstanding shares total 41,834.
A comparative balance sheet of the Company is presented in Appendix B
of this report.
Premier Bank - Background
Premier Bank was chartered in 1995 in Jefferson City, Missouri. Its
primary regulator is the Missouri Division of Finance and its deposits are
insured by the Federal Deposit Insurance Corporation (FDIC). Jefferson City
(population 36,000) is located in Cole County (population 65,000). Jefferson
City is the state capital of Missouri. Cole County and parts of surrounding
counties are considered to be the Bank's primary market area.
The bank has a branch in Columbia, Missouri. Columbia is located 30
miles north of Jefferson City and this market has a population of approximately
120,000.
<PAGE> 209
The Bank maintains lobby hours between 9:00 a.m. and 4:00 p.m., Monday
through Friday and is open Saturday until noon. The Bank provides a full range
of banking services including the following:
<TABLE>
<CAPTION>
Loans Deposits Other
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Purpose Demand Cashiers Check
Commercial Interest bearing transaction Travelers' Checks
Real Estate Certificates of Deposit Wire Transfer
Community Development Individual Retirement Accounts Safe Deposit
</TABLE>
The Bank does not have a Trust Department.
Employees
As of June 30, 1999, the Bank employed 21 persons. The Bank provides
health, life, dental and disability benefits to employees. Benefits are fully
paid by the Bank for employee coverage. There has been very minimal employee
turnover and employee relations are considered to be good.
Regulatory Relations
The Bank is examined regularly by the Missouri Division of Finance and
FDIC. Mr. Bruce Wiley, President, indicated that the last examination was in
late 1997 and that the Bank had received good performance ratings.
Data Processing and Year 2000
The Bank utilizes Computer Services, Inc. processing software.
The Bank also has customers who rely upon computers in their
businesses. These customers are also subject to similar Year 2000 risks which
could inhibit them from performing their normal business activities. If such
problems are encountered, these customers may experience difficulties in meeting
contractual loan obligations with the Bank.
The Bank has received regulatory reviews of Year 2000 preparedness and
the software developer has communicated its efforts relative to compliance with
Year 2000 computerized processing. Due to the complexity of this matter,
management made no representations to us as to the Bank's Year 2000
preparedness.
Litigation
The Bank is regularly involved in legal proceedings relative to its
lending activities. However, management indicated that they were not aware of
any pending litigation which would materially impact the financial condition of
the entity as of June 30, 1998.
<PAGE> 210
Financial Review
Our review of the financial data for Premier Bank consisted of
information obtained from:
1) The annual Consolidated Reports of Condition and Income as filed with
the FFIEC for the three years ended December 31, 1998 and for the six
months ended June 30, 1999.
2) Uniform Bank Performance Report for December 31, 1998 (peer group
reference only for analysis purposes).
3) Internally prepared financial statements for the period ended June 30,
1999.
This information was prepared by the Bank's management in accordance
with generally accepted accounting principles. We have accepted this information
without further investigation as being an accurate representation of the Bank's
financial condition and results of operations. We have assumed that management
1) is responsible for the integrity and objectivity of the financial statements
and other related information, and 2) maintains a system of internal controls,
policies and procedures to provide reasonable assurance that the Bank's assets
are safeguarded and that financial transactions are fairly reflected in the
financial statements. Since these financial statements also include estimates of
value or potential exposure, we have also relied upon management's evaluation of
asset quality.
Balance Sheet
As of June 30, 1999, the Bank had total assets of $66,526,000. The Bank
has grown rapidly since its chartering in 1995. Consequently, there has been a
need for additional capital to maintain compliance with regulatory requirements.
Total equity capital at June 30, 1999, aggregated $5,119,000 or 7.69%
of total assets. This capital ratio is in excess of minimum regulatory
guidelines of 3% to 6% and the Bank is considered to be well-capitalized.
The Bank's loan-to-deposit ratio varies based upon seasonal demand but
is generally between 80% - 85%. The Bank's liquidity position is adequate to
support this level of lending.
