As filed with the Securities and Exchange Commission on May 8, 1996
Registration No. 333-00724
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
VALLEY RIDGE FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN 6022 38-2888214
(State or Other Juris- (Primary Standard Industrial (IRS Employer
diction of Incorpora- Classification Code Number) Identification No.)
tion or Organization)
6 NORTH MAIN STREET
KENT CITY, MICHIGAN 49330
(616) 678-5911
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
RICHARD L. EDGAR PLEASE SEND COPIES OF COMMUNICATIONS TO:
PRESIDENT AND CHIEF EXECUTIVE OFFICER
6 NORTH MAIN STREET GORDON R. LEWIS
KENT CITY, MICHIGAN 49330 WARNER NORCROSS & JUDD LLP
(616) 678-5911 900 OLD KENT BUILDING
111 LYON STREET, N.W.
(Name, Address, Including Zip Code, GRAND RAPIDS, MICHIGAN 49503
and Telephone Number, Including Area (616) 752-2752
Code, of Agent For Service)
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [ ]
________________
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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VALLEY RIDGE FINANCIAL CORP.
CROSS-REFERENCE SHEET
AMENDMENT NO. 3
TO
FORM S-4
HEADING IN PROSPECTUS
ITEM OF FORM S-4 AND PROXY STATEMENT
1. Forepart of Registration Statement Outside Front Cover Page of
and Outside Front Cover Page of Prospectus
Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus Cover Pages of Prospectus;
Table of Contents
3. Risk Factors, Ratio of Earnings to Risk Factors
Fixed Charges, and Other Information
4. Terms of the Transaction The Merger
5. PRO FORMA Financial Information The Merger--PRO FORMA
Condensed Combined Financial
Statements
6. Material Contracts with the Company The Merger--Background of the
Being Acquired Merger, --Summary of the Terms
of the Merger, --Expense Reim-
bursement after Business Com-
bination and --Resales by
Affiliates; Voting and Manage-
ment Information--Interests of
Certain Persons
7. Additional Information Required Not Applicable
for Reoffering by Persons and
Parties deemed to be Underwriters
8. Interests of Named Experts and General Information--Experts
Counsel
9. Disclosure of Commission Position The Merger--Indemnification
on Indemnification for Securities and Limitation of Liability
Act Liabilities
10. Information with respect to S-3 Not Applicable
Registrants
11. Incorporation of Certain Information Not Applicable
by Reference
HEADING IN PROSPECTUS
ITEM OF FORM S-4 AND PROXY STATEMENT
12. Information with respect to S-2 or Not Applicable
S-3 Registrants
13. Incorporation of Certain Information Not Applicable
by Reference
14. Information with respect to The Business of Banking;
Registrants other than S-3 or S-2 Valley Ridge Financial
Registrants Corp.
15. Information with respect to S-3 Not Applicable
Companies
16. Information with respect to S-2 or Not Applicable
S-3 Companies
17. Information with respect to Companies The Business of Banking;
other than S-2 or S-3 Companies Community Bank Corporation
18. Information if Proxies, Consents or Outside Front Cover Page of
Authorizations are to be Solicited Prospectus; Introduction and
Summary-- Introduction;
General Proxy Information;
Rights of Dissenting
Shareholders; Voting and
Management Information
19. Information if Proxies, Consents Not Applicable
or Authorizations are not to be
Solicited, or in an Exchange Offer
PROSPECTUS AND PROXY STATEMENT
SPECIAL MEETINGS OF SHAREHOLDERS OF
VALLEY RIDGE FINANCIAL CORP.
AND
COMMUNITY BANK CORPORATION
IN CONNECTION WITH AN OFFERING OF UP TO
138,500 SHARES
VALLEY RIDGE FINANCIAL CORP.
COMMON STOCK, $10 PAR VALUE
The Boards of Directors of Valley Ridge Financial Corp. ("Valley
Ridge") and Community Bank Corporation ("Community"), respectively, are
furnishing this Prospectus and Proxy Statement and the accompanying
form of proxy on or about May 20, 1996, as a proxy statement to the
shareholders of Valley Ridge and the shareholders of Community,
respectively, to solicit proxies to vote at a special meeting of Valley
Ridge's shareholders and a special meeting of Community's shareholders,
both to be held on June 25, 1996, and at any adjournments thereof.
At the special meetings, the shareholders will be asked to consider and
approve an Agreement and Plan of Merger (the "Plan of Merger") pursuant to
which Community would be merged with and into Valley Ridge (the "Merger").
In the Merger, Valley Ridge's Articles of Incorporation will be amended and
restated to make the Articles of Incorporation generally consistent with
those previously employed by Community, and to increase authorized capital
stock.
This Prospectus and Proxy Statement, when delivered to shareholders of
Community, is a prospectus of Valley Ridge relating to an offering of
Valley Ridge Common Stock, $10 par value. This offering is made only to
the holders of Community Common Stock. (See "The Merger.")
If the Merger is consummated, each share of Community Common Stock
which is outstanding immediately prior to the effective time of the Merger
will be converted into shares of Valley Ridge Common Stock, subject to
payment in cash for fractional shares. The number of shares of Valley
Ridge Common Stock will be based on a conversion ratio determined by
dividing the Community Adjusted Book Value Per Share (as defined in the
Plan of Merger), multiplied by 1.20, by the Valley Ridge Adjusted Book
Value Per Share (as defined in the Plan of Merger). If the Merger had been
consummated based on balance sheets as of December 31, 1995, the estimated
conversion ratio would have been 1.5726 shares of Valley Ridge Common Stock
for each share of Community Common Stock. (See "The Merger.") The board
of directors of Community will resubmit the Plan of Merger for approval by
Community's shareholders if the conversion ratio would be less than 1.36
shares of Valley Ridge Common Stock for each share of Community Common
Stock.
COMMUNITY SHAREHOLDERS SHOULD SEE "RISK FACTORS" BEGINNING ON PAGE 11
FOR A DISCUSSION OF SEVERAL FACTORS THAT THEY SHOULD CONSIDER WITH RESPECT
TO THE VALLEY RIDGE COMMON STOCK OFFERED BY THIS PROSPECTUS AND PROXY
STATEMENT. Consummation of the Merger is subject to approval of the Plan
of Merger by the shareholders of Valley Ridge and Community, respectively,
regulatory approvals and certain other conditions. (See "The Merger--Conditions
to the Merger and Abandonment.")
In the opinion of Roney & Co., the consideration to be offered and
received in the Merger is fair, from a financial point of view, to the
shareholders of each corporation. (See "The Merger--Fairness Opinions.")
YOUR VOTE IS IMPORTANT. APPROVAL OF THE PROPOSED MERGER REQUIRES THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF VALLEY RIDGE
COMMON STOCK AND A MAJORITY OF THE OUTSTANDING SHARES OF COMMUNITY COMMON
STOCK. WHETHER OR NOT YOU EXPECT TO ATTEND THE APPLICABLE MEETING IN
PERSON, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus and Proxy Statement is dated May 13, 1996
AVAILABLE INFORMATION
Valley Ridge is not currently subject to the information and reporting
requirements of the Securities Exchange Act of 1934, as amended. Valley
Ridge has filed a Registration Statement with the Securities and Exchange
Commission (the "Commission") relating to the Valley Ridge Common Stock
offered in connection with the proposed Merger described in this Prospectus
and Proxy Statement. This Prospectus and Proxy Statement does not contain
all of the information set forth in the Registration Statement, certain
portions of which are omitted in accordance with the rules and regulations
of the Commission. Reference is hereby made to the Registration Statement
and exhibits thereto for further information about Valley Ridge, Community,
and their respective securities. Any person may inspect the Registration
Statement without charge at the public reference facilities maintained by
the Commission (Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549)
and at the Commission's Regional Offices in New York (7 World Trade Center,
Suite 1300, New York, New York 10048) and Chicago (Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of all
or any part of the Registration Statement can also be obtained from the
Commission at prescribed rates by writing to the Commission's public
reference facilities.
TABLE OF CONTENTS
PAGE
INTRODUCTION AND SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Valley Ridge Financial Corp.. . . . . . . . . . . . . . . . . . . . . . 2
Community Bank Corporation. . . . . . . . . . . . . . . . . . . . . . . 2
Summary of Certain Aspects of the Merger. . . . . . . . . . . . . . . . 3
Market Value of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 6
Selected Unaudited Financial Data . . . . . . . . . . . . . . . . . . . 8
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . . . . 10
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Absence of Public Trading Market. . . . . . . . . . . . . . . . . . . . 11
Estimated Conversion Ratio Subject to
Changes Due to Future Events . . . . . . . . . . . . . . . . . . . . . 11
GENERAL PROXY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 12
Voting by Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Proxy Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 13
Reasons for the Merger. . . . . . . . . . . . . . . . . . . . . . . . . 13
Summary of the Terms of the Merger. . . . . . . . . . . . . . . . . . . 14
Cessation of Shareholder Status and
Distribution of Valley Ridge Common Stock. . . . . . . . . . . . . . . 15
Management After the Merger . . . . . . . . . . . . . . . . . . . . . . 16
Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . 16
Business of Valley Ridge and Community
Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Conditions to the Merger and Abandonment. . . . . . . . . . . . . . . . 17
Expense Reimbursement after Business
Combination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Description of Valley Ridge Capital Stock . . . . . . . . . . . . . . . 19
Provisions Affecting Control of Valley Ridge. . . . . . . . . . . . . . 20
Comparison of Rights of Valley Ridge
Shareholders and Community Shareholders
to Rights of Shareholders in Combined
Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Indemnification and Limitation of Liability . . . . . . . . . . . . . . 24
Resales by Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 25
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . 26
Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PRO FORMA Condensed Combined Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
THE BUSINESS OF BANKING. . . . . . . . . . . . . . . . . . . . . . . . . 34
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Supervision and Regulation. . . . . . . . . . . . . . . . . . . . . . . 34
Environmental Regulations . . . . . . . . . . . . . . . . . . . . . . . 35
VALLEY RIDGE FINANCIAL CORP. . . . . . . . . . . . . . . . . . . . . . . 35
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Market for Common Stock and Dividends . . . . . . . . . . . . . . . . . 36
Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Audited Consolidated Financial Statements . . . . . . . . . . . . . . . 42
Statistical Information . . . . . . . . . . . . . . . . . . . . . . . . 66
COMMUNITY BANK CORPORATION . . . . . . . . . . . . . . . . . . . . . . . 78
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Market for Common Stock and Dividends . . . . . . . . . . . . . . . . . 79
Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Audited Consolidated Financial Statements . . . . . . . . . . . . . . . 87
Statistical Information . . . . . . . . . . . . . . . . . . . . . . . . 116
RIGHTS OF DISSENTING
SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
VOTING AND MANAGEMENT
INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Voting Securities and Principal
Shareholders of Valley Ridge . . . . . . . . . . . . . . . . . . . . . 129
Voting Securities and Principal
Shareholders of Community. . . . . . . . . . . . . . . . . . . . . . . 130
Directors and Executive Officers. . . . . . . . . . . . . . . . . . . . 133
Compensation of Executive Officers and
Directors of Valley Ridge. . . . . . . . . . . . . . . . . . . . . . . 134
Compensation of Executive Officers and
Directors of Community . . . . . . . . . . . . . . . . . . . . . . . . 135
Interests of Certain Persons. . . . . . . . . . . . . . . . . . . . . . 136
Vote Required for Approval. . . . . . . . . . . . . . . . . . . . . . . 137
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Sources of Information. . . . . . . . . . . . . . . . . . . . . . . . . 137
REPORTS TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . 137
Appendix A -- Agreement and Plan of Merger
Appendix B -- Opinions of Roney & Co.
Appendix C -- Michigan Business Corporation Act Sections 761-774, as
amended
VALLEY RIDGE FINANCIAL CORP.
6 NORTH MAIN STREET
KENT CITY, MICHIGAN 49330
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the shareholders of Valley Ridge Financial Corp.:
A special meeting of shareholders of Valley Ridge Financial Corp. will
be held at the Tyrone Township Hall at 43 South Main Street, Kent City,
Michigan, on Tuesday, June 25, 1996, at 3:00 p.m., local time, for the
following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger between Valley Ridge Financial Corp. and Community
Bank Corporation.
2. To transact such other business as may properly come before the
meeting.
The Board of Directors has established the close of business on
May 13, 1996, as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting and any
adjournment thereof. Shareholders of Valley Ridge Financial Corp. are
entitled to assert dissenters' rights under the Michigan Business
Corporation Act ("MBCA") with respect to the Merger as provided in and in
compliance with the provisions of the MBCA.
By Order of the Board of Directors,
/S/ RICHARD L. EDGAR
RICHARD L. EDGAR, President and
Chief Executive Officer
May 20, 1996
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO
ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY PROMPTLY.
COMMUNITY BANK CORPORATION
10 WEST MAIN STREET
GRANT, MICHIGAN 49327
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the shareholders of Community Bank Corporation:
A special meeting of shareholders of Community Bank Corporation will
be held at the main office of The Grant State Bank at 10 West Main Street,
Grant, Michigan, on Tuesday, June 25, 1996, at 10:00 a.m., local time, for
the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger between Community Bank Corporation and Valley
Ridge Financial Corp.
2. To transact such other business as may properly come before the
meeting.
The Board of Directors has established the close of business on
May 13, 1996, as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting and any
adjournment thereof. Shareholders of Community are entitled to assert
dissenters' rights under the Michigan Business Corporation Act ("MBCA")
with respect to the Merger as provided in and in compliance with the
provisions of the MBCA.
By Order of the Board of Directors,
/S/ RONALD L. HANSEN
RONALD L. HANSEN, Secretary
May 20, 1996
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO
ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY PROMPTLY.
PROSPECTUS AND PROXY STATEMENT
SPECIAL MEETINGS OF SHAREHOLDERS OF
VALLEY RIDGE FINANCIAL CORP. COMMUNITY BANK CORPORATION
6 NORTH MAIN STREET 10 WEST MAIN STREET
KENT CITY, MICHIGAN 49330 AND GRANT, MICHIGAN 49327
(616) 678-5911 (616) 834-5685
TO VOTE TO APPROVE
AN AGREEMENT AND PLAN OF MERGER
INVOLVING AN OFFERING OF COMMON STOCK,
$10 PAR VALUE, OF
VALLEY RIDGE FINANCIAL CORP.
6 NORTH MAIN STREET
KENT CITY, MICHIGAN 49330
(616) 678-5911
INTRODUCTION AND SUMMARY
INTRODUCTION
Valley Ridge Financial Corp. ("Valley Ridge") and Community Bank
Corporation ("Community") are furnishing this Prospectus and Proxy
Statement and the accompanying form of proxy on or about May 20,
1996, to record holders of Valley Ridge common stock, $10 par value
("Valley Ridge Common Stock"), on May 13, 1996, and to record
holders of Community common stock ("Community Common Stock") on
May 13, 1996. The boards of directors of Valley Ridge and Community
are soliciting proxies from their respective shareholders to vote at a
special meeting of Valley Ridge shareholders and a special meeting of
Community shareholders, both to be held on Tuesday, June 25, 1996,
and at any adjournments thereof. The Valley Ridge shareholders' meeting
will be held at the Tyrone Township Hall, 43 South Main Street, Kent City,
Michigan, at 3:00 p.m., local time. The Community shareholders' meeting
will be held at the main office of The Grant State Bank, 10 West Main
Street, Grant, Michigan, at 10:00 a.m., local time. In this Prospectus
and Proxy Statement, Valley Ridge and Community are each sometimes
referred to as a "Corporation" and collectively as the "Corporations,"
and the combined surviving corporation is sometimes referred to as the
"Combined Organization."
The purpose of the special meetings of Valley Ridge and Community
shareholders is to consider and vote on approval of the Agreement and Plan
of Merger (the "Plan of Merger") attached as Appendix A to this Prospectus
and Proxy Statement. The Plan of Merger provides for the merger of
Community with Valley Ridge (the "Merger"). Under the Plan of Merger, each
share of Community Common Stock which is outstanding immediately prior to
the effective time of the Merger will be converted into shares of Valley
Ridge Common Stock, subject to payment in cash for fractional shares. Each
share of Valley Ridge Common Stock which is outstanding immediately prior
to the effective time of the Merger will remain outstanding after the
Merger. Roney & Co. ("Roney") has rendered written opinions that the
consideration to be offered and received in the Merger is fair from a
financial point of view to the shareholders of each Corporation. See "The
Merger--Fairness Opinions." Approval of the Plan of Merger requires the
affirmative vote of the holders of a majority of the outstanding shares of
Valley Ridge Common Stock and of Community Common Stock, respectively.
(See "The Merger.") It is not anticipated that any other matter will come
before the special meetings. A majority of the issued and outstanding
shares of Valley Ridge and Community, respectively, represented in person
or by proxy is required to constitute a quorum for the transaction of
business at the special meetings of Valley Ridge and Community
shareholders. As of December 31, 1995, directors and executive officers of
Valley Ridge and their affiliates beneficially owned 31.58% of the
outstanding shares of Valley Ridge Common Stock. As of December 31, 1995,
directors and executive officers of Community and their affiliates
beneficially owned 22.86% of the outstanding shares of Community Common
Stock.
Valley Ridge's board of directors unanimously voted to approve the
Plan of Merger at its September 15, 1995, meeting. Community's board of
directors unanimously voted to approve the Plan of Merger at its September
15, 1995, meeting. (See "Voting and Management Information--Interests of
Certain Persons.")
THE BOARDS OF DIRECTORS OF VALLEY RIDGE AND COMMUNITY UNANIMOUSLY
RECOMMEND A VOTE FOR APPROVAL OF THE PLAN OF MERGER.
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VALLEY RIDGE FINANCIAL CORP.
Valley Ridge is a Michigan corporation with its headquarters in Kent
City, Michigan. Valley Ridge is the parent company of Kent City State Bank
("Kent City"), which is Valley Ridge's only subsidiary. Kent City operates
five banking offices located in Kent City, Coopersville, Egelston, Ravenna
and Sparta, Michigan. At December 31, 1995, Kent City had assets of $85.4
million, deposits of $71.0 million, and a net loan portfolio of $61.4
million, and its assets represented 99.8% of Valley Ridge's consolidated
assets. At December 31, 1995, Valley Ridge, on a consolidated basis, had
shareholders' equity of $8.9 million. Kent City also owns a 20% interest
in one non-banking corporation, West Shore Computer Services, Inc., a data
processing company.
Valley Ridge and Kent City are engaged in the business of commercial
banking and other related activities. Kent City is a full service bank
offering customary commercial banking services, which include mortgage
banking, commercial and retail loans, business and personal checking
accounts, savings and individual retirement accounts, time deposit
instruments, automated transaction machine services, money transfer
services, and safe deposit facilities. Valley Ridge's principal markets
for financial services presently are the Michigan communities in which Kent
City's offices are located and the areas immediately surrounding those
communities.
Valley Ridge has authorized capital stock consisting of 500,000 shares
of Valley Ridge Common Stock, of which 372,862 shares were issued and
outstanding on December 31, 1995. As of December 31, 1995, there were 383
record holders of shares of Valley Ridge Common Stock. Kent City's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"),
subject to applicable limitations. Kent City is a member of the Federal
Reserve System.
In the Merger, Valley Ridge's Articles of Incorporation would be
amended and restated to be as set forth in Exhibit A to the Plan of Merger
(included as Appendix A to this Prospectus and Proxy Statement) in order to
be generally consistent with the form of articles of incorporation
currently employed by Community. Upon consummation of the Merger, Valley
Ridge would have authorized capital stock of 1,000,000 shares of common
stock, $10 par value, of which approximately 493,050 shares will be issued
and outstanding. The estimated number of shares of Valley Ridge Common
Stock to be outstanding after the Merger was determined for the purpose of
illustration by reference to the estimated conversion ratio for Community
Common Stock (1.5726), as applied to the 76,424 shares of Community Common
Stock outstanding as of December 31, 1995, added to the 372,862 shares of
Valley Ridge Common Stock outstanding as of December 31, 1995. The actual
number of shares outstanding will vary. Following the Merger, Valley Ridge
will be a reporting company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and will be required to file reports
-3-
containing financial and certain other information with the Securities and
Exchange Commission (the "Commission").
COMMUNITY BANK CORPORATION
Community is a Michigan corporation with its headquarters in Grant,
Michigan. Community is the parent company of The Grant State Bank
("Grant"), which is Community's only subsidiary. Grant operates 2 banking
offices located in Grant and Newaygo, Michigan. At December 31, 1995,
Grant had assets of $28.7 million, deposits of $25.4 million, and a net
loan portfolio of $19.0 million, and its assets represented 99.9% of
Community's consolidated assets. At December 31, 1995, Community, on a
consolidated basis, had shareholders' equity of $2.3 million.
Community and Grant are engaged in the business of commercial banking
and other related activities. Grant is a full service bank offering
customary commercial banking services, which include commercial and retail
loans, business and personal checking accounts, savings and individual
retirement accounts, time deposit instruments, automated transaction
machine services, money transfer services, and safe deposit facilities.
Community's principal markets for financial services presently are the
Michigan communities in which Grant's offices are located and the areas
immediately surrounding those communities.
Community has authorized capital stock consisting of 200,000 shares of
Community Common Stock, of which 76,424 shares were issued and outstanding
on December 31, 1995. As of December 31, 1995, there were 105 record
holders of shares of Community Common Stock. Grant's deposits are insured
by the Federal Deposit Insurance Corporation, subject to applicable
limitations. Grant is a member of the Federal Reserve System.
SUMMARY OF CERTAIN ASPECTS OF THE MERGER
Valley Ridge and Community shareholders should consider the following
summary in conjunction with the more detailed information appearing
elsewhere in this Prospectus and Proxy Statement. See "The Merger."
BACKGROUND OF THE MERGER. In early 1995, Richard L. Edgar, the
President of Valley Ridge, contacted Ronald L. Hansen, the Secretary of
Community and the President of Grant, to explore the possibility of
enhancing shareholder value for both organizations through an affiliation
of Valley Ridge and Community. Following preliminary discussions between
Mr. Edgar and Mr. Hansen, the boards of directors of Valley Ridge and
Community met informally on three occasions during the Spring and Summer of
1995 to better acquaint themselves with each other and the other's
Corporation. In August, 1995, the board of directors of Valley Ridge
submitted a proposal to Community under which the two Corporations would
-4-
merge. Community's board of directors determined that Valley Ridge's
proposal presented an excellent opportunity for enhancing shareholder value
while preserving involvement in the Combined Organization of members of the
communities served by Community and Grant. After an exchange of
information and preliminary negotiations, Valley Ridge and Community
entered into the Plan of Merger on September 15, 1995, following approval
of the Plan of Merger by their respective boards of directors. Valley
Ridge's board of directors and Community's board of directors, and their
respective representatives, negotiated the conversion ratio and other terms
of the Plan of Merger on an arm's-length basis. The boards of directors of
both Valley Ridge and Community view the proposed Merger as a strategic
merger of the two Corporations into the Combined Organization, not a
purchase of Community by Valley Ridge, and the transaction has been
negotiated and structured accordingly.
CONSIDERATION TO BE RECEIVED IN THE MERGER. If the Merger is
consummated, Community will be merged with and into Valley Ridge. The
surviving corporation will be Valley Ridge. The surviving corporation will
own The Grant State Bank and all of the other assets of Community as well
as Kent City State Bank and all of the assets of Valley Ridge.
Each share of Community Common Stock outstanding at the time the
Merger becomes effective will be converted into shares of Valley Ridge
Common Stock based on a conversion ratio, subject to payment in cash for
fractional shares. The conversion ratio will be determined by dividing the
Community Adjusted Book Value Per Share (as defined in the Plan of Merger),
multiplied by 1.20, by the Valley Ridge Adjusted Book Value Per Share (as
defined in the Plan of Merger). The Community Adjusted Book Value Per
Share will be determined by dividing (i) Community's shareholders' equity
as determined by Community's Final Balance Sheet (as defined in the Plan of
Merger), less all dividends and other distributions of cash or property
accrued after the date of Community's Final Balance Sheet, and plus or
minus any adjustments provided for in the Plan of Merger, by (ii) the
number of outstanding shares of Community Common Stock at the effective
time of the Merger. The Valley Ridge Adjusted Book Value Per Share will be
determined by dividing (i) Valley Ridge's shareholders' equity as
determined by Valley Ridge's Final Balance Sheet (as defined in the Plan of
Merger), less all dividends and other distributions of cash or property
accrued after the date of Valley Ridge's Final Balance Sheet, and plus or
minus any adjustments provided for in the Plan of Merger, by (ii) the
number of outstanding shares of Valley Ridge Common Stock at the effective
time of the Merger. The Final Balance Sheets of the Corporations will be
as of the same date which will be a month end not more than 60 days prior
to the closing of the transactions contemplated by the Plan of Merger and
will fairly present the financial condition of the respective Corporation
as of such date. The Plan of Merger provides for an adjustment to each
Corporation's shareholders' equity as follows: (i) the full amount of the
allowance for loan losses reflected on the applicable Corporation's Final
Balance Sheet shall be added to total shareholders' equity; and (ii) the
-5-
full amount of unrealized gains and losses on securities available for sale
reflected on the applicable Corporation's Final Balance Sheet, if any,
shall be eliminated and not considered in calculating total shareholders'
equity. In addition, Community's total shareholders' equity shall be
reduced by a reserve for contingent liabilities equal to $53,000 or a
lesser amount that may be agreed upon by Valley Ridge and Community. The
board of directors of Community will resubmit the Plan of Merger for
approval by Community's shareholders if the conversion ratio would be less
than 1.36 shares of Valley Ridge Common Stock for each share of Community
Common Stock.
The conversion ratio was negotiated by Valley Ridge's board of
directors and Community's board of directors. The board of directors of
Valley Ridge proposed that a conversion ratio be established that would
provide Community shareholders with shares of Valley Ridge Common Stock
having a book value equal to 120% of the book value of Community Common
Stock. Community's board of directors accepted the proposal of the board
of directors of Valley Ridge. Thereafter, the boards of directors
negotiated the method of calculating the conversion ratio due to
differences in the comparability of the balance sheets of Valley Ridge and
Community. The boards of directors of Valley Ridge and Community agreed
upon the adjustments to each Corporation's book value discussed above in
order to promote comparability of the balance sheets of Valley Ridge and
Community for purposes of calculating the conversion ratio.
Pursuant to the Plan of Merger, both Community and Valley Ridge may
declare and pay cash dividends upon shares of their common stock quarterly
at a rate, in a manner, on dates and with respect to record dates
consistent with their respective past practices. However, Community is
required by the Plan of Merger to adjust the record date for its regularly
scheduled dividend with respect to the period in which the Merger will
become effective if necessary to assure that Community shareholders receive
one and only one dividend payable in, or with a record date occurring in,
the quarter in which the Merger becomes effective.
Valley Ridge will not issue fractional shares of Valley Ridge Common
Stock in the Merger. A Community shareholder who would otherwise be
entitled to receive a fraction of a share of Valley Ridge Common Stock in
the Merger will receive instead an amount of cash determined by multiplying
that fraction by the Valley Ridge Adjusted Book Value Per Share.
FAIRNESS OPINIONS. The boards of directors of Valley Ridge and
Community have engaged Roney & Co. ("Roney") to render its opinion on the
consideration to be offered and received in the Merger. Roney has rendered
opinions to the effect that the consideration to be offered and received in
the Merger is fair from a financial point of view to the shareholders of
both Valley Ridge and Community. The opinions of Roney are attached as
Appendix B to this Prospectus and Proxy Statement. For a more detailed
description of these opinions, see "The Merger--Fairness Opinions."
-6-
CONSUMMATION OF THE MERGER. Consummation of the Merger is subject to
certain conditions, including among others that the shareholders of Valley
Ridge and Community approve the Plan of Merger, that necessary regulatory
approvals be obtained, that no proceeding seeking to prevent the Merger be
pending or threatened, that Valley Ridge and Community obtain various
ancillary certificates, opinions and agreements, and that holders of not
more than 10% of the outstanding shares of either Corporation's common
stock shall have asserted dissenters' rights with respect to their shares
under Section 762 of the Michigan Business Corporation Act (the "MBCA").
At any time prior to the effective time of the Merger, the boards of
directors of Valley Ridge and Community may by mutual consent abandon the
Merger. In addition, for certain specified reasons the board of directors
of either Valley Ridge or Community may abandon the Merger. (See "The
Merger--Conditions to the Merger and Abandonment.")
It is expected that the closing of the Merger will occur, and the
Merger will become effective, on or before June 30, 1996.
VOTE REQUIRED. Pursuant to the MBCA, the affirmative vote of the
holders of a majority of the outstanding shares of Valley Ridge Common
Stock and the holders of a majority of the outstanding shares of Community
Common Stock is required to approve the Plan of Merger. The boards of
directors of Valley Ridge and Community have fixed May 13, 1996, as
the record date (the "Record Date") for purposes of determining those
shareholders who will be entitled to vote at the special meetings of Valley
Ridge and Community shareholders to be held on June 25, 1996. Each
share of Valley Ridge or Community Common Stock, as the case may be, will
entitle the holder of record on the Record Date to one vote on each matter
submitted for shareholder action at the respective shareholders' meeting.
As of December 31, 1995, Valley Ridge's directors and executive officers
and their affiliates held 31.58% of the outstanding shares of Valley Ridge
Common Stock. (See "Voting and Management Information--Interests of
Certain Persons.") Therefore, if all directors and executive officers of
Valley Ridge and their affiliates vote the shares beneficially owned by
them in favor of approval of the Plan of Merger, the affirmative vote of
only an additional 18.5% of the outstanding shares of Valley Ridge Common
Stock would be required to approve the Plan of Merger. As of December 31,
1995, Community's directors and executive officers and their affiliates
held 22.86% of the outstanding shares of Community Common Stock. (See
"Voting and Management Information--Interests of Certain Persons.")
Therefore, if all directors and executive officers of Community and their
affiliates vote the shares beneficially owned by them in favor of approval
of the Plan of Merger, the affirmative vote of only an additional 27.2% of
the outstanding shares of Community Common Stock would be required to
approve the Plan of Merger.
As of the Record Date for the special meeting of Valley Ridge
shareholders, there were 373,862 shares of Valley Ridge Common Stock
outstanding held by 383 shareholders of record. As of the Record Date
-7-
for the special meeting of Community shareholders, there were 76,424
shares of Community Common Stock outstanding held by 105 shareholders of
record.
REGULATORY APPROVALS. Consummation of the Merger is subject to the
approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). The Federal Reserve Board approved the Merger on
April 19, 1996. The Merger cannot be consummated for a period of 15 days
after the date of the Federal Reserve Board's final approval. During this
15-day period, the United States Department of Justice may review the
competitive effects of the Merger to determine whether it will take action
to block the Merger.
DISSENTERS' RIGHTS. Under the provisions of Section 762 of the MBCA,
any Valley Ridge or Community shareholder may dissent from the proposed
Merger and be paid the "fair value" of his or her shares if the Plan of
Merger is approved by the shareholders of the applicable Corporation and
the proposed Merger is consummated by complying with the procedures set
forth in Sections 761 through 774 of the MBCA. To be entitled to payment
of the fair value of shares of Valley Ridge Common Stock or Community
Common Stock, a shareholder of Valley Ridge or Community must not vote for
approval of the Plan of Merger at the applicable special meeting of
shareholders and must deliver written notice of dissent to the applicable
Corporation at or before the special meeting. A shareholder may not
dissent as to less than all of the shares of Valley Ridge Common Stock or
Community Common Stock, as the case may be, beneficially owned by him or
her. A dissenting shareholder must also submit a written demand for
payment, accompanied by certain representations and his or her stock
certificates, to the applicable Corporation within 30 days (or such longer
period up to 60 days as may be permitted by the applicable Corporation)
after notice is given to the shareholder of approval of the Plan of Merger.
See "Rights of Dissenting Shareholders." If dissenters' rights are
asserted with respect to more than 10% of the outstanding shares of either
Corporation's common stock, either Corporation may terminate the Plan of
Merger and abandon the Merger. Shareholders of Valley Ridge and Community
who do not want to vote in favor of approval of the Plan of Merger, but who
also do not wish to perfect dissenters' rights pursuant to the MBCA, would
continue to have the ability to sell their shares in the open market until
the Merger becomes effective if approved.
Shareholders of Valley Ridge who would like to assert dissenters'
rights may send a written notice of dissent to Mr. Richard L. Edgar, Valley
Ridge Financial Corp., 6 North Main Street, Kent City, Michigan 49330.
Shareholders of Community who would like to assert dissenters' rights may
send a written notice of dissent to Mr. Ronald L. Hansen, Community Bank
Corporation, 10 West Main Street, Grant, Michigan 49327.
FEDERAL INCOME TAX CONSEQUENCES. As a condition precedent to
consummation of the Merger, Valley Ridge and Community must each receive an
-8-
opinion from Valley Ridge's legal counsel regarding the federal income tax
consequences of the Merger. Such opinion of Valley Ridge's counsel must be
substantially to the effect, among other matters, that Community
shareholders will not recognize taxable income by reason of receiving
shares of Valley Ridge Common Stock in the Merger (except to the extent of
cash received in lieu of fractional shares), and that shares of Valley
Ridge Common Stock that Community shareholders receive in the Merger will
have the same basis and holding period as the respective shares of
Community Common Stock surrendered in exchange therefor. Cash received in
lieu of fractional shares of Valley Ridge Common Stock will be taxable.
(See "The Merger--Federal Income Tax Consequences.")
ACCOUNTING TREATMENT. Valley Ridge expects to account for the Merger
under the pooling of interests method of accounting. (See "The
Merger--Accounting Treatment.")
MARKET VALUE OF SHARES
There is no established public trading market for either Valley Ridge
Common Stock or Community Common Stock. Transactions in Valley Ridge
Common Stock and Community Common Stock are occasionally effected by
individuals on an informal basis. Some transactions are effected through
the involvement of local brokerage firms. The prices at which such
transactions are effected are only occasionally reported to Valley Ridge
and Community. The last transaction prior to September 18, 1995, in which
Valley Ridge Common Stock was bought and sold and the price is known to
Valley Ridge management was on June 9, 1995, when 466 shares traded at a
price of $21.50 per share. The last transaction prior to September 18,
1995, in which Community Common Stock was bought and sold and the price is
known to Community management was on August 29, 1995, when 164 shares
traded at a price of $25.00 per share.
The following table sets forth the price of Valley Ridge Common Stock
in the last sale prior to September 18, 1995 (the date of the public
announcement of the signing of the Plan of Merger), for which the price was
reported to Valley Ridge management, the price of Community Common Stock in
the last sale prior to September 18, 1995, for which the price was reported
to Community management, and the estimated value of Valley Ridge Common
Stock to be received for each share of Community Common Stock on an
equivalent per share basis:
-9-
<TABLE>
<CAPTION>
VALLEY RIDGE COMMUNITY
COMMON STOCK COMMON STOCK
LAST REPORTED LAST REPORTED
SALE PRICE SALE PRICE EQUIVALENT
DATE PRIOR TO SEPT. 18 PRIOR TO SEPT. 18 PER SHARE<F1>
<S> <C> <C> <C> <C>
September 18, 1995 $21.50 $25.00 $39.26
<FN>
_____________________
<F1> The Equivalent Per Share value of Community Common Stock is the
estimated market value of Valley Ridge Common Stock to be received
in the Merger by Community shareholders for each share of
Community Common Stock. This value is estimated assuming a market
value of $26.00 per share for Valley Ridge Common Stock and a
conversion ratio of 1.5726 shares of Valley Ridge Common Stock for
each share of Community Common Stock. See the introduction to the
PRO FORMA condensed combined financial statements on page 28 for
the assumptions upon which this estimated conversion ratio is
based.
</FN>
</TABLE>
As of December 31, 1995, there were 372,862 shares of Valley Ridge
Common Stock issued and outstanding held by 383 holders of record. As of
December 31, 1995, there were 76,424 shares of Community Common Stock
issued and outstanding held by 105 holders of record.
-10-
SELECTED UNAUDITED FINANCIAL DATA
The following unaudited table presents selected historical financial
information and selected PRO FORMA combined financial information for
Valley Ridge and Community. This information should be read in conjunction
with the historical and PRO FORMA financial statements and notes thereto
included elsewhere in this Prospectus and Proxy Statement. The PRO FORMA
combined financial information gives effect to the Merger as if the Merger
occurred on January 1 of the year presented. The PRO FORMA combined
financial information may not be indicative of the results that actually
would have occurred if the Merger had been in effect on that date or which
may be attained in the future. The PRO FORMA combined financial
information has been prepared on the assumption that the Merger will be
accounted for under the pooling of interests method of accounting. (See
"The Merger--PRO FORMA Condensed Combined Financial Statements.")
<TABLE>
VALLEY RIDGE FINANCIAL CORP. AND COMMUNITY BANK CORPORATION
SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
(Dollars in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C>
COMMUNITY BANK CORPORATION (HISTORICAL) <F1>
Net interest income $ 1,538 $ 1,389 $ 1,202 $ 1,108 $ 957
Net income 364 280 221 177 62
Total assets (period end) 28,744 24,175 24,697 23,480 22,011
Other borrowings 800 9 29 94 61
Shareholders' Equity <F4> 2,278 1,934 1,680 1,442 1,369
Net income per share $ 4.76 $ 3.67 $ 2.94 $ 2.27 $ 0.76
Dividends declared per share $ 0.35 $ 0.35 $ 0.34 $ 0.30 $ 0.28
VALLEY RIDGE FINANCIAL CORP. (HISTORICAL) <F2>
Net interest income $ 3,929 $ 3,765 $ 3,363 $ 3,660 $ 3,571
Net income 970 876 799 882 810
Total assets (period end) 85,596 79,160 75,583 77,372 76,347
Other borrowings 4,000 2,000 12 20 28
Shareholders' Equity 8,915 7,694 7,100 8,049 7,394
Net income per share <F4> $ 2.60 $ 2.36 $ 2.06 $ 1.97 $ 1.82
Dividends declared per share $ 0.80 $ 0.76 $ 0.62 $ 0.58 $ 0.44
PRO FORMA VALLEY RIDGE AND COMMUNITY COM-
BINED ASSUMING A 1.5726 EXCHANGE RATIO <F3>
Net interest income $ 5,467 $ 5,154 $ 4,565 $ 4,768 $ 4,528
Net income 1,334 1,156 1,020 1,059 872
Total assets (period end) 114,340 103,335 100,280 100,852 93,358
Other borrowings 4,800 2,009 41 114 89
Shareholders' equity <F4> 11,193 9,628 8,780 9,491 8,763
-11-
Net income per share $ 2.70 $ 2.35 $ 2.02 $ 1.87 $ 1.54
Dividends declared per share:
Valley Ridge Financial Corp. $ 0.80 $ 0.76 $ 0.62 $ 0.58 $ 0.44
<FN>
_________________
<F1> Net income per share is calculated by dividing net income for the
period by the average number of common shares outstanding (see
"Introduction and Summary--Comparative Per Share Data") for the
period.
<F2> Valley Ridge has adjusted historical information to reflect stock
splits and stock dividends, including a 2-for-1 split during January,
1995 and a 5-for-4 stock split effected in the form of a stock
dividend during April, 1994.
<F3> The PRO FORMA Valley Ridge and Community combined data reflects the
combined results of Valley Ridge and Community after giving effect to
the pooling-of-interests method of accounting. For illustrative
purposes, the combined results assume the Merger was consummated on
January 1 of the year presented.
The per share data was calculated assuming the issuance of 120,188
shares of Valley Ridge Common Stock in the Merger, which is based on a
conversion ratio of 1.5726 shares of Valley Ridge Common Stock for
each outstanding share of Community Common Stock. These numbers have
been rounded for convenience of presentation. The conversion ratio is
based on a calculation of adjusted book value per share for both
Valley Ridge and Community. For purposes of this presentation, the
data used to calculate the conversion ratio was derived from December
31, 1995 audited financial statements for both Valley Ridge and
Community.
The number of shares to be issued upon consummation of the Merger is
dependent upon factors specified in the Plan of Merger to be
determined in the future which cannot be determined before that date.
The PRO FORMA financial results included in this table are for
illustrative purposes only.
<F4> Valley Ridge and Community have maintained capital positions in excess
of minimum capital requirements. Risk-based ratios as of December 31,
1995 were as follows:
PRO FORMA
VALLEY RIDGE COMMUNITY COMBINED
Risk-based ratios
Tier 1 (minimum - 4.0%) 16.52% 11.63% 15.03%
Total (minimum - 8.0%) 18.07% 12.78% 16.60%
Tier 1 leverage (minimum - 3.0%) 10.27% 8.34% 9.70%
</FN>
</TABLE>
-12-
COMPARATIVE PER SHARE DATA
The following unaudited table sets forth certain historical and PRO
FORMA combined per share information for Valley Ridge, and certain
historical and equivalent PRO FORMA combined per share information for
Community. The data is derived from financial statements of Valley Ridge
and Community included elsewhere in this Prospectus and Proxy Statement.
The PRO FORMA combined per share information for Valley Ridge and the
equivalent PRO FORMA combined per share information for Community are
stated as if the Merger had occurred on January 1 of the year presented,
giving effect to the proposed transaction under the pooling of interests
method of accounting.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
COMMUNITY BANK CORPORATION
(HISTORICAL)<F1>
Net income per share $ 4.76 $ 3.67 $ 2.94 $ 2.27 $ 0.76
Dividends declared per share $ 0.35 $ 0.35 $ 0.34 $ 0.30 $ 0.28
Book value per share (period end) $ 29.80 $ 25.31 $ 21.99 $ 19.70 $ 17.72
Average shares outstanding 76,424 76,424 75,005 78,158 81,530
Shares outstanding (period end) 76,424 76,424 76,424 73,194 77,244
VALLEY RIDGE FINANCIAL CORP.
(HISTORICAL)<F2>
Net income per share $ 2.60 $ 2.36 $ 2.06 $ 1.97 $ 1.82
Dividends declared per share $ 0.80 $ 0.76 $ 0.62 $ 0.58 $ 0.44
Book value per share (period end) $ 24.92 $ 20.69 $ 19.16 $ 17.97 $ 16.60
Average shares outstanding 372,794 371,566 387,110 447,765 445,313
Shares outstanding (period end) 372,862 371,862 370,612 447,813 445,313
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
PRO FORMA VALLEY RIDGE AND
COMMUNITY COMBINED ASSUMING
A 1.5726 EXCHANGE RATIO <F3>
Net income per share $ 2.70 $ 2.35 $ 2.01
Dividends declared per share:
Valley Ridge Financial Corp. $ 0.80 $ 0.76 $ 0.62
Book value per share (period end) $ 22.34 $ 19.35 $ 17.78
Average shares outstanding 492,982 491,754 507,298
Shares outstanding (period end) 493,050 492,050 490,800
-13-
PRO FORMA COMMUNITY SHARE
EQUIVALENT ASSUMING A 1.5726
EXCHANGE RATIO
Net income per share $ 4.24 $ 3.69 $ 3.16
Dividends declared per share $ 1.26 $ 1.19 $ 0.97
Book value per share $ 35.07 $ 30.38 $ 27.91
<FN>
____________________
<F1> Net income per share is calculated by dividing net income for the
period (see "Introduction and Summary--Selected Unaudited Financial
Data") by the average number of common shares outstanding for the
period. Book value per share is calculated by dividing total
shareholders' equity at the end of the period (see "Introduction and
Summary--Selected Unaudited Financial Data") by the number of shares
outstanding at the end of the period.
<F2> Valley Ridge has adjusted historical information to reflect stock
splits and stock dividends, including a 2-for-1 split during January,
1995 and a 5-for-4 stock split effected in the form of a stock
dividend during April, 1994.
<F3> The Community equivalent PRO FORMA combined per share information is
calculated by multiplying the PRO FORMA income per share, PRO FORMA
book value per share, and the PRO FORMA dividends per share of Valley
Ridge by an estimated conversion ratio so that the per share amounts
are equated to the respective values for one share of Community. This
information assumes an estimated conversion ratio of 1.5726. This
number has been rounded for convenience of presentation. See the
introduction to the PRO FORMA condensed combined financial statements
on page 28 for the assumptions upon which this estimated conversion
ratio is based.
</FN>
</TABLE>
RISK FACTORS
ABSENCE OF PUBLIC TRADING MARKET
Valley Ridge shares are bought and sold in occasional transactions
directly between buyers and sellers or through local brokers. As of the
date of this Prospectus and Proxy Statement, there is no well established
public trading market for Valley Ridge Common Stock or Community Common
Stock. If the Plan of Merger is approved and the Merger is consummated,
Valley Ridge does not expect an active trading market for Valley Ridge
Common Stock to develop.
-14-
ESTIMATED CONVERSION RATIO SUBJECT TO CHANGE DUE TO FUTURE EVENTS
The number of shares of Valley Ridge Common Stock to be received in
the Merger by Community's shareholders will be determined by a conversion
ratio. The conversion ratio will be determined with reference to the
adjusted book value per share of Valley Ridge Common Stock and the adjusted
book value per share of Community Common Stock as of dates after the date
of this Prospectus and Proxy Statement. Because the adjusted book values
per share of Valley Ridge Common Stock and Community Common Stock will be
determined as of later dates, it is not possible to precisely determine the
conversion ratio as of the date of this Prospectus and Proxy Statement.
For purposes of this Prospectus and Proxy Statement, certain information is
being provided using estimates of the book values per share of Valley Ridge
Common Stock and Community Common Stock, as well as estimates of the
amounts of the adjustments required to those values by the Plan of Merger.
The conversion ratio and the actual number of shares of Valley Ridge Common
Stock to be received by Community's shareholders in the Merger may be
greater or less than reflected in this Prospectus and Proxy Statement.
-15-
GENERAL PROXY INFORMATION
VOTING BY PROXY
If a holder of shares of Valley Ridge Common Stock or Community Common
Stock, as applicable, as of the Record Date properly executes and returns a
proxy in the enclosed form, the shares represented by that proxy will be
voted at the special meeting of Valley Ridge or Community shareholders, as
applicable, and at any adjournments of those meetings. If a shareholder
specifies a choice, the proxy will be voted in accordance with the
shareholder's specification. If no specification is made, the shares
represented by the proxy will be voted for approval of the Plan of Merger.
Proxies that indicate a vote against approval of the Plan of Merger, if
any, will not be used by management of Valley Ridge or Community to vote
for any proposed adjournment of the applicable shareholders' meeting.
Neither Valley Ridge's management nor Community's management currently
is aware of any other matter to be presented at the special meetings. If
other matters are presented, the shares for which proxies have been
received will be voted in accordance with the judgment of the persons named
as proxies.
A shareholder may revoke a proxy at any time prior to its exercise by
written notice delivered to the President of Valley Ridge or Community, as
applicable, or by attending and voting in person at the applicable special
meeting.
PROXY SOLICITATION
The boards of directors and management of each of Valley Ridge and
Community will initially solicit proxies by mail. If they deem it
advisable, directors, officers, and employees of Valley Ridge and Community
may also solicit proxies in person, by telephone or by facsimile without
additional compensation. In addition, nominees and other fiduciaries may
solicit proxies. Such persons may at the request of Valley Ridge's or
Community's management mail material to or otherwise communicate with the
beneficial owners of shares held by them.
EXPENSES
Valley Ridge will pay all expenses incurred in connection with the
solicitation of proxies of Valley Ridge shareholders. Community will pay
all expenses incurred in connection with the solicitation of proxies of
Community shareholders. Valley Ridge will pay all printing expenses and
filing fees pertaining to the Registration Statement. Valley Ridge and
Community will each pay its own fees and expenses incident to preparing
for, entering into, and carrying out the Plan of Merger and procuring any
-16-
necessary approvals, including fees and expenses of its own legal counsel
and accountants and postage expenses. If the Merger is abandoned pursuant
to the Plan of Merger for any reason, the aggregate expenses of both Valley
Ridge and Community incident to the Merger will be allocated to and paid by
each Corporation proportionately to the extent that each Corporation's
"book value" relates to the sum of the book values of the Corporations.
"Book value" means an amount equal to the difference between the
Corporation's total assets and total liabilities as determined from the
Corporation's consolidated balance sheet dated as of December 31, 1995,
less all dividends and other distributions of cash or property accrued
after December 31, 1995. Under certain circumstances involving the
termination of the Plan of Merger and a business combination of Valley
Ridge or Community with any other entity, the party to the Plan of Merger
not involved in such business combination would be entitled to
reimbursement from the other party of its costs and expenses incurred in
connection with the Plan of Merger. See "The Merger--Expense Reimbursement
after Business Combination."
THE MERGER
The respective boards of directors of Valley Ridge and Community have
adopted an Agreement and Plan of Merger dated as of September 15, 1995 (the
"Plan of Merger").
The following discussion summarizes the material provisions of the
Plan of Merger and aspects of the Merger. This summary discussion does not
purport to be a complete description of the Merger and is qualified in its
entirety by reference to the Plan of Merger, which is attached as Appendix
A to this Prospectus and Proxy Statement and incorporated by reference into
this Prospectus and Proxy Statement.
BACKGROUND OF THE MERGER
In early 1995, Richard L. Edgar, the President of Valley Ridge,
contacted Ronald L. Hansen, the Secretary of Community and President of
Grant, to explore the possibility of enhancing shareholder value for both
organizations through an affiliation of Valley Ridge and Community.
Following preliminary discussions between Mr. Edgar and Mr. Hansen, the
boards of directors of Valley Ridge and Community met informally on three
occasions during the Spring and Summer of 1995 to better acquaint
themselves with each other and the other's Corporation. In August, 1995,
the board of directors of Valley Ridge submitted a proposal to Community
under which the two Corporations would merge. Community's board of
directors determined that Valley Ridge's proposal presented an excellent
opportunity for enhancing shareholder value while preserving involvement in
the Combined Organization of members of the communities served by Community
and Grant. After an exchange of information and preliminary negotiations,
-17-
Valley Ridge and Community entered into the Plan of Merger on September 15,
1995, following approval of the Plan of Merger by their respective boards
of directors. Valley Ridge's board of directors and Community's board of
directors, and their respective representatives, negotiated the conversion
ratio and other terms of the Plan of Merger on an arm's-length basis. The
boards of directors of both Valley Ridge and Community view the proposed
Merger as a strategic merger of the two Corporations into the Combined
Organization, not a purchase of Community by Valley Ridge, and the
transaction has been negotiated and structured accordingly.
REASONS FOR THE MERGER
The boards of directors of Valley Ridge and Community have each
unanimously determined that the proposed Merger is desirable and in the
best interests of the respective Corporation and its shareholders. In
negotiating the terms of the Plan of Merger and in considering its
adoption, each Corporation's board of directors reviewed the financial
results and conditions of Community and Valley Ridge, the perceived
prospects for each in the future, and the business philosophies of
Community and Valley Ridge. All material factors discussed by the boards
of directors are discussed in this section.
The boards of directors of Community and Valley Ridge believe the
Merger provides the shareholders of the respective Corporation an
opportunity to have an interest in a larger and more diversified financial
organization. Shareholders of the Combined Organization may enjoy certain
benefits associated with the Combined Organization's larger and more
diversified asset base and access to a broader range of markets. The
Combined Organization's shareholders will, however, also be subject to the
risks associated with either Valley Ridge or Community in which they have
not previously held an interest.
The boards believe that the Merger will enable the Corporations'
subsidiaries to become more effective competitors in their respective
markets through access to greater financial and managerial resources. Each
Corporation's directors consider this access to be important in light of
increased competition from a broader range of financial institutions than
has generally been encountered in the banking industry. Each board also
believes that the Merger will permit the achievement of certain economies
of scale in the areas of administration, regulatory compliance, management
and capital formation. The boards of directors did not assign any
particular weight to any one of the foregoing factors.
SUMMARY OF THE TERMS OF THE MERGER
Pursuant to the Plan of Merger, Valley Ridge and Community are
soliciting proxies from their respective shareholders for the purpose of
-18-
approving the Plan of Merger. The affirmative vote of the holders of a
majority of the outstanding shares of Valley Ridge Common Stock and a
majority of the outstanding shares of Community Common Stock is required to
approve the Plan of Merger.
At the time the Merger becomes effective, Community will be merged
with and into Valley Ridge. The surviving corporation will be Valley Ridge
and will own Grant and all of the other assets of Community. In the
Merger, Valley Ridge's Articles of Incorporation would be amended and
restated to be as set forth in Exhibit A to the Plan of Merger (included as
Appendix A to this Prospectus and Proxy Statement) in order to be generally
consistent with the form of articles of incorporation currently employed by
Community. Upon consummation of the Merger, Valley Ridge would have
authorized capital stock of 1,000,000 shares of common stock, $10 par
value, of which approximately 493,050 shares will be issued and
outstanding. The estimated number of shares of Valley Ridge Common Stock
to be outstanding after the Merger was determined by reference to the
estimated conversion ratio for Community Common Stock (1.5726), as applied
to the 76,424 shares of Community Common Stock outstanding as of December
31, 1995, added to the 372,862 shares of Valley Ridge Common Stock
outstanding as of December 31, 1995. The Bylaws of the surviving
corporation will be the Bylaws of Valley Ridge as in effect immediately
prior to the effective time of the Merger.
Each share of Community Common Stock outstanding at the time the
Merger becomes effective will be converted into shares of Valley Ridge
Common Stock based on a conversion ratio, subject to payment in cash for
fractional shares. The conversion ratio will be determined by dividing the
Community Adjusted Book Value Per Share (as defined below), multiplied by
1.20, by the Valley Ridge Adjusted Book Value Per Share (as defined below).
The "Community Adjusted Book Value Per Share" will be determined by
dividing (i) Community's shareholders' equity as determined by Community's
Final Balance Sheet (as defined below), less all dividends and other
distributions of cash or property accrued after the date of Community's
Final Balance Sheet, and plus or minus any adjustments provided for in the
Plan of Merger, by (ii) the number of outstanding shares of Community
Common Stock at the effective time of the Merger. The "Valley Ridge
Adjusted Book Value Per Share" will be determined by dividing (i) Valley
Ridge's shareholders' equity as determined by Valley Ridge's Final Balance
Sheet (as defined below), less all dividends and other distributions of
cash or property accrued after the date of Valley Ridge's Final Balance
Sheet, and plus or minus any adjustments provided for in the Plan of
Merger, by (ii) the number of outstanding shares of Valley Ridge Common
Stock at the effective time of the Merger. The "Final Balance Sheet" of
the Corporations will be as of the same date which will be a month end not
more than 60 days prior to the closing of the transactions contemplated by
the Plan of Merger (or such other date as may be mutually agreed upon by
Valley Ridge and Community in writing), will fairly present the financial
condition of the respective Corporation as of such date and will be
-19-
consistent with the historical financial statements of the respective
Corporation that were delivered in connection with the Plan of Merger.
The Plan of Merger provides for an adjustment to each Corporation's
shareholders' equity as follows: (i) the full amount of the allowance for
loan losses reflected on the applicable Corporation's Final Balance Sheet
shall be added to total shareholders' equity; and (ii) the full amount of
unrealized gains and losses on securities available for sale reflected on
the applicable Corporation's Final Balance Sheet, if any, shall be
eliminated and not considered in calculating total shareholders' equity.
In addition, Community's total shareholders' equity shall be reduced by a
reserve for contingent liabilities equal to $53,000 or a lesser amount that
may be agreed upon by Valley Ridge and Community.
The board of directors of Community will resubmit the Plan of Merger
for approval by Community's shareholders if the conversion ratio would be
less than 1.36 shares of Valley Ridge Common Stock for each share of
Community Common Stock.
Valley Ridge will not issue fractional shares of Valley Ridge Common
Stock in the Merger. A Community shareholder who would otherwise be
entitled to receive a fraction of a share of Valley Ridge Common Stock in
the Merger will receive instead an amount of cash determined by multiplying
that fraction by the Valley Ridge Adjusted Book Value Per Share.
CESSATION OF SHAREHOLDER STATUS AND DISTRIBUTION OF VALLEY RIDGE COMMON
STOCK
As of the effective time of the Merger, holders of Community Common
Stock outstanding immediately prior to the effective time of the Merger
will cease to be shareholders of Community and will have no rights as
Community shareholders. Certificates that represented shares of Community
Common Stock outstanding immediately prior to the effective time of the
Merger ("Old Certificates") will then represent shares of Valley Ridge
Common Stock having all of the voting and other rights of shares of Valley
Ridge Common Stock, except for the right to receive dividends pending
surrender of the Old Certificates, and the right to receive cash in lieu of
fractional shares, all as provided in the Plan of Merger, and subject to
the rights of a dissenting shareholder under the MBCA. (See "Rights of
Dissenting Shareholders.") After the effective time of the Merger, Old
Certificates will be exchangeable for new stock certificates representing
the number of shares of Valley Ridge Common Stock to which such holders
will be entitled.
As soon as practicable after the effective time of the Merger, Valley
Ridge will segregate into a separate account the amount of cash payable for
fractional shares in the Merger. Valley Ridge will add to that account an
-20-
amount equal to all dividends and other distributions paid with respect to
shares to be distributed to Community's shareholders pursuant to the Plan
of Merger.
As soon as practicable after the Merger becomes effective, Valley
Ridge will send transmittal materials to be used to exchange Old
Certificates for stock certificates representing shares of Valley Ridge
Common Stock. The transmittal materials will contain instructions with
respect to the surrender of Old Certificates.
Promptly after the receipt of the proper transmittal documents and Old
Certificates from a Community shareholder, Valley Ridge will issue and
deliver new stock certificates to the shareholder. Valley Ridge will issue
and deliver certificates in the names and to the addresses appearing on
Community's stock records as of the effective time of the Merger, or in
such other name or to such other address as the holder of record may
specify in transmittal documents received by Valley Ridge. Valley Ridge is
not required to issue and deliver certificates to a shareholder until it
has received all of the Old Certificates held of record by that
shareholder, or an affidavit of loss, indemnity bond and payment for such
bond in lieu of such certificate or certificates, together with properly
executed transmittal materials. Such Old Certificates, transmittal
materials and affidavits must be in a form and condition reasonably
acceptable to Valley Ridge.
Valley Ridge will have reasonable discretion to determine the rules
and procedures relating to the issuance and delivery of certificates of
Valley Ridge Common Stock into which shares of Community Common Stock are
converted in the Merger and governing the payment for fractional shares.
The declaration of any dividends on Valley Ridge Common Stock payable
to shareholders of record of Valley Ridge as of a record date on or after
the effective time of the Merger will include dividends on all shares
issuable under the Plan of Merger. However, no former shareholder of
Community will be entitled to receive a distribution of such dividends
until physical exchange of that shareholder's Old Certificates has been
effected. Upon physical exchange of that shareholder's Old Certificates,
he or she will be entitled to receive from Valley Ridge an amount equal to
all such dividends (without interest and less the amount of taxes, if any,
which may have been imposed or paid) declared and paid with respect to
those shares.
After the effective time of the Merger, Valley Ridge and Community
will not transfer on the stock transfer books of Community any shares of
Community Common Stock which were issued and outstanding immediately prior
to the effective time of the Merger. If, after the effective time of the
Merger, a shareholder properly presents Old Certificates to Valley Ridge,
Valley Ridge will cancel and exchange the Old Certificates for stock
certificates representing shares of Valley Ridge Common Stock as provided
-21-
in the Plan of Merger. After the effective time of the Merger, ownership
of shares represented by Old Certificates may be transferred only on the
stock transfer records of Valley Ridge.
Each share of Valley Ridge Common Stock outstanding immediately prior
to the effective time of the Merger will continue to be outstanding without
any change. Each shareholder of Valley Ridge whose shares were outstanding
immediately prior to the effective time of the Merger will hold the same
number of shares, with identical designations, preferences, limitations and
relative rights, immediately after the effective time of the Merger,
subject to the rights of a dissenting shareholder under the MBCA. (See
"Rights of Dissenting Shareholders.")
MANAGEMENT AFTER THE MERGER
Upon the consummation of the Merger, the directors of the Combined
Organization will be the persons who were the directors of Valley Ridge and
the directors of Community immediately prior to the effective time of the
Merger. The officers of the Combined Organization will be:
<TABLE>
<CAPTION>
PRESENT
OFFICE DESIGNEE AFFILIATION
<S> <C> <C> <C>
Chairman of the Board Robert Humphreys Valley Ridge
Vice Chairman Donald VanSingel Community
President and Chief Executive Officer Richard L. Edgar Valley Ridge
Vice President Ronald L. Hansen Community
Secretary and Treasurer Michael McHugh Valley Ridge
</TABLE>
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated on the date and time specified in a
certificate of merger filed in accordance with the MBCA. If the
shareholders of Valley Ridge and Community approve the Plan of Merger at
the special meetings of Valley Ridge and Community shareholders, and the
other conditions to the Merger set forth in the Plan of Merger and
summarized under "The Merger--Conditions to the Merger and Abandonment" in
this Prospectus and Proxy Statement are satisfied, the effective time of
the Merger is anticipated to be during the second quarter of 1996, provided
that the Plan of Merger has not been terminated prior to such time. The
Merger may not be consummated until receipt of approval from the Federal
Reserve Board or its delegate and expiration of the required 15-day waiting
period following such approval. The Merger was approved by the Federal
Reserve Board on April 19, 1996.
-22-
BUSINESS OF VALLEY RIDGE AND COMMUNITY PENDING THE MERGER
The Plan of Merger also contains covenants to which Valley Ridge and
Community have agreed. The covenants remain in effect until the effective
time of the Merger or until the Plan of Merger has been terminated and
include an agreement that each of Valley Ridge and Community and their
respective subsidiaries will: (i) conduct its business and manage its
property only in the usual, regular and ordinary course; (ii) not, except
as contemplated by the Plan of Merger, enter into any employment agreement
that is not terminable, without cost or penalty, on 60 days' or less
notice; (iii) not issue any capital stock or any security convertible into
capital stock, or grant any warrant or option to acquire capital stock, or
otherwise alter its capital structure; (iv) not make any material changes
in any policies or procedures applicable to the conduct of its business;
(v) not sell, mortgage, pledge, encumber or otherwise dispose of any
property or assets, except in the ordinary course of business; (vi) except
to reelect persons who are then incumbent directors and officers at annual
meetings, not increase the number of directors or fill any vacancy on the
board of directors or elect or appoint any person to an executive office;
(vii) except for certain exceptions listed in the Plan of Merger, not
increase the salary or compensation payable to or agree to pay any bonus to
any director or officer, or any class or group of employees as a class or
group, and not introduce or change any employee benefit plan or program of
any kind for the benefit of its employees unless required by law or the
Plan of Merger; (viii) not borrow money except in the ordinary course of
business; (ix) make no change in its articles of incorporation, charter or
bylaws except as effected by the Plan of Merger and the Merger; and (x)
take or not take other comparatively immaterial actions.
Nothing contained in the Plan of Merger will preclude Community from
declaring and paying cash dividends on Community Common Stock quarterly at
a rate not to exceed $.09 per share in a manner, on dates, and with respect
to record dates consistent with its past practice; provided, that Community
must adjust the record date for its regularly scheduled dividend with
respect to the period in which the Merger becomes effective if necessary to
assure that Community shareholders receive only one dividend payable in the
quarter in which the Merger becomes effective with respect to shares of
Community Common Stock or Valley Ridge Common Stock received in the Merger.
The board of directors of Community is under no obligation to pay dividends
on Community Common Stock. Nothing contained in the Plan of Merger will
preclude Valley Ridge from declaring and paying cash dividends on Valley
Ridge Common Stock quarterly at a rate not to exceed $.20 per share in a
manner, on dates, and with respect to record dates consistent with its past
practice. The board of directors of Valley Ridge is under no obligation to
pay dividends on Valley Ridge Common Stock.
-23-
CONDITIONS TO THE MERGER AND ABANDONMENT
The obligations of Valley Ridge and Community to consummate the Merger
are subject to the fulfillment of certain conditions, including the
following:
(i) An affirmative vote of the holders of a majority of the
outstanding shares of Valley Ridge Common Stock and the holders
of a majority of the outstanding shares of Community Common Stock
is required to approve the Plan of Merger.
(ii) The Federal Reserve Board must approve the Merger and
the statutory waiting period must have expired.
(iii) Valley Ridge and Community must comply with their
respective covenants, and their respective representations and
warranties must be true in all material respects, each as set
forth in the Plan of Merger. (See "The Merger--Business of
Valley Ridge and Community Pending the Merger.")
(iv) Valley Ridge and Community must receive certain
opinions of counsel.
(v) Valley Ridge and Community must obtain waivers of all
material rights and waivers of the loss of all material rights
that could be triggered by the change in control of the
applicable Corporation resulting from the Merger.
(vi) Neither Valley Ridge nor Community must be subject to
any order, decree or injunction of a court or agency enjoining or
prohibiting the Merger.
(vii) There must not be any suit or proceeding pending or
threatened that could result in any liability that could have a
material adverse effect on either Corporation and its subsidiary
on a consolidated basis or that challenges the Merger.
(viii) Valley Ridge must receive reasonably satisfactory
assurance from its independent public accountants that the Merger
will be treated as a pooling of interests for accounting
purposes, subject to the satisfaction of post-Merger conditions.
(ix) Demands for payment for their shares under Section 762
of the MBCA shall have been made, perfected and not withdrawn by
the holders of not more than 10% of the then outstanding shares
of either Corporation's common stock.
(x) Other comparatively immaterial conditions.
-24-
Either Valley Ridge or Community, whichever is entitled to the benefit
of the foregoing conditions, may waive one or more of those conditions
except where satisfaction of the condition is required by law. The Plan of
Merger contains various other conditions to the respective obligations of
Valley Ridge and Community that have been satisfied.
The boards of directors, or duly authorized committees thereof, of
Valley Ridge and Community may by mutual consent terminate the Plan of
Merger and abandon the Merger at any time before the effective time of the
Merger.
Either Valley Ridge or Community may terminate the Plan of Merger and
abandon the Merger on its own action upon the occurrence of certain events
specified in the Plan of Merger, including the following:
(i) Valley Ridge or Community discovers that one or more of
the other party's representations and warranties is or has become
untrue, and the cumulative effect of all such untrue
representations and warranties is material to the other party's
business, income or financial condition on a consolidated basis.
(ii) Valley Ridge or Community commits one or more breaches
of any provision of the Plan of Merger which would in the
aggregate be material and such breach or breaches are not cured
after notice.
(iii) There occurs a materially adverse change in the
financial condition of Valley Ridge or Community and their
respective subsidiaries on a consolidated basis.
(iv) The Merger is not effective on or before June 30, 1996.
(v) A court of competent jurisdiction issues a final
unappealable injunction or other judgment restraining or
prohibiting consummation of the Merger.
(vi) The Federal Reserve Board refuses to approve the Merger
(the Federal Reserve Board approved the Merger on April 19,
1996).
(vii) An environmental assessment indicates any
environmental conditions which are contrary to Valley Ridge's or
Community's representations and warranties, and the parties are
unable to agree on a course of action for further investigation
of the environmental condition and/or a mutually acceptable
modification to the Plan of Merger, and the environmental
condition is not one for which it can be determined to a
reasonable degree of certainty that the risk and expense to which
the Combined Organization and its subsidiaries (after the Merger)
-25-
would be subject as the owner or operator of the property can be
quantified or limited to an immaterial amount; provided, that the
abandoning party gives the other party 5 days' written notice of
its intent to terminate the Plan of Merger.
(viii) Valley Ridge or Community or their respective
subsidiaries, or any of their respective directors, officers,
employees, investment bankers, representatives, or agents,
solicits, encourages, or negotiates with any party other than the
other party to the Plan of Merger any proposals, offers, or
expressions of interest concerning any tender offer, exchange
offer, merger, consolidation, sale of shares, sale of assets, or
assumption of liabilities not in the ordinary course, or other
business combination involving Valley Ridge or Community or any
of their respective subsidiaries other than the Merger (a
"Business Combination").
(ix) Upon the occurrence or nonoccurrence of other
comparatively immaterial events.
Valley Ridge may terminate the Plan of Merger and abandon the Merger
at any time if its independent public accountants shall have advised Valley
Ridge that the Merger is unlikely to qualify as a pooling of interests for
accounting purposes.
EXPENSE REIMBURSEMENT AFTER BUSINESS COMBINATION
Under certain circumstances involving the acquisition of control of
either party to the Plan of Merger by a party other than Valley Ridge or
Community (an "Unaffiliated Person"), the other party to the Plan of Merger
may be entitled to reimbursement from the party that is acquired (the
"Acquired Party") for all of its costs and expenses incident to the
preparing for, negotiating, entering into and carrying out the Plan of
Merger. A party is entitled to reimbursement of its costs and expenses if:
(i) the Plan of Merger is terminated and the Merger is abandoned pursuant
to the provisions of the Plan of Merger for any reason; (ii) while the Plan
of Merger is in effect: (a) an Unaffiliated Person directly or indirectly
acquires control (as defined in the Federal Bank Holding Company Act using
25%) of Valley Ridge or Community, or its successor by merger or
consolidation, or acquires 25% or more of the consolidated assets of Valley
Ridge or Community; or (b) the Acquired Party solicits, invites,
encourages, negotiates, or enters into an agreement with an Unaffiliated
Person to acquire such control or such assets, or publicly announces an
intention to do so; and (iii) within one year of the date of termination of
the Plan of Merger the Unaffiliated Person acquires such control or such
assets.
-26-
DESCRIPTION OF VALLEY RIDGE CAPITAL STOCK
If the Plan of Merger is approved by Valley Ridge's and Community's
shareholders and the Merger is consummated, Valley Ridge's authorized
capital stock will consist of 1,000,000 shares of common stock, $10 par
value ("Valley Ridge Common Stock"). As of December 31, 1995, Valley
Ridge had outstanding 372,862 shares of Valley Ridge Common Stock. Valley
Ridge expects to issue approximately 120,000 shares of Valley Ridge Common
Stock in the Merger assuming an estimated conversion ratio of 1.5726 at
December 31, 1995. These numbers have been rounded for convenience of
presentation.
Holders of Valley Ridge Common Stock are entitled to dividends out of
funds legally available for that purpose when, as, and if declared by the
board of directors. Each holder of Valley Ridge Common Stock is entitled
to one vote for each share held on each matter submitted for shareholder
action. Valley Ridge Common Stock has no preemptive rights, cumulative
voting rights, conversion rights or redemption provisions.
In the case of any liquidation, dissolution or winding up of the
affairs of Valley Ridge, holders of Valley Ridge Common Stock will be
entitled to receive, pro rata, any assets distributable to common
shareholders in proportion to the number of shares held by them.
All outstanding shares of Valley Ridge Common Stock are, and shares to
be issued pursuant to the Merger will be, when issued, fully paid and
nonassessable.
A number of important provisions of the proposed Restated Articles of
Incorporation and Bylaws of Valley Ridge and the MBCA that could affect the
rights of holders of shares of Valley Ridge Common Stock are described
below. (See "The Merger--Provisions Affecting Control of Valley Ridge,
- --Comparison of Rights of Valley Ridge Shareholders and Community
Shareholders to Rights of Shareholders in Combined Organization, and
- --Indemnification and Limitation of Liability.")
PROVISIONS AFFECTING CONTROL OF VALLEY RIDGE
In the Merger, the Articles of Incorporation of Valley Ridge will be
amended and restated to be as set forth in Exhibit A to the Plan of Merger
(the "Restated Articles of Incorporation") in order to be generally
consistent with the form of articles of incorporation currently employed by
Community. At the effective time of the Merger, the Bylaws of Valley Ridge
will remain unchanged. Some provisions of the MBCA and the Restated
Articles of Incorporation may have an anti-takeover impact and may make
tender offers, proxy contests and certain mergers more difficult to
consummate. Both Valley Ridge and Community are currently subject to the
provisions of the MBCA, and the Combined Organization will be subject to
these provisions after the Merger.
-27-
ANTI-TAKEOVER LEGISLATION. The MBCA contains provisions intended to
protect shareholders and prohibit or discourage certain types of hostile
takeover activities. These provisions regulate the acquisition of "control
shares" of large public Michigan corporations (the "Control Share Act").
The Control Share Act establishes procedures governing "control share
acquisitions." A control share acquisition is defined as an acquisition of
shares by an acquirer which, when combined with other shares held by that
person or entity, would give the acquirer voting power at or above any of
the following thresholds: 20%, 33 1/3% or 50%. Under the Control Share
Act, an acquirer may not vote "control shares" unless the corporation's
disinterested shareholders vote to confer voting rights on the control
shares. The acquiring person, officers of the target corporation, and
directors of the target corporation who are also employees of the
corporation are precluded from voting on the issue of whether the control
shares shall be accorded voting rights. The Control Share Act does not
affect the voting rights of shares owned by an acquiring person prior to
the control share acquisition.
The Control Share Act entitles corporations to redeem control shares
from the acquiring person under certain circumstances. In other cases, the
Control Share Act confers dissenters' rights upon all of a corporation's
shareholders except the acquiring person.
The Control Share Act applies only to an "issuing public corporation."
Valley Ridge falls within the statutory definition of an "issuing public
corporation" and would continue to do so after the Merger. The Control
Share Act automatically applies to any "issuing public corporation" unless
the corporation "opts out" of the statute by so providing in its articles
of incorporation or bylaws. Valley Ridge has not "opted out" of the
Control Share Act and does not expect to do so after the Merger.
FAIR PRICE ACT. Certain provisions of the MBCA (the "Fair Price Act")
establish a statutory scheme similar to the supermajority and fair price
provisions found in many corporate charters. The Fair Price Act provides
that a supermajority vote of 90% of the shareholders and no less than two-thirds
of the votes of non-interested shareholders must approve a "business
combination." The Fair Price Act defines a "business combination" to
encompass any merger, consolidation, share exchange, sale of assets, stock
issue, liquidation, or reclassification of securities involving an
"interested shareholder" or certain "affiliates." An "interested
shareholder" is generally any person who owns 10% or more of the
outstanding voting shares of the corporation. An "affiliate" is a person
who directly or indirectly controls, is controlled by, or is under common
control with a specified person.
The supermajority vote required by the Fair Price Act does not apply
to business combinations that satisfy certain conditions. These conditions
include, among others, that: (i) the purchase price to be paid for the
-28-
shares of the corporation is at least equal to the highest of either (a)
the market value of the shares or (b) the highest per share price paid by
the interested shareholder within the preceding two-year period or in the
transaction in which the shareholder became an interested shareholder,
whichever is higher; and (ii) once a person has become an interested
shareholder, the person must not become the beneficial owner of any
additional shares of the corporation except as part of the transaction
which resulted in the interested shareholder becoming an interested
shareholder or by virtue of proportionate stock splits or stock dividends.
The requirements of the Fair Price Act do not apply to business
combinations with an interested shareholder that the board of directors has
approved or exempted from the requirements of the Fair Price Act by
resolution at any time prior to the time that the interested shareholder
first became an interested shareholder.
Article X of the Restated Articles of Incorporation of Valley Ridge
after the Merger would incorporate the provisions of the Fair Price Act.
CLASSIFIED BOARD. The current boards of directors of both Valley
Ridge and Community are classified into three classes, with each class
serving a staggered, three-year term. The Restated Articles of
Incorporation of Valley Ridge after the Merger also would classify the
board of directors of Valley Ridge into three classes serving staggered,
three-year terms. Classification of the board could have the effect of
extending the time during which the existing board of directors could
control the operating policies of Valley Ridge even though opposed by the
holders of a majority of the outstanding shares of Valley Ridge Common
Stock. In addition, under the Restated Articles of Incorporation,
directors of Valley Ridge could be removed only upon a super-majority vote
of the shareholders. (See "The Merger--Comparison of Rights of Valley
Ridge Shareholders and Community Shareholders to Rights of Shareholders in
Combined Organization.")
BOARD EVALUATION OF CERTAIN OFFERS. Article IX of the Restated
Articles of Incorporation of Valley Ridge after the Merger would provide
that the board of directors shall not approve, adopt or recommend any offer
of any person or entity (other than Valley Ridge) to make a tender or
exchange offer for any Valley Ridge Common Stock, to merge or consolidate
Valley Ridge with any other entity, or to purchase or acquire all or
substantially all of Valley Ridge's assets, unless and until the board has
evaluated the offer and determined that it would be in compliance with all
applicable laws and that the offer is in the best interests of Valley
Ridge. In doing so, the board may rely on an opinion of legal counsel who
is independent from the offeror, and/or may test such legal compliance in
front of any court or agency that may have appropriate jurisdiction over
the matter.
-29-
In making its determination, the board must consider all factors it
deems relevant, including but not limited to: (i) the adequacy and
fairness of the consideration to be received by Valley Ridge and/or its
shareholders, considering historical trading prices of Valley Ridge Common
Stock, the price that could be achieved in a negotiated sale of Valley
Ridge as a whole, past offers, and the future prospects of Valley Ridge;
(ii) the potential social and economic impact of the proposed transaction
on Valley Ridge, its employees, customers and vendors; and (iii) the
potential social and economic impact of the proposed transaction on the
communities in which Valley Ridge and its subsidiaries operate or are
located. The current Articles of Incorporation of Valley Ridge do not
contain such a provision.
In order to amend, repeal, or adopt any provision that is inconsistent
with Article IX, at least 80% of the shareholders, voting together as a
single class, must approve the change, unless the change has been
recommended for approval by at least 80% of the directors, in which case
Article IX shall be of no further force or effect.
NOMINATION OF DIRECTORS. Under Valley Ridge's Bylaws, all nominations
for directors must be delivered to Valley Ridge in writing at least 60 days
prior to the annual meeting of shareholders. A nomination that is not
received prior to this deadline will not be placed on the ballot. The
board believes that advance notice of nominations by shareholders will
afford a meaningful opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or desirable by the
board of directors, will provide an opportunity to inform shareholders
about such qualifications. Although this nomination procedure does not
give the board of directors any power to approve or disapprove of
shareholder nominations for the election of directors, this nomination
procedure may have the effect of precluding a nomination for the election
of directors at a particular annual meeting if the proper procedures are
not followed.
COMPARISON OF RIGHTS OF VALLEY RIDGE SHAREHOLDERS AND COMMUNITY
SHAREHOLDERS TO RIGHTS OF SHAREHOLDERS IN COMBINED ORGANIZATION
If the Merger is consummated, a person holding a given percentage of
the outstanding shares of Valley Ridge Common Stock or Community Common
Stock will hold a lesser percentage of the outstanding shares of common
stock in the Combined Organization after the Merger. In addition, because
the Combined Organization will be a larger entity than either Valley Ridge
or Community, the universe of financial institutions and other companies
that have the resources to acquire the Combined Organization will be
smaller than before the Merger, particularly with respect to Community.
After the Merger, Valley Ridge will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
-30-
"Exchange Act"). Neither Valley Ridge nor Community is presently subject
to these reporting requirements. Valley Ridge and Community shareholders
will therefore benefit from Valley Ridge's obligation to file periodic
reports under the Exchange Act by virtue of the availability of more
current and detailed information regarding Valley Ridge than presently
exists with respect to either Valley Ridge or Community.
As discussed above, in the Merger the Articles of Incorporation of
Valley Ridge will be amended and restated in order to be generally
consistent with the form of articles of incorporation currently employed by
Community. Therefore, the rights of shareholders of Valley Ridge after the
Merger under the Restated Articles of Incorporation will not significantly
differ from the rights of current shareholders of Community. The primary
differences in the rights of current Valley Ridge shareholders if the
Merger is consummated are discussed below. At the effective time of the
Merger, the Bylaws of Valley Ridge will remain unchanged. The corporate
affairs of both Valley Ridge and Community are governed by the MBCA, and
the corporate affairs of the Combined Organization after the Merger will
also be governed by the MBCA. Therefore, the rights of shareholders of the
Combined Organization under the MBCA after the Merger will not
significantly differ from the present rights of shareholders of Valley
Ridge and Community under the MBCA.
REMOVAL OF DIRECTORS AND FILLING VACANCIES. The Restated Articles of
Incorporation of Valley Ridge provide that any one or more directors may be
removed at any time, with or without cause, but only by either (i) the
affirmative vote of a majority of "Continuing Directors" and at least 80%
of the directors; or (ii) the affirmative vote, at a meeting of the
shareholders called for that purpose, of the holders of at least 80% of the
voting power of the then-outstanding shares of capital stock of Valley
Ridge entitled to vote generally in the election of directors, voting
together as a single class. A "Continuing Director" is generally defined
in the Restated Articles of Incorporation as one who was a director of
Valley Ridge or Community immediately prior to the effective time of the
Merger, any member of the board who is unaffiliated with any "interested
shareholder" and was a member of the board prior to the time an interested
shareholder became an interested shareholder, and any successor of a
Continuing Director who is unaffiliated with an interested shareholder and
is recommended to succeed a Continuing Director by a majority of the
Continuing Directors then on the board. (See "The Merger--Provisions
Affecting Control of Valley Ridge.")
Any vacancies in the board of directors for any reason, and any newly
created directorships resulting from any increase in the number of
directors, may be filled only by the board of directors, acting by an
affirmative vote of a majority of the Continuing Directors and an 80%
majority of all of the directors then in office, although less than a
quorum. Any directors so chosen shall hold office until the next annual
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meeting of shareholders and until their respective successors shall be duly
elected and qualified or their resignation or removal. No decrease in the
number of directors shall shorten the term of any incumbent director.
AMENDMENT OR REPEAL OF THE ARTICLES AND BYLAWS. Under Michigan law,
the board of directors need not adopt a resolution setting forth an
amendment to the articles of incorporation before the shareholders may vote
on it. Unless the articles of incorporation provide otherwise, amendments
of the articles of incorporation generally require the approval of the
holders of a majority of the outstanding stock entitled to vote thereon,
and if the amendment would increase or decrease the number of authorized
shares of any class or series, or the par value of such shares, or would
adversely affect the rights, powers, or preferences of such class or
series, a majority of the outstanding stock of such class or series also
would be required to approve the amendment.
Certain provisions of the Restated Articles of Incorporation of Valley
Ridge require a greater-than-majority vote. First, the affirmative vote
of at least 80% of the outstanding voting stock, voting together as a
single class, is required to amend, repeal or adopt any provisions
inconsistent with Article VIII, which sets forth requirements applicable to
the board of directors, unless a majority of disinterested directors
approves the amendment, in which case only a majority shareholder vote is
required. Second, as discussed above, in order to amend, repeal or adopt
any provision that is inconsistent with Article IX (board evaluation of
certain offers), at least 80% of the shareholders, voting together as a
single class, must approve the change, unless the change has been
recommended for approval by at least 80% of the directors, in which case
Article IX shall be of no further force or effect. Finally, to amend,
repeal or adopt any provision that is inconsistent with Article X (approval
of business combinations), at least 90% of the shareholders, voting
together as a single class, including at least two-thirds of voting stock
not owned directly or indirectly by any "interested shareholder," must
approve the change, unless the change has been recommended for approval by
a majority of certain disinterested directors.
The Bylaws of Valley Ridge may be altered, amended or repealed by the
vote of the holders of a majority of the shares who are present or
represented at a meeting at which a quorum is present. The Bylaws may also
be amended by the directors upon a majority vote, unless the notice of the
directors' meeting at which the amendment is approved omitted a reference
to amending or repealing the Bylaws, in which case a two-thirds vote of the
directors is necessary.
INDEMNIFICATION AND LIMITATION OF LIABILITY
LIMITATION OF PERSONAL LIABILITY. The MBCA provides that a director
or officer of a Michigan corporation shall discharge his or her duties as a
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director or officer in good faith, with the care an ordinarily prudent
person in a like position would exercise under similar circumstances, and
in a manner he or she reasonably believes to be in the best interests of
the corporation. In discharging these duties, a director or officer is
entitled to rely on information, reports, or statements prepared by
directors, officers, or employees of the corporation whom the director or
officer reasonably believes to be reliable and competent in the matters
presented; legal counsel, accountants, engineers, or other persons as to
matters the director or officer reasonably believes are within the person's
professional or expert competence; or a committee of the board of which the
director of officer is not a member if he or she believes the committee
merits confidence. A director or officer is not, however, entitled to rely
on the foregoing information if he or she has knowledge that makes such
reliance unwarranted. A director or officer who so performs these duties
may not be held liable by reason of being or having been a director or
officer of the corporation. No director or officer may be sued for failing
to perform these duties more than two years after the cause of action is
discovered or reasonably should have been discovered or more than three
years after the act or omission occurred, whichever period is shorter.
The Restated Articles of Incorporation of Valley Ridge provide that
directors shall not have personal liability to Valley Ridge or its
shareholders for monetary damages arising out of a breach of fiduciary duty
by directors in their capacities as directors. A similar provision is
contained in Valley Ridge's present Articles of Incorporation. Under
Michigan law, liability may not be eliminated for (i) breaches of the duty
of loyalty; (ii) acts or omissions not in good faith or that involve
intentional misconduct or knowing violations of law; (iii) actions
involving approval of various types of illegal distributions or the making
of improper loans; (iv) transactions from which an improper personal
benefit was obtained; or (v) acts or omissions occurring prior to the time
the provision limiting liability became effective. The Restated Articles
of Incorporation are intended to give to the directors of Valley Ridge the
full protection against personal liability that is permitted under Michigan
law. This provision is designed to promote an environment in which Valley
Ridge's directors are free to function decisively and effectively in
directing the operation of the corporation without the potential inhibiting
threat of litigation.
These provisions do not eliminate the duty of care imposed upon a
director, but only eliminate a director's personal monetary liability to
Valley Ridge and its shareholders for actions that may be deemed to
constitute a breach of the duty of care in the decision-making context.
The director's duty of care remains unchanged and will be enforceable
through such equitable remedies as injunctive relief or rescission.
However, equitable remedies available to shareholders may in some instances
be ineffective as a practical matter. For instance, shareholders may not
be aware of a proposed transaction or other action until it is too late to
prevent its completion. The provision also does not eliminate the personal
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liability of directors to Valley Ridge or its shareholders for monetary
damages for breaching their duty of loyalty, failing to act in good faith,
engaging in intentional misconduct or knowingly violating law, paying a
dividend or making an improper loan, or obtaining an improper personal
benefit. The provision also does not change any of the separate
obligations of directors under the federal securities laws.
Because these provisions of the Restated Articles of Incorporation
limit the situations in which a director may be held monetarily liable,
they could have the effect of reducing the likelihood of derivative
litigation against Valley Ridge's directors. They may also discourage or
deter shareholders from bringing a lawsuit against Valley Ridge's directors
for breach of their duties of care, even though such an action, if
successful, might otherwise have benefited Valley Ridge and its
shareholders. Insulation of directors from personal liability could
influence their decisions with respect to any future proposals to acquire
Valley Ridge. This could have the effect of making it more difficult for
others to acquire Valley Ridge and might discourage efforts to acquire
Valley Ridge.
Valley Ridge's board of directors does not believe the limitation of
director liability under the Restated Articles of Incorporation would
result in directors acting with less concern for their fiduciary duties.
Valley Ridge's board of directors believes that the diligence exercised by
directors stems primarily from their desire to act in the best interests of
Valley Ridge, and not from a fear of monetary damage awards. Consequently,
Valley Ridge's board of directors believes that the level of scrutiny and
care exercised by directors would not be lessened by the Restated Articles
of Incorporation.
An amendment to or repeal of the limitation of personal liability may
not apply to or affect the liability or alleged liability of any director
of Valley Ridge for or with respect to any act or omission of such director
prior to such amendment or repeal.
INDEMNIFICATION. The Restated Articles of Incorporation of Valley
Ridge also provide that Valley Ridge will to the fullest extent of the law
indemnify each director and officer against all actions, suits, or
proceedings in which the director or officer is a witness or which is
brought against a director or officer because he or she is or was a
director, officer, employee, agent or fiduciary of Valley Ridge or any
corporation or other business organization of which the director or officer
was serving at the request of Valley Ridge. Persons who are not directors
or officers may be similarly indemnified to the extent authorized by the
board of directors. Valley Ridge's Bylaws contain similar provisions,
except that the mandatory indemnification applies, in addition to directors
and officers, to employees and agents of Valley Ridge. The indemnification
provided by these provisions could apply to liability incurred by a
director or officer of Valley Ridge under the federal securities laws.
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The MBCA requires that the indemnitee must have acted in good faith
and in a manner that he or she reasonably believed to be in or not opposed
to the best interests of Valley Ridge or its shareholders, and, with
respect to a criminal proceeding, the person must not have had reasonable
cause to believe his or her conduct was unlawful. In addition,
indemnification may not be made in relation to actions by or in the right
of the corporation in which the person has been found liable unless a court
so orders, in which case indemnification is limited to reasonable expenses.
The potential risks of personal liability may deter qualified
individuals from accepting a position as a director of Valley Ridge unless
adequate insurance or other protection is available. The board of
directors of Valley Ridge believes that the provisions of the Restated
Articles of Incorporation will be important to Valley Ridge's efforts to
attract and retain qualified directors and officers in the future.
Valley Ridge may purchase and maintain insurance to protect itself and
any director, officer, or other person against any liability asserted
against and incurred by him or her in respect of such service regardless of
whether Valley Ridge would have the power to indemnify him or her against
such liability by law or otherwise.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted
to directors, officers, and controlling persons of Valley Ridge pursuant to
the foregoing provisions, or otherwise, Valley Ridge has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
RESALES BY AFFILIATES
The issuance of shares of Valley Ridge Common Stock to shareholders of
Community pursuant to the Merger has been registered under the Securities
Act. That registration, however, does not cover resales by shareholders of
Community who may be deemed to control or be controlled by, or be under
common control with, Community at the effective time of the Merger.
In order to induce each other to proceed with the Merger, Valley Ridge
and Community have each agreed to use all reasonable efforts to cause each
person identified by the applicable Corporation who is deemed to control or
be controlled by, or under common control with, the applicable Corporation
("Affiliates") to agree in writing not to sell, transfer or otherwise
dispose of shares of Valley Ridge Common Stock beneficially owned or
received in the Merger by such person in a manner which would result in
violation of the Securities Act or applicable rules and regulations, or
prior to publication of financial results of the post-Merger combined
-35-
operations of Valley Ridge covering a period of at least 30 days. Valley
Ridge may place a legend reflecting such transfer restrictions on the
certificates representing such shares of Valley Ridge Common Stock.
ACCOUNTING TREATMENT
Valley Ridge expects to treat the Merger as a pooling of interests for
accounting purposes. Under generally accepted accounting principles
governing pooling of interests accounting, Valley Ridge would carry forward
to its accounts the assets and liabilities of Community in the amounts
reported by Community. See "The Merger--PRO FORMA Condensed Combined
Financial Statements." If the Merger does not qualify for the pooling of
interests accounting method, Valley Ridge may terminate the Plan of Merger
and abandon the Merger.
One of the conditions of eligibility for the pooling of interests
method of accounting is that, at the date of consummation of the plan of
combination, each combining company must be independent of the other
combining company. Valley Ridge and Community have each warranted to the
other that they do not own any shares of the other Corporation's capital
stock, any securities convertible into such stock, or any rights to acquire
such stock, except in a fiduciary capacity as to which they have no
beneficial interest. Each Corporation has further warranted to the other
that, during the past two years, it has not acquired any shares of its own
capital stock or the other Corporation's capital stock, any securities
convertible into such stock, or any other rights to acquire such stock
except in a fiduciary capacity and as permitted for purposes other than a
business combination under the pooling of interests method of accounting.
FEDERAL INCOME TAX CONSEQUENCES
Valley Ridge has received an opinion of Warner Norcross & Judd LLP,
Valley Ridge's legal counsel, that (subject to the assumptions set forth in
such opinion and representations of fact made by management being true) for
federal income tax purposes:
(i) The Merger of Community with and into Valley Ridge will
constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
(the "Code"), and Valley Ridge and Community will each be a
"party to a reorganization" within the meaning of Section 368(b)
of the Code;
(ii) No gain or loss will be recognized to Valley Ridge upon
receipt of the assets of Community in exchange for the Valley
Ridge Common Stock and the assumption by Valley Ridge of the
liabilities of Community;
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(iii) The basis of the assets of Community in the hands of
Valley Ridge will be the same as the basis of those assets in the
hands of Community immediately prior to the Merger;
(iv) The holding period of the assets of Community to be
received by Valley Ridge will include the holding period of those
assets in the hands of Community immediately prior to the Merger;
(v) No gain or loss will be recognized by the shareholders
of Community upon the exchange of their shares of Community
Common Stock for shares of Valley Ridge Common Stock, except to
the extent of any cash received in lieu of fractional shares;
(vi) The basis of Valley Ridge Common Stock to be received
by shareholders of Community will be the same as the basis of the
shares of Community Common Stock surrendered in exchange
therefor; and
(vii) The holding period of the Valley Ridge Common Stock
received by shareholders of Community will include the holding
period of the shares of Community Common Stock surrendered in
exchange therefor, provided that such shares of Community Common
Stock were held as capital assets in the hands of the
shareholders of Community at the effective time of the Merger.
EACH SHAREHOLDER OF COMMUNITY SHOULD CONSULT A PROFESSIONAL TAX
ADVISER ON THE TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. THE TAX
AND OTHER MATTERS DESCRIBED IN THIS PROSPECTUS AND PROXY STATEMENT DO NOT
CONSTITUTE LEGAL OR TAX ADVICE.
FAIRNESS OPINION
Valley Ridge and Community have retained Roney & Co. ("Roney") to
provide an opinion as to the fairness of the consideration to be offered
and received in the Merger, from a financial point of view, to the
shareholders of Valley Ridge and Community, respectively.
Roney is a recognized regional investment banking firm regularly
engaged in the valuation of corporate entities and other businesses and
their securities in connection with mergers and acquisitions and in
valuations for estate, corporate and other purposes. Roney's research
analysts publish regular reports on individual banks and thrift
institutions as well as other financial institutions. Roney also makes
principal markets in various financial institution stocks and has managed
public offerings for banks and thrift institutions as well as other
companies. Valley Ridge and Community selected Roney on the basis of its
reputation and qualifications in evaluating financial institutions.
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Roney has rendered separate written opinions to the boards of
directors of Valley Ridge and Community to the effect that the
consideration to be offered and received in the Merger is fair from a
financial point of view to the shareholders of Valley Ridge and Community
as of the dates of the opinions. Roney based its opinions upon, among
other things: (i) a review of Valley Ridge's and Community's annual
reports and related financial information for the fiscal years ended 1991
to 1994; (ii) a review of the very limited stock price and trading activity
for Valley Ridge Common Stock and Community Common Stock, respectively;
(iii) a review of the Plan of Merger; (iv) a comparison of certain
financial characteristics of Valley Ridge and Community with other Michigan
and Midwestern financial institutions that Roney deemed to be comparable;
(v) a review of the Form S-4 Registration Statement as filed with the
Commission; (vi) a comparison of the proposed terms contemplated in the
Plan of Merger with the financial terms of certain other mergers and
acquisitions in the financial services industry that Roney deemed to be
relevant; (vii) discussions with members of senior management of both
Valley Ridge and Community concerning their respective business and
prospects and the anticipated business and prospects of the combined
entities; (viii) a discounted cash flow analysis on Valley Ridge and
Community including scenarios whether or not they merged; and (ix) a review
of such other financial data and such other analyses and other matters as
Roney deemed necessary.
Roney evaluated the transaction as a strategic merger of two
continuing entities and did not opine that Community could not be sold in
an economic control sale for consideration having a higher aggregate market
value than the shares of Valley Ridge Common Stock to be received by
Community shareholders in the Merger. Roney was not authorized to solicit
interest from or negotiate with, and did not solicit or negotiate with, any
other party regarding a tender for all or part of the shares of Community,
or the potential acquisition of, or merger or other business combination
with, Community. Community did not request Roney to express and Roney did
not express any opinion with respect to the Merger in relation to any
transaction which might be considered by Community as an alternative to the
Merger.
In preparing its opinions, Roney relied upon the accuracy and
completeness of all of the information publicly available and all other
financial and other information supplied or otherwise made available to it
by Valley Ridge and Community, did not independently verify such
information or undertake an independent evaluation or appraisal of the
assets or liabilities of Valley Ridge or Community, and was not furnished
with any such evaluation or appraisal. Roney also reviewed certain other
information, including financial forecasts, provided to it by Valley Ridge
and Community, and met with Valley Ridge's and Community's managements to
discuss the business, assets and prospects of the Combined Organization,
including the benefits expected to be achieved under the Plan of Merger.
In connection with its review, Roney did not assume any responsibility for
-38-
independent verification of any of the foregoing information (including the
financial forecasts) and relied on such information being complete and
accurate in all material respects. With respect to the financial
forecasts, including the benefits expected to be achieved through the Plan
of Merger, Roney assumed that such forecasts were reasonably prepared on
bases reflecting the best then available estimates and judgments of Valley
Ridge's and Community's managements as to the future financial performance
of the Combined Organization. For purposes of its opinions, Roney relied
also without independent verification on the audited financial statements
of Valley Ridge as audited by Crowe, Chizek and Company LLP as well as the
quarterly unaudited financial statements as prepared by Valley Ridge and
the audited financial statements of Community as audited by Gavigan
Burkhart Freeman & Co. P.L.L.C. as well as the quarterly unaudited financial
statements as prepared by Community.
No limitations were imposed on the scope of Roney's investigation.
Roney did not participate in the negotiation of the terms of the Plan of
Merger or other related agreements associated with the Merger. Valley
Ridge's board of directors and Community's board of directors, and their
representatives, negotiated the terms of the Plan of Merger, including the
conversion ratio, on an arm's-length basis. Copies of Roney's fairness
opinions are attached as Appendix B to this Prospectus and Proxy Statement.
Valley Ridge and Community will pay Roney professional fees for its
services of approximately $20,000, plus reimbursement for reasonable
expenses. Valley Ridge and Community have agreed to indemnify Roney
against certain liabilities, including certain liabilities which may arise
under the securities laws.
Roney has no other material relationship with any of the parties to
the Merger or their affiliates.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited PRO FORMA condensed combined balance sheet as
of December 31, 1995 and the unaudited PRO FORMA condensed combined income
statements for each of the three years in the period ended December 31,
1995 give effect to the Merger. The PRO FORMA information is based on the
historical financial statements of Valley Ridge and Community, giving
effect to the proposed transaction under the pooling of interests method of
accounting.
The PRO FORMA financial statements may not be indicative of the
results that actually would have occurred if the Merger had been in effect
on the dates indicated or which may be attained in the future. The PRO
FORMA financial statements should be read in conjunction with the financial
statements and notes thereto of Valley Ridge and Community included
elsewhere in this Prospectus and Proxy Statement.
-39-
The PRO FORMA financial statements were prepared using an estimated
conversion ratio of 1.5726 shares of Valley Ridge Common Stock for each
share of Community Common Stock. The calculation of the estimated
conversion ratio is based on the financial statements of Valley Ridge and
Community at and as of December 31, 1995. The estimated conversion ratio
is subject to change before the effective time of the Merger. All PRO
FORMA share and per share information was calculated assuming the issuance
of 120,188 shares of Valley Ridge Common Stock in the Merger based on the
estimated conversion ratio of 1.5726. These numbers have been rounded for
convenience of presentation.
-40-
<TABLE>
VALLEY RIDGE FINANCIAL CORP.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<CAPTION>
COMMUNITY
VALLEY RIDGE BANK PRO FORMA PRO FORMA
FINANCIAL CORP. CORPORATION ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 4,312 $ 2,672 $ - $ 6,984
Federal funds sold 300 2,800 - 3,100
Total cash and cash equivalents 4,612 5,472 - 10,084
Securities available for sale 11,691 3,023 - 14,714
Mortgage-backed securities 3,720 - - 3,720
Other securities 513 - - 513
Investment securities held to
maturity - - - -
Total loans 62,296 19,182 - 81,478
Less allowance for loan losses (884) (226) - (1,110)
Net loans 61,412 18,956 - 80,368
Premises and equipment, net 1,432 907 - 2,339
Accrued interest receivable 701 288 - 989
Other assets 1,515 98 - 1,613
Total assets $85,596 $28,744 $ - $114,340
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $10,031 $ 4,493 $ - $ 14,524
Interest-bearing deposits 60,911 20,876 - 81,787
Total deposits 70,942 25,369 - 96,311
Federal funds and repurchase agreements 136 - - 136
Other borrowings 4,000 800 - 4,800
Accrued interest payable and other
liabilities 1,603 297 - 1,900
Total liabilities 76,681 26,466 - 103,147
Commitments and contingent liabilities
Employee stock ownership plan securities 261 - - 261
-41-
Permanent stockholders' equity
Common stock 3,729 849 304 A 4,882
Surplus 1,738 - (304)A 1,434
Retained earnings 2,942 1,422 - 4,364
Employee stock ownership plan
securities (261) - - (261)
Net unrealized gain on securities
available for sale, net of tax of
$260,432 506 7 - 513
Total permanent stockholders' equity 8,654 2,278 - 10,932
Total stockholders' equity 8,915 2,278 - 11,193
Total liabilities and stockholders'
equity $85,596 $28,744 $ - $114,340
</TABLE>
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<TABLE>
VALLEY RIDGE FINANCIAL CORP.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<CAPTION>
COMMUNITY
VALLEY RIDGE BANK PRO FORMA
FINANCIAL CORP. CORPORATION COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 5,614 $ 1,986 $ 7,600
Investment and mortgage backed
securities
Taxable 363 164 527
Non-taxable 544 22 566
Federal funds sold 93 77 170
Total interest income 6,614 2,249 8,863
INTEREST EXPENSE
Deposits 2,685 711 3,396
Other - - -
Total interest expense 2,685 711 3,396
NET INTEREST INCOME 3,929 1,538 5,467
PROVISION FOR LOAN LOSSES 60 62 122
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,869 1,476 5,345
OTHER INCOME 675 226 901
OTHER EXPENSE 3,341 1,148 4,489
INCOME BEFORE INCOME TAXES 1,203 554 1,757
INCOME TAXES 233 190 423
NET INCOME $ 970 $ 364 $ 1,334
EARNINGS PER COMMON SHARE $ 2.60 $ 4.76 $ 2.70
WEIGHTED AVERAGE SHARES
OUTSTANDING 372,794 76,424 492,982
</TABLE>
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<TABLE>
VALLEY RIDGE FINANCIAL CORP.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<CAPTION>
COMMUNITY
VALLEY RIDGE BANK PRO FORMA
FINANCIAL CORP. CORPORATION COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 4,874 $ 1,619 $ 6,493
Investment and mortgage backed
securities
Taxable 449 188 637
Non-taxable 431 20 451
Federal funds sold 61 63 124
Total interest income 5,815 1,890 7,705
INTEREST EXPENSE
Deposits 2,049 501 2,550
Other 1 - 1
Total interest expense 2,050 501 2,551
NET INTEREST INCOME 3,765 1,389 5,154
PROVISION FOR LOAN LOSSES 60 25 85
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,705 1,364 5,069
OTHER INCOME 594 232 826
OTHER EXPENSE 3,175 1,189 4,364
INCOME BEFORE INCOME TAXES 1,124 407 1,531
INCOME TAXES 248 127 375
NET INCOME $ 876 $ 280 $ 1,156
EARNINGS PER COMMON SHARE $ 2.36 $ 3.67 $ 2.35
WEIGHTED AVERAGE SHARES
OUTSTANDING 371,566 76,424 491,754
</TABLE>
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<TABLE>
VALLEY RIDGE FINANCIAL CORP.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<CAPTION>
COMMUNITY
VALLEY RIDGE BANK PRO FORMA
FINANCIAL CORP. CORPORATION COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 4,554 $ 1,459 $ 6,013
Investment and mortgage backed
securities
Taxable 510 226 736
Non-taxable 503 26 529
Federal funds sold 91 45 136
Total interest income 5,658 1,756 7,414
INTEREST EXPENSE
Deposits 2,293 554 2,847
Other 2 - 2
Total interest expense 2,295 554 2,849
NET INTEREST INCOME 3,363 1,202 4,565
PROVISION FOR LOAN LOSSES 135 7 142
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,228 1,195 4,423
OTHER INCOME 796 216 1,012
OTHER EXPENSE 3,099 1,096 4,195
INCOME BEFORE INCOME TAXES 925 315 1,240
INCOME TAXES 126 94 220
NET INCOME $ 799 $ 221 $ 1,020
EARNINGS PER COMMON SHARE $ 2.06 $ 2.94 $ 2.02
WEIGHTED AVERAGE SHARES
OUTSTANDING 387,110 75,005 505,066
</TABLE>
-45-
NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
GENERAL
Reclassification of the information has been made at times to provide
consistency in the presentation of financial information for the
Corporations. These reclassifications are not material in nature and had
no effect on net income.
NET INCOME PER SHARE
The consolidated PRO FORMA average shares outstanding were calculated
assuming the issuance of 120,188 shares of Valley Ridge Common Stock based
on an exchange ratio of 1.5726 for December 31, 1995. This is the exchange
ratio that would have existed had the Merger been consummated on
December 31, 1995. The use of the exchange ratio used in computing the PRO
FORMA shares outstanding for each period is for illustrative purposes only
and does not attempt to predict the actual number of shares to be issued in
the merger.
Valley Ridge is offering to exchange shares of Valley Ridge Common
Stock for outstanding shares of Community Common Stock. The exact number
of shares to be issued is not yet known. It will be calculated at closing
based on adjustments to the shareholders' equity of both Valley Ridge and
Community. The number of shares of Valley Ridge Common Stock to be issued
will be equal to the conversion ratio multiplied by the number of shares of
Community Common Stock outstanding at consummation (76,424 as of
December 31, 1995).
The par value of Valley Ridge Common Stock is $10.00 per share, while
Community Common Stock has no par value. The additional par value of the
Valley Ridge Common Stock issued, in the aggregate, over the aggregate
value of Community's Common Stock is transferred from surplus. The PRO
FORMA common stock and surplus for Community were calculated assuming the
issuance of 120,188 shares of Valley Ridge Common Stock, which is the
number of shares that would have been issued if the Merger was effective
December 31, 1995 (1.5726 conversion ratio). The use of such number of
shares is for illustrative purposes only and does not attempt to predict
the actual number of shares to be issued in the Merger.
-46-
THE BUSINESS OF BANKING
COMPETITION
Valley Ridge and Community are bank holding companies which, through
their subsidiaries, are engaged in the business of commercial banking. The
business of banking is highly competitive. In addition to competition from
other commercial banks, banks face significant competition from saving and
loan associations, credit unions, finance companies, insurance companies
and investment and brokerage firms. The principal methods of competition
for financial services are price (interest rates paid on deposits, interest
rates charged on borrowings and fees charged for services) and service
(convenience and quality of services rendered to customers).
SUPERVISION AND REGULATION
Banks and bank holding companies are extensively regulated. Kent City
and Grant are each chartered under state law and are supervised, examined
and regulated by both the Financial Institutions Bureau of the Michigan
Department of Commerce and the Federal Reserve Board. Valley Ridge and
Community are each regulated by the Federal Reserve System. Deposits of
Kent City and Grant are insured by the FDIC to the extent provided by law.
Federal and state laws which govern banks significantly limit their
business activities in a number of respects. Prior approval of the Federal
Reserve Board, and in some cases various other government agencies, is
required for Valley Ridge or Community to acquire control of any additional
banks or other operating subsidiaries. The business activities of Valley
Ridge and Kent City, and Community and Grant, are limited to banking and
other activities which are determined by the Federal Reserve Board to be
closely related to banking.
Valley Ridge and Community are legal entities separate and distinct
from Kent City and Grant, respectively. There are legal limitations on the
extent to which Kent City and Grant can lend or otherwise supply funds to
Valley Ridge and Community, respectively. In addition, payment of
dividends to Valley Ridge and Community by Kent City and Grant,
respectively, is subject to various state and federal regulatory
limitations.
Under Federal Reserve Board policy, Valley Ridge and Community are
expected to act as a source of financial strength to Kent City and Grant,
respectively, and to commit resources to support them. Under federal law,
the FDIC also has authority to impose special assessments on insured
depository institutions to repay FDIC borrowings from the United States
Treasury or other sources and to establish semiannual assessment rates on
Bank Insurance Fund ("BIF") member banks to maintain the BIF at the
designated reserve ratio required by law.
-47-
Banks are subject to a number of federal and state laws and
regulations which have a material impact on their business. These include,
among others, state usury laws, state laws relating to fiduciaries, the
Truth in Lending Act, the Truth in Savings Act, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Expedited Funds
Availability Act, the Community Reinvestment Act, electronic funds transfer
laws, redlining laws, antitrust laws, environmental laws and privacy laws.
The instruments of monetary policy of authorities such as the Federal
Reserve Board may influence the growth and distribution of bank loans,
investments and deposits, and may also affect interest rates on loans and
deposits. These policies may have a significant effect on the operating
results of banks.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 ("IBBEA"), adequately capitalized and managed bank holding
companies are permitted to acquire existing out-of-state banks, whether or
not the host state permits such acquisitions. In addition, effective June
1, 1997, adequately capitalized and managed bank holding companies will be
permitted to combine into a single bank their subsidiary banks located in
more than one state thereby creating an interstate branch system. Under
IBBEA, states are permitted to "opt out" of this latter interstate
branching authority by taking action prior to the effective date. States
may also "opt in" early (i.e., prior to June 1, 1997). Further, IBBEA
provides that states may act affirmatively to permit DE NOVO branching by
banking institutions across state lines.
ENVIRONMENTAL REGULATIONS
The nature of the business of Kent City and Grant is such that they
hold title, on a temporary or permanent basis, to a number of parcels of
real property. These include properties owned for branch offices and other
business purposes as well as properties taken in or in lieu of foreclosure
to satisfy loans in default. Under current state and federal laws, present
and past owners of real property are exposed to liability for the cost of
cleanup of contamination on or originating from those properties, even if
they are wholly innocent of the actions that caused the contamination.
These liabilities can be material and can exceed the value of the
contaminated property.
VALLEY RIDGE FINANCIAL CORP.
BUSINESS
Valley Ridge is a Michigan bank holding company with its headquarters
in Kent City, Michigan. Valley Ridge was formed on May 20, 1988. Valley
Ridge is the parent company of Kent City, which is Valley Ridge's only
-48-
subsidiary. Kent City owns a 20% interest in one non-banking corporation,
West Shore Computer Services, Inc., a data processing firm.
Valley Ridge and its subsidiary are engaged in the business of
commercial banking, mortgage banking and other related activities. Kent
City is a full service bank offering customary commercial banking services,
which include commercial and retail loans, business and personal checking
accounts, savings and individual retirement accounts, time deposit
instruments, automated transaction machine services, money transfer
services, and safe deposit facilities. No material part of the business of
Valley Ridge and Kent City is dependent upon a single customer or very few
customers, the loss of which would have a materially adverse effect on
Valley Ridge.
The principal markets for Valley Ridge's financial services are
presently the Michigan communities in which Kent City's offices are located
and the areas immediately surrounding those communities. Valley Ridge and
Kent City serve these markets through five offices located in Kent City,
Coopersville, Egelston, Ravenna and Sparta, Michigan. This diversification
allows Kent City to spread some of its market risk over a wider area and
not be subject to downturns in any specific community. Within this market
area, Kent City competes with various banks, savings and loan associations
and credit unions. Kent City is the only bank with offices in Kent City,
Michigan. Other banks and financial institutions have offices in some of
the towns where Kent City's branches are located. Valley Ridge and Kent
City have no material foreign assets or income.
For a general description of competition among banks and bank holding
companies in Michigan and the supervision and regulation to which banks and
bank holding companies are subject, see "The Business of Banking."
Valley Ridge and Kent City employed approximately 67 persons (54
persons on a full-time equivalent basis) at December 31, 1995.
Additional statistical information describing the business of Valley
Ridge appears following the Audited Consolidated Financial Statements of
Valley Ridge below.
PROPERTIES
Valley Ridge maintains its offices and conducts its business
operations from the principal banking office of Kent City in Kent City,
Michigan. Valley Ridge owns one parcel of approximately five acres of
vacant land in Kent City, Michigan, and a vacant lot in an industrial park
in Coopersville, Michigan.
Kent City's principal office is located at 6 North Main Street, Kent
City, Michigan. These premises encompass approximately 12,724 square feet
-49-
in two buildings, all of which are occupied by Kent City and Valley Ridge.
Kent City owns the premises occupied by its branch offices at the following
addresses: 661 West Randall Road, Coopersville (1,950 square feet); 3069
Slocum Road, Ravenna (3,300 square feet); and 5475 Apple Avenue, Egelston
(3,300 square feet). Kent City leases its office at 11 South State Street,
Sparta (1,040 square feet). Valley Ridge believes all of its and Kent
City's properties are in good condition and repair.
As part of its business, Kent City generates all types of mortgages.
Kent City generally does not purchase mortgages as part of its business.
LEGAL PROCEEDINGS
From time to time, Kent City is party, as plaintiff or as defendant,
to legal proceedings in the normal course of operations. No pending
litigation is considered material at this time.
MARKET FOR COMMON STOCK AND DIVIDENDS
MARKET INFORMATION AND HOLDERS. There is no established public
trading market for Valley Ridge Common Stock. Transactions in Valley Ridge
Common Stock are occasionally effected by individuals on an informal basis.
Some transactions are effected through the involvement of local brokerage
firms. The prices at which such transactions are effected are only
occasionally reported to Valley Ridge. At the date of this Prospectus and
Proxy Statement, there were no outstanding options or warrants to purchase,
or securities convertible into, shares of Valley Ridge Common Stock. At
the date of this Prospectus and Proxy Statement, Valley Ridge has not
agreed to register under the Securities Act any securities for sale by
security holders and Rule 144 issued pursuant to such act is not available
for sales of Valley Ridge Common Stock by Valley Ridge shareholders. If
the Plan of Merger is approved by Valley Ridge's and Community's
shareholders and the Merger is consummated, Valley Ridge expects to issue
approximately 120,000 shares of Valley Ridge Common Stock to shareholders
of Community. As of December 31, 1995, there were 383 record holders of
shares of Valley Ridge Common Stock.