As of June 30, 1999, the Bank's loan portfolio consisted of the
following:
<PAGE> 211
<TABLE>
<CAPTION>
Amount Percentage
Category (000's) of Portfolio (%)
--------------- ---------------------
<S> <C> <C>
Real Estate:
Construction and Land Development $ 7,315 14.73
Farmland 456 .92
Residential (1-4 Family) 14,967 30.13
Multifamily 3,061 6.16
Nonfarm Nonresidential Properties 16,735 33.70
--------------- ---------------------
Subtotal $ 42,534 85.64
--------------- ---------------------
Agricultural Production 75 .15
Commercial and Industrial 4,148 8.35
Loans to Individuals (Consumer) 1,344 2.71
Other 1,563 3.15
--------------- ---------------------
Subtotal $ 7,130 14.36
--------------- ---------------------
$ 49,664 100.00
=============== =====================
</TABLE>
Source: Consolidated Report of Condition and Income (Schedule RC-C
Loans and Lease Financing Receivables) June 30, 1998.
The allowance for loan and lease losses was $500,000 at June 30, 1999,
which was 1.01% of total loans. The current allowance amount is deemed adequate
by Bank management.
The market value of the Bank's securities portfolio as of June 30,
1999, was $9,397,000 as compared to amortized cost of $9,563,000 for a $166,000
positive variance. The Bank carries 100% of its portfolio in an available for
sale category. The portfolio consists primarily of securities issued by the U.S.
Government, U.S. Government Agencies and state and political subdivisions.
Demand deposits represent 4% - 6% of total deposits which is less than
peer group averages of 9% - 10%.
Income Statement
The Bank's net income history is as follows:
1999 $126,000 (six months)
1998 $187,000
1997 $155,000
1996 ($56,000)
1995 ($129,000)
The Bank has paid no dividends since its initial chartering in 1995.
<PAGE> 212
Market Information
Public Company
The aggregate market value (market capitalization) of publicly traded
banks or bank holding companies can be calculated by multiplying the current
quoted price of the stock by the number of shares outstanding. This value can
then be correlated to readily available data resulting in price-to-earnings and
price-to-equity multiples. However, this calculated value is based upon a price
of a single share of stock and, therefore, represents an estimation of value
from a minority perspective since purchasers of these shares are not able to
influence operations or management decisions. Consequently, adjustments must be
made to reflect an estimated value for a control price valuation.
While the estimated value using public company market data should have
a bearing on the market value of any banking institution, there are other
factors which must be considered. Large publicly held companies generally have
more diverse markets through well-developed branching networks, and they have
also benefitted from certain economies of scale. The subject bank of this
valuation operates in a more localized market area with a smaller shareholder
group.
Even though direct comparisons are impossible, we have selected some
publicly traded multi-bank holding companies which operate in the Midwest for
our guideline company comparable data. As of June 30, 1999, the current data
is as follows:
<TABLE>
<CAPTION>
Market
Capitalization Current Price Current Price
Publicly Held Stock (in millions) to Earnings to Book Value
- ------------------- ------------- ----------- -------------
<S> <C> <C> <C>
Commerce Bancshares (MO) $ 2,443.5 16.2 2.27
UMB Financial (MO) 860.2 15.8 1.31
First Banks America (MO) 58.8 19.2 1.57
Mississippi Valley Bancshares (MO) 309.7 16.3 2.69
Southside Bancshares (MO) 97.7 14.1 1.46
Allegiant Bancorporation, Inc. (MO) 62.3 12.8 1.27
Cass Commercial Corp. (MO) 94.9 13.2 1.63
Gold Bancorporation, Inc. (KS) 225.5 26.3 2.60
Intrust Financial Corp. (KS) 268.2 16.2 2.01
MNB Bancshares, Inc. (KS) 12.0 14.1 .90
BancFirst Corp. (OK) 319.3 14.5 1.57
BOK Financial Corp. (OK) 1,140.0 16.6 2.23
Southwest Bancorp (OK) 91.8 11.7 1.41
Range 11.7 - 26.3 .90 - 2.69
</TABLE>
Source: Bank INVESTOR - SNL Securities
<PAGE> 213
Specific Transaction
Although the public markets provide a basis for valuation purposes, the
availability of information for other bank sales transactions also serves as a
component for analysis purposes. Such transactions are documented via regulatory
filings and through public disclosure. Various sources provide summaries of this
information. Since these transactions are based upon majority sales, they must
be analyzed in that context and are not comparable to the public company
information presented above. These sales are for whole institutions, therefore,
reported prices likely include elements of synergistic value. When a motivated
buyer observes possibilities of synergistic operations or economies of scale,
the resulting price is likely to be higher than a price arrived at by the
theoretical fair market value standard. Additionally, these transactions include
both cash and stock transactions with the majority of larger transactions being
for stock. The statistics for "all cash" transactions indicates that ratios are
20-30% less than stock transactions and 10-25% less than the overall average.