DIVIDENDS. Valley Ridge has paid regular cash dividends since June
30, 1989. The following table summarizes the quarterly cash dividends paid
to common shareholders during the last two full years, retroactively
adjusted for a 2-for-1 stock split during January, 1995 and a 5-for-4 stock
split in April, 1994, both of which were effected in the form of a stock
dividend:
-50-
<TABLE>
<CAPTION>
QUARTER 1995 1994
<S> <C> <C> <C>
1st $.20 $.16
2nd .20 .20
3rd .20 .20
4th .20 .20
Total $.80 $.76
</TABLE>
Holders of Valley Ridge Common Stock are entitled to receive dividends
when, as and if declared by Valley Ridge's board of directors out of funds
legally available for that purpose. The earnings of Valley Ridge, through
dividends paid by Kent City, are the principal source of funds to pay cash
dividends. Consequently, cash dividends are dependent upon the earnings,
capital needs, regulatory constraints and other factors affecting Valley
Ridge. Federal and state banking laws and regulations place certain
restrictions on the amount of dividends and loans that a bank can pay to
its parent company. These restrictions are not expected to prohibit Valley
Ridge from continuing its normal dividend policy. Pursuant to the Plan of
Merger, Valley Ridge has agreed that it will not declare or pay dividends
prior to consummation of the Merger except in accordance with historical
practices.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is provided by Valley Ridge management as its
analysis of the Valley Ridge financial condition and results of operations
as presented in the selected financial data appearing in the Summary to
this Prospectus and Proxy Statement. This analysis should be read in
conjunction with the separate historical financial statements of Valley
Ridge and notes thereto included elsewhere in this Prospectus and Proxy
Statement.
TWELVE MONTHS ENDED DECEMBER 31, 1995, 1994 AND 1993
RESULTS OF OPERATIONS. Net income increased by $93,605 in 1995 over
1994 to $969,525 while it increased by $50,747 in 1994 over 1993 to
$875,920. Earnings per share were $2.60, $2.36 and $2.14, in 1995, 1994
and 1993, respectively, a year-to-year increase of 10.2% in 1995 and 10.3%
in 1994. Net interest income of $3,928,825 in 1995 was 4.3% greater than
1994, while net interest income of $3,765,599 in 1994 was 12% greater than
1993. The provision for loan losses of $60,000 was the same in 1995 and in
1994 which is down from $135,000 in 1993.
Net charge-offs were $26,000 in 1995 compared to net recoveries of
$30,000 in 1994 and net charge-offs of $110,000 in 1993. The provision for
-51-
1995 was the same as 1994 and lower than 1993 due to the good quality of
the loan portfolio. The provision for loan losses is the amount necessary
to adjust the allowance for loan losses to an amount which represents
management's assessment of the losses inherent in Valley Ridge's loan
portfolio. The allowance for loan losses is based on the application of
projected loss ratios to the risk-ratings of loans, both individually and
by category. Projected loss ratios incorporate such factors as recent loss
experience, current economic conditions and trends, trends in past due and
nonaccrual amounts, and risk characteristics of various categories and
concentrations of loans.
The schedules titled Distribution of Assets, Liabilities and
Stockholders' Equity and Volume/Rate Analysis (included at pages 67 and 68
in this Prospectus and Proxy Statement) provide additional detail of how
changing yields and volume affected Valley Ridge net interest income, rate
spread, and net interest margin.
Total fully taxable equivalent net interest income increased to
$4,209,000 in 1995, compared to $3,987,000 in 1994, a 5.6% increase. An
increase in the average earning assets of $4,361,000 or 6.2% in 1995,
coupled with improved rates led to an increase of 0.65% in the yield on
interest earning assets. However, the improved yield on interest earning
assets was more than offset by the increase in cost of funds of 1.03% in
1995, causing the net interest margin to decline to 5.42% in 1995 compared
to 5.65% in 1994.
Other income increased by $81,488 to $675,178 in 1995 compared to
1994, primarily due to an increase in service charges, while other income
of $593,690 was down in 1994 compared to 1993 because of lower gains on
sales of investment securities and loans. Service charges, the largest
component of other income, was $538,214 in 1995, $485,320 in 1994 and
$460,189 in 1993, increases of 10.9% in 1995 and 5.5% in 1994. Other
expense increased by 5.2% in 1995 compared to 1994, while other expense of
$3,174,962 in 1994 increased 2.4% over 1993. Salaries and benefits, the
largest component of other expense, increased by 3.3% in 1995 to $1,646,678
from $1,593,955 in 1994, an increase comparable to that shown in 1993.
Return on average total assets was 1.20% in 1995, an improvement from
1.15% in 1994 and 1.08% in 1993. Return on average equity was 11.57% in
1995, 11.71% in 1994 and 11.72% in 1993.
Management is not aware of any existing trends, events, uncertainties
or current recommendations by regulatory authorities that are expected to
have a material impact on Valley Ridge's future operating results.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES. Total assets
increased by 8.1% to $85,595,716 as of December 31, 1995 from $79,160,401
as of December 31, 1994, an increase of $6,435,315. Total liabilities
increased by $5,214,419 to $76,680,928, a 7.3% increase from December 31,
-52-
1994 and stockholders' equity increased $1,220,896 to $8,914,788, a 15.9%
increase. The increase in stockholders' equity is primarily related to the
retention of earnings and net change in unrealized gain on securities
available for sale. Net income for 1995 net of the cash dividend was
$671,234 and net change in unrealized gain was $528,972. Deposits
increased by 2.9% or $1,972,518 to $70,941,762 and other borrowings
increased because of $4 million in advances from the Federal Home Loan Bank
("FHLB") after payment of the $2 million advance. Total loans increased 6.7%
to $62,295,856, an increase of $3,899,330. The net loan to deposit ratio was
86.6% at December 31, 1995, compared to 83.4% at December 31, 1994. The
quality of the loan portfolio remained good. The allowance for loan losses
increased by $34,015 to $883,597 while maintaining a reserve of 1.4% of
outstanding loans.
Cash flows from operating activities in 1995 were $2,343,302 compared
to $174,840 in 1994 and $1,317,766 in 1993. The decline in 1994 was caused
primarily by an increase in other assets of $1.1 million resulting from the
establishment of a director deferred compensation plan as disclosed in
note 12 of the consolidated financial statements. Net cash has been used
by investing activities in each of the years. This was caused primarily by
the net increase in customer loans in 1995, 1994 and 1993. The net cash
used in investing activities in 1995 was approximately $6.5 million. In
addition to the increase in net loans, the purchase of securities was in
excess of proceeds from sales, maturities and paydowns of securities. Net
cash from financing activities of $2.7 million in 1994 and $3.7 million in
1995 was largely the result of the $2 million advance from FHLB in 1994,
and additional $4 million of advances from FHLB in 1995 after payment of
the $2 million advance. The net cash used in 1993 of $2.7 million was
caused by a decrease in deposits of nearly $1.0 million and payment of $1.5
million to retire common stock.
Total cash and cash equivalents and investment securities available
for sale totaled $16.3 million at December 31, 1995 or about 19% of total
assets. Deposits are expected to provide a stable source of funds in 1996.
The borrowing facility with the FHLB provides an additional sources of
liquidity. Valley Ridge could borrow an additional $10,000,000 from the
FHLB as of December 31, 1995.
Stockholders' equity to total assets was 10.4% at December 31, 1995,
compared to the 9.7% ratio at the end of 1994. Valley Ridge's capital
ratios exceeded the minimum levels prescribed by the Federal Reserve Board,
as shown in the following table.
-53-
<TABLE>
<CAPTION>
CAPITAL RATIOS
(dollar amounts in thousands)
DECEMBER 31, 1995
<S> <C> <C>
Tier 1 (core) capital
Stockholders' equity $ 8,915
Less: Goodwill and other disallowed intangibles (95)
Less: Unrealized gains (506)
Total tier 1 capital 8,314
Tier 2 (supplemental) capital
Eligible allowance for loan losses 884
Total tier 2 capital 884
Total capital $ 9,198
Assets
Risk-weighted assets (net) $50,901
Average quarterly assets (net) 81,927
Risk-based ratios
Tier 1 (minimum - 4.0%) 16.52%
Total (minimum - 8.0%) 18.07%
Tier 1 leverage (minimum - 3.0%) 10.27%
</TABLE>
The following tables shows the interest sensitivity gaps for four
different time intervals as of December 31, 1995.
<TABLE>
INTEREST RATE SENSITIVITY GAPS
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<CAPTION>
MATURITY OR REPRICING FREQUENCY
0-3 MONTHS 3-12 MONTHS 1-5 YEARS 5 YEARS+
<S> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans:
Fixed $ 2,868 $ 4,362 $35,394 $ 3,141
Variable 16,531 0 0 0
Investment securities 2,089 971 1,620 10,731
Federal funds sold 300 0 0 0
Total $21,788 $ 5,333 $37,014 $13,872
-54-
INTEREST BEARING LIABILITIES
Certificates of deposit $ 7,346 $ 7,595 $13,423 $ 109
Savings accounts 111 0 9,846 0
Money market accounts 5,762 4,322 4,322 0
Now accounts 1,585 1,585 3,170 0
FHLB Loan 0 2,000 2,000 0
Total $14,804 $ 15,502 $32,761 $ 109
Interest sensitivity gap $ 6,984 $(10,169) $ 4,253 $13,763
Cumulative gap $ (3,185) $ 1,068 $14,831
</TABLE>
The above table is based on contractual terms. Savings accounts,
money market accounts, and NOW accounts are subject to immediate withdrawal
and are presented as repricing in the earliest period presented. Although
demand and savings accounts, for which rates paid are not readjusted on a
pre-established contract cycle and are subject to immediate withdrawal, are
presented as repricing in the 0-3 months period; management believes that
these types of accounts are not as sensitive to changes in interest rates
in the short-term as this presentation would indicate. Valley Ridge is
liability sensitive in periods out to twelve months, however, this is
offset in the 1-5 years period with a positive cumulative gap of
$1,068,000. The cumulative gap increases to $14,831,000 for all time
periods. Management strives to maintain a positive cumulative gap for
periods out to five years. The practice of underwriting loans with
maturity dates of five years or less and with variable rates allows for a
repricing of those assets over a relatively short period. Additionally,
management does not aggressively price deposits, preferring to keeps its
base of core deposits at a level that supports its lending activities.
Valley Ridge asset/liability management committee meets semi-annually, or
more often as needed, to review gap positions and determine management
strategies for loan and deposit pricing, purchase and sale of securities,
and other borrowing decisions.
IMPACT OF INFLATION AND CHANGING PRICES. Most assets and liabilities
of a financial institution are monetary in nature. This differs from most
commercial and industrial companies that have significant investments in
fixed assets or inventories. The effect of inflation on financial
institutions is to a large extent indirect and the measure of such impact
is largely subjective.
Noninterest expenses tend to rise during periods of general inflation.
Inflation levels are to some degree reflected in interest rates. Changes
in interest rates, which are to some extent attributable to changes in
inflation rates or uncertainty changes in inflation rates, do affect the
earnings of Valley Ridge. The Corporation seeks to protect net interest
income from the adverse effects of interest rate fluctuations through its
asset/liability management program.
-55-
Valley Ridge believes that general increases in financial institution
assets and deposits result from monetary inflation. As assets increase,
the financial institution must increase equity capital proportionately to
maintain appropriate relationships between assets and equity.
IMPACT OF ACCOUNTING STANDARDS EFFECTIVE IN FUTURE PERIODS. In March
1995, the FASB issued SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The Statement requires review of such
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the
asset. The Statement is effective for financial statements for fiscal
years beginning after December 15, 1995. The Corporation adopted SFAS
No. 121 effective January 1, 1996. Its adoption did not have a material
effect on the company's financial position or results of operations.
The FASB issued SFAS No. 122, ACCOUNTING FOR MORTGAGE SERVICING
RIGHTS, In May 1995. This Statement changes the accounting for mortgage
servicing rights retained by the loan originator. Under this Statement, an
entity that acquires mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. Under current
practice, all such costs are assigned to the loan. The costs allocated to
mortgage servicing rights will be recorded as a separate asset and
amortized in proportion to, and over the life of, the net servicing income.
The carrying value of the mortgage servicing rights will be periodically
evaluated for impairment. Management does not expect SFAS No. 122 to have
a material effect on the Corporation's financial position or results of
operations upon implementation. The Statement is effective for the
Corporation in 1996.
In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 encourages, but does not require,
entities to use a fair value based method to account for stock-based
compensation plans. If the fair value accounting encouraged is not
adopted, entities must disclose the PRO FORMA effect on net income and on
earnings per share had the accounting been adopted. The statement also
requires accounting at fair value for all transactions in which an entity
acquires goods or services from nonemployees in exchange for equity
instruments. Its adoption is not expected to have a material effect on the
company's financial position or results of operations.
-56-
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
-57-
CROWE CHIZEK
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Valley Ridge Financial Corporation
Kent City, Michigan
We have audited the accompanying consolidated balance sheets of Valley
Ridge Financial Corporation and its wholly-owned subsidiary, Kent City State
Bank, as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Valley
Ridge Financial Corporation and its wholly-owned subsidiary, Kent City State
Bank, at December 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the
Corporation changed its methods of accounting for impaired loans, certain
investment securities and income taxes effective January 1, 1995, 1994 and
1993, respectively, to conform to new accounting guidance.
S/ CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 12, 1996
-58-
<TABLE>
VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<CAPTION>
___________________________________________________________________________
1995 1994
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,311,500 $ 3,787,966
Federal funds sold 300,000 1,300,000
Total cash and cash equivalents 4,611,500 5,087,966
Securities available for sale 11,690,574 4,785,060
Mortgage-backed and related securities available for sale 3,720,470 4,551,502
Securities held to maturity (fair value - $3,538,378) 3,057,841
Other securities - Federal Reserve stock and Federal
Home Loan Bank stock 513,496 392,596
Total loans 62,295,856 58,396,526
Allowance for loan losses (883,597) (849,582)
61,412,259 57,546,944
Premises and equipment - net 1,431,718 1,454,074
Accrued interest receivable 700,937 603,642
Other assets 1,514,762 1,680,776
Total assets $85,595,716 $79,160,401
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $10,031,283 $ 9,329,961
Interest-bearing 60,910,479 59,639,283
70,941,762 68,969,244
Accrued interest payable 136,174 129,213
Other borrowings 4,000,000 2,000,000
Other liabilities 1,602,992 368,052
Total liabilities 76,680,928 71,466,509
Commitments and contingent liabilities (Note 13)
Employee stock ownership plan securities 260,709 237,651
Stockholders' equity
Common stock, $10 par value: 500,000 shares,
authorized 372,862 and 371,862 shares outstanding
in 1995 and 1994, respectively 3,728,620 3,718,620
Surplus 1,738,254 1,727,564
Retained earnings 2,942,370 2,271,136
Employee stock ownership plan securities (260,709) (237,651)
-59-
Net unrealized gain (loss) on securities available for sale,
net of tax of ($260,432) in 1995 and $12,069 in 1994 505,544 (23,428)
Total permanent stockholders' equity 8,654,079 7,456,241
Total stockholders' equity 8,914,788 7,693,892
Total liabilities and stockholders' equity $85,595,716 $79,160,401
</TABLE>
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
-60-
<TABLE>
VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31
<CAPTION>
___________________________________________________________________________
1995 1994 1993
<S> <C> <C> <C>
Interest income
Loans, including fees $5,613,700 $4,874,293 $4,553,918
Federal funds sold 92,695 60,504 90,788
Investment securities
Taxable 362,989 449,304 510,164
Nontaxable 544,439 431,303 503,493
6,613,823 5,815,404 5,658,363
Interest expense
Deposits 2,684,998 2,049,005 2,292,342
Other 800 2,400
2,684,998 2,049,805 2,294,742
NET INTEREST INCOME 3,928,825 3,765,599 3,363,621
Provision for loan losses 60,000 60,000 135,000
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 3,868,825 3,705,599 3,228,621
Other income
Service charges 538,214 485,320 460,189
Gain on sales of investment securities 9,311 16,542 167,570
Gain on sales of loans 8,931 14,853 49,246
Other 118,722 76,975 118,974
675,178 593,690 795,979
Other expense
Salaries and benefits 1,646,678 1,593,955 1,532,524
Occupancy 215,331 225,104 229,308
Furniture and fixtures 204,274 186,312 200,377
FDIC insurance premium 79,250 157,072 161,540
Data processing 170,038 167,475 149,309
Supplies 102,901 81,415 137,214
Other 922,896 763,629 689,360
3,341,368 3,174,962 3,099,632
INCOME BEFORE FEDERAL INCOME TAX AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 1,202,635 1,124,327 924,968
Federal income tax expense 233,110 248,407 126,267
-61-
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 969,525 875,920 798,701
Cumulative effect of change in accounting
for income taxes 26,472
NET INCOME $ 969,525 $ 875,920 $ 825,173
Earnings per share (Note 1)
Income before cumulative effect of change
in accounting for income taxes $ 2.60 $ 2.36 $ 2.07
Cumulative effect of change in accounting
for income taxes .07
Net income $ 2.60 $ 2.36 $ 2.14
</TABLE>
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
-62-
<TABLE>
VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31
<CAPTION>
___________________________________________________________________________
NET UNREALIZED
LOSS ON
SECURITIES TOTAL
COMMON RETAINED AVAILABLE STOCKHOLDERS'
STOCK SURPLUS EARNINGS FOR SALE EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 $1,791,250 $2,059,500 $4,197,931 $8,048,681
Net income for 1993 825,173 825,173
Retirement of stock in March
(77,200 shares) (308,800) (355,120) (880,080) (1,544,000)
Cash dividend ($.62 per share) (229,780) (229,780)
BALANCE, DECEMBER 31, 1993 1,482,450 1,704,380 3,913,244 7,100,074
Unrealized gain on securities
available for sale at January 1,
1994, net of tax of ($203,800) $395,613 395,613
Net income for 1994 875,920 875,920
Stock split (5 for 4) 370,400 (376,104) (5,704)
Stock split (2 for 1) 1,859,310 (1,859,310)
Sale of stock to ESOP (1,364
shares) 6,460 23,184 29,644
Cash dividend ($.76 per share) (282,614) (282,614)
Net change in unrealized gain
(loss) on securities available
for sale, net of tax of $215,869 (419,041) (419,041)
BALANCE, DECEMBER 31, 1994 3,718,620 1,727,564 2,271,136 (23,428) 7,693,892
Net income for 1995 969,525 969,525
Sale of stock to ESOP (1,000
shares) 10,000 10,690 20,690
-63-
Cash dividend ($.80 per share) (298,291) (298,291)
Net change in unrealized gain
(loss) on securities available
for sale, net of tax of
($272,501) 528,972 528,972
BALANCE, DECEMBER 31, 1995 $3,728,620 $1,738,254 $2,942,370 $505,544 $8,914,788
</TABLE>
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
-64-
<TABLE>
VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
<CAPTION>
___________________________________________________________________________
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 969,525 $ 875,920 $ 825,173
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 153,903 193,723 224,202
Amortization of:
Premiums and discounts on
securities, net 95,569 138,852 305,487
Goodwill and core deposit intangibles 34,985 34,985 34,985
Provision for loan losses 60,000 60,000 135,000
Gain on sale of securities (9,311) (16,542) (167,570)
Gain on sale of loans (8,931) (14,853) (49,246)
Loans originated for sale (1,114,749) (1,317,847) (4,370,875)
Proceeds from loans sold 1,123,680 1,332,700 4,420,121
Deferred taxes (40,105) (22,088) (33,515)
Cumulative effect of change in
accounting for income taxes (26,472)
Net change in:
Accrued interest receivable (97,295) (25,219) 98,354
Other assets 171,134 (1,149,688) (91,957)
Accrued expenses and other liabilities 1,004,897 84,897 14,079
Net cash from operating activities 2,343,302 174,840 1,317,766
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans (3,925,315) (3,766,220) (6,362,264)
Proceeds from:
Sales of securities available for sale 5,682,599 2,027,730
Repayments and maturities of securities
available for sale 135,022 3,754,322
Principal paydowns on securities held
to maturity 674,046
Maturities of securities held to maturity 379,500 467,000
Sales of investment securities 1,830,286
Principal paydowns on investment
securities 5,208,654
Maturities of investment securities 660,000
-65-
Purchase of:
Securities available for sale (9,208,090) (3,862,419)
Securities held to maturity (187,300)
Investment securities 1,393,904)
Federal Reserve stock (18,000)
FHLB stock (102,900) (16,700)
Premises and equipment, net (131,547) (142,539) (38,921)
Net cash used in investing activities (6,514,685) (1,726,126) (96,149)
</TABLE>
___________________________________________________________________________
(Continued)
-66-
<TABLE>
VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
<CAPTION>
___________________________________________________________________________
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock $ 20,690 $ 29,644
Payments for fractional shares (5,704)
Payments to retire common stock $(1,544,000)
Net increase (decrease) in deposits 1,972,518 923,201 (959,275)
Advances from Federal Home Loan Bank 4,000,000 2,000,000
Payment on Federal Home Loan
Bank advance (2,000,000)
Dividends paid (298,291) (282,614) (229,780)
Net change in long-term debt (12,000) (8,000)
Net cash from financing activities 3,694,917 2,652,527 (2,741,055)
Net change in cash and cash equivalents (476,466) 1,101,241 (1,519,438)
Cash and cash equivalents at beginning of year 5,087,966 3,986,725 5,506,163
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,611,500 $5,087,966 $ 3,986,725
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 2,678,037 $2,034,668 $ 2,358,300
Income taxes 346,714 108,028 216,750
</TABLE>
Upon the adoption of SFAS No. 115 at January 1, 1994, the Corporation
transferred $11,296,926 from investment securities held for sale to
securities available for sale.
Pursuant to the FASB implementation guide for SFAS No. 115, the
Corporation transferred securities held to maturity with a fair value
of $2,655,566 to securities available for sale on December 1, 1995.
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
-67-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 1 - NATURE OF OPERATIONS
Valley Ridge Financial Corp. ("Corporation") is a regional, community-based
financial institution, that owns all of the outstanding stock of Kent City
State Bank ("Bank"). The Bank's loan and deposit accounts are primarily
with customers located in the west central region of Michigan, within the
counties of Kent, Ottawa and Muskegon.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Corporation and its wholly-owned subsidiary, Bank,
after elimination of significant intercompany transactions and accounts.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
effect the reported amounts of assets, liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CERTAIN SIGNIFICANT ESTIMATES: The allowance for loan losses and
determination and carrying value of impaired loans, as more fully described
below, are estimates that are more susceptible to change in the near term.
CASH EQUIVALENTS: For purposes of the consolidated statements of cash
flows, the Bank considers all highly liquid debt instruments with original
maturities of three months or less when purchased to be cash equivalents.
The Bank reports net cash flows for customers' loan transactions, deposit
transactions and deposits made with other financial institutions.
SECURITIES: Securities available for sale consist of those securities not
classified as trading or held to maturity. Such securities might be sold
prior to maturity due to changes in interest rates, prepayment risks, yield
and availability of alternative investments, liquidity needs or other
factors. At January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES (SFAS No. 115). As required by SFAS No. 115,
securities classified as available for sale are reported at their fair
___________________________________________________________________________
(continued)
-68-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
value and the related unrealized holding gain or loss is reported, net of
related income tax effects, as a separate component of stockholders'
equity, until realized. Adoption of SFAS No. 115 increased stockholders'
equity at January 1, 1994 by $395,613. Securities held to maturity are
investment securities for which the Corporation has the positive intent and
ability to hold to maturity and are reported at cost, adjusted for premiums
and discounts that are recognized in interest income using the interest
method over the period to maturity.
Premiums and discounts on securities are recognized in interest income
using the interest method over the estimated life of the security. Gains
and losses on the sale of securities available for sale are determined
using the specific identification method.
LOANS: Loans are stated at unpaid principal balances, less the allowance
for loan losses and net deferred loan origination fees. Loans held for
sale are reported at the lower of cost or fair value. Interest on loans is
accrued over the term of the loans based upon the principal outstanding,
except where collectibility is in question, in which case the accrual of
interest is discontinued.
LOAN FEES AND COST: Loan fees, net of certain direct loan origination
costs, are deferred and amortized into interest income over the term of the
loans using the level yield method.
ALLOWANCE FOR LOAN LOSSES: Because some loans may not be repaid in full,
an allowance for loan losses is recorded. Increases to the allowance are
recorded by a provision for possible loan losses charged to expense.
Estimating the risk of loss and the amount of loss on any loan is
necessarily subjective. Accordingly, the allowance is maintained by
management at a level considered adequate to cover possible losses that are
currently anticipated based on past loss experience, general economic
conditions, information about specific borrower situations including their
financial position and collateral values, and other factors and estimates
which are subject to change over time. While management may periodically
allocate portions of the allowance for specific problem loan situations,
the whole allowance is available for any loan charge-offs that occur. A
problem loan is charged-off by management as a loss when deemed
___________________________________________________________________________
(continued)
-69-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
uncollectible, although collection efforts may continue and future
recoveries may occur.
In May 1993, the FASB issued SFAS No. 114, later amended by No. 118,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND
DISCLOSURES (SFAS Nos. 114 and 118). The Corporation adopted SFAS Nos. 114
and 118 as of January 1, 1995. Its adoption has had no material effect on
the Corporation's consolidated financial position or results of operations.
SFAS Nos. 114 and 118 require that impaired loans, as defined, be measured
based on the present value of expected cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of collateral if the loan is
collateral dependent. Under this standard, loans considered to be impaired
are reduced to the present value of expected future cash flows or to the
fair value of collateral, by allocating a portion of the allowance for loan
losses to such loans. If these allocations cause the allowance for loan
losses to require an increase, such increase is reported in the provision
for loan losses.
Smaller-balance homogeneous loans are residential first mortgage loans
secured by one-to-four family residences, residential construction loans,
and automobile, home equity and second mortgage loans and are collectively
evaluated for impairment. Commercial loans and first mortgage loans
secured by other than one-to-four family residences are evaluated
individually for impairment. When credit analysis of borrower operating
results and financial condition, for loans individually evaluated,
indicates the underlying ability of the borrower's business activity is not
sufficient to generate adequate cash flow, the loan is evaluated for
impairment. Often this is associated with a delay or shortfall in payments
of 90 days or less. Commercial credits are rated on a scale of 1 to 7,
with grades 1 to 4 being pass grades, 5 being below average, 6 marginal and
7 poor. Loans graded 7 are considered impaired. Loans are generally moved
to nonaccrual status and graded 7 when 90 days or more past due. Once a
loan is evaluated as impaired, a potential loss is considered to have been
identified, and loan loss reserve is allocated. SFAS Nos. 114 and 118
disclosures for impaired loans are not expected to be materially different
from nonaccrual and renegotiated loan disclosures or nonperforming and
past-due asset disclosures.
___________________________________________________________________________
(continued)
-70-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTEREST INCOME: Interest is accrued over the term of the loans based upon
the principal outstanding. Management reviews loans delinquent 90 days or
more to determine if interest accrual should be discontinued based on the
entities operating results and/or the estimated fair market value of the
collateral. Under SFAS Nos. 114 and 118, the carrying values of impaired
loans are periodically adjusted to reflect cash payments, revised estimates
of future cash flows, and increases in the present value of expected cash
flows due to the passage of time. Cash payments representing interest
income are reported as such. Other cash payments are reported as
reductions in carrying value, while increases or decreases due to changes
in estimates of future payments and due to the passage of time are reported
as adjustments to the provision for loan losses.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using both straight-line and
accelerated methods over the estimated useful lives of the
respective assets. Maintenance, repairs and minor alterations are charged
to current operations as expenditures occur and major improvements are
capitalized.
OTHER REAL ESTATE: Other real estate is carried at the lower of cost or
fair value less cost to sell. Any subsequent reduction in cost or fair
value is charged to loss on other real estate in the period incurred. At
December 31, 1995, the Corporation did not hold other real estate. At
December 31, 1994, the Corporation had other real estate of $10,000.
INTANGIBLE ASSETS: Goodwill, representing the excess of the cost of
acquisitions over the fair value of net assets acquired, is amortized using
the straight-line method over the estimated period to be benefited,
generally not exceeding 15 years. Core deposit intangibles represent the
net present value of the future economic benefits related to the use of
deposits purchased. They are being amortized using a straight-line method
over the estimated life of the deposits of 8 years.
The Corporation reviews its intangible assets for possible impairment when
there is a significant event that detrimentally impacts operations.
Impairment is measured using estimates of the future earnings potential of
the entity or assets acquired.
___________________________________________________________________________
(continued)
-71-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FEDERAL INCOME TAXES: Effective January 1, 1993, the Corporation adopted
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES (SFAS No. 109), which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets
and liabilities.
The effect of adopting SFAS No. 109 on 1993 net income was immaterial. The
cumulative effect of the accounting change on years prior to January 1,
1993 of $26,472 is reflected as an increase in 1993 net income.
EARNINGS PER SHARE: Earnings per share are calculated on the basis of the
weighted average number of shares outstanding. Earnings per share amounts
are based on 372,794, 371,566 and 387,110 shares for 1995, 1994 and 1993,
respectively. All share and per share amounts have been restated to
reflect stock dividends and splits.
STATEMENT OF CASH FLOWS: For purposes of this Statement, cash and cash
equivalents is defined to include the Corporation's cash on hand, its
demand deposits in other institutions, federal funds sold and all highly
liquid debt instruments with original maturities, when purchased, of three
months or less.
ISSUED BUT NOT YET ADOPTED ACCOUNTING STANDARDS: In March 1995, the FASB
issued SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to
be disposed of. The Statement requires review of such assets whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Measurement of an impairment loss for long-lived
___________________________________________________________________________
(continued)
-72-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
assets and identifiable intangibles that an entity expects to hold
and use should be based on the fair value of the asset. The Statement is
effective for financial statements for fiscal years beginning after
December 15, 1995. The Corporation adopted SFAS No. 121 effective
January 1, 1996. Its adoption had no material effect on the Corporation's
consolidated financial position or results of operations.
In May of 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 122, ACCOUNTING FOR MORTGAGE
SERVICING RIGHTS, to require that a mortgage-banking enterprise recognize
as separate assets, acquired rights to service mortgage loans for others.
A mortgage banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells or
securitizes those loans with servicing rights retained should allocate the
total cost of the mortgage loans to the mortgage servicing rights and the
loans (without the mortgage servicing rights) based on their relative fair
values if it is practicable to estimate those fair values. If it is not
practicable to estimate the fair values of the mortgage servicing rights
and the mortgage loans (without the mortgage servicing rights), the entire
cost of purchasing or originating the loans should be allocated to the
mortgage loans (without the mortgage servicing rights) and no cost should
be allocated to the mortgage servicing rights.
This Statement requires that a mortgage-banking enterprise assess its
capitalized mortgage servicing rights for impairment based on the fair
value of those rights. A mortgage-banking enterprise should stratify its
mortgage servicing rights that are capitalized after the adoption of this
Statement based on one or more of the predominant risk characteristics of
the underlying loans. Impairment should be recognized through a valuation
allowance for each impaired stratum. The Statement is applicable as of
January 1, 1996. Management believes the adoption of SFAS No. 122 will not
be material to the Corporation.
RECLASSIFICATIONS: Certain 1994 and 1993 amounts have been reclassified to
conform to the 1995 presentation.
___________________________________________________________________________
(continued)
-73-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 3 - ACQUISITIONS
In September of 1995, the Corporation announced that it had signed a
definitive agreement to merge with Community Bank Corporation, parent
company of Grant State Bank. Community Bank Corporation had total assets
of approximately $28,700,000 at December 31, 1995 and revenues, net income
and earnings per share of $2,475,000, $364,000 and $4.76, respectively, for
the year ended December 31, 1995. The transaction will be structured as a
tax-free exchange and will be accounted for under the pooling-of-interests
method.
Goodwill represents the excess of the purchase price over the net value of
assets acquired for the acquisition of the Sparta and Coopersville
branches. Goodwill is amortized on a straight-line basis over a period of
15 years. Original goodwill totaled $32,200 and $35,000 for Sparta and
Coopersville, respectively. Accumulated amortization of goodwill at
December 31, 1995 was $16,355 for Sparta and $13,149 for Coopersville. In
addition, deposit premiums paid in connection with the acquisitions and the
related core deposit intangibles are being amortized on a straight-line
basis over the estimated life of the deposits. Original deposit premiums
totaled $151,800 and $95,490 for Sparta and Coopersville, respectively.
Accumulated amortization of premium at December 31, 1995 was $122,666 for
Sparta and $66,948 for Coopersville.
NOTE 4 - CASH AND DUE FROM BANKS
Minimum cash balances, which are based on the deposit levels of the Bank,
are required to be maintained by the Federal Reserve as legal reserve
requirements. Cash balances restricted from usage due to these
requirements were approximately $239,000 and $228,000 at December 31, 1995
and 1994, respectively.
NOTE 5 - SECURITIES
The amortized cost and fair values of securities at December 31 were as
follows:
___________________________________________________________________________
(continued)
-74-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 5 - SECURITIES (Continued)
AVAILABLE FOR SALE
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
<S> <C> <C> <C> <C>
1995
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 501,190 $ 998 $ 502,188
Obligations of states and
political subdivisions 10,489,255 699,249 $ (118) 11,188,386
10,990,445 700,247 (118) 11,690,574
Mortgage-backed securities 3,654,623 70,368 (4,521) 3,720,470
$14,645,068 $770,615 $ (4,639) $15,411,044
1994
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 1,016,313 $ (3,344) $ 1,012,969
Obligations of states and
political subdivisions 3,641,829 $138,304 (8,042) 3,772,091
4,658,142 138,304 (11,386) 4,785,060
Mortgage-backed securities 4,713,917 619 (163,034) 4,551,502
$ 9,372,059 $138,923 $(174,420) $ 9,336,562
HELD TO MATURITY
1994
Obligations of states and
political subdivisions $ 3,057,841 $ 95,245 $ (7,304) $ 3,145,782
</TABLE>
___________________________________________________________________________
(continued)
-75-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 5 - SECURITIES (Continued)
OTHER SECURITIES
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
<S> <C> <C> <C> <C>
1995
Federal Reserve stock $ 132,000 $ 132,000
Federal Home Loan Bank stock 376,500 376,500
Farmer Mac stock 4,996 4,996
$ 513,496 $ 513,496
1994
Federal Reserve stock $ 114,000 $ 114,000
Federal Home Loan Bank stock 273,600 273,600
Farmer Mac stock 4,996 4,996
$ 392,596 $ 392,596
</TABLE>
The amortized cost and fair values of investment securities at December 31,
1995, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUES
<S> <C> <C> <C>
Due in one year or less $ 1,337,440 $ 1,346,427
Due after one year through five years 1,537,842 1,620,334
Due after five years through ten years 4,015,521 4,326,829
Due after ten years 4,099,642 4,396,984
10,990,445 11,690,574
Mortgage-backed securities 3,654,623 3,720,470
$14,645,068 $15,411,044
</TABLE>
___________________________________________________________________________
(continued)
-76-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 5 - SECURITIES (Continued)
Because of their variable payments, mortgage-backed securities are not
reported by a specific maturity grouping.
Proceeds from sales of securities during 1995, 1994 and 1993 were
$5,682,578, $2,027,730 and $1,830,286, respectively. Gross gains were
realized on those sales of $38,994, $39,797 and $167,570 for 1995, 1994 and
1993, respectively. Gross losses on those sales were $29,684, $23,255 and
$0 for 1995, 1994 and 1993, respectively. No investment securities
classified as held to maturity under SFAS No. 115 were sold during 1995.
Investment securities with a par value of $100,000 and $600,000, were
pledged to secure public deposits and for various other purposes as
required or permitted by law at December 31, 1995 and 1994, respectively.
Pursuant to the FASB Special Report, A GUIDE TO IMPLEMENTATION OF STATEMENT
NO. 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, the entire portfolio of held to maturity securities, with a
carrying value of $2,546,040, fair value of $2,655,566 and unrealized gain
of $109,526, was transferred to the available for sale classification on
December 1, 1995. Management believes classification of all securities as
available for sale will provide the Bank greater flexibility in managing
the Bank's assets and liabilities.
NOTE 6 - LOANS
Major loan classifications as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
Commercial $19,018,693 $18,180,051
Real estate 31,173,240 27,500,625
Consumer 5,972,606 5,508,035
Agricultural 6,131,317 7,207,815
$62,295,856 $58,396,526
</TABLE>
___________________________________________________________________________
(continued)
-77-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 6 - LOANS (Continued)
An analysis of changes in the allowance for loan losses for the years ended
December 31, 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C> <C>
Balance at beginning of year $849,582 $759,312 $734,699
Provision charged to operating expense 60,000 60,000 135,000
Recoveries on loans previously
charged to the allowance 42,105 68,565 47,803
Loans charged off (68,090) (38,295) (158,190)
Balance at end of year $883,597 $849,582 $759,312
</TABLE>
Accounting and disclosure regarding impaired loans, as required by
Statement of Financial Accounting Standards No. 114 and amended by No. 118,
ACCOUNTING FOR CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND
DISCLOSURES, became effective for the Corporation in 1995.
The average investment in impaired loans for the year ended December 31,
1995 was $149,520, with $10,153 interest income recognized on a cash basis.
At December 31, 1995, there was $83,967 outstanding in impaired loans, with
$5,788 for which an allowance for credit losses is allocated, and $78,179
for which no allowance for loan losses is allocated. The portion of the
allowance for loan losses allocated to the impaired loan balance is $5,788
at December 31, 1995.
As of December 31, 1995, 1994 and 1993, there were loans on nonaccrual
status in the amounts of $83,967, $207,602 and $106,705, respectively. If
nonaccrual loans had been maintained current in accordance with their
original terms, additional interest income of approximately $7,159, $20,082
and $12,334 would have been recorded in 1995, 1994 and 1993, respectively.
___________________________________________________________________________
(continued)
-78-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 7 - PREMISES AND EQUIPMENT - NET
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
ACCUMULATED CARRYING
COST DEPRECIATION VALUE
<S> <C> <C> <C>
1995
Land $ 116,308 $ 116,308
Building and improvements 1,553,783 $ 578,951 974,832
Furniture and equipment 1,593,102 1,252,524 340,578
$3,263,193 $1,831,475 $1,431,718
1994
Land $ 116,308 $ 116,308
Building and improvements 1,531,683 $ 537,650 994,033
Furniture and equipment 1,489,164 1,145,431 343,733
$3,137,155 $1,683,081 $1,454,074
</TABLE>
NOTE 8 - DEPOSITS
Interest-bearing deposits at December 31, 1995 include total time deposits
of $28,834,000, that have the following maturity distribution (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1996 $13,680
1997 6,600
1998 6,402
1999 1,374
2000 669
2001 and after 109
$28,834
</TABLE>
___________________________________________________________________________
(continued)
-79-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 8 - DEPOSITS (Continued)
Included within total time deposits are time deposit liabilities issued in
denominations of $100,000 or more. At December 31, 1995 and 1994, these
deposits amounted to $4,045,781 and $2,896,451, respectively. Interest
expense on time deposits issued in denominations of $100,000 or more for
1995, 1994 and 1993 amounted to $232,242, $134,550 and $150,803,
respectively. Maturities of time deposits of $100,000 or more outstanding
at December 31, 1995 are summarized below (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Three months or less $1,990
Over three months through six months 445
Over six months through twelve months 200
Over twelve months 1,411
$4,046
</TABLE>
NOTE 9 - OTHER BORROWINGS
At December 31, 1995, the Corporation had the following advances from the
Federal Home Loan Bank ("FHLB"):
<TABLE>
<CAPTION>
TYPE INTEREST RATE MATURITY DATE AMOUNT
<S> <C> <C> <C> <C>
Fixed 5.730% July 21, 1997 $2,000,000
Adjustable 6.020 February 26, 1996 2,000,000
$4,000,000
</TABLE>
Each advance requires monthly interest payments at either fixed or variable
rates. The variable rate is based on the FHLB overnight rate. These
borrowings are collateralized by nonspecific loans within the mortgage
portfolio up to the principal outstanding. The variable rate note has no
prepayment penalties while the fixed rate note carries a minimum prepayment
penalty of $5,000.
___________________________________________________________________________
(continued)
-80-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 10 - FEDERAL INCOME TAXES
The composition of federal income tax expense for the years ended December
31, 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C> <C>
Current expense $273,215 $270,495 $159,782
Deferred benefit (40,105) (22,088) (33,515)
$233,110 $248,407 $126,267
</TABLE>
The net deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
Deferred tax assets
Allowance for loan losses $197,386 $176,986
Deferred loan fees 24,700 25,208
Deferred compensation 49,743 20,979
Core deposit amortization 24,513 19,757
Net unrealized depreciation on
available for sale securities 12,069
Other 12,116 16,240
308,458 271,239
Deferred tax liabilities
Fixed assets (110,476) (105,082)
Net unrealized appreciation on
available for sale securities (260,432)
Other (4,609) (820)
(375,517) (105,902)
Net deferred tax asset (liability) $(67,059) $165,337
</TABLE>
No valuation allowance has been recorded against the deferred tax assets.
The difference between the financial statement tax expense and amounts
computed by applying the statutory federal tax rate of 34% to pretax income
is reconciled as follows:
___________________________________________________________________________
(continued)
-81-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 10 - FEDERAL INCOME TAXES (Continued)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory rate applied to income before
income taxes and cumulative effect of
change in accounting principle $408,896 $382,271 $314,490
Add (deduct) effect of
Tax-exempt interest (209,412) (160,013) (190,500)
Nondeductible interest expense 21,891 13,142 17,371
Expense (income) related to officers'
life insurance (13,910) 1,223
Nondeductible acquisition costs 27,006
Other (1,361) 11,784 (15,094)
Income tax expense $233,110 $248,407 $126,267
</TABLE>
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Corporation maintains profit sharing and 401(k) plans for substantially
all employees. Under the plans, employees may make voluntary contributions
based on a percentage of covered compensation. The plans also allow the
Corporation, at the discretion of the Board of Directors, to provide an
annual contribution. The Corporation's cash contributions to the profit
sharing plan were $83,700, $83,680 and $61,604 in 1995, 1994 and 1993,
respectively. Additionally, the Corporation made contributions to the
401(k) plan of $26,924, $25,278 and $20,447 in 1995, 1994 and 1993,
respectively.
The Corporation also maintains an Employee Stock Ownership Plan (ESOP),
covering substantially all full-time employees after one year of service,
which invests primarily in stock of the Corporation. In accordance with
the terms of the ESOP, the Corporation may make discretionary contributions
to the plan. The amount of the annual contribution to the ESOP is
determined by the Board of Directors. The Corporation made ESOP
contributions totaling $30,000, $30,000, and $35,000 during 1995, 1994 and
1993, respectively. At December 31, 1995, the plan had no indebtedness and
held 11,990 shares of stock, allocated to employees and voted by trustees
___________________________________________________________________________
(continued)
-82-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 11 - EMPLOYEE BENEFIT PLANS (Continued)
of the plan. Upon distribution of shares to a participant, the participant
has the right to require the Corporation to purchase shares at their fair
value in accordance with the terms and conditions of the plan. The fair
value of the shares allocated as of December 31, 1995, was $260,709 and is
shown outside of permanent equity. The change in value of ESOP share
securities was an increase of $23,058 in 1995, $55,321 in 1994 and $12,227
in 1993.
NOTE 12 - DIRECTOR DEFERRED COMPENSATION PLAN
The Corporation instituted a Director Deferred Compensation Plan in 1994,
whereby directors may periodically defer a portion of current compensation.
The Corporation has committed to pay to the directors, or the directors'
designated beneficiaries or survivors, the total amount of deferred
compensation plus accumulated interest at or following retirement. The
interest is added to the accumulated deferred compensation liability at a
periodic compound rate. The agreement also addresses termination,
disability or death prior to retirement. The Corporation purchased single
premium universal life insurance policies in connection with the
establishment of the plan. The cash value of these policies as of
December 31, 1995 was $1,186,404, which was included in other assets. The
compensation expense was $94,400 and $90,446 for 1995 and 1994,
respectively. The portion of the compensation expense deferred for 1995
was $79,800. The accrued deferred compensation liability was $147,373 and
$61,703 as of December 31, 1995 and 1994, respectively.
NOTE 13 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
From time to time, the Corporation is involved in legal matters in the
ordinary course of business. Management and legal counsel believe that the
ultimate resolution of current matters will not have a material effect on
the consolidated financial statements.
The Corporation is also a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of
its customers. These financial instruments consist of commitments to make
loans and fund lines of credit and loans in process. The Corporation's
___________________________________________________________________________
(continued)
-83-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 13 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS (Continued)
exposure to credit loss in the event of nonperformance by the other party
to these financial instruments is represented by the contractual amount of
these instruments. The Corporation follows the same credit policy to make
such commitments as is followed for those loans recorded in the
Consolidated Balance Sheet.
The Corporation had the following off-balance sheet commitments at
December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Financial instruments whose contract
amounts represents credit risk
Commitments to make loans $1,187,967 $1,854,912
Commercial unused lines of credit 5,939,000 5,362,000
Consumer unused lines of credit 1,099,272 645,716
Standby letters of credit 30,000 180,000
</TABLE>
Commitments to make loans and unused lines of credit at fixed rates were
$1,526,000 at rates from 8.25% to 18% at December 31, 1995. Since many of
the above commitments expire without being used, the above amounts do not
necessarily represent future cash commitments. No losses are anticipated
as a result of these transactions.
Financial instruments which potentially subject the Corporation to
concentrations of credit risk include deposit accounts in other financial
institutions and agricultural loans. At December 31, 1995 and 1994, the
Corporation had deposit accounts with balances of $3,230,346 and
$3,697,545, respectively, with NBD Bank, N.A. The concentration of
agricultural loans represents approximately 10% of the loan portfolio.
The Corporation conducts substantially all of its business operations in
Western Michigan.
___________________________________________________________________________
(continued)
-84-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 14 - RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Corporation, including
their immediate families and companies in which they are principal owners,
were loan customers of the Corporation. At December 31, 1995 and 1994, the
Corporation had approximately $877,925 and $1,021,415, respectively, in
outstanding loans to directors and executive officers. New loans and
repayments were $913,472 and $1,056,962, respectively, during 1995.
Deposits accepted from related parties were $1,864,325 at December 31,
1995.
NOTE 15 - STOCK PURCHASE
In March 1993, the Corporation entered into and executed an agreement to
purchase the Corporation's stock owned by a specific shareholder group.
This group included two of the Corporation's directors and other
shareholders related through attribution. The Corporation purchased all of
the 77,200 shares owned by this group for $20 per share, totaling
$1,544,000. In exchange, the two directors agreed to resign from the Board
of Directors and forego any future ownership in the Corporation.
NOTE 16 - STOCK SPLITS
On April 28, 1994 and January 26, 1995, the Board of Directors approved a
five-for-four stock split and a two-for-one split, respectively, of the
Corporation's common stock for shareholders, effected in the form of a
stock dividend. The 1995 transaction has been reflected in the 1994
consolidated financial statements. The stated par value of each share was
not changed from $10. All share and per share amounts have been adjusted
to reflect this stock split.
___________________________________________________________________________
(continued)
-85-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 17 - VALLEY RIDGE FINANCIAL CORP. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
Assets
Cash $ 93,715 $ 54,447
Investment in subsidiaries 8,706,810 7,503,177
Other assets 136,263 136,268
$8,936,788 $7,693,892
Liabilities and Shareholders' Equity
Liabilities $ 22,000
Shareholders' equity 8,914,788 $7,693,892
$8,936,788 $7,693,892
</TABLE>
___________________________________________________________________________
(continued)
-86-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 17 - VALLEY RIDGE FINANCIAL CORP. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS (Continued)
<TABLE>
CONDENSED STATEMENTS OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Income
Dividends from subsidiary $390,600 $299,250 $1,388,100
Other 633 635 4,983
391,233 299,885 1,393,083
Expenses
Other operating expenses 101,914 13,111 42,751
Income before income tax and equity
in undistributed net income of
subsidiaries 289,319 286,774 1,350,332
Federal income tax expense (credit) (5,545) (1,400) (15,291)
Equity in undistributed (overdistributed)
net income of subsidiary 674,661 587,746 (540,450)
Net income $969,525 $875,920 $ 825,173
</TABLE>
___________________________________________________________________________
(continued)
-87-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 17 - VALLEY RIDGE FINANCIAL CORP. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS (Continued)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Operating activities
Net income $969,525 $ 875,920 $ 825,173
Adjustments to reconcile net income
to net cash from operating activities
Equity in (undistributed)
overdistributed earnings of
subsidiary (674,656) (587,746) 540,450
Change in other liabilities 22,000
Change in other assets 989 (9,358)
Net cash from operating
activities 316,869 289,163 1,356,265
Financing activities
Dividends paid (298,291) (282,614) (229,780)
Sale of common stock 20,690 29,644
Retirement of common stock (1,544,000)
Purchase of fractional shares (5,706)
Net cash from financing activities (277,601) (258,676) (1,773,780)
Net change in cash and cash equivalents 39,268 30,487 (417,515)
Cash at beginning of year 54,447 23,960 441,475
Cash at end of year $ 93,715 $ 54,447 $ 23,960
</TABLE>
NOTE 18 - DIVIDENDS DECLARED BY BANKING SUBSIDIARIES
Banking regulations limit the transfer of assets in the form of dividends,
loans or advances from the bank subsidiaries to the Corporation. Under the
most restrictive of these regulations, the aggregate amount of dividends
___________________________________________________________________________
(continued)
-88-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 18 - DIVIDENDS DECLARED BY BANKING SUBSIDIARIES (Continued)
which could be paid to the Corporation without obtaining prior approval
from bank regulatory agencies approximated $1.1 million at December 31,
1995. Substantially all the assets of the Corporation's subsidiaries are
restricted from a transfer to the Corporation in the form of loans or
advances.
Dividends paid to the Corporation by its banking subsidiaries amounted to
$390,600 in 1995, $299,250 in 1994 and $1,388,100 in 1993.
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair values and the related
carrying values of the Corporation's financial instruments at December 31,
1995. Items which are not financial instruments are not included.
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
(000's omitted)
<S> <C> <C> <C>
Cash and cash equivalents $ 4,312 $ 4,312
Securities available for sale 15,925 15,925
Total loans, net of allowance for loan losses 61,412 61,448
Accrued interest receivable 701 701
Demand and savings deposits (42,108) (42,108)
Time deposits (28,834) (29,193)
Accrued interest payable (136) (136)
</TABLE>
For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of December 31, 1995. The estimated
fair value for cash and cash equivalents is considered to approximate cost.
The estimated fair value of interest-earning time deposits in other
financial institutions is based upon estimates of the rate the Corporation
would receive on such deposits at December 31, 1995, applied for the time
period until maturity. The estimated fair value for investment securities
available for sale is based upon quoted market values for the individual
securities or for equivalent securities. The estimated fair value for
loans is based upon estimates of the difference in interest rates the
___________________________________________________________________________
(continued)
-89-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
___________________________________________________________________________
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Corporation would charge the borrowers for similar such loans with similar
maturities made at December 31, 1995, applied for an estimated time period
until the loan is assumed to reprice or be paid. The estimated fair values
for other securities, demand and savings deposits, and accrued interest
receivable and accrued interest payable is based upon their carrying
values. The estimated fair value for time deposits is based upon estimates
of the rate the Corporation would pay on such deposits at December 31,
1995, applied for the time period until maturity. The estimated fair value
of other financial instruments and off-balance-sheet loan commitments
approximate cost and are not considered significant to this presentation.
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were the
Corporation to have disposed of such items at December 31, 1995, the
estimated fair values would necessarily have been achieved at that date,
since market values may differ depending on various circumstances. The
estimated fair values at December 31, 1995 should not necessarily be
considered to apply at subsequent dates.
In addition, other assets and liabilities of the Corporation that are not
defined as financial instruments are not included in the above disclosures,
such as premises and equipment. Also, nonfinancial instruments typically
not recognized in financial statements nevertheless may have value but are
not included in the above disclosures. Excluded, among other items, are
the estimated earning power of core deposit accounts, the trained work
force, customer goodwill and similar items.
___________________________________________________________________________
(continued)
-90-
STATISTICAL INFORMATION
STATISTICAL INFORMATION
REGARDING VALLEY RIDGE FINANCIAL CORP.
-91-
The following tables provide information concerning the business of
Valley Ridge Financial Corp.
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS:
Interest-earning assets:
Taxable securities $ 5,699 $ 363 6.37% $ 8,032 $ 449 5.59%
Tax-exempt
securities <F1> 8,514 824 9.68 6,452 653 10.12
Total securities 14,213 1,187 8.35 14,484 1,102 7.61
Loans <F2> 59,166 5,614 9.49 54,629 4,874 8.92
Federal funds sold 1,570 93 5.92 1,475 61 4.14
Total earning
assets 74,949 6,894 9.20 70,588 6,037 8.55
Nonaccrual loans 154 149
Less allowance for loan
loss (881) (824)
Cash and due from
banks 3,194 3,229
Other non-earning assets 3,697 2,850
Total assets $81,113 $75,992
AVERAGE LIABILITIES:
Interest-bearing deposits
Demand $ 7,736 138 1.78 $ 7,371 136 1.85
Savings 24,999 763 3.05 28,068 782 2.79
Time 28,882 1,784 6.18 24,997 1,131 4.52
Total interest-
bearing deposits 61,617 2,685 4.36 60,436 2,049 3.39
Other Borrowings 2,433 147 6.04 22 1 6.50
Total interest-
bearing liabilities 64,050 2,832 4.42 60,458 2,050 3.39
Demand deposits 8,259 7,809
Total funds 72,309 68,267
Other liabilities 422 247
Total liabilities 72,731 68,514
Average stockholders'
equity 8,382 7,478
Total liabilities and
stockholders' equity $81,113 $75,992
-92-
NET INTEREST INCOME <F1> $4,209 $3,987
RATE SPREAD <F1> 4.78% 5.16%
NET INTEREST MARGIN
(PERCENT OF AVERAGE
EARNING ASSETS) <F1> 5.42% 5.65%
<FN>
<F1> Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.
<F2> Interest includes loan fees of $223,871 and $219,544, respectively.
</FN>
</TABLE>
-93-
<TABLE>
VOLUME/RATE ANALYSIS
<CAPTION>
1995/1994
CHANGES IN INTEREST DUE TO:
AVERAGE AVERAGE NET
VOLUME RATE CHANGE
(Dollars in thousands)
<S> <C> <C> <C>
INTEREST INCOME:
Taxable securities $(143) $ 57 $ (86)
Tax-exempt securities <F1> 201 (30) 171
Total securities 58 27 85
Loans 419 321 740
Federal funds sold 4 28 32
Total interest-earning assets 481 376 857
INTEREST EXPENSE:
Interest-paying demand 7 (5) 2
Savings deposits (90) 71 (19)
Time deposits 195 458 653
Total interest-paying deposits 112 524 636
Other 146 146
Total interest-paying liabilities 258 524 782
Net interest income $ 223 $(148) $ 75
<FN>
<F*> Changes in volume/rate have been allocated between the volume and rate
variances on the basis of the ratio that the volume and rate variances
bear to each other.
<F1> Interest is presented on a fully taxable equivalent basis using a
federal income tax rate of 34%.
</FN>
</TABLE>
-94-
INVESTMENT PORTFOLIO
The carrying values of investment securities as of December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Investment securities available for sale
U.S. Treasury and other U.S. Government
corporations and agencies $ 502 $ 1,013
Obligations of states and political subdivisions 11,188 3,772
Mortgage-backed securities 3,374 4,073
Other 347 478
15,411 9,336
Investment securities held to maturity
Obligations of states and political subdivisions - 3,058
Other 513 393
513 3,451
Total investment securities $15,924 $12,787
</TABLE>
-95-
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
The following table shows, by class of maturities at December 31,
1995, the amounts and weighted average yields of such investment securities
<F1>:
<TABLE>
<CAPTION>
CARRYING AVERAGE
VALUE YIELD <F2>
(Dollars in thousands)
<S> <C> <C>
U.S. Treasury and other U.S. Government
corporations and agencies
One year or less $ 502 6.86%
Over one through five years - -
Total 502 6.86
Obligations of states and political subdivisions
One year or less 844 9.78
Over one through five years 1,620 7.47
Over five through ten years 4,328 9.16
Over ten 4,397 8.98
Total 11,189 8.85
Mortgage-backed securities and other 4,233 7.41
Total $15,924 7.70%
</TABLE>
Because of their variable payments, mortgage-backed securities are not
reported by a specific maturity grouping.
<F1> Calculated on the basis of the cost and effective yields weighted for
the scheduled maturity of each security.
<F2> Weighted average yield has been computed on a fully taxable equivalent
basis. The rates shown on state and municipal securities have been
adjusted to a fully taxable equivalent using a federal income tax rate
of 34%.
<F3> As of December 31, 1995, the securities of no issuer except the U.S.
Government had an aggregate carrying value which exceeded 10% of
shareholders' equity.
-96-
LOAN PORTFOLIO
The following table presents the loans outstanding at December 31
according to the type of loan:
<TABLE>
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Loan categories:
Commercial $19,019 $18,180
Agricultural 6,131 7,208
Real estate - mortgage 29,541 26,532
Real estate - construction 1,632 969
Installment loans to individuals 5,973 5,508
Total $62,296 $58,397
</TABLE>
The following table shows the maturity of commercial, agricultural,
and real estate construction loans outstanding at December 31, 1995. The
real estate-mortgage loans are of 1-4 family residences, and real
estate-construction loans are residential non-owner occupied. Also, provided
below are the amounts due after one year classified according to the terms
of the loans.