The following data was used as the basis for the "Specific Transaction" method.
<TABLE>
<CAPTION>
Number of
Fourth Quarter-1998 Transactions Price-to-Earnings Price-to-Equity
- ------------------- ------------ ----------------- ---------------
<S> <C> <C> <C>
All Banks 34 21.51 2.41
Greater than $50 million and 9 17.91 2.22
less than $150 million
Cash Deals 20 21.63 1.91
Stock Deals 14 24.88 3.12
First Quarter-1999
- ------------------
All Banks 26 18.42 2.27
Greater than $50 million and 6 15.94 1.86
less than $150 million
Cash Deals 14 17.87 1.81
Stock Deals 12 19.06 2.80
</TABLE>
Source: The Banking Company Report, Kansas City, Missouri
As mentioned previously, the transaction results in total consideration
of $9,000,000 for the Company's stock. The calculated multiple of June 30, 1999
book value is 2.08. This is comparable to the multiples shown above for
price-to-equity. Since the Bank is only four years old and has expanded rapidly,
it has not established a strong earnings level. Consequently, the price-to-
earnings ratio for this transaction is far in excess of the multiples shown
above.
<PAGE> 214
We have relied on data available to us as of the date of this letter
which was obtained from or developed by sources which we deem to be reliable
without independent verification. Our opinion is for the use and benefit of the
Board of Directors of Premier. The opinion is not intended to be and does not
constitute a recommendation to the aforementioned parties as to whether to
accept Riva shares in exchange for Premier shares as stipulated in the proposed
transaction.
Based upon our valuation of the proposed merger and exchange
of shares between Premier and Riva, it is our opinion that the exchange ratio
for the conversion of Premier common shares into Riva common shares in the
proposed transaction is fair from a financial viewpoint to the shareholders of
Premier.
GRA, Thompson, White & Co., P.C.
by
/s/ Terry W. White
Terry W. White
<PAGE> 215
PREMIER BANCSHARES, INC.
PROXY CARD FOR SPECIAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PREMIER
BANCSHARES, INC. ("PREMIER"). DONALD E. KRATTLI and HAROLD B. REMLEY WILL SERVE
AS THE PROXY COMMITTEE FOR THE AUGUST 16, 1999 SPECIAL MEETING OF SHAREHOLDERS
("SPECIAL MEETING").
The undersigned shareholder hereby appoints Donald E. Krattli and
Harold B. Remley, and each of them, with the full power of substitution to each,
to represent and to vote, as designated below, all the shares of Premier held of
record by the undersigned on August 1, 1999, at the Special Meeting to be held
at 6:30 p.m., Local Time, on August 16, 1999, at the corporate offices of
Premier located at 815 West Stadium Boulevard, Jefferson City, Missouri 65110,
or at any adjournment thereof.
The undersigned shareholder may revoke this Proxy at any time before it
is voted by either filing with the Corporate Secretary a written notice of
revocation, delivering to Premier a duly executed Proxy bearing a later date, or
by attending the Special Meeting and voting in person. The sole purpose of the
Special Meeting is to consider and vote upon the following Merger proposal:
(1) The Merger. To approve and adopt the Amended and Restated Agreement
and Plan of Merger dated as of July 29, 1999 between Riva Bancshares, Inc. and
Premier (the "Merger Agreement"), whereby Premier will be merged (the "Merger")
with and into Riva Bancshares. Immediately upon consummation of the Merger, each
issued and outstanding share of Premier "Common Stock" (other than shares as to
which dissenter's rights are properly exercised) will be converted into and
exchanged for the right to receive that number of shares of Riva Bancshares
"Common Stock" equal to the quotient obtained by dividing $215.136 by the
initial public offering price of one share of Riva Bancshares Common Stock,
rounded to the third nearest decimal point. Assuming an IPO Price of $11.00 per
share (which represents the mid-point of the estimated range), each share of
Premier Common Stock outstanding immediately before the Merger is effected will
be converted into and exchanged for approximately 19.558 shares of Riva
Bancshares Common Stock. Cash will be paid in lieu of fractional shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
<PAGE> 216
NOTE: THIS PROXY IS REVOCABLE AND WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO SPECIFICATION IS
MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSAL (1) ABOVE.