<TABLE>
<CAPTION>
DUE IN DUE AFTER ONE
ONE YEAR YEAR THROUGH
OR LESS FIVE YEARS TOTAL
(Dollars in thousands)
<S> <C> <C> <C>
Commercial $ 6,265 $12,754 $19,019
Agricultural 4,385 1,746 6,131
Real estate-construction 1,632 - 1,632
$12,282 $14,500 $26,782
Loans due after one year
With fixed rates $10,176 $10,176
With floating rates 4,324 4,324
Total $14,500 $14,500
</TABLE>
-97-
NONPERFORMING LOANS AND ASSETS
The following table summarizes nonaccrual and past due loans as of
December 31:
<TABLE>
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Nonperforming loans:
Nonaccruals loans:
Commercial $ 6
Real estate-mortgage 37 $126
Installment loans to individuals 41 82
Total 84 208
Accruing loans 90 days or more past due:
Installment loans to individuals 20 17
Mortgage loan to individuals 25 -
Total 45 17
Total nonperforming loans <F1> 129 225
Property from defaulted loans - 10
Total nonperforming assets $129 $235
</TABLE>
Additional information with respect to nonaccrual and restructured
loans at December 31, 1995, is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Interest income which would have been
recorded under original terms $7,159
Interest income recorded during the period 2,170
</TABLE>
Loan performance is reviewed regularly by loan review personnel, loan
officers and senior management. Loans are placed on nonaccrual status when
principal or interest is past due 90 days or more and the loan is not
well-secured and in the process of collection, or when reasonable doubt exists
concerning collectibility of interest or principal. Any interest
previously accrued but not collected is reversed and charged against
current earnings.
<F1> No loans had been renegotiated.
-98-
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table summarizes changes in the allowance for loan
losses for years ended December 31 arising from loans charged-off and
recoveries on loans previously charged off by loan category and additions
to the allowance which were charged to expense.
<TABLE>
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $850 $759
Charge-offs:
Commercial - (3)
Real estate-mortgages
Consumer (68) (35)
Total charge-offs (68) (38)
Recoveries:
Commercial
Real estate-mortgages - 6
Consumer 42 63
Total recoveries 42 69
Net (charge-offs) recoveries (26) 31
Additions charged to operations 60 60
Balance at end of period $884 $850
Percent of year end loans 1.42% 1.46%
Ratio of net recoveries (charge-offs) during
the period to average loans outstanding
during the period (0.04)% 0.06%
</TABLE>
The allowance for loan losses is based on management's evaluation of
the portfolio, past loan loss experience, current economic conditions,
volume, growth, composition of the loan portfolio, and other relevant
factors. The allowance is increased by provisions for loan losses that
have been charged to expense and increased by net recoveries or reduced by
net charge-offs. As of December 31, 1995, there were no concentrations of
loans exceeding 10% of total loans which are not otherwise disclosed as a
category of loans in the consolidated balance sheet of Valley Ridge.
-99-
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was allocated in the amount deemed
reasonably necessary to provide for possible losses within the following
loan categories as of December 31:
<TABLE>
<CAPTION>
1995 1994
% OF % OF
BALANCE AT END OF ALLOCATED TOTAL ALLOCATED TOTAL
PERIOD ALLOCATED TO: ALLOWANCE LOANS ALLOWANCE LOANS
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $200 40% $200 43%
Real estate-mortgages 50 50 50 47
Consumer 150 10 150 10
Unallocated 484 - 450 -
Total $884 100% $850 100%
</TABLE>
-100-
AVERAGE DEPOSITS
The daily average deposits and rates paid on such deposits for the
years ended December 31 were:
<TABLE>
<CAPTION>
1995 1994
AMOUNT RATE AMOUNT RATE
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average balance:
Noninterest-bearing demand deposits $ 8,259 $ 7,809
Interest-bearing demand deposits 7,736 1.78% 7,371 1.85%
Savings deposits 24,999 3.05 28,068 2.79
Time deposits 28,882 6.18 24,997 4.52
Total average deposits $69,876 3.84% $68,245 3.00%
</TABLE>
The time remaining until maturity of time certificates of deposit and
other time deposits of $100,000 or more at December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Three months or less $1,990
Over three months through six months 445
Over six months through twelve months 200
Over twelve months 1,411
Total $4,046
</TABLE>
-101-
RETURN ON EQUITY AND ASSETS
The following table sets forth certain financial ratios for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
Financial ratios:
Return on average total assets 1.20% 1.15%
Return on average equity 11.57 11.71
Average equity to average total assets 10.33 9.84
Dividend payout ratio 30.77 32.26
</TABLE>
-102-
SHORT-TERM BORROWED FUNDS
Short-term borrowed funds are advances from the Federal Home Loan Bank
as shown on the face of consolidated balance sheets in the Corporation's
annual financial statements for the year ended December 31, 1995 as other
borrowings. The following is a summary of short-term borrowings for the
years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Amounts outstanding at the end of the year $2,000 $2,000
Weighted average interest rate at the end of the year 6.02% 5.85%
</TABLE>
<TABLE>
<CAPTION>
Longest maturity Generally mature in one year or less from the transaction date
<S> <C> <C>
Maximum amount outstanding at any
month-end during the year $2,000 $2,000
Approximate average amounts outstanding
during the year $1,540 $ 22
Approximate weighted average interest rate
for the year 6.04% 5.85%
</TABLE>
Weighted average interest rates are derived by dividing the interest
expense for the period by the daily average balance during the period.
-103-
COMMUNITY BANK CORPORATION
BUSINESS
Community is a Michigan bank holding company with its headquarters in
Grant, Michigan. Community was formed on February 16, 1990. Community is
the parent company of Grant, which is Community's only subsidiary.
Community and Grant are engaged in the business of commercial banking
and other related activities. Grant is a full service bank offering
customary commercial banking services, which include commercial,
agricultural, residential mortgage, real estate mortgage, small business
and a variety of installment consumer loans, business and personal checking
accounts, savings and individual retirement accounts, time deposit
instruments, automated transaction machine services, money transfer
services, and safe deposit facilities. No material part of the business of
Community and Grant is dependent upon a single customer or very few
customers, the loss of which would have a materially adverse effect on
Community.
Grant's loan portfolio balances at December 31, 1995 consisted of
commercial and agricultural loans at 50%, real estate mortgage loans at
31%, consumer loans at 17% and lease financing at 2%. The risks associated
with the loan portfolio are typical for the industry and these risks
include nonpayment of loan principal and interest, interest rate
fluctuations and loss of and decline in value of collateral. In addition,
agricultural loans are subject to the additional risk of the effects of
adverse weather and economic conditions.
The principal markets for Community's financial services are presently
the Michigan communities in which Grant's offices are located and the areas
immediately surrounding those communities. Community and Grant serve these
markets through two offices located in Grant and Newaygo, Michigan. This
diversification allows Grant to spread some of its market risk over a wider
area and not be subject to downturns in any specific community. Within
this market area, Grant competes with various banks, savings and loan
associations and credit unions. Grant is the only bank with offices in
Grant, Michigan. Another bank also has an office located in Newaygo,
Michigan. Community and Grant have no material foreign assets or income.
For a general description of competition among banks and bank holding
companies in Michigan and the supervision and regulation to which banks and
bank holding companies are subject, see "The Business of Banking."
Community and Grant employed approximately 21 persons (19 persons on a
full-time equivalent basis) at December 31, 1995.
-104-
Additional statistical information describing the business of
Community appears following the Audited Consolidated Financial Statements
of Community below.
PROPERTIES
Community maintains its offices and conducts its business operations
from the principal banking office of Grant in Grant, Michigan. Community
neither owns nor has any present plan to acquire any real property.
Grant's principal office is located at 10 West Main Street, Grant,
Michigan. These premises are owned by Grant and encompass approximately
4,051 square feet in one building, all of which are occupied by Grant and
Community. Grant also owns the premises occupied by its Newaygo branch
office at the corner of M-37 and M-82, which encompass approximately 1,450
square feet. Community believes all of Grant's properties are in good
condition and repair.
As part of its business, Grant generates all types of mortgages.
Grant generally does not purchase mortgages as part of its business.
LEGAL PROCEEDINGS
From time to time, Grant is party, as plaintiff or as defendant, to
legal proceedings in the normal course of operations. No pending
litigation is considered material at this time.
MARKET FOR COMMON STOCK AND DIVIDENDS
MARKET INFORMATION AND HOLDERS. There is no established public
trading market for Community Common Stock. Transactions in Community
Common Stock are occasionally effected by individuals on an informal basis.
Some transactions are effected through the involvement of local brokerage
firms. The prices at which such transactions are effected are only
occasionally reported to Community. At the date of this Prospectus and
Proxy Statement, there were no outstanding options or warrants to purchase,
or securities convertible into, shares of Community Common Stock. At the
date of this Prospectus and Proxy Statement, Community has not agreed to
register under the Securities Act any securities for sale by security
holders and Rule 144 issued pursuant to such act is not available for sales
of Community Common Stock by Community shareholders. As of December 31,
1995, there were 105 record holders of shares of Community Common Stock.
DIVIDENDS. Community has paid regular cash dividends every other
quarter since July 31, 1987. The following table summarizes the quarterly
cash dividends paid to common shareholders during the last two full years:
-105-
<TABLE>
<CAPTION>
QUARTER 1995 1994
<S> <C> <C> <C>
1st $.175 $.175
2nd -- --
3rd .175 .175
4th -- --
Total $.350 $.350
</TABLE>
Holders of Community Common Stock are entitled to receive dividends
when, as and if declared by Community's board of directors out of funds
legally available for that purpose. The earnings of Community are the
principal source of funds to pay cash dividends. Consequently, cash
dividends are dependent upon the earnings, capital needs, regulatory
constraints and other factors affecting Community. Federal and state
banking laws and regulations place certain restrictions on the amount of
dividends and loans that a bank can pay to its parent company. These
restrictions are not expected to prohibit Community from continuing its
normal dividend policy. Pursuant to the Plan of Merger, Community has
agreed that it will not declare or pay dividends prior to consummation of
the Merger except in accordance with historical practices.
-106-
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is provided by Community's management as its
analysis of Community's financial condition and results of operations as
presented in the selected financial data appearing in the Summary to this
Prospectus and Proxy Statement. This analysis should be read in conjunction
with the separate historical financial statements of Community and notes
thereto included elsewhere in this Prospectus and Proxy Statement.
TWELVE MONTHS ENDED DECEMBER 31, 1995, 1994 AND 1993
RESULTS OF OPERATIONS. Net income of $363,672 in 1995 was 29.8%
greater than 1994 net income, and 26.9% greater than 1993 net income.
These increases in net income of $83,441 between 1995 and 1994, and $59,368
between 1994 and 1993 are due largely to increases in net interest income.
The net interest margin grew from 5.95% at December 31, 1993 to 6.78% at
December 31, 1995.
Net interest income is the difference between interest earned on
earning assets and interest paid on interest-bearing liabilities. Net
interest margin is net interest income divided by average earning assets.
The combined effects of the rising interest rate environment during 1995
and 1994 coupled with strong loan growth during all three years contributed
to Community's rising interest margin in 1995, 1994 and 1993.
At December 31, 1995, approximately 86% of the commercial loan
portfolio consisted of variable rate loans tied to the prime interest rate.
The prime rate increased from 6.0% in January 1993 to 8.50% in December
1995. This rise in prime interest rate, coupled with the growth in the
commercial loan portfolio of 59.6% over the three years, significantly
contributed to the increase in interest income on commercial loans. The
steady growth in commercial loans over the period from 1993 to 1995 was
largely due to the addition of a new board member in 1991 from the
neighboring community of Fremont. This new board member was instrumental
in attracting new commercial business for Community. Also this growth in
commercial loans was due to competitive pricing of commercial loans and
word-of-mouth advertising.
In an effort to meet increasing loan demand and as part of Community's
strategy to improve the matching of assets and liabilities re-pricing in
one to five years, during 1995 management offered a promotion on
certificates of deposit with similar maturities. This promotion resulted
in an increase in volume of certificates of deposit of approximately $1.5
million and contributed to the increase in interest expense for 1994 of
approximately $206,000.
Changes in the mix and volume of assets and liabilities, and the
yields and rates earned or paid have a significant impact on earnings. The
schedules titled DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
-107-
EQUITY and VOLUME/RATE ANALYSIS included in the statistical information
starting on page 117 provide additional detail of how changing yields and
volume affected Community's net interest income, rate spread and net
interest margin.
The provision for loan loss increased $37,400 or 149.6% between 1995
and 1994, and $18,200 or 267.6% between 1994 and 1993. This increase was
necessitated by an increase in net charge-offs as a percentage of the
reserve balance of 9.1% between 1995 and 1994, and also a desire to build
the reserve balance as a percentage of total loans. The reserve for loan
losses as a percent of total loans grew from 1.0% at December 31, 1993 to
1.2% at December 31, 1995. Over the same period, nonperforming loans as a
percentage of the reserve balance declined 20.6%.
The provision for loan losses is the amount necessary to adjust the
reserve for loan losses to an amount which represents management's
assessment of the losses inherent in Community's loan portfolio.
Management grades each loan based on its judgment of collectibility of the
loan. Each loan is assigned a percentage based on the loan grade which
determines the amount of reserve for loan loss for that loan. Management
also provides a reserve amount for nonspecific loans which is determined
based on its analysis of recent loss experience, current economic
conditions and trends, trends in past due and nonaccrual loans, and risk
characteristics of various categories and concentrations of loans.
There is a higher level of risk associated with commercial loans due
to the fact that often these loans are unsecured with repayment dependent
on cash flows of the customer. Approximately 93% of Community's commercial
loans at December 31, 1995 were secured by commercial real estate or other
collateral which serves to mitigate this risk. Also, management monitors
all working capital commercial loans by obtaining annual financial
statements and other pertinent accounting records from commercial
customers.
Other non-interest expense decreased by $41,013 or 3.5% in 1995. This
net decrease resulted primarily from a decrease in pension expense of
$42,484 due to amending the benefit formula in Community's defined benefit
plan and a decrease of $22,454 due to an FDIC rebate and a decrease in
deposit insurance premiums during 1995. Costs related to the merger with
Valley Ridge, which will be accounted for as a pooling-of-interests, are
expensed in the period incurred. These costs totaled $32,534 for 1995 and
were included in non-interest expense for the year.
Other non-interest expense increased by $93,299 or 8.5% in 1994 and
$24,530 or 2.3% in 1993. These increases in 1994 were primarily due to
increased pension and employee insurance costs of approximately $24,000
associated with the death of the former president of the subsidiary bank.
Also, consulting fees increased approximately $23,000 in 1994 due to costs
incurred in amending Community's defined benefit plan.
-108-
Return on average total assets was 1.42% in 1995 which was an
improvement from 1.17% and .96% in 1994 and 1993, respectively. Return on
average equity was 17.34% in 1995, 15.33% in 1994 and 13.59% in 1992.
FINANCIAL CONDITION. Total assets of $28,744,181 at December 31, 1995
was an increase of $4,568,699 or 18.9% from December 31, 1994. This
increase was funded partially by an increase of $3,457,675 or 15.8% in
deposits (primarily time deposits) and a draw of $800,000 in September 1995
on the Federal Home Loan Bank line of credit. The increase in
shareholder's equity of $343,634 or 17.8% from December 31, 1994 was due
entirely to retention of earnings. Capital growth kept pace with asset
growth during 1995. Average total equity to average total assets was 8.2%
at December 31, 1995.
Total assets decreased by 2.1% to $24,175,482 as of December 31, 1994
from $24,697,382 as of December 31, 1993, a decrease of $521,900. Total
liabilities decreased by $775,683 to $22,241,410, a 3.4% decrease from
December 31, 1993, and deposits decreased by 3.5% or $803,886 to
$21,911,482. Shareholders' equity increased $253,783 to $1,934,072, a
15.1% increase, primarily through retention of earnings. The above
variances and percentages are reflective of management's strategy for 1994
of improving profits and controlling growth.
Community was in a federal funds sold position of $2.8 million at
December 31, 1995. Total cash and cash equivalents, federal funds sold and
investments maturing in one year or less equaled 27.1% of total assets at
December 31, 1995. Total loan to deposit ratio was 74.7% at December 31,
1995. Total loans increased by 9.1% to $19,182,278, an increase of
$1,593,434 during 1995. The quality of the loan portfolio continued to
remain excellent.
LIQUIDITY. The liquidity position of Community is monitored for
Community and Grant to ensure that funds are available at a reasonable cost
to meet financial commitments and to finance business expansion.
Management meets quarterly to review the mix of the subsidiary's balance
sheet and to monitor liquidity, capital adequacy, growth, risk and
profitability goals.
Community's subsidiary bank derives liquidity primarily through
federal funds sold, core deposit growth and investment securities. As of
December 31, 1995, core deposits totaled $20.6 million and equaled 93.9% of
total deposits. Total core deposits increased approximately $2.3 million
during 1995. Additionally, Community's subsidiary bank can borrow up to $4
million from the FHLB for short-term purposes.
Liquidity of Community is managed to provide funds to pay dividends to
shareholders, service debt and satisfy other operating requirements.
Community's primary source of liquidity is dividends from Grant. During
1995, Community received $64,348 in dividends from Grant and paid $26,748
in dividends to its shareholders.
-109-
Cash flows from operating activities in 1995 were $600,544 compared to
$319,259 in 1994 and $415,496 in 1993. The increase in 1995 is partially
due to an increase in net earnings for the year over the prior two years.
Net cash has been used by investing activities in each of the three
years. This was caused primarily by the increase in commercial loans for
all three years. Net cash flows were used in financing activities for 1994
due to a decrease in deposits for that year. This decrease in deposits
during 1994 was due to large withdrawals of deposits at December 31, 1994
by two customers of Community. Net cash flows were provided from financing
activities in 1995 primarily due to significant growth in deposits in 1995
and proceeds from a draw on the FHLB line of credit. The growth in
deposits in 1995 are largely the result of a promotion run during the year
where favorable rates were offered on certificates of deposit.
Interest rate risk generally arises when the maturity or repricing
structure of Community's assets and liabilities differs significantly.
Asset/liability management, which addresses such risk, is the process of
developing, testing and implementing strategies that seek to maximize net
interest income, maintain sufficient liquidity and minimize exposure to
significant changes in interest rates.
Generally, management seeks a structure that insulates net interest
income from large swings attributable to changes in market interest rates.
The following table represents Community's "Rate Sensitivity Analysis" at
December 31, 1995.
<TABLE>
RATE SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
<CAPTION>
ONE YEAR EARNINGS RESULTING
GAP RATIO AMOUNT
<S> <C> <C> <C>
RATE-SENSITIVE ASSETS
Loans:
Fixed rate < one year $ 3,038 100% $ 3,038
Floating rate < one year 8,191 100 8,191
Securities:
Fixed rate < one year 1,815 67 1,216
Floating rate < one year 500 82 410
Federal funds sold 2,800 99 2,772
TOTAL RATE-SENSITIVE
ASSETS $16,344 $15,627
</TABLE>
-110-
<TABLE>
<CAPTION>
ONE YEAR EARNINGS RESULTING
GAP RATIO AMOUNT
<S> <C> <C> <C>
RATE-SENSITIVE LIABILITIES
Savings $ 5,069 30% $ 1,521
Money market accounts 2,043 40 817
NOW accounts 5,286 40 2,114
CD's > $100m 610 90 549
CD's < $100m 2,970 84 2,495
Other borrowings (fixed rate) 800 20 160
TOTAL RATE-SENSITIVE
LIABILITIES $16,778 $ 7,656
RATE-SENSITIVE GAP $ (434) $ 7,971
Total assets $28,958 $28,958
GAP as % of total assets (1.50)% 27.52%
Estimated net income
if prime rises 1% $ 80
Estimated net income
if prime falls 1% $ (80)
</TABLE>
The earnings ratio represents the ratio of the change in product
pricing given a change in the driver rate. The prime rate has been used as
the driver rate. The earnings ratio represents the number of basis points
product pricing will change if prime changes 100 basis points. Standard
earnings ratios were developed for estimating each balance sheet item's
rate sensitivity.
The above table is used by management to monitor Community's
positioning for interest rate movements. At December 31, 1995, the
estimated effect on net income if the prime interest rate rises or falls by
1% is an increase of $80,000 or decrease of $80,000, respectively. After
adjusting the rate sensitive assets and liabilities for the earnings change
ratios, the liability sensitive gap of $434,000 actually becomes an asset
sensitive gap of $7,971,000. Management's plan to reduce the above
estimated impact on earnings is to promote growth in short term deposits
and encourage longer term commercial loans. Also, management believes that
it could raise fees on commercial loans, remaining competitive in its
market, which would offset any negative impact from downward interest rate
shifts.
The following table shows the interest sensitivity gaps for four
different time intervals as of December 31, 1995.
-111-
<TABLE>
INTEREST RATE SENSITIVITY GAPS
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<CAPTION>
MATURITY OR REPRICING FREQUENCY
3 MONTHS 3-12 MONTHS 1-5 YEARS 5 YEARS +
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans:
Fixed $ 768 $2,270 $7,744 $ 209
Variable 8,191 - - -
Investment securities 500 1,815 511 -
Federal funds sold 2,800 - - -
TOTAL 12,259 4,085 8,255 209
INTEREST BEARING LIABILITIES
Certificates of deposit 1,631 1,949 4,897 -
Savings accounts 5,069 - - -
Money market accounts 2,043 - - -
NOW accounts 5,286 - - -
FHLB note - 800 - -
TOTAL 14,029 2,749 4,897 -
INTEREST SENSITIVITY GAP (1,770) 1,336 3,358 209
CUMULATIVE GAP $ - $ (434) $2,924 $3,133
</TABLE>
The above table is based on contractual terms. Savings accounts,
money market accounts and NOW accounts are subject to immediate withdrawal
and are presented as repricing in the earliest period presented. Community
is liability sensitive in periods out to twelve months. Again, the
liability sensitive position for the 0 - 12 month interval as presented in
the table actually becomes an asset sensitive position after considering
the effect of the earnings change ratios in the previous table and the fact
that each rate sensitive asset and liability do not change by the same
amount.
The 1-5 years period has a cumulative positive gap of $2,924,000. The
writing of certificates of deposit with 1-5 year maturities served to
offset the increase in fixed rate commercial and mortgage loans with
similar maturities. The cumulative gap increases to $3,133,000 for all
periods presented.
Management strives to evenly match assets and liabilities maturing or
repricing over the twelve month period and maintain a positive cumulative
-112-
gap for the periods of one to five years. Management's current strategy to
reduce the asset sensitive position in the 1-5 year interval includes
continuing to promote certificates of deposit with 1-5 year maturities.
Community's asset/liability management committee meets quarterly, or
more often as needed, to review gap positions, determine management
strategies for loan and deposit pricing, make decisions regarding purchases
and sales of securities, and determine borrowing needs.
CAPITAL RESOURCES. Management closely monitors capital levels to
provide for current and future business needs and to comply with regulatory
requirements. As summarized below, Community's capital ratios were well in
excess of regulatory standards.
<TABLE>
COMMUNITY BANK CORPORATION
CAPITAL RATIOS
(DOLLARS IN THOUSANDS)
<CAPTION>
DECEMBER, 1995
<S> <C>
Tier 1 (core) capital:
Stockholders' equity $ 2,277
Less: goodwill and other
disallowed intangibles -
Less: unrealized losses -
TOTAL TIER 1 CAPITAL 2,277
Tier 2 capital:
Eligible allowance for loan losses 225
TOTAL TIER 2 CAPITAL 225
TOTAL CAPITAL $ 2,502
Assets:
Risk - weighted assets (net) $19,580
Average quarterly assets (net) $27,295
Risk-based ratios:
Tier 1 (minimum - 4.0%) 11.58%
Total (minimum - 8.0%) 12.73%
Tier 1 leverage (minimum - 3.0%) 8.31%
</TABLE>
-113-
Since year-end 1993, capital growth of 35.6% out paced asset growth of
16.4% for the same period and is reflective of sound earnings retention.
During 1996, management projects that assets will grow by $1.3 million or
approximately 5%. Asset growth will be funded through retained earnings
and core deposit growth. Capital growth is expected to keep pace with
asset growth because of improving earnings and moderate dividends.
IMPACT OF INFLATION. Substantially all of the assets and liabilities
of a financial institution are monetary. Therefore, inflation generally
has a less significant impact on financial institutions than do
fluctuations in market interest rates. Inflation can lead to accelerated
growth in non-interest expenses, which can adversely impact results of
operations. Additionally, inflation may impact the rate of deposit growth
and necessitate increased growth in equity to maintain a strong capital
position. Management believes the most significant impact on financial
results is Community's ability to respond to changes in interest rates.
Community seeks to protect net interest income from the adverse effects of
interest rate fluctuations through its asset/liability management program.
IMPACT OF ACCOUNTING STANDARDS EFFECTIVE IN FUTURE PERIODS. The FASB
issued SFAS No. 122 "Accounting for Mortgage Servicing Rights" in May 1995.
This Statement changes the accounting for mortgage servicing rights
retained by the loan originator. Under this Statement, an entity that
acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or secures those loans with
servicing rights retained should allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. Under current
practice, all such costs are assigned to the loan. The costs allocated to
mortgage servicing rights will be recorded as a separate asset and
amortized in proportion to, and over the life of, the net servicing income.
The carrying value of the mortgage servicing rights will be periodically
evaluated for impairment.
Management does not expect SFAS No. 122 to have a material effect on
Community's financial position or results of operations upon
implementation. The Statement is effective for Community in 1996.
In March 1995, the FASB issued SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The Statement requires review
of such assets whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the
-114-
asset. The Statement is effective for financial statements for fiscal
years beginning after December 15, 1995. Community will adopt SFAS No. 121
effective January 1, 1996. Its adoption is expected to have no material
effect on Community's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages, but does not require
entities to use a fair value based method to account for stock-based
compensation plans. If the fair value accounting encouraged is not
adopted, entities must disclose the pro-forma effect on net income and on
earnings per share had the accounting been adopted. The Statement also
requires accounting at fair value for all transactions in which an entity
acquires goods or services from non-employees in exchange for equity
instruments. Its adoption is not expected to have a material effect on
Community's financial position or results of operations.
-115-
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY BANK CORPORATION AND SUBSIDIARY
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
-116-
GAVIGAN BURKHART FREEMAN & CO. [LOGO]
CERTIFIED PUBLIC ACCOUNTANTS
THOMAS H. GAVIGAN, C.P.A. 1935-1995
ROBERT D. BURKHART, C.P.A.
GEORGE J. FREEMAN, JR. C.P.A.
WARREN W. CLINE, III, C.P.A.
DENNIS L. BOGARD, C.P.A.
MARK G. GODEK C.P.A.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF COMMUNITY BANK CORPORATION AND SUBSIDIARY
We have audited the accompanying consolidated balance sheets of Community
Bank Corporation and Subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of earnings, shareholders' equity and
cash flows for the years ended December 31, 1995, 1994 and 1993. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Community Bank Corporation and Subsidiary as of December 31, 1995 and
-117-
1994, and the results of their operations and their cash flows for the
years ended December 31, 1995, 1994 and 1993 in conformity with generally
accepted accounting principles.
S/ GAVIGAN BURKHART FREEMAN & CO PLLC
GAVIGAN BURKHART FREEMAN & CO., P.L.L.C.
January 17, 1996
Traverse City, Michigan
Offices:
1010 SOUTH GARFIELD
TRAVERSE CITY,
MICHIGAN 49686
(616) 947-7800
(616) 947-0348 FAX
Also:
1999 Walden Drive
Gaylord,
Michigan 49735
(517) 732-1000
(517) 732-5698 FAX
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<TABLE>
COMMUNITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
DECEMBER 31,
1995 1994
<S> <C> <C>
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 2,671,951 $ 1,860,391
Federal funds sold 2,800,000 -
Total cash and cash equivalents 5,471,951 1,860,391
INVESTMENT SECURITIES (notes 1 and 2)
Securities available for sale
Mortgage backed securities - -
Other securities 3,022,581 1,000,400
Securities to be held to maturity
(fair value: 1994 - $2,529,750) - 2,561,512
Total investment securities 3,022,581 3,561,912
LOANS:
Loans, gross (notes 1 and 4) 19,182,278 17,588,844
Less: allowance for loan losses 225,502 179,628
Total net loans 18,956,776 17,409,216
BANK PREMISES AND EQUIPMENT, NET
(notes 1 and 5) 906,816 927,943
INTEREST RECEIVABLE 288,399 277,894
OTHER ASSETS, NET 97,658 138,126
TOTAL ASSETS $28,744,181 $24,175,482
</TABLE>
See accompanying notes
-119-
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31,
1995 1994
<S> <C> <C>
DEPOSITS
Non-interest bearing deposits $ 4,493,003 $ 4,113,997
Interest bearing deposits
NOW accounts 7,329,634 6,932,535
Savings 5,069,460 5,013,422
Time certificates of deposit (note 6) 8,477,060 5,851,528
Total deposits 25,369,157 21,911,482
SHORT TERM BORROWINGS
Federal funds purchased - 100,000
Federal Home Loan Bank 800,000
ACCRUED INTEREST PAYABLE AND OTHER
LIABILITIES 297,328 220,928
OTHER BORROWINGS - 9,000
TOTAL LIABILITIES 26,466,485 22,241,410
COMMITMENTS, CONTINGENCIES AND
CONCENTRATION (note 8)
SHAREHOLDERS' EQUITY
Common stock - without par value;
200,000 shares authorized; 76,424
issued and outstanding in 1995
and 1994, respectively 849,077 849,077
Retained earnings 1,421,619 1,084,695
Net unrealized appreciation on
securities available for sale, net
of tax of $3,000 and $100 at
December 31, 1995 and 1994,
respectively (notes 1 and 2) 7,000 300
TOTAL SHAREHOLDERS' EQUITY 2,277,696 1,934,072
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $28,744,181 $24,175,482
</TABLE>
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<TABLE>
COMMUNITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,986,374 $1,619,486 $1,459,025
Interest on investment securities
Taxable U.S. Government obligations 155,388 185,730 186,943
Other securities 21,941 1,845 38,457
Non-taxable obligations of state and
political subdivisions 8,301 19,724 26,153
Interest on federal funds sold 77,189 63,553 45,167
Total interest income 2,249,193 1,890,338 1,755,745
INTEREST EXPENSE
Interest on deposits 710,926 501,272 553,892
NET INTEREST INCOME 1,538,267 1,389,066 1,201,853
PROVISION FOR LOAN LOSSES (notes 1 and 3) 62,400 25,000 6,800
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,475,867 1,364,066 1,195,053
OTHER INCOME (note 10) 225,816 232,089 215,535
OTHER EXPENSE (note 10) 1,148,011 1,189,024 1,095,725
EARNINGS BEFORE INCOME TAXES 553,672 407,131 314,863
INCOME TAXES (note 6) 190,000 126,900 94,000
NET EARNINGS $ 363,672 $ 280,231 $ 220,863
NET EARNINGS PER SHARE OF COMMON STOCK
(note 1) $ 4.76 $ 3.67 $ 2.94
</TABLE>
See accompanying notes
-121-
<TABLE>
COMMUNITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
NET
UNREALIZED
APPRECIATION TOTAL
ON SECURITIES SHARE-
COMMON STOCK RETAINED AVAILABLE HOLDERS'
SHARES AMOUNT EARNINGS FOR SALE EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1993 73,194 $805,472 $ 636,386 $ - $1,441,858
NET EARNINGS - - 220,863 - 220,863
CASH DIVIDENDS DECLARED - - (26,037) - (26,037)
ISSUANCE OF STOCK 3,230 43,605 - - 43,605
BALANCE AT DECEMBER 31,
1993 76,424 849,077 831,212 - 1,680,289
NET EARNINGS - - 280,231 - 280,231
CASH DIVIDENDS DECLARED - - (26,748) - (26,748)
NET CHANGE IN UNREALIZED
APPRECIATION ON
SECURITIES AVAILABLE
FOR SALE, NET OF
TAX OF $100 - - - 300 300
BALANCE AT DECEMBER 31,
1994 76,424 849,077 1,084,695 300 1,934,072
NET EARNINGS - - 363,672 - -
CASH DIVIDENDS - - (26,748) - (26,748)
NET CHANGE IN UNREALIZED
APPRECIATION ON
SECURITIES AVAILABLE
FOR SALE - - - 6,700 6,700
BALANCE AT DECEMBER 31,
1995 76,424 $849,077 $1,421,619 $7,000 $2,277,696
</TABLE>
See accompanying notes
-122-
<TABLE>
COMMUNITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 363,672 $ 280,231 $ 220,863
Adjustments to reconcile net earnings
to net cash provided from operations:
Depreciation and amortization 55,688 62,264 66,165
Amortization of investment premiums 16,731 14,571 17,273
Provision for loan losses 62,400 25,000 6,800
Gain on sale of investment security (300) - -
Deferred federal income taxes (22,000) 14,600 (9,500)
(Increase) decrease in assets:
Interest receivable and other assets 25,964 (11,010) 25,073
Increase (decrease) in liabilities:
Interest payable and other accrued expenses 98,399 (66,397) 106,095
NET CASH FLOWS FROM OPERATING ACTIVITIES 600,544 319,259 432,769
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment (34,561) (133,860) (19,712)
Maturities of held to maturity investment securities 1,000,000 1,025,780 2,265,797
Purchases of held to maturity investment securities (800,000) (500,000) (1,500,000)
Proceeds from sales of available for sale investment
securities 500,300 - -
Purchases of available for sale investment securities (166,700) - -
Decrease in other assets - - 6,029
Net increase in loans (1,609,960) (2,456,881) (1,081,460)
NET CASH FLOWS FROM INVESTING ACTIVITIES (1,110,921) (2,064,961) (329,346)
CASH FLOWS FROM FINANCING ACTIVITIES
Issue stock - - 43,605
Net increase (decrease) in deposits 3,457,675 (803,886) 946,679
Dividends paid (26,748) (26,748) (26,037)
Increase in short-term borrowings 800,000 - -
Payments of long-term debt (9,000) (20,000) (64,899)
Net increase (decrease) on federal funds purchased (100,000) 100,000 -
NET CASH FLOWS FROM FINANCING ACTIVITIES 4,121,927 (750,634) 899,348
-123-
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,611,560 (2,496,336) 1,002,771
CASH AND CASH EQUIVALENTS - BEGINNING 1,860,391 4,356,727 3,353,956
CASH AND CASH EQUIVALENTS - ENDING $5,471,951 $1,860,391 $4,356,727
</TABLE>
See accompanying notes
-124-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS
Community Bank Corporation (Community) is a Michigan bank holding
company with its headquarters in Grant, Michigan. Community was
formed on February 16, 1990. Community is the parent company of
Grant State Bank (Grant), which is Community's only subsidiary.
Community and Grant are engaged in the business of commercial
banking and other related activities. Grant is a full service
bank offering customary commercial banking services which include
commercial and retail loans, business and personal checking
accounts, savings and individual retirement accounts, time
deposit instruments, automated transaction machine services,
money transfer services and safe deposit facilities.
The principal markets for Community's financial services are
presently the Michigan communities in which Grant's offices are
located and the areas immediately surrounding those communities.
Community and Grant serve these markets through two offices
located in Grant and Newaygo, Michigan.
ACCOUNTING POLICIES
The accounting and reporting policies of Community and Grant
conform to generally accepted accounting principles and to
general practice within the banking industry.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Community and its wholly-owned subsidiary Grant. All significant
intercompany balances and transactions have been eliminated in
consolidation.
INVESTMENT SECURITIES
Investment securities are classified in two categories and
accounted for as follows.
- SECURITIES TO BE HELD TO MATURITY. U.S. Government
securities for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted
-125-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT SECURITIES - CONTINUED
for amortization of premiums and accretion of discounts
which are recognized in interest income using the interest
method over the period to maturity.
- SECURITIES AVAILABLE FOR SALE. Securities available for
sale consist of U.S. Government securities not classified
as securities to be held to maturity. Such securities
might be sold prior to maturity due to changes in interest
rates, prepayment risks, yield and availability of
alternative investments, liquidity needs or other factors.
Unrealized holding gains and losses, net of tax, on securities
available for sale are reported as a net amount and as a separate
component of shareholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
LOANS
Loans are stated at their principal amount outstanding, net of an
allowance for loan losses. Interest on loans is accrued daily
based on the outstanding principal balance. Loan origination
costs are recognized ratably over the term of the loan.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem
loans and current economic conditions that may affect the
borrower's ability to pay. Accrual of interest is discontinued
on a loan when management believes, after considering economic
-126-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
ALLOWANCE FOR LOAN LOSSES - CONTINUED
and business conditions and collection efforts, that the
borrower's financial condition is such that collection of
interest is doubtful.
Statement of Financial Accounting Standards No. 114, ACCOUNTING
BY CREDITORS FOR IMPAIRMENT OF A LOAN, was adopted on January 1,
1995. Under this standard, loans considered to be impaired are
reduced to the present value of expected future cash flows or to
the fair value of collateral, by allocating a portion of the
allowance for loan losses to such loans. If these allocations
cause the allowance for loan losses to be increased, such
increase is reported as an expense through an increase in the
provision for loan losses. Adoption of this standard resulted in
no effect on the provision for loan loss expense.
The carrying values of impaired loans are periodically adjusted
to reflect cash payments, revised estimates of future cash flows
and increases in the present value of expected cash flows due to
the passage of time. Cash payments representing interest income
are reported as such. Other cash payments are reported as
reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of
time are reported as increases or decreases in the provision for
loan losses.
OTHER REAL ESTATE
Other real estate acquired is carried at the lower of cost or
market value. When the property is acquired through foreclosure,
any excess of the related loan balance over market value is
charged to the allowance for loan losses. Subsequent write-downs
or losses upon sale, if any, are charged to other operating
expense. Collateral for loans which has been in-substance
foreclosed is accounted for in the same manner as other real
estate.
GRANT'S PREMISES AND EQUIPMENT
Grant's premises and equipment are stated at cost, less
accumulated depreciation computed on the straight-line and
accelerated methods, over the estimated useful lives of the
assets.
-127-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
FEDERAL INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of non-taxable
income such as interest on state and municipal securities) and
deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax
bases of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets and liabilities are
included in the financial statements at currently enacted income
tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as
prescribed in Financial Accounting Standards Board Statement No.
109, ACCOUNTING FOR INCOME TAXES. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
PENSION PLAN
Pension costs, assets and liabilities related to Grant's defined
benefit pension plan are accounted for in accordance with the
requirements of Financial Accounting Standards Board Statement
No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS. For financial
reporting purposes, the projected unit credit method is utilized
for measuring net periodic pension cost over the estimated
average service lives of employees. Grant's funding policy, if
earnings permit, is to contribute the maximum amount deductible
for federal income tax purposes.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include
amounts due from banks and federal funds sold.
BOOK VALUE PER SHARE
Book value per share is calculated by dividing shareholders'
equity by the number of shares outstanding and amounted to $29.80
and $25.31 at December 31, 1995 and 1994, respectively.
EARNINGS PER SHARE
Earnings per share have been calculated based on the weighted
average number of shares outstanding during the years presented.
-128-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
EARNINGS PER SHARE - CONTINUED
The number of shares used in the computation of earnings per
share is 76,424, 76,424 and 75,005 for the years ended December
31, 1995, 1994 and 1993, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity 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.
RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to conform
to the 1995 presentations.
-129-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - INVESTMENT SECURITIES
The carrying amount of investment securities and their fair
values as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1995 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C> <C>
Obligations of U.S.
government agencies $2,014,131 $11,000 $ - $2,025,131
Obligations of states and
political subdivisions 800,000 - - 800,000
Other securities 197,450 - - 197,450
$3,011,581 $11,000 $ - $3,022,581
1994
Obligations of U.S.
government agencies $1,000,000 $ 400 $ - $1,000,400
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1994 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C> <C>
Obligations of U.S.
government agencies $2,030,762 $ - $(31,762) $1,999,000
Obligations of states and
political subdivisions 500,000 - - 500,000
Other securities 30,750 - - 30,750
$2,561,512 $ - $(31,762) $2,529,750
</TABLE>
-130-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - INVESTMENT SECURITIES - CONTINUED
The amortized cost and estimated market value of debt securities
at December 31, 1995, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
ESTIMATED
AMORTIZED MARKET
COST VALUE
<S> <C> <C> <C>
Due in one year or less $2,505,207 $2,512,268
Due after one year through five years 506,374 510,313
Due after five years through ten years - -
Due after ten years - -
Total $3,011,581 $3,022,581
</TABLE>
Investment securities with a carrying amount of $200,000 at
December 31, 1995 and 1994, were pledged to secure public
deposits. Investment securities with a carrying amount of
$1,985,831 at December 31, 1995 were pledged to secure short-
term borrowings as of the same date.
NOTE 3 - LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
<S> <C> <C> <C>
Commercial, financial and
agricultural $ 9,508,678 $ 8,266,185
Installment loans to individuals 3,269,402 3,082,584
Real estate mortgage 6,031,393 5,888,418
Lease financing 372,805 351,657
Total loans 19,182,278 17,588,844
Less allowance for loan losses 225,502 179,628
Net loans $18,956,776 $17,409,216
</TABLE>
Loans on which the accrual of interest has been discontinued or
reduced amounted to approximately $28,000, $80,000, and $49,000
-131-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - LOANS - CONTINUED
in 1995, 1994 and 1993, respectively. If interest on those loans
had been accrued, such income would have approximated $855,
$4,200, and $2,800 in 1995, 1994 and 1993, respectively. No
interest income on those loans was actually collected after those
loans were placed on nonaccrual status.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C> <C>
Balance, beginning of year $179,628 $151,381 $139,111
Provision charged to operations 62,400 25,000 6,800
Loans charged off (47,126) (30,565) (41,102)
Recoveries of loans charged off 30,600 33,812 46,572
Balance, end of year $225,502 $179,628 $151,381
</TABLE>
IMPAIRED LOANS
The average investment in impaired loans during 1995 was $48,900.
No interest income was recognized on these impaired loans during
1995.
Information regarding impaired loans as of December 31, 1995 is
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Balance of impaired loans $27,818
Less portion for which no allowance
for loan losses is allocated -
Portion of impaired loan balance for
which an allowance for credit
losses is allocated $27,818
Portion of allowance for loan losses
allocated to the impaired loan
balance $19,639
</TABLE>
-132-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - BANK PREMISES AND EQUIPMENT
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
<S> <C> <C> <C>
Land and land improvements $ 189,114 $ 189,114
Buildings and building improvements 727,441 720,522
Furniture and fixtures 431,847 406,775
Computers 218,001 215,617
Automated teller machines 89,707 89,709
Total cost 1,656,110 1,621,737
Less accumulated depreciation and
amortization 749,294 693,794
Undepreciated cost $ 906,816 $ 927,943
</TABLE>
Depreciation and amortization expense amounted to $55,688,
$62,264, and $66,165 in 1995, 1994 and 1993, respectively.
NOTE 6 - TIME CERTIFICATES OF DEPOSIT
Included in time deposits are certificates of deposits in amounts
of $100,000 or more. These certificates and their remaining
maturities are as follows:
These such certificates of deposit totaled $1,344,069 and
$200,000 as of December 31, 1995 and 1994, respectively.
Interest expense attributable to the above deposits amounted to
$41,159, $817, and $25,417 in 1995, 1994 and 1993, respectively.
-133-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - INCOME TAXES
Federal income tax is comprised of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C> <C>
Currently payable $212,000 $112,500 $107,500
Deferred tax expense (credit):
Accrual to cash adjustment (8,000) 25,100 (10,300)
Depreciation 4,000 4,500 5,900
Loan loss reserve (19,200) - -
Other, net 1,200 (15,200) (9,100)
Total $190,000 $126,900 $ 94,000
</TABLE>
Federal income tax expense differed from the amount computed by
applying the statutory rate of 34% to income before federal
income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C> <C>
Computed "expected" tax $199,700 $136,600 $104,900
Increase (decrease) in tax resulting from:
Tax-exempt investment and loan
income (11,800) (9,300) (10,400)
Interest expense associated with
carrying certain tax-exempt
investments and loans 1,900 1,500 1,700
Other, net 200 (1,900) (2,200)
Total $190,000 $126,900 $ 94,000
</TABLE>
Federal income tax payable of $99,697 and $13,528 is included in
other accrued expenses at December 31, 1995 and 1994,
respectively.
-134-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - INCOME TAXES - CONTINUED
The components of net deferred taxes consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
Temporary differences:
Accrual to cash $(64,200) $(72,200)
Depreciation (41,100) (37,100)
Loan loss Reserve 27,800 8,600
Other, net 2,500 7,600
Net deferred tax liability $(75,000) $(93,100)
</TABLE>
Deferred tax liabilities at December 31, 1995 and 1994 are
included in other liabilities in the accompanying balance sheets.
NOTE 8 - PENSION PLAN
Grant sponsors a noncontributory defined benefit pension plan
covering substantially all of its employees. The benefits are
based on years of service, age of employee and the employee's
compensation during the last ten years of employment. Grant's
funding policy is to contribute the maximum amount deductible
through required quarterly payments and the balance after the end
of the year. Plan assets were invested in certificates of
deposit and other interest-bearing securities at December 31,
1995 and 1994.
During 1995, Community amended the benefit formula in the
defined benefit plan which resulted in a significant decrease
in the projected benefit obligation and the provision for
future salary increase as of December 31, 1995. Also there
was a significant increase in the reported net unrealized gain
from 1994. This was due to an overall improvement in the return
on plan assets and due to the fact that the death benefits paid
in 1995 on the death of the former president were paid from
insurance policies funded through the plan rather than from
plan assets.
Pension expense amounted to $10,541, $53,025, and $45,395 in
1995, 1994 and 1993, respectively. These amounts are included in
employee benefits in the accompanying consolidated statements of
earnings.
-135-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 8 - PENSION PLAN - CONTINUED
The components of pension expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C> <C>
Service cost - benefits earned during
the period $13,541 $32,207 $27,253
Interest cost on the projected benefit
obligation 16,726 32,391 28,005
Less return (loss) on plan assets 46,990 (7,394) 9,432
Net amortization and deferral 27,264 (18,967) (431)
Total pension expenses $10,541 $53,025 $45,395
</TABLE>
The funded status of the plan and amounts recognized in the
consolidated balance sheets are as follows:
-136-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 8 - PENSION PLAN - CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C> <C>
Actuarial present value of projected
benefit obligation:
Accumulated benefit obligation:
Vested $(174,467) $(168,566)
Nonvested (2,548) (1,797)
Provision for future salary increases (66,290) (137,868)
Projected benefit obligation (243,305) (308,231)
Plan assets at fair value 280,095 221,739
Excess (deficiency) projected benefit
obligation over plan assets 36,790 (86,492)
Unrecognized net (gain) loss (53,541) (14,834)
Unrecognized net transition (asset) liability (18,170) (19,567)
Unrecognized prior service cost 10,586 83,383
Accrued pension cost $ (24,335) $ (37,510)
</TABLE>
Major assumptions used:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C> <C>
Discount rate 7.50% 7.50% 8.00%
Rate of increase in compensation
levels 4.00% 4.00% 4.00%
Expected long-term rate of return
on plan assets 8.00% 8.00% 8.00%
</TABLE>
-137-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 9 - SHORT-TERM BORROWINGS
In 1995 Community received a short-term advance from the Federal
Home Loan Bank (FHLB) totaling $800,000. This advance requires
monthly interest payments at a fixed rate of 5.93%. The
principal repayment is to be made on June 17, 1996. This debt is
collateralized by all assets of Grant up to the principal
outstanding. The available advance amount is determined based
on "eligible collateral" which consists of nonspecific loans
within the mortgage portfolio and U.S. Treasury and Agency
securities. The available advance amount was approximately
$4,000,000 at December 31, 1995.
NOTE 10 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
From time to time, Community is involved in legal matters in the
ordinary course of business. Management and legal counsel
believe that the ultimate resolution of current matters will not
have a material effect on the consolidated financial statements.
Grant also is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing
needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments
represent commitments to extend credit. These instruments
involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the statement of
financial position. The contract or notional amounts of those
instruments reflect the extent of involvement Grant has in
particular classes of financial instruments.
Grant's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to
extend credit is represented by the contractual notional amount
of those instruments. Grant uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
-138-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 10 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS - CONTINUED
<TABLE>
<CAPTION>
CONTRACT OF NOTIONAL AMOUNT
DECEMBER 31,
1995 1994
<S> <C> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $1,632,000 $1,467,146
Consumer unused lines of credit $ 532,000 $ 448,000
Letters of credit $ 10,000 $ -
</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.
Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Grant evaluates each
customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by Grant upon
extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment and
income producing commercial properties.
Grant extends mortgage, commercial and consumer loans to
customers located principally in their primary service area. In
addition Grant holds significant amounts of debt securities of
governmental entities outside their primary service area.
Accordingly, Grant is affected by both local and national
economic factors and conditions.
NOTE 11 - RELATED-PARTY TRANSACTIONS
Certain officers and directors of Grant and companies in which
they have ten percent or more beneficial ownership were indebted
to Grant in the aggregate amount of $421,902 and $375,117 at
December 31, 1995 and 1994, respectively. Such loans were made
in the ordinary course of business in accordance with Grant's
-139-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11 - RELATED-PARTY TRANSACTIONS - CONTINUED
normal lending policies, including interest rate charged and
collateralization, and do not represent more than a normal
collection risk.
The following table reports the activity during 1995 with respect
to such loans reported above which in aggregate exceed $60,000 to
any such persons.
<TABLE>
<CAPTION>
<S> <C> <C>
Balance at December 31, 1994 $339,752
New loans 69,400
Repayments and Renewals 52,380
Balance at December 31, 1995 $356,772
</TABLE>
NOTE 12 - OTHER INCOME AND EXPENSE
Other income and expense are comprised of the following:
-140-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 12 - OTHER INCOME AND EXPENSE - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C> <C>
OTHER INCOME
Service fees $ 214,908 $ 210,586 $ 207,304
Other 10,908 21,503 8,231
Total other income $ 225,816 $ 232,089 $ 215,535
OTHER EXPENSE
Salaries $ 394,434 $ 365,294 $ 362,120
Pensions and other employee
benefits 112,163 176,664 152,270
Occupancy, net 192,998 199,935 199,646
Other operating
Other insurance expense 9,556 17,140 25,908
Advertising expense 32,058 16,558 26,000
Stationary, supplies and
printing 41,868 46,667 29,866
Postage expense 29,618 25,062 25,529
Professional fees 32,534 - -
Consulting fees 55,767 69,735 46,732
Outside service fees 15,038 23,614 25,076
Directors fees 35,000 29,287 27,000
FDIC assessment 25,456 47,910 46,060
Other 171,521 171,158 129,518
Total other expense $1,148,011 $1,189,024 $1,095,725
</TABLE>
NOTE 13 - CASH FLOW SUPPLEMENTAL DISCLOSURES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C> <C>
Interest paid $683,515 $494,587 $561,780
Federal income taxes paid $126,634 $164,544 $ 39,400
</TABLE>
-141-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 13 - SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS -
CONTINUED
Upon the adoption of SFAS No. 115 during 1994, Grant transferred
$1,000,000 from securities held to maturity to securities
available for sale. During October 1995 the Financial Accounting
Standards Board approved a one-time opportunity which allowed
financial institutions to reclassify, without penalty, their
investment securities prior to December 31, 1995. As a result,
Grant transferred its entire portfolio of securities held to
maturity of $2,300,312 to securities available for sale.
NOTE 14 - CONSOLIDATED DISCLOSURE OF FAIR VALUE
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS
No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS.
The estimated fair value amounts have been determined by Grant
using available market information and appropriate valuation
methodologies. However, considerable judgement is necessarily
required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts Grant could realize in a
current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The following table presents the disclosure of estimated fair
values:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
CARRYING FAIR
AMOUNT VALUE
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 5,471,951 $ 5,471,951
Investment securities 2,825,131 2,825,131
Loans, net 18,956,776 18,978,287
FHLB and FRB stock 197,450 197,450
Accrued interest receivable 288,399 288,399
LIABILITIES
Deposits 25,369,157 25,492,135
Federal Home Loan Bank advances 800,000 801,532
Accrued interest payable 76,874 76,874
</TABLE>
-142-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 14 - CONSOLIDATED DISCLOSURES OF FAIR VALUE - CONTINUED
CASH AND CASH EQUIVALENTS
For cash and cash equivalents, the carrying value is a reasonable
estimate of fair value.
INVESTMENT SECURITIES
For securities available for sale, fair values are based on
quoted market prices or dealer quotes, if available. If a quoted
market price is not available, fair value is estimated using
quoted market prices for similar securities.
LOANS RECEIVABLE
For certain homogeneous categories of loans, such as some
residential mortgages, consumer loans, commercial real estate,
etc., fair value is estimated by discounting the future cash
flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same
remaining maturities. For those adjustable rate loans which had
rate adjustments within the last six months or for those loans
tied to a prime rate index, estimated fair values approximate
carrying values. Both the carrying value and fair value of loans
receivable are shown net of the allowance for loan losses.
FHLB AND FRB STOCK
The carrying value of the FHLB and FRB stock approximates the
fair value.
ACCRUED INTEREST RECEIVABLE
The carrying value of accrued interest receivable approximates
the fair value.
DEPOSITS
The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for
borrowings of similar remaining maturities.
-143-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 14 - CONSOLIDATED DISCLOSURES OF FAIR VALUE - CONTINUED
FEDERAL HOME LOAN BANK ADVANCES
Rates currently available to Grant for FHLB advances with similar
terms and remaining maturities are used to estimate the fair
value to the existing advances.
ACCRUED INTEREST PAYABLE
The carrying value of accrued interest payable approximates the
fair value.
OFF-BALANCE SHEET INSTRUMENTS
Grant's loan commitments, standby letters of credit and unused
credit lines have been estimated to have no material fair value
as such commitments are generally fulfilled at current market
rates.
NOTE 15 - COMMUNITY BANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 2,419 $ 1,256
Investment in bank subsidiary 2,266,955 1,923,282
Other assets 14,000 18,534
TOTAL ASSETS $2,283,374 $1,943,072
LIABILITIES AND SHAREHOLDERS' EQUITY:
Total liabilities $ 5,678 $ 9,000
Shareholders' equity 2,277,696 1,934,072
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,283,374 $1,943,072
</TABLE>
-144-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 15 - COMMUNITY BANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
CONDENSED STATEMENTS OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C> <C>
INCOME
Dividends from bank subsidiary $ 64,348 $ 48,725 $ 50,994
Total 64,348 48,725 50,994
EXPENSES
Other operating expenses 39,651 8,321 10,907
Income before income tax and
equity in undistributed
earnings of bank subsidiary 24,697 40,404 40,087
Income tax benefit (2,000) (3,000) (4,000)
Equity in undistributed earnings
of bank subsidiary 336,975 236,827 176,776
Net Income $363,672 $280,231 $220,863
</TABLE>
-145-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 15 - COMMUNITY BANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Operating Activities
Net income $363,672 $280,231 $220,863
Adjustments to reconcile net income to
net cash provided by operating
activities:
Equity in undistributed earnings of
subsidiaries (336,975) (236,827) (176,776)
Net increase in other assets 4,536 3,610 2,560
Net cash provided by operating
activities 31,233 47,014 46,647
Financial Activities
Net change in notes payable (3,322) (20,000) (64,889)
Cash dividends paid (26,748) (26,748) (26,037)
Issuance of stock - 43,605
Net cash used by financing
activities (30,070) (46,748) (47,331)
Net increase (decrease) in cash 1,163 266 (684)
CASH - BEGINNING 1,256 990 1,674
CASH - ENDING $ 2,419 $ 1,256 $ 990
</TABLE>
NOTE 16 - PLAN OF REORGANIZATION (UNAUDITED)
In September of 1995, Community announced that they had signed a
definitive agreement to merge with Valley Ridge Financial Corp.,
parent company of Kent City State Bank. The transaction will be
structured as a tax-free exchange and will be accounted for under
the pooling-of-interests method.
-146-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 17 - ACCOUNTING STANDARDS IMPLEMENTED IN 1995
In May 1993, the FASB issued SFAS No. 114, and later amended by
No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -
INCOME RECOGNITION AND DISCLOSURES (SFAS Nos. 114 and 118).
Community adopted SFAS Nos. 114 and 118 as of January 1, 1995.
Its adoption has had no material effect on Community's financial
position or results of operations.
SFAS Nos. 114 and 118 requires that impaired loans, as defined,
be measured based on the present value of expected cash flows
discounted at the loans' observable market price or at the fair
value of collateral if the loan is collateral dependent. Under
this standard, loans considered to be impaired are reduced to the
present value of expected future cash flows or to the fair value
of collateral, by allocating a portion of the allowance for loans
losses to such loans. If these allocations cause the allowance
for loan losses to require increase, such increase is reported as
bad debt expense.
Smaller-balance homogeneous loans are residential first mortgage
loans secured by one-to-four family residences, residential
construction loans, automobile, home equity and second mortgage
loans and are collectively evaluated for impairment. Commercial
loans and first mortgage loans secured by other than one-to-four
family residences are evaluated individually for impairment.
When credit analysis of borrower operating results and financial
condition indicate the underlying ability of the borrower's
business activity is not sufficient to generate adequate cash
flow to service the business' cash needs, including Community's
loans to the borrower, the loan is evaluated for impairment.
Often this is associated with a delay or shortfall in payments of
90 days or less. Commercial credits are rated on a scale of 1 to
5, with grades 1 and 2 being pass grades, 3 being below average,
4 marginal and 5 poor. Loans graded 5 are considered impaired.
Loans are generally moved to nonaccrual status and graded 5 when
90 days or more past due. Once a loan is evaluated as impaired,
a loss is considered to have been identified, and loan loss
reserve is allocated. An impaired loan is charged-off by
management as a loss when deemed uncollectible, although
collection efforts may continue and future recoveries may occur.
SFAS Nos. 114 and 118 disclosures for impaired loans are not
expected to be materially different from nonaccrual and
renegotiated loan disclosures or nonperforming and past-due asset
-147-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 17 - ACCOUNTING STANDARDS IMPLEMENTED IN 1995 - CONTINUED
disclosures. Management reviews loans delinquent 90 days or more
to determine if interest accrual should be discontinued based on
the estimated fair market value of the collateral. Under SFAS
Nos. 114 and 118, the carrying values of impaired loans are
periodically adjusted to reflect cash payments, revised estimates
of future cash flows, and increases in the present value of
expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash
payments are reported as reductions in carrying value, while
increases or decreases due to changes in estimates of future
payments and due to the passage of time are reported as bad debt
expense, if reductions, or as reductions in bad debt expense.
The average investment in impaired loans for the year ended
December 31, 1995 was $48,900, with $855 interest income
recognized on a cash basis. At December 31, 1995 there was
$27,818 outstanding in impaired loans, with $27,818 for which an
allowance for credit losses is allocated, and $0 for which no
allowance for loan losses is allocated. The portion of the
allowance for loan losses allocated to the impaired loan balance
is $19,639 at December 31, 1995.
As of December 31, 1995 and 1994, there were loans on nonaccrual
status in the amounts of $27,818 and $80,342, respectively. If
nonaccrual loans had been maintained current in accordance with
their original terms, additional interest income of approximately
$855 and $4,200 would have been recorded in the twelve months
ended December 31, 1995 and 1994, respectively.
In December 1991, the FASB issued SFAS No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS. SFAS No. 107 was issued for
the purpose of requiring financial statement disclosure about the
fair value of all financial instruments. Financial instruments
include both assets and liabilities recognized and not recognized
in the balance sheet. This Statement is effective for entities
with less than $150 million in total assets for fiscal years
ending after December 15, 1995. Community has provided the
required disclosures under SFAS No. 107 in the financial
statements issued for the year ending December 31, 1995.
In December 1994, the Accounting Standards Division of the AICPA
approved SOP 94-6, DISCLOSURE OF CERTAIN SIGNIFICANT RISK AND
UNCERTAINTIES. SOP 94-6 requires disclosures in the financial
-148-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 17 - ACCOUNTING STANDARDS IMPLEMENTED IN 1995 - CONTINUED
statements beyond those now being required or generally made in
the financial statements in the following areas: nature of
operations, use of estimates in the preparation of financial
statements, certain significant estimates and current
vulnerability due to certain concentrations. The standard is
effective for financial statements issued for fiscal years ending
after December 15, 1995. Community has provided the required
disclosures under SOP 94-6 in the financial statements issued for
the year ending December 31, 1995.
In December 1990, the FASB issued SFAS No. 106, EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The
Statement became effect for Community as of January 1, 1995, and
establishes accounting standards for accounting for
postretirement benefits other than pensions, principally
postretirement health care benefits. Community offers no such
benefits to its employees and, therefore, implementation of the
standard had no effect on financial statements.
NOTE 18 - ACCOUNTING STANDARDS TO BE IMPLEMENTED IN FUTURE PERIODS
In March 1995, the FASB issued SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF. SFAS No. 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The Statement requires review of
such assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use
should be based on the fair value of the asset. The Statement is
effective for financial statements for fiscal years beginning
after December 15, 1995. Community will adopt SFAS No. 121
effective January 1, 1996. Its adoption is expected to have no
material effect on Community's financial position or results of
operations.
-149-
COMMUNITY BANK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 18 - ACCOUNTING STANDARDS TO BE IMPLEMENTED IN FUTURE PERIODS -
CONTINUED
The FASB issued SFAS No. 122, ACCOUNTING FOR MORTGAGE SERVICING
RIGHTS, in May 1995. This Statement changes the accounting for
mortgage servicing rights retained by the loan originator. Under
this Statement, an entity that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and
sells or securitizes those loans with servicing rights retained
should allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. Under
current practice, all such costs are assigned to the loan. The
costs allocated to mortgage servicing rights will be recorded as
a separate asset and amortized in proportion to, and over the
life of, the net servicing income. Management does not expect
SFAS No. 122 to have a material effect on Community's financial
position or results of operations upon implementation. The
Statement is effective for Community in 1996.
In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. SFAS No. 123 encourages, but does not
require, entities to use a fair value based method to account for
stock-based compensation plans. If the fair value accounting
encouraged is not adopted, entities must disclose the PRO FORMA
effect on net income and on earnings per share had the accounting
been adopted. The Statement also requires accounting at fair
value for all transactions in which an entity acquires goods or
services from nonemployees in exchange for equity instruments.
Its adoption is not expected to have a material effect on
Community's financial position or results of operations.
-150-
STATISTICAL INFORMATION
STATISTICAL INFORMATION
REGARDING COMMUNITY BANK CORPORATION AND SUBSIDIARY
-151-
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES
AND STOCKHOLDERS' EQUITY
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average assets:
Interest-earning assets:
Taxable 2,588 164 6.34% 3,040 187 6.15%
Non-taxable <F1> 445 33 7.49% 599 30 5.01%
Total Securities 3,033 197 6.51% 3,639 217 5.96%
Federal funds sold 1,425 77 5.40% 1,615 64 3.96%
Loans <F2> 18,393 1,986 10.80% 15,973 1,619 10.14%
Total earnings assets 22,851 2,260 9.89% 21,227 1,900 8.95%
Nonaccrual loans 28 70
Cash and due from banks 1,597 1,546
Other non-earning assets 1,325 1,272
Allowance for loan loss (204) (165)
Total assets $25,597 $23,950
Average liabilities:
Interest-bearing deposits
Demand 6,062 130 2.14% 7,835 165 2.11%
Savings 5,096 112 2.20% 5,093 101 1.98%
Time 8,107 457 5.64% 5,634 233 4.14%
Other 239 12 5.02% 19 2 10.53%
Total interest-bearing
liabilities 19,504 711 3.64% 18,581 501 2.70%
Demand deposits 3,700 3,333
Total funds 23,204 21,914
Other liabilities 295 209
Total liabilities 23,499 22,123
-152-
Average shareholders'
equity 2,098 1,827
Total liabilities
and shareholders'
equity $25,597 $23,950
Net interest income <F1> $1,549 $1,399
Rate spread <F1> 6.25% 6.25%
Net interest margin
(percent of average
earning assets) <F1> 6.78% 6.59%
<FN>
<F1> Presented on a fully taxable equivalent basis using a federal income
tax rate of 34%.
<F2> Interest includes loan fees of $96,130 and $108,950, respectively.
</FN>
</TABLE>
-153-
COMMUNITY BANK CORPORATION
STATISTICAL INFORMATION
<TABLE>
VOLUME/RATE ANALYSIS
<CAPTION>
1995/1994
CHANGES IN INTEREST DUE TO
AVERAGE AVERAGE NET
VOLUME RATE CHANGE
(Dollars in thousands)
<S> <C> <C> <C>
Interest income:
Taxable securities $(28) $ 5 $(23)
Tax-exempt securities <F1> (8) 11 3
Total securities (36) 16 (20)
Loans 245 122 367
Federal funds sold (8) 21 13
Total interest-earning assets 202 158 360
Interest expense:
Interest-paying demand (37) 2 (35)
Savings deposits - 11 11
Time deposits 102 122 224
Total interest-paying deposits 65 135 200
Other 23 (13) 10
Total interest-paying liabilities 88 122 210
Net interest income $114 $ 36 $150
</TABLE>
Volume variance - Change in volume multiplied by the previous year's rate.
Rate variance - Change in rate multiplied by the current year's volume.
<F1> Interest is presented on a fully taxable equivalent basis using a
federal income tax rate of 34%.
-154-
COMMUNITY BANK CORPORATION
STATISTICAL INFORMATION
INVESTMENT PORTFOLIO
The carrying values of investment securities as of December 31
are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Investment securities available for sale
U.S. Treasury and U.S. Government
corporations and agencies $2,014 $1,000
Obligations of states and political
subdivisions 800 -
Other securities 198 -
$3,012 $1,000
Investment securities held to maturity
U.S. Treasury and U.S. Government
corporations and agencies $ - $2,031
Obligations of states and political
subdivisions - 500
Other securities - 31
Total investment securities held
to maturity $ - $2,562
Total investment securities $3,012 $3,562
</TABLE>
-155-
COMMUNITY BANK CORPORATION
STATISTICAL INFORMATION
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
The following table shows, by class of maturities at December 31,
1995, the amounts and weighted average yields of such investment
securities:
<TABLE>
<CAPTION>
CARRYING AVERAGE
VALUE YIELD <F1>
(Dollars in thousands)
<S> <C> <C>
U.S. Treasury and other U.S. Government
corporations and agencies
One year or less $1,508 6.20%
Over one through five years 506 6.08%
Total 2,014 6.17%
Obligations of states and political subdivisions
One year or less 800 7.05%
Over one through five years - -
Over five through ten years - -
Over ten years - -
Total 800 7.05%
Other Securities 198 7.39%
Total investment securities $3,012 6.48%
<FN>
<F1> Weighted average yield has been computed on a fully taxable
equivalent basis. The rates shown on state and municipal
securities have been adjusted to a fully taxable equivalent using
a federal income tax rate of 34%.
<F2> As of December 31, 1995, the securities of no issuer except the
U.S. Government had an aggregate carrying value which exceeded
10% of shareholders' equity.
</FN>
</TABLE>
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COMMUNITY BANK CORPORATION
STATISTICAL INFORMATION
LOAN PORTFOLIO
The following table presents the loans outstanding at December 31
according to the type of loan:
<TABLE>
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Loan categories:
Commercial, financial and agricultural $ 9,509 $ 8,266
Real estate - mortgage 6,031 5,888
Real estate - construction - -
Installment loans to individuals 3,269 3,083
Lease financing 373 352
Total $19,182 $17,589
</TABLE>
The following table shows the maturity of commercial, financial
and agricultural loans outstanding at December 31, 1995. Also,
provided below are the amounts due after one year classified according
to the terms of the loans. Historical maturity information is not
available, however, management believes that the amounts reported are
reasonable estimates.
<TABLE>
<CAPTION>
DUE IN ONE DUE IN ONE DUE AFTER
YEAR OR LESS TO FIVE YEARS FIVE YEARS TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $3,476 $5,349 $684 $9,509
Loans due after one year
With fixed rates 1,443 184 1,627
With floating rates 3,906 500 4,406
Total $5,349 $684 $6,033
</TABLE>
-157-
COMMUNITY BANK CORPORATION
STATISTICAL INFORMATION
NONPERFORMING LOANS AND ASSETS
The following table summarizes nonaccrual and past due loans as
of December 31:
<TABLE>
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Nonperforming loans:
Nonaccruals loans:
Commercial loans $ 6 $ -
Real estate-mortgage - 33
Installment loans to individuals 22 46
Total 28 79
Accruing loans 90 days or more past due 2 -
Total nonperforming loans 30 79
Property from defaulted loans - 18
Total nonperforming assets $30 $97
</TABLE>
Additional information with respect to nonaccrual and
restructured loans at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Interest income which would have been
recorded under original terms $855
Interest income recorded during the period $ -
</TABLE>
Loan performance is reviewed regularly by loan review personnel,
loan officers and senior management. Loans are placed on nonaccrual
status when principal or interest is past due 90 days or more and the
loan is not well-secured and in the process of collection, or when
reasonable doubt exists concerning collectibility of interest or
principal. Any interest previously accrued, but non-collected is
reversed and charged against current earnings.
As of December 31, 1995, there were no concentrations of loans
exceeding 10 percent of total loans which are not otherwise disclosed
as a category of loans in the consolidated balance sheets of
Community.
-158-
COMMUNITY BANK CORPORATION
STATISTICAL INFORMATION
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table summarized changes in the allowance for loan
losses for years ended December 31 arising from loans charged-off and
recoveries on loans previously charged off by loan category and
additions to the allowance which were charged to expense.
<TABLE>
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $180 $151
Charge-offs:
Commercial, financial and agricultural $ (6) $ -
Real estate-mortgage - -
Consumer (41) (30)
Lease financing - -
Total charge-offs (47) (30)
Recoveries:
Commercial, financial and agricultural 1 3
Real estate-mortgage - 1
Consumer 16 12
Lease financing 14 18
Total recoveries 31 34
Net (charge-offs) recoveries (16) 4
Addition to allowance for loan losses 62 25
Balance at end of period $226 $180
Ratio of net charge-offs during the period to
average loans outstanding during the period .09% (.02)%
</TABLE>
The allowance for loan losses is based on management's evaluation
of the portfolio, past loan loss experience, current economic
conditions, volume, growth, composition of the loan portfolio, and
other relevant factors. The allowance is increased by provisions for
loan losses that have been charged to expense and reduced by net
charge-offs.
-159-
COMMUNITY BANK CORPORATION
STATISTICAL INFORMATION
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was allocated in the amount deemed
reasonably necessary to provide for possible losses within the
following loan categories as of December 31:
<TABLE>
<CAPTION>
1995 1994
% OF % OF
BALANCE AT END OF ALLOCATED TOTAL ALLOCATED TOTAL
PERIOD ALLOCATED TO: ALLOWANCE LOANS ALLOWANCE LOANS
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $ 92 51.5% $ 66 49.0%
Real estate-mortgages 15 31.4 24 33.5
Consumer 22 17.1 12 17.5
Unallocated 97 - 78 -
Total $226 100% $180 100%
</TABLE>
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COMMUNITY BANK CORPORATION
STATISTICAL INFORMATION
AVERAGE DEPOSITS
The daily average deposits and rates paid on such deposits for
the years ended December 31 were:
<TABLE>
<CAPTION>
1995 1994
AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
Average balance:
Noninterest-bearing demand deposits $ 3,700 -% $ 3,333 -%
Interest-bearing demand deposits 6,062 2.14% 7,835 2.11%
Savings deposits 5,096 2.20% 5,093 1.98%
Time deposits 8,107 5.64% 5,634 4.14%
Total average deposits $22,965 3.05% $21,895 2.28%
</TABLE>
The time remaining until maturity of time certificates of deposit
and other time deposits of $100,000 or more at December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
<S> <C>
Three months or less $ 610,000
Over three months through twelve months -
Over twelve months 734,069
Total $1,344,069
</TABLE>
-161-
COMMUNITY BANK CORPORATION
STATISTICAL INFORMATION
RETURN ON EQUITY AND ASSETS
The following table sets forth certain financial ratios for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
Financial ratios:
Return on average total assets 1.42% 1.17%
Return on average equity 17.34% 15.33%
Average equity to average total assets 8.20% 7.63%
Dividend payout ratio 7.36% 9.54%
</TABLE>
-162-
RIGHTS OF DISSENTING SHAREHOLDERS
Under the provisions of Section 762 of the MBCA, any Valley Ridge
or Community shareholder may dissent from the proposed Merger and be
paid the "fair value" of his or her shares by complying with the
procedures set forth in Sections 761 through 774 of the MBCA. Any
shareholder who does not vote for approval of the Plan of Merger at
the special meeting of Valley Ridge or Community shareholders, as
applicable, and who delivers written notice of dissent to the
applicable Corporation at or before the special meeting, has the right
to receive from Valley Ridge or Community the fair value of his or her
shares if the Plan of Merger is approved by the shareholders and the
proposed Merger is consummated. A shareholder may not dissent as to
less than all of the shares beneficially owned by him or her.
A shareholder who wishes to dissent must follow certain required
procedures. To claim dissenters' rights, a shareholder must:
(i) not vote for or consent in writing to approval of
the Plan of Merger (there is no requirement that a
shareholder vote against approval of the Plan of Merger);
and
(ii) deliver to Valley Ridge or Community, before the
vote is taken on the Plan of Merger, a separate written
notice of dissent (voting against approval of the Plan of
Merger will not satisfy this requirement). The notice must
state that the shareholder intends to demand payment for his
or her shares if the Plan of Merger is approved by the
shareholders and the transactions contemplated by the Plan
of Merger are taken.
Within 10 days after the date on which the shareholders approve
the Plan of Merger, Valley Ridge or Community must give notice to each
shareholder who properly demanded the right to receive the fair value
of his or her shares. Within 30 days (or such longer period not to
exceed 60 days as may be permitted by the applicable Corporation) of
the date the notice is delivered, the shareholder must file with
Valley Ridge or Community, as applicable, a written demand for
payment, certify that he or she acquired beneficial ownership of the
shares before the date of the first announcement of the terms of the
Plan of Merger to the news media or the applicable Corporation's
shareholders, and deposit his or her certificates in accordance with
the terms of the notice. A shareholder who properly demands payment
and deposits his or her share certificates retains all other rights of
a shareholder until those rights are canceled or modified by the
taking of the actions contemplated by the Plan of Merger. A
-163-
shareholder who does not demand payment or deposit his or her share
certificates as required in the notice loses his or her dissenters'
rights.
A notice of election to dissent may be withdrawn only with the
consent of Valley Ridge or Community. If the notice is withdrawn, the
transactions contemplated by the Plan of Merger do not occur, a court
determines that the shareholder is not entitled to payment, or the
shareholder otherwise loses his or her dissenters' rights, the
shareholder will not be entitled to receive the payment demanded for
his or her shares, and he or she will be reinstated to his or her
rights as a shareholder as of the date the notice was filed.
Within seven days after consummation of the transactions
contemplated by the Plan of Merger or receipt by Valley Ridge or
Community of the demand for payment, whichever occurs later, the
Combined Organization must send to the dissenting shareholder the
amount that the Combined Organization estimates to be the fair value
of his or her shares plus accrued interest. The Combined Organization
must send the payment with a balance sheet as of the end of a fiscal
year ended not more than 16 months before the date of payment, an
income statement for that year, a statement of changes in
shareholders' equity for that year, and if available the most recent
interim financial statements of Valley Ridge or Community. In
addition, the Combined Organization must send the payment with a
statement of the Combined Organization's estimate of the fair value of
the shareholder's shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment
based on the dissenting shareholder's estimate of the fair value of
his or her shares.
Within 30 days after the Combined Organization has made or
offered payment for the shares, the shareholder may notify the
Combined Organization in writing of his or her own estimate of the
fair value of his or her shares and the amount of interest due, and
demand payment of that estimate, less any payment already forwarded by
the Combined Organization. The shareholder's right to pursue further
a differing amount for his or her shares terminates if he or she fails
to act within that 30-day period.
If the shareholder demands an amount for his or her shares
different than that paid or offered by the Combined Organization,
then, within 60 days after receiving the shareholder's demand for
payment of a different amount, the Combined Organization may file an
action asking the court to determine the fair value of the
shareholder's shares and accrued interest. If the Combined
Organization does not file the action within the 60-day period, the
Combined Organization will be required to pay the dissenting
shareholder the amount he or she has demanded.
-164-
In the action, the court may, pursuant to the agreement of the
parties, submit the matter to a referee selected by the parties and
approved by the court. The referee will conduct proceedings in the
matter and prepare a report containing proposed findings of fact and
conclusions of law and the referee's recommended judgment. The
referee is given full power to conduct and regulate the proceeding.
After the referee files the report with the court, each party has 45
days after the party is served with notice of the filing to serve
written objections to the report on the other party. The court may
extend the period for serving the objections. Either party may, by
motion, ask the court to take action on the report or object to it.
After a hearing, the court may adopt the report, receive further
evidence, modify the report, or instruct the referee to take further
action on it. The adoption of the report is treated as a final
judgment and is subject to the same review as any other judgment of
the court. The parties and the referee, subject to the court's
approval, determine the amount and manner of payment of the referee's
compensation.
A copy of Sections 761 through 774 of the MBCA is attached as
Appendix C to this Prospectus and Proxy Statement.
Valley Ridge and Community are not obligated to consummate the
Merger if dissenters' rights are exercised by Valley Ridge or
Community shareholders with respect to a number of shares of Valley
Ridge or Community Common Stock which, in the aggregate, exceed 10% of
the total number of outstanding shares of Valley Ridge or Community
Common Stock. (See "The Merger--Conditions to the Merger and
Abandonment.") Valley Ridge and Community will require strict
compliance with Sections 761 through 774 of the MBCA by any
shareholder seeking to assert dissenters' rights.
Shareholders of Valley Ridge and Community who do not want to
vote in favor of approval of the Plan of Merger, but who also do not
wish to perfect dissenters' rights pursuant to the MBCA, would
continue to have the ability to sell their shares in the open market
until the Merger becomes effective if approved.
Shareholders of Valley Ridge who desire to assert dissenters'
rights may send a written notice of dissent to Mr. Richard L. Edgar,
Valley Ridge Financial Corp., 6 North Main Street, Kent City, Michigan
49330. Shareholders of Community who would like to assert dissenters'
rights may send a written notice of dissent to Mr. Ronald L. Hansen,
Community Bank Corporation, 10 West Main Street, Grant, Michigan
49327.
THE DISCUSSION OF RIGHTS OF DISSENTING SHAREHOLDERS ABOVE DOES
NOT CONSTITUTE LEGAL ADVICE. SHAREHOLDERS SEEKING TO EXERCISE AND
PERFECT DISSENTERS' RIGHTS SHOULD SEEK LEGAL COUNSEL.
-165-
VOTING AND MANAGEMENT INFORMATION
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF VALLEY RIDGE
Holders of record of shares of Valley Ridge Common Stock at the
close of business on May 13, 1996, will be entitled to vote at the
special meeting of shareholders on June 25, 1996, and any adjournment
of that meeting. As of December 31, 1995, there were 372,862 shares
of Valley Ridge Common Stock issued and outstanding, held by 383
shareholders of record. Each share of Valley Ridge Common Stock is
entitled to one vote on each matter presented for shareholder action.
The following table sets forth information concerning the number
of shares of Valley Ridge Common Stock held as of December 31, 1995,
by each shareholder who is known to Valley Ridge management to have
been the beneficial owner of more than 5% of the outstanding shares of
Valley Ridge Common Stock as of that date:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP<F1>
SOLE SHARED
VOTING VOTING OR TOTAL
NAME AND ADDRESS OF AND DISPOSI- DISPOSITIVE BENEFICIAL PERCENT
BENEFICIAL OWNER TIVE POWER POWER<F2> OWNERSHIP OF CLASS
<S> <C> <C> <C> <C>
K. Timothy Bull
4468 21 Mile Road
Kent City, MI 49330 -- 21,338<F5> 21,338<F5> 5.73%
Kenneth Bull
1334 88th, S.E.
Newaygo, MI 49337 -- 20,422<F5> 20,422<F5> 5.48%
Robert C. Humphreys
17660 Westbrook Drive
Casnovia, MI 49318 15,974 15,888 31,862 8.56%
Kent City State Bank
Bank Profit Sharing Plan Trust
c/o NBD Bank
200 Ottawa, N.W.
Grand Rapids, MI 49503 -- 29,976 29,976 8.05%
-166-
Mabel Kriger
157 Main Street
Kent City, MI 49330 10,116 10,055 20,171 5.41%
</TABLE>
_______________________
(Footnotes begin on page 132.)
The following table shows certain information concerning the
number of shares of Valley Ridge Common Stock held as of December 31,
1995, by each of Valley Ridge's directors, each of the named executive
officers, and all of Valley Ridge's directors and executive officers
as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP<F1>
SOLE SHARED
VOTING VOTING OR TOTAL
NAME OF AND DISPOSI- DISPOSITIVE BENEFICIAL PERCENT
BENEFICIAL OWNER TIVE POWER POWER<F2> OWNERSHIP OF CLASS
<S> <C> <C> <C> <C>
Jerome B. Arends 4,664 3,872 8,536 2.29%
K. Timothy Bull -- 21,338<F5> 21,338<F5> 5.73%
Richard L. Edgar 15,319<F6><F7> 3,136 18,455<F6><7> 4.96%
Gary Gust 9,114 8,530 17,644 4.74%
Robert C. Humphreys 15,974 15,888 31,862 8.56%
Michael E. McHugh 16,378<F6><F7> 876 17,254<F6><F7> 4.63%
John J. Niederer -- 287 287 <F*>
Paul K. Spoelman 545 -- 545 <F*>
Donald Swanson 300 3,250 3,550 <F*>
All directors and
executive officers
as a group 60,641 57,177 117,818 31.60%
<FN>
______________________
<F*>Less than 1%
</FN>
</TABLE>
(Footnotes begin on page 132.)
-167-
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF COMMUNITY
Holders of record of shares of Community Common Stock at the
close of business on May 13, 1996, will be entitled to vote at
the special meeting of shareholders on June 25, 1996, and any
adjournment of that meeting. As of December 31, 1995, there were
76,424 shares of Community Common Stock issued and outstanding, held
by 105 shareholders of record. Each share of Community Common Stock
is entitled to one vote on each matter presented for shareholder
action.
The following table sets forth information concerning the number
of shares of Community Common Stock held as of December 31, 1995, by
each shareholder who is known to Community management to have been the
beneficial owner of more than 5% of the outstanding shares of
Community Common Stock as of that date:
<TABLE>
<CAPTION>
VALLEY RIDGE COMMON
STOCK TO BE RECEIVED
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP<F1> IN THE MERGER
SOLE SHARED
VOTING VOTING OR TOTAL TOTAL PERCENT
NAME AND ADDRESS OF AND DISPOSI- DISPOSITIVE BENEFICIAL PERCENT FOLLOWING OF
BENEFICIAL OWNER TIVE POWER POWER<F2> OWNERSHIP OF CLASS MERGER <F3> CLASS<F4>
<S> <C> <C> <C> <C> <C> <C>
Elmo L. Campbell
52 Park St.
Grant, MI 49327 -- 4,440 4,440 5.81% 6,919 1.40%
Ben J. Landheer
P.O. Box 280
Fremont, MI 49412 7,000 -- 7,000 9.16% 11,008 2.23%
Max E. Saur Trust
P.O. Box 1879
Marco Island, FL 33969-1879 5,500 -- 5,500 7.20% 8,649 1.75%
Edward J. Setlock
25334 Chapelweigh
Farmington Hills, MI 48336-1531 -- 6,124 6,124 8.01% 9,630 1.95%
</TABLE>
_____________________
(Footnotes begin on page 132.)
-168-
The following table shows certain information concerning the
number of shares of Community Common Stock held as of December 31,
1995, by each of Community's directors, each of the named executive
officers, and all of Community's directors and executive officers as a
group:
<TABLE>
<CAPTION>
VALLEY RIDGE COMMON
STOCK TO BE RECEIVED
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP<F1> IN THE MERGER
SOLE SHARED
VOTING VOTING OR TOTAL TOTAL PERCENT
NAME AND ADDRESS OF AND DISPOSI- DISPOSITIVE BENEFICIAL PERCENT FOLLOWING OF
BENEFICIAL OWNER TIVE POWER POWER<F2> OWNERSHIP OF CLASS MERGER <F3> CLASS<F4>
<S> <C> <C> <C> <C> <C> <C>
Elmo L. Campbell -- 4,440 4,440 5.81% 6,919 1.40%
Fred J. Finkbeiner -- 2,946 2,946 3.85% 4,632 <F*>
Robert L. Hance -- -- -- <F*> -- <F*>
Ronald L. Hansen -- 750 750 <F*> 1,179 <F*>
Ben J. Landheer 7,000 -- 7,000 9.16% 11,008 2.23%
Dennis C. Nelson -- -- -- <F*> -- <F*>
Donald VanSingel -- 2,132 2,132 2.79% 3,352 <F*>
All directors and
executive officers
as a group 7,000 10,478 17,478 22.86% 27,485 5.57%
<FN>
______________________
<F*> Less than 1%
<F1> The numbers of shares stated are based on information furnished
by each person listed and include shares personally owned of
record by that person and shares which under applicable
regulations are deemed to be otherwise beneficially owned by that
person. Under these regulations, a beneficial owner of a
security includes any person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or
otherwise has or shares voting power or dispositive power with
respect to the security. Voting power includes the power to vote
or to direct the voting of the security. Dispositive power
includes the power to dispose or to direct the disposition of the
security. A person will also be considered the beneficial owner
of a security if the person has a right to acquire beneficial
ownership of the security within 60 days.
-169-
<F2> These numbers include shares over which the listed person is
legally entitled to share voting or dispositive power by reason
of joint ownership, trust, or other contract or property right,
and shares held by spouses and children over whom the listed
person may have substantial influence by reason of relationship.
<F3> This column reflects the number of shares of Valley Ridge Common
Stock to be issued to the specified person in exchange for the
number of shares of Community Common Stock shown in the "Total
Beneficial Ownership" column for such person, based upon an
estimated conversion ratio of 1.5726 for all shares. See the
introduction to the PRO FORMA condensed combined financial
statements on page 28 for the assumptions upon which this
estimated conversion ratio is based.
<F4> This column reflects the percentage of the outstanding shares of
Valley Ridge Common Stock which the specified person will hold
following consummation of the Merger. These percentages were
computed with reference to a total of 493,050 shares of Valley
Ridge Common Stock outstanding, representing the sum of 372,862
shares outstanding as of December 31, 1995, and 120,188 shares to
be issued in the Merger based on the estimated conversion ratio
(1.5726) and the number of shares of Community Common Stock
outstanding at December 31, 1995 (76,424 shares). This
computation does not take fractional shares into account.
<F5> K. Timothy Bull and Kenneth Bull jointly own 19,172 shares of
Valley Ridge Common Stock. The number of shares reported as
beneficially owned by each of these individuals includes the
19,172 shares.
<F6> Mr. Edgar may be considered to have voting and/or dispositive
control over 29,976 shares of Valley Ridge Common Stock held by
the Kent City State Bank Profit Sharing Plan Trust by reason of
the capacities in which he serves at Valley Ridge and Kent City.
The number of shares reported as beneficially owned by Mr. Edgar
excludes, and Mr. Edgar disclaims beneficial ownership of, 16,310
shares of Valley Ridge Common Stock held by the Kent City State
Bank Profit Sharing Plan Trust. The number of shares reported
includes 1,653 shares allocated to Mr. Edgar's account under the
Valley Ridge Employee Stock Ownership Plan which are also
included in the number reported as beneficially owned by Mr.
McHugh (as to which Mr. McHugh disclaims beneficial ownership).
<F7> Mr. McHugh is the trustee of the Valley Ridge Employee Stock
Ownership Plan. As trustee, Mr. McHugh has nominal voting and
dispositive power over shares held in trust, limited by the terms
of the governing plan and trust agreements and his legal and
fiduciary duties. The number of shares reported as beneficially
-170-
owned by Mr. McHugh includes 10,918 shares held by the Valley
Ridge Employee Stock Ownership Plan of which Mr. McHugh disclaims
beneficial ownership (including the 1,653 shares allocated to Mr.
Edgar's account under that plan).
</FN>
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Valley Ridge's board of directors after the Merger will be
divided into three classes, which will be as nearly equal in number as
possible. Each class of directors will serve a successive three-year
term of office.
Biographical information concerning the persons who will be
directors and executive officers of Valley Ridge after the Merger is
presented below. Except as otherwise indicated, all of the named
individuals have had the same principal employment for over five
years. Executive officers will be appointed annually and serve at the
pleasure of the board of directors of Valley Ridge.
DIRECTORS WITH TERMS EXPIRING IN 1997
Jerome B. Arends (age 51) has been a director of Valley Ridge
since 1988. Mr. Arends is Chief Executive Officer and President and
sole shareholder of Ravenna Farm Equipment, Inc., a distributor of
farm implements and equipment.
K. Timothy Bull (age 48) has been a director of Valley Ridge
since 1993 and was also a director of Valley Ridge from 1988 until
1991. Mr. Bull is President and sole shareholder of Moon Lake
Orchards, Inc., a producer of fruit.
Elmo L. Campbell (age 72) has been a director of Community since
1990. Mr. Campbell has been President of Community since 1994. Mr.
Campbell retired as the owner and operator of Moe's Hardware in Grant,
Michigan, a hardware store, in 1987 after owning that business for 39
years.
Richard L. Edgar (age 51) has been a director of Valley Ridge
since 1988. Mr. Edgar has been President and Chief Executive Officer
of Valley Ridge since 1988 and President and Chief Executive Officer
of Kent City since 1987. Prior to that, Mr. Edgar served Kent City in
various management and other capacities since 1963. Mr. Edgar is also
a director of West Shore Computer Services, Inc., a data processing
company in which Kent City is a 20% shareholder.
Fred J. Finkbeiner (age 66) has been a director of Community
since 1990. Mr. Finkbeiner recently retired as a Sales Manager at V &
P Produce, a distributor of vegetables located in Grant, Michigan.
-171-
DIRECTORS WITH TERMS EXPIRING IN 1998
Gary Gust (age 51) has been a director of Valley Ridge since
1991. Mr. Gust is President and sole shareholder of Gust Construction
Company, a general contractor.
Robert L. Hance (age 41) has been a director of Community and
Grant since 1995. Mr. Hance has been Chief Operating Officer of O & A
Electric Cooperative, a supplier of electricity and other energy
services and products, since 1996. Previously, Mr. Hance was
Executive Vice President and General Manager of O & A Electric
Cooperative.
Ronald L. Hansen (age 51) has been a director of Community since
1990. Mr. Hansen has been Secretary of Community and President and
Chief Executive Officer of Grant since 1994 and a director of Grant
since 1982. Prior to that, Mr. Hansen served Grant in various
management and other capacities since 1973. Mr. Hansen is a first
cousin of Daniel Wheat, the Vice President and Cashier of Grant.
Robert C. Humphreys (age 57) has been a director of Valley Ridge
since 1988. Mr. Humphreys has been Chairman of the Board of Valley
Ridge since 1993. Mr. Humphreys owns and operates Humphreys Orchards,
a producer of fruit.
Ben J. Landheer (age 60) has been a director of Community since
1991. Mr. Landheer owns and operates Landheer Insurance Agency, an
agent for insurance companies offering a broad range of insurance
products.
DIRECTORS WITH TERMS EXPIRING IN 1999
Michael E. McHugh (age 46) has been a director of Valley Ridge
since 1989. Mr. McHugh is Secretary and Treasurer of Valley Ridge.
Mr. McHugh has also been Executive Vice President of Kent City since
1987.
Dennis C. Nelson (age 47) has been a director of Community since
1990. Mr. Nelson is a dentist practicing in Grant, Michigan.
John J. Niederer (age 60) has been a director of Valley Ridge
since 1993. Mr. Niederer has been President and sole shareholder of
Greenridge Fruit, Inc., a distributor of fruit since 1990. Prior to
that, Mr. Niederer was Vice President of Wm. Bolthouse Farms, Inc., a
producer and distributor of vegetables.
Paul K. Spoelman (age 60) has been a director of Valley Ridge
since 1994. Mr. Spoelman is a shareholder and founder of Spoelman,
Hovingh & Feldt, Inc., an accounting firm.
-172-
Donald Swanson (age 61) has been a director of Valley Ridge since
1988. Mr. Swanson is President and a majority shareholder of Swanson
Pickle Co., Inc., a producer and distributor of pickles.
Donald VanSingel (age 52) has been a Chairman since 1990 and a
director of Community since 1990. Mr. VanSingel has been a consultant
for Governmental Consultant Services, Inc. since 1993. Prior to that,
Mr. VanSingel served in the Michigan House of Representatives.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS OF VALLEY RIDGE
The following table shows certain information concerning the
compensation for services rendered during each of the three years in
the period ended December 31, 1995, of the Chief Executive Officer of
Valley Ridge. No other executive officer of Valley Ridge earned cash
compensation in excess of $100,000 during 1995. Mr. Edgar was
compensated by Kent City in the capacity indicated in the table.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION
NAME AND
PRINCIPAL ALL OTHER
POSITION YEAR SALARY<F1> BONUS<F2> COMPENSATION<F3>
<S> <C> <C> <C> <C>
Richard L. Edgar 1995 $112,455 $26,534 $26,031
Director, President 1994 $108,700 $20,811 $25,824
and Chief Executive 1993 $101,625 $19,000 $22,605
Officer of Valley Ridge
and Kent City
<FN>
__________________________
<F1> Includes compensation deferred under the Kent City Profit
Sharing/401(k) Plan and director fees paid by Kent City.
<F2> Includes compensation deferred under the Kent City Profit
Sharing/401(k) Plan.
<F3> All other compensation for 1995 includes: (i) contributions by
Kent City under the Profit Sharing/401(k) Plan ($15,620); (ii)
contributions by Valley Ridge under the Valley Ridge Employee
Stock Ownership Plan ($3,500); and (iii) amounts paid by Kent
City for life insurance ($6,911).
</FN>
</TABLE>
-173-
During 1995, Kent City compensated its directors at the rate of
$3,600 per year and $400 per regular board meeting attended, except
that the Chairman of the Board was paid $500 per meeting attended.
Directors who were not executive officers of Kent City also received
$100 per committee meeting attended. Kent City has entered into
deferred compensation agreements with all of its directors under which
payments will be made to the directors after their retirement.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS OF COMMUNITY
The following table shows certain information concerning the
compensation for services rendered during each of the three years in
the period ended December 31, 1995, of the Chief Executive Officer of
Community. No executive officer of Community earned cash compensation
in excess of $100,000 during 1995. Mr. Hansen was compensated by
Grant in the capacity indicated in the table.
<TABLE>
SUMMARY COMPENSATION TABLE<F1>
<CAPTION>
ANNUAL COMPENSATION
NAME AND
PRINCIPAL ALL OTHER
POSITION YEAR SALARY<F2> BONUS COMPENSATION<F3>
<S> <C> <C> <C> <C>
Ronald Hansen 1995 $64,700 $ -- $336
Director, President and 1994 $53,625 $6,500 $345
Chief Executive Officer of 1993 $50,150 $ -- $304
Community and Grant
<FN>
__________________________
<F1> Compensation reported in this table does not include amounts paid
under Community's defined benefit plan.
<F2> Includes director fees paid by Grant.
<F3> All other compensation includes amounts paid by Community for
life insurance.
</FN>
</TABLE>
During 1995, Grant compensated its directors at the rate of
$5,000 per year and $125 per regular board meeting attended.
-174-
INTERESTS OF CERTAIN PERSONS
As of December 31, 1995, executive officers and directors of
Community are or may be deemed to be the beneficial owners of a total
of 17,478 shares or 22.86% of the outstanding shares of Community
Common Stock. (See "Voting and Management Information--Voting
Securities and Principal Shareholders of Community.") Therefore, if
all directors and executive officers of Community and their affiliates
vote the shares beneficially owned by them in favor of approval of the
Plan of Merger, the affirmative vote of only an additional 27.2% of
the outstanding shares of Community Common Stock would be required to
approve the Plan of Merger. As of December 31, 1995, executive
officers and directors of Valley Ridge are or may be deemed to be the
beneficial owners of a total of 117,585 shares or 31.58% of the
outstanding shares of Valley Ridge Common Stock. (See "Voting and
Management Information--Voting Securities and Principal Shareholders
of Valley Ridge.") Therefore, if all directors and executive officers
of Valley Ridge and their affiliates vote the shares beneficially
owned by them in favor of approval of the Plan of Merger, the
affirmative vote of only an additional 18.5% of the outstanding shares
of Valley Ridge Common Stock would be required to approve the Plan of
Merger.
As of May 13, 1996, the Record Date for the special
meeting of Valley Ridge shareholders, there were 373,862 shares of
Valley Ridge Common Stock outstanding held by 383 shareholders of
record. As of May 13, 1996, the Record Date for the special
meeting of Community shareholders, there were 76,424 shares of
Community Common Stock outstanding held by 105 shareholders of
record.
Under the Plan of Merger, Grant will offer Mr. Hansen an
employment agreement that would be assumed by Valley Ridge if the
Merger is consummated. As of the date of this Prospectus and Proxy
Statement, the terms of that contract have not been determined. It is
expected, however, that the employment agreement will provide that Mr.
Hansen will continue to be employed by Grant or any successor to Grant
in a senior executive capacity for a term of at least five years. It
is also expected that, pursuant to the employment agreement, Mr.
Hansen will continue to receive a salary and benefits not less than
that currently provided to him by Grant for the term of the employment
agreement.
In addition, each of the directors and certain other persons who
may be deemed to be Affiliates of Valley Ridge or Community have
executed letter agreements with Valley Ridge whereby each such person
has agreed to use his or her best efforts to cause the Plan of Merger
to be adopted by Valley Ridge's or Community's shareholders, as
-175-
applicable, and to cause the Merger to be consummated, including
without limitation, to vote all shares of Valley Ridge or Community
Common Stock owned or controlled by such person in favor of adoption
of the Plan of Merger.
Messrs. Finkbeiner, Landheer and VanSingel are the only directors
or executive officers of Community who own shares of Valley Ridge
Common Stock. As of the date of this Prospectus and Proxy Statement,
Messrs. Finkbeiner, Landheer and VanSingel collectively owned
beneficially 742 shares of Valley Ridge Common Stock. Mr. Bull is the
only director or executive officer of Valley Ridge who owns shares of
Community Common Stock. As of the date of this Prospectus and Proxy
Statement, Mr. Bull owned beneficially 100 shares of Community Common
Stock. Except as otherwise described in this Prospectus and Proxy
Statement, there are no material relationships among the directors,
executive officers and principal shareholders of Community and the
directors, executive officers and principal shareholders of Valley
Ridge.
The percentage of total shareholders' equity of Valley Ridge
represented by loans made by Kent City to directors and executive
officers of Valley Ridge is 9.8%. The percentage of total
shareholders' equity of Community represented by loans made by Grant
to directors and executive officers of Community is 18.5%.
VOTE REQUIRED FOR APPROVAL
An affirmative vote of the shareholders holding a majority of the
outstanding shares of Valley Ridge Common Stock and a majority of the
outstanding shares of Community Common Stock is required to approve
the Plan of Merger. For purposes of counting votes on approval of the
Plan of Merger, abstentions, broker non-votes and other shares not
voted will be counted as voted against the Plan of Merger.
GENERAL INFORMATION
EXPERTS
The consolidated financial statements of Community and Grant at
December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995, appearing in this Prospectus and Proxy
Statement have been audited by Gavigan Burkhart Freeman & Co. P.L.L.C.,
certified public accountants, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement with
respect to the shares to be issued, and are included in reliance upon
such report given upon the authority of such firm as experts in
accounting and auditing.
-176-
The consolidated financial statements of Valley Ridge and Kent
City at December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995, appearing in this Prospectus and
Proxy Statement, have been audited by Crowe, Chizek and Company LLP,
independent accountants, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement with
respect to the shares to be issued, and are included in reliance upon
such report given upon the authority of such firm as experts in
accounting and auditing.
In connection with its role as financial adviser to Valley Ridge
and Community, Roney has rendered a fairness opinion and will receive
professional fees in connection with its services of approximately
$20,000, plus reimbursement for all reasonable expenses. Valley Ridge
and Community have agreed to indemnify Roney against certain
liabilities, including certain liabilities which may arise under the
securities laws.
SOURCES OF INFORMATION
The information contained in this Prospectus and Proxy Statement
relating to Valley Ridge and Community has been furnished by each of
them for inclusion herein. Valley Ridge has relied upon Community
with respect to the accuracy and completeness of the information
concerning Community. Community has relied upon Valley Ridge with
respect to the accuracy and completeness of the information concerning
Valley Ridge.
REPORTS TO SHAREHOLDERS
Valley Ridge currently is not required and, if the Merger is
consummated and shares of Valley Ridge Common Stock are issued to the
existing shareholders of Community, may not be required to deliver an
annual report to shareholders pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended, or the regulations issued by the
Commission. If Valley Ridge is not required to deliver such annual
reports, Valley Ridge expects to prepare and deliver an annual report
to shareholders, although in that case annual reports might not
contain all information that would be required under Commission Rule
14a-3. Valley Ridge expects that any such annual report will contain
financial information that has been audited by an independent public
or certified public accountant.
-177-
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
BETWEEN
COMMUNITY BANK CORPORATION
AND
VALLEY RIDGE FINANCIAL CORP.
Dated as of September 15, 1995
TABLE OF CONTENTS
PAGE
ARTICLE I - THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . .A-1
1.1 Approval of Plan of Merger . . . . . . . . . . . . . . . . . .A-1
1.2 The Closing. . . . . . . . . . . . . . . . . . . . . . . . . .A-2
1.3 Effective Time of the Merger . . . . . . . . . . . . . . . . .A-2
1.4 Merger of Community with and into Valley Ridge . . . . . . . .A-2
1.5 Effect of the Merger . . . . . . . . . . . . . . . . . . . . .A-2
1.6 Additional Actions . . . . . . . . . . . . . . . . . . . . . .A-2
1.7 Surviving Corporation. . . . . . . . . . . . . . . . . . . . .A-3
ARTICLE II - CONVERSION AND EXCHANGE OF SHARES . . . . . . . . . . . . .A-3
2.1 Conversion of Shares . . . . . . . . . . . . . . . . . . . . .A-3
2.2 Adjustments of Shareholders' Equity. . . . . . . . . . . . . .A-5
2.3 No Fractional Securities . . . . . . . . . . . . . . . . . . .A-5
2.4 Surrender of Old Certificates and Distribution of
Valley Ridge Common Stock. . . . . . . . . . . . . . . . . . .A-5
ARTICLE III - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . .A-6
3.1 Authorization, No Conflicts, Etc.. . . . . . . . . . . . . . .A-7
3.2 Organization and Good Standing . . . . . . . . . . . . . . . .A-8
3.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . .A-8
3.4 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . .A-8
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . .A-9
3.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . A-10
3.7 Absence of Material Adverse Change . . . . . . . . . . . . . A-10
3.8 Absence of Litigation. . . . . . . . . . . . . . . . . . . . A-10
3.9 Conduct of Business. . . . . . . . . . . . . . . . . . . . . A-10
3.10 Absence of Defaults Under Contracts. . . . . . . . . . . . . A-10
3.11 Regulatory Filings . . . . . . . . . . . . . . . . . . . . . A-10
3.12 Registration Statement, Etc. . . . . . . . . . . . . . . . . A-11
3.13 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . A-11
3.14 Title to Properties. . . . . . . . . . . . . . . . . . . . . A-12
3.15 Condition of Property. . . . . . . . . . . . . . . . . . . . A-12
3.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12
3.17 Licenses, Permits, Etc.. . . . . . . . . . . . . . . . . . . A-13
3.18 Certain Employment Matters . . . . . . . . . . . . . . . . . A-13
3.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . A-14
3.20 Environmental Matters. . . . . . . . . . . . . . . . . . . . A-16
3.21 Duties as Fiduciary. . . . . . . . . . . . . . . . . . . . . A-17
3.22 Investment Bankers and Brokers . . . . . . . . . . . . . . . A-17
3.23 Change in Business Relationships . . . . . . . . . . . . . . A-17
3.24 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . A-17
3.25 Books and Records. . . . . . . . . . . . . . . . . . . . . . A-17
3.26 Events Since December 31, 1994 . . . . . . . . . . . . . . . A-17
3.27 Anticipated Changes. . . . . . . . . . . . . . . . . . . . . A-18
A-i
TABLE OF CONTENTS -- CONTINUED
PAGE
3.28 Reserve for Loan Losses. . . . . . . . . . . . . . . . . . . A-18
3.29 No Insider Trading . . . . . . . . . . . . . . . . . . . . . A-18
3.30 Continuity of Interest . . . . . . . . . . . . . . . . . . . A-18
3.31 Pooling of Interests Accounting Qualification. . . . . . . . A-19
3.32 Valley Ridge Common Stock. . . . . . . . . . . . . . . . . . A-19
3.33 True and Complete Information. . . . . . . . . . . . . . . . A-19
3.34 Truth and Completeness of Representations and Warranties . . A-19
ARTICLE IV - CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . A-20
4.1 Disclosure Statements. . . . . . . . . . . . . . . . . . . . A-20
4.2 Conduct of Business Pending the Effective Time of the Merger A-22
4.3 Regular Dividends. . . . . . . . . . . . . . . . . . . . . . A-24
4.4 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . A-25
4.5 Competing Proposals. . . . . . . . . . . . . . . . . . . . . A-25
ARTICLE V - ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . A-26
5.1 Registration Statement . . . . . . . . . . . . . . . . . . . A-26
5.2 Other Filings. . . . . . . . . . . . . . . . . . . . . . . . A-26
5.3 Press Releases . . . . . . . . . . . . . . . . . . . . . . . A-26
5.4 Miscellaneous Agreements and Consents. . . . . . . . . . . . A-26
5.5 Exchange of Financial Information. . . . . . . . . . . . . . A-26
5.6 Investigation. . . . . . . . . . . . . . . . . . . . . . . . A-27
5.7 Environmental Investigation. . . . . . . . . . . . . . . . . A-28
5.8 Pooling Qualification. . . . . . . . . . . . . . . . . . . . A-28
ARTICLE VI - CONDITIONS PRECEDENT TO MERGER. . . . . . . . . . . . . . A-29
6.1 Renewal of Representations and Warranties, Etc.. . . . . . . A-29
6.2 Opinions of Legal Counsel. . . . . . . . . . . . . . . . . . A-30
6.3 Required Approvals . . . . . . . . . . . . . . . . . . . . . A-31
6.4 Order, Decree, Etc.. . . . . . . . . . . . . . . . . . . . . A-32
6.5 Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . A-32
6.6 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . A-32
6.7 Registration Statement . . . . . . . . . . . . . . . . . . . A-33
6.8 Certificate as to Outstanding Shares . . . . . . . . . . . . A-33
6.9 Change of Control Waivers. . . . . . . . . . . . . . . . . . A-33
6.10 Pooling of Interests Accounting. . . . . . . . . . . . . . . A-33
6.11 Fairness Opinions. . . . . . . . . . . . . . . . . . . . . . A-33
6.12 Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . A-33
6.13 Employment Agreement . . . . . . . . . . . . . . . . . . . . A-33
ARTICLE VII - ABANDONMENT OF MERGER. . . . . . . . . . . . . . . . . . A-33
7.1 Mutual Abandonment Prior to Effective Time of the Merger . . A-33
7.2 Rights to Terminate. . . . . . . . . . . . . . . . . . . . . A-33
A-ii
TABLE OF CONTENTS -- CONTINUED
PAGE
ARTICLE VIII - AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . . . A-35
8.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . A-35
8.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
8.3 Specific Enforcement . . . . . . . . . . . . . . . . . . . . A-35
ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . A-35
9.1 Liability After Termination. . . . . . . . . . . . . . . . . A-35
9.2 Termination of Representations and Warranties. . . . . . . . A-36
9.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
9.4 Expense Reimbursement After Business Combination . . . . . . A-36
9.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
9.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . A-37
9.7 Method of Consent or Waiver. . . . . . . . . . . . . . . . . A-37
9.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . A-37
9.9 No Assignment. . . . . . . . . . . . . . . . . . . . . . . . A-38
9.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . A-38
9.11 Further Assurances; Privileges . . . . . . . . . . . . . . . A-38
9.12 Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . A-38
9.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . A-38
A-iii
DEFINITIONS
Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . .A-4
Business Combination . . . . . . . . . . . . . . . . . . . . . . . . . A-25
Call Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-9
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
Certificate of Merger. . . . . . . . . . . . . . . . . . . . . . . . . .A-2
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-2
Community. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Community Adjusted Book Value Per Share. . . . . . . . . . . . . . . . .A-3
Community Common Stock . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Constituent Corporation. . . . . . . . . . . . . . . . . . . . . . . . .A-2
Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-8
Conversion Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-3
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Corporation Related Person . . . . . . . . . . . . . . . . . . . . . . A-20
Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Disclosure Statement . . . . . . . . . . . . . . . . . . . . . . . . . .A-6
Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . .A-2
Employee Benefit Plan. . . . . . . . . . . . . . . . . . . . . . . . . A-14
Employment-Related Payments. . . . . . . . . . . . . . . . . . . . . . A-13
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-8
Federal Bank Holding Company Act . . . . . . . . . . . . . . . . . . . .A-1
Federal Reserve Board. . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Final Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . .A-4
Grant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-8
Hazardous Substance. . . . . . . . . . . . . . . . . . . . . . . . . . A-17
Internal Revenue Code. . . . . . . . . . . . . . . . . . . . . . . . . A-14
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
Kent City. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-8
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Michigan Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Old Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-5
PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
Phase I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-28
Plan of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
Prospectus and Proxy Statement . . . . . . . . . . . . . . . . . . . . A-11
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . A-11
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
Securities Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . A-18
Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . .A-2
Unaffiliated Person. . . . . . . . . . . . . . . . . . . . . . . . . . A-36
Valley Ridge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Valley Ridge Adjusted Book Value Per Share . . . . . . . . . . . . . . .A-4
Valley Ridge Common Stock. . . . . . . . . . . . . . . . . . . . . . . .A-1
A-iv
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "PLAN OF MERGER") is made
as of September 15, 1995, between COMMUNITY BANK CORPORATION, a Michigan
corporation ("COMMUNITY"), and VALLEY RIDGE FINANCIAL CORP., a Michigan
corporation ("VALLEY RIDGE").
Valley Ridge and Community (sometimes individually referred to as
a "CORPORATION" or collectively as the "CORPORATIONS") desire that
Community and Valley Ridge become affiliated. The affiliation would be
effected through the merger of Community with and into Valley Ridge in
accordance with this Plan of Merger and in accordance with the Business
Corporation Act of the State of Michigan, as amended (the "MICHIGAN ACT").
The transactions contemplated by and described in this Plan of Merger are
referred to as the "MERGER."
Valley Ridge is a bank holding company registered as such with
the Board of Governors of the Federal Reserve System (the "FEDERAL RESERVE
BOARD") under the Bank Holding Company Act of 1956, as amended (the
"FEDERAL BANK HOLDING COMPANY ACT"). Valley Ridge has authorized capital
stock consisting of 500,000 shares of common stock, $10 par value ("VALLEY
RIDGE COMMON STOCK"). Each share of Valley Ridge Common Stock is entitled
to one vote on all matters submitted for a vote of the shareholders. As of
the date of this Plan of Merger, there were 372,862 shares of Valley Ridge
Common Stock issued and outstanding. The number of issued and outstanding
shares of Valley Ridge Common Stock is not subject to change before the
Effective Time of the Merger (as defined in Section 1.3 (EFFECTIVE TIME OF
THE MERGER)).
Community is a bank holding company registered as such with the
Federal Reserve Board under the Federal Bank Holding Company Act.
Community has authorized capital stock consisting of 200,000 shares of
common stock, without par value ("COMMUNITY COMMON STOCK"). Each share of
Community Common Stock is entitled to one vote on all matters submitted for
a vote of the shareholders. As of the date of this Plan of Merger, there
were 76,424 shares of Community Common Stock issued and outstanding. The
number of issued and outstanding shares of Community Common Stock is not
subject to change before the Effective Time of the Merger (as defined in
Section 1.3 (EFFECTIVE TIME OF THE MERGER)).
The respective Boards of Directors of Community and Valley Ridge
each deems the Merger advisable and in the best interests of its respective
corporation and shareholders. Community and Valley Ridge have each adopted
this Plan of Merger by resolutions duly adopted by their respective Boards
of Directors. The Boards of Directors of Community and Valley Ridge have
directed that this Plan of Merger be submitted to each Corporation's
respective shareholders for approval.
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In consideration of the premises and the representations,
warranties, and covenants contained in this Plan of Merger, the parties
agree:
ARTICLE I
THE TRANSACTION
Subject to the terms and conditions of this Plan of Merger, the
Merger of Community with and into Valley Ridge shall be carried out in the
following manner:
1.1 APPROVAL OF PLAN OF MERGER. As soon as practicable after this
Plan of Merger has been executed and delivered and the Registration
Statement (as described in Section 3.12.1 (DOCUMENT)) has become effective,
each Corporation shall submit this Plan of Merger to its respective
shareholders at a meeting properly called, noticed, and held for that
purpose. At such meetings, and in any proxy materials used in connection
with such meetings, each Corporation's Board of Directors shall recommend
that its shareholders vote for approval of this Plan of Merger.
1.2 THE CLOSING. The Merger shall be consummated as promptly as
possible after a closing (the "CLOSING"). The Closing shall be held at the
offices of Warner Norcross & Judd LLP, 900 Old Kent Building, 111 Lyon
Street, N.W., Grand Rapids, Michigan, on such date and at such time as may
be mutually agreed by the parties, or in the absence of such agreement, on
a date specified by either party upon 10 business days' written notice
after the last to occur of the following events: (i) the receipt of all
consents and approvals of government regulatory authorities as legally
required to consummate the Merger and the expiration of all statutory
waiting periods; and (ii) the requisite approval of this Plan of Merger by
the shareholders of each Corporation. Scheduling or commencing the Closing
shall not, however, constitute a waiver of the conditions precedent as set
forth in Article VI. Upon completion of the Closing, Community and Valley
Ridge shall execute and deliver an appropriate certificate of merger in the
form and as required by the Michigan Act (the "CERTIFICATE OF MERGER").
1.3 EFFECTIVE TIME OF THE MERGER. Subject to the terms and
conditions of this Plan of Merger, the Merger shall be consummated as
promptly as possible following the Closing by filing the Certificate of
Merger in the manner required by law. The "EFFECTIVE TIME OF THE MERGER"
shall be a date and time to be specified in the Certificate of Merger,
which shall be as soon as practicable, but not later than 3 business days,
after the Closing.
1.4 MERGER OF COMMUNITY WITH AND INTO VALLEY RIDGE. Community shall
be merged with and into Valley Ridge (each sometimes being referred to as a
"CONSTITUENT CORPORATION" prior to the Merger) upon the filing of the
Certificate of Merger with the Michigan Corporation and Securities Bureau
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as provided by the Michigan Act. At the Effective Time of the Merger, the
Constituent Corporations shall become a single corporation, which shall be
Valley Ridge (the "SURVIVING CORPORATION"). The Surviving Corporation
shall have all of the rights, privileges, immunities, and powers, and shall
be subject to all of the duties and liabilities, of a corporation organized
under the Michigan Act.