IMPORTANT:
Please sign your name exactly as it appears on this Proxy Card. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, agent, trustee or guardian, please give full title. If
shareholder is a corporation, please sign in full corporate name by the
president or other authorized officer. If shareholder is a partnership, please
sign in partnership name by an authorized person.
The undersigned acknowledges receipt from Premier, prior to the execution of the
Proxy, a Notice of the Special Meeting and a Proxy Statement dated
August 5, 1999.
-----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
Date:
------------------------------------
Please mark, sign, date and return
this Proxy Card promptly, using the
enclosed envelope.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL
CARDS IN THE ACCOMPANYING ENVELOPE.
<PAGE> 217
RIVA BANCSHARES, INC.
PROXY CARD FOR SPECIAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF RIVA
BANCSHARES, INC. ("RIVA BANCSHARES"). RICHARD C. JENSEN AND DANIEL R. SILLS WILL
SERVE AS THE PROXY COMMITTEE FOR THE AUGUST 26, 1999 SPECIAL MEETING OF
SHAREHOLDERS ("SPECIAL MEETING").
The undersigned shareholder hereby appoints Richard C. Jensen and
Daniel R. Sills and each of them with the full power of substitution to each, to
represent and to vote, as designated below, all the shares of Riva Bancshares
held of record by the undersigned on August 16, 1999, at the Special Meeting to
be held at 11:00 a.m., Local Time, on August 26, 1999, at the corporate offices
of Riva Bancshares located at 13004 Starbuck Road, St. Louis, Missouri, or at
any adjournment thereof.
The undersigned shareholder may revoke this Proxy at any time before it
is voted by either filing with the Corporate Secretary a written notice of
revocation, delivering to Riva Bancshares a duly executed Proxy bearing a later
date, or by attending the Special Meeting and voting in person. The sole purpose
of the Special Meeting is to consider and vote upon the following Merger
proposal:
(1) The Merger. To approve and adopt the Amended and Restated Agreement
and Plan of Merger dated as of July 29, 1999 between Riva Bancshares, Inc. and
Premier (the "Merger Agreement"), whereby Premier will be merged (the "Merger")
with and into Riva Bancshares. Immediately upon consummation of the Merger, each
issued and outstanding share of Premier "Common Stock" (other than shares as to
which dissenter's rights are properly exercised) will be converted into and
exchanged for the right to receive that number of shares of Riva Bancshares
"Common Stock" equal to the quotient obtained by dividing $215.136 by the
initial public offering price of one share of Riva Bancshares Common Stock,
rounded to the third nearest decimal point. Assuming an IPO Price of $11.00 per
share (which represents the mid-point of the estimated range), each share of
Premier Common Stock outstanding immediately before the Merger is effected will
be converted into and exchanged for approximately 19.558 shares of Riva
Bancshares Common Stock. Cash will be paid in lieu of fractional shares. [ ] FOR
[ ] AGAINST [ ] ABSTAIN
(2) To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
<PAGE> 218
NOTE: THIS PROXY IS REVOCABLE AND WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO SPECIFICATION IS
MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSAL (1) ABOVE.
IMPORTANT:
Please sign your name exactly as it appears on this Proxy Card. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, agent, trustee or guardian, please give full title. If
shareholder is a corporation, please sign in full corporate name by the
president or other authorized officer. If shareholder is a partnership, please
sign in partnership name by an authorized person.
The undersigned acknowledges receipt from Riva Bancshares, prior to the
execution of the Proxy, a Notice of the Special Meeting and a Proxy Statement
dated August 5, 1999.
-----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
Date:
------------------------------------
Please mark, sign, date and return
this Proxy Card promptly, using the
enclosed envelope.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL
CARDS IN THE ACCOMPANYING ENVELOPE.