1.5 EFFECT OF THE MERGER. From and after the Effective Time of the
Merger, the effect of the Merger upon each of the Constituent Corporations
and the Surviving Corporation shall be as provided in Chapter Seven of the
Michigan Act with respect to the merger of two domestic corporations where
the surviving corporation will be subject to the laws of the State of
Michigan.
1.6 ADDITIONAL ACTIONS. If, at any time after the Effective Time of
the Merger, the Surviving Corporation shall determine that any further
assignments or assurances or any other acts are necessary or desirable to
vest, perfect, or confirm, of record or otherwise, in the Surviving
Corporation its rights, title, or interest in, to, or under any of the
rights, properties, or assets of Community acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the
Merger, or to otherwise carry out the purposes of this Plan of Merger, then
Community and its directors and officers shall be deemed to have granted to
the Surviving Corporation an irrevocable power of attorney to execute and
deliver all such proper deeds, assignments, and assurances in law and to do
all acts necessary or proper to vest, perfect, or confirm title to and
possession of such rights, properties, or assets in the Surviving
Corporation and to otherwise carry out the purposes of this Plan of Merger.
The directors and officers of the Surviving Corporation are fully
authorized in the name of Community to take any and all such action as may
be contemplated by this Article.
1.7 SURVIVING CORPORATION. Immediately after the Effective Time of
the Merger, the Surviving Corporation shall have the following attributes
until they are subsequently changed in the manner provided by law:
1.7.1 NAME. The name of the Surviving Corporation shall be a
new name not associated with either Community or Valley Ridge to be
agreed upon by the Boards of Directors of Community and Valley Ridge
before this Plan of Merger is submitted for approval to either
Corporation's shareholders.
1.7.2 ARTICLES OF INCORPORATION. The Articles of
Incorporation of the Surviving Corporation shall be amended and
restated by the Merger to be as set forth in EXHIBIT A to this Plan of
Merger in order to be generally consistent with the form of Articles
of Incorporation previously employed by Community.
1.7.3 BYLAWS. The Bylaws of the Surviving Corporation shall
be the Bylaws of Valley Ridge as in effect immediately prior to the
Effective Time of the Merger.
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1.7.4 DIRECTORS. The directors of the Surviving Corporation
shall be the persons who are the directors of Valley Ridge and the
directors of Community immediately prior to the Effective Time of the
Merger.
1.7.5 OFFICERS. The officers of the Surviving Corporation
shall be:
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of the Board Robert Humphreys
Vice Chairman Donald VanSingel
President and Chief
Executive Officer Richard L. Edgar
Vice President Ronald L. Hansen
Secretary and Treasurer Michael McHugh
</TABLE>
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES
2.1 CONVERSION OF SHARES. At the Effective Time of the Merger, by
virtue of the Merger:
2.1.1 CONVERSION OF COMMUNITY COMMON STOCK. Except as
otherwise provided in this Section 2.1 (CONVERSION OF SHARES), and
subject to the provisions of Section 2.3 (NO FRACTIONAL SECURITIES) of
this Plan of Merger, each share of Community Common Stock outstanding
immediately prior to the Effective Time of the Merger shall be
converted into that whole number of validly issued, fully paid, and
nonassessable shares of Valley Ridge Common Stock determined by
multiplying the number of shares of Community Common Stock held of
record by each Community shareholder by the Conversion Ratio (defined
below).
2.1.2 CONVERSION RATIO. The "CONVERSION RATIO" shall be that
number (rounded to the nearest ten thousandth) determined by dividing
(i) the Community Adjusted Book Value Per Share, multiplied by 1.20;
by (ii) the Valley Ridge Adjusted Book Value Per Share. For this
purpose:
(a) The "COMMUNITY ADJUSTED BOOK VALUE PER SHARE"
shall be an amount equal to the quotient determined by
dividing (i) Community's shareholders' equity as determined
by Community's Final Balance Sheet (defined below), less all
dividends and other distributions of cash or property
accrued after the Balance Sheet Date (defined below), and
plus or minus any adjustments provided in Section 2.2
(ADJUSTMENTS OF SHAREHOLDERS' EQUITY), by (ii) the total
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number of shares of Community Common Stock outstanding
immediately prior to the Effective Time of the Merger.
(b) The "VALLEY RIDGE ADJUSTED BOOK VALUE PER SHARE"
shall be an amount equal to the quotient determined by
dividing (i) Valley Ridge's shareholders' equity as
determined by Valley Ridge's Final Balance Sheet, less all
dividends and other distributions of cash or property
accrued after the Balance Sheet Date, and plus or minus any
adjustments provided in Section 2.2 (ADJUSTMENTS OF
SHAREHOLDERS' EQUITY), by (ii) the total number of shares of
Valley Ridge Common Stock outstanding immediately prior to
the Effective Time of the Merger.
(c) The "BALANCE SHEET DATE" shall be a month end not
more than 60 days prior to the Closing or such other date as
may be mutually agreed upon by the parties in writing.
(d) The Valley Ridge Adjusted Book Value Per Share and
the Community Adjusted Book Value Per Share shall be
computed by, and be the subject of comparable agreed upon
procedures reports of, the independent certified public
accountants of the respective Corporations. Such
computation shall be based on consolidated balance sheets
("FINAL BALANCE SHEETS") of the respective Corporations
which fairly present the financial condition of the
respective Corporations as of the Balance Sheet Date and are
consistent with the Financial Statements which are the
subject of Section 3.5.1 (FINANCIAL STATEMENTS).
2.1.3 DISSENTING SHARES. Each outstanding share of Community
Common Stock as to which a legally sufficient notice of intent to
demand dissenters' rights has been given in accordance with the
Michigan Act and which was not voted in favor of the Merger shall
after the Effective Time of the Merger represent only the rights of a
dissenting shareholder under the Michigan Act and shall not be
converted into or represent a right to receive Valley Ridge Common
Stock as provided in Section 2.1.1 (CONVERSION OF COMMUNITY COMMON
STOCK) of this Plan of Merger. If, however, the holder of such a
dissenting share of Community Common Stock shall have failed to
perfect, shall have effectively withdrawn, shall have waived or lost,
or shall otherwise be ineligible to exercise dissenting shareholders'
rights, then at that time that share shall be converted into Valley
Ridge Common Stock as provided in Section 2.1.1 (CONVERSION OF
COMMUNITY COMMON STOCK) of this Plan of Merger.
2.1.4 CONVERSION OF VALLEY RIDGE COMMON STOCK. Each share of
Valley Ridge Common Stock outstanding immediately prior to the
Effective Time of the Merger shall continue to be outstanding without
any change. Each shareholder of the Surviving Corporation whose
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shares were outstanding immediately before the Effective Time of the
Merger will hold the same number of shares, with identical
designations, preferences, limitations and relative rights,
immediately after the Effective Time of the Merger, subject to the
rights, if any, of a dissenting shareholder under the Michigan Act.
2.1.5 STOCK HELD BY VALLEY RIDGE. Each share of Community
Common Stock, if any, held by Valley Ridge or its subsidiary for its
own account and not in a fiduciary capacity for a person other than
Valley Ridge or its subsidiary shall be canceled and no consideration
shall be issuable or payable with respect to any such share.
2.1.6 COMMUNITY COMMON STOCK NO LONGER OUTSTANDING. Each
share of Community Common Stock outstanding immediately prior to the
Effective Time of the Merger shall be considered to be no longer
outstanding and to represent solely the right to receive shares of
Valley Ridge Common Stock as provided in Section 2.1.1 (CONVERSION OF
COMMUNITY COMMON STOCK), together with any other distributions payable
as provided in Section 2.4 (ADJUSTMENTS), but subject to the payment
of cash in lieu of fractional shares as provided in Section 2.3 (NO
FRACTIONAL SECURITIES), or the rights of a dissenting shareholder
under the Michigan Act as provided in Section 2.1.3 (DISSENTING
SHARES).
2.2 ADJUSTMENTS OF SHAREHOLDERS' EQUITY.
2.2.1 COMMUNITY'S SHAREHOLDERS' EQUITY. Community's total
shareholders' equity as reflected on its Final Balance Sheet shall be
adjusted as follows: (i) the full amount of the allowance for loan
losses reflected on its Final Balance Sheet shall be added to
Community's total shareholders' equity; (ii) a reserve for contingent
liabilities in the amount of $53,000, or such lesser amount as the
parties may mutually agree in writing to be appropriate at the time,
shall be subtracted from Community's total shareholders' equity; and
(iii) the full amount of unrealized gains and losses on securities
available for sale reflected on its Final Balance Sheet, if any, shall
be eliminated and not considered in calculating total shareholders'
equity.
2.2.2 VALLEY RIDGE'S SHAREHOLDERS' EQUITY. Valley Ridge's
total shareholders' equity as reflected on its Final Balance Sheet
shall be adjusted as follows: (i) the full amount of the allowance
for loan losses reflected on its Final Balance Sheet shall be added to
Valley Ridge's total shareholders' equity; and (ii) the full amount of
unrealized gains and losses on securities available for sale reflected
on its Final Balance Sheet, if any, shall be eliminated and not
considered in calculating total shareholders' equity.
2.3 NO FRACTIONAL SECURITIES. Notwithstanding any other provision of
this Plan of Merger, no certificates or scrip representing fractional
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shares of Valley Ridge Common Stock shall be issued upon the surrender for
exchange of certificates which represented shares of Community Common Stock
outstanding immediately prior to the Effective Time of the Merger ("OLD
CERTIFICATES") (taking into account all Old Certificates surrendered for
exchange by a particular Community shareholder) pursuant to Section 2.4
(SURRENDER OF OLD CERTIFICATES AND DISTRIBUTION OF VALLEY RIDGE COMMON
STOCK) and no Valley Ridge dividend or other distribution or stock split
shall relate to any fractional shares of Valley Ridge Common Stock, and
such fractional interests shall not entitle the owner thereof to vote or to
any rights of a shareholder of Valley Ridge. In lieu of any such
fractional share, each holder of an Old Certificate who would otherwise
have been entitled to a fraction of a share of Valley Ridge Common Stock
upon surrender of such Old Certificates for exchange pursuant to Section
2.4 (SURRENDER OF OLD CERTIFICATES AND DISTRIBUTION OF VALLEY RIDGE COMMON
STOCK) will be paid an amount in cash (without interest and rounded to the
nearest penny) equal to such fraction of a share multiplied by the Valley
Ridge Adjusted Book Value Per Share.
2.4 SURRENDER OF OLD CERTIFICATES AND DISTRIBUTION OF VALLEY RIDGE
COMMON STOCK. After the Effective Time of the Merger, Old Certificates
shall be exchangeable by the holders thereof for new stock certificates
representing the number of shares of Valley Ridge Common Stock to which
such holders shall be entitled in the following manner:
2.4.1 TRANSMITTAL MATERIALS. As soon as practicable after
the Effective Time of the Merger, Valley Ridge shall send or cause to
be sent to each record holder of Community Common Stock as of the
Effective Time of the Merger transmittal materials for use in
exchanging that holder's Old Certificates for Valley Ridge Common
Stock certificates. The transmittal materials will contain
instructions with respect to the surrender of Old Certificates.
2.4.2 SEGREGATION OF CASH. As soon as practicable after the
Effective Time of the Merger, Valley Ridge will segregate into a
separate account the amount of cash payable for fractional shares in
the Merger. Valley Ridge shall add to such account an amount equal to
all dividends or other distributions paid with respect to the shares
to be distributed to Community's shareholders pursuant to this Plan of
Merger for the account of the persons entitled to such shares.
2.4.3 DELIVERY OF NEW CERTIFICATES. Valley Ridge shall
promptly issue and deliver stock certificates in the names and to the
addresses that appear on Community's stock records as of the Effective
Time of the Merger, or in such other name or to such other address as
may be specified by the holder of record in transmittal documents
received by Valley Ridge; provided, that:
(a) RECEIPT OF OLD CERTIFICATES. With respect to each
Community shareholder, Valley Ridge shall have received all of
the Old Certificates held by that shareholder, or an affidavit of
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loss and indemnity bond for such certificate or certificates,
together with properly executed transmittal materials; and
(b) SATISFACTORY FORM. Such certificates, transmittal
materials, affidavits, and bonds are in a form and condition
reasonably acceptable to Valley Ridge.
2.4.4 DIVIDENDS PENDING SURRENDER. Whenever a dividend is
declared by Valley Ridge on Valley Ridge Common Stock which is payable
to shareholders of record of Valley Ridge as of a record date on or
after the Effective Time of the Merger, the declaration shall include
dividends on all shares issuable under this Plan of Merger. No former
shareholder of Community shall be entitled to receive a distribution
of any such dividend until the physical exchange of that shareholder's
Old Certificates for new Valley Ridge Common Stock certificates shall
have been effected. Upon the physical exchange of that shareholder's
Old Certificates, that shareholder shall be entitled to receive from
Valley Ridge an amount equal to all such dividends (without interest
thereon and less the amount of taxes, if any, which may have been
imposed or paid thereon) declared and paid with respect to the shares
of Valley Ridge Common Stock represented thereby.
2.4.5 STOCK TRANSFERS. On or after the Effective Time of the
Merger, there shall be no transfers on the stock transfer books of
Community of the shares of Community Common Stock which were issued
and outstanding immediately prior to the Effective Time of the Merger.
If, after the Effective Time of the Merger, Old Certificates are
properly presented for transfer, then they shall be canceled and
exchanged for stock certificates representing shares of Valley Ridge
Common Stock as provided in this Plan of Merger. After the Effective
Time of the Merger, ownership of such shares as are represented by any
Old Certificates may be transferred only on the stock transfer records
of Valley Ridge.
2.4.6 VALLEY RIDGE'S DISCRETION. Valley Ridge shall have
discretion to determine reasonable rules and procedures relating to
the issuance and delivery of certificates of Valley Ridge Common Stock
into which shares of Community Common Stock are converted in the
Merger and governing the payment for fractional shares of Community
Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Community and Valley Ridge each represents and warrants to the
other, with respect to its own affairs, that, except as otherwise set forth
in a disclosure statement (a "DISCLOSURE STATEMENT") to be prepared by each
Corporation, which the Corporations will each deliver to the other within
30 days after the date of the execution of this Plan of Merger:
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3.1 AUTHORIZATION, NO CONFLICTS, ETC.
3.1.1 AUTHORIZATION OF AGREEMENT. The execution, delivery,
and performance of this Plan of Merger by the Corporation have been
duly authorized and approved by all necessary corporate action. When
executed and delivered, this Plan of Merger will be legally binding on
and enforceable against the Corporation in accordance with its terms,
except that the consummation of the Merger is subject to the approval
of the Corporation's shareholders as described in Section 1.1
(ADOPTION OF PLAN OF MERGER).
3.1.2 NO CONFLICT, BREACH, VIOLATION, ETC. The execution,
delivery, and performance of this Plan of Merger by the Corporation,
and the consummation of the Merger, do not and will not violate,
conflict with, or result in a breach of:
(a) CERTIFICATE OR BYLAWS. Any provision of the
Corporation's Articles of Incorporation or Bylaws; or
(b) STATUTES, JUDGMENTS, ETC. Any statute, code,
ordinance, rule, regulation, judgment, order, writ, arbitral
award, decree, or injunction applicable to the Corporation or its
subsidiary, assuming the timely receipt of each of the approvals
referred to in Section 3.1.4 (REQUIRED APPROVALS).
3.1.3 NO CONTRACTUAL BREACH, DEFAULT, LIABILITY, ETC. The
execution, delivery, and performance of this Plan of Merger by the
Corporation, and the consummation of the Merger, do not and will not:
(a) AGREEMENTS, ETC. Violate, conflict with, result in a
breach of, constitute a default under, require any consent,
approval, waiver, extension, amendment, authorization, notice or
filing under, or extinguish any material contract right of the
Corporation or its subsidiary under any agreement, mortgage,
lease, commitment, indenture, other instrument, or obligation to
which the Corporation or its subsidiary is a party or by which
they are bound or affected:
(1) Which is material to the business, income, or
financial condition of the Corporation or its subsidiary; or
(2) The violation or breach of which could prevent the
Corporation from consummating the Merger;
(b) REGULATORY RESTRICTIONS. Violate, conflict with,
result in a breach of, constitute a default under, require any
consent, approval, waiver, extension, amendment, authorization,
notice, or filing under any memorandum of understanding or
similar regulatory consent agreement to which the Corporation or
its subsidiary is a party or subject, or by which it is bound or
affected; or
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(c) TORTIOUS INTERFERENCE. Subject the other party, its
subsidiary, its directors or its officers to liability for
tortious interference with contractual rights.
3.1.4 REQUIRED APPROVALS. No notice to, filing with,
authorization of, exemption by, or consent or approval of, any public
body or authority is necessary for the consummation of the Merger by
the Corporation other than in connection or compliance with the
provisions of the Michigan Act, compliance with federal and state
securities laws, and the consents, authorizations, approvals, or
exemptions required under the Federal Bank Holding Company Act.
3.2 ORGANIZATION AND GOOD STANDING. The Corporation is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Michigan. The Corporation possesses all requisite corporate
power and authority to own, operate, and lease its properties and to carry
on its business as it is now being conducted in all material respects. The
Corporation is a bank holding company duly registered and in good standing
with the Federal Reserve Board under the Federal Bank Holding Company Act.
The Corporation is not required to be qualified or admitted to conduct
business as a foreign corporation in any other state.
3.3 SUBSIDIARIES.
3.3.1 OWNERSHIP OF SUBSIDIARIES. With respect to Community,
Community owns all of the issued and outstanding shares of capital
stock of The Grant State Bank ("GRANT"), free and clear of all claims,
security interests, pledges, or liens of any kind. With respect to
Valley Ridge, Valley Ridge owns all of the issued and outstanding
shares of capital stock of Kent City State Bank ("KENT CITY"), free
and clear of all claims, security interests, pledges, or liens of any
kind. The Corporation's subsidiary is duly organized, validly
existing, and in good standing under the laws of the State of
Michigan. Except with respect to the ownership by Kent City of 20% of
the voting securities of West Shore Computer Services, Inc., the
Corporation does not have "CONTROL" (as defined in Section 2(a)(2) of
the Federal Bank Holding Company Act, using 5 percent rather than 25
percent), either directly or indirectly, of any corporation engaged in
an active trade or business or which holds any significant assets
other than as stated in this Section 3.3 (SUBSIDIARIES).
3.3.2 RIGHTS TO CAPITAL STOCK. There are no outstanding
subscriptions, options, warrants, rights to acquire, or any other
similar agreements pertaining to the capital stock of the
Corporation's subsidiary.
3.3.3 QUALIFICATION AND POWER. The Corporation's subsidiary:
(a) FOREIGN QUALIFICATION. Is not, and is not required to
be, qualified or admitted to conduct business in any other state;
and
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(b) CORPORATE POWER. Has full corporate power and
authority to carry on its business substantially as and where now
being conducted.
3.3.4 FDIC; INSURANCE ASSESSMENTS. The Corporation's
subsidiary maintains in full force and effect deposit insurance
through the Bank Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC"). The Corporation's subsidiary has fully paid to
the FDIC as and when due all assessments with respect to its deposits
as are required to maintain such deposit insurance in full force and
effect.
3.3.5 REGULATORY FEES AND CHARGES. The Corporation's
subsidiary has paid as and when due all material fees, charges,
assessments, and the like to each and every governmental or regulatory
agency having jurisdiction as required by law, regulation, or rule.
3.4 CAPITAL STOCK.
3.4.1 CLASSES AND SHARES. With respect to Community, the
authorized capital stock of Community consists of 200,000 shares of
common stock, without par value, of which, as of the date and time of
the execution of this Plan of Merger, 76,424 shares were issued and
outstanding. With respect to Valley Ridge, the authorized capital
stock of Valley Ridge consists of 500,000 shares of common stock, $10
par value, of which, as of the date and time of the execution of this
Plan of Merger, 372,862 shares were issued and outstanding.
3.4.2 NO OTHER CAPITAL STOCK. There is no security or class
of securities authorized or issued which represents or is convertible
into capital stock of the Corporation except as described in this
Section 3.4 (CAPITAL STOCK). As of the execution of this Plan of
Merger, there are no outstanding subscriptions, options, warrants, or
rights to acquire any capital stock of the Corporation, or agreements
to which the Corporation is a party or by which it is bound to issue
capital stock.
3.4.3 VOTING RIGHTS. Other than the shares of the
Corporation's common stock described in this Section 3.4 (CAPITAL
STOCK), neither the Corporation nor its subsidiary has outstanding any
security:
(a) The holder or holders of which have the right to vote
on the approval of the Merger or this Plan of Merger; or
(b) Which entitles the holder or holders to consent to, or
withhold consent on, the Merger or this Plan of Merger.
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3.5 FINANCIAL STATEMENTS.
3.5.1 FINANCIAL STATEMENTS. The consolidated financial
statements of the Corporation and its subsidiary as of and for each of
the years ended or ending December 31, 1992, 1993, 1994, and 1995, as
reported on or to be reported on by the Corporation's independent
accountants, previously delivered or to be delivered to the other
party, the unaudited consolidated financial statements of the
Corporation and its subsidiary as of and for each of the quarters
ended or ending March 31, 1995, June 30, 1995, and September 30, 1995,
including all schedules and notes relating to such statements, as
previously delivered or to be delivered to the other party, and the
consolidated financial statements of the Corporation and its
subsidiary as of and for each quarter ending prior to the Effective
Time of the Merger, are and will be correct and complete in all
material respects. These statements do and will fairly present the
Corporation's and its subsidiary's financial condition and results of
operations on a consolidated basis on the dates and for the periods
indicated, and have been and will be prepared in conformity with
generally accepted accounting principles applied consistently
throughout the periods indicated (except as otherwise noted in such
financial statements or the notes thereto).
3.5.2 CALL REPORTS. The consolidated reports of condition
and income of the Corporation's subsidiary as of and for each of the
years ended or ending December 31, 1992, 1993, 1994, and 1995, and as
of and for the each of the quarters ended or ending March 31, 1995,
June 30, 1995, and September 30, 1995, as filed or to be filed with
the FDIC, and the consolidated reports of condition and income of the
Corporation and its subsidiary to be filed with the FDIC prior to the
Effective Time of the Merger, including all schedules and notes
relating to such reports (collectively, the "CALL REPORTS"), are and
will be correct and complete in all material respects. The Call
Reports which have been filed were prepared, and the Call Reports to
be filed will be prepared, in conformity with applicable regulatory
accounting principles applied consistently throughout the periods
indicated (except as otherwise noted in such reports).
3.5.3 FINAL BALANCE SHEET. The Final Balance Sheet of the
Corporation and its subsidiary, including all schedules and notes
relating to such Final Balance Sheet, will be correct and complete in
all material respects, will fairly present the Corporation's and its
subsidiary's financial condition on a consolidated basis on the date
indicated, and will be prepared in conformity with generally accepted
accounting principles consistently applied (except as otherwise noted
in the Final Balance Sheet or the notes thereto).
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the consolidated balance sheet of the
Corporation and its subsidiary as of December 31, 1994, and the notes
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thereto, neither the Corporation nor its subsidiary had, as of such date,
liabilities or obligations, secured or unsecured (whether accrued,
absolute, or contingent) which are, or as to which there is a reasonable
probability that they could be, materially adverse to the income or
financial condition of the Corporation or its subsidiary.
3.7 ABSENCE OF MATERIAL ADVERSE CHANGE. Since December 31, 1994,
there has been no material adverse change in the business, income, or
financial condition of the Corporation or its subsidiary. No facts or
circumstances have been discovered from which it reasonably appears that
there is a significant risk and reasonable probability that there will
occur a material adverse change in the business, income, or financial
condition of the Corporation or its subsidiary for reasons specific to the
Corporation or its subsidiary and not applicable to the banking industry in
general.
3.8 ABSENCE OF LITIGATION. There is no action, suit, proceeding,
claim, arbitration, or investigation pending or threatened by any person,
including without limitation any governmental or regulatory agency, against
the Corporation, its subsidiary, or the assets or business of the
Corporation or its subsidiary, any of which has or may have a material
adverse effect on the business, income, or financial condition of the
Corporation or its subsidiary. There is no factual basis known to the
Corporation which presents a reasonable potential for any such action,
suit, proceeding, claim, arbitration, or investigation.
3.9 CONDUCT OF BUSINESS. The Corporation and its subsidiary have
conducted their respective businesses and used their respective properties
substantially in compliance with all federal, state, and local laws, civil
or common, ordinances and regulations, including without limitation
applicable federal and state laws and regulations concerning banking,
securities, truth-in-lending, truth-in-savings, mortgage origination and
servicing, usury, fair credit reporting, consumer protection, occupational
safety, civil rights, employee protection, fair employment practices, fair
labor standards, and insurance; and Environmental Laws (as defined in
Section 3.20.3.a (ENVIRONMENTAL LAWS)); except for violations that would
not have a material adverse effect on the business, income, or financial
condition of the Corporation or its subsidiary.
3.10 ABSENCE OF DEFAULTS UNDER CONTRACTS. There is no existing
default by the Corporation or its subsidiary, or any other party, under any
contract or agreement to which the Corporation or its subsidiary is a
party, or by which they are bound, which could have a material adverse
effect on the business, income, or financial condition of the Corporation
or its subsidiary.
3.11 REGULATORY FILINGS. In the last five years:
3.11.1 FILINGS. The Corporation and its subsidiary have filed
in a timely manner all filings with regulatory bodies for which
filings are required;
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3.11.2 COMPLETE AND ACCURATE. All such filings, as amended,
were complete and accurate in all material respects as of the dates of
such filings, and there were no misstatements or omissions therein
which, as of the making of this representation and warranty, would be
material to the business, income, or financial condition of the
Corporation and its subsidiary on a consolidated basis; and
3.11.3 COMPLIANCE WITH REGULATIONS. All such filings complied
in all material respects with all regulations, forms, and guidelines
applicable to such filings.
3.12 REGISTRATION STATEMENT, ETC.
3.12.1 "DOCUMENT." The term "DOCUMENT," when capitalized in
this Plan of Merger, shall collectively mean: (i) the registration
statement to be filed by Valley Ridge with the Securities and Exchange
Commission (the "SEC") in connection with the Valley Ridge Common
Stock to be issued in the Merger (the "REGISTRATION STATEMENT"); (ii)
the prospectus and proxy statement (the "PROSPECTUS AND PROXY
STATEMENT") to be mailed to Community shareholders in connection with
its shareholders' meeting with respect to this Plan of Merger; (iii)
the proxy statement to be mailed to Valley Ridge shareholders in
connection with its shareholders' meeting with respect to this Plan of
Merger; and (iv) any other documents to be filed with the SEC, the
Federal Reserve Board, the State of Michigan, or any other regulatory
agency in connection with the transactions contemplated by this Plan
of Merger.
3.12.2 ACCURATE INFORMATION. None of the information to be
supplied by the Corporation for inclusion, or included, in any
Document will:
(a) 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 (i) at the respective times
such Documents are filed; (ii) with respect to the Registration
Statement, when it becomes effective; and (iii) with respect to
the Prospectus and Proxy Statement, when it is mailed.
(b) With respect to the Registration Statement and the
Prospectus and Proxy Statement, as either may be amended or
supplemented, at the time of Community's shareholders' meeting
with respect to this Plan of Merger, 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 Community's
shareholders' meeting.
3.12.3 COMPLIANCE OF FILINGS. All Documents that the
Corporation is responsible for filing with the SEC and any regulatory
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agency in connection with the Merger will comply as to form in all
material respects with the provisions of applicable law.
3.13 TAX MATTERS.
3.13.1 TAX RETURNS. The Corporation and its subsidiary have
duly and timely filed all material tax returns that they have by law
been required to file, including without limitation those with respect
to income, withholding, social security, unemployment, franchise, real
property, personal property, and intangibles taxes. Each such tax
return, report, and statement, as amended, is correct and complies in
all material respects with all applicable laws and regulations.
3.13.2 TAX ASSESSMENTS AND PAYMENTS. All taxes and assessments,
including any penalties, interest, and deficiencies relating to those
taxes and assessments, due and payable by the Corporation and its
subsidiary have been paid in full as and when due. The provisions
made for taxes on the consolidated balance sheet of the Corporation
and its subsidiary as of December 31, 1994, are sufficient for the
payment of all federal, state, county, and local taxes of the
Corporation and its subsidiary accrued but unpaid as of the date
indicated, whether or not disputed, with respect to all periods
through December 31, 1994.
3.13.3 TAX AUDITS. The federal consolidated income tax returns
of the Corporation and its subsidiary, with respect to Community, have
not been audited by the Internal Revenue Service ("IRS") within the
last 10 years, and, with respect to Valley Ridge, have been audited by
the IRS through the tax year 1992. There is no tax audit or legal or
administrative proceeding for assessment or collection of taxes
pending or, to the Corporation's knowledge, threatened with respect to
the Corporation or its subsidiary. No claim for assessment or
collection of taxes has been asserted with respect to the Corporation
or its subsidiary. No waiver of any limitations statute or extension
of any assessment or collection period has been executed by or on
behalf of the Corporation or its subsidiary.
3.14 TITLE TO PROPERTIES. The Corporation and its subsidiary have
good, sufficient, and marketable title to all of their properties and
assets, whether real, personal, or a combination thereof, reflected in
their books and records as being owned (including those reflected in the
consolidated balance sheet of the Corporation and its subsidiary as of
December 31, 1994, except as since disposed of in the ordinary course of
business), free and clear of all liens and encumbrances, except:
3.14.1 REFLECTED ON BALANCE SHEET. As reflected on the
consolidated balance sheet of the Corporation and its subsidiary as of
December 31, 1994, and the notes thereto;
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3.14.2 NORMAL TO BUSINESS. Liens for current taxes not yet
delinquent, and liens or encumbrances which are normal to the business
of the Corporation and its subsidiary and which are not material in
relation to the business, income, or financial condition of the
Corporation or its subsidiary; and
3.14.3 IMMATERIAL IMPERFECTIONS. Such imperfections of title,
easements, and encumbrances, if any, as are not material in character,
amount, or extent, and do not materially detract from the value, or
materially interfere with the present use, of the properties subject
thereto or affected thereby, or which would not otherwise be material
to the business, income, or financial condition of the Corporation or
its subsidiary.
3.15 CONDITION OF PROPERTY. The nonfinancial assets owned or leased
by the Corporation and its subsidiary constitute all of the assets held for
use or used in connection with the business of the Corporation and its
subsidiary and are adequate to carry on their respective businesses as
presently conducted. No building or improvement on any real property
owned, leased, or used by the Corporation or its subsidiary encroaches on
any material easement or property owned by another, and no building or
property owned by another encroaches on any real property owned, leased, or
used by the Corporation or its subsidiary or on any material easement the
benefit of which runs to real property owned, leased, or used by the
Corporation or its subsidiary. None of the boundaries of any parcel of
real property owned, leased, or used by the Corporation or its subsidiary
deviates substantially from those shown on the survey of such parcel, if
any, provided in the Corporation's Disclosure Statement or from what they
appear to be through visual inspection. Neither the Corporation nor its
subsidiary is in material violation of any zoning regulation, building
restriction, restrictive covenant, ordinance, or other law, order,
regulation, or requirement relating to any real property that the
Corporation or its subsidiary owns, leases, or uses. All of the
nonfinancial assets and properties that the Corporation or its subsidiary
owns, leases, or uses are in good operating condition (normal wear and tear
excepted), are structurally sound, are in a good state of maintenance and
repair, are reasonably fit for their intended purposes, are adequately
serviced by all utilities reasonably necessary for the effective operation
of the Corporation's and its subsidiary's business as presently conducted,
and are in the possession of the Corporation or its subsidiary. None of
the real property owned, leased, or used by the Corporation or its
subsidiary is the subject of any condemnation action and there is, to the
best of the Corporation's knowledge, no proposal under consideration by any
public or governmental authority or entity to use any of the real property
owned, leased, or used by the Corporation or its subsidiary for some other
purpose.
3.16 LEASES. All leases pursuant to which the Corporation or its
subsidiary, as lessee, lease real or personal property which is material to
the business of the Corporation or its subsidiary are valid, effective, and
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enforceable against the lessor in accordance with their respective terms.
There is no existing default under any such lease, or any event which with
notice or lapse of time, or both, would constitute a default with respect
to the Corporation or its subsidiary or, to the best knowledge of the
Corporation, any other party. No such lease contains a prohibition against
assignment by the Corporation or its subsidiary, by operation of law or
otherwise, or any other provision which would preclude the Corporation or
its direct or indirect subsidiaries from possessing and using the leased
premises for the same purposes and upon the same rental and other terms
upon consummation of the Merger as are applicable to the possession and use
by the Corporation or its subsidiary as of the date of this Plan of Merger.
3.17 LICENSES, PERMITS, ETC.
3.17.1 ALL LICENSES, PERMITS, ETC. The Corporation and its
subsidiary hold all licenses, certificates, permits, franchises, and
rights from all appropriate federal, state, and other public
authorities necessary for the conduct of their businesses as presently
conducted, the lack of which would have a material adverse effect on
the business, income, or financial condition of the Corporation or its
subsidiary.
3.17.2 REGULATORY ACTION. Neither the Corporation nor its
subsidiary:
(a) Has been charged with, or to the best of the
Corporation's knowledge is under governmental investigation with
respect to, any actual or alleged violation of any statute,
ordinance, rule, regulation, guideline, or standard; or
(b) Is the subject of any pending or, to the Corporation's
knowledge, threatened proceeding by any regulatory authority
having jurisdiction over its business or properties.
3.18 CERTAIN EMPLOYMENT MATTERS.
3.18.1 EMPLOYMENT POLICIES, PROGRAMS, AND PROCEDURES. The
policies, programs and practices of the Corporation and its subsidiary
relating to wages, hours of work, and other terms and conditions of
employment are in compliance in all material respects with applicable
laws, orders, regulations, public policies and ordinances governing
employment and terms and conditions of employment.
3.18.2 RECORD OF PAYMENTS. There are no material obligations of
the Corporation or its subsidiary, whether arising by operation of
law, civil or common, by contract, or by past custom, for Employment-
Related Payments (as defined in Section 3.18.3 (EMPLOYMENT-RELATED
PAYMENTS)) to trusts or other funds or to any governmental agency or
to any present or former director, officer, employee, or agent (or his
or her heirs, survivors, legatees, or legal representatives) which
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have not been duly recorded on the books and records of the
Corporation or its subsidiary and paid when due or duly accrued as a
liability.
3.18.3 "EMPLOYMENT-RELATED PAYMENTS." For purposes of this Plan
of Merger, "EMPLOYMENT-RELATED PAYMENTS" include any payment to be
made with respect to any contract for employment, unemployment
compensation benefits, profit sharing, pension or retirement benefits
or social security benefits, or for fringe benefits, including
vacation or holiday pay, bonuses and other forms of compensation, or
for medical insurance or medical expenses, which are payable to
present or former directors, officers, employees, or agents of the
Corporation or its subsidiary, or their respective survivors, heirs,
legatees, or legal representatives.
3.18.4 EMPLOYMENT CLAIMS. There are no disputes, claims, or
charges, pending or threatened alleging breach of any express or
implied employment contract or commitment, or breach of any applicable
law, order, regulation, public policy or ordinance relating to
employment or terms and conditions of employment, and there is no
basis for any valid claim or charge with regard to such matters.
3.18.5 DISCLOSURE OF AGREEMENTS. There is no written or oral,
express or implied:
(a) Employment contract or agreement, or guarantee of job
security, made with or to any past or present employee of the
Corporation or its subsidiary which is not terminable by the
Corporation or its subsidiary upon 60 days' or less notice
without penalty or obligation;
(b) Plan, contract, arrangement, understanding, or practice
providing for bonuses, pensions, options, stock purchases,
deferred compensation, retirement payments, retirement benefits
of the type described in Statement of Financial Accounting
Standard No. 106, or profit sharing; or
(c) Plan, agreement, arrangement, or understanding with
respect to payment of medical expenses, insurance (except
insurance continuation limited to that required under provisions
of the Consolidated Omnibus Budget Reconciliation Act), or other
benefits for any former employee of the Corporation or its
subsidiary or any spouse, child, member of the same household,
estate, or survivor of any employee.
3.19 EMPLOYEE BENEFIT PLANS. With respect to any "employee welfare
benefit plan," any "employee pension benefit plan," or any "employee
benefit plan" within the respective meanings of Sections 3(1), 3(2), and
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (each referred to as an "EMPLOYEE BENEFIT PLAN"), maintained by
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or for the benefit of the Corporation or its subsidiary or to which the
Corporation or its subsidiary has made payments or contributions on behalf
of its employees:
3.19.1 ERISA COMPLIANCE. The Corporation and its subsidiary,
each Employee Benefit Plan, and all trusts created thereunder are in
substantial compliance with ERISA and all other applicable laws and
regulations applicable to such plans and trusts.
3.19.2 INTERNAL REVENUE CODE COMPLIANCE. The Corporation and
its subsidiary, each Employee Benefit Plan which is intended to be a
qualified plan under Section 401(a) of the Internal Revenue Code of
1986, as amended (the "INTERNAL REVENUE CODE"), and all trusts created
thereunder are in compliance with the applicable provisions of the
Internal Revenue Code.
3.19.3 PROHIBITED TRANSACTIONS. No Employee Benefit Plan and no
trust created thereunder has been involved in any nonexempt
"prohibited transaction" as defined in Section 4975 of the Internal
Revenue Code and in Sections 406, 407, and 408 of ERISA.
3.19.4 PLAN TERMINATION. No Employee Benefit Plan which is a
qualified plan under Section 401(a) of the Internal Revenue Code and
no trust created thereunder has been terminated, partially terminated,
curtailed, discontinued, or merged into another plan or trust after
June 30, 1974, except in compliance with notice and disclosure to the
IRS and the Pension Benefit Guaranty Corporation (the "PBGC"), where
applicable, as required by the Internal Revenue Code and ERISA. With
respect to each such termination, all termination procedures have been
completed and there are no pending or potential liabilities to the
PBGC, to the plans, or to participants under such terminated plans.
Each such termination, partial termination, curtailment,
discontinuance, or consolidation has been accompanied by the issuance
of a current favorable determination letter by the IRS and, where
applicable, has been accompanied by plan termination proceedings with
and through the PBGC.
3.19.5 MULTIEMPLOYER PLAN. No Employee Benefit Plan is a
"multiemployer plan" within the meaning of Section 3(37)(A) of ERISA.
3.19.6 DEFINED BENEFIT PLAN. With respect to Valley Ridge, no
Employee Benefit Plan in effect as of December 31, 1994, is a "defined
benefit plan" within the meaning of Section 3(35) of ERISA.
3.19.7 REPORTABLE EVENTS. There has been no "reportable event"
as defined in Section 4043 of ERISA, after September 1, 1974, with
respect to any Employee Benefit Plan or any trust created thereunder.
3.19.8 NO PREMIUMS. The Corporation does not owe premiums to
the PBGC which are due but unpaid and has not been determined by the
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PBGC to be liable for a funding deficiency with respect to a plan
termination under Title IV of ERISA.
3.19.9 NO FURTHER PAYMENTS. If any Employee Benefit Plan (and
the related trusts) which is subject to Title IV of ERISA were
terminated on the date of the latest actuarial valuation, the
Corporation would not have any liability for further contributions or
other payments with respect thereto (whether direct liability to the
plan, the trusts, the participants and beneficiaries of the plan, or
liability to the PBGC) and there has been no amendment of any such
plan or other occurrence after the date of the latest actuarial
valuation which would result in any such liability.
3.19.10 NO AMENDMENT. With respect to any Employee Benefit
Plan which is a defined benefit plan qualified under Section 401(a) of
the Internal Revenue Code, there has been no amendment of such plan or
other occurrence after the date of the latest actuarial reports
prepared with respect to the plan which has materially changed the
financial and funding condition of the plan.
3.19.11 PAYMENT OF CONTRIBUTIONS. The Corporation and its
subsidiary have made when due all contributions required under any
Employee Benefit Plan and under applicable laws and regulations.
3.19.12 PAYMENT OF BENEFITS. There are no payments which have
become due from any Employee Benefit Plan, the trusts created
thereunder, or from the Corporation or its subsidiary that have not
been paid through normal administrative procedures to the plan
participants or beneficiaries entitled thereto, except for claims for
benefits for which administrative claims procedures under such plan
have not been exhausted.
3.19.13 ACCUMULATED FUNDING DEFICIENCY. No Employee Benefit
Plan which is intended to be a qualified plan under Section 401(a) of
the Internal Revenue Code and no trust created thereunder has
incurred, after June 30, 1974, an "accumulated funding deficiency" as
defined in Section 412(a) of the Internal Revenue Code and Section 302
of ERISA (whether or not waived).
3.19.14 FILING OF REPORTS. The Corporation has filed or caused
to be filed, and will continue to file or cause to be filed, in a
timely manner all filings pertaining to each Employee Benefit Plan
with the IRS, the United States Department of Labor, and the PBGC as
prescribed by the Internal Revenue Code or ERISA, or regulations
issued thereunder. All such filings, as amended, were complete and
accurate in all material respects as of the dates of such filings, and
there were no misstatements or omissions in any such filing which, as
of the making of this representation and warranty, would be material
to the financial condition, net income, business, properties,
operations, or prospects of the Corporation or its subsidiary.
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3.20 ENVIRONMENTAL MATTERS.
3.20.1 OWNED OR OPERATED PROPERTY. With respect to: (i) the
real estate owned or leased by the Corporation or its subsidiary or
used in the conduct of their businesses; (ii) other real estate owned
by the Corporation's subsidiary; (iii) any real estate held and
administered in trust by the Corporation's subsidiary; and (iv) to the
Corporation's knowledge, any real estate formerly owned or leased by
the Corporation or its subsidiary (for purposes of this Section,
properties described in any of (i) through (iv) are collectively
referred to as "PREMISES"):
(a) CONSTRUCTION AND CONTENT. None of the Premises is
constructed of, or contains as a component part, any material
which (either in its present form or as it may reasonably be
expected to change through aging or normal use) releases or may
release any substance that is a Hazardous Substance or is known
to be (either by single exposure or by repeated or prolonged
exposure) injurious or hazardous to the health of persons
occupying the Premises.
(b) USES OF PREMISES. No part of the Premises has been
used for the generation, manufacture, handling, storage,
disposal, or management of Hazardous Substances.
(c) UNDERGROUND STORAGE TANKS. The Premises do not
contain, and have never contained, any underground storage tanks.
With respect to any underground storage tank listed in the
Corporation's Disclosure Statement as an exception to the
foregoing, each such underground storage tank presently or
previously located on Premises is or has been maintained or
removed, as applicable, in compliance with all applicable
Environmental Laws, and has not been the source of any release of
a Hazardous Substance to the environment.
(d) ABSENCE OF CONTAMINATION. The Premises do not contain
and are not contaminated by any quantity of a Hazardous Substance
from any source.
(e) ENVIRONMENTAL SUITS AND PROCEEDINGS. There is no
action, suit, investigation, liability, inquiry, or other
proceeding, ruling, order, notice of potential liability, or
citation involving the Corporation or its subsidiary pending,
threatened, or previously asserted under, or as a result of any
actual or alleged failure to comply with any requirement of, any
Environmental Law. There is no factual basis for any of the
foregoing.
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3.20.2 LOAN PORTFOLIO. With respect to any real estate securing
any outstanding loan or related security interest and any owned real
estate acquired in full or partial satisfaction of a debt previously
contracted:
(a) INVESTIGATION. The Corporation and its subsidiary have
complied in all material respects with their policies (as such
policies may have been in effect from time to time and as
disclosed in the Corporation's Disclosure Statement), and all
applicable laws and regulations, concerning the investigation of
each such property to determine whether or not there exists or is
reasonably likely to exist any Hazardous Substance on, in, or
under such property and whether or not a release of a Hazardous
Substance has occurred at or from such property.
(b) NO KNOWN CONTAMINATION. No such property is known to
contain or be contaminated by any quantity of any Hazardous
Substance from any source.
3.20.3 DEFINITIONS.
(a) HAZARDOUS SUBSTANCES. For purposes of this Plan of
Merger, "HAZARDOUS SUBSTANCE" has the meaning set forth in
Section 9601 of the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, 42 U.S.C.A.
<Section> 9601 et seq. ("CERCLA"), and also includes any
substance now or in the future regulated by or subject to any
Environmental Law (as defined below) and any other pollutant,
contaminant, or waste, including, without limitation, petroleum,
asbestos, fiberglass, radon, and polychlorinated biphenyls.
(b) ENVIRONMENTAL LAWS. For purposes of this Plan of
Merger, "ENVIRONMENTAL LAWS" means all laws (civil or common),
ordinances, rules, regulations, guidelines, and orders that: (i)
regulate air, water, soil, or solid waste management, including
the generation, release, containment, storage, handling,
transportation, disposal, or management of Hazardous Substances;
(ii) regulate or prescribe requirements for air, water, or soil
quality; (iii) are intended to protect public health or the
environment; or (iv) establish liability for the investigation,
removal, or cleanup of, or damage caused by, any Hazardous
Substance.
3.21 DUTIES AS FIDUCIARY. The Corporation's subsidiary has performed
all of its duties in any capacity as trustee, executor, administrator,
registrar, guardian, custodian, escrow agent, receiver, or other fiduciary
in a fashion that complies in all material respects with all applicable
laws, regulations, orders, agreements, wills, instruments, and common law
standards, the violation of which would be material to its business,
income, or financial condition.
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3.22 INVESTMENT BANKERS AND BROKERS. The Corporation has not employed
any broker, finder, or investment banker in connection with the Merger,
except for the engagement of Roney & Co. to provide fairness opinions as
contemplated by this Plan of Merger. The Corporation has no express or
implied agreement with any person or company relative to any commission or
finder's fee payable with respect to the Merger.
3.23 CHANGE IN BUSINESS RELATIONSHIPS. Neither the Corporation nor
its subsidiary has notice, whether on account of the Merger or otherwise,
that (i) any customer, agent, representative, or supplier of the
Corporation or its subsidiary intends to discontinue, diminish, or change
its relationship with the Corporation or its subsidiary, the effect of
which would be material to the business of the Corporation or its
subsidiary; or (ii) any executive officer of the Corporation or its
subsidiary intends to terminate his or her employment.
3.24 INSURANCE. The Corporation and its subsidiary maintain in full
force and effect insurance on their assets, properties, premises,
operations, and personnel in such amounts and against such risks and losses
as are customary and adequate for comparable entities engaged in the same
business and industry. During the last five years, no insurance company
has canceled or refused to renew a policy of insurance covering the
Corporation's or any of its subsidiary's assets, properties, premises,
operations, or personnel.
3.25 BOOKS AND RECORDS. The minutes contained in corporate minute
books and files of the Corporation and its subsidiary (since it was
acquired by the Corporation) properly and accurately record in all material
respects all actions actually taken by its shareholders, directors, and
committees of directors. The books, accounts, and records of the
Corporation and its subsidiary reflect only actual transactions and have
been maintained in all material respects in the usual and regular manner,
in accordance with generally accepted accounting principles consistently
applied, and in compliance with all applicable laws and regulations.
3.26 EVENTS SINCE DECEMBER 31, 1994. Neither the Corporation nor its
subsidiary has, since December 31, 1994:
3.26.1 BUSINESS IN ORDINARY COURSE. Conducted its business
other than in the ordinary course, or incurred or become subject to
any material liability or obligation, except liabilities incurred in
the ordinary course of business.
3.26.2 STRIKES OR LABOR TROUBLE. Experienced or, to the best
knowledge of the Corporation, been threatened by any strike, work
stoppage, organizational effort, or other labor trouble, or any other
event or condition of any similar character which has been or could
reasonably be expected to be materially adverse to the business,
income, or financial condition of the Corporation or its subsidiary.
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3.26.3 MORTGAGE OF ASSETS. Mortgaged, pledged, or subjected to
lien, charge, or other encumbrance any of its assets, or sold or
transferred any such assets, except in the ordinary course of
business, except for such mortgages, pledges, liens, charges, and
encumbrances for indebtedness that do not in the aggregate exceed
$10,000.
3.26.4 CONTRACT AMENDMENT OR TERMINATION. Made or permitted any
amendment or termination of any contract to which it is a party and
which is material to the business, income, or financial condition of
the Corporation or its subsidiary, except as expressly provided in
this Plan of Merger.
3.27 ANTICIPATED CHANGES. No facts or circumstances have been
discovered from which it appears that there is a risk that there will occur
a materially adverse change in the financial condition, net income,
business, properties, operations, or prospects of the Corporation or its
subsidiary.
3.28 RESERVE FOR LOAN LOSSES. The reserve for loan losses reflected
in the Corporation's and its subsidiary's audited consolidated financial
statements for the period ended or ending December 31, 1994 and 1995, and
Call Reports for the quarters ended or ending March 31, 1995, June 30,
1995, and September 30, 1995, was or will be (as applicable) adequate to
meet all reasonably anticipated loan losses, net of recoveries related to
loans previously charged off.
3.29 NO INSIDER TRADING. The Corporation has reviewed its stock
transfer records since June 30, 1995, and has questioned its directors and
executive officers concerning known stock transfers since that date. Based
upon that investigation, to the best of the Corporation's knowledge, no
director or officer of the Corporation or its subsidiary and no person
related to any such director or officer by blood or marriage and residing
in the same household has since June 30, 1995, purchased or sold, or caused
to be purchased or sold, any shares of the Corporation's common stock of
which such director, officer, or related person is or was the record or
beneficial owner as determined according to Rule 13d-3 issued under the
Securities Exchange Act of 1934, as amended (the "SECURITIES EXCHANGE
ACT"), during any period when the Corporation was in possession of material
nonpublic information.
3.30 CONTINUITY OF INTEREST. There is no plan or intention by any
shareholder of the Corporation who owns beneficially or of record 5 percent
or more of the issued and outstanding shares of the Corporation's common
stock, and, to the best knowledge of the Corporation, there is no plan or
intention on the part of the remaining shareholders of the Corporation who
own shares of the Corporation's common stock to sell, exchange, or
otherwise dispose of a number of shares of Valley Ridge Common Stock
beneficially owned by them or received in the Merger that would reduce the
Corporation's shareholders' ownership of Valley Ridge Common Stock to a
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number of shares having a value, as of the Effective Time of the Merger, of
less than 50 percent of the value of all of the formerly outstanding shares
of the Corporation's common stock as of the same time. For purposes of
this representation, shares of Community Common Stock exchanged for cash in
lieu of fractional shares or surrendered by dissenters will be treated as
outstanding Community Common Stock at the Effective Time of the Merger.
Shares of the Corporation's common stock and shares of the other
Corporation's common stock held by the Corporation's shareholders and
otherwise sold, redeemed, or disposed of before or after the transaction
will be considered in making this representation.
3.31 POOLING OF INTERESTS ACCOUNTING QUALIFICATION. Neither the
Corporation nor its subsidiary owns any shares of the other Corporation's
common stock, any securities convertible into such stock, or any rights to
acquire such stock, except for any which may be held in a fiduciary
capacity for a customer as to which neither the Corporation nor its
subsidiary has any beneficial interest. Neither the Corporation nor its
subsidiary has during the past 2 years acquired any shares of the
Corporation's common stock, any securities convertible into such stock, or
any other rights to acquire such stock, except for any which may be held in
a fiduciary capacity for a customer as to which neither the Corporation nor
its subsidiary has any beneficial interest, and except as permitted for
purposes other than a business combination under the pooling of interests
method of accounting, and no more than a normal number of shares have been
acquired for such permissible purposes.
3.32 VALLEY RIDGE COMMON STOCK. The shares of Valley Ridge Common
Stock to be issued in the Merger in accordance with this Plan of Merger
will be duly authorized and, when issued as contemplated by this Plan of
Merger, validly issued, fully paid, and nonassessable shares.
3.33 TRUE AND COMPLETE INFORMATION. No schedule, statement, list,
certificate, or other information furnished or to be furnished by the
Corporation in connection with this Plan of Merger, including the
Corporation's Disclosure Statement, contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained therein, in light of the
circumstances in which they are made, not misleading.
3.34 TRUTH AND COMPLETENESS OF REPRESENTATIONS AND WARRANTIES.
3.34.1 TRUE AT THE CLOSING. The Corporation warrants that its
representations and warranties in this Plan of Merger will be true in
all material respects at the Closing. All of such representations and
warranties made with respect to specified dates or events shall still
be true at the Closing in all material respects with respect to such
dates or events.
3.34.2 UNTRUE REPRESENTATIONS AND WARRANTIES. During the term
of this Plan of Merger, if the Corporation becomes aware of any facts
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or of the occurrence or impending occurrence of any event which would
cause one or more of the Corporation's representations and warranties
contained in this Plan of Merger to become untrue, or would have
caused one or more of such representations and warranties (except in
the case of representations and warranties expressly made only as of
the execution of this Plan of Merger) to be untrue had such facts been
known or had such event occurred before the execution of this Plan of
Merger, then:
(a) NOTICE. The Corporation shall immediately give
detailed written notice thereof to the other party; and
(b) REMEDY UNLESS WAIVED. The Corporation shall use all
reasonable efforts to change such facts or events to make such
representations and warranties true, unless the same shall have
been waived in writing by the other party.
ARTICLE IV
CERTAIN COVENANTS
4.1 DISCLOSURE STATEMENTS. Each Corporation shall prepare a
Disclosure Statement, which shall be certified with respect to Section 3.33
(TRUE AND COMPLETE INFORMATION) on behalf of the Corporation by its chief
executive officer and its chief financial officer, and shall deliver two
copies of the Disclosure Statement to the other party not later than 30
days after the execution of this Plan of Merger. In addition to any
exceptions to the Corporation's representations set forth in Article III,
the Disclosure Statement shall contain true and correct copies of each and
every document specified below. Not less than 5 days prior to the Closing,
each Corporation shall deliver to the other party an update to the
Corporation's Disclosure Statement describing any material changes and
containing any new or amended documents, as specified below, which are not
contained in the Corporation's Disclosure Statement as initially delivered.
The update to the Corporation's Disclosure Statement shall be certified
with respect to Section 3.33 (TRUE AND COMPLETE INFORMATION) on behalf of
the Corporation by its chief executive officer and its chief financial
officer. Each Disclosure Statement and the update, as of the dates they
are delivered, shall contain:
4.1.1 EMPLOYMENT AGREEMENTS. All employment agreements not
terminable by the Corporation or its subsidiary upon 60 days' or less
notice without penalty or obligation.
4.1.2 EMPLOYMENT POLICIES. All employee handbooks, policy
manuals, rules and standards of employment implemented by the
Corporation or its subsidiary with regard to their employees and
presently in effect.
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4.1.3 JUDGMENTS, ORDERS OR SETTLEMENT AGREEMENTS. Any
judgments, orders, injunctions, court decrees or settlement agreements
arising out of or relating to the labor and employment practices or
decisions of the Corporation or its subsidiary which, by their terms,
continue to bind or affect the Corporation or its subsidiary.
4.1.4 LOAN DELINQUENCIES. A list of loans or extensions of
credit on the books of the Corporation's subsidiary with a principal
balance of $5,000 or more and which are more than 60 days
contractually delinquent.
4.1.5 LETTERS OF CREDIT AND LOAN CONTINGENCIES. A listing of
all letters of credit and obligations to make loans or extend credit
which the Corporation's subsidiary cannot reject or terminate without
advance notice or penalty in its sole discretion, and upon which the
Corporation's subsidiary may be or may become liable without action or
omission of the Corporation's subsidiary after the Closing.
4.1.6 RELATED PERSON CONTRACTS. All agreements, contracts,
mortgages, deeds of trust, leases, commitments, indentures, notes, or
other instruments, which are, to the best of the Corporation's
knowledge, with any Corporation Related Person (defined below),
excepting any ordinary and customary banking relationship. For
purposes of this Plan of Merger, the term "CORPORATION RELATED PERSON"
shall mean any director or executive officer of the Corporation or its
subsidiary, their spouses and children, any person who is a member of
the same household as such persons, and any corporation, partnership,
proprietorship, trust, or other entity of which any such persons,
alone or together, have Control.
4.1.7 RELATED PERSON LOANS. A list of all outstanding loans or
loan commitments from, and all irrevocable letters of credit issued
by, the Corporation or its subsidiary in a principal amount of $10,000
or more to or on behalf of any Corporation Related Person.
4.1.8 CONTROL OF MATERIAL ASSETS. A list of any material assets
or properties which are used in the business of the Corporation or its
subsidiary which are owned or controlled by a Corporation Related
Person, other than in a capacity as a shareholder, director or officer
of the Corporation or its subsidiary.
4.1.9 RETIRED EMPLOYEE EXPENSES. All plans, agreements,
arrangements, or understandings concerning payment of medical
expenses, insurance, or other benefits with respect to any former
employee, or any spouse or child, member of the same household,
estate, or survivor of a former employee.
4.1.10 DEEDS AND TITLES. All deeds, titles, or other
evidences of title to real estate, as well as copies of all surveys,
abstracts, and environmental assessments thereof and title insurance
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policies relating thereto, and complete and correct lists of all items
of personal property which had a book value in excess of $10,000 as of
December 31, 1994, reflected in the books and records of the
Corporation or its subsidiary as being owned (including those
reflected in the consolidated balance sheet of the Corporation and its
subsidiary as of December 31, 1994), except as since disposed of in
the ordinary course of business.
4.1.11 LEASE AGREEMENTS. All leases or other agreements
pursuant to which the Corporation or its subsidiary, as lessee or
lessor, leases real or personal property, excepting any lease as to
personal property under which the aggregate lease payments with
respect to that lease do not exceed $10,000.
4.1.12 OTHER AGREEMENTS.
(a) All contracts or agreements to which the Corporation or
its subsidiary is a party or subject which call for aggregate
payments in excess of $5,000 with respect to individual items or
individual agreements, excepting any ordinary and customary
banking relationship.
(b) All data processing agreements, service agreements,
consulting agreements, or any similar arrangements not terminable
by the Corporation or its subsidiary upon 60 days' or less notice
without penalty, excepting any agreement which does not require
aggregate payments in excess of $10,000.
(c) All interest rate swap agreements and other agreements
relating to hedging interest rate risks.
4.1.13 INSURANCE POLICIES. All policies of insurance
maintained by the Corporation or its subsidiary with respect to
assets, properties, premises, operations, and personnel, and copies of
the most recent insurance audit, review, or report (if any).
4.1.14 CHARTER DOCUMENTS AND BYLAWS. The articles of
incorporation and bylaws of the Corporation and its subsidiary,
including all amendments to date.
4.1.15 SHAREHOLDER LIST. A shareholder list as of the most
recent date available identifying each shareholder, indicating the
number of shares held, and providing the shareholder's record address.
4.1.16 EMPLOYEE BENEFIT PLANS. All plans, policies or
contracts providing for bonuses, pensions, all sales commission
schedules, options, stock purchases, deferred compensation, severance
or termination pay, retirement payments, profit sharing, or retirement
savings, including amendments, any summary plan description relating
thereto, and, to the extent applicable, the last two annual reports on
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Form 5500 for each such plan or contract, the latest determination
letter issued by the IRS with respect to each Employee Benefit Plan
which is a qualified plan under Section 401(a) of the Internal Revenue
Code and any determination letter issued with respect to each
amendment to each such Employee Benefit Plan, and all administrative
forms for each Employee Benefit Plan.
4.1.17 MANAGEMENT LETTERS. Copies of any letters or memoranda
to management or special reports received during each of the last
three years by the Corporation or its subsidiary from the
Corporation's independent public accountants which set forth
criticisms of, or advice, suggestions, or recommendations for
improvements in, any aspect of the accounting for or operation of the
Corporation or its subsidiary.
4.1.18 LONG-TERM DEBT. Copies of any loan agreements, notes,
indentures, security agreements, mortgages, pledge receipts,
guaranties, and related documents with respect to all long-term
indebtedness of the Corporation or its subsidiary.
4.1.19 REGULATORY ORDERS. Copies of any order, decree,
memorandum, agreement, or understanding with regulatory agencies
binding upon or affecting the operations of the Corporation or its
subsidiary or their respective directors or officers in their
capacities as such.
4.1.20 BOARD AND ENVIRONMENTAL INVESTIGATION POLICIES. Copies
of all policies formally adopted by the Board of Directors of the
Corporation and its subsidiary as currently in effect and, with
respect to environmental matters, copies of all policies that have
been in effect during the last 10 years regarding the performance of
environmental investigations of properties accepted as collateral for
loans or accepted in trust, including the effective dates of all such
policies.
4.1.21 LITIGATION. A list of all suits, actions, and
proceedings (legal, administrative, arbitral, or otherwise), and all
claims, investigations, and inquiries (by an administrative agency,
governmental body, or otherwise) to which the Corporation or its
subsidiary, or any of their respective businesses or properties, is a
party as plaintiff or defendant or is subject, together with copies of
the complaint, answer, and all material motions and orders filed or
entered in connection therewith.
4.1.22 MESC FORM 1027. With respect to Community, a completed
and executed copy of MESC Form 1027, Business Transferor's Notice of
Unemployment Tax Liability and Rate.
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4.2 CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME OF THE MERGER.
From the execution of this Plan of Merger until the Effective Time of the
Merger, each Corporation agrees that, except as consented to in writing by
the other party or as otherwise provided in this Plan of Merger, the
Corporation shall, and it shall cause its subsidiary to:
4.2.1 ORDINARY COURSE. Conduct its business and manage its
property only in the usual, regular, and ordinary course and not
otherwise, in substantially the same manner as prior to the execution
of this Plan of Merger, and not make any substantial change to its
methods of management or operation in respect of such business or
property.
4.2.2 NO INCONSISTENT ACTIONS. Take no action which would be
inconsistent with or contrary to the representations, warranties, and
covenants made by the Corporation in this Agreement, and take no
action which would cause the Corporation's representations and
warranties to become untrue except as and to the extent required by
applicable laws and regulations or regulatory agencies having
jurisdiction.
4.2.3 COMPLIANCE. Comply in all material respects with all
laws, regulations, agreements, court orders, and administrative orders
applicable to the conduct of its business unless the application of
such laws, regulations, or orders is being contested in good faith and
the other party has been notified of such contest.
4.2.4 NO AMENDMENTS. Make no change in its articles of
incorporation or charter, as the case may be, or its bylaws, except as
effected by this Plan of Merger and the Merger.
4.2.5 BOOKS AND RECORDS. Maintain its books, accounts, and
records in the usual and regular manner, and in material compliance
with all applicable laws and accounting standards.
4.2.6 NO CHANGE IN STOCK. Make no change in the number of
shares of its capital stock issued and outstanding; grant no warrant,
option, or commitment relating to its capital stock; enter into no
agreement relating to its capital stock; and issue no securities
convertible into its capital stock.
4.2.7 MAINTENANCE. Use all reasonable efforts to maintain its
property and assets in their present state of repair, order and
condition, reasonable wear and tear and damage by fire or other
casualty excepted.
4.2.8 PRESERVATION OF GOODWILL. Use all reasonable efforts to
preserve its business organization intact, to keep available the
services of its present officers and employees, and to preserve the
goodwill of its customers and others having business relations with
it.
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4.2.9 INSURANCE POLICIES. Use all reasonable efforts to
maintain and keep in full force and effect insurance coverage, so long
as such insurance is reasonably available, on its assets, properties,
premises, operations, and personnel in such amounts, against such
risks and losses, and with such self-insurance requirements as are
presently in force.
4.2.10 CHARGE-OFFS. Charge off loans and maintain its reserve
for loan losses, in each case in a manner in conformity with the prior
practices of the Corporation and its subsidiary and applicable
industry, regulatory, and accounting standards.
4.2.11 POLICIES AND PROCEDURES. Make no material change in
any policies and procedures applicable to the conduct of its business,
including without limitation any loan and underwriting policies, loan
loss and charge-off policies, investment policies, and employment
policies, except as and to the extent required by law or regulatory
agencies having jurisdiction.
4.2.12 NEW DIRECTORS OR OFFICERS. Except to reelect persons
who are then incumbent directors and officers at annual meetings, not:
(a) Increase the number of directors or fill any vacancy on
the board of directors; or
(b) Elect or appoint any person to an executive office
without first consulting the other party.
4.2.13 COMPENSATION AND BENEFITS.
(a) Not increase, or agree to increase, the salary or other
compensation payable to, or fringe benefits of, or pay or agree
to pay any bonus to, any director or officer, or any other class
or group of employees as a class or group, except for increases,
agreements or payments which are reasonable in amount and
consistent with the prior year; and
(b) Not introduce, change, or agree to introduce or change,
any pension, profit sharing, or employee benefit plan, fringe
benefit program, or other plan or program of any kind for the
benefit of its employees unless required by law or this Plan of
Merger, or necessary or advisable, in the opinion of counsel, to
maintain any tax qualified status.
4.2.14 NEW EMPLOYMENT AGREEMENTS. Except with respect to the
employment agreement to be offered by Grant to Mr. Ronald L. Hansen as
contemplated by Section 6.13 (EMPLOYMENT AGREEMENT) of this Plan of
Merger, not enter into any employment agreement which is not
terminable by the Corporation or its subsidiary without cost or
penalty upon 60 days' or less notice.
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4.2.15 DIVIDENDS. Not declare or pay any dividends, nor make
any other distribution, in respect of any shares of its capital stock
except as permitted by Section 4.3 (REGULAR DIVIDENDS AND COMPENSATION
ADJUSTMENTS).
4.2.16 BORROWING. Not borrow money except in the ordinary
course of business.
4.2.17 MORTGAGING ASSETS. Not sell, mortgage, pledge,
encumber, or otherwise dispose of, or agree to sell, mortgage, pledge,
encumber, or otherwise dispose of, any of its property or assets,
except in the ordinary course of business.
4.2.18 NOTICE OF ACTIONS. Notify the other party of the
threat or commencement of any action, suit, proceeding, claim,
arbitration, or investigation against or relating to: (i) the
Corporation or its subsidiary; (ii) the Corporation or its
subsidiary's directors, officers, or employees in their capacities as
such; (iii) the Corporation's or its subsidiary's assets, liabilities,
businesses, or operations; or (iv) the Merger or this Plan of Merger.
4.2.19 NEW SERVICE ARRANGEMENTS. Not enter into, or commit to
enter into, any agreement for trust, consulting, professional, data
processing, or other services to the Corporation or its subsidiary
which is not terminable by the Corporation or its subsidiary without
penalty upon 60 days' or less notice.
4.2.20 CAPITAL IMPROVEMENTS. Except with respect to Valley
Ridge's current remodeling and expansion program at Kent City's
Egelston branch and future expenditures reasonably consistent with
that program, not open, enlarge, or materially remodel any bank or
other facility, and not lease, purchase, or otherwise acquire any real
property for use as a branch bank, or apply for regulatory approval of
any new branch bank, excepting pursuant to prior commitments made by
the Corporation or its subsidiary that are disclosed in the
Corporation's Disclosure Statement.
4.3 REGULAR DIVIDENDS. Community may declare and pay cash dividends
upon Community Common Stock quarterly at a rate of $.09 per share in a
manner, on dates, and with respect to record dates consistent with its past
practice. However, Community shall adjust the record date for its
regularly scheduled dividend, if any (otherwise permissible under this
Section 4.3 (REGULAR DIVIDENDS AND COMPENSATION ADJUSTMENTS)), with respect
to the period in which the Effective Time of the Merger occurs if necessary
to assure that Community shareholders receive one and only one dividend
payable in, or with a record date occurring in, the quarter in which the
Effective Time of the Merger occurs, whether with respect to Community
Common Stock or Valley Ridge Common Stock received in the Merger. Valley
Ridge may declare and pay cash dividends upon Valley Ridge Common Stock
quarterly at a rate of $.20 per share in a manner, on dates and with
respect to record dates consistent with its past practice.
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4.4 AFFILIATES. The Corporation's Disclosure Statement and the
update to the Corporation's Disclosure Statement shall identify every
person who may, to the Corporation's reasonable knowledge, be deemed to be
an "affiliate" of the Corporation for purposes of Rule 145 under the
Securities Act of 1933, as amended (the "SECURITIES ACT"). The Corporation
shall cause its counsel to deliver to each person who is identified as an
affiliate, on or prior to the Effective Time of the Merger, advice with
respect to such person's obligations under the Securities Act and the
regulations issued thereunder with respect to disposition of securities of
Valley Ridge. Further, the Corporation shall use all reasonable efforts to
cause each person who is identified as an affiliate to deliver to Valley
Ridge on or prior to the Effective Time of the Merger a written agreement,
satisfactory to Valley Ridge, that such person shall not offer to sell or
otherwise dispose of any shares of Valley Ridge Common Stock beneficially
owned by or issued to such person pursuant to the Merger in violation of
the Securities Act or the regulations thereunder, or prior to publication
of financial results of the post-Merger combined operations of Valley Ridge
covering a period of at least 30 days.
4.5 COMPETING PROPOSALS. Neither Corporation nor its respective
subsidiary, nor any of their respective directors, officers, employees,
investment bankers, representatives, or agents, shall take any action
inconsistent with the intent to consummate the Merger upon the terms and
conditions of this Plan of Merger. Without limiting the foregoing:
4.5.1 NO SOLICITATION. Neither Corporation nor its respective
subsidiary, nor any of their respective directors, officers,
employees, investment bankers, representatives, or agents, shall
solicit, encourage, negotiate, accept or approve, any proposals,
offers, or expressions of interest concerning any tender offer,
exchange offer, merger, consolidation, sale of shares, sale of assets,
or assumption of liabilities not in the ordinary course, or other
business combination involving the Corporation or its subsidiary, or
any of their respective assets or properties, other than the Merger (a
"BUSINESS COMBINATION").
4.5.2 COMMUNICATION OF OTHER PROPOSALS. Each Corporation shall
cause written notice to be delivered to the other party promptly upon
receipt of any solicitation, offer, proposal, or expression of
interest (a "PROPOSAL") concerning a Business Combination. Such
notice shall contain the material terms and conditions of the Proposal
to which such notice relates or shall contain a copy of the
Corporation's unequivocal rejection of the Proposal in the form
actually delivered to the person from whom the Proposal was received.
Thereafter, the Corporation shall promptly notify the other party of
any material changes in the terms, conditions, and status of any
Proposal.
4.5.3 FURNISHING INFORMATION. Neither Corporation nor its
respective subsidiary, nor any of their respective directors,
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officers, employees, investment bankers, representatives, or agents,
shall furnish any nonpublic information concerning the Corporation or
its subsidiary to any person who is not affiliated or under contract
with Community or Valley Ridge, except as required by applicable law
or regulations.
Nothing in this Section 4.5 (COMPETING PROPOSALS) shall prevent the
Corporation from receiving and pursuing expressions of interest or offers
for the Corporation to acquire the stock or assets of another corporation
(unless such acquisition would effectively result in the Corporation being
controlled by the directors, officers or shareholders of the acquired
corporation).
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGISTRATION STATEMENT. As soon as is reasonably practical,
Valley Ridge agrees to prepare and file with the SEC under the Securities
Act the Registration Statement and the related Prospectus and Proxy
Statement included as a part thereof covering the issuance by Valley Ridge
of the shares of Valley Ridge Common Stock as contemplated by this Plan of
Merger, together with such amendments as may reasonably be required for the
Registration Statement to become effective. Valley Ridge agrees to provide
Community with the opportunity to review and comment upon the Registration
Statement, each amendment to the Registration Statement, and each form of
the Prospectus and Proxy Statement before filing. Valley Ridge agrees to
provide Community with copies of all correspondence received from the SEC
with respect to the Registration Statement and its amendments and with all
responsive correspondence to the SEC. Valley Ridge agrees to notify
Community of any stop orders or threatened stop orders with respect to the
Registration Statement. Community agrees to provide all necessary
information pertaining to Community and its subsidiary promptly upon
request, and to use its best efforts to obtain the cooperation of
Community's independent accountants and attorneys, in connection with the
preparation of the Registration Statement.
5.2 OTHER FILINGS. Valley Ridge agrees to prepare and file, as soon
as is reasonably practical, with the Federal Reserve Board, the State of
Michigan, and other regulatory agencies all documents in connection with
the transactions contemplated by this Plan of Merger. Valley Ridge agrees
to provide Community with the opportunity to review and comment upon such
documents before filing and to provide Community with copies of all
correspondence received from these agencies and all responsive
correspondence sent to these agencies.
5.3 PRESS RELEASES. Community and Valley Ridge shall consult with
each other with respect to the form and substance of any press release or
other public disclosure of matters related to this Plan of Merger.
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5.4 MISCELLANEOUS AGREEMENTS AND CONSENTS. Subject to the terms and
conditions of this Plan of Merger, each of the parties agrees to use all
reasonable 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 and regulations to consummate and make effective the
transactions contemplated by this Plan of Merger. Valley Ridge and
Community will use reasonable efforts to obtain consents of all third
parties and governmental bodies necessary or desirable for the consummation
of the Merger.
5.5 EXCHANGE OF FINANCIAL INFORMATION. Subject to Section 5.6
(INVESTIGATION):
5.5.1 QUARTERLY INFORMATION. Community and Valley Ridge
shall each, as promptly as practicable, deliver to the other copies of
each quarterly consolidated financial statement prepared after the
date of this Plan of Merger.
5.5.2 OTHER INFORMATION. After the execution of this Plan of
Merger until the Effective Time of the Merger, each Corporation shall
promptly deliver to the other copies of:
(a) Each monthly internal financial report (if any)
prepared with respect to the Corporation and its subsidiary on a
consolidated or unconsolidated basis; and
(b) Each financial report or statement submitted to
regulatory authorities for the Corporation and its subsidiary.
5.6 INVESTIGATION.
5.6.1 ACCESS TO INFORMATION. For the purpose of permitting
an examination of each Corporation by such of the other party's
officers, attorneys, accountants, and representatives as have a "need
to know" for the purposes of such other party's evaluation of the
Merger, each Corporation shall:
(a) Permit, and shall cause its subsidiary to permit, full
access to their respective properties, books, and records at
reasonable times;
(b) Use reasonable efforts to cause its and its
subsidiary's directors, officers, employees, accountants, and
attorneys to cooperate fully, for the purpose of permitting a
complete and detailed examination of such matters by the other
party's officers, attorneys, accountants, and representatives;
and
(c) Furnish to the other party, upon request, any
information reasonably requested respecting its and its
subsidiary's properties, assets, business, and affairs.
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5.6.2 CONSENT TO DISCLOSE. Each Corporation acknowledges
that certain information may not be disclosed by the other party or
its subsidiary without the prior written consent of persons not
affiliated with such other party or its subsidiary. If such
information is requested by either Corporation, then the other party
shall use, or cause its subsidiary to use, reasonable efforts to
obtain such prior consent and shall not be required to disclose such
information unless and until such prior consent has been obtained.
5.6.3 CONFIDENTIALITY. Except as provided in Section 5.6.5
(OTHER INFORMATION), while this Plan of Merger is in effect and at all
times thereafter, Valley Ridge and Community each agree to treat as
strictly confidential and agree not to divulge to any other person,
natural or corporate (other than employees of, and attorneys,
accountants, and financial advisers for, such party who are reasonably
believed to have a need for such information in connection with the
Merger), and not to make any business use not related to the Merger
of, any financial statements, schedules, contracts, agreements,
instruments, papers, documents, or other information relating to the
other party and the other party's subsidiary which it may come to know
as a direct result of a disclosure by the other party or the other
party's subsidiary, or which may come into its possession directly as
a result of and during the course of such investigation. Valley Ridge
and Community recognize and understand the close proximity of their
respective markets and agree that the fact that a party to this Plan
of Merger is or begins doing business with a customer of the other
party will not be presumed to be a breach of the provisions of this
Section 5.6.3 (CONFIDENTIALITY).
5.6.4 RETURN OF MATERIALS. Upon the termination of this Plan
of Merger, Valley Ridge and Community each agree to promptly return to
the other party or to destroy all written materials furnished to it by
the other party and the other party's subsidiary, and all notes and
summaries of such written materials, in connection with such
investigation, including any and all copies of any of the foregoing.
Valley Ridge and Community each agree to preserve intact all such
materials which are returned to them and to make such materials
reasonably available upon request or subpoena for a period of not less
than five years from the termination of this Plan of Merger or such
longer or shorter period of time as they may mutually agree.
5.6.5 OTHER INFORMATION. The provisions of this Section 5.6
(INVESTIGATION) shall not preclude Valley Ridge or Community, or their
respective subsidiary, from using or disclosing information which is:
(i) readily ascertainable from public information or trade sources;
(ii) known by it before the commencement of discussions between the
parties or subsequently developed by it or its subsidiary independent
of any investigation under this Plan of Merger or received from a
third party not under any obligation to Community or Valley Ridge, or
their respective subsidiaries, to keep such information confidential;
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or (iii) reasonably required to be included in any filing or
application required by any governmental or regulatory agency,
including without limitation Valley Ridge's application or
applications to the Federal Reserve Board, and Valley Ridge's or
Community's annual report and proxy statement. Valley Ridge shall
permit Community to review Valley Ridge's application or applications
to the Federal Reserve Board prior to filing and Community may
reasonably request that sensitive or competitive information be
separately filed as confidential in accordance with instructions,
rules, and regulations issued by such agencies.
5.6.6 INSIDER TRADING. Valley Ridge and Community shall take
responsible steps to assure that any person who receives nonpublic
information concerning the other party pursuant to this Section 5.6
(INVESTIGATION) will not buy or sell, or advise other persons to buy
or sell, the other party's stock until such information is disclosed
by the other party to the public.
5.7 ENVIRONMENTAL INVESTIGATION. Valley Ridge and Community may,
each at its own option and expense, engage environmental consultants to
conduct a preliminary ("PHASE I") environmental assessment of any parcel of
real estate used in the operation of the other Corporation's or its
subsidiary's businesses and any other real estate owned. Each Corporation
and its subsidiary shall provide reasonable assistance, including site
access, to such a consultant for purposes of conducting the Phase I
assessments. The fees and expenses of a consultant with respect to the
Phase I assessments shall be paid by the Corporation that engages the
consultant to perform a Phase I assessment at any given site, subject to
the provisions of Section 9.3 (EXPENSES) and 9.4 (EXPENSE REIMBURSEMENT
AFTER BUSINESS COMBINATION). If any environmental conditions are found,
suspected, or would tend to be indicated by the report of the consultant
which may be contrary to the representations and warranties set forth in
Section 3.20 (ENVIRONMENTAL MATTERS), without regard to any exceptions that
may be contained in the applicable Corporation's Disclosure Statement, then
either Corporation shall obtain from one or more mutually acceptable
consultants or contractors, as appropriate, an estimate of the cost of any
further environmental investigation, sampling, analysis, remediation, or
other follow-up work that may be necessary to address those conditions in
accordance with applicable Environmental Laws. Each Corporation shall
forward copies of any such estimates to the other party upon receipt.
5.7.1 MUTUAL AGREEMENT. Upon receipt of the estimate of the
costs of all follow-up work to the Phase I assessments or any
subsequent investigation phases that may be conducted, the parties
shall attempt to agree upon a course of action for further
investigation and remediation of any environmental condition
suspected, found to exist, or that would tend to be indicated by the
report of the consultant. All work plans for any post-Phase I
assessment activities, or any removal or remediation actions that may
be performed, shall be mutually satisfactory to Valley Ridge and
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Community. If the work plans or removal or remediation actions would
entail a material cost to complete, Valley Ridge and Community shall
discuss a mutually acceptable modification to this Plan of Merger.
Valley Ridge and Community shall cooperate in the review, approval,
and implementation of all work plans.
5.7.2 RIGHT TO ABANDON. If the parties are unable to agree
upon a course of action for further investigation and remediation of
an environmental condition or issue raised by an environmental
assessment and/or a mutually acceptable modification to this Plan of
Merger, and the condition or issue is not one for which it can be
determined to a reasonable degree of certainty that the risk and
expense to which Valley Ridge and its subsidiaries (after the Merger)
would be subject as owner or operator of the property involved can be
quantified and limited to an immaterial amount, then either party may
abandon this Plan of Merger pursuant to Section 7.2.8 (ENVIRONMENTAL
CONDITIONS).
5.8 POOLING QUALIFICATION. Valley Ridge and Community each agree
that, except as expressly provided in this Plan of Merger, while this Plan
of Merger is in effect, it shall not take or fail to take, or cause to be
taken or fail to cause to be taken, any action if the result would be or
present a material risk that the Merger would become disqualified for the
pooling of interests method of accounting by Valley Ridge, including
without limitation:
5.8.1 NO STOCK PURCHASES. Neither Valley Ridge nor its
subsidiary, nor Community nor its subsidiary, respectively, shall
acquire any shares of Valley Ridge Common Stock, Community Common
Stock, any securities convertible into such stock or any other rights
to acquire such stock, except in a fiduciary capacity for a customer
as to which it has no beneficial interest, and except as permitted for
purposes other than a business combination under the pooling of
interests method of accounting and provided that no more than a
permitted number of shares have been acquired for such permissible
purposes; and
5.8.2 NO CHANGE OF EQUITY INTEREST. Neither Valley Ridge nor
Community, respectively, shall in any manner change the equity
interest of Valley Ridge Common Stock or Community Common Stock,
respectively, between the date of this Plan of Merger and the
consummation of the Merger, including without limitation distributions
(other than ordinary and customary cash dividends) to shareholders and
additional issuances, exchanges, and retirements of securities.
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ARTICLE VI
CONDITIONS PRECEDENT TO MERGER
All obligations of the parties under this Plan of Merger are
subject to the fulfillment (or waiver in writing by a duly authorized
officer of the party entitled to the benefit of the applicable condition),
prior to or at the Closing, of each of the following conditions:
6.1 RENEWAL OF REPRESENTATIONS AND WARRANTIES, ETC.
6.1.1 REPRESENTATIONS AND WARRANTIES. Each Corporation's
representations and warranties shall then be true in all material
respects or, if one or more representations or warranties shall then
be untrue, the cumulative effect of all untrue representations and
warranties shall not then be material relative to the business,
income, or financial condition of that Corporation and its subsidiary
on a consolidated basis. For purposes of this Section 6.1.1
(REPRESENTATIONS AND WARRANTIES), representations and warranties made
with respect to specified dates or events need only to have been true
in all material respects as of such dates or events. Any
representation or warranty which becomes untrue because of any change
intended by this Plan of Merger shall not be considered to be a breach
of this Plan of Merger because of such change.
6.1.2 COMPLIANCE WITH AGREEMENTS. Each Corporation and its
subsidiary shall have performed and complied with all agreements,
conditions, and covenants required by this Plan of Merger to be
performed or complied with by that Corporation and its subsidiary
prior to or at the Closing in all material respects.
6.1.3 CERTIFICATES. Compliance with Sections 6.1.1
(REPRESENTATIONS AND WARRANTIES) and 6.1.2 (COMPLIANCE WITH
AGREEMENTS) shall be evidenced by one or more certificates signed by
appropriate officers of each Corporation and, with respect to
agreements, conditions, and covenants pertaining to its subsidiary, by
appropriate officers of its subsidiary, dated as of the date of the
Closing, certifying the foregoing in such detail as the other party
may reasonably request, and describing any exceptions to such
compliance in such certificates.
6.2 OPINIONS OF LEGAL COUNSEL. Each Corporation shall have delivered
to the other party an opinion of its counsel, dated as of the date of the
Closing and reasonably satisfactory to counsel for the other party, to the
effect that:
6.2.1 DUE AUTHORIZATION. This Plan of Merger, the execution,
delivery, and performance of this Plan of Merger, and the consummation
of the Merger as provided in this Plan of Merger (including with
respect to Valley Ridge the issuance of shares of Valley Ridge Common
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Stock pursuant to this Plan of Merger) by the Corporation have been
duly authorized, approved, and adopted by all requisite action of the
Corporation's Board of Directors and its shareholders.
6.2.2 ORGANIZATION. The Corporation is a corporation duly
organized, validly existing, and in good standing under the laws of
the State of Michigan. The Corporation has the corporate power to
carry on its business substantially as and where it is now being
conducted.
6.2.3 CAPITAL STOCK. With respect to Community, the
authorized capital stock of Community as of the close of business on
the day preceding the Closing consists of 200,000 shares of common
stock, without par value, of which the number of shares specified in
the opinion are then legally issued and outstanding, fully paid and
nonassessable. With respect to Valley Ridge, the authorized capital
stock of Valley Ridge as of the close of business on the day preceding
the Closing consists of 500,000 shares of common stock, $10 par value,
of which the number of shares specified in the opinion are then
legally issued and outstanding, fully paid and nonassessable.
6.2.4 ISSUANCE OF SHARES. Except as disclosed in such
opinion, to counsel's knowledge:
(a) Since the date and time of the execution of this Plan
of Merger, no additional shares of capital stock have been
authorized for issuance or issued by the Corporation.
(b) There are no other outstanding subscriptions, options,
warrants, rights to acquire any capital stock of the Corporation,
or agreements to which the Corporation is a party or by which it
is bound to issue capital stock, except as set forth in, or as
contemplated by, this Plan of Merger, the Corporation's
Disclosure Statement or in such opinion.
6.2.5 ORGANIZATION OF SUBSIDIARIES. With respect to
Community, Grant is a Michigan banking corporation duly authorized to
transact business in the State of Michigan under its charter pursuant
to the provisions of applicable statutes of the State of Michigan.
With respect to Valley Ridge, Kent City is a Michigan banking
corporation duly authorized to transact business in the State of
Michigan under its charter pursuant to the provisions of applicable
statutes of the State of Michigan. The Corporation's subsidiary
possesses all requisite authority to conduct and carry on its
business, substantially where and as it conducts it, under all
applicable federal and state laws.
6.2.6 OWNERSHIP OF SUBSIDIARIES. With respect to Community,
Community owns all of the issued and outstanding shares of capital
stock of Grant, free and clear of all claims, security interests,
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pledges, or liens of any kind. With respect to Valley Ridge, Valley
Ridge owns all of the issued and outstanding capital stock of Kent
City, free and clear of all claims, security interests, pledges, or
liens of any kind. Except with respect to Kent City's ownership of
20% of the voting securities of West Shore Computer Services, Inc., to
the best of counsel's knowledge, the Corporation does not have
Control, either directly or indirectly, of any corporation engaged in
an active trade or business or which holds any significant assets
other than as stated in this Section 6.2.6. To the best of counsel's
knowledge, there are no outstanding subscriptions, options, warrants,
or rights to acquire any capital stock of the Corporation's
subsidiary, or agreements to which the Corporation or its subsidiary
is a party or by which it is bound to issue capital stock of its
subsidiary.
6.2.7 VALID AND BINDING. This Plan of Merger constitutes the
valid and binding obligation of the Corporation, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting creditors' rights, and by the exercise of judicial
discretion in accordance with general principles applicable to
equitable and similar remedies, and subject to the rights of the FDIC
as conservator or receiver.
6.2.8 ALL APPROVALS RECEIVED. All approvals, consents,
authorizations, or modifications as may be required to permit the
performance by the Corporation of its obligations under this Plan of
Merger and consummation of the Merger have been obtained, except as
disclosed in such opinion.
6.2.9 ALL ACTIONS TAKEN. All other actions and proceedings
required by law or, to the best of counsel's knowledge, this Plan of
Merger to be taken by the Corporation and its subsidiary at or prior
to the Closing in connection with this Plan of Merger have been duly
and validly taken.
6.2.10 NO CONFLICT, BREACH, OR VIOLATION. The execution,
delivery, and performance of this Plan of Merger by the Corporation,
and the consummation by the Corporation of the transactions
contemplated by this Plan of Merger, did not, do not and will not,
except as disclosed in such opinion, conflict with or result in any
breach or violation of, or default under (i) any provision of the
Articles of Incorporation or Bylaws of the Corporation; (ii) any
statute, code, ordinance, rule, or regulation; (iii) any regulatory
agreement, memorandum of understanding, judgment, order, writ,
arbitral award, decree, or injunction known to such counsel and
applicable to the Corporation or its subsidiary; or (iv) any mortgage,
agreement, lease, commitment, indenture, or other instrument known to
such counsel and applicable to the Corporation or its subsidiary. All
consents and approvals of the transactions contemplated by this Plan
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of Merger which, to the best of counsel's knowledge, are required from
any person pursuant to any contract or agreement to which the
Corporation or its subsidiary is a party or subject, or by which the
Corporation or its subsidiary is bound, have been obtained, except as
disclosed in the Corporation's Disclosure Statement or in such
opinion.
6.2.11 NO LITIGATION. Except as disclosed in the Corporation's
Disclosure Statement or in such opinion, counsel does not know of any
action, suit, proceeding, claim, counterclaim, arbitration, or
investigation pending or threatened against or relating to (i) the
directors or officers of the Corporation or its subsidiary in their
capacities as such; or (ii) the Corporation or its subsidiary, or
their respective properties or businesses, which challenges the
Merger, or which may result in any liability to the Corporation or its
subsidiary which would have a material adverse effect on the business,
income, or financial condition of the Corporation or its subsidiary.
6.2.12 ISSUANCE OF SHARES AUTHORIZED. With respect to Valley
Ridge, the shares of Valley Ridge Common Stock to be issued by Valley
Ridge as contemplated by this Plan of Merger, and to be delivered to
the shareholders of Community, are duly authorized, and, when issued,
will be legally issued, fully paid, and nonassessable.
Such opinion shall also cover such other matters incident to the
transactions contemplated in this Plan of Merger as the other party and its
counsel may reasonably request. In rendering its opinion, counsel for each
Corporation may rely on certificates of governmental officials and officers
of the Corporation or its subsidiary.
6.3 REQUIRED APPROVALS. Community and Valley Ridge shall have
received:
6.3.1 REGULATORY. All such approvals, consents,
authorizations, and licenses of all regulatory and other governmental
authorities having jurisdiction as may be required to permit the
performance by Community and Valley Ridge of their respective
obligations under this Plan of Merger and the consummation of the
Merger.
6.3.2 SHAREHOLDER. Evidence reasonably satisfactory to it of
the requisite approval of the other party's shareholders of this Plan
of Merger and the Merger.
6.4 ORDER, DECREE, ETC. Neither Valley Ridge nor Community shall be
subject to any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of the
Merger.
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6.5 PROCEEDINGS. There shall not be any action, suit, proceeding,
claim, arbitration, or investigation pending or threatened: (i) against
or relating to either Corporation or their respective subsidiaries or their
respective properties or businesses which may result in any liability to
that Corporation or its subsidiary which could have a material adverse
effect on the financial condition, net income, business, properties,
operations, or prospects of that Corporation and its subsidiary on a
consolidated basis; or (ii) which challenges the Merger or this Plan of
Merger.
6.6 TAX MATTERS. Valley Ridge and Community shall have received an
opinion of Warner Norcross & Judd LLP, reasonably satisfactory in form and
substance, substantially to the effect that:
6.6.1 The Merger of Community with and into Valley Ridge will
constitute a reorganization within the meaning of Section 368(a)(1)(A)
of the Internal Revenue Code, and Valley Ridge and Community will each
be a "party to a reorganization" within the meaning of Section 368(b)
of the Internal Revenue Code.
6.6.2 The basis of the Community assets in the hands of Valley
Ridge will be the same as the basis of those assets in the hands of
Community immediately prior to the Merger.
6.6.3 No gain or loss will be recognized to Valley Ridge on the
receipt by Valley Ridge of the assets of Community in exchange for
Valley Ridge Common Stock and the assumption by Valley Ridge of the
liabilities of Community.
6.6.4 The holding period of the assets of Community in the
hands of Valley Ridge will include the holding period during which
such assets were held by Community.
6.6.5 No gain or loss will be recognized by the shareholders of
Community who receive shares of Valley Ridge Common Stock in exchange
for all of their shares of Community Common Stock, except to the
extent of any cash received in lieu of a fractional share of Valley
Ridge Common Stock.
6.6.6 The basis of the Valley Ridge Common Stock to be received
by shareholders of Community will, in each instance, be the same as
the basis of the respective shares of Community Common Stock
surrendered in exchange therefor.
6.6.7 The holding period of the Valley Ridge Common Stock
received by shareholders of Community will, in each instance, include
the period during which the Community Common Stock surrendered in
exchange therefor was held, provided that the Community Common Stock
was, in each instance, held as a capital asset in the hands of the
shareholder of Community at the Effective Time of the Merger.
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6.7 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and shall not be subject to a stop order
or any threatened stop order.
6.8 CERTIFICATE AS TO OUTSTANDING SHARES. Each Corporation shall
have received one or more certificates signed by the secretary of the other
Corporation on behalf of the other Corporation, certifying the total number
of shares of capital stock of the other Corporation issued and outstanding
as of the close of business on the day immediately preceding the Closing,
all in such form as the Corporation receiving the certificates may
reasonably request.
6.9 CHANGE OF CONTROL WAIVERS. Each Corporation shall have received
evidence of the waiver of any material rights and the waiver of the loss of
any material rights which may be triggered by the change of control of the
other Corporation upon consummation of the Merger under any agreements,
contracts, mortgages, deeds of trust, leases, commitments, indentures,
notes, or other instruments, all in form and substance reasonably
satisfactory to the Corporation receiving such evidence.
6.10 POOLING OF INTERESTS ACCOUNTING. Valley Ridge shall have
received such assurance from Crowe, Chizek and Company LLP, satisfactory in
form and substance, that the Merger will be treated as a pooling of
interests for accounting purposes, subject to satisfaction of post-Merger
conditions.
6.11 FAIRNESS OPINIONS. Each Corporation shall have received opinions
from Roney & Co., or another financial expert reasonably acceptable to such
Corporation, dated approximately the date of the Prospectus and Proxy
Statement, to the effect that the terms of the Merger are fair to such
Corporation's shareholders from a financial point of view as of that date
and such opinion or opinions shall not have been subsequently withdrawn.
6.12 DISSENTERS' RIGHTS. Holders of not more than 10 percent of the
then outstanding shares of either Corporation's capital stock shall have
made, perfected, and not withdrawn demands for payment for their shares
under Section 762 of the Michigan Act.
6.13 EMPLOYMENT AGREEMENT. Grant shall have offered an employment
agreement to Mr. Ronald L. Hansen on terms acceptable to both Valley Ridge
and Community.
ARTICLE VII
ABANDONMENT OF MERGER
This Plan of Merger may be terminated and the Merger abandoned at
any time prior to the Effective Time of the Merger (notwithstanding that
approval of this Plan of Merger by the shareholders of Community or Valley
Ridge may have previously been obtained) as follows:
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7.1 MUTUAL ABANDONMENT PRIOR TO EFFECTIVE TIME OF THE MERGER. This
Plan of Merger may be terminated and the Merger abandoned by mutual consent
of the Boards of Directors, or duly authorized committees thereof, of
Valley Ridge and Community.
7.2 RIGHTS TO TERMINATE. This Plan of Merger may be terminated and
the Merger abandoned by the Board of Directors, or a duly authorized
committee thereof, of either Community or Valley Ridge under any of the
following circumstances:
7.2.1 DISCLOSURE STATEMENT; PRECLOSING INVESTIGATION, ETC.
Either Corporation shall have determined in good faith and with
reasonable basis that:
(a) Any exception or exceptions to the other Corporation's
representations and warranties or any other information set forth
in the other Corporation's Disclosure Statement are, in the
aggregate, materially adverse to the financial condition, net
income, business, properties, operations, or prospects of the
other Corporation or its subsidiary or the contemplated benefits
of the Merger; or
(b) There exists any set of facts or circumstances
materially adverse to the financial condition, net income,
business, properties, operations, or prospects of the other
Corporation or its subsidiary;
provided that the abandoning Corporation notifies the other party of
such abandonment and termination not later than the last to occur of
(i) 15 business days after the abandoning Corporation receives the
other party's Disclosure Statement, and (ii) 30 business days after
the date of the execution of this Plan of Merger.
7.2.2 BREACH OF WARRANTY. One or more of the representations
and warranties made by the other party in this Plan of Merger shall
have been discovered to be or to have become untrue and the cumulative
effect of all such untrue representations and warranties is material
relative to the business, income, or financial condition of such other
party and its subsidiary on a consolidated basis.
7.2.3 BREACH OF COVENANT. The other party shall have
committed one or more breaches of any provision of this Plan of Merger
which would in the aggregate be material; provided, that, if such
breach or breaches can be cured, the abandoning Corporation shall have
given the other party specific notice of the breach or breaches in
writing and the other party shall have not cured such breach or
breaches to the reasonable satisfaction the abandoning Corporation
within 30 days of receipt of such notice.
7.2.4 UPSET DATE. Despite all reasonable efforts by the
abandoning Corporation to cause the Merger to become effective, the
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Merger has not yet become effective on or before June 30, 1996, or, in
any event, the Merger has not yet become effective on or before
September 30, 1996.
7.2.5 INJUNCTION. A final unappealable injunction or other
judgment shall have been issued by a court of competent jurisdiction
restraining or prohibiting consummation of the Merger.
7.2.6 NO REGULATORY APPROVAL. The Federal Reserve Board or
its delegate shall have refused to approve the Merger; provided, that
Valley Ridge shall have first had the opportunity to initiate and
fully pursue its rights to appeal from, or seek judicial review of,
any such refusal. In the event of such appeal or review, and if such
appeal or review results in a substantial affirmance of such refusal,
then for purposes of this Section 7.2.6 such refusal shall be deemed
not to have been made until the termination of such appeal or review.
7.2.7 ADVERSE CHANGE. There has occurred any change from
that which existed on December 31, 1994, in the financial condition of
the other party or its subsidiary which is materially adverse to the
business, income, or financial condition of the other party and its
subsidiary on a consolidated basis.
7.2.8 ENVIRONMENTAL CONDITIONS. If any environmental
conditions are found or indicated by the environmental assessments (if
any) obtained pursuant to the investigation under Section 5.7
(ENVIRONMENTAL INVESTIGATION) which are contrary to the other party's
representations and warranties set forth in Section 3.20
(ENVIRONMENTAL MATTERS), without regard to exceptions contained in the
other party's Disclosure Statement, and the parties are unable to
agree upon a course of action for further investigation and
remediation of an environmental condition or issue raised by an
environmental assessment and/or a mutually acceptable modification to
this Plan of Merger, and the condition or issue is not one for which
it can be determined to a reasonable degree of certainty that the risk
and expense to which the Surviving Corporation and its subsidiaries
(after the Merger) would be subject as owner of the property involved
can be quantified and limited to an immaterial amount; provided, that
the abandoning party gives the other party 5 days' written notice of
its intent to terminate this Plan of Merger pursuant to this Section
7.2.8 (ENVIRONMENTAL CONDITIONS).
ARTICLE VIII
AMENDMENT AND WAIVER
8.1 AMENDMENT. Subject to applicable law, this Plan of Merger may be
amended, modified, or supplemented by, and only by, written agreement of
Valley Ridge and Community, signed by their respective duly authorized
officers, at any time prior to the Effective Time of the Merger.
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8.2 WAIVER. Any term or condition of this Plan of Merger may be
waived at any time by whichever of the parties is, or the shareholders of
which are, entitled to the benefit of such term or condition, by action
taken by the board of directors of such party, or a duly authorized
committee thereof. The failure of any party at any time or times to
require performance of any provision of this Plan of Merger shall in no
manner affect such party's right at a later time to enforce that provision.
No waiver by any party of any condition, or of the breach of any term,
covenant, representation, or warranty contained in this Plan of Merger,
whether by conduct or otherwise, in any one or more instances shall be
considered or construed as a further or continuing waiver of that condition
or breach, or as a waiver of any other condition or of the breach of any
other term, covenant, representation, or warranty.
8.3 SPECIFIC ENFORCEMENT. The parties each agree that, consistent
with the terms and conditions of this Plan of Merger, in the event of a
breach by a party to this Plan of Merger, money damages will be inadequate
and not susceptible of computation because of the unique nature of the
parties, their respective subsidiaries, and the Merger. Therefore, the
parties each agree that a federal or state court of competent jurisdiction
shall have authority, subject to the rules of law and equity, to
specifically enforce the provisions of this Plan of Merger by injunctive
order or such other equitable means as may be determined in the court's
discretion.
ARTICLE IX
MISCELLANEOUS
9.1 LIABILITY AFTER TERMINATION. In the event the Merger is not
consummated and this Plan of Merger is terminated and the Merger is
abandoned pursuant to Article VII:
9.1.1 CONTINUING OBLIGATIONS. The obligations of Valley
Ridge and Community under Sections 5.6.3 (CONFIDENTIALITY), 5.6.4
(RETURN OF MATERIALS), 9.3 (EXPENSES), and 9.4 (EXPENSE REIMBURSEMENT
AFTER BUSINESS COMBINATION) shall continue.
9.1.2 LIABILITY. Neither Valley Ridge nor Community shall
incur any liability whatsoever under, or pursuant to, this Plan of
Merger, except for damages for breach of Sections 4.5 (COMPETING
PROPOSALS), 5.6.3 (CONFIDENTIALITY) or 5.6.4 (RETURN OF MATERIALS),
and except for reimbursement of costs and expenses, if any, provided
under Sections 9.3 (EXPENSES) and 9.3 (EXPENSE REIMBURSEMENT AFTER
BUSINESS COMBINATION).
9.1.3 DAMAGES FOR BREACH. Neither Valley Ridge nor Community
shall have any liability for damages or otherwise for breach of a
representation and warranty unless such breach was knowing or
intentional.
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9.2 TERMINATION OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Plan of Merger shall
expire with, and be terminated and extinguished by, the consummation of the
Merger at the Effective Time of the Merger.
9.3 EXPENSES. Except as otherwise provided in this Plan of Merger,
Community and Valley Ridge shall each pay its own expenses incident to
preparing for, entering into, and carrying out this Plan of Merger, and
incident to the consummation of the Merger. The costs of printing and
mailing the proxy statement to be sent to Valley Ridge's shareholders shall
be paid by Valley Ridge. The costs of printing and all filing fees
pertaining to the Registration Statement shall be paid by Valley Ridge.
The costs of printing and mailing the Prospectus and Proxy Statement shall
be paid by Community. If the Merger is abandoned pursuant to Article VII
for any reason, the aggregate expenses of both Valley Ridge and Community
incident to the Merger will be allocated to and paid by each Corporation
proportionately to the extent that each Corporation's Book Value (as
defined below) relates to the sum of the Book Values of the Corporations.
For purposes of this Plan of Merger, "BOOK VALUE" means an amount equal to
the difference between the corporation's total assets and total liabilities
as determined from the corporation's consolidated balance sheet dated as of
December 31, 1995, less all dividends and other distributions of cash or
property accrued after December 31, 1995.
9.4 EXPENSE REIMBURSEMENT AFTER BUSINESS COMBINATION. In recognition
of the efforts, expenses, and other opportunities foregone by the parties
while pursuing the Merger, the parties agree that either party to this Plan
of Merger shall, subject to the terms and conditions set forth in this
Section 9.3 (EXPENSE REIMBURSEMENT AFTER BUSINESS COMBINATION), be entitled
to reimbursement for all of its costs and expenses incident to the
preparing for, negotiating, entering into and carrying out this Plan of
Merger in the event of a Business Combination by the other party to this
Plan of Merger with an Unaffiliated Person (as defined below). For the
purposes of this Plan of Merger, an "UNAFFILIATED PERSON" shall mean any
individual, corporation, partnership, entity, group, or "person" as defined
in Section 13(d)(3) of the Securities Exchange Act and the regulations
issued thereunder, other than the parties to this Plan of Merger, their
respective subsidiaries and affiliates, and their respective directors,
officers, employees, representatives, and agents. Community and Valley
Ridge agree that reimbursement of costs and expenses is reasonable and just
compensation under such circumstances.
9.4.1 RIGHTS TO EXPENSE REIMBURSEMENT. If (a) this Plan of
Merger is terminated and the Merger is abandoned pursuant to Article
VII for any reason; (b) while this Plan of Merger is in effect (i) any
Unaffiliated Person directly or indirectly, or acting through one or
more intermediaries acquires Control (calculated using 25 percent) of
a party to this Plan of Merger or its successor by merger or
consolidation or acquires 25 percent or more of the consolidated
assets of a party to this Plan of Merger or its subsidiary; or (ii) a
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party to this Plan of Merger solicits, invites, encourages,
negotiates, or enters into an agreement with an Unaffiliated Person to
acquire such Control or such assets, or publicly announces an
intention to do so; and (c) within one year of the date of termination
of this Plan of Merger and abandonment of the Merger the Unaffiliated
Person acquires such Control or such assets, then the other party to
this Plan of Merger shall be entitled to reimbursement of its costs
and expenses in the manner provided in Section 9.4.2 (MANNER OF
PAYMENT).
9.4.2 MANNER OF PAYMENT. Costs and expenses shall be
reimbursed and paid by wire transfer or by cashier's check of
immediately available funds. Costs and expenses shall be paid:
(a) In the event of a merger, consolidation, tender offer,
or exchange offer, at or after the consummation of the
transaction upon the written demand of the party entitled to
reimbursement; or
(b) In any other case, upon written demand, after the
demanding party becomes entitled to reimbursement.
9.5 NOTICES. Except as otherwise provided in this Plan of Merger,
all notices, requests, demands, and other communications under this Plan of
Merger shall be in writing and shall be deemed to have been duly given if
delivered or sent and received by facsimile transmission or overnight
delivery service (all fees prepaid) as follows:
If to Valley Ridge: With a copy to:
Valley Ridge Financial Corp. Warner Norcross & Judd LLP
Attention: Richard L. Edgar, Attention: Gordon R. Lewis
President 900 Old Kent Building
6 North Main Street 111 Lyon Street, N.W.
P.O. Box 248 Grand Rapids, Michigan 49503
Kent City, Michigan 49330-0248 (Fax: (616) 752-2500)
If to Community: With a copy to:
Community Bank Corporation Varnum, Riddering, Schmidt
Attention: Ronald L. Hansen, & Howlett
President Attention: Donald L. Johnson
10 West Main Street Bridgewater Place
P.O. Box 38 P.O. Box 352
Grant, Michigan 49327-0038 333 Bridge Street, N.W.
Grand Rapids, Michigan 49501-0352
(49504 for deliveries)
(Fax: (616) 336-7000)
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9.6 GOVERNING LAW. This Plan of Merger shall be governed, construed,
and enforced in accordance with the laws of the State of Michigan.
9.7 METHOD OF CONSENT OR WAIVER. Any consent under this Plan of
Merger or any waiver of conditions or covenants as may be provided for in
this Plan of Merger, subject to all of the other requirements contained in
this Plan of Merger, shall be evidenced in writing, properly executed by
the Chairman, the President, or one of the Vice Presidents of the
consenting or waiving party.
9.8 ENTIRE AGREEMENT. Except as otherwise expressly provided in this
Plan of Merger, this Plan of Merger and the related agreements referred to
in this Plan of Merger (including without limitation each Corporation's
Disclosure Statement) contain the entire agreement between the parties with
respect to the transactions contemplated under this Plan of Merger, and
such agreements supersede all prior arrangements or understandings with
respect thereto, written or oral. Neither party has relied upon any
statements or representations pertaining to the other party, whether oral
or written, other than as provided for in this Plan of Merger, the
Community Disclosure Statement, or the Valley Ridge Disclosure Statement.
The terms and conditions of this Plan of Merger and the related agreements
referred to in this Plan of Merger shall inure to the benefit of and be
binding upon the parties hereto and their respective successors. Nothing
in this Plan of Merger, express or implied, is intended to confer upon any
person other than the parties to this Plan of Merger any rights, remedies,
obligations, or liabilities under or by reason of this Plan of Merger.
9.9 NO ASSIGNMENT. Neither party may assign any of its rights or
obligations under this Plan of Merger to any other person.
9.10 COUNTERPARTS. This Plan of Merger may be executed in one or more
counterparts, each of which together shall constitute one and the same
instrument.
9.11 FURTHER ASSURANCES; PRIVILEGES. Either party to this Plan of
Merger shall, at the request of the other party, execute and deliver such
additional documents and instruments and take such other actions as may be
reasonably requested to carry out the terms and provisions of this Plan of
Merger. Each party shall use reasonable efforts to preserve for itself and
the other party each available legal privilege with respect to
confidentiality of their negotiations and related communications, including
the attorney-client privilege.
9.12 HEADINGS, ETC. The article headings and section headings
contained in this Plan of Merger are inserted for convenience only and
shall not affect in any way the meaning or interpretation of this Plan of
Merger.
9.13 SEVERABILITY. If any term, provision, covenant, or restriction
contained in this Plan of Merger is held by a final and unappealable order
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of a court of competent jurisdiction to be invalid, void, or unenforceable,
then the remainder of the terms, provisions, covenants, and restrictions
contained in this Plan of Merger shall remain in full force and effect, and
shall in no way be affected, impaired, or invalidated unless the effect
would be to cause this Plan of Merger to not achieve its essential
purposes.
The undersigned have duly executed and acknowledged this Plan of
Merger as of the date first written above.
VALLEY RIDGE FINANCIAL CORP.
By S/RICHARD L. EDGAR
Richard L. Edgar
Its President
COMMUNITY BANK CORPORATION
By S/RONALD L. HANSEN
Ronald L. Hansen
Its Secretary
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EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
VALLEY RIDGE FINANCIAL CORP.
The following Restated Articles of Incorporation are executed by
the undersigned Corporation pursuant to the provisions of Act 284, Public
Acts of 1972, as amended:
1. The present name of the Corporation is: Valley Ridge
Financial Corp.
2. The corporation identification number (CID) assigned by the
Bureau is: 361-141.
3. All former names of the Corporation are: None.
4. The date of filing of the Corporation's original Articles of
Incorporation was: May 20, 1988.
The following Restated Articles of Incorporation supercede the
Articles of Incorporation as amended and shall be the Articles of
Incorporation for the Corporation:
ARTICLE I
The name of the Corporation is: Valley Ridge Financial Corp.
ARTICLE II
The purpose, or purposes, for which the Corporation is organized
is to engage in the business of a bank holding company to be registered
under the Bank Holding Company Act of 1956, being 12 U.S.C. sections 1841
to 1850 and, without in any way being limited by the foregoing specially
enumerated purpose, to engage in any activity within the purposes for which
corporations may be organized under the Michigan Business Corporation Act.
ARTICLE III
The total authorized capital stock is 1,000,000 shares of a
single class of common stock. Each such share shall be equal to every
other such share.
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ARTICLE IV
The address of the registered office is 6 North Main Street, Kent
City, Michigan 49330. The mailing address of the Corporation is 6 North
Main Street, P.O. Box 248, Kent City, Michigan 49330-0248. The name of the
resident agent is Richard L. Edgar.
ARTICLE V
When a compromise or arrangement, or a plan of reorganization of
the Corporation, is proposed between the Corporation and its creditors, or
any class of them, or between the Corporation and its shareholders, or any
class of them, a court of equity jurisdiction within the state, on
application of the Corporation, a creditor or shareholder thereof, or a
receiver appointed for the Corporation, may order a meeting of the
creditors, or class of creditors, or of the shareholders, or class of
shareholders, to be affected by the proposed compromise, arrangement, or
reorganization, to be summoned in such manner as the court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, or of the shareholders to be affected by the proposed
compromise, arrangement, or reorganization, agree to a compromise or
arrangement or to a reorganization of the Corporation as a consequence of
the compromise or arrangement, the compromise or arrangement and the
reorganization, if sanctioned by the court to which the application has
been made, shall be binding on all the creditors or class of creditors, or
on all the shareholders or class of shareholders, and also on the
Corporation.
ARTICLE VI
No director of the Corporation shall be personally liable to the
Corporation or any of its shareholders for monetary damages for a breach of
fiduciary duty as a director. However, this Article VI shall not eliminate
or limit the liability of a director for any breach of duty, act or
omission for which the elimination or limitation of liability is not
permitted by the Michigan Business Corporation Act, as amended from time to
time. No amendment, alteration, modification, repeal or adoption of any
provision in these Restated Articles of Incorporation inconsistent with
this Article VI shall have any effect to increase the liability of any
director of the Corporation with respect to any act or omission of such
director occurring prior to such amendment, alteration, modification,
repeal or adoption.
ARTICLE VII
Directors and officers of the Corporation shall be indemnified as
of right to the fullest extent now or hereafter permitted by law in
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connection with any actual or threatened civil, criminal, administrative or
investigative action, suit or proceeding (whether brought by or in the name
of the Corporation, a subsidiary or otherwise) in which a director or
officer is a witness or which is brought against a director or officer in
his or her capacity as a director, officer, employee, agent or fiduciary of
the Corporation or of any corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise of which the director or officer
was serving at the request of the Corporation. Persons who are not
directors or officers of the Corporation may be similarly indemnified in
respect of such service to the extent authorized at any time by the Board
of Directors of the Corporation. The Corporation may purchase and maintain
insurance to protect itself and any such director, officer or other person
against any liability asserted against him or her and incurred by him or
her in respect of such service whether or not the Corporation would have
the power to indemnify him or her against such liability by law or under
the provisions of this Article. The provisions of this Article shall be
applicable to actions, suits or proceedings, whether arising from acts or
omissions occurring before or after the adoption hereof, and to directors,
officers and other persons who have ceased to render such service, and
shall inure to the benefit of the heirs, executors and administrators of
the directors, officers and other persons referred to in this Article. The
right of indemnity provided pursuant to this Article shall not be exclusive
and the Corporation may provide indemnification to any person, by agreement
or otherwise, on such terms and conditions as the Board of Directors may
approve. Any agreement for indemnification of any director, officer,
employee or other person may provide indemnification rights which are
broader than or otherwise different from those set forth in, or provided
pursuant to, or in accordance with, this Article. Any amendment,
alteration, modification, repeal or adoption of any provision in the
Restated Articles of Incorporation inconsistent with this Article VII shall
not adversely affect any indemnification right or protection of a director
or officer of the Corporation existing at the time of such amendment,
alteration, modification, repeal or adoption.
ARTICLE VIII
BOARD OF DIRECTORS
SECTION 1. AUTHORITY AND SIZE OF BOARD. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors. The number of directors of the Corporation that shall
constitute the Board of Directors shall be determined from time to time by
resolution adopted by the affirmative vote of:
A. At least eighty percent (80%) of the Board of Directors, and
B. A majority of the Continuing Directors (as hereinafter
defined).
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SECTION 2. CLASSIFICATION OF BOARD AND FILLING OF VACANCIES. Subject
to applicable law, the directors shall be divided into three (3) classes,
each class to be as nearly equal in number as possible. The term of office
of directors of the first class shall expire at the annual meeting of
shareholders to be held in 1997 and until their respective successors are
duly elected and qualified or their resignation or removal. The term of
office of directors of the second class shall expire at the annual meeting
of shareholders to be held in 1998 and until their respective successors
are duly elected and qualified or their resignation or removal. The term
of office of directors of the third class shall expire at the annual
meeting of shareholders to be held in 1999 and until their respective
successors are duly elected and qualified or their resignation or removal.
Subject to the foregoing, at each annual meeting of shareholders,
commencing at the annual meeting to be held in 1997, the successors to the
class of directors whose term shall then expire shall be elected to hold
office for a term expiring at the third succeeding annual meeting and until
their successors shall be duly elected and qualified or their resignation
or removal. Any vacancies in the Board of Directors for any reason, and
any newly created directorships resulting from any increase in the number
of directors, may be filled only by the Board of Directors, acting by an
affirmative vote of a majority of the Continuing Directors (as hereinafter
defined) and an eighty percent (80%) majority of all of the directors then
in office, although less than a quorum, and any directors so chosen shall
hold office until the next annual meeting of shareholders and until their
respective successors shall be duly elected and qualified or their
resignation or removal. No decrease in the number of directors shall
shorten the term of any incumbent director.
SECTION 3. REMOVAL OF DIRECTORS. Notwithstanding any other
provisions of these Restated Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that some lesser percentage may
be specified by law or by these Restated Articles of Incorporation or the
Bylaws of the Corporation), any one or more directors of the Corporation
may be removed at any time, with or without cause, but only by either (i)
the affirmative vote of a majority of the Continuing Directors and at least
eighty percent (80%) of the Board of Directors or (ii) the affirmative
vote, at a meeting of the shareholders called for that purpose, of the
holders of at least eighty percent (80%) of the voting power of the then
outstanding shares of capital stock of the Corporation entitled to vote
generally in an election of directors (the "Voting Stock") voting together
as a single class.
SECTION 4. CERTAIN DEFINITIONS. For the purposes of this Article
VIII:
A. A "person" shall mean any individual, firm, corporation or
other entity.
B. "Interested Shareholder" shall mean any person (other than
the Corporation or any Subsidiary of the Corporation, or any person
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who is or was the beneficial owner of ten percent (10%) or more of the
Common Stock of any of Kent City State Bank, The Grant State Bank,
Community Bank Corporation, or the Corporation prior to the
acquisition of Kent City State Bank by the Corporation, the
acquisition of The Grant State Bank by Community Bank Corporation, or
the merger of Community Bank Corporation with the Corporation) who or
which:
(i) is the beneficial owner, directly or indirectly, of ten
percent (10%) or more of the voting power of the outstanding
Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of ten
percent (10%) or more of the voting power of the then outstanding
Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned
by any Interested Shareholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the Securities
Act of 1933, as amended.
C. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns, directly
or indirectly; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of
its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
D. For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph B of this Section 4, the
number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of paragraph C of this
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Section 4 but shall not include any other shares of Voting Stock which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
E. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
the date these Restated Articles of Incorporation are adopted by the
Board of Directors of the Corporation.
F. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation; provided, that for the purposes of the definition of
Interested Shareholder set forth in paragraph B of this Section 4, the
term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
G. "Continuing Director" means each member of the Board of
Directors of the Corporation or Community Bank Corporation immediately
prior to the effective date of these Restated Articles of
Incorporation (the "Board") and any member of the Board who is
unaffiliated with the Interested Shareholder and was a member of the
Board prior to the time that the Interested Shareholder became an
Interested Shareholder, and any successor of a Continuing Director who
is unaffiliated with the Interested Shareholder and is recommended to
succeed a Continuing Director by a majority of Continuing Directors
then on the Board.
SECTION 5. POWERS OF CONTINUING DIRECTORS. A majority of the
Continuing Directors of the Corporation shall have the power and duty to
determine, on the basis of information known to them after reasonable
inquiry, all facts necessary to determine compliance with this
Article VIII, including without limitation (i) whether a person is an
Interested Shareholder, (ii) the number of shares of Voting Stock
beneficially owned by any person and (iii) whether a person is an Affiliate
or Associate of another; and the good faith determination of a majority of
the Continuing Directors on such matters shall be conclusive and binding
for all the purposes of this Article VIII.
SECTION 6. AMENDMENT, REPEAL, ETC. Notwithstanding any other
provisions of these Restated Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law, these Restated Articles of Incorporation or the Bylaws of
the Corporation), the affirmative vote of the holders of eighty percent
(80%) or more of the then outstanding Voting Stock, voting together as a
single class, shall be required to amend, repeal or adopt any provisions
inconsistent with this Article VIII of these Restated Articles of
Incorporation; provided, that the preceding provisions of this Section 6
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shall not be applicable to any amendment to this Article VIII of these
Restated Articles of Incorporation, and such amendment shall require only
such affirmative vote as is required by law and any other provisions of
these Restated Articles of Incorporation, if such amendment shall have been
approved by a majority of the Continuing Directors.
ARTICLE IX
BOARD EVALUATION OF CERTAIN OFFERS
SECTION 1. MATTERS TO BE EVALUATED. The Board of Directors of this
Corporation shall not approve, adopt or recommend any offer of any person
or entity, other than the Corporation, to make a tender or exchange offer
for any capital stock of the Corporation, to merge or consolidate the
Corporation with any other entity or to purchase or otherwise acquire all
or substantially all of the assets or business of the Corporation unless
and until the Board of Directors shall have first evaluated the offer and
determined that the offer would be in compliance with all applicable laws
and that the offer is in the best interests of the Corporation and its
shareholders. In connection with its evaluation as to compliance with
laws, the Board of Directors may seek and rely upon an opinion of legal
counsel independent from the offeror and it may test such compliance with
laws in any state or federal court or before any state or federal
administrative agency which may have appropriate jurisdiction. In
connection with its evaluation as to the best interests of the Corporation
and its shareholders, the Board of Directors shall consider all factors
which it deems relevant, including without limitation: (i) the adequacy
and fairness of the consideration to be received by the Corporation and/or
its shareholders under the offer considering historical trading prices of
the Corporation's stock, the price that might be achieved in a negotiated
sale of the Corporation as a whole, premiums over trading prices which have
been proposed or offered with respect to the securities of other companies
in the past in connection with similar offers and the future prospects for
this Corporation and its business; (ii) the potential social and economic
impact of the offer and its consummation on this Corporation, its
employees, customers and vendors; and (iii) the potential social and
economic impact of the offer and its consummation on the communities in
which the Corporation and any subsidiaries operate or are located.
SECTION 2. AMENDMENT, REPEAL, ETC. Notwithstanding any other
provision of these Restated Articles of Incorporation or the Bylaws of the
Corporation to the contrary (and notwithstanding the fact that a lesser
percentage may be specified by law, these Restated Articles of
Incorporation or the Bylaws of the Corporation), the affirmative vote of
the holders of eighty percent (80%) or more of the outstanding shares of
capital stock entitled to vote for the election of directors, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with this Article IX; provided, that this Article IX
shall be of no force or effect if the proposed amendment, repeal or other
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action has been recommended for approval by at least eighty percent (80%)
of all directors then holding office.
ARTICLE X
APPROVAL OF BUSINESS COMBINATIONS
The shareholder vote required to approve Business Combinations
(hereinafter defined) shall be as set forth in this Article X.
SECTION 1. HIGHER VOTE FOR BUSINESS COMBINATIONS. In addition to any
affirmative vote required by law or these Restated Articles of
Incorporation, and except as otherwise expressly provided in Section 3 of
this Article X:
A. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Shareholder (as hereinafter defined) or (ii) any other corporation
(whether or not itself an Interested Shareholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Shareholder; or
B. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions in
any 12-month period) to or with any Interested Shareholder or any
Affiliate of any Interested Shareholder of any assets of the
Corporation or any Subsidiary having, measured at the time the
transaction or transactions are approved by the Board of Directors of
the Corporation, an aggregate Fair Market Value as of the end of the
Corporation's most recently ended fiscal quarter of 10% or more of its
net worth; or
C. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
equity securities of the Corporation or any Subsidiary (or any
securities convertible into equity securities of the Corporation or
any Subsidiary) to any Interested Shareholder or any Affiliate of an
Interested Shareholder in exchange for cash, securities or other
property (or a combination thereof) having an aggregate Fair Market
Value of 5% or more of the total market value of the outstanding
shares of the Corporation; or
D. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested Shareholder,
or in which anything other than cash will be received by an Interested
Shareholder or any Affiliate of any Interested Shareholder; or
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E. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Shareholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Shareholder or any Affiliate of any Interested
Shareholder;
shall require the affirmative vote of the holders of at least ninety
percent (90%) of the voting power of the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors (the "Voting Stock"), voting together as a single class,
including the affirmative vote of the holders of not less than two-thirds
(2/3) of the outstanding Voting Stock not owned directly or indirectly by
any Interested Shareholder or an Affiliate or Associate of the Interested
Shareholder. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law, in any other Article of these Restated Articles of
Incorporation or in any agreement with any national securities exchange or
otherwise.
SECTION 2. DEFINITION OF "BUSINESS COMBINATION". The term "Business
Combination" as used in this Article X shall mean any transaction which is
referred to in any one or more of paragraphs A through E of Section 1.
SECTION 3. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of
Section 1 of this Article X shall not be applicable to any particular
Business Combination, and such Business Combination shall require only such
affirmative vote as is required by law and any other provision of these
Restated Articles of Incorporation, if in the case of a Business
Combination that does not involve any cash or other consideration being
received by the Shareholders of the Corporation, solely in their capacities
as Shareholders, the condition specified in the following paragraph A is
met, or if in the case of any other Business Combination, the conditions
specified in either of the following paragraphs A or B are met:
A. APPROVAL BY CONTINUING DIRECTORS. The Business Combination
shall have been approved by a majority of the Continuing Directors (as
hereinafter defined).
B. PRICE AND PROCEDURE REQUIREMENTS. All of the following
shall have been met:
(i) The aggregate amount of the cash and the Fair
Market Value (as hereinafter defined) as of the date of the
consummation of the Business Combination (the "Consummation
Date") of the consideration other than cash to be received
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per share by holders of Common Stock in such Business
Combination shall be an amount at least equal to the higher
of the following (it being intended that the requirements of
this paragraph B(i) shall be required to be met with respect
to all shares of Common Stock outstanding, whether or not
the Interested Shareholder has previously acquired any
shares of the Common Stock):
(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Shareholder for
any shares of Common Stock acquired by it (1) within
the two-year period immediately prior to the first
public announcement of the proposal of the Business
Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested
Shareholder, whichever is higher, PLUS interest
compounded annually from the date on which the
Interested Shareholder became an Interested Shareholder
through the Consummation Date at the prime rate of
interest of Citibank, N.A. (or other major bank
headquartered in New York City selected by a majority
of the Continuing Directors) from time to time in
effect in New York City, LESS the aggregate amount of
any cash dividends paid, and the Fair Market Value of
any dividends paid in other than cash, per share of
Common Stock from the date on which the Interested
Shareholder became an Interested Shareholder through
the Consummation Date in an amount up to but not
exceeding the amount of such interest payable per share
of Common Stock; or
(b) the Fair Market Value per share of Common
Stock on the Announcement Date or the Determination
Date, whichever is higher.
(ii) The consideration to be received by holders of
outstanding Voting Stock shall be in cash or in the same
form as the Interested Shareholder has previously paid for
shares of Voting Stock. If the Interested Shareholder has
paid for shares of Voting Stock with varying forms of
consideration, the form of consideration for such Voting
Stock shall be either cash or the form used to acquire the
largest number of shares of Voting Stock previously acquired
by it.
(iii) After such Interested Shareholder has become
an Interested Shareholder and prior to the consummation of
such Business Combination: (a) there shall have been (1) no
reduction in the annual rate of dividends paid on the Common
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Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the
Continuing Directors, and (2) an increase in such annual
rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding
shares of the Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the
Continuing Directors; and (b) such Interested Shareholder
shall have not become the beneficial owner of any additional
shares of Voting Stock except as part of the transaction
which results in such Interested Shareholder becoming an
Interested Shareholder.
(iv) After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder shall
not have received the benefit, directly or indirectly
(except proportionately as a Shareholder), of any loans,
advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the
Corporation.
(v) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or
regulations) shall be mailed to all Shareholders of the
Corporation at least 30 days prior to the Consummation Date
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent
provisions).
(vi) There shall have elapsed five (5) years from the
Determination Date to the Consummation Date.
SECTION 4. CERTAIN DEFINITIONS. For the purpose of this Article X:
A. A "person" shall mean any individual, firm, Corporation
or other entity.
B. "Interested Shareholder" shall mean any person (other
than the Corporation or any Subsidiary of the Corporation, or any
person who is or was the beneficial owner of ten percent (10%) or
more of the Common Stock of any of Kent City State Bank, The
Grant State Bank, Community Bank Corporation or the Corporation
prior to the acquisition of Kent City State Bank by the
Corporation, the acquisition of The Grant State Bank by Community
Bank Corporation, or the merger of Community Bank Corporation
with the Corporation) who or which:
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(i) is the beneficial owner, directly or indirectly,
of ten percent (10%) or more of the voting power of the
outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly,
of ten percent (10%) or more of the voting power of the then
outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded
to any shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in
question beneficially owned by any Interested Shareholder,
if such assignment or succession shall have occurred in the
course of a transaction or series of transactions not
involving a public offering within the meaning of the
Securities Act of 1933, as amended.
C. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns,
directly or indirectly; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right
is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (b)
the right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
D. For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph B of this Section 4,
the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of
paragraph C of this Section 4 but shall not include any other
shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon the exercise of
conversion rights, warrants or options, or otherwise.
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E. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as in effect on the date of adoption of these Restated Articles
of Incorporation by the Board of Directors of the Corporation.
F. "Subsidiary" means any Corporation of which a majority
of any class of equity security is owned, directly or indirectly,
by the Corporation; provided, that for the purposes of the
definition of Interested Shareholder set forth in paragraph B of
this Section 4, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security
is owned, directly or indirectly, by the Corporation.
G. "Continuing Director" means any member of the Board of
Directors of the Corporation or Community Bank Corporation
immediately prior to the effective date of these Restated
Articles of Incorporation (the "Board") who is unaffiliated with
the Interested Shareholder and was a member of the Board prior to
the time that the Interested Shareholder became an Interested
Shareholder, and any successor of a Continuing Director who is
unaffiliated with the Interested Shareholder and is recommended
to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
H. "Fair Market Value" means: (i) in the case of stock,
the highest closing sale price during the 30-day period
immediately preceding the date in question of a share of such
stock on the Composite Tape for New York Stock Exchange-Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on
the New York Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which
such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a
share of such stock during the 30-day period preceding the date
in question on the NASDAQ Stock Market or any system then in use,
or if no such quotations are available, the fair market value on
the date in question of a share of such stock as determined by a
majority of the Continuing Directors in good faith; and (ii) in
the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by a
majority of the Continuing Directors in good faith.
I. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash
to be received" as used in paragraph B(i) of Section 3 of this
Article X shall include the shares of Common Stock retained by
the holders of such shares.
A-64
J. "Determination Date" shall mean the date on which the
Interested Shareholder first became an Interested Shareholder.
SECTION 5. POWERS OF CONTINUING DIRECTORS. A majority of the
Continuing Directors of the Corporation shall have the power and duty to
determine, on the basis of information known to them after reasonable
inquiry, all facts necessary to determine compliance with this Article X,
including without limitation (i) whether a person is an Interested
Shareholder, (ii) the number of shares of Voting Stock beneficially owned
by any person, (iii) whether a person is an Affiliate or Associate of
another, (iv) whether the requirements of paragraph B of Section 3 have
been met with respect to any Business Combination, (v) whether the assets
which are the subject of any Business Combination have an aggregate Fair
Market Value of 10% or more of the Corporation's net worth, and (vi)
whether the consideration to be received for the issuance or transfer of
securities by the Corporation or any Subsidiary in any Business Combination
has an aggregate Fair Market Value of 5% or more of the total Fair Market
Value of the outstanding shares of the Corporation; and the good faith
determination of a majority of the Continuing Directors on such matters
shall be conclusive and binding for all the purposes of this Article X.
SECTION 6. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
SHAREHOLDERS. Nothing contained in this Article X shall be construed to
relieve the Board of Directors or any Interested Shareholder from any
fiduciary obligation imposed by law.
SECTION 7. AMENDMENT, REPEAL, ETC. Notwithstanding any other
provisions of these Restated Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law, these Restated Articles of Incorporation or the Bylaws of
the Corporation), the affirmative vote of the holders of ninety percent
(90%) or more of the voting power of the shares of the then outstanding
Voting Stock, voting together as a single class, including the affirmative
vote of the holders of not less than two-thirds (2/3) of the Voting Stock
not owned directly or indirectly by any Interested Shareholder, shall be
required to amend, repeal, or adopt any provisions inconsistent with this
Article X of these Restated Articles of Incorporation; provided, that the
preceding provisions of this Section 7 shall not be applicable to any
amendment to this Article X of these Restated Articles of Incorporation,
and such amendment shall require only such affirmative vote as is required
by law and any other provisions of these Restated Articles of
Incorporation, if such amendment shall have been approved by a majority of
the Continuing Directors.
A-65
IN WITNESS WHEREOF, the Corporation has executed these Restated
Articles of Incorporation on this _________ day of _________________, 1996.
VALLEY RIDGE FINANCIAL CORP.
By _____________________________________
Its _______________________________
A-66
APPENDIX B
OPINIONS OF RONEY & CO.
RONEY & CO.
INVESTMENT BANKING
One Griswold
Detroit, Michigan 48226
(313) 963-6700
March 20, 1996
Board of Directors
Valley Ridge Financial Corp.
6 Main St.
Kent City, Michigan 49330
Gentlemen:
We understand that Valley Ridge Financial Corp. ("Valley Ridge" or the
"Company") intends to enter into a strategic merger with Community Bank
Corporation ("Community") pursuant to the Agreement and Plan of Merger
dated September 15, 1995 (referred to as the "Agreement"). Valley Ridge
proposes that the affiliation be effected by a merger of Community with and
into Valley Ridge. Under the proposed terms contained in the Agreement,
each share of Community would be exchanged into that number of shares of
Valley Ridge based on a conversion ratio calculated by dividing (i) the
Community Adjusted Book Value, as defined in the Agreement, multiplied by
1.2; by (ii) the Valley Ridge Adjusted Book Value, as defined in the
Agreement. You have requested that Roney & Co. render an opinion as to
whether the consideration to be exchanged with Community Shareholders under
the Agreement is fair, from a financial point of view, to the shareholders
of Valley Ridge. We have also been engaged to render a similar opinion as
to the fairness of the transaction to the shareholders of Community.
Roney & Co. is a regional investment banking firm of recognized standing.
As part of our investment banking services, we are regularly engaged in the
valuation of corporate entities in connection with public offerings and
merger and acquisition transactions. Our research analysts publish regular
reports on individual banks and thrifts as well as other financial
institutions. Our firm makes principal markets in various financial
institution stocks, and, we have managed public offerings for banks and
thrifts as well as other companies.
In arriving at the opinion as set forth below, we have, among other things:
- Reviewed the Valley Ridge's and Community's Annual Reports and
related financial information for the fiscal years ended 1991 to
1994 and unaudited summary results of operations for the three months
and year ended December 31, 1995;
- Reviewed the very limited stock price and trading activity for the
common stock of Valley Ridge and Community;
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Valley Ridge Financial Corp.
March 20, 1996
Page 2 of 3
- Reviewed the Agreement and Plan of Merger dated September 15, 1995;
- Compared certain financial characteristics of Valley Ridge and
Community with other Michigan and Midwestern financial institutions
we deemed to be comparable;
- Reviewed The Form S-4 Registration Statement as filed with the
SEC;
- Compared the proposed terms contemplated in the Agreement with the
financial terms of certain other mergers and acquisitions in the
financial services industry which we deemed to be relevant;
- Conducted discussions with members of senior management of both the
Company and Community concerning their respective business and
prospects and the anticipated business and prospects of the
combined entities;
- Prepared a discounted cash flow analysis on Valley Ridge including
scenarios whether it acquires Community or not;
- Reviewed such other financial data and performed such other
analysis and took into account such other matters as we deemed
necessary.
In preparing our opinion, we have relied upon the accuracy and completeness
of all of the above information and all other financial and other
information supplied or otherwise made available to us by Valley Ridge and
Community and we have not independently verified such information or
undertaken an independent evaluation or appraisal of the assets or
liabilities of Valley Ridge or Community, and have not been furnished any
such evaluation or appraisal. We have also reviewed certain other
information provided to us by Valley Ridge and Community, and have met with
Valley Ridge's and Community's management to discuss the business, assets
and prospects of the combined banks, including the benefits expected to be
achieved under the Agreement. In connection with our review, we have not
assumed any responsibility for independent verification of any of the
foregoing information and have relied on its being complete and accurate in
all material respects. For purposes of this opinion we have relied without
independent verification on the audited financial statements of Valley
Ridge as prepared by Crowe Chizek as well as the quarterly unaudited
financial statements as prepared by Valley Ridge.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the consideration offered to Community shareholders,
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Valley Ridge Financial Corp.
March 20, 1996
Page 3 of 3
as proposed by the Agreement, is fair to the shareholders of Valley Ridge,
from a financial point of view.
We consent to the inclusion of this opinion as an exhibit to the Prospectus
and Proxy Statement. Further, we consent to the use of our firm's name and
references to this opinion in such Prospectus and Proxy Statement, with
such uses and references being subject to our prior approval.
Sincerely,
/S/ RONEY & C0.
RONEY & CO.
B-3
RONEY & CO.
INVESTMENT BANKING
One Griswold
Detroit, Michigan 48226
March 20, 1996
Board of Directors
Community Bank Corporation
10 W. Main St.
P.O. Box 38
Grant, MI 49327
Gentlemen:
We understand that Community Bank Corporation ("Community" or the
"Company") intends to be merged in a strategic merger with Valley Ridge
Financial Corp. ("Valley Ridge") pursuant to the Agreement and Plan of
Merger dated September 15, 1995 (referred to as the "Agreement"). Valley
Ridge and Community propose that the affiliation be effected by a merger of
Community with and into Valley Ridge. Under the proposed terms contained
in the Agreement, each share of Community would be exchanged into that
number of shares of Valley Ridge based on a conversion ratio calculated by
dividing (i) the Community Adjusted Book Value, as defined in the
Agreement, multiplied by 1.2; by (ii) the Valley Ridge Adjusted Book Value,
as defined in the Agreement. You have requested that Roney & Co. render an
opinion as to whether the consideration to be received by the shareholders
of Community, under the Agreement, is fair, from a financial point of view,
to the shareholders of Community. We have also been engaged to render a
similar opinion as to the fairness of the transaction to the shareholders
of Valley Ridge.
Roney & Co. is a regional investment banking firm of recognized standing.
As part of our investment banking services, we are regularly engaged in the
valuation of corporate entities in connection with public offerings and
merger and acquisition transactions. Our research analysts publish regular
reports on individual banks and thrifts as well as other financial
institutions. Our firm makes principal markets in various financial
institution stocks, and, we have managed public offerings for banks and
thrifts as well as other companies.
In arriving at the opinion as set forth below, we have, among other things:
- Reviewed Community's and Valley Ridge's Annual Reports and related
financial information for the fiscal years ended 1991 to 1994 and
unaudited summary results of operations for the three months and
year ended December 31, 1995;
- Reviewed the very limited stock price and trading activity for the
common stock of Community and Valley Ridge;
B-4
Community Bank Corporation
March 20, 1996
Page 2 of 3
- Reviewed the Agreement and Plan of Merger dated September 15, 1995;
- Compared certain financial characteristics of Community and Valley
Ridge with other Michigan and Midwestern financial institutions we
deemed to be comparable;
- Reviewed The Form S-4 Registration Statement as filed with the
SEC;
- Compared the proposed terms contemplated in the Agreement with the
financial terms of certain other mergers and acquisitions in the
financial services industry which we deemed to be relevant;
- Conducted discussions with members of senior management of both
Community and Valley Ridge concerning their respective business and
prospects, and the anticipated business and prospects of the
combined entities;
- Prepared a discounted cash flow analysis on Community including
scenarios depending whether it merges with Valley Ridge or remains
independent;
- Reviewed such other financial data and performed such other
analysis and took into account such other matters as we deemed
necessary.
In preparing our opinion, we have relied upon the accuracy and completeness
of all of the above information and all other financial and other
information supplied or otherwise made available to us by Community and
Valley Ridge and we have not independently verified such information or
undertaken an independent evaluation or appraisal of the assets or
liabilities of Community or Valley Ridge, and have not been furnished any
such evaluation or appraisal. We have also reviewed certain other
information provided to us by Valley Ridge and Community, and have met with
Community's and Valley Ridge's management to discuss the business, assets
and prospects of the combined banks, including the benefits expected to be
achieved under the Agreement. In connection with our review, we have not
assumed any responsibility for independent verification of any of the
foregoing information and have relied on its being complete and accurate in
all material respects. For purposes of this opinion we have relied without
independent verification on the audited financial statements of Community
as prepared by Gavigan Burkhart Freeman & Co. as well as the quarterly
unaudited financial statements as prepared by Community.
B-5
Community Bank Corporation
March 20, 1996
Page 3 of 3
While we have been engaged by Community to undertake an analysis to enable
us to render this Opinion, we were not engaged to solicit interest from or
negotiate with, and did not solicit or negotiate with, any other party,
regarding a tender for all or part of the shares of the Company, or the
potential acquisition of, or merger or other business combination with, the
Company. Furthermore, you have not requested us to express and we are not
expressing any opinion with respect to the Agreement in relation to any
transaction which might be considered by the Company as an alternative to
the Agreement.
The proposed transaction as contemplated in the Agreement has been
evaluated as a strategic merger of two continuing entities and not as a
economic control sale of Community. In arriving at our opinion, we do not
express an opinion as to whether Community could be sold in a control sale
for a consideration having a higher aggregate market value than the shares
of Valley Ridge to be received by Community shareholders under the terms of
the Agreement.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the consideration to be received, as proposed by the
Agreement, is fair to the shareholders of Community, from a financial point
of view.
We consent to the inclusion of this opinion as an exhibit to the Prospectus
and Proxy Statement. Further, we consent to the use of our firm's name and
references to this opinion in such Prospectus and Proxy Statement, with
such uses and references being subject to our prior approval.
Sincerely,
/S/ RONEY & CO.
RONEY & CO.
B-6
APPENDIX C
MICHIGAN BUSINESS CORPORATION ACT
SECTIONS 761-774, AS AMENDED
450.1761 DEFINITIONS.
Sec. 761. As used in sections 762 to 774:
(a) "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving corporation by merger of that
issuer.
(c) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 762 and who exercises that right when and
in the manner required by sections 764 through 772.
(d) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.
(e) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(f) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(g) "Shareholder" means the record or beneficial shareholder.
450.1762 RIGHT OF SHAREHOLDER TO DISSENT AND OBTAIN PAYMENT FOR SHARES.
Sec. 762. (1) A shareholder is entitled to dissent from, and obtain
payment of the fair value of his or her shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if shareholder approval is required for the merger by section 703a or
the articles of incorporation and the shareholder is entitled to vote on
the merger, or the corporation is a subsidiary that is merged with its
parent under section 711.
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution but not including a sale pursuant
to court order.
(d) An amendment of the articles giving rise to a right to dissent
pursuant to section 621.
(e) A transaction giving rise to a right to dissent pursuant to
section 754.
(f) Any corporate action taken pursuant to a shareholder vote to the
extent the articles, bylaws, or a resolution of the board provides that
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voting or nonvoting shareholders are entitled to dissent and obtain payment
for their shares.
(g) The approval of a control share acquisition giving rise to a right
to dissent pursuant to section 799.
(2) Unless otherwise provided in the articles, bylaws, or a resolution
of the board, a shareholder may not dissent from any of the following:
(a) Any corporate action set forth in subsection (1)(a) to (e) as to
shares which are listed on a national securities exchange or held of record
by not less than 2,000 persons on the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the meeting of
shareholders at which the corporate action is to be acted upon.
(b) A transaction described in subsection (1)(a) in which shareholders
receive cash or shares that satisfy the requirements of subdivision (a) or
any combination thereof.
(c) A transaction described in subsection (1)(b) in which shareholders
receive cash or shares that satisfy the requirements of subdivision (a) or
any combination thereof.
(d) A transaction described in subsection (1)(c) which is conducted
pursuant to a plan of dissolution providing for distribution of
substantially all of the corporation's net assets to shareholders in
accordance with their respective interests within 1 year after the date of
the transaction, where the transaction is for cash or shares that satisfy
the requirements of subdivision (a) or any combination thereof.
(3) A shareholder entitled to dissent and obtain payment for his or
her shares pursuant to subsection (1)(a) to (e) may not challenge the
corporate action creating his or her entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
(4) A shareholder who exercises his or her right to dissent and seek
payment for his or her shares pursuant to subsection (1)(f) may not
challenge the corporate action creating his or her entitlement unless the
action is unlawful or fraudulent with respect to the shareholder or the
corporation.
450.1763 RIGHTS OF PARTIAL DISSENTER; ASSERTION OF DISSENTERS' RIGHTS BY
BENEFICIAL SHAREHOLDER.
Sec. 763. (1) A record shareholder may assert dissenters' rights as to
fewer than all the shares registered in his or her name only if he or she
dissents with respect to all shares beneficially owned by any 1 person and
notifies the corporation in writing of the name and address of each person
on whose behalf he or she asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as
to which he or she dissents and his or her other shares were registered in
the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his or her behalf only if all of the following apply:
(a) He or she submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights.
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(b) He or she does so with respect to all shares of which he or she is
the beneficial shareholder or over which he or she has power to direct the
vote.
450.1764 CORPORATE ACTION CREATING DISSENTERS' RIGHTS; VOTE OF
SHAREHOLDERS; NOTICE.
Sec. 764. (1) If proposed corporate action creating dissenters' rights
under section 762 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to
assert dissenters' rights under this act and shall be accompanied by a copy
of sections 761 to 774.
(2) If corporate action creating dissenters' rights under section 762
is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in section
766. A shareholder who consents to the corporate action is not entitled to
assert dissenters' rights.
450.1765 NOTICE OF INTENT TO DEMAND PAYMENT FOR SHARES.
Sec. 765. (1) If proposed corporate action creating dissenters' rights
under section 762 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights must deliver to the
corporation before the vote is taken written notice of his or her intent to
demand payment for his or her shares if the proposed action is effectuated
and must not vote his or her shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) is not entitled to payment for his or her shares under this act.
450.1766 DISSENTERS' NOTICE; DELIVERY TO SHAREHOLDERS; CONTENTS.
Sec. 766. (1) If proposed corporate action creating dissenters' rights
under section 762 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of section 765.
(2) The dissenters' notice must be sent no later than 10 days after
the corporate action was taken, and must provide all of the following:
(a) State where the payment demand must be sent and where and when
certificates for shares represented by certificates must be deposited.
(b) Inform holders of shares without certificates to what extent
transfer of the shares will be restricted after the payment demand is
received.
(c) Supply a form for the payment demand that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether he or she acquired beneficial ownership
of the shares before the date.
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the subsection (1) notice is delivered.
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450.1767 DUTIES OF SHAREHOLDER SENT DISSENTER'S NOTICE; RETENTION OF
RIGHTS; FAILURE TO DEMAND PAYMENT OR DEPOSIT SHARE CERTIFICATES.
Sec. 767. (1) A shareholder sent a dissenter's notice described in
section 766 must demand payment, certify whether he or she acquired
beneficial ownership of the shares before the date required to be set forth
in the dissenters' notice pursuant to section 766(2)(c), and deposit his or
her certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits his or her share
certificates under subsection (1) retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(3) A shareholder who does not demand payment or deposit his or her
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his or her shares under this act.
450.1768 RESTRICTION ON TRANSFER OF SHARES WITHOUT CERTIFICATES; RETENTION
OF RIGHTS.
Sec. 768. (1) The corporation may restrict the transfer of shares
without certificates from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released
under section 770.
(2) The person for whom dissenters' rights are asserted as to shares
without certificates retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
450.1769 PAYMENT BY CORPORATION TO DISSENTER; ACCOMPANYING DOCUMENTS.
Sec. 769. (1) Except as provided in section 771, within 7 days after
the proposed corporate action is taken or a payment demand is received,
whichever occurs later, the corporation shall pay each dissenter who
complied with section 767 the amount the corporation estimates to be the
fair value of his or her shares, plus accrued interest.
(2) The payment must be accompanied by all of the following:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and if available the latest interim financial statements.
(b) A statement of the corporation's estimate of the fair value of the
shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand payment under
section 772.
450.1770 RETURN OF DEPOSITED CERTIFICATES AND RELEASE OF TRANSFER
RESTRICTIONS; EFFECT OF CORPORATION TAKING PROPOSED ACTION.
Sec. 770. (1) If the corporation does not take the proposed action
within 60 days after the date set for demanding payment and depositing
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share certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on shares without
certificates.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 766 and repeat the payment demand
procedure.
450.1771 ELECTION TO WITHHOLD PAYMENT FROM DISSENTER; OFFER TO PAY
ESTIMATED FAIR VALUE OF SHARES, PLUS ACCRUED INTEREST; STATEMENTS;
EXPLANATION.
Sec. 771. (1) A corporation may elect to withhold payment required by
section 769 from a dissenter unless he or she was the beneficial owner of
the shares before the date set forth in the dissenters' notice pursuant to
section 766(2)(c).
(2) To the extent the corporation elects to withhold payment under
subsection (1), after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who shall agree to accept it in
full satisfaction of his or her demand. The corporation shall send with
its offer a statement of its estimate of the fair value of the shares, an
explanation of how the interest was calculated, and a statement of the
dissenter's right to demand payment under section 772.
450.1772 DEMAND FOR PAYMENT OF DISSENTER'S ESTIMATE OR REJECTION OF
CORPORATION'S OFFER AND DEMAND FOR PAYMENT OF FAIR VALUE AND INTEREST DUE;
WAIVER.
Sec. 772. (1) A dissenter may notify the corporation in writing of his
or her own estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any payment
under section 769, or reject the corporation's offer under section 771 and
demand payment of the fair value of his or her shares and interest due, if
any 1 of the following applies:
(a) The dissenter believes that the amount paid under section 769 or
offered under section 771 is less than the fair value of his or her shares
or that the interest due is incorrectly calculated.
(b) The corporation fails to make payment under section 769 within 60
days after the date set for demanding payment.
(c) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on shares without certificates within 60 days after the date set
for demanding payment.
(2) A dissenter waives his or her right to demand payment under this
section unless he or she notifies the corporation of his or her demand in
writing under subsection (1) within 30 days after the corporation made or
offered payment for his or her shares.
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450.1773 PETITIONING COURT TO DETERMINE FAIR VALUE OF SHARES AND ACCRUED
INTEREST; FAILURE OF CORPORATION TO COMMENCE PROCEEDING; VENUE; PARTIES;
SERVICE; JURISDICTION; APPRAISERS; DISCOVERY RIGHTS; JUDGMENT.
Sec. 773. (1) If a demand for payment under section 772 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not
commence the proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court
of the county in which the corporation's principal place of business or
registered office is located. If the corporation is a foreign corporation
without a registered office or principal place of business in this state,
it shall commence the proceeding in the county in this state where the
principal place of business or registered office of the domestic
corporation whose shares are to be valued was located.
(3) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be
served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) is plenary and exclusive. The court may appoint 1 or
more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in
the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil
proceedings.
(5) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value of
his or her shares, plus interest, exceeds the amount paid by the
corporation or for the fair value, plus accrued interest, of his or her
after-acquired shares for which the corporation elected to withhold payment
under section 771.
450.1773A REFEREE; APPOINTMENT; POWERS; COMPENSATION; DUTIES; OBJECTIONS
TO REPORT; APPLICATION TO COURT FOR ACTION; ADOPTION, MODIFICATION, OR
RECOMMITMENT OF REPORT; FURTHER EVIDENCE; JUDGMENT; REVIEW.
Sec. 773a. (1) In a proceeding brought pursuant to section 773, the
court may, pursuant to the agreement of the parties, appoint a referee
selected by the parties and subject to the approval of the court. The
referee may conduct proceedings within the state, or outside the state by
stipulation of the parties with the referee's consent, and pursuant to the
Michigan court rules. The referee shall have powers that include, but are
not limited to, the following:
(a) To hear all pretrial motions and submit proposed orders to the
court. In ruling on the pretrial motion and proposed orders, the court
shall consider only those documents, pleadings, and arguments that were
presented to the referee.
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(b) To require the production of evidence, including the
production of all books, papers, documents, and writings applicable to the
proceeding, and to permit entry upon designated land or other property in
the possession or control of the corporation.
(c) To rule upon the admissibility of evidence pursuant to the
Michigan rules of evidence.
(d) To place witnesses under oath and to examine witnesses.
(e) To provide for the taking of testimony by deposition.
(f) To regulate the course of the proceeding.
(g) To issue subpoenas, when a written request is made by any of
the parties, requiring the attendance and testimony of any witness and the
production of evidence including books, records, correspondence, and
documents in the possession of the witness or under his or her control, at
a hearing before the referee or at a deposition convened pursuant to
subdivision (e). In case of a refusal to comply with a subpoena, the party
on whose behalf the subpoena was issued may file a petition in the court
for an order requiring compliance.
(2) The amount and manner of payment of the referee's compensation
shall be determined by agreement between the referee and the parties,
subject to the court's allocation of compensation between the parties at
the end of the proceeding pursuant to equitable principles, notwithstanding
section 774.
(3) The referee shall do all of the following:
(a) Make a record and reporter's transcript of the proceeding.
(b) Prepare a report, including proposed findings of fact and
conclusions of law, and a recommended judgment.
(c) File the report with the court, together with all original
exhibits and the reporter's transcript of the proceeding.
(4) Unless the court provides for a longer period, not more than
45 days after being served with notice of the filing of the report
described in subsection (3), any party may serve written objections to the
report upon the other party. Application to the court for action upon the
report and objections to the report shall be made by motion upon notice.
The court, after hearing, may adopt the report, may receive further
evidence, may modify the report, or may recommit the report to the referee
with instructions. Upon adoption of the report, judgment shall be entered
in the same manner as if the action had been tried by the court and shall
be subject to review in the same manner as any other judgment of the court.
450.1774 COSTS OF APPRAISAL PROCEEDING.
Sec. 774. (1) The court in an appraisal proceeding commenced under
section 773 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court.
The court shall assess the costs against the corporation, except that the
court may assess costs against all or some of the dissenters, in amounts
the court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously, or not in good faith in demanding payment
under section 772.
C-7
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable in
the following manner:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sections 764 through 772.
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this act.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and
that the fees for those services should not be assessed against the
corporation, the court may award to those counsel reasonable fees paid out
of the amounts awarded the dissenters who were benefited.
C-8
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Valley Ridge's Bylaws require indemnification of Valley Ridge's
directors, officers, employees and agents and persons who serve or have
served at the request of Valley Ridge as directors, officers, employees,
agents or partners of another corporation or other enterprise to the
fullest extent currently permitted by the MBCA. In addition, the Restated
Articles of Incorporation of Valley Ridge after the Merger would require
Valley Ridge to indemnify a present or former director or officer of Valley
Ridge, and permit Valley Ridge to indemnify any other person, to the
fullest extent now or in the future permitted by law in connection with any
actual or threatened civil, criminal, administrative or investigative
action, suit or proceeding arising out of his or her past or future service
to Valley Ridge, or to another organization at the request of Valley Ridge.
The following is a summary of the applicable provisions of the MBCA.
Sections 561 through 571 of the MBCA contain provisions governing the
indemnification of directors and officers by Michigan corporations. That
statute provides that a corporation has the power to indemnify a person who
was or is a party or is threatened to be made a party to a threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (other than
an action by or in the right of the corporation) by reason of the fact that
he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other
enterprise, whether for profit or not, against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with the action, suit or proceeding, if the person acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation or its shareholders, and with respect to
a criminal action or proceeding, if the person had no reasonable cause to
believe his or her conduct was unlawful. The termination of an action,
suit or proceeding by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he or she reasonably believed to be in or not opposed to the best interests
of the corporation or its shareholders, and, with respect to a criminal
action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Indemnification of expenses (including attorneys' fees) and amounts
paid in settlement is permitted in derivative actions, except that
indemnification is not allowed for any claim, issue or matter in which such
person has been found liable to the corporation unless and to the extent
II - 1
that a court decides indemnification is proper. To the extent that any
such person has been successful on the merits or otherwise in defense of an
action, suit or proceeding, or in defense of a claim, issue or matter in
the action, suit or proceeding, he or she shall be indemnified against
actual and reasonable expenses (including attorneys' fees) incurred by him
or her in connection with the action, suit or proceeding, and any action,
suit or proceeding brought to enforce the mandatory indemnification
provided under the MBCA. The MBCA permits partial indemnification for a
portion of expenses (including reasonable attorneys' fees), judgments,
penalties, fines and amounts paid in settlement to the extent the person is
entitled to indemnification for less than the total amount.
A determination that the person to be indemnified meets the applicable
standard of conduct and an evaluation of the reasonableness of the expenses
incurred and amounts paid in settlement shall be made by a majority vote of
a quorum of the board of directors who are not parties or threatened to be
made parties to the action, suit or proceeding, by a majority vote of a
committee of not less than 2 disinterested directors, by independent legal
counsel, by all "independent directors" not parties or threatened to be
made parties to the action, suit or proceeding, or by the shareholders.
Under the MBCA, a corporation may pay or reimburse the reasonable
expenses incurred by a director, officer, employee or agent who is a party
or threatened to be made a party to an action, suit or proceeding in
advance of final disposition of the proceeding if (i) the person furnishes
the corporation a written affirmation of his or her good faith belief that
he or she has met the applicable standard of conduct, and (ii) the person
furnishes the corporation a written undertaking to repay the advance if it
is ultimately determined that he or she did not meet the standard of
conduct, which undertaking need not be secured.
The indemnification provisions of the MBCA are not exclusive of the
rights to indemnification under a corporation's articles of incorporation
or bylaws or by agreement. However, the total amount of expenses advanced
or indemnified from all sources combined may not exceed the amount of
actual expenses incurred by the person seeking indemnification or
advancement of expenses. The indemnification provided for under the MBCA
continues as to a person who ceases to be a director, officer, employee or
agent.
The MBCA permits Valley Ridge to purchase insurance on behalf of its
directors, officers, employees and agents against liabilities arising out
of their positions with Valley Ridge, whether or not such liabilities would
be within the above indemnification provisions. Pursuant to this
authority, Valley Ridge maintains such insurance on behalf of its
directors, officers and employees.
II - 2
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following exhibits are filed as part of this
Registration Statement:
NUMBER EXHIBIT
2 AGREEMENT AND PLAN OF MERGER. Attached as Appendix A to the
Prospectus and Proxy Statement.
3(a) ARTICLES OF INCORPORATION.
3(b) BYLAWS AND AMENDMENTS.
4(a) FORM OF STOCK CERTIFICATE.
4(b) EXCERPTS FROM ARTICLES OF INCORPORATION. (Included as
Exhibit 3(a).)
4(c) EXCERPTS FROM BYLAWS. (Included as Exhibit 3(b).)
4(d) LONG-TERM DEBT. Valley Ridge is a party to several long-
term debt agreements which at the time of this Registration
Statement do not exceed 10% of Valley Ridge's total
consolidated assets. Valley Ridge agrees to furnish copies
of the agreements defining the rights of the other parties
thereto to the Securities and Exchange Commission upon
request.
5 OPINION OF COUNSEL REGARDING THE LEGALITY OF THE SECURITIES
BEING REGISTERED.
8 OPINION OF COUNSEL REGARDING CERTAIN TAX MATTERS.
10(a) DATA PROCESSING AGREEMENT.
10(b) VALLEY RIDGE EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST.
10(c) KENT CITY STATE BANK PROFIT SHARING/401(K) PLAN.
10(d) DIRECTORS' DEFERRED COMPENSATION PLAN AND FORM OF DIRECTORS'
DEFERRED COMPENSATION AGREEMENT.
10(e) LEASE AGREEMENT FOR SPARTA OFFICE.
21 SUBSIDIARIES OF THE REGISTRANT.
23(a) CONSENT OF COUNSEL. (Included in Exhibit 5.)
II - 3
NUMBER EXHIBIT
23(b) CONSENT OF INDEPENDENT ACCOUNTANTS (VALLEY RIDGE FINANCIAL
STATEMENTS).
23(c) CONSENT OF INDEPENDENT ACCOUNTANTS (COMMUNITY FINANCIAL
STATEMENTS).
23(d) CONSENT OF RONEY & CO. (Included in Appendix B to the
Prospectus and Proxy Statement.)
23(e) CONSENT OF COUNSEL.
24 POWERS OF ATTORNEY.
99(a) VALLEY RIDGE PRESIDENT'S LETTER.
99(b) FORM OF PROXY FOR VALLEY RIDGE.
99(c) COMMUNITY PRESIDENT'S LETTER.
99(d) FORM OF PROXY FOR COMMUNITY.
(b) FINANCIAL STATEMENT SCHEDULES. Financial statement schedules
have been omitted because they are not applicable.
(c) FAIRNESS OPINION. The opinions of Roney & Co. appears as
Appendix B to the Prospectus and Proxy Statement.
II - 4
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(A) Include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended
("Securities Act").
(B) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the registration statement.
(C) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions,
or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of
the small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
Prospectus and Proxy Statement pursuant to Item 4, 10(b), 11 or 13 of this
II - 5
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(d) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the Registration Statement when it became effective.
II - 6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 3 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Kent City, State of Michigan, on May 8, 1996.
VALLEY RIDGE FINANCIAL CORP.
(Registrant)
By /S/ RICHARD L. EDGAR
Richard L. Edgar
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
May 8, 1996 *_______________________________________
Jerome B. Arends
Chairman of the Board and Director
May 8, 1996 *_______________________________________
K. Timothy Bull
Director
May 8, 1996 /S/ RICHARD L. EDGAR
Richard L. Edgar
President, Chief Executive Officer and
Director (Principal Executive Officer)
May 8, 1996 *_______________________________________
Gary Gust
Director
May 8, 1996 *_______________________________________
Robert C. Humphreys
Chairman of the Board and Director
May 8, 1996 /S/ MICHAEL E. MCHUGH
Michael E. McHugh
Secretary and Treasurer and Director
(Principal Financial and Accounting
Officer)
May 8, 1996 *_______________________________________
John J. Niederer
Director
May 8, 1996 *_______________________________________
Paul K. Spoelman
Director
May 8, 1996 *_______________________________________
Donald Swanson
Director
*By /S/ RICHARD L. EDGAR
Richard L. Edgar
Attorney-in-Fact
EXHIBIT INDEX
NUMBER EXHIBIT
2* AGREEMENT AND PLAN OF MERGER. Attached as Appendix
A to the Prospectus and Proxy Statement.
3(a)* ARTICLES OF INCORPORATION.
3(b)* BYLAWS AND AMENDMENTS.
4(a)* FORM OF STOCK CERTIFICATE.
4(b)* EXCERPTS FROM ARTICLES OF INCORPORATION.
(Included as Exhibit 3(a).)
4(c)* EXCERPTS FROM BYLAWS. (Included as Exhibit 3(b).)
4(d)* LONG-TERM DEBT. Valley Ridge is a party to several
long-term debt agreements which at the time of this
Registration Statement do not exceed 10% of Valley
Ridge's total consolidated assets. Valley Ridge
agrees to furnish copies of the agreements defining
the rights of the other parties thereto to the
Securities and Exchange Commission upon request.
5* OPINION OF COUNSEL REGARDING THE LEGALITY OF THE
SECURITIES BEING REGISTERED.
8* OPINION OF COUNSEL REGARDING CERTAIN TAX MATTERS.
10(a)* DATA PROCESSING AGREEMENT.
10(b)* VALLEY RIDGE EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST.
10(c)* KENT CITY STATE BANK PROFIT SHARING/401(K) PLAN.
10(d)* DIRECTORS' DEFERRED COMPENSATION PLAN AND FORM OF
DIRECTORS' DEFERRED COMPENSATION AGREEMENT.
10(e)* LEASE AGREEMENT FOR SPARTA OFFICE.
21* SUBSIDIARIES OF THE REGISTRANT.
23(a)* CONSENT OF COUNSEL. (Included in Exhibit 5.)
23(b) CONSENT OF INDEPENDENT ACCOUNTANTS (VALLEY RIDGE
FINANCIAL STATEMENTS).
EXHIBIT INDEX
(Continued)
NUMBER EXHIBIT
23(c) CONSENT OF INDEPENDENT ACCOUNTANTS (COMMUNITY
FINANCIAL STATEMENTS).
23(d)* CONSENT OF RONEY & CO. (Included in Appendix B
to the Prospectus and Proxy Statement.)
23(e)* CONSENT OF COUNSEL.
24* POWERS OF ATTORNEY.
99(a) VALLEY RIDGE PRESIDENT'S LETTER.
99(b) FORM OF PROXY FOR VALLEY RIDGE.
99(c) COMMUNITY PRESIDENT'S LETTER.
99(d) FORM OF PROXY FOR COMMUNITY.
_________________________
* Previously filed.
FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are not
applicable.
FAIRNESS OPINION
The opinions of Roney & Co. appear as Appendix B to the Prospectus and
Proxy Statement.
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of Valley Ridge
Financial Corporation on Form S-4 of our report dated January 12, 1996, on
the consolidated financial statements of Valley Ridge Financial Corporation
as of December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995. We also consent to the reference to us
under the heading "Experts" in the Proxy Statement/Prospectus, which is
part of this Registration Statement.
/S/ CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
May 8, 1996
EXHIBIT 23(c)
GAVIGAN BURKHART FREEMAN & CO. [LOGO]
CERTIFIED PUBLIC ACCOUNTANTS
THOMAS H. GAVIGAN, C.P.A. 1935-1995
ROBERT D. BURKHART, C.P.A.
GEORGE J. FREEMAN, JR. C.P.A.
WARREN W. CLINE, III, C.P.A.
DENNIS L. BOGARD, C.P.A.
MARK G. GODEK C.P.A.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of Valley Ridge
Financial Corporation on Form S-4 of our report dated January 17, 1996,
included herein, on the consolidated financial statements of Community Bank
Corporation as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995. We also consent to the
reference to us under the heading Experts in the Proxy
Statement/Prospectus, which is part of this Registration Statement.
/S/ GAVIGAN BURKHART FREEMAN & CO PLLC
Gavigan Burkhart Freeman & Co., P.L.L.C.
May 8, 1996
Traverse City, Michigan
Offices:
1010 SOUTH GARFIELD
TRAVERSE CITY,
MICHIGAN 49686
(616) 947-7800
(616) 947-0348 FAX
Also:
1999 Walden Drive
Gaylord,
Michigan 49735
(517) 732-1000
(517) 732-5698 FAX
[LETTERHEAD] EXHIBIT 99(a)
May 20, 1996
Dear Shareholder:
You are invited to attend a Special Meeting of Shareholders of Valley Ridge
Financial Corp. at 3:00 p.m. on June 25, 1996, at the Tyrone Township Hall,
43 South Main Street, Kent City, Michigan, to vote on an Agreement and Plan
of Merger under which Community Bank Corporation, the parent company of The
Grant State Bank, would be merged into Valley Ridge.
Complete details of the proposed merger are set forth in the enclosed
materials. We urge you to read these materials carefully so that you may
be fully informed about the proposed merger.
If the Plan of Merger is approved and the merger occurs, Community would be
merged with and into Valley Ridge, and The Grant State Bank would become a
subsidiary of Valley Ridge. Each Community shareholder would receive
shares of Valley Ridge Common Stock in exchange for shares of Community
Common Stock. Valley Ridge Common Stock held by Valley Ridge shareholders
before the merger would remain outstanding after the merger.
The Plan of Merger must be adopted by the holders of a majority of the
outstanding shares of both Valley Ridge and Community, and is contingent
upon regulatory approvals and certain other conditions.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. Please
send in your Proxy even if you intend to be present at the meeting in
person. You may revoke your Proxy at or prior to the meeting if you wish
to vote in person. If you specify a choice, the shares represented by your
Proxy will be voted as specified. If no specification is made, the shares
represented by the Proxy will be voted for approval of the Plan of Merger.
The Board of Directors of Valley Ridge has given full and careful
consideration to the proposed merger, has concluded that it is in the best
interests of Valley Ridge and its shareholders, and has voted unanimously
to adopt the Plan of Merger.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE PLAN
OF MERGER.
Sincerely,
s/ Richard L. Edgar
Richard L. Edgar
President
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY.
EXHIBIT 99(b)
PROXY
VALLEY RIDGE FINANCIAL CORP.
SPECIAL MEETING OF SHAREHOLDERS
JUNE 25, 1996
The undersigned appoints Richard L. Edgar and Michael E. McHugh, or
either of them, attorneys and proxies of the undersigned, each with full
power of substitution, to vote all shares of the undersigned in Valley
Ridge Financial Corp. at the special meeting of its shareholders to be held
on June 25, 1996, and at any adjournment thereof:
1. FOR AGAINST ABSTAIN Approval of an Agreement and Plan of
( ) ( ) ( ) Merger contained and described in the
Prospectus and Proxy Statement dated
(YOUR BOARD OF DIRECTORS May 13, 1996
RECOMMENDS A VOTE "FOR"
THIS PROPOSAL)
2. As said Proxies in their discretion may determine upon all other
matters that may be presented at the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF VALLEY RIDGE
FINANCIAL CORP. IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED
BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS
WHICH MAY COME BEFORE THE MEETING.
Please sign exactly as your name(s) appear(s) below. Joint owners should
each sign personally. Executors, administrators, trustees and persons
signing for corporations or partnerships should so indicate and include
title.
Dated: ________________________, 1996
X____________________________________
X____________________________________
X____________________________________
Signatures of Shareholders
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
[LETTERHEAD] EXHIBIT 99(c)
May 20, 1996
Dear Shareholder:
You are invited to attend a Special Meeting of Shareholders of Community
Bank Corporation at 10:00 a.m. on June 25, 1996, at the main office of The
Grant State Bank, 10 West Main Street, Grant, Michigan, to vote on an
Agreement and Plan of Merger under which Community would be merged into
Valley Ridge Financial Corp., the parent company of Kent City State Bank.
Complete details of the proposed merger are set forth in the enclosed
materials. We urge you to read these materials carefully so that you may
be fully informed about the proposed merger.
If the Plan of Merger is approved and the merger occurs, Community would be
merged with and into Valley Ridge, and The Grant State Bank would become a
subsidiary of Valley Ridge. Each Community shareholder would receive
shares of Valley Ridge Common Stock in exchange for shares of Community
Common Stock. The number of shares of Valley Ridge Common Stock to be
issued for each share of Community Common Stock would be based upon a
conversion ratio determined by dividing the "Community Adjusted Book Value
Per Share" (as defined in the Plan of Merger), multiplied by 1.20, by the
"Valley Ridge Adjusted Book Per Share" (as defined in the Plan of Merger).
If the merger had been consummated based on balance sheets as of December
31, 1995, the estimated conversion ratio would have been 1.5726 shares of
Valley Ridge Common Stock for each share Community Common Stock.
Valley Ridge Common Stock held by Valley Ridge shareholders before the
merger would remain outstanding after the merger.
The Plan of Merger must be adopted by the holders of a majority of the
outstanding shares of both Valley Ridge and Community, and is contingent
upon regulatory approvals and certain other conditions.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. Please
send in your Proxy even if you intend to be present at the meeting in
person. You may revoke your Proxy at or prior to the meeting if you wish
to vote in person. If you specify a choice, the shares represented by your
Proxy will be voted as specified. If no specification is made, the shares
represented by the Proxy will be voted for approval of the Plan of Merger.
The Board of Directors of Community has given full and careful
consideration to the proposed merger, has concluded that it is in the best
interests of Community and its shareholders, and has voted unanimously to
adopt the Plan of Merger.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE PLAN
OF MERGER.
Sincerely,
s/ Ronald L. Hansen
Ronald L. Hansen
Secretary
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY.
EXHIBIT 99(d)
PROXY
COMMUNITY BANK CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
JUNE 25, 1996
The undersigned appoints Elmo L. Campbell, Ronald L. Hansen and Donald
VanSingel, or any of them, attorneys and proxies of the undersigned, each
with full power of substitution, to vote all shares of the undersigned in
Community Bank Corporation at the special meeting of its shareholders to be
held on June 25, 1996, and at any adjournment thereof:
1. FOR AGAINST ABSTAIN Approval of an Agreement and Plan of
( ) ( ) ( ) Merger contained and described in the
Prospectus and Proxy Statement dated
(YOUR BOARD OF DIRECTORS May 13, 1996.
RECOMMENDS A VOTE "FOR"
THIS PROPOSAL)
2. As said Proxies in their discretion may determine upon all other
matters that may be presented at the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF COMMUNITY BANK
CORPORATION. IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND
WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS WHICH
MAY COME BEFORE THE MEETING.
Please sign exactly as your name(s) appear(s) below. Joint owners should
each sign personally. Executors, administrators, trustees and persons
signing for corporations or partnerships should so indicate and include
title.
Dated: ________________________, 1996
X____________________________________
X____________________________________
X____________________________________
Signatures of Shareholders
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
